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OFFON

UNIVERSAL HEALTH SERVICES, INC.

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

05/07/2021 | 04:16pm EDT

Overview

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


As of March 31, 2021, we owned and/or operated 361 inpatient facilities and 39
outpatient and other facilities including the following located in 38 states,
Washington, D.C., the United Kingdom and Puerto Rico:

Acute care facilities located in the U.S.:

  • 26 inpatient acute care hospitals;


  • 17 free-standing emergency departments, and;


  • 6 outpatient centers & 1 surgical hospital.

Behavioral health care facilities (335 inpatient facilities and 15 outpatient facilities):


Located in the U.S.:

  • 186 inpatient behavioral health care facilities, and;


  • 12 outpatient behavioral health care facilities.

Located in the U.K.:

  • 146 inpatient behavioral health care facilities, and;


  • 3 outpatient behavioral health care facilities.

Located in Puerto Rico:

• 3 inpatient behavioral health care facilities.



As a percentage of our consolidated net revenues, net revenues from our acute
care hospitals, outpatient facilities and commercial health insurer accounted
for 56% and 54% during the three-month periods ended March 31, 2021 and 2020,
respectively. Net revenues from our behavioral health care facilities and
commercial health insurer accounted for 44% and 46% of our consolidated net
revenues during the three-month periods ended March 31, 2021 and 2020,
respectively.

Our behavioral health care facilities located in the U.K. generated net revenues
of approximately $165 million and $137 million during the three-month periods
ended March 31, 2021 and 2020, respectively. Total assets at our U.K. behavioral
health care facilities were approximately $1.355 billion as of March 31, 2021
and $1.334 billion as of December 31, 2020.

Services provided by our hospitals include general and specialty surgery,
internal medicine, obstetrics, emergency room care, radiology, oncology,
diagnostic care, coronary care, pediatric services, pharmacy services and/or
behavioral health services. We provide capital resources as well as a variety of
management services to our facilities, including central purchasing, information
services, finance and control systems, facilities planning, physician
recruitment services, administrative personnel management, marketing and public
relations.

Forward-Looking Statements and Risk Factors


You should carefully review the information contained in this Quarterly Report,
and should particularly consider any risk factors that we set forth in our
Annual Report on Form 10-K for the year ended December 31, 2020, this Quarterly
Report and in other reports or documents that we file from time to time with the
Securities and Exchange Commission (the "SEC"). In this Quarterly Report, we
state our beliefs of future events and of our future financial performance. This
Quarterly Report contains "forward-looking statements" that reflect our current
estimates, expectations and projections about our future results, performance,
prospects and opportunities. Forward-looking statements include, among other
things, the information concerning our possible future results of operations,
business and growth strategies, financing plans, expectations that regulatory
developments or other matters will not have a material adverse effect on our
business or financial condition, our competitive position and the effects of
competition, the projected growth of the industry in which we operate, and the
benefits and synergies to be obtained from our completed and any future
acquisitions, and statements of our goals and objectives, and other similar
expressions concerning matters that are not historical facts. Words such as
"may," "will," "should," "could," "would," "predicts," "potential," "continue,"
"expects," "anticipates," "future," "intends," "plans," "believes," "estimates,"
"appears," "projects" and similar expressions, as well as statements in future
tense, identify forward-looking statements. In evaluating those statements, you
should specifically consider various factors, including the risks related to
healthcare industry trends and those set forth in Item 1A. Risk Factors and Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations-Forward Looking Statements and Risk Factors in our Annual Report on
Form 10-K for the year ended December 31, 2020 ("Form 10-K") and in Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Forward Looking Statements and Risk Factors, as included herein.

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Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times at, or by which, such performance or results will be achieved.
Forward-looking information is based on information available at the time and/or
our good faith belief with respect to future events, and is subject to risks and
uncertainties that could cause actual performance or results to differ
materially from those expressed in the statements. Such factors include, among
other things, the following:



    •   we are subject to risks associated with public health threats and
        epidemics, including the health concerns relating to the COVID-19

pandemic. In January 2020, the Centers for Disease Control and Prevention

("CDC") confirmed the spread of the disease to the United States. In

March 2020, the World Health Organization declared the COVID-19 outbreak a

        pandemic. The federal government has declared COVID-19 a national
        emergency, as many federal and state authorities have implemented
        aggressive measures to "flatten the curve" of confirmed individuals
        diagnosed with COVID-19 in an attempt to curtail the spread of the virus
        and to avoid overwhelming the health care system;

• the COVID-19 pandemic has adversely impacted and is likely to further

adversely impact us, our employees, our patients, our vendors and supply

chain partners, and financial institutions, which could continue to have a

material adverse effect on our business, results of operations and

financial condition. In an effort to slow the spread of the disease, since

March, 2020, at various times, most state and local governments mandated

general "shelter-in-place" orders or other similar restrictions that

require or strongly encourage social distancing and, face coverings, and

        that have closed or limited non-essential business activities. Some of
        these restrictions remain in place. Additionally, evidence suggests that
        individuals may be deciding to forego medical care delivered in
        traditional venues. These dynamics have manifested themselves in our
        hospitals in, among other ways, reduced emergency room visits,

elective/scheduled procedures and acute and behavioral health patient

days. While such measures are expected to assist in responding to the

recent outbreak, self-quarantines, shelter-in-place orders, and suspension

of voluntary procedures and surgeries have had, and will likely continue

to have, an adverse impact on the operations and financial position of

health care provider systems due to increased costs (including labor costs

which have been pressured during the COVID-19 pandemic due to a shortage

of clinicians and increased wage rates resulting from increased demand for

those services), actual reduction and potential reduction in overall

patient volume, and shifts in payor mix. Despite these measures, there

have been waves of escalated COVID-19 cases at various times, including

the fourth quarter of 2020 and into the first quarter of 2021, in many

states in the U.S., including many states in which we operate hospitals.

The COVID-19 vaccination process commenced during the first quarter of

2021 and, while we expect that the administration of vaccines will assist

        in easing the number of COVID-19 patients, the pace of distribution and
        the portion of the population that ultimately become vaccinated is
        difficult to predict. The extent to which the COVID-19 pandemic and
        measures taken in response thereto impact our business, results of
        operations and financial condition will depend on numerous factors and

future developments, most of which are beyond our control or ability to

predict. The ultimate impact of the COVID-19 pandemic is highly uncertain

        and subject to change. We are not able to fully quantify the impact that
        these factors will have on our future financial results, but expect
        developments related to the COVID-19 pandemic to materially affect our
        financial performance in 2021. Even after the COVID-19 pandemic has

subsided, we may continue to experience materially adverse impacts on our

        financial condition and our results of operations as a result of its
        macroeconomic impact, including any recession that has occurred or may
        occur in the future, and many of our known risks described in the Risk
        Factors in our Form 10-K;

• the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"),

a stimulus package signed into law on March 27, 2020, authorizes $100

billion in grant funding to hospitals and other healthcare providers to be

        distributed through the Public Health and Social Services Emergency Fund
        (the "PHSSEF"). These funds are not required to be repaid provided the
        recipients attest to and comply with certain terms and conditions,
        including limitations on balance billing and not using PHSSEF funds to
        reimburse expenses or losses that other sources are obligated to

reimburse. However, since the expenses and losses will be ultimately

measured over the life of the COVID-19 pandemic, potential retrospective

unfavorable adjustments in future periods, of funds recorded as revenues

        in prior periods, could occur. The U.S. Department of Health and Human
        Services ("HHS") initially distributed $30 billion of this funding based

on each provider's share of total Medicare fee-for-service reimbursement

in 2019. Subsequently, HHS determined that CARES Act funding (including

the $30 billion already distributed) would be allocated proportional to

providers' share of 2018 net patient revenue. We have received payments

        from these initial distributions of the PHSSEF as disclosed herein. HHS
        has indicated that distributions of the remaining $50 billion will be
        targeted primarily to hospitals in COVID-19 high impact areas, to rural
        providers, safety net hospitals and certain Medicaid providers and to

reimburse providers for COVID-19 related treatment of uninsured patients.

We have received payments from these targeted distributions of the PHSSEF,

as disclosed herein. The CARES Act also makes other forms of financial

assistance available to healthcare providers, including through Medicare

and Medicaid payment adjustments and an expansion of the Medicare

Accelerated and Advance Payment Program, which made available accelerated

payments of Medicare funds in order to increase cash flow to providers. On

April 26, 2020, CMS announced it was reevaluating and temporarily

suspending the Accelerated and Advance Payment Program in light of the

availability of the PHSSEF and the significant funds available through

other programs. We have received accelerated payments under this program

        during 2020, and early returned all of those funds


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during the first quarter of 2021, as disclosed herein. The Paycheck

Protection Program and Health Care Enhancement Act (the "PPPHCE Act"), a

stimulus package signed into law on April 24, 2020, includes additional

emergency appropriations for COVID-19 response, including $75 billion to

be distributed to eligible providers through the PHSSEF. A third phase of

PHSSEF allocations made $24.5 billion available for providers who

previously received, rejected or accepted PHSSEF payments. Applicants that

had not yet received PHSSEF payments of 2 percent of patient revenue were

to receive a payment that, when combined with prior payments (if any),

equals 2 percent of patient care revenue. Providers that have already

received payments of approximately 2 percent of annual revenue from

patient care were potentially eligible for an additional payment. On

December 27, 2020, the Consolidated Appropriations Act, 2021 ("CAA") was

signed into law. The CAA appropriated an additional $3 billion to the

PHSSEF, codified flexibility for providers to calculate lost revenues, and

permitted parent organizations to allocate PHSSEF targeted distributions

to subsidiary organizations. The CAA also provides that not less than 85

percent of the unobligated PHSSEF amounts and any future funds recovered

from health care providers should be used for additional distributions

        that consider financial losses and changes in operating expenses in the
        third or fourth quarters of 2020 and the first quarter of 2021 that are

attributable to the coronavirus. The CAA provided additional funding for

testing, contact tracing and vaccine administration. Providers receiving

payments were required to sign terms and conditions regarding utilization

of the payments. Any provider receiving funds in excess of $10,000 in the

aggregate will be required to report data elements to HHS detailing

utilization of the payments. Providers will report healthcare related

expenses attributable to COVID-19 that have not been reimbursed by another

source, which may include general and administrative or healthcare related

operating expenses. Funds may also be applied to lost revenues,

represented as a negative change in year-over-year net patient care

operating income. All Provider Relief Fund payments must be expended by

June 30, 2021. The American Rescue Plan Act of 2021 ("ARPA"), adopted on

March 11, 2021, included funding directed at detecting, diagnosing,

tracing, and monitoring COVID-19 infections; establishing community

vaccination centers and mobile vaccine units; promoting, distributing, and

tracking COVID-19 vaccines; and reimbursing rural hospitals and facilities

for healthcare-related expenses and lost revenues attributable to

COVID-19. ARPA increased the eligibility for, and amount of, premium tax

credits to purchase health coverage through Patient Protection and

Affordable Care Act ("Legislation") exchanges. Further, ARPA set the

Medicaid program's federal medical assistance percentage ("FMAP") at 100

percent for amounts expended for COVID-19 vaccines and vaccine

administration. ARPA also increases the FMAP by 5 percent for eight

calendar quarters to incentivize states to expand their Medicaid

programs. Finally, ARPA provides subsidies to cover 100 percent of health

insurance premiums under the Consolidated Omnibus Budget Reconciliation

Act through September 30, 2021. Recipients will not be required to repay

the government for funds received, provided they comply with HHS-defined

terms and conditions. There is a high degree of uncertainty surrounding

the implementation of the CARES Act, the PPPHCE Act and ARPA, and the

federal government may consider additional stimulus and relief efforts,

but we are unable to predict whether additional stimulus measures will be

enacted or their impact. There can be no assurance as to the total amount

of financial and other types of assistance we will receive under the CARES

Act, the PPPHCE Act and the ARPA, and it is difficult to predict the

impact of such legislation on our operations or how they will affect

operations of our competitors. Moreover, we are unable to assess the

extent to which anticipated negative impacts on us arising from the

COVID-19 pandemic will be offset by amounts or benefits received or to be

received under the CARES Act, the PPPHCE Act and the ARPA;

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

and/or changes in laws and government regulations;

• an increasing number of legislative initiatives have been passed into law

        that may result in major changes in the health care delivery system on a
        national or state level. Legislation has already been enacted that has
        eliminated the penalty for failing to maintain health coverage that was

part of the original Legislation. President Biden is expected to undertake

executive actions that will strengthen the Legislation and may reverse the

policies of the prior administration. To date, the Biden administration

has issued executive orders implementing a special enrollment period

permitting individuals to enroll in health plans outside of the annual

open enrollment period and reexamining policies that may undermine the ACA

or the Medicaid program. The ARPA's expansion of subsidies to purchase

coverage through an exchange is anticipated to increase exchange

enrollment. The Trump Administration had directed the issuance of final

rules (i) enabling the formation of association health plans that would be

exempt from certain Legislation requirements such as the provision of

essential health benefits; (ii) expanding the availability of short-term,

limited duration health insurance, (iii) eliminating cost-sharing

reduction payments to insurers that would otherwise offset deductibles and

other out-of-pocket expenses for health plan enrollees at or below 250

percent of the federal poverty level; (iv) relaxing requirements for state

innovation waivers that could reduce enrollment in the individual and

small group markets and lead to additional enrollment in short-term,

limited duration insurance and association health plans, and; (v)

incentivizing the use of health reimbursement arrangements by employers to

permit employees to purchase health insurance in the individual market.

The uncertainty resulting from these Executive Branch policies had led to

reduced Exchange enrollment in 2018, 2019 and 2020. It is also anticipated

that these policies, to the extent that they remain as implemented, may

create additional cost and reimbursement pressures on hospitals, including

        ours. In addition, while attempts to repeal the entirety of the
        Legislation have not been successful to date, a key provision of the
        Legislation was eliminated as part of the Tax Cuts and Jobs Act and on

December 14, 2018, a federal U.S. District Court Judge in Texas ruled the

        entire Legislation is unconstitutional.


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That ruling was appealed and on December 18, 2019, the Fifth Circuit Court

of Appeals voted 2-1 to strike down the Legislation individual mandate as

        unconstitutional and sent the case back to the U.S. District Court in
        Texas to determine which Legislation provisions should be stricken with
        the mandate or whether the entire law is unconstitutional without the
        individual mandate. On March 2, 2020, the U.S. Supreme Court agreed to
        hear, during the 2020-2021 term, two consolidated cases, filed by the

State of California and the United States House of Representatives, asking

        the Supreme Court to review the ruling by the Fifth Circuit Court of
        Appeals. Oral argument was heard on November 10, 2020, and a ruling is

expected in 2021. In a February 10, 2021 letter to the Supreme Court, the

Department of Justice reversed its earlier position and stated that the

Legislation is constitutional. The Legislation will remain law while the

case proceeds through the appeals process; however, the case creates

        additional uncertainty as to whether any or all of the Legislation could
        be struck down, which creates operational risk for the health care
        industry. We are unable to predict the final outcome of this matter which
        has caused greater uncertainty regarding the future status of the
        Legislation. If all or any parts of the Legislation are ultimately found
        to be unconstitutional, it could have a material adverse effect on our
        business, financial condition and results of operations. See below in

Sources of Revenue and Health Care Reform for additional disclosure;

• under the Legislation, hospitals are required to make public a list of

their standard charges, and effective January 1, 2019, CMS has required

that this disclosure be in machine-readable format and include charges for

all hospital items and services and average charges for diagnosis-related

groups. On November 27, 2019, CMS published a final rule on "Price

Transparency Requirements for Hospitals to Make Standard Charges Public."

