Table of Contents
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
(Mark One)
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
Or
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to                 
Commission file number
1-11239
 
 
HCA Healthcare, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
27-3865930
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
One Park Plaza
Nashville, Tennessee
 
37203
(Address of principal executive offices)
 
(Zip Code)
(615) 344-9551
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading Symbol(s)
  
Name of each exchange on which registered
Voting common stock, $.01 par value    HCA    New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
 
Large accelerated filer
 
☒
  
Accelerated filer
  ☐
       
Non-accelerated
filer
 
☐
  
Smaller reporting company
  ☐
       
Emerging growth company
 
☐
        
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    Yes ☐    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
 
Class of Common Stock
  
Outstanding at October 25, 2021
Voting common stock, $.01 par value    311,022,800 shares
 
 
 
HCA HEALTHCARE, INC.
Form 10-Q
September 30, 2021
 
 
  
 
  
Page of
Form 10-Q
 
Part I.
  
Financial Information
  
Item 1.
  
Financial Statements (Unaudited):
  
  
  
 
2
 
  
  
 
3
 
  
  
 
4
 
  
  
 
5
 
  
  
 
6
 
  
  
 
7
 
Item 2.
  
  
 
18
 
Item 3.
  
  
 
37
 
Item 4.
  
  
 
37
 
Part II.
  
  
Item 1.
  
  
 
37
 
Item 1A.
  
  
 
37
 
Item 2.
  
  
 
37
 
Item 6.
  
  
 
39
 
  
 
40
 
 
1
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
Unaudited
(Dollars in millions, except per share amounts)
 
    
Quarter
   
Nine Months
 
    
2021
   
2020
   
2021
   
2020
 
Revenues
  
$
15,276
 
  $ 13,311    
$
43,688
 
  $ 37,240  
         
Salaries and benefits
  
 
7,094
 
    6,097    
 
19,780
 
    17,545  
Supplies
  
 
2,463
 
    2,128    
 
7,067
 
    5,999  
Other operating expenses
  
 
2,530
 
    2,251    
 
7,424
 
    6,825  
Government stimulus income reversal
  
 
—
 
    822    
 
—
 
    —  
Equity in earnings of affiliates
  
 
(35
) 
    (40 )   
 
(78
) 
    (48 ) 
Depreciation and amortization
  
 
716
 
    694    
 
2,125
 
    2,059  
Interest expense
  
 
398
 
    385    
 
1,168
 
    1,201  
Losses (gains) on sales of facilities
  
 
(1,047
) 
    (14 )   
 
(1,057
) 
    6  
Losses on retirement of debt
  
 
—
 
    —    
 
12
 
    295  
    
 
 
   
 
 
   
 
 
   
 
 
 
    
 
12,119
 
    12,323    
 
36,441
 
    33,882  
    
 
 
   
 
 
   
 
 
   
 
 
 
Income before income taxes
  
 
3,157
 
    988    
 
7,247
 
    3,358  
Provision for income taxes
  
 
685
 
    209    
 
1,531
 
    665  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income
  
 
2,472
 
    779    
 
5,716
 
    2,693  
Net income attributable to noncontrolling interests
  
 
203
 
    111    
 
574
 
    365  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income attributable to HCA Healthcare, Inc.
  
$
2,269
 
  $ 668    
$
5,142
 
  $ 2,328  
    
 
 
   
 
 
   
 
 
   
 
 
 
Per share data:
                                
Basic earnings
  
$
7.13
 
  $ 1.97    
$
15.67
 
  $ 6.89  
Diluted earnings
  
$
7.00
 
  $ 1.95    
$
15.43
 
  $ 6.79  
Shares used in earnings per share calculations (in millions):
                                
Basic
  
 
318.072
 
    338.168    
 
328.048
 
    338.057  
Diluted
  
 
324.029
 
    343.346    
 
333.248
 
    343.014  
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
2
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
Unaudited
(Dollars in millions)
 
    
Quarter
    
Nine Months
 
    
2021
   
2020
    
2021
   
2020
 
Net income
  
$
2,472
 
  $ 779     
$
5,716
 
  $ 2,693  
Other comprehensive income (loss) before taxes:
                                 
Foreign currency translation
  
 
(31
) 
    42     
 
(20
) 
    (39 ) 
         
Unrealized gains (losses) on
available-for-sale
securities
  
 
(3
) 
    1     
 
(12
) 
    13  
         
Defined benefit plans
  
 
—
 
    —     
 
—
 
    —  
Pension costs included in salaries and benefits
  
 
7
 
    4     
 
21
 
    12  
    
 
 
   
 
 
    
 
 
   
 
 
 
    
 
7
 
    4     
 
21
 
    12  
         
Change in fair value of derivative financial instruments
  
 
(1
) 
    —     
 
(1
) 
    (66 ) 
Interest costs included in interest expense
  
 
10
 
    9     
 
28
 
    15  
    
 
 
   
 
 
    
 
 
   
 
 
 
    
 
9
 
    9     
 
27
 
    (51 ) 
    
 
 
   
 
 
    
 
 
   
 
 
 
Other comprehensive income (loss) before taxes
  
 
(18
) 
    56     
 
16
 
    (65 ) 
Income taxes (benefits) related to other comprehensive income items
  
 
(1
) 
    9     
 
6
 
    (10 ) 
    
 
 
   
 
 
    
 
 
   
 
 
 
Other comprehensive income (loss)
  
 
(17
) 
    47     
 
10
 
    (55 ) 
    
 
 
   
 
 
    
 
 
   
 
 
 
Comprehensive income
  
 
2,455
 
    826     
 
5,726
 
    2,638  
Comprehensive income attributable to noncontrolling interests
  
 
203
 
    111     
 
574
 
    365  
    
 
 
   
 
 
    
 
 
   
 
 
 
Comprehensive income attributable to HCA Healthcare, Inc.
  
$
2,252
 
  $ 715     
$
5,152
 
  $ 2,273  
    
 
 
   
 
 
    
 
 
   
 
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
3
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(Dollars in millions)
 
    
September 30,
2021
   
December 31,
2020
 
ASSETS
                
Current assets:
                
Cash and cash equivalents
  
$
1,027
 
  $ 1,793  
Accounts receivable
  
 
8,433
 
    7,051  
Inventories
  
 
2,019
 
    2,025  
Other
  
 
1,769
 
    1,464  
    
 
 
   
 
 
 
    
 
13,248
 
    12,333  
     
Property and equipment, at cost
  
 
50,695
 
    49,317  
Accumulated depreciation
  
 
(27,148
) 
    (26,118 ) 
    
 
 
   
 
 
 
    
 
23,547
 
    23,199  
     
Investments of insurance subsidiaries
  
 
418
 
    388  
Investments in and advances to affiliates
  
 
412
 
    422  
Goodwill and other intangible assets
  
 
9,153
 
    8,578  
Right-of-use
operating lease assets
  
 
2,099
 
    2,024  
Other
  
 
685
 
    546  
    
 
 
   
 
 
 
    
$
49,562
 
  $ 47,490  
    
 
 
   
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
  
$
3,759
 
  $ 3,535  
Accrued salaries
  
 
2,134
 
    1,720  
Other accrued expenses
  
 
3,481
 
    3,240  
Long-term debt due within one year
  
 
250
 
    209  
    
 
 
   
 
 
 
    
 
9,624
 
    8,704  
     
Long-term debt, less debt issuance costs and discounts of $253 and $236
  
 
32,049
 
    30,795  
Professional liability risks
  
 
1,522
 
    1,486  
Right-of-use
operating lease obligations
  
 
1,742
 
    1,673  
Income taxes and other liabilities
  
 
2,800
 
    1,940  
     
Stockholders’ equity:
                
Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 313,502,400 shares — 2021 and 339,425,600 shares — 2020
  
 
3
 
    3  
Capital in excess of par value
  
 
—
 
    294  
Accumulated other comprehensive loss
  
 
(492
) 
    (502 ) 
Retained (deficit) earnings
    
(206
)
  		    777  
    
 
 
   
 
 
 
Stockholders’ (deficit) equity attributable to HCA Healthcare, Inc.
  
 
(695
) 
    572  
Noncontrolling interests
  
 
2,520
 
    2,320  
    
 
 
   
 
 
 
    
 
1,825
 
    2,892  
    
 
 
   
 
 
 
    
$
49,562
 
  $ 47,490  
    
 
 
   
 
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
4
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
Unaudited
(Dollars in millions)
 
    
Equity (Deficit) Attributable to HCA Healthcare, Inc.
   
Equity
Attributable to
Noncontrolling
Interests
   
Total
 
    
Common Stock
    
Capital in
Excess of
Par
Value
   
Accumulated
Other
Comprehensive
Loss
   
Retained
Earnings
(Deficit)
 
    
Shares
(in millions)
   
Par
Value
 
Balances, December 31, 2019
     338.446     $  3      $ —     $ (460 )    $ (2,351 )    $ 2,243     $ (565 ) 
Comprehensive income
                              (111 )      581       117       587  
Repurchase of common stock
     (3.287 )                               (441 )              (441 ) 
Share-based benefit plans
     2.449                2               (35 )              (33 ) 
Cash dividends declared ($0.43 per share)
                                      (148 )              (148 ) 
Distributions
                                              (154 )      (154 ) 
Other
                      (2 )                      53       51  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances, March 31, 2020
     337.608       3        —       (571 )      (2,394 )      2,259       (703 ) 
Comprehensive income
                              9       1,079       137       1,225  
Share-based benefit plans
     0.352                93                               93  
Distributions
                                              (45 )      (45 ) 
Other
                      (5 )                      3       (2 ) 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances, June 30, 2020
     337.960       3        88       (562 )      (1,315 )      2,354       568  
Comprehensive income
                              47       668       111       826  
Share-based benefit plans
     0.410                97                               97  
Distributions
                                              (194 )      (194 ) 
Other
                                              2       2  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances, September 30, 2020
     338.370       3        185       (515 )      (647 )      2,273       1,299  
Comprehensive income
                              13       1,426       268       1,707  
Share-based benefit plans
     1.056                108                               108  
Cash dividends declared ($0.43 per share)
                                      (2 )              (2 ) 
Distributions
                                              (233 )      (233 ) 
Other
                      1                       12       13  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances, December 31, 2020
     339.426       3        294       (502 )      777       2,320       2,892  
Comprehensive income
                              11       1,423       157       1,591  
Repurchase of common stock
     (8.477 )               (225 )              (1,302 )              (1,527 ) 
Share-based benefit plans
     2.765                (75 )                              (75 ) 
Cash dividends declared ($0.48 per share)
                                      (163 )              (163 ) 
Distributions
                                              (234 )      (234 ) 
Other
                      6                       (8 )      (2 ) 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances, March 31, 2021
     333.714       3        —       (491 )      735       2,235       2,482  
Comprehensive income
                              16       1,450       214       1,680  
Repurchase of common stock
     (11.261 )               (142 )              (2,145 )              (2,287 ) 
Share-based benefit plans
     0.372                140                               140  
Cash dividends declared ($0.48 per share)
                                      (161 )              (161 ) 
Distributions
                                              (123 )      (123 ) 
Other
                      2                       57       59  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances, June 30, 2021
     322.825       3        —       (475 )      (121 )      2,383       1,790  
Comprehensive income
                           
 
(17
) 
 
 
2,269
 
 
 
203
 
 
 
2,455
 
Repurchase of common stock
  
 
(9.605
) 
          
 
(130
) 
         
 
(2,199
) 
         
 
(2,329
) 
Share-based benefit plans
  
 
0.282
 
          
 
127
 
                         
 
127
 
Cash dividends declared ($0.48 per share)
                                   
 
(155
) 
         
 
(155
) 
Distributions
                                           
 
(144
) 
 
 
(144
) 
Other
                   
 
3
 
                 
 
78
 
 
 
81
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances, September 30, 2021
  
 
313.502
 
 
$
3
 
  
$
—
 
 
$
(492
) 
 
$
(206
) 
 
$
2,520
 
 
$
1,825
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
5
HCA HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
Unaudited
(Dollars in millions)
 
