UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2017
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-11239
HCA Healthcare, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 27-3865930 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
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One Park Plaza Nashville, Tennessee (Address of Principal Executive Offices) |
37203 (Zip Code) |
Registrants telephone number, including area code: (615) 344-9551
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class |
Name of Each Exchange on Which Registered |
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Common Stock, $0.01 Par Value | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of January 31, 2018, there were 349,903,700 outstanding shares of the Registrants common stock. As of June 30, 2017, the aggregate market value of the common stock held by nonaffiliates was approximately $25.351 billion. For purposes of the foregoing calculation only, Hercules Holding II and the Registrants directors and executive officers have been deemed to be affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive proxy materials for its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
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PART I
Item 1. |
Business |
General
HCA Healthcare, Inc. is one of the leading health care services companies in the United States. At December 31, 2017, we operated 179 hospitals, comprised of 175 general, acute care hospitals; three psychiatric hospitals; and one rehabilitation hospital. In addition, we operated 120 freestanding surgery centers. Our facilities are located in 20 states and England.
The terms Company, HCA, we, our or us, as used herein and unless otherwise stated or indicated by context, refer to HCA Healthcare, Inc. and its affiliates. The term affiliates means direct and indirect subsidiaries of HCA Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners. The terms facilities or hospitals refer to entities owned and operated by affiliates of HCA, and the term employees refers to employees of affiliates of HCA.
Our primary objective is to provide a comprehensive array of quality health care services in the most cost-effective manner possible. Our general, acute care hospitals typically provide a full range of services to accommodate such medical specialties as internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency services. Outpatient and ancillary health care services are provided by our general, acute care hospitals, freestanding surgery centers, freestanding emergency care facilities, urgent care facilities, walk-in clinics, diagnostic centers and rehabilitation facilities. Our psychiatric hospitals provide a full range of mental health care services through inpatient, partial hospitalization and outpatient settings.
Our common stock is traded on the New York Stock Exchange (symbol HCA). Through our predecessors, we commenced operations in 1968. The Company was incorporated in Delaware in October 2010. Our principal executive offices are located at One Park Plaza, Nashville, Tennessee 37203, and our telephone number is (615) 344-9551.
Available Information
We file certain reports with the Securities and Exchange Commission (the SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The public may read and copy any materials we file with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer, and the SEC maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements and other information we file electronically. Our website address is www.hcahealthcare.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge, through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is specifically referenced elsewhere in this report.
Our Code of Conduct is available free of charge upon request to our Corporate Secretary, HCA Healthcare, Inc., One Park Plaza, Nashville, Tennessee 37203.
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Business Strategy
We are committed to providing the communities we serve with high quality, cost-effective health care while growing our business, increasing our profitability and creating long-term value for our stockholders. To achieve these objectives, we align our efforts around the following growth agenda:
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grow our presence in existing markets; |
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achieve industry-leading performance in clinical and satisfaction measures; |
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recruit and employ physicians to meet the need for high quality health services; |
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continue to leverage our scale and market positions to enhance profitability; and |
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pursue a disciplined development strategy. |
Health Care Facilities
We currently own, manage or operate hospitals, freestanding surgery centers, freestanding emergency care facilities, urgent care facilities, walk-in clinics, diagnostic and imaging centers, radiation and oncology therapy centers, comprehensive rehabilitation and physical therapy centers, physician practices and various other facilities.
At December 31, 2017, we owned and operated 175 general, acute care hospitals with 46,226 licensed beds. Most of our general, acute care hospitals provide medical and surgical services, including inpatient care, intensive care, cardiac care, diagnostic services and emergency services. The general, acute care hospitals also provide outpatient services such as outpatient surgery, laboratory, radiology, respiratory therapy, cardiology and physical therapy. Each hospital has an organized medical staff and a local board of trustees or governing board, made up of members of the local community.
At December 31, 2017, we operated three psychiatric hospitals with 412 licensed beds. Our psychiatric hospitals provide therapeutic programs including child, adolescent and adult psychiatric care, adolescent and adult alcohol and drug abuse treatment and counseling.
We also operate outpatient health care facilities, which include freestanding ambulatory surgery centers (ASCs), freestanding emergency care facilities, urgent care facilities, walk-in clinics, diagnostic and imaging centers, comprehensive rehabilitation and physical therapy centers, radiation and oncology therapy centers, physician practices and various other facilities. These outpatient services are an integral component of our strategy to develop comprehensive health care networks in select communities. Most of our ASCs are operated through partnerships or limited liability companies, with majority ownership of each partnership or limited liability company typically held by a general partner or member that is an affiliate of HCA.
Certain of our affiliates provide a variety of management services to our health care facilities, including patient safety programs, ethics and compliance programs, national supply contracts, equipment purchasing and leasing contracts, accounting, financial and clinical systems, governmental reimbursement assistance, construction planning and coordination, information technology systems and solutions, legal counsel, human resources services and internal audit services.
Sources of Revenue
Hospital revenues depend upon inpatient occupancy levels, the medical and ancillary services ordered by physicians and provided to patients, the volume of outpatient procedures and the charges or payment rates for such services. Charges and reimbursement rates for inpatient services vary significantly depending on the type of third-party payer, the type of service (e.g., medical/surgical, intensive care or psychiatric) and the geographic location of the hospital. Inpatient occupancy levels fluctuate for various reasons, many of which are beyond our control.
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We receive payments for patient services from the federal government under the Medicare program, state governments under their respective Medicaid or similar programs, managed care plans (including plans offered through the American Health Benefit Exchanges (Exchanges)), private insurers and directly from patients. Our revenues from third-party payers and other (including uninsured patients) for the years ended December 31, 2017, 2016 and 2015 are summarized in the following table (dollars in millions):
Years Ended December 31, | ||||||||||||||||||||||||
2017 | Ratio | 2016 | Ratio | 2015 | Ratio | |||||||||||||||||||
Medicare |
$ | 9,483 | 21.7 | % | $ | 8,895 | 21.4 | % | $ | 8,654 | 21.8 | % | ||||||||||||
Managed Medicare |
4,788 | 11.0 | 4,355 | 10.5 | 4,133 | 10.4 | ||||||||||||||||||
Medicaid |
1,631 | 3.7 | 1,597 | 3.8 | 1,705 | 4.3 | ||||||||||||||||||
Managed Medicaid |
2,349 | 5.4 | 2,478 | 6.0 | 2,234 | 5.6 | ||||||||||||||||||
Managed care and other insurers |
24,813 | 56.9 | 23,441 | 56.5 | 21,882 | 55.2 | ||||||||||||||||||
International (managed care and other insurers) |
1,097 | 2.5 | 1,195 | 2.9 | 1,295 | 3.3 | ||||||||||||||||||
Other |
3,492 | 8.0 | 2,786 | 6.7 | 3,688 | 9.3 | ||||||||||||||||||
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Revenues before provision for doubtful accounts |
47,653 | 109.2 | 44,747 | 107.8 | 43,591 | 109.9 | ||||||||||||||||||
Provision for doubtful accounts |
(4,039 | ) | (9.2 | ) | (3,257 | ) | (7.8 | ) | (3,913 | ) | (9.9 | ) | ||||||||||||
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Revenues |
$ | 43,614 | 100.0 | % | $ | 41,490 | 100.0 | % | $ | 39,678 | 100.0 | % | ||||||||||||
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Medicare is a federal program that provides certain hospital and medical insurance benefits to persons age 65 and over, some disabled persons, persons with end-stage renal disease and persons with Lou Gehrigs Disease. Medicaid is a federal-state program, administered by the states, that provides hospital and medical benefits to qualifying individuals who are unable to afford health care. All of our general, acute care hospitals located in the United States are eligible to participate in Medicare and Medicaid programs. Amounts received under Medicare and Medicaid programs are generally significantly less than established hospital gross charges for the services provided.
Our hospitals generally offer discounts from established charges to certain group purchasers of health care services, including private health insurers, employers, health maintenance organizations (HMOs), preferred provider organizations (PPOs) and other managed care plans, including health plans offered through the Exchanges. These discount programs generally limit our ability to increase revenues in response to increasing costs. See Item 1, Business Competition. Patients are generally not responsible for the total difference between established hospital gross charges and amounts reimbursed for such services under Medicare, Medicaid, HMOs, PPOs and other managed care plans, but are responsible to the extent of any exclusions, deductibles or coinsurance features of their coverage. The amount of such exclusions, deductibles and coinsurance continues to increase. Collection of amounts due from individuals is typically more difficult than from government health care programs or other third-party payers. We provide discounts to uninsured patients who do not qualify for Medicaid or for financial relief under our charity care policy. In implementing our uninsured discount policy, we may attempt to provide assistance to uninsured patients to help determine whether they may qualify for Medicaid, other federal or state assistance or charity care under our charity care policy. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.
Medicare
In addition to the reimbursement reductions and adjustments discussed below, the Budget Control Act of 2011 (the BCA) requires automatic spending reductions to reduce the federal deficit, including Medicare spending reductions of up to 2% per fiscal year, with a uniform percentage reduction across all Medicare programs. The Centers for Medicare & Medicaid Services (CMS) began imposing a 2% reduction on Medicare claims on April 1, 2013. These reductions have been extended through 2027.
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Inpatient Acute Care
Under the Medicare program, we receive reimbursement under a prospective payment system (PPS) for general, acute care hospital inpatient services. Under the hospital inpatient PPS, fixed payment amounts per inpatient discharge are established based on the patients assigned Medicare severity diagnosis-related group (MS-DRG). MS-DRGs classify treatments for illnesses according to the estimated intensity of hospital resources necessary to furnish care for each principal diagnosis. MS-DRG weights represent the average resources for a given MS-DRG relative to the average resources for all MS-DRGs. MS-DRG payments are adjusted for area wage differentials. Hospitals, other than those defined as new, receive PPS reimbursement for inpatient capital costs based on MS-DRG weights multiplied by a geographically adjusted federal rate. When the cost to treat certain patients falls well outside the normal distribution, providers typically receive additional outlier payments. These payments are financed by offsetting reductions in the inpatient PPS rates. A high-cost outlier threshold is set annually at a level that will result in estimated outlier payments equaling 5.1% of total inpatient PPS payments for the fiscal year.
MS-DRG rates are updated, and MS-DRG weights are recalibrated, using cost-relative weights each federal fiscal year (which begins October 1). The index used to update the MS-DRG rates (the market basket) gives consideration to the inflation experienced by hospitals and entities outside the health care industry in purchasing goods and services. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the Health Reform Law), provides for annual decreases to the market basket, including reductions of 0.75 percentage point for federal fiscal years 2018 and 2019. For each federal fiscal year, the Health Reform Law provides for the annual market basket update to be further reduced by a productivity adjustment based on the Bureau of Labor Statistics (BLS) 10-year moving average of changes in specified economy-wide productivity. A decrease in payment rates or an increase in rates that is below the increase in our costs may adversely affect our results of operations.
For federal fiscal year 2017, CMS increased the MS-DRG rate by 0.95%. This increase reflected a 2.7% market basket increase adjusted by the following percentage points: 0.75 reduction required by the Health Reform Law, a negative 0.3 productivity adjustment, and a prospective reduction of 1.5 for documentation and coding that was required under the American Taxpayer Relief Act of 2012. It also reflects a positive adjustment to the market basket update of approximately 0.8 percentage point to remove the effects of prior adjustments intended to offset the estimated increase in inpatient PPS expenditures resulting from the Medicare programs two midnight rule. Under the two midnight rule, services provided to Medicare beneficiaries are only payable as inpatient hospital services when there is a reasonable expectation that the hospital care is medically necessary and will be required across two midnights, absent unusual circumstances. For federal fiscal year 2018, CMS increased the MS-DRG rate by approximately 1.2%. This increase reflects a market basket update of 2.7%, adjusted by the following percentage points: 0.75 reduction required by the Health Reform Law, a negative 0.6 productivity adjustment, a further reduction of 0.6 to remove the effects of prior adjustments related to the two midnight rule, and a positive 0.46 adjustment in accordance with the 21st Century Cures Act. Additional adjustments may apply, depending on patient-specific or hospital-specific factors. Under the post-acute care transfer policy, for example, Medicare reimbursement rates are reduced when an inpatient hospital discharges a patient in a specified MS-DRG to certain post-acute care settings. Under the budget bill enacted in February 2018, hospice will be added as a setting covered by the policy effective October 1, 2018.
CMS has implemented, or is implementing, a number of programs and requirements intended to transform Medicare from a passive payer to an active purchaser of quality goods and services. For example, hospitals that do not successfully participate in the Hospital Inpatient Quality Reporting Program are subject to an additional 0.25% reduction of the market basket update. Hospitals that do not demonstrate meaningful use of electronic health records (EHRs) are subject to an additional 0.75% reduction of the market basket update.
Medicare does not allow an inpatient hospital discharge to be assigned to a higher paying MS-DRG if certain designated hospital acquired conditions (HACs) were not present on admission and the identified HAC is the only condition resulting in the assignment of the higher paying MS-DRG. In this situation, the case is paid
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as though the secondary diagnosis was not present. There are currently 14 categories of conditions on the list of HACs. Pursuant to the Health Reform Law, the 25% of hospitals with the worst risk-adjusted HAC rates in the designated performance period receive a 1% reduction in their inpatient PPS Medicare payments. CMS has also established three National Coverage Determinations that prohibit Medicare reimbursement for erroneous surgical procedures performed on an inpatient or outpatient basis.
The Health Reform Law also provides for reduced payments to hospitals based on readmission rates. Each federal fiscal year inpatient payments are reduced if a hospital experiences excess readmissions within the 30-day time period from the date of discharge for conditions designated by CMS. For federal fiscal year 2018, CMS has designated seven conditions, including heart attack, pneumonia and total hip arthroplasty. Hospitals with what CMS defines as excess readmissions for these conditions receive reduced payments for all inpatient discharges, not just discharges relating to the conditions subject to the excess readmission standard. The amount by which payments are reduced is determined by comparing the hospitals performance for each condition using three years of discharge data to a risk-adjusted national average, subject to a cap established by CMS. The reduction in payments to hospitals with excess readmissions can be up to 3% of a hospitals base payments. Each hospitals performance is publicly reported by CMS.
The Health Reform Law additionally establishes a hospital value-based purchasing program to further link payments to quality and efficiency. For federal fiscal year 2017 and subsequent years, CMS reduces the inpatient PPS payment amount for all discharges by 2.00%. The total amount collected from these reductions is pooled and used to fund payments to reward hospitals that meet certain quality performance standards established by CMS. CMS scores each hospital based on achievement (relative to other hospitals) and improvement ranges (relative to the hospitals own past performance) for each applicable performance standard. Because the Health Reform Law provides that the pool will be fully distributed, hospitals that meet or exceed the quality performance standards receive greater reimbursement under the value-based purchasing program than they would have otherwise. Hospitals that do not achieve the necessary quality performance receive reduced Medicare inpatient hospital payments. Hospitals are scored on a number of individual measures that are categorized into four domains: clinical care; efficiency and cost reduction; safety and patient and caregiver experience of care. CMS estimates that $1.9 billion will be available to hospitals as incentive payments in federal fiscal year 2018 under the value-based purchasing program.
Outpatient
CMS reimburses hospital outpatient services (and certain Medicare Part B services furnished to hospital inpatients who have no Part A coverage) on a PPS basis. CMS uses fee schedules to pay for physical, occupational and speech therapies, durable medical equipment, clinical diagnostic laboratory services, nonimplantable orthotics and prosthetics, freestanding surgery center services and services provided by independent diagnostic testing facilities. In addition, as required by statute, certain items and services furnished by off-campus provider-based departments, subject to certain exceptions, are not covered as outpatient department services under the outpatient PPS, but are reimbursed under the Medicare Physician Fee Schedule (Physician Fee Schedule), subject to adjustments as specified by CMS.
Hospital outpatient services paid under PPS are classified into groups called ambulatory payment classifications (APCs). Services for each APC are similar clinically and in terms of the resources they require. A payment rate is established for each APC. Depending on the services provided, a hospital may be paid for more than one APC for a patient visit. The APC payment rates are updated for each calendar year. The Health Reform Law provides for annual reductions of 0.75 percentage point to the market basket update in calendar years 2018 and 2019. For each calendar year, the Health Reform Law provides for the annual market basket update to be further reduced by a productivity adjustment based on the BLS 10-year moving average of changes in specified economy-wide productivity. For calendar year 2017, CMS increased APC payment rates by an estimated 1.7%. The change reflected a market basket increase of 2.7% with a negative 0.3 percentage point productivity adjustment and the negative 0.75 percentage point adjustment required by the Health Reform Law, along with other payment adjustments. For calendar year 2018, CMS increased APC payment rates by an
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estimated 1.4%. This increase reflects a market basket increase of 2.7% adjusted by the following percentage points: a positive 0.6 productivity adjustment and negative 0.75 adjustment required by the Health Reform Law, along with other policy changes. CMS requires hospitals to submit quality data relating to outpatient care to avoid receiving a 2.0 percentage point reduction to the market basket update under the outpatient PPS.
Rehabilitation
CMS reimburses inpatient rehabilitation facilities (IRFs) on a PPS basis. Under the IRF PPS, patients are classified into case mix groups based upon impairment, age, comorbidities (additional diseases or disorders from which the patient suffers) and functional capability. IRFs are paid a predetermined amount per discharge that reflects the patients case mix group and is adjusted for area wage levels, low-income patients, rural areas and high-cost outliers. The Health Reform Law provides for reductions to the market basket update, including annual reductions of 0.75 percentage point in federal fiscal years 2018 and 2019. For each federal fiscal year, the Health Reform Law provides for the annual market basket update to be further reduced by a productivity adjustment based on the BLS 10-year moving average of changes in specified economy-wide productivity. For federal fiscal year 2017, CMS increased inpatient rehabilitation payment rates by approximately 1.9%, which reflects an increase of 2.7% to the IRF-specific market basket with a negative 0.3 percentage point productivity adjustment and the 0.75 percentage point reduction required by the Health Reform Law, among other payment adjustments. For federal fiscal year 2018, CMS increased inpatient rehabilitation payment rates by an estimated 0.9%. This reflects an increase factor of 1.0%, the figure required by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), with adjustments related to outlier threshold results. In addition, CMS requires IRFs to report quality measures to avoid receiving a reduction of 2 percentage points to the market basket update.
In order to qualify for classification as an IRF, at least 60% of a facilitys inpatients during the most recent 12-month CMS-defined review period must have required intensive rehabilitation services for one or more of 13 specified conditions. IRFs must also meet additional coverage criteria, including patient selection and care requirements relating to pre-admission screenings, post-admission evaluations, ongoing coordination of care and involvement of rehabilitation physicians. A facility that fails to meet the 60% threshold, or other criteria to be classified as an IRF, will be paid under either the acute care hospital inpatient or outpatient PPS, which generally provide for lower payment amounts. As of December 31, 2017, we had one rehabilitation hospital and 58 hospital rehabilitation units.
Psychiatric
Inpatient hospital services furnished in psychiatric hospitals and psychiatric units of general, acute care hospitals and critical access hospitals are reimbursed on a PPS basis. The inpatient psychiatric facility (IPF) PPS is based upon a per diem payment, with adjustments to account for certain patient and facility characteristics. The IPF PPS contains an outlier policy for extraordinarily costly cases and an adjustment to a facilitys base payment if it maintains a full-service emergency department. CMS has established the IPF PPS payment rate in a manner intended to be budget neutral. The Health Reform Law provides for reductions to the market basket update, including reductions of 0.75 percentage point in federal fiscal years 2018, 2019 and 2020. For each payment year, the Health Reform Law provides for the annual market basket update to be further reduced by a productivity adjustment based on the BLS 10-year moving average of changes in specified economy-wide productivity. For federal fiscal year 2017, CMS increased inpatient psychiatric payment rates by approximately 2.2%, which reflects a 2.8% IPF market basket update, reduced by a 0.3 percentage point productivity adjustment and by 0.2 percentage point as required by the Health Reform Law, among other payment adjustments. For federal fiscal year 2018, CMS increased inpatient psychiatric payment rates by an estimated 1.0%, which reflects a 2.6% IPF market basket update with a negative 0.6 percentage point productivity adjustment, a negative 0.75 percentage point adjustment as required by the Health Reform Law, and other policy changes. Inpatient psychiatric facilities are required to report quality measures to CMS to avoid receiving a 2.0 percentage point reduction to the market basket update. As of December 31, 2017, we had three psychiatric hospitals and 55 hospital psychiatric units.
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Ambulatory Surgery Centers
CMS reimburses ASCs using a predetermined fee schedule. Reimbursements for ASC overhead costs are limited to no more than the overhead costs paid to hospital outpatient departments under the Medicare hospital outpatient PPS for the same procedure. If CMS determines that a procedure is commonly performed in a physicians office, the ASC reimbursement for that procedure is limited to the reimbursement allowable under the Physician Fee Schedule, with limited exceptions. All surgical procedures, other than those that pose a significant safety risk or generally require an overnight stay, are payable as ASC procedures. From time to time, CMS considers expanding the services that may be performed in ASCs, which may result in more Medicare procedures that historically have been performed in hospitals being moved to ASCs, reducing surgical volume in our hospitals. Also, more Medicare procedures that historically have been performed in ASCs may be moved to physicians offices. Commercial third-party payers may adopt similar policies. For each federal fiscal year, the Health Reform Law provides for an annual reduction to the ASC payment system by a productivity adjustment based on the BLS 10-year moving average of changes in specified economy-wide productivity. For calendar year 2017, CMS increased ASC payments by 1.9%, which reflects a consumer price index update of 2.2% and a negative 0.3 percentage point productivity adjustment. For calendar year 2018, CMS increased ASC payment rates by 1.2%, which reflects a consumer price index update of 1.7%, less a 0.5 percentage point productivity adjustment. In addition, CMS has established a quality reporting program for ASCs under which ASCs that fail to report on specified quality measures receive a 2.0 percentage point reduction to the consumer price index update.
Physician Services
Physician services are reimbursed under the Physician Fee Schedule system, under which CMS has assigned a national relative value unit (RVU) to most medical procedures and services that reflects the various resources required by a physician to provide the services, relative to all other services. Each RVU is calculated based on a combination of work required in terms of time and intensity of effort for the service, practice expense (overhead) attributable to the service and malpractice insurance expense attributable to the service. These three elements are each modified by a geographic adjustment factor to account for local practice costs and are then aggregated. While RVUs for various services may change in a given year, any alterations are required by statute to be virtually budget neutral, such that total payments made under the Physician Fee Schedule may not differ by more than $20 million from what payments would have been if adjustments were not made. CMS annually reviews resource inputs for select services as part of the potentially misvalued code initiative. Congress set targets through 2018 for annual reductions in Physician Fee Schedule expenditures resulting from adjustments to relative values of misvalued codes. Under MACRA, the Physician Fee Schedule reimbursement rate increases 0.5% for calendar year 2018.
In addition, MACRA required the establishment of the Quality Payment Program (QPP), a payment methodology intended to reward high-quality patient care. Beginning in 2017, physicians and certain other health care clinicians are required to participate in of one of two QPP tracks. Under both tracks, performance data collected in 2017 will affect Medicare payments in 2019, and performance data collected in 2018 will affect Medicare payments in 2020. CMS expects to transition increasing financial risk to providers as the QPP evolves. The Advanced Alternative Payment Model (APM) track makes incentive payments available for participation in specific innovative payment models approved by CMS. Providers may earn a 5% Medicare incentive payment between 2019 and 2024 and will be exempt from the reporting requirements and payment adjustments imposed under the Merit-Based Incentive Payment System (MIPS) if the provider has sufficient participation (based on percentage of payments or patients) in an Advanced APM. Alternatively, providers may participate in the MIPS track. Providers electing this option may receive payment incentives or be subject to payment reductions of up to 5% of the providers Medicare payments based on their performance with respect to clinical quality, resource use, clinical improvement activities, and meaningful use of EHRs. The adjustment percentage will increase incrementally to 9% by 2022. MIPS consolidates components of three previously established physician incentive programs: the Physician Quality Reporting System, the Physician Value-Based Payment Modifier, and the Medicare EHR Incentive Program.
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Other
Under PPS, the payment rates are adjusted for area differences in wage levels by a factor (wage index) reflecting the relative wage level in the geographic area compared to the national average wage level and taking into account occupational mix. The redistributive impact of wage index changes is not anticipated to have a material financial impact for 2018.
Medicare reimburses hospitals for a portion (65%) of bad debts resulting from deductible and coinsurance amounts that are uncollectable from Medicare beneficiaries.
CMS has implemented contractor reform whereby CMS competitively bids the Medicare fiscal intermediary and Medicare carrier functions to Medicare Administrative Contractors (MACs), which are geographically assigned across 12 jurisdictions to service both Part A and Part B providers. While chain providers had the option of having all hospitals use one home office MAC, we chose to use the MACs assigned to the geographic areas in which our hospitals are located. CMS periodically re-solicits bids, and the MAC servicing a geographic area can change as a result of the bid competition. MAC transition periods can impact claims processing functions and the resulting cash flow.
CMS contracts with third parties to promote the integrity of the Medicare program through reviews of quality concerns and detections and corrections of improper payments. Quality Improvement Organizations (QIOs), for example, are groups of physicians and other health care quality experts that work on behalf of CMS to ensure that Medicare pays only for goods and services that are reasonable and necessary and that are provided in the most appropriate setting. Under the Recovery Audit Contractor (RAC) program, CMS contracts with RACs on a contingency basis to conduct post-payment reviews to detect and correct improper payments in the fee-for-service Medicare program. The compensation for the RACs is based on their review of claims submitted to Medicare for billing compliance, including correct coding and medical necessity, and the amount of overpayments and underpayments they identify. CMS limits the number of claims that RACs may audit by limiting the number of records that RACs may request from hospitals based on each providers claim denial rate for the previous year. CMS has implemented the RAC program on a permanent, nationwide basis and expanded the RAC program to the Managed Medicare program and Medicare Part D.
We have established policies and procedures to respond to the RAC requests and payment denials. Payment recoveries resulting from RAC reviews and denials are appealable through administrative and judicial processes, and we pursue reversal of adverse determinations at appropriate appeal levels. We incur additional costs related to responding to RAC requests and denials, including costs associated with responding to requests for records and pursuing the reversal of payment denials and losses associated with overpayments that are not reversed upon appeal. Currently, there are significant delays in the assignment of new Medicare appeals to Administrative Law Judges. Depending upon changes to and the growth of RAC programs and our success in appealing claims in future periods, our cash flows and results of operations could be negatively impacted.
Managed Medicare
Under the Managed Medicare program (also known as Medicare Part C, or Medicare Advantage), the federal government contracts with private health insurers to provide members with Medicare Part A, Part B and Part D benefits. Managed Medicare plans can be structured as HMOs, PPOs or private fee-for-service plans. In addition to covering Part A and Part B benefits, the health insurers may choose to offer supplemental benefits and impose higher premiums and plan costs on beneficiaries. CMS makes fee payment adjustments based on service benchmarks and quality ratings and publishes star ratings to assist beneficiaries with plan selection. Enrollment in managed Medicare plans is increasing, with more than one-third of all Medicare enrollees projected to be in such a plan in 2018.
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Medicaid
Medicaid programs are funded jointly by the federal government and the states and are administered by states under approved plans. Most state Medicaid program payments are made under a PPS or are based on negotiated payment levels with individual hospitals. Medicaid reimbursement is often less than a hospitals cost of services. The Health Reform Law, as enacted, requires states to expand Medicaid coverage to all individuals under age 65 with incomes effectively at or below 138% of the federal poverty level. However, states may opt out of the expansion without losing existing federal Medicaid funding. A number of states, including Texas and Florida, have opted out of the Medicaid expansion. Some states use, or have applied to use, waivers granted by CMS to implement expansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards. The presidential administration and a number of members of Congress have indicated their intent to increase state flexibility in the administration of Medicaid programs, including allowing states to condition enrollment on work or other community engagement.
Because most states must operate with balanced budgets and because the Medicaid program is often the states largest program, states can be expected to adopt or consider adopting legislation designed to reduce their Medicaid expenditures. Budgetary pressures have, in recent years, resulted and likely will continue to result in decreased spending, or decreased spending growth, for Medicaid programs in many states. Certain states in which we operate have adopted broad-based provider taxes to fund the non-federal share of Medicaid programs. Many states have also adopted, or are considering, legislation designed to reduce coverage, enroll Medicaid recipients in managed care programs and/or impose additional taxes on hospitals to help finance or expand the states Medicaid systems. However, the Health Reform Law requires states to at least maintain Medicaid eligibility standards for children established prior to the enactment of the law until October 1, 2019.
Federal funds under the Medicaid program may not be used to reimburse providers for medical assistance provided to treat certain provider-preventable conditions. Each state Medicaid program must deny payments to providers for the treatment of health care-acquired conditions designated by CMS as well as other provider-preventable conditions that may be designated by the state.
Congress has expanded the federal governments involvement in fighting fraud, waste and abuse in the Medicaid program through the Medicaid Integrity Program. CMS employs private contractors, referred to as Medicaid Integrity Contractors (MICs), to perform post-payment audits of Medicaid claims and identify overpayments. In addition to MICs, several other contractors and state Medicaid agencies have increased their review activities. The Health Reform Law increased federal funding for the Medicaid Integrity Program and expanded the RAC programs scope to include Medicaid claims. Most states have implemented RAC programs, which vary by state in design and operation.
Managed Medicaid
Enrollment in managed Medicaid plans has increased in recent years, as state governments seek to control the cost of Medicaid programs. Managed Medicaid programs enable states to contract with one or more entities for patient enrollment, care management and claims adjudication. The states usually do not relinquish program responsibilities for financing, eligibility criteria and core benefit plan design. We generally contract directly with one or more of the designated entities, usually a managed care organization. The provisions of these programs are state-specific. Many states direct managed care plans to pass through supplemental payments to designated providers, independent of services rendered, to ensure consistent funding of providers that serve large numbers of low-income patients. However, in an effort to more closely tie funds to delivery and outcomes, CMS began limiting these pass-through payments to managed Medicaid plans in 2016 and will ultimately prohibit such payments by 2027.
Accountable Care Organizations and Bundled Payment Initiatives
An Accountable Care Organization (ACO) is a network of providers and suppliers that work together to invest in infrastructure and redesign delivery processes to attempt to achieve high quality and efficient delivery
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of services. Promoting accountability and coordination of care, ACOs are intended to produce savings as a result of improved quality and operational efficiency. ACOs that achieve quality performance standards established by HHS are eligible to share in a portion of the amounts saved by the Medicare program. There are several types of ACO programs, including the Medicare Shared Savings Program (MSSP), which was established pursuant to the Health Reform Law, and the Next Generation ACO Model.
The Center for Medicare & Medicaid Innovation (CMMI) is responsible for establishing demonstration projects and other initiatives in order to identify, develop, test and encourage the adoption of new methods of delivering and paying for health care that create savings under the Medicare and Medicaid programs while improving quality of care. For example, providers participating in bundled payment initiatives agree to receive one payment for services provided to Medicare patients for certain medical conditions or episodes of care, accepting accountability for costs and quality of care. By rewarding providers for increasing quality and reducing costs and penalizing providers if costs exceed a set amount, these models are intended to lead to higher quality, more coordinated care at a lower cost to the Medicare program. Hospitals may receive supplemental Medicare payments or owe repayments to CMS depending on whether overall CMS spending per episode exceeds or falls below a target specified by CMS and whether quality standards are met. The CMMI has implemented a voluntary bundled payment program known as the Bundled Payment for Care Improvement (BPCI) initiative. Participation in bundled payment programs is generally voluntary, but CMS requires hospitals in selected geographic areas to participate in bundling programs for specified orthopedic procedures.
HHS continues to focus on shifting from traditional fee-for-service reimbursement models to alternative payment models that tie reimbursement to quality and/or value, including bundled payment programs. Several private third-party payers have expressed their intent to increasingly rely on such reimbursement models, which may increasingly shift financial risk to providers.
Disproportionate Share Hospital Payments
In addition to making payments for services provided directly to beneficiaries, Medicare makes additional payments to hospitals that treat a disproportionately large number of low-income patients (Medicaid and Medicare patients eligible to receive Supplemental Security Income). Disproportionate Share Hospital (DSH) payments are determined annually based on certain statistical information required by HHS and are paid as a percentage addition to MS-DRG payments.
The Health Reform Law reduced Medicare DSH payments to 25% of the amount they otherwise would have been absent the law. The remaining 75% of the amount that would otherwise be paid under Medicare DSH is effectively pooled, and this pool is adjusted each year by a formula that reflects changes in the national level of uninsured who are under 65 years of age. Thus, the greater the level of coverage for the previously uninsured nationally, the more the Medicare DSH payment pool will be reduced. Each DSH hospital is paid, out of the DSH payment pool, an amount allocated based upon its estimated cost of providing uncompensated care.
Hospitals that provide care to a disproportionately high number of low-income patients may receive Medicaid DSH payments. The federal government distributes federal Medicaid DSH funds to each state based on a statutory formula. The states then distribute the DSH funding among qualifying hospitals. States have broad discretion to define which hospitals qualify for Medicaid DSH payments and the amount of such payments. The Health Reform Law and subsequent legislation provide for reductions to the Medicaid DSH hospital program. However, Congress has delayed the implementation of these reductions until 2020. Under the budget bill signed into law in February 2018, Medicaid DSH payments will be reduced by $4 billion in 2020 and by $8 billion per year from 2021 through 2025.
TRICARE
TRICARE is the Department of Defenses health care program for members of the armed forces. For inpatient services, TRICARE reimburses hospitals based on a DRG system modeled on the Medicare inpatient
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PPS. For outpatient services, TRICARE reimburses hospitals based on a PPS that is similar to that utilized for services furnished to Medicare beneficiaries.
Annual Cost Reports
All hospitals participating in the Medicare, Medicaid and TRICARE programs, whether paid on a reasonable cost basis or under a PPS, are required to meet certain financial reporting requirements. Federal and, where applicable, state regulations require the submission of annual cost reports covering the revenues, costs and expenses associated with the services provided by each hospital to Medicare beneficiaries and Medicaid recipients.
Annual cost reports required under the Medicare and Medicaid programs are subject to routine audits, which may result in adjustments to the amounts ultimately determined to be due to us under these reimbursement programs. These audits often require several years to reach the final determination of amounts due to or from us under these programs. Providers also have rights of appeal, and it is common to contest issues raised in audits of cost reports.
Managed Care and Other Discounted Plans
Most of our hospitals offer discounts from established charges to certain large group purchasers of health care services, including managed care plans and private health insurers. Admissions reimbursed by commercial managed care and other insurers were 28%, 29% and 30% of our total admissions for the years ended December 31, 2017, 2016 and 2015, respectively. Managed care contracts are typically negotiated for terms between one and three years. While we generally received contracted annual average increases of 4% to 5% from managed care payers during 2017, there can be no assurance that we will continue to receive increases in the future. Further, it is not clear what impact, if any, health reform efforts at the federal and state levels, consolidation within the third-party payer industry and vertical integration among third party payers and health care providers will have on our ability to negotiate reimbursement rates.
Uninsured and Self-Pay Patients
Self-pay revenues are derived from providing health care services to patients without health insurance coverage and from the patient responsibility portion of payments for our health care services that are not covered by an individuals health plan. Collection of amounts due from individuals is typically more difficult than collection of amounts due from government health care programs or private third-party payers. Any increases in uninsured individuals, changes to the payer mix or greater adoption of health plan structures that result in higher patient responsibility amounts could increase amounts due from individuals.
A high percentage of our uninsured patients are initially admitted through our emergency rooms. For the year ended December 31, 2017, approximately 85% of our admissions of uninsured patients occurred through our emergency rooms. The Emergency Medical Treatment and Labor Act (EMTALA) requires any hospital that participates in the Medicare program to conduct an appropriate medical screening examination of every person who presents to the hospitals emergency room for treatment and, if the individual is suffering from an emergency medical condition, to either stabilize that condition or make an appropriate transfer of the individual to a facility that can handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of an individuals ability to pay for treatment. In addition, health insurers are required to reimburse hospitals for emergency services provided to enrollees without prior authorization and without regard to whether a participating provider contract is in place. The financial impact of the obligation to screen for and stabilize emergency medical conditions has been offset, in part, by provisions of the Health Reform Law that decrease the number of uninsured individuals. However, in 2017, Congress eliminated the financial penalty associated with the individual mandate, effective January 1, 2019. It is difficult to predict the impact of this change, but it may result in fewer individuals electing to purchase health insurance.
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Hospital Utilization
We believe the most important factors relating to the overall utilization of a hospital are the quality and market position of the hospital and the number and quality of physicians and other health care professionals providing patient care within the facility. Generally, we believe the ability of a hospital to be a market leader is determined by its breadth of services, level of technology, quality and condition of the facilities, emphasis on quality of care and convenience for patients and physicians. Other factors that impact utilization include the growth in local population, local economic conditions and market penetration of managed care programs.
The following table sets forth certain operating statistics for our health care facilities. Health care facility operations are subject to certain seasonal fluctuations, including decreases in patient utilization during holiday periods and increases in the cold weather months.
Years Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Number of hospitals at end of period |
179 | 170 | 168 | 166 | 165 | |||||||||||||||
Number of freestanding outpatient surgery centers at end of period |
120 | 118 | 116 | 113 | 115 | |||||||||||||||
Number of licensed beds at end of period(a) |
46,738 | 44,290 | 43,771 | 43,356 | 42,896 | |||||||||||||||
Weighted average licensed beds(b) |
45,380 | 44,077 | 43,620 | 43,132 | 42,133 | |||||||||||||||
Admissions(c) |
1,936,613 | 1,891,831 | 1,868,789 | 1,795,312 | 1,744,126 | |||||||||||||||
Equivalent admissions(d) |
3,286,432 | 3,191,519 | 3,122,746 | 2,958,674 | 2,844,670 | |||||||||||||||
Average length of stay (days)(e) |
4.9 | 4.9 | 4.9 | 4.8 | 4.8 | |||||||||||||||
Average daily census(f) |
26,000 | 25,340 | 25,084 | 23,835 | 22,853 | |||||||||||||||
Occupancy rate(g) |
57 | % | 58 | % | 58 | % | 55 | % | 54 | % | ||||||||||
Emergency room visits(h) |
8,624,137 | 8,378,340 | 8,050,159 | 7,450,748 | 6,968,115 | |||||||||||||||
Outpatient surgeries(i) |
935,307 | 932,213 | 909,386 | 891,633 | 881,883 | |||||||||||||||
Inpatient surgeries(j) |
546,228 | 537,306 | 529,900 | 518,881 | 508,793 |
(a) |
Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency. |
(b) |
Represents the average number of licensed beds, weighted based on periods owned. |
(c) |
Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume. |
(d) |
Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation equates outpatient revenue to the volume measure (admissions) used to measure inpatient volume, resulting in a general measure of combined inpatient and outpatient volume. |
(e) |
Represents the average number of days admitted patients stay in our hospitals. |
(f) |
Represents the average number of patients in our hospital beds each day. |
(g) |
Represents the percentage of hospital licensed beds occupied by patients. Both average daily census and occupancy rate provide measures of the utilization of inpatient rooms. |
(h) |
Represents the number of patients treated in our emergency rooms. |
(i) |
Represents the number of surgeries performed on patients who were not admitted to our hospitals. Pain management and endoscopy procedures are not included in outpatient surgeries. |
(j) |
Represents the number of surgeries performed on patients who have been admitted to our hospitals. Pain management and endoscopy procedures are not included in inpatient surgeries. |
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Competition
Generally, other hospitals in the communities we serve provide services similar to those offered by our hospitals. Additionally, in recent years the number of freestanding specialty hospitals, surgery centers, emergency departments, urgent care centers and diagnostic and imaging centers in the geographic areas in which we operate has increased significantly. As a result, most of our hospitals operate in a highly competitive environment. In some cases, competing hospitals are more established than our hospitals. Some competing facilities are physician-owned or are owned by tax-supported government agencies and many others are owned by not-for-profit entities that may be supported by endowments, charitable contributions and/or tax revenues and are exempt from sales, property and income taxes. Such exemptions and support are not available to our hospitals and may provide the tax-supported or not-for-profit entities an advantage in funding capital expenditures. In certain localities there are large teaching hospitals that provide highly specialized facilities, equipment and services that may not be available at most of our hospitals. We also face competition from specialty hospitals and from both our own and unaffiliated freestanding ASCs for market share in certain high margin services.
Psychiatric hospitals frequently attract patients from areas outside their immediate locale and, therefore, our psychiatric hospitals and units compete with both local and regional hospitals, including the psychiatric units of general, acute care hospitals.
Our strategies are designed to ensure our hospitals are competitive. We believe our hospitals compete within local communities on the basis of many factors, including the quality of care, ability to attract and retain quality physicians, skilled clinical personnel and other health care professionals, location, breadth of services, technology offered, quality and condition of the facilities and prices charged. Hospitals must make public a list of their standard charges for items and services or their policies for providing a list of such charges in response to an inquiry. We have increased our focus on operating outpatient services with improved accessibility and more convenient service for patients and increased predictability and efficiency for physicians.
Two of the most significant factors to the competitive position of a hospital are the number and quality of physicians affiliated with or employed by the hospital. Although physicians may at any time terminate their relationship with a hospital we operate, our hospitals seek to retain physicians with varied specialties on the hospitals medical staffs and to attract other qualified physicians. We believe physicians refer patients to a hospital on the basis of the quality and scope of services it renders to patients and physicians, the quality of physicians on the medical staff, the location of the hospital and the quality of the hospitals facilities, equipment and employees. Accordingly, we strive to maintain and provide quality facilities, equipment, employees and services for physicians and patients. Our hospitals face competition from competitors that are implementing physician alignment strategies, such as employing physicians, acquiring physician practice groups and participating in ACOs or other clinical integration models.
Another major factor in the competitive position of our hospitals is our ability to negotiate service contracts with group purchasers of health care services. Managed care plans attempt to direct and control the use of hospital services and obtain discounts from hospitals established gross charges. Similarly, employers and traditional health insurers continue to attempt to contain costs through negotiations with hospitals for managed care programs and discounts from established gross charges. Generally, hospitals compete for service contracts with group purchasers of health care services on the basis of price, market reputation, geographic location, quality and range of services, quality of the medical staff and convenience. Our future success will depend, in part, on our ability to retain and renew our contracts with third-party payers and enter into new contracts on favorable terms. Other health care providers may impact our ability to enter into contracts with third-party payers or negotiate increases in our reimbursement and other favorable terms and conditions. For example, some of our competitors may negotiate exclusivity provisions with managed care plans or otherwise restrict the ability of managed care companies to contract with us. Increasing vertical integration efforts involving third-party payers and health care providers may increase these challenges. Moreover, the trend toward consolidation among private third-party payers tends to increase payer bargaining power over fee structures. In addition, health reform
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efforts, such as the Health Reform Laws creation of the Exchanges and limitations on rescissions of coverage and pre-existing condition exclusions, may lead to private third-party payers increasingly demanding reduced fees or being unwilling to negotiate reimbursement increases. Most of the health plans offered through the Exchanges provide for narrow networks that restrict the number of participating providers or tiered networks that impose significantly higher cost sharing obligations on patients that obtain services from providers in a disfavored tier. These trends may continue regardless of potential repeal or replacement of, or changes to, the Health Reform Law. The importance of obtaining contracts with group purchasers of health care services varies from community to community, depending on the market strength of such organizations.
State certificate of need (CON) laws, which place limitations on a health care facilitys ability to expand services and facilities, make capital expenditures and otherwise make changes in operations, may also have the effect of restricting competition. We currently operate health care facilities in a number of states with CON laws or that require other types of approvals for the establishment or expansion of certain facility types or services. Before issuing a CON or other approval, these states consider the need for additional or expanded health care facilities or services. In those states that do not require state approval or that set relatively high levels of expenditures before they become reviewable by state authorities, competition in the form of new services, facilities and capital spending is more prevalent. See Item 1, Business Regulation and Other Factors.
We and the health care industry as a whole face the challenge of continuing to provide quality patient care while dealing with rising costs and strong competition for patients. Changes in medical technology, existing and future legislation, regulations and interpretations and contracting for provider services by third-party payers remain ongoing challenges.
Admissions, average lengths of stay and reimbursement amounts continue to be negatively affected by third-party payer pre-admission authorization requirements, utilization review and pressure to maximize outpatient and alternative health care delivery services for less acutely ill patients. Increased competition, admission constraints and third-party payer pressures are expected to continue. To meet these challenges, we intend to expand and update our facilities or acquire or construct new facilities where appropriate, to enhance the provision of a comprehensive array of outpatient services, offer market competitive pricing to group purchasers of health care services, upgrade facilities and equipment and offer new or expanded programs and services.
Regulation and Other Factors
Licensure, Certification and Accreditation
Health care facility construction and operation are subject to numerous federal, state and local regulations relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, fire prevention, rate-setting, building codes and environmental protection. Facilities are subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditation. We believe our health care facilities are properly licensed under applicable state laws. Each of our acute care hospitals located in the United States is eligible to participate in Medicare and Medicaid programs and is accredited by The Joint Commission. If any facility were to lose its Medicare or Medicaid certification, the facility would be unable to receive reimbursement from federal health care programs. If any facility were to lose accreditation, the facility would be subject to state surveys, potentially be subject to increased scrutiny by CMS and likely lose payment from private third-party payers. Management believes our facilities are in substantial compliance with current applicable federal, state, local and independent review body regulations and standards. The requirements for licensure, certification and accreditation are subject to change and, in order to remain qualified, it may become necessary for us to make changes in our facilities, equipment, personnel and services. The requirements for licensure, certification and accreditation also include notification or approval in the event of the transfer or change of ownership or certain other changes. Failure to provide required notifications or obtain necessary approvals in these circumstances can result in the inability to complete an acquisition or change of ownership, loss of licensure, lapses in reimbursement or other penalties.
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Certificates of Need
In some states where we operate hospitals and other health care facilities, the construction or expansion of health care facilities, the acquisition of existing facilities, the transfer or change of ownership and the addition of new beds or services may be subject to review by and prior approval of, or notifications to, state regulatory agencies under a CON program. Such laws generally require the reviewing state agency to determine the public need for additional or expanded health care facilities and services. Failure to provide required notifications or obtain necessary state approvals can result in the inability to expand facilities, complete an acquisition or change ownership or other penalties.
State Rate Review
Some states have adopted legislation mandating rate or budget review for hospitals or have adopted taxes on hospital revenues, assessments or licensure fees to fund indigent health care within the state. In the aggregate, indigent tax provisions have not materially, adversely affected our results of operations. Although we do not currently operate facilities in states that mandate rate or budget reviews, we cannot predict whether we will operate in such states in the future, or whether the states in which we currently operate may adopt legislation mandating such reviews.
Federal Health Care Program Regulations
Participation in any federal health care program, including the Medicare and Medicaid programs, is heavily regulated by statute and regulation. If a hospital fails to substantially comply with the numerous conditions of participation in the Medicare and Medicaid programs or performs certain prohibited acts, the hospitals participation in the federal health care programs may be terminated, or civil and/or criminal penalties may be imposed. Civil monetary penalties are adjusted annually based on updates to the consumer price index and were recently increased under the Bipartisan Budget Act of 2018.
Anti-kickback Statute
A section of the Social Security Act known as the Anti-kickback Statute prohibits providers and others from directly or indirectly soliciting, receiving, offering or paying any remuneration with the intent of generating referrals or orders for services or items covered by a federal health care program. Courts have interpreted this statute broadly and held that there is a violation of the Anti-kickback Statute if just one purpose of the remuneration is to generate referrals, even if there are other lawful purposes. Furthermore, the Health Reform Law provides that knowledge of the law or the intent to violate the law is not required. Violations of the Anti-kickback Statute may be punished by criminal fines of up to $100,000 per violation, imprisonment, substantial civil monetary penalties per violation that are subject to annual adjustment based on updates to the consumer price index and damages of up to three times the total amount of the remuneration and/or exclusion from participation in federal health care programs, including Medicare and Medicaid. In addition, submission of a claim for services or items generated in violation of the Anti-kickback Statute may be subject to additional penalties under the federal False Claims Act (FCA) as a false or fraudulent claim.
The OIG, among other regulatory agencies, is responsible for identifying and eliminating fraud, abuse and waste. The OIG carries out this mission through a nationwide program of audits, investigations and inspections. The OIG provides guidance to the industry through various methods including advisory opinions and Special Fraud Alerts. These Special Fraud Alerts do not have the force of law, but identify features of arrangements or transactions that the government believes may cause the arrangements or transactions to violate the Anti-kickback Statute or other federal health care laws. The OIG has identified several incentive arrangements that constitute suspect practices, including: (a) payment of any incentive by a hospital each time a physician refers a patient to the hospital, (b) the use of free or significantly discounted office space or equipment in facilities usually located close to the hospital, (c) provision of free or significantly discounted billing, nursing or other staff
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services, (d) free training for a physicians office staff in areas such as management techniques and laboratory techniques, (e) guarantees which provide, if the physicians income fails to reach a predetermined level, the hospital will pay any portion of the remainder, (f) low-interest or interest-free loans, or loans which may be forgiven if a physician refers patients to the hospital, (g) payment of the costs of a physicians travel and expenses for conferences, (h) coverage on the hospitals group health insurance plans at an inappropriately low cost to the physician, (i) payment for services (which may include consultations at the hospital) which require few, if any, substantive duties by the physician, (j) purchasing goods or services from physicians at prices in excess of their fair market value, (k) rental of space in physician offices, at other than fair market value terms, by persons or entities to which physicians refer, and (l) physician-owned entities (frequently referred to as physician-owned distributorships or PODs) that derive revenue from selling, or arranging for the sale of, implantable medical devices ordered by their physician-owners for use on procedures that physician-owners perform on their own patients at hospitals or ASCs. The OIG has encouraged persons having information about hospitals who offer the above types of incentives to physicians to report such information to the OIG.
The OIG also issues Special Advisory Bulletins as a means of providing guidance to health care providers. These bulletins, along with the Special Fraud Alerts, have focused on certain arrangements that could be subject to heightened scrutiny by government enforcement authorities, including: (a) contractual joint venture arrangements and other joint venture arrangements between those in a position to refer business, such as physicians, and those providing items or services for which Medicare or Medicaid pays, and (b) certain gainsharing arrangements, i.e., the practice of giving physicians a share of any reduction in a hospitals costs for patient care attributable in part to the physicians efforts.
In addition to issuing Special Fraud Alerts and Special Advisory Bulletins, the OIG issues compliance program guidance for certain types of health care providers. The OIG guidance identifies a number of risk areas under federal fraud and abuse statutes and regulations. These areas of risk include compensation arrangements with physicians, recruitment arrangements with physicians and joint venture relationships with physicians.
As authorized by Congress, the OIG has published safe harbor regulations that outline categories of activities deemed protected from prosecution under the Anti-kickback Statute. Currently, there are statutory exceptions and safe harbors for various activities, including the following: certain investment interests, space rental, equipment rental, practitioner recruitment, personnel services and management contracts, sale of practice, referral services, warranties, discounts, employees, group purchasing organizations, waiver of beneficiary coinsurance and deductible amounts, managed care arrangements, obstetrical malpractice insurance subsidies, investments in group practices, freestanding surgery centers, ambulance replenishing, and referral agreements for specialty services.
The fact that conduct or a business arrangement does not fall within a safe harbor or is identified in a Special Fraud Alert, Special Advisory Bulletin or other guidance does not necessarily render the conduct or business arrangement illegal under the Anti-kickback Statute. However, such conduct and business arrangements may lead to increased scrutiny by government enforcement authorities.
We have a variety of financial relationships with physicians and others who either refer or influence the referral of patients to our hospitals, other health care facilities and employed physicians, including employment contracts, leases, medical director agreements and professional service agreements. We also have similar relationships with physicians and facilities to which patients are referred from our facilities and other providers. In addition, we provide financial incentives, including minimum revenue guarantees, to recruit physicians into the communities served by our hospitals. While we endeavor to comply with the applicable safe harbors, certain of our current arrangements, including joint ventures and financial relationships with physicians and other referral sources and persons and entities to which we refer patients, do not qualify for safe harbor protection.
Although we believe our arrangements with physicians and other referral sources and referral recipients have been structured to comply with current law and available interpretations, there can be no assurance
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regulatory authorities enforcing these laws will determine these financial arrangements comply with the Anti-kickback Statute or other applicable laws. An adverse determination could subject us to liabilities under the Social Security Act and other laws, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other federal health care programs.
Stark Law
The Social Security Act also includes a provision commonly known as the Stark Law. The Stark Law prohibits physicians from referring Medicare and Medicaid patients to entities with which they or any of their immediate family members have a financial relationship, if these entities provide certain designated health services reimbursable by Medicare or Medicaid unless an exception applies. The Stark Law also prohibits entities that provide designated health services reimbursable by Medicare and Medicaid from billing the Medicare and Medicaid programs for any items or services that result from a prohibited referral and requires the entities to refund amounts received for items or services provided pursuant to the prohibited referral on a timely basis. Designated health services include inpatient and outpatient hospital services, clinical laboratory services and radiology services. Sanctions for violating the Stark Law include denial of payment, substantial civil monetary penalties per claim submitted and exclusion from the federal health care programs. Failure to refund amounts received as a result of a prohibited referral on a timely basis may constitute a false or fraudulent claim and may result in civil penalties and additional penalties under the FCA. The statute also provides for a penalty for a circumvention scheme. These penalties are updated annually based on changes to the consumer price index.
There are exceptions to the self-referral prohibition for many of the customary financial arrangements between physicians and providers, including employment contracts, leases and recruitment agreements. Unlike safe harbors under the Anti-kickback Statute with which compliance is voluntary, a financial relationship must comply with every requirement of a Stark Law exception or the arrangement is in violation of the Stark Law. Although there is an exception for a physicians ownership interest in an entire hospital, the Health Reform Law prohibits physician-owned hospitals established after December 31, 2010 from billing for Medicare or Medicaid patients referred by their physician owners. As a result, the law effectively prevents the formation of new physician-owned hospitals that participate in Medicare or Medicaid. While the Health Reform Law grandfathers existing physician-owned hospitals, it does not allow these hospitals to increase the percentage of physician ownership and significantly restricts their ability to expand services.
Through a series of rulemakings, CMS has issued final regulations implementing the Stark Law. While these regulations were intended to clarify the requirements of the exceptions to the Stark Law, it is unclear how the government will interpret many of these exceptions for enforcement purposes. Further, we do not always have the benefit of significant regulatory or judicial interpretation of the Stark Law and its implementing regulations. We attempt to structure our relationships to meet an exception to the Stark Law, but the regulations implementing the exceptions are detailed and complex, and we cannot assure that every relationship complies fully with the Stark Law.
Similar State Laws
Many states in which we operate also have laws similar to the Anti-kickback Statute that prohibit payments to physicians for patient referrals and laws similar to the Stark Law that prohibit certain self-referrals. These state laws often apply regardless of the source of payment for care, and little precedent exists for their interpretation or enforcement. These statutes typically provide for criminal and civil penalties, as well as loss of licensure.
Other Fraud and Abuse Provisions
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) broadened the scope of certain fraud and abuse laws by adding several criminal provisions for health care fraud offenses that apply to all health
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benefit programs. The Social Security Act also imposes criminal and civil penalties for making false claims and statements to Medicare and Medicaid. False claims include, but are not limited to, billing for services not rendered or for misrepresenting actual services rendered in order to obtain higher reimbursement, billing for unnecessary goods and services and cost report fraud. Federal enforcement officials have the ability to exclude from Medicare and Medicaid any business entities and any investors, officers and managing employees associated with business entities that have committed health care fraud, even if the officer or managing employee had no knowledge of the fraud. Criminal and civil penalties may be imposed for a number of other prohibited activities, including failure to return known overpayments, certain gainsharing arrangements, billing Medicare amounts that are substantially in excess of a providers usual charges, offering remuneration to influence a Medicare or Medicaid beneficiarys selection of a health care provider, contracting with an individual or entity known to be excluded from a federal health care program, making or accepting a payment to induce a physician to reduce or limit services, and soliciting or receiving any remuneration in return for referring an individual for an item or service payable by a federal health care program. Like the Anti-kickback Statute, these provisions are very broad. Civil penalties may be imposed for the failure to report and return an overpayment within 60 days of identifying the overpayment or by the date a corresponding cost report is due, whichever is later. To avoid liability, providers must, among other things, carefully and accurately code claims for reimbursement, promptly return overpayments and accurately prepare cost reports.
Some of these provisions, including the federal Civil Monetary Penalty Law, require a lower burden of proof than other fraud and abuse laws, including the Anti-kickback Statute. Substantial civil monetary penalties may be imposed under the federal Civil Monetary Penalty Law. These penalties will be updated annually based on changes to the consumer price index. In some cases, violations of the Civil Monetary Penalty Law may result in penalties of up to three times the remuneration offered, paid, solicited or received. In addition, a violator may be subject to exclusion from federal and state health care programs. Federal and state governments increasingly use the federal Civil Monetary Penalty Law, especially where they believe they cannot meet the higher burden of proof requirements under the Anti-kickback Statute. Further, individuals can receive up to $1,000 for providing information on Medicare fraud and abuse that leads to the recovery of at least $100 of Medicare funds under the Medicare Integrity Program.
The Federal False Claims Act and Similar State Laws
We are subject to state and federal laws that govern the submission of claims for reimbursement and prohibit the making of false claims or statements. One of the most prominent of these laws is the FCA, which may be enforced by the federal government directly or by a qui tam plaintiff, or whistleblower, on the governments behalf. The government may use the FCA to prosecute Medicare and other government program fraud in areas such as coding errors, billing for services not provided and submitting false cost reports. In addition, the FCA covers payments made in connection with the Exchanges created under the Health Reform Law, if those payments include any federal funds. When a private party brings a qui tam action under the FCA, the defendant is not made aware of the lawsuit until the government commences its own investigation or makes a determination whether it will intervene. If a defendant is determined by a court of law to be liable under the FCA, the defendant may be required to pay three times the actual damages sustained by the government, plus substantial mandatory civil penalties for each separate false claim. These penalties are updated annually based on changes to the consumer price index.
