ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION TO MANAGEMENT’S DISCUSSION AND ANALYSIS
The purpose of this section, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the context within which our financial information may be analyzed, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows.
Our core business is our Hospital Operations and other segment, which is focused on operating acute care hospitals, ancillary outpatient facilities, freestanding emergency departments, physician practices and health plans. Our Ambulatory Care segment is comprised of the operations of our USPI Holding Company, Inc. (“USPI joint venture”),
in which we acquired a majority interest on
June 16, 2015, and European Surgical Partners Limited (“Aspen”) facilities, which we also acquired on June 16, 2015. At June 30, 2016, our USPI joint venture had interests in 250 ambulatory surgery centers, 34 urgent care centers, 21 imaging centers and 20 short-stay surgical hospitals in 28 states, and Aspen operated nine private hospitals and clinics in the United Kingdom. Our Conifer segment provides healthcare business process services in the areas of revenue cycle management and technology-enabled performance improvement and health management solutions to health systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities, through our Conifer Holdings, Inc. (“Conifer”) subsidiary. MD&A, which should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, includes the following sections:
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·
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Forward-Looking Statements
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·
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Liquidity and Capital Resources
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·
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Off-Balance Sheet Arrangements
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·
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Critical Accounting Estimates
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Unless otherwise indicated, all financial and statistical information included in MD&A relates to our continuing operations, with dollar amounts expressed in millions (except per share, per admission, per adjusted admission, per patient day, per adjusted patient day, per visit and per case amounts). Continuing operations information includes the results of (i) our same 67 hospitals and six health plans operated throughout the six months ended June 30, 2016 and 2015,
(ii) our USPI joint venture, in which we acquired a majority interest on June 16, 2015, (iii) Aspen, which we also acquired on June 16, 2015, (iv) Hi-Desert Medical Center, which we began operating on July 15, 2015, (v) our Carondelet Heath Network joint venture, in which we acquired a majority interest on August 31, 2015, (vi) Saint Louis University Hospital (“SLUH”), which we divested on August 31, 2015, (vii) our
joint venture with Baptist Health System, Inc., which we formed on October 2, 2015
, (viii) DMC Surgery Hospital, which we closed in October 2015, (ix) our two North Carolina hospitals, which we divested effective January 1, 2016, (x) our four North Texas hospitals in which we divested a controlling interest effective January 1, 2016, but continue to operate, and (xi) our five Georgia hospitals, which we divested effective April 1, 2016, in each case only for the period from acquisition, or commencement of operations of the facility, as the case may be, to June 30, 2016 and 2015 or to the date of divestiture, as applicable
. Continuing operations information excludes the results of our hospitals and other businesses that have been classified as discontinued operations for accounting purposes. Certain previously reported information, primarily related to our freestanding ambulatory surgery and imaging center assets that were contributed to the USPI joint venture, has been reclassified to conform to the current-year presentation. These outpatient facilities were formerly part of our Hospital Operations and other segment, but are now reported as part of our Ambulatory Care segment
.
MANAGEMENT OVERVIEW
RECENT DEVELOPMENTS
Update on Clinica de la Mama Matters
—The Company believes that it has reached an agreement in principle with the U.S. Department of Justice, the U.S. Attorneys’ Offices for the Northern and Middle Districts of Georgia, and the Georgia Attorney General’s Office to resolve a previously disclosed civil qui tam case and parallel criminal investigation of the Company and certain of its subsidiaries (collectively, the “Clinica de la Mama matters”) for $514 million. In addition to the monetary component, the agreement in principle contemplates, among other things: (i) the execution of a Non-Prosecution Agreement, which includes the appointment of a corporate monitor for a period of three years; (ii) the agreement of the two indirect, wholly owned subsidiaries that previously operated Atlanta Medical Center and North Fulton Hospital, and which currently have no operating assets, to plead guilty to a single count of conspiracy to violate the federal anti-kickback statute and defraud the United States; and (iii) the execution of a corporate integrity agreement. The final resolution is subject to the negotiation and execution of definitive agreements, which we believe will be completed in the three months ending September 30, 2016. For additional information regarding these and other terms of the agreement in principle, see Note 10 to the Condensed Consolidated Financial Statements.
STRATEGIES AND TRENDS
We are committed to providing the communities we serve with high quality, cost-effective healthcare while growing our business, increasing our profitability and creating long-term value for our shareholders. We believe that our success in increasing our profitability depends in part on our success in executing the strategies and managing the trends discussed below.
Core Business Strategy
—
We are focused on providing high quality care to patients through our hospitals and outpatient centers, and offering an array of business process solutions primarily to healthcare providers through Conifer. With respect to our hospitals, ambulatory care centers and other outpatient businesses, we seek to offer superior quality and patient services to meet community needs, to make capital and other investments in our facilities and technology, to recruit and retain physicians, and to negotiate competitive contracts with managed care and other private payers. With respect to business process services, we provide comprehensive operational management for revenue cycle functions, including patient access, health information management, revenue integrity and patient financial services. We also offer communication and engagement solutions to optimize the relationship between providers and patients. In addition, Conifer operates a management services business that supports value-based performance through clinical integration, financial risk management and population health management.
Commitment to Quality
—
We are continuing to make significant investments in equipment, technology, education and operational strategies designed to improve clinical quality at all of our facilities. In addition, we continually collaborate with physicians to implement the most current evidence-based medicine techniques to improve the way we provide care, while using labor management tools and supply chain initiatives to reduce variable costs. We believe the use of these practices will promote the most effective and efficient utilization of resources and result in shorter lengths of stay and reductions in readmissions for hospitalized patients.
Development Strategies
—
We remain focused on opportunities to increase our hospital and outpatient revenues, and to expand our Conifer services business, through organic growth, corporate development activities and strategic partnerships.
From time to time, we build new facilities, make acquisitions of healthcare assets and companies, and enter into joint venture arrangements or affiliations with healthcare businesses in markets where we believe our operating strategies can improve performance and create shareholder value.
Effective January 1, 2016, we
formed two joint ventures with Baylor Scott & White Health (“BSW”) involving the ownership and operation of our four North Texas hospitals – which were operated by certain of our subsidiaries – and Baylor Medical Center at Garland – which was operated by BSW. The joint ventures are focusing on delivering integrated, value-based care primarily to select communities in Rockwall, Collin and Dallas counties. BSW holds a majority ownership interest in the joint ventures.
Historically, our outpatient services have generated significantly higher margins for us than inpatient services.
During the three months ended June 30, 2016, we derived approximately 42% of our net patient revenues from outpatient services. By expanding our outpatient business, we expect to increase our profitability over time. The surgical facilities in our USPI joint venture specialize in non
‑emergency surgical cases. Due in part to advancements in medical technology, and due to the lower cost structure and greater efficiencies that are attainable in a specialized outpatient site, we believe the volume and complexity of surgical cases performed in an outpatient setting will continue to steadily increase. In addition, we have continued growing our imaging and urgent care businesses through our USPI joint venture’s acquisitions, including the December 31, 2015 acquisition of CareSpot Express Healthcare, which added over 30 urgent care centers in Florida and Tennessee to our USPI joint venture’s portfolio of outpatient centers. These acquisitions reflect our broader strategies to (1) offer more services to patients, (2) broaden the capabilities we offer to health system and physician partners to include other outpatient settings beyond the core ambulatory care business, and (3) expand into faster-growing, less capital intensive, higher-margin businesses. Furthermore, we continually evaluate joint venture opportunities with other healthcare providers in our markets to maximize effectiveness, reduce costs and build clinically integrated networks that provide quality services across the care continuum.
We intend to continue to market and expand Conifer’s revenue cycle management, patient communications and engagement services, and management services businesses. Conifer provides services to more than 800 Tenet and non-Tenet hospital and other clients nationwide. Historically, this business has generated high margins and improved our overall results of operations. Conifer’s service offerings have also expanded to support value-based performance through clinical integration, financial risk management and population health management, which are integral parts of the healthcare industry’s movement toward accountable care organizations (“ACOs”) and similar risk-based or capitated contract models. In addition to hospitals and independent physician associations, clients for these services include health plans, self-insured organizations, government agencies and other entities. We also remain focused on developing, acquiring or entering into joint venture arrangements to establish new capabilities at Conifer.
General Economic Conditions
—
We believe that slow wage growth in some of the markets our hospitals serve and other adverse economic conditions have had a negative impact on our bad debt expense levels and payer mix. However, as the economy continues to recover, we expect to experience improvements in these metrics relative to recent levels. We believe our volumes were positively impacted in the six months ended June 30, 2016 by incremental market share we generated through improved physician alignment and service line expansion, insurance coverage for a greater number of individuals, and a strengthening economy.
Improving Operating Leverage
—
We believe targeted capital spending on critical growth opportunities for our hospitals, emphasis on higher-demand clinical service lines (including outpatient lines), focus on expanding our outpatient business, implementation of new payer contracting strategies, and improved quality metrics at our hospitals will improve our patient volumes. We believe our patient volumes have been constrained by the slow pace of the current economic recovery, increased competition, utilization pressure by managed care organizations, the effects of higher patient co-pays and deductibles, and demographic trends. In addition, in several markets, we have formed clinically integrated organizations, which are collaborations with independent physicians and hospitals to develop ongoing clinical initiatives designed to control costs and improve the quality of care delivered to patients. Arrangements like these provide a foundation for negotiating with plans under an ACO structure or other risk-sharing model
.
Impact of the Affordable Care Act
—
We anticipate that we will continue to benefit over time from the provisions of the Patient
Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act” or “ACA”) that have extended insurance coverage through Medicaid or private insurance to a broader segment of the U.S. population. Although we are unable to predict the ultimate net effect of the Affordable Care Act on our future results of operations, and while there have been and will continue to be some reductions in reimbursement rates by governmental payers, we began to receive reimbursement for caring for previously uninsured and underinsured patients in 2014.
Through
collaborative efforts with local community organizations, we launched a campaign under the banner “Path to Health” to assist our hospitals in educating and enrolling uninsured patients in insurance plans
.
At June 30, 2016, we operated hospitals in six of the states (Arizona, California, Illinois, Massachusetts, Michigan and Pennsylvania) that have expanded their Medicaid programs.
Our ability to execute on these strategies and manage these trends is subject to a number of risks and uncertainties that may cause actual results to be materially different from expectations. In addition, it is important that we make steady and measurable progress in successfully integrating acquired businesses and new joint ventures into our business processes, as appropriate. For information about risks and uncertainties that could affect our results of operations, see the Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report on Form 10-K for the year ended December 31, 2015 (“Annual Report”).
RESULTS OF OPERATIONS—OVERVIEW
The following tables show certain selected operating statistics for our continuing operations, which includes the results of
(i) our same 67 hospitals and six health plans operated throughout
six months ended June 30, 2016 and 2015,
(ii) our USPI joint venture, in which we acquired a majority interest on June 16, 2015, (iii) Aspen, which we also acquired on June 16, 2015, (iv) Hi
‑Desert Medical Center, which we began operating on July 15, 2015, (v) our Carondelet Heath Network joint venture, in which we acquired a majority interest on August 31, 2015, (vi) SLUH, which we divested on August 31, 2015, (vii) our
joint venture with Baptist Health System, Inc., which we formed on October 2, 2015
, (viii)
DMC Surgery Hospital, which we closed in October 2015, (ix) our two North Carolina hospitals, which we divested effective January 1, 2016, (x)
our four North Texas hospitals in which we divested a controlling interest
effective January 1, 2016,
but continue to operate, and (xi) our five Georgia hospitals, which we divested effective April 1, 2016, in each case only for the period from acquisition, or commencement of
operations of the facility, as the case may be, to June 30, 2016 and 2015 or to the date of divestiture, as applicable.
We believe this information is useful to investors because it reflects our current portfolio of operations and the recent trends we are experiencing with respect to volumes, revenues and expenses.
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|
|
|
|
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Continuing Operations
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|
|
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Three Months Ended June 30,
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|
|
|
|
|
|
|
|
|
|
Increase
|
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Selected Operating Statistics
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
Hospital Operations and other
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hospitals (at end of period)
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|
75
|
|
|
|
80
|
|
|
(5)
|
(1)
|
|
Total admissions
|
|
|
193,898
|
|
|
|
201,908
|
|
|
(4.0)
|
%
|
|
Adjusted patient admissions
(2)
|
|
|
342,813
|
|
|
|
349,145
|
|
|
(1.8)
|
%
|
|
Paying admissions (excludes charity and uninsured)
|
|
|
183,539
|
|
|
|
191,373
|
|
|
(4.1)
|
%
|
|
Charity and uninsured admissions
|
|
|
10,359
|
|
|
|
10,535
|
|
|
(1.7)
|
%
|
|
Emergency department visits
|
|
|
715,692
|
|
|
|
742,951
|
|
|
(3.7)
|
%
|
|
Total surgeries
|
|
|
130,201
|
|
|
|
127,523
|
|
|
2.1
|
%
|
|
Patient days — total
|
|
|
897,313
|
|
|
|
929,840
|
|
|
(3.5)
|
%
|
|
Adjusted patient days
(2)
|
|
|
1,569,272
|
|
|
|
1,589,659
|
|
|
(1.3)
|
%
|
|
Average length of stay (days)
|
|
|
4.63
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|
|
|
4.61
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|
|
0.4
|
%
|
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Average licensed beds
|
|
|
20,380
|
|
|
|
20,826
|
|
|
(2.1)
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%
|
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Utilization of licensed beds
(3)
|
|
|
48.4
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%
|
|
|
49.1
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%
|
|
(0.7)
|
%
(1)
|
|
Total visits
|
|
|
2,038,287
|
|
|
|
2,063,037
|
|
|
(1.2)
|
%
|
|
Paying visits (excludes charity and uninsured)
|
|
|
1,896,394
|
|
|
|
1,903,403
|
|
|
(0.4)
|
%
|
|
Charity and uninsured visits
|
|
|
141,893
|
|
|
|
159,634
|
|
|
(11.1)
|
%
|
|
Ambulatory Care
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated facilities (at end of period)
|
|
|
214
|
|
|
|
141
|
|
|
73
|
(1)
|
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Total cases
|
|
|
444,955
|
|
|
|
180,524
|
|
|
146.5
|
%
|
|
|
(1)
|
|
The change is the difference between the 2016 and 2015 amounts shown.