    
2021
   
2020
 
Cash flows from operating activities:
                
Net income
  
$
5,716
 
  $ 2,693  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Increase (decrease) in cash from operating assets and liabilities:
                
Accounts receivable
  
 
(1,312
) 
    930  
Inventories and other assets
  
 
(333
) 
    (36 ) 
Accounts payable and accrued expenses
  
 
731
 
    542  
Contract liabilities-deferred revenues
  
 
—
 
    6,123  
Depreciation and amortization
  
 
2,125
 
    2,059  
Income taxes
  
 
185
 
    (114 ) 
Losses (gains) on sales of facilities
  
 
(1,057
) 
    6  
Losses on retirement of debt
  
 
12
 
    295  
Amortization of debt issuance costs and discounts
  
 
21
 
    22  
Share-based compensation
  
 
341
 
    229  
Other
  
 
87
 
    66  
    
 
 
   
 
 
 
Net cash provided by operating activities
  
 
6,516
 
    12,815  
    
 
 
   
 
 
 
Cash flows from investing activities:
                
Purchase of property and equipment
  
 
(2,385
) 
    (2,087 ) 
Acquisition of hospitals and health care entities
  
 
(488
) 
    (380 ) 
Sales of hospitals and health care entities
  
 
1,980
 
    68  
Change in investments
  
 
(38
) 
    (40 ) 
Other
  
 
2
 
    (44 ) 
    
 
 
   
 
 
 
Net cash used in investing activities
  
 
(929
) 
    (2,483 ) 
    
 
 
   
 
 
 
Cash flows from financing activities:
                
Issuances of long-term debt
  
 
4,337
 
    2,700  
Net change in revolving credit facilities
  
 
500
 
    (2,480 ) 
Repayment of long-term debt
  
 
(3,787
) 
    (3,403 ) 
Distributions to noncontrolling interests
  
 
(501
) 
    (393 ) 
Payment of debt issuance costs
  
 
(38
) 
    (35 ) 
Payment of dividends
  
 
(476
) 
    (153 ) 
Repurchase of common stock
  
 
(6,143
) 
    (441 ) 
Other
  
 
(241
) 
    (156 ) 
    
 
 
   
 
 
 
Net cash used in financing activities
  
 
(6,349
) 
    (4,361 ) 
    
 
 
   
 
 
 
Effect of exchange rate changes on cash and cash equivalents
  
 
(4
) 
    (4 ) 
    
 
 
   
 
 
 
Change in cash and cash equivalents
  
 
(766
) 
    5,967  
Cash and cash equivalents at beginning of period
  
 
1,793
 
    621  
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
  
$
1,027
 
  $ 6,588  
    
 
 
   
 
 
 
Interest payments
  
$
1,127
 
  $ 1,230  
Income tax payments, net
  
$
1,346
 
  $ 779  
The accompanying notes are an integral part of the condensed consolidated financial statements.
 
6
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Reporting Entity
HCA Healthcare, Inc. is a holding company whose affiliates own and operate hospitals and related health care entities. The term “affiliates” includes direct and indirect subsidiaries of HCA Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At September 30, 2021, these affiliates owned and operated 183 hospitals, 123 freestanding surgery centers, 21 freestanding endoscopy centers and provided extensive outpatient and ancillary services. HCA Healthcare, Inc.’s facilities are located in 20 states and England. The terms “Company,” “HCA,” “we,” “our” or “us,” as used herein and unless otherwise stated or indicated by context, refer to HCA Healthcare, Inc. and its affiliates. The terms “facilities” or “hospitals” refer to entities owned and operated by affiliates of HCA and the term “employees” refers to employees of affiliates of HCA.
Basis of Presentation
The accompanying unaudited condensed consolidated financial
 
statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature.
The majority of our expenses are “costs of revenues” items. Costs that could be classified as general and administrative would include our corporate office costs, which were $87 million and $117 million for the quarters ended September 30, 2021 and 2020, respectively, and $301 million and $289 million for the nine months ended September 30, 2021 and 2020, respectively. Operating results for the quarter and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on
Form 10-K
for the year ended December 31, 2020.
COVID-19
Pandemic
On March 11, 2020, the World Health Organization designated
COVID-19
as a global pandemic. Patient volumes and the related revenues for most of our services were significantly impacted during the latter portion of the first quarter and the first half of the second quarter of 2020 and have continued to be impacted as various policies were implemented by federal, state and local governments in response to the
COVID-19
pandemic. During the second quarter of 2021, our patient volumes experienced a strong rebound as the effects of the pandemic moderated and certain pandemic-related restrictions and policies were eased. During the third quarter of 2021, our patient volumes remained strong, with the exception of inpatient surgeries, and included a resurgence of
COVID-19
admissions. Inpatient surgery volumes were constrained during the quarter as capacity was used to treat the surge of COVID-19 patients. We believe the extent of the
COVID-19
pandemic’s impact on our operating results and financial condition has been and will continue to be driven by many factors, most of which are beyond our control and ability to forecast. Because of these uncertainties, we cannot estimate how long or to what extent the pandemic will impact our operations.
Revenues
Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods
 
7
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenues (continued)
 
that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted
fee-for-service
rates. Our revenues for the nine months ended September 30, 2021 and 2020 included $33 million and $55 million, respectively, related to the settlement of Medicare outlier calculations for prior periods. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.
Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual adjustments under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record these revenues at the estimated amounts we expect to collect. Patients treated at our hospitals for
non-elective
care, who have income at or below 400% of the federal poverty level, are eligible for charity care. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. Our revenues by primary third-party payer classification and other (including uninsured patients) for the quarters and nine months ended September 30, 2021 and 2020 are summarized in the following table (dollars in millions):
 
    
Quarter
 
    
2021
    
    Ratio    
   
2020
    
    Ratio    
 
Medicare
  
$
2,645
 
  
 
17.3
% 
  $ 2,603        19.6 % 
Managed Medicare
  
 
2,124
 
  
 
13.9
 
    1,760        13.2  
Medicaid
  
 
692
 
  
 
4.5
 
    445        3.3  
Managed Medicaid
  
 
813
 
  
 
5.3
 
    707        5.3  
Managed care and insurers
  
 
7,998
 
  
 
52.4
 
    6,752        50.7  
International (managed care and insurers)
  
 
324
 
  
 
2.1
 
    307        2.3  
Other
  
 
680
 
  
 
4.5
 
    737        5.6  
    
 
 
    
 
 
   
 
 
    
 
 
 
Revenues
  
$
15,276
 
  
 
100.0
% 
  $ 13,311        100.0 % 
    
 
 
    
 
 
   
 
 
    
 
 
 
 
8
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenues (continued)
 
    
Nine Months
 
    
2021
    
    Ratio    
   
2020
    
    Ratio    
 
Medicare
  
$
7,816
 
  
 
17.9
% 
  $ 7,618        20.5 % 
Managed Medicare
  
 
6,281
 
  
 
14.4
 
    5,074        13.6  
Medicaid
  
 
1,722
 
  
 
3.9
 
    1,423        3.8  
Managed Medicaid
  
 
2,369
 
  
 
5.4
 
    1,904        5.1  
Managed care and insurers
  
 
22,300
 
  
 
51.0
 
    19,028        51.0  
International (managed care and insurers)
  
 
995
 
  
 
2.3
 
    838        2.3  
Other
  
 
2,205
 
  
 
5.1
 
    1,355        3.7  
    
 
 
    
 
 
   
 
 
    
 
 
 
Revenues
  
$
43,688
 
  
 
100.0
% 
  $ 37,240        100.0 % 
    
 
 
    
 
 
   
 
 
    
 
 
 
To quantify the total impact of the trends related to
 
uninsured patient accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the quarters and nine months ended September 30, 2021 and 2020 follows (dollars in millions):
 
    
Quarter
   
Nine Months
 
    
2021
   
2020
   
2021
   
2020
 
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)
  
$
12,803
 
  $ 11,170    
$
36,396
 
  $ 32,428  
Cost-to-charges
ratio (patient care costs as percentage of gross patient charges)
  
 
11.8
% 
    12.0 %   
 
11.4
% 
    12.1 % 
Total uncompensated care
  
$
7,782
 
  $ 7,023    
$
22,299
 
  $ 21,625  
Multiply by the
cost-to-charges
ratio
  
 
11.8
% 
    12.0 %   
 
11.4
% 
    12.1 % 
    
 
 
   
 
 
   
 
 
   
 
 
 
Estimated cost of total uncompensated care
  
$
916
 
  $ 843    
$
2,542
 
  $ 2,617  
    
 
 
   
 
 
   
 
 
   
 
 
 
The total uncompensated care amounts include
 
charity care of $3.509 billion and $3.160 billion, respectively, and the related estimated costs of charity care were $413 million and $376 million, respectively, for the quarters ended September 30, 2021 and 2020. The total uncompensated care amounts include charity care of $10.135 billion and $9.972 billion, respectively, and the related estimated costs of charity care were $1.155 billion and $1.207 billion, respectively, for the nine months ended September 30, 2021 and 2020.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
NOTE 2 — ACQUISITIONS AND DISPOSITIONS
During the nine months ended September 30, 2021, we paid $67 million to acquire two hospital facilities, one in southern Georgia and one in Tennessee, and $91 million to acquire other nonhospital health care
entities (noncontrolling interests of $111 million were recorded).
 We also paid $330 million and assumed certain liabilities to acquire an 80% interest (noncontrolling interests of $101 million were recorded) in a venture providing post-acute care services (home health and hospice). Purchase price amounts have been allocated to the related assets acquired and liabilities assumed based upon their respective fair values. The purchase price paid in excess of the fair value of identifiable net assets of these acquired entities aggregated $601 million for the nine months ended September 30, 2021. During the nine months ended September 30, 2020, we paid $380 million to acquire a hospital in New Hampshire
and other nonhospital health care entities. The consolidated financial statements include the accounts and operations of the acquired entities subsequent to the respective acquisition
 
9
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 — ACQUISITIONS AND DISPOSITIONS (continued)
 
dates. The pro forma effects of these acquired entities on our results of operations for periods prior to the respective acquisition dates were not significant.
During the nine months ended September 30, 2021, we received proceeds of $860 million and recognized a pretax gain of $655 million related to the sale of four hospital facilities in Georgia (two facilities in northern Georgia and two facilities in southern Georgia). We received proceeds of $647 million on September 30, 2021 related to the sale of a hospital facility in northern Georgia, which sale was effective October 1, 2021. We also received proceeds of $473 million and recognized a pretax gain of $402 
million related to sales of other health care entity investments and minor real estate assets. During the nine months ended September 30, 2020, we received proceeds of
 
$
68
 million and recognized a net pretax loss of $
6
 million related to the
sale
of a hospital facility in Mississippi and sales of real estate and other investments.
NOTE 3 — INCOME TAXES
Our provisions for income taxes for the quarters ended September 30, 2021 and 2020 were $685 million and $209 million, respectively, and the effective tax rates were 23.2% and 23.8%, respectively. Our provisions for income taxes for the nine months ended September 30, 2021 and 2020 were $1.531 billion and $665 million, respectively, and the effective tax rates were 22.9% and 22.2%, respectively. Our provisions for income taxes included tax benefits related to settlements of employee equity awards of $96 million and $59 million for the nine months ended September 30, 2021 and 2020, respectively.
Our liability for unrecognized tax benefits was $626 million, including accrued interest of $95 million, as of September 30, 2021 ($508 million and $73 million, respectively, as of December 31, 2020). Unrecognized tax benefits of $192 million ($157 million as of December 31, 2020) would affect the effective rate, if recognized.
The Internal Revenue Service was conducting an examination of the Company’s 2016, 2017 and 2018 federal income tax returns at September 30, 2021. We are also subject to examination by state and foreign taxing authorities. Depending on the resolution of any federal, state and foreign tax disputes, the completion of examinations by federal, state or foreign taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible that our liability for unrecognized tax benefits may significantly increase or decrease within the next 12 months. However, we are currently unable to estimate the range of any possible change.
NOTE 4 — EARNINGS PER SHARE
We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding, plus the dilutive effect of outstanding equity awards, computed using the treasury stock method.
 
