COMMUNITY HEALTH SYSTEMS, INC. You should read this discussion together with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.
Executive Overview
We are one of the largest publicly traded providers of healthcare services inthe United States and a leading operator of general acute care hospitals and outpatient facilities in communities across the country. We provide healthcare services through the hospitals and affiliated businesses that we own and operate in generally larger non-urban and selected urban markets throughoutthe United States . We generate revenues by providing a broad range of general and specialized hospital healthcare services and outpatient services to patients in the communities in which we are located. As ofDecember 31, 2021 , we owned or leased 83 hospitals, comprised of 81 general acute care hospitals and two stand-alone rehabilitation or psychiatric hospitals. For the hospitals that we own and operate, we are paid for our services by governmental agencies, private insurers and directly by the patients we serve.
COVID-19 Pandemic
A novel strain of coronavirus causing the disease known as COVID-19 was first identified inDecember 2019 , and has spread throughout the world, including acrossthe United States . The HHS Secretary has renewed the agency's declaration of a national public health emergency, which was initially declared inJanuary 2020 , due to the continued consequences of the COVID-19 pandemic. While vaccines and booster shots for the COVID-19 virus became widely available inthe United States during the year endedDecember 31, 2021 , COVID-19 has continued to result in a significant number of hospitalizations. Moreover, various government authorities and private businesses have implemented or re-imposed restrictive measures, including mask and vaccine requirements. As a provider of healthcare services, we have been and continue to be significantly affected by the public health and economic effects of the COVID-19 pandemic. The safety of our patients, physicians, nurses, and employees in the communities in which we serve remains our primary focus. Our hospitals, medical clinics, medical personnel, and employees have been actively caring for COVID-19 patients, and we have been working with federal, state and local health authorities to respond to COVID-19 cases in the communities we serve. Although we have implemented considerable safety measures, treatment of COVID-19 patients has associated risks, which may include the manner in which patients, physicians, nurses and other medical personnel perceive and respond to such risks. While our hospitals have not generally experienced major capacity constraints to date arising from the treatment of COVID-19 patients, there are hospitals inthe United States that have been overwhelmed in caring for COVID-19 patients, which has prevented such hospitals from treating all patients who seek care. In certain locations, government authorities and healthcare providers have re-imposed restrictions on elective medical procedures, have activated crisis standards of care, have deployed military personnel, and have taken other measures affecting treatment capacity and care in response to COVID-19 pandemic developments. One or more of our hospitals or other facilities could be affected by these measures in the future, particularly if a major COVID-19 outbreak occurs in a geographic region where any of our hospitals are located. We have incurred, and may continue to incur, certain increased expenses arising from the COVID-19 pandemic, including additional labor, supply chain, capital and other expenditures. Moreover, in recent months, the COVID-19 pandemic has resulted in general inflationary pressures and has resulted in significant disruptions to global supply networks. In this regard, we have experienced disruptions in connection with the provision of equipment, pharmaceuticals and medical supplies to us, as well as inflationary pressures in connection with labor, supply chain, capital and other expenditures. While we have implemented cost containment and other measures to try to counteract these developments, we may be unable to fully offset these increases in our costs and otherwise effectively respond to supply disruptions. Negative economic conditions and other factors resulting from the COVID-19 pandemic have affected, and may continue to affect, our service mix, revenue mix, payor mix and/or patient volumes, as well as our ability to collect outstanding receivables. Pandemic-related factors may continue to adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered. We have observed deterioration in the collectability of patient accounts receivable from uninsured patients compared to pre-pandemic levels which, if sustained, may adversely affect our financial results and require an increased level of working capital. While we are not able to fully quantify the impact that the COVID-19 pandemic will have on our future financial results, we expect developments related to COVID-19 to continue to affect our financial performance. Moreover, the COVID-19 pandemic may otherwise have material adverse effects on our results of operations, financial position, and/or our cash flows if economic and/or public health conditions inthe United States deteriorate. The ongoing impact of the pandemic on our financial results will depend on, 52 -------------------------------------------------------------------------------- among other factors, the duration and severity of the pandemic, the impact of the pandemic on economic conditions, the volume of canceled or rescheduled procedures at our facilities, the volume of COVID-19 patients cared for across our health systems, the timing, availability and acceptance of effective medical treatments, the availability, acceptance of and need for additional doses of vaccines, the spread of potentially more contagious and/or virulent forms of the virus, including any variants of the virus that may be resistant to currently available vaccines, and the impact of government actions and administrative regulation on the hospital industry and broader economy, including through existing and any future stimulus efforts as well as vaccine requirements. As discussed below under "Overview of Legislative Developments", we have received, and may continue to receive, payments and advances made available under the CARES Act, the PPPHCE Act, the CAA, the ARPA, and other stimulus laws, which have been beneficial in partially mitigating the impact of the COVID-19 pandemic on our results of operation and financial position to date. The federal government may consider additional stimulus and relief efforts but we are unable to predict whether any additional stimulus measures will be enacted or their impact, if any. We are unable to assess the extent to which potential ongoing negative impacts on us arising from the COVID-19 pandemic will ultimately be offset by amounts received, and benefits which we may in the future receive, under the CARES Act, the PPPHCE Act, the CAA, the ARPA or any future stimulus measures.
Completed Divestiture and Acquisition Activity
Our portfolio rationalization and deleveraging strategy involving the divestiture of hospitals and non-hospital businesses concluded at the end of 2020. However, we continue to receive interest from potential acquirers for certain of our hospitals, and may, from time to time, consider selling additional hospitals or our unconsolidated equity interests in hospitals if we consider any such disposition to be in our best interests. During 2021, we completed the divestiture of five hospitals, including three which closed effectiveJanuary 1, 2021 (for these hospitals we received net proceeds at a preliminary closing onDecember 31, 2020 ). These five hospitals represented annual net operating revenues in 2020 of approximately$275 million and, including the net proceeds for the three hospital divestitures that preliminarily closed onDecember 31, 2020 , we received total net proceeds of approximately$28 million in connection with the disposition of these hospitals. During 2020, we completed the divestiture of 13 hospitals, including three which closed effectiveJanuary 1, 2020 (for these hospitals, we received the net proceeds at a preliminary closing onDecember 31, 2019 ). These 13 hospitals represented annual net operating revenues in 2019 of approximately$1.2 billion and, including the net proceeds for the three hospitals that preliminarily closed onDecember 31, 2019 , we received total net proceeds of approximately$845 million in connection with the disposition of these hospitals. During 2019, we completed the divestiture of 12 hospitals, including two which closed effectiveJanuary 1, 2019 (for these hospitals, we received the net proceeds at a preliminary closing onDecember 31, 2018 ), but not including the three hospitals noted above which closed onJanuary 1, 2020 . These 12 hospitals represented annual net operating revenues in 2018 of approximately$1.1 billion and, excluding the net proceeds for the two hospitals that preliminarily closed onDecember 31, 2018 and the three hospitals that preliminarily closed onDecember 31, 2019 , we received total net proceeds of approximately$335 million in connection with the disposition of these hospitals. 53 --------------------------------------------------------------------------------
The following table provides a summary of hospitals that we divested during the
years ended
Licensed Effective
Hospital Buyer City, State Beds Date
2021 Divestitures:
Lea Regional Medical Covenant Health January 1,
Center System Hobbs, NM 84 2021
Tennova Healthcare - Vanderbilt
Tullahoma University Medical Tullahoma, January 1,
Center TN 135 2021
Tennova Healthcare - Vanderbilt
Shelbyville University Medical Shelbyville, January 1,
Center TN 60 2021
Northwest Mississippi Clarksdale, February
Medical Center Delta Health System MS 181 1, 2021
AllianceHealth Midwest SSM Health Care of Midwest April 1,
Oklahoma, Inc. City, OK 255 2021
2020 Divestitures:
Berwick Hospital Center Fayette Holdings, December
Inc. Berwick, PA 90 1, 2020
Brownwood Regional Medical Hendrick Health Brownwood, October
Center System TX 188 27, 2020
Abilene Regional Medical Hendrick Health October
Center System Abilene, TX 231 27, 2020
San Angelo Community Shannon Health San Angelo, October
Medical Center System TX 171 24, 2020
Bayfront Health St. St.
Petersburg Petersburg, October 1,
Orlando Health, Inc. FL 480 2020
Hill Regional Hospital Hillsboro, August 1,
AHRK Holdings, LLC TX 25 2020
St. Cloud Regional Medical St. Cloud, July 1,
Center Orlando Health, Inc. FL 84 2020
Northern Louisiana Medical Allegiance Health July 1,
Center Management, Inc. Ruston, LA 130 2020
Shands Live Oak Regional May 1,
Medical Center HCA Live Oak, FL 25 2020
Shands Starke Regional May 1,
Medical Center HCA Starke, FL 49 2020
Southside Regional Medical Bon Secours Mercy Petersburg, January 1,
Center Health System VA 300 2020
Southampton Memorial Bon Secours Mercy January 1,
Hospital Health System Franklin, VA 105 2020
Southern Virginia Regional Bon Secours Mercy January 1,
Medical Center Health System Emporia, VA 80 2020
2019 Divestitures:
Bluefield Regional Medical Princeton Community Bluefield, October 1,
Center Hospital Association WV 92 2019
Lake Wales Medical Center Adventist Health Lake Wales, September
System FL 160 1, 2019
Heart of Florida Regional Adventist Health Davenport, September
Medical Center System FL 193 1, 2019
College Station Medical St. Joseph Regional College August 1,
Center Health Center Station, TX 167 2019
Tennova Healthcare - Vanderbilt
Lebanon University Medical August 1,
Center Lebanon, TN 245 2019
Chester Regional Medical Medical University March 1,
Center Hospital Authority Chester, SC 82 2019
Carolinas Hospital System Medical University March 1,
- Florence Hospital Authority Florence, SC 396 2019
Springs Memorial Hospital Medical University Lancaster, March 1,
Hospital Authority SC 225 2019
Carolinas Hospital System Medical University March 1,
- Marion Hospital Authority Mullins, SC 124 2019
Memorial Hospital of Salem Community Healthcare January
County Associates, LLC Salem, NJ 126 31, 2019
Mary Black Health System - Spartanburg Regional Spartanburg, January 1,
Spartanburg Healthcare System SC 207 2019
Mary Black Health System - Spartanburg Regional January 1,
Gaffney Healthcare System Gaffney, SC 125 2019
On July 30, 2021 , we sold our unconsolidated minority equity interests in Macon
Healthcare, LLC , a joint venture with certain subsidiaries of HCA representing
two hospitals in Macon, Georgia , in which we owned a 38% interest. We received
$110 million in cash in connection with the sale of these equity interests and
recognized a pre-tax gain of approximately $39 million on the sale of our
investments in unconsolidated affiliates during the year ended December 31,
2021 .
Effective September 30, 2020 , one or more affiliates of the Company finalized an
agreement to terminate the lease and cease operations of Shands Lake Shore
Regional Medical Center (99 licensed beds) in Lake City, Florida , including
transferring leased assets back to the landlord, the Lake Shore Hospital
Authority . We recorded an impairment charge of approximately $3 million during
the year ended December 31, 2020 in conjunction with exiting the lease to
operate this hospital.
On November 30, 2020 , we completed the sale of 50% ownership interest in Merit
Health Biloxi (153 licensed beds) and its associated healthcare businesses in
Biloxi, Mississippi to Memorial Properties, Inc. , an affiliate of Memorial
Hospital of Gulfport pursuant to the terms of a definitive agreement which was
entered into October 12, 2020 . Merit Health Biloxi and its associated healthcare
businesses remain consolidated entities of the Company.