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(2)
|
|
Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations and other segment by multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
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(3)
|
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Utilization of licensed beds represents patient days divided by number of days in the period divided by average licensed beds.
|
Total admissions decreased by 8,010, or 4.0%, in the three months ended June 30, 2016 compared to the three months ended June 30, 2015. Total surgeries increased by 2.1% in the three months ended June 30, 2016 compared to the same period in 2015. Our emergency department visits decreased 3.7% in the three months ended June 30, 2016
compared to the same period in the prior year. Our volumes from continuing operations were negatively impacted by the decrease in our number of hospitals, however, we believe the volume decreases were partially offset by the growth we generated through improved physician alignment and service line expansion, insurance coverage for a greater number of individuals, and a strengthening economy. Our Ambulatory Care total cases increased 146.5% due to our USPI joint venture and Aspen acquisition, both of which occurred on June15, 2015.
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|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
Increase
|
Revenues
|
|
2016
|
|
2015
|
|
(Decrease)
|
Net operating revenues before provision for doubtful accounts
|
|
$
|
5,220
|
|
$
|
4,844
|
|
7.8
|
%
|
Hospital Operations and other
|
|
|
|
|
|
|
|
|
|
Revenues from charity and the uninsured
|
|
$
|
249
|
|
$
|
253
|
|
(1.6)
|
%
|
Net inpatient revenues
(1)
|
|
$
|
2,588
|
|
$
|
2,623
|
|
(1.3)
|
%
|
Net outpatient revenues
(1)
|
|
$
|
1,460
|
|
$
|
1,484
|
|
(1.6)
|
%
|
Ambulatory Care revenues
|
|
$
|
442
|
|
$
|
142
|
|
211.3
|
%
|
Conifer revenues
|
|
$
|
386
|
|
$
|
340
|
|
13.5
|
%
|
|
(1)
|
|
Net inpatient revenues and net outpatient revenues are components of net operating revenues. Net inpatient revenues include self-pay revenues of $118 million and $93 million for the three months ended June 30, 2016 and 2015, respectively. Net outpatient revenues include self-pay revenues of $131 million and $160 million for the three months ended June 30, 2016 and 2015, respectively.
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Net operating revenues before provision for doubtful accounts increased by $376 million, or 7.8%, in the three months ended June 30, 2016 compared to the same period in 2015, primarily due to acquisitions, increases in our outpatient volumes and improved managed care pricing, partially offset by hospital divestitures.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
Increase
|
Provision for Doubtful Accounts
|
|
2016
|
|
2015
|
|
(Decrease)
|
Provision for doubtful accounts
|
|
$
|
352
|
|
|
$
|
352
|
|
|
—
|
%
|
Provision for doubtful accounts as a percentage of net operating revenues before provision for doubtful accounts
|
|
|
6.7
|
%
|
|
|
7.3
|
%
|
|
(0.6)
|
%
(1)
|
|
(1)
|
|
The change is the difference between the 2016 and 2015 amounts shown.
|
Provision for doubtful accounts as a percentage of net operating revenues before provision for doubtful accounts was 6.7% and 7.3% for the three months ended June 30, 2016 and 2015, respectively. Our accounts receivable days outstanding (“AR Days”) from continuing operations were 51.1 days at June 30, 2016 and 49.5 days at December 31, 2015, within our target of less than 55 days.
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|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
Increase
|
Selected Operating Expenses
|
|
2016
|
|
2015
|
|
(Decrease)
|
Hospital Operations and other
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
$
|
1,931
|
|
$
|
1,935
|
|
(0.2)
|
%
|
Supplies
|
|
|
682
|
|
|
679
|
|
0.4
|
%
|
Other operating expenses
|
|
|
1,037
|
|
|
980
|
|
5.8
|
%
|
Total
|
|
$
|
3,650
|
|
$
|
3,594
|
|
1.6
|
%
|
Ambulatory Care
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
$
|
147
|
|
$
|
41
|
|
258.5
|
%
|
Supplies
|
|
|
91
|
|
|
28
|
|
225.0
|
%
|
Other operating expenses
|
|
|
91
|
|
|
30
|
|
203.3
|
%
|
Total
|
|
$
|
329
|
|
$
|
99
|
|
232.3
|
%
|
Conifer
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
$
|
238
|
|
$
|
209
|
|
13.9
|
%
|
Other operating expenses
|
|
|
85
|
|
|
71
|
|
19.7
|
%
|
Total
|
|
$
|
323
|
|
$
|
280
|
|
15.4
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
$
|
2,316
|
|
$
|
2,185
|
|
6.0
|
%
|
Supplies
|
|
|
773
|
|
|
707
|
|
9.3
|
%
|
Other operating expenses
|
|
|
1,213
|
|
|
1,081
|
|
12.2
|
%
|
Total
|
|
$
|
4,302
|
|
$
|
3,973
|
|
8.3
|
%
|
Rent/lease expense
(1)
|
|
|
|
|
|
|
|
|
|
Hospital Operations and other
|
|
$
|
61
|
|
$
|
54
|
|
13.0
|
%
|
Ambulatory Care
|
|
|
20
|
|
|
6
|
|
233.3
|
%
|
Conifer
|
|
|
5
|
|
|
4
|
|
25.0
|
%
|
Total
|
|
$
|
86
|
|
$
|
64
|
|
34.4
|
%
|
|
(1)
|
|
Included in other operating expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
Increase
|
Selected Operating Expenses per Adjusted Patient Admission
|
|
2016
|
|
2015
|
|
(Decrease)
|
Hospital Operations and other
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits per adjusted patient admission
(1)
|
|
$
|
5,633
|
|
$
|
5,542
|
|
1.6
|
%
|
Supplies per adjusted patient admission
(1)
|
|
|
1,989
|
|
|
1,943
|
|
2.4
|
%
|
Other operating expenses per adjusted patient admission
(1)
|
|
|
3,046
|
|
|
2,829
|
|
7.7
|
%
|
Total per adjusted patient admission
|
|
$
|
10,668
|
|
$
|
10,314
|
|
3.4
|
%
|
|
(1)
|
|
Adjusted patient admissions represents actual patient admissions adjusted to include outpatient services provided by facilities in our Hospital Operations and other segment by multiplying actual patient admissions by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
|
Salaries, wages and benefits per adjusted patient admission increased 1.6% in the three months ended June 30, 2016 compared to the same period in 2015. This change is primarily due to annual merit increases for certain of our employees and increased employee health benefits costs in the three months ended June 30, 2016 compared to the three months ended June 30, 2015, partially offset by
lower incentive compensation expense
.
Supplies expense per adjusted patient admission increased 2.4% in the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The change in supplies expense was primarily attributable to volume growth in our higher acuity supply-intensive surgical services.
Other operating expenses per adjusted patient admission increased by 7.7% in the three months ended June 30, 2016 compared to the three months ended June 30, 2015. This increase is due to higher contracted services and
medical fees, as well as increased costs associated with our health plans due to an increase in covered lives, which costs were substantially offset by increased health plan revenues. Malpractice expense for our Hospital Operations and other segment was $12 million higher in the 2016 period compared to the 2015 period. The 2016 period included an unfavorable adjustment of approximately $6 million due to a 25 basis point decrease in the interest rate used to estimate the discounted present value of projected future malpractice liabilities compared to a favorable adjustment of approximately $6 million as a result of a 36 basis point increase in the interest rate in the 2015 period.
LIQUIDITY AND CAPITAL RESOURCES OVERVIEW
Cash and cash equivalents were $656 million at June 30, 2016 compared to $728 million at March 31, 2016.
Significant cash flow items in the three months ended June 30, 2016 included:
|
·
|
|
Capital expenditures of $205 million;
|
|
·
|
|
Purchases of businesses, net of cash acquired, of $65 million;
|
|
·
|
|
Interest payments of $335 million; and
|
|
·
|
|
A $127 million payment to increase our ownership interest in our USPI joint venture from 50.1% to 56.3%.
|
Net cash provided by operating activities was $582 million in the six months ended June 30, 2016 compared to $353 million in the six months ended June 30, 2015. Key positive and negative factors contributing to the change between the 2016 and 2015 periods include the following:
|
·
|
|
Increased income from continuing operations before income taxes of $133 million, excluding investment earnings (losses), gain (loss) from early extinguishment of debt, interest expense, gains on sales, consolidation and deconsolidation of facilities, litigation and investigation costs, impairment and restructuring charges, and acquisition-related costs, and depreciation and amortization in the six months ended June 30, 2016 compared to the six months ended June 30, 2015;
|
|
·
|
|
$67 million less cash used by the change in accounts receivable, net of provision for doubtful accounts, in the 2016 period;
|
|
·
|
|
Approximately $110 million of additional net cash proceeds in the 2016 period related to supplemental Medicaid programs in California and Texas;
|
|
·
|
|
Higher aggregate annual 401(k) matching contributions and annual incentive compensation payments of $18 million and $9 million, respectively;
|
|
·
|
|
An increase of $13 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements; and
|
|
·
|
|
Higher interest payments of $82 million.
|
FORWARD-LOOKING STATEMENTS
The information in this report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements represent management’s current expectations, based on currently available information, as to the outcome and timing of future events. They involve known and unknown risks, uncertainties and other factors — many of which we
are unable to predict or control — that may cause our actual results, performance or achievements, or healthcare industry results, to be materially different from those expressed or implied by forward-looking statements. Such factors include, but are not limited to, the risks described in the Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report.
When considering forward-looking statements, a reader should keep in mind the risk factors and other cautionary statements in our Annual Report and in this report. Should one or more of the risks and uncertainties described in our Annual Report or this report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statement. We specifically disclaim any obligation to update any information contained in a forward-looking statement or any forward-looking statement in its entirety and, therefore, disclaim any resulting liability for potentially related damages.
All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.
SOURCES OF REVENUE
We earn revenues for patient services from a variety of sources, primarily managed care payers and the federal Medicare program, as well as state Medicaid programs, indemnity-based health insurance companies and self-pay patients (that is, patients who do not have health insurance and are not covered by some other form of third-party arrangement).
The table below shows the sources of net patient revenues before provision for doubtful accounts for our Hospital Operations and other segment, expressed as percentages of net patient revenues before provision for doubtful accounts from all sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
Increase
|
Net Patient Revenues from:
|
|
2016
|
|
2015
|
|
(Decrease)
(1)
|
|
2016
|
|
2015
|
|
(Decrease)
(1)
|
Medicare
|
|
21.7
|
%
|
|
20.7
|
%
|
|
1.0
|
%
|
|
20.8
|
%
|
|
21.3
|
%
|
|
(0.5)
|
%
|
Medicaid
|
|
7.4
|
%
|
|
8.5
|
%
|
|
(1.1)
|
%
|
|
8.0
|
%
|
|
9.0
|
%
|
|
(1.0)
|
%
|
Managed care
|
|
59.4
|
%
|
|
60.8
|
%
|
|
(1.4)
|
%
|
|
60.4
|
%
|
|
59.9
|
%
|
|
0.5
|
%
|
Indemnity, self-pay and other
|
|
11.5
|
%
|
|
10.0
|
%
|
|
1.5
|
%
|
|
10.8
|
%
|
|
9.8
|
%
|
|
1.0
|
%
|
|
(1)
|
|
The increase (decrease) is the difference between the 2016 and 2015 percentages shown.
|
Our payer mix on an admissions basis for our Hospital Operations and other segment, expressed as a percentage of total admissions from all sources, is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
Increase
|
Admissions from:
|
|
2016
|
|
2015
|
|
(Decrease)
(1)
|
|
2016
|
|
2015
|
|
(Decrease)
(1)
|
Medicare
|
|
25.9
|
%
|
|
26.8
|
%
|
|
(0.9)
|
%
|
|
26.6
|
%
|
|
27.4
|
%
|
|
(0.8)
|
%
|
Medicaid
|
|
6.7
|
%
|
|
8.1
|
%
|
|
(1.4)
|
%
|
|
7.0
|
%
|
|
8.1
|
%
|
|
(1.1)
|
%
|
Managed care
|
|
59.4
|
%
|
|
57.6
|
%
|
|
1.8
|
%
|
|
58.7
|
%
|
|
56.9
|
%
|
|
1.8
|
%
|
Indemnity, self-pay and other
|
|
8.0
|
%
|
|
7.5
|
%
|
|
0.5
|
%
|
|
7.7
|
%
|
|
7.6
|
%
|
|
0.1
|
%
|
|
(1)
|
|
The increase (decrease) is the difference between the 2016 and 2015 percentages shown.
|
GOVERNMENT PROGRAMS
The Centers for Medicare and Medicaid Services (“CMS”), an agency of the U.S. Department of Health and Human Services (“HHS”), is the single largest payer of healthcare services in the United States. Approximately 129 million Americans rely on healthcare benefits through Medicare, Medicaid and the Children’s Health Insurance Program (“CHIP”). These three programs are authorized by federal law and directed by CMS. Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, certain younger people with
disabilities, and people with end-stage renal disease, and is provided without regard to income or assets. Medicaid is administered by the states and is jointly funded by the federal government and state governments. Medicaid is the nation’s main public health insurance program for people with low incomes and is the largest source of health coverage in the United States. The CHIP, which is also administered by the states and jointly funded, provides health coverage to children in families with incomes too high to qualify for Medicaid, but too low to afford private coverage.
