SEC Filing - Universal Health Services Inc.

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uhs-10q_20220930.htm

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, 2022


☐	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 1-10765

UNIVERSAL HEALTH SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware

23-2077891

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

UNIVERSAL CORPORATE CENTER

367 SOUTH GULPH ROAD

KING OF PRUSSIA, Pennsylvania 19406

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (610) 768-3300

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class B Common Stock, $0.01 par value	UHS	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, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer		☐

Non-accelerated filer	☐	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. Common shares outstanding, as of October 31, 2022:

Class A		6,577,100
Class B		64,157,474
Class C		661,688
Class D		14,170

UNIVERSAL HEALTH SERVICES, INC.

INDEX

		PAGE NO.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Condensed Consolidated Statements of Income – Three and Nine Months Ended September 30, 2022 and 2021		3

Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2022 and 2021		4

Condensed Consolidated Balance Sheets – September 30, 2022 and December 31, 2021		5

Condensed Consolidated Statements of Changes in Equity – Three and Nine Months Ended September 30, 2022 and 2021		6

Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2022 and 2021		8

Notes to Condensed Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3. Quantitative and Qualitative Disclosures About Market Risk		62

Item 4. Controls and Procedures		62

PART II. Other Information

Item 1. Legal Proceedings		63

Item 1A. Risk Factors		63

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		63

Item 6. Exhibits		64

Signatures		65

This Quarterly Report on Form 10-Q is for the quarter ended September 30, 2022. This Report modifies and supersedes documents filed prior to this Report. Information that we file with the Securities and Exchange Commission (the “SEC”) in the future will automatically update and supersede information contained in this Report.

In this Quarterly Report, “we,” “us,” “our” “UHS” and the “Company” refer to Universal Health Services, Inc. and its subsidiaries. UHS is a registered trademark of UHS of Delaware, Inc., the management company for, and a wholly-owned subsidiary of Universal Health Services, Inc. Universal Health Services, Inc. is a holding company and operates through its subsidiaries including its management company, UHS of Delaware, Inc. All healthcare and management operations are conducted by subsidiaries of Universal Health Services, Inc. To the extent any reference to “UHS” or “UHS facilities” in this report including letters, narratives or other forms contained herein relates to our healthcare or management operations it is referring to Universal Health Services, Inc.’s subsidiaries including UHS of Delaware, Inc. Further, the terms “we,” “us,” “our” or the “Company” in such context similarly refer to the operations of Universal Health Services Inc.’s subsidiaries including UHS of Delaware, Inc. Any reference to employees or employment contained herein refers to employment with or employees of the subsidiaries of Universal Health Services, Inc. including UHS of Delaware, Inc.

PART I. FINANCIAL INFORMATION

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share amounts)

(unaudited)

	Three months ended September 30,					Nine months ended September 30,
	2022			2021		2022			2021
Net revenues	$	3,336,027		$	3,155,999	$	9,952,390		$	9,366,866
Operating charges:
Salaries, wages and benefits		1,677,431			1,556,448		5,061,173			4,542,156
Other operating expenses		837,241			754,072		2,526,060			2,233,590
Supplies expense		366,337			367,834		1,092,403			1,052,977
Depreciation and amortization		145,874			134,462		433,508			399,850
Lease and rental expense		33,264			28,375		97,075			88,848
		3,060,147			2,841,191		9,210,219			8,317,421
Income from operations		275,880			314,808		742,171			1,049,445
Interest expense, net		35,653			21,199		83,002			64,455
Other (income) expense, net		6,015			6,719		15,244			(1,575	)
Income before income taxes		234,212			286,890		643,925			986,565
Provision for income taxes		57,401			67,515		157,312			232,844
Net income		176,811			219,375		486,613			753,721
Less: Net income (loss) attributable to noncontrolling interests		(6,003	)		1,024		(14,176	)		1,255
Net income attributable to UHS	$	182,814		$	218,351	$	500,789		$	752,466

Basic earnings per share attributable to UHS	$	2.52		$	2.65	$	6.78		$	8.96
Diluted earnings per share attributable to UHS	$	2.50		$	2.60	$	6.71		$	8.83

Weighted average number of common shares - basic		72,595			82,262		73,769			83,756
Add: Other share equivalents		465			1,411		743			1,275
Weighted average number of common shares and equivalents - diluted		73,060			83,673		74,512			85,031

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(amounts in thousands, unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Net income	$	176,811		$	219,375		$	486,613		$	753,721
Other comprehensive income (loss):
Foreign currency translation adjustment		24,242			(9,121	)		(22,460	)		(23,184	)
Other comprehensive income (loss) before tax		24,242			(9,121	)		(22,460	)		(23,184	)
Income tax expense (benefit) related to items of other comprehensive income (loss)		6,685			109			5,809			(1,958	)
Total other comprehensive income (loss), net of tax		17,557			(9,230	)		(28,269	)		(21,226	)
Comprehensive income		194,368			210,145			458,344			732,495
Less: Comprehensive income (loss) attributable to noncontrolling interests		(6,003	)		1,024			(14,176	)		1,255
Comprehensive income attributable to UHS	$	200,371		$	209,121		$	472,520		$	731,240

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, unaudited)

	September 30, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	74,571		$	115,301
Accounts receivable, net		1,902,472			1,746,635
Supplies		217,818			206,839
Other current assets		261,698			194,781
Total current assets		2,456,559			2,263,556

Property and equipment		11,103,596			10,770,702
Less: accumulated depreciation		(5,167,198	)		(4,896,427	)
		5,936,398			5,874,275
Other assets:
Goodwill		3,874,021			3,962,624
Deferred income taxes		55,789			45,707
Right of use assets-operating leases		457,209			367,477
Deferred charges		6,336			6,525
Other		592,588			573,379
Total Assets	$	13,378,900		$	13,093,543

Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	66,307		$	48,409
Accounts payable and other liabilities		1,795,004			1,860,496
Operating lease liabilities		70,146			64,484
Federal and state taxes		7,743			10,720
Total current liabilities		1,939,200			1,984,109

Other noncurrent liabilities		500,119			464,759
Operating lease liabilities noncurrent		392,582			304,624
Long-term debt		4,638,356			4,141,879

Redeemable noncontrolling interests		4,563			5,119

Equity:
UHS common stockholders’ equity		5,855,353			6,089,664
Noncontrolling interest		48,727			103,389
Total equity		5,904,080			6,193,053
Total Liabilities and Stockholders’ Equity	$	13,378,900		$	13,093,543

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three and Nine Months ended September 30, 2022

(amounts in thousands, unaudited)