During the year ended December 31, 2021 , we paid approximately $3 million to
acquire the operating assets and related businesses of certain physician
practices, clinics and other ancillary businesses that operate within the
communities served by our hospitals. We allocated the purchase price to property
and equipment, working capital and goodwill.
54
--------------------------------------------------------------------------------Overview of Operating Results
Our net operating revenues for the year endedDecember 31, 2021 increased$579 million to approximately$12.4 billion compared to approximately$11.8 billion for the year endedDecember 31, 2020 . On a same-store basis, net operating revenues for the year endedDecember 31, 2021 increased$1.4 billion .
We had net income of
• an after-tax charge of
debt,
• an after-tax charge of
divested businesses based on their estimated fair values, net of gains
recognized upon the sale of certain businesses,
• an after-tax benefit of
unconsolidated affiliates, and
• an after-tax benefit of
liability claims for which the third-party insurer's obligation to insure us
for the underlying loss has been settled.
Net income for the year ended
• an after-tax benefit of less than
settlements and related costs,
• an after-tax benefit of
debt,
• an after-tax charge of $81 million for the impairment of goodwill andlong-lived assets of hospitals sold or held for sale based on their estimated
fair values, net of gains/losses recognized upon the sale of certain
facilities,
• an after-tax charge of $39 million for the settlement of professionalliability claims for which the third-party insurers obligation to insure us
for the underlying loss was being litigated,
• an after-tax charge of
restructuring costs,
• an after-tax charge of
of the HMA Legal Matters, and
• income of approximately
the release of federal and state valuation allowances on IRC Section 163(j)
interest carryforwards as a result of an increase to the deductible interest
expense allowed for 2019 and 2020 under the CARES Act that was enacted during
the year ended
Consolidated inpatient admissions for the year endedDecember 31, 2021 , decreased 5.9%, compared to the year endedDecember 31, 2020 , and consolidated adjusted admissions for the year endedDecember 31, 2021 , decreased 2.3%, compared to the year endedDecember 31, 2020 . Same-store inpatient admissions for the year endedDecember 31, 2021 , increased 2.2%, compared to the year endedDecember 31, 2020 , and same-store adjusted admissions for the year endedDecember 31, 2021 , increased 5.9%, compared to the year endedDecember 31, 2020 . Self-pay revenues represented approximately 0.9% and (0.2)% of net operating revenues for the years endedDecember 31, 2021 and 2020, respectively. The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 8.9% for both years endedDecember 31, 2021 and 2020. Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.0% for both years endedDecember 31, 2021 and 2020.
Overview of Legislative Developments
The U.S. Congress and certain state legislatures have introduced and passed a large number of proposals and legislation designed to make major changes in the healthcare system, including changes that have impacted access to health insurance. The most prominent of these efforts, the Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed. The Affordable Care Act increased health insurance coverage through a combination of public program expansion and private sector health insurance reforms. The Affordable Care Act also made a number of changes to Medicare and Medicaid reimbursement, such as a productivity offset to the Medicare market basket update and reductions to the Medicare and Medicaid DSH payments. However, reductions to Medicaid DSH payments have been delayed by the CAA through 2023 (to begin in federal fiscal year 2024). The Affordable Care Act has been subject to legislative and regulatory changes and court challenges. For example, effectiveJanuary 1, 2019 , the financial penalty associated with the mandate that most individuals enroll in a health insurance plan was effectively eliminated. This change resulted in legal challenges to the constitutionality of the individual mandate and validity of the Affordable Care Act as a whole. However, inJune 2021 , theU.S. Supreme Court determined that the plaintiffs lacked standing, 55 --------------------------------------------------------------------------------
allowing the law to remain in place. Nonetheless, the elimination of the individual mandate penalty and other changes may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased. Some states have imposed individual health insurance mandates, and other states have explored or offer public health insurance options.
The current presidential administration has indicated that it generally intends to protect and strengthen the Affordable Care Act and Medicaid programs. For example, inJanuary 2021 ,President Biden issued an executive order that instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to health insurance coverage. In a final rule published inSeptember 2021 , HHS extended the annual open enrollment period for coverage through federal marketplaces and granted state exchanges flexibility to lengthen their open enrollment periods. Of critical importance to us is the potential impact of any changes specific to the Medicaid program, including the funding and expansion provisions of the Affordable Care Act and subsequent legislation or agency initiatives. Historically, the states with the greatest reductions in the number of uninsured adult residents have expanded Medicaid. A number of states have opted out of the Medicaid coverage expansion provisions, but could ultimately decide to expand their programs at a later date. Of the 16 states in which we operated hospitals as ofDecember 31, 2021 , nine states have taken action to expand their Medicaid programs. At this time, the other seven states have not, includingFlorida ,Alabama ,Tennessee ,Mississippi andTexas , where we operated a significant number of hospitals as ofDecember 31, 2021 . Some states use, or have applied to use, waivers granted by CMS to implement expansion, impose different eligibility or enrollment conditions, or otherwise implement programs that vary from federal standards. There is uncertainty regarding the ongoing net effect of the Affordable Care Act due to the potential for continued changes to the law's implementation and its interpretation by government agencies and courts. There is also uncertainty regarding the potential impact of other health reform efforts at the federal and state levels. Some reforms may have a positive impact on our business, while others may increase our operating costs, adversely impact the reimbursement we receive, or require us to modify certain aspects of our operations. For example, some members ofCongress have proposed measures that would expand government-sponsored health insurance coverage, including single-payor models, and some states have implemented or are considering public health insurance options. Legislative and executive branch efforts related to healthcare reform could result in increased prices for consumers purchasing health insurance coverage or destabilize insurance markets, among other effects. Some current initiatives, requirements and proposals, including those aimed at price transparency and out-of-network charges, may impact prices, our competitive position and the relationships between hospitals, insurers and patients. For example, the No Surprises Act requires providers to send an insured patient's health plan a good faith estimate of expected charges, including billing and diagnostic codes, prior to when the patient is scheduled to receive the item or service. HHS is deferring enforcement of this requirement until it issues additional regulations. In recent years, a number of laws, including the Affordable Care Act and MACRA, have promoted shifting from traditional fee-for-service reimbursement models to alternative payment models that tie reimbursement to quality and cost of care. For example, CMS currently administers various accountable care organizations and bundled payment demonstration projects. InOctober 2021 , the CMS Innovation Center published an outline of its strategy for the next decade, noting the need to accelerate the movement to value-based care and drive broader system transformation. However, the COVID-19 pandemic may impact provider performance and data reporting under value-based care initiatives. CMS has temporarily modified requirements of certain programs by, for example, implementing special scoring and payment policies intended to mitigate negative impacts of the public health emergency on hospitals participating in the Hospital Value-Based Purchasing Program and similar programs. In response to the COVID-19 pandemic, federal and state governments have passed legislation, promulgated regulations, and taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health emergency and to provide financial relief. These measures include temporary relief from Medicare conditions of participation requirements for healthcare providers, temporary relaxation of licensure requirements for healthcare professionals, temporary relaxation of privacy restrictions for telehealth remote communications, promoting use of telehealth by temporarily expanding the scope of services for which Medicare reimbursement is available, and limited waivers of fraud and abuse laws for activities related to COVID-19 during the public health emergency period. Primary legislative sources of COVID-19 relief include the CARES Act, the PPPHCE Act, the CAA, and the ARPA. Together, these stimulus laws authorize over$186 billion in funding to be distributed through the PHSSEF to eligible providers, including public entities and Medicare- and/or Medicaid-enrolled providers. PHSSEF payments are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic and are not required to be repaid, provided that recipients attest to and comply with certain terms and conditions, including limitations on balance billing, not using PHSSEF funds to reimburse expenses or losses that other sources have been or are obligated to reimburse and audit and reporting requirements. In addition, the CARES Act expanded the Medicare Accelerated and Advance Payment Program to increase cash flow to providers impacted by the COVID-19 pandemic. Inpatient acute care hospitals were able to request accelerated payment of up to 100% of their Medicare payment amount for a six-month period. The Medicare Accelerated and Advanced Payment Program payments are advances 56 -------------------------------------------------------------------------------- that providers must repay. Providers are required to repay accelerated payments beginning one year after the payment was issued. After such one-year period, Medicare payments owed to providers will be recouped according to the repayment terms. The CARES Act and related legislation include other provisions offering financial relief, for example suspending the Medicare sequestration payment adjustment fromMay 1, 2020 throughDecember 31, 2021 , which would have otherwise reduced payments to Medicare providers by 2% as required by the Budget Control Act of 2011 (but also extending sequestration through 2030).Congress further delayed these sequestration cuts throughMarch 31, 2022 , and reduced the sequestration adjustment to 1% fromApril 1 through June 30, 2022 , but increased the reductions set for 2030. The CARES Act and related legislation also delay scheduled reductions to Medicaid DSH payments, provide a 20% add-on to the inpatient PPS DRG rate for COVID-19 patients for the duration of the public health emergency, and permit the deferral of payment of the employer portion of social security taxes betweenMarch 27, 2020 andDecember 31, 2020 , with 50% of the deferred amount dueDecember 31, 2021 and the remaining 50% dueDecember 31, 2022 . However, in addition to providing funding for healthcare providers, the ARPA increased the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the PAYGO Act. As a result, an additional Medicare spending reduction of up to 4% was required to take effect inJanuary 2022 . However,Congress has delayed implementation of this payment reduction until 2023. ThroughDecember 31, 2021 , net of amounts that have been repaid to the respective federal, state, and local agency, we received approximately$763 million in payments through the PHSSEF and various state and local programs on a cumulative basis since their enactment. Of the net amount received to-date, approximately$705 million was received during the year endedDecember 31, 2020 and the remainder was received during the year endedDecember 31, 2021 . The estimate of the amount of payments received through the PHSSEF or state and local programs for which we are reasonably assured of meeting the underlying terms and conditions is updated each reporting period and is based on, among other things, the CARES Act and subsequent relief legislation, various Post-Payment Notice of Reporting Requirements issued by HHS during the period, responses to all applicable frequently asked questions and other interpretative guidance as published by HHS, expenses incurred attributable to coronavirus, our results of operations during such period as compared to our 2020 budget and the allocation of general and targeted fund distribution payments among subsidiaries during such period. The PHSSEF and state and local program payments recognized to-date did not impact net operating revenues, and had a positive impact on net income attributable toCommunity Health Systems, Inc. stockholders during the year endedDecember 31, 2021 , in the amount of$107 million . Amounts received through the PHSSEF or state and local programs that have not yet been recognized or otherwise have not been refunded to HHS are included within accrued liabilities-other in the consolidated balance sheets, and such unrecognized amounts may be returned to HHS or the respective state or local agency, as applicable, or may be recognized in future periods if the underlying conditions for recognition are reasonably assured of being met. HHS' interpretation of the underlying terms and conditions of such PHSSEF payments, including auditing and reporting requirements, continues to evolve. InJune 2021 , HHS issued guidance that set forth deadlines for using and reporting on the use of PHSSEF funds, depending on the dates on which the funds were received. Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such PHSSEF payments may result in changes in our estimate of amounts for which the terms and conditions are reasonably assured of being met, and any such changes may be material. Additionally, any such changes may result in our inability to recognize additional PHSSEF payments or may result in the derecognition of amounts previously recognized, which (in any such case) may be material. In addition, to the extent that any unrecognized PHSSEF payments that have been or may be received by us do not qualify for reimbursement based on future operations, we may be required to return such unrecognized payments to HHS. With respect to the Medicare Accelerated and Advanced Payment Program, we received Medicare accelerated payments of approximately$1.2 billion inApril 2020 . No additional Medicare accelerated payments have been received by us since such time and because CMS is no longer accepting new applications for accelerated payments, we do not expect to receive additional Medicare accelerated payments. CMS began recouping Medicare accelerated payments inApril 2021 . As ofDecember 31, 2021 , all Medicare accelerated payments received by us have been recouped or repaid to CMS or assumed by buyers related to hospitals we divested. Approximately$1.1 billion and$77 million of Medicare accelerated payments were recouped or repaid to CMS or assumed by buyers related to hospitals we divested during the years endedDecember 31, 2021 and 2020, respectively. There is still a high degree of uncertainty surrounding the implementation of the CARES Act and other stimulus legislation passed in response to the COVID-19 pandemic. In addition, the public health emergency continues to evolve. Some of the measures allowing for flexibility in delivery of care and various financial supports for healthcare providers are available only for the duration of the public health emergency, and it is unclear whether or for how long the public health emergency declaration will be extended. The current declaration expiresApril 16, 2022 . The HHS Secretary may choose to renew the declaration for successive 90-day periods for as long as the emergency continues to exist and may terminate the declaration whenever he determines that the public health emergency no longer exists, but has indicated that HHS will provide states with 60 days' notice prior to termination of the declaration. The federal government may consider additional stimulus and relief efforts, but we are unable to predict whether additional stimulus 57 -------------------------------------------------------------------------------- measures will be enacted or their impact on us. There can be no assurance as to the total amount of financial and other types of assistance that we will receive under the CARES Act, other enacted stimulus legislation, or future measures, if any, and it is difficult to predict the impact of such measures on our operations or how they will affect operations of our competitors. Further, there can be no assurance that the terms of provider relief funding or other programs will not change or be interpreted in ways that affect our funding or eligibility to participate or our ability to comply with applicable requirements and retain amounts received. We continue to assess the potential impact of the CARES Act and other enacted stimulus legislation, the potential impact of future stimulus measures, if any, and the impact of other laws, regulations, and guidance related to COVID-19 on our business, results of operations, financial condition and cash flows. CMS issued an interim final rule inNovember 2021 that will require COVID-19 vaccinations in most Medicare and Medicaid certified providers and suppliers, including our hospitals. The rule applies to all staff, including clinical staff, individuals providing services under arrangements, volunteers, and staff who are not involved in direct patient care, subject to approved religious and medical exemptions. OnJanuary 13, 2022 , theU.S. Supreme Court granted theU.S. government's request for a stay of lower court injunctions of the CMS regulation, finding that the CMS rule fell within the authority granted to the HHS Secretary byCongress with respect to imposing conditions on the receipt of Medicaid and Medicare funds. Additionally, some states have implemented, or may implement in the future, vaccine mandates with respect to healthcare personnel. It is currently not possible to predict the impact that vaccine mandates (including with respect to the CMS rule noted above) may have on us. However, these vaccine mandates could result in employee attrition and the loss of personnel who are unvaccinated, which could adversely affect our business and results of operations. InJune 2019 , theU.S. Supreme Court ruled in Azar v.Allina Health Services that HHS failed to comply with statutory notice and comment rulemaking procedures before announcing an earlier policy related to DSH payments made under Medicare to hospitals. In response to this adverse ruling, CMS proposed a new rule inAugust 2020 in an attempt to retroactively cure the underlying procedural errors cited by theU.S. Supreme Court as the basis in their decision. CMS's action has introduced uncertainty regarding the potential outcomes from theSupreme Court ruling, and the proposed rule has resulted in further litigation. If HHS or CMS are unsuccessful in their attempt to assert the proposed rule or another legal basis for their policy, one potential outcome is the federal government could be required to reimburse hospitals, including our affiliated hospitals, for Medicare DSH payments which otherwise would have been payable over certain prior time periods absent the enactment of this policy. While the ruling in Allina was specific to the DSH payments calculated for federal fiscal year 2012 for the plaintiff hospitals, we believe that, because of the precedent of this ruling, prior time periods with the potential for higher DSH payments, including federal fiscal years 2005 to 2013, could be impacted. There continues to be uncertainty regarding the extent to which, if any, Medicare DSH payments will be remitted to our affiliated hospitals as the result of Allina and subsequent litigation, and, if so, the timing of any such payments. Litigants in lawsuits challenging the proposed rule are seeking such relief. We anticipate that if it is ultimately determined that our affiliated hospitals are entitled to receive such Medicare DSH payments for these prior time periods, these payments could have a material positive impact on a non-recurring basis in any future period in which net income is recognized in respect thereof as well as on our cash flows from operations in any future period in which these payments are received. As a result of our current levels of cash, funds we have received and may in the future receive under the CARES Act, other enacted stimulus legislation and any future stimulus measures, available borrowing capacity, long-term outlook on our debt repayments, the refinancing of certain of our notes, proceeds from the sale of hospitals and the continued projection of our ability to generate cash flows, we anticipate that we will be able to invest the necessary capital in our business over the next twelve months and for the foreseeable future thereafter. We believe there continues to be ample opportunity to strengthen our market share in substantially all of our markets by decreasing the need for patients to travel outside their communities for healthcare. Furthermore, we will continue to strive to improve operating efficiencies and procedures in order to improve the performance of our hospitals.
Sources of Revenue
The following table presents the approximate percentages of net operating revenues by payor source for the periods indicated. The data for the periods presented are not strictly comparable due to the effect that hospital acquisitions and divestitures have had on these statistics.
Year Ended December 31,
2021 2020 2019
Medicare 21.4 % 23.9 % 25.2 %
Medicaid 13.5 13.4 13.2
Managed Care and other third-party payors 64.2 62.9 60.6
Self-pay 0.9 (0.2 ) 1.0
Total 100.0 % 100.0 % 100.0 %
58-------------------------------------------------------------------------------- As shown above, we receive a substantial portion of our revenues from the Medicare and Medicaid programs. Included in Managed Care and other third-party payors is operating revenues from insurance companies with which we have insurance provider contracts, Medicare managed care, insurance companies for which we do not have insurance provider contracts, workers' compensation carriers and non-patient service revenue, such as rental income and cafeteria sales. In the future, we generally expect the portion of revenues received from the Medicare and Medicaid programs to increase over the long-term due to the general aging of the population and other factors, including health reform initiatives. There has been a trend toward increased enrollment in Medicare and Medicaid managed care, which may adversely affect our operating revenue. We may also be impacted by regulatory requirements imposed on insurers, such as minimum medical-loss ratios and specific benefit requirements. Furthermore, in the normal course of business, managed care programs, insurance companies and employers actively negotiate the amounts paid to hospitals. Our relationships with payors may be impacted by price transparency initiatives and out-of-network billing restrictions, including those in the No Surprises Act, which took effectJanuary 1, 2022 . There can be no assurance that we will retain our existing reimbursement arrangements or that third-party payors will not attempt to further reduce the rates they pay for our services. Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-based reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for the treatment of patients covered by Medicare, Medicaid and non-governmental payors are generally less than our standard billing rates. We account for the differences between the estimated program reimbursement rates and our standard billing rates as contractual allowance adjustments, which we deduct from gross revenues to arrive at net operating revenues. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net income (loss) by an insignificant amount in each of the years endedDecember 31, 2021 , 2020 and 2019. The payment rates under the Medicare program for hospital inpatient and outpatient acute care services are based on prospective payment systems, which depend upon a patient's diagnosis or the clinical complexity of services provided to a patient, among other factors. These rates are indexed for inflation annually, although increases have historically been less than actual inflation. OnAugust 13, 2021 , CMS published the final rule to increase this index by 2.7% for hospital inpatient acute care services that are reimbursed under the prospective payment system for federal fiscal year 2022 (which beganOctober 1, 2021 ). Together with other changes to payment policies, payment rates for hospital inpatient acute care services are expected to increase approximately 2.5%. Hospitals that do not submit required patient quality data are subject to a reduction in payments. We are complying with this data submission requirement. Payments may also be affected by various other adjustments, including those that depend on patient-specific or hospital specific factors. For example, the "two midnight rule" establishes admission and medical review criteria for inpatient services limiting when services to Medicare beneficiaries are payable as inpatient hospital services. Reductions in the rate of increase or overall reductions in Medicare reimbursement may cause a decline in the growth of our net operating revenues. Payment rates under the Medicaid program vary by state. In addition to the base payment rates for specific claims for services rendered to Medicaid enrollees, several states utilize supplemental reimbursement programs to make separate payments that are not specifically tied to an individual's care, some of which offset a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from CMS and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. The programs are generally authorized for a specified period of time and require CMS's approval to be extended. We are unable to predict whether or on what terms CMS will extend the supplemental programs in the states in which we operate. Under these supplemental programs, we recognize revenue and related expenses in the period in which amounts are estimable and payment is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and included as Medicaid revenue in the table above, and fees, taxes or other program related costs are reflected in other operating expenses. Results of Operations Our hospitals offer a variety of services involving a broad range of inpatient and outpatient medical and surgical services. These include general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic services, psychiatric and rehabilitation services. Historically, the strongest demand for hospital services generally occurs during January through April and the weakest demand for these services generally occurs during the summer months. Accordingly, eliminating the effects of new acquisitions and/or divestitures, our net operating revenues and earnings are historically highest during the first quarter and lowest during the third quarter. As previously noted, the COVID-19 pandemic has disrupted the pattern of demand for services we provide. 59 -------------------------------------------------------------------------------- The following tables summarize, for the periods indicated, selected operating data. Year Ended December 31, 2021 2020 2019 Operating results, as a percentage of net operating revenues: Net operating revenues 100.0 % 100.0 % 100.0 % Operating expenses (a) (84.1 ) (85.3 ) (89.5 ) Depreciation and amortization (4.4 ) (4.7 ) (4.6 ) Impairment and gain (loss) on sale of businesses, net (0.2 ) (0.4 ) (1.0 ) Income from operations 11.3 9.6 4.9 Interest expense, net (7.2 ) (8.7 ) (7.9 ) (Loss) gain from early extinguishment of debt (0.6 ) 2.6 (0.4 ) Gain on sale of equity interests inMacon Healthcare, LLC 0.3 - - Equity in earnings of unconsolidated affiliates 0.2 0.1
0.1
Income (loss) before income taxes 4.0 3.6 (3.3 ) (Provision for) benefit from income taxes (1.0 ) 1.5 (1.2 ) Net income (loss) 3.0 5.1 (4.5 ) Less: Net income attributable to noncontrolling interests (1.1 ) (0.8 ) (0.6 ) Net income (loss) attributable toCommunity Health Systems , Inc. stockholders 1.9 % 4.3 % (5.1 )% Year Ended December 31, 2021 2020 Percentage increase (decrease) from prior year: Net operating revenues 4.9 % (10.8 )% Admissions (b) (5.9 ) (15.7 ) Adjusted admissions (c) (2.3 ) (19.4 ) Average length of stay (d) 6.4 6.8
Net income (loss) attributable to
Inc. stockholders (55.0 )
175.7
Same-store percentage increase (decrease) from prior year (e): Net operating revenues 12.5 % (3.4 )% Admissions (b) 2.2 (8.0 ) Adjusted admissions (c) 5.9 (12.5 )
(a) Operating expenses include salaries and benefits, supplies, other operating
expenses, government and other legal settlements and related costs, lease
cost and rent, net of the reduction in operating expenses in 2021 and 2020,
resulting from the recognition of pandemic relief funds.