This rule took effect on January 1, 2021 and requires all hospitals to

also make public their payor-specific negotiated rates, minimum negotiated

rates, maximum negotiated rates, and cash for all items and services,

        including individual items and services and service packages, that could
        be provided by a hospital to a patient. Failure to comply with these
        requirements may result in daily monetary penalties;

• as part of the CAA, Congress passed legislation aimed at preventing or

        limiting patient balance billing in certain circumstances. The CAA
        addresses surprise medical bills stemming from emergency services,
        out-of-network ancillary providers at in-network facilities, and air
        ambulance carriers. The legislation prohibits surprise billing when
        out-of-network emergency services or out-of-network services at an

in-network facility are provided, unless informed consent is received. In

these circumstances providers are prohibited from billing the patient for

any amounts that exceed in-network cost-sharing requirements. The

legislation requires HHS, as well as the Department of the Treasury, and

        Department of Labor to issue implementing regulations within a year of
        enactment;

• possible unfavorable changes in the levels and terms of reimbursement for

our charges by third party payers or government based payers, including

Medicare or Medicaid in the United States, and government based payers in

the United Kingdom;

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

terms and the ability of our competitors to do the same, including

contracts with United/Sierra Healthcare in Las Vegas, Nevada. Effective

January, 2020, United/Sierra Healthcare in Las Vegas, entered into an

agreement with a competitor health system that was previously excluded

from their contractual network in the area. As a result, we believe that

our 6 acute care hospitals in the Las Vegas, Nevada market, will likely

experience a decline in patient volumes. However, we have entered into an

amended agreement with United/Sierra Healthcare related to our hospitals

in the Las Vegas market that provide for various rate increases beginning

        in January, 2020. Although we estimate that the unfavorable impact of the
        projected declines in patient volumes should be largely offset by the

favorable impact of the increased rates, we can provide no assurance that

these developments, as well as the effect of COVID-19 on the Las Vegas

market, will not have a material adverse impact on our future results of

operations;

• the outcome of known and unknown litigation, government investigations,

false claims act allegations, and liabilities and other claims asserted

against us and other matters as disclosed in Note 6 to the Consolidated

Financial Statements - Commitments and Contingencies and the effects of

adverse publicity relating to such matters;

• the unfavorable impact on our business of the deterioration in national,

regional and local economic and business conditions, including a worsening

of unfavorable credit market conditions;

• competition from other healthcare providers (including physician owned

facilities) in certain markets;

• technological and pharmaceutical improvements that increase the cost of

providing, or reduce the demand for healthcare;

• our ability to attract and retain qualified personnel, nurses, physicians

and other healthcare professionals and the impact on our labor expenses

resulting from a shortage of nurses and other healthcare professionals;


  • demographic changes;

• we experienced a cyberattack in September, 2020 that had an adverse effect

on our operating results during the fourth quarter of 2020. Although we

        can provide no assurance or estimation related to the amount of the
        ultimate insurance


                                       27

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proceeds that we may receive in connection with this incident, we believe

we are entitled to recovery of the majority of the unfavorable economic

impact of the cyberattack pursuant to a commercial insurance policy.

However, there is a heightened risk of future cybersecurity threats,

including ransomware attacks targeting healthcare providers. If

successful, future cyberattacks could have a material adverse effect on

our business. Any costs that we incur as a result of a data security

incident or breach, including costs to update our security protocols to

mitigate such an incident or breach could be significant. Any breach or

failure in our operational security systems can result in loss of data or

an unauthorized disclosure of or access to sensitive or confidential

member or protected personal or health information and could result in

significant penalties or fines, litigation, loss of customers, significant

damage to our reputation and business, and other losses;

• the availability of suitable acquisition and divestiture opportunities and

our ability to successfully integrate and improve our acquisitions since

failure to achieve expected acquisition benefits from certain of our prior

or future acquisitions could result in impairment charges for goodwill and

        purchased intangibles;


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

• as discussed below in Sources of Revenue, we receive revenues from various

state and county based programs, including Medicaid in all the states in

which we operate (we receive Medicaid revenues in excess of $100 million

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

Pennsylvania, Illinois, Kentucky and Massachusetts); CMS-approved Medicaid

supplemental programs in certain states including Texas, Mississippi,

Illinois, Oklahoma, Nevada, Arkansas, California and Indiana, and; state

        Medicaid disproportionate share hospital payments in certain states
        including Texas and South Carolina. We are therefore particularly
        sensitive to potential reductions in Medicaid and other state based
        revenue programs as well as regulatory, economic, environmental and

competitive changes in those states. We can provide no assurance that

reductions to revenues earned pursuant to these programs, and the effect

        of the COVID-19 pandemic on state budgets, particularly in the
        above-mentioned states, will not have a material adverse effect on our
        future results of operations;

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

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

• our inpatient acute care and behavioral health care facilities may

experience decreasing admission and length of stay trends;

• our financial statements reflect large amounts due from various commercial

and private payers and there can be no assurance that failure of the

payers to remit amounts due to us will not have a material adverse effect

on our future results of operations;

• the Budget Control Act of 2011 (the "2011 Act") imposed annual spending

        limits for most federal agencies and programs aimed at reducing budget
        deficits by $917 billion between 2012 and 2021, according to a report

released by the Congressional Budget Office. Among its other provisions,

the law established a bipartisan Congressional committee, known as the

Joint Select Committee on Deficit Reduction (the "Joint Committee"), which

was tasked with making recommendations aimed at reducing future federal

        budget deficits by an additional $1.5 trillion over 10 years. The Joint
        Committee was unable to reach an agreement by the November 23, 2011
        deadline and, as a result, across-the-board cuts to discretionary,
        national defense and Medicare spending were implemented on March 1, 2013

resulting in Medicare payment reductions of up to 2% per fiscal year with

a uniform percentage reduction across all Medicare programs. The

Bipartisan Budget Act of 2015, enacted on November 2, 2015, continued the

2% reductions to Medicare reimbursement imposed under the 2011 Act. Recent

legislation has suspended payment reductions through December 31, 2021 in

exchange for extended cuts through 2030. We cannot predict whether

Congress will restructure the implemented Medicare payment reductions or

what other federal budget deficit reduction initiatives may be proposed by

Congress going forward;

• uninsured and self-pay patients treated at our acute care facilities

        unfavorably impact our ability to satisfactorily and timely collect our
        self-pay patient accounts;


  • changes in our business strategies or development plans;


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

referendum in favor of the exit of the United Kingdom ("U.K.") from the

European Union (the "Brexit") and it was approved by vote of the British

legislature. On March 29, 2017, the United Kingdom triggered Article 50 of

the Lisbon Treaty, formally starting negotiations regarding its exit from

the European Union. On January 31, 2020, the U.K. formally exited the

European Union. On December 24, 2020, the United Kingdom and the European

Union reached a post-Brexit trade and cooperation agreement that created

new business and security requirements and preserved the United Kingdom's

        tariff- and quota-free access to the European Union member states. We do
        not know to what extent Brexit will ultimately impact the business and
        regulatory environment in the U.K., the European Union, or other
        countries. Any of these effects of Brexit, and others we cannot

anticipate, could harm our business, financial condition and results of

        operations;


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


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


Given these uncertainties, risks and assumptions, as outlined above, you are
cautioned not to place undue reliance on such forward-looking statements. Our
actual results and financial condition could differ materially from those
expressed in, or implied by, the forward-looking statements. Forward-looking
statements speak only as of the date the statements are made. We assume no
obligation to publicly update any forward-looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting
forward-looking information, except as may be required by law. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by this cautionary statement.

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the amounts reported in our consolidated financial
statements and accompanying notes. For a summary of our significant accounting
policies, please see Note 1 to the Consolidated Financial Statements as included
in our Annual Report on Form 10-K for the year ended December 31, 2020. We
consider our critical accounting policies to be those that require us to make
significant judgments and estimates when we prepare our financial statements,
including the following:

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

See Note 12 to the Consolidated Financial Statements-Revenue Recognition, for
additional disclosure related to our revenues including a disaggregation of our
consolidated net revenues by major source for each of the periods presented
herein.

Charity Care, Uninsured Discounts and Other Adjustments to Revenue:  Collection
of receivables from third-party payers and patients is our primary source of
cash and is critical to our operating performance. Our primary collection risks
relate to uninsured patients and the portion of the bill which is the patient's
responsibility, primarily co-payments and deductibles. We estimate our revenue
adjustments for implicit price concessions based on general factors such as
payer mix, the aging of the receivables and historical collection experience. We
routinely review accounts receivable balances in conjunction with these factors
and other economic conditions which might ultimately affect the collectability
of the patient accounts and make adjustments to our allowances as warranted. At
our acute care hospitals, third party liability accounts are pursued until all
payment and adjustments are posted to the patient account. For those accounts
with a patient balance after third party liability is finalized or accounts for
uninsured patients, the patient receives statements and collection letters.

Historically, a significant portion of the patients treated throughout our
portfolio of acute care hospitals are uninsured patients which, in part, has
resulted from patients who are employed but do not have health insurance or who
have policies with relatively high deductibles. Patients treated at our
hospitals for non-elective services, who have gross income of various amounts,
dependent upon the state, ranging from 200% to 400% of the federal poverty
guidelines, are deemed eligible for charity care. The federal poverty guidelines
are established by the federal government and are based on income and family
size. Because we do not pursue collection of amounts that qualify as charity
care, the transaction price is fully adjusted and there is no impact in our net
revenues or in our accounts receivable, net.

A portion of the accounts receivable at our acute care facilities are comprised
of Medicaid accounts that are pending approval from third-party payers but we
also have smaller amounts due from other miscellaneous payers such as county
indigent programs in certain states. Our patient registration process includes
an interview of the patient or the patient's responsible party at the time of
registration. At that time, an insurance eligibility determination is made and
an insurance plan code is assigned. There are various pre-established insurance
profiles in our patient accounting system which determine the expected insurance
reimbursement for each patient based on the insurance plan code assigned and the
services rendered. Certain patients may be classified as Medicaid pending at
registration based upon a screening evaluation if we are unable to definitively
determine if they are currently Medicaid eligible. When a patient is registered
as Medicaid-eligible or Medicaid-pending, our patient accounting system records
net revenues for services provided to that

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patient based upon the established Medicaid reimbursement rates, subject to the
ultimate disposition of the patient's Medicaid eligibility. When the patient's
ultimate eligibility is determined, reclassifications may occur which impacts
net revenues in future periods. Although the patient's ultimate eligibility
determination may result in adjustments to net revenues, these adjustments did
not have a material impact on our results of operations during the three-month
periods ended March 31, 2021 or 2020 since our facilities make estimates at each
financial reporting period to adjust revenue based on historical collections.

We also provide discounts to uninsured patients (included in "uninsured
discounts" amounts below) who do not qualify for Medicaid or charity
care. Because we do not pursue collection of amounts classified as uninsured
discounts, the transaction price is fully adjusted and there is no impact in our
net revenues or in our net accounts receivable. In implementing the discount
policy, we first attempt to qualify uninsured patients for governmental
programs, charity care or any other discount program. If an uninsured patient
does not qualify for these programs, the uninsured discount is applied.

The following tables show the amounts recorded at our acute care hospitals for
charity care and uninsured discounts, based on charges at established rates, for
the three-month periods ended March 31, 2021 and 2020:

Uncompensated care:

Amounts in millions                      Three Months Ended
                            March 31,                 March 31,
                                2021         %            2020         %
Charity care               $       167        39 %   $       202        32 %
Uninsured discounts                259        61 %           432        68 %
Total uncompensated care   $       426       100 %   $       634       100 %

Estimated cost of providing uncompensated care:


The estimated costs of providing uncompensated care as reflected below were
based on a calculation which multiplied the percentage of operating expenses for
our acute care hospitals to gross charges for those hospitals by the
above-mentioned total uncompensated care amounts. The percentage of cost to
gross charges is calculated based on the total operating expenses for our acute
care facilities divided by gross patient service revenue for those facilities.



                                                              Three Months Ended
                                                        March 31,             March 31,
Amounts in millions                                         2021                  2020
Estimated cost of providing charity care             $            18       $            23
Estimated cost of providing uninsured discounts
related care                                                      28                    48
Estimated cost of providing uncompensated care       $            46       $            71


Self-Insured/Other Insurance Risks: We provide for self-insured risks including
general and professional liability claims, workers' compensation claims and
healthcare and dental claims. Our estimated liability for self-insured
professional and general liability claims is based on a number of factors
including, among other things, the number of asserted claims and reported
incidents, estimates of losses for these claims based on recent and historical
settlement amounts, estimate of incurred but not reported claims based on
historical experience, and estimates of amounts recoverable under our commercial
insurance policies. All relevant information, including our own historical
experience is used in estimating the expected amount of claims. While we
continuously monitor these factors, our ultimate liability for professional and
general liability claims could change materially from our current estimates due
to inherent uncertainties involved in making this estimate. Our estimated
self-insured reserves are reviewed and changed, if necessary, at each reporting
date and changes are recognized currently as additional expense or as a
reduction of expense. In addition, we also: (i) own commercial health insurers
headquartered in Reno, Nevada, and Puerto Rico and; (ii) maintain self-insured
employee benefits programs for employee healthcare and dental claims. The
ultimate costs related to these programs/operations include expenses for claims
incurred and paid in addition to an accrual for the estimated expenses incurred
in connection with claims incurred but not yet reported. Given our significant
insurance-related exposure, there can be no assurance that a sharp increase in
the number and/or severity of claims asserted against us will not have a
material adverse effect on our future results of operations.

See Note 6 to the Consolidated Financial Statements-Commitments and Contingencies, for additional disclosure related to our professional and general liability, workers' compensation liability and property insurance.


The total accrual for our professional and general liability claims and workers'
compensation claims was $386 million as of March 31, 2021, of which $129 million
is included in current liabilities. The total accrual for our professional and
general liability claims and workers' compensation claims was $369 million as of
December 31, 2020, of which $129 million is included in current liabilities.

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


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Results of Operations



COVID-19

The impact of the COVID-19 pandemic, which began during the second half of
March, 2020, has had a material unfavorable effect on our operations and
financial results since that time. The COVID-19 vaccination process commenced
during the first quarter of 2021 and, while we expect the administration of
vaccines will assist in easing the number of COVID-19 patients, the pace of
distribution and the portion of the population that will ultimately become
vaccinated is difficult to predict. The extent to which the COVID-19 pandemic
and measures taken in response thereto impact our business, results of
operations and financial condition will depend on numerous factors and future
developments, most of which are beyond our control or ability to predict. The
ultimate impact of the COVID-19 pandemic is highly uncertain and subject to
change. We are not able to fully quantify the impact that these factors will
have on our future financial results.

2021 CARES Act Grants and Medicare Accelerated Payments Receipts/Disbursements:


During the first quarter of 2021, we received approximately $188 million of
additional funds from the federal government in connection with the CARES
Act. We expect to return the $188 million of funds to the appropriate government
agencies in May, 2021 utilizing a portion of our cash and cash equivalents held
on deposit. Since our intent was to return these funds, our results of
operations for the first quarter ended March 31, 2021 include no impact from the
receipt of the funds.

Also, and as previously announced earlier this year, in March of 2021 we funded
the early repayment of $695 million of funds received during 2020 pursuant to
the Medicare Accelerated and Advance Payment Program. These funds were returned
to the government utilizing a portion of our cash and cash equivalents held on
deposit.