10
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 — EARNINGS PER SHARE (continued)
 
The following table sets forth the computation of basic and diluted earnings per share for the quarters and nine months ended September 30, 2021 and 2020 (dollars and shares in millions, except per share amounts):
 
    
Quarter
    
Nine Months
 
    
2021
    
2020
    
2021
    
2020
 
Net income attributable to HCA Healthcare, Inc.
  
$
2,269
 
   $ 668     
$
5,142
 
   $ 2,328  
         
Weighted average common shares outstanding
  
 
318.072
 
     338.168     
 
328.048
 
     338.057  
Effect of dilutive incremental shares
  
 
5.957
 
     5.178     
 
5.200
 
     4.957  
    
 
 
    
 
 
    
 
 
    
 
 
 
Shares used for diluted earnings per share
  
 
324.029
 
     343.346     
 
333.248
 
     343.014  
    
 
 
    
 
 
    
 
 
    
 
 
 
Earnings per share:
                                   
Basic earnings
  
$
7.13
 
   $ 1.97     
$
15.67
 
   $ 6.89  
Diluted earnings
  
$
7.00
 
   $ 1.95     
$
15.43
 
   $ 6.79  
NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES
A summary of our insurance subsidiaries’ investments at September 30, 2021 and December 31, 2020 follows (dollars in millions):
 
    
September 30, 2021
 
    
Amortized
Cost
    
Unrealized
Amounts
    
Fair
Value
 
    
Gains
    
Losses
 
Debt securities
  
$
391
 
  
$
21
 
  
$
(1
) 
  
$
411
 
Money market funds and other
  
 
119
 
  
 
—
 
  
 
—
 
  
 
119
 
    
 
 
    
 
 
    
 
 
    
 
 
 
    
$
510
 
  
$
21
 
  
$
(1
) 
  
 
530
 
    
 
 
    
 
 
    
 
 
          
Amounts classified as current assets
                             
 
(112
) 
                               
 
 
 
Investment carrying value
                             
$
418
 
                               
 
 
 
 
    
December 31, 2020
 
    
Amortized
Cost
    
Unrealized
Amounts
    
Fair
Value
 
    
Gains
    
Losses
 
Debt securities
   $ 384      $ 32      $ —      $ 416  
Money market funds and other
     88        —        —        88  
    
 
 
    
 
 
    
 
 
    
 
 
 
     $ 472      $ 32      $ —        504  
    
 
 
    
 
 
    
 
 
          
Amounts classified as current assets
                                (116 ) 
                               
 
 
 
Investment carrying value
                              $ 388  
                               
 
 
 
At September 30, 2021 and December 31, 2020, the investments in debt securities of our insurance subsidiaries were classified as
“available-for-sale.”
Changes in unrealized gains and losses that are not credit-related are recorded as adjustments to other comprehensive income (loss).
 
11
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)
 
Scheduled maturities of investments in debt securities at September 30, 2021 were as follows (dollars in millions):
 
    
Amortized
Cost
    
Fair
Value
 
Due in one year or less
   $ —      $ —  
Due after one year through five years
     134        141  
Due after five years through ten years
     177        187  
Due after ten years
     80        83  
    
 
 
    
 
 
 
     $ 391      $ 411  
    
 
 
    
 
 
 
The average expected maturity of the investments in debt securities at September 30, 2021 was 5.5 years, compared to the average scheduled maturity of 9.3 years. Expected and scheduled maturities may differ because the issuers of certain securities have the right to call, prepay or otherwise redeem such obligations prior to their scheduled maturity date.
NOTE 6 — FINANCIAL INSTRUMENTS
Interest Rate Swap Agreements
We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. These swap agreements involve the exchange of fixed and variable rate interest payments between us and our counterparties based on common notional principal amounts and maturity dates.
Pay-fixed
interest rate swaps effectively convert variable rate obligations to fixed interest rate obligations. The interest payments under these agreements are settled on a net basis. The net interest payments, based on the notional amounts in these agreements, generally match the timing of the related liabilities for the interest rate swap agreements which have been designated as cash flow hedges. The notional amounts of the swap agreements represent amounts used to calculate the exchange of cash flows and are not our assets or liabilities. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions.
The following table sets forth our interest rate swap agreements, which have been designated as cash flow hedges, at September 30, 2021 (dollars in millions):
 
    
Notional
Amount
    
Maturity Date
    
Fair
Value
 
Pay-fixed
interest rate swaps
   $ 2,000        December 2021      $ (7 ) 
Pay-fixed
interest rate swaps
     500        December 2022        (12 ) 
During the next 12 months, we estimate $17 million will be reclassified from other comprehensive income (“OCI”) and will be included in interest expense.
Derivatives — Results of Operations
The following table presents the effect of our interest rate swaps on our results of operations for the nine months ended September 30, 2021 (dollars in millions):
 
Derivatives in Cash Flow Hedging Relationships
  
Amount of Loss
Recognized in OCI on
Derivatives, Net of Tax
    
Location of Loss
Reclassified from
Accumulated OCI
into Operations
    
Amount of Loss
Reclassified from
Accumulated OCI
into Operations
 
Interest rate swaps
   $ 1        Interest expense      $ 28  
 
12
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 — FINANCIAL INSTRUMENTS (continued)
 
Credit-risk-related Contingent Features
We have agreements with each of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. As of September 30, 2021, we have not been required to post any collateral related to these agreements. If we had breached these provisions at September 30, 2021, we would have been required to settle our obligations under the agreements at their aggregate, estimated termination value of $19 million.
NOTE 7 — ASSETS AND LIABILITIES MEASURED
 
AT FAIR
 
VALUE
Accounting Standards Codification 820,
Fair Value Measurements and Disclosures
(“ASC 820”), emphasizes fair value is a market-based measurement, and fair value measurements should be determined based on the assumptions market participants would use in pricing assets or liabilities. ASC 820 utilizes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment.
Investment Securities
The investments of our insurance subsidiaries are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
Derivative Financial Instruments
We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. We incorporate credit valuation adjustments to reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of these instruments.
 
13
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)
 
The following tables summarize our assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):
 
    
September 30, 2021
 
          
Fair Value Measurements Using
 
    
Fair Value
   
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Assets:
                                
Investments of insurance subsidiaries:
                                
Debt securities
  
$
411
 
 
$
—
 
 
$
411
 
 
$
—
 
Money market funds and other
  
 
119
 
 
 
119
 
 
 
—
 
 
 
—
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Investments of insurance subsidiaries
  
 
530
 
 
 
119
 
 
 
411
 
 
 
—
 
Less amounts classified as current assets
  
 
(112
) 
 
 
(105
) 
 
 
(7
) 
 
 
—
 
    
 
 
   
 
 
   
 
 
   
 
 
 
    
$
418
 
 
$
14
 
 
$
404
 
 
$
—
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities:
                                
Interest rate swaps (Other accrued expenses)
  
$
17
 
 
$
—
 
 
$
17
 
 
$
—
 
Interest rate swaps (Income taxes and other liabilities)
  
 
2
 
 
 
—
 
 
 
2
 
 
 
—
 
 
    
December 31, 2020
 
          
Fair Value Measurements Using
 
    
Fair Value
   
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
Assets:
                                
Investments of insurance subsidiaries:
                                
Debt securities
   $ 416     $ —     $ 416     $ —  
Money market funds and other
     88       88       —       —  
    
 
 
   
 
 
   
 
 
   
 
 
 
Investments of insurance subsidiaries
     504       88       416       —  
Less amounts classified as current assets
     (116 )      (87 )      (29 )      —  
    
 
 
   
 
 
   
 
 
   
 
 
 
     $ 388     $ 1     $ 387     $ —  
    
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities:
                                
Interest rate swaps (Income taxes and other liabilities)
   $ 46     $ —     $ 46     $ —  
The estimated fair value of our long-term debt was $36.567 billion and $35.814 billion at September 30, 2021 and December 31, 2020, respectively, compared to carrying amounts, excluding debt issuance costs and discounts, aggregating $32.552 billion and $31.240 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.
 
14
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
NOTE 8 — LONG-TERM DEBT
A summary of long-term debt at September 30, 2021 and December 31, 2020, including related interest rates at September 30, 2021, follows (dollars in millions):
 
    
September 30,
2021
   
December 31,
2020
 
Senior secured asset-based revolving credit facility (effective interest rate of 2.7%)
  
$
500
 
  $ —  
Senior secured revolving credit facility
  
 
—
 
    —  
Senior secured term loan facilities (effective interest rate of 3.1%)
  
 
1,980
 
    3,671  
Senior secured notes (effective interest rate of 4.8%)
  
 
16,200
 
    13,850  
Other senior secured debt (effective interest rate of 4.2%)
  
 
920
 
    767  
    
 
 
   
 
 
 
Senior secured debt
  
 
19,600
 
    18,288  
Senior unsecured notes (effective interest rate of 5.5%)
  
 
12,952
 
    12,952  
Debt issuance costs and discounts
  
 
(253
) 
    (236 ) 
    
 
 
   
 
 
 
Total debt (average life of 9.5 years, rates averaging 4.9%)
  
 
32,299
 
    31,004  
Less amounts due within one year
  
 
250
 
    209  
    
 
 
   
 
 
 
    
$
32,049
 
  $ 30,795  
    
 
 
   
 
 
 
During June 2021, we issued $2.350 billion aggregate principal amount of senior secured notes comprised of $850 million aggregate principal amount of 2 3/8% notes due 2031 and $1.500 billion aggregate principal amount of 3 1/2% notes due 2051 (the “June 2021 Notes”). We also amended and restated our senior secured revolving credit facility and our senior secured asset-based revolving credit facility, including increasing availability under the asset-based revolving credit facility to $4.500 billion, extending the maturity date on both facilities to June 30, 2026 and entering into a new $1.500 billion term
loan A-7
facility and a new $500 million term
loan B-14
facility (the “Credit Agreement Transactions”). We used the net proceeds from the June 2021 Notes and the Credit Agreement Transactions to retire the $1.071 billion term
loan A-6
facility, the $1.455 billion term
loan B-12
facility and the $1.131 billion term
loan B-13
facility. The pretax loss on retirement of debt was $12 million.
NOTE 9 — CONTINGENCIES
We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians’ staff privileges. In certain of these actions the claimants may seek punitive damages against us which may not be covered by insurance. We are also subject to claims by various taxing authorities for additional taxes and related interest and penalties. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations, financial position or liquidity.
Health care companies are routinely subject to investigations by various governmental agencies. Under the federal False Claims Act (“FCA”), private parties have the right to bring
qui tam
, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received, and from time to time, other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse effect on our results of operations, financial position or liquidity.
 