(b) Admissions represents the number of patients admitted for inpatient
treatment.
(c) Adjusted admissions is a general measure of combined inpatient and outpatient
volume. We computed adjusted admissions by multiplying admissions by gross
patient revenues and then dividing that number by gross inpatient revenues.
(d) Average length of stay represents the average number of days inpatients stay
in our hospitals.
(e) Includes acquired hospitals to the extent we operated them in both periods
and excludes information for businesses sold or closed during the periods
presented.
Items (b) - (e) are metrics used to manage our performance. These metrics provide useful insight to investors about the volume and acuity of services we provide, which aid in evaluating our financial results.
Year Ended
Net operating revenues increased by 4.9% to approximately$12.4 billion for the year endedDecember 31, 2021 , from approximately$11.8 billion for the year endedDecember 31, 2020 . Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased$1.4 billion , or 12.5%, during the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . The increase in same-store net operating revenues was primarily due to increased volumes and higher acuity during 2021. Non-same-store net operating revenues decreased$794 million during the year endedDecember 31, 2021 , in 60 -------------------------------------------------------------------------------- comparison to the prior year period, with the decrease attributable primarily to the divestiture of hospitals during 2020 and 2021. On a consolidated basis, inpatient admissions decreased by 5.9% during the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . Also on a consolidated basis, adjusted admissions decreased by 2.3% during the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . On a same-store basis, net operating revenues per adjusted admission increased 6.3%, while inpatient admissions increased by 2.2% and adjusted admissions increased by 5.9% for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 . All operating expense calculations, as a percentage of net operating revenues, were impacted by the net effect of divestitures and the aforementioned increase in same-store net operating revenues. Operating costs and expenses, as a percentage of net operating revenues, decreased from 90.4% during the year endedDecember 31, 2020 to 88.7% during the year endedDecember 31, 2021 . Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, decreased from 85.3% for the year endedDecember 31, 2020 to 84.1% for the year endedDecember 31, 2021 . Salaries and benefits decreased as a percentage of net operating revenues from 45.9% for the year endedDecember 31, 2020 to 42.4% for the year endedDecember 31, 2021 . Supplies, as a percentage of net operating revenues, decreased from 16.6% for the year endedDecember 31, 2020 to 16.5% for the year endedDecember 31, 2021 . Other operating expenses, as a percentage of net operating revenues, decreased from 25.1% for the year endedDecember 31, 2020 to 23.9% for the year endedDecember 31, 2021 . Lease cost and rent, as a percentage of net operating revenues, decreased from 2.8% for the year endedDecember 31, 2020 to 2.5% for the year endedDecember 31, 2021 . Pandemic relief funds, as a percentage of net operating revenues, were (1.2)% for the year endedDecember 31, 2021 , compared to (5.1)% for the year endedDecember 31, 2020 . The decreases in salaries and benefits, supplies and lease cost and rent, as a percentage of net operating revenues, during the year endedDecember 31, 2021 compared toDecember 31, 2020 is primarily due to the impact of the COVID-19 pandemic on net operating revenues in 2020. Depreciation and amortization, as a percentage of net operating revenues, decreased to 4.4% for the year endedDecember 31, 2021 from 4.7% for the year endedDecember 31, 2020 , primarily due to a decrease in net operating revenues as a result of the COVID-19 pandemic in 2020. Impairment and (gain) loss on sale of businesses was$24 million for the year endedDecember 31, 2021 , compared to$48 million for the year endedDecember 31, 2020 , related to impairment of the long-lived assets and reporting unit goodwill allocated to hospitals classified as held for sale or sold during the respective periods. Interest expense, net, decreased by$146 million to$885 million for the year endedDecember 31, 2021 compared to$1.031 billion for the year endedDecember 31, 2020 . This was primarily due to our debt refinancing activity during the years endedDecember 31, 2021 and 2020 as discussed further in Capital Resources. Loss from early extinguishment of debt of$79 million was recognized during the year endedDecember 31, 2021 , as a result of the refinancing of certain of our outstanding notes as discussed further in Capital Resources. Gain from early extinguishment of debt of$317 million was recognized during the year endedDecember 31, 2020 , as a result of various financing activities.
Equity in earnings of unconsolidated affiliates, as a percentage of net
operating revenues, increased to (0.2)% for the year ended
The net results of the above-mentioned changes resulted in income before income taxes increasing$77 million to$499 million for the year endedDecember 31, 2021 from$422 million for the year endedDecember 31, 2020 . Our provision for income taxes for the year endedDecember 31, 2021 was$131 million compared to a benefit from income taxes of$185 million for the year endedDecember 31, 2020 . Our effective tax rates were 26.3% and (43.8)% for the years endedDecember 31, 2021 and 2020, respectively. The difference in our effective tax rate for the year endedDecember 31, 2021 , when compared to the year endedDecember 31, 2020 , was primarily due to a decrease in the valuation allowance in 2020 as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act; the CARES Act related benefits for deductibility of interest recognized in 2020 did not reoccur in 2021.
Net income, as a percentage of net operating revenues, was 3.0% for the year
ended
Net income attributable to noncontrolling interests, as a percentage of net
operating revenues, increased to 1.1% for the year ended
Net income attributable toCommunity Health Systems, Inc. was$230 million for the year endedDecember 31, 2021 , compared to$511 million for the year endedDecember 31, 2020 . 61 --------------------------------------------------------------------------------
Year Ended
Net operating revenues decreased by 10.8% to approximately$11.8 billion for the year endedDecember 31, 2020 , from approximately$13.2 billion for the year endedDecember 31, 2019 . Net operating revenues on a same-store basis from hospitals that were operated throughout both periods decreased$396 million , or 3.4%, during the year endedDecember 31, 2020 , as compared to the year endedDecember 31, 2019 . The decrease in same-store net operating revenues was primarily due to a decline in volumes resulting from the COVID-19 pandemic which was offset, in part, by COVID-19 induced changes in the mix of services provided and payor mix. Non-same-store net operating revenues decreased$1.0 billion during the year endedDecember 31, 2020 , in comparison to the prior year period, with the decrease attributable primarily to the impact of the COVID-19 pandemic as well as the divestiture of hospitals during 2019 and 2020. On a consolidated basis, inpatient admissions decreased by 15.7% during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 . Also on a consolidated basis, adjusted admissions decreased by 19.4% during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 . On a same-store basis, net operating revenues per adjusted admission increased 10.4%, while inpatient admissions decreased by 8.0% and adjusted admissions decreased by 12.5% for the year endedDecember 31, 2020 , compared to the year endedDecember 31, 2019 . Operating costs and expenses, as a percentage of net operating revenues, decreased from 95.1% during the year endedDecember 31, 2019 to 90.4% during the year endedDecember 31, 2020 . Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, decreased from 89.5% for the year endedDecember 31, 2019 to 85.3% for the year endedDecember 31, 2020 due to the recognition of approximately$601 million of PHSSEF payments as a reduction of operating costs and expenses during the year endedDecember 31, 2020 . Salaries and benefits increased as a percentage of net operating revenues from 45.0% for the year endedDecember 31, 2019 to 45.9% for the year endedDecember 31, 2020 . Supplies, as a percentage of net operating revenues, increased from 16.3% for the year endedDecember 31, 2019 to 16.6% for the year endedDecember 31, 2020 . Other operating expenses, as a percentage of net operating revenues, remained consistent at 25.1% for both of the years endedDecember 31, 2020 and 2019. Expense related to government and other legal settlements and related costs, as a percentage of net operating revenues, decreased from 0.7% for the year endedDecember 31, 2019 to income of less than 0.1% for the year endedDecember 31, 2020 primarily due to the net impact of several lawsuits settled in principle in 2019 and related legal expenses. Lease cost and rent, as a percentage of net operating revenues, increased from 2.4% for the year endedDecember 31, 2019 to 2.8% for the year endedDecember 31, 2020 . The increases in salaries and benefits, supplies and lease cost and rent, as a percentage of net operating revenues, during the year endedDecember 31, 2020 compared toDecember 31, 2019 was primarily due to the impact of the COVID-19 pandemic. Depreciation and amortization, as a percentage of net operating revenues, increased to 4.7% for the year endedDecember 31, 2020 from 4.6% for the year endedDecember 31, 2019 , primarily due to a decrease in net operating revenues as a result of the COVID-19 pandemic in 2020. Impairment and (gain) loss on sale of businesses was$48 million for the year endedDecember 31, 2020 , compared to$138 million for the year endedDecember 31, 2019 . For the year endedDecember 31, 2020 , gains on facilities sold onJanuary 1, 2020 andJuly 1, 2020 were offset by impairment of facilities held-for-sale or for which we were in discussions with potential buyers for the divestiture of a facility at a sales price that indicates a fair value below carrying value. The impairment and net loss on facilities during the year endedDecember 31, 2019 relates to impairment of the long-lived assets and reporting unit goodwill allocated to hospitals sold during the period partly offset by gains on the sale of facilities during the six months endedDecember 31, 2019 . Interest expense, net, decreased by$10 million to$1.031 billion for the year endedDecember 31, 2020 compared to$1.041 billion for the year endedDecember 31, 2019 . This was primarily due to our debt refinancing activity during the year endedDecember 31, 2020 as discussed further in Capital Resources. Gain from early extinguishment of debt of$317 million was recognized during the year endedDecember 31, 2020 , as a result of various financing activities discussed below. Loss from early extinguishment of debt of$54 million was recognized during the year endedDecember 31, 2019 , as a result of financing transactions during the period.
Equity in earnings of unconsolidated affiliates, as a percentage of net
operating revenues, remained consistent at (0.1)% for both of the years ended
The net results of the above-mentioned changes resulted in income (loss) before income taxes increasing$852 million to income of$422 million for the year endedDecember 31, 2020 from a loss of$430 million for the year endedDecember 31, 2019 . Our benefit from income taxes for the year endedDecember 31, 2020 was$185 million compared to a provision for income taxes of$160 million for the year endedDecember 31, 2019 . Our effective tax rates were (43.8)% and (37.2)% for the years endedDecember 31, 2020 and 2019, respectively. The difference in our effective tax rate for the year endedDecember 31, 2020 , when compared to the year endedDecember 31, 2019 , was primarily due to a decrease in the valuation allowance recognized on IRC 62 -------------------------------------------------------------------------------- Section 163(j) interest carryforwards and original issue discount deferred tax asset as a result of (i) an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act that was enacted during the three months endedMarch 31, 2020 and (ii) tax impacts of 2020 financing activity. Net income (loss), as a percentage of net operating revenues, was 5.1% for the year endedDecember 31, 2020 compared to (4.5)% for the year endedDecember 31, 2019 .
Net income attributable to noncontrolling interests, as a percentage of net
operating revenues, increased to 0.8% for the year ended
Net income attributable toCommunity Health Systems, Inc. was$511 million for the year endedDecember 31, 2020 , compared to a net loss attributable toCommunity Health Systems, Inc. of$675 million for the year endedDecember 31, 2019 .