																			Accumulated			UHS
	Redeemable																		Other			Common
	Noncontrolling			Class A		Class B			Class C		Class D		Cumulative			Retained			Comprehensive			Stockholders'			Noncontrolling
	Interest			Common		Common			Common		Common		Dividends			Earnings			Income (Loss)			Equity			Interest			Total
Balance, July 1, 2022	$	4,449		$	66	$	660		$	7	$	0	$	(575,198	)	$	6,404,660		$	(15,535	)	$	5,814,660		$	89,256		$	5,903,916
Common Stock
Issued/(converted)		—			—		1			—		—		—			3,738			—			3,739			—			3,739
Repurchased		—			—		(16	)		—		—		—			(158,186	)		—			(158,202	)		—			(158,202	)
Restricted share-based compensation expense		—			—		—			—		—		—			4,869			—			4,869			—			4,869
Dividends paid and accrued		—			—		—			—		—		(14,607	)		—			—			(14,607	)		—			(14,607	)
Stock option expense		—			—		—			—		—		—			15,797			—			15,797			—			15,797
Acquisition of noncontrolling interest in majority owned business		—			—		—			—		—		—			(11,274	)		—			(11,274	)		(37,608	)		(48,882	)
Distributions to noncontrolling interests		—			—		—			—		—		—			—			—			—			(103	)		(103	)
Purchase (sale) of ownership interests by (from) minority members		—			—		—			—		—		—			—			—			—			3,299			3,299
Comprehensive income:
Net income to UHS / noncontrolling interests		114			—		—			—		—		—			182,814			—			182,814			(6,117	)		176,697
Foreign currency translation adjustments, net of income tax		—			—		—			—		—		—			—			17,557			17,557			—			17,557
Subtotal - comprehensive income		114			—		—			—		—		—			182,814			17,557			200,371			(6,117	)		194,254
Balance, September 30, 2022	$	4,563		$	66	$	645		$	7	$	0	$	(589,805	)	$	6,442,418		$	2,022		$	5,855,353		$	48,727		$	5,904,080

																			Accumulated			UHS
	Redeemable																		Other			Common
	Noncontrolling			Class A		Class B			Class C		Class D		Cumulative			Retained			Comprehensive			Stockholders'			Noncontrolling
	Interest			Common		Common			Common		Common		Dividends			Earnings			Income (Loss)			Equity			Interest			Total
Balance, January 1, 2022	$	5,119		$	66	$	698		$	7	$	0	$	(545,487	)	$	6,604,089		$	30,291		$	6,089,664		$	103,389		$	6,193,053
Common Stock
Issued/(converted)		—			—		7			—		—		—			10,527			—			10,534			—			10,534
Repurchased		—			—		(60	)		—		—		—			(723,324	)		—			(723,384	)		—			(723,384	)
Restricted share-based compensation expense		—			—		—			—		—		—			12,972			—			12,972			—			12,972
Dividends paid and accrued		—			—		—			—		—		(44,318	)		—			—			(44,318	)		—			(44,318	)
Stock option expense		—			—		—			—		—		—			48,639			—			48,639			—			48,639
Acquisition of noncontrolling interest in majority owned business		—			—		—			—		—		—			(11,274	)		—			(11,274	)		(37,608	)		(48,882	)
Distributions to noncontrolling interests		(650	)		—		—			—		—		—			—			—			—			(4,776	)		(4,776	)
Purchase (sale) of ownership interests by (from) minority members		—			—		—			—		—		—			—			—			—			1,992			1,992
Comprehensive income:
Net income (loss) to UHS / noncontrolling interests		94			—		—			—		—		—			500,789			—			500,789			(14,270	)		486,519
Foreign currency translation adjustments, net of income tax		—			—		—			—		—		—			—			(28,269	)		(28,269	)		—			(28,269	)
Subtotal - comprehensive income		94			—		—			—		—		—			500,789			(28,269	)		472,520			(14,270	)		458,250
Balance, September 30, 2022	$	4,563		$	66	$	645		$	7	$	0	$	(589,805	)	$	6,442,418		$	2,022		$	5,855,353		$	48,727		$	5,904,080

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three and Nine Months ended September 30, 2021

(amounts in thousands, unaudited)

																			Accumulated			UHS
	Redeemable																		Other			Common
	Noncontrolling			Class A		Class B			Class C		Class D		Cumulative			Retained			Comprehensive			Stockholders'			Noncontrolling
	Interest			Common		Common			Common		Common		Dividends			Earnings			Income (Loss)			Equity			Interest			Total
Balance, July 1, 2021	$	4,693		$	66	$	760		$	7	$	0	$	(513,377	)	$	6,956,520		$	36,124		$	6,480,100		$	91,980		$	6,572,080
Common Stock
Issued/(converted)		—			—		—			—		—		—			3,665			—			3,665			—			3,665
Repurchased		—			—		(28	)		—		—		—			(420,431	)		—			(420,459	)		—			(420,459	)
Restricted share-based compensation expense		—			—		—			—		—		—			3,481			—			3,481			—			3,481
Dividends paid and accrued		—			—		—			—		—		(16,469	)		—			—			(16,469	)		—			(16,469	)
Stock option expense		—			—		—			—		—		—			14,582			—			14,582			—			14,582
Distributions to noncontrolling interests		—			—		—			—		—		—			—			—			—			(127	)		(127	)
Purchase of ownership interests by minority members		—			—		—			—		—		—			—			—			—			1,093			1,093
Comprehensive income:
Net income to UHS / noncontrolling interests		193			—		—			—		—		—			218,351			—			218,351			831			219,182
Foreign currency translation adjustments		—			—		—			—		—		—			—			(9,230	)		(9,230	)		—			(9,230	)
Subtotal - comprehensive income		193			—		—			—		—		—			218,351			(9,230	)		209,121			831			209,952
Balance, September 30, 2021	$	4,886		$	66	$	732		$	7	$	0	$	(529,846	)	$	6,776,168		$	26,894		$	6,274,021		$	93,777		$	6,367,798

																			Accumulated			UHS
	Redeemable																		Other			Common
	Noncontrolling			Class A		Class B			Class C		Class D		Cumulative			Retained			Comprehensive			Stockholders'			Noncontrolling
	Interest			Common		Common			Common		Common		Dividends			Earnings			Income (Loss)			Equity			Interest			Total
Balance, January 1, 2021	$	4,569		$	66	$	778		$	7	$	0	$	(479,503	)	$	6,747,678		$	48,120		$	6,317,146		$	84,821		$	6,401,967
Common Stock
Issued/(converted)		—			—		5			—		—		—			10,104			—			10,109			—			10,109
Repurchased		—			—		(51	)		—		—		—			(788,488	)		—			(788,539	)		—			(788,539	)
Restricted share-based compensation expense		—			—		—			—		—		—			9,583			—			9,583			—			9,583
Dividends paid and accrued		—			—		—			—		—		(50,343	)		—			—			(50,343	)		—			(50,343	)
Stock option expense		—			—		—			—		—		—			44,825			—			44,825			—			44,825
Distributions to noncontrolling interests		(203	)		—		—			—		—		—			—			—			—			(5,541	)		(5,541	)
Purchase of ownership interests by minority members		—			—		—			—		—		—			—			—			—			13,762			13,762
Comprehensive income:
Net income (loss) to UHS / noncontrolling interests		520			—		—			—		—		—			752,466			—			752,466			735			753,201
Foreign currency translation adjustments		—			—		—			—		—		—			—			(21,226	)		(21,226	)		—			(21,226	)
Subtotal - comprehensive income		520			—		—			—		—		—			752,466			(21,226	)		731,240			735			731,975
Balance, September 30, 2021	$	4,886		$	66	$	732		$	7	$	0	$	(529,846	)	$	6,776,168		$	26,894		$	6,274,021		$	93,777		$	6,367,798

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands, unaudited)