Please see Sources of Revenue- 2019 Novel Coronavirus Disease Medicare and
Medicaid Payment Related Legislation below for additional disclosure regarding
funds received and related recognition of revenues in our results of operations
in connection with various governmental stimulus grant programs, most notably
the CARES Act.

Financial results for the three-month periods ended March 31, 2021 and 2020:

The following table summarizes our results of operations and is used in the discussion below for the three-month periods ended March 31, 2021 and 2020 (dollar amounts in thousands):

                                                Three months ended              Three months ended
                                                  March 31, 2021                  March 31, 2020
                                                             % of Net                        % of Net
                                              Amount         Revenues         Amount         Revenues
Net revenues                                $ 3,012,987          100.0 %    $ 2,829,667          100.0 %
Operating charges:
Salaries, wages and benefits                  1,497,773           49.7 %      1,432,669           50.6 %
Other operating expenses                        709,708           23.6 %        689,790           24.4 %
Supplies expense                                347,110           11.5 %        317,827           11.2 %
Depreciation and amortization                   131,403            4.4 %        124,394            4.4 %
Lease and rental expense                         31,324            1.0 %         28,293            1.0 %
Subtotal-operating expenses                   2,717,318           90.2 %      2,592,973           91.6 %
Income from operations                          295,669            9.8 %        236,694            8.4 %
Interest expense, net                            21,957            0.7 %         36,351            1.3 %
Other (income) expense, net                         835            0.0 %          9,560            0.3 %
Income before income taxes                      272,877            9.1 %        190,783            6.7 %
Provision for income taxes                       63,807            2.1 %         46,323            1.6 %
Net income                                      209,070            6.9 %        144,460            5.1 %
Less: Income attributable to
noncontrolling interests                            (21 )         (0.0 )%         2,423            0.1 %
Net income attributable to UHS              $   209,091            6.9 %    $   142,037            5.0 %




Net revenues increased 6.5%, or $183 million, to $3.01 billion during the
three-month period ended March 31, 2021 as compared to $2.83 billion during the
first quarter of 2020. The net increase was primarily attributable to: (i) a
$186 million or 6.7% increase in net revenues generated from our acute care
hospital services and behavioral health services operated during both periods
(which we refer to as "same facility"), and; (ii) $2 million of other combined
net decreases.

Income before income taxes (before deduction for income attributable to noncontrolling interests) increased $82 million to $273 million during the three-month period ended March 31, 2021 as compared to $191 million during the comparable quarter of 2020. The $82 million net increase was due to:

• an increase of $70 million at our acute care facilities, as discussed below

      in Acute Care Hospital Services;


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• a decrease of $6 million at our behavioral health care facilities, as

discussed below in Behavioral Health Services;

• an increase of $14 million due to a decrease in interest expense due

      primarily to a decrease in the average cost of borrowings, and;


  • $4 million of other combined net increases.


Net income attributable to UHS increased $67 million to $209 million during the
three-month period ended March 31, 2021 as compared to $142 million during the
comparable prior year quarter. This increase was attributable to:

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


   •  an increase of $2 million due to a decrease in income attributable to

noncontrolling interests, and;

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

income taxes due primarily to: (i) the income tax provision recorded in

connection with the $84 million increase in pre-tax income, partially offset

by; (ii) a $2 million decrease in the provision for income taxes recorded in

connection with our adoption of ASU 2016-09.

Acute Care Hospital Services

Same Facility Basis Acute Care Hospital Services


We believe that providing our results on a "Same Facility" basis (which is a
non-GAAP measure), which includes the operating results for facilities and
businesses operated in both the current year and prior year periods, is helpful
to our investors as a measure of our operating performance. Our Same Facility
results also neutralize (if applicable) the effect of items that are
non-operational in nature including items such as, but not limited to,
gains/losses on sales of assets and businesses, impacts of settlements, legal
judgments and lawsuits, impairments of long-lived and intangible assets and
other amounts that may be reflected in the current or prior year financial
statements that relate to prior periods.

Our Same Facility basis results reflected on the table below also exclude from
net revenues and other operating expenses, provider tax assessments incurred in
each period as discussed below Sources of Revenue-Various State Medicaid
Supplemental Payment Programs. However, these provider tax assessments are
included in net revenues and other operating expenses as reflected in the table
below under All Acute Care Hospital Services. The provider tax assessments had
no impact on the income before income taxes as reflected on the tables below
since the amounts offset between net revenues and other operating expenses. To
obtain a complete understanding of our financial performance, the Same Facility
results should be examined in connection with our net income as determined in
accordance with GAAP and as presented in the condensed consolidated financial
statements and notes thereto as contained in this Quarterly Report on Form
10-Q.

The following table summarizes the results of operations for our acute care
facilities on a same facility basis and is used in the discussion below for the
three-month periods ended March 31, 2021 and 2020 (dollar amounts in thousands):



                                    Three months ended             Three months ended
                                      March 31, 2021                 March 31, 2020
                                                 % of Net                       % of Net
                                  Amount         Revenues        Amount         Revenues
Net revenues                    $ 1,671,836          100.0 %   $ 1,497,123          100.0 %
Operating charges:
Salaries, wages and benefits        706,811           42.3 %       658,929           44.0 %
Other operating expenses            393,207           23.5 %       375,531           25.1 %
Supplies expense                    296,478           17.7 %       264,530           17.7 %
Depreciation and amortization        81,184            4.9 %        77,928            5.2 %
Lease and rental expense             20,112            1.2 %        16,020            1.1 %
Subtotal-operating expenses       1,497,792           89.6 %     1,392,938           93.0 %
Income from operations              174,044           10.4 %       104,185            7.0 %
Interest expense, net                   246            0.0 %           618            0.0 %
Other (income) expense, net               -              -               -              -
Income before income taxes      $   173,798           10.4 %   $   103,567            6.9 %

Three-month periods ended March 31, 2021 and 2020:


During the three-month period ended March 31, 2021, as compared to the
comparable prior year quarter, net revenues from our acute care hospital
services, on a same facility basis, increased $175 million or 11.7%. Income
before income taxes (and before income attributable to noncontrolling interests)
increased $70 million, or 68%, amounting to $174 million or 10.4% of net
revenues during the first quarter of 2021 as compared to $104 million or 6.9% of
net revenues during the first quarter of 2020.

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During the three-month period ended March 31, 2021, net revenue per adjusted
admission increased 26.3% while net revenue per adjusted patient day increased
11.8%, as compared to the comparable quarter of 2020. During the three-month
period ended March 31, 2021, as compared to the comparable prior year quarter,
inpatient admissions to our acute care hospitals decreased 6.2% and adjusted
admissions (adjusted for outpatient activity) decreased 12.1%. Patient days at
these facilities increased 5.9% and adjusted patient days decreased 0.7% during
the three-month period ended March 31, 2021 as compared to the comparable prior
year quarter. The average length of inpatient stay at these facilities increased
to 5.4 days during the first quarter of 2021 as compared to 4.8 days during the
first quarter of 2020. The occupancy rate, based on the average available beds
at these facilities, was 69% and 65% during the three-month periods ended March
31, 2021 and 2020, respectively.

All Acute Care Hospitals


The following table summarizes the results of operations for all our acute care
operations during the three-month periods ended March 31, 2021 and 2020. These
amounts include: (i) our acute care results on a same facility basis, as
indicated above; (ii) the impact of provider tax assessments which increased net
revenues and other operating expenses but had no impact on income before income
taxes, and; (iii) certain other amounts including, if applicable, the results of
recently acquired/opened ancillary facilities and businesses. Dollar amounts
below are reflected in thousands.





                                    Three months ended             Three months ended
                                      March 31, 2021                 March 31, 2020
                                                 % of Net                       % of Net
                                  Amount         Revenues        Amount         Revenues
Net revenues                    $ 1,694,542          100.0 %   $ 1,521,049          100.0 %
Operating charges:
Salaries, wages and benefits        707,218           41.7 %       658,959           43.3 %
Other operating expenses            416,007           24.5 %       399,457           26.3 %
Supplies expense                    296,479           17.5 %       264,530           17.4 %
Depreciation and amortization        81,362            4.8 %        77,928            5.1 %
Lease and rental expense             20,112            1.2 %        16,020            1.1 %
Subtotal-operating expenses       1,521,178           89.8 %     1,416,894           93.2 %
Income from operations              173,364           10.2 %       104,155            6.8 %
Interest expense, net                   246            0.0 %           618            0.0 %
Other (income) expense, net               -              -               -              -
Income before income taxes      $   173,118           10.2 %   $   103,537            6.8 %



Three-month periods ended March 31, 2021 and 2020:

During the three-month period ended March 31, 2021, as compared to the comparable prior year quarter, net revenues from our acute care hospital services increased $173 million or 11.4% to $1.69 billion as compared to $1.52 billion due primarily to the $175 million, or 11.7%, increase same facility revenues, as discussed above.

Income before income taxes increased $70 million, or 67%, to $173 million or 10.2% of net revenues during the first quarter of 2021 as compared to $104 million or 6.8% of net revenues during the first quarter of 2020. The $70 million increase in income before income taxes from our acute care hospital services resulted from the increase in income before income taxes at our hospitals, on a same facility basis, as discussed above.

Behavioral Health Services


Our Same Facility basis results (which is a non-GAAP measure), which include the
operating results for facilities and businesses operated in both the current
year and prior year period, neutralize (if applicable) the effect of items that
are non-operational in nature including items such as, but not limited to,
gains/losses on sales of assets and businesses, impact of the reserve
established in connection with the civil aspects of the government's
investigation of certain of our behavioral health care facilities, impacts of
settlements, legal judgments and lawsuits, impairments of long-lived and
intangible assets and other amounts that may be reflected in the current or
prior year financial statements that relate to prior periods. Our Same Facility
basis results reflected on the table below also excludes from net revenues and
other operating expenses, provider tax assessments incurred in each period as
discussed below Sources of Revenue-Various State Medicaid Supplemental Payment
Programs. However, these provider tax assessments are included in net revenues
and other operating expenses as reflected in the table below under All
Behavioral Health Care Services. The provider tax assessments had no impact on
the income before income taxes as reflected on the tables below since the
amounts offset between net revenues and other operating expenses. To obtain a
complete understanding of our financial performance, the Same Facility results
should be examined in connection with our net income as determined in accordance
with GAAP and as presented in the condensed consolidated financial statements
and notes thereto as contained in this Quarterly Report on Form 10-Q.

The following table summarizes the results of operations for our behavioral
health care facilities, on a same facility basis, and is used in the discussions
below for the three-month periods ended March 31, 2021 and 2020 (dollar amounts
in thousands):

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Same Facility-Behavioral Health

                                    Three months ended             Three months ended
                                      March 31, 2021                 March 31, 2020
                                                 % of Net                       % of Net
                                  Amount         Revenues        Amount         Revenues
Net revenues                    $ 1,292,042          100.0 %   $ 1,281,052          100.0 %
Operating charges:
Salaries, wages and benefits        701,567           54.3 %       690,375           53.9 %
Other operating expenses            245,373           19.0 %       242,366           18.9 %
Supplies expense                     50,746            3.9 %        51,561            4.0 %
Depreciation and amortization        45,302            3.5 %        42,715            3.3 %
Lease and rental expense             11,274            0.9 %        11,020            0.9 %
Subtotal-operating expenses       1,054,262           81.6 %     1,038,037           81.0 %
Income from operations              237,780           18.4 %       243,015           19.0 %
Interest expense, net                   338            0.0 %           364            0.0 %
Other (income) expense, net             413            0.0 %           889            0.1 %
Income before income taxes      $   237,029           18.3 %   $   241,762           18.9 %

Three-month periods ended March 31, 2021 and 2020:


On a same facility basis during the first quarter of 2021, net revenues
generated from our behavioral health services increased $11 million, or 0.9%, to
$1.29 billion, from $1.28 billion generated during the first quarter of 2020.
Income before income taxes decreased $5 million, or 2%, to $237 million or 18.3%
of net revenues during the three-month period ended March 31, 2021, as compared
to $242 million or 18.9% of net revenues during the first quarter of 2020.

During the three-month period ended March 31, 2021, net revenue per adjusted
admission increased 6.2% and net revenue per adjusted patient day increased
4.9%, as compared to the comparable quarter of 2020. On a same facility basis,
inpatient admissions and adjusted admissions to our behavioral health facilities
decreased 4.7% and 4.9%, respectively, during the three-month period ended March
31, 2021 as compared to the comparable quarter of 2020. Patient days and
adjusted patient days at these facilities decreased 3.6% and 3.8% during the
three-month period ended March 31, 2021, respectively, as compared to the
comparable prior year quarter. The average length of inpatient stay at these
facilities was 13.3 days and 13.2 days during the three-month periods ended
March 31, 2021 and 2020, respectively. The occupancy rate, based on the average
available beds at these facilities, was 72% and 75% during the three-month
periods ended March 31, 2021 and 2020, respectively.

All Behavioral Health Care Facilities


The following table summarizes the results of operations for all our behavioral
health care services during the three-month periods ended March 31, 2021 and
2020. These amounts include: (i) our behavioral health care results on a same
facility basis, as indicated above; (ii) the impact of provider tax assessments
which increased net revenues and other operating expenses but had no impact on
income before income taxes, and; (iii) certain other amounts including the
results of facilities acquired or opened during the past year (if applicable) as
well as the results of certain facilities that were closed or restructured
during the past year. Dollar amounts below are reflected in thousands.



                                    Three months ended             Three months ended
                                      March 31, 2021                 March 31, 2020
                                                 % of Net                       % of Net
                                  Amount         Revenues        Amount         Revenues
Net revenues                    $ 1,315,337          100.0 %   $ 1,306,109          100.0 %
Operating charges:
Salaries, wages and benefits        703,975           53.5 %       693,272           53.1 %
Other operating expenses            269,297           20.5 %       266,182           20.4 %
Supplies expense                     51,009            3.9 %        51,639            4.0 %
Depreciation and amortization        46,482            3.5 %        43,889            3.4 %
Lease and rental expense             11,683            0.9 %        12,158            0.9 %
Subtotal-operating expenses       1,082,446           82.3 %     1,067,140           81.7 %
Income from operations              232,891           17.7 %       238,969           18.3 %
Interest expense, net                 1,153            0.1 %           397            0.0 %
Other (income) expense, net             413            0.0 %           889            0.1 %
Income before income taxes      $   231,325           17.6 %   $   237,683           18.2 %


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Three-month periods ended March 31, 2021 and 2020:


During the three-month period ended March 31, 2021, as compared to the
comparable prior year quarter, net revenues generated from our behavioral health
services increased $9 million or 0.7% due to: (i) the above-mentioned $11
million or 0.9% increase in net revenues on a same facility basis, and; (ii) $2
million other combined net decreases.

Income before income taxes decreased $6 million, or 3%, to $231 million or 17.6%
of net revenues during the first quarter of 2021 as compared to $238 million or
18.2% of net revenues during the first quarter of 2020. The decrease in income
before income taxes at our behavioral health facilities during the first quarter
of 2021, as compared to the first quarter of 2020, was primarily attributable to
the above-mentioned decrease in income before income taxes experienced at our
behavioral health facilities on a same facility basis, as discussed above.

Sources of Revenue


Overview: We receive payments for services rendered from private insurers,
including managed care plans, the federal government under the Medicare program,
state governments under their respective Medicaid programs and directly from
patients.