15
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 — CONTINGENCIES (continued)
 
Texas operates a state Medicaid program pursuant to a waiver from the Centers for Medicare & Medicaid Services under Section 1115 of the Social Security Act (“Program”). The Program includes uncompensated-care pools; payments from these pools are intended to defray the uncompensated costs of services provided by our and other hospitals to Medicaid eligible or uninsured individuals. Separately, we and other hospitals provide charity care services in several communities in the state. In 2018, the Civil Division of the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Texas requested information about whether the Program, as operated in Harris County, complied with the laws and regulations applicable to provider related donations, and the Company cooperated with that request. On May 21, 2019, a
qui tam
lawsuit asserting violations of the FCA and the Texas Medicaid Fraud Prevention Act related to the Program, as operated in Harris County, was unsealed by the U.S. District Court for the Southern District of Texas. Both the federal and state governments declined to intervene in the
qui tam
lawsuit. The Company believes that our participation is and has been consistent with the requirements of the Program and is vigorously defending against the lawsuit being pursued by the relator. We cannot predict what effect, if any, the
qui tam
lawsuit could have on the Company.
NOTE 10 — SHARE REPURCHASE TRANSACTIONS AND OTHER COMPREHENSIVE LOSS
During January 2020 and 2019, our Board of Directors authorized share repurchase programs for up to $4 billion ($2 billion for each authorization) of our outstanding common stock. During February 2021, our Board of Directors authorized an additional $6 billion for repurchases of our outstanding common stock. During the nine months ended September 30, 2021, we repurchased 29.343 million shares of our common stock at an average price of $209.35 per share through market purchases pursuant to the January 2019 authorization (which was completed during the first quarter of 2021), the January 2020 authorization (which was completed during the second quarter of 2021) and the February 2021 authorization. At September 30, 2021, we had $2.658 billion of repurchase authorization available under the February 2021 authorization.
The components of accumulated other comprehensive loss are as follows (dollars in millions):
 
   
Unrealized
Gains on
Available-
for-Sale

Securities
   
Foreign
Currency
Translation
Adjustments
   
Defined
Benefit
Plans
   
Change
in Fair
Value of
Derivative
Instruments
   
Total
 
Balances at December 31, 2020
  $ 25     $ (271 )    $ (220 )    $ (36 )    $ (502 ) 
Unrealized losses on
available-for-sale
securities, net of $3 income tax benefit
    (9 )                              (9 ) 
Foreign currency translation adjustments, net of $2 income tax benefit
            (18 )                      (18 ) 
Change in fair value of derivative instruments
                            (1 )      (1 ) 
Expense reclassified into operations from other comprehensive income, net of $5 and $6 income tax benefits, respectively
                    16       22       38  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balances at September 30, 2021
  $ 16     $ (289 )    $ (204 )    $ (15 )    $ (492 ) 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION
We operate in
one
line of business, which is operating hospitals and related health care entities. We operate in two geographically organized groups: the National and American Groups. The National Group includes 96 hospitals located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, North Carolina, South Carolina, Utah and Virginia, and the American Group includes 80 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Missouri, Tennessee and
 
16
HCA HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)
 
Texas. We also operate seven hospitals in England, and these facilities are included in the Corporate and other group.
Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses and gains on sales of facilities, losses on retirement of debt, income taxes and net income attributable to noncontrolling interests. We use adjusted segment EBITDA as an analytical indicator for purposes of allocating resources to geographic areas and assessing their performance. Adjusted segment EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted segment EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted segment EBITDA are significant components in understanding and assessing financial performance. Because adjusted segment EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, adjusted segment EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The geographic distributions of our revenues, equity in earnings of affiliates, adjusted segment EBITDA and depreciation and amortization for the quarters and nine months ended September 30, 2021 and 2020 are summarized in the following table (dollars in millions):
 
    
Quarter
    
Nine Months
 
    
2021
    
2020
    
2021
    
2020
 
Revenues:
                                   
National Group
  
$
7,787
 
   $ 6,633     
$
22,143
 
   $ 18,653  
American Group
  
 
6,767
 
     6,073     
 
19,562
 
     16,920  
Corporate and other
  
 
722
 
     605     
 
1,983
 
     1,667  
    
 
 
    
 
 
    
 
 
    
 
 
 
    
$
15,276
 
   $ 13,311     
$
43,688
 
   $ 37,240  
    
 
 
    
 
 
    
 
 
    
 
 
 
Equity in earnings of affiliates:
                                   
National Group
  
$
(14
) 
   $ (23 )    
$
(30
) 
   $ (26 ) 
American Group
  
 
(14
) 
     (15 )    
 
(38
) 
     (26 ) 
Corporate and other
  
 
(7
) 
     (2 )    
 
(10
) 
     4  
    
 
 
    
 
 
    
 
 
    
 
 
 
    
$
(35
) 
   $ (40 )    
$
(78
) 
   $ (48 ) 
    
 
 
    
 
 
    
 
 
    
 
 
 
Adjusted segment EBITDA:
                                   
National Group
  
$
1,780
 
   $ 1,128     
$
5,330
 
   $ 3,828  
American Group
  
 
1,604
 
     1,130     
 
4,698
 
     3,653  
Corporate and other
  
 
(160
) 
     (205 )    
 
(533
) 
     (562 ) 
    
 
 
    
 
 
    
 
 
    
 
 
 
    
$
3,224
 
   $ 2,053     
$
9,495
 
   $ 6,919  
    
 
 
    
 
 
    
 
 
    
 
 
 
Depreciation and amortization:
                                   
National Group
  
$
343
 
   $ 312     
$
1,005
 
   $ 930  
American Group
  
 
295
 
     286     
 
884
 
     868  
Corporate and other
  
 
78
 
     96     
 
236
 
     261  
    
 
 
    
 
 
    
 
 
    
 
 
 
    
$
716
 
   $ 694     
$
2,125
 
   $ 2,059  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted segment EBITDA
  
$
3,224
 
   $ 2,053     
$
9,495
 
   $ 6,919  
Depreciation and amortization
  
 
716
 
     694     
 
2,125
 
     2,059  
Interest expense
  
 
398
 
     385     
 
1,168
 
     1,201  
Losses (gains) on sales of facilities
  
 
(1,047
) 
     (14 )    
 
(1,057
) 
     6  
Losses on retirement of debt
  
 
—
 
     —     
 
12
 
     295  
    
 
 
    
 
 
    
 
 
    
 
 
 
Income before income taxes
  
$
3,157
 
   $ 988     
$
7,247
 
   $ 3,358  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This quarterly report on
Form 10-Q
includes certain disclosures which contain “forward-looking statements” within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include statements regarding expected share-based compensation expense, expected capital expenditures and expected net claim payments and all other statements that do not relate solely to historical or current facts, and can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control, which could significantly affect current plans and expectations and our future financial position and results of operations. These factors include, but are not limited to, (1) developments related to
COVID-19,
including, without limitation, the length and severity of the pandemic and the spread of virus strains with new epidemiological characteristics; the volume of canceled or rescheduled procedures and the volume of
COVID-19
patients cared for across our health systems; measures we are taking to respond to the
COVID-19
pandemic; the impact and terms of government and administrative regulation and stimulus (including the Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Paycheck Protection Program and Health Care Enhancement Act, the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021 and other enacted and potential future legislation) and whether such programs continue or new similar programs are enacted in the future; changes in revenues due to declining patient volumes, changes in payer mix and deteriorating macroeconomic conditions (including increases in uninsured and underinsured patients); potential increased expenses related to labor, supply chain or other expenditures; workforce disruptions, including the impact of any current or future vaccine mandates; supply shortages and disruptions; and the timing, availability and adoption of effective medical treatments and vaccines, (2) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, as well as risks associated with disruptions in the financial markets and the business of financial institutions as the result of the
COVID-19
pandemic, which could impact us from a financial perspective, (3) the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”), including the effects of changes or court challenges to the Affordable Care Act or additional changes to its implementation, the possible enactment of additional federal or state health care reforms and possible changes to other federal, state or local laws or regulations affecting the health care industry, including proposals to expand coverage of federally-funded insurance programs as an alternative to private insurance or establish a single-payer system (such reforms often referred to as “Medicare for All”), and also including any such laws or governmental regulations which are adopted in response to the
COVID-19
pandemic, (4) the effects related to the implementation of sequestration spending reductions required under the Budget Control Act of 2011, related legislation extending these reductions, and those required under the
Pay-As-You-Go
Act of 2010 (“PAYGO Act”) as a result of the federal budget deficit impact of the American Rescue Plan Act of 2021, and the potential for future deficit reduction legislation that may alter these spending reductions, which include cuts to Medicare payments, or create additional spending reductions, (5) increases in the amount and risk of collectability of uninsured accounts and deductibles and copayment amounts for insured accounts, (6) the ability to achieve operating and financial targets, and attain expected levels of patient volumes and control the costs of providing services, (7) possible changes in Medicare, Medicaid and other state programs, including Medicaid supplemental payment programs or Medicaid waiver programs, that may impact reimbursements to health care providers and insurers and the size of the uninsured or underinsured population, (8) the highly competitive nature of the health care business, (9) changes in service mix, revenue mix and surgical volumes, including potential declines in the population covered under third-party payer agreements, the ability to enter into and renew third-party payer provider agreements on acceptable terms and the impact of consumer-driven health plans and physician utilization trends and practices, (10) the efforts of health insurers, health care providers, large employer groups and others to contain health care costs, (11) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (12) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical
 
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Forward-Looking Statements (continued)
 
and technical support personnel, (13) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (14) changes in accounting practices, (15) changes in general economic conditions nationally and regionally in our markets, including inflation and economic and business conditions (and the impact thereof on the economy, financial markets and banking industry) resulting from the
COVID-19
pandemic, (16) the emergence of and effects related to other pandemics, epidemics and infectious diseases, (17) future divestitures which may result in charges and possible impairments of long-lived assets, (18) changes in business strategy or development plans, (19) delays in receiving payments for services provided, (20) the outcome of pending and any future tax audits, disputes and litigation associated with our tax positions, (21) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (22) the impact of potential cybersecurity incidents or security breaches, (23) our ongoing ability to demonstrate meaningful use of certified electronic health record (“EHR”) technology and the impact of interoperability requirements, (24) the impact of natural disasters, such as hurricanes and floods, or similar events beyond our control, (25) changes in the U.S. federal, state, or foreign tax laws including interpretive guidance that may be issued by taxing authorities or other standard setting bodies, and (26) other risk factors described in our annual report on
Form 10-K
for the year ended December 31, 2020 and our other filings with the Securities and Exchange Commission. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of HCA. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report, which forward-looking statements reflect management’s views only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
COVID-19
Pandemic
On March 11, 2020, the World Health Organization designated
COVID-19
as a global pandemic. Patient volumes and the related revenues for most of our services were significantly impacted during the latter portion of the first quarter and the first half of the second quarter of 2020 and have continued to be impacted as various policies were implemented by federal, state and local governments in response to the
COVID-19
pandemic. During the second quarter of 2021, our patient volumes experienced a strong rebound as the effects of the pandemic moderated and certain pandemic-related restrictions and policies were eased. During the third quarter of 2021, our patient volumes remained strong, with the exception of inpatient surgeries, and included a resurgence of
COVID-19
admissions. Inpatient surgery volumes were constrained during the quarter as capacity was used to treat the surge of COVID-19 patients. We believe the extent of the
COVID-19
pandemic’s impact on our operating results and financial condition has been and will continue to be driven by many factors, most of which are beyond our control and ability to forecast. Because of these uncertainties, we cannot estimate how long or to what extent the pandemic will impact our operations.
Third Quarter 2021 Operations Summary
Revenues increased to $15.276 billion in the third quarter of 2021 from $13.311 billion in the third quarter of 2020. Net income attributable to HCA Healthcare, Inc. totaled $2.269 billion, or $7.00 per diluted share, for the quarter ended September 30, 2021, compared to $668 million, or $1.95 per diluted share, for the quarter ended September 30, 2020. Third quarter results for 2021 and 2020 include gains on sales of facilities of $1.047 billion, or $2.43 per diluted share, and $14 million, or $0.03 per diluted share, respectively. Third quarter results for 2020 include the reversal of $822 million, or $1.72 per diluted share, of government stimulus income recorded in the second quarter of 2020 related to general distribution Provider Relief Funds (“PRFs”) established by the CARES Act. During October 2020, we announced we would return, or repay early, our share of the PRFs of approximately $1.6 billion and approximately $4.4 billion in Medicare accelerated payments (repaid during
 
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Third Quarter 2021 Operations Summary (continued)
 
the fourth quarter of 2020). All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 324.029 million shares for the quarter ended September 30, 2021 and 343.346 million shares for the quarter ended September 30, 2020. During the first nine months of 2021, we repurchased 29.343 million shares of our common stock.
Revenues increased 14.8% on a consolidated basis and 15.0% on a same facility basis for the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020. The increase in consolidated revenues can be primarily attributed to the combined impact of a 5.9% increase in revenue per equivalent admission and a 8.4% increase in equivalent admissions. The same facility revenues increase primarily resulted from the combined impact of a 5.2% increase in same facility revenue per equivalent admission and a 9.3% increase in same facility equivalent admissions.
During the quarter ended September 30, 2021, consolidated admissions increased 5.9% and same facility admissions increased 6.8% compared to the quarter ended September 30, 2020. Surgeries increased 2.6% on a consolidated basis and 2.3% on a same facility basis during the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020. Emergency department visits increased 28.9% on a consolidated basis and 31.2% on a same facility basis during the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020. Consolidated and same facility uninsured admissions increased 0.7% and 1.2%, respectively, for the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020.
Cash flows from operating activities declined $440 million, from $2.717 billion for the third quarter of 2020 to $2.277 billion for the third quarter of 2021. The decline in cash provided by operating activities was primarily related to the net impact of negative changes in working capital items of $797 million, primarily related to an increase in accounts receivable, offset by a $269 million increase in net income, excluding the government stimulus income reversal and gains on sales of facilities.
Results of Operations
Revenue/Volume Trends
Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted
fee-for-service
rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.
 