Medicare
Medicare offers its beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan (which includes “Part A” and “Part B”), is a fee-for-service payment system. The other option, called Medicare Advantage (sometimes called “Part C” or “MA Plans”), includes health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), private fee-for-service Medicare special needs plans and Medicare medical savings account plans. The major components of our net patient revenues from continuing operations of our Hospital Operations and other segment for services provided to patients enrolled in the Original Medicare Plan for
the three and six months ended June 30, 2016 and 2015
are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
Revenue Descriptions
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Medicare severity-adjusted diagnosis-related group — operating
|
|
$
|
415
|
|
$
|
435
|
|
$
|
889
|
|
$
|
892
|
|
Medicare severity-adjusted diagnosis-related group — capital
|
|
|
38
|
|
|
40
|
|
|
81
|
|
|
82
|
|
Outliers
|
|
|
16
|
|
|
14
|
|
|
38
|
|
|
32
|
|
Outpatient
|
|
|
252
|
|
|
236
|
|
|
474
|
|
|
470
|
|
Disproportionate share
|
|
|
72
|
|
|
86
|
|
|
150
|
|
|
174
|
|
Direct Graduate and Indirect Medical Education
(1)
|
|
|
61
|
|
|
68
|
|
|
125
|
|
|
135
|
|
Other
(2)
|
|
|
44
|
|
|
3
|
|
|
27
|
|
|
14
|
|
Adjustments for prior-year cost reports and related valuation allowances
|
|
|
17
|
|
|
10
|
|
|
30
|
|
|
32
|
|
Total Medicare net patient revenues
|
|
$
|
915
|
|
$
|
892
|
|
$
|
1,814
|
|
$
|
1,831
|
|
|
(1)
|
|
Includes Indirect Medical Education revenues earned by our children’s hospitals under the Children’s Hospitals Graduate Medical Education Payment Program administered by the Health Resources and Services Administration of HHS.
|
|
(2)
|
|
The other revenue category includes inpatient psychiatric units, inpatient rehabilitation units, one long-term acute care hospital, other revenue adjustments, and adjustments related to the estimates for current-year cost reports and related valuation allowances.
|
A general description of the types of payments we receive for services provided to patients enrolled in the Original Medicare Plan is provided in our Annual Report. Recent regulatory and legislative updates to the terms of these payment systems and their estimated effect on our revenues can be found under “Regulatory and Legislative Changes” below.
Medicaid
Medicaid programs and the corresponding reimbursement methodologies are administered by the states and vary from state to state and from year to year. Estimated revenues under various state Medicaid programs, including state-funded managed care Medicaid programs, constituted approximately 18.5% and 18.7% of total net patient revenues before provision for doubtful accounts of our continuing general hospitals for the
six months ended June 30, 2016 and 2015
, respectively. We also receive DSH and other supplemental revenues under various state Medicaid programs. For the
six months ended June 30, 2016 and 2015
, our total Medicaid revenues attributable to DSH and other supplemental revenues were approximately $442 million and $467 million, respectively, of which $112 million and $91 million, respectively, were from the California provider fee program.
Several states in which we operate face budgetary challenges that have resulted, and likely will continue to result, in reduced Medicaid funding levels to hospitals and other providers. Because most states must operate with balanced budgets, and the Medicaid program is generally a significant portion of a state’s budget, states can be expected to adopt or consider adopting future legislation designed to reduce or not increase their Medicaid expenditures. In addition, some states delay issuing Medicaid payments to providers to manage state expenditures. As an alternative means of funding provider payments, many of the states in which we operate have adopted provider fee programs or received waivers under Section 1115 of the Social Security Act. Under a Medicaid waiver, the federal government
waives certain Medicaid requirements, thereby giving states flexibility in the operation of their Medicaid program to allow states to test new approaches and demonstration projects to improve care. Generally the Section 1115 waivers are for a period of five years with an option to extend the waiver for three additional years. Continuing pressure on state budgets and other factors could result in future reductions to Medicaid payments, payment delays or additional taxes on hospitals.
Because we cannot predict what actions the federal government or the states may take under existing legislation and future legislation to address budget gaps, deficits, Medicaid expansion, provider fee programs or Medicaid Section 1115 waivers, we are unable to assess the effect that any such legislation might have on our business, but the impact on our future financial position, results of operations or cash flows could be material.
Medicaid-related patient revenues from continuing operations recognized by our Hospital Operations and other segment from Medicaid-related programs in the states in which our hospitals are located, as well as from Medicaid programs in neighboring states, for the
six months ended June 30, 2016 and 2015
are set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Managed
|
|
|
|
|
Managed
|
|
Hospital Location
|
|
Medicaid
|
|
Medicaid
|
|
Medicaid
|
|
Medicaid
|
|
California
|
|
$
|
191
|
|
$
|
214
|
|
$
|
163
|
|
$
|
191
|
|
Michigan
|
|
|
188
|
|
|
151
|
|
|
196
|
|
|
150
|
|
Texas
|
|
|
107
|
|
|
118
|
|
|
126
|
|
|
116
|
|
Alabama
|
|
|
42
|
|
|
—
|
|
|
7
|
|
|
—
|
|
Florida
|
|
|
37
|
|
|
84
|
|
|
51
|
|
|
81
|
|
Pennsylvania
|
|
|
36
|
|
|
102
|
|
|
33
|
|
|
98
|
|
Illinois
|
|
|
33
|
|
|
34
|
|
|
48
|
|
|
23
|
|
Massachusetts
|
|
|
18
|
|
|
27
|
|
|
19
|
|
|
24
|
|
Georgia
|
|
|
13
|
|
|
9
|
|
|
35
|
|
|
18
|
|
South Carolina
|
|
|
7
|
|
|
17
|
|
|
8
|
|
|
17
|
|
Tennessee
|
|
|
2
|
|
|
16
|
|
|
3
|
|
|
16
|
|
Missouri
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
10
|
|
Arizona
|
|
|
(1)
|
|
|
103
|
|
|
(8)
|
|
|
57
|
|
North Carolina
|
|
|
(2)
|
|
|
—
|
|
|
14
|
|
|
3
|
|
|
|
$
|
671
|
|
$
|
875
|
|
$
|
734
|
|
$
|
804
|
|
Regulatory and Legislative Changes
Material updates
to the information set forth in our Annual Report about the Medicare and Medicaid payment systems are provided below.
Proposed Payment and Policy Changes to the Medicare Inpatient Prospective Payment Systems
Under Medicare law, CMS is required to annually update certain rules governing the inpatient prospective payment systems (“IPPS”). The updates generally become effective October 1, the beginning of the federal fiscal year (“FFY”). On April 18, 2016, CMS issued Proposed Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2017 Rates (“Proposed IPPS Rule”). The Proposed IPPS Rule includes the following payment and policy changes:
|
·
|
|
A market basket increase of 2.8% for Medicare severity-adjusted diagnosis-related group (“MS-DRG”) operating payments for hospitals reporting specified quality measure data and that are meaningful users of electronic health record (“EHR”) technology (hospitals that do not report specified quality measure data and/or are not meaningful users of EHR technology will receive a reduced market basket increase); CMS is also proposing certain adjustments to the estimated 2.8% market basket increase and the outlier baseline that result in a net operating payment update of 0.65% (before budget neutrality adjustments), including:
|
|
·
|
|
Market basket index and multifactor productivity reductions required by the ACA of 0.75% and 0.5%, respectively;
|
|
·
|
|
A documentation and coding recoupment reduction of 1.5% as required by the American Taxpayer Relief Act of 2012;
|
|
·
|
|
Prospective reversal of the 0.2% reduction related to the two-midnights rule that was first imposed in FFY 2014;
|
|
·
|
|
A one-time increase of 0.6% to reverse the 0.2% two-midnights rule reductions imposed in FFYs 2014 through 2016; and
|
|
·
|
|
A 0.2% reduction in the FFY 2016 estimated outlier baseline of 5.3% to ensure that FFY 2017 outlier payments do not exceed 5.1% of total IPPS payments;
|
|
·
|
|
Updates to the factors used to determine the amount and distribution of Medicare uncompensated care disproportionate share (“UC-DSH”) payments;
|
|
·
|
|
A 1.73% net increase in the capital federal MS-DRG rate;
|
|
·
|
|
An increase in the cost outlier threshold from $22,544 to $23,681; and
|
|
·
|
|
A proposed three-year transition beginning in FFY 2018 to use uncompensated care to determine the distribution of the UC-DSH payments.
|
CMS projects that the combined impact of the payment and policy changes in the Proposed IPPS Rule will yield an average 0.6% increase in operating MS-DRG payments for hospitals in large urban areas (populations over one million) in FFY 2016. The proposed payment and policy changes affecting operating MS-DRG payments and other proposals, notably those affecting Medicare UC-DSH payments, would result in an estimated 0.1% decrease in our annual IPPS payments, which yields an estimated decrease of approximately $2 million in our annual Medicare IPPS payments. Because of the uncertainty regarding factors that may influence our future IPPS payments by individual hospital, including legislative action, admission volumes, length of stay and case mix, as well as potential changes to the proposed rule, we cannot provide any assurances regarding our estimate of the impact of the proposed changes.
Proposed Payment and Policy Changes to the Medicare Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems
On July 6, 2016, CMS released proposed policy changes, quality provisions and payment rates for the Medicare Hospital Outpatient Prospective Payment System (“OPPS”) and Ambulatory Surgical Center (“ASC”) Payment System for calendar year 2017 (“Proposed OPPS/ASC Rule”). The Proposed OPPS/ASC rule includes the following proposed changes:
|
·
|
|
An estimated net increase in the OPPS rates of 1.55% based on an estimated market basket increase of 2.8% reduced by market basket index and multifactor productivity reductions required by the ACA of 0.75% and 0.5%, respectively;
|
|
·
|
|
Several proposals on the implementation of Section 603 of the Bipartisan Budget Act of 2015, which requires that certain items and services furnished by certain off-campus hospital departments shall not be considered covered outpatient department services for purposes of OPPS payments and shall instead be paid “under the applicable payment system” beginning January 1, 2017;
|
|
·
|
|
A proposal to remove four spine procedure codes and two laryngoplasty codes from the CMS list of procedures than can be performed only on an inpatient basis (the “Inpatient Only List”) (CMS is also
|
seeking comments on whether it should consider for future rulemaking the removal of total knee arthroplasty from the Inpatient Only List);
|
|
·
|
|
A 1.2% update to the ASC payment rates; and
|
|
·
|
|
Several proposals to the EHR system, including a proposal to reduce the 2016 reporting period from 12 months to a consecutive 90-day period.
|
CMS projects that the combined impact of the payment and policy changes in the Proposed OPPS/ASC Rule will yield an average 1.6% increase in OPPS payments for all facilities and an average 1.4% increase in OPPS payments for hospitals in large urban areas (populations over one million). Based on CMS’ estimates, the projected annual impact of the payment and policy changes in the Proposed OPPS/ASC Rule on our hospitals is an increase to Medicare outpatient revenues of approximately $11 million. Because of the uncertainty associated with various factors that may influence our future OPPS payments, including legislative action, volumes and case mix, as well as potential changes to the proposed rule, we cannot provide any assurances regarding our estimate of the impact of the proposed changes.
PRIVATE INSURANCE
Managed Care
We currently have thousands of managed care contracts with various HMOs and PPOs. HMOs generally maintain a full-service healthcare delivery network comprised of physician, hospital, pharmacy and ancillary service providers that HMO members must access through an assigned “primary care” physician. The member’s care is then managed by his or her primary care physician and other network providers in accordance with the HMO’s quality assurance and utilization review guidelines so that appropriate healthcare can be efficiently delivered in the most cost-effective manner. HMOs typically provide reduced benefits or reimbursement (or none at all) to their members who use non-contracted healthcare providers for non-emergency care.
PPOs generally offer limited benefits to members who use non-contracted healthcare providers. PPO members who use contracted healthcare providers receive a preferred benefit, typically in the form of lower co-pays, co-insurance or deductibles. As employers and employees have demanded more choice, managed care plans have developed hybrid products that combine elements of both HMO and PPO plans, including high-deductible healthcare plans that may have limited benefits, but cost the employee less in premiums.
The amount of our managed care net patient revenues during the six months ended June 30, 2016 and 2015 was $5.0 billion and $4.9 billion, respectively. Approximately 65% of our managed care net patient revenues for the six months ended June 30, 2016 was derived from our top ten managed care payers. National payers generated approximately 45% of our total net managed care revenues. The remainder comes from regional or local payers. At June 30, 2016 and December 31, 2015, approximately 60% and 59%, respectively, of our net accounts receivable for our Hospital Operations and other segment were due from managed care payers.
Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted fee-for-service rates and other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient’s bill is subject to adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. We believe it is reasonably likely for there to be an approximately 3% increase or decrease in the estimated contractual allowances related to managed care plans. Based on reserves at June 30, 2016, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $13 million. Some of the factors that can contribute to changes in the contractual allowance estimates include: (1) changes in reimbursement levels for procedures, supplies and drugs when threshold levels are triggered; (2) changes in reimbursement levels when stop-loss or outlier
limits are reached; (3) changes in the admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (4) final coding of in-house and discharged-not-final-billed patients that change reimbursement levels; (5) secondary benefits determined after primary insurance payments; and (6) reclassification of patients among insurance plans with different coverage levels. Contractual allowance estimates are periodically reviewed for accuracy by taking into consideration known contract terms, as well as payment history. Although we do not separately accumulate and disclose the aggregate amount of adjustments to the estimated reimbursement for every patient bill, we believe our estimation and review process enables us to identify instances on a timely basis where such estimates need to be revised. We do not believe there were any adjustments to estimates of patient bills that were material to our operating income. In addition, on a corporate-wide basis, we do not record any general provision for adjustments to estimated contractual allowances for managed care plans.
We expect managed care governmental admissions to continue to increase as a percentage of total managed care admissions over the near term. However, the managed Medicare and Medicaid insurance plans typically generate lower yields than commercial managed care plans, which have been experiencing an improved pricing trend. Although we have benefitted from solid year-over-year aggregate managed care pricing improvements for several years, we have seen these improvements moderate recently, and we believe the moderation could continue in future years. In the six months ended June 30, 2016, our commercial managed care net inpatient revenue per admission from our acute care hospitals was approximately 75% higher than our aggregate yield on a per admission basis from government payers, including managed Medicare and Medicaid insurance plans.