Liquidity and Capital Resources
2021 Compared to 2020
Net cash used in operating activities was approximately$131 million for the year endedDecember 31, 2021 , compared to net cash provided by operating activities of$2.2 billion for the year endedDecember 31, 2020 . The change was primarily attributable to the receipt of Medicare accelerated payments as well as PHSSEF funds under the CARES Act and PPPHCE Act during the year endedDecember 31, 2020 and the repayment of Medicare accelerated payments during the year endedDecember 31, 2021 . Total cash paid for interest decreased to approximately$778 million for the year endedDecember 31, 2021 from approximately$1.0 billion for the year endedDecember 31, 2020 . Cash paid for income taxes, net of refunds received, resulted in a net payment of$4 million and$2 million during the years endedDecember 31, 2021 and 2020, respectively. Our net cash used in investing activities was approximately$524 million for the year endedDecember 31, 2021 , compared to net cash provided by investing activities of approximately$177 million for the year endedDecember 31, 2020 , a decrease of approximately$701 million . The cash used in investing activities during the year endedDecember 31, 2021 was primarily impacted by a decrease of$631 million in cash proceeds from dispositions of hospitals and other ancillary operations, an increase in cash used in the purchase of property and equipment of$29 million , an increase of$2 million in cash used for acquisition of facilities and other related businesses, a decrease in cash used in the net impact of the purchase and sale of available-for-sale and equity securities of$85 million , an increase in cash from proceeds from the sale of equity interests inMacon Healthcare, LLC of$110 million and an increase in cash used to purchase other investments of$64 million . Our net cash used in financing activities was$514 million for the year endedDecember 31, 2021 , compared to approximately$895 million for the year endedDecember 31, 2020 , an increase of approximately$381 million . The increase in cash used in financing activities, in comparison to the prior year, was primarily due to the net effect of our debt repayments, refinancing activities, and cash paid for deferred financing costs and other debt-related costs as further described below.
2020 Compared to 2019
Net cash provided by operating activities increased$1.8 billion , from approximately$385 million for the year endedDecember 31, 2019 , to approximately$2.2 billion for the year endedDecember 31, 2020 . The increase in cash provided by operating activities was primarily the result of the receipt of PHSSEF funds as well as Medicare accelerated payments during the year endedDecember 31, 2020 , which is discussed below. Total cash paid for interest during the year endedDecember 31, 2020 remained consistent at approximately$1.0 billion during both of the years endedDecember 31, 2020 and 2019. Cash paid for income taxes, net of refunds received, resulted in a net payment of$2 million and a net refund of$3 million during the year endedDecember 31, 2020 and 2019, respectively. Our net cash provided by investing activities was approximately$177 million for the year endedDecember 31, 2020 , compared to net cash used in investing activities of approximately$2 million for the year endedDecember 31, 2019 , an increase of approximately$179 million . The cash provided by investing activities during the year endedDecember 31, 2020 was primarily impacted by a decrease in cash used for other investments (primarily from internal-use software expenditures and physician recruiting costs) of$120 million , an increase in proceeds provided by divestitures of hospitals and other ancillary operations of$44 million as a result of more hospital divestitures during 2020 (including the receipt of the net proceeds for three hospitals divested effectiveJanuary 1, 2021 at a preliminary closing onDecember 31, 2020 ) compared to the same period in 2019 (including the receipt of the net proceeds for three hospitals divested effectiveJanuary 1, 2020 at a preliminary closing onDecember 31, 2019 ), a decrease in the cash used in the acquisition of facilities and other related equipment of$12 million as a result of fewer physician practice, clinic and other ancillary business acquisitions during 2020 compared to the same period in 2019 and an increase to the net impact of the purchases and sales of available-for-sale securities and equity securities of$4 million , offset by an increase in cash provided by the proceeds from the sale of 63 --------------------------------------------------------------------------------
property and equipment of approximately
Our net cash used in financing activities was$895 million for the year endedDecember 31, 2020 , compared to approximately$363 million for the year endedDecember 31, 2019 , an increase of approximately$532 million . The increase in cash used in financing activities, in comparison to the prior year period, was primarily due to the net effect of our debt repayment, refinancing activity, and cash paid for deferred financing costs and other debt-related costs as further described below. Liquidity Net working capital was approximately$1.1 billion and$1.7 billion atDecember 31, 2021 andDecember 31, 2020 , respectively. Net working capital decreased by approximately$580 million betweenDecember 31, 2020 andDecember 31, 2021 . The decrease is primarily due to the decrease in cash, as a result of debt repayments, repayment of Medicare accelerated payments, refinancing activities and cash paid for deferred financing costs during the year endedDecember 31, 2021 , partially offset by a decrease in current maturities of long-term debt. In addition to cash flows from operations, available sources of capital include amounts available under the asset-based loan (ABL) credit agreement, or the ABL Credit Agreement, as amended and restated onNovember 22, 2021 , as well as anticipated access to public and private debt markets. Pursuant to the ABL Credit Agreement, the lenders have extended toCHS/Community Health Systems, Inc. , or CHS, a revolving asset-based loan facility, or the ABL Facility, in the maximum aggregate principal amount of$1.0 billion , subject to borrowing base capacity. AtDecember 31, 2021 , the available borrowing base under the ABL Facility was$1.0 billion , of which$103 million was reserved for outstanding letters of credit and$897 million represented excess availability. We had no outstanding borrowings as ofDecember 31, 2021 . The issued letters of credit were primarily in support of potential insurance-related claims and certain bonds. Principal amounts outstanding under the ABL Facility, if any, will be due and payable in full onNovember 22, 2026 .
2020 Financing Activity
OnFebruary 6, 2020 , we completed a private offering of$1.462 billion aggregate principal amount of 6?% Senior Secured Notes dueFebruary 15, 2025 , or the 6?% Senior Secured Notes due 2025. We used the net proceeds of the offering of the 6?% Senior Secured Notes due 2025 to (i) purchase any and all of the 5?% Senior Secured Notes due 2021 validly tendered and not validly withdrawn in the cash tender offer announced onJanuary 23, 2020 , (ii) redeem all of the 5?% Senior Secured Notes due 2021 that were not purchased pursuant to such tender offer, (iii) purchase in one or more privately negotiated transactions approximately$426 million aggregate principal amount of its 6¼% Senior Secured Notes due 2023 and (iv) pay related fees and expenses. The 6?% Senior Secured Notes due 2025 bear interest at a rate of 6.625% per annum, payable semi-annually in arrears onFebruary 15 andAugust 15 of each year, commencing onAugust 15, 2020 . The 6?% Senior Secured Notes are scheduled to mature onFebruary 15, 2025 . The 6?% Senior Secured Notes due 2025 are unconditionally guaranteed on a senior-priority secured basis by us and each of the CHS current and future domestic subsidiaries that provide guarantees under the ABL Facility, any capital market debt securities of CHS (including CHS' outstanding senior notes) and certain other long-term debt of CHS. The 6?% Senior Secured Notes due 2025 and the related guarantees are secured by shared (i) first-priority liens on the Non-ABL Priority Collateral and (ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens described in the indenture governing the 6?% Senior Secured Notes due 2025.
As of
During August and September of 2020, we extinguished a portion of certain series of our outstanding notes through open market repurchases, as follows (in millions):
Principal Amount
6?% Senior Notes due 2028 $ 226
8?% Junior-Priority Secured Notes due 2024 1
6?% Senior Notes due 2022 34
Total principal amount of debt extinguished $ 261
A gain from early extinguishment of debt of approximately
OnOctober 30, 2020 , we commenced tender offers to purchase for cash a portion of our outstanding (i) 6?% Senior Notes due 2022, (ii) 8?% Junior-Priority Secured Notes due 2024, (iii) 9?% Junior-Priority Secured Notes due 2023, and (iv) 6?% Senior 64 -------------------------------------------------------------------------------- Notes due 2028, up to an aggregate principal amount that would not have resulted in the aggregate purchase price (excluding accrued and unpaid interest) exceeding$400 million . The tender offers expired onNovember 30, 2020 , and resulted in the extinguishment of approximately$87 million aggregate principal amount of indebtedness, as follows (in millions): Principal Amount 6?% Senior Notes due 2022 $ 72 8?% Junior-Priority Secured Notes due 2024 6 9?% Junior-Priority Secured Notes due 2023 2 6?% Senior Notes due 2028 7 Total principal amount of debt extinguished $ 87
A gain from early extinguishment of debt of approximately
OnDecember 7, 2020 , we entered into a privately negotiated agreement with a multi-asset investment manager who has certain funds and accounts which are holders of the 6?% Senior Notes due 2028. Pursuant to the agreement, we exchanged$700 million aggregate principal amount of the 6?% Senior Notes due 2028 for an aggregate consideration of$400 million of cash and 10 million newly issued shares of the Company's common stock. The exchange transaction was completed onDecember 9, 2020 and the shares of common stock issued in the exchange were not, and are not required to be, registered under the Securities Act of 1933 pursuant to an exemption from registration provisions via Section 3(a)(9) of the Securities Act of 1933. A gain from early extinguishment of debt of approximately$205 million was recognized associated with this exchange. OnDecember 28, 2020 , we completed a private offering of$1.9 billion aggregate principal amount of 5?% Senior Secured Notes due 2027, or the 5?% Senior Secured Notes due 2027, and$900 million aggregate principal amount of 6% Senior Secured Notes due 2029, or the 6% Senior Secured Notes due 2029. The proceeds of the offering were used to repurchase approximately$2.579 billion of the outstanding principal amount of 6¼% Senior Secured Notes due 2023 that were validly tendered and accepted for purchase pursuant to the early tender deadline of a tender offer that launched onDecember 11, 2020 , and to pay related fees. The remaining principal value of 6¼% Senior Secured Notes due 2023 that were not validly tendered as of the early tender deadline were redeemed or repurchased via the completion of the tender offer onJanuary 11, 2021 or redemption on January, 28, 2021. The 5?% Senior Secured Notes due 2027, which mature onMarch 15, 2027 , bear interest at a rate of 5?% per year payable semi-annually in arrears onMarch 15 andSeptember 15 of each year, commencing onSeptember 15, 2021 . The 6% Senior Secured Notes due 2029, which mature onJanuary 15, 2029 , bear interest at a rate of 6% per year payable semi-annually in arrears onJanuary 15 andJuly 15 of each year, commencing onJuly 15, 2021 . The 5?% Senior Secured Notes due 2027 and 6% Senior Secured Notes due 2029 are unconditionally guaranteed on a senior-priority secured basis by us and each of CHS' current and future domestic subsidiaries that provide guarantees under the ABL Facility, any capital market debt securities of CHS (including CHS' outstanding senior notes) and certain other long-term debt of CHS. The 5?% Senior Secured Notes due 2027 and 6% Senior Secured Notes due 2029 and the related guarantees are secured by (i) first-priority liens on the Non-ABL Priority Collateral that also secures on a first-priority basis the Issuer's existing senior-priority secured notes, and (ii) second-priority liens on the ABL-Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens described in the applicable indenture.
2021 Financing Activity
On
OnFebruary 2, 2021 , we completed a private offering of$1.775 billion aggregate principal amount of 6?% Junior-Priority Secured Notes dueApril 15, 2029 , or the 6?% Junior-Priority Secured Notes due 2029. The proceeds of the offering were used, together with cash on hand, to redeem the 9?% Junior-Priority Secured Notes due 2023 via a tender offer which was funded onFebruary 2, 2021 , or to the extent not tendered, to fund the redemption of the remaining notes onFebruary 4, 2021 , and to pay related fees and expenses. The 6?% Junior-Priority Secured Notes due 2029 bear interest at a rate of 6.875% per year payable semi-annually in arrears onApril 15 andOctober 15 of each year, commencing onOctober 15, 2021 . OnFebruary 9, 2021 , we completed a private offering of$1.095 billion aggregate principal amount of 4¾% Senior Secured Notes dueFebruary 15, 2031 , or the 4¾% Senior Secured Notes due 2031. The proceeds of the offering were used, together with cash on hand, to redeem the 8?% Senior Secured Notes due 2024 onFebruary 9, 2021 and to pay related fees and expenses. The 4¾% Senior Secured Notes due 2031 bear interest at a rate of 4.750% per year payable semi-annually in arrears onFebruary 15 andAugust 15 , commencing onAugust 15, 2021 .