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF (Continued)
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
 
Revenues increased 14.8% from $13.311 billion in the third quarter of 2020 to $15.276 billion in the third quarter of 2021. Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual adjustments under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record
self-pay
revenues at the estimated amounts we expect to collect. Patients treated at our hospitals for
non-elective
care, who have income at or below 400% of the federal poverty level, are eligible for charity care. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. Our revenues by primary third-party payer classification and other (including uninsured patients) for the quarters and nine months ended September 30, 2021 and 2020 are summarized in the following table (dollars in millions):
 
    
Quarter
 
    
2021
    
    Ratio    
   
2020
    
    Ratio    
 
Medicare
  
$
2,645
 
  
 
17.3
% 
  $ 2,603        19.6 % 
Managed Medicare
  
 
2,124
 
  
 
13.9
 
    1,760        13.2  
Medicaid
  
 
692
 
  
 
4.5
 
    445        3.3  
Managed Medicaid
  
 
813
 
  
 
5.3
 
    707        5.3  
Managed care and insurers
  
 
7,998
 
  
 
52.4
 
    6,752        50.7  
International (managed care and insurers)
  
 
324
 
  
 
2.1
 
    307        2.3  
Other
  
 
680
 
  
 
4.5
 
    737        5.6  
  
 
 
    
 
 
   
 
 
    
 
 
 
Revenues
  
$
15,276
 
  
 
100.0
% 
  $ 13,311        100.0 % 
  
 
 
    
 
 
   
 
 
    
 
 
 
    
Nine Months
 
    
2021
    
    Ratio    
   
2020
    
    Ratio    
 
Medicare
  
$
7,816
 
  
 
17.9
% 
  $ 7,618        20.5 % 
Managed Medicare
  
 
6,281
 
  
 
14.4
 
    5,074        13.6  
Medicaid
  
 
1,722
 
  
 
3.9
 
    1,423        3.8  
Managed Medicaid
  
 
2,369
 
  
 
5.4
 
    1,904        5.1  
Managed care and insurers
  
 
22,300
 
  
 
51.0
 
    19,028        51.0  
International (managed care and insurers)
  
 
995
 
  
 
2.3
 
    838        2.3  
Other
  
 
2,205
 
  
 
5.1
 
    1,355        3.7  
  
 
 
    
 
 
   
 
 
    
 
 
 
Revenues
  
$
43,688
 
  
 
100.0
% 
  $ 37,240        100.0 % 
  
 
 
    
 
 
   
 
 
    
 
 
 
 
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
 
Consolidated and same facility revenue per equivalent admission increased 5.9% and 5.2%, respectively, in the third quarter of 2021, compared to the third quarter of 2020. Consolidated and same facility equivalent admissions increased 8.4% and 9.3%, respectively, in the third quarter of 2021, compared to the third quarter of 2020. Consolidated and same facility outpatient surgeries increased 7.2% and 6.4%, respectively, in the third quarter of 2021, compared to the third quarter of 2020. Consolidated and same facility inpatient surgeries declined 5.3% and 4.9%, respectively, in the third quarter of 2021, compared to the third quarter of 2020. Consolidated and same facility emergency department visits increased 28.9% and 31.2%, respectively, in the third quarter of 2021, compared to the third quarter of 2020.
To quantify the total impact of the trends related to uninsured patient accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the quarters and nine months ended September 30, 2021 and 2020 follows (dollars in millions):
 
    
Quarter
   
Nine Months
 
    
2021
   
2020
   
2021
   
2020
 
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)
  
$
12,803
 
  $ 11,170    
$
36,396
 
  $ 32,428  
Cost-to-charges
ratio (patient care costs as percentage of gross patient charges)
  
 
11.8
% 
    12.0 %   
 
11.4
% 
    12.1 % 
Total uncompensated care
  
$
7,782
 
  $ 7,023    
$
22,299
 
  $ 21,625  
Multiply by the
cost-to-charges
ratio
  
 
11.8
% 
    12.0 %   
 
11.4
% 
    12.1 % 
  
 
 
   
 
 
   
 
 
   
 
 
 
Estimated cost of total uncompensated care
  
$
916
 
  $ 843    
$
2,542
 
  $ 2,617  
  
 
 
   
 
 
   
 
 
   
 
 
 
Same facility uninsured admissions increased by 463 admissions, or 1.2%, in the third quarter of 2021 compared to the third quarter of 2020. Same facility uninsured admissions increased 6.6% in the second quarter of 2021 compared to the second quarter of 2020. Same facility uninsured admissions declined 15.7% in the first quarter of 2021 compared to the first quarter of 2020. Same facility uninsured admissions in 2020, compared to 2019, declined 9.1% in the fourth quarter, declined 14.2% in the third quarter, declined 10.0% in the second quarter, and increased 7.1% in the first quarter. The declines in the first quarter of 2021, compared to the first quarter of 2020, and the last three quarters of 2020, compared to the last three quarters of 2019, were primarily due to the reimbursement received, as provided for under the Families First Coronavirus Response Act and subsequent legislation, for uninsured patients diagnosed with
COVID-19
and the resulting classification of those patients as an insured admission, as well as general declines in patient volumes resulting from the pandemic’s impact on our operations.
 
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
 
The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and the uninsured for the quarters and nine months ended September 30, 2021 and 2020 are set forth in the following table.
 
    
Quarter
   
Nine Months
 
    
2021
   
2020
   
2021
   
2020
 
Medicare
  
 
21
% 
    25 %   
 
23
% 
    26 % 
Managed Medicare
  
 
21
 
    19    
 
21
 
    19  
Medicaid
  
 
4
 
    5    
 
5
 
    6  
Managed Medicaid
  
 
14
 
    13    
 
13
 
    12  
Managed care and insurers
  
 
32
 
    30    
 
31
 
    29  
Uninsured
  
 
8
 
    8    
 
7
 
    8  
  
 
 
   
 
 
   
 
 
   
 
 
 
  
 
100
% 
    100 %   
 
100
% 
    100 % 
  
 
 
   
 
 
   
 
 
   
 
 
 
The approximate percentages of our inpatient revenues related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers for the quarters and nine months ended September 30, 2021 and 2020 are set forth in the following table.
 
    
Quarter
   
Nine Months
 
    
2021
   
2020
   
2021
   
2020
 
Medicare
  
 
22
% 
    25 %   
 
24
% 
    27 % 
Managed Medicare
  
 
16
 
    15    
 
16
 
    15  
Medicaid
  
 
7
 
    5    
 
6
 
    5  
Managed Medicaid
  
 
5
 
    6    
 
6
 
    6  
Managed care and insurers
  
 
50
 
    49    
 
48
 
    47  
  
 
 
   
 
 
   
 
 
   
 
 
 
  
 
100
% 
    100 %   
 
100
% 
    100 % 
  
 
 
   
 
 
   
 
 
   
 
 
 
At September 30, 2021, we had 91 hospitals in the states of Texas and Florida. During the quarter ended September 30, 2021, 57% of our admissions and 50% of our revenues were generated by these hospitals. Uninsured admissions in Texas and Florida represented 71% of our uninsured admissions during the quarter ended September 30, 2021.
We receive a significant portion of our revenues from government health programs, principally Medicare and Medicaid, which are highly regulated and subject to frequent and substantial changes. In December 2017, the Centers for Medicare & Medicaid Services (“CMS”) announced that it will phase out federal matching funds for Designated State Health Programs under waivers granted under Section 1115 of the Social Security Act. Texas currently operates its Healthcare Transformation and Quality Improvement Program pursuant to a Medicaid waiver. In December 2017, CMS approved an extension of this waiver through September 30, 2022, but indicated that it will phase out some of the federal funding. Our Texas Medicaid revenues included Medicaid supplemental payments of $151 million and $154 million during the third quarters of 2021 and 2020, respectively, and $437 million and $455 million during the first nine months of 2021 and 2020, respectively.
In addition, we receive supplemental payments in several other states. We are aware these supplemental payment programs are currently being reviewed by certain state agencies and some states have made requests to CMS to replace their existing supplemental payment programs. It is possible these reviews and requests will
 
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
 
result in the restructuring of such supplemental payment programs and could result in the payment programs being reduced or eliminated. Because deliberations about these programs are ongoing, we are unable to estimate the financial impact the program structure modifications, if any, may have on our results of operations.
Key Performance Indicators
We present certain metrics and statistical information that management uses when assessing our results of operations. We believe this information is useful to investors as it provides insight to how management evaluates operational performance and trends between reporting periods. Information on how these metrics and statistical information are defined is provided in the following tables summarizing operating results and operating data.
Operating Results Summary
The following is a comparative summary of results of operations for the quarters and nine months ended September 30, 2021 and 2020 (dollars in millions):
 
    
Quarter
 
    
2021
   
2020
 
    
Amount
   
Ratio
   
Amount
   
Ratio
 
Revenues
  
$
15,276
 
 
 
100.0
 
  $ 13,311       100.0  
Salaries and benefits
  
 
7,094
 
 
 
46.4
 
    6,097       45.8  
Supplies
  
 
2,463
 
 
 
16.1
 
    2,128       16.0  
Other operating expenses
  
 
2,530
 
 
 
16.6
 
    2,251       16.9  
Government stimulus income reversal
  
 
—
 
 
 
—
 
    822       6.2  
Equity in earnings of affiliates
  
 
(35
) 
 
 
(0.2
) 
    (40 )      (0.3 ) 
Depreciation and amortization
  
 
716
 
 
 
4.7
 
    694       5.2  
Interest expense
  
 
398
 
 
 
2.6
 
    385       2.9  
Gains on sales of facilities
  
 
(1,047
) 
 
 
(6.9
) 
    (14 )      (0.1 ) 
  
 
 
   
 
 
   
 
 
   
 
 
 
  
 
12,119
 
 
 
79.3
 
    12,323       92.6  
  
 
 
   
 
 
   
 
 
   
 
 
 
Income before income taxes
  
 
3,157
 
 
 
20.7
 
    988       7.4  
Provision for income taxes
  
 
685
 
 
 
4.5
 
    209       1.5  
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income
  
 
2,472
 
 
 
16.2
 
    779       5.9  
Net income attributable to noncontrolling interests
  
 
203
 
 
 
1.3
 
    111       0.9  
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income attributable to HCA Healthcare, Inc.
  