There are many potential bases for liability under the FCA. Liability often arises when an entity knowingly submits a false claim for reimbursement to the federal government. The FCA defines the term knowingly broadly. Though simple negligence will not give rise to liability under the FCA, submitting a claim with reckless disregard to its truth or falsity constitutes a knowing submission under the FCA and, therefore, may create liability. Submission of claims for services or items generated in violation of the Anti-kickback Statute constitutes a false or fraudulent claim under the FCA. Whistleblowers and the federal government have taken the position, and some courts have held, that providers who allegedly have violated other statutes, such as the Stark Law, have thereby submitted false claims under the FCA. False claims under the FCA also include the knowing
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and improper failure to report and refund amounts owed to the government in a timely manner following identification of an overpayment. An overpayment is deemed to be identified when a person has, or should have through reasonable diligence, determined that an overpayment was received and quantified the overpayment.
Every entity that receives at least $5 million annually in Medicaid payments must have written policies for all employees, contractors or agents, providing detailed information about false claims, false statements and whistleblower protections under certain federal laws, including the FCA, and similar state laws. In addition, federal law provides an incentive to states to enact false claims laws comparable to the FCA. A number of states in which we operate have adopted their own false claims provisions as well as their own whistleblower provisions under which a private party may file a civil lawsuit in state court. We have adopted and distributed policies pertaining to the FCA and relevant state laws.
HIPAA Administrative Simplification and Privacy and Security Requirements
The Administrative Simplification Provisions of HIPAA and implementing regulations require the use of uniform electronic data transmission standards and code sets for certain health care claims and payment transactions submitted or received electronically. In addition, HIPAA requires that each provider use a National Provider Identifier. These provisions are intended to encourage electronic commerce in the health care industry. HHS is in the process of adopting standards for additional electronic transactions and establishing operating rules to promote uniformity in the implementation of each standardized electronic transaction.
The privacy and security regulations promulgated pursuant to HIPAA extensively regulate the use and disclosure of individually identifiable health information, known as protected health information, and require covered entities, including health plans and most health care providers, to implement administrative, physical and technical safeguards to protect the security of such information. Certain provisions of the security and privacy regulations apply to business associates (entities that handle protected health information on behalf of covered entities), and business associates are subject to direct liability for violation of these provisions. In addition, a covered entity may be subject to penalties as a result of a business associate violating HIPAA, if the business associate is found to be an agent of the covered entity.
Covered entities must report breaches of unsecured protected health information to affected individuals without unreasonable delay but not to exceed 60 days of discovery of the breach by a covered entity or its agents. Notification must also be made to HHS and, in certain situations involving large breaches, to the media. HHS is required to publish on its website a list of all covered entities that report a breach involving more than 500 individuals. All non-permitted uses or disclosures of unsecured protected health information are presumed to be breaches unless the covered entity or business associate establishes that there is a low probability the information has been compromised. Various state laws and regulations may also require us to notify affected individuals in the event of a data breach involving individually identifiable information.
Violations of the HIPAA privacy and security regulations may result in criminal penalties and in substantial civil penalties per violation. These civil penalties are updated annually based on updates to the consumer price index. HHS enforces the regulations and performs compliance audits. In addition to enforcement by HHS, state attorneys general are authorized to bring civil actions seeking either injunction or damages in response to violations that threaten the privacy of state residents. HHS may resolve HIPAA violations through informal means, such as allowing a covered entity to implement a corrective action plan, but HHS has the discretion to move directly to impose monetary penalties and is required to impose penalties for violations resulting from willful neglect. We enforce a HIPAA compliance plan, which we believe complies with the HIPAA privacy and security regulations and under which a HIPAA compliance group monitors our compliance. The HIPAA privacy regulations and security regulations have and will continue to impose significant costs on our facilities in order to comply with these standards.
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There are numerous other laws and legislative and regulatory initiatives at the federal and state levels addressing privacy and security concerns. Our facilities remain subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA. These laws vary and could impose additional penalties. For example, the Federal Trade Commission uses its consumer protection authority to initiate enforcement actions in response to data breaches.
EMTALA
All of our hospitals in the United States are subject to EMTALA. This federal law requires any hospital participating in the Medicare program to conduct an appropriate medical screening examination of every individual who presents to the hospitals emergency room for treatment and, if the individual is suffering from an emergency medical condition, to either stabilize the condition or make an appropriate transfer of the individual to a facility able to handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of an individuals ability to pay for treatment. There are severe penalties under EMTALA if a hospital fails to screen or appropriately stabilize or transfer an individual or if the hospital delays appropriate treatment in order to first inquire about the individuals ability to pay. Penalties for violations of EMTALA include exclusion from participation in the Medicare program and civil monetary penalties. These civil monetary penalties are adjusted annually based on updates to the consumer price index. In addition, an injured individual, the individuals family or a medical facility that suffers a financial loss as a direct result of a hospitals violation of the law can bring a civil suit against the hospital.
The government broadly interprets EMTALA to cover situations in which individuals do not actually present to a hospitals emergency room, but present for emergency examination or treatment to the hospitals campus, generally, or to a hospital-based clinic that treats emergency medical conditions or are transported in a hospital-owned ambulance, subject to certain exceptions. At least one court has interpreted the law also to apply to a hospital that has been notified of a patients pending arrival in a non-hospital owned ambulance. EMTALA does not generally apply to individuals admitted for inpatient services. The government has expressed its intent to investigate and enforce EMTALA violations actively.
Corporate Practice of Medicine/Fee Splitting
Some of the states in which we operate have laws prohibiting corporations and other entities from employing physicians, practicing medicine for a profit and making certain direct and indirect payments to, or entering into fee-splitting arrangements with, health care providers designed to induce or encourage the referral of patients to, or the recommendation of, particular providers for medical products and services. Possible sanctions for violation of these restrictions include loss of license and civil and criminal penalties. In addition, agreements between the corporation and the physician may be considered void and unenforceable. These statutes vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies.
Health Care Industry Investigations
Significant media and public attention has focused in recent years on the hospital industry. This media and public attention, changes in government personnel and other factors have led to increased scrutiny of the health care industry. Except as may be disclosed in our SEC filings, we are not aware of any material investigations of the Company under federal or state health care laws or regulations. It is possible that governmental entities could initiate investigations or litigation in the future at facilities we operate and that such matters could result in significant penalties, as well as adverse publicity. It is also possible that our executives and managers could be included in governmental investigations or litigation or named as defendants in private litigation.
Our substantial Medicare, Medicaid and other governmental billings result in heightened scrutiny of our operations. We continue to monitor all aspects of our business and have developed a comprehensive ethics and compliance program that is designed to meet or exceed applicable federal guidelines and industry standards.
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Because the law in this area is complex and constantly evolving, governmental investigations or litigation may result in interpretations that are inconsistent with our or industry practices.
In public statements surrounding current investigations, governmental authorities have taken positions on a number of issues, including some for which little official interpretation previously has been available, that appear to be inconsistent with practices that have been common within the industry and that previously have not been challenged in this manner. In some instances, government investigations that have in the past been conducted under the civil provisions of federal law may now be conducted as criminal investigations.
Both federal and state government agencies have increased their focus on and coordination of civil and criminal enforcement efforts in the health care area. The OIG and the Department of Justice (DOJ) have, from time to time, established national enforcement initiatives, targeting all hospital providers that focus on specific billing practices or other suspected areas of abuse. The Health Reform Law includes additional federal funding of $350 million over 10 years to fight health care fraud, waste and abuse, including $10 million in federal fiscal year 2018. In addition, governmental agencies and their agents, such as MACs, fiscal intermediaries and carriers, may conduct audits of our health care operations. Private third-party payers may conduct similar post-payment audits, and we also perform internal audits and monitoring.
In addition to national enforcement initiatives, federal and state investigations have addressed a wide variety of routine health care operations such as: cost reporting and billing practices, including for Medicare outliers; financial arrangements with referral sources; physician recruitment activities; physician joint ventures; and hospital charges and collection practices for self-pay patients. We engage in many of these routine health care operations and other activities that could be the subject of governmental investigations or inquiries. For example, we have significant Medicare and Medicaid billings, numerous financial arrangements with physicians who are referral sources to our hospitals, and joint venture arrangements involving physician investors. Certain of our individual facilities have received, and other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. Any additional investigations of the Company, our executives or managers could result in significant liabilities or penalties to us, as well as adverse publicity.
Health Care Reform
The health care industry is subject to changing political, regulatory, and other influences, along with various scientific and technological initiatives. In recent years, the U.S. Congress and certain state legislatures have passed a large number of laws and regulations intended to effect major change within the U.S. health care system, including the Health Reform Law. The Health Reform Law affects how health care services are covered, delivered and reimbursed through expanded health insurance coverage, reduced growth in Medicare program spending, reductions in Medicare and Medicaid DSH payments, and the establishment of programs that tie reimbursement to quality and integration. However, there is uncertainty regarding the future of the Health Reform Law. The presidential administration and a number of members of Congress have expressed their intent to repeal or make significant changes to the Health Reform Law, its implementation or interpretation. In 2017, Congress eliminated the penalty associated with the individual mandate to maintain health insurance, effective January 1, 2019. Further, the President of the United States signed an executive order that directs agencies to minimize economic and regulatory burdens of the Health Reform Law, which may result in additional changes in how the law is implemented.
As currently structured, the Health Reform Law expands coverage through a combination of public program expansion and private sector health insurance and other reforms. Expansion in public program coverage has been driven primarily by expanding the categories of individuals eligible for Medicaid coverage and permitting individuals with relatively higher incomes to qualify. A number of states, including Texas and Florida, have opted out of the Medicaid expansion provisions, which they may do without losing federal funding. For states that have not participated in the Medicaid expansion, the maximum income level required for individuals and families to qualify for Medicaid varies widely from state to state. Some states are using waivers granted by CMS to expand their Medicaid programs, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards.
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The expansion of health coverage through the private sector as a result of the Health Reform Law has been driven by new requirements applicable to health insurers, employers and individuals. For example, health insurers are prohibited from imposing annual coverage limits, dropping coverage, excluding persons based upon pre-existing conditions or denying coverage for any individual who is willing to pay the premiums for such coverage. Large employers are required to provide health insurance benefits to their full time employees or pay a penalty if an employee obtains government-subsidized coverage through an Exchange. Although individuals are required to maintain health insurance for a minimum defined set of benefits, elimination of the penalty associated with this mandate may impact the number of individuals who elect to purchase health insurance.
Health insurers participating in an Exchange must offer a set of minimum benefits, as defined by HHS, and may offer more benefits. For individuals and families below 400% of the federal poverty level, the cost of obtaining health insurance through the Exchanges is subsidized by the federal government. However, several health insurers have limited or ended their participation in these marketplaces, creating uncertainty regarding the long-term viability of the Exchanges.
As discussed in Item 1, Business Sources of Revenue, the Health Reform Law provides for spending reductions for Medicare, Medicaid and other federal health care programs. It also increasingly ties payment for services to quality outcomes, provides for the creation of ACOs and creates incentives and other initiatives to better coordinate patient care across settings and over time.
The Health Reform Law also makes several significant changes to health care fraud and abuse laws, provides additional enforcement tools to the government, increases cooperation between agencies by establishing mechanisms for the sharing of information and enhances criminal and administrative penalties for non-compliance. For example, the Health Reform Law tightens up the rules for returning overpayments made by governmental health programs and expands FCA liability to include failure to timely repay identified overpayments. The Health Reform Law also prohibits newly created physician-owned hospitals from billing for Medicare patients referred by their physician owners. As a result, the law effectively prevents the formation of new physician-owned hospitals that participate in Medicare and Medicaid. While the law grandfathers existing physician-owned hospitals, it does not allow these hospitals to increase the percentage of physician ownership and significantly restricts their ability to expand services.
The Health Reform Law has had a net positive effect on the Company to date, before considering the impact of Medicare reductions that began in 2010, and it is expected that the law, as presently implemented, will continue to have a meaningful contribution to the Companys results of operations. However, the Company could be affected by efforts to change, repeal or replace the Health Reform Law and the potential instability of the Exchanges, as discussed in Item 1A, Risk Factors.
General Economic and Demographic Factors
The health care industry is impacted by the overall United States economy. Budget deficits at federal, state and local government entities have had a negative impact on spending for many health and human service programs, including Medicare, Medicaid and similar programs, which represent significant payer sources for our hospitals. We anticipate that the federal deficit, the growing magnitude of Medicare expenditures and the aging of the United States population will continue to place pressure on government health care programs. Other risks we face during periods of economic weakness and high unemployment include potential declines in the population covered under managed care agreements, increased patient decisions to postpone or cancel elective and nonemergency health care procedures (including delaying surgical procedures), potential increases in the uninsured and underinsured populations, increased adoption of health plan structures that shift financial responsibility to patients and further difficulties in collecting patient receivables for copayment and deductible amounts.
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Compliance Program
We maintain a comprehensive ethics and compliance program that is designed to meet or exceed applicable federal guidelines and industry standards. The program is intended to monitor and raise awareness of various regulatory issues among employees and to emphasize the importance of complying with governmental laws and regulations. As part of the ethics and compliance program, we provide annual ethics and compliance training to our employees and encourage all employees to report any violations to their supervisor, an ethics and compliance officer or a toll-free telephone ethics line.
Antitrust Laws
The federal government and most states have enacted antitrust laws that prohibit certain types of conduct deemed to be anti-competitive. These laws prohibit price fixing, market allocation, bid-rigging, concerted refusal to deal, market monopolization, price discrimination, tying arrangements, acquisitions of competitors and other practices that have, or may have, an adverse effect on competition. Violations of federal or state antitrust laws can result in various sanctions, including criminal and civil penalties. Antitrust enforcement in the health care industry is currently a priority of the Federal Trade Commission and the DOJ. We believe we are in compliance with such federal and state laws, but courts or regulatory authorities may reach a determination in the future that could adversely affect our operations.
Environmental Matters
We are subject to various federal, state and local statutes and ordinances regulating the discharge of materials into the environment. We do not believe that we will be required to expend any material amounts in order to comply with these laws and regulations.
Insurance
As is typical in the health care industry, we are subject to claims and legal actions by patients in the ordinary course of business. Subject, in most cases, to a $15 million per occurrence self-insured retention, our facilities are insured by our 100% owned insurance subsidiary for losses up to $50 million per occurrence. The insurance subsidiary has obtained reinsurance for professional liability risks generally above a retention level of $25 million per occurrence. We also maintain professional liability insurance with unrelated commercial carriers for losses in excess of amounts insured by our insurance subsidiary.
We purchase, from unrelated insurance companies, coverage for cyber security incidents, directors and officers liability and property loss in amounts we believe are adequate. The cyber security and directors and officers liability coverage each include a $5 million corporate deductible. In addition, we will continue to purchase coverage for our directors and officers on an ongoing basis. The property coverage includes varying deductibles depending on the cause of the property damage. These deductibles range from 2% to 5% of the affected property values for certain flood and wind and earthquake related incidents.
Employees and Medical Staffs
At December 31, 2017, we had approximately 253,000 employees, including approximately 63,000 part-time employees. References herein to employees refer to employees of our affiliates. We are subject to various state and federal laws that regulate wages, hours, benefits and other terms and conditions relating to employment. At December 31, 2017, certain employees at 39 of our domestic hospitals are represented by various labor unions. While no elections are expected in 2018, it is possible additional hospitals may unionize in the future. We consider our employee relations to be good and have not experienced work stoppages that have materially, adversely affected our business or results of operations. Our hospitals, like most hospitals, have experienced rising labor costs. In some markets, nurse and medical support personnel availability has become a significant operating issue to health care providers. To address this challenge, we have implemented several initiatives to improve retention, recruiting, compensation programs and productivity.
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Our hospitals are staffed by licensed physicians, including both employed physicians and physicians who are not employees of our hospitals. Some physicians provide services in our hospitals under contracts, which generally describe a term of service, provide and establish the duties and obligations of such physicians, require the maintenance of certain performance criteria and fix compensation for such services. Any licensed physician may apply to be accepted to the medical staff of any of our hospitals, but the hospitals medical staff and the appropriate governing board of the hospital, in accordance with established credentialing criteria, must approve acceptance to the staff. Members of the medical staffs of our hospitals often also serve on the medical staffs of other hospitals and may terminate their affiliation with one of our hospitals at any time.
We may be required to continue to enhance wages and benefits to recruit and retain nurses and other medical support personnel or to hire more expensive temporary or contract personnel. As a result, our labor costs could increase. We also depend on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. Recent changes by the National Labor Relations Board (the NLRB) in its election procedures could increase the likelihood of employee unionization attempts. To the extent a significant portion of our employee base unionizes, our costs could increase materially. In addition, the states in which we operate could adopt mandatory nurse-staffing ratios or could reduce mandatory nurse-staffing ratios already in place. State-mandated nurse-staffing ratios could significantly affect labor costs, and have an adverse impact on revenues if we are required to limit patient admissions in order to meet the required ratios.
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Executive Officers of the Registrant
As of February 1, 2018, our executive officers were as follows:
Name |
Age |
Position(s) |
||
R. Milton Johnson |
61 | Chairman, Chief Executive Officer and Director | ||
Victor L. Campbell |
71 | Senior Vice President | ||
Ravi S. Chari, M.D. |
52 | Senior Vice President Clinical Excellence | ||
Michael S. Cuffe, M.D. |
52 | President Physician Services Group | ||
Jane D. Englebright |
60 | Senior Vice President and Chief Nursing Officer | ||
Jon M. Foster |
56 | President American Group | ||
Charles J. Hall |
64 | President National Group | ||
Samuel N. Hazen |
57 | President and Chief Operating Officer | ||
A. Bruce Moore, Jr. |
57 | President Service Line and Operations Integration | ||
Sandra L. Morgan |
55 | Senior Vice President Provider Relations | ||
J. William B. Morrow |
47 | Senior Vice President Finance and Treasurer | ||
P. Martin Paslick |
58 | Senior Vice President and Chief Information Officer | ||
Jonathan B. Perlin, M.D. |
56 | President Clinical Services Group and Chief Medical Officer | ||
Deborah M. Reiner |
56 | Senior Vice President Marketing and Communications | ||
William B. Rutherford |
54 | Executive Vice President and Chief Financial Officer | ||
Joseph A. Sowell, III |
61 | Senior Vice President and Chief Development Officer | ||
Joseph N. Steakley |
63 | Senior Vice President Internal Audit Services | ||
John M. Steele |
62 | Senior Vice President and Chief Human Resource Officer | ||
Kathryn A. Torres |
54 | Senior Vice President Payer Contracting and Alignment | ||
Robert A. Waterman |
64 | Senior Vice President and General Counsel | ||
Christopher F. Wyatt |
40 | Senior Vice President and Controller | ||
Alan R. Yuspeh |
68 | Senior Vice President and Chief Ethics and Compliance Officer |
R. Milton Johnson was appointed Chairman and Chief Executive Officer effective December 31, 2014. Mr. Johnson served as President and Chief Executive Officer from January 1, 2014 to December 31, 2014 and has been a director of the Company since December 2009. Mr. Johnson previously served the Company as President and Chief Financial Officer from February 2011 through December 2013 and Executive Vice President and Chief Financial Officer from July 2004 to February 2011. Prior to that time, he served as Senior Vice President and Controller from July 1999 until July 2004 and as Vice President and Controller of the Company from November 1998 to July 1999. From April 1995 to October 1998, Mr. Johnson served as Vice President Tax of the Company. Prior to that time, Mr. Johnson served as Director of Tax for Healthtrust, Inc. The Hospital Company from September 1987 to April 1995.
Victor L. Campbell has served as Senior Vice President of the Company since February 1994. He is responsible for government and investor relations. Prior to that time, Mr. Campbell served as HCA-Hospital Corporation of Americas Vice President for Investor, Corporate and Government Relations. Mr. Campbell joined HCA-Hospital Corporation of America in 1972. Mr. Campbell serves on the board of the Coalition to Protect Americas Health Care, as a member of the American Hospital Associations Presidents Forum, and on the board of trustees of the Federation of American Hospitals.
Dr. Ravi S. Chari was appointed Senior Vice President Clinical Excellence in January 2015. Prior to that time, Dr. Chari served as Vice President Clinical Excellence from September 2011 to January 2015 and Chief Medical Officer of HCAs TriStar Division from October 2010 to September 2011. He served as Chief Medical Officer at Centennial Medical Center from September 2008 to October 2010 and also served as interim Chief Operating Officer of the Sarah Cannon Cancer Centers for the TriStar Division from October 2009 to March 2010. Dr. Chari has also served as Clinical Professor of Surgery at Vanderbilt University School of Medicine since November 2008 and previously served as Professor of Surgery from 2005 to 2008 and Associate Professor from 2001 to 2005.
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Dr. Michael S. Cuffe has served as President Physician Services Group since October 2011. From October 2011 to January 2015, Dr. Cuffe also served as a Vice President of the Company. Prior to that time, Dr. Cuffe served Duke University Health System as Vice President for Ambulatory Services and Chief Medical Officer from March 2011 to October 2011 and Vice President Medical Affairs from June 2005 to March 2011. He also served Duke University School of Medicine as Vice Dean for Medical Affairs from June 2008 to March 2011, Deputy Chair of the Department of Medicine from August 2009 to August 2010 and Associate Professor of Medicine from March 2005 to October 2011. Prior that time, Dr. Cuffe served in various leadership roles with the Duke Clinical Research Institute, Duke University Medical Center and Duke University School of Medicine.
Dr. Jane D. Englebright was appointed Senior Vice President and Chief Nursing Officer in January 2015. Dr. Englebright previously served as Vice President and Chief Nursing Officer from 2007 to January 2015. Dr. Englebright joined HCA in 1992 as a critical care nurse at Lewisville Medical Center in Texas and became Chief Nursing Officer of HCAs San Antonio Community Hospital in 1996. Dr. Englebright currently serves as the At-Large Nursing Representative to The Joint Commissions Board of Commissioners.
Jon M. Foster was appointed President American Group in January 2013. Prior to that, Mr. Foster served as President Southwest Group from February 2011 to January 2013 and as Division President for the Central and West Texas Division from January 2006 to February 2011. Mr. Foster joined HCA in March 2001 as President and CEO of St. Davids HealthCare in Austin, Texas and served in that position until February 2011. Prior to joining the Company, Mr. Foster served in various executive capacities within the Baptist Health System, Knoxville, Tennessee and The Methodist Hospital System in Houston, Texas.
Charles J. Hall was appointed President National Group in February 2011. Prior to that, Mr. Hall served as President Eastern Group from October 2006 to February 2011. Mr. Hall had previously served the Company as President North Florida Division from April 2003 until October 2006, as President of the East Florida Division from January 1999 until April 2003, as a Market President in the East Florida Division from January 1998 until December 1998, as President of the South Florida Division from February 1996 until December 1997, and as President of the Southwest Florida Division from October 1994 until February 1996, and in various other capacities since 1987.
Samuel N. Hazen was appointed President and Chief Operating Officer in November 2016. Prior to that time, he had served as Chief Operating Officer since January 2015. Mr. Hazen served as President Operations of the Company from February 2011 to January 2015. Mr. Hazen served as President Western Group from July 2001 to February 2011 and as Chief Financial Officer Western Group of the Company from August 1995 to July 2001. Mr. Hazen served as Chief Financial Officer North Texas Division of the Company from February 1994 to July 1995. Prior to that time, Mr. Hazen served in various hospital and regional Chief Financial Officer positions with Humana Inc. and Galen Health Care, Inc.
A. Bruce Moore, Jr. was appointed President Service Line and Operations Integration in February 2011. Prior to that, Mr. Moore had served as President Outpatient Services Group since January 2006. Mr. Moore served as Senior Vice President and as Chief Operating Officer Outpatient Services Group from July 2004 to January 2006 and as Senior Vice President Operations Administration from July 1999 until July 2004. Mr. Moore served as Vice President Operations Administration of the Company from September 1997 to July 1999, as Vice President Benefits from October 1996 to September 1997, and as Vice President Compensation from March 1995 until October 1996.
Sandra L. Morgan was appointed Senior Vice President Provider Relations in January 2015. Prior to that time, she served as Vice President National Sales from April 2008 to January 2015. From 2000 to 2008, Ms. Morgan served in various capacities with Pfizer Inc., including Vice President of Managed Care for the Customer Business Unit from 2005 to 2008.
J. William B. Morrow was appointed Senior Vice President Finance and Treasurer in February 2017. Mr. Morrow served as Vice President Finance and Treasurer from July 2016 through January 31, 2017.
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From 2011 to 2016, Mr. Morrow served the Company as Vice President Development/Special Assets. Mr. Morrow served as a partner in the law firm of Waller Lansden Dortch & Davis from 2006 to October 2011. Prior to becoming a partner, Mr. Morrow was an associate at Waller Lansden Dortch & Davis and at Cleary Gottlieb Steen & Hamilton.
P. Martin Paslick was appointed Senior Vice President and Chief Information Officer of the Company in June 2012. Prior to that time, he served as Vice President and Chief Operating Officer of Information Technology & Services from March 2010 to May 2012 and Vice President Information Technology & Services Field Operations from September 2006 to February 2010. From January 1998 to September 2006, he served in various Vice President roles in the Companys Information Technology & Services department. Mr. Paslick joined the Company in 1985.
Dr. Jonathan B. Perlin was appointed President Clinical Services Group and Chief Medical Officer in November 2007. Dr. Perlin had served as Chief Medical Officer and Senior Vice President Quality of the Company from August 2006 to November 2007. Prior to joining the Company, Dr. Perlin served as Under Secretary for Health in the U.S. Department of Veterans Affairs since April 2004. Dr. Perlin joined the Veterans Health Administration in November 1999 where he served in various capacities, including as Deputy Under Secretary for Health from July 2002 to April 2004, and as Chief Quality and Performance Officer from November 1999 to September 2002. He also served as Senior Advisor to the Acting Secretary of the U.S. Department of Veterans Affairs from July 2014 to September 2014 and as Chairman for the American Hospital Association in 2015.
Deborah M. Reiner was appointed Senior Vice President Marketing and Communications in October 2017. Prior to that time, she served as Vice President of Marketing and Customer Relationship Management from August 2017 to October 2017 and Vice President of Customer Relationship Management from January 2012 to August 2017. Ms. Reiner joined the Company in 2000 and served in various roles with the Companys Mountain Division from 2000 to 2012.
William B. Rutherford has served as the Companys Executive Vice President and Chief Financial Officer since January 2014. Mr. Rutherford previously served as Chief Operating Officer of the Companys Clinical and Physician Services Group from January 2011 to January 2014 and Chief Financial Officer of the Companys Outpatient Services Group from November 2008 to January 2011. Prior to that time, Mr. Rutherford was employed by Summit Consulting Group of Tennessee from July 2007 to November 2008 and was Chief Operating Officer of Psychiatric Solutions, Inc. from March 2006 to June 2007. Mr. Rutherford also previously served in various positions with the Company from 1986 to 2005, including Chief Financial Officer of what was then the Companys Eastern Group, Director of Internal Audit and Director of Operations Support.
Joseph A. Sowell, III was appointed as Senior Vice President and Chief Development Officer of the Company in December 2009. From 1987 to 1996 and again from 1999 to 2009, Mr. Sowell was a partner at the law firm of Waller Lansden Dortch & Davis where he specialized in the areas of health care law, mergers and acquisitions, joint ventures, private equity financing, tax law and general corporate law. He also co-managed the firms corporate and commercial transactions practice. From 1996 to 1999, Mr. Sowell served as the head of development, and later as the Chief Operating Officer of Arcon Healthcare.
Joseph N. Steakley has served as Senior Vice President Internal Audit Services of the Company since July 1999. Mr. Steakley served as Vice President Internal Audit Services from November 1997 to July 1999. From October 1989 until October 1997, Mr. Steakley was a partner with Ernst & Young LLP.
John M. Steele has served as Senior Vice President and Chief Human Resource Officer since July 2017. Prior to that time, he served as Senior Vice President Human Resources of the Company from November 2003 to July 2017. Mr. Steele served as Vice President Compensation and Recruitment of the Company from November 1997 to October 2003. From March 1995 to November 1997, Mr. Steele served as Assistant Vice President Recruitment.
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Kathryn A. Torres was appointed Senior Vice President Payer Contracting and Alignment (formerly Senior Vice President Employer and Payer Engagement) in July 2016. Ms. Torres joined HCA in 1993 and served in various capacities, including as Vice President of Employer and Payer Engagement and Vice President Strategy.
Robert A. Waterman has served as Senior Vice President and General Counsel of the Company since November 1997. Mr. Waterman served as a partner in the law firm of Latham & Watkins from September 1993 to October 1997; he was Chair of the firms health care group during 1997.
Christopher F. Wyatt was appointed Senior Vice President and Controller in April 2016. Prior to that time, Mr. Wyatt served the Company as Vice President and Chief Financial Officer IT&S from January 2013 to April 2016 and Chief Financial Officer Clinical Services Group from October 2010 until January 2013. From 2000 to 2010, Mr. Wyatt served in various capacities with Ernst & Young LLP.
Alan R. Yuspeh has served as Senior Vice President and Chief Ethics and Compliance Officer of the Company since May 2007. From October 1997 to May 2007, Mr. Yuspeh served as Senior Vice President Ethics, Compliance and Corporate Responsibility of the Company. From September 1991 until October 1997, Mr. Yuspeh was a partner with the law firm of Howrey & Simon. As a part of his law practice, Mr. Yuspeh served from 1987 to 1997 as Coordinator of the Defense Industry Initiative on Business Ethics and Conduct.
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Item 1A. |
Risk Factors |
If any of the events discussed in the following risk factors were to occur, our business, financial position, results of operations, cash flows or prospects could be materially, adversely affected. Additional risks and uncertainties not presently known, or currently deemed immaterial, may also constrain our business and operations.
Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations.
We are highly leveraged. As of December 31, 2017, our total indebtedness was $33.058 billion. As of December 31, 2017, we had availability of $1.977 billion under our senior secured revolving credit facility and $70 million under our asset-based revolving credit facility, after giving effect to letters of credit and borrowing base limitations. Our high degree of leverage could have important consequences, including:
|
increasing our vulnerability to downturns or adverse changes in general economic, industry or competitive conditions and adverse changes in government regulations; |
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requiring a substantial portion of cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flows to fund our operations, capital expenditures and future business opportunities; |
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exposing us to the risk of increased interest rates as certain of our unhedged borrowings are at variable rates of interest; |
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limiting our ability to make strategic acquisitions or causing us to make nonstrategic divestitures; |
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limiting our ability to obtain additional financing for working capital, capital expenditures, share repurchases, dividends, product or service line development, debt service requirements, acquisitions and general corporate or other purposes; and |
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limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged. |
We and our subsidiaries have the ability to incur additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facilities and the indentures governing our outstanding notes. If new indebtedness is added to our current debt levels, the related risks that we now face could intensify.
We may not be able to generate sufficient cash to service all of our indebtedness and may not be able to refinance our indebtedness on favorable terms. If we are unable to do so, we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
In addition, we conduct our operations through our subsidiaries. Accordingly, repayment of our indebtedness is dependent on the generation of cash flows by our subsidiaries and their ability to make such cash available to us by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be
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permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries.
We may find it necessary or prudent to refinance our outstanding indebtedness, the terms of which may not be favorable to us. Our ability to refinance our indebtedness on favorable terms, or at all, is directly affected by the then current global economic and financial conditions. In addition, our ability to incur secured indebtedness (which would generally enable us to achieve better pricing than the incurrence of unsecured indebtedness) depends in part on the value of our assets, which depends, in turn, on the strength of our cash flows and results of operations, and on economic and market conditions and other factors.
If our cash flows and capital resources are insufficient to fund our debt service obligations or we are unable to refinance our indebtedness, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating results and available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions, or the proceeds from the dispositions may not be adequate to meet any debt service obligations then due.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
Our senior secured credit facilities and, to a lesser extent, the indentures governing our outstanding notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and certain of our subsidiaries ability to, among other things:
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incur additional indebtedness or issue certain preferred shares; |
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pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments; |
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make certain investments; |
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sell or transfer assets; |
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create liens; |
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consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and |
| enter into certain transactions with our affiliates. |
Under our asset-based revolving credit facility, availability is subject to a borrowing base of 85% of eligible accounts receivable less customary reserves, with any reduction in the borrowing base commensurately reducing our ability to access this facility as a source of liquidity. In addition, under the asset-based revolving credit facility, when (and for as long as) the combined availability under our asset-based revolving credit facility and our senior secured revolving credit facility is less than a specified amount for a certain period of time or, if a payment or bankruptcy event of default has occurred and is continuing, funds deposited into any of our depository accounts will be transferred on a daily basis into a blocked account with the administrative agent and applied to prepay loans under the asset-based revolving credit facility and to collateralize letters of credit issued thereunder.
Under our senior secured credit facilities, we are required to satisfy and maintain specified financial ratios. Our ability to meet those financial ratios can be affected by events beyond our control, and there can be no assurance we will continue to meet those ratios. A breach of any of these covenants could result in a default under both the cash flow credit facility and the asset-based revolving credit facility. Upon the occurrence of an
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event of default under these senior secured credit facilities, the lenders thereunder could elect to declare all amounts outstanding under the senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit, which would also result in an event of default under a significant portion of our outstanding indebtedness. If we were unable to repay those amounts, the lenders under the senior secured credit facilities could proceed against the collateral granted to them to secure such indebtedness. We have pledged a significant portion of our assets under our senior secured credit facilities and that collateral is also pledged as collateral under our first lien notes. If any of the lenders under the senior secured credit facilities accelerate the repayment of borrowings, there can be no assurance there will be sufficient assets to repay the senior secured credit facilities, the first lien notes and our other indebtedness.
Our hospitals face competition for patients from other hospitals and health care providers.
The health care business is highly competitive, and competition among hospitals and other health care providers for patients has intensified in recent years. Generally, other hospitals in the communities we serve provide services similar to those offered by our hospitals. In addition, CMS publicizes on its Hospital Compare website performance data related to quality measures and data on patient satisfaction surveys hospitals submit in connection with their Medicare reimbursement. Federal law provides for the future expansion of the number of quality measures that must be reported. Additional quality measures and future trends toward clinical transparency may have an unanticipated impact on our competitive position and patient volumes. Further, every hospital must establish and update annually a public listing of the hospitals standard charges for items and services. If any of our hospitals achieve poor results (or results that are lower than our competitors) on these quality measures or on patient satisfaction surveys or if our standard charges are higher than our competitors, our patient volumes could decline.
In addition, the number of freestanding specialty hospitals, surgery centers, emergency departments, urgent care centers and diagnostic and imaging centers in the geographic areas in which we operate has increased. As a result, most of our hospitals operate in a highly competitive environment, which may put pressure on our pricing as high margin services transition to outpatient facilities and may also place pressure on the Companys strategy for volume growth. Some of the facilities that compete with our hospitals are physician-owned or are owned by governmental agencies or not-for-profit corporations supported by endowments, charitable contributions and/or tax revenues and can finance capital expenditures and operations on a tax-exempt basis. Recent consolidations of not-for-profit hospital entities may intensify this competitive pressure. There is also increasing consolidation in the third-party payer industry, including vertical integration efforts among third-party payers and health care providers. Health care industry participants are increasingly implementing physician alignment strategies, such as employing physicians, acquiring physician practice groups and participating in ACOs or other clinical integration models. Other industry participants, such as large employer groups and their affiliates, may intensify competitive pressure and affect the industry in ways that are difficult to predict.
Our hospitals compete with specialty hospitals and with both our own and unaffiliated freestanding surgery centers for market share in certain high margin services and for quality physicians and personnel. If ASCs are better able to compete in this environment than our hospitals, our hospitals may experience a decline in patient volume, and we may experience a decrease in margin, even if those patients use our ASCs. In states that do not require a CON or other type of approval for the purchase, construction or expansion of health care facilities or services, competition in the form of new services, facilities and capital spending is more prevalent. Further, if our competitors are better able to attract patients, make capital expenditures and maintain modern and technologically upgraded facilities and equipment, recruit physicians, expand services or obtain favorable third-party payer contracts at their facilities than our hospitals and ASCs, we may experience an overall decline in patient volume. See Item 1, Business Competition.
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A deterioration in the collectability of uninsured and patient due accounts could adversely affect our results of operations.
The primary collection risks for our accounts receivable relate to the uninsured patient accounts and patient accounts for which the primary third-party payer has paid the amounts covered by the applicable agreement, but patient responsibility amounts (exclusions, deductibles and copayments) remain outstanding. The provision for doubtful accounts relates primarily to amounts due directly from patients. Medicare reimburses hospitals for 65% of eligible Medicare bad debts. To be eligible for reimbursement, the amounts claimed must meet certain criteria, including that the debt is related to unpaid deductible or coinsurance amounts and that the hospital first attempted to collect the fees from the Medicare beneficiary.
The amount of the provision for doubtful accounts is based upon managements assessment of historical write-offs and expected net collections, business and economic conditions, trends in federal and state governmental and private employer health care coverage, the rate of growth in uninsured patient admissions and other collection indicators. At December 31, 2017, our allowance for doubtful accounts represented 100% of the $5.488 billion patient due accounts receivable balance. The sum of the provision for doubtful accounts, uninsured discounts and charity care increased from $18.287 billion for 2015 to $20.455 billion for 2016 and to $23.420 billion for 2017.
Any increase in the amount or deterioration in the collectability of uninsured accounts receivable will adversely affect our cash flows and results of operations. Our facilities may experience growth in bad debts, uninsured discounts and charity care as a result of a number of factors, including conditions impacting the overall economy and high unemployment. In 2017, Congress eliminated the financial penalty associated with the Health Reform Laws individual mandate, effective January 1, 2019, which may result in fewer individuals electing to purchase health insurance. The presidential administration and a number of members of Congress continue to make other efforts to repeal or significantly change the Health Reform Law. Even if the Health Reform Law remains in effect, we will continue to experience collectability issues and provide uninsured discounts and charity care for individuals residing in states that choose not to implement the Medicaid expansion, for undocumented aliens who are not permitted to enroll in an Exchange or government health care programs and for certain others who may not have insurance coverage. Further, some patients may choose to enroll in lower cost Medicaid plans or other health insurance plans with lower reimbursement levels. We may also be adversely affected by the growth in patient responsibility accounts as a result of increases in the adoption of health plan structures that shift greater responsibility for care to individuals through greater exclusions and copayment and deductible amounts.
Changes in government health care programs may adversely affect our revenues.
A significant portion of our patient volume is derived from government health care programs, principally Medicare and Medicaid. Specifically, we derived 41.8% of our revenues from the Medicare and Medicaid programs in 2017. Changes in government health care programs may reduce the reimbursement we receive and could adversely affect our business and results of operations. The Health Reform Law has made significant changes to Medicare and Medicaid, and future health reform efforts or efforts to repeal or significantly change the Health Reform Law may impact these programs.
In recent years, legislative and regulatory changes have resulted in limitations on and, in some cases, reductions in levels of payments to health care providers for certain services under the Medicare program. Congress has established automatic spending reductions that extend through 2027. However, the percentage reduction for Medicare may not be more than 2% for a fiscal year, with a uniform percentage reduction across all Medicare programs. We are unable to predict what other deficit reduction initiatives may be proposed by Congress. These reductions are in addition to reductions mandated by the Health Reform Law, which provides for material reductions in the growth of Medicare program spending, including reductions in Medicare market basket updates and Medicare DSH funding. Further, from time to time, CMS revises the reimbursement systems used to reimburse health care providers, including changes to the MS-DRG system and other payment systems,
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which may result in reduced Medicare payments. For example, under a site neutrality policy, certain items and services provided by off-campus provider-based departments that were formerly paid under the outpatient PPS are now paid under the Physician Fee Schedule, subject to certain exceptions.
Because most states must operate with balanced budgets and because the Medicaid program is often a states largest program, some states have enacted or may consider enacting legislation designed to reduce their Medicaid expenditures. Further, many states have also adopted, or are considering, legislation designed to reduce coverage, enroll Medicaid recipients in managed care programs and/or impose additional taxes on hospitals to help finance or expand the states Medicaid systems. Periods of economic weakness may increase the budgetary pressures on many states, and these budgetary pressures may result in decreased spending, or decreased spending growth, for Medicaid programs and CHIP in many states. Some states that provide Medicaid supplemental payments are reviewing these programs or have filed waiver requests with CMS to replace these programs, and CMS has performed and continues to perform compliance reviews of some states programs, which could result in Medicaid supplemental payments being reduced or eliminated. For example, in December 2017, CMS announced that it will phase out funding for Designated State Health Programs under certain types of Medicaid waivers. Further, legislation and administrative actions at the federal level may significantly alter the funding for, or structure of, the Medicaid program. For example, from time to time, Congress considers proposals to restructure the Medicaid program to involve block grants that would be administered by the states.
In some cases, private third-party payers rely on all or portions of Medicare payment systems to determine payment rates. Changes to government health care programs that reduce payments under these programs may negatively impact payments from private third-party payers.
Current or future health care reform and deficit reduction efforts, changes in laws or regulations regarding government health care programs, other changes in the administration of government health care programs and changes by private third-party payers in response to health care reform and other changes to government health care programs could have a material, adverse effect on our financial position and results of operations.
Our results of operations may be adversely affected by health care reform efforts, particularly efforts to repeal, replace or otherwise significantly change the Health Reform Law. We are unable to predict what, if any, and when such changes will be made in the future.
The Health Reform Law represents a significant shift in the way health care services are delivered, covered, and reimbursed. Although it reduced our Medicare and Medicaid reimbursement, the Health Reform Law also reduced the number of uninsured patients to whom we provide health care services, primarily through the Exchanges and Medicaid expansion. However, many insurers have exited the Exchanges in the markets served by the Company. To the extent some markets lack a sufficient number of health insurers participating in the Exchanges, it could threaten the continued viability of the Exchanges in those markets.
In addition, the presidential administration and a number of members of Congress continue to attempt to repeal, amend or replace the law, or make significant changes to its implementation. In 2017, Congress eliminated the financial penalty associated with the individual mandate, effective January 1, 2019. It is difficult to predict the impact of this change, but it may result in fewer individuals electing to purchase health insurance. Further, the President of the United States has also signed an executive order that directs agencies to minimize economic and regulatory burdens of the Health Reform Law, which may result in additional changes in how the law is implemented. CMS has indicated that it intends to increase flexibility in state Medicaid programs, including by expanding the scope of waivers under which states may implement Medicaid expansion provisions, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards. There is uncertainty regarding whether, when, and how the Health Reform Law may be further changed. Changes by Congress or government agencies could eliminate or alter provisions beneficial to us, and it is difficult to predict the impact of changes on other health care industry participants. Government efforts to repeal or change the Health Reform Law may have an adverse effect on our business, results of operations, cash flow, capital resources, and liquidity.
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If our volume of patients with private health insurance coverage declines or we are unable to retain and negotiate favorable contracts with private third-party payers, including managed care plans, our revenues may be reduced.
Private third-party payers, including HMOs, PPOs and other managed care plans, typically reimburse health care providers at a higher rate than Medicare, Medicaid or other government health care programs. Reimbursement rates are set forth by contract when our facilities are in-network, and payers utilize plan structures to encourage or require the use of in-network providers. Revenues derived from private third-party payers (domestic only) accounted for 56.9%, 56.5% and 55.2% of our revenues for 2017, 2016 and 2015, respectively. As a result, our ability to maintain or increase patient volumes covered by private third-party payers and to maintain and obtain favorable contracts with private third-party payers significantly affects the revenues and operating results of our facilities.
Private third-party payers, including managed care plans, continue to demand discounted fee structures, and the trend toward consolidation among payers tends to increase their bargaining power over fee structures. Payers may utilize plan structures such as narrow networks and tiered networks that limit beneficiary provider choices or impose significantly higher cost sharing obligations when care is obtained from providers in a disfavored tier. Other health care providers may impact our ability to enter into managed care contracts or negotiate increases in our reimbursement and other favorable terms and conditions. For example, some of our competitors may negotiate exclusivity provisions with managed care plans or otherwise restrict the ability of managed care plans to contract with us. In addition to increasing negotiating leverage of private third-party payers, alignment efforts between third-party payers and health care providers may also result in other competitive advantages, such as greater access to performance and pricing data. Our future success will depend, in part, on our ability to retain and renew our third-party payer contracts and enter into new contracts on terms favorable to us. Cost-reduction strategies by large employer groups and their affiliates may also limit our ability to negotiate favorable terms in our contracts and otherwise intensify competitive pressure. It is not clear what impact, if any, future health reform efforts or the repeal of, or changes to, the Health Reform Law will have on our ability to negotiate reimbursement increases and participate in third-party payer networks on favorable terms. If we are unable to retain and negotiate favorable contracts with third-party payers or experience reductions in payment increases or amounts received from third-party payers, our revenues may be reduced.
Our performance depends on our ability to recruit and retain quality physicians.
The success of our hospitals depends in part on the number and quality of the physicians on the medical staffs of our hospitals, the admitting and utilization practices of those physicians, maintaining good relations with those physicians and controlling costs related to the employment of physicians. Although we employ some physicians, physicians are often not employees of the hospitals at which they practice, and, in many of the markets we serve, most physicians have admitting privileges at other hospitals in addition to our hospitals. Such physicians may terminate their affiliation with our hospitals at any time. We may face increased challenges in this area as the physician population reaches retirement age, especially if there is a shortage of physicians willing and able to provide comparable services. If we are unable to provide adequate support personnel or technologically advanced equipment and hospital facilities that meet the needs of those physicians and their patients, they may be discouraged from referring patients to our facilities, admissions may decrease and our operating performance may decline.
Our hospitals face competition for staffing, which may increase labor costs and reduce profitability.
Our operations are dependent on the efforts, abilities and experience of our management and medical support personnel, such as nurses, pharmacists and lab technicians, as well as our physicians. We compete with other health care providers in recruiting and retaining qualified management and support personnel responsible for the daily operations of each of our hospitals, including nurses and other nonphysician health care professionals. In some markets, the availability of nurses and other medical support personnel has been a
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significant operating issue to health care providers. We may be required to continue to enhance wages and benefits to recruit and retain nurses and other medical support personnel or to hire more expensive temporary or contract personnel. As a result, our labor costs could increase. We also depend on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. Certain proposed changes in federal labor laws and the NLRBs modification of its election procedures could increase the likelihood of employee unionization attempts. To the extent a significant portion of our employee base unionizes, it is possible our labor costs could increase materially. When negotiating collective bargaining agreements with unions, whether such agreements are renewals or first contracts, there is the possibility that strikes could occur during the negotiation process, and our continued operation during any strikes could increase our labor costs. In addition, the states in which we operate could adopt mandatory nurse-staffing ratios or could reduce mandatory nurse staffing ratios already in place. State-mandated nurse-staffing ratios could significantly affect labor costs and have an adverse impact on revenues if we are required to limit admissions in order to meet the required ratios. If our labor costs increase, we may not be able to raise rates to offset these increased costs. Because a significant percentage of our revenues consists of fixed, prospective payments, our ability to pass along increased labor costs is constrained. Our failure to recruit and retain qualified management, nurses and other medical support personnel, or to control labor costs, could have a material, adverse effect on our results of operations.
We may be unable to attract, hire, and retain a highly qualified and diverse workforce, including key management.
The talents and efforts of our employees, particularly our key management, are vital to our success. Our management team has significant industry experience and would be difficult to replace. In addition, institutional knowledge may be lost in any potential managerial transition. We may be unable to retain them or to attract other highly qualified employees, particularly if we do not offer employment terms that are competitive with the rest of the labor market. Failure to attract, hire, develop, motivate, and retain highly qualified and diverse employee talent, or failure to develop and implement an adequate succession plan for the management team, could disrupt our operations and adversely affect our business and our future success.
If we fail to comply with extensive laws and government regulations, we could suffer penalties or be required to make significant changes to our operations.
The health care industry is required to comply with extensive and complex laws and regulations at the federal, state and local government levels relating to, among other things:
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billing and coding for services and properly handling overpayments; |
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appropriateness and classification of level of care provided, including proper classification of inpatient admissions, observation services and outpatient care; |
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relationships with physicians and other referral sources and referral recipients; |
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necessity and adequacy of medical care; |
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quality of medical equipment and services; |
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qualifications of medical and support personnel; |
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confidentiality, maintenance, data breach, identity theft and security issues associated with health-related and personal information and medical records; |
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screening, stabilization and transfer of individuals who have emergency medical conditions; |
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licensure, certification and enrollment with government programs; |
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hospital rate or budget review; |
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debt collection; |
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communications with patients and consumers; |
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preparing and filing of cost reports; |
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operating policies and procedures; |
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activities regarding competitors; |
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addition of facilities and services; and |
| environmental protection. |
Among these laws are the federal Anti-kickback Statute, the federal Stark Law, the FCA and similar state laws. We have a variety of financial relationships with physicians and others who either refer or influence the referral of patients to our hospitals, other health care facilities and employed physicians or who are the recipients of referrals, and these laws govern those relationships. The OIG has enacted safe harbor regulations that outline practices deemed protected from prosecution under the Anti-kickback Statute. While we endeavor to comply with the applicable safe harbors, certain of our current arrangements, including joint ventures and financial relationships with physicians and other referral sources and persons and entities to which we refer patients, do not qualify for safe harbor protection. Failure to qualify for a safe harbor does not mean the arrangement necessarily violates the Anti-kickback Statute but may subject the arrangement to greater scrutiny. However, we cannot offer assurance that practices outside of a safe harbor will not be found to violate the Anti-kickback Statute. Allegations of violations of the Anti-kickback Statute may be brought under the federal Civil Monetary Penalty Law, which requires a lower burden of proof than other fraud and abuse laws, including the Anti-kickback Statute.
Our financial relationships with referring physicians and their immediate family members must comply with the Stark Law by meeting an exception. We attempt to structure our relationships to meet an exception to the Stark Law, but the regulations implementing the exceptions are detailed and complex, and we cannot provide assurance that every relationship complies fully with the Stark Law. Unlike the Anti-kickback Statute, failure to meet an exception under the Stark Law results in a violation of the Stark Law, even if such violation is technical in nature.
Additionally, if we violate the Anti-kickback Statute or Stark Law, or if we improperly bill for our services, we may be found to violate the FCA, either under a suit brought by the government or by a private person under a qui tam , or whistleblower, suit. See Item 1, Business Regulation and Other Factors.
We also operate health care facilities in the United Kingdom and have operations and commercial relationships with companies in other foreign jurisdictions and, as a result, are subject to certain U.S. and foreign laws applicable to businesses generally, including anti-corruption laws. The Foreign Corrupt Practices Act regulates U.S. companies in their dealings with foreign officials, prohibiting bribes and similar practices, and requires that they maintain records that fairly and accurately reflect transactions and appropriate internal accounting controls. In addition, the United Kingdom Bribery Act has wide jurisdiction over certain activities that affect the United Kingdom.
A variety of state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and other processing of personal data. Many foreign data privacy regulations (including the General Data Protection Regulation (GDPR), which becomes effective in the European Union on May 25, 2018) are more stringent than those in the United States. These laws and regulations are rapidly evolving and changing, and could have an adverse effect on our operations. Companies obligations and requirements under these laws and regulations are subject to uncertainty in how they may be interpreted by government authorities and regulators. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, result in interruptions or delays in the availability of systems and/or result in a patient volume decline. In the case of non-compliance with a material provision of the GDPR (such as non-adherence to the core principles of processing personal data), regulators
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have the authority to levy a fine in an amount that is up to the greater of 20 million or 4% of global annual turnover in the prior year. If it is determined that non-compliance is related to a non-material provision (such as failure to comply with technical measures), regulators may impose a fine in an amount that is up to the greater of 10 million or 2% of the global annual turnover from the prior year. These administrative fines are discretionary and based, in each case, on a multi-factored approach. We may also face audits or investigations by one or more domestic or foreign government agencies relating to our compliance with these regulations. An adverse outcome under any such investigation or audit could result in liability, result in adverse publicity, and adversely affect our business.
We engage in consumer debt collection for HCA-affiliated hospitals and certain non-affiliated hospitals. The federal Fair Debt Collection Practices Act and Telephone Consumer Protection Act restrict the methods that companies may use to contact and seek payment from consumer debtors regarding past due accounts. Many states impose additional requirements on debt collection practices, and some of those requirements may be more stringent than the federal requirements.
If we fail to comply with these or other applicable laws and regulations, we could be subject to liabilities, including civil penalties, the loss of our licenses to operate one or more facilities, exclusion of one or more facilities from participation in the Medicare, Medicaid and other federal and state health care programs and criminal penalties.
We do not always have the benefit of significant regulatory or judicial interpretation of these laws and regulations. In the future, different interpretations or enforcement of, or amendment to, these or other laws and regulations could subject our current or past practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses. A determination that we have violated these or other laws, or the public announcement that we are being investigated for possible violations of these or other laws, could have a material, adverse effect on our business, financial condition, results of operations or prospects, and our business reputation could suffer significantly. In addition, other legislation or regulations at the federal or state level may be adopted that adversely affect our business.
We have been and could become the subject of government investigations, claims and litigation.
Health care companies are subject to numerous investigations by various government agencies. Further, under the FCA, private parties have the right to bring qui tam , or whistleblower, suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received, and other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse effect on our financial position, results of operations and liquidity.
Government agencies and their agents, such as the MACs, fiscal intermediaries and carriers, as well as the OIG, CMS and state Medicaid programs, conduct audits of our health care operations. Private third-party payers may conduct similar post-payment audits, and we also perform internal audits and monitoring. Depending on the nature of the conduct found in such audits and whether the underlying conduct could be considered systemic, the resolution of these audits could have a material, adverse effect on our financial position, results of operations and liquidity.
CMS contracts with RACs on a contingency fee basis to conduct post-payment reviews to detect and correct improper payments in the fee-for-service Medicare program. The Health Reform Law expanded the RAC programs scope to include managed Medicare plans and Medicaid claims. RAC denials are appealable; however, there are currently significant delays in the assignment of new Medicare appeals to Administrative Law
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Judges, which negatively impacts our ability to appeal RAC payment denials. In addition, CMS employs MICs to perform post-payment audits of Medicaid claims and identify overpayments, and state Medicaid agencies and other contractors have increased their review activities.
Should we be found out of compliance with any of these laws, regulations or programs, depending on the nature of the findings, our business, our financial position and our results of operations could be negatively impacted.
Changes to physician utilization practices and treatment methodologies, third-party payer controls designed to reduce inpatient services or surgical procedures and other factors outside our control that impact demand for medical services may reduce our revenues.
Controls imposed by Medicare, managed Medicare, Medicaid, managed Medicaid and private third-party payers designed to reduce admissions, intensity of services, surgical volumes and lengths of stay, in some instances referred to as utilization review, have affected and are expected to continue to affect our facilities. Utilization review entails the review of the admission and course of treatment of a patient by third-party payers. The Medicare program also issues national or local coverage determinations that restrict the circumstances under which Medicare pays for certain services. Inpatient utilization, average lengths of stay and occupancy rates continue to be negatively affected by third-party payers preadmission authorization requirements, coverage restrictions, utilization review and by pressure to maximize outpatient and alternative health care delivery services for less acutely ill patients. Efforts to impose more stringent cost controls are expected to continue. Additionally, trends in physician treatment protocols and managed care health plan design, such as health plans that shift increased costs and accountability for care to patients, could reduce our surgical volumes and admissions in favor of lower intensity and lower cost treatment methodologies.
Volume, admission and case-mix trends may be impacted by other factors beyond our control, such as changes in volume of certain high acuity services, variations in the prevalence and severity of outbreaks of influenza and other illnesses and medical conditions, seasonal and severe weather conditions, changes in treatment regimens and medical technology and other advances. These factors may reduce the demand for services we offer and decrease the reimbursement that we receive. Significant limits on the scope of services reimbursed, cost controls, changes to physician utilization practices, treatment methodologies, reimbursement rates and fees and other factors beyond our control could have a material, adverse effect on our business, financial position and results of operations.
Our overall business results may suffer during periods of general economic weakness.
Budget deficits at federal, state and local government entities have had a negative impact on spending, and may continue to negatively impact spending, for health and human service programs, including Medicare, Medicaid and similar programs, which represent significant third-party payer sources for our hospitals. We anticipate that the federal deficit, the growing magnitude of Medicare expenditures and the aging of the United States population will continue to place pressure on government health care programs. Other risks we face during periods of economic weakness and high unemployment include potential declines in the population covered under managed care agreements, increased patient decisions to postpone or cancel elective and nonemergency health care procedures (including delaying surgical procedures), potential increases in the uninsured and underinsured populations, increased adoption of health plan structures that shift financial responsibility to patients and further difficulties in collecting patient receivables for copayment and deductible receivables.
The industry trend toward value-based purchasing may negatively impact our revenues.
There is a trend in the health care industry toward value-based purchasing of health care 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 currently require hospitals to report certain quality data to receive full reimbursement updates. In addition,
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Medicare does not reimburse for care related to certain preventable adverse events (also called never events). The Health Reform Law also prohibits the use of federal funds under the Medicaid program to reimburse providers for medical assistance provided to treat HACs. The 25% of hospitals with the worst risk-adjusted HAC rates in the designated performance period receive a 1% reduction in their inpatient PPS Medicare payments.
Hospitals with excess readmission rates for conditions designated by HHS will receive a reduction in their inpatient PPS operating Medicare payments for all Medicare inpatient discharges, not just discharges relating to the conditions subject to the excess readmission standard. The reduction in payments to hospitals with excess readmissions can be up to 3% of a hospitals base payments.
HHS has implemented a value-based purchasing program for inpatient hospital services that reduces inpatient hospital payments for all discharges by 2% in federal fiscal year 2017 and for subsequent years. HHS pools the amount collected from these reductions to fund payments to reward hospitals that meet or exceed certain quality performance standards established by HHS. HHS estimates that $1.9 billion in value-based incentive payments will be available to hospitals in federal fiscal year 2018 based on achievement (relative to other hospitals) and improvement (relative to the hospitals own past performance). Hospitals that meet or exceed the quality performance standards will receive greater reimbursement under the value-based purchasing program than they would have otherwise.