Indemnity
An indemnity-based agreement generally requires the insurer to reimburse an insured patient for healthcare expenses after those expenses have been incurred by the patient, subject to policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her utilization of healthcare and selection of healthcare providers.
SELF-PAY PATIENTS
Self-pay patients are patients who do not qualify for government programs, such as Medicare and Medicaid, do not have some form of private insurance and, therefore, are responsible for their own medical bills. A significant number of our self-pay patients are admitted through our hospitals’ emergency departments and often require high-acuity treatment that is more costly to provide and, therefore, results in higher billings, which are the least collectible of all accounts.
Self-pay accounts pose significant collectability problems. At both June 30, 2016 and December 31, 2015, approximately 5% of our net accounts receivable for our Hospital Operations and other segment were due from self-pay patients. Further, a significant portion of our provision for doubtful accounts relates to self-pay patients, as well as co
‑pays and deductibles owed to us by patients with insurance. We provide revenue cycle management services through our Conifer subsidiary, which is subject to various laws, rules and regulations regarding consumer finance, debt collection and credit reporting activities. For additional
information, see Item 1, Business — Regulations Affecting Conifer’s Operations, in Part I of our Annual Report.
Conifer has performed systematic analyses to focus our attention on the drivers of bad debt expense for each
hospital. While emergency department use is the primary contributor to our provision for doubtful accounts in the aggregate,
this is not the case at all hospitals. As a result, we have been increasing our focus on targeted initiatives that concentrate on non-emergency department patients as well. These initiatives are intended to promote process efficiencies in collecting self
‑pay accounts, as well as co-pay and deductible amounts owed to us by patients with insurance, that we deem highly collectible. We leverage a statistical-based collections model that aligns our operational capacity to maximize our collections performance. We are dedicated to modifying and refining our processes as needed, enhancing our technology and improving staff training throughout the revenue cycle process in an effort to increase collections and reduce accounts receivable.
Over the longer term, several other initiatives we have previously announced should also help address this challenge. For example, our
Compact with Uninsured Patients
(“Compact”) is designed to offer managed care-style discounts to certain uninsured patients, which enables us to offer lower rates to those patients who historically had been
charged standard gross charges. A significant portion of those charges had previously been written down in our provision for doubtful accounts. Under the Compact, the discount offered to uninsured patients is recognized as a contractual allowance, which reduces net operating revenues at the time the self-pay accounts are recorded. The uninsured patient accounts, net of contractual allowances recorded, are further reduced to their net realizable value through provision for
doubtful accounts based on historical collection trends for self-pay accounts and other factors that affect the estimation process.
We also provide charity care to patients who are financially unable to pay for the healthcare services they receive. Most patients who qualify for charity care are charged a per-diem amount for services received, subject to a cap. Except for the per-diem amounts, our policy is not to pursue collection of amounts determined to qualify as charity care; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital’s eligibility for Medicaid DSH payments. These payments are intended to mitigate our cost of uncompensated care, as well as reduced Medicaid funding levels. Generally, our method of measuring the estimated costs uses adjusted self-pay/charity patient days multiplied by selected operating expenses (which include salaries, wages and benefits, supplies and other operating expenses) per adjusted patient day. The adjusted self
‑pay/charity patient days represents actual self-pay/charity patient days adjusted to include self-pay/charity outpatient services by multiplying actual self-pay/charity patient days by the sum of gross self-pay/charity inpatient revenues and gross self-pay/charity outpatient revenues and dividing the results by gross self-pay/charity inpatient revenues. The following table shows our estimated costs (based on selected operating expenses) of caring for self-pay patients and charity care patients, as well as revenues attributable to Medicaid DSH and other supplemental revenues we recognized, in
the three and six months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Estimated costs for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-pay patients
|
|
$
|
159
|
|
$
|
168
|
|
$
|
310
|
|
$
|
332
|
Charity care patients
|
|
$
|
31
|
|
$
|
37
|
|
$
|
72
|
|
$
|
73
|
Medicaid DSH and other supplemental revenues
|
|
$
|
215
|
|
$
|
220
|
|
$
|
442
|
|
$
|
467
|
The expansion of health insurance coverage has resulted in an increase in the number of patients using our facilities who have either health insurance exchange or government healthcare insurance program coverage. However, we continue to have to provide uninsured discounts and charity care due to the failure of states to expand Medicaid coverage and for persons living in the country illegally who are not permitted to enroll in a health insurance exchange or government healthcare insurance program.
RESULTS OF OPERATIONS
The following two tables summarize our consolidated net operating revenues, operating expenses and operating income from continuing operations, both in dollar amounts and as percentages of net operating revenues, for
the three and six months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Net operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General hospitals
|
|
$
|
4,062
|
|
$
|
4,120
|
|
$
|
8,364
|
|
$
|
8,237
|
|
Other operations
|
|
|
1,158
|
|
|
724
|
|
|
2,276
|
|
|
1,394
|
|
Net operating revenues before provision for doubtful accounts
|
|
|
5,220
|
|
|
4,844
|
|
|
10,640
|
|
|
9,631
|
|
Less provision for doubtful accounts
|
|
|
352
|
|
|
352
|
|
|
728
|
|
|
715
|
|
Net operating revenues
|
|
|
4,868
|
|
|
4,492
|
|
|
9,912
|
|
|
8,916
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
30
|
|
|
16
|
|
|
54
|
|
|
20
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
2,316
|
|
|
2,185
|
|
|
4,718
|
|
|
4,310
|
|
Supplies
|
|
|
773
|
|
|
707
|
|
|
1,584
|
|
|
1,394
|
|
Other operating expenses, net
|
|
|
1,213
|
|
|
1,081
|
|
|
2,455
|
|
|
2,174
|
|
Electronic health record incentives
|
|
|
(21)
|
|
|
(33)
|
|
|
(21)
|
|
|
(39)
|
|
Depreciation and amortization
|
|
|
215
|
|
|
197
|
|
|
427
|
|
|
404
|
|
Impairment and restructuring charges, and acquisition-related costs
|
|
|
22
|
|
|
193
|
|
|
50
|
|
|
222
|
|
Litigation and investigation costs
|
|
|
114
|
|
|
14
|
|
|
287
|
|
|
17
|
|
Gains on sales, consolidation and deconsolidation of facilities
|
|
|
(1)
|
|
|
—
|
|
|
(148)
|
|
|
—
|
|
Operating income
|
|
$
|
267
|
|
$
|
164
|
|
$
|
614
|
|
$
|
454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Net operating revenues
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Equity in earnings of unconsolidated affiliates
|
|
0.6
|
%
|
|
0.4
|
%
|
|
0.5
|
%
|
|
0.2
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
47.6
|
%
|
|
48.6
|
%
|
|
47.6
|
%
|
|
48.3
|
%
|
|
Supplies
|
|
15.9
|
%
|
|
15.7
|
%
|
|
16.0
|
%
|
|
15.6
|
%
|
|
Other operating expenses, net
|
|
24.9
|
%
|
|
24.1
|
%
|
|
24.8
|
%
|
|
24.4
|
%
|
|
Electronic health record incentives
|
|
(0.4)
|
%
|
|
(0.7)
|
%
|
|
(0.2)
|
%
|
|
(0.4)
|
%
|
|
Depreciation and amortization
|
|
4.4
|
%
|
|
4.4
|
%
|
|
4.3
|
%
|
|
4.5
|
%
|
|
Impairment and restructuring charges, and acquisition-related costs
|
|
0.4
|
%
|
|
4.3
|
%
|
|
0.4
|
%
|
|
2.5
|
%
|
|
Litigation and investigation costs
|
|
2.3
|
%
|
|
0.3
|
%
|
|
2.9
|
%
|
|
0.2
|
%
|
|
Gains on sales, consolidation and deconsolidation of facilities
|
|
—
|
%
|
|
—
|
%
|
|
(1.5)
|
%
|
|
—
|
%
|
|
Operating income
|
|
5.5
|
%
|
|
3.7
|
%
|
|
6.2
|
%
|
|
5.1
|
%
|
|
Net operating revenues of our general hospitals include inpatient and outpatient revenues for services provided by facilities in our Hospital Operations and other segment, as well as nonpatient revenues (e.g., rental income, management fee revenue, and income from services such as cafeterias, gift shops and parking) and other miscellaneous revenue. Net operating revenues of other operations primarily consist of revenues from (1) physician practices, (2) a long-term acute care hospital, (3) our Ambulatory Care segment, (4) services provided by our Conifer subsidiary to third parties and (5) our health plans. Revenues from our general hospitals represented approximately 78% and 85% of our total net operating revenues before provision for doubtful accounts for the three months ended June 30, 2016 and
2015, respectively, and 79% and 86% for the six months ended June 30, 2016 and 2015, respectively.
Net operating revenues from our other operations were $1.158 billion and $724 million in the three months ended June 30, 2016 and 2015, respectively, and $2.276 billion and $1.394 billion in the six months ended June 30, 2016 and 2015, respectively. The increase in net operating revenues from other operations during 2016 primarily relates to revenue cycle services provided by our Conifer subsidiary, as well as revenues from our USPI joint venture and Aspen acquisition, our health plans and physician practices. Equity earnings of unconsolidated affiliates were $30 million and $16 million for the three months ended June 30, 2016 and 2015, respectively, and $54 million and $20 million for the six months ended June 30, 2016 and 2015, respectively. The increase in equity earnings of unconsolidated affiliates in the 2016 period compared to the 2015 period primarily related to our USPI joint venture.
The following table shows selected operating expenses of our three reportable business segments. Information for our Hospital Operations and other segment is presented on a same-hospital basis, which includes the results of our same 67 hospitals and six health plans operated throughout the six months ended June 30, 2016 and 2015. The results of the following facilities are excluded from our same-hospital information: (i) Hi-Desert Medical Center, which we began operating on July 15, 2015, (ii) our Carondelet Heath Network joint venture, in which we acquired a majority interest on August 31, 2015, (iii)
SLUH, which we divested on August 31, 2015, (iv) our joint venture with Baptist Health System, Inc., which we formed on October 2, 2015, (v) DMC Surgery Hospital, which we closed in October 2015, (vi) our two North Carolina hospitals, which we divested effective January 1, 2016, (vii) our four North Texas hospitals in which we divested a controlling interest effective January 1, 2016, but continue to operate, and (viii) our five Georgia hospitals, which we divested effective April 1, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
Increase
|
|
Selected Operating Expenses
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
Hospital Operations and other — Same-Hospital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
$
|
1,780
|
|
$
|
1,744
|
|
2.1
|
%
|
|
$
|
3,567
|
|
$
|
3,468
|
|
2.9
|
%
|
|
Supplies
|
|
|
621
|
|
|
598
|
|
3.8
|
%
|
|
|
1,258
|
|
|
1,188
|
|
5.9
|
%
|
|
Other operating expenses
|
|
|
957
|
|
|
837
|
|
14.3
|
%
|
|
|
1,911
|
|
|
1,704
|
|
12.1
|
%
|
|
Total
|
|
$
|
3,358
|
|
$
|
3,179
|
|
5.6
|
%
|
|
$
|
6,736
|
|
$
|
6,360
|
|
5.9
|
%
|
|
Ambulatory Care
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
$
|
147
|
|
$
|
41
|
|
258.5
|
%
|
|
$
|
293
|
|
$
|
65
|
|
350.8
|
%
|
|
Supplies
|
|
|
91
|
|
|
28
|
|
225.0
|
%
|
|
|
177
|
|
|
45
|
|
293.3
|
%
|
|
Other operating expenses
|
|
|
91
|
|
|
30
|
|
203.3
|
%
|
|
|
177
|
|
|
51
|
|
247.1
|
%
|
|
Total
|
|
$
|
329
|
|
$
|
99
|
|
232.3
|
%
|
|
$
|
647
|
|
$
|
161
|
|
301.9
|
%
|
|
Conifer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
$
|
238
|
|
$
|
209
|
|
13.9
|
%
|
|
$
|
477
|
|
$
|
402
|
|
18.7
|
%
|
|
Other operating expenses
|
|
|
85
|
|
|
71
|
|
19.7
|
%
|
|
|
168
|
|
|
138
|
|
21.7
|
%
|
|
Total
|
|
$
|
323
|
|
$
|
280
|
|
15.4
|
%
|
|
$
|
645
|
|
$
|
540
|
|
19.4
|
%
|
|
Rent/lease expense
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital Operations and other
|
|
$
|
50
|
|
$
|
47
|
|
6.4
|
%
|
|
$
|
100
|
|
$
|
93
|
|
7.5
|
%
|
|
Ambulatory Care
|
|
|
20
|
|
|
6
|
|
233.3
|
%
|
|
|
37
|
|
|
13
|
|
184.6
|
%
|
|
Conifer
|
|
|
5
|
|
|
4
|
|
25.0
|
%
|
|
|
9
|
|
|
7
|
|
28.6
|
%
|
|
Total
|
|
$
|
75
|
|
$
|
57
|
|
31.6
|
%
|
|
$
|
146
|
|
$
|
113
|
|
29.2
|
%
|
|
|
(1)
|
|
Included in other operating expenses.
|
Results of Operations by Segment
Our operations are reported under three segments:
|
·
|
|
Hospital Operations and other, which is focused on operating acute care hospitals, ancillary outpatient facilities, freestanding emergency departments, physician practices and health plans;
|
|
·
|
|
Ambulatory Care, which is comprised of our USPI joint venture’s ambulatory surgery centers, urgent care centers, imaging centers and short-stay surgical hospitals, as well as Aspen’s hospitals and clinics; and
|
|
·
|
|
Conifer, which operates revenue cycle management and patient communication and engagement services businesses.