	Nine months ended September 30,
	2022			2021
Cash Flows from Operating Activities:
Net income	$	486,613		$	753,721
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization		433,508			399,850
(Gain) loss on sale of assets and businesses		584			(4,803	)
Costs related to extinguishment of debt		-			16,831
Stock-based compensation expense		62,741			55,548
Provision for asset impairment		-			7,195
Changes in assets & liabilities, net of effects from acquisitions and dispositions:
Accounts receivable		(155,142	)		(29,079	)
Accrued interest		529			3,714
Accrued and deferred income taxes		(4,900	)		(52,727	)
Other working capital accounts		(173,903	)		52,616
Medicare accelerated payments and deferred CARES Act and other grants		2,921			(697,393	)
Other assets and deferred charges		22,219			(34,038	)
Other		(23,358	)		9,607
Accrued insurance expense, net of commercial premiums paid		134,908			140,702
Payments made in settlement of self-insurance claims		(88,001	)		(60,069	)
Net cash provided by operating activities		698,719			561,675

Cash Flows from Investing Activities:
Property and equipment additions		(569,555	)		(666,025	)
Proceeds received from sales of assets and businesses		12,001			21,143
Acquisition of businesses and property		(18,666	)		(39,391	)
Inflows from foreign exchange contracts that hedge our net U.K. investment		177,214			4,261
Decrease in capital reserves of commercial insurance subsidiary		100			100
Costs incurred for purchase of information technology applications, net of refunds		-			20,202
Net cash used in investing activities		(398,906	)		(659,710	)

Cash Flows from Financing Activities:
Repayments of long-term debt		(194,115	)		(3,026,888	)
Additional borrowings, net		705,321			2,912,374
Financing costs		(2,541	)		(17,967	)
Repurchase of common shares		(723,384	)		(770,665	)
Dividends paid		(44,192	)		(50,284	)
Issuance of common stock		10,399			10,108
Profit distributions to noncontrolling interests		(5,426	)		(5,744	)
Purchase (sale) of ownership interests by (from) minority members		(49,089	)		13,046
Net cash used in financing activities		(303,027	)		(936,020	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(10,339	)		(682	)

Decrease in cash, cash equivalents and restricted cash		(13,553	)		(1,034,737	)
Cash, cash equivalents and restricted cash, beginning of period		178,934			1,279,154
Cash, cash equivalents and restricted cash, end of period	$	165,381		$	244,417

Supplemental Disclosures of Cash Flow Information:
Interest paid	$	78,992		$	58,719
Income taxes paid, net of refunds	$	182,091		$	286,376
Noncash purchases of property and equipment	$	97,264		$	73,428

The accompanying notes are an integral part of these condensed consolidated financial statements.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) General

This Quarterly Report on Form 10-Q is for the quarterly period ended September 30, 2022. In this Quarterly Report, “we,” “us,” “our” “UHS” and the “Company” refer to Universal Health Services, Inc. and its subsidiaries.

The condensed consolidated interim financial statements include the accounts of our majority-owned subsidiaries and partnerships and limited liability companies controlled by us, or our subsidiaries, as managing general partner or managing member. The condensed consolidated interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect all adjustments (consisting only of normal recurring adjustments) which, in our opinion, are necessary to fairly state results for the interim periods. Certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although we believe that the accompanying disclosures are adequate to make the information presented not misleading. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements, significant accounting policies and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

We believe that the adverse impact that COVID-19 will have on our future operations and financial results will depend upon many factors, most of which are beyond our capability to control or predict. Our future operations and financial results may be materially impacted by developments related to COVID-19 including, but not limited to, the potential impact on future COVID-19 patient volumes resulting from new variants of the virus, the length of time and severity of the spread of the pandemic; the volume of cancelled or rescheduled elective procedures and the volume of COVID-19 patients treated at our hospitals and other healthcare facilities; measures we are taking to respond to the COVID-19 pandemic; the impact of government and administrative regulation and stimulus on the hospital industry and potential retrospective adjustment in future periods of CARES Act and other grant income revenues recorded as revenues in prior periods; the requirements that federal healthcare program participation is conditional upon facility employees being vaccinated; declining patient volumes and unfavorable changes in payer mix caused by deteriorating macroeconomic conditions (including increases in uninsured and underinsured patients as the result of business closings and layoffs); potential disruptions to our clinical staffing and shortages and disruptions related to supplies required for our employees and patients; and potential increases to expenses related to staffing, supply chain or other expenditures; 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 financing perspective; and changes in general economic conditions nationally and regionally in our markets resulting from the COVID-19 pandemic. Because of these and other uncertainties, we cannot estimate the length or severity of the impact of COVID-19 on our business. Decreases in cash flows and results of operations may have an impact on the inputs and assumptions used in significant accounting estimates, including estimated implicit price concessions related to uninsured patient accounts, professional and general liability reserves, and potential impairments of goodwill and long-lived assets.

The nationwide shortage of nurses and other clinical staff and support personnel has been a significant operating issue facing us and other healthcare providers. Like others in the healthcare industry, we continue to experience a shortage of nurses and other clinical staff and support personnel at our acute care and behavioral health care hospitals in many geographic areas. In some areas, the labor scarcity is putting a strain on our resources and staff, which has required us to utilize higher‑cost temporary labor and pay premiums above standard compensation for essential workers. This staffing shortage has required us to hire expensive temporary personnel and/or enhance wages and benefits to recruit and retain nurses and other clinical staff and support personnel. At certain facilities, particularly within our behavioral health care segment, we have been unable to fill all vacant positions and, consequently, have been required to limit patient volumes. These factors had a material unfavorable impact on our results of operations during the first nine months of 2022.

During 2021, we received approximately $189 million of additional funds from the federal government in connection with the CARES Act, substantially all of which was received during the first quarter of 2021. During the second quarter of 2021, we returned the $189 million to the appropriate government agencies utilizing a portion of our cash and cash equivalents held on deposit. Therefore, our results of operations for the three and nine-month periods ended September 30, 2021 include no impact from the receipt of those funds.

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

(2) Relationship with Universal Health Realty Income Trust and Other Related Party Transactions

Relationship with Universal Health Realty Income Trust:

At September 30, 2022, we held approximately 5.7% of the outstanding shares of Universal Health Realty Income Trust (the “Trust”). We serve as Advisor to the Trust under an annually renewable advisory agreement, which is scheduled to expire on December 31^st of each year, pursuant to the terms of which we conduct the Trust’s day-to-day affairs, provide administrative services and present investment opportunities. The advisory agreement was renewed by the Trust for 2022 at the same rate as the prior three years, providing for an advisory fee computation at 0.70% of the Trust’s average invested real estate assets. We earned an advisory fee from the Trust, which is included in net revenues in the accompanying consolidated statements of income, of approximately $1.3 million and $1.1 million during the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $3.8 million and $3.3 million during the nine-month periods ended September 30, 2022 and 2021, respectively.

In addition, certain of our officers and directors are also officers and/or directors of the Trust. Management believes that it has the ability to exercise significant influence over the Trust, therefore we account for our investment in the Trust using the equity method of accounting.

Our pre-tax share of income from the Trust, which is included in other income, net, on the accompanying consolidated statements of income for each period was approximately $275,000 and $276,000 during the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $882,000 and $977,000 during the nine-month periods ended September 30, 2022 and 2021, respectively. Included in our share of the Trust’s income for the nine-month period ended September 30, 2021 was a gain realized by the Trust in connection with a divestiture of property that was completed during the second quarter of 2021. We received dividends from the Trust amounting to $559,000 and $552,000 during the three-month periods ended September 30, 2022 and 2021, respectively, and $1.7 million during each of the nine-month periods ended September 30, 2022 and 2021. The carrying value of our investment in the Trust was approximately $8.6 million and $9.4 million at September 30, 2022 and December 31, 2021, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $34.0 million at September 30, 2022 and $46.8 million at December 31, 2021, based on the closing price of the Trust’s stock on the respective dates.