CMS has developed several alternative payment models that are intended to reduce costs and improve quality of care for Medicare beneficiaries. Examples of alternative payment models include bundled payment models in which, depending on whether overall CMS spending per episode exceeds or falls below a target specified by CMS and whether quality standards are met, hospitals may receive supplemental Medicare payments or owe repayments to CMS. Generally, participation in bundled payment programs is voluntary, but CMS requires hospitals in selected markets to participate in a bundled payment initiative for orthopedic services. Participation in mandatory or voluntary demonstration projects, particularly demonstrations with the potential to affect payment, may negatively impact our results of operations.
Many large private third-party payers currently require hospitals to report quality data, and several private third-party payers do not reimburse hospitals for certain preventable adverse events. Further, we have implemented a policy pursuant to which we do not bill patients or third-party payers for fees or expenses incurred due to certain preventable adverse events.
We expect value-based purchasing programs, including programs that condition reimbursement on patient outcome measures, to become more common and to involve a higher percentage of reimbursement amounts. CMS has announced aggressive goals for adopting alternative payment models, which may include additional bundled payment programs, and private third-party payers may also transition away from fee-for-service payment models. We are unable at this time to predict our future payments or whether we will be subject to payment reductions under these programs or how this trend will affect our results of operations, but it could negatively impact our revenues.
Our operations could be impaired by a failure of our information systems.
The performance of our information systems is critical to our business operations. In addition to our shared services initiatives, our information systems are essential to a number of critical areas of our operations, including:
|
accounting and financial reporting; |
|
billing and collecting accounts; |
|
coding and compliance; |
|
clinical systems; |
|
medical records and document storage; |
41
|
inventory management; |
|
negotiating, pricing and administering managed care contracts and supply contracts; and |
|
monitoring quality of care and collecting data on quality measures necessary for full Medicare payment updates. |
Information systems may be vulnerable to damage from a variety of sources, including telecommunications or network failures, human acts and natural disasters. We have taken precautionary measures to prevent unanticipated problems that could affect our information systems. Nevertheless, we may experience system failures. The occurrence of any system failure could result in interruptions, delays, the loss or corruption of data and cessations or interruptions in the availability of systems, all of which could have a material, adverse effect on our financial position and results of operations and harm our business reputation.
A cybersecurity incident could result in the compromise of a facility, confidential data or critical data systems and give rise to potential harm to patients, remediation and other expenses, expose us to liability under HIPAA, consumer protection laws, or other common law theories, subject us to litigation and foreign, federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business.
We, independently and through third-party vendors, collect and store on our networks sensitive information, including intellectual property, proprietary business information and personally identifiable information of our patients and employees. In addition, we have made significant investments in technology to adopt and utilize EHR and to become meaningful users of health information technology. The secure maintenance of this information and technology is critical to our business operations. We have implemented multiple layers of security measures to protect the confidentiality, integrity and availability of this data and the systems and devices that store and transmit such data. We utilize current security technologies, and our defenses are monitored and routinely tested internally and by external parties. Despite these efforts, threats from malicious persons and groups, new vulnerabilities and advanced new attacks against information systems create risk of cybersecurity incidents. We are regularly the target of attempted cybersecurity and other threats that could have a security impact. There can be no assurance that we or our third-party vendors will not be subject to cybersecurity incidents that bypass our security measures, impact the integrity, availability or privacy of personal health information or other data subject to privacy laws or disrupt our information systems, devices or business, including our ability to provide various health care services. As a result, cybersecurity, physical security and the continued development and enhancement of our controls, processes and practices designed to protect our facilities, information systems and data from attack, damage or unauthorized access remain a priority for us. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities. The occurrence of any of these events could result in (i) harm to patients; (ii) business interruptions and delays; (iii) the loss, misappropriation, corruption or unauthorized access of data; (iv) litigation and potential liability under privacy, security and consumer protection laws or other applicable laws; (v) reputational damage and (vi) foreign, federal and state governmental inquiries, any of which could have a material, adverse effect on our financial position and results of operations and harm our business reputation.
If we fail to continue to demonstrate meaningful use of certified electronic health record systems, our operations could be adversely affected.
Eligible hospitals and eligible professionals that fail to demonstrate meaningful use of certified EHR technology in an applicable prior reporting period are subject to reduced payments from Medicare. Failure to continue to demonstrate meaningful use of certified EHR technology could have a material, adverse effect on our financial position and results of operations.
The emergence and effects related to a pandemic, epidemic or outbreak of an infectious disease could adversely affect our operations.
If a pandemic, epidemic, outbreak of an infectious disease or other public health crisis were to occur in an area in which we operate, our operations could be adversely affected. Such a crisis could diminish the public trust
42
in health care facilities, especially hospitals that fail to accurately or timely diagnose, or are treating (or have treated) patients affected by infectious diseases. If any of our facilities were involved, or perceived as being involved, in treating patients from such an infectious disease, patients might cancel elective procedures or fail to seek needed care at our facilities. Further, a pandemic, epidemic or outbreak might adversely affect our operations by causing a temporary shutdown or diversion of patients, by disrupting or delaying production and delivery of materials and products in the supply chain or by causing staffing shortages in our facilities. We have disaster plans in place and operate pursuant to infectious disease protocols, but the potential emergence of a pandemic, epidemic or outbreak is difficult to predict and could adversely affect our operations.
State efforts to regulate the construction or expansion of health care facilities could impair our ability to operate and expand our operations.
Some states, particularly in the eastern part of the country, require health care providers to obtain prior approval, often known as a CON, for the purchase, construction or expansion of health care facilities, to make certain capital expenditures or to make changes in services or bed capacity. In giving approval, these states consider the need for additional or expanded health care facilities or services. We currently operate health care facilities in a number of states with CON laws or that require other types of approvals for the establishment or expansion of certain facility types or services. The failure to obtain any required CON or other required approval could impair our ability to operate or expand operations. Any such failure could, in turn, adversely affect our ability to attract patients and physicians to our facilities and grow our revenues, which would have an adverse effect on our results of operations.
We may encounter difficulty acquiring hospitals and other health care businesses, encounter challenges integrating the operations of acquired hospitals and other health care businesses and become liable for unknown or contingent liabilities as a result of acquisitions.
A component of our business strategy is acquiring hospitals and other health care businesses. We may encounter difficulty acquiring new facilities or other businesses as a result of competition from other purchasers that may be willing to pay purchase prices that are higher than we believe are reasonable. Some states require CONs in order to acquire a hospital or other facility or to expand facilities or services. In addition, the acquisition of health care facilities often involves licensure approvals or reviews and complex change of ownership processes for Medicare and other payers. Further, many states have laws that restrict the conversion or sale of not-for-profit hospitals to for-profit entities. These laws may require prior approval from the state attorney general, advance notification of the attorney general or other regulators and community involvement. Attorneys general in states without specific requirements may exercise broad discretionary authority over transactions involving the sale of not-for-profits under their general obligations to protect the use of charitable assets. These conversion legislative and administrative efforts often focus on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the non-profit seller and may include consideration of commitments for capital improvements and charity care by the purchaser. Also, the increasingly challenging regulatory and enforcement environment may negatively impact our ability to acquire health care businesses if they are found to have material unresolved compliance issues, such as repayment obligations. Resolving compliance issues as well as completion of oversight, review or approval processes could seriously delay or even prevent our ability to acquire hospitals or other businesses and increase our acquisition costs.
We may be unable to timely and effectively integrate hospitals and other businesses that we acquire with our ongoing operations, or we may experience delays implementing operating procedures and systems. Hospitals and other health care businesses that we acquire may have unknown or contingent liabilities, including liabilities for failure to comply with health care and other laws and regulations, medical and general professional liabilities, workers compensation liabilities and tax liabilities. Although we typically exclude significant liabilities from our acquisition transactions and seek indemnification from the sellers for these matters, we could experience difficulty enforcing those obligations, experience liability in excess of any indemnification obtained or otherwise incur material liabilities for the pre-acquisition conduct of acquired businesses. Such liabilities and related legal or other costs could harm our business and results of operations.
43
Our facilities are heavily concentrated in Florida and Texas, which makes us sensitive to regulatory, economic, environmental and competitive conditions and changes in those states.
We operated 179 hospitals at December 31, 2017, and 91 of those hospitals are located in Florida and Texas. Our Florida and Texas facilities combined revenues represented approximately 48% of our consolidated revenues for the year ended December 31, 2017. This concentration makes us particularly sensitive to regulatory, economic, environmental and competitive conditions and changes in those states. Any material change in the current payment programs or regulatory, economic, environmental or competitive conditions in those states could have a disproportionate effect on our overall business results.
In addition, our hospitals in Florida, Texas and other coastal states are located in hurricane-prone areas. In the past, hurricanes have had a disruptive effect on the operations of our hospitals in Florida, Texas and other coastal states and the patient populations in those states. Our business activities could be harmed by a particularly active hurricane season or even a single storm, and the property insurance we obtain may not be adequate to cover losses from future hurricanes or other natural disasters.
We may be subject to liabilities from claims by taxing authorities.
We are subject to examination by federal, state and foreign taxing authorities. Management believes HCA Healthcare, Inc., its predecessors, subsidiaries and affiliates properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with the IRS, state and foreign taxing authorities and final resolution of any disputes will not have a material, adverse effect on our results of operations or financial position. However, if payments due upon final resolution of any issues exceed our recorded estimates, such resolutions could have a material, adverse effect on our results of operations or financial position.
We may be subject to liabilities from claims brought against our facilities.
We are subject to litigation relating to our business practices, including claims and legal actions by patients and others in the ordinary course of business alleging malpractice, product liability or other legal theories. Many of these actions seek large sums of money as damages and involve significant defense costs. We insure a portion of our professional liability risks through a 100% owned subsidiary. Management believes our reserves for self-insured retentions and insurance coverage are sufficient to cover insured claims arising out of the operation of our facilities. Our 100% owned liability insurance subsidiary has entered into certain reinsurance contracts; however, the subsidiary remains liable to the extent that the reinsurers do not meet their obligations under the reinsurance contracts. If payments for claims exceed actuarially determined estimates, are not covered by insurance, or reinsurers, if any, fail to meet their obligations, our results of operations and financial position could be adversely affected.
We are exposed to market risk related to changes in the market values of securities and interest rate changes.
We are exposed to market risk related to changes in market values of securities. The investment securities of our 100% owned insurance subsidiaries were $472 million at December 31, 2017. These investments are carried at fair value, with changes in unrealized gains and losses being recorded as adjustments to other comprehensive income. At December 31, 2017, we had a net unrealized gain of $10 million on the insurance subsidiaries investment securities.
We are exposed to market risk related to market illiquidity. Investment securities of our 100% owned insurance subsidiaries could be impaired by the inability to access the capital markets. Should the 100% owned insurance subsidiaries require significant amounts of cash in excess of normal cash requirements to pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less than what we might otherwise have been able to in a normal market environment. We may be required to recognize other-than-temporary impairments on long-term investments in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to ratings downgrades or other issue specific factors.
We are also exposed to market risk related to changes in interest rates, and we periodically enter into interest rate swap agreements to manage our exposure to these fluctuations. Our interest rate swap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common
44
notional principal amounts and maturity dates. The notional amounts of the swap agreements represent balances used to calculate the exchange of cash flows and are not our assets or liabilities.
There can be no assurance that we will continue to pay dividends.
In January 2018, the Board of Directors initiated a cash dividend program under which the Company expects to pay a regular quarterly cash dividend. The Board declared the first quarterly cash dividend of $0.35 per share of common stock to be paid to stockholders of record as of the close of business on March 1, 2018, with a payment date of March 30, 2018. The declaration, amount and timing of such dividends are subject to capital availability and determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws and our agreements applicable to the declaration and payment of cash dividends. Our ability to pay dividends will depend upon, among other factors, our cash flows from operations, our available capital and potential future capital requirements for strategic transactions, including acquisitions, debt service requirements, share repurchases and investing in our existing markets as well as our results of operations, financial condition and other factors beyond our control that our Board of Directors may deem relevant. A reduction in or elimination of our dividend payments could have a negative effect on our stock price.
Uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act could materially affect our tax obligations and effective tax rate.
The 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted on December 22, 2017. The Tax Act significantly revises U.S. corporate income taxes, including lowering the statutory corporate tax rate from 35% to 21% beginning in 2018 and imposing a mandatory one-time transition tax on undistributed foreign earnings. Due to the complexity and uncertainty regarding numerous provisions of the Tax Act, we have not completed our accounting for its effects. However, we have made reasonable estimates and recorded provisional amounts in our financial statements as of December 31, 2017.
As we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by federal and state taxing authorities or other standard-setting bodies, we may make adjustments to the provisional amounts and record additional amounts for those federal, state, and foreign tax assets and liabilities for which we were unable to make reasonable estimates as of December 31, 2017. Any adjustments or additional amounts recorded may materially impact our provision for income taxes and effective tax rate in the periods in which they are made.
Certain of our investors may continue to have influence over us.
On November 17, 2006, HCA Inc. was acquired by a private investor group, including affiliates of HCA founder, Dr. Thomas F. Frist, Jr. and certain other investors. Through their investment in Hercules Holding II and other holdings, certain of the Frist-affiliated investors continue to hold a significant interest in our outstanding common stock (approximately 20% as of January 31, 2018). In addition, pursuant to a shareholders agreement we entered into with Hercules Holding II and the Frist-affiliated investors, certain representatives of these investors have the continued right to nominate certain of the members of our Board of Directors. As a result, certain of these investors potentially have the ability to influence our decisions to enter into corporate transactions (and the terms thereof) and prevent changes in the composition of our Board of Directors and any transaction that requires stockholder approval.
Item 1B. |
Unresolved Staff Comments |
None.
45
Item 2. |
Properties |
The following table lists, by state, the number of hospitals (general, acute care, psychiatric and rehabilitation) directly or indirectly owned and operated by us as of December 31, 2017:
State |
Hospitals | Beds | ||||||
Alaska |
1 | 250 | ||||||
California |
5 | 1,838 | ||||||
Colorado |
7 | 2,411 | ||||||
Florida |
45 | 11,980 | ||||||
Georgia |
8 | 1,847 | ||||||
Idaho |
2 | 468 | ||||||
Indiana |
1 | 278 | ||||||
Kansas |
4 | 1,374 | ||||||
Kentucky |
2 | 384 | ||||||
Louisiana |
4 | 1,066 | ||||||
Mississippi |
1 | 130 | ||||||
Missouri |
5 | 1,014 | ||||||
Nevada |
3 | 1,217 | ||||||
New Hampshire |
2 | 295 | ||||||
Oklahoma |
2 | 756 | ||||||
South Carolina |
3 | 867 | ||||||
Tennessee |
13 | 2,450 | ||||||
Texas |
46 | 12,980 | ||||||
Utah |
8 | 1,011 | ||||||
Virginia |
11 | 3,271 | ||||||
International |
||||||||
England |
6 | 851 | ||||||
|
|
|
|
|||||
179 | 46,738 | |||||||
|
|
|
|
In addition to the hospitals listed in the above table, we directly or indirectly operate 120 freestanding surgery centers. We also operate medical office buildings in conjunction with some of our hospitals. These office buildings are primarily occupied by physicians who practice at our hospitals. Fourteen of our general, acute care hospitals and two of our other properties have been mortgaged to support our obligations under our senior secured cash flow credit facility and first lien secured notes.
We maintain our headquarters in approximately 2,300,000 square feet of space in the Nashville, Tennessee area. In addition to the headquarters in Nashville, we maintain regional service centers related to our shared services initiatives. These service centers are located in markets in which we operate hospitals.
We believe our headquarters, hospitals and other facilities are suitable for their respective uses and are, in general, adequate for our present needs. Our properties are subject to various federal, state and local statutes and ordinances regulating their operation. Management does not believe that compliance with such statutes and ordinances will materially affect our financial position or results of operations.
Item 3. |
Legal Proceedings |
We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians staff privileges. In certain of these actions the claimants may seek
46
punitive damages against us which may not be covered by insurance. We are also subject to claims by various taxing authorities for additional taxes and related interest and penalties. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations, financial position or liquidity.
Government Investigations, Claims and Litigation
Health care companies are subject to numerous investigations by various governmental agencies. Under the federal False Claims Act (FCA), private parties have the right to bring qui tam , or whistleblower, suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received, and from time to time, other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse effect on our results of operations, financial position or liquidity.
Item 4. |
Mine Safety Disclosures |
None.
47
PART II
Item 5. |
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
During November 2016 and October 2017, our Board of Directors authorized share repurchase programs, each for up to $2 billion of our outstanding common stock. Repurchases made during the fourth quarter of 2017, as detailed below, were made pursuant to the $2 billion November 2016 (which was completed during the quarter) and the $2 billion October 2017 share repurchase authorizations and were made in the open market.
The following table provides certain information with respect to our repurchases of common stock from October 1, 2017 through December 31, 2017 (dollars in millions, except per share amounts).
Period |
Total Number
of Shares Purchased |
Average Price
Paid per Share |
Total Number
of Shares Purchased as Part of Publicly Announced Plans or Programs |
Approximate
Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans or Programs |
||||||||||||
October 1, 2017 through October 31, 2017 |
2,953,476 | $ | 77.40 | 2,953,476 | $ | 2,150 | ||||||||||
November 1, 2017 through November 30, 2017 |
2,264,878 | $ | 76.74 | 2,264,878 | $ | 1,976 | ||||||||||
December 1, 2017 through December 31, 2017 |
2,026,500 | $ | 85.83 | 2,026,500 | $ | 1,802 | ||||||||||
|
|
|
|
|||||||||||||
Total for Fourth Quarter 2017 |
7,244,854 | $ | 79.55 | 7,244,854 | $ | 1,802 | ||||||||||
|
|
|
|
Our common stock is traded on the New York Stock Exchange (NYSE) (symbol HCA). There were no dividends or distributions declared during 2017 or 2016. On January 30, 2018, our Board of Directors initiated and declared a quarterly dividend of $0.35 per share on our common stock payable on March 30, 2018 to stockholders of record on March 1, 2018. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors. Our ability to declare future dividends may also from time to time be limited by the terms of our debt agreements.
The table below sets forth, for the calendar quarters indicated, the high and low sales prices per share reported on the NYSE for our common stock.
Sales Price | ||||||||
High | Low | |||||||
2017 |
||||||||
First Quarter |
$ | 91.03 | $ | 73.52 | ||||
Second Quarter |
89.80 | 81.10 | ||||||
Third Quarter |
87.99 | 75.56 | ||||||
Fourth Quarter |
90.29 | 71.18 | ||||||
2016 |
||||||||
First Quarter |
$ | 79.00 | $ | 60.07 | ||||
Second Quarter |
83.69 | 73.82 | ||||||
Third Quarter |
81.79 | 73.24 | ||||||
Fourth Quarter |
82.37 | 67.00 |
At the close of business on February 9, 2018, there were approximately 340 holders of record of our common stock.
48
STOCK PERFORMANCE GRAPH
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among HCA Healthcare, Inc., the S&P 500 Index and the S&P Health Care Index
12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 | 12/31/2017 | |||||||||||||||||||
HCA Healthcare, Inc. |
100.00 | 158.14 | 243.25 | 224.16 | 245.34 | 291.15 | ||||||||||||||||||
S&P 500 |
100.00 | 132.39 | 150.51 | 152.59 | 170.84 | 208.14 | ||||||||||||||||||
S&P Health Care |
100.00 | 141.46 | 177.30 | 189.52 | 184.42 | 225.13 |
The graph shows the cumulative total return to our stockholders beginning as of December 31, 2012 through December 31, 2017, in comparison to the cumulative returns of the S&P 500 Index and the S&P Health Care Index. The graph assumes $100 invested on December 31, 2012 in our common stock and in each index with the subsequent reinvestment of dividends. The stock performance shown on the graph represents historical stock performance and is not necessarily indicative of future stock price performance.
49
Item 6. |
Selected Financial Data |
HCA HEALTHCARE, INC.
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(Dollars in millions, except per share amounts)
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Summary of Operations: |
||||||||||||||||||||
Revenues before provision for doubtful accounts |
$ | 47,653 | $ | 44,747 | $ | 43,591 | $ | 40,087 | $ | 38,040 | ||||||||||
Provision for doubtful accounts |
4,039 | 3,257 | 3,913 | 3,169 | 3,858 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Revenues |
43,614 | 41,490 | 39,678 | 36,918 | 34,182 | |||||||||||||||
Salaries and benefits |
20,059 | 18,897 | 18,115 | 16,641 | 15,646 | |||||||||||||||
Supplies |
7,316 | 6,933 | 6,638 | 6,262 | 5,970 | |||||||||||||||
Other operating expenses |
8,051 | 7,496 | 7,056 | 6,630 | 6,021 | |||||||||||||||
Equity in earnings of affiliates |
(45 | ) | (54 | ) | (46 | ) | (43 | ) | (29 | ) | ||||||||||
Depreciation and amortization |
2,131 | 1,966 | 1,904 | 1,820 | 1,753 | |||||||||||||||
Interest expense |
1,690 | 1,707 | 1,665 | 1,743 | 1,848 | |||||||||||||||
Losses (gains) on sales of facilities |
(8 | ) | (23 | ) | 5 | (29 | ) | 10 | ||||||||||||
Losses on retirement of debt |
39 | 4 | 135 | 335 | 17 | |||||||||||||||
Legal claim costs (benefits) |
| (246 | ) | 249 | 78 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
39,233 | 36,680 | 35,721 | 33,437 | 31,236 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
4,381 | 4,810 | 3,957 | 3,481 | 2,946 | |||||||||||||||
Provision for income taxes |
1,638 | 1,378 | 1,261 | 1,108 | 950 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
2,743 | 3,432 | 2,696 | 2,373 | 1,996 | |||||||||||||||
Net income attributable to noncontrolling interests |
527 | 542 | 567 | 498 | 440 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to HCA Healthcare, Inc. |
$ | 2,216 | $ | 2,890 | $ | 2,129 | $ | 1,875 | $ | 1,556 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Per common share data: |
||||||||||||||||||||
Basic earnings per share |
$ | 6.12 | $ | 7.53 | $ | 5.14 | $ | 4.30 | $ | 3.50 | ||||||||||
Diluted earnings per share |
$ | 5.95 | $ | 7.30 | $ | 4.99 | $ | 4.16 | $ | 3.37 | ||||||||||
Financial Position: |
||||||||||||||||||||
Assets |
$ | 36,593 | $ | 33,758 | $ | 32,744 | $ | 30,980 | $ | 28,594 | ||||||||||
Working capital |
3,819 | 3,252 | 3,716 | 3,450 | 2,342 | |||||||||||||||
Long-term debt, net, including amounts due within one year |
33,058 | 31,376 | 30,488 | 29,426 | 28,139 | |||||||||||||||
Noncontrolling interests |
1,811 | 1,669 | 1,553 | 1,396 | 1,342 | |||||||||||||||
Stockholders deficit |
(4,995 | ) | (5,633 | ) | (6,046 | ) | (6,498 | ) | (6,928 | ) | ||||||||||
Cash Flow Data: |
||||||||||||||||||||
Cash provided by operating activities |
$ | 5,426 | $ | 5,653 | $ | 4,734 | $ | 4,448 | $ | 3,680 | ||||||||||
Cash used in investing activities |
(4,279 | ) | (3,240 | ) | (2,583 | ) | (2,918 | ) | (2,346 | ) | ||||||||||
Purchase of property and equipment |
(3,015 | ) | (2,760 | ) | (2,375 | ) | (2,176 | ) | (1,943 | ) | ||||||||||
Cash used in financing activities |
(1,061 | ) | (2,508 | ) | (1,976 | ) | (1,378 | ) | (1,625 | ) |
50
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Operating Data: |
||||||||||||||||||||
Number of hospitals at end of period |
179 | 170 | 168 | 166 | 165 | |||||||||||||||
Number of freestanding outpatient surgical centers at end of period |
120 | 118 | 116 | 113 | 115 | |||||||||||||||
Number of licensed beds at end of period(a) |
46,738 | 44,290 | 43,771 | 43,356 | 42,896 | |||||||||||||||
Weighted average licensed beds(b) |
45,380 | 44,077 | 43,620 | 43,132 | 42,133 | |||||||||||||||
Admissions(c) |
1,936,613 | 1,891,831 | 1,868,789 | 1,795,312 | 1,744,126 | |||||||||||||||
Equivalent admissions(d) |
3,286,432 | 3,191,519 | 3,122,746 | 2,958,674 | 2,844,670 | |||||||||||||||
Average length of stay (days)(e) |
4.9 | 4.9 | 4.9 | 4.8 | 4.8 | |||||||||||||||
Average daily census(f) |
26,000 | 25,340 | 25,084 | 23,835 | 22,853 | |||||||||||||||
Occupancy(g) |
57 | % | 58 | % | 58 | % | 55 | % | 54 | % | ||||||||||
Emergency room visits(h) |
8,624,137 | 8,378,340 | 8,050,159 | 7,450,748 | 6,968,115 | |||||||||||||||
Outpatient surgeries(i) |
935,307 | 932,213 | 909,386 | 891,633 | 881,883 | |||||||||||||||
Inpatient surgeries(j) |
546,228 | 537,306 | 529,900 | 518,881 | 508,793 | |||||||||||||||
Days revenues in accounts receivable(k) |
52 | 50 | 53 | 54 | 54 | |||||||||||||||
Outpatient revenues as a % of patient revenues(l) |
38 | % | 38 | % | 40 | % | 38 | % | 38 | % |
(a) |
Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency. |
(b) |
Represents the average number of licensed beds, weighted based on periods owned. |
(c) |
Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume. |
(d) |
Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation equates outpatient revenue to the volume measure (admissions) used to measure inpatient volume, resulting in a general measure of combined inpatient and outpatient volume. |
(e) |
Represents the average number of days admitted patients stay in our hospitals. |
(f) |
Represents the average number of patients in our hospital beds each day. |
(g) |
Represents the percentage of hospital licensed beds occupied by patients. Both average daily census and occupancy rate provide measures of the utilization of inpatient rooms. |
(h) |
Represents the number of patients treated in our emergency rooms. |
(i) |
Represents the number of surgeries performed on patients who were not admitted to our hospitals. Pain management and endoscopy procedures are not included in outpatient surgeries. |
(j) |
Represents the number of surgeries performed on patients who have been admitted to our hospitals. Pain management and endoscopy procedures are not included in inpatient surgeries. |
(k) |
Revenues per day is calculated by dividing the revenues for the fourth quarter of each year by the days in the period. Days revenues in accounts receivable is then calculated as accounts receivable, net of the allowance for doubtful accounts, at the end of the period divided by revenues per day. Revenues used in this computation are net of the provision for doubtful accounts. |
(l) |
Represents the percentage of patient revenues related to patients who are not admitted to our hospitals. |
51
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The selected financial data and the accompanying consolidated financial statements present certain information with respect to the financial position, results of operations and cash flows of HCA Healthcare, Inc. which should be read in conjunction with the following discussion and analysis. The terms HCA, Company, we, our, or us, as used herein, refer to HCA Healthcare, Inc. and its affiliates. The term affiliates means direct and indirect subsidiaries of HCA Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners.
Forward-Looking Statements
This annual report on Form 10-K includes certain disclosures which contain forward-looking statements. Forward-looking statements include statements regarding expected share-based compensation expense, expected capital expenditures, expected dividends, expected net claim payments and all other statements that do not relate solely to historical or current facts, and can be identified by the use of words like may, believe, will, expect, project, estimate, anticipate, plan, initiative or continue. These forward-looking statements are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control, which could significantly affect current plans and expectations and our future financial position and results of operations. These factors include, but are not limited to (1) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, (2) the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the Health Reform Law), including the effects of any repeal of, or changes to, the Health Reform Law or changes to its implementation, the possible enactment of additional federal or state health care reforms and possible changes to other federal, state or local laws or regulations affecting the health care industry, (3) the effects related to the continued implementation of the sequestration spending reductions required under the Budget Control Act of 2011, and related legislation extending these reductions, and the potential for future deficit reduction legislation that may alter these spending reductions, which include cuts to Medicare payments, or create additional spending reductions, (4) increases in the amount and risk of collectability of uninsured accounts and deductibles and copayment amounts for insured accounts, (5) the ability to achieve operating and financial targets, and attain expected levels of patient volumes and control the costs of providing services, (6) possible changes in Medicare, Medicaid and other state programs, including Medicaid supplemental payment programs or Medicaid waiver programs, that may impact reimbursements to health care providers and insurers and the size of the uninsured or underinsured population, (7) the highly competitive nature of the health care business, (8) changes in service mix, revenue mix and surgical volumes, including potential declines in the population covered under third-party payer agreements, the ability to enter into and renew third-party payer provider agreements on acceptable terms and the impact of consumer-driven health plans and physician utilization trends and practices, (9) the efforts of health insurers, health care providers, large employer groups and others to contain health care costs, (10) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (11) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical and technical support personnel, (12) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (13) changes in accounting practices, (14) changes in general economic conditions nationally and regionally in our markets, (15) the emergence and effects related to infectious diseases, (16) future divestitures which may result in charges and possible impairments of long-lived assets, (17) changes in business strategy or development plans, (18) delays in receiving payments for services provided, (19) the outcome of pending and any future tax audits, disputes and litigation associated with our tax positions, (20) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (21) the impact of potential cybersecurity incidents or security breaches, (22) our ongoing ability to demonstrate meaningful use of
52
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Forward-Looking Statements (continued)
certified electronic health record (EHR) technology, (23) the impact of natural disasters, such as hurricanes and floods, or similar events beyond our control, (24) changes in interpretations, assumptions and expectations regarding the 2017 Tax Cuts and Jobs Act, including additional guidance that may be issued by federal and state taxing authorities or other standard-setting bodies, and (25) other risk factors described in this annual report on Form 10-K. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of HCA. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report.
2017 Operations Summary
Net income attributable to HCA Healthcare, Inc. totaled $2.216 billion, or $5.95 per diluted share, for 2017, compared to $2.890 billion, or $7.30 per diluted share, for 2016. The 2017 results include additional expenses and losses of revenues estimated at approximately $140 million, or $0.24 per diluted share, associated with the impact of hurricanes Harvey and Irma on our Texas, Florida, Georgia and South Carolina facilities and an increase in provision for income taxes of $301 million, or $0.81 per diluted share, related to the remeasurement of our deferred tax assets and liabilities due to the enactment of the 2017 Tax Cuts and Jobs Act. The amount associated with the hurricanes is prior to any insurance recoveries which we may receive. The 2017 results also include net gains on sales of facilities of $8 million, or $0.01 per diluted share, and losses on retirement of debt of $39 million, or $0.06 per diluted share. The 2016 results include net gains on sales of facilities of $23 million, or $0.05 per diluted share, losses on retirement of debt of $4 million, or $0.01 per diluted share, and legal claim benefits of $246 million, or $0.39 per diluted share. Our provisions for income taxes for 2017 and 2016 included tax benefits of $82 million, or $0.22 per diluted share, and $162 million, or $0.41 per diluted share, respectively, related to employee equity award settlements. Our provision for income taxes for 2016 also included tax benefits of $51 million, or $0.13 per diluted share, primarily related to the resolution of federal income tax issues for our 2011 and 2012 tax years. All per diluted share disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 372.221 million shares and 395.851 million shares for the years ended December 31, 2017 and 2016, respectively. During 2017 and 2016, we repurchased 25.092 million and 36.325 million shares, respectively, of our common stock.
Revenues increased to $43.614 billion for 2017 from $41.490 billion for 2016. Revenues increased 5.1% and 3.8%, respectively, on a consolidated basis and on a same facility basis for 2017, compared to 2016. The consolidated revenues increase can be attributed to the combined impact of a 2.1% increase in revenue per equivalent admission and a 3.0% increase in equivalent admissions. The same facility revenues increase resulted from a 2.2% increase in same facility revenue per equivalent admission and a 1.5% increase in same facility equivalent admissions.
During 2017, consolidated admissions increased 2.4% and same facility admissions increased 1.1%, compared to 2016. Inpatient surgical volumes increased 1.7% on a consolidated basis and increased 0.3% on a same facility basis during 2017, compared to 2016. Outpatient surgical volumes increased 0.3% on a consolidated basis and declined 1.3% on a same facility basis during 2017, compared to 2016. Emergency room visits increased 2.9% on a consolidated basis and increased 1.4% on a same facility basis during 2017, compared to 2016.
For 2017, the provision for doubtful accounts increased $782 million, compared to 2016. The self-pay revenue deductions for charity care and uninsured discounts increased $710 million and $1.473 billion, respectively, for 2017, compared to 2016. The sum of the provision for doubtful accounts, uninsured discounts
53
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
2017 Operations Summary (continued)
and charity care, as a percentage of the sum of revenues, the provision for doubtful accounts, uninsured discounts and charity care, was 34.9% for 2017, compared to 33.0% for 2016. Same facility uninsured admissions increased 5.9% and same facility uninsured emergency room visits increased 2.4% for 2017, compared to 2016. Same facility uninsured admissions increased 3.8% and same facility uninsured emergency room visits increased 4.5% for 2016, compared to 2015.
Interest expense totaled $1.690 billion for 2017, compared to $1.707 billion for 2016. The $17 million decline in interest expense for 2017 was due to the decline in the average interest rate.
Cash flows from operating activities declined $227 million, from $5.653 billion for 2016 to $5.426 billion for 2017. The decline in cash flows from operating activities was primarily related to the net impact of the decline of net income of $689 million, offset by positive changes related to depreciation and amortization of $165 million and income taxes of $310 million.
Business Strategy
We are committed to providing the communities we serve with high quality, cost-effective health care while growing our business, increasing our profitability and creating long-term value for our stockholders. To achieve these objectives, we align our efforts around the following growth agenda:
Grow Our Presence in Existing Markets. We believe we are well positioned in a number of large and growing markets that will allow us the opportunity to generate long-term, attractive growth through the expansion of our presence in these markets. We plan to continue recruiting and strategically collaborating with the physician community and adding attractive service lines such as cardiology, emergency services, oncology and womens services. Additional components of our growth strategy include expanding our footprint through developing various outpatient access points, including surgery centers, urgent care clinics, freestanding emergency care facilities and walk-in clinics.
Achieve Industry-Leading Performance in Clinical and Satisfaction Measures. Achieving high levels of patient safety, patient satisfaction and clinical quality are central goals of our business model. To achieve these goals, we have implemented a number of initiatives including infection reduction initiatives, hospitalist programs, advanced health information technology and evidence-based medicine programs. We routinely analyze operational practices from our best-performing hospitals to identify ways to implement organization-wide performance improvements and reduce clinical variation. We believe these initiatives will continue to improve patient care, help us achieve cost efficiencies, grow our revenues and favorably position us in an environment where our constituents are increasingly focused on quality, efficacy and efficiency.
Recruit and Employ Physicians to Meet the Needs for High Quality Health Services. We depend on the quality and dedication of the health care providers and other team members who serve at our facilities. We believe a critical component of our growth strategy is our ability to successfully recruit and strategically collaborate with physicians and other professionals to provide high quality care. We attract and retain physicians by providing high quality, convenient facilities with advanced technology, by expanding our specialty services and by building our outpatient operations. We believe our continued investment in the employment, recruitment and retention of physicians will improve the quality of care at our facilities.
54
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Business Strategy (continued)
Continue to Leverage Our Scale and Market Positions to Enhance Profitability. We believe there is significant opportunity to continue to grow the profitability of our company by fully leveraging the scale and scope of our franchise. We are currently investing in initiatives such as additional care navigators, clinical data exchange and centralized patient transfer operations, which will enable us to improve coordination of care and patient retention across our markets. We believe our centrally managed business processes and ability to leverage cost-saving practices across our extensive network will enable us to continue to manage costs effectively. We continue to invest in our Parallon subsidiary group to leverage key components of our support infrastructure, including revenue cycle management, health care group purchasing, supply chain management and staffing functions.
Pursue a Disciplined Development Strategy. We continue to believe there are significant growth opportunities in our markets. We will continue to provide financial and operational resources to analyze and develop our in-market opportunities. To complement our in-market growth agenda, we intend to focus on selectively developing and acquiring new hospitals, outpatient facilities and other health care service providers. We believe the challenges faced by the hospital industry may continue to spur consolidation and we believe our size, scale, national presence and access to capital will position us well to participate in any such consolidation. We have a strong record of successfully acquiring and integrating hospitals and entering into joint ventures and intend to continue leveraging this experience.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. Our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results may differ from these estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenues
Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from payers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. The estimated reimbursement amounts are made on a payer-specific basis and are recorded based on the best information available regarding managements interpretation of the applicable laws, regulations and contract terms. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. We have invested significant resources to refine and improve our billing systems and the information system data used to make contractual allowance estimates. We have developed standardized calculation processes and related employee training programs to improve the utility of our patient accounting systems.
The Emergency Medical Treatment and Labor Act (EMTALA) requires any hospital participating in the Medicare program to conduct an appropriate medical screening examination of every person who presents to the
55
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Critical Accounting Policies and Estimates (continued)
Revenues (continued)
hospitals emergency room for treatment and, if the individual is suffering from an emergency medical condition, to either stabilize the condition or make an appropriate transfer of the individual to a facility able to handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of an individuals ability to pay for treatment. Federal and state laws and regulations, including but not limited to EMTALA, require, and our commitment to providing quality patient care encourages, the provision of services to patients who are financially unable to pay for the health care services they receive.
We do not pursue collection of amounts related to patients who meet our guidelines to qualify for charity care; therefore, these amounts are not reported in revenues. We provide discounts from our gross charges to uninsured amounts related to patients who do not qualify for Medicaid or charity care. After the discounts are applied, we are still unable to collect a significant portion of uninsured patients accounts, and we record significant provisions for doubtful accounts (based upon our historical collection experience) related to uninsured patients in the period the services are provided.
Due to the complexities involved in the classification and documentation of health care services authorized and provided, the estimation of revenues earned and the related reimbursement are often subject to interpretations that could result in payments that are different from our estimates. Adjustments to estimated Medicare and Medicaid reimbursement amounts and disproportionate-share funds, which resulted in net increases to revenues, related primarily to cost reports filed during the respective year were $41 million, $31 million and $48 million in 2017, 2016 and 2015, respectively. The adjustments to estimated reimbursement amounts, which resulted in net increases to revenues, related primarily to cost reports filed during previous years were $56 million, $90 million and $85 million in 2017, 2016 and 2015, respectively. We expect adjustments during the next 12 months related to Medicare and Medicaid cost report filings and settlements will result in increases to revenues generally similar to the amounts recorded during these years.
Provision for Doubtful Accounts and the Allowance for Doubtful Accounts
The collection of outstanding receivables from Medicare, Medicaid, managed care payers, other third-party payers and patients is our primary source of cash and is critical to our operating performance. The primary collection risks relate to uninsured patient accounts, including patient accounts for which the primary insurance carrier has paid the amounts covered by the applicable agreement, but patient responsibility amounts (deductibles and copayments) remain outstanding. The provision for doubtful accounts and the allowance for doubtful accounts relate primarily to amounts due directly from patients. An estimated allowance for doubtful accounts is recorded for all uninsured accounts, regardless of the aging of those accounts. Accounts are written off when all reasonable internal and external collection efforts have been performed. Our collection policies include a review of all accounts against certain standard collection criteria, upon completion of our primary internal collection efforts. Accounts determined to possess positive collectibility attributes are forwarded to a secondary internal or external collection agency and the other accounts are written off. The accounts that are not collected by the secondary collection agency are written off when secondary collection efforts are completed (usually within 12 months). Writeoffs are based upon specific identification and the writeoff process requires a writeoff adjustment entry to the patient accounting system. We do not pursue collection of amounts related to patients that meet our guidelines to qualify as charity care.
The amount of the provision for doubtful accounts is based upon managements assessment of historical writeoffs and expected net collections, business and economic conditions, trends in federal, state, and private
56
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Critical Accounting Policies and Estimates (continued)
Provision for Doubtful Accounts and the Allowance for Doubtful Accounts (continued)
employer health care coverage and other collection indicators. Management relies on the results of detailed reviews of historical writeoffs and recoveries at facilities that represent a majority of our revenues and accounts receivable (the hindsight analysis) as a primary source of information in estimating the collectibility of our accounts receivable. We perform the hindsight analysis quarterly, utilizing rolling twelve-months accounts receivable collection and writeoff data. We believe our quarterly updates to the estimated allowance for doubtful accounts at each of our hospital facilities provide reasonable valuations of our accounts receivable. These routine, quarterly changes in estimates have not resulted in material adjustments to our allowance for doubtful accounts, provision for doubtful accounts or period-to-period comparisons of our results of operations. At December 31, 2017 and 2016, the allowance for doubtful accounts represented 100% of the $5.488 billion and 98% of the $5.116 billion, respectively, patient due accounts receivable balance. The patient due accounts receivable balance represents the estimated uninsured portion of our accounts receivable. The estimated uninsured portion of Medicaid pending and uninsured discount pending accounts is included in our patient due accounts receivable balance.
To quantify the total impact of and trends related to uninsured accounts, we believe it is beneficial to view the revenue deductions related to uninsured accounts (charity care and uninsured discounts) and provision for doubtful accounts in combination, rather than each separately. A summary of these amounts for the years ended December 31, follows (dollars in millions):
2017 | 2016 | 2015 | ||||||||||
Charity care |
$ | 4,861 | $ | 4,151 | $ | 3,682 | ||||||
Uninsured discounts |
14,520 | 13,047 | 10,692 | |||||||||
Provision for doubtful accounts |
4,039 | 3,257 | 3,913 | |||||||||
|
|
|
|
|
|
|||||||
Totals |
$ | 23,420 | $ | 20,455 | $ | 18,287 | ||||||
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|
|
|
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|
A summary of the estimated cost of total uncompensated care for the years ended December 31, follows (dollars in millions):
2017 | 2016 | 2015 | ||||||||||
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization) |
$ | 37,557 | $ | 35,304 | $ | 33,760 | ||||||
|
|
|
|
|
|
|||||||
Cost-to-charges ratio (patient care costs as percentage of gross patient charges) |
12.9 | % | 13.5 | % | 14.5 | % | ||||||
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|
|
|
|
|||||||
Total uncompensated care |
$ | 23,420 | $ | 20,455 | $ | 18,287 | ||||||
Multiply by the cost-to-charges ratio |
12.9 | % | 13.5 | % | 14.5 | % | ||||||
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|
|
|||||||
Estimated cost of total uncompensated care |
$ | 3,021 | $ | 2,761 | $ | 2,652 | ||||||
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|
|
The sum of the provision for doubtful accounts, uninsured discounts and charity care, as a percentage of the sum of revenues, the provision for doubtful accounts, uninsured discounts and charity care was 34.9% for 2017, 33.0% for 2016 and 31.5% for 2015. Days revenues in accounts receivable were 52 days, 50 days and 53 days at December 31, 2017, 2016 and 2015, respectively. Management expects a continuation of the challenges related to the collection of the patient due accounts. Adverse changes in the percentage of our patients having adequate health care coverage, increases in patient responsibility amounts under certain health care coverages, general
57
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Critical Accounting Policies and Estimates (continued)
Provision for Doubtful Accounts and the Allowance for Doubtful Accounts (continued)
economic conditions, patient accounting service center operations, payer mix, or trends in federal, state, and private employer health care coverage could affect the collection of accounts receivable, cash flows and results of operations.
The approximate breakdown of accounts receivable by payer classification as of December 31, 2017 and 2016 is set forth in the following table:
% of Accounts Receivable | ||||||||||||
Under 91 Days | 91 180 Days | Over 180 Days | ||||||||||
Accounts receivable aging at December 31, 2017: |
||||||||||||
Medicare and Medicaid |
11 | % | 1 | % | 1 | % | ||||||
Managed care and other insurers |
31 | 5 | 5 | |||||||||
Uninsured |
19 | 6 | 21 | |||||||||
|
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Total |
61 | % | 12 | % | 27 | % | ||||||
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Accounts receivable aging at December 31, 2016: |
||||||||||||
Medicare and Medicaid |
11 | % | 1 | % | 1 | % | ||||||
Managed care and other insurers |
30 | 5 | 5 | |||||||||
Uninsured |
17 | 7 | 23 | |||||||||
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Total |
58 | % | 13 | % | 29 | % | ||||||
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Professional Liability Claims
We, along with virtually all health care providers, operate in an environment with professional liability risks. Our facilities are insured by our 100% owned insurance subsidiary for losses up to $50 million per occurrence, subject to a $15 million per occurrence self-insured retention. The insurance subsidiary has obtained reinsurance for professional liability risks generally above a retention level of $25 million per occurrence. We purchase excess insurance on a claims-made basis for losses in excess of $50 million per occurrence. Provisions for losses related to professional liability risks were $466 million, $430 million and $344 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Reserves for professional liability risks represent the estimated ultimate cost of all reported and unreported losses incurred through the respective consolidated balance sheet dates. The estimated ultimate cost includes estimates of direct expenses and fees paid to outside counsel and experts, but does not include the general overhead costs of our insurance subsidiary or corporate office. Individual case reserves are established based upon the particular circumstances of each reported claim and represent our estimates of the future costs that will be paid on reported claims. Case reserves are reduced as claim payments are made and are adjusted upward or downward as our estimates regarding the amounts of future losses are revised. Once the case reserves for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years, and geographic location of our hospitals. Several actuarial methods are employed to utilize this data to produce estimates of ultimate losses and reserves for incurred but not reported claims, including: paid and incurred extrapolation methods utilizing paid and incurred loss development to estimate ultimate losses; frequency and severity methods utilizing paid and incurred claims development to estimate ultimate average frequency (number
58
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Critical Accounting Policies and Estimates (continued)
Professional Liability Claims (continued)
of claims) and ultimate average severity (cost per claim); and Bornhuetter-Ferguson methods which add expected development to actual paid or incurred experience to estimate ultimate losses. These methods use our company-specific historical claims data and other information. Company-specific claim reporting and payment data collected over an approximate 20-year period is used in our reserve estimation process. This company-specific data includes information regarding our business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, professional liability retentions for each policy year, geographic information and other data.
Reserves and provisions for professional liability risks are based upon actuarially determined estimates. The estimated reserve ranges, net of amounts receivable under reinsurance contracts, were $1.456 billion to $1.743 billion at December 31, 2017 and $1.358 billion to $1.625 billion at December 31, 2016. Our estimated reserves for professional liability claims may change significantly if future claims differ from expected trends. We perform sensitivity analyses which model the volatility of key actuarial assumptions and monitor our reserves for adequacy relative to all our assumptions in the aggregate. Based on our analysis, we believe the estimated professional liability reserve ranges represent the reasonably likely outcomes for ultimate losses. We consider the number and severity of claims to be the most significant assumptions in estimating reserves for professional liabilities. A 2.5% change in the expected frequency trend could be reasonably likely and would increase the reserve estimate by $30 million or reduce the reserve estimate by $29 million. A 2.5% change in the expected claim severity trend could be reasonably likely and would increase the reserve estimate by $106 million or reduce the reserve estimate by $98 million. We believe adequate reserves have been recorded for our professional liability claims; however, due to the complexity of the claims, the extended period of time to resolve the claims and the wide range of potential outcomes, our ultimate liability for professional liability claims could change by more than the estimated sensitivity amounts and could change materially from our current estimates.
The reserves for professional liability risks cover approximately 2,500 and 2,700 individual claims at December 31, 2017 and 2016, respectively, and estimates for unreported potential claims. The time period required to resolve these claims can vary depending upon the jurisdiction and whether the claim is settled or litigated. The average time period between the occurrence and final resolution for our professional liability claims is approximately four years, although the facts and circumstances of each individual claim can result in an occurrence-to-resolution timeframe that varies from this average. The estimation of the timing of payments beyond a year can vary significantly.
Reserves for professional liability risks were $1.627 billion and $1.539 billion at December 31, 2017 and 2016, respectively. The current portion of these reserves, $429 million and $391 million at December 31, 2017 and 2016, respectively, is included in other accrued expenses. Obligations covered by reinsurance and excess insurance contracts are included in the reserves for professional liability risks, as we remain liable to the extent reinsurers and excess insurance carriers do not meet their obligations. Reserves for professional liability risks (net of $24 million and $45 million receivable under reinsurance and excess insurance contracts at December 31, 2017 and 2016, respectively) were $1.603 billion and $1.494 billion at December 31, 2017 and 2016, respectively. The estimated total net reserves for professional liability risks at December 31, 2017 and 2016 are comprised of $751 million and $830 million, respectively, of case reserves for known claims and $852 million and $664 million, respectively, of reserves for incurred but not reported claims.
59
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Critical Accounting Policies and Estimates (continued)
Professional Liability Claims (continued)
Changes in our professional liability reserves, net of reinsurance recoverable, for the years ended December 31, are summarized in the following table (dollars in millions):
2017 | 2016 | 2015 | ||||||||||
Net reserves for professional liability claims, January 1 |
$ | 1,494 | $ | 1,421 | $ | 1,382 | ||||||
Provision for current year claims |
467 | 428 | 408 | |||||||||
Unfavorable (favorable) development related to prior years claims |
(1 | ) | 2 | (64 | ) | |||||||
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Total provision |
466 | 430 | 344 | |||||||||
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Payments for current year claims |
7 | 9 | 7 | |||||||||
Payments for prior years claims |
350 | 348 | 298 | |||||||||
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|||||||
Total claim payments |
357 | 357 | 305 | |||||||||
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|
|||||||
Net reserves for professional liability claims, December 31 |
$ | 1,603 | $ | 1,494 | $ | 1,421 | ||||||
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Income Taxes
We calculate our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences that arise from the recognition of items in different periods for tax and accounting purposes. Deferred tax assets generally represent the tax effects of amounts expensed in our income statement for which tax deductions will be claimed in future periods.
Although we believe we have properly reported taxable income and paid taxes in accordance with applicable laws, federal, state or foreign taxing authorities may challenge our tax positions upon audit. Significant judgment is required in determining and assessing the impact of uncertain tax positions. We report a liability for unrecognized tax benefits from uncertain tax positions taken or expected to be taken in our income tax returns. During each reporting period, we assess the facts and circumstances related to uncertain tax positions. If the realization of unrecognized tax benefits is deemed probable based upon new facts and circumstances, the estimated liability and the provision for income taxes are reduced in the current period. Final audit results may vary from our estimates.
Results of Operations
Revenue/Volume Trends
Our revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charge and negotiated payment rates for such services. Gross charges typically do not reflect what our facilities are actually paid. Our facilities have entered into agreements with third-party payers, including government programs and managed care health plans, under which the facilities are paid based upon the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from gross charges. We do not pursue collection of amounts related to patients who meet our guidelines to qualify for charity care; therefore, they are not reported in revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care.
60
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
Revenues increased 5.1% to $43.614 billion for 2017 from $41.490 billion for 2016 and increased 4.6% for 2016 from $39.678 billion for 2015. The increase in revenues in 2017 can be attributed to the combined impact of a 2.1% increase in revenue per equivalent admission and a 3.0% increase in equivalent admissions compared to the prior year. The increase in revenues in 2016 can be primarily attributed to the combined impact of a 2.3% increase in revenue per equivalent admission and a 2.2% increase in equivalent admissions compared to the prior year.
Same facility revenues increased 3.8% for the year ended December 31, 2017 compared to the year ended December 31, 2016 and increased 4.1% for the year ended December 31, 2016 compared to the year ended December 31, 2015. The 3.8% increase for 2017 can be primarily attributed to the combined impact of a 2.2% increase in same facility revenue per equivalent admission and a 1.5% increase in same facility equivalent admissions. The 4.1% increase for 2016 can be attributed to the combined impact of a 2.2% increase in same facility revenue per equivalent admission and a 1.9% increase in same facility equivalent admissions.
Consolidated admissions increased 2.4% during 2017 compared to 2016 and increased 1.2% during 2016 compared to 2015. Consolidated surgeries increased 0.8% during 2017 compared to 2016 and increased 2.1% during 2016 compared to 2015. Consolidated emergency room visits increased 2.9% during 2017 compared to 2016 and increased 4.1% during 2016 compared to 2015.
Same facility admissions increased 1.1% during 2017 compared to 2016 and during 2016 compared to 2015. Same facility surgeries declined 0.7% during 2017 compared to 2016 and increased 1.3% during 2016 compared to 2015. Same facility emergency room visits increased 1.4% during 2017 compared to 2016 and increased 3.8% during 2016 compared to 2015.
Same facility uninsured emergency room visits increased 2.4% and same facility uninsured admissions increased 5.9% during 2017 compared to 2016. Same facility uninsured emergency room visits increased 4.5% and same facility uninsured admissions increased 3.8% during 2016 compared to 2015.
The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and other insurers, and the uninsured for the years ended December 31, 2017, 2016 and 2015 are set forth below.
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Medicare |
30 | % | 31 | % | 30 | % | ||||||
Managed Medicare |
16 | 15 | 15 | |||||||||
Medicaid |
6 | 6 | 6 | |||||||||
Managed Medicaid |
12 | 12 | 12 | |||||||||
Managed care and other insurers |
28 | 29 | 30 | |||||||||
Uninsured |
8 | 7 | 7 | |||||||||
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100 | % | 100 | % | 100 | % | |||||||
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HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
The approximate percentages of our inpatient revenues, before provision for doubtful accounts, related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care plans and other insurers, and the uninsured for the years ended December 31, 2017, 2016 and 2015 are set forth below.
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Medicare |
27 | % | 28 | % | 28 | % | ||||||
Managed Medicare |
12 | 12 | 12 | |||||||||
Medicaid |
5 | 5 | 6 | |||||||||
Managed Medicaid |
6 | 6 | 5 | |||||||||
Managed care and other insurers |
48 | 49 | 47 | |||||||||
Uninsured |
2 | | 2 | |||||||||
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100 | % | 100 | % | 100 | % | |||||||
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At December 31, 2017, we owned and operated 45 hospitals and 32 surgery centers in the state of Florida. Our Florida facilities revenues totaled $10.168 billion, $9.522 billion and $9.059 billion for the years ended December 31, 2017, 2016 and 2015, respectively. At December 31, 2017, we owned and operated 46 hospitals and 27 surgery centers in the state of Texas. Our Texas facilities revenues totaled $10.634 billion, $9.898 billion and $9.517 billion for the years ended December 31, 2017, 2016 and 2015, respectively. During 2017, 2016 and 2015, 56% of our admissions and 48%, 47% and 47%, respectively, of our revenues were generated by our Florida and Texas facilities. Uninsured admissions in Florida and Texas represented 70%, 69% and 68% of our uninsured admissions during 2017, 2016 and 2015, respectively.
We receive a significant portion of our revenues from government health programs, principally Medicare and Medicaid, which are highly regulated and subject to frequent and substantial changes. In December 2017, the Centers for Medicare & Medicaid Services (CMS) announced that it will phase out federal matching funds for Designated State Health Programs under waivers granted under section 1115 of the Social Security Act due to concerns that the funds were not used as an integral part of Medicaid demonstrations focused on delivery system reform or coverage reform.
Texas currently operates its Healthcare Transformation and Quality Improvement Program pursuant to a Medicaid waiver (the Texas Waiver Program). In December 2017, CMS approved an extension of this waiver through September 30, 2022, but indicated that it will phase out some of the federal funding. As currently structured, the Texas Waiver Program includes two primary components: an uncompensated care component and a Delivery System Reform Incentive Payment (DSRIP) component. Initiatives under the DSRIP program are designed to provide incentive payments to hospitals and other providers for their investments in delivery system reforms that increase access to health care, improve the quality of care and enhance the health of patients and families they serve. CMS will provide level DSRIP funding for two years, decreased funding for the following two years, and no DSRIP funding beginning October 1, 2021. In addition, the disbursement methodology for uncompensated care pool funding will be revised to align with federal policies. Beginning October 1, 2019, Texas will not receive any federal financial participation for uncompensated care pool payments until CMS approves revised uncompensated care protocol policies for the state that will govern how hospitals uncompensated care entitlement is calculated and the size of the statewide uncompensated care pool. Based on the waiver renewal terms, we expect the statewide uncompensated care pool size will ultimately be reduced, but
62
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
it is presently unclear whether our share of the pool and its corresponding uncompensated care payments will increase or decrease. We provide charity care services directly to patients in several communities in the state of Texas, in affiliation with other hospitals. As a result of additional charitable care being provided directly to patients by private hospitals, public hospital districts or counties in Texas have available funds that were previously devoted to indigent care. The public hospital districts or counties are under no contractual or legal obligation to provide such indigent care. The public hospital districts or counties have elected to transfer some portion of these available funds to the states Medicaid program. Such action is at the sole discretion of the public hospital districts or counties. It is anticipated that these contributions to the state will be matched with federal Medicaid funds, as they have been for the past twelve years in Texas. The state then may make supplemental payments to hospitals in the state for Medicaid services rendered. Hospitals receiving Medicaid supplemental payments may include those that are providing additional indigent care services.
Our Texas Medicaid revenues included $351 million ($108 million DSRIP related and $243 million uncompensated care related), $370 million ($101 million DSRIP related and $269 million uncompensated care related) and $347 million ($95 million DSRIP related and $252 million uncompensated care related) during 2017, 2016 and 2015, respectively, of Medicaid supplemental waiver payments. We cannot predict whether the Texas Medicaid Waiver Program will be further extended or revised beyond September 30, 2022.
In addition, we receive supplemental payments in several other states. We are aware these supplemental payment programs are currently being reviewed by certain state agencies and some states have made waiver requests to CMS to replace their existing supplemental payment programs. It is possible these reviews and waiver requests will result in the restructuring of such supplemental payment programs and could result in the payment programs being reduced or eliminated. Because deliberations about these programs are ongoing, we are unable to estimate the financial impact the program structure modifications, if any, may have on our results of operations.