Hospital revenues depend upon inpatient occupancy levels, the medical and
ancillary services and therapy programs ordered by physicians and provided to
patients, the volume of outpatient procedures and the charges or negotiated
payment rates for such services. Charges and reimbursement rates for inpatient
routine services vary depending on the type of services provided (e.g.,
medical/surgical, intensive care or behavioral health) and the geographic
location of the hospital. Inpatient occupancy levels fluctuate for various
reasons, many of which are beyond our control. The percentage of patient service
revenue attributable to outpatient services has generally increased in recent
years, primarily as a result of advances in medical technology that allow more
services to be provided on an outpatient basis, as well as increased pressure
from Medicare, Medicaid and private insurers to reduce hospital stays and
provide services, where possible, on a less expensive outpatient basis. We
believe that our experience with respect to our increased outpatient levels
mirrors the general trend occurring in the health care industry and we are
unable to predict the rate of growth and resulting impact on our future
revenues.

Patients are generally not responsible for any difference between customary
hospital charges and amounts reimbursed for such services under Medicare,
Medicaid, some private insurance plans, and managed care plans, but are
responsible for services not covered by such plans, exclusions, deductibles or
co-insurance features of their coverage. The amount of such exclusions,
deductibles and co-insurance has generally been increasing each year.
Indications from recent federal and state legislation are that this trend will
continue. Collection of amounts due from individuals is typically more difficult
than from governmental or business payers which unfavorably impacts the
collectability of our patient accounts.

As described below in the section titled 2019 Novel Coronavirus Disease Medicare
and Medicaid Payment Related Legislation, the federal government has enacted
multiple pieces of legislation to assist healthcare providers during the
COVID-19 world-wide pandemic and U.S. National Emergency declaration. We have
outlined those legislative changes related to Medicare and Medicaid payment and
their estimated impact on our financial results, where estimates are possible.

Sources of Revenues and Health Care Reform: Given increasing budget deficits,
the federal government and many states are currently considering additional ways
to limit increases in levels of Medicare and Medicaid funding, which could also
adversely affect future payments received by our hospitals. In addition, the
uncertainty and fiscal pressures placed upon the federal government as a result
of, among other things, impacts on state revenue and expenses resulting from the
COVID-19 pandemic, economic recovery stimulus packages, responses to natural
disasters, and the federal and state budget deficits in general may affect the
availability of government funds to provide additional relief in the future. We
are unable to predict the effect of future policy changes on our operations.

On March 23, 2010, President Obama signed into law the Legislation. Two primary
goals of the Legislation are to provide for increased access to coverage for
healthcare and to reduce healthcare-related expenses.

The Legislation revises reimbursement under the Medicare and Medicaid programs
to emphasize the efficient delivery of high quality care and contains a number
of incentives and penalties under these programs to achieve these goals. The
Legislation provides for decreases in the annual market basket update for
federal fiscal years 2010 through 2019, a productivity offset to the market
basket update beginning October 1, 2011 for Medicare Part B reimbursable items
and services and beginning October 1, 2012 for Medicare inpatient hospital
services. The Legislation and subsequent revisions provide for reductions to
both Medicare DSH and Medicaid DSH payments. The Medicare DSH reductions began
in October, 2013 while the Medicaid DSH reductions are scheduled to begin in
2024. The Legislation implemented a value-based purchasing program, which will
reward the delivery of efficient care. Conversely, certain facilities will
receive reduced reimbursement for failing to meet quality parameters; such
hospitals will include those with excessive readmission or hospital-acquired
condition rates.

A 2012 U.S. Supreme Court ruling limited the federal government's ability to
expand health insurance coverage by holding unconstitutional sections of the
Legislation that sought to withdraw federal funding for state noncompliance with
certain Medicaid coverage requirements. Pursuant to that decision, the federal
government may not penalize states that choose not to participate in the
Medicaid expansion by reducing their existing Medicaid funding. Therefore,
states can choose to expand or not to expand their

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Medicaid program without risking the loss of federal Medicaid funding. As a
result, many states, including Texas, have not expanded their Medicaid programs
without the threat of loss of federal funding. CMS has previously granted
section 1115 demonstration waivers providing for work and community engagement
requirements for certain Medicaid eligible individuals. CMS has also released
guidance to states interested in receiving their Medicaid funding through a
block grant mechanism. The Biden administration has signaled its intent to
withdraw previously issued section 1115 demonstrations aligned with these
policies. However, if implemented, the previously issued section 1115
demonstrations are anticipated to lead to reductions in coverage, and likely
increases in uncompensated care, in states where these demonstration waivers are
granted.

On December 14, 2018, a Texas Federal District Court deemed the Legislation to
be unconstitutional in its entirety. The Court concluded that the Individual
Mandate is no longer permissible under Congress's taxing power as a result of
the Tax Cut and Jobs Act of 2017 ("TCJA") reducing the individual mandate's tax
to $0 (i.e., it no longer produces revenue, which is an essential feature of a
tax), rendering the Legislation unconstitutional. The court also held that
because the individual mandate is "essential" to the Legislation and is
inseverable from the rest of the law, the entire Legislation is
unconstitutional. Because the court issued a declaratory judgment and did not
enjoin the law, the Legislation remains in place pending its appeal. The
District Court for the Northern District of Texas ruling was appealed to the
U.S. Court of Appeals for the Fifth Circuit. On December 18, 2019, the Fifth
Circuit Court of Appeals' three-judge panel voted 2-1 to strike down the
Legislation individual mandate as unconstitutional. The Fifth Circuit Court also
sent the case back to the Texas district court to determine which Legislation
provisions should be stricken with the mandate or whether the entire Legislation
is unconstitutional. On March 2, 2020, the U.S. Supreme Court agreed to hear,
during the 2020-2021 term, two consolidated cases, filed by the State of
California and the United States House of Representatives, asking the Supreme
Court to review the ruling by the Fifth Circuit Court of Appeals. Oral argument
was heard on November 10, 2020, and a ruling is expected in 2021. On February
10, 2021, the Department of Justice announced that it has withdrawn support for
the challenge before the Supreme Court. The Legislation will remain law while
the case proceeds through the appeals process; however, the case creates
additional uncertainty as to whether any or all of the Legislation could be
struck down, which creates operational risk for the health care industry. We are
unable to predict the final outcome of this legal challenge and its financial
impact on our future results of operation.

The various provisions in the Legislation that directly or indirectly affect
Medicare and Medicaid reimbursement are scheduled to take effect over a number
of years. The impact of the Legislation on healthcare providers will be subject
to implementing regulations, interpretive guidance and possible future
legislation or legal challenges. Certain Legislation provisions, such as that
creating the Medicare Shared Savings Program creates uncertainty in how
healthcare may be reimbursed by federal programs in the future. Thus, we cannot
predict the impact of the Legislation on our future reimbursement at this time
and we can provide no assurance that the Legislation will not have a material
adverse effect on our future results of operations.

The Legislation also contained provisions aimed at reducing fraud and abuse in
healthcare. The Legislation amends several existing laws, including the federal
Anti-Kickback Statute and the False Claims Act, making it easier for government
agencies and private plaintiffs to prevail in lawsuits brought against
healthcare providers. While Congress had previously revised the intent
requirement of the Anti-Kickback Statute to provide that a person is not
required to "have actual knowledge or specific intent to commit a violation of"
the Anti-Kickback Statute in order to be found in violation of such law, the
Legislation also provides that any claims for items or services that violate the
Anti-Kickback Statute are also considered false claims for purposes of the
federal civil False Claims Act. The Legislation provides that a healthcare
provider that retains an overpayment in excess of 60 days is subject to the
federal civil False Claims Act. The Legislation also expands the Recovery Audit
Contractor program to Medicaid. These amendments also make it easier for severe
fines and penalties to be imposed on healthcare providers that violate
applicable laws and regulations.

We have partnered with local physicians in the ownership of certain of our
facilities. These investments have been permitted under an exception to the
physician self-referral law. The Legislation permits existing physician
investments in a hospital to continue under a "grandfather" clause if the
arrangement satisfies certain requirements and restrictions, but physicians are
prohibited from increasing the aggregate percentage of their ownership in the
hospital. The Legislation also imposes certain compliance and disclosure
requirements upon existing physician-owned hospitals and restricts the ability
of physician-owned hospitals to expand the capacity of their facilities. As
discussed below, should the Legislation be repealed in its entirety, this aspect
of the Legislation would also be repealed restoring physician ownership of
hospitals and expansion right to its position and practice as it existed prior
to the Legislation.

The impact of the Legislation on each of our hospitals may vary. Because
Legislation provisions are effective at various times over the next several
years, we anticipate that many of the provisions in the Legislation may be
subject to further revision. Initiatives to repeal the Legislation, in whole or
in part, to delay elements of implementation or funding, and to offer amendments
or supplements to modify its provisions have been persistent. The ultimate
outcomes of legislative attempts to repeal or amend the Legislation and legal
challenges to the Legislation are unknown. Legislation has already been enacted
that eliminated the individual mandate penalty, effective January 1, 2019,
related to the obligation to obtain health insurance that was part of the
original Legislation. In addition, Congress previously considered legislation
that would, in material part: (i) eliminate the large employer mandate to offer
health insurance coverage to full-time employees; (ii) permit insurers to impose
a surcharge up to 30 percent on individuals who go uninsured for more than two
months and then purchase coverage; (iii) provide tax credits towards the
purchase of health insurance, with a phase-out of tax credits accordingly to
income level; (iv) expand health savings accounts; (v) impose a per capita cap
on federal

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funding of state Medicaid programs, or, if elected by a state, transition
federal funding to block grants, and; (vi) permit states to seek a waiver of
certain federal requirements that would allow such state to define essential
health benefits differently from federal standards and that would allow certain
commercial health plans to take health status, including pre-existing
conditions, into account in setting premiums.

In addition to legislative changes, the Legislation can be significantly
impacted by executive branch actions. President Biden is expected to undertake
executive actions that will strengthen the Legislation and may reverse the
policies of the prior administration. The Trump Administration had directed the
issuance of final rules (i) enabling the formation of health plans that would be
exempt from certain Legislation essential health benefits requirements; (ii)
expanding the availability of short-term, limited duration health insurance;
(iii) eliminating cost-sharing reduction payments to insurers that would
otherwise offset deductibles and other out-of-pocket expenses for health plan
enrollees at or below 250 percent of the federal poverty level; (iv) relaxing
requirements for state innovation waivers that could reduce enrollment in the
individual and small group markets and lead to additional enrollment in
short-term, limited duration insurance and association health plans; and (vi)
incentivizing the use of health reimbursement arrangements by employers to
permit employees to purchase health insurance in the individual market. The
uncertainty resulting from these Executive Branch policies led to reduced
Exchange enrollment in 2018, 2019 and 2020. The recent and on-going COVID-19
pandemic and related U.S. National Emergency declaration may significantly
increase the number of uninsured patients treated at our facilities extending
beyond the most recent CBO published estimates due to increased unemployment and
loss of group health plan health insurance coverage. It is also anticipated that
these policies may create additional cost and reimbursement pressures on
hospitals.

It remains unclear what portions of the Legislation may remain, or whether any
replacement or alternative programs may be created by any future
legislation. Any such future repeal or replacement may have significant impact
on the reimbursement for healthcare services generally, and may create
reimbursement for services competing with the services offered by our
hospitals. Accordingly, there can be no assurance that the adoption of any
future federal or state healthcare reform legislation will not have a negative
financial impact on our hospitals, including their ability to compete with
alternative healthcare services funded by such potential legislation, or for our
hospitals to receive payment for services.

For additional disclosure related to our revenues including a disaggregation of
our consolidated net revenues by major source for each of the periods presented
herein, please see Note 12 to the Consolidated Financial Statements-Revenue.

Medicare: Medicare is a federal program that provides certain hospital and
medical insurance benefits to persons aged 65 and over, some disabled persons
and persons with end-stage renal disease. All of our acute care hospitals and
many of our behavioral health centers are certified as providers of Medicare
services by the appropriate governmental authorities. Amounts received under the
Medicare program are generally significantly less than a hospital's customary
charges for services provided. Since a substantial portion of our revenues will
come from patients under the Medicare program, our ability to operate our
business successfully in the future will depend in large measure on our ability
to adapt to changes in this program.

Under the Medicare program, for inpatient services, our general acute care
hospitals receive reimbursement under the inpatient prospective payment system
("IPPS"). Under the IPPS, hospitals are paid a predetermined fixed payment
amount for each hospital discharge. The fixed payment amount is based upon each
patient's Medicare severity diagnosis related group ("MS-DRG"). Every MS-DRG is
assigned a payment rate based upon the estimated intensity of hospital resources
necessary to treat the average patient with that particular diagnosis. The
MS-DRG payment rates are based upon historical national average costs and do not
consider the actual costs incurred by a hospital in providing care. This MS-DRG
assignment also affects the predetermined capital rate paid with each MS-DRG.
The MS-DRG and capital payment rates are adjusted annually by the predetermined
geographic adjustment factor for the geographic region in which a particular
hospital is located and are weighted based upon a statistically normal
distribution of severity. While we generally will not receive payment from
Medicare for inpatient services, other than the MS-DRG payment, a hospital may
qualify for an "outlier" payment if a particular patient's treatment costs are
extraordinarily high and exceed a specified threshold. MS-DRG rates are adjusted
by an update factor each federal fiscal year, which begins on October 1. The
index used to adjust the MS-DRG rates, known as the "hospital market basket
index," gives consideration to the inflation experienced by hospitals in
purchasing goods and services. Generally, however, the percentage increases in
the MS-DRG payments have been lower than the projected increase in the cost of
goods and services purchased by hospitals.

In April, 2021, CMS published its IPPS 2022 proposed payment rule which provides
for a 2.5% market basket increase to the base Medicare MS-DRG blended rate. When
statutorily mandated budget neutrality factors, annual geographic wage index
updates, documenting and coding adjustments, and adjustments mandated by the
Legislation are considered, without consideration for the required Medicare DSH
payments changes and increase to the Medicare Outlier threshold, the overall
proposed increase in IPPS payments is approximately 2.5%. Including DSH payments
and certain other adjustments, we estimate our overall increase from the
proposed IPPS 2022 rule (covering the period of October 1, 2021 through
September 30, 2022) will approximate 1.2%. This projected impact from the IPPS
2022 proposed rule includes an increase of approximately 0.5% to partially
restore cuts made as a result of the American Taxpayer Relief Act of 2012
("ATRA"), as required by the 21st Century Cures Act but excludes the impact of
the sequestration reductions related to the 2011 Act, Bipartisan Budget Act of
2015, and Bipartisan Budget Act of 2018, as discussed below.

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In September, 2020, CMS published its IPPS 2021 final payment rule which
provides for a 2.4% market basket increase to the base Medicare MS-DRG blended
rate. When statutorily mandated budget neutrality factors, annual geographic
wage index updates, documenting and coding adjustments, and adjustments mandated
by the Legislation are considered, without consideration for the required
Medicare DSH payments changes and increase to the Medicare Outlier threshold,
the overall increase in IPPS payments is approximately 1.8%. Including DSH
payments and certain other adjustments, we estimate our overall increase from
the final IPPS 2021 rule (covering the period of October 1, 2020 through
September 30, 2021) will approximate 2.3%. This projected impact from the IPPS
2021 final rule includes an increase of approximately 0.5% to partially restore
cuts made as a result of the American Taxpayer Relief Act of 2012 ("ATRA"), as
required by the 21st Century Cures Act but excludes the impact of the
sequestration reductions related to the 2011 Act, Bipartisan Budget Act of 2015,
and Bipartisan Budget Act of 2018, as discussed below.