On
65
--------------------------------------------------------------------------------
On May 19, 2021 , we completed a private offering of $1.440 billion aggregate
principal amount of 6?% Junior-Priority Secured Notes due April 1, 2030 , or the
6?% Junior-Priority Secured Notes due 2030. The proceeds of the offering were
used, together with cash on hand, to redeem the 8?% Junior-Priority Secured
Notes due 2024 on May 19, 2021 and to pay related fees and expenses. The 6?%
Junior-Priority Secured Notes due 2030 bear interest at a rate of 6.125% per
year payable semi-annually in arrears on April 1 and October 1 , commencing on
October 1, 2021 .
On November 22, 2021 , we entered into an amendment and restatement agreement, or
the Amendment, to refinance and replace the Credit Agreement, and, as amended by
the Amendment, or the Amended and Restated ABL Credit Agreement, dated as of
April 3, 2018 with JPMorgan Chase Bank, N.A ., as administrative agent, and the
lenders and other agents party thereto. Pursuant to the Amended and Restated ABL
Credit Agreement, we have a revolving asset-based loan facility available to us
in the maximum aggregate principal amount of $1.0 billion , subject to borrowing
base capacity. The ABL Facility includes borrowing capacity available for
letters of credit of $200 million . Refer to Note 6 of the Notes to Consolidated
Financial Statements included under Part II, Item 8 of this Form 10-K for
additional information about the ABL Facility.
On February 4, 2022 , we completed a private offering of $1.535 billion aggregate
principal amount of 5¼% Senior Secured Notes due May 15, 2030 . For additional
information regarding this financing, see Note 16 of the Notes to Consolidated
Financial Statements included under Part II, Item 8 of this Form 10-K, which
discussion is incorporated by reference herein.
Additional Liquidity Information
Our ability to meet the restricted covenants and financial ratios and tests in the ABL Facility and the indentures governing our outstanding notes can be affected by events beyond our control, and we cannot assure you that we will meet those tests. A breach of any of these covenants could result in a default under the ABL Facility and/or the indentures that govern our outstanding notes. Upon the occurrence of an event of default under the ABL Facility or indentures that govern our outstanding notes, all amounts outstanding under the ABL Facility and the indentures that govern our outstanding notes may become immediately due and payable and all commitments under the ABL Facility to extend further credit may be terminated. As ofDecember 31, 2021 , approximately$31 million of our outstanding debt of approximately$12.1 billion is due within the next 12 months and approximately 100% of our outstanding debt has a fixed rate of interest. Our debt as a percentage of total capitalization decreased from 114% for the year endedDecember 31, 2020 to 112% for the year endedDecember 31, 2021 , due to a decrease in accumulated deficit and an overall decrease in long-term debt.
Net proceeds from divestitures, if any, are expected to be used for general corporate purposes and capital expenditures.
ThroughDecember 31, 2021 , we received approximately$763 million in payments through the PHSSEF and various state and local sources, net of amounts that have been or will be repaid to HHS and various state and local agencies either voluntarily or in relation to entities that were previously divested, and approximately$1.2 billion of accelerated payments pursuant to the Medicare Accelerated and Advance Payment Program, all of which has been repaid or recouped by CMS or assumed by buyers of divested hospitals as ofDecember 31, 2021 . As previously noted, PHSSEF payments are not required to be repaid, subject to certain terms and conditions, while payments received under the Medicare Accelerated and Advance Payment Program were required to be repaid. Amounts received through the PHSSEF or state and local programs that had not yet been recognized as a reduction in operating costs and expenses or otherwise refunded to HHS as ofDecember 31, 2021 totaled approximately$14 million . Such amount is included within accrued liabilities-other in the consolidated balance sheets, and such unrecognized amounts may either be returned to HHS or the respective state or local agency or may be recognized in future periods if the underlying conditions for recognition are met. The CARES Act provided for deferred payment of the employer portion of social security taxes betweenMarch 27, 2020 andDecember 31, 2020 , with 50% of the deferred amount dueDecember 31, 2021 and the remaining 50% dueDecember 31, 2022 . We deferred the employer portion of social security taxes frommid-April 2020 throughDecember 2020 . During the three months endedDecember 31, 2021 , we paid$75 million of the employer portion of social security taxes that had been deferred. Approximately$71 million is included within accrued liabilities employee compensation in the consolidated balance sheets atDecember 31, 2021 and will be paid in 2022. As previously discussed, we may require an increased level of working capital if we experience extended billing and collection cycles resulting from negative economic conditions (including high unemployment and underemployment levels) arising from the COVID-19 pandemic, which may impact service mix, revenue mix, payor mix and patient volumes, as well as our ability to collect outstanding receivables. A material increase in the amount or deterioration in the collectability of accounts receivable will adversely affect our cash flows and results of operations, requiring an increased level of working capital. 66 -------------------------------------------------------------------------------- We believe that internally generated cash flows and current levels of availability for additional borrowing under the ABL Facility, as well as our continued access to the capital markets, will be sufficient to finance acquisitions, capital expenditures, working capital requirements, and any debt repurchases or other debt repayments we may elect to make or be required to make through the next 12 months, and for the foreseeable future thereafter. PHSSEF funds that we have received and may continue to receive under the CARES Act and related legislation have been and will be used according to applicable terms and conditions as reimbursement for lost revenues and incremental expenses attributable to COVID-19, including working capital requirements and capital expenditures. As noted above, the COVID-19 pandemic has resulted in, and may continue to result in, significant disruptions of financial and capital markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. Additionally, while we have received PHSSEF payments and accelerated Medicare payments under the CARES Act and related legislation and may continue to receive and be able to utilize PHSSEF payments which have been received, as noted above, there is no assurance regarding the extent to which anticipated ongoing negative impacts on us arising from the COVID-19 pandemic will be offset by benefits which we may recognize or receive in the future under the CARES Act and related legislation or any future stimulus measures. We may elect from time to time to purchase our outstanding debt in open market purchases, privately negotiated transactions or otherwise. Any such debt repurchases will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions, applicable securities laws requirements, and other factors. Capital Resources Material cash requirements from known contractual and other obligations primarily consist of purchase obligations, long-term debt and related interest payments, operating leases, finance leasing and financing obligations, and capital expenditures related to routine capital, information systems infrastructure and applications, replacement or de novo construction projects and bed expansion projects, certain commitments and other investments. Refer to Notes 6, 9 and 15 of the Notes to Consolidated Financial Statements for amounts outstanding as ofDecember 31, 2021 related to long-term debt, and related interest payments, operating leases, finance leasing and financing obligations, and certain commitments. Purchase obligations include supplies and third-party services purchased in the normal course of business. Open purchase orders total$284 million as ofDecember 31, 2021 and substantially all such amounts are due in the next 12 months. Other investments includes, among other things, purchases of investments in unconsolidated affiliates which are expected to be incurred within the next 24 months. Cash expenditures for purchases of facilities and other related businesses were approximately$3 million in 2021,$1 million in 2020 and$13 million in 2019. Our expenditures for the years endedDecember 31, 2021 and 2020 were primarily related to physician practices and other ancillary services. Our expenditures for the year endedDecember 31, 2019 were primarily related to the purchase of one hospital inMississippi , physician practices and other ancillary services. Excluding the cost to construct replacement and de novo hospitals, our cash expenditures for routine capital for the year endedDecember 31, 2021 totaled$321 million , compared to$274 million in 2020 and$386 million in 2019. These capital expenditures related primarily to the purchase of additional equipment, minor renovations and information systems infrastructure. Cash expenditures to construct replacement hospitals totaled$63 million for the year endedDecember 31, 2021 , compared to$117 million in 2020 and$36 million in 2019. The cash expenditures to construct replacement hospitals for the years endedDecember 31, 2021 , 2020 and 2019 primarily represent construction costs for replacement facilities inLa Porte ,Indiana andFort Wayne, Indiana . During the years endedDecember 31, 2021 , 2020 and 2019, we had cash expenditures related to de novo hospitals of$85 million ,$49 million and$6 million , respectively, that represent both planning and construction costs primarily for two de novo hospitals in theTucson, Arizona market. In this regard, we commenced operations for an 18-bed micro-hospital in that market during the fourth quarter of 2020, while the other de novo hospital in that market is expected to be completed in the first half of 2022 and have 52 beds. Pursuant to a hospital purchase agreement from ourMarch 1, 2016 acquisition ofNorthwest Health -Starke , formerly known asStarke Hospital , we committed to build a replacement facility inKnox, Indiana . Construction of the replacement facility forNorthwest Health -Starke is required to be completed within five years of the date we enter into a new lease withStarke County, Indiana , the hospital lessor, or in the event we do not enter into a new lease withStarke County , construction shall be completed bySeptember 30, 2026 . We have not entered into a new lease with the lessor forNorthwest Health -Starke and currently anticipate completing construction of theNorthwest Health -Starke replacement facility in 2026. The estimated construction costs, including equipment costs, for the construction of this replacement facility inKnox, Indiana are currently estimated to be approximately$15 million . We have incurred no cost to date for the construction of this replacement facility. In addition to the commitment to build a replacement facility inKnox, Indiana , other off-balance sheet arrangements consist of letters of credit issued on the ABL Facility, primarily in support of potential insurance related claims and specified outstanding bonds 67 --------------------------------------------------------------------------------
of approximately
We expect total capital expenditures of approximately
Noncontrolling Interests
We have sold noncontrolling interests in certain of our subsidiaries or acquired subsidiaries with existing noncontrolling interest ownership positions. As ofDecember 31, 2021 , we have 12 hospitals and outpatient facilities with noncontrolling physician ownership interests ranging from 1% to 40%. In addition, as ofDecember 31, 2021 we have five hospitals with noncontrolling interests owned by non-profit entities or a for-profit subsidiary of a non-profit entity. Redeemable noncontrolling interests in equity of consolidated subsidiaries was$480 million and$484 million as ofDecember 31, 2021 and 2020, respectively, and noncontrolling interests in equity of consolidated subsidiaries was$82 million and$87 million as ofDecember 31, 2021 and 2020, respectively. The amount of net income attributable to noncontrolling interests was$138 million ,$96 million and$85 million for the years endedDecember 31, 2021 , 2020 and 2019, respectively. As a result of the change in the Stark Law "whole hospital" exception included in the Affordable Care Act, we are not permitted to introduce physician ownership at any of our hospital facilities that did not have physician ownership at the time of the adoption of the Affordable Care Act, or increase the aggregate percentage of physician ownership in any of our former or existing hospital joint ventures in excess of the aggregate physician ownership level held at the time of the adoption of the Affordable Care Act.