63
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Operating Results Summary
The following are comparative summaries of operating results for the years ended December 31, 2017, 2016 and 2015 (dollars in millions):
2017 | 2016 | 2015 | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
Revenues before provision for doubtful accounts |
$ | 47,653 | $ | 44,747 | $ | 43,591 | ||||||||||||||||||
Provision for doubtful accounts |
4,039 | 3,257 | 3,913 | |||||||||||||||||||||
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Revenues |
43,614 | 100.0 | 41,490 | 100.0 | 39,678 | 100.0 | ||||||||||||||||||
Salaries and benefits |
20,059 | 46.0 | 18,897 | 45.5 | 18,115 | 45.7 | ||||||||||||||||||
Supplies |
7,316 | 16.8 | 6,933 | 16.7 | 6,638 | 16.7 | ||||||||||||||||||
Other operating expenses |
8,051 | 18.4 | 7,496 | 18.1 | 7,056 | 17.8 | ||||||||||||||||||
Equity in earnings of affiliates |
(45 | ) | (0.1 | ) | (54 | ) | (0.1 | ) | (46 | ) | (0.1 | ) | ||||||||||||
Depreciation and amortization |
2,131 | 4.9 | 1,966 | 4.8 | 1,904 | 4.8 | ||||||||||||||||||
Interest expense |
1,690 | 3.9 | 1,707 | 4.1 | 1,665 | 4.2 | ||||||||||||||||||
Losses (gains) on sales of facilities |
(8 | ) | | (23 | ) | (0.1 | ) | 5 | | |||||||||||||||
Losses on retirement of debt |
39 | 0.1 | 4 | | 135 | 0.3 | ||||||||||||||||||
Legal claim costs (benefits) |
| | (246 | ) | (0.6 | ) | 249 | 0.6 | ||||||||||||||||
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39,233 | 90.0 | 36,680 | 88.4 | 35,721 | 90.0 | |||||||||||||||||||
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Income before income taxes |
4,381 | 10.0 | 4,810 | 11.6 | 3,957 | 10.0 | ||||||||||||||||||
Provision for income taxes |
1,638 | 3.7 | 1,378 | 3.3 | 1,261 | 3.2 | ||||||||||||||||||
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Net income |
2,743 | 6.3 | 3,432 | 8.3 | 2,696 | 6.8 | ||||||||||||||||||
Net income attributable to noncontrolling interests |
527 | 1.2 | 542 | 1.3 | 567 | 1.4 | ||||||||||||||||||
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Net income attributable to HCA Healthcare, Inc. |
$ | 2,216 | 5.1 | $ | 2,890 | 7.0 | $ | 2,129 | 5.4 | |||||||||||||||
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% changes from prior year: |
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Revenues |
5.1 | % | 4.6 | % | 7.5 | % | ||||||||||||||||||
Income before income taxes |
(8.9 | ) | 21.6 | 13.7 | ||||||||||||||||||||
Net income attributable to HCA Healthcare, Inc. |
(23.3 | ) | 35.8 | 13.6 | ||||||||||||||||||||
Admissions(a) |
2.4 | 1.2 | 4.1 | |||||||||||||||||||||
Equivalent admissions(b) |
3.0 | 2.2 | 5.5 | |||||||||||||||||||||
Revenue per equivalent admission |
2.1 | 2.3 | 1.8 | |||||||||||||||||||||
Same facility % changes from prior year(c): |
||||||||||||||||||||||||
Revenues |
3.8 | 4.1 | 6.4 | |||||||||||||||||||||
Admissions(a) |
1.1 | 1.1 | 3.4 | |||||||||||||||||||||
Equivalent admissions(b) |
1.5 | 1.9 | 4.6 | |||||||||||||||||||||
Revenue per equivalent admission |
2.2 | 2.2 | 1.7 |
(a) |
Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume. |
(b) |
Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation equates outpatient revenue to the volume measure (admissions) used to measure inpatient volume, resulting in a general measure of combined inpatient and outpatient volume. |
(c) |
Same facility information excludes the operations of hospitals and their related facilities that were either acquired, divested or removed from service during the current and prior year. |
64
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Years Ended December 31, 2017 and 2016
Net income attributable to HCA Healthcare, Inc. totaled $2.216 billion, or $5.95 per diluted share, for 2017, compared to $2.890 billion, or $7.30 per diluted share, for 2016. Financial results for 2017 include additional expenses and losses of revenues estimated at approximately $140 million, or $0.24 per diluted share, associated with the impact of hurricanes Harvey and Irma on our Texas, Florida, Georgia and South Carolina facilities and an increase in provision for income taxes of $301 million, or $0.81 per diluted share, related to the revaluation of our deferred tax assets and liabilities due to the enactment of the 2017 Tax Cuts and Jobs Act. The amount associated with the hurricanes is prior to any insurance recoveries which we may receive. Financial results for 2017 also include tax benefits of $82 million, or $0.22 per diluted share, related to employee equity award settlements, net gains on sales of facilities of $8 million, or $0.01 per diluted share, and losses on retirement of debt of $39 million, or $0.06 per diluted share. Financial results for 2016 include tax benefits of $51 million, or $0.13 per diluted share, related to the resolution of federal income tax issues for our 2011 and 2012 tax years and $162 million, or $0.41 per diluted share, related to employee equity award settlements. Financial results for 2016 also include net gains on sales of facilities of $23 million, or $0.05 per diluted share, losses on retirement of debt of $4 million, or $0.01 per diluted share, and legal claim benefits of $246 million, or $0.39 per diluted share, related to the settlement of the Health Midwest litigation. All per diluted share disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 372.221 million shares and 395.851 million shares for the years ended December 31, 2017 and 2016, respectively. During 2017 and 2016, we repurchased 25.092 million and 36.325 million shares, respectively, of our common stock.
During 2017, consolidated admissions increased 2.4% and same facility admissions increased 1.1% compared to 2016. Consolidated inpatient surgeries increased 1.7% and same facility inpatient surgeries increased 0.3% during 2017 compared to 2016. Consolidated outpatient surgeries increased 0.3%, and same facility outpatient surgeries declined 1.3% during 2017 compared to 2016. Emergency room visits increased 2.9% on a consolidated basis and increased 1.4% on a same facility basis during 2017 compared to 2016.
Revenues before provision for doubtful accounts increased 6.5% to $47.653 billion for 2017 from $44.747 billion for 2016. The provision for doubtful accounts increased $782 million from $3.257 billion in 2016 to $4.039 billion in 2017. The provision for doubtful accounts and the allowance for doubtful accounts relate primarily to uninsured amounts due directly from patients, including copayment and deductible amounts for patients who have health care coverage. The self-pay revenue deductions for charity care and uninsured discounts increased $710 million and $1.473 billion, respectively, during 2017 compared to 2016. The sum of the provision for doubtful accounts, uninsured discounts and charity care, as a percentage of the sum of revenues, the provision for doubtful accounts, uninsured discounts and charity care, was 34.9% for 2017 compared to 33.0% for 2016. At December 31, 2017, our allowance for doubtful accounts represented 100% of the $5.488 billion total patient due accounts receivable balance, including accounts, net of estimated contractual discounts, related to patients for which eligibility for Medicaid coverage or uninsured discounts was being evaluated.
Revenues increased 5.1% to $43.614 billion for 2017 from $41.490 billion for 2016. The increase in revenues was due to the combined impact of a 2.1% increase in revenue per equivalent admission and a 3.0% increase in equivalent admissions compared to 2016. Same facility revenues increased 3.8% due primarily to the combined impact of a 2.2% increase in same facility revenue per equivalent admission and a 1.5% increase in same facility equivalent admissions compared to 2016.
Salaries and benefits, as a percentage of revenues, were 46.0% in 2017 and 45.5% in 2016. Salaries and benefits per equivalent admission increased 3.1% in 2017 compared to 2016. Same facility labor rate increases
65
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Years Ended December 31, 2017 and 2016 (continued)
averaged 3.0% for 2017 compared to 2016. Share-based compensation expense increased from $251 million in 2016 to $270 million in 2017.
Supplies, as a percentage of revenues, were 16.8% in 2017 and 16.7% in 2016. Supply costs per equivalent admission increased 2.5% in 2017 compared to 2016. Supply costs per equivalent admission increased 4.9% for medical devices, 0.3% for pharmacy supplies and 1.7% for general medical and surgical items in 2017 compared to 2016.
Other operating expenses, as a percentage of revenues, was 18.4% in 2017 and 18.1% in 2016. Other operating expenses are primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. Provisions for losses related to professional liability risks were $466 million and $430 million for 2017 and 2016, respectively.
Equity in earnings of affiliates was $45 million for 2017 and $54 million for 2016.
Depreciation and amortization, as a percentage of revenues, was 4.9% in 2017 and 4.8% in 2016. Depreciation expense was $2.111 billion for 2017 and $1.946 billion for 2016.
Interest expense declined to $1.690 billion for 2017 from $1.707 billion for 2016. The decline in interest expense was due to a decline in the average interest rate. Our average debt balance was $32.082 billion for 2017 compared to $31.048 billion for 2016. The average interest rate for our long-term debt declined from 5.5% for 2016 to 5.3% for 2017.
Net gains on sales of facilities were $8 million and $23 million, respectively, for 2017 and 2016 and related to sales of real estate and other investments.
During 2017, we issued $1.500 billion aggregate principal amount of 5.500% senior secured notes due 2047. We used the net proceeds for general corporate purposes, including funding the purchase of certain hospital acquisitions, and the redemption of all $500 million aggregate principal amount of our existing 8.000% senior notes maturing in October 2018. The pretax loss on retirement of debt was $39 million. During 2016, we issued $1.200 billion aggregate principal amount of 4.500% senior secured notes due 2027. We used the net proceeds for general corporate purposes and to retire a portion of one of our senior secured term loans. We also entered into a joinder agreement to retire the remaining portion of this senior secured term loan using proceeds from a new $1.200 billion senior secured term loan facility maturing in February 2024. The pretax loss on retirement of debt was $4 million.
The effective tax rates were 42.5% and 32.3% for 2017 and 2016, respectively. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships. Our provision for income taxes for 2017 included increases of $301 million related to the remeasurement of our deferred tax assets and liabilities due to the enactment of the 2017 Tax Cuts and Jobs Act and $14 million related to reductions in interest expense (net of tax). Our provision for income taxes for 2017 and 2016 also included tax benefits of $82 million and $162 million, respectively, related to employee equity award settlements. Our provision for income taxes for 2016 also included tax benefits of $51 million primarily related to the resolution of federal income tax issues for our 2011 and 2012 tax years. Excluding the effect of these adjustments, the effective tax rates for 2017 and 2016 would have been 37.2% and 37.3%, respectively.
66
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Years Ended December 31, 2017 and 2016 (continued)
Net income attributable to noncontrolling interests declined from $542 million for 2016 to $527 million for 2017. The decline in net income attributable to noncontrolling interests related primarily to a joint venture in a Texas market.
Years Ended December 31, 2016 and 2015
Net income attributable to HCA Healthcare, Inc. totaled $2.890 billion, or $7.30 per diluted share, for 2016, compared to $2.129 billion, or $4.99 per diluted share, for 2015. Financial results for 2016 include tax benefits of $51 million, or $0.13 per diluted share, related to the resolution of federal income tax issues for our 2011 and 2012 tax years and $162 million, or $0.41 per diluted share, related to employee equity award settlements. Financial results for 2016 also include net gains on sales of facilities of $23 million, or $0.05 per diluted share, losses on retirement of debt of $4 million, or $0.01 per diluted share, and legal claim benefits of $246 million, or $0.39 per diluted share, related to the Health Midwest litigation. Financial results for 2015 include net losses on sales of facilities of $5 million, losses on retirement of debt of $135 million, or $0.20 per diluted share and legal claim costs of $249 million, or $0.37 per diluted share. All per diluted share disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 395.851 million shares and 426.721 million shares for the years ended December 31, 2016 and 2015, respectively. During 2016 and 2015, we repurchased 36.325 million and 31.991 million shares, respectively, of our common stock.
During 2016, consolidated admissions increased 1.2% and same facility admissions increased 1.1% compared to 2015. Consolidated and same facility inpatient surgeries each increased 1.4% during 2016 compared to 2015. Consolidated outpatient surgeries increased 2.5%, and same facility outpatient surgeries increased 1.2% during 2016 compared to 2015. Emergency room visits increased 4.1% on a consolidated basis and increased 3.8% on a same facility basis during 2016 compared to 2015.
Revenues before provision for doubtful accounts increased 2.7% to $44.747 billion for 2016 from $43.591 billion for 2015. The provision for doubtful accounts declined $656 million from $3.913 billion in 2015 to $3.257 billion in 2016. The provision for doubtful accounts and the allowance for doubtful accounts relate primarily to uninsured amounts due directly from patients, including copayment and deductible amounts for patients who have health care coverage. The self-pay revenue deductions for charity care and uninsured discounts increased $469 million and $2.355 billion, respectively, during 2016 compared to 2015. The sum of the provision for doubtful accounts, uninsured discounts and charity care, as a percentage of the sum of revenues, the provision for doubtful accounts, uninsured discounts and charity care, was 33.0% for 2016 compared to 31.5% for 2015. At December 31, 2016, our allowance for doubtful accounts represented approximately 97.5% of the $5.116 billion total patient due accounts receivable balance, including accounts, net of estimated contractual discounts, related to patients for which eligibility for Medicaid coverage or uninsured discounts was being evaluated.
Revenues increased 4.6% to $41.490 billion for 2016 from $39.678 billion for 2015. The increase in revenues was due primarily to the combined impact of a 2.3% increase in revenue per equivalent admission and a 2.2% increase in equivalent admissions compared to 2015. Same facility revenues increased 4.1% due to the combined impact of a 2.2% increase in same facility revenue per equivalent admission and a 1.9% increase in same facility equivalent admissions compared to 2015.
Salaries and benefits, as a percentage of revenues, were 45.5% in 2016 and 45.7% in 2015. Salaries and benefits per equivalent admission increased 2.1% in 2016 compared to 2015. Same facility labor rate increases averaged 1.9% for 2016 compared to 2015. Share-based compensation expense increased from $239 million in 2015 to $251 million in 2016.
67
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Years Ended December 31, 2016 and 2015 (continued)
Supplies, as a percentage of revenues, were 16.7% in both 2016 and 2015. Supply costs per equivalent admission increased 2.2% in 2016 compared to 2015. Supply costs per equivalent admission increased 4.6% for medical devices and 3.4% for pharmacy supplies and declined 0.1% for general medical and surgical items in 2016 compared to 2015.
Other operating expenses, as a percentage of revenues, was 18.1% in 2016 and 17.8% in 2015. Other operating expenses are primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. Provisions for losses related to professional liability risks were $430 million and $344 million for 2016 and 2015, respectively. The increase in provision for losses related to professional liability risks for 2016 compared to 2015 was primarily due to $64 million of favorable development related to prior years claims recorded in 2015.
Equity in earnings of affiliates was $54 million for 2016 and $46 million for 2015.
Depreciation and amortization, as a percentage of revenues, was 4.8% in both 2016 and 2015. Depreciation expense was $1.946 billion for 2016 and $1.880 billion for 2015.
Interest expense increased to $1.707 billion for 2016 from $1.665 billion for 2015. The increase in interest expense was due to an increase in the average debt balance. Our average debt balance was $31.048 billion for 2016 compared to $29.718 billion for 2015. The average interest rate for our long-term debt declined from 5.6% for 2015 to 5.5% for 2016.
Net gains on sales of facilities were $23 million for 2016 and related to sales of real estate and other investments. Net losses on sales of facilities were $5 million for 2015 and related to sales of real estate and other investments.
During 2016, we issued $1.200 billion aggregate principal amount of 4.500% senior secured notes due 2027. We used the net proceeds for general corporate purposes and to retire a portion of one of our senior secured term loans. We also entered into a joinder agreement to retire the remaining portion of this senior secured term loan using proceeds from a new $1.200 billion senior secured term loan facility maturing in February 2024. The pretax loss on retirement of debt was $4 million. During 2015, we redeemed all $1.525 billion aggregate principal amount of 7 3 ⁄ 4 % senior notes due 2021 and all $1.000 billion aggregate principal amount of our outstanding 6.500% senior notes due 2016. We also entered into a joinder agreement to retire certain of our existing senior secured term loans. The pretax losses on retirement of debt related to these redemptions were $135 million.
We reached a settlement agreement with the Health Care Foundation of Greater Kansas City related to a previously disclosed contractual dispute regarding our obligation to fund certain capital expenditures in connection with our purchase of hospitals from Health Midwest in 2003. The settlement agreement enabled us to reduce the accrual for this claim by $290 million and resulted in the recognition of net legal claim benefits of $246 million related to this litigation for 2016. We recorded $129 million of legal claim costs during 2015 related to this matter. We also recorded $120 million of legal claim costs during 2015 to settle a securities class action lawsuit and related derivative actions.
The effective tax rates were 32.3% and 37.2% for 2016 and 2015, respectively. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships.
68
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Years Ended December 31, 2016 and 2015 (continued)
Our provision for income taxes for 2016 included tax benefits of $51 million primarily related to the resolution of federal income tax issues for our 2011 and 2012 tax years and $162 million related to excess tax benefits from employee equity award settlements. Excluding the effect of these adjustments, the effective tax rate for 2016 would have been 37.3%.
Net income attributable to noncontrolling interests declined from $567 million for 2015 to $542 million for 2016. The decline in net income attributable to noncontrolling interests related primarily to joint ventures in our United Kingdom market, a Texas market and an Oklahoma market.
Liquidity and Capital Resources
Our primary cash requirements are paying our operating expenses, servicing our debt, capital expenditures on our existing properties, acquisitions of hospitals and other health care entities, repurchases of our common stock, distributions to stockholders and distributions to noncontrolling interests. Our primary cash sources are cash flows from operating activities, issuances of debt and equity securities and dispositions of hospitals and other health care entities.
Cash provided by operating activities totaled $5.426 billion in 2017 compared to $5.653 billion in 2016 and $4.734 billion in 2015. Working capital totaled $3.819 billion at December 31, 2017 and $3.252 billion at December 31, 2016. The $227 million decline in cash provided by operating activities for 2017, compared to 2016, was primarily related to the $689 million decline in net income, offset by increases related to depreciation and amortization of $165 million and income taxes of $310 million. The $919 million increase in cash provided by operating activities for 2016, compared to 2015, was primarily related to the $736 million increase in net income. Cash payments for interest and income taxes declined $16 million for 2017 compared to 2016 and increased $85 million for 2016 compared to 2015.
Cash used in investing activities was $4.279 billion, $3.240 billion and $2.583 billion in 2017, 2016 and 2015, respectively. Excluding acquisitions, capital expenditures were $3.015 billion in 2017, $2.760 billion in 2016 and $2.375 billion in 2015. We expended $1.212 billion, $576 million and $351 million for acquisitions of hospitals and health care entities during 2017, 2016 and 2015, respectively. Planned capital expenditures are expected to approximate $3.5 billion in 2018. At December 31, 2017, there were projects under construction which had an estimated additional cost to complete and equip over the next five years of approximately $3.1 billion. We expect to finance capital expenditures with internally generated and borrowed funds.
Cash used in financing activities totaled $1.061 billion in 2017, $2.508 billion in 2016 and $1.976 billion in 2015. During 2017, we had a net increase of $1.509 billion in our indebtedness and used cash of $2.051 billion for repurchases of common stock. During 2016, we had a net increase of $815 million in our indebtedness and used cash of $2.751 billion for repurchases of common stock. During 2015, we had a net increase of $778 million in our indebtedness and used cash of $2.397 billion for repurchases of common stock. During 2017, 2016 and 2015, we made distributions to noncontrolling interests of $448 million, $434 million and $495 million, respectively. We paid debt issuance costs of $26 million, $40 million and $50 million for 2017, 2016 and 2015, respectively. We, or our affiliates, may in the future repurchase portions of our debt or equity securities, subject to certain limitations, from time to time in either the open market or through privately negotiated transactions, in accordance with applicable SEC and other legal requirements. The timing, prices, and sizes of purchases depend upon prevailing trading prices, general economic and market conditions, and other factors, including applicable securities laws. At December 31, 2017, $1.802 billion of share repurchase authorization remained available under the $2 billion share repurchase program authorized by our board of directors during October 2017. Funds for the
69
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
repurchase of debt or equity securities have, and are expected to, come primarily from cash generated from operations and borrowed funds. On January 30, 2018, our Board of Directors initiated and declared a quarterly dividend of $0.35 per share on our common stock payable on March 30, 2018 to stockholders of record on March 1, 2018. The timing and amount of future cash dividends will vary based on a number of factors, including future capital requirements for strategic transactions, share repurchases and investing in our existing markets, the availability of financing on acceptable terms, debt service requirements, changes to applicable tax laws or corporate laws, changes to our business model and periodic determinations by our Board of Directors that cash dividends are in the best interest of stockholders and are in compliance with all applicable laws and agreements of the Company.
In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($2.047 billion as of December 31, 2017 and $1.827 billion as of January 31, 2018) and anticipated access to public and private debt and equity markets.
Investments of our insurance subsidiaries, to maintain statutory equity and pay claims, totaled $472 million and $385 million at December 31, 2017 and 2016, respectively. The insurance subsidiary maintained net reserves for professional liability risks of $194 million and $215 million at December 31, 2017 and 2016, respectively. Our facilities are insured by our 100% owned insurance subsidiary for losses up to $50 million per occurrence; however, this coverage is subject to a $15 million per occurrence self-insured retention. Net reserves for the self-insured professional liability risks retained were $1.409 billion and $1.279 billion at December 31, 2017 and 2016, respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate $424 million. We estimate that approximately $378 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention.
Financing Activities
We are a highly leveraged company with significant debt service requirements. Our debt totaled $33.058 billion and $31.376 billion at December 31, 2017 and 2016, respectively. Our interest expense was $1.690 billion for 2017 and $1.707 billion for 2016.
During March 2016, we issued $1.500 billion aggregate principal amount of 5.250% senior secured notes due 2026. We used the net proceeds for general corporate purposes and to retire a portion of one of our senior secured term loans. We also entered into a joinder agreement to retire the remaining portion of this senior secured term loan using proceeds from a new $1.500 billion senior secured term loan facility maturing in March 2023.
During August 2016, we issued $1.200 billion aggregate principal amount of 4.500% senior secured notes due 2027. We used the net proceeds for general corporate purposes and to retire a portion of one of our senior secured term loans. We also entered into a joinder agreement to retire the remaining portion of this senior secured term loan using proceeds from a new $1.200 billion senior secured term loan facility maturing in February 2024. The pretax loss on retirement of debt was $4 million.
During June 2017, we issued $1.500 billion aggregate principal amount of 5.500% senior secured notes due 2047. We used the net proceeds for general corporate purposes, including funding the purchase of certain hospital acquisitions, and the redemption, during July 2017, of all $500 million aggregate principal amount of our existing 8.000% senior notes maturing in October 2018. The pretax loss on retirement of debt was $39 million.
70
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
During June 2017, we amended our senior secured revolving credit facilities by (i) increasing the commitments under the senior secured asset-based revolving credit facility to $3.750 billion, (ii) extending the maturity date of the revolving credit commitments to June 28, 2022, (iii) amending the incremental facility provisions to permit the incurrence of additional incremental credit facilities in an aggregate principal amount of $1.5 billion and (iv) providing that the commitment fee for unutilized commitments under the senior secured asset-based revolving credit facility shall be 0.250% per annum.
Management believes that cash flows from operations, amounts available under our senior secured credit facilities and our anticipated access to public and private debt markets will be sufficient to meet expected liquidity needs during the next twelve months.
71
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Contractual Obligations and Off-Balance Sheet Arrangements
As of December 31, 2017, maturities of contractual obligations and other commercial commitments are presented in the table below (dollars in millions):
Payments Due by Period | ||||||||||||||||||||
Contractual Obligations(a) |
Total | Current | 2-3 Years | 4-5 Years | After 5 Years | |||||||||||||||
Long-term debt including interest, excluding the senior secured credit facilities(b) |
$ | 36,937 | $ | 1,577 | $ | 7,877 | $ | 6,509 | $ | 20,974 | ||||||||||
Loans outstanding under the senior secured credit facilities, including interest(b) |
8,806 | 363 | 1,720 | 4,126 | 2,597 | |||||||||||||||
Professional liability claims(c) |
1,627 | 429 | 693 | 357 | 148 | |||||||||||||||
Operating leases(d) |
2,279 | 289 | 517 | 355 | 1,118 | |||||||||||||||
Purchase and other obligations(d) |
29 | 19 | 6 | 2 | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total contractual obligations |
$ | 49,678 | $ | 2,677 | $ | 10,813 | $ | 11,349 | $ | 24,839 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Commitment Expiration by Period | ||||||||||||||||||||
Other Commercial Commitments Not Recorded on the Consolidated Balance Sheet |
Total | Current | 2-3 Years | 4-5 Years | After 5 Years | |||||||||||||||
Surety bonds(e) |
$ | 40 | $ | 37 | $ | 3 | $ | | $ | | ||||||||||
Letters of credit(e) |
23 | 18 | 5 | | | |||||||||||||||
Physician commitments(f) |
32 | 25 | 7 | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total commercial commitments |
$ | 95 | $ | 80 | $ | 15 | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
(a) |
We have not included obligations related to unrecognized tax benefits of $439 million at December 31, 2017, as we cannot reasonably estimate the timing or amounts of cash payments, if any, at this time. |
(b) |
Estimates of interest payments assume that interest rates and borrowing spreads at December 31, 2017, remain constant during the period presented. |
(c) |
The estimation of the timing of payments for professional liability claims beyond a year can vary significantly. The time period required to resolve these claims can vary depending upon the jurisdiction and whether the claim is settled or litigated. |
(d) |
Amounts relate to future operating lease obligations, purchase obligations and other obligations and are not recorded in our consolidated balance sheet. Amounts also include physician commitments that are recorded in our consolidated balance sheet. |
(e) |
Amounts relate primarily to instances in which we have agreed to indemnify various commercial insurers and lenders who have provided surety bonds and letters of credit to cover utility and construction deposits and Medicaid provider bonds. |
(f) |
In consideration for physicians relocating to the communities in which our hospitals are located and agreeing to engage in private practice for the benefit of the respective communities, we make advances to physicians, normally over a period of one year, to assist in establishing the physicians practices. The actual amount of these commitments to be advanced often depends upon the financial results of the physicians private practice during the recruitment agreement payment period. The physician commitments reflected were based on our maximum exposure on effective agreements at December 31, 2017. |
72
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Market Risk
We are exposed to market risk related to changes in market values of securities. The investments in our 100% owned insurance subsidiaries were $472 million at December 31, 2017. These investments are carried at fair value, with changes in unrealized gains and losses being recorded as adjustments to other comprehensive income. At December 31, 2017, we had a net unrealized gain of $10 million on the insurance subsidiaries investment securities.
We are exposed to market risk related to market illiquidity. Investments in debt and equity securities of our 100% owned insurance subsidiaries could be impaired by the inability to access the capital markets. Should the 100% owned insurance subsidiaries require significant amounts of cash in excess of normal cash requirements to pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less than what we might otherwise have been able to in a normal market environment. We may be required to recognize other-than-temporary impairments on our investment securities in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to ratings downgrades or other issue-specific factors.
We are also exposed to market risk related to changes in interest rates, and we periodically enter into interest rate swap agreements to manage our exposure to these fluctuations. Our interest rate swap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common notional principal amounts and maturity dates. The notional amounts of the swap agreements represent balances used to calculate the exchange of cash flows and are not our assets or liabilities. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions. The interest payments under these agreements are settled on a net basis. These derivatives have been recognized in the financial statements at their respective fair values. Changes in the fair value of these derivatives, which are designated as cash flow hedges, are included in other comprehensive income.
With respect to our interest-bearing liabilities, approximately $5.072 billion of long-term debt at December 31, 2017 was subject to variable rates of interest, while the remaining balance in long-term debt of $27.986 billion at December 31, 2017 was subject to fixed rates of interest. Both the general level of interest rates and, for the senior secured credit facilities, our leverage affect our variable interest rates. Our variable debt is comprised primarily of amounts outstanding under the senior secured credit facilities. Borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the higher of (1) the federal funds rate plus 0.50% and (2) the prime rate of Bank of America or (b) a LIBOR rate for the currency of such borrowing for the relevant interest period. The applicable margin for borrowings under the senior secured credit facilities may fluctuate according to a leverage ratio. The average effective interest rate for our long-term debt declined from 5.5% for 2016 to 5.3% for 2017.
The estimated fair value of our total long-term debt was $34.689 billion at December 31, 2017. The estimates of fair value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities. Based on a hypothetical 1% increase in interest rates, the potential annualized reduction to future pretax earnings would be approximately $51 million. To mitigate the impact of fluctuations in interest rates, we generally target a majority of our debt portfolio to be maintained at fixed rates.
We are exposed to currency translation risk related to our foreign operations. We currently do not consider the market risk related to foreign currency translation to be material to our consolidated financial statements or our liquidity.
73
HCA HEALTHCARE, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Market Risk (continued)
Financial Instruments
Derivative financial instruments are employed to manage risks, including interest rate exposures, and are not used for trading or speculative purposes. We recognize derivative instruments, such as interest rate swap agreements, in the consolidated balance sheets at fair value. Changes in the fair value of derivatives are recognized periodically either in earnings or in stockholders equity, as a component of other comprehensive income, depending on whether the derivative financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value hedge or a cash flow hedge. Gains and losses on derivatives designated as cash flow hedges, to the extent they are effective, are recorded in other comprehensive income, and subsequently reclassified to earnings to offset the impact of the hedged items when they occur.
The net interest paid or received on interest rate swaps is recognized as interest expense. Gains and losses resulting from the early termination of interest rate swap agreements are deferred and amortized as adjustments to expense over the remaining period of the debt originally covered by the terminated swap.
Effects of Inflation and Changing Prices
Various federal, state and local laws have been enacted that, in certain cases, limit our ability to increase prices. Revenues for general, acute care hospital services rendered to Medicare patients are established under the federal governments prospective payment system. Total fee-for-service Medicare revenues were 21.7%, 21.4% and 21.8% of our revenues for 2017, 2016 and 2015, respectively.
Management believes hospital industry operating margins have been, and may continue to be, under significant pressure because of changes in payer and service mix and growth in operating expenses in excess of the increase in prospective payments under the Medicare program. In addition, as a result of increasing regulatory and competitive pressures, our ability to maintain operating margins through price increases to non-Medicare patients is limited.
Tax Examinations
During 2016, the IRS completed its examination, resolving all outstanding federal income tax issues for our 2011 and 2012 tax years. We are subject to examination by the IRS for tax years 2014 and later as well as by state and foreign taxing authorities.
Management believes HCA Healthcare, Inc., its predecessors and affiliates properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with the IRS, state and foreign taxing authorities and final resolution of any disputes will not have a material, adverse effect on our results of operations or financial position. However, if payments due upon final resolution of any issues exceed our recorded estimates, such resolutions could have a material, adverse effect on our results of operations or financial position.
74
Item 7A. |
Quantitative and Qualitative Disclosures about Market Risk |
Information with respect to this Item is provided under the caption Market Risk under Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.
Item 8. |
Financial Statements and Supplementary Data |
Information with respect to this Item is contained in our consolidated financial statements indicated in the Index to Consolidated Financial Statements on Page F-1 of this annual report on Form 10-K.
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Item 9A. |
Controls and Procedures |
1. Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
2. Internal Control Over Financial Reporting
(a) Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective, can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our assessment under the framework in Internal Control Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2017.
Ernst & Young, LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Form 10-K, has issued a report on our internal control over financial reporting, which is included herein.
75
(b) Attestation Report of the Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
HCA Healthcare, Inc.
Opinion on Internal Control over Financial Reporting
We have audited HCA Healthcare, Inc.s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, HCA Healthcare, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of HCA Healthcare, Inc. as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, stockholders deficit, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and our report dated February 23, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Nashville, Tennessee
February 23, 2018
76
(c) Changes in Internal Control Over Financial Reporting
During the fourth quarter of 2017, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Item 9B. |
Other Information |
None.
PART III
Item 10. |
Directors, Executive Officers and Corporate Governance |
The information required by this Item regarding the identity and business experience of our directors and executive officers is set forth under the heading Election of Directors in the definitive proxy materials of HCA to be filed in connection with our 2018 Annual Meeting of Stockholders with respect to our directors and is set forth in Item 1 of Part I of this annual report on Form 10-K with respect to our executive officers. The information required by this Item contained in such definitive proxy materials is incorporated herein by reference.
Information on the beneficial ownership reporting for our directors and executive officers required by this Item is contained under the caption Section 16(a) Beneficial Ownership Reporting Compliance in the definitive proxy materials to be filed in connection with our 2018 Annual Meeting of Stockholders and is incorporated herein by reference.
Information on our Audit and Compliance Committee and Audit Committee Financial Experts required by this Item is contained under the caption Corporate Governance in the definitive proxy materials to be filed in connection with our 2018 Annual Meeting of Stockholders and is incorporated herein by reference.
We have a Code of Conduct which is applicable to all our directors, officers and employees (the Code of Conduct). The Code of Conduct is available on the Ethics and Compliance and Corporate Governance pages of our website at www.hcahealthcare.com. To the extent required pursuant to applicable SEC regulations, we intend to post amendments to or waivers from our Code of Conduct (to the extent applicable to our chief executive officer, principal financial officer or principal accounting officer) at this location on our website or report the same on a Current Report on Form 8-K. Our Code of Conduct is available free of charge upon request to our Corporate Secretary, HCA Healthcare, Inc., One Park Plaza, Nashville, TN 37203.
Item 11. |
Executive Compensation |
The information required by this Item is set forth under the headings Executive Compensation and Compensation Committee Interlocks and Insider Participation in the definitive proxy materials to be filed in connection with our 2018 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Information about security ownership of certain beneficial owners required by this Item is set forth under the heading Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters in the definitive proxy materials to be filed in connection with our 2018 Annual Meeting of Stockholders, which information is incorporated herein by reference.
77
This table provides certain information as of December 31, 2017 with respect to our equity compensation plans:
EQUITY COMPENSATION PLAN INFORMATION
(a) | (b) | (c) | ||||||||||
Number of securities
to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average
exercise price of outstanding options, warrants and rights |
Number of securities remaining
available for future issuance under equity compensation plans (excluding securities reflected in column(a) ) |
||||||||||
Equity compensation plans approved by
|
22,996,400 | (1) | $ | 43.47 | (1) | 31,437,200 | (2) | |||||
Equity compensation plans not approved by
|
| | | |||||||||
|
|
|
|
|
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Total |
22,996,400 | $ | 43.47 | 31,437,200 | ||||||||
|
|
|
|
|
|
(1) |
Includes 3,464,700 restricted share units which vest solely based upon continued employment over a specific period of time and 227,400 restricted share units and 3,562,000 performance share units which vest based upon continued employment over a specific period of time and the achievement of predetermined financial targets over time. The performance share units reported reflect the number of performance share units that would vest upon achievement of target performance; the number of performance share units that vest can vary from zero (for actual performance less than 80% of target) to two times the units granted (for actual performance of 120% or more of target). The weighted average exercise price does not take these restricted share units and performance share units into account. |
(2) |
Includes 22,755,600 shares available for future grants under the 2006 Stock Incentive Plan for Key Employees of HCA Holdings, Inc. and its Affiliates, as Amended and Restated, and 8,681,600 shares of common stock reserved for future issuance under the HCA Holdings, Inc. Employee Stock Purchase Plan. |
* |
For additional information concerning our equity compensation plans, see the discussion in Note 2 Share-Based Compensation in the notes to the consolidated financial statements. |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
The information required by this Item is set forth under the headings Certain Relationships and Related Party Transactions and Corporate Governance in the definitive proxy materials to be filed in connection with our 2018 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Item 14. |
Principal Accountant Fees and Services |
The information required by this Item is set forth under the heading Ratification of Appointment of Independent Registered Public Accounting Firm in the definitive proxy materials to be filed in connection with our 2018 Annual Meeting of Stockholders, which information is incorporated herein by reference.
78
PART IV
Item 15. |
Exhibits and Financial Statement Schedules |
(a) Documents filed as part of the report:
1. Financial Statements. The accompanying Index to Consolidated Financial Statements on page F-1 of this annual report on Form 10-K is provided in response to this item.
2. List of Financial Statement Schedules. All schedules are omitted because the required information is either not present, not present in material amounts or presented within the consolidated financial statements.
3. List of Exhibits
2.1 |
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2.2 |
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3.1 |
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3.2 |
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4.1 |
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4.2 |
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4.3 |
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4.4(a) |
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79
4.16 |
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4.17 |
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4.18 |
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4.19 |
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4.20 |
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4.21 |
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4.22 |
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4.23 |
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4.24 |
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4.25 |
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4.26 |
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Form of 7.50% Senior Notes due 2022 (included in Exhibit 4.24). |
||
4.27 |
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Form of 6.50% Senior Secured Notes due 2020 (included in Exhibit 4.25). |
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4.28 |
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4.29 |
|
Form of 5.875% Senior Secured Notes due 2022 (included in Exhibit 4.28). |
||
4.30 |
|
84
85
4.46 |
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4.47 |
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4.48 |
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Form of 5.375% Senior Notes due 2025 (included in Exhibit 4.47). |
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4.49 |
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4.50 |
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4.51 |
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Form of 5.875% Senior Notes due 2026 (included in Exhibit 4.50). |
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4.52 |
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4.53 |
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4.54 |
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Form of 5.250% Senior Secured Notes due 2026 (included in Exhibit 4.53). |
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4.55 |
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4.56 |
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4.57 |
|
Form of 4.500% Senior Secured Notes due 2027 (included in Exhibit 4.56). |
||
4.58 |
|
86
4.59 |
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4.60 |
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4.61 |
|
Form of 5.500% Senior Secured Notes due 2047 (included in Exhibit 4.60). |
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4.62 |
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10.1 |
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10.2(a) |
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10.2(b) |
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10.2(c) |
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10.3(a) |
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10.3(b) |
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10.4 |
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10.5 |
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10.6 |
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10.7 |
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87
10.35 |
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10.36 |
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10.37 |
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10.38 |
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10.39 |
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10.40 |
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10.41 |
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21 |
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23 |
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31.1 |
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
||
31.2 |
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
||
32 |
|
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101 |
|
The following financial information from our annual report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 23, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the consolidated balance sheets at December 31, 2017 and 2016, (ii) the consolidated income statements for the years ended December 31, 2017, 2016 and 2015, (iii) the consolidated comprehensive income statements for the years ended December 31, 2017, 2016 and 2015, (iv) the consolidated statements of stockholders deficit for the years ended December 31, 2017, 2016 and 2015, (v) the consolidated statements of cash flows for the years ended December 31, 2017, 2016 and 2015, and (vi) the notes to consolidated financial statements. |
* | Management compensatory plan or arrangement. |
Item 16. |
Form 10-K Summary |
None.
91
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HCA HEALTHCARE, INC. |
||
By: |
/s/ R. M ILTON J OHNSON | |
R. Milton Johnson | ||
Chairman and Chief Executive Officer |
Dated: February 23, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ R. M ILTON J OHNSON R. Milton Johnson |
Chairman, Chief Executive Officer and Director (Principal Executive Officer) |
February 23, 2018 | ||
/s/ W ILLIAM B. R UTHERFORD William B. Rutherford |
Executive Vice President and
(Principal Financial Officer and Principal Accounting Officer) |
February 23, 2018 | ||
/s/ R OBERT J. D ENNIS Robert J. Dennis |
Director | February 23, 2018 | ||
/s/ N ANCY -A NN D E P ARLE Nancy-Ann DeParle |
Director | February 23, 2018 | ||
/s/ T HOMAS F. F RIST III Thomas F. Frist III |
Director | February 23, 2018 | ||
/s/ W ILLIAM R. F RIST William R. Frist |
Director | February 23, 2018 | ||
/s/ C HARLES O. H OLLIDAY , J R . Charles O. Holliday, Jr. |
Director | February 23, 2018 | ||
/s/ A NN H. L AMONT Ann H. Lamont |
Director | February 23, 2018 | ||
/s/ J AY O. L IGHT Jay O. Light |
Director | February 23, 2018 | ||
/s/ G EOFFREY G. M EYERS Geoffrey G. Meyers |
Director | February 23, 2018 | ||
/s/ M ICHAEL W. M ICHELSON Michael W. Michelson |
Director | February 23, 2018 | ||
/s/ W AYNE J. R ILEY Wayne J. Riley |
Director | February 23, 2018 | ||
/s/ J OHN W. R OWE John W. Rowe |
Director | February 23, 2018 |
92
HCA HEALTHCARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
F-2 | ||||
Consolidated Financial Statements: |
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Consolidated Income Statements for the years ended December 31, 2017, 2016 and 2015 |
F-3 | |||
Consolidated Comprehensive Income Statements for the years ended December 31, 2017, 2016 and 2015 |
F-4 | |||
F-5 | ||||
F-6 | ||||
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 |
F-7 | |||
F-8 | ||||
F-46 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
HCA Healthcare, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of HCA Healthcare, Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, stockholders deficit and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Companys internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Companys auditor since 1994.
Nashville, Tennessee
February 23, 2018
F-2
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(Dollars in millions, except per share amounts)
2017 | 2016 | 2015 | ||||||||||
Revenues before provision for doubtful accounts |
$ | 47,653 | $ | 44,747 | $ | 43,591 | ||||||
Provision for doubtful accounts |
4,039 | 3,257 | 3,913 | |||||||||
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Revenues |
43,614 | 41,490 | 39,678 | |||||||||
Salaries and benefits |
20,059 | 18,897 | 18,115 | |||||||||
Supplies |
7,316 | 6,933 | 6,638 | |||||||||
Other operating expenses |
8,051 | 7,496 | 7,056 | |||||||||
Equity in earnings of affiliates |
(45 | ) | (54 | ) | (46 | ) | ||||||
Depreciation and amortization |
2,131 | 1,966 | 1,904 | |||||||||
Interest expense |
1,690 | 1,707 | 1,665 | |||||||||
Losses (gains) on sales of facilities |
(8 | ) | (23 | ) | 5 | |||||||
Losses on retirement of debt |
39 | 4 | 135 | |||||||||
Legal claim costs (benefits) |
| (246 | ) | 249 | ||||||||
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39,233 | 36,680 | 35,721 | ||||||||||
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Income before income taxes |
4,381 | 4,810 | 3,957 | |||||||||
Provision for income taxes |
1,638 | 1,378 | 1,261 | |||||||||
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Net income |
2,743 | 3,432 | 2,696 | |||||||||
Net income attributable to noncontrolling interests |
527 | 542 | 567 | |||||||||
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Net income attributable to HCA Healthcare, Inc. |
$ | 2,216 | $ | 2,890 | $ | 2,129 | ||||||
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Per share data: |
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Basic earnings per share |
$ | 6.12 | $ | 7.53 | $ | 5.14 | ||||||
Diluted earnings per share |
$ | 5.95 | $ | 7.30 | $ | 4.99 | ||||||
Shares used in earnings per share calculations (in millions): |
||||||||||||
Basic |
362.305 | 383.591 | 414.193 | |||||||||
Diluted |
372.221 | 395.851 | 426.721 |
The accompanying notes are an integral part of the consolidated financial statements.
F-3
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(Dollars in millions)
2017 | 2016 | 2015 | ||||||||||
Net income |
$ | 2,743 | $ | 3,432 | $ | 2,696 | ||||||
Other comprehensive income (loss) before taxes: |
||||||||||||
Foreign currency translation |
97 | (224 | ) | (63 | ) | |||||||
Unrealized gains (losses) on available-for-sale securities |
1 | (9 | ) | 1 | ||||||||
Realized gains included in other operating expenses |
(2 | ) | | | ||||||||
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(1 | ) | (9 | ) | 1 | ||||||||
Defined benefit plans |
(43 | ) | (35 | ) | 30 | |||||||
Pension costs included in salaries and benefits |
18 | 18 | 32 | |||||||||
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(25 | ) | (17 | ) | 62 | ||||||||
Change in fair value of derivative financial instruments |
11 | 20 | (36 | ) | ||||||||
Interest costs included in interest expense |
20 | 109 | 125 | |||||||||
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31 | 129 | 89 | ||||||||||
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Other comprehensive income (loss) before taxes |
102 | (121 | ) | 89 | ||||||||
Income taxes (benefits) related to other comprehensive income items |
42 | (48 | ) | 31 | ||||||||
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Other comprehensive income (loss) |
60 | (73 | ) | 58 | ||||||||
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Comprehensive income |
2,803 | 3,359 | 2,754 | |||||||||
Comprehensive income attributable to noncontrolling interests |
527 | 542 | 567 | |||||||||
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Comprehensive income attributable to HCA Healthcare, Inc. |
$ | 2,276 | $ | 2,817 | $ | 2,187 | ||||||
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The accompanying notes are an integral part of the consolidated financial statements.
F-4
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
(Dollars in millions)
2017 | 2016 | |||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 732 | $ | 646 | ||||
Accounts receivable, less allowance for doubtful accounts of $5,488 and $4,988 |
6,501 | 5,826 | ||||||
Inventories |
1,573 | 1,503 | ||||||
Other |
1,171 | 1,111 | ||||||
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9,977 | 9,086 | |||||||
Property and equipment, at cost: |
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Land |
1,746 | 1,611 | ||||||
Buildings |
14,249 | 13,546 | ||||||
Equipment |
22,168 | 20,580 | ||||||
Construction in progress |
1,921 | 1,318 | ||||||
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40,084 | 37,055 | |||||||
Accumulated depreciation |
(22,189 | ) | (20,703 | ) | ||||
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17,895 | 16,352 | |||||||
Investments of insurance subsidiaries |
418 | 336 | ||||||
Investments in and advances to affiliates |
199 | 206 | ||||||
Goodwill and other intangible assets |
7,394 | 6,704 | ||||||
Other |
710 | 1,074 | ||||||
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$ | 36,593 | $ | 33,758 | |||||
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LIABILITIES AND STOCKHOLDERS DEFICIT | ||||||||
Current liabilities: |
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Accounts payable |
$ | 2,606 | $ | 2,318 | ||||
Accrued salaries |
1,369 | 1,265 | ||||||
Other accrued expenses |
1,983 | 2,035 | ||||||
Long-term debt due within one year |
200 | 216 | ||||||
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6,158 | 5,834 | |||||||
Long-term debt, less net debt issuance costs of $164 and $170 |
32,858 | 31,160 | ||||||
Professional liability risks |
1,198 | 1,148 | ||||||
Income taxes and other liabilities |
1,374 | 1,249 | ||||||
Stockholders deficit: |
||||||||
Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 350,091,600 shares2017 and 370,535,900 shares2016 |
4 | 4 | ||||||
Accumulated other comprehensive loss |
(278 | ) | (338 | ) | ||||
Retained deficit |
(6,532 | ) | (6,968 | ) | ||||
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Stockholders deficit attributable to HCA Healthcare, Inc. |
(6,806 | ) | (7,302 | ) | ||||
Noncontrolling interests |
1,811 | 1,669 | ||||||
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(4,995 | ) | (5,633 | ) | |||||
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$ | 36,593 | $ | 33,758 | |||||
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The accompanying notes are an integral part of the consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(Dollars in millions)
Equity (Deficit) Attributable to HCA Healthcare, Inc. |
Equity
Attributable to Noncontrolling Interests |
Total | ||||||||||||||||||||||||||
Common Stock |
Capital in
Excess of Par Value |
Accumulated
Other Comprehensive Loss |
Retained
Deficit |
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Shares
(in millions) |
Par
Value |
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Balances, December 31, 2014 |
420.478 | $ | 4 | $ | | $ | (323 | ) | $ | (7,575 | ) | $ | 1,396 | $ | (6,498 | ) | ||||||||||||
Comprehensive income |
58 | 2,129 | 567 | 2,754 | ||||||||||||||||||||||||
Repurchase of common stock |
(31.991 | ) | (505 | ) | (1,892 | ) | (2,397 | ) | ||||||||||||||||||||
Share-based benefit plans |
10.252 | 523 | 523 | |||||||||||||||||||||||||
Distributions |
(495 | ) | (495 | ) | ||||||||||||||||||||||||
Acquisition of entities with noncontrolling interests |
85 | 85 | ||||||||||||||||||||||||||
Other |
(18 | ) | (18 | ) | ||||||||||||||||||||||||
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Balances, December 31, 2015 |
398.739 | 4 | | (265 | ) | (7,338 | ) | 1,553 | (6,046 | ) | ||||||||||||||||||
Comprehensive income (loss) |
(73 | ) | 2,890 | 542 | 3,359 | |||||||||||||||||||||||
Repurchase of common stock |
(36.325 | ) | (231 | ) | (2,520 | ) | (2,751 | ) | ||||||||||||||||||||
Share-based benefit plans |
8.122 | 233 | 233 | |||||||||||||||||||||||||
Distributions |
(434 | ) | (434 | ) | ||||||||||||||||||||||||
Other |
(2 | ) | 8 | 6 | ||||||||||||||||||||||||
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Balances, December 31, 2016 |
370.536 | 4 | | (338 | ) | (6,968 | ) | 1,669 | (5,633 | ) | ||||||||||||||||||
Comprehensive income |
60 | 2,216 | 527 | 2,803 | ||||||||||||||||||||||||
Repurchase of common stock |
(25.092 | ) | (271 | ) | (1,780 | ) | (2,051 | ) | ||||||||||||||||||||
Share-based benefit plans |
4.648 | 281 | 281 | |||||||||||||||||||||||||
Distributions |
(448 | ) | (448 | ) | ||||||||||||||||||||||||
Acquisition of entities with noncontrolling interests |
63 | 63 | ||||||||||||||||||||||||||
Other |
(10 | ) | (10 | ) | ||||||||||||||||||||||||
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Balances, December 31, 2017 |
350.092 | $ | 4 | $ | | $ | (278 | ) | $ | (6,532 | ) | $ | 1,811 | $ | (4,995 | ) | ||||||||||||
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The accompanying notes are an integral part of the consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
(Dollars in millions)
2017 | 2016 | 2015 | ||||||||||
Cash flows from operating activities: |
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Net income |
$ | 2,743 | $ | 3,432 | $ | 2,696 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Increase (decrease) in cash from operating assets and liabilities: |
||||||||||||
Accounts receivable |
(4,640 | ) | (3,247 | ) | (4,114 | ) | ||||||
Provision for doubtful accounts |
4,039 | 3,257 | 3,913 | |||||||||
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Accounts receivable, net |
(601 | ) | 10 | (201 | ) | |||||||
Inventories and other assets |
(69 | ) | (112 | ) | (314 | ) | ||||||
Accounts payable and accrued expenses |
374 | 144 | 192 | |||||||||
Depreciation and amortization |
2,131 | 1,966 | 1,904 | |||||||||
Income taxes |
433 | 123 | (160 | ) | ||||||||
Losses (gains) on sales of facilities |
(8 | ) | (23 | ) | 5 | |||||||
Losses on retirement of debt |
39 | 4 | 135 | |||||||||
Legal claim costs (benefits) |
| (246 | ) | 149 | ||||||||
Amortization of debt issuance costs |
31 | 34 | 35 | |||||||||
Share-based compensation |
270 | 251 | 239 | |||||||||
Other |
83 | 70 | 54 | |||||||||
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Net cash provided by operating activities |
5,426 | 5,653 | 4,734 | |||||||||
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Cash flows from investing activities: |
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Purchase of property and equipment |
(3,015 | ) | (2,760 | ) | (2,375 | ) | ||||||
Acquisition of hospitals and health care entities |
(1,212 | ) | (576 | ) | (351 | ) | ||||||
Disposal of hospitals and health care entities |
25 | 26 | 73 | |||||||||
Change in investments |
(73 | ) | 64 | 63 | ||||||||
Other |
(4 | ) | 6 | 7 | ||||||||
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Net cash used in investing activities |
(4,279 | ) | (3,240 | ) | (2,583 | ) | ||||||
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Cash flows from financing activities: |
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Issuances of long-term debt |
1,502 | 5,400 | 5,548 | |||||||||
Net change in revolving bank credit facilities |
760 | (110 | ) | 150 | ||||||||
Repayment of long-term debt |
(753 | ) | (4,475 | ) | (4,920 | ) | ||||||
Distributions to noncontrolling interests |
(448 | ) | (434 | ) | (495 | ) | ||||||
Payment of debt issuance costs |
(26 | ) | (40 | ) | (50 | ) | ||||||
Repurchases of common stock |
(2,051 | ) | (2,751 | ) | (2,397 | ) | ||||||
Other |
(45 | ) | (98 | ) | 188 | |||||||
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Net cash used in financing activities |
(1,061 | ) | (2,508 | ) | (1,976 | ) | ||||||
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Change in cash and cash equivalents |
86 | (95 | ) | 175 | ||||||||
Cash and cash equivalents at beginning of period |
646 | 741 | 566 | |||||||||
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Cash and cash equivalents at end of period |
$ | 732 | $ | 646 | $ | 741 | ||||||
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Interest payments |
$ | 1,700 | $ | 1,666 | $ | 1,650 | ||||||
Income tax payments, net |
$ | 1,205 | $ | 1,255 | $ | 1,186 |
The accompanying notes are an integral part of the consolidated financial statements.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING POLICIES
Reporting Entity
HCA Healthcare, Inc. is a holding company whose affiliates own and operate hospitals and related health care entities. The term affiliates includes direct and indirect subsidiaries of HCA Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At December 31, 2017, these affiliates owned and operated 179 hospitals, 120 freestanding surgery centers and provided extensive outpatient and ancillary services. HCA Healthcare, Inc.s facilities are located in 20 states and England. The terms Company, HCA, we, our or us, as used herein and unless otherwise stated or indicated by context, refer to HCA Healthcare, Inc. and its affiliates. The terms facilities or hospitals refer to entities owned and operated by affiliates of HCA and the term employees refers to employees of affiliates of HCA.
Basis of Presentation
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
The consolidated financial statements include all subsidiaries and entities controlled by HCA. We generally define control as ownership of a majority of the voting interest of an entity. The consolidated financial statements include entities in which we absorb a majority of the entitys expected losses, receive a majority of the entitys expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. The accounts of acquired entities are included in our consolidated financial statements for periods subsequent to our acquisition of controlling interests. Significant intercompany transactions have been eliminated. Investments in entities we do not control, but in which we have a substantial ownership interest and can exercise significant influence, are accounted for using the equity method.
The majority of our expenses are cost of revenue items. Costs that could be classified as general and administrative include our corporate office costs, which were $373 million, $373 million and $327 million for the years ended December 31, 2017, 2016 and 2015, respectively.
F-8
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 ACCOUNTING POLICIES (continued)
Revenues
Revenues consist primarily of net patient service revenues that are recorded based upon established billing rates less allowances for contractual adjustments. Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from the patients and third-party payers. Third-party payers include federal and state agencies (under the Medicare and Medicaid programs), managed care health plans and commercial insurance companies (including plans offered through the health insurance exchanges), and employers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Contractual payment terms in managed care agreements are generally based upon predetermined rates per diagnosis, per diem rates or discounted fee-for-service rates. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record a provision for doubtful accounts (based primarily on historical collection experience) related to uninsured accounts to record net self pay revenues at the estimated amounts we expect to collect. Our revenues from third party payers and other (including uninsured patients) for the years ended December 31, are summarized in the following table (dollars in millions):
Years Ended December 31, | ||||||||||||||||||||||||
2017 | Ratio | 2016 | Ratio | 2015 | Ratio | |||||||||||||||||||
Medicare |
$ | 9,483 | 21.7 | % | $ | 8,895 | 21.4 | % | $ | 8,654 | 21.8 | % | ||||||||||||
Managed Medicare |
4,788 | 11.0 | 4,355 | 10.5 | 4,133 | 10.4 | ||||||||||||||||||
Medicaid |
1,631 | 3.7 | 1,597 | 3.8 | 1,705 | 4.3 | ||||||||||||||||||
Managed Medicaid |
2,349 | 5.4 | 2,478 | 6.0 | 2,234 | 5.6 | ||||||||||||||||||
Managed care and other insurers |
24,813 | 56.9 | 23,441 | 56.5 | 21,882 | 55.2 | ||||||||||||||||||
International (managed care and other insurers) |
1,097 | 2.5 | 1,195 | 2.9 | 1,295 | 3.3 | ||||||||||||||||||
Other |
3,492 | 8.0 | 2,786 | 6.7 | 3,688 | 9.3 | ||||||||||||||||||
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Revenues before provision for doubtful accounts |
47,653 | 109.2 | 44,747 | 107.8 | 43,591 | 109.9 | ||||||||||||||||||
Provision for doubtful accounts |
(4,039 | ) | (9.2 | ) | (3,257 | ) | (7.8 | ) | (3,913 | ) | (9.9 | ) | ||||||||||||
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Revenues |
$ | 43,614 | 100.0 | % | $ | 41,490 | 100.0 | % | $ | 39,678 | 100.0 | % | ||||||||||||
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Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility recorded estimates will change by a material amount. Estimated reimbursement amounts are adjusted in subsequent periods as cost reports are prepared and filed and as final settlements are determined (in relation to certain government programs, primarily Medicare, this is generally referred to as the cost report filing and settlement process). The adjustments to estimated Medicare and Medicaid reimbursement amounts and disproportionate-share funds related primarily to cost reports filed during the respective year resulted in net increases to revenues of $41 million, $31 million and $48 million in 2017, 2016 and 2015, respectively. The adjustments to estimated reimbursement amounts related primarily to cost reports filed during previous years resulted in net increases to revenues of $56 million, $90 million and $85 million in 2017, 2016 and 2015, respectively.
The Emergency Medical Treatment and Labor Act (EMTALA) requires any hospital participating in the Medicare program to conduct an appropriate medical screening examination of every person who presents to the hospitals emergency room for treatment and, if the individual is suffering from an emergency medical condition, to either stabilize the condition or make an appropriate transfer of the individual to a facility able to handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of an
F-9
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 ACCOUNTING POLICIES (continued)
Revenues (continued)
individuals ability to pay for treatment. Federal and state laws and regulations require, and our commitment to providing quality patient care encourages, us to provide services to patients who are financially unable to pay for the health care services they receive. Prior to November 2017, patients treated at hospitals for nonelective care, who have income at or below 200% of the federal poverty level, are eligible for charity care. During November 2017, we expanded our charity care policy to limit the patient responsibility amounts for patients who have income above 200%, but at or below 400%, of the federal poverty level to a percentage of their annual household income, computed on a sliding scale based upon their annual income and the applicable multiple of the federal poverty level. The federal poverty level is established by the federal government and is based on income and family size. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care. In implementing the uninsured discount policy, we may first attempt to provide assistance to uninsured patients to help determine whether they may qualify for Medicaid, other federal or state assistance or charity care. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.