|
H
ospital
O
perations
and
o
ther
S
egment
The following tables show operating statistics of our continuing operations hospitals on a same-hospital basis,
which includes the results of our same 67 hospitals and six health plans operated throughout the six months ended June 30, 2016 and 2015. The results of the following facilities are excluded from our same-hospital information: (i) Hi
‑Desert Medical Center, which we began operating on July 15, 2015, (ii) our Carondelet Heath Network joint venture, in which we acquired a majority interest on August 31, 2015, (iii) SLUH, which we divested on August 31, 2015, (iv) our joint venture with Baptist Health System, Inc., which we formed on October 2, 2015, (v) DMC Surgery Hospital, which we closed in October 2015, (vi) our two North Carolina hospitals, which we divested effective January 1, 2016, (vii) our four North Texas hospitals in which we divested a controlling interest effective January 1, 2016, but continue to operate, and (viii) our five Georgia hospitals, which we divested effective April 1, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-Hospital
|
|
|
|
Continuing Operations
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
Increase
|
|
Admissions, Patient Days and Surgeries
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
Number of hospitals (at end of period)
|
|
67
|
|
|
67
|
|
|
—
|
(1)
|
|
67
|
|
|
67
|
|
|
—
|
(1)
|
|
Total admissions
|
|
177,151
|
|
|
179,135
|
|
|
(1.1)
|
%
|
|
362,204
|
|
|
364,282
|
|
|
(0.6)
|
%
|
|
Adjusted patient admissions
(2)
|
|
309,372
|
|
|
307,958
|
|
|
0.5
|
%
|
|
625,159
|
|
|
616,687
|
|
|
1.4
|
%
|
|
Paying admissions (excludes charity and uninsured)
|
|
167,717
|
|
|
170,389
|
|
|
(1.6)
|
%
|
|
344,003
|
|
|
346,412
|
|
|
(0.7)
|
%
|
|
Charity and uninsured admissions
|
|
9,434
|
|
|
8,746
|
|
|
7.9
|
%
|
|
18,201
|
|
|
17,870
|
|
|
1.9
|
%
|
|
Admissions through emergency department
|
|
111,994
|
|
|
113,741
|
|
|
(1.5)
|
%
|
|
230,572
|
|
|
232,067
|
|
|
(0.6)
|
%
|
|
Paying admissions as a percentage of total admissions
|
|
94.7
|
%
|
|
95.1
|
%
|
|
(0.4)
|
%
(1)
|
|
95.0
|
%
|
|
95.1
|
%
|
|
(0.1)
|
%
(1)
|
|
Charity and uninsured admissions as a percentage of total admissions
|
|
5.3
|
%
|
|
4.9
|
%
|
|
0.4
|
%
(1)
|
|
5.0
|
%
|
|
4.9
|
%
|
|
0.1
|
%
(1)
|
|
Emergency department admissions as a percentage of total admissions
|
|
63.2
|
%
|
|
63.5
|
%
|
|
(0.3)
|
%
(1)
|
|
63.7
|
%
|
|
63.7
|
%
|
|
0
|
%
(1)
|
|
Surgeries — inpatient
|
|
49,222
|
|
|
49,291
|
|
|
(0.1)
|
%
|
|
97,769
|
|
|
97,586
|
|
|
0.2
|
%
|
|
Surgeries — outpatient
|
|
65,678
|
|
|
64,407
|
|
|
2.0
|
%
|
|
129,677
|
|
|
124,901
|
|
|
3.8
|
%
|
|
Total surgeries
|
|
114,900
|
|
|
113,698
|
|
|
1.1
|
%
|
|
227,446
|
|
|
222,487
|
|
|
2.2
|
%
|
|
Patient days — total
|
|
805,662
|
|
|
817,881
|
|
|
(1.5)
|
%
|
|
1,667,800
|
|
|
1,678,808
|
|
|
(0.7)
|
%
|
|
Adjusted patient days
(2)
|
|
1,394,486
|
|
|
1,391,305
|
|
|
0.2
|
%
|
|
2,851,066
|
|
|
2,812,810
|
|
|
1.4
|
%
|
|
Average length of stay (days)
|
|
4.55
|
|
|
4.57
|
|
|
(0.4)
|
%
|
|
4.60
|
|
|
4.61
|
|
|
(0.2)
|
%
|
|
Licensed beds (at end of period)
|
|
18,144
|
|
|
18,244
|
|
|
(0.5)
|
%
|
|
18,144
|
|
|
18,244
|
|
|
(0.5)
|
%
|
|
Average licensed beds
|
|
18,144
|
|
|
18,244
|
|
|
(0.5)
|
%
|
|
18,142
|
|
|
18,241
|
|
|
(0.5)
|
%
|
|
Utilization of licensed beds
(3)
|
|
48.8
|
%
|
|
49.3
|
%
|
|
(0.5)
|
%
(1)
|
|
50.8
|
%
|
|
50.8
|
%
|
|
—
|
%
(1)
|
|
|
(1)
|
|
The change is the difference between 2016 and 2015 amounts shown.
|
|
(2)
|
|
Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations and other segment by multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
|
|
(3)
|
|
Utilization of licensed beds represents patient days divided by number of days in the period divided by average licensed beds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-Hospital
|
|
|
|
Continuing Operations
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
Increase
|
|
Outpatient Visits
|
|
2016
|
|
2015
|
|
|
(Decrease)
|
|
2016
|
|
2015
|
|
|
(Decrease)
|
|
Total visits
|
|
1,830,522
|
|
|
1,815,393
|
|
|
0.8
|
%
|
|
3,685,257
|
|
|
3,578,261
|
|
|
3.0
|
%
|
|
Paying visits (excludes charity and uninsured)
|
|
1,707,375
|
|
|
1,691,554
|
|
|
0.9
|
%
|
|
3,436,059
|
|
|
3,330,685
|
|
|
3.2
|
%
|
|
Charity and uninsured visits
|
|
123,147
|
|
|
123,839
|
|
|
(0.6)
|
%
|
|
249,198
|
|
|
247,576
|
|
|
0.7
|
%
|
|
Emergency department visits
|
|
640,774
|
|
|
632,470
|
|
|
1.3
|
%
|
|
1,311,452
|
|
|
1,269,330
|
|
|
3.3
|
%
|
|
Surgery visits
|
|
65,678
|
|
|
64,407
|
|
|
2.0
|
%
|
|
129,677
|
|
|
124,901
|
|
|
3.8
|
%
|
|
Paying visits as a percentage of total visits
|
|
93.3
|
%
|
|
93.2
|
%
|
|
0.1
|
%
(1)
|
|
93.2
|
%
|
|
93.1
|
%
|
|
0.1
|
%
(1)
|
|
Charity and uninsured visits as a percentage of total visits
|
|
6.7
|
%
|
|
6.8
|
%
|
|
(0.1)
|
%
(1)
|
|
6.8
|
%
|
|
6.9
|
%
|
|
(0.1)
|
%
(1)
|
|
|
(1)
|
|
The change is the difference between 2016 and 2015 amounts shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-Hospital
|
|
|
|
Continuing Operations
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
Increase
|
|
Revenues
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
Net operating revenues
|
|
$
|
3,732
|
|
$
|
3,523
|
|
5.9
|
%
|
|
$
|
7,499
|
|
$
|
7,056
|
|
6.3
|
%
|
|
Revenues from charity and the uninsured
|
|
$
|
222
|
|
$
|
216
|
|
2.8
|
%
|
|
$
|
433
|
|
$
|
443
|
|
(2.3)
|
%
|
|
Net inpatient revenues
(1)
|
|
$
|
2,400
|
|
$
|
2,305
|
|
4.1
|
%
|
|
$
|
4,899
|
|
$
|
4,687
|
|
4.5
|
%
|
|
Net outpatient revenues
(1)
|
|
$
|
1,343
|
|
$
|
1,281
|
|
4.8
|
%
|
|
$
|
2,674
|
|
$
|
2,507
|
|
6.7
|
%
|
|
|
(1)
|
|
Net inpatient revenues and net outpatient revenues are components of net operating revenues. Net inpatient revenues include self-pay revenues of $91 million and $83 million for the three months ended June 30, 2016 and 2015, respectively, and $176 million and $177 million for the six months ended June 30, 2016 and 2015, respectively. Net outpatient revenues include self-pay revenues of $131 million and $133 million for the three months ended June 30, 2016 and 2015, respectively, and $257 million and $266 million for the six months ended June 30, 2016 and 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-Hospital
|
|
|
|
Continuing Operations
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Revenues on a Per Admission,
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
Increase
|
|
Per Patient Day and Per Visit Basis
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
Net inpatient revenue per admission
|
|
$
|
13,548
|
|
$
|
12,867
|
|
5.3
|
%
|
|
$
|
13,526
|
|
$
|
12,866
|
|
5.1
|
%
|
|
Net inpatient revenue per patient day
|
|
$
|
2,979
|
|
$
|
2,818
|
|
5.7
|
%
|
|
$
|
2,937
|
|
$
|
2,792
|
|
5.2
|
%
|
|
Net outpatient revenue per visit
|
|
$
|
734
|
|
$
|
706
|
|
4.0
|
%
|
|
$
|
726
|
|
$
|
701
|
|
3.6
|
%
|
|
Net patient revenue per adjusted patient admission
(1)
|
|
$
|
12,099
|
|
$
|
11,644
|
|
3.9
|
%
|
|
$
|
12,114
|
|
$
|
11,666
|
|
3.8
|
%
|
|
Net patient revenue per adjusted patient day
(1)
|
|
$
|
2,684
|
|
$
|
2,577
|
|
4.2
|
%
|
|
$
|
2,656
|
|
$
|
2,558
|
|
3.8
|
%
|
|
|
(1)
|
|
Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations and other segment by multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-Hospital
|
|
|
|
Continuing Operations
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
Increase
|
|
Provision for Doubtful Accounts
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
Provision for doubtful accounts
|
|
$
|
315
|
|
|
$
|
292
|
|
|
7.9
|
%
|
|
$
|
642
|
|
|
$
|
595
|
|
|
7.9
|
%
|
|
Provision for doubtful accounts as a percentage of net operating revenues before provision for doubtful accounts
|
|
|
7.8
|
%
|
|
|
7.7
|
%
|
|
0.1
|
%
(1)
|
|
|
8.0
|
%
|
|
|
7.9
|
%
|
|
0.1
|
%
(1)
|
|
|
(1)
|
|
The change is the difference between 2016 and 2015 amounts shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-Hospital
|
|
|
Continuing Operations
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
|
Increase
|
Selected Operating Expenses
|
|
2016
|
|
2015
|
|
|
(Decrease)
|
|
2016
|
|
2015
|
|
|
(Decrease)
|
Hospital Operations and other — Same-Hospital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits as a percentage of net operating revenues
|
|
47.7
|
%
|
|
49.5
|
%
|
|
(1.8)
|
%
(1)
|
|
47.6
|
%
|
|
49.1
|
%
|
|
(1.5)
|
%
(1)
|
Supplies as a percentage of net operating revenues
|
|
16.6
|
%
|
|
17.0
|
%
|
|
(0.4)
|
%
(1)
|
|
16.8
|
%
|
|
16.8
|
%
|
|
—
|
%
(1)
|
Other operating expenses as a percentage of net operating revenues
|
|
25.6
|
%
|
|
23.8
|
%
|
|
1.8
|
%
(1)
|
|
25.5
|
%
|
|
24.1
|
%
|
|
1.4
|
%
(1)
|
|
(1)
|
|
The change is the difference between 2016 and 2015 amounts shown.
|
Revenues
Same-hospital net operating revenues increased $209 million, or 5.9%, during the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The increase in same-hospital net operating revenues in the 2016 period is primarily due to volume growth in higher acuity inpatient services, higher outpatient volumes, improved terms of our managed care contracts and an increase in our other operations revenues. Same-hospital net inpatient revenues increased $95 million, or 4.1%, while same-hospital admissions decreased 1.1% in the three months ended June 30, 2016 compared to the same period in 2015.
Same-hospital net inpatient revenue pe
r admission increased 5.3%, primarily due to the improved terms of our
managed care contracts and volume growth in higher acuity service lines,
in the three months ended June 30, 2016 compared to the three months ended June 30, 2015. Same-hospital net outpatient revenues increased $62 million, or 4.8%, and same-hospital outpatient visits increased 0.8% in the three months ended June 30, 2016 compared to the same period in 2015
. Growth in outpatient revenues and volumes was primarily driven by improved terms of our managed care contracts and increased outpatient volume levels associated with our outpatient development program. Same-hospital net outpatient revenue per visit increased 4.0%
in the three months ended June 30, 2016 compared to the three months ended June 30, 2015,
prima
rily due to the improved terms of our managed care contracts.
Same-hospital net operating revenues increased $443 million, or 6.3%, during the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increase in same-hospital net operating revenues in the 2016 period is primarily due to volume growth in higher acuity inpatient services, higher outpatient volumes, improved terms of our managed care contracts and an increase in our other operations revenues. Same-hospital net inpatient revenues increased $212 million, or 4.5%, while same-hospital admissions decreased 0.6% in the six months ended June 30, 2016 compared to the same period in 2015.
Same-hospital net inpatient revenue pe
r admission increased 5.1%, primarily due to the improved terms of our
managed care contracts and volume growth in higher acuity service lines,
in the six months ended June 30, 2016 compared to the six months ended June 30, 2015. Same-hospital net
outpatient revenues increased $167 million, or 6.7%, and same-hospital outpatient visits increased 3.0% in the six months ended June 30, 2016 compared to the same period in 2015
. Growth in outpatient revenues and volumes was primarily driven by improved terms of our managed care contracts and increased outpatient volume levels associated with our outpatient development program. Same-hospital net outpatient revenue per visit increased 3.6%
in the six months ended June 30, 2016 compared to the six months ended June 30, 2015,
prima
rily due to the improved terms of our managed care contracts.