Reimbursement, Legislative and Regulatory Changes
Ongoing legislative and regulatory efforts could reduce or otherwise adversely affect the payments we receive from Medicare and Medicaid and other payors. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings, interpretations and discretion which may further affect payments made under those programs, and the federal and state governments might, in the future, reduce the funds available under those programs or require more stringent utilization and quality reviews of hospital facilities. Additionally, there may be a continued rise in managed care programs and additional restructuring of the financing and delivery of healthcare inthe United States . These events could cause our future financial results to be adversely impacted. It is difficult to estimate the impact of recent Medicare and Medicaid reimbursement changes and those that are under consideration. We cannot predict whether additional reimbursement reductions will be made or whether any such changes or other restructuring of the financing and delivery of healthcare would have a material adverse effect on our business, financial conditions, results of operations, cash flow, capital resources and liquidity. Inflation The healthcare industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. In addition, our suppliers pass along rising costs to us in the form of higher prices. We have recently experienced higher prices in connection with supply chain, capital and other expenditures in the current inflationary environment, and have also experienced higher labor costs in connection with the current competitive labor market. While we have implemented cost containment and other measures to try to counteract these increases, we may be unable to fully offset these increases in our costs.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those policies that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. We believe that our critical accounting policies are limited to those described below. The following information should be read in conjunction with our significant accounting policies included in Note 1 of the Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K. Revenue Recognition Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for treatment of patients covered by these 68 -------------------------------------------------------------------------------- programs are generally less than the standard billing rates. Explicit price concessions are recorded for contractual allowances that are calculated and recorded through internally-developed data collection and analysis tools to automate the monthly estimation of required contractual allowances. Within this automated system, payors' historical paid claims data are utilized to calculate the contractual allowances. This data is automatically updated on a monthly basis. All hospital contractual allowance calculations are subjected to monthly review by management to ensure reasonableness and accuracy. We account for the differences between the estimated program reimbursement rates and the standard billing rates as contractual allowance adjustments, which is one component of the deductions from gross revenues to arrive at net operating revenues. The process of estimating contractual allowances requires us to estimate the amount expected to be received based on payor contract provisions. The key assumption in this process is the estimated contractual reimbursement percentage, which is based on payor classification, historical paid claims data and, when applicable, application of the expected managed care plan reimbursement based on contract terms. Due to the complexities involved in these estimates, actual payments we receive could be different from the amounts we estimate and record. If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% atDecember 31, 2021 from our estimated reimbursement percentage, net income for the year endedDecember 31, 2021 would have changed by approximately$85 million , and net accounts receivable atDecember 31, 2021 would have changed by$110 million . Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net income (loss) by an insignificant amount for each of the years endedDecember 31, 2021 , 2020 and 2019.
Patient Accounts Receivable
Substantially all of our accounts receivable are related to providing healthcare services to patients at our hospitals and affiliated businesses. Collection of these accounts receivable is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and outstanding patient balances for which the primary insurance payor has paid some but not all of the outstanding balance, with the remaining outstanding balance (generally deductibles and co-payments) owed by the patient. For all procedures scheduled in advance, our policy is to verify insurance coverage prior to the date of the procedure. Insurance coverage is not verified in advance of procedures for walk-in and emergency room patients. We estimate any adjustments to the transaction price for implicit price concessions by reserving a percentage of all self-pay accounts receivable without regard to aging category, based on collection history, adjusted for expected recoveries and any anticipated changes in trends. Our ability to estimate the transaction price and any implicit price concessions is not impacted by not utilizing an aging of our net accounts receivable as we believe that substantially all of the risk exists at the point in time such accounts are identified as self-pay. The percentage used to reserve for all self-pay accounts is based on our collection history. We believe that we collect substantially all of our third-party insured receivables, which include receivables from governmental agencies. Patient accounts receivable can be impacted by the effectiveness of our collection efforts and, as described in our significant accounting policies included in Note 1 of the Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K, numerous factors may affect the net realizable value of accounts receivable. If the actual collection percentage differed by 1% atDecember 31, 2021 from our estimated collection percentage as a result of a change in expected recoveries, net income for the year endedDecember 31, 2021 would have changed by$43 million , and net accounts receivable atDecember 31, 2021 would have changed by$55 million . We also continually review our overall reserve adequacy by monitoring historical cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net revenue and admissions by payor classification, days revenue outstanding, the composition of self-pay receivables between pure self-pay patients and the patient responsibility portion of third-party insured receivables and the impact of recent acquisitions and dispositions. Our policy is to write-off gross accounts receivable if the balance is under$10.00 or when such amounts are placed with outside collection agencies. We believe this policy accurately reflects our ongoing collection efforts and is consistent with industry practices. We had approximately$2.2 billion atDecember 31, 2021 and$3.3 billion December 31, 2020 , being pursued by various outside collection agencies. We expect to collect less than 3%, net of estimated collection fees, of the amounts being pursued by outside collection agencies. As these amounts have been written-off, they are not included in our accounts receivable. Collections on amounts previously written-off are recognized as a recovery of net operating revenues when received. However, we take into consideration estimated collections of these future amounts written-off in determining the implicit price concessions used to measure the transaction price for the applicable portfolio of patient accounts receivable.
All of the following information is derived from our hospitals, excluding clinics, unless otherwise noted. Patient accounts receivable from our hospitals represent approximately 98% of our total consolidated accounts receivable.
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Days revenue outstanding, adjusted for the impact of receivables for state
Medicaid supplemental payment programs and divested facilities, was 55 days and
52 days at
Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately$16.2 billion as ofDecember 31, 2021 and approximately$14.8 billion as ofDecember 31, 2020 . The approximate percentage of total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) summarized by aging categories is as follows: As ofDecember 31, 2021 : % of Gross Receivables Payor 0 - 90 Days 90 - 180 Days 180 - 365 Days Over 365 Days Medicare 12 % 1 % - % - % Medicaid 7 % 1 % 1 % 1 % Managed Care and Other 33 % 5 % 3 % 2 % Self-Pay 8 % 5 % 9 % 12 % As ofDecember 31, 2020 : % of Gross Receivables Payor 0 - 90 Days 90 - 180 Days 180 - 365 Days Over 365 Days Medicare 13 % 1 % - % - % Medicaid 7 % 1 % 1 % 1 % Managed Care and Other 31 % 4 % 3 % 3 % Self-Pay 8 % 6 % 9 % 12 %
The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and implicit price concessions) summarized by payor is as follows:
December 31,
2021 2020
Insured receivables 66.3 % 64.3 %
Self-pay receivables 33.7 35.7
Total 100.0 % 100.0 %
The combined total at our hospitals and clinics for the estimated implicit price
concessions for self-pay accounts receivable and allowances for other self-pay
discounts and contractuals, as a percentage of gross self-pay receivables, was
approximately 91% at both December 31, 2021 and December 31, 2020 . If the
receivables that have been written-off, but where collections are still being
pursued by outside collection agencies, were included in both the allowances and
gross self-pay receivables specified above, the percentage of combined
allowances to total self-pay receivables would have been 93% at December 31,
2021 and 94% at December 31, 2020 .
Professional Liability Claims
As part of our business of providing healthcare services, we are subject to
legal actions alleging liability on our part. We accrue for losses resulting
from such liability claims, as well as loss adjustment expenses that are
out-of-pocket and directly related to such liability claims. These direct
out-of-pocket expenses include fees of outside counsel and experts. We do not
accrue for costs that are part of our corporate overhead, such as the costs of
our in-house legal and risk management departments. The losses resulting from
professional liability claims primarily consist of estimates for known claims,
as well as estimates for incurred but not reported claims. The estimates are
based on specific claim facts, our historical claim reporting and payment
patterns, the nature and level of our hospital operations, and actuarially
determined projections. The actuarially determined projections are based on our
actual claim data, including historic reporting and payment patterns which have
been gathered over an approximately 20-year period. As discussed below, since we
purchase excess insurance on a claims-made basis that transfers risk to
third-party insurers, the liability we accrue does include an amount for the
losses covered by our excess insurance. We also record a receivable for the
expected reimbursement of losses covered by our excess insurance. Since we
believe that the amount and timing of our future claims payments are reliably
determinable, we discount the amount we accrue for losses resulting from
professional liability claims using the risk-free interest rate corresponding to
the timing of our expected payments.
The net present value of the projected payments was discounted using a
weighted-average risk-free rate of 1.8% in both 2021 and 2020 and 2.6% in 2019.
This liability is adjusted for new claims information in the period such
information becomes known to us. Professional malpractice expense includes the
losses resulting from professional liability claims and loss adjustment expense,
as well
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--------------------------------------------------------------------------------as excess insurance premiums, and is presented within other operating expenses in the accompanying consolidated statements of income (loss).
Our processes for obtaining and analyzing claims and incident data are standardized across all of our businesses and have been consistent for many years. We monitor the outcomes of the medical care services that we provide and for each reported claim, we obtain various information concerning the facts and circumstances related to that claim. In addition, we routinely monitor current key statistics and volume indicators in our assessment of utilizing historical trends. The average lag period between claim occurrence and payment of a final settlement is between three and four years, although the facts and circumstances of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after settlement with the claimant is reached, settled claims represent less than 1.0% of the total liability at the end of any period. For purposes of estimating our individual claim accruals, we utilize specific claim information, including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years and geography. Several actuarial methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses our company-specific historical claims data and other information. Company-specific data includes information regarding our business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data. Significant assumptions are made on the basis of the aforementioned information in estimating reserves for incurred but not reported claims. A 100 basis point change in assumptions for either severity or frequency as ofDecember 31, 2021 would have increased or decreased the reserve between$10 million to$20 million . Based on these analyses, we determine our estimate of the professional liability claims. The determination of management's estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of management. Changes in reserve data or the trends and factors that influence reserve data may signal fundamental shifts in our future claim development patterns or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover, since our methods and models use different types of data and we select our liability from the results of all of these methods, we typically cannot quantify the precise impact of such factors on our estimates of the liability. Due to our standardized and consistent processes for handling claims and the long history and depth of our company-specific data, our methodologies have historically produced reliably determinable estimates of ultimate paid losses. Management considers any changes in the amount and pattern of its historical paid losses up through the most recent reporting period to identify any fundamental shifts or trends in claim development experience in determining the estimate of professional liability claims. However, due to the subjective nature of this estimate and the impact that previously unforeseen shifts in actual claim experience can have, future estimates of professional liability could be adversely impacted when actual paid losses develop unexpectedly based on assumptions and settlement events that were not previously known or anticipated. Year Ended December 31, 2021 2020 2019 Accrual for professional liability claims, beginning of year$ 602 $ 612 $ 650 Liability for insured claims (1) (22 ) 17 (11 ) Expense (income) related to: Current accident year 108 102 115 Prior accident years (18 ) 56 136 (Income) expense from discounting (4 ) 10 12 Total incurred loss and loss expense (2) 86 168 263 Paid claims and expenses related to: Current accident year (1 ) - (1 ) Prior accident years (132 ) (195 ) (289 ) Total paid claims and expenses (133 ) (195 ) (290 ) Accrual for professional liability claims, end of year$ 533 $ 602 $ 612
(1) The liability for insured claims is recorded on the consolidated balance
sheets with a corresponding insurance recovery receivable.
(2) Total expense, including premiums for insured coverage, was
2021,
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In the ordinary course of business, our expense with respect to professional
liability claims, which is actuarially determined, is limited to amounts not
covered by third-party insurance policies, which typically provide coverage for
professional liability claims. During the year ended December 31, 2020 , we
incurred expenses in the amount of approximately $50 million related to the
settlement of a professional liability claim for which our third-party insurers'
obligation to provide coverage to us in connection with the underlying loss was
being litigated. The subject of the litigation for the recovery of the full
amount of the $50 million settlement was whether the claim was covered under the
subject policies. This litigation was settled during the three months ended
December 31, 2021 , and in connection with this settlement, approximately $22
million was recovered from various third-party insurers related to their
obligation to provide coverage for the professional liability claim. Aside from
this matter, there were no significant changes in our estimate of the reserve
for professional liability claims during the years ended December 31, 2021 and
2020.