To quantify the total impact of and trends related to uninsured accounts, we believe it is beneficial to view charity care, uninsured discounts and the provision for doubtful accounts in combination, rather than each separately. A summary of these amounts for the years ended December 31, follows (dollars in millions):
2017 | Ratio | 2016 | Ratio | 2015 | Ratio | |||||||||||||||||||
Charity care |
$ | 4,861 | 21 | % | $ | 4,151 | 20 | % | $ | 3,682 | 20 | % | ||||||||||||
Uninsured discounts |
14,520 | 62 | 13,047 | 64 | 10,692 | 59 | ||||||||||||||||||
Provision for doubtful accounts |
4,039 | 17 | 3,257 | 16 | 3,913 | 21 | ||||||||||||||||||
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|||||||||||||
Total uncompensated care |
$ | 23,420 | 100 | % | $ | 20,455 | 100 | % | $ | 18,287 | 100 | % | ||||||||||||
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A summary of the estimated cost of total uncompensated care for the years ended December 31, follows (dollars in millions):
2017 | 2016 | 2015 | ||||||||||
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization) |
$ | 37,557 | $ | 35,304 | $ | 33,760 | ||||||
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Cost-to-charges ratio (patient care costs as percentage of gross patient charges) |
12.9 | % | 13.5 | % | 14.5 | % | ||||||
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Total uncompensated care |
$ | 23,420 | $ | 20,455 | $ | 18,287 | ||||||
Multiply by the cost-to-charges ratio |
12.9 | % | 13.5 | % | 14.5 | % | ||||||
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Estimated cost of total uncompensated care |
$ | 3,021 | $ | 2,761 | $ | 2,652 | ||||||
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The sum of charity care, uninsured discounts and the provision for doubtful accounts, as a percentage of the sum of revenues, charity care, uninsured discounts and the provision for doubtful accounts was 34.9% for 2017, 33.0% for 2016 and 31.5% for 2015.
F-10
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 ACCOUNTING POLICIES (continued)
Recent Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board issued a final, converged, principles-based standard on revenue recognition. Companies across all industries will use a five-step model to recognize revenue from customer contracts. The new standard, which replaces nearly all existing revenue recognition guidance, will require significant management judgments and change the way many companies recognize revenue in their financial statements. In July 2015, the FASB decided to defer the effective date of the new revenue standard by one year to annual and interim periods beginning after December 15, 2017 for public entities and permit entities to adopt one year earlier if they choose. We believe the most significant impact of adopting the new standard will be to the presentation of our income statement where the provision for doubtful accounts will be recorded as a direct reduction to revenues and will not be presented as a separate line item. We expect to adopt the new standard using the full retrospective application, and we do not believe the adoption will have a significant impact on our recognition of net revenues or related disclosures for any period.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (ASU 2016-02), which requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for public business entities for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. We are continuing to evaluate the provisions of ASU 2016-02 (and developments concerning its transition provision options) to determine how our financial statements will be affected, and we believe the primary effect of adopting the new standard will be to record right-of-use assets and obligations for our leases currently classified as operating leases.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with a maturity of three months or less when purchased. Our insurance subsidiaries cash equivalent investments in excess of the amounts required to pay estimated professional liability claims during the next twelve months are not included in cash and cash equivalents as these funds are not available for general corporate purposes. Carrying values of cash and cash equivalents approximate fair value due to the short-term nature of these instruments.
Our cash management system provides for daily investment of available balances and the funding of outstanding checks when presented for payment. Outstanding, but unpresented, checks totaling $480 million and $565 million at December 31, 2017 and 2016, respectively, have been included in accounts payable in the consolidated balance sheets. Upon presentation for payment, these checks are funded through available cash balances or our credit facility.
Accounts Receivable
We receive payments for services rendered from federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies, employers and patients. We recognize that revenues and receivables from government agencies are significant to our operations, but do not believe there are significant credit risks associated with these government agencies. We do not believe there are any other significant concentrations of revenues from any particular payer that would subject us to any significant credit risks in the collection of our accounts receivable.
F-11
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 ACCOUNTING POLICIES (continued)
Accounts Receivable (continued)
Additions to the allowance for doubtful accounts are made by means of the provision for doubtful accounts. Accounts written off as uncollectible are deducted from the allowance for doubtful accounts and subsequent recoveries are added. The amount of the provision for doubtful accounts is based upon managements assessment of historical and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. The provision for doubtful accounts and the allowance for doubtful accounts relate to uninsured amounts due directly from patients (including copayment and deductible amounts from patients who have health care coverage). Accounts are written off when all reasonable internal and external collection efforts have been performed. We consider the return of an account from the secondary collection agency to be the culmination of our reasonable collection efforts and the timing basis for writing off the account balance. Writeoffs are based upon specific identification and the writeoff process requires a writeoff adjustment entry to the patient accounting system. Management relies on the results of detailed reviews of historical writeoffs and recoveries at facilities that represent a majority of our revenues and accounts receivable (the hindsight analysis) as a primary source of information to utilize in estimating the collectibility of our accounts receivable. We perform the hindsight analysis quarterly, utilizing rolling twelve-months accounts receivable collection and writeoff data. At December 31, 2017 and 2016, the allowance for doubtful accounts represented 100% and 98%, respectively, of the $5.488 billion and $5.116 billion, respectively, patient due accounts receivable balance. The patient due accounts receivable balance represents the estimated uninsured portion of our accounts receivable. The estimated uninsured portion of Medicaid pending and uninsured discount pending accounts is included in our patient due accounts receivable balance. Days revenues in accounts receivable were 52 days, 50 days and 53 days at December 31, 2017, 2016 and 2015, respectively. Changes in general economic conditions, patient accounting service center operations, payer mix, or federal or state governmental health care coverage could affect our collection of accounts receivable, cash flows and results of operations.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Depreciation expense, computed using the straight-line method, was $2.111 billion in 2017, $1.946 billion in 2016 and $1.880 billion in 2015. Buildings and improvements are depreciated over estimated useful lives ranging generally from 10 to 40 years. Estimated useful lives of equipment vary generally from four to 10 years.
When events, circumstances or operating results indicate the carrying values of certain long-lived assets expected to be held and used might be impaired, we prepare projections of the undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the projections indicate the recorded amounts are not expected to be recoverable, such amounts are reduced to estimated fair value. Fair value may be estimated based upon internal evaluations that include quantitative analyses of revenues and cash flows, reviews of recent sales of similar assets and independent appraisals.
Long-lived assets to be disposed of are reported at the lower of their carrying amounts or fair value less costs to sell or close. The estimates of fair value are usually based upon recent sales of similar assets and market responses based upon discussions with and offers received from potential buyers.
F-12
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 ACCOUNTING POLICIES (continued)
Investments of Insurance Subsidiaries
At December 31, 2017 and 2016, the investments of our 100% owned insurance subsidiaries were classified as available-for-sale as defined in Accounting Standards Codification (ASC) No. 320, InvestmentsDebt and Equity Securities and are recorded at fair value. The investment securities are held for the purpose of providing a funding source to pay liability claims covered by the insurance subsidiaries. We perform quarterly assessments of individual investment securities to determine whether declines in market value are temporary or other-than-temporary. Our investment securities evaluation process involves subjective judgments, often involves estimating the outcome of future events, and requires a significant level of professional judgment in determining whether an impairment has occurred. We evaluate, among other things, the financial position and near term prospects of the issuer, conditions in the issuers industry, liquidity of the investment, changes in the amount or timing of expected future cash flows from the investment, and recent downgrades of the issuer by a rating agency, to determine if, and when, a decline in the fair value of an investment below amortized cost is considered other-than-temporary. The length of time and extent to which the fair value of the investment is less than amortized cost and our ability and intent to retain the investment, to allow for any anticipated recovery of the investments fair value, are important components of our investment securities evaluation process.
Goodwill and Intangible Assets
Goodwill is not amortized but is subject to annual impairment tests. In addition to the annual impairment review, impairment reviews are performed whenever circumstances indicate a possible impairment may exist. Impairment testing for goodwill is done at the reporting unit level. Reporting units are one level below the business segment level, and our impairment testing is performed at the operating division level. We compare the fair value of the reporting unit assets to the carrying amount, on at least an annual basis, to determine if there is potential impairment. If the fair value of the reporting unit assets is less than their carrying value, an impairment loss is recognized. Fair value is estimated based upon internal evaluations of each reporting unit that include quantitative analyses of market multiples, revenues and cash flows and reviews of recent sales of similar facilities. No goodwill impairments were recognized during 2017, 2016 and 2015. Since January 1, 2000, we have recognized total goodwill impairments of $102 million in the aggregate. None of the goodwill impairments related to evaluations of goodwill at the reporting unit level, as all recognized goodwill impairments during this period related to goodwill allocated to asset disposal groups.
During 2017, goodwill increased by $693 million related to acquisitions and by $12 million related to foreign currency translation and other adjustments. During 2016, goodwill increased by $41 million related to acquisitions and declined by $49 million related to sales, foreign currency translation and other adjustments.
During 2017, identifiable intangible assets declined by $15 million due to amortization, foreign currency translation and other adjustments. During 2016, identifiable intangible assets declined by $19 million due to amortization, foreign currency translation and other adjustments. Identifiable intangible assets are amortized over estimated lives ranging generally from three to 10 years. The gross carrying amount of identifiable intangible assets at both December 31, 2017 and 2016 was $184 million and accumulated amortization was $94 million and $79 million, respectively. The gross carrying amount of indefinite-lived identifiable intangible assets at both December 31, 2017 and 2016 was $269 million. Indefinite-lived identifiable intangible assets are not amortized but are subject to annual impairment tests, and impairment reviews are performed whenever circumstances indicate a possible impairment may exist.
F-13
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 ACCOUNTING POLICIES (continued)
Debt Issuance Costs
Debt issuance costs are amortized based upon the terms of the respective debt obligations. The gross carrying amount of debt issuance costs at December 31, 2017 and 2016 was $353 million and $334 million, respectively, and accumulated amortization was $189 million and $164 million, respectively. Amortization of debt issuance costs is included in interest expense and was $31 million, $34 million and $35 million for 2017, 2016 and 2015, respectively.
Professional Liability Claims
Reserves for professional liability risks were $1.627 billion and $1.539 billion at December 31, 2017 and 2016, respectively. The current portion of the reserves, $429 million and $391 million at December 31, 2017 and 2016, respectively, is included in other accrued expenses in the consolidated balance sheets. Provisions for losses related to professional liability risks were $466 million, $430 million and $344 million for 2017, 2016 and 2015, respectively, and are included in other operating expenses in our consolidated income statements. Provisions for losses related to professional liability risks are based upon actuarially determined estimates. Loss and loss expense reserves represent the estimated ultimate net cost of all reported and unreported losses incurred through the respective consolidated balance sheet dates. The reserves for unpaid losses and loss expenses are estimated using individual case-basis valuations and actuarial analyses. Those estimates are subject to the effects of trends in loss severity and frequency. The estimates are continually reviewed and adjustments are recorded as experience develops or new information becomes known. Adjustments to the estimated reserve amounts are included in current operating results. The reserves for professional liability risks cover approximately 2,500 and 2,700 individual claims at December 31, 2017 and 2016, respectively, and estimates for unreported potential claims. The time period required to resolve these claims can vary depending upon the jurisdiction and whether the claim is settled or litigated. During both 2017 and 2016, $357 million of net payments were made for professional and general liability claims. The estimation of the timing of payments beyond a year can vary significantly. Although considerable variability is inherent in professional liability reserve estimates, we believe the reserves for losses and loss expenses are adequate; however, there can be no assurance the ultimate liability will not exceed our estimates.
A portion of our professional liability risks is insured through a 100% owned insurance subsidiary. Subject to a $15 million per occurrence self-insured retention, our facilities are insured by our 100% owned insurance subsidiary for losses up to $50 million per occurrence. The insurance subsidiary has obtained reinsurance for professional liability risks generally above a retention level of $25 million per occurrence. We also maintain professional liability insurance with unrelated commercial carriers for losses in excess of amounts insured by our insurance subsidiary.
The obligations covered by reinsurance and excess insurance contracts are included in the reserves for professional liability risks, as we remain liable to the extent the reinsurers and excess insurance carriers do not meet their obligations under the reinsurance and excess insurance contracts. The amounts receivable under the reinsurance contracts include $19 million and $36 million at December 31, 2017 and 2016, respectively, recorded in other assets, and $5 million and $9 million at December 31, 2017 and 2016, respectively, recorded in other current assets.
Financial Instruments
Derivative financial instruments are employed to manage interest rate risks, and are not used for trading or speculative purposes. We recognize our interest rate swap derivative instruments in the consolidated balance
F-14
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 ACCOUNTING POLICIES (continued)
Financial Instruments (continued)
sheets at fair value. Changes in the fair value of derivatives are recognized periodically in stockholders equity, as a component of other comprehensive income (loss), provided the derivative financial instrument qualifies for hedge accounting. Gains and losses on derivatives designated as cash flow hedges, to the extent they are effective, are recorded in other comprehensive income (loss), and subsequently reclassified to earnings to offset the impact of the forecasted transactions when they occur. In the event the forecasted transaction to which a cash flow hedge relates is no longer likely, the amount in other comprehensive income (loss) is recognized in earnings and generally the derivative is terminated.
The net interest paid or received on interest rate swaps is recognized as interest expense. Gains and losses resulting from the early termination of interest rate swap agreements are deferred and amortized as adjustments to interest expense over the remaining term of the debt originally associated with the terminated swap.
Noncontrolling Interests in Consolidated Entities
The consolidated financial statements include all assets, liabilities, revenues and expenses of less than 100% owned entities that we control. Accordingly, we have recorded noncontrolling interests in the earnings and equity of such entities.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2017 presentation.
NOTE 2 SHARE-BASED COMPENSATION
Stock Incentive Plan
Our stock incentive plan is designed to promote the long term financial interests and growth of the Company by attracting and retaining management and other personnel, motivating them to achieve long range goals and aligning their interests with those of our stockholders through opportunities for increased stock, or stock-based, ownership in the Company. Portions of the options, stock appreciation rights (SARs) and restricted share units (RSUs) granted vest solely based upon continued employment over a specific period of time, and portions of the options, SARs and RSUs, and all performance share units (PSUs) vest based both upon continued employment over a specific period of time and upon the achievement of predetermined financial targets over time. We granted 1,879,100 and 1,601,300 SARs and 2,787,700 and 2,628,500 RSUs and PSUs during 2017 and 2016, respectively. At December 31, 2017, there were 11,284,400 exercisable stock options and SARs, and there were 22,755,600 shares available for future grants under the stock incentive plan.
Employee Stock Purchase Plan
Our employee stock purchase plan (ESPP) provides our participating employees an opportunity to obtain shares of our common stock at a discount (through payroll deductions over three-month periods). At December 31, 2017, 8,681,600 shares of common stock were reserved for issuance under the ESPP provisions. During 2017 and 2016, the Company recognized $9 million and $8 million, respectively, of compensation expense for each year related to the ESPP.
F-15
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SHARE-BASED COMPENSATION (continued)
Stock Option, SAR, RSU and PSU Activity
The fair value of each stock option and SAR award is estimated on the grant date, using valuation models and the weighted average assumptions indicated in the following table. Awards under our stock incentive plan generally vest based on continued employment (Time Stock Options and SARs and Time RSUs) and based upon continued employment and the achievement of certain financial targets (Performance Stock Options and SARs, Performance RSUs and PSUs). PSUs have a three-year cumulative earnings per share target, and the number of PSUs earned can vary from zero (for actual performance of less than 80% of target) to two times the original PSU grant (for actual performance of 120% or more of target). Each grant is valued as a single award with an expected term equal to the average expected term of the component vesting tranches. We use historical exercise behavior data and other factors to estimate the expected term of the options and SARs. The expected term of the share-based award is limited by the contractual term, and employee post-vesting termination behavior is incorporated in the historical exercise behavior data.
Compensation cost is recognized on the straight-line attribution method. The straight-line attribution method requires that total compensation expense recognized must at least equal the vested portion of the grant-date fair value. The expected volatility is derived using historical stock price information for our common stock and the volatility implied by the trading of options to purchase our stock on open-market exchanges. The risk-free interest rate is the approximate yield on United States Treasury Strips having a life equal to the expected share-based award life on the date of grant. The expected life is an estimate of the number of years a share-based award will be held before it is exercised.
2017 | 2016 | 2015 | ||||||||||
Risk-free interest rate |
2.13 | % | 1.70 | % | 1.59 | % | ||||||
Expected volatility |
31 | % | 36 | % | 36 | % | ||||||
Expected life, in years |
6.17 | 6.25 | 6.25 | |||||||||
Expected dividend yield |
| | |
F-16
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SHARE-BASED COMPENSATION (continued)
Stock Option, SAR, RSU and PSU Activity (continued)
Information regarding Time Stock Options and SARs and Performance Stock Options and SARs activity during 2017, 2016 and 2015 is summarized below (share amounts in thousands):
Time
Stock Options and SARs |
Performance
Stock Options and SARs |
Total
Stock Options and SARs |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term |
Aggregate
Intrinsic Value (dollars in millions) |
|||||||||||||||||||
Options and SARs outstanding, December 31, 2014 |
15,051 | 14,744 | 29,795 | $ | 21.39 | |||||||||||||||||||
Granted |
1,746 | | 1,746 | 69.16 | ||||||||||||||||||||
Exercised |
(4,093 | ) | (3,988 | ) | (8,081 | ) | 12.77 | |||||||||||||||||
Cancelled |
(539 | ) | (329 | ) | (868 | ) | 32.59 | |||||||||||||||||
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|
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Options and SARs outstanding, December 31, 2015 |
12,165 | 10,427 | 22,592 | 27.73 | ||||||||||||||||||||
Granted |
1,601 | | 1,601 | 69.96 | ||||||||||||||||||||
Exercised |
(2,521 | ) | (4,171 | ) | (6,692 | ) | 15.85 | |||||||||||||||||
Cancelled |
(309 | ) | (126 | ) | (435 | ) | 55.17 | |||||||||||||||||
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Options and SARs outstanding, December 31, 2016 |
10,936 | 6,130 | 17,066 | 35.65 | ||||||||||||||||||||
Granted |
1,879 | | 1,879 | 81.83 | ||||||||||||||||||||
Exercised |
(1,549 | ) | (1,366 | ) | (2,915 | ) | 21.49 | |||||||||||||||||
Cancelled |
(110 | ) | (178 | ) | (288 | ) | 52.92 | |||||||||||||||||
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Options and SARs outstanding, December 31, 2017 |
11,156 | 4,586 | 15,742 | 43.47 | 5.4 years | $ | 699 | |||||||||||||||||
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Options and SARs exercisable, December 31, 2017 |
7,060 | 4,224 | 11,284 | $ | 32.49 | 4.4 years | $ | 625 |
The weighted average fair values of stock options and SARs granted during 2017, 2016 and 2015 were $28.47, $26.60 and $26.10 per share, respectively. The total intrinsic value of stock options and SARs exercised during the year ended December 31, 2017 was $177 million. As of December 31, 2017, the unrecognized compensation cost related to nonvested stock options and SARs was $74 million.
F-17
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 SHARE-BASED COMPENSATION (continued)
Stock Option, SAR, RSU and PSU Activity (continued)
Information regarding Time RSUs, Performance RSUs and PSUs activity during 2017, 2016 and 2015 is summarized below (share amounts in thousands):
Time RSUs |
Performance
RSUs |
PSUs |
Total RSUs
and PSUs |
Weighted
Average Grant Date Fair Value |
||||||||||||||||
RSUs and PSUs outstanding, December 31, 2014 |
5,895 | 2,781 | | 8,676 | $ | 39.89 | ||||||||||||||
Granted |
1,694 | | 1,411 | 3,105 | 69.43 | |||||||||||||||
Vested |
(1,953 | ) | (928 | ) | | (2,881 | ) | 37.61 | ||||||||||||
Cancelled |
(334 | ) | (113 | ) | (40 | ) | (487 | ) | 47.26 | |||||||||||
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RSUs and PSUs outstanding, December 31, 2015 |
5,302 | 1,740 | 1,371 | 8,413 | 51.15 | |||||||||||||||
Granted |
1,450 | | 1,178 | 2,628 | 69.95 | |||||||||||||||
Vested |
(2,242 | ) | (870 | ) | | (3,112 | ) | 41.71 | ||||||||||||
Cancelled |
(399 | ) | (80 | ) | (163 | ) | (642 | ) | 59.66 | |||||||||||
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RSUs and PSUs outstanding, December 31, 2016 |
4,111 | 790 | 2,386 | 7,287 | 61.21 | |||||||||||||||
Granted |
1,484 | | 1,304 | 2,788 | 81.90 | |||||||||||||||
Vested |
(1,824 | ) | (430 | ) | | (2,254 | ) | 51.20 | ||||||||||||
Cancelled |
(306 | ) | (133 | ) | (128 | ) | (567 | ) | 64.06 | |||||||||||
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RSUs and PSUs outstanding, December 31, 2017 |
3,465 | 227 | 3,562 | 7,254 | 72.05 | |||||||||||||||
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As of December 31, 2017, the unrecognized compensation cost related to RSUs and PSUs was $257 million.
NOTE 3 ACQUISITIONS AND DISPOSITIONS
During 2017, we paid $1.000 billion to acquire eight hospital facilities and $212 million to acquire nonhospital health care entities. During 2016, we paid $343 million to acquire three hospital facilities and $233 million to acquire nonhospital health care entities. During 2015, we paid $15 million to acquire a hospital and $336 million to acquire nonhospital health care entities. Purchase price amounts have been allocated to the related assets acquired and liabilities assumed based upon their respective fair values. The purchase price paid in excess of the fair value of identifiable net assets of these acquired entities aggregated $693 million, $41 million and $323 million in 2017, 2016 and 2015, respectively. The consolidated financial statements include the accounts and operations of the acquired entities subsequent to the respective acquisition dates. The pro forma effects of these acquired entities on our results of operations for periods prior to the respective acquisition dates were not significant.
During 2017, we received proceeds of $25 million and recognized a net pretax gain of $8 million ($5 million after tax) related to sales of real estate and other investments. During 2016, we received proceeds of $26 million and recognized a net pretax gain of $23 million ($19 million after tax) related to sales of real estate and other investments. During 2015, we received proceeds of $73 million and recognized a net pretax loss of $5 million ($3 million after tax) related to the sale of a hospital facility and sales of real estate and other investments.
F-18
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 INCOME TAXES
The provision for income taxes consists of the following (dollars in millions):
2017 | 2016 | 2015 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 1,067 | $ | 1,129 | $ | 1,259 | ||||||
State |
120 | 125 | 119 | |||||||||
Foreign |
19 | 37 | 40 | |||||||||
Deferred: |
||||||||||||
Federal |
423 | 75 | (163 | ) | ||||||||
State |
3 | (5 | ) | (27 | ) | |||||||
Foreign |
6 | 17 | 33 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,638 | $ | 1,378 | $ | 1,261 | |||||||
|
|
|
|
|
|
Our provision for income taxes for the year ended December 31, 2017 included an increase of $301 million related to the estimated impact of tax rate changes under the 2017 Tax Cuts and Jobs Act (the Tax Act) on our deferred tax assets and liabilities. Our provision for income taxes for the years ended December 31, 2017 and 2016 also included tax benefits of $82 million and $162 million, respectively, related to the settlement of employee equity awards. The provision for income taxes reflects $14 million and $15 million of reductions in interest expense (net of tax) and $7 million of interest expense (net of tax) for the years ended December 31, 2017, 2016 and 2015, respectively. During 2016, the IRS completed its examination of our 2011 and 2012 tax years, resolving all outstanding federal tax issues. We reduced our provision for income taxes for the year ended December 31, 2016 by $51 million, including interest (net of tax), as a result of this resolution. Our foreign pretax income was $91 million, $149 million and $178 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The Tax Act was enacted on December 22, 2017. The Tax Act significantly revises U.S. corporate income taxes, including lowering the statutory corporate tax rate from 35% to 21% beginning in 2018 and imposing a mandatory one-time transition tax on undistributed foreign earnings. Due to the complexity and uncertainty regarding numerous provisions of the Tax Act, we have not completed our accounting for its effects. However, we have made reasonable estimates and recorded provisional amounts in our financial statements as of December 31, 2017.
A provisional amount of $301 million related to the remeasurement of our deferred tax assets and liabilities, primarily based on the lower tax rates at which they are expected to reverse in the future, was recorded as a component of our provision for income taxes for the year ended December 31, 2017.
We also reclassified a provisional amount of $127 million from our deferred tax liabilities for the one-time transition tax, based on our estimated undistributed post-1986 foreign earnings and profits. Because we had previously recorded U.S. taxes on these earnings, the transition tax liability, which is payable over an 8-year period, did not affect our 2017 provision for income taxes.
As we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by federal and state taxing authorities or other standard-setting bodies, we may make adjustments to the provisional amounts and record additional amounts for those federal, state, and foreign tax assets and liabilities for which we were unable to make reasonable estimates as of December 31, 2017. Any adjustments or additional amounts recorded may materially impact our provision for income taxes and effective tax rate in the periods in which they are made.
F-19
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 INCOME TAXES (continued)
A reconciliation of the federal statutory rate to the effective income tax rate follows:
2017 | 2016 | 2015 | ||||||||||
Federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes, net of federal tax benefit |
2.2 | 2.1 | 1.6 | |||||||||
Change in liability for uncertain tax positions |
| (1.0 | ) | 0.2 | ||||||||
Tax benefit from settlements of employee equity awards |
(2.0 | ) | (3.6 | ) | | |||||||
Impact of rate change on deferred tax balances |
7.8 | | | |||||||||
Other items, net |
(0.5 | ) | (0.2 | ) | 0.4 | |||||||
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|||||||
Effective income tax rate on income applicable to HCA Healthcare, Inc. |
42.5 | 32.3 | 37.2 | |||||||||
Income attributable to noncontrolling interests from consolidated partnerships |
(5.1 | ) | (3.6 | ) | (5.3 | ) | ||||||
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Effective income tax rate on income before income taxes |
37.4 | % | 28.7 | % | 31.9 | % | ||||||
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A summary of the items comprising the deferred tax assets and liabilities at December 31 follows (dollars in millions):
2017 | 2016 | |||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||
Depreciation and fixed asset basis differences |
$ | | $ | 260 | $ | | $ | 235 | ||||||||
Allowances for professional liability and other risks |
345 | | 495 | | ||||||||||||
Accounts receivable |
243 | | 351 | | ||||||||||||
Compensation |
263 | | 359 | | ||||||||||||
Other |
420 | 501 | 794 | 918 | ||||||||||||
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$ | 1,271 | $ | 761 | $ | 1,999 | $ | 1,153 | |||||||||
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At December 31, 2017, federal and state net operating loss carryforwards (expiring in years 2020 through 2036) available to offset future taxable income approximated $82 million and $121 million, respectively. Utilization of net operating loss carryforwards in any one year may be limited.
The following table summarizes the activity related to our unrecognized tax benefits (dollars in millions):
2017 | 2016 | |||||||
Balance at January 1 |
$ | 377 | $ | 487 | ||||
Additions based on tax positions related to the current year |
40 | 11 | ||||||
Additions for tax positions of prior years |
11 | 8 | ||||||
Reductions for tax positions of prior years |
(13 | ) | (18 | ) | ||||
Settlements |
| (101 | ) | |||||
Lapse of applicable statutes of limitations |
(16 | ) | (10 | ) | ||||
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|
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Balance at December 31 |
$ | 399 | $ | 377 | ||||
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Our liability for unrecognized tax benefits was $439 million, including accrued interest of $44 million and excluding $4 million that was recorded as reductions of the related deferred tax assets, as of December 31, 2017 ($418 million, $45 million and $4 million, respectively, as of December 31, 2016). Unrecognized tax benefits of $145 million ($137 million as of December 31, 2016) would affect the effective rate, if recognized.
F-20
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 INCOME TAXES (continued)
We are subject to examination by the IRS for tax years 2014 and later as well as by state and foreign taxing authorities. Depending on the resolution of any federal, state and foreign tax disputes, the completion of examinations by federal, state or foreign taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible that our liability for unrecognized tax benefits may significantly increase or decrease within the next 12 months. However, we are currently unable to estimate the range of any possible change.
NOTE 5 EARNINGS PER SHARE
We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options, SARs, RSUs and PSUs, computed using the treasury stock method. During 2017, 2016 and 2015, we repurchased 25.092 million shares, 36.325 million shares and 31.991 million shares, respectively, of our common stock. The following table sets forth the computations of basic and diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 (dollars and shares in millions, except per share amounts):
2017 | 2016 | 2015 | ||||||||||
Net income attributable to HCA Healthcare, Inc. |
$ | 2,216 | $ | 2,890 | $ | 2,129 | ||||||
Weighted average common shares outstanding |
362.305 | 383.591 | 414.193 | |||||||||
Effect of dilutive incremental shares |
9.916 | 12.260 | 12.528 | |||||||||
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|
|||||||
Shares used for diluted earnings per share |
372.221 | 395.851 | 426.721 | |||||||||
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|||||||
Earnings per share: |
||||||||||||
Basic earnings per share |
$ | 6.12 | $ | 7.53 | $ | 5.14 | ||||||
Diluted earnings per share |
$ | 5.95 | $ | 7.30 | $ | 4.99 |
NOTE 6 INVESTMENTS OF INSURANCE SUBSIDIARIES
A summary of the insurance subsidiaries investments at December 31 follows (dollars in millions):
2017 | ||||||||||||||||
Amortized
Cost |
Unrealized
Amounts |
Fair
Value |
||||||||||||||
Gains | Losses | |||||||||||||||
States and municipalities debt securities |
$ | 361 | $ | 10 | $ | | $ | 371 | ||||||||
Money market funds and other |
101 | | | 101 | ||||||||||||
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$ | 462 | $ | 10 | $ | | 472 | ||||||||||
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Amounts classified as current assets |
(54 | ) | ||||||||||||||
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Investment carrying value |
$ | 418 | ||||||||||||||
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F-21
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)
2016 | ||||||||||||||||
Amortized
Cost |
Unrealized
Amounts |
Fair
Value |
||||||||||||||
Gains | Losses | |||||||||||||||
States and municipalities debt securities |
$ | 345 | $ | 9 | $ | (1 | ) | $ | 353 | |||||||
Money market funds and other |
29 | 3 | | 32 | ||||||||||||
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$ | 374 | $ | 12 | $ | (1 | ) | 385 | |||||||||
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Amounts classified as current assets |
(49 | ) | ||||||||||||||
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Investment carrying value |
$ | 336 | ||||||||||||||
|
|
At December 31, 2017 and 2016, the investments of our insurance subsidiaries were classified as available-for-sale. Changes in temporary unrealized gains and losses are recorded as adjustments to other comprehensive income (loss).
Scheduled maturities of investments in debt securities at December 31, 2017 were as follows (dollars in millions):
Amortized
Cost |
Fair
Value |
|||||||
Due in one year or less |
$ | 31 | $ | 31 | ||||
Due after one year through five years |
84 | 86 | ||||||
Due after five years through ten years |
187 | 194 | ||||||
Due after ten years |
59 | 60 | ||||||
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$ | 361 | $ | 371 | |||||
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The average expected maturity of the investments in debt securities at December 31, 2017 was 4.8 years, compared to the average scheduled maturity of 6.5 years. Expected and scheduled maturities may differ because the issuers of certain securities have the right to call, prepay or otherwise redeem such obligations prior to their scheduled maturity date.
NOTE 7 FINANCIAL INSTRUMENTS
Interest Rate Swap Agreements
We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. These swap agreements involve the exchange of fixed and variable rate interest payments between two parties based on common notional principal amounts and maturity dates. Pay-fixed interest rate swaps effectively convert variable rate obligations to fixed interest rate obligations. The interest payments under these agreements are settled on a net basis. The net interest payments, based on the notional amounts in these agreements, generally match the timing of the related liabilities, for the interest rate swap agreements which have been designated as cash flow hedges. The notional amounts of the swap agreements represent amounts used to calculate the exchange of cash flows and are not our assets or liabilities. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions.
F-22
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 FINANCIAL INSTRUMENTS (continued)
Interest Rate Swap Agreements (continued)
The following table sets forth our interest rate swap agreements, which have been designated as cash flow hedges, at December 31, 2017 (dollars in millions):
Notional
Amount |
Maturity Date |
Fair
Value |
||||||||||
Pay-fixed interest rate swaps |
$ | 2,000 | December 2021 | $ | 48 | |||||||
Pay-fixed interest rate swaps |
500 | December 2022 | 2 |
During the next 12 months, we estimate $5 million will be reclassified from other comprehensive income (OCI) and will reduce interest expense.
Derivatives Results of Operations
The following table presents the effect of our interest rate swaps on our results of operations for the year ended December 31, 2017 (dollars in millions):
Derivatives in Cash Flow
Hedging
|
Amount of Gain
Recognized in OCI on Derivatives, Net of Tax |
Location of Loss
Reclassified from Accumulated OCI into Operations |
Amount of Loss
Reclassified from Accumulated OCI into Operations |
|||||||||
Interest rate swaps |
$ | 7 | Interest expense | $ | 20 |
NOTE 8 ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
Accounting Standards Codification 820, Fair Value Measurements and Disclosures (ASC 820) emphasizes fair value is a market-based measurement, and fair value measurements should be determined based on the assumptions market participants would use in pricing assets or liabilities. ASC 820 utilizes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entitys own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment.
F-23
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)
Cash Traded Investments
Our cash traded investments are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Certain types of cash traded instruments are classified within Level 3 of the fair value hierarchy because they trade infrequently and therefore have little or no price transparency. The valuation of these securities involves the consideration of market factors and managements judgment.
Derivative Financial Instruments
We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. We incorporate credit valuation adjustments to reflect both our own nonperformance risk and the respective counterpartys nonperformance risk in the fair value measurements of these instruments.
Although we determined the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparties. We assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions, and at December 31, 2017 and 2016, we determined the credit valuation adjustments were not significant to the overall valuation of our derivatives.
The following tables summarize our assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):
December 31, 2017 | ||||||||||||||||
Fair Value | Fair Value Measurements Using | |||||||||||||||
Quoted Prices in
Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||||||
Assets: |
||||||||||||||||
Investments of insurance subsidiaries: |
||||||||||||||||
States and municipalities debt securities |
$ | 371 | $ | | $ | 371 | $ | | ||||||||
Money market funds and other |
101 | 101 | | | ||||||||||||
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Investments of insurance subsidiaries |
472 | 101 | 371 | | ||||||||||||
Less amounts classified as current assets |
(54 | ) | (54 | ) | | | ||||||||||
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$ | 418 | $ | 47 | $ | 371 | $ | | |||||||||
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Interest rate swaps (Other) |
$ | 50 | $ | | $ | 50 | $ | |
F-24
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)
December 31, 2016 | ||||||||||||||||
Fair Value | Fair Value Measurements Using | |||||||||||||||
Quoted Prices in
Active Markets for Identical Assets and Liabilities (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
||||||||||||||
Assets: |
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Investments of insurance subsidiaries: |
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States and municipalities debt securities |
$ | 353 | $ | | $ | 347 | $ | 6 | ||||||||
Money market funds and other |
32 | 32 | | | ||||||||||||
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Investments of insurance subsidiaries |
385 | 32 | 347 | 6 | ||||||||||||
Less amounts classified as current assets |
(49 | ) | (28 | ) | (21 | ) | | |||||||||
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$ | 336 | $ | 4 | $ | 326 | $ | 6 | |||||||||
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Interest rate swaps (Other) |
$ | 31 | $ | | $ | 31 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Interest rate swaps (Income taxes and other liabilities) |
$ | 12 | $ | | $ | 12 | $ | |
The $6 million reduction in the Level 3 investments of our insurance subsidiaries during 2017 resulted from settlements. The estimated fair value of our long-term debt was $34.689 billion and $32.833 billion at December 31, 2017 and 2016, respectively, compared to carrying amounts, excluding net debt issuance costs, aggregating $33.222 billion and $31.546 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.
NOTE 9 LONG-TERM DEBT
A summary of long-term debt at December 31, including related interest rates at December 31, 2017, follows (dollars in millions):
2017 | 2016 | |||||||
Senior secured asset-based revolving credit facility (effective interest rate of 3.0%) |
$ | 3,680 | $ | 2,920 | ||||
Senior secured revolving credit facility |
| | ||||||
Senior secured term loan facilities (effective interest rate of 3.5%) |
3,891 | 3,981 | ||||||
Senior secured notes (effective interest rate of 5.4%) |
15,300 | 13,800 | ||||||
Other senior secured debt (effective interest rate of 5.7%) |
599 | 593 | ||||||
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|
|||||
Senior secured debt |
23,470 | 21,294 | ||||||
Senior unsecured notes (effective interest rate of 6.4%) |
9,752 | 10,252 | ||||||
Net debt issuance costs |
(164 | ) | (170 | ) | ||||
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Total debt (average life of 6.8 years, rates averaging 5.2%) |
33,058 | 31,376 | ||||||
Less amounts due within one year |
200 | 216 | ||||||
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$ | 32,858 | $ | 31,160 | |||||
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F-25
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 LONG-TERM DEBT (continued)
2017 Activity
During June 2017, we issued $1.500 billion aggregate principal amount of 5.500% senior secured notes due 2047. We used the net proceeds for general corporate purposes, including funding the purchase of certain hospital acquisitions, and the redemption, during July 2017, of all $500 million aggregate principal amount of our existing 8.000% senior notes maturing in October 2018. The pretax loss on retirement of debt was $39 million.
During June 2017, we amended our senior secured revolving credit facilities by (i) increasing the commitments under the senior secured asset-based revolving credit facility to $3.750 billion, (ii) extending the maturity date of the revolving credit commitments to June 28, 2022, (iii) amending the incremental facility provisions to permit the incurrence of additional incremental credit facilities in an aggregate principal amount of $1.5 billion and (iv) providing that the commitment fee for unutilized commitments under the senior secured asset-based revolving credit facility shall be 0.250% per annum.
Senior Secured Credit Facilities And Other Senior Secured Debt
We have entered into the following senior secured credit facilities: (i) a $3.750 billion asset-based revolving credit facility maturing on June 28, 2022 with a borrowing base of 85% of eligible accounts receivable, subject to customary reserves and eligibility criteria ($3.680 billion outstanding at December 31, 2017) (the ABL credit facility); (ii) a $2.000 billion senior secured revolving credit facility maturing on June 28, 2022 (none outstanding at December 31, 2017 without giving effect to certain outstanding letters of credit); (iii) a $1.225 billion senior secured term loan A-5 facility maturing on June 10, 2020; (iv) a $1.188 billion senior secured term loan B-8 facility maturing on February 15, 2024; and (v) a $1.478 billion senior secured term loan B-9 facility maturing on March 18, 2023. We refer to the facilities described under (ii) through (v) above, collectively, as the cash flow credit facility and, together with the ABL credit facility, the senior secured credit facilities.
Borrowings under the senior secured credit facilities bear interest at a rate equal to, at our option, either (a) a base rate determined by reference to the higher of (1) the federal funds rate plus 0.50% or (2) the prime rate of Bank of America or (b) a LIBOR rate for the currency of such borrowing for the relevant interest period, plus, in each case, an applicable margin. The applicable margin for borrowings under the senior secured credit facilities may be reduced subject to attaining certain leverage ratios.
The senior secured credit facilities contain a number of covenants that restrict, subject to certain exceptions, our (and some or all of our subsidiaries) ability to incur additional indebtedness, repay subordinated indebtedness, create liens on assets, sell assets, make investments, loans or advances, engage in certain transactions with affiliates, pay dividends and distributions, and enter into sale and leaseback transactions. In addition, we are required to satisfy and maintain a maximum total leverage ratio covenant under the cash flow credit facility and, in certain situations under the ABL credit facility, a minimum interest coverage ratio covenant.
Senior secured notes consists of (i) $3.000 billion aggregate principal amount of 6.50% first lien notes due 2020; (ii) $1.350 billion aggregate principal amount of 5.875% first lien notes due 2022; (iii) $1.250 billion aggregate principal amount of 4.75% first lien notes due 2023; (iv) $1.500 billion aggregate principal amount of 3.75% first lien notes due 2019; (v) $2.000 billion aggregate principal amount of 5.00% first lien notes due 2024; (vi) $600 million aggregate principal amount of 4.25% first lien notes due 2019; (vii) $1.400 billion aggregate
F-26
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 LONG-TERM DEBT (continued)
Senior Secured Credit Facilities And Other Senior Secured Debt (continued)
principal amount of 5.25% first lien notes due 2025; (viii) $1.500 billion aggregate principal amount of 5.25% first lien notes due 2026; (ix) $1.200 billion aggregate principal amount of 4.50% first lien notes due 2027; and (x) $1.500 billion aggregate principal amount of 5.50% first lien notes due 2047. Capital leases and other secured debt totaled $599 million at December 31, 2017.
We use interest rate swap agreements to manage the variable rate exposure of our debt portfolio. At December 31, 2017, we had entered into effective interest rate swap agreements, in a total notional amount of $2.500 billion, in order to hedge a portion of our exposure to variable rate interest payments associated with the senior secured credit facilities. The effect of the interest rate swaps is reflected in the effective interest rates for the senior secured credit facilities.
Senior Unsecured Notes
Senior unsecured notes consist of (i) $7.891 billion aggregate principal amount of senior notes with maturities ranging from 2022 to 2033; (ii) an aggregate principal amount of $125 million medium-term notes maturing 2025; (iii) an aggregate principal amount of $736 million debentures with maturities ranging from 2023 to 2095; and (iv) an aggregate principal amount of $1.000 billion senior notes due 2021.
General Debt Information
The senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are Unrestricted Subsidiaries under our Indenture (the 1993 Indenture) dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our ABL credit facility).
All obligations under the ABL credit facility, and the guarantees of those obligations, are secured, subject to permitted liens and other exceptions, by a first-priority lien on substantially all of the receivables of the borrowers and each guarantor under such ABL credit facility (the Receivables Collateral).
All obligations under the cash flow credit facility and the guarantees of such obligations are secured, subject to permitted liens and other exceptions, by:
|
a first-priority lien on the capital stock owned by HCA Inc., or by any U.S. guarantor, in each of their respective first-tier subsidiaries; |
|
a first-priority lien on substantially all present and future assets of HCA Inc. and of each U.S. guarantor other than (i) Principal Properties (as defined in the 1993 Indenture), (ii) certain other real properties and (iii) deposit accounts, other bank or securities accounts, cash, leaseholds, motor-vehicles and certain other exceptions; and |
| a second-priority lien on certain of the Receivables Collateral. |
Our senior secured notes and the related guarantees are secured by first-priority liens, subject to permitted liens, on our and our subsidiary guarantors assets, subject to certain exceptions, that secure our cash flow credit facility on a first-priority basis and are secured by second-priority liens, subject to permitted liens, on our and our subsidiary guarantors assets that secure our ABL credit facility on a first-priority basis and our other cash flow credit facility on a second-priority basis.
F-27
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 LONG-TERM DEBT (continued)
General Debt Information (continued)
Maturities of long-term debt in years 2019 through 2022, excluding amounts under the ABL credit facility, are $2.284 billion, $4.177 billion, $1.078 billion and $3.449 billion, respectively.
NOTE 10 CONTINGENCIES
We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians staff privileges. In certain of these actions the claimants may seek punitive damages against us which may not be covered by insurance. We are also subject to claims by various taxing authorities for additional taxes and related interest and penalties. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations, financial position or liquidity.
Government Investigations, Claims and Litigation
Health care companies are subject to numerous investigations by various governmental agencies. Under the federal False Claims Act (FCA), private parties have the right to bring qui tam , or whistleblower, suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received, and from time to time, other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse effect on our results of operations, financial position or liquidity.
NOTE 11 LEASES
We lease medical office buildings and certain equipment under operating lease agreements. Commitments relating to noncancellable operating leases for each of the next five years and thereafter are as follows (dollars in millions):
For the Year Ended December 31, |
||||
2018 |
$ | 289 | ||
2019 |
278 | |||
2020 |
239 | |||
2021 |
198 | |||
2022 |
157 | |||
Thereafter |
1,118 | |||
|
|
|||
2,279 | ||||
Less sublease income |
(11 | ) | ||
|
|
|||
$ | 2,268 | |||
|
|
F-28
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 CAPITAL STOCK
The amended and restated certificate of incorporation authorizes the Company to issue up to 1,800,000,000 shares of common stock, and our amended and restated by-laws set the number of directors constituting the board of directors of the Company at not less than three members, the exact number to be determined from time to time by resolution adopted by the affirmative vote of a majority of the total number of directors then in office.
Share Repurchase Transactions
During October 2017, our board of directors authorized a share repurchase program for up to $2 billion of our outstanding common stock. During 2017, we repurchased 25.092 million shares of our common stock at an average price of $81.73 per share through market purchases pursuant to the $2.0 billion November 2016 (which was completed during the fourth quarter of 2017) and the $2 billion October 2017 share repurchase programs. At December 31, 2017, we had $1.802 billion of repurchase authorization available under the October 2017 authorization.
During November 2016, our board of directors authorized a share repurchase program for up to $2 billion of our outstanding common stock. During May 2016, the Company repurchased 9.361 million shares of its common stock beneficially owned by affiliates of Kohlberg Kravis Roberts & Co. at a purchase price of $80.12 per share, the closing price of the Companys common stock on the New York Stock Exchange on May 10, 2016, less a discount of 1%. During 2016, we also repurchased 26.964 million shares of our common stock at an average price of $74.20 per share through market purchases, resulting in total repurchases of 36.325 million shares of our common stock at an average price of $75.72 per share for the year ended December 31, 2016 pursuant to the $3 billion October 2015 (which was completed during the fourth quarter of 2016) and the $2 billion November 2016 share repurchase programs. At December 31, 2016, we had $1.853 billion of repurchase authorization available under the November 2016 authorization.
During October 2015, May 2015 and February 2015, our board of directors authorized share repurchase programs for up to $3 billion, $1 billion and $1 billion, respectively, of our outstanding common stock. During April 2015, the Company entered into an agreement to repurchase 3.806 million shares of its common stock beneficially owned by affiliates of Bain Capital Investors, LLC (the Bain Entities) and certain charitable organizations that received shares of common stock as charitable contributions from certain partners and other employees of the Bain Entities at a purchase price of $77.26 per share, the closing price of the Companys common stock on the New York Stock Exchange on April 17, 2015, less a discount of 1%. During 2015, we also repurchased 28.185 million shares of our common stock at an average price of $74.62 per share through market purchases, resulting in total repurchases pursuant to the October 2015, May 2015 and February 2015 authorizations of 31.991 million shares of our common stock at an average price of $74.93 per share. At December 31, 2015, we had $2.603 billion of repurchase authorization available under the $3.0 billion October 2015 authorization.
NOTE 13 EMPLOYEE BENEFIT PLANS
We maintain defined contribution benefit plans that are available to employees who meet certain minimum requirements. Certain of the plans require that we match specified percentages of participant contributions up to certain maximum levels (generally, 100% of the first 3% to 9%, depending upon years of vesting service, of compensation deferred by participants). The cost of these plans totaled $471 million for 2017, $444 million for 2016 and $432 million for 2015. Our contributions have been funded periodically during each year.
We maintain the noncontributory, nonqualified Restoration Plan to provide certain retirement benefits for eligible employees. Eligibility for the Restoration Plan is based upon earning eligible compensation in excess of the Social Security Wage Base and attaining 1,000 or more hours of service during the plan year. Company credits to participants account balances (the Restoration Plan is not funded) depend upon participants
F-29
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13 EMPLOYEE BENEFIT PLANS (continued)
compensation, years of vesting service and certain IRS limitations related to the HCA 401(k) plan. Benefits expense under this plan was $40 million for 2017, $20 million for 2016 and $20 million for 2015. Accrued benefits liabilities under this plan totaled $201 million at December 31, 2017 and $175 million at December 31, 2016.
We maintain a Supplemental Executive Retirement Plan (SERP) for certain executives (the SERP is not funded). The plan is designed to ensure that upon retirement the participant receives the value of a prescribed life annuity from the combination of the SERP and our other benefit plans. Benefits expense under the plan was $28 million for 2017, $22 million for 2016 and $33 million for 2015. Accrued benefits liabilities under this plan totaled $223 million at December 31, 2017 and $222 million at December 31, 2016.
We maintain defined benefit pension plans which resulted from certain hospital acquisitions in prior years. Benefits expense under these plans was $14 million for 2017, $21 million for 2016, and $25 million for 2015. Accrued benefits liabilities under these plans totaled $118 million at December 31, 2017 and $111 million at December 31, 2016.
NOTE 14 SEGMENT AND GEOGRAPHIC INFORMATION
We operate in one line of business, which is operating hospitals and related health care entities. We operate in two geographically organized groups: the National and American Groups. At December 31, 2017, the National Group included 87 hospitals located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, South Carolina, Utah and Virginia, and the American Group included 86 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas. We also operate six hospitals in England, and these facilities are included in the Corporate and other group.
F-30
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 SEGMENT AND GEOGRAPHIC INFORMATION (continued)
Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses (gains) on sales of facilities, losses on retirement of debt, legal claim costs (benefits), income taxes and net income attributable to noncontrolling interests. We use adjusted segment EBITDA as an analytical indicator for purposes of allocating resources to geographic areas and assessing their performance. Adjusted segment EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted segment EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted segment EBITDA are significant components in understanding and assessing financial performance. Because adjusted segment EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, adjusted segment EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The geographic distributions of our revenues, equity in earnings of affiliates, adjusted segment EBITDA, depreciation and amortization, assets and goodwill and other intangible assets are summarized in the following table (dollars in millions):
For the Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Revenues: |
||||||||||||
National Group |
$ | 20,772 | $ | 19,845 | $ | 18,756 | ||||||
American Group |
20,912 | 19,670 | 18,875 | |||||||||
Corporate and other |
1,930 | 1,975 | 2,047 | |||||||||
|
|
|
|
|
|
|||||||
$ | 43,614 | $ | 41,490 | $ | 39,678 | |||||||
|
|
|
|
|
|
|||||||
Equity in earnings of affiliates: |
||||||||||||
National Group |
$ | (21 | ) | $ | (20 | ) | $ | (7 | ) | |||
American Group |
(37 | ) | (38 | ) | (32 | ) | ||||||
Corporate and other |
13 | 4 | (7 | ) | ||||||||
|
|
|
|
|
|
|||||||
$ | (45 | ) | $ | (54 | ) | $ | (46 | ) | ||||
|
|
|
|
|
|
|||||||
Adjusted segment EBITDA: |
||||||||||||
National Group |
$ | 4,600 | $ | 4,565 | $ | 4,271 | ||||||
American Group |
4,231 | 4,173 | 4,207 | |||||||||
Corporate and other |
(598 | ) | (520 | ) | (563 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 8,233 | $ | 8,218 | $ | 7,915 | |||||||
|
|
|
|
|
|
|||||||
Depreciation and amortization: |
||||||||||||
National Group |
$ | 867 | $ | 806 | $ | 769 | ||||||
American Group |
986 | 908 | 885 | |||||||||
Corporate and other |
278 | 252 | 250 | |||||||||
|
|
|
|
|
|
|||||||
$ | 2,131 | $ | 1,966 | $ | 1,904 | |||||||
|
|
|
|
|
|
F-31
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 SEGMENT AND GEOGRAPHIC INFORMATION (continued)
For the Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Adjusted segment EBITDA |
$ | 8,233 | $ | 8,218 | $ | 7,915 | ||||||
Depreciation and amortization |
2,131 | 1,966 | 1,904 | |||||||||
Interest expense |
1,690 | 1,707 | 1,665 | |||||||||
Losses (gains) on sales of facilities |
(8 | ) | (23 | ) | 5 | |||||||
Losses on retirement of debt |
39 | 4 | 135 | |||||||||
Legal claim costs (benefits) |
| (246 | ) | 249 | ||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
$ | 4,381 | $ | 4,810 | $ | 3,957 | ||||||
|
|
|
|
|
|
|||||||
December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Assets: |
||||||||||||
National Group |
$ | 13,097 | $ | 12,320 | $ | 11,332 | ||||||
American Group |
18,136 | 16,208 | 15,240 | |||||||||
Corporate and other |
5,360 | 5,230 | 6,172 | |||||||||
|
|
|
|
|
|
|||||||
$ | 36,593 | $ | 33,758 | $ | 32,744 | |||||||
|
|
|
|
|
|
National
Group |
American
Group |
Corporate
and Other |
Total | |||||||||||||
Goodwill and other intangible assets: |
||||||||||||||||
Balance at December 31, 2014 |
$ | 1,170 | $ | 4,614 | $ | 632 | $ | 6,416 | ||||||||
Acquisitions |
318 | 27 | | 345 | ||||||||||||
Foreign currency translation, amortization and other |
(7 | ) | (3 | ) | (20 | ) | (30 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2015 |
1,481 | 4,638 | 612 | 6,731 | ||||||||||||
Acquisitions |
| 33 | 8 | 41 | ||||||||||||
Foreign currency translation, amortization and other |
(23 | ) | (10 | ) | (35 | ) | (68 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2016 |
1,458 | 4,661 | 585 | 6,704 | ||||||||||||
Acquisitions |
19 | 612 | 62 | 693 | ||||||||||||
Foreign currency translation, amortization and other |
(3 | ) | (8 | ) | 8 | (3 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2017 |
$ | 1,474 | $ | 5,265 | $ | 655 | $ | 7,394 | ||||||||
|
|
|
|
|
|
|
|
F-32
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15 OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss are as follows (dollars in millions):
Unrealized
Gains on Available- for-Sale Securities |
Foreign
Currency Translation Adjustments |
Defined
Benefit Plans |
Change
in Fair Value of Derivative Instruments |
Total | ||||||||||||||||
Balances at December 31, 2014 |
$ | 13 | $ | (36 | ) | $ | (174 | ) | $ | (126 | ) | $ | (323 | ) | ||||||
Unrealized gains on available-for-sale securities, net of $1 of income taxes |
| | | | | |||||||||||||||
Foreign currency translation adjustments, net of $25 income tax benefit |
| (38 | ) | | | (38 | ) | |||||||||||||
Defined benefit plans, net of $11 of income taxes |
| | 19 | | 19 | |||||||||||||||
Change in fair value of derivative instruments, net of $14 income tax benefit |
| | | (22 | ) | (22 | ) | |||||||||||||
Expense reclassified into operations from other comprehensive income, net of $12 and $46, respectively, income tax benefits |
| | 20 | 79 | 99 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balances at December 31, 2015 |
13 | (74 | ) | (135 | ) | (69 | ) | (265 | ) | |||||||||||
Unrealized losses on available-for-sale securities, net of $3 income tax benefit |
(6 | ) | | | | (6 | ) | |||||||||||||
Foreign currency translation adjustments, net of $87 income tax benefit |
| (137 | ) | | | (137 | ) | |||||||||||||
Defined benefit plans, net of $13 income tax benefit |
| | (22 | ) | | (22 | ) | |||||||||||||
Change in fair value of derivative instruments, net of $8 of income taxes |
| | | 12 | 12 | |||||||||||||||
Expense reclassified into operations from other comprehensive income, net of $7 and $40, respectively, income tax benefits |
| | 11 | 69 | 80 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balances at December 31, 2016 |
7 | (211 | ) | (146 | ) | 12 | (338 | ) | ||||||||||||
Unrealized gains on available-for-sale securities |
1 | | | | 1 | |||||||||||||||
Foreign currency translation adjustments, net of $35 of income taxes |
| 62 | | | 62 | |||||||||||||||
Defined benefit plans, net of $10 income tax benefit |
| | (33 | ) | | (33 | ) | |||||||||||||
Change in fair value of derivative instruments, net of $4 of income taxes |
| | | 7 | 7 | |||||||||||||||
Expense (income) reclassified into operations from other comprehensive income, net of $1 of income taxes and $7 and $7 income tax benefits, respectively |
(1 | ) | | 11 | 13 | 23 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balances at December 31, 2017 |
$ | 7 | $ | (149 | ) | $ | (168 | ) | $ | 32 | $ | (278 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
F-33
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16 ACCRUED EXPENSES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of other accrued expenses at December 31 follows (dollars in millions):
2017 | 2016 | |||||||
Professional liability risks |
$ | 429 | $ | 391 | ||||
Interest |
406 | 409 | ||||||
Taxes other than income |
299 | 283 | ||||||
Other |
849 | 952 | ||||||
|
|
|
|
|||||
$ | 1,983 | $ | 2,035 | |||||
|
|
|
|
A summary of activity for the allowance of doubtful accounts follows (dollars in millions):
Balance
at Beginning of Year |
Provision
for Doubtful Accounts |
Accounts
Written off, Net of Recoveries |
Balance
at End of Year |
|||||||||||||
Allowance for doubtful accounts: |
||||||||||||||||
Year ended December 31, 2015 |
$ | 5,011 | $ | 3,913 | $ | (3,598 | ) | $ | 5,326 | |||||||
Year ended December 31, 2016 |
5,326 | 3,257 | (3,595 | ) | 4,988 | |||||||||||
Year ended December 31, 2017 |
4,988 | 4,039 | (3,539 | ) | 5,488 |
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION
HCA Inc. is a 100% owned direct subsidiary of HCA Healthcare, Inc. On December 6, 2012, HCA Healthcare, Inc. issued $1.000 billion aggregate principal amount of 6.25% senior unsecured notes due 2021. These notes are senior unsecured obligations and are not guaranteed by any of our subsidiaries.
The senior secured credit facilities and senior secured notes described in Note 9 are jointly and severally, and fully and unconditionally guaranteed by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are Unrestricted Subsidiaries under our Indenture dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our ABL credit facility).