In the final rule, CMS will require:


   •  Hospitals to report certain market-based payment rate information for
      Medicare Advantage organizations on their Medicare cost report for cost
      reporting periods ending on or after January 1, 2021, to be used in a

potential change to the methodology for calculating the IPPS MS-DRG relative

weights to reflect relative market-based pricing, beginning in FY 2024.

• Hospitals to report on the Medicare cost report of its median payer-specific

negotiated charges with all of its MA organizations, by MS-DRG.

• As part of the FFY 2022 IPPS proposed rule published in April, 2021 and as

outlined above, CMS has proposed to rescind this MA payer-specific

negotiated charges reporting requirement.



In August, 2019, CMS published its IPPS 2020 final payment rule which provides
for a 3.0% market basket increase to the base Medicare MS-DRG blended rate. When
statutorily mandated budget neutrality factors, annual geographic wage index
updates, documenting and coding adjustments, and adjustments mandated by the
Legislation are considered, without consideration for the required Medicare DSH
payments changes and increase to the Medicare Outlier threshold, the overall
increase in IPPS payments is approximately 2.8%. Including DSH payments and
certain other adjustments, we estimate our overall increase from the final IPPS
2020 rule (covering the period of October 1, 2019 through September 30, 2020)
will approximate 2.1%. This projected impact from the IPPS 2020 final rule
includes an increase of approximately 0.5% to partially restore cuts made as a
result ATRA, as required by the 21st Century Cures Act but excludes the impact
of the sequestration reductions related to the 2011 Act, Bipartisan Budget Act
of 2015, and Bipartisan Budget Act of 2018, as discussed below. CMS completed
its full phase-in to use uncompensated care data from the 2015 Worksheet S-10
hospital cost reports to allocate approximately $8.5 billion in the DSH
Uncompensated Care Pool.

In June, 2019, the Supreme Court of the United States issued a decision
favorable to hospitals impacting prior year Medicare DSH payments (Azar v.
Allina Health Services, No. 17-1484 (U.S. Jun. 3, 2019)). In Allina, the
hospitals challenged the Medicare DSH adjustments for federal fiscal year 2012,
specifically challenging CMS's decision to include inpatient hospital days
attributable to Medicare Part C enrollee patients in the numerator and
denominator of the Medicare/SSI fraction used to calculate a hospital's DSH
payments. This ruling addresses CMS's attempts to impose the policy espoused in
its vacated 2004 rulemaking to a fiscal year in the 2004-2013 time period
without using notice-and-comment rulemaking. This decision should require CMS to
recalculate hospitals' DSH Medicare/SSI fractions, with Medicare Part C days
excluded, for at least federal fiscal year 2012, but likely federal fiscal years
2005 through 2013. In August, 2020, CMS issued a rule that proposes to
retroactively negate the effects of the aforementioned Supreme Court decision.
Although we can provide no assurance that we will ultimately receive additional
funds, we estimate that the favorable impact of this court ruling on certain
prior year hospital Medicare DSH payments could range between $18 million to $28
million in the aggregate.

The 2011 Act included the imposition of annual spending limits for most federal
agencies and programs aimed at reducing budget deficits by $917 billion between
2012 and 2021, according to a report released by the Congressional Budget
Office. Among its other provisions, the law established a bipartisan
Congressional committee, known as the Joint Committee, which was responsible for
developing recommendations aimed at reducing future federal budget deficits by
an additional $1.5 trillion over 10 years. The Joint Committee was unable to
reach an agreement by the November 23, 2011 deadline and, as a result,
across-the-board cuts to discretionary, national defense and Medicare spending
were implemented on March 1, 2013 resulting in Medicare payment reductions of up
to 2% per fiscal year. Recent legislation suspended payment reductions through
December 31, 2021, in exchange for extended cuts through 2030.

Inpatient services furnished by psychiatric hospitals under the Medicare program
are paid under a Psychiatric Prospective Payment System ("Psych PPS"). Medicare
payments to psychiatric hospitals are based on a prospective per diem rate with
adjustments to account for certain facility and patient characteristics. The
Psych PPS also contains provisions for outlier payments and an adjustment to a
psychiatric hospital's base payment if it maintains a full-service emergency
department.

In April, 2021, CMS published its Psych PPS proposed rule for the federal fiscal
year 2022. Under this proposed rule, payments to our psychiatric hospitals and
units are estimated to increase by 2.3% compared to federal fiscal year 2021.
This amount includes the effect of the 2.1% net market basket update which
reflects the offset of a 0.2% productivity adjustment.

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In July, 2020, CMS published its Psych PPS final rule for the federal fiscal
year 2021. Under this final rule, payments to our psychiatric hospitals and
units are estimated to increase by 2.2% compared to federal fiscal year 2020.
This amount includes the effect of the 2.2% market basket update.

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

CMS's calendar year 2018 final OPPS rule, issued on November 13, 2017,
substantially reduced Medicare Part B reimbursement for 340B Program drugs paid
to hospitals. Beginning January 1, 2018, CMS reimbursement for certain
separately payable drugs or biologicals that are acquired through the 340B
Program by a hospital paid under the OPPS (and not excepted from the payment
adjustment policy) is the average sales price of the drug or biological minus
22.5 percent, an effective reduction of 26.89% in payments for 340B program
drugs. In December, 2018, the U.S. District Court for the District of Columbia
ruled that HHS did not have statutory authority to implement the 2018 Medicare
OPPS rate reduction related to hospitals that qualify for drug discounts under
the federal 340B Program and granted a permanent injunction against the payment
reduction. On July 31, 2020, the U.S. Court of Appeals for the D.C. Circuit
reversed the District Court and held that HHS's decision to lower drug
reimbursement rates for 340B hospitals rests on a reasonable interpretation of
the Medicare statute. No further legal challenges are available to the
plaintiffs and, as a result, we recognized $8 million of revenues during 2020
that were previously reserved in a prior year.

In December, 2020, CMS published its OPPS final rule for 2021. The hospital
market basket increase is 2.4% and there is no productivity adjustment reduction
to the 2021 OPPS market basket. When other statutorily required adjustments and
hospital patient service mix are considered, we estimate that our overall
Medicare OPPS update for 2021 will aggregate to a net increase of 3.3% which
includes a 9.2% increase to behavioral health division partial hospitalization
rates.

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

On November 15, 2019, CMS finalized its Hospital Price Transparency rule that
implements certain requirements under the June 24, 2019 Presidential Executive
Order related to Improving Price and Quality Transparency in American Healthcare
to Put Patients First. Under this final rule, effective January 1, 2021, CMS
will require: (1) hospitals make public their standard changes (both gross
charges and payer-specific negotiated charges) for all items and services online
in a machine-readable format, and; (2) hospitals to make public standard charge
data for a limited set of "shoppable services" the hospital provides in a form
and manner that is more consumer friendly. A lawsuit was filed by several
hospital associations, health systems, and hospitals in the U.S. District court
for the District of Columbia challenging the legal authority of HHS to implement
the final rule. In June, 2020, the U.S. District Court issued a decision in
favor of the federal government. The Plaintiffs in the case filed a notice of
appeal to the Court of Appeals for the D.C. Circuit and oral argument was heard
on October 15, 2020. On December 29, 2020, the Appeals Court ruled against the
Plaintiffs challenge. As a result, the price transparency rule became effective
January 1, 2021. We are unable to determine the impact, if any, this final rule
will have on our future results of operations.

Medicaid: Medicaid is a joint federal-state funded health care benefit program
that is administered by the states to provide benefits to qualifying
individuals. Most state Medicaid payments are made under a PPS-like system, or
under programs that negotiate payment levels with individual hospitals. Amounts
received under the Medicaid program are generally significantly less than a
hospital's customary charges for services provided. In addition to revenues
received pursuant to the Medicare program, we receive a large portion of our
revenues either directly from Medicaid programs or from managed care companies
managing Medicaid. All of our acute care hospitals and most of our behavioral
health centers are certified as providers of Medicaid services by the
appropriate governmental authorities.

We receive revenues from various state and county based programs, including
Medicaid in all the states in which we operate (we receive Medicaid revenues in
excess of $100 million annually from each of California, Texas, Nevada,
Washington, D.C., Pennsylvania, Illinois, Florida, Kentucky and Massachusetts);
CMS-approved Medicaid supplemental programs in certain states including Texas,
Mississippi, Illinois, Oklahoma, Nevada, Arkansas, California and Indiana, and;
state Medicaid disproportionate share hospital payments in certain states
including Texas and South Carolina. We are therefore particularly sensitive to
potential reductions in Medicaid and other state based revenue programs as well
as regulatory, economic, environmental and competitive changes in those states.
We can provide no assurance that reductions to revenues earned pursuant to these
programs, particularly in the above-mentioned states, will not have a material
adverse effect on our future results of operations.

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The Legislation substantially increases the federally and state-funded Medicaid
insurance program, and authorizes states to establish federally subsidized
non-Medicaid health plans for low-income residents not eligible for Medicaid
starting in 2014. However, the Supreme Court has struck down portions of the
Legislation requiring states to expand their Medicaid programs in exchange for
increased federal funding. Accordingly, many states in which we operate have not
expanded Medicaid coverage to individuals at 133% of the federal poverty level.
Facilities in states not opting to expand Medicaid coverage under the
Legislation may be additionally penalized by corresponding reductions to
Medicaid disproportionate share hospital payments beginning in 2020, as
discussed below. We can provide no assurance that further reductions to Medicaid
revenues, particularly in the above-mentioned states, will not have a material
adverse effect on our future results of operations.

On November 12, 2019, CMS issued the proposed Medicaid Fiscal Accountability
Rule ("MFAR") which CMS believed would strengthen the fiscal integrity of the
Medicaid program and help ensure that state supplemental payments and financing
arrangements are transparent and value-driven. In January, 2021, CMS issued a
formal notice of withdrawal of this proposed rule.

In January, 2020, CMS announced a new opportunity to support states with greater
flexibility to improve the health of their Medicaid populations. The new 1115
Waiver Block Grant Type Demonstration program, titled Healthy Adult Opportunity
("HAO"), emphasizes the concept of value-based care while granting states
extensive flexibility to administer and design their programs within a defined
budget. CMS believes this state opportunity will enhance the Medicaid program's
integrity through its focus on accountability for results and quality
improvement, making the Medicaid program stronger for states and beneficiaries.
The Biden administration has signaled its intent to withdraw the HAO
demonstration. Accordingly, we are unable to predict whether the HAO
demonstration will impact our future results of operations.



Various State Medicaid Supplemental Payment Programs:


We incur health-care related taxes ("Provider Taxes") imposed by states in the
form of a licensing fee, assessment or other mandatory payment which are related
to: (i) healthcare items or services; (ii) the provision of, or the authority to
provide, the health care items or services, or; (iii) the payment for the health
care items or services. Such Provider Taxes are subject to various federal
regulations that limit the scope and amount of the taxes that can be levied by
states in order to secure federal matching funds as part of their respective
state Medicaid programs. As outlined below, we derive a related Medicaid
reimbursement benefit from assessed Provider Taxes in the form of Medicaid
claims based payment increases and/or lump sum Medicaid supplemental payments.

Included in these Provider Tax programs are reimbursements received in connection with the Texas Uncompensated Care/Upper Payment Limit program ("UC/UPL") and Texas Delivery System Reform Incentive Payments program ("DSRIP"). Additional disclosure related to the Texas UC/UPL and DSRIP programs is provided below.

Texas Uncompensated Care/Upper Payment Limit Payments:


Certain of our acute care hospitals located in various counties of Texas
(Grayson, Hidalgo, Maverick, Potter and Webb) participate in Medicaid
supplemental payment Section 1115 Waiver indigent care programs. Section 1115
Waiver Uncompensated Care ("UC") payments replace the former Upper Payment Limit
("UPL") payments. These hospitals also have affiliation agreements with
third-party hospitals to provide free hospital and physician care to qualifying
indigent residents of these counties. Our hospitals receive both supplemental
payments from the Medicaid program and indigent care payments from third-party,
affiliated hospitals. The supplemental payments are contingent on the county or
hospital district making an Inter-Governmental Transfer ("IGT") to the state
Medicaid program while the indigent care payment is contingent on a transfer of
funds from the applicable affiliated hospitals. However, the county or hospital
district is prohibited from entering into an agreement to condition any IGT on
the amount of any private hospital's indigent care obligation.

On December 21, 2017, CMS approved the 1115 Waiver for the period January 1,
2018 to September 30, 2022. The Waiver continued to include UC and DSRIP payment
pools with modifications and new state specific reporting deadlines that if not
met by THHSC will result in material decreases in the size of the UC and DSRIP
pools. For UC during the initial two years of this renewal, the UC program will
remain relatively the same in size and allocation methodology. For year three of
this waiver renewal, FFY 2020, and through FFY 2022, the size and distribution
of the UC pool will be determined based on charity care costs reported to HHSC
in accordance with Medicare cost report Worksheet S-10 principles. In September
2019, CMS approved the annual UC pool size in the amount of $3.9 billion for
demonstration years ("DYs") 9, 10 and 11 (October 1, 2019 to September 30,
2022).

On April 16, 2021, CMS rescinded its January 15, 2021, 1115 Waiver ten year
expedited renewal approval that was effective through September 30, 2030. HHSC
will need to submit another 1115 Waiver renewal application in order to receive
an extension beyond September 30, 2022.

Effective April 1, 2018, certain of our acute care hospitals located in Texas
began to receive Medicaid managed care rate enhancements under the Uniform
Hospital Rate Increase Program ("UHRIP"). The non-federal share component of
these UHRIP rate enhancements are financed by Provider Taxes. The Texas 1115
Waiver rules require UHRIP rate enhancements be considered in the Texas UC
payment methodology which results in a reduction to our UC payments. The UC
amounts reported in the State Medicaid Supplemental Payment Program Table below
reflect the impact of this new UHRIP program. In July 2020, THHSC announced CMS
approval of an increase to UHRIP pool for the state's 2021 fiscal year to $2.7
billion from its current funding level of $1.6 billion. We

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estimate that this UHRIP pool increase will not have a material impact on the
Company financial results due to CMS approved pool allocation methodology for
the SFY 2021 program.

On March 26, 2021, HHSC published a final rule that will apply to program
periods on or after September 1, 2021, and UHRIP will be re-named the
Comprehensive Hospital Increase Reimbursement Program ("CHIRP"). CHIRP will be
comprised of a UHRIP component and an Average Commercial Incentive Award
("ACIA") component. HHSC has proposed a pool size of $5.0 billion subject to CMS
approval. The Company is not able to estimate the financial impact of the
program change.

On January 11, 2021, HHSC announced that CMS approved the pre-print modification
that HHSC submitted for UHRIP period March 1, 2021 through August 31, 2021. CMS
approved rate changes that will now increase rates for private Institutions of
Mental Disease ("IMD") for services provided to patients under age 21 or
patients 65 years of age or older. We estimate that this payment policy change
will increase our UHRIP reimbursement by $10 million in FY 2021 and this amount
is included the aggregated FY 2021 Medicaid Supplemental Payment projection
total below.