We are primarily self-insured for professional liability claims; however, we
obtain excess insurance that transfers the risk of loss to a third-party insurer
for claims in excess of our self-insured retentions. Our excess insurance is
underwritten on a claims-made basis. For claims reported prior to June 1, 2002 ,
substantially all of our professional and general liability risks were subject
to a less than $1 million per occurrence self-insured retention and for claims
reported from June 1, 2002 through June 1, 2003 , these self-insured retentions
were $2 million per occurrence. Substantially all claims reported after June 1,
2003 and before June 1, 2005 are self-insured up to $4 million per claim.
Substantially all claims reported on or after June 1, 2005 and before June 1,
2014 are self-insured up to $5 million per claim. Substantially all claims
reported on or after June 1, 2014 and before June 1, 2018 are self-insured up to
$10 million per claim. Substantially all claims reported on or after June 1,
2018 are self-insured up to $15 million per claim. Management, on occasion, has
selectively increased the insured risk at certain hospitals based upon insurance
pricing and other factors and may continue that practice in the future.
Excess insurance for all hospitals has been purchased through commercial
insurance companies and generally covers us for liabilities in excess of the
self-insured retentions. The excess coverage consists of multiple layers of
insurance, the sum of which totals up to $95 million per occurrence and in the
aggregate for claims reported on or after June 1, 2003 , up to $145 million per
occurrence and in the aggregate for claims reported on or after January 1, 2008 ,
up to $195 million per occurrence and in the aggregate for claims reported on or
after June 1, 2010 , and up to at least $215 million per occurrence and in the
aggregate for claims reported on or after June 1, 2015 . In addition, for
integrated occurrence malpractice claims, there is an additional $50 million of
excess coverage for claims reported on or after June 1, 2014 and an additional
$75 million of excess coverage for claims reported on or after June 1, 2015
through June 1, 2020 . The $75 million in integrated occurrence coverage will
also apply to claims reported between June 1, 2020 and June 1, 2022 for events
that occurred prior to June 1, 2020 but which were not previously known or
reported. For certain policy years prior to June 1, 2014 , if the first aggregate
layer of excess coverage becomes fully utilized, then the self-insured retention
will increase to $10 million per claim for any subsequent claims in that policy
year until our total aggregate coverage is met. Beginning June 1, 2018 , this
drop-down provision in the excess policies attaches over the $15 million per
claim self-insured retention.
Effective June 1, 2014 , the hospitals acquired from HMA were insured on a
claims-made basis as described above and through commercial insurance companies
as described above for substantially all claims reported on or after June 1,
2014 except for physician-related claims with an occurrence date prior to
June 1, 2014 . Prior to June 1, 2014 , the former HMA hospitals obtained insurance
coverage through a wholly-owned captive insurance subsidiary and a risk
retention group subsidiary which are domiciled in the Cayman Islands and South
Carolina , respectively. Those insurance subsidiaries, which are collectively
referred to as the "Insurance Subsidiaries," provided (i) claims-made coverage
to all of the former HMA hospitals and (ii) occurrence-basis coverage to most of
the physicians employed by the former HMA hospitals. The employed physicians not
covered by the Insurance Subsidiaries generally maintained claims-made policies
with unrelated third party insurance companies. To mitigate the exposure of the
program covering the former HMA hospitals and other healthcare facilities, the
Insurance Subsidiaries bought claims-made reinsurance policies from unrelated
third parties for claims above self-retention levels of $10 million or
$15 million per claim, depending on the policy year.
Income Taxes
We must make estimates in recording provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets. We believe that future income will enable us to realize certain deferred tax assets, subject to the valuation allowance we have established.
The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was less than$1 million as ofDecember 31, 2021 . A total of less than$1 million of interest and penalties is included in the amount of liability for uncertain tax positions atDecember 31, 2021 . It is our policy to recognize interest and penalties related to unrecognized benefits in our consolidated statements of income (loss) as income tax expense. It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute of limitations and settlements with taxing authorities; however, we do not anticipate the change will have a material impact on our consolidated results of operations or consolidated financial position. 72 -------------------------------------------------------------------------------- Our federal income tax return for the 2018 tax year remains under examination by the Internal Revenue Service. We believe the result of this examination will not be material to our consolidated results of operations or consolidated financial position. We have extended the federal statute of limitations throughJune 30, 2022 forCommunity Health Systems, Inc. for the tax periods endedDecember 31, 2014 and 2015. In addition, we have extended our federal statute of limitations throughDecember 31, 2023 for the tax period endedDecember 31, 2018 .
Recent Accounting Pronouncements
InNovember 2021 , theFinancial Accounting Standards Board issued Accounting Standards Update, or ASU, 2021-10, "Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance". This ASU provides specific authoritative guidance for the disclosure of government assistance including the nature of assistance received, the accounting for and presentation of assistance received and the significant terms and conditions, including commitments and contingences. This ASU is effective for all entities for financial statements issued for annual periods beginning afterDecember 15, 2021 and may be early adopted. We early adopted this ASU beginning with this Form 10-K for the year endedDecember 31, 2021 . We have evaluated all other recently issued, but not yet effective, ASUs and do not expect the eventual adoption of these ASUs to have a material impact our consolidated financial position or results of operations.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 that involve risk and uncertainties. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," "thinks," and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. A number of factors could affect the future results of the Company or the healthcare industry generally and could cause the Company's expected results to differ materially from those expressed in this Form 10-K. These factors include, among other things:
• developments related to COVID-19, including, without limitation, related to
the length and severity of the pandemic; the volume of canceled or rescheduled
procedures; the volume of COVID-19 patients cared for across our health
systems; the timing, availability and acceptance of effective medical
treatments, vaccines (including additional dosages of vaccines) and tests; the
spread of potentially more contagious and/or virulent forms of the virus,
including variants of the virus for which currently available vaccines,
treatments and tests may not be effective or authorized; measures we are
taking to respond to the COVID-19 pandemic; the impact of government actions
on us, including with respect to vaccine mandates, testing requirements,
travel restrictions and other virus containment measures; changes in net
revenue due to patient volumes, payor mix and evolving macroeconomic
conditions; inflationary conditions and increased expenses related to labor,
supply chain, capital and other expenditures; workforce disruptions; and
supply shortages and disruptions;
• uncertainty regarding the implementation of the CARES Act, the PPPHCE Act, the
CAA, the ARPA and any other future stimulus measures related to COVID-19,
including the magnitude and timing of any future payments or benefits we may
receive or realize thereunder;
• general economic and business conditions, both nationally and in the regions
in which we operate, including economic and business conditions resulting from
the COVID-19 pandemic;
• the impact of current or future federal and state health reform initiatives,
including the Affordable Care Act, and the potential for changes to the
Affordable Care Act, its implementation or its interpretation (including
through executive orders and court challenges);
• the extent to and manner in which states support increases, decreases or
changes in Medicaid programs, implement health insurance exchanges or alter
the provision of healthcare to state residents through legislation, regulation
or otherwise;
• the future and long-term viability of health insurance exchanges and potential
changes to the beneficiary enrollment process;
• risks associated with our substantial indebtedness, leverage and debt service
obligations, including our ability to refinance such indebtedness on
acceptable terms or to incur additional indebtedness, and our ability to
remain in compliance with debt covenants;
• demographic changes;
• changes in, or the failure to comply with, federal, state or local laws or
governmental regulations affecting our business, including any such laws or
governmental regulations which are adopted in connection with the COVID-19
pandemic;
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--------------------------------------------------------------------------------• potential adverse impact of known and unknown legal, regulatory and
governmental proceedings and other loss contingencies, including governmental
investigations and audits, and federal and state false claims act litigation;
• our ability, where appropriate, to enter into and maintain provider
arrangements with payors and the terms of these arrangements, which may be
further affected by the increasing consolidation of health insurers and
managed care companies and vertical integration efforts involving payors and
healthcare providers;
• changes in, or the failure to comply with, contract terms with payors and
changes in reimbursement policies or rates paid by federal or state healthcare
programs or commercial payors;
• any security breaches, loss of data, actual or perceived failures to comply
with legal requirements governing the privacy and security of health
information or other regulated, sensitive or confidential information, or
legal requirements regarding data privacy or data protection, and other
cybersecurity incidents;
• any potential impairments in the carrying value of goodwill, other intangible
assets, or other long-lived assets, or changes in the useful lives of other
intangible assets;
• changes in inpatient or outpatient Medicare and Medicaid payment levels and
methodologies;
• the effects related to the implementation of the sequestration spending
reductions pursuant to both the Budget Control Act of 2011 and the
Pay-As-You-Go Act of 2010 and the potential for future deficit reduction
legislation;
• increases in the amount and risk of collectability of patient accounts
receivable, including decreases in collectability which may result from, among
other things, self-pay growth and difficulties in recovering payments for
which patients are responsible, including co-pays and deductibles;
• the efforts of insurers, healthcare providers, large employer groups and
others to contain healthcare costs, including the trend toward value-based
purchasing;
• the impact of competitive labor market conditions and the shortage ofexperienced nurses, including in connection with our ability to hire and
retain qualified nurses, physicians, other medical personnel and key
management, and increased labor expenses as a result of such competitive labor
market conditions, inflation and competition for such positions;
• any failure to obtain medical supplies or pharmaceuticals at favorable prices;
• liabilities and other claims asserted against us, including self-insured
malpractice claims;
• competition;
• trends toward treatment of patients in less acute or specialty healthcare
settings, including ambulatory surgery centers or specialty hospitals or via
telehealth;
• changes in medical or other technology;
• changes in U.S. GAAP;
• the availability and terms of capital to fund any additional acquisitions or
replacement facilities or other capital expenditures;
• our ability to successfully make acquisitions or complete divestitures, our
ability to complete any such acquisitions or divestitures on desired terms or
at all, the timing of the completion of any such acquisitions or divestitures,
and our ability to realize the intended benefits from any such acquisitions or
divestitures;
• the impact that changes in our relationships with joint venture or syndication
partners could have on effectively operating our hospitals or ancillary
services or in advancing strategic opportunities;
• our ability to successfully integrate any acquired hospitals, or to recognize
expected synergies from acquisitions;
• the impact of seasonal severe weather conditions and climate change, as well
as the timing and amount of insurance recoveries in relation to severe weather
events;
• our ability to obtain adequate levels of insurance, including general
liability, professional liability, and directors and officers liability
insurance;
• timeliness of reimbursement payments received under government programs;
• effects related to pandemics, epidemics, or outbreaks of infectious diseases,
including the novel coronavirus causing the disease known as COVID-19;
• the impact of cybersecurity threats, cyber-attacks or security breaches;
• any failure to comply with our obligations under license or technology
agreements;
74
--------------------------------------------------------------------------------• challenging economic conditions in certain non-urban communities in which we
operate;
• any developments with respect to the final auditing and reporting requirements
of, or other adverse developments with respect to, the Corporate Integrity
Agreement to which we are subject;
• the concentration of our revenue in a small number of states;
• our ability to realize anticipated cost savings and other benefits from our
current strategic and operational cost savings initiatives;
• any changes in or interpretations of income tax laws and regulations; and
• the risk factors set forth in this Form 10-K and our other public filings with
the
Although we believe that these forward-looking statements are based upon reasonable assumptions, these assumptions are inherently subject to significant regulatory, economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond our control. Accordingly, we cannot give any assurance that our expectations will in fact occur, and we caution that actual results may differ materially from those in the forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this filing. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
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