Our condensed consolidating balance sheets at December 31, 2017 and 2016 and condensed consolidating statements of comprehensive income and cash flows for each of the three years in the period ended December 31, 2017, segregating HCA Healthcare, Inc. issuer, HCA Inc. issuer, the subsidiary guarantors, the subsidiary non-guarantors and eliminations, follow.
F-34
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2017
(Dollars in millions)
HCA
Healthcare, Inc. Issuer |
HCA Inc.
Issuer |
Subsidiary
Guarantors |
Subsidiary
Non- Guarantors |
Eliminations |
Condensed
Consolidated |
|||||||||||||||||||
Revenues before provision for doubtful accounts |
$ | | $ | | $ | 27,992 | $ | 19,661 | $ | | $ | 47,653 | ||||||||||||
Provision for doubtful accounts |
| | 2,218 | 1,821 | | 4,039 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Revenues |
| | 25,774 | 17,840 | | 43,614 | ||||||||||||||||||
Salaries and benefits |
| | 11,619 | 8,440 | | 20,059 | ||||||||||||||||||
Supplies |
| | 4,286 | 3,030 | | 7,316 | ||||||||||||||||||
Other operating expenses |
6 | | 4,249 | 3,796 | | 8,051 | ||||||||||||||||||
Equity in earnings of affiliates |
(2,476 | ) | | (6 | ) | (39 | ) | 2,476 | (45 | ) | ||||||||||||||
Depreciation and amortization |
| | 1,237 | 894 | | 2,131 | ||||||||||||||||||
Interest expense |
64 | 3,088 | (1,309 | ) | (153 | ) | | 1,690 | ||||||||||||||||
Gains on sales of facilities |
| | (2 | ) | (6 | ) | | (8 | ) | |||||||||||||||
Losses on retirement of debt |
| 39 | | | | 39 | ||||||||||||||||||
Management fees |
| | (621 | ) | 621 | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(2,406 | ) | 3,127 | 19,453 | 16,583 | 2,476 | 39,233 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes |
2,406 | (3,127 | ) | 6,321 | 1,257 | (2,476 | ) | 4,381 | ||||||||||||||||
Provision (benefit) for income taxes |
190 | (1,154 | ) | 2,293 | 309 | | 1,638 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
2,216 | (1,973 | ) | 4,028 | 948 | (2,476 | ) | 2,743 | ||||||||||||||||
Net income attributable to noncontrolling interests |
| | 108 | 419 | | 527 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable to HCA Healthcare, Inc. |
$ | 2,216 | $ | (1,973 | ) | $ | 3,920 | $ | 529 | $ | (2,476 | ) | $ | 2,216 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income (loss) attributable to HCA Healthcare, Inc. |
$ | 2,276 | $ | (1,953 | ) | $ | 3,898 | $ | 591 | $ | (2,536 | ) | $ | 2,276 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-35
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2016
(Dollars in millions)
HCA
Healthcare, Inc. Issuer |
HCA Inc.
Issuer |
Subsidiary
Guarantors (as adjusted) |
Subsidiary
Non- Guarantors (as adjusted) |
Eliminations |
Condensed
Consolidated |
|||||||||||||||||||
Revenues before provision for doubtful accounts |
$ | | $ | | $ | 26,468 | $ | 18,279 | $ | | $ | 44,747 | ||||||||||||
Provision for doubtful accounts |
| | 2,041 | 1,216 | | 3,257 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Revenues |
| | 24,427 | 17,063 | | 41,490 | ||||||||||||||||||
Salaries and benefits |
| | 10,971 | 7,926 | | 18,897 | ||||||||||||||||||
Supplies |
| | 4,090 | 2,843 | | 6,933 | ||||||||||||||||||
Other operating expenses |
6 | | 3,912 | 3,578 | | 7,496 | ||||||||||||||||||
Equity in earnings of affiliates |
(2,738 | ) | | (7 | ) | (47 | ) | 2,738 | (54 | ) | ||||||||||||||
Depreciation and amortization |
| | 1,141 | 825 | | 1,966 | ||||||||||||||||||
Interest expense |
64 | 2,756 | (970 | ) | (143 | ) | | 1,707 | ||||||||||||||||
Losses (gains) on sales of facilities |
| | 4 | (27 | ) | | (23 | ) | ||||||||||||||||
Losses on retirement of debt |
| 4 | | | | 4 | ||||||||||||||||||
Legal claim benefits |
| (246 | ) | | | | (246 | ) | ||||||||||||||||
Management fees |
| | (588 | ) | 588 | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(2,668 | ) | 2,514 | 18,553 | 15,543 | 2,738 | 36,680 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes |
2,668 | (2,514 | ) | 5,874 | 1,520 | (2,738 | ) | 4,810 | ||||||||||||||||
Provision (benefit) for income taxes |
(222 | ) | (928 | ) | 2,133 | 395 | | 1,378 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
2,890 | (1,586 | ) | 3,741 | 1,125 | (2,738 | ) | 3,432 | ||||||||||||||||
Net income attributable to noncontrolling interests |
| | 93 | 449 | | 542 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable to HCA Healthcare, Inc. |
$ | 2,890 | $ | (1,586 | ) | $ | 3,648 | $ | 676 | $ | (2,738 | ) | $ | 2,890 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income (loss) attributable to HCA Healthcare, Inc. |
$ | 2,817 | $ | (1,505 | ) | $ | 3,637 | $ | 533 | $ | (2,665 | ) | $ | 2,817 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-36
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING COMPREHENSIVE INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2015
(Dollars in millions)
HCA
Healthcare, Inc. Issuer |
HCA Inc.
Issuer |
Subsidiary
Guarantors (as adjusted) |
Subsidiary
Non- Guarantors (as adjusted) |
Eliminations |
Condensed
Consolidated |
|||||||||||||||||||
Revenues before provision for doubtful accounts |
$ | | $ | | $ | 25,711 | $ | 17,880 | $ | | $ | 43,591 | ||||||||||||
Provision for doubtful accounts |
| | 2,329 | 1,584 | | 3,913 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Revenues |
| | 23,382 | 16,296 | | 39,678 | ||||||||||||||||||
Salaries and benefits |
| | 10,593 | 7,522 | | 18,115 | ||||||||||||||||||
Supplies |
| | 3,933 | 2,705 | | 6,638 | ||||||||||||||||||
Other operating expenses |
(2 | ) | | 3,685 | 3,373 | | 7,056 | |||||||||||||||||
Equity in earnings of affiliates |
(2,352 | ) | | (8 | ) | (38 | ) | 2,352 | (46 | ) | ||||||||||||||
Depreciation and amortization |
| | 1,085 | 819 | | 1,904 | ||||||||||||||||||
Interest expense |
115 | 2,445 | (816 | ) | (79 | ) | | 1,665 | ||||||||||||||||
Losses on sales of facilities |
| | | 5 | | 5 | ||||||||||||||||||
Losses on retirement of debt |
122 | 13 | | | | 135 | ||||||||||||||||||
Legal claim costs |
120 | 129 | | | | 249 | ||||||||||||||||||
Management fees |
| | (515 | ) | 515 | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(1,997 | ) | 2,587 | 17,957 | 14,822 | 2,352 | 35,721 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes |
1,997 | (2,587 | ) | 5,425 | 1,474 | (2,352 | ) | 3,957 | ||||||||||||||||
Provision (benefit) for income taxes |
(132 | ) | (962 | ) | 1,983 | 372 | | 1,261 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
2,129 | (1,625 | ) | 3,442 | 1,102 | (2,352 | ) | 2,696 | ||||||||||||||||
Net income attributable to noncontrolling interests |
| | 92 | 475 | | 567 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) attributable to HCA Healthcare, Inc. |
$ | 2,129 | $ | (1,625 | ) | $ | 3,350 | $ | 627 | $ | (2,352 | ) | $ | 2,129 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Comprehensive income (loss) attributable to HCA Healthcare, Inc. |
$ | 2,187 | $ | (1,568 | ) | $ | 3,389 | $ | 589 | $ | (2,410 | ) | $ | 2,187 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-37
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2017
(Dollars in millions)
HCA
Healthcare, Inc. Issuer |
HCA Inc.
Issuer |
Subsidiary
Guarantors |
Subsidiary
Non- Guarantors |
Eliminations |
Condensed
Consolidated |
|||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1 | $ | | $ | 112 | $ | 619 | $ | | $ | 732 | ||||||||||||
Accounts receivable, net |
| | 3,693 | 2,808 | | 6,501 | ||||||||||||||||||
Inventories |
| | 1,030 | 543 | | 1,573 | ||||||||||||||||||
Other |
| | 663 | 508 | | 1,171 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
1 | | 5,498 | 4,478 | | 9,977 | |||||||||||||||||||
Property and equipment, net |
| | 11,110 | 6,785 | | 17,895 | ||||||||||||||||||
Investments of insurance subsidiaries |
| | | 418 | | 418 | ||||||||||||||||||
Investments in and advances to affiliates |
29,581 | | 22 | 177 | (29,581 | ) | 199 | |||||||||||||||||
Goodwill and other intangible assets |
| | 4,893 | 2,501 | | 7,394 | ||||||||||||||||||
Other |
510 | 50 | 47 | 103 | | 710 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 30,092 | $ | 50 | $ | 21,570 | $ | 14,462 | $ | (29,581 | ) | $ | 36,593 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND STOCKHOLDERS
(DEFICIT)
|
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | 1,793 | $ | 813 | $ | | $ | 2,606 | ||||||||||||
Accrued salaries |
| | 862 | 507 | | 1,369 | ||||||||||||||||||
Other accrued expenses |
29 | 378 | 536 | 1,040 | | 1,983 | ||||||||||||||||||
Long-term debt due within one year |
| 97 | 64 | 39 | | 200 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
29 | 475 | 3,255 | 2,399 | | 6,158 | |||||||||||||||||||
Long-term debt, net |
995 | 31,367 | 307 | 189 | | 32,858 | ||||||||||||||||||
Intercompany balances |
35,322 | (9,742 | ) | (25,228 | ) | (352 | ) | | | |||||||||||||||
Professional liability risks |
| | | 1,198 | | 1,198 | ||||||||||||||||||
Income taxes and other liabilities |
552 | | 357 | 465 | | 1,374 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
36,898 | 22,100 | (21,309 | ) | 3,899 | | 41,588 | ||||||||||||||||||
Stockholders (deficit) equity attributable to HCA Healthcare, Inc. |
(6,806 | ) | (22,050 | ) | 42,755 | 8,876 | (29,581 | ) | (6,806 | ) | ||||||||||||||
Noncontrolling interests |
| | 124 | 1,687 | | 1,811 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(6,806 | ) | (22,050 | ) | 42,879 | 10,563 | (29,581 | ) | (4,995 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 30,092 | $ | 50 | $ | 21,570 | $ | 14,462 | $ | (29,581 | ) | $ | 36,593 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-38
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2016
(Dollars in millions)
HCA
Healthcare, Inc. Issuer |
HCA Inc.
Issuer |
Subsidiary
Guarantors (as adjusted) |
Subsidiary
Non- Guarantors (as adjusted) |
Eliminations |
Condensed
Consolidated |
|||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | | $ | 113 | $ | 533 | $ | | $ | 646 | ||||||||||||
Accounts receivable, net |
| | 3,388 | 2,438 | | 5,826 | ||||||||||||||||||
Inventories |
| | 1,001 | 502 | | 1,503 | ||||||||||||||||||
Other |
| | 592 | 519 | | 1,111 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| | 5,094 | 3,992 | | 9,086 | |||||||||||||||||||
Property and equipment, net |
| | 10,464 | 5,888 | | 16,352 | ||||||||||||||||||
Investments of insurance subsidiaries |
| | | 336 | | 336 | ||||||||||||||||||
Investments in and advances to affiliates |
27,045 | | 24 | 182 | (27,045 | ) | 206 | |||||||||||||||||
Goodwill and other intangible assets |
| | 4,612 | 2,092 | | 6,704 | ||||||||||||||||||
Other |
877 | | 43 | 154 | | 1,074 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 27,922 | $ | | $ | 20,237 | $ | 12,644 | $ | (27,045 | ) | $ | 33,758 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND STOCKHOLDERS
(DEFICIT)
|
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | 1,607 | $ | 711 | $ | | $ | 2,318 | ||||||||||||
Accrued salaries |
| | 811 | 454 | | 1,265 | ||||||||||||||||||
Other accrued expenses |
29 | 572 | 528 | 906 | | 2,035 | ||||||||||||||||||
Long-term debt due within one year |
| 97 | 72 | 47 | | 216 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
29 | 669 | 3,018 | 2,118 | | 5,834 | |||||||||||||||||||
Long-term debt, net |
993 | 29,693 | 304 | 170 | | 31,160 | ||||||||||||||||||
Intercompany balances |
33,784 | (10,277 | ) | (22,495 | ) | (1,012 | ) | | | |||||||||||||||
Professional liability risks |
| | | 1,148 | | 1,148 | ||||||||||||||||||
Income taxes and other liabilities |
418 | 12 | 397 | 422 | | 1,249 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
35,224 | 20,097 | (18,776 | ) | 2,846 | | 39,391 | ||||||||||||||||||
Stockholders (deficit) equity attributable to HCA Healthcare, Inc. |
(7,302 | ) | (20,097 | ) | 38,857 | 8,285 | (27,045 | ) | (7,302 | ) | ||||||||||||||
Noncontrolling interests |
| | 156 | 1,513 | | 1,669 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(7,302 | ) | (20,097 | ) | 39,013 | 9,798 | (27,045 | ) | (5,633 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 27,922 | $ | | $ | 20,237 | $ | 12,644 | $ | (27,045 | ) | $ | 33,758 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-39
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2017
(Dollars in millions)
HCA
Healthcare, Inc. Issuer |
HCA Inc.
Issuer |
Subsidiary
Guarantors |
Subsidiary
Non- Guarantors |
Eliminations |
Condensed
Consolidated |
|||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net income (loss) |
$ | 2,216 | $ | (1,973 | ) | $ | 4,028 | $ | 948 | $ | (2,476 | ) | $ | 2,743 | ||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||||||||||
Change in operating assets and liabilities |
| (193 | ) | (2,437 | ) | (1,705 | ) | | (4,335 | ) | ||||||||||||||
Provision for doubtful accounts |
| | 2,218 | 1,821 | | 4,039 | ||||||||||||||||||
Depreciation and amortization |
| | 1,237 | 894 | | 2,131 | ||||||||||||||||||
Income taxes |
433 | | | | | 433 | ||||||||||||||||||
Gains on sales of facilities |
| | (2 | ) | (6 | ) | | (8 | ) | |||||||||||||||
Losses on retirement of debt |
| 39 | | | | 39 | ||||||||||||||||||
Amortization of debt issuance costs |
| 31 | | | | 31 | ||||||||||||||||||
Share-based compensation |
| | 270 | | | 270 | ||||||||||||||||||
Equity in earnings of affiliates |
(2,476 | ) | | | | 2,476 | | |||||||||||||||||
Other |
78 | | | 5 | | 83 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) operating activities |
251 | (2,096 | ) | 5,314 | 1,957 | | 5,426 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Purchase of property and equipment |
| | (1,681 | ) | (1,334 | ) | | (3,015 | ) | |||||||||||||||
Acquisition of hospitals and health care entities |
| | (26 | ) | (1,186 | ) | | (1,212 | ) | |||||||||||||||
Disposal of hospitals and health care entities |
| | 14 | 11 | | 25 | ||||||||||||||||||
Change in investments |
| | (1 | ) | (72 | ) | | (73 | ) | |||||||||||||||
Other |
| | | (4 | ) | | (4 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
| | (1,694 | ) | (2,585 | ) | | (4,279 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Issuance of long-term debt |
| 1,500 | | 2 | | 1,502 | ||||||||||||||||||
Net change in revolving bank credit facilities |
| 760 | | | | 760 | ||||||||||||||||||
Repayment of long-term debt |
| (628 | ) | (77 | ) | (48 | ) | | (753 | ) | ||||||||||||||
Distributions to noncontrolling interests |
| | (140 | ) | (308 | ) | | (448 | ) | |||||||||||||||
Payment of debt issuance costs |
| (26 | ) | | | | (26 | ) | ||||||||||||||||
Repurchases of common stock |
(2,051 | ) | | | | | (2,051 | ) | ||||||||||||||||
Changes in intercompany balances with affiliates, net |
1,867 | 490 | (3,404 | ) | 1,047 | | | |||||||||||||||||
Other |
(66 | ) | | | 21 | | (45 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash (used in) provided by financing activities |
(250 | ) | 2,096 | (3,621 | ) | 714 | | (1,061 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Change in cash and cash equivalents |
1 | | (1 | ) | 86 | | 86 | |||||||||||||||||
Cash and cash equivalents at beginning of period |
| | 113 | 533 | | 646 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at end of period |
$ | 1 | $ | | $ | 112 | $ | 619 | $ | | $ | 732 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-40
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(Dollars in millions)
HCA
Healthcare, Inc. Issuer |
HCA Inc.
Issuer |
Subsidiary
Guarantors (as adjusted) |
Subsidiary
Non- Guarantors (as adjusted) |
Eliminations |
Condensed
Consolidated |
|||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net income (loss) |
$ | 2,890 | $ | (1,586 | ) | $ | 3,741 | $ | 1,125 | $ | (2,738 | ) | $ | 3,432 | ||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||||||||||
Change in operating assets and liabilities |
(25 | ) | 39 | (2,180 | ) | (1,049 | ) | | (3,215 | ) | ||||||||||||||
Provision for doubtful accounts |
| | 2,041 | 1,216 | | 3,257 | ||||||||||||||||||
Depreciation and amortization |
| | 1,141 | 825 | | 1,966 | ||||||||||||||||||
Income taxes |
123 | | | | | 123 | ||||||||||||||||||
Losses (gains) on sales of facilities |
| | 4 | (27 | ) | | (23 | ) | ||||||||||||||||
Losses on retirement of debt |
| 4 | | | | 4 | ||||||||||||||||||
Legal claim benefits |
| (246 | ) | | | | (246 | ) | ||||||||||||||||
Amortization of debt issuance costs |
1 | 33 | | | | 34 | ||||||||||||||||||
Share-based compensation |
| | 251 | | | 251 | ||||||||||||||||||
Equity in earnings of affiliates |
(2,738 | ) | | | | 2,738 | | |||||||||||||||||
Other |
71 | | | (1 | ) | | 70 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) operating activities |
322 | (1,756 | ) | 4,998 | 2,089 | | 5,653 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Purchase of property and equipment |
| | (1,554 | ) | (1,206 | ) | | (2,760 | ) | |||||||||||||||
Acquisition of hospitals and health care entities |
| | (199 | ) | (377 | ) | | (576 | ) | |||||||||||||||
Disposal of hospitals and health care entities |
| | 10 | 16 | | 26 | ||||||||||||||||||
Change in investments |
| | (15 | ) | 79 | | 64 | |||||||||||||||||
Other |
| | | 6 | | 6 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
| | (1,758 | ) | (1,482 | ) | | (3,240 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Issuance of long-term debt |
| 5,400 | | | | 5,400 | ||||||||||||||||||
Net change in revolving bank credit facilities |
| (110 | ) | | | | (110 | ) | ||||||||||||||||
Repayment of long-term debt |
| (4,358 | ) | (74 | ) | (43 | ) | | (4,475 | ) | ||||||||||||||
Distributions to noncontrolling interests |
| | (64 | ) | (370 | ) | | (434 | ) | |||||||||||||||
Payment of debt issuance costs |
| (40 | ) | | | | (40 | ) | ||||||||||||||||
Repurchases of common stock |
(2,751 | ) | | | | | (2,751 | ) | ||||||||||||||||
Changes in intercompany balances with affiliates, net |
2,532 | 864 | (3,149 | ) | (247 | ) | | | ||||||||||||||||
Other |
(103 | ) | | | 5 | | (98 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash (used in) provided by financing activities |
(322 | ) | 1,756 | (3,287 | ) | (655 | ) | | (2,508 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Change in cash and cash equivalents |
| | (47 | ) | (48 | ) | | (95 | ) | |||||||||||||||
Cash and cash equivalents at beginning of period |
| | 160 | 581 | | 741 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents at end of period |
$ | | $ | | $ | 113 | $ | 533 | $ | | $ | 646 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-41
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2015
(Dollars in millions)
HCA
Healthcare, Inc. Issuer |
HCA Inc.
Issuer |
Subsidiary
Guarantors (as adjusted) |
Subsidiary
Non- Guarantors (as adjusted) |
Eliminations |
Condensed
Consolidated |
|||||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||||||
Net income (loss) |
$ | 2,129 | $ | (1,625 | ) | $ | 3,442 | $ | 1,102 | $ | (2,352 | ) | $ | 2,696 | ||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||||||||||
Change in operating assets and liabilities |
(12 | ) | 44 | (2,786 | ) | (1,482 | ) | | (4,236 | ) | ||||||||||||||
Provision for doubtful accounts |
| | 2,329 | 1,584 | | 3,913 | ||||||||||||||||||
Depreciation and amortization |
| | 1,085 | 819 | | 1,904 | ||||||||||||||||||
Income taxes |
(160 | ) | | | | | (160 | ) | ||||||||||||||||
Losses on sales of facilities |
| | | 5 | | 5 | ||||||||||||||||||
Losses on retirement of debt |
122 | 13 | | | | 135 | ||||||||||||||||||
Legal claim costs |
20 | 129 | | | | 149 | ||||||||||||||||||
Amortization of debt issuance costs |
3 | 32 | | | | 35 | ||||||||||||||||||
Share-based compensation |
| | 239 | | | 239 | ||||||||||||||||||
Equity in earnings of affiliates |
(2,352 | ) | | | | 2,352 | | |||||||||||||||||
Other |
66 | 3 | (5 | ) | (10 | ) | | 54 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash (used in) provided by operating activities |
(184 | ) | (1,404 | ) | 4,304 | 2,018 | | 4,734 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||
Purchase of property and equipment |
| | (1,560 | ) | (815 | ) | | (2,375 | ) | |||||||||||||||
Acquisition of hospitals and health care entities |
| | (51 | ) | (300 | ) | | (351 | ) | |||||||||||||||
Disposal of hospitals and health care entities |
| | 48 | 25 | | 73 | ||||||||||||||||||
Change in investments |
| | 7 | 56 | | 63 | ||||||||||||||||||
Other |
| | (6 | ) | 13 | | 7 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
| | (1,562 | ) | (1,021 | ) | | (2,583 | ) | |||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||
Issuance of long-term debt |
| 5,548 | | | | 5,548 | ||||||||||||||||||
Net change in revolving bank credit facilities |
| 150 | | | | 150 | ||||||||||||||||||
Repayment of long-term debt |
(1,632 | ) | (3,189 | ) | (60 | ) | (39 | ) | | (4,920 | ) | |||||||||||||
Distributions to noncontrolling interests |
| | (85 | ) | (410 | ) | | (495 | ) | |||||||||||||||
Payment of debt issuance costs |
| (50 | ) | | | | (50 | ) | ||||||||||||||||
Repurchases of common stock |
(2,397 | ) | | | | | (2,397 | ) | ||||||||||||||||
Changes in intercompany balances with affiliates, net |
4,006 | (1,055 | ) | (2,526 | ) | (425 | ) | | | |||||||||||||||
Other |
207 | | | (19 | ) | | 188 | |||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
184 | 1,404 | (2,671 | ) | (893 | ) | | (1,976 | ) | |||||||||||||||
|
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|
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|
|
|
|
|
|
|
|
|||||||||||||
Change in cash and cash equivalents |
| | 71 | 104 | | 175 | ||||||||||||||||||
Cash and cash equivalents at beginning of period |
| | 89 | 477 | | 566 | ||||||||||||||||||
|
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|
|
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Cash and cash equivalents at end of period |
$ | | $ | | $ | 160 | $ | 581 | $ | | $ | 741 | ||||||||||||
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F-42
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
The above supplemental condensed consolidating financial information as of December 31, 2016, and for the years ended December 31, 2016 and 2015, has been adjusted to properly record the impact of certain subsidiaries that were non-guarantors becoming guarantors, primarily related to the Company acquiring previous noncontrolling interests of non-guarantor subsidiaries that then became guarantor subsidiaries. We believe the impact of these adjustments was immaterial as they had no impact to our consolidated income statements, balance sheets or statements of cash flows, had no impact on any liquidity measures of the Company, nor did they impact any financial ratios based on our consolidated balance sheets or income statements. There was also no impact to our loan covenant reporting or compliance. The impact of the adjustments was limited to reclassifications between the Subsidiary Guarantors and Subsidiary Non-Guarantors columns of the condensed consolidating financial statements. The application of these adjustments to the consolidating information for 2016 and 2015 is summarized as follows (dollars in millions):
As
Previously Reported |
Adjustment | As Adjusted | ||||||||||
Year ended December 31, 2016 |
||||||||||||
Net income (loss) attributable to HCA Healthcare, Inc.: |
||||||||||||
HCA Healthcare, Inc. Issuer |
$ | 2,890 | $ | | $ | 2,890 | ||||||
HCA Inc. Issuer |
(1,586 | ) | | (1,586 | ) | |||||||
Subsidiary Guarantors |
3,235 | 413 | 3,648 | |||||||||
Subsidiary Non-Guarantors |
1,089 | (413 | ) | 676 | ||||||||
Eliminations |
(2,738 | ) | | (2,738 | ) | |||||||
|
|
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|
|
|
|||||||
Condensed Consolidated |
$ | 2,890 | $ | | $ | 2,890 | ||||||
|
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|
|
|
As
Previously Reported |
Adjustment | As Adjusted | ||||||||||
December 31, 2016 |
||||||||||||
Total assets: |
||||||||||||
HCA Healthcare, Inc. Issuer |
$ | 27,922 | $ | | $ | 27,922 | ||||||
HCA Inc. Issuer |
| | | |||||||||
Subsidiary Guarantors |
14,714 | 5,523 | (a) | 20,237 | ||||||||
Subsidiary Non-Guarantors |
18,167 | (5,523 | )(a) | 12,644 | ||||||||
Eliminations |
(27,045 | ) | | (27,045 | ) | |||||||
|
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|
|
|
|
|||||||
Condensed Consolidated |
$ | 33,758 | $ | | $ | 33,758 | ||||||
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|
(a) | Amounts include $2,884 of goodwill and other intangible assets and $2,001 of property and equipment, net. |
F-43
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
As
Previously Reported |
Adjustment | As Adjusted | ||||||||||
December 31, 2016 |
||||||||||||
Total liabilities: |
||||||||||||
HCA Healthcare, Inc. Issuer |
$ | 35,224 | $ | | $ | 35,224 | ||||||
HCA Inc. Issuer |
20,097 | | 20,097 | |||||||||
Subsidiary Guarantors |
(23,194 | ) | 4,418 | (b) | (18,776 | ) | ||||||
Subsidiary Non-Guarantors |
7,264 | (4,418 | )(b) | 2,846 | ||||||||
Eliminations |
| | | |||||||||
|
|
|
|
|
|
|||||||
Condensed Consolidated |
$ | 39,391 | $ | | $ | 39,391 | ||||||
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|
|
(b) | Amounts include $3,952 of intercompany balances. |
As
Previously Reported |
Adjustment | As Adjusted | ||||||||||
Year ended December 31, 2016 |
||||||||||||
Net cash provided (used in) operating activities: |
||||||||||||
HCA Healthcare, Inc. Issuer |
$ | 322 | $ | | $ | 322 | ||||||
HCA Inc. Issuer |
(1,756 | ) | | (1,756 | ) | |||||||
Subsidiary Guarantors |
4,425 | 573 | 4,998 | |||||||||
Subsidiary Non-Guarantors |
2,662 | (573 | ) | 2,089 | ||||||||
Eliminations |
| | | |||||||||
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|
|
|
|||||||
Condensed Consolidated |
$ | 5,653 | $ | | $ | 5,653 | ||||||
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|
|
|
As
Previously Reported |
Adjustment | As Adjusted | ||||||||||
Year ended December 31, 2015 |
||||||||||||
Net income (loss) attributable to HCA Healthcare, Inc.: |
||||||||||||
HCA Healthcare, Inc. Issuer |
$ | 2,129 | $ | | $ | 2,129 | ||||||
HCA Inc. Issuer |
(1,625 | ) | | (1,625 | ) | |||||||
Subsidiary Guarantors |
2,970 | 380 | 3,350 | |||||||||
Subsidiary Non-Guarantors |
1,007 | (380 | ) | 627 | ||||||||
Eliminations |
(2,352 | ) | | (2,352 | ) | |||||||
|
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|||||||
Condensed Consolidated |
$ | 2,129 | $ | | $ | 2,129 | ||||||
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F-44
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER COLLATERAL-RELATED INFORMATION (continued)
As
Previously Reported |
Adjustment | As Adjusted | ||||||||||
Year ended December 31, 2015 |
||||||||||||
Net cash provided (used in) operating activities: |
||||||||||||
HCA Healthcare, Inc. Issuer |
$ | (184 | ) | $ | | $ | (184 | ) | ||||
HCA Inc. Issuer |
(1,404 | ) | | (1,404 | ) | |||||||
Subsidiary Guarantors |
3,772 | 532 | 4,304 | |||||||||
Subsidiary Non-Guarantors |
2,550 | (532 | ) | 2,018 | ||||||||
Eliminations |
| | | |||||||||
|
|
|
|
|
|
|||||||
Condensed Consolidated |
$ | 4,734 | $ | | $ | 4,734 | ||||||
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|
Healthtrust, Inc. The Hospital Company (Healthtrust) is the first-tier subsidiary of HCA Inc. The common stock of Healthtrust has been pledged as collateral for the senior secured credit facilities and senior secured notes described in Note 9. Rule 3-16 of Regulation S-X under the Securities Act requires the filing of separate financial statements for any affiliate of the registrant whose securities constitute a substantial portion of the collateral for any class of securities registered or being registered. We believe the separate financial statements requirement applies to Healthtrust due to the pledge of its common stock as collateral for the senior secured notes. Due to the corporate structure relationship of HCA and Healthtrust, HCAs operating subsidiaries are also the operating subsidiaries of Healthtrust. The corporate structure relationship, combined with the application of push-down accounting in Healthtrusts consolidated financial statements related to HCAs debt and financial instruments, results in the consolidated financial statements of Healthtrust being substantially identical to the consolidated financial statements of HCA. The consolidated financial statements of HCA and Healthtrust present the identical amounts for revenues, expenses, net income, assets, liabilities, total stockholders deficit, net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities. Certain individual line items in the HCA consolidated statements of stockholders deficit are combined into one line item in the Healthtrust consolidated statements of stockholders deficit.
Reconciliations of the HCA Healthcare, Inc. Consolidated Statements of Stockholders Deficit presentation to the Healthtrust, Inc. The Hospital Company Consolidated Statements of Stockholders Deficit presentation for the years ended December 31, 2017, 2016 and 2015 are as follows (dollars in millions):
2017 | 2016 | 2015 | ||||||||||
Presentation in HCA Healthcare, Inc. Consolidated Statements of Stockholders Deficit: |
||||||||||||
Share-based benefit plans |
$ | 281 | $ | 233 | $ | 523 | ||||||
Other |
(10 | ) | (2 | ) | (18 | ) | ||||||
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|
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Presentation in Healthtrust, Inc. The Hospital Company Consolidated Statements of Stockholders Deficit: |
||||||||||||
Distributions from HCA Healthcare, Inc., net of contributions to HCA Healthcare, Inc. |
$ | 271 | $ | 231 | $ | 505 | ||||||
|
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Due to the consolidated financial statements of Healthtrust being substantially identical to the consolidated financial statements of HCA, except for the items presented in the table above, the separate consolidated financial statements of Healthtrust are not presented.
F-45
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(Dollars in millions, except per share amounts)
2017 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Revenues |
$ | 10,623 | $ | 10,733 | $ | 10,696 | $ | 11,562 | ||||||||
Net income |
$ | 777 | (a) | $ | 795 | (b) | $ | 530 | (c) | $ | 641 | (d) | ||||
Net income attributable to HCA Healthcare, Inc. |
$ | 659 | (a) | $ | 657 | (b) | $ | 426 | (c) | $ | 474 | (d) | ||||
Basic earnings per share |
$ | 1.78 | $ | 1.79 | $ | 1.18 | $ | 1.34 | ||||||||
Diluted earnings per share |
$ | 1.74 | $ | 1.75 | $ | 1.15 | $ | 1.30 |
2016 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Revenues |
$ | 10,260 | $ | 10,319 | $ | 10,270 | $ | 10,641 | ||||||||
Net income |
$ | 811 | (e) | $ | 791 | (f) | $ | 745 | (g) | $ | 1,085 | (h) | ||||
Net income attributable to HCA Healthcare, Inc. |
$ | 694 | (e) | $ | 658 | (f) | $ | 618 | (g) | $ | 920 | (h) | ||||
Basic earnings per share |
$ | 1.75 | $ | 1.70 | $ | 1.63 | $ | 2.46 | ||||||||
Diluted earnings per share |
$ | 1.69 | $ | 1.65 | $ | 1.59 | $ | 2.39 |
(a) |
First quarter results include $1 million of gains on sales of facilities (See Note 3 of the notes to consolidated financial statements). |
(b) |
Second quarter results include $1 million of gains on sales of facilities (See Note 3 of the notes to consolidated financial statements). |
(c) |
Third quarter results include $4 million of gains on sales of facilities (See Note 3 of the notes to consolidated financial statements) and $25 million of losses on retirement of debt (See Note 9 of the notes to consolidated financial statements). |
(d) |
Fourth quarter results include $1 million of losses on sales of facilities (See Note 3 of the notes to consolidated financial statements). |
(e) |
First quarter results include $2 million of losses on sales of facilities (See Note 3 of the notes to consolidated financial statements) and $7 million of legal claim costs (See Note 10 of the notes to consolidated financial statements). |
(f) |
Second quarter results include $4 million of gains on sales of facilities (See Note 3 of the notes to consolidated financial statements) and $7 million of legal claim costs (See Note 10 of the notes to consolidated financial statements). |
(g) |
Third quarter results include $2 million of gains on sales of facilities (See Note 3 of the notes to consolidated financial statements), $2 million of losses on retirement of debt (See Note 9 of the notes to consolidated financial statements) and $7 million of legal claim costs (See Note 10 of the notes to consolidated financial statements). |
(h) |
Fourth quarter results include $15 million of gains on sales of facilities (See Note 3 of the notes to consolidated financial statements) and $176 million of legal claim benefits (See Note 10 of the notes to consolidated financial statements). |
F-46
Exhibit 10.40
Form of HCA Healthcare, Inc.
Stock Appreciation Rights Agreement
This STOCK APPRECIATION RIGHTS AGREEMENT (the Agreement ), dated as of (the Grant Date ) is made by and between HCA Healthcare, Inc., a Delaware corporation (together with its Subsidiaries and other Service Recipients, hereinafter referred to as the Company ), and the individual whose name is set forth below, who is an employee of the Company and hereinafter referred to as the Grantee . Any capitalized terms herein not otherwise defined in Article I shall have the meaning set forth in the 2006 Stock Incentive Plan for Key Employees of HCA Holdings, Inc. and its Affiliates, as amended and restated (the Plan ).
WHEREAS, the Company wishes to carry out the Plan, the terms of which are hereby incorporated by reference and made a part of this Agreement; and
WHEREAS, the Compensation Committee of the Board of Directors of the Company, including any subcommittee formed pursuant to Section 3(a) of the Plan, (or, if no such committee is appointed, the Board of Directors of the Company) (the Committee ) has determined that it would be to the advantage and best interest of the Company and its shareholders to grant an award of Stock Appreciation Rights ( SARs ) as provided for herein to the Grantee as an incentive for increased efforts during his or her term of office, employment or service with the Company, and has advised the Company thereof and instructed the undersigned officers to issue said SARs;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows:
STOCK APPRECIATION RIGHTS GRANT
Grantee: |
[Participant Name] |
|
[Participant Address] |
||
Aggregate number of SARs granted hereunder: |
[SAR Award] |
|
Base Price of all SARs granted hereunder: |
[Base Price] |
|
Grant Date of Award (Grant Date): |
[Grant Date] |
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary.
Section 1.1. Cause
Cause shall mean Cause as such term may be defined in any employment agreement or change-in-control agreement in effect at the time of termination of employment between the Grantee and the Company or, if there is no such employment or change-in-control agreement, Cause shall mean (i) willful and continued failure by Grantee (other than by reason of a Permanent Disability) to perform his or her material duties with respect to the Company which continues beyond ten (10) business days after a written demand for substantial performance is delivered to Grantee by the Company (the Cure Period ); (ii) willful or intentional engaging by Grantee in material misconduct that causes material and demonstrable injury, monetarily or otherwise, to the Company or its Affiliates; (iii) conviction of, or a plea of nolo contendere to, a crime constituting (x) a felony under the laws of the United States or any state thereof or (y) a misdemeanor for which a sentence of more than six months imprisonment is imposed; or (iv) Grantees engaging in any action in breach of restrictive covenants made by Grantee under any agreement containing restrictive covenants (e.g., covenants not to disclose confidential information, to compete with the business of the Company or to solicit the employees thereof to terminate their employment) or any employment or change-in-control agreement between the Grantee and the Company, which continues beyond the Cure Period (to the extent that, in the Boards reasonable judgment, such breach can be cured).
Section 1.2. Good Reason
Good Reason shall mean Good Reason as such term may be defined in any employment agreement or change-in-control agreement in effect at the time of termination of employment between the Grantee and the Company, or, if there is no such employment or change-in-control agreement, Good Reason shall mean (i) (A) a reduction in Grantees base salary (other than a general reduction in base salary that affects all similarly situated employees (defined as all employees within the same Company pay grade as that of Grantee) in substantially the same proportions that the Board implements in good faith after consultation with the Chief Executive Officer and Chief Operating Officer of the Company, if any); (B) a reduction in Grantees annual incentive compensation opportunity; or (C) the reduction of benefits payable to Grantee under the Companys Supplemental Executive Retirement Plan (if Grantee is a participant in such plan), in each case other than any isolated, insubstantial and
2
inadvertent failure by the Company that is not in bad faith and is cured within ten (10) business days after Grantee gives the Company written notice of such event; provided that the events described in (i)(A) or (i)(B) above will not be deemed to give rise to Good Reason if employment is terminated, but Grantee declines an offer of employment involving a loss of compensation of less than 15% from a purchaser, transferee, outsourced vendor, new operating entity or affiliated employer; (ii) a substantial diminution in Grantees title, duties and responsibilities, other than any isolated, insubstantial and inadvertent failure by the Company that is not in bad faith and is cured within ten (10) business days after Grantee gives the Company written notice of such event; or (iii) a transfer of Grantees primary workplace to a location that is more than twenty (20) miles from his or her workplace as of the date of this Agreement; provided that Good Reason shall not be deemed to occur merely because Grantees willful decision to change position or status within the Company causes one or more of the occurrences described in (i), (ii), or (iii) to come about.
Section 1.3. Permanent Disability
Permanent Disability shall mean Disability as such term is defined in any employment agreement between Grantee and the Company, or, if there is no such employment agreement, Disability as defined in the long-term disability plan of the Company.
Section 1.4. Retirement
Retirement shall mean Grantees resignation (other than for Good Reason) from service with the Company (i) after attaining 65 years of age or (ii) after attaining 55 years of age and completing ten (10) years of service with the Company.
Section 1.5. SARs
SARs shall mean the aggregate of the SARs granted under Section 2.1 of this Agreement.
Section 1.6. Secretary
Secretary shall mean the Secretary of the Company.
ARTICLE II
GRANT OF SARS
Section 2.1. Grant of SARs
For good and valuable consideration, on and as of the date hereof the Company grants to the Grantee an award of SARs (the Award ) on the terms
3
and conditions set forth in this Agreement. Each SAR represents the right to receive pursuant to this Agreement, upon exercise of the SAR, a payment from the Company in shares of Common Stock having a value equal to the excess of the Fair Market Value of one Share on the exercise date over the Base Price (as defined below).
Section 2.2. Base Price
Subject to Section 2.4, the base price of each SAR granted pursuant to this Agreement (the Base Price ) shall be as set forth on the first page of this Agreement.
Section 2.3. No Guarantee of Employment
Nothing in this Agreement or in the Plan shall confer upon the Grantee any right to continue in the employ of the Company nor interfere with or restrict in any way the rights of the Company, which are hereby expressly reserved, to terminate the employment of the Grantee at any time for any reason whatsoever, with or without cause, subject to the applicable provisions of, if any, the Grantees employment agreement with the Company or offer letter provided by the Company to the Grantee.
Section 2.4. Adjustments to SARs
The SARs shall be subject to the adjustment provisions of Sections 8 and 9 of the Plan, provided , however , that in the event of the payment of an extraordinary dividend by the Company to its stockholders, then: first , the Base Price of each SAR shall be reduced by the amount of the dividend per share paid, but only to the extent the Committee determines it to be permitted under applicable tax laws and it will not have adverse tax consequences to the Grantee; and, if such reduction cannot be fully effected due to such tax laws, second , the Company shall pay to the Grantee a cash payment, on a per SAR basis, equal to the balance of the amount of the dividend not permitted to be applied to reduce the Base Price of the applicable SARs as follows: (a) for each Share with respect to which a vested SAR relates, promptly following the date of such dividend payment; and (b), for each Share with respect to which an unvested SAR relates, on the date on which such SAR becomes vested and exercisable with respect to such Share.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1. Commencement of Exercisability
(a) So long as the Grantee continues to be employed by the Company, this Award shall become vested and exercisable with respect to 25%
4
of the SARs on each of the first four anniversaries of the Grant Date (each such date, a Vesting Date ). Except as provided in Section 3.1(b) , or as otherwise provided by the Committee, no part of this Award shall become vested as to any additional SARs as of any date following the termination of Grantees employment with the Company for any reason and any SAR, which is (or determined to be) unvested as of the Grantees termination of employment, shall immediately expire without payment therefor.
(b) Notwithstanding the foregoing, upon the occurrence of a Change in Control (the definition of which is set forth on Schedule A attached hereto):
(1) In the event the entity surviving the Change in Control (the Successor ) assumes the Award granted hereby, if the Grantees employment with the Successor is terminated without Cause by the Successor, or terminates for Good Reason by the Grantee or on account of Grantees death or Permanent Disability prior to an applicable Vesting Date, all unvested SARs not previously forfeited shall immediately vest and become exercisable as of the date of such termination of employment for the applicable period set forth in Section 3.2.
(2) In the event the Successor does not assume the Award granted hereby, all unvested SARs not previously forfeited shall vest immediately prior to the effective date of the Change in Control, and shall be cancelled in exchange for the payment described in Section 9(a)(ii)(A) of the Plan as of the effective date of the Change in Control.
Section 3.2. Expiration of SARs
The Grantee may not exercise any SAR granted pursuant to this Award after the first to occur of the following events:
(a) The tenth anniversary of the Grant Date so long as the Grantee remains employed with the Company or a Successor through such date;
(b) The third anniversary of the date of the Grantees termination of employment with the Company or a Successor, if the Grantees employment terminates by reason of death or Permanent Disability;
(c) Immediately upon the date of the Grantees termination of employment by the Company or a Successor for Cause;
(d) One hundred and eighty (180) days after the date of the Grantees termination of employment by the Company or a Successor without Cause (for any reason other than as set forth in Section 3.2(b));
(e) One hundred and eighty (180) days after the date of the Grantees termination of employment with the Company or a Successor by the Grantee for Good Reason;
5
(f) The third anniversary of the date of the Grantees termination of employment with the Company or a Successor by the Grantee upon Retirement; or
(g) Sixty (60) days after the date of the Grantees termination of employment with the Company or a Successor by the Grantee without Good Reason (except due to Retirement, death or Permanent Disability).
For the avoidance of doubt, for purposes of this Agreement, Grantees employment shall not be deemed to have terminated so long as Grantee remains employed by any Service Recipient.
ARTICLE IV
EXERCISE
Section 4.1. Person Eligible to Exercise
The Grantee may exercise only that portion of this Award that has both vested and become exercisable at the time Grantee desires to exercise this Award and that has not expired pursuant to Section 3.2. During the lifetime of the Grantee, only the Grantee (or his or her duly authorized legal representative) may exercise the SARs granted pursuant to this Award or any portion thereof. After the death of the Grantee, any vested and exercisable portion of this Award may, prior to the time when such portion becomes unexercisable under Section 3.2, be exercised by his personal representative or by any person empowered to do so under the Grantees will or under the then applicable laws of descent and distribution.
Section 4.2. Partial Exercise
Any vested and exercisable portion of this Award, or the entire Award, if then wholly vested and exercisable, may be exercised in whole or in part at any time prior to the time when the Award or portion thereof becomes unexercisable under Section 3.2.
Section 4.3. Manner of Exercise
Subject to the Companys code of conduct and securities trading policies as in effect from time to time, this Award, or any exercisable portion thereof, may be exercised solely by delivering to the Company or its designated agent all of the following prior to the time when the Award or such portion becomes unexercisable under Section 3.2:
6
(a) Notice in writing (or such other medium acceptable to the Company or its designated agent) signed or acknowledged by the Grantee or other person then entitled to exercise the Award, stating the number of SARs subject to the Award in respect of which the Award is thereby being exercised, such notice complying with all applicable rules established by the Committee;
(b) (i) Full payment (in cash or by check or by a combination thereof) to satisfy the minimum withholding tax obligation with respect to which the Award or portion thereof is exercised or (ii) indication that the Grantee elects to satisfy the withholding tax obligation through an arrangement that is compliant with the Sarbanes-Oxley Act of 2002 (and any other applicable laws and exchange rules) and that provides for the delivery of irrevocable instructions to a broker to sell Shares obtained upon the exercise of the Award and to deliver promptly to the Company an amount to satisfy the minimum withholding tax obligation that would otherwise be required to be paid by the Grantee to the Company pursuant to clause (i) of this subsection (b), or (iii) if made available by the Company, indication that the Grantee elects to have the number of Shares that would otherwise be issued to the Grantee upon exercise of such Award (or portion thereof) reduced by a number of Shares having an aggregate Fair Market Value, on the date of such exercise, equal to the payment to satisfy the minimum withholding tax obligation that would otherwise be required to be made by the Grantee to the Company pursuant to clause (i) of this subsection (b).
(c) If required by the Company, a bona fide written representation and agreement, in a form satisfactory to the Company, signed by the Grantee or other person then entitled to exercise such Award or portion thereof, stating that the shares of Common Stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act of 1933, as amended (the Act ), and then applicable rules and regulations thereunder, and that the Grantee or other person then entitled to exercise such Award or portion thereof will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above; provided, however, that the Company may, in its reasonable discretion, take whatever additional actions it deems reasonably necessary to ensure the observance and performance of such representation and agreement and to effect compliance with the Act and any other federal or state securities laws or regulations; and
(d) In the event the Award or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than the Grantee, appropriate proof of the right of such person or persons to exercise the Award.
Without limiting the generality of the foregoing, the Company may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on exercise of this Award (or portion thereof) does not violate
7
the Act, and may issue stop-transfer orders covering such Shares. Share certificates evidencing stock issued on exercise of any portion of this Award shall bear an appropriate legend referring to the provisions of subsection (c) above and the agreements herein. The written representation and agreement referred to in subsection (c) above shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Act, and such registration is then effective in respect of such shares.
Section 4.4. Conditions to Issuance of Stock Certificates
The Shares issuable (whether by certificate or otherwise) upon the exercise of this Award, or any portion thereof, may be either previously authorized but unissued Shares or issued Shares, which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable. If share certificates are to be issued, the Company shall not be required to issue or deliver any certificate or certificates for Shares purchased upon the exercise of this Award or portion thereof prior to fulfillment of all of the following conditions:
(a) The obtaining of approval or other clearance from any state or federal governmental agency which the Committee shall, in its reasonable and good faith discretion, determine to be necessary or advisable; and
(b) The lapse of such reasonable period of time following the exercise of the Award as the Committee may from time to time establish for reasons of administrative convenience or as may otherwise be required by applicable law.
Section 4.5. Rights as Stockholder
Except as otherwise provided in Section 2.4 of this Agreement, the holder of any SARs subject to this Award shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any Shares issuable upon the exercise of this Award or any portion thereof unless and until certificates representing such Shares shall have been issued by the Company to such holder, or the Company or its designated agent has otherwise recorded the appropriate book entries evidencing Grantees ownership of the Shares.
ARTICLE V
MISCELLANEOUS
Section 5.1. Administration
The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any
8
such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Grantee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Award. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.
Section 5.2. Award Not Transferable
No part of, or interest in, this Award shall be liable for the debts, contracts or engagements of the Grantee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution.
Section 5.3. Notices
Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary or its designee, and any notice to be given to the Grantee shall be addressed to him at the address (including an electronic address) reflected in the Companys books and records. By a notice given pursuant to this Section 5.3, either party may hereafter designate a different address for notices to be given to him. Any notice, which is required to be given to the Grantee, shall, if the Grantee is then deceased, be given to the Grantees personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.3. Any notice shall have been deemed duly given when (i) delivered in person, (ii) delivered in an electronic form approved by the Company, (iii) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service, or (iv) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with fees prepaid) in an office regularly maintained by FedEx, UPS, or comparable non-public mail carrier.
Section 5.4. Titles; Pronouns
Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates.
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Section 5.5. Applicability of Plan
The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. The terms of this Agreement are governed by the terms of the Plan, and in the case of any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern.
Section 5.6. Amendment
Subject to Section 10 of the Plan, this Agreement may be amended only by a writing executed by the parties hereto, which specifically states that it is amending this Agreement.
Section 5.7 Governing Law
The laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.
Section 5.8 Arbitration
In the event of any controversy among the parties hereto arising out of, or relating to, this Agreement which cannot be settled amicably by the parties, such controversy shall be finally, exclusively and conclusively settled by mandatory arbitration conducted expeditiously in accordance with the American Arbitration Association rules, by a single independent arbitrator. Such arbitration process shall take place within the Nashville, Tennessee metropolitan area. The decision of the arbitrator shall be final and binding upon all parties hereto and shall be rendered pursuant to a written decision, which contains a detailed recital of the arbitrators reasoning. Judgment upon the award rendered may be entered in any court having jurisdiction thereof. Each party shall bear its own legal fees and expenses, unless otherwise determined by the arbitrator. If the Grantee substantially prevails on any of his or her substantive legal claims, then the Company shall reimburse all legal fees and arbitration fees incurred by the Grantee to arbitrate the dispute.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.
HCA HEALTHCARE, INC. |
By: |
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Its: |
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Grantee: |
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(electronically accepted) |
11
Schedule A
Definition of Change in Control
For purposes of this Agreement, the term Change in Control shall mean, in lieu of any definition contained in the Plan:
(i) the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any Person or Group other than an employee benefit plan (or trust forming a part thereof) maintained by (1) the Company or (2) any corporation or other Person of which a majority of its voting power of its voting equity securities or equity interest is owned, directly or indirectly, by the Company (a Permitted Holder); or
(ii) any Person or Group, other than a Permitted Holder, becomes the Beneficial Owner (as such term is defined in Rule 13d-3 under the Exchange Act (or any successor rule thereto) (except that a Person shall be deemed to have beneficial ownership of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time)), directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company (or any entity which controls the Company), including by way of merger, consolidation, tender or exchange offer or otherwise; or
(iii) a reorganization, recapitalization, merger or consolidation (a Corporate Transaction) involving the Company, unless securities representing more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Company or the corporation resulting from such Corporate Transaction (or the parent of such corporation) are Beneficially Owned subsequent to such transaction by the Person or Persons who were the Beneficial Owners of the outstanding voting securities entitled to vote generally in the election of directors of the Company immediately prior to such Corporate Transaction, in substantially the same proportions as their ownership immediately prior to such Corporate Transaction; or
(iv) during any period of 12 months, individuals who at the beginning of such period constituted the Board (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company, then still in office, who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office.
Exhibit 10.41
Form of HCA Healthcare, Inc.
Performance Share Unit Agreement
This PERFORMANCE SHARE UNIT AGREEMENT (this Agreement) is made and entered into as of the day of , 20 (the Grant Date), between HCA Healthcare, Inc., a Delaware corporation (together with its Subsidiaries and Affiliates, as applicable, the Company), and [Participant Name] , (the Grantee). Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Companys 2006 Stock Incentive Plan for Key Employees of HCA Holdings, Inc. and its Affiliates, as Amended and Restated (the Plan).
WHEREAS, the Company has adopted the Plan, which permits the issuance of Other Stock-Based Awards, including an award that provides the right to receive Shares upon the completion of the attainment of performance objectives (a Performance Share Unit); and
WHEREAS, in the Compensation Committee of Board of Directors of the Company or a subcommittee thereof (or if no such committee is appointed, the Board of Directors of the Company) (each, the Committee) has determined that Grantee is entitled to an award thereunder, a portion of which is payable as a Performance Share Unit award under the Plan;
NOW, THEREFORE, the parties hereto agree as follows:
PERFORMANCE SHARE UNIT GRANT
Grantee: |
[Participant Name] |
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[Participant Address] |
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Target Number of Performance Share Units |
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Granted Hereunder (Target Award): |
[Award] |
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Grant Date: |
[Grant Date] |
1. Grant of Performance Share Unit Award .
1.1 The Company hereby grants to the Grantee the award (Award) of Performance Share Units (PSUs) set forth above on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan. A bookkeeping account will be maintained by the Company to keep track of the PSUs and any dividend equivalent units that may accrue as provided in Section 3 .
1.2 The Grantees rights with respect to the Award shall remain forfeitable at all times prior to the dates on which the PSUs shall vest in accordance with Section 2 hereof. This Award may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by Grantee other than by will or the laws of descent and distribution. Any sale, assignment, transfer, pledge, hypothecation, loan or other disposition other than in accordance with this Section 1.2 shall be null and void.
2. Vesting and Payment .
2.1 General . Except as provided in Section 2.2 , Section 2.3 or Section 2.4 , the Award shall vest as of the end of the Performance Period (as defined in this Section 2.1(a)) (the Normal Vesting Date), but only if (a) and to the extent the Company has achieved the performance targets over the period (the Performance Period) set forth on Exhibit A attached hereto as certified by the Committee, and (b) the Grantee has remained in service with the Company continuously until the Normal Vesting Date. The number of PSUs that vest may be greater than or less than the Target Award, as more specifically set forth on Exhibit A .
2.2 Death; Disability; Retirement; Involuntary Termination Without Cause .
(a) Notwithstanding Section 2.1 , in the event the Grantees employment with the Company terminates prior to the Normal Vesting Date on account of Grantees death, Grantee shall immediately vest in a number of PSUs equal to the Target Award, multiplied by a fraction, the numerator of which is the number of days during the Performance Period during which Grantee was employed by the Company, and the denominator of which is the total number of days in the Performance Period (such fraction, the Proration Factor); provided, that this Section 2.2(a) shall not apply if Grantees death occurs prior to the first anniversary of the Grant Date.
(b) Notwithstanding Section 2.1 , in the event of the Grantees employment with the Company terminates prior to the Normal Vesting Date on account of Grantees Permanent Disability, Grantee shall vest on the Normal Vesting Date in a number of PSUs equal to the number of PSUs that would have vested if the Grantee had remained employed with the Company until the Normal Vesting Date (based on the attainment of the performance targets determined by the Committee in accordance with Exhibit A hereto), multiplied by the Proration Factor; provided, that this Section 2.2(b) shall not apply if Grantees employment terminates prior to the first anniversary of the Grant Date. Any such PSUs shall settle at the time set forth in Section 2.5 as if they had vested on the Normal Vesting Date, or if earlier, upon the determination of the number of PSUs that shall be eligible to vest in connection with a Change in Control as described in Section 2.4 . For purposes of this Agreement, Permanent Disability shall have the meaning as set forth in any employment agreement between Grantee and the Company, or if there is no such employment agreement, as defined in the long-term disability plan of the Company.
(c) Notwithstanding Section 2.1 , in the event Grantees employment terminates on account of Retirement or as a result of an involuntary termination without Cause by the Company, Grantee shall vest on the Normal Vesting Date in a number of PSUs equal to the number of PSUs that would have vested if the Grantee had remained employed with the Company until the Normal Vesting Date (based on the attainment of the performance targets determined by the Committee in accordance with Exhibit A hereto), multiplied by the Proration Factor; provided, that this Section 2.2(c) shall not apply if Grantees employment terminates prior to the first anniversary of the Grant Date. Subject to Section 2(d) , any such PSUs shall settle at the time set forth in Section 2.5 as if they had vested on the Normal Vesting Date, or if earlier, upon the determination of the number of PSUs that shall be eligible to vest in connection with a Change in Control as described in Section 2.4 .
For purposes of this Agreement, unless otherwise defined in any other contractual agreement between Grantee and the Successor, (1) Retirement means Grantees resignation from service with the Company (i) after attaining 65 years of age, or (ii) after attaining 55 years of age and completing ten years of service with the Company; and (2) Cause means Cause as such term may be defined in any employment agreement or change-in-control agreement in effect at the time of termination of employment between the Grantee and the Company, or, if there is no such employment or change-in-control agreement, Cause shall mean (i) willful and continued failure by Grantee (other than by reason of a Permanent Disability) to perform his or her material duties with respect to the Company which continues beyond ten (10) business days after a written demand for substantial performance is delivered to Grantee by the Company (the Cure Period); (ii) willful or intentional engaging by Grantee in material misconduct that causes material and demonstrable injury, monetarily or otherwise, to the Company; (iii) conviction of, or a plea of nolo contendere to, a crime constituting (x) a felony under the laws of the United States or any state thereof or (y) a misdemeanor for which a sentence of more than six months imprisonment is imposed; or (iv) Grantees engaging in any action in breach of restrictive covenants made by Grantee under any agreement containing restrictive covenants (e.g., covenants not to disclose confidential information, to compete with the business of the Company or to solicit the employees thereof to terminate their employment) or any employment or change-in-control agreement between the Grantee and the Company, which continues beyond the Cure Period (to the extent that, in the Company reasonable judgment, such breach can be cured).