$
2,269
 
 
 
14.9
 
  $ 668       5.0  
  
 
 
   
 
 
   
 
 
   
 
 
 
% changes from prior year:
        
Revenues
  
 
14.8
% 
      4.9 %   
Income before income taxes
  
 
219.6
 
      0.9    
Net income attributable to HCA Healthcare, Inc.
  
 
239.7
 
      9.0    
Admissions(a)
  
 
5.9
 
      (3.9 )   
Equivalent admissions(b)
  
 
8.4
 
      (9.1 )   
Revenue per equivalent admission
  
 
5.9
 
      15.3    
Same facility % changes from prior year(c):
        
Revenues
  
 
15.0
 
      4.5    
Admissions(a)
  
 
6.8
 
      (3.8 )   
Equivalent admissions(b)
  
 
9.3
 
      (9.0 )   
Revenue per equivalent admission
  
 
5.2
 
      14.8    
 
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Operating Results Summary (continued)
 
    
Nine Months
 
    
2021
   
2020
 
    
Amount
   
Ratio
   
Amount
   
Ratio
 
Revenues
  
$
43,688
 
 
 
100.0
 
  $ 37,240       100.0  
Salaries and benefits
  
 
19,780
 
 
 
45.3
 
    17,545       47.1  
Supplies
  
 
7,067
 
 
 
16.2
 
    5,999       16.1  
Other operating expenses
  
 
7,424
 
 
 
17.0
 
    6,825       18.3  
Equity in earnings of affiliates
  
 
(78
) 
 
 
(0.2
) 
    (48 )      (0.1 ) 
Depreciation and amortization
  
 
2,125
 
 
 
4.8
 
    2,059       5.6  
Interest expense
  
 
1,168
 
 
 
2.7
 
    1,201       3.2  
Losses (gains) on sales of facilities
  
 
(1,057
) 
 
 
(2.4
) 
    6       —  
Losses on retirement of debt
  
 
12
 
 
 
—
 
    295       0.8  
  
 
 
   
 
 
   
 
 
   
 
 
 
  
 
36,441
 
 
 
83.4
 
    33,882       91.0  
  
 
 
   
 
 
   
 
 
   
 
 
 
Income before income taxes
  
 
7,247
 
 
 
16.6
 
    3,358       9.0  
Provision for income taxes
  
 
1,531
 
 
 
3.5
 
    665       1.8  
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income
  
 
5,716
 
 
 
13.1
 
    2,693       7.2  
Net income attributable to noncontrolling interests
  
 
574
 
 
 
1.3
 
    365       0.9  
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income attributable to HCA Healthcare, Inc.
  
$
5,142
 
 
 
11.8
 
  $ 2,328       6.3  
  
 
 
   
 
 
   
 
 
   
 
 
 
% changes from prior year:
        
Revenues
  
 
17.3
% 
      (1.5 )%   
Income before income taxes
  
 
115.8
 
      (7.7 )   
Net income attributable to HCA Healthcare, Inc.
  
 
120.8
 
      (4.4 )   
Admissions(a)
  
 
5.9
 
      (5.1 )   
Equivalent admissions(b)
  
 
8.4
 
      (9.8 )   
Revenue per equivalent admission
  
 
8.2
 
      9.1    
Same facility % changes from prior year(c):
        
Revenues
  
 
17.5
 
      (2.1 )   
Admissions(a)
  
 
6.2
 
      (5.3 )   
Equivalent admissions(b)
  
 
8.8
 
      (9.9 )   
Revenue per equivalent admission
  
 
7.9
 
      8.6    
 
(a)
Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.
(b)
Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenues and gross outpatient revenues and then dividing the resulting amount by gross inpatient revenues. The equivalent admissions computation “equates” outpatient revenues to the volume measure (admissions) used to measure inpatient volume, resulting in a general measure of combined inpatient and outpatient volume.
(c)
Same facility information excludes the operations of hospitals and their related facilities which were either acquired or divested during the current and prior period.
 
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
 
Quarters Ended September 30, 2021 and 2020
Revenues increased to $15.276 billion in the third quarter of 2021 from $13.311 billion in the third quarter of 2020. Net income attributable to HCA Healthcare, Inc. totaled $2.269 billion, or $7.00 per diluted share, for the quarter ended September 30, 2021, compared to $668 million, or $1.95 per diluted share, for the quarter ended September 30, 2020. Third quarter results for 2021 and 2020 include gains on sales of facilities of $1.047 billion, or $2.43 per diluted share, and $14 million, or $0.03 per diluted share, respectively. Third quarter results for 2020 include the reversal of $822 million, or $1.72 per diluted share, of government stimulus income recorded in the second quarter of 2020 related to general distribution PRFs established by the CARES Act. During October 2020, we announced we would return, or repay early, our share of the PRFs of approximately $1.6 billion and approximately $4.4 billion in Medicare accelerated payments (repaid during the fourth quarter of 2020). All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 324.029 million shares for the quarter ended September 30, 2021 and 343.346 million shares for the quarter ended September 30, 2020. During the first nine months of 2021, we repurchased 29.343 million shares of our common stock.
Revenues increased 14.8% on a consolidated basis and 15.0% on a same facility basis for the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020. The increase in consolidated revenues can be primarily attributed to the combined impact of a 5.9% increase in revenue per equivalent admission and a 8.4% increase in equivalent admissions. The same facility revenues increase primarily resulted from the combined impact of a 5.2% increase in same facility revenue per equivalent admission and a 9.3% increase in same facility equivalent admissions.
Salaries and benefits, as a percentage of revenues, were 46.4% in the third quarter of 2021 and 45.8% in the third quarter of 2020. Salaries and benefits per equivalent admission increased 7.4% in the third quarter of 2021 compared to the third quarter of 2020. Same facility labor rate increases averaged 8.0% for the third quarter of 2021 compared to the third quarter of 2020 primarily due to certain contract, overtime and other premium rate labor costs being incurred during the third quarter of 2021 to support our clinical staff and address the surge of
COVID-19
patients.
Supplies, as a percentage of revenues, were 16.1% in the third quarter of 2021 and 16.0% in the third quarter of 2020. Supply costs per equivalent admission increased 6.8% in the third quarter of 2021 compared to the third quarter of 2020. Supply costs per equivalent admission increased 24.0% for pharmacy supplies and 9.4% for general medical and surgical items and declined 4.9% for medical devices in the third quarter of 2021 compared to the third quarter of 2020. The increase in pharmacy supplies is primarily related to certain
COVID-19
therapies used in the surge of
COVID-19
cases during the third quarter of 2021, and the increase in general medical and surgical items is primarily related to an increased utilization of personal protective equipment (“PPE”).
Other operating expenses, as a percentage of revenues, were 16.6% in the third quarter of 2021 and 16.9% in the third quarter of 2020. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. Provisions for losses related to professional liability risks were $49 million and $26 million for the third quarters of 2021 and 2020, respectively. During the third quarters of 2021 and 2020, we recorded reductions of $87 million, or $0.21 per diluted share, and $112 million, or $0.25 per diluted share, respectively, to our provision for professional liability risks related to the receipt of updated actuarial information.
During the third quarter of 2020, we recorded the reversal of $822 million of government stimulus income previously recorded in the second quarter of 2020 related to general distribution funds received from the PRFs established by the CARES Act.
 
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended September 30, 2021 and 2020 (continued)
 
Equity in earnings of affiliates was $35 million and $40 million in the third quarters of 2021 and 2020, respectively.
Depreciation and amortization increased $22 million, from $694 million in the third quarter of 2020 to $716 million in the third quarter of 2021. The increase in depreciation relates primarily to capital expenditures at our existing facilities.
Interest expense was $398 million in the third quarter of 2021 and $385 million in the third quarter of 2020. Our average debt balance was $32.450 billion for the third quarter of 2021 compared to $30.952 billion for the third quarter of 2020. The average effective interest rate for our long-term debt was 4.9% for both of the quarters ended September 30, 2021 and 2020.
During the third quarters of 2021 and 2020, we recorded gains on sales of facilities of $1.047 billion and $14 million, respectively. The gains on sales of facilities for the third quarter of 2021 include a $655 million gain related to the sale of four hospital facilities in Georgia and gains of $392 million related to the sales of other health care entity investments and minor real estate assets.
The effective tax rates were 23.2% and 23.8% for the third quarters of 2021 and 2020, respectively. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships.
Net income attributable to noncontrolling interests increased from $111 million for the third quarter of 2020 to $203 million for the third quarter of 2021. The increase in net income attributable to noncontrolling interests related primarily to an increase in partnership operating income as well as the impact of the government stimulus income reversal for certain hospital and surgery center partnerships in the third quarter of 2020.
Nine Months Ended September 30, 2021 and 2020
Revenues increased to $43.688 billion in the first nine months of 2021 from $37.240 billion in the first nine months of 2020. Net income attributable to HCA Healthcare, Inc. totaled $5.142 billion, or $15.43 per diluted share, for the first nine months ended September 30, 2021, compared to $2.328 billion, or $6.79 per diluted share, for the first nine months ended September 30, 2020. Results for the first nine months of 2021 included gains on sales of facilities of $1.057 billion, or $2.39 per diluted share, and losses on retirement of debt of $12 million, or $0.03 per diluted share. Results for the first nine months of 2020 included losses on sales of facilities of $6 million, or $0.03 per diluted share, and losses on retirement of debt of $295 million, or $0.66 per diluted share. Revenues for the first nine months of 2021 and 2020, respectively, include $33 million, or $0.07 per diluted share, and $55 million, or $0.12 per diluted share, related to the settlement of Medicare outlier calculations for prior periods. Results for the first nine months of 2020 also included $60 million, or $0.13 per diluted share, of employee retention payroll tax credits, established by the CARES Act. Our provision for income taxes for the first nine months of 2021 and 2020 included tax benefits of $96 million, or $0.29 per diluted share, and $59 million, or $0.17 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 333.248 million shares for the nine months ended September 30, 2021 and 343.014 million shares for the nine months ended September 30, 2020. During the first nine months of 2021, we repurchased 29.343 million shares of our common stock.
 
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Nine Months Ended September 30, 2021 and 2020 (continued)
 
Revenues increased 17.3% on a consolidated basis and 17.5% on a same facility basis for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The increase in consolidated revenues can be primarily attributed to the combined impact of an 8.2% increase in revenue per equivalent admission and an 8.4% increase in equivalent admissions. The increase in same facility revenues can be primarily attributed to the combined impact of a 7.9% increase in revenue per equivalent admission and an 8.8% increase in equivalent admissions.
Salaries and benefits, as a percentage of revenues, were 45.3% in the first nine months of 2021 and 47.1% in the first nine months of 2020. Salaries and benefits per equivalent admission increased 4.0% in the first nine months of 2021 compared to the first nine months of 2020. Same facility labor rate increases averaged 7.3% for the first nine months of 2021 compared to the first nine months of 2020 primarily due to an increased utilization of contract, overtime and other premium rate labor costs during the 2021 period to support our clinical staff and address the surges of COVID-19 cases during the first and third quarters of 2021.
Supplies, as a percentage of revenues, were 16.2% in the first nine months of 2021 and 16.1% in the first nine months of 2020. Supply costs per equivalent admission increased 8.6% in the first nine months of 2021 compared to the first nine months of 2020. Supply costs per equivalent admission increased 3.6% for medical devices, 14.8% for pharmacy supplies and 10.7% for general medical and surgical items in the first nine months of 2021 compared to the first nine months of 2020. The increase in pharmacy supplies is primarily related to certain
COVID-19
therapies used in the surges of
COVID-19
cases during the first and third quarters of 2021, and the increase in general medical and surgical items is primarily related to increased utilization of PPE.
Other operating expenses, as a percentage of revenues, were 17.0% in the first nine months of 2021 and 18.3% in the first nine months of 2020. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. Provisions for losses related to professional liability risks were $318 million and $305 million for the first nine months of 2021 and 2020, respectively. During the first nine months of 2021 and 2020, we recorded reductions of $87 million, or $0.20 per diluted share, and $112 million, or $0.25 per diluted share, respectively, to our provision for professional liability risks related to the receipt of updated actuarial information.
Equity in earnings of affiliates was $78 million and $48 million in the first nine months of 2021 and 2020, respectively.
Depreciation and amortization increased $66 million, from $2.059 billion in the first nine months of 2020 to $2.125 billion in the first nine months of 2021. The increase in depreciation relates primarily to capital expenditures at our existing facilities.
Interest expense was $1.168 billion in the first nine months of 2021 and $1.201 billion in the first nine months of 2020. Our average debt balance was $31.780 billion for the first nine months of 2021 compared to $32.223 billion for the first nine months of 2020. The average effective interest rate for our long-term debt declined to 4.9% for the nine months ended September 30, 2021 from 5.0% for the nine months ended September 30, 2020.
During the first nine months of 2021 and 2020, we recorded net gains of $1.057 billion and net losses on sales of facilities of $6 million, respectively. The gains on sales of facilities for the first nine months of 2021 are primarily related to the sale of four hospital facilities in Georgia and other health care entity investments.
 