Provision for Doubtful Accounts
Same-hospital provision for doubtful accounts as a percentage of net operating revenues before provision for doubtful accounts was 7.8% and 7.7% for the three months ended June 30, 2016 and 2015, respectively, and 8.0% and 7.9% for the six months ended June 30, 2016 and 2015, respectively. The table below shows the consolidated net accounts receivable and allowance for doubtful accounts by payer at June 30, 2016 and December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
|
Accounts
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
|
|
|
|
|
Receivable
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
|
|
|
|
Allowance
|
|
Allowance
|
|
|
|
|
Allowance
|
|
Allowance
|
|
|
|
|
|
|
for Doubtful
|
|
for Doubtful
|
|
|
|
|
for Doubtful
|
|
for Doubtful
|
|
|
|
|
|
|
Accounts
|
|
Accounts
|
|
Net
|
|
Accounts
|
|
Accounts
|
|
Net
|
|
Medicare
|
|
$
|
389
|
|
$
|
—
|
|
$
|
389
|
|
$
|
360
|
|
$
|
—
|
|
$
|
360
|
|
Medicaid
|
|
|
64
|
|
|
—
|
|
|
64
|
|
|
70
|
|
|
—
|
|
|
70
|
|
Net cost report settlements payable and valuation allowances
|
|
|
(33)
|
|
|
—
|
|
|
(33)
|
|
|
(42)
|
|
|
—
|
|
|
(42)
|
|
Managed care
|
|
|
1,767
|
|
|
138
|
|
|
1,629
|
|
|
1,715
|
|
|
126
|
|
|
1,589
|
|
Self-pay uninsured
|
|
|
445
|
|
|
402
|
|
|
43
|
|
|
509
|
|
|
436
|
|
|
73
|
|
Self-pay balance after insurance
|
|
|
233
|
|
|
158
|
|
|
75
|
|
|
208
|
|
|
142
|
|
|
66
|
|
Estimated future recoveries
|
|
|
142
|
|
|
—
|
|
|
142
|
|
|
144
|
|
|
—
|
|
|
144
|
|
Other payers
|
|
|
477
|
|
|
220
|
|
|
257
|
|
|
442
|
|
|
166
|
|
|
276
|
|
Total Hospital Operations and other
|
|
|
3,484
|
|
|
918
|
|
|
2,566
|
|
|
3,406
|
|
|
870
|
|
|
2,536
|
|
Ambulatory Care
|
|
|
193
|
|
|
28
|
|
|
165
|
|
|
182
|
|
|
17
|
|
|
165
|
|
Total discontinued operations
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
|
$
|
3,680
|
|
$
|
946
|
|
$
|
2,734
|
|
$
|
3,591
|
|
$
|
887
|
|
$
|
2,704
|
|
A significant portion of our provision for doubtful accounts relates to self-pay patients, as well as co-pays and deductibles owed to us by patients with insurance. Collection of accounts receivable has been a key area of focus, particularly over the past several years. At June 30, 2016, our collection rate on self-pay accounts was approximately 26.1%. Our self-pay collection rate includes payments made by patients, including co-pays and deductibles paid by patients with insurance. Based on our accounts receivable from self-pay patients and co-pays and deductibles owed to us by patients with insurance at June 30, 2016, a 10% decrease or increase in our self-pay collection rate, or approximately 3%, which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to provision for doubtful accounts of approximately $9 million.
Payment pressure from managed care payers also affects our provision for doubtful accounts. We typically experience ongoing managed care payment delays and disputes; however, we continue to work with these payers to obtain adequate and timely reimbursement for our services. Our estimated collection rate from managed care payers was approximately 97.9% at June 30, 2016.
We manage our provision for doubtful accounts using hospital-specific goals and benchmarks such as (1) total cash collections, (2) point-of-service cash collections, (3) AR Days and (4) accounts receivable by aging category. The following tables present the approximate aging by payer of our net accounts receivable from the continuing operations of our Hospital Operations and other segment of $2.599 billion and $2.578 billion at June 30, 2016 and December 31, 2015, respectively, excluding cost report settlements payable and valuation allowances of $33 million and $42 million at June 30, 2016 and December 31, 2015, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Indemnity,
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
Self-Pay
|
|
|
|
|
|
Medicare
|
|
Medicaid
|
|
Care
|
|
and Other
|
|
Total
|
0-60 days
|
|
88
|
%
|
|
64
|
%
|
|
61
|
%
|
|
23
|
%
|
|
58
|
%
|
61-120 days
|
|
7
|
%
|
|
18
|
%
|
|
16
|
%
|
|
17
|
%
|
|
15
|
%
|
121-180 days
|
|
3
|
%
|
|
8
|
%
|
|
9
|
%
|
|
12
|
%
|
|
9
|
%
|
Over 180 days
|
|
2
|
%
|
|
10
|
%
|
|
14
|
%
|
|
48
|
%
|
|
18
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Indemnity,
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
Self-Pay
|
|
|
|
|
|
Medicare
|
|
Medicaid
|
|
Care
|
|
and Other
|
|
Total
|
0-60 days
|
|
90
|
%
|
|
65
|
%
|
|
64
|
%
|
|
27
|
%
|
|
62
|
%
|
61-120 days
|
|
6
|
%
|
|
16
|
%
|
|
16
|
%
|
|
19
|
%
|
|
15
|
%
|
121-180 days
|
|
2
|
%
|
|
6
|
%
|
|
7
|
%
|
|
11
|
%
|
|
7
|
%
|
Over 180 days
|
|
2
|
%
|
|
13
|
%
|
|
13
|
%
|
|
43
|
%
|
|
16
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
At June 30, 2016, we had a cumulative total of patient account assignments to our Conifer subsidiary of approximately $2.2 billion related to our continuing operations, but excluding our newly acquired hospitals. These accounts have already been written off and are not included in our receivables or in the allowance for doubtful accounts; however, an estimate of future recoveries from all the accounts assigned to our Conifer subsidiary is determined based on our historical experience and recorded in accounts receivable.
Patient advocates from Conifer’s Medicaid Eligibility Program (“MEP”) screen patients in the hospital to determine whether those patients meet eligibility requirements for financial assistance programs. They also expedite the process of applying for these government programs. Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending, under the MEP, with appropriate contractual allowances recorded. At the present time, our newly acquired facilities are beginning to implement this program. Based on recent trends, approximately 96% of all accounts in the MEP are ultimately approved for benefits under a government program, such as Medicaid. The following table shows the approximate amount of accounts receivable in the MEP still awaiting determination of eligibility under a government program at June 30, 2016 and December 31, 2015 by aging category for the hospitals currently in the program.
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2016
|
|
2015
|
|
0-60 days
|
|
$
|
62
|
|
$
|
86
|
|
61-120 days
|
|
|
15
|
|
|
14
|
|
121-180 days
|
|
|
6
|
|
|
7
|
|
Over 180 days
|
|
|
13
|
|
|
18
|
|
Total
|
|
$
|
96
|
|
$
|
125
|
|
Salaries, Wages and Benefits
Same-hospital salaries, wages and benefits as a percentage of net operating revenues decreased 180 basis points to 47.7% in the three months ended June 30, 2016 compared to 49.5% for the same period in 2015. While same-hospital
net operating revenues increased 5.9% during the three months ended June 30, 2016 compared to the three months ended June 30, 2015, same-hospital salaries, wages and benefits increased by only 2.1% in the three months ended June 30, 2016 compared to the 2015 period. The increase in same-hospital salaries, wages and benefits was primarily due to annual merit increases for certain of our employees and increased employee health benefits costs, partially offset by lower incentive compensation expense. Salaries, wages and benefits expense for the three months ended June 30, 2016 and 2015 included stock-based compensation expense of $16 million and $18 million, respectively.
Same-hospital salaries, wages and benefits as a percentage of net operating revenues decreased 150 basis points to 47.6% in the six months ended June 30, 2016 compared to 49.1% for the same period in 2015. While same-hospital net operating revenues increased 6.3% during the six months ended June 30, 2016 compared to the six months ended June 30, 2015, same-hospital salaries, wages and benefits increased by only 2.9% in the six months ended June 30, 2016 compared to the 2015 period. The increase in same-hospital salaries, wages and benefits was primarily due to annual merit increases for certain of our employees and increased employee health benefits costs, partially offset by lower incentive compensation expense. Salaries, wages and benefits expense for the six months ended June 30, 2016 and 2015 included stock-based compensation expense of $29 million and $36 million, respectively.
At June 30, 2016, approximately 23% of the employees in our Hospital Operations and other segment were represented by labor unions. There were no unionized employees in our Ambulatory Care segment, and less than 1% of Conifer’s employees belong to a union. Unionized employees – primarily registered nurses and service and maintenance workers – are located at 35 of our hospitals, the majority of which are in California, Florida and Michigan. We currently have two expired contracts and are negotiating renewals under extension agreements. We are also negotiating first contracts at five hospitals and one physician practice where employees recently selected union representation. At this time, we are unable to predict the outcome of the negotiations, but increases in salaries, wages and benefits could result from these agreements. Furthermore, there is a possibility that strikes could occur during the negotiation process, which could increase our labor costs and have an adverse effect on our patient admissions and net operating revenues. Future organizing activities by labor unions could increase our level of union representation in 2016.
Supplies
Same-hospital supplies expense as a percentage of net operating revenues decreased 40 basis points to 16.6% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and stayed the same for the six months ended June 30, 2016 and 2015 at 16.8%.
We strive to control supplies expense through product standardization, contract compliance, improved utilization, bulk purchases and operational improvements. The items of current cost reduction focus continue to be cardiac stents and pacemakers, orthopedics and implants, and high-cost pharmaceuticals. We also utilize group-purchasing strategies and supplies-management services in an effort to reduce costs.
Other Operating Expenses, Net
Same-hospital other operating expenses as a percentage of net operating revenues increased 180 basis points to 25.6% in the three months ended June 30, 2016 compared to 23.8% for the same period in 2015.
The increase in o
ther operating expenses was primarily due to:
|
·
|
|
higher same-hospital malpractice expense of $14 million;
|
|
·
|
|
increased costs of $47 million associated with our health plans due to an increase in covered lives, which costs were substantially offset by increased health plan revenues; and
|
|
·
|
|
increased costs of contracted services of $42 million.
|
Same-hospital malpractice expense in the 2016 period included an unfavorable adjustment of approximately $
6
million due to a 25 basis point decrease in the interest rate used to estimate the discounted present value of projected future malpractice
liabilities compared to a favorable adjustment of approximately $6 million as a result of a 36 basis point increase in the interest rate in the 2015 period.
Same-hospital other operating expenses as a percentage of net operating revenues increased 140 basis points to 25.5% in the six months ended June 30, 2016 compared to 24.1% for the same period in 2015.
The increase in o
ther operating expenses was primarily due to:
|
·
|
|
additional medical fees of $19 million;
|
|
·
|
|
higher same-hospital malpractice expense of $16 million;
|
|
·
|
|
increased costs of $67 million associated with our health plans due to an increase in covered lives, which costs were substantially offset by increased health plan revenues; and
|
|
·
|
|
increased costs of contracted services of $79 million.
|
Same-hospital malpractice expense in the 2016 period included an unfavorable adjustment of approximately $17 million due to a 80 basis point decrease in the interest rate used to estimate the discounted present value of projected future malpractice liabilities compared to a favorable adjustment of approximately $2 million as a result of a 10 basis point increase in the interest rate in the 2015 period.
A
mbulatory
C
are
S
egment
On June 16, 2015, we completed the transaction that combined our freestanding ambulatory surgery and imaging center assets with the short-stay surgical facility assets of USPI into our new USPI joint venture, and we acquired Aspen, which operates nine private short-stay surgical hospitals and clinics in the United Kingdom, thereby forming our Ambulatory Care separate reportable business segment. The results of
our USPI joint venture and Aspen are included in the financial
and statistical information provided only for the period from acquisition to June 30, 2016.
Our USPI joint venture operates its surgical facilities in partnership with local physicians and, in many of these facilities, a health system partner. We hold an ownership interest in each facility, with each being operated through a separate legal entity. The joint venture operates facilities on a day-to-day basis through management services contracts. Our sources of earnings from each facility consist of:
|
·
|
|
management services revenues, computed as a percentage of each facility’s net revenues (often net of bad debt expense); and
|
|
·
|
|
our share of each facility’s net income (loss), which is computed by multiplying the facility’s net income (loss) times the
percentage of each facility’s equity interests owned by our USPI joint venture.
|
Our role as an owner and day-to-day manager provides us with significant influence over the operations of each facility. In many of the facilities our Ambulatory Care segment operates (120 of 334 at June 30, 2016), this influence does not represent control of the facility, so we account for our investment in the facility under the equity method for an unconsolidated affiliate. The joint venture controls 214 of the facilities our Ambulatory Care segment operates, and we account for these investments as consolidated subsidiaries.
Our net earnings from a facility are the same under either method, but the classification of those earnings differs. For consolidated subsidiaries, our financial statements reflect 100% of the revenues and expenses of the subsidiaries, after the elimination of intercompany amounts. The net profit attributable to owners other than us is classified within “net income attributable to noncontrolling interests.”
For unconsolidated affiliates, our consolidated statements of operations reflect our earnings in two line items:
|
·
|
|
equity in earnings of unconsolidated affiliates
—our share of the net income of each facility, which is based on the facility’s net income and the percentage of the facility’s outstanding equity interests owned by us; and
|
|
·
|
|
management and administrative services revenues, which is included in our net operating revenues
—income we earn in exchange for managing the day-to-day operations of each facility, usually quantified as a percentage of each facility’s net revenues less bad debt expense.
|
Our Ambulatory Care operating income is driven by the performance of all facilities our USPI joint venture operates and by the joint venture’s ownership interests in those facilities, but our individual revenue and expense line items contain only consolidated businesses, which represent 63% of those facilities. This translates to trends in consolidated operating income that often do not correspond with changes in consolidated revenues and expenses.