(d) In the event Grantees employment has terminated as described in Section 2.2(b) or Section 2.2(c) , and Grantee subsequently dies more than six months prior to the Normal Vesting Date, the provisions of Section 2(b) or Section 2(c) shall be applied as if the performance targets had been achieved at the 100% Target Award level, and the applicable number of PSUs (after applying the applicable proration) shall immediately thereupon vest.
2.3 Termination of Employment . Except as provided in Section 2.2 , Section 2.4 or as otherwise provided by the Committee, if the Grantees service as an employee of the Company terminates for any reason, the Grantee shall forfeit all rights with respect to all PSUs that are not vested on such date.
2.4 Change in Control . Upon the occurrence of a Change in Control (the definition of which is set forth on Schedule A attached hereto),
(a) Subject to Section 2.4(c) , in the event the entity surviving the Change in Control (together with its Affiliates, the Successor) assumes the Award granted hereby, (1) any in process Performance Periods shall end upon the date immediately preceding the Change in Control, (2) the number of PSUs that shall be eligible to vest shall be the Target Award, (3) such Target Award shall vest on the Normal Vesting Date, provided that Grantee remains employed with the Successor through the Normal Vesting Date and (4) notwithstanding Section 2.3 and the previous clause, in the event the Grantees employment with the Successor is terminated without Cause by the Successor, or terminates for Good Reason by the Grantee or on account of Grantees death or Disability prior to the Normal Vesting Date, the Target Award shall immediately vest and the applicable shares be released to the Grantee (or Grantees estate or other legal representative) upon the Grantees termination of employment.
(b) In the event the Successor does not assume the Award granted hereby, a number of PSUs equal to the Target Award shall vest as of the effective date of the Change in Control and the appropriate number of Shares shall be released in accordance with Section 2.5 .
(c) In the event Grantee is Retirement eligible at the time of a Change in Control and the Successor assumes the Award granted hereby, a number of PSUs equal to the Target Award, multiplied by the Proration Factor applied as if the Grantees employment terminated on account of Retirement on the effective date of the Change in Control, shall vest as of the effective date of the Change in Control and the appropriate number of Shares shall be released in accordance with Section 2.5 . In addition, a number of PSUs equal to the difference between the Target Award and the number of PSUs settled on the effective date of the Change in Control shall remain unvested but shall become eligible to vest under terms and conditions similar to those set forth in Section 2.4(a)(3) and Section 2.4(a)(4) .
(d) For purposes of this Agreement, unless otherwise defined in any other contractual agreement between Grantee and the Successor, Good Reason shall mean Good Reason as such term may be defined in any employment agreement or change-in-control agreement in effect at the time of termination of employment between the Grantee and the Successor, or, if there is no such employment or change-in-control agreement, Good Reason shall mean (i) (A) a reduction in Grantees base salary (other than a general reduction in base salary that affects all similarly situated employees (defined as all employees within the same Successor pay grade as that of Grantee) in substantially the same proportions that the Successor implements in good faith, if
any); (B) a reduction in Grantees annual incentive compensation opportunity; or (C) the reduction of benefits payable to Grantee under the Companys Supplemental Executive Retirement Plan (if Grantee is a participant in such plan), in each case other than any isolated, insubstantial and inadvertent failure by the Successor that is not in bad faith and is cured within ten (10) business days after Grantee gives the Successor written notice of such event; provided that the events described in (i)(A) or (i)(B) above will not be deemed to give rise to Good Reason if employment is terminated, but Grantee declines an offer of employment involving a loss of compensation of less than 15% from the Successor; (ii) a substantial diminution in Grantees title, duties and responsibilities, other than any isolated, insubstantial and inadvertent failure by the Successor that is not in bad faith and is cured within ten (10) business days after Grantee gives the Successor written notice of such event; or (iii) a transfer of Grantees primary workplace to a location that is more than twenty (20) miles from his or her workplace as of the date of this Agreement; provided that Good Reason shall not be deemed to occur merely because Grantees willful decision to change position or status within the Successor causes one or more of the occurrences described in (i), (ii), or (iii) to come about. For purposes of this Section 2.4 , the definitions of Cause and Permanent Disability shall be applied with respect to the Successor as well as the Company.
2.5 Settlement . The Grantee shall be entitled to settlement of the PSUs covered by this Agreement at the time that such PSUs vest pursuant to Section 2.1 , Section 2.2 or Section 2.4 , as applicable, or if applicable, the date on which the Committee provides the certification set forth in Section 2.1(a) (any such date, the Settlement Date). Such settlement shall be made as promptly as practicable thereafter (but in no event after the thirtieth day following the Settlement Date), through the issuance to the Grantee (or to the executors or administrators of Grantees estate in the event of the Grantees death) of a stock certificate (or evidence such Shares have been registered in the name of the Grantee with the relevant stock agent) for a number of Shares equal to the number of such vested PSUs and any Dividend Equivalent Units that may have accrued pursuant to Section 3 hereof; provided, that any cash-based dividend equivalent rights granted pursuant to Section 3 hereof and any fractional Dividend Equivalent Units shall be paid in cash when (and only if) the PSUs to which they relate settle to the Grantee.
2.6 Withholding Obligations . Except as otherwise provided by the Committee, upon the settlement of any PSUs subject to this Award, the Company shall reduce the number of Shares (and the amount of cash, in the case of cash-based dividend equivalent rights) that would otherwise be issued to the Grantee upon settlement of the Award by a number of Shares (and cash, if applicable) having an aggregate Fair Market Value on the date of such issuance equal to the payment to satisfy the minimum withholding tax obligation of the Company with respect to which the Award is being settled.
3. Dividend Rights .
The Grantee shall receive dividend equivalent rights in respect of the PSUs covered by this Award at the time of any payment of dividends to stockholders on Shares. At the Companys option, the PSUs will be credited with either (a) additional Performance Share Units (the Dividend Equivalent Units) (including fractional units) for cash dividends paid on shares of the Companys Common Stock by (i) multiplying the cash dividend paid per Share by the number of PSUs (and previously credited Dividend Equivalent Units) outstanding and unpaid, and (ii) dividing the product determined above by the Fair Market Value of a Share, in each case, on the date the dividend record date, or (b) a cash amount equal to the amount that would be payable to the Grantee as a stockholder in respect of a number of Shares equal to the number of PSUs (and previously credited Dividend Equivalent Units) outstanding and unpaid as of the dividend record date; provided, that cash-based dividend equivalents shall be credited unless the Committee affirmatively elects to credit Dividend Equivalent Units. The PSUs will be credited with Dividend Equivalent Units for stock dividends paid on shares of the Companys Common Stock by multiplying the stock dividend paid per Share by the number of PSUs (and previously credited Dividend Equivalent Units) outstanding and unpaid on the dividend record date. Each Dividend Equivalent Unit shall have a value equal to one Share. Each Dividend Equivalent Unit or cash dividend equivalent right will vest and be settled or payable at the same time as the PSU to which the dividend equivalent right relates. For the avoidance of doubt, no dividend equivalent rights shall accrue under this Section 3 in the event that any dividend equivalent rights or other applicable adjustments pursuant to Section 5 hereof provide similar benefits.
4. No Right to Continued Service .
Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Grantee any right to continue service as an officer or employee of the Company.
5. Adjustments .
The provisions of Section 8 and Section 9 of the Plan are hereby incorporated by reference, and the PSUs (and any Dividend Equivalent Units) are subject to such provisions. Any determination made by the Committee or the Board pursuant to such provisions shall be made in accordance with the provisions of the Plan and shall be final and binding for all purposes of the Plan and this Agreement.
6. Administration Subject to Plan .
The Grantee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof. The terms of this Agreement are governed by the terms of the Plan, and in the case of any inconsistency between the terms of this Agreement and the terms of the Plan, the terms of the Plan shall govern. The Committee shall have the power to
interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Grantee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Award.
7. Modification of Agreement .
Subject to the restrictions contained in Sections 6 and 10 of the Plan, the Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, the Award, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would adversely affect the rights of the Grantee or any holder or beneficiary of the Award in more than a de minimis way shall not to that extent be effective without the consent of the Grantee, holder or beneficiary affected.
8. Section 409A .
Notwithstanding anything herein to the contrary, to the maximum extent permitted by applicable law, the settlement of the PSUs (including any dividend equivalent rights related thereto) to be made to the Grantee pursuant to this Agreement is intended to qualify as a short-term deferral pursuant to Section 1.409A-1(b)(4) of the Regulations and this Agreement shall be interpreted consistently therewith. However, under certain circumstances, settlement of the PSUs or any dividend equivalent rights may not so qualify, and in that case, the Committee shall administer the grant and settlement of such PSUs and any dividend equivalent rights in strict compliance with Section 409A of the Code. Further, notwithstanding anything herein to the contrary, if at the time of a Participants termination of employment with the Company and all Service Recipients, the Participant is a specified employee as defined in Section 409A of the Code, and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of service is necessary in order to prevent the imposition of any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to the Participant) to the minimum extent necessary to satisfy Section 409A of the Code until the date that is six months and one day following the Participants termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code), if such payment or benefit is payable upon a termination of employment. For purposes of this Agreement, a termination of employment shall have the same meaning as separation from service under Section 409A of the Code and Grantee shall be deemed to have remained employed so long as Grantee has not separated from service with the Company or Successor. Each payment of PSUs (and related dividend equivalent units) constitutes a separate payment for purposes of Section 409A of the Code.
9. Severability .
If any provision of this Agreement is, or becomes, or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or the Award, or would disqualify the Plan or Award under any laws deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award, and the remainder of the Plan and Award shall remain in full force and effect.
10. Governing Law .
The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of law principles thereof, except to the extent that such laws are preempted by Federal law.
11. Successors in Interest .
This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Grantees legal representatives. All obligations imposed upon the Grantee and all rights granted to the Company under this Agreement shall be binding upon the Grantees heirs, executors, administrators and successors.
12. Resolution of Disputes .
Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Grantee and the Company for all purposes.
13. Notices .
Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary or its designee, and any notice to be given to the Grantee shall be addressed to him at the address (including an electronic address) then reflected in the Companys books and records. By a notice given pursuant to this Section 13 , either party may hereafter designate a different address for notices to be given to him. Any notice, which is required to be given to the Grantee, shall, if the Grantee is then deceased, be given to the Grantees personal representative if such representative has previously informed the Company of his status and address by written notice
under this Section 13 . Any notice shall have been deemed duly given when (i) delivered in person, (ii) delivered in an electronic form approved by the Company, (iii) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service, or (iv) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with fees prepaid) in an office regularly maintained by FedEx, UPS, or comparable non-public mail carrier.
IN WITNESS WHEREOF, the parties have caused this Performance Share Unit Agreement to be duly executed effective as of the day and year first above written.
HCA Healthcare, Inc. |
By: |
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Grantee: |
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(electronically accepted) |
Schedule A
Definition of Change in Control
For purposes of this Agreement, the term Change in Control shall mean, in lieu of any definition contained in the Plan:
(i) the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any Person or Group other than an employee benefit plan (or trust forming a part thereof) maintained by (1) the Company or (2) any corporation or other Person of which a majority of its voting power of its voting equity securities or equity interest is owned, directly or indirectly, by the Company (a Permitted Holder); or
(ii) any Person or Group, other than a Permitted Holder, becomes the Beneficial Owner (as such term is defined in Rule 13d-3 under the Exchange Act (or any successor rule thereto) (except that a Person shall be deemed to have beneficial ownership of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time)), directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company (or any entity which controls the Company), including by way of merger, consolidation, tender or exchange offer or otherwise; or
(iii) a reorganization, recapitalization, merger or consolidation (a Corporate Transaction) involving the Company, unless securities representing more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Company or the corporation resulting from such Corporate Transaction (or the parent of such corporation) are Beneficially Owned subsequent to such transaction by the Person or Persons who were the Beneficial Owners of the outstanding voting securities entitled to vote generally in the election of directors of the Company immediately prior to such Corporate Transaction, in substantially the same proportions as their ownership immediately prior to such Corporate Transaction; or
(iv) during any period of 12 months, individuals who at the beginning of such period constituted the Board (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company, then still in office, who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office.
Exhibit A
HCA Healthcare, Inc.
2018 Performance Share Unit Award
Performance Targets
1. Target Award . The target number of PSUs for the Grantee is as set forth on the first page of the Award Agreement. For the avoidance of doubt, all percentages associated with the Award shall be of the Target Award.
2. Performance Period . The Performance Period for this Award shall begin on January 1, 2018 and end on December 31, 2020.
3. Performance Goal . The Performance Goal for this Award is Cumulative EPS over the Performance Period. For purposes of this Exhibit A, Cumulative EPS means the sum of the Companys diluted earnings per share of each of the three fiscal years of the Company within the Performance Period as reported in the Companys audited financial statements for each such year, adjusted to exclude the effects of: (a) gains or losses on sales of facilities, (b) gains or losses on extinguishment of debt, (c) asset or investment impairment charges, (d) legal claim costs (disclosed as separate line item in consolidated income statement), (e) expenses, or adjustments to expenses, for share-based compensation recognized under ASC Topic 718 related to the Performance Share Units that results from EPS performance above or below the Target EPS during the Performance Period, (f) gains or losses on acquisition or disposition of controlling interest in equity investment or consolidated entity, and (g) any other gains, expenses or losses resulting from significant, unusual and/or nonrecurring events, as described in managements discussion and analysis of financial condition and results of operations appearing in the Companys annual report for the applicable fiscal year, as determined in good faith by the Board or the Committee.
4. Percentage of PSUs Earned . Following the end of the Performance Period, the Committee will determine the extent to which PSUs have become earned and shall vest according to the following schedule:
Cumulative EPS |
Percentage of Target PSUs Earned |
|
Greater than or equal to 120% of Target EPS |
200% | |
100% of Target EPS |
100% | |
80% of Target EPS |
25% | |
Less than 80% of Target EPS |
0% |
Thus, up to 200% of the Target Award may be earned if maximum performance is achieved for the Performance Period. Vesting related to performance between the percentages of Target EPS listed above will be determined by straight line interpolation. Any PSUs not earned and vested as provided above on the applicable determination date shall be forfeited.
Exhibit 21
ALABAMA
CareOne Home Health Services, Inc.
Four Rivers Medical Center PHO, Inc.
Selma Medical Center Hospital, Inc.
ALASKA
Alaska Regional Medical Group, LLC
Anchorage Surgicenter, LLC
Chugach PT, Inc.
Columbia Behavioral Healthcare, Inc.
Columbia North Alaska Healthcare, Inc.
Surgicare of Anchorage, LLC
ARIZONA
DS Real Estate Holdings, LLC
Urgent Care Extra - Ann & Simmons, LLC
Urgent Care Extra - Cactus & Southern Highlands, LLC
Urgent Care Extra - Charleston & Decatur, LLC
Urgent Care Extra - Charleston/Sloan, LLC
Urgent Care Extra - Craig & Clayton, LLC
Urgent Care Extra - Craig & Decatur, LLC
Urgent Care Extra - Durango & Cheyenne, LLC
Urgent Care Extra - Durango & Flamingo, LLC
Urgent Care Extra - Eastern & Horizon Ridge, LLC
Urgent Care Extra - Rainbow/Mardon, LLC
Urgent Care Extra - Warm Springs & Green Valley, LLC
Urgent Care Extra - Tropicana & Jones, LLC
ARKANSAS
Columbia Health System of Arkansas, Inc.
BERMUDA
Parthenon Insurance Company, Limited
CALIFORNIA
Center for Advanced Imaging, LLC
CFC Investments, Inc.
CH Systems
Chino Community Hospital Corporation, Inc.
Columbia ASC Management, L.P.
Columbia Riverside, Inc.
Columbia/HCA San Clemente, Inc.
Encino Hospital Corporation, Inc.
Far West Division, Inc.
Galen-Soch, Inc.
Good Samaritan Surgery Center, L.P.
HCA Health Services of California, Inc.
Healdsburg General Hospital, Inc.
L E Corporation
Las Encinas Hospital
Los Gatos Surgical Center, a California Limited Partnership
Los Robles Regional Medical Center
Los Robles Regional Medical Center MOB, LLC
Los Robles SurgiCenter, LLC
MCA Investment Company
Mission Bay Memorial Hospital, Inc.
Neuro Affiliates Company
Pacific Partners Management Services, Inc.
Riverside Healthcare System, L.P.
Riverside Holdings, Inc.
San Joaquin Surgical Center, Inc.
San Jose Pathology Outreach, LLC
Silicon Valley Health Holdings, LLC
Southwest Surgical Clinic, Inc.
Surgicare of Good Samaritan, LLC
Surgicare of Los Gatos, Inc.
Surgicare of Los Robles, LLC
Surgicare of Riverside, LLC
Surgicare of West Hills, Inc.
West Hills Hospital
West Hills Surgical Center, Ltd.
West Los Angeles Physicians Hospital, Inc.
Westminster Community Hospital
COLORADO
Altitude Mid Level Providers, LLC
Arapahoe Surgicenter, LLC
Center for Advanced Diagnostics LLC
Centrum Surgery Center, Ltd.
Clear Creek Surgery Center, LLC
Colorado Health Systems, Inc.
Columbine Psychiatric Center, Inc.
Continental Division I, Inc.
Denver Mid-Town Surgery Center, Ltd.
Denver Surgicenter, LLC
Diagnostic Mammography Services, G.P.
Galen of Aurora, Inc.
HCA-HealthONE LLC
Health Care Indemnity, Inc.
HealthONE at Breckenridge, LLC
HealthONE Aurora Investment, LLC
HealthONE CareNow Urgent Care, LLC
HealthONE Clear Creek, LLC
HealthONE Clinic Services - Bariatric Medicine, LLC
HealthONE Clinic Services - Behavioral Health, LLC
HealthONE Clinic Services - Cancer Care LLC
HealthONE Clinic Services - Cancer Specialties, LLC
HealthONE Clinic Services - Cardiovascular, LLC
HealthONE Clinic Services - Medical Specialties, LLC
HealthONE Clinic Services - Neurosciences, LLC
HealthONE Clinic Services - Obstetrics and Gynecology, LLC
HealthONE Clinic Services - Occupational Medicine, LLC
HealthONE Clinic Services - Oncology Hematology, LLC
HealthONE Clinic Services - Orthopedic Specialists, LLC
HealthONE Clinic Services - Otolaryngology Specialists, LLC
HealthONE Clinic Services - Pediatric Cardiovascular Surgery, LLC
HealthONE Clinic Services - Pediatric Specialties, LLC
HealthONE Clinic Services - Primary Care, LLC
HealthONE Clinic Services - Spine Specialists, LLC
HealthONE Clinic Services - Spine Surgeons LLC
HealthONE Clinic Services - Surgery Neurological, LLC
HealthONE Clinic Services - Surgical Specialties, LLC
HealthONE Clinic Services - Transplant Services, LLC
HealthONE Clinic Services - Womens Services, LLC
HealthONE Clinic Services - Youth Rehabilitation LLC
HealthONE Clinic Services LLC
HealthOne Heart Care LLC
HealthONE High Street Primary Care Center, LLC
HealthONE Institutes for Clinical Research, LLC
HealthONE IRL Pathology Services, LLC
HealthOne Lincoln Investment, LLC
HealthONE Lowry, LLC
HealthONE of Denver, Inc.
HealthONE Radiation Therapy at Red Rocks, LLC
HealthONE Radiation Therapy at Thornton, LLC
HealthONE Ridge View Endoscopy Center, LLC
HealthONE Surgicare of Ridge View, LLC
HealthONE Urologic, LLC
HealthOne Westside Investment, LLC
Hospital-Based CRNA Services, Inc.
Lakewood Surgicare, Inc.
Lincoln Surgery Center, LLC
Lowry Surgery Center, LLC
Medical Care America Colorado, LLC
Medical Imaging of Colorado LLC
Mountain View MRI Associates, Ltd.
MOVCO, Inc.
New Rose Holding Company, Inc.
North Suburban Spine Center, L.P.
North Suburban Surgery Center, L.P.
P/SL Hyperbaric Partnership
Park Ridge Surgery Center, LLC
Proaxis Therapy HealthOne LLC
Red Rocks Surgery Center, LLC
Rocky Mountain Pediatric Hematology Oncology, LLC
Rocky Mountain Surgery Center, LLC
Rose Ambulatory Surgery Center, L.P.
Rose Health Partners, LLC
Rose Medical Plaza, Ltd.
Rose POB, Inc.
Sky Ridge Spine Manager, LLC
Sky Ridge Surgery Center, L.P.
Sky Ridge Womens Center, LLC
Southwest Medpro, Ltd.
Surgery Center of the Rockies, LLC
Surgicare of Arapahoe, LLC
Surgicare of Denver Mid-Town, Inc.
Surgicare of Denver, LLC
Surgicare of North Suburban, LLC
Surgicare of Park Ridge, LLC
Surgicare of Rose, LLC
Surgicare of Sky Ridge Womens Center, LLC
Surgicare of Sky Ridge, LLC
Surgicare of Southeast Denver, Inc.
Surgicare of Swedish, LLC
Surgicare of Thornton, LLC
Swedish Medpro, Inc.
Swedish MOB I, Ltd.
Swedish MOB II, Inc.
Swedish MOB III, Inc.
Swedish MOB IV, Inc.
Swedish MOB, LLC
Urology Surgery Center of Colorado, LLC
DELAWARE
AC Med, LLC
ADC Surgicenter, LLC
Aligned Business Consortium Group, L.P.
Alliance Surgicare, LLC
Alpharetta Imaging Services, LLC
Alternaco, LLC
American Medicorp Development Co.
Ami-Point GA, LLC
AOGN, LLC
Appledore Medical Group, Inc.
AR Holding 1, LLC
AR Holding 2, LLC
AR Holding 4, LLC
AR Holding 5, LLC
AR Holding 6, LLC
AR Holding 7, LLC
AR Holding 8, LLC
AR Holding 9, LLC
AR Holding 10, LLC
AR Holding 11, LLC
AR Holding 12, LLC
AR Holding 13, LLC
AR Holding 14, LLC
AR Holding 15, LLC
AR Holding 16, LLC
AR Holding 17, LLC
AR Holding 18, LLC
AR Holding 19, LLC
AR Holding 20, LLC
AR Holding 21, LLC
AR Holding 22, LLC
AR Holding 23, LLC
AR Holding 24, LLC
AR Holding 25, LLC
AR Holding 26, LLC
AR Holding 27, LLC
AR Holding 28, LLC
AR Holding 29, LLC
AR Holding 30, LLC
AR Holding 31, LLC
Arkansas Medical Park, LLC
ASD Shared Services, LLC
Atlanta Healthcare Management, L.P.
Atlanta Market GP, Inc.
Atlanta Orthopaedic Surgical Center, Inc.
Augusta CyberKnife, LLC
Augusta Management Services, LLC
Aventura Cancer Center Manager, LLC
Bay Area Surgicenter, LLC
Bayshore Partner, LLC
Belton Family Practice Clinic, LLC
Boca Raton Open Imaging Center, LLC
Boynton Beach EFL Imaging Center, LLC
Bradenton Outpatient Services, LLC
Brandon Imaging Manager, LLC
Brandon Regional Cancer Center, LLC
Brighton Surgicenter, LLC
C/HCA Capital, Inc.
C/HCA, Inc.
California Imaging Center Manager, LLC
California Urgent Care, LLC
Cancer Centers of North Florida, LLC
Cancer Services of Aventura, LLC
Capital Division - CCA, Inc.
CareSpot of Brentwood (210 Franklin Road), LLC
CareSpot of Cool Springs (100 International Drive), LLC
CareSpot of Donelson (2372 Lebanon Road), LLC
CareSpot of Hendersonville (200 N. Anderson Lane), LLC
CareSpot of Hendersonville (280 Indian Lake Boulevard), LLC
CareSpot of Hermitage (5225 Old Hickory Boulevard), LLC
CareSpot of Lebanon (1705 West Main Street), LLC
CareSpot of Mt. Juliet (S. Mt. Juliet Road), LLC
CareSpot of Murfreesboro (1340 Broad Street), LLC
CareSpot of Nashville (2001 Glen Echo Road), LLC
CareSpot of Nashville (West End Avenue), LLC
CareSpot Professional Services of Middle Tennessee, LLC
Carolina Forest Imaging Manager, LLC
Centennial CyberKnife Center, LLC
Centennial CyberKnife Manager, LLC
Centerpoint Medical Center of Independence, LLC
Central Florida Diagnostic Cardiology Center, LLC
Central Florida Imaging Services, LLC
Central Florida Management Services, LLC
Central Health Holding Company, Inc.
Central Health Services Hospice, Inc.
Charleston CareNow Urgent Care, LLC
Chattanooga ASC, LLC
CHC Finance Co.
CHC Payroll Agent, Inc.
CHCA Bayshore, L.P.
CHCA Clear Lake, L.P.
CHCA Conroe, L.P.
CHCA Hospital LP, Inc.
CHCA Mainland, L.P.
CHCA West Houston, L.P.
CHCA Womans Hospital, L.P.
Clear Lake Cardiac Catheterization Center, L.P.
Clear Lake Cardiac GP, LLC
Clear Lake Merger, LLC
Clear Lake Regional Partner, LLC
ClinicServ, LLC
Coastal Bend Hospital, Inc.
Coastal Healthcare Services, Inc.
Cobb Imaging Services, LLC
Coliseum Health Group, LLC
Coliseum Medical Center, LLC
Coliseum Surgery Center, L.L.C.
Columbia Behavioral Health, LLC
Columbia Hospital Corporation of Fort Worth
Columbia Hospital Corporation of Houston
Columbia Hospital Corporation-Delaware
Columbia Palm Beach GP, LLC
Columbia Rio Grande Healthcare, L.P.
Columbia Valley Healthcare System, L.P.
Columbia Westbank Healthcare, L.P.
Columbia/HCA Middle East Management Company
Columbia-SDH Holdings, Inc.
Columbus Cath Lab, Inc.
Columbus Cath Lab, LLC
Concept EFL Imaging Center, LLC
Concept West EFL Imaging Center, LLC
Conroe Partner, LLC
CoralStone Management, Inc.
COSCORP, LLC
CPS TN Processor 1, Inc.
CRMC-M, LLC
Cy-Fair Medical Center Hospital, LLC
Dallas/Ft. Worth Physician, LLC
Delray EFL Imaging Center, LLC
Denver Clinic Surgicenter, LLC
Doctors Hospital of Augusta, LLC
Douglasville Imaging Services, LLC
East Florida CareNow Urgent Care, LLC
East Florida Imaging Holdings, LLC
Eastern Idaho Brachytherapy Equipment Manager, LLC
Eastern Idaho Brachytherapy Equipment, LLC
EASTSIDE URGENT CARE LLC
EMMC, LLC
EP Health, LLC
EP Holdco, LLC
EPIC Development, Inc.
EPIC Diagnostic Centers, Inc.
EPIC Healthcare Management Company
EPIC Surgery Centers, Inc.
Fairview Park GP, LLC
Fairview Partner, LLC
Family Care of E. Jackson County, LLC
FHAL, LLC
Focus Hand Surgicenter, LLC
Forest Park Surgery Pavilion, Inc.
Forest Park Surgery Pavilion, L.P.
Fort Bend Hospital, Inc.
Frisco Surgicare, LLC
GA Urgentcare Holding LLC
Galen (Kansas) Merger, LLC
Galen BH, Inc.
Galen Finance, LLC
Galen Global Finance, Inc.
Galen GOK, LLC
Galen Holdco, LLC
Galen Hospital Alaska, Inc.
Galen International Capital, Inc.
Galen International Holdings, Inc.
Galen KY, LLC
Galen MCS, LLC
Galen Medical Corporation
Galen MRMC, LLC
Galen NMC, LLC
Galen NSH, LLC
Galen SOM, LLC
Galen SSH, LLC
Galendeco, Inc.
GalTex, LLC
Garden Park Community Hospital Limited Partnership
Gardens EFL Imaging Center, LLC
GenoSpace, LLC
Georgia Health Holdings, Inc.
Georgia, L.P.
GHC-Galen Health Care, LLC
Good Samaritan Hospital, L.P.
Good Samaritan Hospital, LLC
Goppert-Trinity Family Care, LLC
GPCH-GP, Inc.
Gramercy Eye Surgicenter, LLC
Grand Strand Regional Medical Center, LLC
Grandview Health Care Clinic, LLC
H.H.U.K., Inc.
HCA - IT&S Field Operations, Inc.
HCA - IT&S Inventory Management, Inc.
HCA - IT&S TN Field Operations, Inc.
HCA American Finance LLC
HCA Health Services of Midwest, Inc.
HCA Holdco, LLC
HCA Imaging Services of North Florida, Inc.
HCA Inc.
HCA International Finance LLP
HCA Management Services, L.P.
HCA Outpatient Imaging Services Group, Inc.
HCA Property GP, LLC
HCA Psychiatric Company
HCA SF LLC
HCA SFB 1 LLC
HCA Squared, LLC
HCA Wesley Rehabilitation Hospital, Inc.
HCA-Access Healthcare Holdings, LLC
HCA-Access Healthcare Partner, Inc.
HCA-California Urgent Care Holdings, LLC
HCA-EmCare Holdings, LLC
HCA-EMS Holdings, LLC
HCA-Georgia Urgent Care Holdings, LLC
HCA-HBPS Holdings, LLC
HCAPS Anesthesia Manager, LLC
HCA-Solis Holdings, Inc.
HCA-Solis Mammography Service Holdings of Gulf Coast, LLC
HCA-Solis Mammography Service Holdings of North Texas, LLC
HCA-Solis Mammography Services, LLC
HCA-Urgent Care Holdings, LLC
Health Insight Capital, LLC
Health Services (Delaware), Inc.
Health Services Merger, Inc.
Healthcare Technology Assessment Corporation
Healthco, LLC
Healthnet of Kentucky, LLC
HealthONE Care Partners, LLC
Healthserv Acquisition, LLC
Healthtrust MOB Tennessee, LLC
Healthtrust Purchasing Group, L.P.
Healthtrust, Inc. - The Hospital Company
Hearthstone Home Health, Inc.
Heathrow Imaging, LLC
Hendersonville ODC, LLC
Henrico Doctors Hospital - Forest Campus Property, LLC
HHNC, LLC
HICCH-SCL, LLC
hInsight - NX, LLC
hInsight-Airstrip Holdings, LLC
hInsight-BMA Holdings, LLC
hInsight-Customer Care Holdings, LLC
hInsight-Digital Reasoning Holdings, LLC
hInsight-Healthbox Holdings, LLC
hInsight-I2 Holdings, LLC
hInsight-InVivoLink Holdings, LLC
hInsight-Loyale Healthcare Holdings, LLC
hInsight-LS Holdings, LLC
hInsight-Mobile Heartbeat Holdings, LLC
hInsight-Procured Holdings, LLC
hInsight-PWS I Holdings, LLC
HM OMCOS, LLC
Hospital Corp., LLC
Hospital Development Properties, Inc.
Hospital Partners Merger, LLC
Houston - PPH, LLC
Houston Healthcare Holdings, Inc.
Houston NW Manager, LLC
Houston Urologic Surgicenter, LLC
Houston Womans Hospital Partner, LLC
HPG Enterprises, LLC
HPG Solutions, LLC
HSS Holdco, LLC
HSS Systems, LLC
HTI Hospital Holdings, Inc.
HTI MOB, LLC
Imaging Services of Appomattox, LLC
Imaging Services of Jacksonville, LLC
Imaging Services of Louisiana Manager, LLC
Imaging Services of Louisiana, LLC
Imaging Services of Orlando, LLC
Imaging Services of Richmond, LLC
Imaging Services of Roanoke, LLC
Imaging Services of West Boynton, LLC
IMX Holdings, LLC
Independence Regional Medical Group, LLC
Indian Path, LLC
Indianapolis Hospital Partner, LLC
Integrated Regional Laboratories, LLP
InVivoLink, Inc.
Jackson County Medical Group, LLC
JCSH, LLC
JCSHLP, LLC
JFK Medical Center Limited Partnership
Jupiter EFL Imaging Center, LLC
JV Investor, LLC
Kansas Healthserv, LLC
Katy Medical Center, Inc.
Kendall Regional Medical Center, LLC
Lake City Imaging, LLC
Lakeside Radiology, LLC
Lakeview Medical Center, LLC
Laredo Medco, LLC
Lees Summit Family Care, LLC
Lewis-Gale Medical Center, LLC
Lewisville Surgicare, LLC
Low Country Health Services, Inc. of the Southeast
Macon Healthcare, LLC
Macon Northside Health Group, LLC
Macon Northside Hospital, LLC
Management Services Holdings, Inc.
Maury County Behavioral Health, LLC
Mayhill Cancer Center, LLC
MCA-CTMC Holdings, LLC
Medical Arts Hospital of Texarkana, Inc.
Medical Care America, LLC
Medical Care Financial Services Corp.
Medical Care Real Estate Finance, Inc.
Medical Center of Plano Partner, LLC
Medical Centers of Oklahoma, LLC
Medical City Dallas Partner, LLC
Medical City Surgery Center of Alliance, LLC
Medical City Surgery Center of Frisco, LLC
Medical City Surgery Center of Lewisville, LLC
Medical Corporation of America
Medical Office Buildings of Kansas, LLC
Medical Specialties, Inc.
MediStone Healthcare Ventures, Inc.
MediVision of Mecklenburg County, Inc.
MediVision of Tampa, Inc.
MediVision, Inc.
Methodist Ambulatory Surgery Center of Boerne, LLC
Miami Beach EFL Imaging Center, LLC
MidAmerica Oncology, LLC
Mid-Continent Health Services, Inc.
Middle Georgia Hospital, LLC
Midtown Diagnostics, LLC
Midwest Division - ACH, LLC
Midwest Division - CMC, LLC
Midwest Division - LRHC, LLC
Midwest Division - LSH, LLC
Midwest Division - MCI, LLC
Midwest Division - MMC, LLC
Midwest Division - OPRMC, LLC
Midwest Division - PFC, LLC
Midwest Division - RMC, LLC
Midwest Holdings, Inc.
Midwest Medicine Associates, LLC
Midwest Metropolitan Physicians Group, LLC
Mira Healthcare, LLC
Mobile Corps., Inc.
Mobile Heartbeat, LLC
MRT&C, Inc.
Nashville Shared Services General Partnership
NeighborMD Management, LLC
Nevada Urgent Care Holdings, Inc.
New Iberia Holdings, Inc.
North Augusta Imaging Management, LLC
North Augusta Imaging Services, LLC
North Brandon Imaging, LLC
North Florida Cancer Center Lake City, LLC
North Florida Cancer Center Live Oak, LLC
North Florida Cancer Center Tallahassee, LLC
North Florida Radiation Oncology, LLC
North Houston - TRMC, LLC
North Miami Beach Surgery Center Limited Partnership
North Miami Beach Surgical Center, LLC
North Tampa Imaging, LLC
North Texas Medical Center, Inc.
Northeast Florida Cancer Services, LLC
Northern Virginia Surgicenter, LLC
Northwest Fla. Home Health Agency, Inc.
Notami Hospitals, LLC
Notami, LLC
Notco, LLC
NTGP, LLC
NTMC Ambulatory Surgery Center, L.P.
NTMC Management Company
NTMC Venture, Inc.
Ocala Stereotactic Radiosurgery Partner, LLC
Ocala Stereotactic Radiosurgery, LLC
Ogden Tomotherapy Manager, LLC
Ogden Tomotherapy, LLC
OHH Imaging Services, LLC
Oklahoma Holding Company, LLC
Oncology Services of Corpus Christi Manager, LLC
Oncology Services of Corpus Christi, LLC
Orlando Outpatient Surgical Center, Inc.
Outpatient Cardiovascular Center of Central Florida, LLC
Outpatient GP, LLC
Outpatient LP, LLC
Outpatient Services - LAD, LLC
Outpatient Services Holdings, Inc.
Palm Beach EFL Imaging Center, LLC
Palms West Hospital Limited Partnership
Paragon SDS, Inc.
Paragon WSC, Inc.
Parallon Holdings, LLC
Parkland Physician Services, Inc.
Parkway Hospital, Inc.
PatientKeeper, Inc.
Pearland Partner, LLC
Pinellas Medical, LLC
Pioneer Medical, LLC
Plano Heart Institute, L.P.
Plano Heart Management, LLC
Plantation General Hospital, L.P.
Plaza Specialty Hospital, LLC
PMM, Inc.
POH Holdings, LLC
Portsmouth Regional Ambulatory Surgery Center, LLC
Preferred Works WC, LLC
Primary Medical Management, Inc.
Putnam Radiation Oncology Manager, LLC
Putnam Radiation Oncology, LLC
Radiation Oncology Center of Thornton, LLC
Radiation Oncology Manager, LLC
RCH, LLC
Red Rock at Smoke Ranch, LLC
Red Rock Holdco, LLC
Reston Hospital Center, LLC
RHA MSO, LLC
Riverside CyberKnife Manager, LLC
Riverside CyberKnife, LLC
Riverside Hospital, Inc.
Riverside Imaging, LLC
Round Rock Hospital, Inc.
Samaritan, LLC
San Bernardino Imaging, LLC
San Jose Healthcare System, LP
San Jose Hospital, L.P.
San Jose Medical Center, LLC
San Jose, LLC
San Marcos ASC, LLC
San Marcos Surgicenter, LLC
Sarah Cannon Research Institute, LLC
Savannah Health Network, LLC
Savannah Health Services, LLC
Schrader Surgicenter, LLC
SCRI Holdings, LLC
Sebring Health Services, LLC
Silicon Valley Surgery Center, L.P.
Silicon Valley Surgicenter, LLC
SJMC, LLC
SMCH, LLC
Solis Mammography at Clear Lake Regional Medical Center, LLC
Solis Mammography at Denton Regional Medical Center, LLC
Solis Mammography at Las Colinas Medical Center, LLC
Solis Mammography at Medical Center Alliance, LLC
Solis Mammography at Medical Center Arlington, LLC
Solis Mammography at Medical Center of Lewisville, LLC
Solis Mammography at Medical Center of McKinney, LLC
Solis Mammography at Medical Center of Plano, LLC
Solis Mammography at Medical City Dallas, LLC
Solis Mammography at Womans Hospital of Texas, LLC
Solis Mammography of Dallas, LLC
Solis Mammography of Flower Mound, LLC
Solis Mammography of Garland, LLC
Solis Mammography of Katy, LLC
Solis Mammography of Mainland, LLC
Solis Mammography of North Loop, LLC
Solis Mammography of Sugar Land, LLC
Solis Mammography of West Plano, LLC
Solis Mammography of Womans Place, LLC
South Austin Surgical Management, LLC
South Austin Surgicenter, LLC
South Bay Imaging, LLC
South Brandon Imaging, LLC
South Valley Hospital, L.P.
Southeast Georgia Health Services, LLC
Southern Kentucky Surgicenter, LLC
Southtown Womens Clinic, LLC
Spalding Rehabilitation L.L.C.
Spring Hill Imaging, LLC
Springview KY, LLC
SSHR Holdco, LLC
SSJ St. Petersburg Holdings, Inc.
Stiles Road Imaging LLC
StoneCrest Surgery Center, LLC
Stones River Hospital, LLC
StoneSprings Surgicenter, LLC
Suburban Medical Center at Hoffman Estates, Inc.
Summit General Partner, Inc.
Summit Outpatient Diagnostic Center, LLC
Sun Bay Medical Office Building, Inc.
Sun City Imaging, LLC
Sun-Med, LLC
Sunrise Hospital and Medical Center, LLC
Surgicare of Bay Area, LLC
Surgicare of Brighton, LLC
Surgicare of Denton, Inc.
Surgicare of Denver Clinic, LLC
Surgicare of Focus Hand, LLC
Surgicare of Houston, LLC
Surgicare of Plano, Inc.
Surgicare of Silicon Valley, LLC
Surgicare of Southern Kentucky, LLC
Surgicare of StoneCrest, LLC
Surgico, LLC
Swedish MOB Acquisition, Inc.
TBHI Outpatient Services, LLC
Terre Haute Hospital GP, Inc.
Terre Haute Hospital Holdings, Inc.
Terre Haute Regional Hospital, L.P.
The Cancer Care Center of North Florida, LLC
The Medical Group of Kansas City, LLC
Tomball Sports Training Venture, LLC
Total Imaging - Parsons, LLC
Town Plaza Family Practice, LLC
Trident Medical Center, LLC
TriStar Maury Behavioral Healthcare, LLC
U.S. Collections, Inc.
Ultra Imaging Management Services, LLC
Ultra Imaging of Tampa, LLC
Urgent Care Enterprise, LLC
Utah Medco, LLC
Value Health Management, Inc.
VHSC Plantation, LLC
Vision Consulting Group LLC
Washington Holdco, LLC
Weatherford Health Services, LLC
Weatherford Mammography JV, LLC
Wesley Cath Lab, LLC
Wesley Manager, LLC
Wesley Medical Center, LLC
West Boynton Beach Open Imaging Center, LLC
West Florida Imaging Services, LLC
West Florida PET Services, LLC
West Houston, LLC
Westbury Hospital, Inc.
WHG Medical, LLC
WJHC, LLC
Womans Hospital Merger, LLC
Womens Hospital Indianapolis GP, Inc.
Womens Hospital Indianapolis, L.P.
FLORIDA
Access 2 Health Care Physicians, LLC
Access Health Care Physicians, LLC
Access Management Co., LLC
Ace Leasing II, LLC
All About Staffing, Inc.
Ambulatory Laser Associates, GP
Ambulatory Surgery Center Group, Ltd.
Atlantis Surgicare, LLC
Aventura Comprehensive Cancer Research Group of Florida, Inc.
Aventura Healthcare Specialists LLC
Aventura Neurosurgery, LLC
BAMI Property, LLC
Bannerman Family Care, LLC
Bay Hospital, Inc.
Bayonet Point Surgery Center, Ltd.
Bayside Ambulatory Center, LLC
Behavioral Health Sciences of West Florida, LLC
Belleair Surgery Center, Ltd.
Big Cypress Medical Center, Inc.
Bonita Bay Surgery Center, Inc.
Bonita Bay Surgery Center, Ltd.
Bradenton Cardiology Physician Network, LLC
Brandon Surgi-Center, Ltd.
Broward Cardiovascular Surgeons, LLC
Broward Healthcare System, Inc.
Broward Neurosurgeons, LLC
Cape Coral Surgery Center, Inc.
Cape Coral Surgery Center, Ltd.
Capital Regional Healthcare, LLC
Capital Regional Heart Associates LLC
Capital Regional Psychiatry Associates, LLC
CCH-GP, Inc.
Cedars International Cardiology Consultants, LLC
Cedars Medical Center Hospitalists, LLC
Central Florida Cardiology Interpretations, LLC
Central Florida Division Practice, Inc.
Central Florida Health Services, LLC
Central Florida Obstetrics & Gynecology Associates, LLC
Central Florida Physician Network, LLC
Central Florida Regional Hospital, Inc.
Citrus Memorial Hospital, Inc.
Citrus Memorial Property Management, Inc.
Citrus Primary Care, Inc.
Citrus Specialty Group, Inc.
Citrus Surgicenter, LLC
Collier County Home Health Agency, Inc.
Columbia Behavioral Health, Ltd.
Columbia Behavioral Healthcare of South Florida, Inc.
Columbia Central Florida Division, Inc.
Columbia Development of Florida, Inc.
Columbia Eye and Specialty Surgery Center, Ltd.
Columbia Florida Group, Inc.
Columbia Hospital Corporation of Central Miami
Columbia Hospital Corporation of Kendall
Columbia Hospital Corporation of Miami
Columbia Hospital Corporation of Miami Beach
Columbia Hospital Corporation of North Miami Beach
Columbia Hospital Corporation of South Broward
Columbia Hospital Corporation of South Dade
Columbia Hospital Corporation of South Florida
Columbia Hospital Corporation of South Miami
Columbia Hospital Corporation of Tamarac
Columbia Hospital Corporation-SMM
Columbia Jacksonville Healthcare System, Inc.
Columbia Lake Worth Surgical Center Limited Partnership
Columbia Midtown Joint Venture
Columbia North Central Florida Health System Limited Partnership
Columbia North Florida Regional Medical Center Limited Partnership
Columbia Ocala Regional Medical Center Physician Group, Inc.
Columbia Palm Beach Healthcare System Limited Partnership
Columbia Park Healthcare System, Inc.
Columbia Park Medical Center, Inc.
Columbia Physician Services - Florida Group, Inc.
Columbia Primary Care, LLC
Columbia Resource Network, Inc.
Columbia Tampa Bay Division, Inc.
Columbia-Osceola Imaging Center, Inc.
Community Hospital Family Practice, LLC
Comprehensive Radiation Oncology, LLC
Coral Springs Surgi-Center, Ltd.
Countryside Surgery Center, Ltd.
Daytona Medical Center, Inc.
Diagnostic Breast Center, Inc.
Doctors Osteopathic Medical Center, Inc.
Doctors Same Day Surgery Center, Inc.
Doctors Same Day Surgery Center, Ltd.
DOMC Property, LLC
East Florida - DMC, Inc.
East Florida Behavioral Health Network, LLC
East Florida Cardiology Network, LLC
East Florida Division, Inc.
East Florida Emergency Physician Group, LLC
East Florida Healthcare, LLC
East Florida Hospitalists, LLC
East Florida Primary Care, LLC
East Pointe Hospital, Inc.
Edward White Hospital, Inc.
Emergency Providers Group LLC
Englewood Community Hospital Auxiliary, Inc.
Englewood Community Hospital, Inc.
Family Care Partners, LLC
Fawcett Memorial Hospital, Inc.
Florida Home Health Services-Private Care, Inc.
Florida Outpatient Surgery Center, Ltd.
Fort Myers Market, Inc.
Fort Pierce Immediate Care Center, Inc.
Fort Pierce Orthopaedics, LLC
Fort Pierce Surgery Center, Ltd.
Fort Walton Beach Medical Center, Inc.
Freeport Family Medicine, LLC
Ft. Pierce Surgicare, LLC
Ft. Walton Beach Anesthesia Services, LLC
Gainesville GYN Oncology of North Florida Regional Medical Center, LLC
Gainesville Physicians, LLC
Galen Diagnostic Multicenter, Ltd.
Galen Hospital-Pembroke Pines, Inc.
Galen of Florida, Inc.
Galencare, Inc.
GME Services of Osceola, LLC
Grant Center Hospital of Ocala, Inc.
Greater Tampa Bay Physician Network, LLC
Greater Tampa Bay Physician Specialists, LLC
Greater Tampa Bay Physicians - Pinellas, LLC
Gulf Coast Inpatient Specialists, LLC
Gulf Coast Medical Center Primary Care, LLC
Gulf Coast Multispecialty Services, LLC
Hamilton Memorial Hospital, Inc.
HCA - Viera ALF, LLC
HCA - WHS Progressive, LLC
HCA - WHS Services, LLC
HCA Health Services of Florida, Inc.
HCA Health Services of Miami, Inc.
HCA Outpatient Clinic Services of Miami, Inc.
HCA Sarasota Orthopedic and Spine Clinical Co-Management Company, LLC
HD&S Corp. Successor, Inc.
HealthCoast Physician Group, LLC
Heathrow Internal Medicine, LLC
Heritage Family Care, LLC
Homecare North, Inc.
Hospital Corporation of Lake Worth
ICC Healthcare, LLC
Institute for Womens Health and Body, LLC
Integrated Regional Lab, LLC
Integrated Regional Laboratories Pathology Services, LLC
Intensive Care Consortium, Inc.
Jacksonville CareNow Urgent Care, LLC
Jacksonville Multispecialty Services, LLC
Jacksonville Specialists, LLC
Jacksonville Surgery Center, Ltd.
JFK Internal Medicine Faculty Practice, LLC
JFK Occupational Medicine, LLC
JFK Real Properties, Ltd.
JPM AA Housing, LLC
Kendall Healthcare Group, Ltd.
Kendall Regional Primary and Urgent Care, LLC
Kendall Regional Urgent Care, LLC
Kendall Vascular Surgery, LLC
Kingsley Family Care, LLC
Kissimmee Surgicare, Ltd.
LAD Imaging, LLC
Lake City Regional Medical Group, LLC
Lake Forest Utility, LLC
Lake Nona Hospital, Inc.
Largo Medical Center, Inc.
Largo Physician Group, LLC
Laurel Grove Surgery Center, LLC
Lawnwood Cardiovascular Surgery, LLC
Lawnwood Healthcare Specialists, LLC
Lawnwood Medical Center, Inc.
Live Oak Immediate Care Center, LLC
M & M of Ocala, Inc.
Manatee Surgicare, Ltd.
Marion Community Hospital, Inc.
Medical Associates of Ocala, LLC
Medical Center of Port St. Lucie, Inc.
Medical Center of Santa Rosa, Inc.
Medical Center of Southwest Florida, LLC
Medical Partners of North Florida, LLC
Memorial Family Practice Associates, LLC
Memorial Health Primary Care at St. Johns Bluff, LLC
Memorial Healthcare Group, Inc.
Memorial Neurosurgery Group, LLC
Mercy ASC, LLC
MHS Partnership Holdings JSC, Inc.
MHS Partnership Holdings SDS, Inc.
Miami Beach Healthcare Group, Ltd.
Miami Dade Surgical Specialists, LLC
Miami-Dade Cardiology Consultants, LLC
Miami Lakes Surgery Center, Ltd.
MSL Acquisition, LLC
Network MS of Florida, Inc.
New Port Richey Hospital, Inc.
New Port Richey Surgery Center, Ltd.
Niceville Family Practice, LLC
North Central Florida Health System, Inc.
North Florida Division I, Inc.
North Florida Division Practice, Inc.
North Florida GI Center GP, Inc.
North Florida GI Center, Ltd.
North Florida Immediate Care Center, Inc.
North Florida Neurosurgery, LLC
North Florida Outpatient Imaging Center, Ltd.
North Florida Physician Services, Inc.
North Florida Physicians, LLC
North Florida Regional Company Care, LLC
North Florida Regional Investments, Inc.
North Florida Regional Medical Center, Inc.
North Florida Regional Psychiatry, LLC
North Florida Regional Trauma, LLC
North Florida Rehab Investments, LLC
North Florida Surgical Associates, LLC
North Palm Beach County Surgery Center, LLC
North River Physician Network, LLC
North Transfer Center, LLC
Northside MRI, Inc.
Northwest Florida Healthcare Systems, Inc.
Northwest Florida Multispecialty Physicians, LLC
Northwest Florida Primary Care, LLC
Northwest Medical Center, Inc.
Notami Hospitals of Florida, Inc.
Oak Hill Acquisition, Inc.
Oak Hill Family Care, LLC
Oak Hill Hospitalists, LLC
Ocala Health Company Care, LLC
Ocala Health Imaging Services, LLC
Ocala Health Primary Care, LLC
Ocala Health Surgical Group, LLC
Ocala Health Trauma, LLC
Ocala Regional Outpatient Services, Inc.
Okaloosa Hospital, Inc.
Okeechobee Hospital, Inc.
Orange County Healthcare, LLC
Orange Park Hospitalists, LLC
Orange Park Medical Center, Inc.
Orlando CareNow Urgent Care, LLC
Orlando Surgicare, Ltd.
Osceola Neurological Associates, LLC
Osceola Physician Network, LLC
Osceola Regional Hospital, Inc.
Osceola Regional Hospitalists, LLC
Osceola Surgical Associates, LLC
Outpatient Surgical Services, Ltd.
Oviedo Medical Center, LLC
P&L Associates
Palm Beach General Surgery, LLC
Palm Beach Healthcare System, Inc.
Palm Beach Hospitalists Program, LLC
Palms West Gastroenterology, LLC
Palms West Surgery Center, Ltd.
Park South Imaging Center, Ltd.
Pediatric Intensivist Group, LLC
Pensacola Primary Care, Inc.
Pinnacle Physician Network, LLC
Poinciana Medical Center, Inc.
Port St. Lucie Surgery Center, Ltd.
Premier Medical Management, Ltd.
Primary Care Medical Associates, Inc.
Primary Care Services of Orlando, LLC
Psychiatry Services of Osceola, LLC
Pulmonary Renal Intensivist Group, LLC
Putnam Community Medical Center of North Florida, LLC
Putnam Hospital, Inc.
Putnam Surgical Group, LLC
Raulerson Gastroenterology, LLC
Raulerson GYN, LLC
Raulerson Primary Care, LLC
Riverwalk ASC, LLC
Sarasota Doctors Hospital, Inc.
South Broward Practices, Inc.
South Florida Division Practice, Inc.
South Transfer Center, LLC
Southwest Florida Health System, Inc.
Southwest Florida Regional Medical Center, Inc.
Specialty Hospitalists at Ft. Walton Beach, LLC
Spinal Disorder and Pain Treatment Institute, LLC
St. Lucie Hospitalists, LLC
St. Lucie Medical Center Hyperbarics, LLC
St. Lucie Medical Center Walk-In Clinic, LLC
St. Lucie Medical Specialists, LLC
St. Lucie West Primary Care, LLC
St. Petersburg General Surgery, LLC
Sun City Hospital, Inc.
Surgery Center of Atlantis, LLC
Surgery Center of Aventura, Ltd.
Surgery Center of Port Charlotte, Ltd.
Surgical Park Center, Ltd.
Surgicare America - Winter Park, Inc.
Surgicare of Altamonte Springs, Inc.
Surgicare of Aventura, LLC
Surgicare of Bayonet Point, Inc.
Surgicare of Bayside, LLC
Surgicare of Brandon, Inc.
Surgicare of Brooksville, LLC
Surgicare of Central Florida, Inc.
Surgicare of Citrus, LLC
Surgicare of Countryside, Inc.
Surgicare of Florida, Inc.
Surgicare of Ft. Pierce, Inc.
Surgicare of Kissimmee, Inc.
Surgicare of Laurel Grove, LLC
Surgicare of Manatee, Inc.
Surgicare of Merritt Island, Inc.
Surgicare of Miami Lakes, LLC
Surgicare of Newport Richey, Inc.
Surgicare of Orange Park, Inc.
Surgicare of Orange Park, Ltd.
Surgicare of Orlando, Inc.
Surgicare of Palms West, LLC
Surgicare of Pinellas, Inc.
Surgicare of Plantation, Inc.
Surgicare of Port Charlotte, LLC
Surgicare of Port St. Lucie, Inc.
Surgicare of Riverwalk, LLC
Surgicare of St. Andrews, Inc.
Surgicare of St. Andrews, Ltd.
Surgicare of Stuart, Inc.
Surgicare of Tallahassee, Inc.
Tallahassee Community Network, Inc.
Tallahassee Medical Center, Inc.
Tallahassee Orthopaedic Surgery Partners, Ltd.
Tampa Bay Health System, Inc.
Tampa Surgi-Centre, Inc.
The Neurohealth Sciences Center, LLC
Total Imaging - Hudson, LLC
Total Imaging - North St. Petersburg, LLC
Travel Medicine and Infections, LLC
University Healthcare Specialists, LLC
University Hospital, Ltd.
Venture Ambulatory Surgery Center, LLC
Venture Medical Management, LLC
West Florida - MHT, LLC
West Florida - PPH, LLC
West Florida - TCH, LLC
West Florida Behavioral Health, Inc.
West Florida Cardiology Network, LLC
West Florida Cardiology Physicians, LLC
West Florida CareNow Urgent Care, LLC
West Florida Division, Inc.
West Florida Gulf Coast Primary Care, LLC
West Florida HealthWorks, LLC
West Florida Internal Medicine, LLC
West Florida Physician Network, LLC
West Florida Professional Billing, LLC
West Florida Regional Medical Center, Inc.
West Florida Specialty Physicians, LLC
West Florida Trauma Network, LLC
West Florida Urgent Care Network, LLC
West Jacksonville Medical Center, Inc.
Westside Surgery Center, Ltd.
Wildwood Medical Center, Inc.
Womens Health Center of Central Florida, LLC
GEORGIA
Acworth Immediate Care, LLC
Albany Family Practice, LLC
AOSC Sports Medicine, Inc.
Atlanta Home Care, L.P.
Atlanta Outpatient Surgery Center, Inc.
Atlanta Surgery Center, Ltd.
Augusta Inpatient Services, LLC
Augusta Multispecialty Services, LLC
Augusta Primary Care Services, LLC
Augusta Specialty Hospitalists, LLC
Augusta Urgent Care Services, LLC
Buckhead Surgical Services, L.P.
Byron Family Practice, LLC
Cartersville Medical Center, LLC
Cartersville Occupational Medicine Center, LLC
Cartersville Physician Practice I, LLC
CCBH Psychiatric Hospitalists, LLC
Center for Occupational Medicine, LLC
Chatsworth Hospital Corp.
Church Street Partners
Coliseum Health Group, Inc.
Coliseum Park Hospital, Inc.
Coliseum Primary Care Services, LLC
Coliseum Primary Healthcare - Macon, LLC
Coliseum Primary Healthcare - Riverside, LLC
Coliseum Professional Associates, LLC
Coliseum Same Day Surgery Center, L.P.
Columbia Coliseum Same Day Surgery Center, Inc.
Columbia Surgicare of Augusta, Ltd.
Columbia-Georgia PT, Inc.
Columbus Cardiology, Inc.
Columbus Doctors Hospital, Inc.
Diagnostic Services, G.P.
Doctors Hospital Columbus GA-Joint Venture
Doctors Hospital of Augusta Neurology, LLC
Doctors Hospital Surgery Center, L.P.
Doctors-I, Inc.
Doctors-II, Inc.
Doctors-III, Inc.
Doctors-IV, Inc.
Doctors-IX, Inc.
Doctors-V, Inc.
Doctors-VI, Inc.
Doctors-VII, Inc.
Doctors-VIII, Inc.
Doctors-X, Inc.
Dublin Community Hospital, LLC
Dublin Heart Specialists, LLC
Dublin Multispecialty, LLC
Eastside Behavioral Health Associates, LLC
Eastside General Surgery, LLC
Eastside Heart and Vascular, LLC
Eastside Medical Center, LLC
Eastside Surgery Center, LLC
EHCA Diagnostics, LLC
EHCA Eastside Occupational Medicine Center, LLC
EHCA Metropolitan, LLC
EHCA Parkway, LLC
EHCA Peachtree, LLC
EHCA West Paces, LLC
EHCA, LLC
Fairview Medical Services, LLC
Fairview Park, Limited Partnership
Georgia Psychiatric Company, Inc.