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Nine Months Ended September 30, 2021 and 2020 (continued)
 
During June 2021, we issued $2.350 billion aggregate principal amount of senior secured notes comprised of $850 million aggregate principal amount of 2 3/8% notes due 2031 and $1.500 billion aggregate principal amount of 3 1/2% notes due 2051 (the “June 2021 Notes”). We also amended and restated our senior secured revolving credit facility and our senior secured asset-based revolving credit facility, including increasing availability under the asset-based revolving credit facility to $4.500 billion, extending the maturity date on both facilities to June 30, 2026 and entering into a new $1.500 billion term loan
A-7
facility and a new $500 million term
loan B-14
facility (the “Credit Agreement Transactions”). We used the net proceeds from the June 2021 Notes and the Credit Agreement Transactions to retire the $1.071 billion term
loan A-6
facility, the $1.455 billion term
loan B-12
facility and the $1.131 billion term
loan B-13
facility. The pretax loss on retirement of debt was $12 million. During February 2020, we issued $2.700 billion aggregate principal amount of 3.50% senior unsecured notes due 2030. During March 2020, we used the net proceeds for the redemption of all $1.000 billion outstanding aggregate principal amount of HCA Healthcare, Inc.’s 6.25% senior notes due 2021 and, together with available funds, for the redemption of all $2.000 billion outstanding aggregate principal amount of HCA Inc.’s 7.50% senior notes due 2022. The pretax loss on retirement of debt was $295 million.
The effective tax rates were 22.9% and 22.2% for the first nine months of 2021 and 2020, respectively. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships. Our provisions for income taxes for the first nine months of 2021 and 2020 included tax benefits of $96 million and $59 million, respectively, related to employee equity award settlements. Excluding the effect of these adjustments, the effective tax rate for the first nine months of 2021 and 2020 would have been 24.4% and 24.2%, respectively.
Net income attributable to noncontrolling interests increased from $365 million for the first nine months of 2020 to $574 million for the first nine months of 2021. The increase in net income attributable to noncontrolling interests related primarily to the partnership operations of two of our Texas markets and our surgery center partnerships.
Liquidity and Capital Resources
Cash provided by operating activities declined $6.299 billion, from $12.815 billion for the first nine months of 2020 to $6.516 billion for the first nine months of 2021. The $12.815 billion of cash flows from operating activities in the first nine months of 2020 included $6.123 billion of government stimulus refund liability related to unapplied accelerated Medicare payments and PRFs established by the CARES Act (approximately $6 billion was returned or repaid early and reversed out of cash flow from operations in the fourth quarter of 2020). The decline in cash provided by operating activities also included the net impact of negative changes in working capital items of $2.350 billion, primarily related to an increase in accounts receivable, offset by an increase in net income, excluding losses and gains on sales of facilities and losses on retirement of debt, of $2.001 billion. The combination of interest payments and net income tax payments in the first nine months of 2021 and 2020 totaled $2.473 billion and $2.009 billion, respectively. Working capital totaled $3.624 billion at September 30, 2021 and $3.629 billion at December 31, 2020.
Cash used in investing activities was $929 million in the first nine months of 2021 compared to $2.483 billion in the first nine months of 2020. Acquisitions of hospitals and health care entities increased from $380 million in the first nine months of 2020 to $488 million in the first nine months of 2021. Excluding acquisitions, capital expenditures were $2.385 billion in the first nine months of 2021 and $2.087 billion in the first nine months of 2020. Planned capital expenditures are expected to approximate $3.7 billion in 2021. At
 
29
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
 
September 30, 2021, there were projects under construction which had estimated additional costs to complete and equip over the next five years of approximately $3.6 billion. We expect to finance capital expenditures with internally generated and borrowed funds. Sales of hospitals and health care entities increased $1.912 billion primarily related to the proceeds from our sales of five hospitals in Georgia (the sale of one hospital was effective October 1, 2021) and other health care entity investments.
Cash used in financing activities totaled $6.349 billion in the first nine months of 2021 compared to $4.361 billion in the first nine months of 2020. During the first nine months of 2021, net cash flows used in financing activities included a net increase of $1.050 billion in our indebtedness, payment of dividends of $476 million, repurchase of common stock of $6.143 billion and distributions to noncontrolling interests of $501 million. During the first nine months of 2020, net cash flows used in financing activities included a net decline of $3.183 billion in our indebtedness, payment of dividends of $153 million, repurchase of common stock of $441 million and distributions to noncontrolling interests of $393 million.
We are a highly leveraged company with significant debt service requirements. Our debt totaled $32.299 billion at September 30, 2021. Our interest expense was $1.168 billion for the first nine months of 2021 and $1.201 billion for the first nine months of 2020.
In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($5.920 billion and $5.590 billion available as of September 30, 2021 and October 31, 2021, respectively) and anticipated access to public and private debt markets.
Investments of our insurance subsidiaries, held to maintain statutory equity levels and to provide liquidity to pay claims, totaled $530 million and $504 million at September 30, 2021 and December 31, 2020, respectively. An insurance subsidiary maintained net reserves for professional liability risks of $159 million and $188 million at September 30, 2021 and December 31, 2020, respectively. Our facilities are insured by a 100% owned insurance subsidiary for losses up to $75 million per occurrence; however, this coverage is generally subject, in most cases, to a $15 million per occurrence self-insured retention. Additionally, the insurance subsidiary has entered into reinsurance contracts providing reimbursement for a certain portion of losses in excess of self-insured retentions. Net reserves for the self-insured professional liability risks retained were $1.795 billion and $1.736 billion at September 30, 2021 and December 31, 2020, respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate $476 million. We estimate that approximately $434 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention.
During June 2021, we issued $2.350 billion aggregate principal amount of senior secured notes comprised of $850 million aggregate principal amount of 2 3/8% notes due 2031 and $1.500 billion aggregate principal amount of 3 1/2% notes due 2051 (the “June 2021 Notes”). We also amended and restated our senior secured revolving credit facility and our senior secured asset-based revolving credit facility, including increasing availability under the asset-based revolving credit facility to $4.500 billion, extending the maturity date on both facilities to June 30, 2026 and entering into a new $1.500 billion term loan
A-7
facility and a new $500 million term loan
B-14
facility (the “Credit Agreement Transactions”). We used the net proceeds from the June 2021 Notes and the Credit Agreement Transactions to retire the $1.071 billion term loan
A-6
facility, the $1.455 billion term loan
B-12
facility and the $1.131 billion term loan
B-13
facility.
Management believes that cash flows from operations, amounts available under our senior secured credit facilities and our anticipated access to public and private debt markets will be sufficient to meet expected liquidity needs during the next 12 months.
 
30
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
 
Summarized Financial Information
HCA Inc., a direct wholly-owned subsidiary of HCA Healthcare, Inc., is the primary obligor under a substantial portion of our indebtedness, including our senior secured credit facilities, senior secured notes and senior unsecured notes. The senior secured notes and senior unsecured notes issued by HCA Inc. are fully and unconditionally guaranteed on an unsecured basis by HCA Healthcare, Inc. The senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed on a senior secured basis by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are “Unrestricted Subsidiaries” under our Indenture dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our senior secured asset-based revolving credit facility). For a list of subsidiary guarantors, see Exhibit 22 to this quarterly report on Form
10-Q.
The subsidiary guarantees rank senior in right of payment to all subordinated indebtedness of each subsidiary guarantor, equally in right of payment with all senior indebtedness of the subsidiary guarantors and are structurally subordinated in right of payment to all indebtedness and other liabilities of any nonguarantor subsidiaries of the subsidiary guarantors (other than indebtedness and liabilities owed to one of the subsidiary guarantors). The subsidiary guarantees are secured by first-priority liens on the subsidiary guarantors’ assets, subject to certain exceptions, that secure our senior secured cash flow credit facility on a first-priority basis. The subsidiary guarantees are secured by second-priority liens on the subsidiary guarantors’ assets that secure our senior secured asset-based revolving credit facility on a first-priority basis and our senior secured cash flow credit facility on a second-priority basis.
The subsidiary guarantees may be automatically and unconditionally released and discharged upon certain customary events, including in the event such guarantee is released under our senior secured credit facilities. The indentures governing the senior secured notes include a “savings clause” intended to limit each subsidiary guarantor’s obligations as necessary to prevent the guarantee from constituting a fraudulent conveyance under applicable law, which could reduce a subsidiary guarantor’s liability on its guarantee to zero. For further information regarding the guarantees, refer to the applicable indentures that are filed as exhibits to our annual report on Form
10-K
for the year ended December 31, 2020.
Summarized financial information is presented on a combined basis and transactions between the combining entities have been eliminated. Financial information for nonguarantor entities has been excluded. The summarized operating results information for the nine months ended September 30, 2021 and year ended December 31, 2020 and the summarized balance sheet information at September 30, 2021 and December 31, 2020, for HCA Healthcare, Inc., HCA Inc. and the subsidiary guarantors (the Parent, Subsidiary Issuer and Subsidiary Guarantors) follow (dollars in millions):
Nine Months Ended September 30, 2021 and Year Ended December 31, 2020:
 
    
Nine Months
September 30, 2021
    
Year
December 31, 2020
 
Revenues
  
$
26,140
 
   $ 31,040  
Income before income taxes
  
 
4,578
 
     4,016  
Net income
  
 
3,546
 
     3,172  
Net income attributable to Parent, Subsidiary Issuer and Subsidiary Guarantors
  
 
3,474
 
     3,091  
 
31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Summarized Financial Information (continued)
 
At September 30, 2021 and December 31, 2020:
    
    
September 30, 2021
   
December 31, 2020
 
Current assets
  
$
7,821
 
  $ 7,442  
Property and equipment, net
  
 
15,285
 
    14,939  
Goodwill and other intangible assets
  
 
5,707
 
    5,763  
Total noncurrent assets
  
 
22,277
 
    21,771  
Total assets
  
 
30,098
 
    29,213  
Current liabilities
  
 
5,859
 
    5,316  
Long-term debt, net
  
 
31,597
 
    30,444  
Intercompany balances
  
 
3,229
 
    2,090  
Income taxes and other liabilities
  
 
1,841
 
    1,004  
Total noncurrent liabilities
  
 
37,179
 
    34,035  
Stockholders’ deficit attributable to Parent, Subsidiary Issuer and Subsidiary Guarantors
  
 
(13,155
) 
    (10,247 ) 
Noncontrolling interests
  
 
215
 
    109  
The first-priority liens securing the subsidiary guarantees discussed above include liens on (i) substantially all of the capital stock of substantially all wholly owned first-tier subsidiaries of HCA Inc. or of the subsidiary guarantors (but limited to 65% of the stock of any such wholly owned first-tier subsidiary that is a foreign subsidiary), subject to certain limited exceptions, and (ii) substantially all indebtedness owing to HCA Inc. or to the subsidiary guarantors, including any and all intercompany indebtedness owed by HCA Healthcare, Inc. or any subsidiary thereof to HCA Inc., or any subsidiary guarantor. For a list of affiliates whose securities are pledged as collateral for the senior secured notes, see Exhibit 22 to this quarterly report on Form
10-Q.
Under the first lien intercreditor agreement, the administrative agent for the lenders under the cash flow credit facility, subject to the occurrence of certain events, has the exclusive right to direct foreclosures and take other actions with respect to these liens, and the trustee for the senior secured notes has no right to take any such actions. In certain circumstances, including upon certain events of default under the senior secured credit facilities and the senior secured notes, the collateral agent in respect of the cash flow credit facility and the senior secured notes could proceed against the collateral granted to it to secure such indebtedness, including the aforementioned pledged capital stock and pledged indebtedness, and require such collateral to be delivered to the collateral agent to the extent not already in its possession for purposes of perfecting the lien on such assets. For further information regarding the collateral, including events or circumstances that may require delivery of the collateral, refer to the applicable indentures, the first lien intercreditor agreement, the cash flow credit agreement and the pledge agreement that are filed as exhibits to our annual report on Form
10-K
for the year ended December 31, 2020.
There is no trading market for any of HCA Healthcare, Inc.’s affiliates whose securities are pledged as collateral for the senior secured notes.
Rule
13-02
of Regulation
S-X
requires the presentation of summarized financial information of the combined affiliates whose securities are pledged as collateral for the senior secured notes unless such information is not material. The rule provides that such information is not material if the assets, liabilities and results of operations of the combined affiliates whose securities are pledged as collateral are not materially different than the corresponding amounts presented in the consolidated financial statements of the Registrant.
 