The Trust commenced operations in 1986 by purchasing certain properties from us and immediately leasing the properties back to our respective subsidiaries. The base rents are paid monthly and the bonus rents, which as of January 1, 2022 are applicable to only McAllen Medical Center, are computed and paid on a quarterly basis, based upon a computation that compares current quarter revenue to a corresponding quarter in the base year. The leases with those subsidiaries are unconditionally guaranteed by us and are cross-defaulted with one another.

On December 31, 2021, we entered into an asset purchase and sale agreement with the Trust. Pursuant to the terms of the asset purchase and sale agreement, which was amended during the first quarter of 2022, a wholly-owned subsidiary of ours purchased from the Trust the real estate assets of the Inland Valley Campus of Southwest Healthcare System (at its fair market value of $79.6 million). Additionally, two wholly-owned subsidiaries of ours transferred to the Trust the real estate assets of Aiken Regional Medical Center (at its fair market value of $57.7 million) and Canyon Creek Behavioral Health (at its fair market value of $26.0 million). In connection with this transaction, since the $83.7 million aggregate fair market value of Aiken Regional Medical Center (“Aiken”) and Canyon Creek Behavioral Health (“Canyon Creek”) exceeded the $79.6 million fair market value of the Inland Valley Campus of Southwest Healthcare System, we received approximately $4.1 million in cash from the Trust.

Pursuant to the leases, as amended, the aggregate annual rental during 2022 for Aiken and Canyon Creek aggregates to approximately $5.7 million ($3.9 million related to Aiken and $1.8 million related to Canyon Creek). There is no bonus rental component applicable to the leases for these two facilities.

The asset purchase and sale transaction was accounted for as a financing arrangement and, since we did not derecognize the real property related to Aiken and Canyon Creek, we will continue to depreciate the assets. Our consolidated balance sheet as of September 30, 2022 reflects a financial liability of $81.7 million, which is included in debt, related to this transaction. Our monthly lease payments payable to the Trust will be recorded to interest expense and as a reduction to the outstanding financial liability.

The aggregate rental for the leases on the four wholly-owned hospital facilities with the Trust was approximately $5 million and $15 million during the three and nine months ended September 30, 2022, respectively. The aggregate rental for the leases on the three wholly-owned hospital facilities with the Trust was approximately $4 million and $13 million during the three and nine months ended September 30, 2021, respectively.

Pursuant to the Master Leases by certain subsidiaries of ours and the Trust as described in the table below, dated 1986 and 2021 (“the Master Leases”) which govern the leases of McAllen Medical Center and Wellington Regional Medical Center (each of which is governed by the Master Lease dated 1986), and Aiken Regional Medical Center and Canyon Creek Behavioral Health (each of which is governed by the Master Lease dated 2021), we have the option to renew the leases at the lease terms described above and below by providing notice to the Trust at least 90 days prior to the termination of the then current term. We also have the right to purchase the respective leased hospitals at their appraised fair market value upon any of the following: (i) at the end of the lease terms or any

renewal terms; (ii) upon one month’s notice should a change of control of the Trust occur, or; (iii) within the time period as specified in the lease in the event that we provide notice to the Trust of our intent to offer a substitution property/properties in exchange for one (or more) of the hospital properties leased from the Trust should we be unable to reach an agreement with the Trust on the properties to be substituted. In addition, we have rights of first refusal to: (i) purchase the respective leased facilities during and for 180 days after the lease terms at the same price, terms and conditions of any third-party offer, or; (ii) renew the lease on the respective leased facility at the end of, and for 180 days after, the lease term at the same terms and conditions pursuant to any third-party offer.

In addition, we are the managing, majority member in a joint venture with an unrelated third-party that operates Clive Behavioral Health, a 100-bed behavioral health care facility located in Clive, Iowa. The real property of this newly constructed facility, which was completed and opened in late 2020, is also leased from the Trust pursuant to the lease terms as provided in the table below. The rental on this facility was approximately $657,000 and $631,000 for the three months ended September 30, 2022 and 2021, respectively, and approximately $2.0 million and $1.8 million for the nine months ended September 30, 2022 and 2021, respectively. In connection with the lease on this facility, the joint venture has the right to purchase the leased facility from the Trust at its appraised fair market value upon either of the following: (i) by providing notice at least 270 days prior to the end of the lease terms or any renewal terms, or; (ii) upon 30 days’ notice anytime within 12 months of a change of control of the Trust. Additionally, the joint venture has rights of first offer to purchase the facility prior to any third-party sale.

The table below provides certain details for each of the hospitals leased from the Trust as of September 30, 2022:

Hospital Name	Annual Minimum Rent		End of Lease Term	Renewal Term (years)
McAllen Medical Center	$	5,485,000	December, 2026		5	(a)
Wellington Regional Medical Center	$	6,319,000	December, 2026		5	(b)
Aiken Regional Medical Center/Aurora Pavilion Behavioral Health Services	$	3,895,000	December, 2033		35	(c)
Canyon Creek Behavioral Health	$	1,670,000	December, 2033		35	(c)
Clive Behavioral Health Hospital	$	2,628,000	December, 2040		50	(d)

(a)	We have one 5-year renewal option at existing lease rates (through 2031).

(b)

We have one 5-year renewal options at fair market value lease rates (through 2031). Upon the December 31, 2021 expiration of the lease on Wellington Regional Medical Center, a wholly-owned subsidiary of ours exercised its fair market value renewal option and renewed the lease for a 5-year term scheduled to expire on December 31, 2026. Effective January 1, 2022, the annual fair market value lease rate for this hospital is $6.3 million (there is no longer a bonus rental component of the lease payment). Beginning on January 1, 2023, and thereafter on each January 1^st through 2026, the annual rent will increase by 2.50% on a cumulative and compounded basis.

(c)	We have seven 5-year renewal options at fair market value lease rates (2034 through 2068).

(d)

This facility is operated by a joint venture in which we are the managing, majority member and an unrelated third-party holds a minority ownership interest. The joint venture has three, 10-year renewal options at computed lease rates as stipulated in the lease (2041 through 2070) and two additional, 10-year renewal options at fair market values lease rates (2071 through 2090). Beginning in January, 2022, and thereafter in each January through 2040 (and potentially through 2070 if three, 10-year renewal options are exercised), the annual rental will increase by 2.75% on a cumulative and compounded basis.

In addition, certain of our subsidiaries are tenants in several medical office buildings (“MOBs”) and two free-standing emergency departments owned by the Trust or by limited liability companies in which the Trust holds 95% to 100% of the ownership interest.

In January, 2022, the Trust commenced construction on a new 86,000 rentable square feet multi-tenant MOB that is located on the campus of Northern Nevada Sierra Medical Center in Reno, Nevada. Northern Nevada Sierra Medical Center, a 170-bed newly constructed acute care hospital owned and operated by a wholly-owned subsidiary of ours, was completed and opened in April, 2022. In connection with this MOB, which is expected to be completed and opened during the first quarter of 2023, a ground lease and a master flex lease was executed between a wholly-owned subsidiary of ours and the Trust, pursuant to the terms of which our subsidiary will master lease approximately 68% of the rentable square feet of the MOB at an initial minimum rent of $1.3 million annually. The master flex lease could be reduced during the term if certain conditions are met.