Three and Six Months Ended June 30, 2016 Compared to Three and Six Months Ended June 30, 2015
The following table summarizes certain consolidated statements of operations items for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
June 30,
|
|
Ambulatory Care Results of Operations
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Net operating revenues
|
|
$
|
442
|
|
$
|
142
|
|
$
|
871
|
|
$
|
233
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
26
|
|
|
6
|
|
|
51
|
|
|
6
|
|
Operating expenses, excluding depreciation and amortization
|
|
|
329
|
|
|
99
|
|
|
647
|
|
|
161
|
|
Depreciation and amortization
|
|
|
22
|
|
|
7
|
|
|
47
|
|
|
11
|
|
Operating income
|
|
$
|
117
|
|
$
|
42
|
|
$
|
228
|
|
$
|
67
|
|
Our Ambulatory Care net operating revenues increased by $300 million and $638 million, or 211.3% and 273.8%, for the three and six months ended June 30, 2016, respectively, compared to the three and six months ended June 30, 2015, respectively. The growth in revenues was primarily driven by increases from acquisitions of $290 million and $618 million for the three and six month periods, respectively.
Salaries, wages and benefits expense
increased by $106 million and $228 million, or 258.5% or 350.8%, for the three and six months ended June 30, 2016, respectively, compared to the three and six months ended June 30, 2015, respectively. The increases were primarily driven by
salaries, wages and benefits expense
from acquisitions of $103 million and $222 million for the three and six month periods, respectively.
Supplies expense
increased by $63 million and $132 million, or 225.0% and 293.3%, for the three and six months ended June 30, 2016, respectively, compared to the three and six months ended June 30, 2015, respectively. The increases were primarily driven by
supplies expense
from acquisitions of $62 million and $131 million for the three and six month periods, respectively.
Other operating expenses increased by $61 million and $126 million, or 203.3% and 247.1%, for the three and six months ended June 30, 2016, respectively, compared to three and six months ended June 30, 2015, respectively. The increases were driven by
other operating expenses
from acquisitions of $58 million and $121 million for the three and six month periods, respectively.
Facility Growth
The following table summarizes the changes in our same-facility revenue year-over-year on a pro forma systemwide basis, which includes both consolidated and unconsolidated (equity method) facilities. While we do not record the revenues of unconsolidated facilities, we believe this information is important in understanding the financial performance of our Ambulatory Care segment because these revenues are the basis for calculating our management services revenues and, together with the expenses of our unconsolidated facilities, are the basis for our equity in earnings of unconsolidated affiliates.
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
Ambulatory Care Facility Growth
|
|
June 30, 2016
|
|
June 30, 2016
|
Net revenues
|
|
11.7
|
%
|
|
11.4
|
%
|
Cases
|
|
5.2
|
%
|
|
6.9
|
%
|
Net revenue per case
|
|
6.1
|
%
|
|
4.2
|
%
|
Joint Ventures with Health System Partners
Our USPI
joint venture’s business model is to jointly own its facilities with local physicians and not-for-profit health systems. Accordingly, as of June 30, 2016, the majority of facilities in our Ambulatory Care segment are operated in this model.
|
|
|
|
|
Six Months Ended
|
Ambulatory Care Facilities with Health System Partners
|
|
June 30, 2016
|
Facilities:
|
|
|
With a health system partner
|
|
179
|
Without a health system partner
|
|
155
|
Total facilities operated
|
|
334
|
Change from December 31, 2015:
|
|
|
Acquisitions
|
|
4
|
De novo
|
|
1
|
Dispositions/Mergers
|
|
(4)
|
Total increase in number of facilities operated
|
|
1
|
C
onifer
S
egment
Our Conifer subsidiary generated net operating revenues of $386 million and $340 million during the three months ended June 30, 2016 and 2015, respectively, and $771 million and $682 million during the six months ended June 30, 2016 and 2015, respectively, a portion of which was eliminated in consolidation as described in Note 16 to the Condensed Consolidated Financial Statements. The increase in the revenue from third-party customers, which is not eliminated in consolidation, is primarily due to new clients.
Salaries, wages and benefits expense for Conifer increased $29 million, or 13.9%, in the three months ended June 30, 2016 compared to the three months ended June 30, 2015, and $75 million, or 18.7%, in the six months ended June 30, 2016 compared to the six months ended June 30, 2015, in both cases
d
ue to an increase in employee headcount as a result of the growth in Conifer’s business primarily attributable to new clients.
Other operating expenses for Conifer increased $14 million, or 19.7%, in the three months ended June 30, 2016 compared to the three months ended June 30, 2015, and $30 million, or 21.7%, in the six months ended June 30, 2016 compared to the six months ended June 30, 2015, in both cases due to the growth in Conifer’s business primarily attributable to new clients.
Conifer continues to implement revenue cycle initiatives to improve our cash flow. These initiatives are focused on standardizing and improving patient access processes, including pre-registration, registration, verification of eligibility and benefits, liability identification and collection at point-of-service, and financial counseling. These
initiatives are intended to reduce denials, improve service levels to patients and increase the quality of accounts that end up in accounts receivable. Although we continue to focus on improving our methodology for evaluating the collectability of our accounts receivable, we may incur future charges if there are unfavorable changes in the trends affecting the net realizable value of our accounts receivable.
C
onsolidated
Impairment and Restructuring Charges, and Acquisition-Related Costs
During the three months ended June 30, 2016, we recorded impairment and restructuring charges and acquisition-related costs of $22 million, consisting of approximately, $7 million of employee severance costs, $1 million of restructuring costs, and $14 million in acquisition-related costs, which include $3 million of transaction costs and $11 million of acquisition integration costs.
During the three months ended June 30, 2015, we recorded impairment and restructuring charges and acquisition-related costs of $193 million, consisting of a $147 million charge to write-down assets held for sale to their estimated fair value, less estimated costs to sell, as a result of us entering into a definitive agreement for the sale of SLUH, $2 million of employee severance costs, $1 million of restructuring costs, $4 million of contract and lease termination fees, and $39 million in acquisition-related costs, which include $29 million of transaction costs and $10 million in acquisition integration costs.
During the six months ended June 30, 2016, we recorded impairment and restructuring charges and acquisition-related costs of $50 million, consisting of approximately $2 million to write-down other intangible assets, $17 million of employee severance costs, $2 million of restructuring costs, $1 million of contract and lease termination fees, and $28 million in acquisition-related costs, which include $3 million of transaction costs and $25 million of acquisition integration costs.
During the six months ended June 30, 2015, we recorded impairment and restructuring charges and acquisition-related costs of $222 million, consisting of a $147 million charge to write-down assets held for sale to their estimated fair value, less estimated costs to sell, as a result of us entering into a definitive agreement for the sale of SLUH, $8 million of employee severance costs, $4 million of restructuring costs, $4 million of contract and lease termination fees, and $59 million in acquisition-related costs, which include $36 million of transaction costs and $23 million in acquisition integration costs.
Litigation and Investigation Costs
Litigation and investigation costs for the three months ended June 30, 2016 and 2015 were $114 million and $14 million, respectively, and $287 million and $17 million, respectively, for the six months ended June 30, 2016 and 2015. These costs were primarily attributable to significant legal proceedings and governmental investigations described in Note 10 to our Condensed Consolidated Financial Statements.
Gains on Sales, Consolidation and Deconsolidation of Facilities
During the three and six months ended June 30, 2016, we recorded gains on sales, consolidation and deconsolidation of facilities of approximately $1 million and $148 million, respectively, primarily comprised of a $113 million gain from the sale of our Atlanta-area facilities and $29 million of gains related to the consolidation and deconsolidation of certain businesses of our USPI joint venture due to ownership changes.
Interest Expense
Interest expense for the three months ended June 30, 2016 was $244 million compared to $217 million for the same period in 2015, and $487 million for the six months ended June 30, 2016 compared to $416 million for the same period in 2015, in both cases primarily due to increased borrowings related to our recent acquisitions.
Income Tax Expense
During the three months ended June 30, 2016, we recorded an income tax benefit of $16 million in continuing
operations on pre-tax income of $25 million. The recorded income tax differs from taxes calculated at the statutory rate primarily due to a state income tax benefit of approximately $6 million, tax benefits of $26 million related to net income attributable to noncontrolling partnership interests, which is excluded from the computation of the provision for income taxes, and tax expense of $7 million related to nondeductible litigation compared to an income tax benefit of $
27
million during the three months ended June 30, 201
5
.
During the six months ended June 30, 2016, we recorded income tax expense of $51 million in continuing operations on pre-tax income of $130 million. The recorded income tax differs from taxes calculated at the statutory rate primarily due to state income tax expense of approximately $7 million, tax benefits of $47 million related to net income attributable to noncontrolling partnership interests, which is excluded from the computation of the provision for income taxes, tax expense of $29 million related to nondeductible goodwill, tax benefits of $17 million related to nontaxable gains and related changes in deferred taxes, and tax expense of $33 million related to nondeductible litigation, compared to an income tax benefit of $11 million during the six months ended June 30, 2015.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $85 million for the three months ended June 30, 2016 compared to $33 million for the three months ended June 30, 2015. Net income attributable to noncontrolling interests for the three months ended June 30, 2016 was comprised of $14 million related to our Hospital Operations and other segment, $60 million related to our Ambulatory Care segment and $11 million related to our Conifer segment. Of the portion related to our Ambulatory Care segment, $8 million was related to the minority interest in our USPI joint venture. The portion related to our Conifer segment is due to
Catholic Health Initiatives’ 23.8% ownership interest in our Conifer Health Solutions, LLC subsidiary.
Net income attributable to noncontrolling interests was $178 million for the six months ended June 30, 2016 compared to $62 million for the six months ended June 30, 2015. Net income attributable to noncontrolling interests for the six months ended June 30, 2016 was comprised of $20 million related to our Hospital Operations and other segment, $135 million related to our Ambulatory Care segment and $23 million related to our Conifer segment. Of the portion related to our Ambulatory Care segment, $37 million was related to the minority interest in our USPI joint venture.
ADDITIONAL SUPPLEMENTAL NON-GAAP DISCLOSURES
The financial information provided throughout this report, including our Condensed Consolidated Financial Statements and the notes thereto, has been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, we use certain non-GAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements, some of which are recurring or involve cash payments. We use this information in our analysis of the performance of our business, excluding items we do not consider relevant to the performance of our continuing operations. In addition, from time to time we use these measures to define certain performance targets under our compensation programs.
“Adjusted EBITDA” is a non-GAAP measure defined by the Company as net income available (loss attributable) to Tenet Healthcare Corporation common shareholders before (1) the cumulative effect of changes in accounting principle, (2) net loss (income) attributable to noncontrolling interests, (3) income (loss) from discontinued operations, (4) income tax benefit (expense), (5) investment earnings (losses), (6) gain (loss) from early extinguishment of debt, (7) interest expense, (8) litigation and investigation (costs) benefit, net of insurance recoveries, (9) net gains (losses) on sales, consolidation and deconsolidation of facilities, (10) impairment and restructuring charges and acquisition-related costs, and (11) depreciation and amortization. Litigation and investigation costs do not include ordinary course of business malpractice and other litigation and related expense.
The Company believes the foregoing non-GAAP measures are useful to investors and analysts because they present additional information on the Company’s financial performance. Investors, analysts, Company management and the Company’s Board of Directors utilize these non-GAAP measures, in addition to GAAP measures, to track the Company’s financial and operating performance and compare the Company’s performance to its peer companies, which utilize similar non-GAAP measures in their presentations. The Human Resources Committee of the Company’s Board of Directors also uses certain of these measures to evaluate management’s performance for the purpose of determining incentive compensation. Additional information regarding the purpose and utility of specific non-GAAP measures used by the Company is set forth below. The Company believes that Adjusted EBITDA is a useful measure, in part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to other GAAP and non-GAAP measures, as factors in determining the estimated fair value of shares of the Company’s common stock. Company management also regularly reviews the Adjusted EBITDA performance for each operating segment. The Company does not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance.These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Because these measures exclude many items that are included in our financial statements, they do not provide a complete measure of our operating performance. Accordingly, investors are encouraged to use GAAP measures when evaluating the Company’s financial performance
The table below shows the reconciliation of Adjusted EBITDA to net income available (loss attributable) to Tenet Healthcare Corporation common shareholders (the most comparable GAAP term) for the three and six months ended June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Net loss attributable to Tenet Healthcare Corporation common shareholders
|
|
$
|
(46)
|
|
|
$
|
(61)
|
|
|
$
|
(105)
|
|
|
$
|
(14)
|
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(85)
|
|
|
|
(33)
|
|
|
|
(178)
|
|
|
|
(62)
|
|
|
Net loss from discontinued operations, net of tax
|
|
|
(2)
|
|
|
|
(1)
|
|
|
|
(6)
|
|
|
|
—
|
|
|
Income (loss) from continuing operations
|
|
|
41
|
|
|
|
(27)
|
|
|
|
79
|
|
|
|
48
|
|
|
Income tax benefit (expense)
|
|
|
16
|
|
|
|
27
|
|
|
|
(51)
|
|
|
|
11
|
|
|
Investment earnings (losses)
|
|
|
2
|
|
|
|
(1)
|
|
|
|
3
|
|
|
|
(1)
|
|
|
Interest expense
|
|
|
(244)
|
|
|
|
(217)
|
|
|
|
(487)
|
|
|
|
(416)
|
|
|
Operating income
|
|
|
267
|
|
|
|
164
|
|
|
|
614
|
|
|
|
454
|
|
|
Litigation and investigation costs
|
|
|
(114)
|
|
|
|
(14)
|
|
|
|
(287)
|
|
|
|
(17)
|
|
|
Gains on sales, consolidation and deconsolidation of facilities
|
|
|
1
|
|
|
|
—
|
|
|
|
148
|
|
|
|
—
|
|
|
Impairment and restructuring charges, and acquisition-related costs
|
|
|
(22)
|
|
|
|
(193)
|
|
|
|
(50)
|
|
|
|
(222)
|
|
|
Depreciation and amortization
|
|
|
(215)
|
|
|
|
(197)
|
|
|
|
(427)
|
|
|
|
(404)
|
|
|
Adjusted EBITDA
|
|
$
|
617
|
|
|
$
|
568
|
|
|
$
|
1,230
|
|
|
$
|
1,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$
|
4,868
|
|
|
$
|
4,492
|
|
|
$
|
9,912
|
|
|
$
|
8,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations as a % of operating revenues
|
|
|
(0.9)
|
%
|
|
|
(1.4)
|
%
|
|
|
(1.1)
|
%
|
|
|
(0.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA as % of net operating revenues (Adjusted EBITDA margin)
|
|
|
12.7
|
%
|
|
|
12.6
|
%
|
|
|
12.4
|
%
|
|
|
12.3
|
%
|
|
LIQUIDITY AND CAPITAL RESOURCES
CASH REQUIREMENTS
There have been no material changes to our obligations to make future cash payments under contracts and under contingent commitments, such as standby letters of credit and minimum revenue guarantees, as disclosed in our Annual
Report.