Grace Family Practice, LLC
Grayson Primary Care, LLC
Greater Gwinnett Internal Medicine Associates, LLC
Greater Gwinnett Physician Corporation
Gwinnett Community Hospital, Inc.
HCA Health Services of Georgia, Inc.
HCOL, Inc.
Heritage Medical Care, LLC
Hospitalists at Fairview Park, LLC
JDGC Management, LLC
Macon Psychiatric Hospitalists, LLC
Marietta Outpatient Medical Building, Inc.
Marietta Outpatient Surgery, Ltd.
Marietta Surgical Center, Inc.
Med Corp., Inc.
MedFirst, Inc.
Medical Center - West, Inc.
Medical Oncology Associates, LLC
Memorial Satilla Specialists, LLC
Middle Georgia Urgent Care Services, LLC
MOSC Sports Medicine, Inc.
Neurosurgery Atlanta, LLC
North Georgia Primary Care Group, LLC
Northlake Medical Center, LLC
Northlake Physician Practice Network, Inc.
Northlake Surgical Center, L.P.
Northlake Surgicare, Inc.
Orthopaedic Specialty Associates, L.P.
Orthopaedic Sports Specialty Associates, Inc.
Redmond Anesthesia Services, LLC
Redmond Hospital Services, LLC
Redmond Neurosurgery, LLC
Redmond Park Health Services, Inc.
Redmond Park Hospital, LLC
Redmond Physician Practice Company
Redmond Specialty Services, LLC
Rome Imaging Center Limited Partnership
Savannah Behavioral Health Associates, LLC
Savannah Inpatient Services, LLC
Savannah Multispecialty Associates, LLC
Savannah Pediatric Care, LLC
Savannah Primary Care Associates, LLC
Surgery Center of Rome, L.P.
Surgicare of Augusta, Inc.
Surgicare of Buckhead, LLC
Surgicare of Eastside, LLC
Surgicare of Evans, Inc.
Surgicare of Rome, Inc.
The Rankin Foundation
Urology Center of North Georgia, LLC
West Paces Services, Inc.
IDAHO
East Falls Cardiovascular and Thoracic Surgery, LLC
East Falls Family Medicine, LLC
East Falls Plastic Surgery, LLC
Eastern Idaho Health Services, Inc.
Eastern Idaho Regional Medical Center Inpatient Services, LLC
EIRMC Hospitalist Services, LLC
Idaho Behavioral Health Services, LLC
Idaho Physician Services, Inc.
Patients First Neurology, LLC
West Valley Medical Center, Inc.
West Valley Medical Group Specialty Services LLC
West Valley Medical Group, LLC
West Valley Therapy Services, LLC
ILLINOIS
Chicago Grant Hospital, Inc.
Columbia Chicago Division, Inc.
Columbia LaGrange Hospital, LLC
Galen of Illinois, Inc.
Illinois Psychiatric Hospital Company, Inc.
Smith Laboratories, Inc.
INDIA
All About Staffing (India) Ltd.
INDIANA
Advanced Plastic Surgery Center of Terre Haute, LLC
Basic American Medical, Inc.
Hospitalists of the Wabash Valley, LLC
Jeffersonville MediVision, Inc.
Regional Hospital Healthcare Partners, LLC
Surgicare of Indianapolis, Inc.
Surgicare of Terre Haute, LLC
Terre Haute MOB, L.P.
Terre Haute Obstetrics and Gynecology, LLC
KANSAS
Care for Women, LLC
College Park Ancillary, LLC
College Park Endoscopy Center, LLC
College Park Radiology, LLC
Emergency Physicians at Wesley Medical Center, LLC
Family Health Medical Group of Overland Park, LLC
Galichia Anesthesia Services, LLC
Galichia Emergency Physicians, LLC
Health Partners of Kansas, Inc.
Heart of America ASC, LLC
Heart of America Surgicenter, LLC
Heartland Womens Group at Wesley, LLC
Hospitalists at Wesley Medical Center, LLC
IRL Pathology Services MidAmerica, LLC
Johnson County Neurology, LLC
Johnson County Surgery Center, L.P.
Johnson County Surgicenter, L.L.C.
Kansas CareNow Urgent Care, LLC
Kansas City Womens Clinic Group, LLC
Kansas Pulmonary and Sleep Specialists, LLC
Kansas Trauma and Critical Care Specialists, LLC
Menorah Medical Group, LLC
Menorah Urgent Care, LLC
MidAmerica Division, Inc.
Mid-America Surgery Center, LLC
Mid-America Surgery Institute, LLC
Midwest Cardiology Specialists, LLC
Midwest Cardiovascular and Thoracic Surgeons of Kansas, LLC
Midwest Heart & Vascular Specialists, LLC
Midwest Oncology Associates, LLC
Mill Creek Outpatient Services, LLC
MMC Sleep Lab Management, LLC
Neurology Associates of Kansas, LLC
OPRMC-HBP, LLC
Overland Park Cardiovascular, Inc.
Overland Park Medical Specialists, LLC
Overland Park Orthopedics, LLC
Overland Park Surgical Specialties, LLC
Pediatric Specialty Clinic LLC
Physician Associates of Corporate Woods, LLC
Quivira Internal Medicine, Inc.
Statland Medical Group, LLC
Surgery Center of Overland Park, L.P.
Surgicare of Overland Park, LLC
Surgicare of Wichita, Inc.
Surgicare of Wichita, LLC
Surgicenter of Johnson County, Ltd.
Wesley Physician Services, LLC
Wesley Physicians - Anesthesiologist, LLC
Wesley Physicians - Cardiovascular, LLC
Wesley Physicians - Medical Specialties LLC
Wesley Physicians - Obstetrics and Gynecology LLC
Wesley Physicians - Primary Care LLC
Wesley Select Network, LLC
Wichita CareNow Urgent Care, LLC
KENTUCKY
CHCK, Inc.
Commonwealth Specialists of Kentucky, LLC
Frankfort Hospital, Inc.
Frankfort Wound Care, LLC
Galen of Kentucky, Inc.
Greenview Hospital, Inc.
Greenview PrimeCare, LLC
Greenview Specialty Associates, LLC
Hospitalists at Greenview Regional Hospital, LLC
Kentucky Cardiopulmonary Interpretation Services, LLC
Mikrod Services, Inc.
Southern Kentucky Medicine Associates, LLC
Surgery Center of Greenview, L.P.
Surgicare of Greenview, Inc.
Tri-County Community Hospital, Inc.
LOUISIANA
Acadiana Care Center, Inc.
Acadiana Practice Management, Inc.
Acadiana Regional Pharmacy, Inc.
Center for Digestive Diseases, LLC
Childrens Multi-Specialty Group, LLC
CLASC Manager, LLC
Columbia Healthcare System of Louisiana, Inc.
Columbia West Bank Hospital, Inc.
Columbia/HCA of Baton Rouge, Inc.
Columbia/HCA of New Orleans, Inc.
HCA Health Services of Louisiana, Inc.
Lafayette OB Hospitalists, LLC
Lafayette Surgery Center Limited Partnership
Lafayette Surgicare, Inc.
Lafayette Urogynecology & Urology Center, LLC
Lakeside Womens Services, LLC
Lakeview Cardiology Specialists, LLC
Lakeview Regional Physician Group, LLC
Louisiana Psychiatric Company, Inc.
Medical Center of Baton Rouge, Inc.
Metairie Primary Care Associates, LLC
New Iberia Healthcare, LLC
Notami (Opelousas), Inc.
Notami Hospitals of Louisiana, Inc.
Rapides After Hours Clinic, L.L.C.
Rapides Healthcare System, L.L.C.
Rapides Regional Physician Group Primary Care, LLC
Rapides Regional Physician Group Specialty Care, LLC
Rapides Regional Physician Group, LLC
Rapides Surgery Center, LLC
RMCA Professionals Mgmt, LLC
Southwest Medical Center Family Practice, LLC
Southwest Medical Center Multi-Specialty Group, LLC
Southwest Medical Center Surgical Group, LLC
Surgicare Merger Company of Louisiana
Surgicare of Lakeview, Inc.
Surgicare Outpatient Center of Baton Rouge, Inc.
Surgicenter of East Jefferson, Inc.
Tchefuncte Cardiology Associates - Lakeview, LLC
The Regional Health System of Acadiana, LLC
TUHC Anesthesiology Group, LLC
TUHC Hospitalist Group, LLC
TUHC Physician Group, LLC
TUHC Primary Care and Pediatrics Group, LLC
TUHC Radiology Group, LLC
Tulane Clinic, LLC
Tulane Professionals Management, L.L.C.
University Healthcare System, L.C.
Uptown Primary Care Associates, LLC
Womens & Childrens Pediatric Hematology/Oncology Center, LLC
Womens & Childrens Pulmonology Clinic, LLC
Womens and Childrens Professional Management, L.L.C.
Womens Multi-Specialty Group, LLC
LUXEMBOURG
HCA Luxembourg 1 Sarl
HCA Luxembourg 2 Sarl
HCA Luxembourg Equities Sàrl
HCA Luxembourg Investments Sàrl
HCA Switzerland Limited
MASSACHUSETTS
Columbia Hospital Corporation of Massachusetts, Inc.
Orlando Outpatient Surgical Center, Ltd.
MISSISSIPPI
Brookwood Medical Center of Gulfport, Inc.
Coastal Imaging Center of Gulfport, Inc.
Coastal Imaging Center, L.P.
Galen of Mississippi, Inc.
Garden Park Hospitalist Program, LLC
Garden Park Investments, L.P.
Garden Park Physician Group - Specialty Care, LLC
Garden Park Physician Group, Inc.
Gulf Coast Medical Ventures, Inc.
Southern Urology Associates, LLC
VIP, Inc.
MISSOURI
Bone & Joint Specialists Physician Group, LLC
Cardiology Associates Medical Group, LLC
Cedar Creek Medical Group, LLC
Centerpoint Cardiology Services, LLC
Centerpoint Clinic of Blue Springs, LLC
Centerpoint Hospital Based Physicians, LLC
Centerpoint Medical Specialists, LLC
Centerpoint Orthopedics, LLC
Centerpoint Physicians Group, LLC
Centerpoint Womens Services, LLC
Clinishare, Inc.
Endocrinology Associates of Lees Summit, LLC
Eye Care Surgicare, Ltd., a Missouri limited partnership
Family Health Specialists of Lees Summit, LLC
Foot & Ankle Specialty Services, LLC
HCA Midwest Comprehensive Care, Inc.
Health Midwest Medical Group, Inc.
Health Midwest Office Facilities Corporation
Health Midwest Ventures Group, Inc.
HM Acquisition, LLC
Independence Neurosurgery Services, LLC
Independence Surgicare, Inc.
Jackson County Pulmonary Medical Group, LLC
Kansas City Gastroenterology & Hepatology Physicians Group, LLC
Kansas City Neurology Associates, LLC
Kansas City Perfusion Services, Inc.
Kansas City Pulmonology Practice, LLC
Kansas City Surgery Center Properties, LLC
Kansas City Vascular & General Surgery Group, LLC
KC Pain ASC, LLC
KC Surgicare, LLC
Lees Summit Urgent Care, LLC
Medical Center Imaging, Inc.
MediCredit, Inc.
Metropolitan Multispecialty Physicians Group, Inc.
Midwest Cardiovascular & Thoracic Surgery, LLC
Midwest Division - RBH, LLC
Midwest Division Spine Care, LLC
Midwest Doctors Group, LLC
Midwest Infectious Disease Specialists, LLC
Midwest Trauma Services, LLC
Midwest Womens Healthcare Specialists, LLC
Missouri Healthcare System, L.P.
National Association of Senior Friends
Notami Hospitals of Missouri, Inc.
Nuclear Diagnosis, Inc.
Ozarks Medical Services, Inc.
Raymore Medical Group, LLC
Research Cardiology Associates, LLC
Research Family Physicians, LLC
Research Internal Medicine, LLC
Research Neurology Associates, LLC
Research Neuroscience Institute, LLC
Research Psychiatric - 1500, LLC
RMC - Pulmonary, LLC
RMC Transplant Physicians, LLC
Senior Health Associates, LLC
Surgery Center of Independence, L.P.
Surgical Care Medical Group, LLC
Surgicare of Kansas City, LLC
Surgicenter of Kansas City, L.L.C.
The Outsource Group, Inc.
Womens Center at Brookside, LLC
NEVADA
CHC Holdings, Inc.
CHC Venture Co.
Columbia Hospital Corporation of West Houston
Fremont Womens Health, LLC
Health Service Partners, Inc.
Las Vegas ASC, LLC
Las Vegas Physical Therapy, Inc.
Las Vegas Surgicare, Inc.
Las Vegas Surgicare, Ltd., a Nevada Limited Partnership
MountainView GME Primary Care, LLC
Nevada Surgery Center of Southern Hills, L.P.
Nevada Surgicare of Southern Hills, LLC
Rhodes Limited-Liability Company
Sahara Outpatient Surgery Center, Ltd.
Southern Hills Medical Center, LLC
Specialty Surgicare of Las Vegas, LP
Sunrise Flamingo Holdings, LLC
Sunrise Flamingo Surgery Center, Limited Partnership
Sunrise Mountainview Hospital, Inc.
Sunrise Mountainview Multi-Specialty Clinics, LLC
Sunrise Outpatient Services, Inc.
Sunrise Physician Services, LLC
Sunrise Trauma Services, LLC
Surgicare of Las Vegas, Inc.
Urgent Care Extra Silverado & Maryland LLC
Urgent Care Nevada LLC
Value Health Holdings, Inc.
VH Holdco, Inc.
VH Holdings, Inc.
Western Plains Capital, Inc.
NEW HAMPSHIRE
Appledore Medical Group II, Inc.
Derry ASC, Inc.
HCA Health Services of New Hampshire, Inc.
Med-Point of New Hampshire, Inc.
Occupational Health Services of PRH, LLC
Parkland Hospitalists Program, LLC
Parkland Oncology, LLC
Salem Surgery Center, Limited Partnership
Surgicare of Salem, LLC
NORTH CAROLINA
CareOne Home Health Services, Inc.
Cumberland Medical Center, Inc.
HCA - Raleigh Community Hospital, Inc.
Heritage Hospital, Inc.
HTI Health Services of North Carolina, Inc.
Mecklenburg Surgical Land Development, Ltd.
Raleigh Community Medical Office Building, Ltd.
Wake Psychiatric Hospital, Inc.
OHIO
Columbia/HCA Healthcare Corporation of Northern Ohio
Columbia-CSA/HS Greater Canton Area Healthcare System, L.P.
Columbia-CSA/HS Greater Cleveland Area Healthcare System, L.P.
Lorain County Surgery Center, Ltd.
Surgicare of Lorain County, Inc.
Surgicare of Westlake, Inc.
Westlake Surgicare, L.P.
OKLAHOMA
Columbia Doctors Hospital of Tulsa, Inc.
Columbia Oklahoma Division, Inc.
Edmond General Surgery, LLC
Edmond Hospitalists, LLC
Edmond Physician Hospital Organization, Inc.
Healthcare Oklahoma, Inc.
Medi Flight of Oklahoma, LLC
Medical Imaging, Inc.
Millenium Health Care of Oklahoma, Inc.
Oklahoma Outpatient Surgery Limited Partnership
Oklahoma Physicians - Medical Specialties LLC
Oklahoma Physicians - Obstetrics and Gynecology LLC
Oklahoma Physicians - Primary Care LLC
Oklahoma Physicians - Surgical Specialties LLC
Oklahoma Surgicare, Inc.
Plains Healthcare System, Inc.
Surgicare of Northwest Oklahoma Limited Partnership
Surgicare of Tulsa, Inc.
SWMC, Inc.
PHILIPPINES
All About Staffing Philippines, Inc.
Career Staffing USA, Inc.
SOUTH CAROLINA
C/HCA Development, Inc.
Carolina Regional Surgery Center, Inc.
Carolina Regional Surgery Center, Ltd.
Coastal Carolina Home Care, Inc.
Coastal Carolina Multispecialty Associates, LLC
Coastal Carolina Primary Care, LLC
Coastal Inpatient Physicians, LLC
Colleton Ambulatory Care, LLC
Colleton Diagnostic Center, LLC
Colleton Medical Anesthesia, LLC
Colleton Medical Hospitalists, LLC
Colleton Otolaryngology, Head and Neck Surgery, LLC
Columbia/HCA Healthcare Corporation of South Carolina
Columbia-CSA/HS Greater Columbia Area Healthcare System, L.P.
Doctors Memorial Hospital of Spartanburg, Limited Partnership
Grand Strand Senior Health Center, LLC
Grand Strand Specialty Associates, LLC
Grand Strand Surgical Specialists, LLC
North Augusta Rehab Health Center, LLC
North Charleston Diagnostic Imaging Center, LLC
South Atlantic Division, Inc.
South Carolina Imaging Employer Corp.
Tri-County Surgical Specialists, LLC
Trident Behavioral Health Services, LLC
Trident Eye Surgery Center, L.P.
Trident Medical Services, Inc.
Trident Neonatology Services, LLC
Walterboro Community Hospital, Inc.
Waterway Primary Care, LLC
SWITZERLAND
Glemm SA
HCA Switzerland Holding Sàrl
HCA Switzerland Finance GmbH
TENNESSEE
Arthritis Specialists of Nashville, Inc.
Athens Community Hospital, Inc.
Centennial Cardiovascular Consultants, LLC
Centennial Heart, LLC
Centennial Hospitalists, LLC
Centennial Neuroscience, LLC
Centennial Psychiatric Associates, LLC
Centennial Surgery Center, L.P.
Centennial Surgical Associates, LLC
Centennial Surgical Clinic, LLC
Central Tennessee Hospital Corporation
Chattanooga ASC Acquisition, Inc.
Chattanooga Diagnostic Associates, LLC
Chattanooga Healthcare Network Partner, Inc.
Chattanooga Healthcare Network, L.P.
Clarksville Surgicenter, LLC
Columbia Integrated Health Systems, Inc.
Columbia Medical Group - Centennial, Inc.
Columbia Medical Group - Daystar, Inc.
Columbia Medical Group - Parkridge, Inc.
Columbia Medical Group - Southern Hills, Inc.
Columbia Medical Group - The Frist Clinic, Inc.
Dickson Surgery Center, L.P.
Frist Clinic Express, LLC
Gastroenterology Specialists of Middle Tennessee, LLC
H2U Wellness Centers, LLC
HCA - Information Technology & Services, Inc.
HCA - IT&S PBS Field Operations, Inc.
HCA ASD Financial Operations, LLC
HCA ASD Sales Services, LLC
HCA Central Group, Inc.
HCA Chattanooga Market, Inc.
HCA Development Company, Inc.
HCA Eastern Group, Inc.
HCA Health Services of Tennessee, Inc.
HCA Human Resources, LLC
HCA Long Term Health Services of Miami, Inc.
HCA Medical Services, Inc.
HCA Patient Safety Organization, LLC
HCA Physician Services, Inc.
HCA Realty, Inc.
Health to You, LLC
Healthcare Sales National Management Services Group, LLC
HealthTrust Workforce Solutions, LLC
Healthtrust, Inc. - The Hospital Company
Hendersonville Hospital Corporation
Hendersonville Hospitalist Services, Inc.
Hendersonville OB/GYN, LLC
Hendersonville Primary Care, LLC
Hermitage Primary Care, LLC
Holly Hill/Charter Behavioral Health System, L.L.C.
Hometrust Management Services, Inc.
Horizon Orthopedics, LLC
Horizon Surgical, LLC
Hospital Corporation of Tennessee
Hospital Realty Corporation
Hospitalists at Centennial Medical Center, LLC
Hospitalists at Horizon Medical Center, LLC
Hospitalists at Parkridge, LLC
Hospitalists at StoneCrest, LLC
HTI Memorial Hospital Corporation
Indian Path Hospital, Inc.
Internal Medicine Associates of Southern Hills, LLC
Madison Behavioral Health, LLC
Madison Internal Medicine, LLC
McMinnville Cardiology, LLC
Med Group - Southern Hills Hospitalists, LLC
Medical Center Surgery Associates, L.P.
Medical Group - Dickson, Inc.
Medical Group - Southern Hills of Brentwood, LLC
Medical Group - Southern Hills of Nolensville, LLC
Medical Group - StoneCrest FP, Inc.
Medical Group - Stonecrest Pulmonology, LLC
Medical Group - StoneCrest, Inc.
Medical Group - Summit, Inc.
Medical Plaza Ambulatory Surgery Center Associates, L.P.
Middle Tennessee Neurology LLC
MP Management, LLC
Nashville Psychiatric Company, Inc.
Nashville Surgicenter, LLC
Natchez Surgery Center, LLC
National Contact Center Management Group, LLC
National Transfer Center Management Services, LLC
Network Management Services, Inc.
Neurology Associates of Hendersonville, LLC
North Florida Regional Freestanding Surgery Center, L.P.
NPAS Solutions, LLC
NPAS, Inc.
Old Fort Village, LLC
OneSourceMed, Inc.
Palmer Medical Center, LLC
Parallon Business Solutions, LLC
Parallon Enterprises, LLC
Parallon Health Information Solutions, LLC
Parallon Payroll Solutions, LLC
Parallon Physician Services, LLC
Park View Insurance Company
Parkridge East Specialty Associates, LLC
Parkridge Hospitalists, Inc.
Parkridge Medical Associates, LLC
Parkridge Medical Center, Inc.
Parkridge Professionals, Inc.
Parkside Surgery Center, Inc.
Plano Ambulatory Surgery Associates, L.P.
Portland Primary Care, LLC
Premier ASC, LLC
PSG Delegated Services, LLC
PTS Solutions, LLC
Sarah Cannon Development Innovations, LLC
SCRI Scientifics, LLC
Signal Mountain Primary Care, LLC
Skyline Medical Group, LLC
Skyline Neuroscience Associates, LLC
Skyline Rehab Associates, LLC
Skyline Riverside Medical Group, LLC
Southeast Health Strategic Alliance, LLC
Southeast Surgical Solutions, LLC
Southern Hills Neurology Consultants, LLC
Southpoint, LLC
Specialist Group at Centennial, LLC
Spring Hill Hospital, Inc.
Spring Hill Physicians, LLC
SRS Acquisition, Inc.
St. Marks Ambulatory Surgery Associates, L.P.
Sterling Primary Care Associates, LLC
Stonecrest Medical Group - Family Practice of Murfreesboro, LLC
Stonecrest Medical Group - SC Murfreesboro Family Practice, LLC
Sullins Surgical Center, Inc.
Summit Convenient Care at Lebanon, LLC
Summit Heart, LLC
Summit Research Solutions, LLC
Summit Surgery Center, L.P.
Summit Surgical Associates, LLC
Summit Walk-in Clinic, LLC
Surgery Center of Chattanooga, L.P.
Surgicare of Chattanooga, LLC
Surgicare of Clarksville, LLC
Surgicare of Dickson, LLC
Surgicare of Madison, Inc.
Surgicare of Natchez, LLC
Surgicare of Premier Orthopaedic, LLC
Surgicare of Southern Hills, Inc.
Surgicare of Wilson County, LLC
Surgicare Outpatient Center of Jackson, Inc.
Sycamore Shoals Hospital, Inc.
TCMC Madison-Portland, Inc.
Tennessee Healthcare Management, Inc.
Tennessee Valley Outpatient Diagnostic Center, LLC
The Charter Cypress Behavioral Health System, L.L.C.
Trident Ambulatory Surgery Center, L.P.
TriStar Bone Marrow Transplant, LLC
TriStar Cardiovascular Surgery, LLC
TriStar Family Care, LLC
TriStar Gynecology Oncology, LLC
TriStar Health System, Inc.
TriStar Joint Replacement Institute, LLC
TriStar Medical Group - Centennial Primary Care, LLC
TriStar Medical Group - Legacy Health, LLC
TriStar Medical Network, LLC
TriStar OB/GYN, LLC
TriStar Orthopedics, LLC
TriStar Radiation Oncology, LLC
Vascular and Endovascular Specialists, LLC
Vision Holdings, LLC
WCP Properties, LLC
Wilson County Outpatient Surgery Center, L.P.
Womens and Childrens Specialists, LLC
TEXAS
360 Community Alliance, LLC
Acute Kids Urgent Care of Medical City Childrens Hospital, PLLC
Administrative Physicians of North Texas, PLLC
Ambulatory Endoscopy Clinic of Dallas, Ltd.
Ambulatory Endoscopy Holdco, LLC
Arlington Diagnostic South, Inc.
Arlington Neurosurgeons, PLLC
Arlington Primary Care, PLLC
Arlington Primary Medicine, PLLC
Austin Heart Cardiology MSO, LLC
Austin Medical Center, Inc.
Austin Physicians Management, LLC
Austin Urogynecology, PLLC
Bailey Square Ambulatory Surgical Center, Ltd.
Bailey Square Outpatient Surgical Center, Inc.
Barrow Medical Center CT Services, Ltd.
Bay Area Healthcare Group, Ltd.
Bay Area Surgical Center Investors, Ltd.
Bay Area Surgicare Center, Inc.
Bayshore Family Practitioners, PLLC
Bayshore Multi-Specialty Group, PLLC
Bayshore Occupational and Family Medicine, PLLC
Bayshore Radiation Oncology Services, PLLC
Bayshore Surgery Center, Ltd.
Bedford-Northeast Community Hospital, Inc.
Bellaire Imaging, Inc.
Brownsville Specialists of Texas, PLLC
Brownsville Surgical Specialists, PLLC
Brownsville-Valley Regional Medical Center, Inc.
C. Medrano, M.D., PLLC
Calder Immediate Care, PLLC
Calloway Creek Surgery Center, L.P.
Calloway Creek Surgicare, LLC
Capital Area Cardiology
Capital Area CareNow Physician Associates
Capital Area Multispecialty Providers
Capital Area Neurosurgeons
Capital Area Occupational Medicine, PLLC
Capital Area Primary Care Providers
Capital Area Primary Care, PLLC
Capital Area Providers
Capital Area Specialists, PLLC
Capital Area Specialty Providers
Capital Area Surgeons, PLLC
Cardio Vascular Surgeons of North Texas, PLLC
Cardiology Clinic of San Antonio, PLLC
Cardiology Specialists of North Texas, PLLC
Cardiovascular and Thoracic Surgeons of Texas, PLLC
CC Clinic, PLLC
Central San Antonio Surgical Center Investors, Ltd.
Central Texas Cardiac Arrhythmia Physicians, PLLC
CHC Management, Ltd.
CHC Payroll Company
CHC Realty Company
CHCA Pearland, L.P.
CHC-El Paso Corp.
CHC-Miami Corp.
Christina Cano-Gonzalez, M.D., PLLC
City of San Antonio H2U Employee Health and Wellness Center, PLLC
Clear Lake Family Physicians, PLLC
Clear Lake Multi-Specialty Group, PLLC
Clear Lake Regional Medical Center, Inc.
Clear Lake Surgicare, Ltd.
Coastal Bend Hospital CT Services, Ltd.
Collin County Diagnostic Associates, PLLC
COL-NAMC Holdings, Inc.
Columbia Ambulatory Surgery Division, Inc.
Columbia Bay Area Realty, Ltd.
Columbia Call Center, Inc.
Columbia Central Group, Inc.
Columbia Champions Treatment Center, Inc.
Columbia GP of Mesquite, Inc.
Columbia Greater Houston Division Healthcare Network, Inc.
Columbia Hospital at Medical City Dallas Subsidiary, L.P.
Columbia Hospital Corporation at the Medical Center
Columbia Hospital Corporation of Arlington
Columbia Hospital Corporation of Bay Area
Columbia Hospital Corporation of Corpus Christi
Columbia Hospital-El Paso, Ltd.
Columbia Medical Arts Hospital Subsidiary, L.P.
Columbia Medical Center at Lancaster Subsidiary, L.P.
Columbia Medical Center Dallas Southwest Subsidiary, L.P.
Columbia Medical Center of Arlington Subsidiary, L.P.
Columbia Medical Center of Denton Subsidiary, L.P.
Columbia Medical Center of Las Colinas, Inc.
Columbia Medical Center of Lewisville Subsidiary, L.P.
Columbia Medical Center of McKinney Subsidiary, L.P.
Columbia Medical Center of Plano Subsidiary, L.P.
Columbia North Hills Hospital Subsidiary, L.P.
Columbia North Texas Healthcare System, L.P.
Columbia North Texas Subsidiary GP, LLC
Columbia North Texas Surgery Center Subsidiary, L.P.
Columbia Northwest Medical Center Partners, Ltd.
Columbia Northwest Medical Center, Inc.
Columbia Plaza Medical Center of Fort Worth Subsidiary, L.P.
Columbia Psychiatric Management Co.
Columbia South Texas Division, Inc.
Columbia Specialty Hospital of Dallas Subsidiary, L.P.
Columbia Specialty Hospitals, Inc.
Columbia Surgery Group, Inc.
Columbia/HCA Healthcare Corporation of Central Texas
Columbia/HCA Heartcare of Corpus Christi, Inc.
Columbia/HCA International Group, Inc.
Columbia/HCA of Houston, Inc.
Columbia/HCA of North Texas, Inc.
Columbia/HCA Physician Hospital Organization Medical Center Hospital
Columbia-Quantum, Inc.
Comprehensive Radiology Management Services, Ltd.
Congenital Heart Surgery Center, PLLC
Conroe Hospital Corporation
Conroe Montgomery Physicians Group, PLLC
Conroe Orthopedic Specialists, PLLC
Conroe Specialists of Texas, PLLC
Corpus Christi Healthcare Group, Ltd.
Corpus Christi Heart Clinic, PLLC
Corpus Christi Primary Care Associates, PLLC
Corpus Christi Psychiatric Specialists, PLLC
Corpus Christi Radiation Oncology, PLLC
Corpus Christi Surgery Center, L.P.
Corpus Christi Surgery, Ltd.
Corpus Surgicare, Inc.
CP Surgery Center, LLC
CUC, PLLC
Dallas Cardiology Specialists, PLLC
Dallas CardioThoracic Surgery Consultants, PLLC
Dallas Hand Surgery Center, PLLC
Dallas Medical Specialists, PLLC
Dallas Neuro-Stroke Affiliates, PLLC
Dallas Pediatric Neurosurgery Specialists, PLLC
Deep Purple Investments, LLC
Del Sol Bariatric Clinic, PLLC
Denton Cancer Center, PLLC
Denton County Hospitalist Program, PLLC
Denton Pediatric Physicians, PLLC
Denton Regional Ambulatory Surgery Center, L.P.
DFW Physicians Group, PLLC
Doctors Bay Area Physician Hospital Organization
Doctors Hospital (Conroe), Inc.
Dura Medical, Inc.
E.P. Physical Therapy Centers, Inc.
East Houston Primary Care, PLLC
East Houston Specialists, PLLC
East Orthopedics, PLLC
El Paso Healthcare Provider Network
El Paso Healthcare System Physician Services, LLC
El Paso Healthcare System, Ltd.
El Paso Nurses Unlimited, Inc.
El Paso Primary Care, PLLC
El Paso Surgery Centers, L.P.
El Paso Surgicenter, Inc.
Eldridge Family Practitioners, PLLC
Elite Family Health of Plano, PLLC
Elite OB-GYN Services of El Paso, PLLC
Elite Orthopaedics of El Paso, PLLC
Elite Orthopaedics of Irving, PLLC
Elite Orthopaedics of Plano, PLLC
Emergency Psychiatric Medicine, PLLC
Endoscopy of Plano, L.P.
Endoscopy Surgicare of Plano, LLC
EPIC Properties, Inc.
EPSC, L.P.
Family First Medicine in Brownsville, PLLC
Family Practitioners of Montgomery, PLLC
Family Practitioners of Pearland, PLLC
Fannin MOB Property Management, LLC
Fannin MOB, LLC
Flower Mound Surgery Center, Ltd.
Fort Worth Investments, Inc.
Frisco Warren Parkway 91, Inc.
G. Rowe, M.D., PLLC
G. Schnider, M.D., PLLC
G. Voorhees, M.D., PLLC
G.P. Martin Fletcher & Associates, LLC
Galen Hospital of Baytown, Inc.
General and Cardiovascular Surgeons of Conroe, PLLC
General Surgeons of Houston, PLLC
General Surgeons of North Richland Hills, PLLC
General Surgeons of Pasadena, PLLC
GI Associates of Denton, PLLC
GI Associates of Lewisville, PLLC
Gramercy Surgery Center, Ltd.
Greater Houston Preferred Provider Option, Inc.
Green Oaks Hospital Subsidiary, L.P.
Gulf Coast Division, Inc.
Gulf Coast Electrophysiology Associates, PLLC
Gulf Coast Physician Administrators, Inc.
Gulf Coast Provider Network, Inc.
H2U Wellness Centers - Conroe ISD, PLLC
H2U Wellness Centers - Corpus Christi, PLLC
H2U Wellness Centers - Clear Lake Regional Medical Center, PLLC
H2U Wellness Centers - Conroe Regional Medical Center, PLLC
H2U Wellness Centers - Del Sol Medical Center, PLLC
H2U Wellness Centers - El Paso, PLLC
H2U Wellness Centers - Las Palmas Medical Center, PLLC
H2U Wellness Centers - Medical City Dallas, PLLC
H2U Wellness Centers - PISD, PLLC
H2U Wellness Centers - San Benito CISD, PLLC
H2U Wellness Centers - St. Davids Medical Center, PLLC
HBP Lone Star, Inc.
HCA Central/West Texas Physicians Management, LLC
HCA Health Services of Texas, Inc.
HCA Pearland GP, Inc.
HCA Plano Imaging, Inc.
HCA Western Group, Inc.
HCAPS Conroe Affiliation, Inc.
HealthTrust Locums, Inc.
Heart Specialist of North Texas, PLLC
Heartcare of Texas, Ltd.
Hidalgo County Family Practitioners, PLLC
Hidden Lakes Health Center, PLLC
Hip & Joint Specialists of North Texas, PLLC
Houston CareNow Urgent Care, PLLC
Houston Northwest Concessions, L.L.C.
Houston Northwest Operating Company, L.L.C.
Houston Northwest Surgical Partners, Inc.
Houston Obstetrics and Gynecology for Women, PLLC
Houston Pediatric Specialty Group, PLLC
HPG Energy, L.P.
HPG GP, LLC
HTI Gulf Coast, Inc.
HWCA, PLLC
ICU Associates of West Houston, PLLC
Internal Medicine Associates of Huntsville, PLLC
Internal Medicine of Pasadena, PLLC
Internist Associates of Houston, PLLC
J. M. Garcia, M.D., PLLC
Kathy L. Summers, M.D., PLLC
Kennedale Primary Care PLLC
Kingwood Multi-Specialty Group, PLLC
Kingwood Surgery Center, LLC
KPH-Consolidation, Inc.
Kyle Primary Care, PLLC
Lake Forest Family Health, PLLC
Las Colinas Primary Care, PLLC
Las Colinas Surgery Center, Ltd.
Las Palmas Del Sol Cardiology, PLLC
Las Palmas Del Sol Urgent Care, PLLC
Leadership Healthcare Holdings II L.P., L.L.P.
Leadership Healthcare Holdings L.P., L.L.P.
Leslie Cohan, M.D., PLLC
Lewisville Primary Care, PLLC
Lonestar Provider Network
Longview Regional Physician Hospital Organization, Inc.
M. Jamshidi, D.O., PLLC
Mainland Family Medicine, PLLC
Mainland Multi-Specialty Group, PLLC
Mainland Primary Care Physicians, PLLC
Mark Gottesman, M.D., PLLC
Martin Fletcher Associates Holdings, Inc.
Martin, Fletcher & Associates, L.P.
Mary Alice Cowan, M.D., PLLC
Maternal Fetal Medicine Specialists of Corpus Christi, PLLC
McAllen Comprehensive Upper Extremity Center, PLLC
McKinney Surgeons, PLLC
MEC Endoscopy, LLC
Med City Dallas Outpatient Surgery Center, L.P.
Med-Center Hosp./Houston, Inc.
Medical Care Surgery Center, Inc.
Medical City Dallas Hospital, Inc.
Medical City Dallas Primary Care, PLLC
Medical City OB-GYN, PLLC
Medical City Pediatrics, PLLC
Medical City Transplant, PLLC
MediPurchase, Inc.
Methodist CareNow Physician Associates
Methodist Cardiology Physicians
Methodist CareNow Urgent Care, PLLC
Methodist Healthcare System of San Antonio, Ltd., L.L.P.
Methodist Inpatient Management Group
Methodist Medical Center ASC, L.P.
Methodist Physician Alliance
Methodist Physician Practice Services, LLC
Methodist Physician Practices, PLLC
Metroplex Surgicenters, Inc.
MFA G.P., LLC
MFM Fact, PLLC
MGH Medical, Inc.
MHS SC Partner, L.L.C.
MHS Surgery Centers, L.P.
Michael Mann, M.D., PLLC
Mid-Cities Surgi-Center, Inc.
Movement Disorders of North Texas, PLLC
National Patient Account Services, Inc.
Navarro Memorial Hospital, Inc.
Neuro-Hospitalist of Clear Lake, PLLC
NeuroHospitalist of McAllen, PLLC
Neurological Eye Specialists of North Texas, PLLC
Neurological Specialists of McKinney, PLLC
Neurological Specialists, PLLC
Neurosurgery of Kingwood, PLLC
Neurosurgical Associates of North Texas, PLLC
Neurosurgical Specialists of El Paso, PLLC
Neurosurgical Specialists of North Texas, PLLC
North Austin Plastic Surgery Associates, PLLC
North Austin Surgery Center, L.P.
North Central Methodist ASC, L.P.
North Hills Cardiac Catheterization Center, L.P.
North Hills Catheterization Lab, LLC
North Hills Orthopaedic Surgeons, PLLC
North Hills Surgicare, L.P.
North Shore Specialists of Texas, PLLC
North Texas - MCA, LLC
North Texas Cardiology, PLLC
North Texas Craniofacial Fellowship Program, PLLC
North Texas Division, Inc.
North Texas General, L.P.
North Texas Geriatrics, PLLC
North Texas Heart Surgery Center, PLLC
North Texas Internal Medicine Specialists, PLLC
North Texas Neuro Stroke OP, PLLC
North Texas of Hope, PLLC
North Texas Pulmonary Critical Care, PLLC
North Texas Sports and Orthopedics Center, PLLC
North Texas Stroke Center, PLLC
Northeast Methodist Surgicare, Ltd.
Northeast PHO, Inc.
NT Urgent Care, PLLC
Oakwood Surgery Center, Ltd., LLP
OB Hospitalists of Womans Hospital, PLLC
OB/Gyn Associates of Denton, PLLC
OB/GYN of Brownsville, PLLC
Occupational and Family Medicine of South Texas
On-Site Primary Care, PLLC
Orthopedic Hospital, Ltd.
Outpatient Womens and Childrens Surgery Center, Ltd.
Paragon of Texas Health Properties, Inc.
Paragon Physicians Hospital Organization of South Texas, Inc.
Paragon Surgery Centers of Texas, Inc.
Park Central Surgical Center, Ltd.
Parkway Cardiac Center, Ltd.
Parkway Surgery Services, Ltd.
Pasadena Bayshore Hospital, Inc.
Pearland Institute for Womens Health, PLLC
Pediatric Anesthesia Consultants of San Antonio, PLLC
Pediatric Cardiac Intensivists of North Texas, PLLC
Pediatric Critical Care of Clear Lake, PLLC
Pediatric Hospitalists of Conroe, PLLC
Pediatric Intensivists of El Paso, PLLC
Pediatric Intensivists of North Texas, PLLC
Pediatric Specialists of Clear Lake, PLLC
Pediatric Surgicare, Inc.
Pediatrics of Greater Houston, PLLC
Physicians Ambulatory Surgery Center, LLC
Plano Surgery Center - GP, LLC
Plano Surgery Center Real Estate, LLC
Plano Surgicenter Real Estate Manager, LLC
Plano Urology, PLLC
Plaza Medical Specialists, PLLC
Plaza Primary Care, PLLC
Plaza Transplant Center, PLLC
Primary Care Plano, PLLC
Primary Care South, PLLC
Primary Care West, PLLC
Primary Health Asset Holdings, Ltd.
Primary Health Network of South Texas
Primary Health, Inc.
Quantum/Bellaire Imaging, Ltd.
Rim Building Partners, L.P.
Rio Grande Healthcare MSO, Inc.
Rio Grande NP, Inc.
Rio Grande Regional Hospital, Inc.
Rio Grande Valley Cardiology, PLLC
Rio Grande Valley Urology, PLLC
Rosewood Medical Center, Inc.
Rosewood Professional Building, Ltd.
Round Rock Trauma Surgeons, PLLC
Royal Oaks Surgery Center, L.P.
S. Faro, M.D. & C. Faro, M.D., PLLC
S.A. Medical Center, Inc.
San Antonio Division, Inc.
San Antonio Regional Hospital, Inc.
San Antonio Surgicenter, LLC
Sante Fe Family Practitioners, PLLC
SAPN, LLC
South Austin Surgery Center, Ltd.
South Texas Surgicare, Inc.
Southern Texas Physicians Network
Specialty Associates of West Houston, PLLC
Spring Branch Family Practitioners, PLLC
Spring Branch Medical Center, Inc.
St. Davids Healthcare Partnership, L.P., LLP
St. Davids Austin Area ASC, LLC
St. Davids Cardiology, PLLC
St. Davids CareNow Urgent Care, PLLC
St. Davids Heart & Vascular, PLLC
St. Davids Neurology, PLLC
St. Davids OB Hospitalist, PLLC
St. Davids Ortho, Neuro and Rehab, PLLC
St. Davids Physical Medicine and Rehabilitation, PLLC
St. Davids Quality Alliance, LLC
St. Davids Specialized Womens Services, PLLC
St. Davids Trauma Surgeons, PLLC
STPN Manager, LLC
Sugar Land Surgery Center Anesthesia, LLC
Sugar Land Surgery Center, Ltd.
Sun Towers/Vista Hills Holding Co.
Surgery Associates of NTX, PLLC
Surgery Center of Bay Area Houston, LLC
Surgical Center of Irving, Inc.
Surgical Facility of West Houston, L.P.
Surgical Specialists of Clear Lake, PLLC
Surgical Specialists of Conroe, PLLC
Surgical Specialists of Corpus Christi, PLLC
Surgicare of Arlington, LLC
Surgicare of Bay Area Endoscopy, LLC
Surgicare of Central Park Surgery Center, LLC
Surgicare of Central San Antonio, Inc.
Surgicare of Flower Mound, Inc.
Surgicare of Fort Worth Co-GP, LLC
Surgicare of Fort Worth, Inc.
Surgicare of Gramercy, Inc.
Surgicare of Houston Womens, Inc.
Surgicare of Kingwood, LLC
Surgicare of McKinney, Inc.
Surgicare of Medical City Dallas, LLC
Surgicare of Memorial Endoscopy, LLC
Surgicare of North Austin, LLC
Surgicare of North San Antonio, Inc.
Surgicare of Northeast San Antonio, Inc.
Surgicare of Pasadena, Inc.
Surgicare of Round Rock, Inc.
Surgicare of Royal Oaks, LLC
Surgicare of South Austin, Inc.
Surgicare of Southwest Houston, LLC
Surgicare of St. Davids Austin, LLC
Surgicare of Sugar Land, Inc.
Surgicare of Travis Center, Inc.
Tarrant County Surgery Center, L.P.
Texas CareNow Physician Associates
Texas HSS, LLC
Texas Institute of Medicine and Surgery
Texas Psychiatric Company, Inc.
The Cardiovascular Partnership for Quality, LLC
The West Texas Division of Columbia, Inc.
THN Physicians Association, Inc.
Travis Surgery Center, L.P.
Tuscan Imaging Center at Las Colinas, LLC
Urological Specialists of Arlington, PLLC
Urology Services of El Paso, PLLC
Urology Specialists of Kingwood, PLLC
Village Oaks Medical Center, Inc.
W & C Hospital, Inc.
West Houston ASC, Inc.
West Houston Healthcare Group, Ltd.
West Houston Internal Specialists, PLLC
West Houston Medical, PLLC
West Houston Outpatient Medical Facility, Inc.
West Houston Surgicare, Inc.
West LPN Fort Worth Oncology, PLLC
West LPN, Inc.
West McKinney Imaging Services, LLC
West Park Surgery Center, L.P.
WHMC, Inc.
Womans Health Group, PLLC
Womans Hospital of Texas, Incorporated
Women Practitioners of Houston, PLLC
Women Specialists of Bayshore, PLLC
Women Specialists of Clear Lake, PLLC
Women Specialists of Mainland, PLLC
Womens Link Specialty Obstetrical Referral Clinic, PLLC
Womens Surgical Specialists of Texas, PLLC
UNITED KINGDOM
52 Alderley Road LLP
Backlogs Limited
Basil Street Practice Limited
Blossoms Healthcare LLP
Catalog360 Limited
Chelsea Outpatient Centre LLP
Chiswick Outpatient Centre LLP
Elstree Outpatient Centre LLP
Galen Health Partners Limited
General Medical Clinics Limited
Hamsard 3160 Limited
Harley Street Clinic @ The Groves LLP
Hathor Chelsea, Ltd.
HCA Carenow Limited
HCA Finance, LP
HCA Global Capital LLP
HCA Healthcare UK Limited
HCA International Holdings Limited
HCA International Limited
HCA Luxembourg Finance Limited
HCA Medical City Limited
HCA Purchasing Limited
HCA Staffing Limited
HCA Swiss Capital 1 LLP
HCA Swiss Capital 2 LLP
HCA UK Capital Limited
HCA UK Holdings Limited
HCA UK Investments Limited
HCA UK Limited
HCA UK Services Limited
Health International Billing Partners Limited
HealthTrust Europe Company Limited
HealthTrust - Europe LLP
Leaders in Oncology Care Limited
LOC @ The Christie LLP
LOC @ The London Bridge Hospital LLP
LOC Partnership LLP
London Oncology Clinic LLP
London Pathology Limited
London Radiography & Radiotherapy Services Limited
OBS Diagnostic and Treatment Centre LLP
Online Pathology Services Limited
PET CT LLP
Robotic Radiosurgery LLP
Roodlane Medical Limited
Sarah Cannon Research Institute UK Limited
SCRI Global Services Limited
St. Martins Healthcare Limited
St. Martins Ltd.
St. Martins Medical Services Limited
The Christie Clinic LLP
The Glynne Medical Practice Limited
The Harley Street Cancer Clinic Limited
The Physicians Clinic Limited
The Prostate Centre Limited
Urology Associates (London) Limited
Urology Specialists Devonshire LLP
Urology Specialists London LLP
Welbeck Street Diagnostic Centre LLP
Wellington Diagnostic Services LLP
UTAH
Alta Internal Medicine, LLC
Bountiful Surgery Center, LLC
Brigham City Community Hospital Physician Services, LLC
Brigham City Community Hospital, Inc.
Brigham City Health Plan, Inc.
Columbia Ogden Medical Center, Inc.
East Layton Internal Medicine, LLC
General Hospitals of Galen, Inc.
Gynecology Specialists of Utah, LLC
Healthtrust Utah Management Services, Inc.
Hospital Corporation of Utah
HTI Physician Services of Utah, Inc.
Jordan Family Health, L.L.C.
Lakeview Hospital Physician Services, LLC
Lakeview Internal Medicine, LLC
Lakeview Neurosurgery Clinic, LLC
Lakeview Professional Billing, LLC
Lakeview Regional Medical Center Inpatient Services, LLC
Lakeview Urology & General Surgery, LLC
Layton Family Practice, LLC
Lone Peak Hospital, Inc.
Maternal Fetal Services of Utah, LLC
Mountain Division - CVH, LLC
Mountain Division, Inc.
Mountain View Hospital, Inc.
Mountain West Surgery Center, LLC
MountainStar Behavioral Health, LLC
MountainStar Brigham General Surgery, LLC
Mountainstar Brigham OBGYN, LLC
MountainStar Canyon Surgical Clinic, LLC
MountainStar Cardiology Ogden Regional, LLC
MountainStar Cardiology St. Marks, LLC
Mountainstar Cardiovascular Services, LLC
MountainStar Intensivist Services, LLC
MountainStar Medical Group - Cache Valley, LLC
MountainStar Medical Group - Ogden Regional Medical Center, LLC
MountainStar Medical Group - St. Marks Hospital, LLC
MountainStar Medical Group Neurosurgery - St. Marks, LLC
MountainStar Medical Group Timpanogos Primary Care, LLC
MountainStar Medical Group Timpanogos Specialty Care, LLC
Mountainstar Ogden Pediatrics, LLC
MountainStar Specialty Services, LLC
MountainStar Urgent Care, LLC
Mt. Ogden Utah Surgical Center, LLC
MVH Professional Services, LLC
Northern Utah Healthcare Corporation
Northern Utah Healthcare Imaging Holdco, LLC
Northern Utah Imaging, LLC
Ogden Imaging, LLC
Ogden Internal Medicine & Urology, LLC
Ogden Regional Health Plan, Inc.
Ogden Regional Medical Center Professional Billing, LLC
Ogden Senior Center, LLC
Ridgeline Surgicenter, LLC
Salt Lake City Surgicare, Inc.
St. Marks Gynecology Oncology Care, LLC
St. Marks Investments, Inc.
St. Marks Physician Billing, LLC
St. Marks Professional Services, LLC
St. Marks South Jordan Family Practice, LLC
Surgicare of Bountiful, LLC
Surgicare of Mountain West, LLC
Surgicare of Mt. Ogden, LLC
Surgicare of Ridgeline, LLC
Surgicare of Utah, LLC
Surgicare of Wasatch Front, LLC
The Wasatch Endoscopy Center, Ltd.
Timpanogos Pain Specialists, LLC
Timpanogos Regional Medical Services, Inc.
Utah Imaging GP, LLC
Utah Surgery Center, L.P.
Wasatch Front Surgery Center, LLC
West Jordan Hospital Corporation
West Valley Imaging, LLC
VIRGIN ISLANDS
The London Breast Institute UK Ltd
VIRGINIA
Alleghany General and Bariatric Services, LLC
Alleghany Hospitalists, LLC
Alleghany Primary Care, Inc.
Alleghany Specialists, LLC
Ambulatory Services Management Corporation of Chesterfield County, Inc.
Appomattox Imaging, LLC
Arlington Surgery Center, L.P.
Arlington Surgicare, LLC
Ashburn ASC, LLC
Ashburn Imaging, LLC
Atrium Surgery Center, L.P.
Atrium Surgicare, LLC
Behavioral Health Wellness Center, LLC
Blacksburg Family Care, LLC
Buford Road Imaging, L.L.C.
Capital Anesthesia Services, LLC
Capital Division, Inc.
Capital Professional Billing, LLC
Cardiac Surgical Associates, LLC
Carlin Springs Urgent Care, LLC
Central Shared Services, LLC
Chesterfield Imaging, LLC
Chippenham & Johnston-Willis Hospitals, Inc.
Chippenham & Johnston-Willis Sports Medicine, LLC
Chippenham Ambulatory Surgery Center, LLC
Chippenham Pediatric Specialists, LLC
Christiansburg Family Medicine, LLC
Christiansburg Internal Medicine, LLC
CJW Infectious Disease, LLC
CJW Wound Healing Center, LLC
Columbia Arlington Healthcare System, L.L.C.
Columbia Healthcare of Central Virginia, Inc.
Columbia Medical Group - Southwest Virginia, Inc.
Columbia Pentagon City Hospital, L.L.C.
Columbia/Alleghany Regional Hospital, Incorporated
Columbia/HCA John Randolph, Inc.
Commonwealth Perinatal Services, LLC
Crewe Outpatient Imaging, LLC
CVMC Property, LLC
Daleville Imaging Manager, LLC
Daleville Imaging, L.P.
Dominion Hospital Physicians Group, LLC
Fairfax Surgical Center, L.P.
Family Medicine of Blacksburg, LLC
Family Practice at Forest Hill, LLC
Family Practice at Retreat, LLC
Fort Chiswell Family Practice, LLC
Galen of Virginia, Inc.
Galen Property, LLC
Galen Virginia Hospital Corporation
Generations Family Practice, Inc.
GYN-Oncology of Southwest Virginia, LLC
HCA Health Services of Virginia, Inc.
HCA LewisGale Regional Cancer Centers Clinical Co-Management Company, LLC
HCA Richmond Cardiac Clinical Co-Management Company, LLC
HDH Thoracic Surgeons, LLC
Henrico Doctors Neurology Associates, LLC
Henrico Doctors OB GYN Specialists, LLC
Henrico Surgical Specialists, LLC
HSS Virginia, L.P.
Institute of Advanced ENT Surgery, LLC
Internal Medicine of Blacksburg, LLC
James River Internists, LLC
John Randolph Family Practice, LLC
John Randolph OB/GYN, LLC
John Randolph Surgeons, LLC
Lewis Gale Physicians Specialists, LLC
Lewis-Gale Hospital, Incorporated
Lewis-Gale Physicians, LLC
LGMC Ambulatory Surgery Center, LLC
Loudoun Surgery Center, L.P.
Loudoun Surgery Center, LLC
Management Services of the Virginias, Inc.
Mechanicsville Imaging, LLC
Montgomery Cancer Center, LLC
Montgomery Hospitalists, LLC
Montgomery Regional Hospital, Inc.
Montgomery Surgery Associates, LLC
Northern Virginia CareNow Urgent Care, LLC
Northern Virginia Community Hospital, LLC
Northern Virginia Hospital Corporation
Orthopedics Specialists, LLC
Pavilion 2 Condominium Property, LLC
Pavilion 2 Medical Office Building Condominium Association, Inc.
Preferred Hospitals, Inc.
Primary Care of West End, LLC
Primary Health Group, Inc.
Pulaski Community Hospital, Inc.
Pulaski Urology, LLC
Quick Care Centers, LLC
Radford Family Medicine, LLC
Reston Hospitalists, LLC
Reston Surgery Center, L.P.
Retreat Cardiology, LLC
Retreat Hospital, LLC
Retreat Internal Medicine, LLC
Retreat Surgical Associates, LLC
Richmond Imaging Employer Corp.
Richmond Multi-Specialty, LLC
Richmond Pediatric Surgeons, LLC
Roanoke Imaging, LLC
Roanoke Neurosurgery, LLC
Roanoke Surgery Center, L.P.
Roanoke Valley Gynecology, LLC
Salem Hospitalists, LLC
Short Pump Imaging, LLC
Southwest Virginia Orthopedics and Spine, LLC
Southwestern Virginia Oncology, LLC
Specialty Physicians of Northern Virginia, LLC
Spotsylvania Condominium Property, LLC
Spotsylvania Medical Center, Inc.
Spotsylvania Multi-Specialty Group, LLC
Spotsylvania Radiation Therapy Center, LLC
Spotsylvania Regional Surgery Center, LLC
Stafford Imaging, LLC
StoneSprings Medical Office Building Property, LLC
Surgical Associates of Southwest Virginia, LLC
Surgicare of Ashburn, LLC
Surgicare of Chippenham, LLC
Surgicare of Fairfax, Inc.
Surgicare of Hanover, Inc.
Surgicare of Reston, Inc.
Surgicare of Roanoke, LLC
Surgicare of Spotsylvania, LLC
Surgicare of Winchester, LLC
Tri-City Multi-Specialty, LLC
Urology Specialists of Richmond, LLC
Virginia Gynecologic Oncology, LLC
Virginia Hematology & Oncology Associates, Inc.
Virginia Hospitalists, Inc.
Virginia Psychiatric Company, Inc.
Virginia Quality Care Partners, LLC
West Creek Ambulatory Surgery Center, LLC
West Creek Medical Center, Inc.
Womens & Childrens Center, LLC
Womens Health Center of SWVA, LLC
WASHINGTON
ACH, Inc.
Capital Network Services, Inc.
WEST VIRGINIA
Columbia Parkersburg Healthcare System, LLC
Galen of West Virginia, Inc.
HCA Health Services of West Virginia, Inc.
Hospital Corporation of America
Parkersburg SJ Holdings, Inc.
Teays Valley Health Services, LLC
Tri Cities Health Services Corp.
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) |
Registration Statement (Form S-8 No. 333-197656) pertaining to the HCA Holdings, Inc. Employee Stock Purchase Plan, |
(2) |
Registration Statement (Form S-8 No. 333-172887) pertaining to the 2006 Stock Incentive Plan for Key Employees of HCA Holdings, Inc. and its Affiliates, as Amended and Restated, and |
(3) |
Registration Statement (Form S-8 No. 333-150714) pertaining to the 2006 Stock Incentive Plan for Key Employees of HCA Inc. and its Affiliates; |
of our reports dated February 23, 2018, with respect to the consolidated financial statements of HCA Healthcare, Inc. and the effectiveness of internal control over financial reporting of HCA Healthcare, Inc., included in this Annual Report (Form 10-K) of HCA Healthcare, Inc. for the year ended December 31, 2017.
/s/ Ernst & Young LLP
Nashville, Tennessee
February 23, 2018
EXHIBIT 31.1
CERTIFICATIONS
I, R. Milton Johnson, certify that:
1. I have reviewed this annual report on Form 10-K of HCA Healthcare, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit and compliance committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
By: |
/s/ R. M ILTON J OHNSON |
|
R. Milton Johnson Chairman and Chief Executive Officer |
Date: February 23, 2018
EXHIBIT 31.2
CERTIFICATIONS
I, William B. Rutherford, certify that:
1. I have reviewed this annual report on Form 10-K of HCA Healthcare, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit and compliance committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
By: |
/s/ W ILLIAM B. R UTHERFORD |
|
William B. Rutherford Executive Vice President and Chief Financial Officer |
Date: February 23, 2018
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of HCA Healthcare, Inc. (the Company) on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
By: |
/s/ R. M ILTON J OHNSON |
|
R. Milton Johnson Chairman and Chief Executive Officer |
February 23, 2018
By: |
/s/ W ILLIAM B. R UTHERFORD |
|
William B. Rutherford Executive Vice President and Chief Financial Officer |
February 23, 2018