Other Related Party Transactions:

In December, 2010, our Board of Directors approved the Company’s entering into supplemental life insurance plans and agreements on the lives of Alan B. Miller (our Executive Chairman of the Board) and his wife. As a result of these agreements, as amended in October, 2016, based on actuarial tables and other assumptions, during the life expectancies of the insureds, we would pay approximately $28 million in premiums, and certain trusts owned by our Executive Chairman of the Board, would pay approximately $9 million in premiums. Based on the projected premiums mentioned above, and assuming the policies remain in effect until the death of the insureds, we will be entitled to receive death benefit proceeds of no less than approximately $37 million representing the $28 million of aggregate premiums paid by us as well as the $9 million of aggregate premiums paid by the trusts. In connection with these

policies, we will pay/we paid approximately $1.0 million, net, in premium payments during each of the 2022 and 2021 years, respectively.

In August, 2015, Marc D. Miller, our President and Chief Executive Officer and member of our Board of Directors, was appointed to the Board of Directors of Premier, Inc. (“Premier”), a healthcare performance improvement alliance. During 2013, we entered into a new group purchasing organization agreement (“GPO”) with Premier. In conjunction with the GPO agreement, we acquired a minority interest in Premier for a nominal amount. During the fourth quarter of 2013, in connection with the completion of an initial public offering of the stock of Premier, we received cash proceeds for the sale of a portion of our ownership interest in the GPO. Also in connection with this GPO agreement, we received shares of restricted stock of Premier which vested ratably over a seven-year period (2014 through 2020), contingent upon our continued participation and minority ownership interest in the GPO. During the third quarter of 2020, we entered into an agreement with Premier pursuant to the terms of which, among other things, our ownership interest in Premier was converted into shares of Class A Common Stock of Premier. We have elected to retain a portion of the previously vested shares of Premier, the market value of which is included in other assets on our consolidated balance sheet. Based upon the closing price of Premier’s stock on each respective date, the market value of our shares of Premier was approximately $76 million and $92 million as of September 30, 2022 and December 31, 2021, respectively. Any change in market value of our Premier shares since December 31, 2021 was recorded as an unrealized gain/loss and included in “Other (income) expense, net” in our condensed consolidated statements of income for the three and nine-month periods ended September 30, 2022. Additionally, Premier declared and paid quarterly cash dividends during each of the first three quarters of 2022 and 2021. Our share of the cash dividends amounted to approximately $470,000 and $400,000 for the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $1.4 million and $1.3 million for the nine-month periods ended September 30, 2022 and 2021, respectively. The dividends are included in “Other (income) expense, net” in our condensed consolidated statements of income.

A member of our Board of Directors and member of the Executive Committee and Finance Committee is a partner in Norton Rose Fulbright US LLP, a law firm engaged by us for a variety of legal services. The Board member and his law firm also provide personal legal services to our Executive Chairman and he acts as trustee of certain trusts for the benefit of our Executive Chairman and his family.

(3) Other Noncurrent liabilities and Redeemable/Noncontrolling Interests

Other noncurrent liabilities include the long-term portion of our professional and general liability, workers’ compensation reserves, pension and deferred compensation liabilities, and liabilities incurred in connection with split-dollar life insurance agreements on the lives of our chief executive officer and his wife.

As of September 30, 2022, outside owners held noncontrolling, minority ownership interests of: (i) approximately 7% in an acute care facility located in Texas; (ii) 49%, 20%, 30%, 20%, 25%, 48% and 26% in seven behavioral health care facilities located in Arizona, Pennsylvania, Ohio, Washington, Missouri, Iowa and Michigan, respectively, and; (iii) approximately 5% in an acute care facility located in Nevada. The noncontrolling interest and redeemable noncontrolling interest balances of $49 million and $5 million, respectively, as of September 30, 2022, consist primarily of the third-party ownership interests in these hospitals.

In August 2022, we purchased the 20% noncontrolling ownership interest in a hospital majority owned by us, located in Washington D.C. for $51 million. We now have 100% ownership interest in the hospital. The noncontrolling interest balance was reclassified to retained earnings as of September 30, 2022 and is included in common stockholders’ equity in the accompanying condensed consolidated balance sheet and in retained earnings in the accompanying condensed consolidated statements of changes in equity.

In connection with the two behavioral health care facilities located in Pennsylvania and Ohio, the minority ownership interests of which are reflected as redeemable noncontrolling interests on our Condensed Consolidated Balance Sheet, the outside owners have “put options” to put their entire ownership interest to us at any time. If exercised, the put option requires us to purchase the minority member’s interest at fair market value. Accordingly, the amounts recorded as redeemable noncontrolling interests on our Condensed Consolidated Balance Sheet reflects the estimated fair market value of these ownership interests.

(4) Treasury

Credit Facilities and Outstanding Debt Securities:

In June, 2022 we entered into a ninth amendment to our credit agreement dated as of November 15, 2010, as amended and restated as of September, 2012, August, 2014, October, 2018, August, 2021, and September, 2021, among UHS, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent, (the “Credit Agreement”). The ninth amendment provided for, among other things, the following: (i) a new incremental tranche A term loan facility in the aggregate principal amount of $700 million which is scheduled to mature on August 24, 2026, and; (ii) replaces the option to make Eurodollar borrowings (which bear interest by reference to the LIBOR Rate) with Term Benchmark Loans, which will bear interest by reference to the Secured Overnight Financing Rate (“SOFR”). The net proceeds generated from the incremental tranche A term loan facility were used to repay a portion of the borrowings that were previously outstanding under our revolving credit facility.

In September, 2021 we entered into an eighth amendment to our Credit Agreement which modified the definition of “Adjusted LIBO Rate”.

In August, 2021 we entered into a seventh amendment to our Credit Agreement which, among other things, provided for the following:

a $1.2 billion aggregate amount revolving credit facility, which is scheduled to mature on August 24, 2026, representing an increase of $200 million over the $1.0 billion previous commitment. As of September 30, 2022, this facility had $189 million of borrowings outstanding and $1.007 billion of available borrowing capacity, net of $4 million of outstanding letters of credit;

a $1.7 billion initial tranche A term loan facility which was subsequently increased by $700 million in June, 2022 by the above-mentioned ninth amendment. The seventh amendment also provided for repayment of $150 million of borrowings outstanding pursuant to the previous tranche A term loan facility, and;

repayment of approximately $488 million of outstanding borrowings and termination of the previous tranche B term loan facility.

The terms of the tranche A term loan facility, as amended, which had $2.353 billion of outstanding borrowings as of September 30, 2022, provides for installment payments of $15.0 million per quarter during the period of September, 2022 through September, 2023, and $30.0 million per quarter during the period of December, 2023 through June, 2026. The unpaid principal balance at June 30, 2026 is payable on the August 24, 2026 scheduled maturity date of the Credit Agreement.