Texas Delivery System Reform Incentive Payments:


In addition, the Texas Medicaid Section 1115 Waiver includes a DSRIP pool to
incentivize hospitals and other providers to transform their service delivery
practices to improve quality, health status, patient experience, coordination,
and cost-effectiveness. DSRIP pool payments are incentive payments to hospitals
and other providers that develop programs or strategies to enhance access to
health care, increase the quality of care, the cost-effectiveness of care
provided and the health of the patients and families served. In May, 2014, CMS
formally approved specific DSRIP projects for certain of our hospitals for
demonstration years 3 to 5 (our facilities did not materially participate in the
DSRIP pool during demonstration years 1 or 2). DSRIP payments are contingent on
the hospital meeting certain pre-determined milestones, metrics and clinical
outcomes. Additionally, DSRIP payments are contingent on a governmental entity
providing an IGT for the non-federal share component of the DSRIP payment. THHSC
generally approves DSRIP reported metrics, milestones and clinical outcomes on a
semi-annual basis in June and December. Under the CMS approval noted above, the
Waiver renewal requires the transition of the DSRIP program to one focused on
"health system performance measurement and improvement." THHSC must submit a
transition plan describing "how it will further develop its delivery system
reforms without DSRIP funding and/or phase out DSRIP funded activities and meet
mutually agreeable milestones to demonstrate its ongoing progress." The size of
the DSRIP pool will remain unchanged for the initial two years of the waiver
renewal with unspecified decreases in years three and four of the renewal, FFY
2020 and 2021, respectively. In FFY 2022, DSRIP funding under the waiver is
eliminated. For FFY 2020 and 2021, we estimate these changes will result in a $3
million and $4 million decrease in DSRIP payments, respectively. For FFY 2022,
we will no longer receive DSRIP funds due to the elimination of this funding
source by CMS in the Waiver renewals except for certain carryover DSRIP projects
for which achievement of the required metrics will not be known until state
fiscal year 2022. In March, 2020, HHSC submitted a DSRIP Transition Plan to CMS
as required by the 1115 Waiver Special Terms and Conditions #37 that outlines a
transition from the current DSRIP program to a Value-Based Purchasing ("VBP")
type payment model. As noted above, HHSC finalized a rule to make changes to
existing UHRIP program. This rule change reflects HHSC's effort to comply with
federal regulations that require directed-payment programs to advance goals
included in the state's Medicaid managed care quality strategy and to align with
the ongoing efforts to transition from the Delivery System Reform Incentive
Payment program. We are unable to estimate the financial impact of this payment
change.


Summary of Amounts Related To The Above-Mentioned Various State Medicaid Supplemental Payment Programs:


The following table summarizes the revenues, Provider Taxes and net benefit
related to each of the above-mentioned Medicaid supplemental programs for the
three-month periods ended March 31, 2021 and 2020. The Provider Taxes are
recorded in other operating expenses on the Condensed Consolidated Statements of
Income as included herein.

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                                    (amounts in millions)
                                     Three Months Ended
                                  March 31,       March 31,
                                    2021            2020
Texas UC/UPL:
Revenues                         $        26     $        32
Provider Taxes                            (6 )           (13 )
Net benefit                      $        20     $        19

Texas DSRIP:
Revenues                         $         0     $         0
Provider Taxes                             0               0
Net benefit                      $         0     $         0

Various other state programs:
Revenues                         $        85     $        74
Provider Taxes                           (40 )           (33 )
Net benefit                      $        45     $        41

Total all Provider Tax programs:
Revenues                         $       111     $       106
Provider Taxes                           (46 )           (46 )
Net benefit                      $        65     $        60




We estimate that our aggregate net benefit from the Texas and various other
state Medicaid supplemental payment programs will approximate $330 million (net
of Provider Taxes of $211 million) during the year ending December 31, 2021.
This amount includes approximately $60 million related to the Kentucky Hospital
Rate Increase Program, as described below, which was approved and implemented
during the second quarter of 2021. This estimate is based upon various terms and
conditions that are out of our control including, but not limited to, the
states'/CMS's continued approval of the programs and the applicable hospital
district or county making IGTs consistent with 2020 levels. Future changes to
these terms and conditions could materially reduce our net benefit derived from
the programs which could have a material adverse impact on our future
consolidated results of operations. In addition, Provider Taxes are governed by
both federal and state laws and are subject to future legislative changes that,
if reduced from current rates in several states, could have a material adverse
impact on our future consolidated results of operations. As described below in
2019 Novel Coronavirus Disease Medicare and Medicaid Payment Related
Legislation, a 6.2% increase to the Medicaid Federal Matching Assistance
Percentage ("FMAP") is included in the Families First Coronavirus Response Act.
The impact of the enhanced FMAP Medicaid supplemental and DSH payments are
reflected in our results for year ended December 31, 2020 and for the three
months ended March 31, 2021. We are unable to estimate the prospective financial
impact of this provision at this time as our financial impact is contingent on
unknown state action during future eligible federal fiscal quarters.

Texas and South Carolina Medicaid Disproportionate Share Hospital Payments:


Hospitals that have an unusually large number of low-income patients (i.e.,
those with a Medicaid utilization rate of at least one standard deviation above
the mean Medicaid utilization, or having a low income patient utilization rate
exceeding 25%) are eligible to receive a DSH adjustment. Congress established a
national limit on DSH adjustments. Although this legislation and the resulting
state broad-based provider taxes have affected the payments we receive under the
Medicaid program, to date the net impact has not been materially adverse.

Upon meeting certain conditions and serving a disproportionately high share of
Texas' and South Carolina's low income patients, five of our facilities located
in Texas and one facility located in South Carolina received additional
reimbursement from each state's DSH fund. The South Carolina and Texas DSH
programs were renewed for each state's 2021 DSH fiscal year (covering the period
of October 1, 2020 through September 30, 2021).

In connection with these DSH programs, included in our financial results was an
aggregate of approximately $11 million and $9 million during the three-month
periods ended March 31, 2021 and 2020, respectively. We expect the aggregate
reimbursements to our hospitals pursuant to the Texas and South Carolina 2021
fiscal year programs to be approximately $47 million.

                                       42

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The Legislation and subsequent federal legislation provides for a significant
reduction in Medicaid disproportionate share payments beginning in federal
fiscal year 2024 (see above in Sources of Revenues and Health Care
Reform-Medicaid Revisions for additional disclosure related to the delay of
these DSH reductions). HHS is to determine the amount of Medicaid DSH payment
cuts imposed on each state based on a defined methodology. As Medicaid DSH
payments to states will be cut, consequently, payments to Medicaid-participating
providers, including our hospitals in Texas and South Carolina, will be reduced
in the coming years. Based on the CMS final rule published in September, 2019,
beginning in fiscal year 2024 (as amended by the CARES Act and the CAA), annual
Medicaid DSH payments in South Carolina and Texas could be reduced by
approximately 74% and 44%, respectively, from 2020 DSH payment levels.



Our behavioral health care facilities in Texas have been receiving Medicaid DSH
payments since FFY 2016. As with all Medicaid DSH payments, hospitals are
subject to state audits that typically occur up to three years after their
receipt. DSH payments are subject to a federal Hospital Specific Limit ("HSL")
and are not fully known until the DSH audit results are concluded. In general,
freestanding psychiatric hospitals tend to provide significantly less charity
care than acute care hospitals and therefore are at more risk for retroactive
recoupment of prior year DSH payments in excess of their respective HSL. In
light of the retroactive HSL audit risk for freestanding psychiatric hospitals,
we have established DSH reserves for our facilities that have been receiving
funds since FFY 2016. These DSH reserves are also impacted by the resolution of
federal DSH litigation related to Children's Hospital Association of Texas v.
Azar ("CHAT"), No. 17-cv-844 (D.D.C. March 2, 2018), appeal docketed, No.
18-5135 (D.C. Cir. May 9, 2018) where the calculation of HSL was being
challenged. In August, 2019, DC Circuit Court of Appeals issued a unanimous
decision in CHAT and reversed the judgment of the district court in favor of CMS
and ordered that CMS's "2017 Rule" (regarding Medicaid DSH Payments-Treatment of
Third Party Payers in Calculating Uncompensated Care Costs) be reinstated. CMS
has not issued any additional guidance post the ruling. In April 2020, the
plaintiffs in the case have petitioned the Supreme Court of the United States to
hear their case. Additionally, there have been separate legal challenges on this
same issue in the Fifth and Eight Circuits. On November 4, 2019, the United
States Court of Appeals for the Eighth Circuit issued an opinion upholding the
2017 Rule. Missouri Hosp. Ass'n v. Azar, No. 18-1778 (8th Cir. Nov. 4, 2019)
(i.e. reversing a district court order enjoining the 2017 rule). On April 20,
2020, the United States Court of Appeals of the Fifth Circuit issued a decision
also upholding the 2017 Rule. Baptist Memorial Hospital v. Azar, No. 18-60592
(5th Cir. April 20, 2020). In light of these court decisions, we continue to
maintain reserves in the financial statements for cumulative Medicaid DSH and UC
reimbursements related to our behavioral health hospitals located in Texas that
amounted to $35 million and $36 million as of March 31, 2021 and 2020,
respectively.

Nevada SPA:


In Nevada, CMS approved a state plan amendment ("SPA") in August, 2014 that
implemented a hospital supplemental payment program retroactive to January 1,
2014. This SPA has been approved for additional state fiscal years including the
2021 fiscal year covering the period of July 1, 2020 through June 30, 2021.

In connection with this program, included in our financial results was
approximately $6 million and $7 million during the three months ended March 31,
2021 and 2020, respectively. We estimate that our reimbursements pursuant to
this program will approximate $18 million during the year ended December 31,
2021.

California SPA:

In California, CMS issued formal approval of the 2017-19 Hospital Fee Program in
December, 2017 retroactive to January 1, 2017 through September 30, 2019. In
September, 2019, the state submitted a request to renew the Hospital Fee Program
for the period July 1, 2019 to December 31, 2021. On February 25, 2020, CMS
approved this renewed program. These approvals include the Medicaid inpatient
and outpatient fee-for-service supplemental payments and the overall provider
tax structure but did not yet include the approval of the managed care rate
setting payment component for certain rate periods (see table below). The
managed care payment component consists of two categories of payments,
"pass-through" payments and "directed" payments. The pass-through payments are
similar in nature to the prior Hospital Fee Program payment method whereas the
directed payment method will be based on actual concurrent hospital Medicaid
managed care in-network patient volume.

                                       43

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California Hospital Fee Program CMS Approval Status:

Hospital Fee Program CMS Methodology CMS Rate Setting Approval

      Component          Approval Status              Status
Fee For Service        Approved through     Approved through December
Payment                December 31, 2021    31, 2021; Paid through
                                            December 31, 2020
Managed                Approved through     Approved through June 30,
Care-Pass-Through      December 31, 2020    2017; Paid in advance of
Payment                                     approval through December
                                            31, 2020
Managed Care-Directed  Approved through     Approved through June 30,
Payment                December 31, 2020    2017; Paid in advance of
                                            approval through June 30,
                                            2019




In connection with the existing program, included in our financial results was
approximately $14 million and $7 million for the three month period ending March
31, 2021 and 2020, respectively. We estimate that our reimbursements pursuant to
this program will approximate $46 million during the year ended December 31,
2021. The aggregate impact of the California supplemental payment program, as
outlined above, is included in the above State Medicaid Supplemental Payment
Program table.

In April, 2020, the California Department of Health Care Services ("DHCS")
notified hospital providers that participate in the Medicaid managed care
directed payment program that DHCS would recalculate directed payments for the
period of July 1, 2017 through September 30, 2018 ("SFY 2018") to remedy an
identified data error. In August, 2020, as a follow-up to that notification,
DHCS issued its corrected directed payment calculations. The updated calculation
resulted in a favorable adjustment to the above program year and also resulted
in increased expected supplemental payment amount for program years subsequent
to the recalculated SFY 2018 rate period. The California Hospital Fee amounts
noted above include our portion of the state corrected data.

Kentucky Hospital Rate Increase Program ("HRIP"):


In January, 2021, CMS approved the Medicaid Managed Care Hospital Rate Increase
Program ("HRIP") for state fiscal year ("SFY") 2021 (covering the period of July
1, 2020 to June 30, 2021). The CMS approval increased the program statewide net
benefit to eligible Kentucky hospitals to approximately $1.1 billion from the
original HRIP CMS-approved pool size of $86 million. The state has subsequently
enacted legislation that authorizes increased HRIP payments to hospitals and CMS
has approved the applicable HRIP rate add-on amount for SFY 2021 retroactive to
July 1, 2020. We estimate that this program change will increase our
reimbursement for SFY 2021 by approximately $60 million, which we expect to
record during the second quarter of 2021. Medicaid directed payment programs,
such as HRIP, authorized under 42 CFR §438.6 require an annual state submission
and approval by CMS. We expect that the state will submit a request to CMS
during the second quarter of 2021 in order to continue the HRIP program for SFY
2022 with a similar payment methodology and payment level. However, we are
unable predict if CMS will approve the HRIP for SFY 2022, and if approved, if
the rates will be comparable to the recently approved SFY 2021 HRIP rates.

Risk Factors Related To State Supplemental Medicaid Payments:


As outlined above, we receive substantial reimbursement from multiple states in
connection with various supplemental Medicaid payment programs. The states
include, but are not limited to, Texas, Mississippi, Illinois, Nevada, Arkansas,
California and Indiana. Failure to renew these programs beyond their scheduled
termination dates, failure of the public hospitals to provide the necessary IGTs
for the states' share of the DSH programs, failure of our hospitals that
currently receive supplemental Medicaid revenues to qualify for future funds
under these programs, or reductions in reimbursements, could have a material
adverse effect on our future results of operations.

In April, 2016, CMS published its final Medicaid Managed Care Rule which
explicitly permits but phases out the use of pass-through payments (including
supplemental payments) by Medicaid Managed Care Organizations ("MCO") to
hospitals over ten years but allows for a transition of the pass-through
payments into value-based payment structures, delivery system reform initiatives
or payments tied to services under a MCO contract. Since we are unable to
determine the financial impact of this aspect of the final rule, we can provide
no assurance that the final rule will not have a material adverse effect on our
future results of operations. In November, 2020, CMS issued a final rule
permitting pass-through supplemental provider payments during a time-limited
period when states transition populations or services from fee-for-service
Medicaid to managed care.

HITECH Act: In July 2010, the Department of Health and Human Services ("HHS")
published final regulations implementing the health information technology
("HIT") provisions of the American Recovery and Reinvestment Act (referred to as
the "HITECH Act"). The final regulation defines the "meaningful use" of
Electronic Health Records ("EHR") and establishes the requirements for the
Medicare and Medicaid EHR payment incentive programs. The final rule established
an initial set of standards and certification criteria. The implementation
period for these Medicare and Medicaid incentive payments started in federal
fiscal year 2011 and can end as late as 2016 for Medicare and 2021 for the state
Medicaid programs. State Medicaid program participation in this federally

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funded incentive program is voluntary but all of the states in which our
eligible hospitals operate have chosen to participate. Our acute care hospitals
qualified for these EHR incentive payments upon implementation of the EHR
application assuming they meet the "meaningful use" criteria. The government's
ultimate goal is to promote more effective (quality) and efficient healthcare
delivery through the use of technology to reduce the total cost of healthcare
for all Americans and utilizing the cost savings to expand access to the
healthcare system.

All of our acute care hospitals have met the applicable meaningful use
criteria.  However, under the HITECH Act, hospitals must continue to meet the
applicable meaningful use criteria in each fiscal year or they will be subject
to a market basket update reduction in a subsequent fiscal year. Failure of our
acute care hospitals to continue to meet the applicable meaningful use criteria
would have an adverse effect on our future net revenues and results of
operations.

In the 2019 IPPS final rule, CMS overhauled the Medicare and Medicaid EHR
Incentive Program to focus on interoperability, improve flexibility, relieve
burden and place emphasis on measures that require the electronic exchange of
health information between providers and patients. We can provide no assurance
that the changes will not have a material adverse effect on our future results
of operations.