As part of our long-term objective to manage our capital structure, we may from time to time seek to retire, purchase, redeem or refinance some of our outstanding debt or equity securities subject to prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. These actions are part of our strategy to manage our leverage and capital structure over time, which is dependent on our total amount of debt, our available cash balances and our operating results.
At June 30, 2016, using the last 12 months of Adjusted EBITDA, including our USPI joint venture and Aspen’s last 12 months of Adjusted EBITDA, our ratio of total long-term debt, net of cash and cash equivalent balances, to Adjusted EBITDA was 5.75x on a consolidated basis. We anticipate this ratio will fluctuate from quarter to quarter based on earnings performance and other factors, including acquisitions that involve the assumption of long-term debt. We intend to manage this ratio by following our business plan, managing our cost structure, possible asset divestitures and through other changes in our capital structure, including, if appropriate, the issuance of equity or convertible securities. Our ability to achieve our leverage and capital structure objectives is subject to numerous risks and uncertainties, many of which are described in the Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report.
Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations), equipment and information systems additions and replacements (including those required to achieve compliance with the health information technology requirements under the American Recovery and Reinvestment Act of 2009), introduction of new medical technologies, design and construction of new buildings, and various other capital improvements, as well as commitments to make capital expenditures in connection with the acquisitions of businesses. Capital expenditures were $413 million and $359 million in the
six months ended June 30, 2016
and 2015, respectively. We anticipate that our capital expenditures for continuing operations for the year ending December 31, 2016 will total approximately $850 million to $900 million, including $133 million that was accrued as a liability at December 31, 2015. Our budgeted 2016 capital expenditures include approximately $5 million to improve disability access at certain of our facilities pursuant to the terms of a negotiated consent decree.
Interest payments, net of capitalized interest, were $467 million and $385 million in the
six months ended June 30, 2016
and 2015, respectively.
Income tax payments, net of tax refunds, were approximately $29 million and $8 million in the
six months ended June 30, 2016
and 2015, respectively.
SOURCES AND USES OF CASH
Our liquidity for the six months ended June 30, 2016 was primarily derived from net cash provided by operating activities, cash on hand and borrowings under our revolving credit facility. We had approximately $656 million of cash and cash equivalents on hand at June 30, 2016 to fund our operations and capital expenditures, and our borrowing availability under our credit facility was $996 million based on our borrowing base calculation at June 30, 2016.
Our primary source of operating cash is the collection of accounts receivable. As such, our operating cash flow is impacted by levels of cash collections and levels of bad debt due to shifts in payer mix and other factors.
Net cash provided by operating activities was $582 million in the six months ended June 30, 2016 compared to $353 million in the six months ended June 30, 2015. Key positive and negative factors contributing to the change between the 2016 and 2015 periods include the following:
|
·
|
|
Increased income from continuing operations before income taxes of $133 million, excluding investment earnings (losses), gain (loss) from early extinguishment of debt, interest expense, gains on sales, consolidation and deconsolidation of facilities, litigation and investigation costs, impairment and restructuring charges, and acquisition-related costs, and depreciation and amortization in the six months ended June 30, 2016 compared to the six months ended June 30, 2015;
|
|
·
|
|
$67 million less cash used by the change in accounts receivable, net of provision for doubtful accounts, in the 2016 period;
|
|
·
|
|
Approximately $110 million of additional net cash proceeds in the 2016 period related to supplemental Medicaid programs in California and Texas;
|
|
·
|
|
Higher aggregate annual 401(k) matching contributions and annual incentive compensation payments of $18 million and $9 million, respectively;
|
|
·
|
|
An increase of $13 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements; and
|
|
·
|
|
Higher interest payments of $82 million.
|
We continue to seek further initiatives to increase the efficiency of our balance sheet by generating incremental cash, including by means of the sale of underutilized or inefficient assets.
Capital expenditures were $413 million and $359 million in the six months ended June 30, 2016 and 2015, respectively.
We record our investments that are available-for-sale at fair market value. As shown in Note 14 to our Condensed Consolidated Financial Statements, the majority of our investments are valued based on quoted market prices or other observable inputs. We have no investments that we expect will be negatively affected by the current economic conditions such that they will materially impact our financial condition, results of operations or cash flows.
DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS
Credit Agreement.
On December 4, 2015, we entered into an amendment to our existing senior secured revolving credit facility (as amended, “Credit Agreement”) in order to, among other things, extend the scheduled maturity date of the facility, reduce the rates of certain interest and fees payable under the facility and remove certain restrictions with respect to the borrowing base eligibility of certain accounts receivable. The Credit Agreement provides, subject to borrowing availability, for revolving loans in an aggregate principal amount of up to $1 billion, with a $300 million subfacility for standby letters of credit. The Credit Agreement has a scheduled maturity date of December 4, 2020. We are in compliance with all covenants and conditions in our Credit Agreement. At June 30, 2016, we had no cash borrowings outstanding under the Credit Agreement, and we had approximately $4 million of standby letters of credit outstanding. Based on our eligible receivables, approximately $996 million was available for borrowing under the Credit Agreement at June 30, 2016.
Letter of Credit Facility.
We have a letter of credit facility agreement (“LC Facility”) that provides for the issuance of standby and documentary letters of credit (including certain letters of credit originally issued under our prior credit agreement, which we transferred to the LC Facility), from time to time, in an aggregate principal amount of up to $180 million (subject to increase to up to $200 million). The LC Facility has a scheduled maturity date of March 7, 2017. We are in compliance with all covenants and conditions in our LC Facility. At June 30, 2016, we had approximately $132 million of standby letters of credit outstanding under the LC Facility.
For information regarding our long-term debt and capital lease obligations, see Note 5 to our Condensed Consolidated Financial Statements.
LIQUIDITY
From time to time, we expect to engage in additional capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at that time. We believe our existing debt agreements provide flexibility for future secured or unsecured borrowings.
Our cash on hand fluctuates day-to-day throughout the year based on the timing and levels of routine cash receipts and disbursements, including our book overdrafts, and required cash disbursements, such as interest and income tax payments. These fluctuations result in material intra-quarter net operating and investing uses of cash that has caused, and in the future could cause, us to use our Credit Agreement as a source of liquidity.
We believe that existing cash and cash equivalents on hand, availability under our Credit Agreement, anticipated future cash provided by operating activities, and our investments in marketable securities of our captive insurance companies classified as noncurrent investments on our balance sheet should be adequate to meet our current cash needs. These sources of liquidity, in combination with any potential future debt incurrence, should also be adequate to finance planned capital expenditures, payments on the current portion of our long-term debt and other presently known operating needs.
We also expect to use cash on the balance sheet and borrowings under our Credit Agreement to fund the $514 million in payments anticipated to be made in the three months ending September 30, 2016 in connection with the resolution of the Clinica de la Mama matters.
Long-term liquidity for debt service and other purposes will be dependent on the amount of cash provided by operating activities and, subject to favorable market and other conditions, the successful completion of future borrowings or potential refinancings. However, our cash requirements could be materially affected by the use of cash in acquisitions of businesses, repurchases of securities, the exercise of put rights or other exit options by our joint venture partners, and contractual commitments to fund capital expenditures in, or intercompany borrowings to, businesses we acquire. In addition, liquidity could be adversely affected by a deterioration in our results of operations, including our ability to generate cash from operations, as well as by the various risks and uncertainties discussed in this and other sections of this report
, including any costs associated with significant legal proceedings and government investigations
.
We do not rely on commercial paper or other short-term financing arrangements nor do we enter into repurchase agreements or other short-term financing arrangements not otherwise reported in our period-end balance sheets. In addition, we do not have significant exposure to floating interest rates given that substantially all of our current long-term indebtedness has fixed rates of interest.
We continue to aggressively identify and implement further actions to control costs and enhance our operating performance, including cash flow. Among the areas being addressed are capital allocation priorities, volume growth, including the acquisition of outpatient businesses, physician recruitment and alignment strategies, expansion of our Conifer services businesses, managed care payer contracting, procurement efficiencies, cost standardization, bad debt expense reduction initiatives, underperforming hospitals and portfolio optimization, and certain hospital and overhead costs not related to patient care. Although these initiatives may result in improved performance, our performance may remain somewhat below our hospital management company peers because of geographic and other differences in hospital portfolios.
OFF-BALANCE SHEET ARRANGEMENTS
Our consolidated operating results for the
six months ended June 30, 2016
and 2015 include $2 million and $42 million,
respectively, of net operating revenue, and $7 million of net operating losses and $4 million of net operating income, respectively, generated from hospitals operated by us under operating lease arrangements (one hospital in the six months ended June 30, 2016, which was sold effective March 31, 2016, and two hospitals in the six months ended
June 30, 2015). In accordance with GAAP, the applicable buildings and the future lease obligations under these arrangements are not recorded on our consolidated balance sheet.
We have no other off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, except for $219 million of standby letters of credit outstanding and guarantees at June 30, 2016.
CRITICAL ACCOUNTING ESTIMATES
In preparing our Condensed Consolidated Financial Statements in conformity with GAAP, we must use estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may vary from those estimates.
We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different outcomes under different conditions or when using different assumptions.
Our critical accounting estimates have not changed from the description provided in our Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below presents information about certain of our market-sensitive financial instruments at June 30, 2016. The fair values were determined based on quoted market prices for the same or similar instruments. The average effective interest rates presented are based on the rate in effect at the reporting date. The effects of unamortized premiums and discounts are excluded from the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity Date, Years Ending December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
|
|
|
(Dollars in Millions)
|
|
Fixed rate long-term debt
|
|
$
|
109
|
|
|
$
|
166
|
|
|
$
|
1,143
|
|
|
$
|
1,683
|
|
|
$
|
3,410
|
|
|
$
|
7,331
|
|
|
$
|
13,842
|
|
|
$
|
13,181
|
|
Average effective interest rates
|
|
|
5.9
|
%
|
|
|
6.7
|
%
|
|
|
6.5
|
%
|
|
|
5.5
|
%
|
|
|
6.7
|
%
|
|
|
7.1
|
%
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate long-term debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
900
|
|
|
$
|
—
|
|
|
$
|
900
|
|
|
$
|
909
|
|
Average effective interest rates
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4.1
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
|
|
At June 30, 2016, the potential reduction of annual pretax earnings due to a one percentage point (100 basis point) increase in variable interest rates on long-term debt would be approximately $9 million.
At June 30, 2016, we had long-term, market-sensitive investments held by our captive insurance subsidiaries. Our market risk associated with our investments in debt securities classified as non-current assets is substantially mitigated by the long-term nature and type of the investments in the portfolio.
We have no affiliation with partnerships, trusts or other entities (sometimes referred to as “special-purpose” or “variable-interest” entities) whose purpose is to facilitate off-balance sheet financial transactions or similar arrangements by us. As a result, we have no exposure to the financing, liquidity, market or credit risks associated with such entities.
We do not hold or issue derivative instruments for trading purposes and are not a party to any instruments with leverage or prepayment features.
ITEM 4. CONTROLS AND PROCEDURES
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report with respect to our operations that existed prior to the USPI joint venture and Aspen transactions. The evaluation was performed under the supervision and with the
participation of management, including our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the SEC rules thereunder.
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II.
OTHER INFORMATIO
N
ITEM 1. LEG
AL PROCEEDINGS
Because we provide healthcare services in a highly regulated industry, we have been and expect to continue to be party to various lawsuits, claims and regulatory investigations from time to time. For information regarding material pending legal proceedings in which we are involved, see Note 10 to our Condensed Consolidated Financial Statements, which is incorporated by reference.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2015.
ITEM 6. EXHIBITS
The following exhibits are filed with this report:
|
|
|
|
|
|
|
(10)
|
|
Material Contracts
|
|
|
|
|
|
(a)
|
Sixth Amended and Restated Tenet Healthcare 2008 Stock Incentive Plan, as amended and restated effective March 10, 2016*
|
|
|
|
(31)
|
|
Rule 13a-14(a)/15d-14(a) Certifications
|
|
|
|
|
|
|
(a)
|
Certification of Trevor Fetter, Chief Executive Officer and Chairman of the Board of Directors
|
|
|
|
|
|
|
(b)
|
Certification of Daniel J. Cancelmi, Chief Financial Officer
|
|
|
|
|
(32)
|
|
Section 1350 Certification of Trevor Fetter, Chief Executive Officer and Chairman of the Board of Directors, and Daniel J. Cancelmi, Chief Financial Officer
|
|
|
|
|
(101 INS)
|
|
XBRL Instance Document
|
|
|
|
|
(101 SCH)
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
(101 CAL)
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
(101 DEF)
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
(101 LAB)
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
(101 PRE)
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
* Management contract or compensatory plan or arrangement
SIGNATURES
Pursuant to the requirements 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.
|
|
|
|
|
TENET HEALTHCARE CORPORATION
|
|
|
(Registrant)
|
|
|
|
Date: August 1, 2016
|
By:
|
/s/ R. SCOTT RAMSEY
|
|
|
R. Scott Ramsey
|
|
|
Vice President and Controller
|
|
|
(Principal Accounting Officer)
|
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