Revolving credit and tranche A term loan borrowings under the Credit Agreement bear interest at our election at either (1) the ABR rate which is defined as the rate per annum equal to the greatest of (a) the lender’s prime rate, (b) the weighted average of the federal funds rate, plus 0.5% and (c) one month SOFR rate plus 1%, in each case, plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 0.25% to 0.625%, or (2) the one, three or six month SOFR rate plus 0.1% (at our election), plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 1.25% to 1.625%. As of September 30, 2022, the applicable margins were 0.50% for ABR-based loans and 1.50% for SOFR-based loans under the revolving credit and term loan A facilities. The revolving credit facility includes a $125 million sub-limit for letters of credit. The Credit Agreement is secured by certain assets of the Company and our material subsidiaries (which generally excludes asset classes such as substantially all of the patient-related accounts receivable of our acute care hospitals, and certain real estate assets and assets held in joint-ventures with third parties) and is guaranteed by our material subsidiaries.

The Credit Agreement includes a material adverse change clause that must be represented at each draw. The Credit Agreement also contains covenants that include a limitation on sales of assets, mergers, change of ownership, liens, indebtedness, transactions with affiliates, dividends and stock repurchases; and requires compliance with financial covenants including maximum leverage. We were in compliance with all required covenants as of September 30, 2022 and December 31, 2021.

On August 24, 2021, we completed the following via private offerings to qualified institutional buyers under Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended:

Issued $700 million of aggregate principal amount of 1.65% senior secured notes due on September 1, 2026, and;

Issued $500 million of aggregate principal amount of 2.65% senior secured notes due on January 15, 2032.

In April, 2021 our accounts receivable securitization program (“Securitization”) was amended (the eighth amendment) to: (i) reduce the aggregate borrowing commitments to $20 million (from $450 million previously); (ii) slightly reduce the borrowing rates and commitment fee, and; (iii) extend the maturity date to April 25, 2022. In April, 2022, the Securitization was amended (the ninth amendment) to extend the maturity date to July 22, 2022. In July, 2022, the Securitization was amended (the tenth amendment) to extend the maturity date to September 20, 2022. In September, 2022, the Securitization was amended (the eleventh amendment) to extend the maturity date to December 20, 2022. Substantially all other material terms and conditions remained unchanged. There were no borrowings outstanding pursuant to the Securitization as of September 30, 2022.

On September 13, 2021, we redeemed $400 million of aggregate principal amount of 5.00% senior secured notes, that were scheduled to mature on June 1, 2026, at 102.50% of the aggregate principal, or $410 million.

As of September 30, 2022, we had combined aggregate principal of $2.0 billion from the following senior secured notes:

$700 million aggregate principal amount of 1.65% senior secured notes due in September, 2026 (“2026 Notes”) which were issued on August 24, 2021.

$800 million aggregate principal amount of 2.65% senior secured notes due in October, 2030 (“2030 Notes”) which were issued on September 21, 2020.

$500 million of aggregate principal amount of 2.65% senior secured notes due in January, 2032 (“2032 Notes”) which were issued on August 24, 2021.

Interest on the 2026 Notes is payable on March 1st and September 1st until the maturity date of September 1, 2026. Interest on the 2030 Notes payable on April 15th and October 15th, until the maturity date of October 15, 2030. Interest on the 2032 Notes is payable on January 15^th and July 15^th until the maturity date of January 15, 2032.

The 2026 Notes, 2030 Notes and 2032 Notes (collectively “The Notes”) were offered only to qualified institutional buyers under Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

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

In connection with the issuance of The Notes, the Company, the Subsidiary Guarantors and the representatives of the several initial purchasers, entered into Registration Rights Agreements (the “Registration Rights Agreements”), whereby the Company and the Subsidiary Guarantors have agreed, at their expense, to use commercially reasonable best efforts to: (i) cause to be filed a registration statement enabling the holders to exchange The Notes and the Guarantees for registered senior secured notes issued by the Company and guaranteed by the then Subsidiary Guarantors under the Indenture (the “Exchange Securities”), containing terms identical to those of The Notes (except that the Exchange Securities will not be subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with the Registration Rights Agreements); (ii) cause the registration statement to become effective; (iii) complete the exchange offer not later than 60 days after such effective date and in any event on or prior to a target registration date of March 21, 2023 in the case of the 2030 Notes and February 24, 2024 in the case of the 2026 and 2032 Notes, and; (iv) file a shelf registration statement for the resale of The Notes if the exchange offers cannot be effected within the time periods listed above. The interest rate on The Notes will increase and additional interest thereon will be payable if the Company does not comply with its obligations under the Registration Rights Agreements.

As discussed in Note 2 to the Consolidated Financial Statements-Relationship with Universal Health Realty Income Trust and Other Related Party Transactions, on December 31, 2021, we (through wholly-owned subsidiaries of ours) entered into an asset purchase and sale agreement with Universal Health Realty Income Trust (the “Trust”). Pursuant to the terms of the agreement, which was amended during the first quarter of 2022, we, among other things, transferred to the Trust, the real estate assets of Aiken Regional Medical Center (“Aiken”) and Canyon Creek Behavioral Health (“Canyon Creek”). In connection with this transaction, Aiken and Canyon Creek (as lessees), entered into a master lease and individual property leases, as amended, (with the Trust as lessor), for initial lease terms on each property of approximately twelve years, ending on December 31, 2033. As a result of our purchase option within the Aiken and Canyon Creek lease agreements, this asset purchase and sale transaction is accounted for as a failed sale leaseback in accordance with U.S. GAAP and we have accounted for the transaction as a financing arrangement. Our lease payments payable to the Trust are recorded to interest expense and as a reduction of the outstanding financial liability, and the amount allocated to interest expense is determined based upon our incremental borrowing rate and the outstanding financial liability. In connection with this transaction, our Consolidated Balance Sheets at September 30, 2022 and December 31, 2021 reflect financial liabilities, which are included in debt, of approximately $82 million as of each date.

At September 30, 2022, the carrying value and fair value of our debt were approximately $4.7 billion and $4.3 billion, respectively. At December 31, 2021, the carrying value and fair value of our debt were each approximately $4.2 billion. The fair value of our debt was computed based upon quotes received from financial institutions. We consider these to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments.

Foreign Currency Forward Exchange Contracts:

We use forward exchange contracts to hedge our net investment in foreign operations against movements in exchange rates. The effective portion of the unrealized gains or losses on these contracts is recorded in foreign currency translation adjustment within accumulated other comprehensive income and remains there until either the sale or liquidation of the subsidiary. In connection with

these forward exchange contracts, we recorded net cash inflows of $177 million and $4 million during the nine-month periods ended September 30, 2022 and 2021, respectively.

Derivatives Hedging Relationships:

The following table presents the effects of our foreign currency foreign exchange contracts on our results of operations for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):

	Gain/(Loss) recognized in AOCI
	Three months ended				Nine months ended
	September 30,		September 30,		September 30,		September 30,
	2022		2021		2022		2021
Net Investment Hedge relationships
Foreign currency foreign exchange contracts	$	120,043	$	26,152	$	201,619	$	(4,879	)

No other gains or losses were recognized in income related to derivatives in Subtopic 815-20.

Cash, Cash Equivalents and Restricted Cash:

Cash, cash equivalents, and restricted cash as reported in the condensed consolidated statements of cash flows are presented separately on our condensed consolidated balance sheets as follows (in thousands):

	September 30,		September 30,		December 31,
	2022		2021		2021
Cash and cash equivalents	$	74,571	$	189,743	$	115,301
Restricted cash (a)		90,810		54,674		63,633
Total cash, cash equivalents and restricted cash	$	165,381	$	244,417	$	178,934

(a) Restricted cash is included in other assets on the accompanying consolidated balance sheet.