Managed Care: A significant portion of our net patient revenues are generated
from managed care companies, which include health maintenance organizations,
preferred provider organizations and managed Medicare (referred to as Medicare
Part C or Medicare Advantage) and Medicaid programs. In general, we expect the
percentage of our business from managed care programs to continue to grow. The
consequent growth in managed care networks and the resulting impact of these
networks on the operating results of our facilities vary among the markets in
which we operate. Typically, we receive lower payments per patient from managed
care payers than we do from traditional indemnity insurers, however, during the
past few years we have secured price increases from many of our commercial
payers including managed care companies.

Commercial Insurance: Our hospitals also provide services to individuals covered
by private health care insurance. Private insurance carriers typically make
direct payments to hospitals or, in some cases, reimburse their policy holders,
based upon the particular hospital's established charges and the particular
coverage provided in the insurance policy. Private insurance reimbursement
varies among payers and states and is generally based on contracts negotiated
between the hospital and the payer.

Commercial insurers are continuing efforts to limit the payments for hospital
services by adopting discounted payment mechanisms, including predetermined
payment or DRG-based payment systems, for more inpatient and outpatient
services. To the extent that such efforts are successful and reduce the
insurers' reimbursement to hospitals and the costs of providing services to
their beneficiaries, such reduced levels of reimbursement may have a negative
impact on the operating results of our hospitals.

Other Sources: Our hospitals provide services to individuals that do not have
any form of health care coverage. Such patients are evaluated, at the time of
service or shortly thereafter, for their ability to pay based upon federal and
state poverty guidelines, qualifications for Medicaid or other state assistance
programs, as well as our local hospitals' indigent and charity care policy.
Patients without health care coverage who do not qualify for Medicaid or
indigent care write-offs are offered substantial discounts in an effort to
settle their outstanding account balances.

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


Implemented Medicare Reductions and Reforms:

• The Legislation reduced the market basket update for inpatient and outpatient

hospitals and inpatient behavioral health facilities by 0.25% in each of 2010 and

2011, by 0.10% in each of 2012 and 2013, 0.30% in 2014, 0.20% in each of 2015 and

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

• The Legislation implemented certain reforms to Medicare Advantage payments,

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

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




Medicaid Revisions:


• Expanded Medicaid eligibility and related special federal payments, effective

    in 2014.


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

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

2024 through FFY 2027. Medicaid DSH reductions have been delayed several times.

Commencing in federal fiscal year 2024, and continuing through 2027, DSH

payments will be reduced by $8 billion annually.

Health Insurance Revisions:

• Large employer insurance reforms, effective in 2015.

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

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

law in December, 2017 eliminated the individual insurance federal mandate

penalty beginning January 1, 2019.

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



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

Value-Based Purchasing:


There is a trend in the healthcare industry toward value-based purchasing of
healthcare services. These value-based purchasing programs include both public
reporting of quality data and preventable adverse events tied to the quality and
efficiency of care provided by facilities. Governmental programs including
Medicare and Medicaid currently require hospitals to report certain quality data
to receive full reimbursement updates. In addition, Medicare does not reimburse
for care related to certain preventable adverse events. Many large commercial
payers currently require hospitals to report quality data, and several
commercial payers do not reimburse hospitals for certain preventable adverse
events.

The Legislation required HHS to implement a value-based purchasing program for
inpatient hospital services which became effective on October 1, 2012. The
Legislation requires HHS to reduce inpatient hospital payments for all
discharges by 2% in FFY 2017 and subsequent years. HHS will pool the amount
collected from these reductions to fund payments to reward hospitals that meet
or exceed certain quality performance standards established by HHS. HHS will
determine the amount each hospital that meets or exceeds the quality performance
standards will receive from the pool of dollars created by these payment
reductions. As part of the FFY 2022 IPPS proposed rule described above, and as a
result of the on-going COVID-19 pandemic, CMS is proposing to implement a budget
neutral payment policy to fully offset the 2% VBP withhold during FFY 2022.



Hospital Acquired Conditions:


The Legislation prohibits the use of federal funds under the Medicaid program to
reimburse providers for medical assistance provided to treat hospital acquired
conditions ("HAC"). Beginning in FFY 2015, hospitals that fall into the top 25%
of national risk-adjusted HAC rates for all hospitals in the previous year will
receive a 1% reduction in their total Medicare payments.

Readmission Reduction Program:


In the Legislation, Congress also mandated implementation of the hospital
readmission reduction program ("HRRP"). Hospitals with excessive readmissions
for conditions designated by HHS will receive reduced payments for all inpatient
discharges, not just discharges relating to the conditions subject to the
excessive readmission standard. The HRRP currently assesses penalties on
hospitals having excess readmission rates for heart failure, myocardial
infarction, pneumonia, acute exacerbation of chronic obstructive pulmonary
disease (COPD) and elective total hip arthroplasty (THA) and/or total knee
arthroplasty (TKA), excluding planned readmissions, when compared to expected
rates. In the fiscal year 2015 IPPS final rule, CMS added readmissions for
coronary artery bypass graft (CABG) surgical procedures beginning in fiscal year
2017. To account for excess readmissions, an applicable hospital's base
operating DRG payment amount is adjusted for each discharge occurring during the
fiscal year. Readmissions payment adjustment factors can be no more than a 3
percent reduction.

Accountable Care Organizations:


The Legislation requires HHS to establish a Medicare Shared Savings Program that
promotes accountability and coordination of care through the creation of
accountable care organizations ("ACOs"). The ACO program allows providers
(including hospitals), physicians and other designated professionals and
suppliers to voluntarily work together to invest in infrastructure and redesign
delivery processes to achieve high quality and efficient delivery of services.
The program is intended to produce savings as a result of improved quality and
operational efficiency. ACOs that achieve quality performance standards
established by HHS will be eligible to share in a portion of the amounts saved
by the Medicare program. CMS is also developing and implementing more advanced
ACO

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payment models, such as the Next Generation ACO Model, which require ACOs to
assume greater risk for attributed beneficiaries. On December 21, 2018, CMS
published a final rule that, in general, requires ACO participants to take on
additional risk associated with participation in the program. On April 30, 2020,
CMS issued an interim final rule with comment in response to the COVID-19
national emergency permitting ACOs with current agreement periods expiring on
December 31, 2020 the option to extend their existing agreement period by one
year, and permitting certain ACOs to retain their participation level through
2021. It remains unclear to what extent providers will pursue federal ACO status
or whether the required investment would be warranted by increased payment.

Bundled Payments for Care Improvement Advanced:


The Center for Medicare & Medicaid Innovation ("CMMI") implemented a new, second
generation voluntary episode payment model, Bundled Payments for Care
Improvement Advanced ("BPCI-Advanced" or the "Program"), with the first
performance period beginning October 1, 2018. BPCI-Advanced is designed to test
a new iteration of bundled payments with an aim to align incentives among
participating health care providers to reduce expenditures and improve quality
of care for traditional Medicare beneficiaries.

During the fourth quarter of 2020, CMS restructured the FY2021 to FY2023 program
and required participants to select from eight Clinical Episode Service Line
Groups instead of individual clinical episodes. CMS also announced that the now
voluntary program would become mandatory in 2024.

For our hospitals that participated in the program, the CMS BPCI-A reconciliation for the period October 1, 2018 through June 30, 2020 did not have a material impact on our financial results.


The ultimate success and financial impact of the BPCI-Advanced program is
contingent on multiple variables so we are unable to estimate the future impact.
However, given the breadth and scope of participation of our acute care
hospitals in BPCI-Advanced, the impact could be significant (either favorably or
unfavorably) depending on actual program results.



2019 Novel Coronavirus Disease Medicare and Medicaid Payment Related Legislation


In response to the growing threat of COVID-19, on March 13, 2020 a national
emergency was declared. The declaration empowered the HHS Secretary to waive
certain Medicare, Medicaid and Children's Health Insurance Program ("CHIP")
program requirements and Medicare conditions of participation under Section 1135
of the Social Security Act. Having been granted this authority by HHS, CMS
issued a broad range of blanket waivers, which eased certain requirements for
impacted providers, including:



• Waivers and Flexibilities for Hospitals and other Healthcare Facilities

including those for physical environment requirements and certain Emergency

      Medical Treatment & Labor Act provisions


  • Provider Enrollment Flexibilities

• Flexibility and Relief for State Medicaid Programs including those under

      section 1135 Waivers


  • Suspension of Certain Enforcement Activities



In addition to the national emergency declaration, Congress passed and Presidents Trump and Biden have signed various forms of legislation intended to support state and local authority responses to COVID-19 as well as provide fiscal support to businesses, individuals, financial markets, hospitals and other healthcare providers.

Some of the financial support included in the various legislative actions include:



  • Medicaid FMAP Enhancement


     •            The FMAP was increased by 6.2% retroactive to the

federal fiscal

           quarter beginning January 1, 2020 and each   subsequent federal fiscal
           quarter for all states and U.S. territories during the declared public
           health emergency, in accordance with specified conditions.


  • Public Health Emergency Declaration


     •     The HHS Secretary renewed the public health emergency ("PHE") effective
           April 21, 2021 for ninety (90) days. As a result, states would be
           eligible for the enhanced FMAP through the end of federal fiscal year
           2021 should the PHE not be rescinded by the Secretary before the end of
           the ninety day period.



• Creation of a $250 billion Public Health and Social Services Emergency Fund

("PHSSEF")

• Makes grants available to hospitals and other healthcare providers to

           cover unreimbursed healthcare related expenses or lost revenues
           attributable to the public health emergency resulting from the
           coronavirus.

• During the first quarter of 2021, we received approximately $188

           million in PHSSEF grants from the federal government as provided 

for by

           the CARES Act. As mentioned above, we expect to return these 

funds to

           HHS in May, 2021. Since our intent was to return these funds, our
           results of operations for the first quarter of 2021 include


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           no impact from the receipt of the funds. Included in our results of
           operations for the three-month period ended March 31, 2021 was
           approximately $11 million of revenues recognized in connection with
           funds received from various state and local governmental

stimulus grant

           programs.


• During the year ended December 31, 2020, we received approximately $417

           million of funds from various governmental stimulus programs, most
           notably the PHSSEF as provided for by the CARES Act. Included in our
           results of operations for the year ended December 31, 2020 was
           approximately $413 million of revenues recognized in connection with
           funds received from these federal, state and local governmental
           stimulus programs. Our results of operations for the first

quarter of

           2020 did not include any revenues recorded in connection with 

these

           governmental stimulus programs.


• All PHSSEF receipts are pursuant to meeting the applicable the terms and conditions of

            the various distribution programs as of March 31, 2021. The 

Consolidated Appropriations

            Act, 2021 (H.R. 133) enacted on December 27, 2020 includes 

language that provides

            specific instructions on: (1) the redistribution of PHSSEF 

grant payments by a parent

            company among its subsidiaries, and; (2) the calculation of 

lost revenue in a PHSSEF

            grant entitlement determination. The HHS terms and conditions 

for all grant recipients

            and specific fund distributions are located at
            

https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/for-providers/index.html

• Reimburse hospitals at Medicare rates for uncompensated COVID-19 care for

the uninsured

• Our operating results for the three-month period ended March 31, 2021

           included $17 million of revenues in connection with this 

program. In

           2020, we recorded $29 million in connection with this program, none of
           which was recorded during the first quarter of 2020. Revenue for the
           eligible patient encounters is recorded in the period in which the
           encounter is deemed eligible for this program net of any normal
           accounting reserves.




  • Medicare Sequestration Relief


     •     Suspension of the 2% Medicare sequestration offset for Medicare
           services provided from May 1, 2020 through December 31, 2021 by various
           legislative extensions.

• We estimate that this provision had a favorable impact of approximately

           $11 million during the three-month period ending March 31, 2021; and
           will have a favorable impact of approximately $33 million over the
           remaining nine months of 2021. We estimate that this provision had a
           favorable impact of $30 million during 2020, none of which was included
           in our results of operations during the first quarter of 2020.




  • Medicare add-on for inpatient hospital COVID-19 patients


• Increases the payment that would otherwise be made to a hospital for

           treating a Medicare patient admitted with COVID-19 by twenty 

percent

           (20%) for the duration of the COVID-19 public health emergency.


     •     For the three-month period ending March 31, 2021, we estimate that
           additional payments under this provision were approximately $16
           million. For 2020, we estimate that additional payments under this
           provision were approximately $32 million, although the amounts

included

           in our results of operations during the first quarter of 2020 

were not

           significant. These payments offset the increased expenses 

associated

           with the treatment of Medicare COVID-19 patients.




  • Expansion of the Medicare Accelerated and Advance Payment Program ("MAAPP")


     •     In March, 2021, we have fully repaid the $695 million of Medicare
           Accelerated payments received during 2020.




In addition to statutory and regulatory changes to the Medicare program and each
of the state Medicaid programs, our operations and reimbursement may be affected
by administrative rulings, new or novel interpretations and determinations of
existing laws and regulations, post-payment audits, requirements for utilization
review and new governmental funding restrictions, all of which may materially
increase or decrease program payments as well as affect the cost of providing
services and the timing of payments to our facilities. The final determination
of amounts we receive under the Medicare and Medicaid programs often takes many
years, because of audits by the program representatives, providers' rights of
appeal and the application of numerous technical reimbursement provisions. We
believe that we have made adequate provisions for such potential adjustments.
Nevertheless, until final adjustments are made, certain issues remain unresolved
and previously determined allowances could become either inadequate or more than
ultimately required.

Finally, we expect continued third-party efforts to aggressively manage reimbursement levels and cost controls. Reductions in reimbursement amounts received from third-party payers could have a material adverse effect on our financial position and our results.


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Other Operating Results

Interest Expense:

As reflected on the schedule below, interest expense was $22 million and $36 million during the three-month periods ended March 31, 2021 and 2020, respectively (amounts in thousands):

                                                          Three Months       Three Months
                                                             Ended              Ended
                                                           March 31,          March 31,
                                                              2021               2020
Revolving credit & demand notes (a.)                     $          496     $          716
$700 million, 4.75% Senior Notes due 2022, net (b.)                   0     

8,069

$400 million, 5.00% Senior Notes due 2026 (c.)                    5,000     

5,000

$800 million, 2.65% Senior Notes due 2030 (d.)                    5,400                  -
Term loan facility A (a.)                                         7,117             14,365
Term loan facility B (a.)                                         2,298              4,284
Accounts receivable securitization program (e.)                     760     

2,043

Subtotal-revolving credit, demand notes, Senior Notes,

term loan facilities and accounts receivable

  securitization program                                         21,071     

34,477

Amortization of financing fees                                    1,092     

1,282

Other combined interest expense                                   1,337     

1,671

Capitalized interest on major projects                             (639 )           (1,049 )
Interest income                                                    (904 )              (30 )
Interest expense, net                                    $       21,957     $       36,351




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

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

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

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

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

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

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

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

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




The credit agreement, as amended in October, 2018, consists of: (i) an $1
billion revolving credit facility with no outstanding borrowings as of March 31,
2021; (ii) a term loan A facility with $1.875 billion of outstanding borrowings
as of March 31, 2021, and; (iii) a term loan B facility with $489 million of
outstanding borrowings as of March 31, 2021.



(b.) In September, 2020, we redeemed the entire $700 million aggregate

principal amount of our previously outstanding 4.75% Senior Secured Notes

that were scheduled to mature in 2022 ("2022 Notes") at a cash redemption

price equal to the sum of: (i) 100% of the aggregate principal amount of

         the 2022 Notes redeemed, and; (ii) accrued and unpaid interest on the
         2022 Notes to the redemption date.