32
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Summarized Financial Information (continued)
 
Healthtrust, Inc. — The Hospital Company (“Healthtrust”) is the first-tier subsidiary of HCA Inc., and the common stock of Healthtrust is pledged as collateral for the senior secured notes. Due to the corporate structure relationship of HCA Healthcare, Inc. and Healthtrust, all of HCA Healthcare, Inc.’s operating subsidiaries, including all other affiliates whose securities are pledged as collateral for the senior secured notes, are also subsidiaries of Healthtrust. The corporate structure relationship, combined with the application of push-down accounting in Healthtrust’s consolidated financial statements related to HCA Healthcare Inc.’s debt and financial instruments, mean that the assets, liabilities and results of operations of Healthtrust (and, therefore, of the combined affiliates whose securities are pledged as collateral for the senior secured notes) are not materially different than the corresponding amounts presented in the financial statements of HCA Healthcare, Inc. As a result, summarized financial information of affiliates whose securities are pledged as collateral for the senior secured notes is not required to be presented under Rule
13-02.
Market Risk
We are exposed to market risk related to changes in market values of securities. The investment securities held by our insurance subsidiaries were recorded at $530 million at September 30, 2021. These investments are carried at fair value, with changes in unrealized gains and losses that are not credit-related being recorded as adjustments to other comprehensive income. At September 30, 2021, we had a net unrealized gain of $20 million on the insurance subsidiaries’ investments.
We are exposed to market risk related to market illiquidity. Investment securities held by our insurance subsidiaries could be impaired by the inability to access the capital markets. Should the insurance subsidiaries require significant amounts of cash in excess of normal cash requirements to pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less than what we might otherwise have been able to in a normal market environment. We may be required to recognize credit-related impairments on our investment securities in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to ratings downgrades or other issue-specific factors.
We are also exposed to market risk related to changes in interest rates, and we periodically enter into interest rate swap agreements to manage our exposure to these fluctuations. Our interest rate swap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common notional principal amounts and maturity dates. The notional amounts of the swap agreements represent balances used to calculate the exchange of cash flows and are not our assets or liabilities. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions. The interest payments under these agreements are settled on a net basis. These derivatives have been recognized in the financial statements at their respective fair values. Changes in the fair value of these derivatives, which are designated as cash flow hedges, are included in other comprehensive income. At September 30, 2021, our variable rate debt was fully covered by our interest rate swap agreements.
Our variable debt is comprised primarily of amounts outstanding under the senior secured credit facilities. Borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the higher of (1) the federal funds rate plus 0.50% or (2) the prime rate of Bank of America or (b) a LIBOR rate for the currency of such borrowing for the relevant interest period. The applicable margin for borrowings under the senior secured credit facilities may fluctuate according to a leverage ratio. The average effective interest rate for our long-term debt was 4.9% and 5.0% for the nine months ended September 30, 2021 and 2020, respectively.
 
33
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Market Risk (continued)
 
The estimated fair value of our total long-term debt was $36.567 billion at September 30, 2021. The estimates of fair value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities. To mitigate the impact of fluctuations in interest rates, we generally target a portion of our debt portfolio to be maintained at fixed rates.
We are exposed to currency translation risk related to our foreign operations. We currently do not consider the market risk related to foreign currency translation to be material to our consolidated financial statements or our liquidity.
Tax Examinations
The Internal Revenue Service was conducting an examination of the Company’s 2016, 2017 and 2018 federal income tax returns at September 30, 2021. We are also subject to examination by state and foreign taxing authorities. Management believes HCA Healthcare, Inc. and its predecessors, subsidiaries and affiliates properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with IRS, state and foreign taxing authorities and final resolution of any disputes will not have a material, adverse effect on our results of operations or financial position. However, if payments due upon final resolution of any issues exceed our recorded estimates, such resolutions could have a material, adverse effect on our results of operations or financial position.
Operating Data
 
    
2021
    
2020
 
Number of hospitals in operation at:
     
March 31
  
 
186
 
     186  
June 30
  
 
187
 
     186  
September 30
  
 
183
 
     187  
December 31
        185  
Number of freestanding outpatient surgical centers in operation at:
     
March 31
  
 
121
 
     123  
June 30
  
 
122
 
     122  
September 30
  
 
123
 
     121  
December 31
        121  
Licensed hospital beds at(a):
     
March 31
  
 
49,561
 
     49,357  
June 30
  
 
49,693
 
     49,403  
September 30
  
 
48,950
 
     49,473  
December 31
        49,265  
Weighted average beds in service(b):
     
Quarter:
     
First
  
 
42,363
 
     42,177  
Second
  
 
42,464
 
     42,309  
Third
  
 
42,088
 
     42,426  
Fourth
        42,072  
Year
        42,246  
 
34
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (continued)
 
    
2021
    
2020
 
Average daily census(c):
     
Quarter:
     
First
  
 
29,678
 
     28,822  
Second
  
 
28,901
 
     24,844  
Third
  
 
31,144
 
     28,186  
Fourth
        29,065  
Year
        27,734  
Admissions(d):
     
Quarter:
     
First
  
 
506,380
 
     528,244  
Second
  
 
532,041
 
     452,992  
Third
  
 
536,848
 
     506,756  
Fourth
        521,917  
Year
        2,009,909  
Equivalent admissions(e):
     
Quarter:
     
First
  
 
832,489
 
     889,035  
Second
  
 
916,212
 
     723,136  
Third
  
 
905,627
 
     835,576  
Fourth
        864,583  
Year
        3,312,330  
Average length of stay (days)(f):
     
Quarter:
     
First
  
 
5.3
 
     5.0  
Second
  
 
4.9
 
     5.0  
Third
  
 
5.3
 
     5.1  
Fourth
        5.1  
Year
        5.1  
Emergency room visits(g):
     
Quarter:
     
First
  
 
1,841,778
 
     2,264,707  
Second
  
 
2,128,428
 
     1,516,116  
Third
  
 
2,338,180
 
     1,813,661  
Fourth
        1,855,823  
Year
        7,450,307  
Outpatient surgeries(h):
     
Quarter:
     
First
  
 
231,228
 
     226,319  
Second
  
 
262,107
 
     170,911  
Third
  
 
249,192
 
     232,493  
Fourth
        252,760  
Year
        882,483  
 
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (continued)
 
    
2021
   
2020
 
Inpatient surgeries(i):
    
Quarter:
    
First
  
 
127,590
 
    135,145  
Second
  
 
136,460
 
    118,591  
Third
  
 
126,436
 
    133,492  
Fourth
       135,157  
Year
       522,385  
Days revenues in accounts receivable(j):
    
Quarter:
    
First
  
 
48
 
    49  
Second
  
 
48
 
    50  
Third
  
 
51
 
    44  
Fourth
       45  
Outpatient revenues as a % of patient revenues(k):
    
Quarter:
    
First
  
 
36
% 
    37 % 
Second
  
 
38
% 
    32 % 
Third
  
 
34
% 
    36 % 
Fourth
       35 % 
Year
       35 % 
 
(a)
Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency.
(b)
Represents the average number of beds in service, weighted based on periods owned.
(c)
Represents the average number of patients in our hospital beds each day.
(d)
Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.
(e)
Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenues and gross outpatient revenues and then dividing the resulting amount by gross inpatient revenues. The equivalent admissions computation “equates” outpatient revenues to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume.
(f)
Represents the average number of days admitted patients stay in our hospitals.
(g)
Represents the number of patients treated in our emergency rooms.
(h)
Represents the number of surgeries performed on patients who were not admitted to our hospitals. Pain management and endoscopy procedures are not included in outpatient surgeries.
(i)
Represents the number of surgeries performed on patients who have been admitted to our hospitals. Pain management and endoscopy procedures are not included in inpatient surgeries.
(j)
Revenues per day is calculated by dividing revenues for the quarter by the days in the quarter. Days revenues in accounts receivable is then calculated as accounts receivable at the end of the quarter divided by revenues per day.
(k)
Represents the percentage of patient revenues related to patients who are not admitted to our hospitals.
 
36
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is provided under the caption “Market Risk” under Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
ITEM 4.    CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
HCA’s management, with the participation of HCA’s chief executive officer and chief financial officer, has evaluated the effectiveness of HCA’s disclosure controls and procedures as of September 30, 2021. Based on that evaluation, HCA’s chief executive officer and chief financial officer concluded that HCA’s disclosure controls and procedures were effective as of September 30, 2021.
Changes in Internal Control Over Financial Reporting
During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS
The information set forth in Note 9 – Contingencies in the notes to the condensed consolidated financial statements is incorporated herein by reference.
ITEM 1A.    RISK FACTORS
Reference is made to the factors set forth under the caption “Forward-Looking Statements” in Part I, Item 2 of this quarterly report on
Form 10-Q
and other risk factors described in our annual report on
Form 10-K
for the year ended December 31, 2020, which are incorporated herein by reference. There have not been any material changes to the risk factors previously disclosed in our annual report on
Form 10-K
for the year ended December 31, 2020.
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During February 2021, our Board of Directors authorized $6 billion for repurchases of our outstanding common stock. During the quarter ended September 30, 2021, we repurchased 9,604,350 shares of our common stock at an average price of $242.53 per share through market purchases pursuant to the February 2021 authorization. At September 30, 2021, we had $2.658 billion of repurchase authorization available under the February 2021 authorization.
 
37
The following table provides certain information with respect to our repurchases of common stock from July 1, 2021 through September 30, 2021 (dollars in millions, except per share amounts).
 
Period
  
Total Number
of Shares
Purchased
    
Average Price
Paid per Share
    
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
    
Approximate
Dollar Value of
Shares That
May Yet Be
Purchased
Under Publicly
Announced
Plans or
Programs
 
July 1, 2021 through July 31, 2021
     3,306,380      $ 225.33        3,306,380      $ 4,242  
August 1, 2021 through August 31, 2021
     3,407,927      $ 247.73        3,407,927      $ 3,398  
September 1, 2021 through September 30, 2021
     2,890,043      $ 256.08        2,890,043      $ 2,658  
  
 
 
       
 
 
    
Total for third quarter 2021
     9,604,350      $ 242.53        9,604,350      $ 2,658  
  
 
 
       
 
 
    
On October 21, 2021, our Board of Directors declared a quarterly dividend of $0.48 per share on our common stock payable on December 29, 2021 to stockholders of record at the close of business on December 14, 2021. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors. Our ability to declare future dividends may also from time to time be limited by the terms of our debt agreements.
 
38
ITEM 6.    
EXHIBITS
(a) List of Exhibits:
 
      22   —   
      31.1   —   
      31.2   —   
      32   —   
      101   —   
The following financial information from our quarterly report on
Form 10-Q
for the quarter ended September 30, 2021 filed with the SEC on November 1, 2021, formatted in Inline Extensible Business Reporting Language: (i) the condensed consolidated balance sheets at September 30, 2021 and December 31, 2020, (ii) the condensed consolidated income statements for the quarters and nine months ended September 30, 2021 and 2020, (iii) the condensed consolidated comprehensive income statements for the quarters and nine months ended September 30, 2021 and 2020, (iv) the condensed consolidated statements of stockholders’ equity (deficit) for the quarters and nine months ended September 30, 2021 and 2020, (v) the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 and (vi) the notes to condensed consolidated financial statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
      104   —   
The cover page from the Company’s Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2021, formatted in Inline XBRL (included in Exhibit 101).
 
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
HCA Healthcare, Inc.
By:
 
/
S
/ W
ILLIAM
B. R
UTHERFORD
  William B. Rutherford
 
Executive Vice President and Chief Financial Officer
Date: November 1, 2021
 
40
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