(5) Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following fair value hierarchy classifies the inputs to valuation techniques used to measure fair value into one of three levels:

•

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

•

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These included quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•

Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables present the assets and liabilities recorded at fair value on a recurring basis:

	Balance at		Balance Sheet	Basis of Fair Value Measurement
(in thousands)	September 30, 2022		Location	Level 1		Level 2		Level 3
Assets:
Money market mutual funds		106,360	Other assets		106,360
Certificates of deposit		2,200	Other assets				2,200
Equity securities		75,777	Other assets		75,777
Deferred compensation assets		36,343	Other assets		36,343
Foreign currency exchange contracts		25,762	Other current assets				25,762
	$	246,442		$	218,480	$	27,962		-
Liabilities:
Deferred compensation liability		36,343	Other noncurrent liabilities		36,343
	$	36,343		$	36,343		-		-

	Balance at		Balance Sheet	Basis of Fair Value Measurement
(in thousands)	December 31, 2021		Location	Level 1		Level 2		Level 3
Assets:
Money market mutual funds		79,900	Other assets		79,900
Certificates of deposit		2,300	Other assets				2,300
Equity securities		91,919	Other assets		91,919
Deferred compensation assets		45,759	Other assets		45,759
Foreign currency exchange contracts		1,357	Other current assets				1,357
	$	221,235		$	217,578	$	3,657		-
Liabilities:
Deferred compensation liability		45,759	Other noncurrent liabilities	$	45,759
	$	45,759		$	45,759		-		-

The fair value of our money market mutual funds, certificates of deposit and equity securities with a readily determinable fair value are computed based upon quoted market prices in an active market. The fair value of deferred compensation assets and offsetting liability are computed based on market prices in an active market held in a rabbi trust. The fair value of our interest rate swaps are based on quotes from our counter parties. The fair value of our foreign currency exchange contracts is valued using quoted forward exchange rates and spot rates at the reporting date.

(6) Commitments and Contingencies

Professional and General Liability, Workers’ Compensation Liability

The vast majority of our subsidiaries are self-insured for professional and general liability exposure up to: (i) $20 million for professional liability and $3 million for general liability per occurrence in 2022 and 2021; (ii) $10 million and $3 million per occurrence in 2020 (professional liability claims are also subject to an additional annual aggregate self-insured retention of $2.5 million for claims in excess of $10 million for 2020); (iii) $5 million and $3 million per occurrence, respectively, during 2019, 2018 and 2017, and; (iv) $10 million and $3 million per occurrence, respectively, prior to 2017.

These subsidiaries are provided with several excess policies through commercial insurance carriers which provide for coverage in excess of the applicable per occurrence and aggregate self-insured retention or underlying policy limits up to $162.5 million in 2022; $155 million in 2021 and $250 million during each of 2014 through 2020. In addition, from time to time based upon marketplace conditions, we may elect to purchase additional commercial coverage for certain of our facilities or businesses. Our behavioral health care facilities located in the U.K. have policies through a commercial insurance carrier located in the U.K. that provides for £16 million of professional liability coverage, and £25 million of general liability coverage.

As of September 30, 2022, the total net accrual for our professional and general liability claims was $388 million, of which $74 million was included in current liabilities. As of December 31, 2021, the total net accrual for our professional and general liability claims was $349 million, of which $74 million was included in current liabilities.

As a result of unfavorable trends experienced during 2022 and 2021, our results of operations included pre-tax increases to our reserves for self-insured professional and general liability claims amounting to approximately $16 million during the nine-month

period ended September 30, 2022 (recorded during the second quarter of 2022) and $41 million during the nine-month period ended September 30, 2021 ($36 million and $5 million recorded during the second and third quarters of 2021, respectively). Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimates of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. While we continuously monitor these factors, our ultimate liability for professional and general liability claims could change materially from our current estimates due to inherent uncertainties involved in making this estimate. Given our significant self-insured exposure for professional and general liability claims, there can be no assurance that a sharp increase in the number and/or severity of claims asserted against us will not have a material adverse effect on our future results of operations.

As of September 30, 2022, the total accrual for our workers’ compensation liability claims was $123 million, $55 million of which was included in current liabilities. As of December 31, 2021, the total accrual for our workers’ compensation liability claims was $115 million, $55 million of which was included in current liabilities.

Although we are unable to predict whether or not our future financial statements will require updates to estimates for our prior year reserves for self-insured general and professional and workers’ compensation claims, given the relatively unpredictable nature of these potential liabilities and the factors impacting these reserves, as discussed above, it is reasonably likely that our future financial results may include material adjustments to prior period reserves.

Property Insurance

We have commercial property insurance policies for our properties covering catastrophic losses, including windstorm damage, up to a $1 billion policy limit, subject to a per occurrence/per location deductible of $2.5 million as of June 1, 2020. Losses resulting from named windstorms are subject to deductibles between 3% and 5% of the total insurable value of the property. In addition, we have commercial property insurance policies covering catastrophic losses resulting from earthquake and flood damage, each subject to aggregated loss limits (as opposed to per occurrence losses). Commercially insured earthquake coverage for our facilities is subject to various deductibles and limitations including: (i) $150 million limitation for our facilities located in California; (ii) $100 million limitation for our facilities located in fault zones within the United States; (iii) $40 million limitation for our facilities located in Puerto Rico, and; (iv) $250 million limitation for many of our facilities located in other states. Our commercially insured flood coverage has a limit of $100 million annually. There is also a $10 million sublimit for one of our facilities located in Houston, Texas, and a $1 million sublimit for our facilities located in Puerto Rico. Property insurance for our behavioral health facilities located in the U.K. are provided on an all risk basis up to a £1.5 billion policy limit, with coverage caps per location, that includes coverage for real and personal property as well as business interruption losses.

Although we are unable to predict whether or not our future financial statements will require updates to estimates for our reserves for self-insured general and professional and workers’ compensation claims, given the relatively unpredictable nature of these potential liabilities and the factors impacting these reserves, as discussed above, it is reasonably likely that our future financial results may include material adjustments to prior period reserves.

Legal Proceedings

We operate in a highly regulated and litigious industry which subjects us to various claims and lawsuits in the ordinary course of business as well as regulatory proceedings and government investigations. These claims or suits include claims for damages for personal injuries, medical malpractice, commercial/contractual disputes, wrongful restriction of, or interference with, physicians’ staff privileges, and employment related claims. In addition, health care companies are subject to investigations and/or actions by various state and federal governmental agencies or those bringing claims on their behalf. Government action has increased with respect to investigations and/or allegations against healthcare providers concerning possible violations of fraud and abuse and false claims statutes as well as compliance with clinical and operational regulations. Currently, and from time to time, we and some of our facilities are subjected to inquiries in the form of subpoenas, Civil Investigative Demands, audits and other document requests from various federal and state agencies. These inquiries can lead to notices and/or actions including repayment obligations from state and federal government agencies associated with potential non-compliance with laws and regulations. Further, the federal False Claims Act allows private individuals to bring lawsuits (qui tam actions) against healthcare providers that submit claims for payments to the government. Various states have also adopted similar statutes. When such a claim is filed, the government will investigate the matter and decide if they are going to intervene in the pending case. These qui tam lawsuits are placed under seal by the court to comply with the False Claims Act’s requirements. If the government chooses not to intervene, the private individual(s) can proceed independently on behalf of the government. Health care providers that are found to violate the False Claims Act may be subject to substantial monetary fines/penalties as well as face potential exclusion from participating in government health care programs or be required to comply with Corporate Integrity Agreements as a condition of a settlement of a False Claims Act matter. In September 2014, the Criminal Division of the Department of Justice (“DOJ”) announced that all qui tam cases will be shared with their Division to determine if a parallel criminal investigation should be opened. The DOJ has also announced an intention to pursue civil and criminal actions against individuals within a company as well as the corporate entity or entities. In addition, health care facilities are subject to monitoring by state and federal surveyors to ensure compliance with program Conditions of Participation. In the event a facility is found to be out of

compliance with a Condition of Participation and unable to remedy the alleged deficiency(s), the facility faces termination from the Medicare and Medicaid programs or compliance with a System Improvement Agreement to remedy deficiencies and ensure compliance.