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



(d.) In September, 2020, we completed the offering of $800 million aggregate

principal amount of 2.65% Senior Notes due in 2030. The net proceeds of

this offering were primarily used to redeem all of the $700 million, 2022

         Notes as discussed above.



(e.) On March 18, 2021, we provided notice to the group of conduit lenders,

liquidity banks, and PNC Bank, National Association, as administrative

agent, in connection with our $450 million accounts receivable

securitization program, expressing our intent to terminate the aggregate

         borrowing commitments under the facility effective as of March 31, 2021.
         There are no outstanding borrowings as of March 31, 2021.




Interest expense decreased $14 million during the three-month period ended
March 31, 2021, as compared to the comparable period of 2020, due primarily to:
(i) a net $13 million decrease in aggregate interest expense on our revolving
credit, demand notes, senior notes, term loan facilities and accounts receivable
securitization program resulting from a decrease in our aggregate average cost
of borrowings pursuant to these facilities (2.2% during the three months ended
March 31, 2021 as compared to 3.6% in the comparable quarter of 2020), as well
as a decrease in the aggregate average outstanding borrowings ($3.81 billion
during the three months ended March 31, 2021 as compared to $3.85 billion in the
comparable 2020 quarter), and; (ii) $1 million of other combined net decreases
in interest expense.



                                       49

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Provision for Income Taxes and Effective Tax Rates:

The effective tax rates, as calculated by dividing the provision for income taxes by income before income taxes, were as follows for the three-month periods ended March 31, 2021 and 2020 (dollar amounts in thousands):

                                Three months ended
                             March 31,      March 31,
                                2021           2020
Provision for income taxes   $   63,807     $   46,323
Income before income taxes      272,877        190,783
Effective tax rate                 23.4 %         24.3 %

The provision for income taxes increased $17 million during the three-month period ended March 31, 2021, as compared to the first quarter of 2020, due primarily to: (i) the income tax provision recorded in connection with the $84 million increase in pre-tax income, partially offset by; (ii) a $2 million decrease in the provision for income taxes recorded in connection with our adoption of ASU 2016-09.

Liquidity

Net cash provided by operating activities


Net cash provided by operating activities was $72 million during the three-month
period ended March 31, 2021 and $502 million during the first quarter of 2020.
The net decrease of $430 million was attributable to the following:

• an unfavorable change of $509 million resulting primarily from the

above-mentioned, early return of the $695 million of Medicare accelerated

payments which were repaid during the first quarter of 2021, net of the $188

million of CARES Act grants received during the first quarter of 2021 (which

we expect to repay in May, 2021);

• a favorable change of $72 million resulting from an increase in net income

plus depreciation and amortization expense and stock-based compensation

      expense, and;


  • $7 million of other combined net favorable changes.


Days sales outstanding ("DSO"): Our DSO are calculated by dividing our net
revenue by the number of days in the three-month periods. The result is divided
into the accounts receivable balance at March 31st of each year to obtain the
DSO. Our DSO were 50 days and 48 days at March 31, 2021 and 2020, respectively.

Net cash used in investing activities

During the first three months of 2021, we used $262 million of net cash in investing activities as follows:

$247 million spent on capital expenditures including capital expenditures

for equipment, renovations and new projects at various existing facilities;

$14 million spent in connection with net cash outflows from forward exchange

      contracts that hedge our investment in the U.K. against movements in
      exchange rates, and;


   •  $1 million spent on the purchase and implementation of information
      technology applications.

During the first three months of 2020, we used $135 million of net cash in investing activities as follows:

$184 million spent on capital expenditures including capital expenditures

for equipment, renovations and new projects at various existing facilities;

$52 million received in connection with net cash inflows from forward

exchange contracts that hedge our investment in the U.K. against movements

      in exchange rates;


   •  $2 million spent on the purchase and implementation of information
      technology applications, and;

$1 million spent to fund investments in and advances to joint ventures and

other.

Net cash used in financing activities

During the first three months of 2021, we used $270 million of net cash in financing activities as follows:

• spent $252 million on net repayments of debt as follows: (i) $225 million in

connection with our accounts receivable securitization program; (ii) $25

million related to our term loan A facility; (iii) $1 million related to our

term loan B facility, and; (iv) $1 million related to other debt facilities;

• spent $17 million to pay cash dividends of $.20 per share during the first

      quarter;


                                       50

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• received $8 million in connection with the sale of ownership interest to

minority members;

• spent $7 million to repurchase shares of our Class B Common Stock in

connection with income tax withholding obligations related to stock-based

compensation programs;

• spent $5 million to pay profit distributions related to noncontrolling

interests in majority owned businesses, and;

• generated $3 million from the issuance of shares of our Class B Common Stock

pursuant to the terms of employee stock purchase plans;

During the first three months of 2020, we used $372 million of net cash in financing activities as follows:

• spent $185 million on net repayments of debt as follows: (i) $13 million

related to our term loan A facility; (ii) $140 million related to our

accounts receivable securitization program; (iii) $1 million related to our

term loan B facility, and; (iv) $31 million related to a short-term credit

      facility.


  • generated $5 million of proceeds related to other debt facilities;

• spent $172 million to repurchase shares of our Class B Common Stock in

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

stock repurchase program ($170 million), and; (ii) income tax withholding

obligations related to stock-based compensation programs ($3 million);

• spent $6 million to pay profit distributions related to noncontrolling

interests in majority owned businesses;

• spent $17 million to pay quarterly cash dividends of $.20 per share, and;

• generated $3 million from the issuance of shares of our Class B Common Stock

pursuant to the terms of employee stock purchase plans.

Expected capital expenditures during remainder of 2021


Our estimated capital expenditures for the full year of 2021 are projected to be
approximately $850 million to $1.0 billion. During the first three months of
2021, we spent approximately $247 million on capital expenditures. During the
remaining nine months of 2021, we expect to spend approximately $603 million to
$753 million which includes expenditures for capital equipment, renovations and
new projects at existing hospitals.

We believe that our capital expenditure program is adequate to expand, improve
and equip our existing hospitals. We expect to finance all capital expenditures
and acquisitions with internally generated funds and/or additional funds, as
discussed below.

Capital Resources

Cash and Cash Equivalents

As of March 31, 2021, we had approximately $765 million of cash and cash equivalents consisting primarily of short-term cash accounts on which interest is being earned at various annual rates ranging from 0.20% to 0.35%.

Credit Facilities and Outstanding Debt Securities


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

The Sixth Amendment to the Senior Credit Agreement, among other things: (i)
increased the aggregate amount of the revolving credit facility to $1 billion;
(ii) increased the aggregate amount of the tranche A term loan commitments to $2
billion, and; (iii) extended the maturity date of the revolving credit and
tranche A term loan facilities to October 23, 2023 from August 7, 2019.

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

As of March 31, 2021, we had no borrowings outstanding pursuant to our $1 billion revolving credit facility and we had $997 million of available borrowing capacity net of $3 million of outstanding letters of credit.


Pursuant to the terms of the Sixth Amendment, the tranche A term loan, which had
$1.875 billion of borrowings outstanding as of March 31, 2021, provides for
installment payments of $25 million per quarter until maturity in October of
2023, when all outstanding amounts will be due.

                                       51

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The tranche B term loan, which had approximately $489 million of borrowings
outstanding as of March 31, 2021, provides for installment payments of $1.25
million per quarter which are scheduled to continue until maturity in October of
2025, when all outstanding amounts will be due.

Borrowings under the Senior Credit Agreement bear interest at our election at
either (1) the ABR rate which is defined as the rate per annum equal to the
greatest of (a) the lender's prime rate, (b) the weighted average of the federal
funds rate, plus 0.5% and (c) one month LIBOR rate plus 1%, in each case, plus
an applicable margin based upon our consolidated leverage ratio at the end of
each quarter ranging from 0.375% to 0.625% for revolving credit and term loan A
borrowings and 0.75% for tranche B borrowings, or (2) the one, two, three or six
month LIBOR rate (at our election), plus an applicable margin based upon our
consolidated leverage ratio at the end of each quarter ranging from 1.375% to
1.625% for revolving credit and term loan A borrowings and 1.75% for the tranche
B term loan. As of March 31, 2021, the applicable margins were 0.375% for
ABR-based loans and 1.375% for LIBOR-based loans under the revolving credit and
term loan A facilities. The revolving credit facility includes a $125 million
sub-limit for letters of credit. The Senior Credit Agreement is secured by
certain assets of the Company and our material subsidiaries (which generally
excludes asset classes such as substantially all of the patient-related accounts
receivable of our acute care hospitals, and certain real estate assets and
assets held in joint-ventures with third parties) and is guaranteed by our
material subsidiaries.

The Senior Credit Agreement includes a material adverse change clause that must
be represented at each draw. The Senior Credit Agreement contains covenants that
include a limitation on sales of assets, mergers, change of ownership, liens and
indebtedness, transactions with affiliates, dividends and stock repurchases; and
requires compliance with financial covenants including maximum leverage. We are
in compliance with all required covenants as of March 31, 2021 and December 31,
2020.

In March, 2021, we provided notice to the group of conduit lenders, liquidity
banks, and PNC Bank, National Association, as administrative agent, in
connection with our $450 million accounts receivable securitization program
("Securitization"), expressing our intent to terminate the aggregate borrowing
commitments under the facility, which occurred effective as of March 31, 2021.
The Securitization was amended as of April 26, 2021 (the eighth amendment) to:
(i) reduce the aggregate borrowing commitments to $20 million; (ii) slightly
reduce the borrowing rates and commitment fee, and; (iii) extend the maturity
date to April 25, 2022. Substantially all other material terms and conditions
remained unchanged.

As of March 31, 2021, we had combined aggregate principal of $1.2 billion from the following senior secured notes:

$800 million aggregate principal amount of 2.65% senior secured notes due in

October, 2030 ("2030 Notes") which were issued on September 21, 2020.

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

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



Interest on the 2026 Notes is payable on June 1 and December 1 until the
maturity date of June 1, 2026. Interest on the 2030 Notes payable on April 15
and October 15, commencing April 15, 2021, until the maturity date of October
15, 2030. The 2026 Notes and 2030 Notes were offered only to qualified
institutional buyers under Rule 144A and to non-U.S. persons outside the United
States in reliance on Regulation S under the Securities Act of 1933, as amended
(the "Securities Act"). The 2026 Notes and 2030 Notes have not been registered
under the Securities Act and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.

The 2030 Notes are guaranteed (the "Guarantees") on a senior secured basis by
all of our existing and future direct and indirect subsidiaries (the "Subsidiary
Guarantors") that guarantee our Senior Credit Agreement, dated as of November
15, 2010, as amended, restated or supplemented from time to time, or other first
lien obligations or any junior lien obligations.  The 2030 Notes and the
Guarantees are secured by first-priority liens, subject to permitted liens, on
certain of the Company's and the Subsidiary Guarantors' assets now owned or
acquired in the future by the Company or the Subsidiary Guarantors (other than
real property, accounts receivable sold pursuant to the Company's Existing
Receivables Facility (as defined in the Indenture pursuant to which the 2030
Notes were issued (the "Indenture")), and certain other excluded assets). The
Company's obligations with respect to the 2030 Notes, the obligations of the
Subsidiary Guarantors under the Guarantees, and the performance of all of the
Company's and the Subsidiary Guarantors' other obligations under the Indenture
are secured equally and ratably with the Company's and the Subsidiary
Guarantors' obligations under the Senior Credit Agreement and the Company's 2026
Notes by a perfected first-priority security interest, subject to permitted
liens, in the collateral owned by the Company and its Subsidiary Guarantors,
whether now owned or hereafter acquired. However, the liens on the collateral
securing the 2030 Notes and the Guarantees will be released if: (i) the 2030
Notes have investment grade ratings; (ii) no default has occurred and is
continuing, and; (iii) the liens on the collateral securing all first lien
obligations (including the Senior Credit Agreement and the 2026 Notes) and any
junior lien obligations are released or the collateral under the Senior Credit
Agreement, any other first lien obligations and any junior lien obligations is
released or no longer required to be pledged. The liens on any collateral
securing the 2030 Notes and the Guarantees will also be released if the liens on
that collateral securing the Senior Credit Agreement, other first lien
obligations and any junior lien obligations are released.

In connection with the issuance of the 2030 Notes, the Company, the Subsidiary
Guarantors and the representatives of the several initial purchasers, entered
into a Registration Rights Agreement (the "Registration Rights Agreement"),
whereby the Company and the Subsidiary Guarantors have agreed, at their expense,
to use commercially reasonable best efforts to: (i) cause to be filed a
registration statement enabling the holders to exchange the 2030 Notes and the
Guarantees for registered senior secured notes issued by the

                                       52

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Company and guaranteed by the then Subsidiary Guarantors under the Indenture
(the "Exchange Securities"), containing terms identical to those of the 2030
Notes (except that the Exchange Securities will not be subject to restrictions
on transfer or to any increase in annual interest rate for failure to comply
with the Registration Rights Agreement); (ii) cause the registration statement
to become effective; (iii) complete the exchange offer not later than 60 days
after such effective date and in any event on or prior to a target registration
date of March 21, 2023, and; (iv) file a shelf registration statement for the
resale of the 2030 Notes if the exchange offer cannot be effected within the
time periods listed above. The interest rate on the 2030 Notes will increase and
additional interest thereon will be payable if the Company does not comply with
its obligations under the Registration Rights Agreement.

On September 28, 2020, we redeemed the entire $700 million aggregate principal
amount of our previously outstanding 4.75% Senior Secured Notes due 2022 (the
"2022 Notes"), at a cash redemption price equal to the sum of: (i) 100% of the
aggregate principal amount of the 2022 Notes redeemed, and; (ii) accrued and
unpaid interest on the 2022 Notes to the redemption date.

At March 31, 2021, the carrying value and fair value of our debt were each
approximately $3.6 billion. At December 31, 2020, the carrying value and fair
value of our debt were each approximately $3.9 billion. The fair value of our
debt was computed based upon quotes received from financial institutions. We
consider these to be "level 2" in the fair value hierarchy as outlined in the
authoritative guidance for disclosures in connection with debt instruments.

Our total debt as a percentage of total capitalization was approximately 36% at March 31, 2021 and 38% at December 31, 2020.


We expect to finance all capital expenditures and acquisitions and pay dividends
and potentially repurchase shares of our common stock utilizing internally
generated and additional funds. Additional funds may be obtained through:
(i) borrowings under our existing revolving credit facility, which had $997
million of available borrowing capacity as of March 31, 2021, or through
refinancing the existing Senior Credit Agreement; (ii) the issuance of other
long-term debt, and/or; (iii) the issuance of equity. We believe that our
operating cash flows, cash and cash equivalents, as well as access to the
capital markets, provide us with sufficient capital resources to fund our
operating, investing and financing requirements for the next twelve months.
However, in the event we need to access the capital markets or other sources of
financing, there can be no assurance that we will be able to obtain financing on
acceptable terms or within an acceptable time. Our inability to obtain financing
on terms acceptable to us could have a material unfavorable impact on our
results of operations, financial condition and liquidity.

Off-Balance Sheet Arrangements

During the three months ended March 31, 2021, there have been no material changes in the off-balance sheet arrangements consisting of standby letters of credit and surety bonds.


As of March 31, 2021 we were party to certain off balance sheet arrangements
consisting of standby letters of credit and surety bonds which totaled $168
million consisting of: (i) $159 million related to our self-insurance programs,
and; (ii) $9 million of other debt and public utility guarantees.

© Edgar Online, source Glimpses

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