The laws and regulations governing the healthcare industry are complex covering, among other things, government healthcare participation requirements, licensure, certification and accreditation, privacy of patient information, reimbursement for patient services as well as fraud and abuse compliance. These laws and regulations are constantly evolving and expanding. Further, the Legislation has added additional obligations on healthcare providers to report and refund overpayments by government healthcare programs and authorizes the suspension of Medicare and Medicaid payments “pending an investigation of a credible allegation of fraud.” We monitor our business and have developed an ethics and compliance program with respect to these complex laws, rules and regulations. Although we believe our policies, procedures and practices comply with government regulations, there is no assurance that we will not be faced with the sanctions referenced above which include fines, penalties and/or substantial damages, repayment obligations, payment suspensions, licensure revocation, and expulsion from government healthcare programs. Even if we were to ultimately prevail in any action brought against us or our facilities or in responding to any inquiry, such action or inquiry could have a material adverse effect on us.

Certain legal matters are described below:

Litigation:

Knight v. Miller, et. al.

In July 2021, a shareholder derivative lawsuit was filed by plaintiff, Robin Knight, in the Chancery Court in Delaware against the members of the Board of Directors of the Company as well as certain officers (C.A. No.: 2021-0581-SG). The Company was named as a nominal defendant. The lawsuit alleges that in March 2020 stock options were awarded with exercise prices that did not reflect the Company’s fundamentals and business prospects, and in anticipation of future market rebound resulting in excessive gains. The lawsuit makes claims of breaches of fiduciary duties, waste of corporate assets, and unjust enrichment. The lawsuit seeks monetary damages allegedly incurred by the Company, disgorgement of the March 2020 stock awards as well as any proceeds derived therefrom and unspecified equitable relief. Defendants deny the allegations. We filed a motion to dismiss the complaint and the court granted part and denied part of our motion. During the third quarter of 2022, we have reached a preliminary settlement, which will not have a material impact on our consolidated financial statements, pending finalization of certain outstanding items, preparation of settlement documentation and court approval. We are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter in the event the settlement is not finalized and approved by the court.

The George Washington University v. Universal Health Services, Inc., et. al.

In December 2019, The George Washington University (“University”) filed a lawsuit in the Superior Court for the District of Columbia against Universal Health Services, Inc. as well as certain subsidiaries and individuals associated with the ownership and management of The George Washington University Hospital (“GW Hospital”) in Washington, D.C. (case No. 2019 CA 008019 B). The lawsuit claimed that UHS failed to provide sufficient financial compensation to the University under the terms of various agreements entered into in 1997 between the University and UHS for the joint venture ownership of GW Hospital. The lawsuit included claims for breach of contract, breach of fiduciary duty, and unjust enrichment. We denied liability and defended this matter vigorously. We filed a motion to dismiss the complaint. In June 2020, the Court granted the motion in part dismissing the majority of the claims against UHS.

During the second quarter of 2022 the parties reached a settlement which was subject to regulatory approval from the District of Columbia’s State Health Planning and Development Agency. Regulatory approval was granted during the third quarter of 2022 at which time the settlement was finalized and the litigation was dismissed. The settlement, which did not have a material impact on our consolidated financial statements, provided for, among other things: (i) the purchase by us of the University’s 20% minority ownership interest in GW Hospital; (ii) a new ground lease related to GW Hospital, and; (iii) annual payments from us to the University for academic mission support and trademark royalties.

Disproportionate Share Hospital Payment Matter:

In late September, 2015, many hospitals in Pennsylvania, including certain of our behavioral health care hospitals located in the state, received letters from the Pennsylvania Department of Human Services (the “Department”) demanding repayment of allegedly excess Medicaid Disproportionate Share Hospital payments (“DSH”), primarily consisting of managed care payments characterized as DSH payments, for the federal fiscal year (“FFY”) 2011 amounting to approximately $4 million in the aggregate. Since that time, certain of our behavioral health care hospitals in Pennsylvania have received similar requests for repayment for alleged DSH overpayments for FFYs 2012 through 2015. For FFY 2012, the claimed overpayment amounts to approximately $4 million. For FY 2013, FY 2014 and FY 2015 the initial claimed overpayments and attempted recoupment by the Department were approximately $7 million, $8 million and $7 million, respectively. The Department has agreed to a change in methodology which, upon confirmation of the underlying data being accepted by the Department, could reduce the initial claimed overpayments for FY 2013, FY 2014 and FY 2015 to approximately $2 million, $2 million and $3 million, respectively. We filed administrative appeals for all of our facilities contesting the recoupment efforts for FFYs 2011 through 2015 as we believe the Department’s calculation methodology is inaccurate and

conflicts with applicable federal and state laws and regulations. The Department has agreed to postpone the recoupment of the state’s share for FY 2011 to 2013 until all hospital appeals are resolved but started recoupment of the federal share. For FY 2014 and FY 2015, the Department has initiated the recoupment of the alleged overpayments. Starting in FY 2016, the first full fiscal year after the January 1, 2015 effective date of Medicaid expansion in Pennsylvania, the Department no longer characterized managed care payments received by the hospitals as DSH payments. We can provide no assurance that we will ultimately be successful in our legal and administrative appeals related to the Department’s repayment demands. If our legal and administrative appeals are unsuccessful, our future consolidated results of operations and financial condition could be adversely impacted by these repayments.

Boley, et al. v. UHS, et al.

Former UHS subsidiary facility employees Mary K. Boley, Kandie Sutter, and Phyllis Johnson, individually and on behalf of a putative class of participants in the UHS Retirement Savings Plan (the “Plan”), filed a complaint in the U.S. District Court for the Eastern District of Pennsylvania against UHS, the Board of Directors of UHS, and the “Plan Committee” of UHS (Case No. 2:20-cv-02644). In subsequent amended complaints, Plaintiffs have dropped the Board of Directors and the “Plan Committee” as defendants and added the UHS Retirement Plans Investment Committee as a new defendant. Plaintiffs allege that UHS breached its fiduciary duties under the Employee Retirement Income Security Act (“ERISA”) by offering to participants in the Plan overly expensive investment options when less expensive investment options were available in the marketplace; caused participants to pay excessive recordkeeping fees associated with the Plan; breached its duty to monitor appointed fiduciaries and: in the alternative, engaged in a “knowing breach of trust” separate from the alleged violations under ERISA. UHS disputes Plaintiffs’ allegations and is actively defending against Plaintiffs’ claims. UHS’ motion for partial dismissal of Plaintiffs’ claims was denied by the Court. In March 2021, the Court granted Plaintiffs’ motion for class certification. Although the Third Circuit Court of Appeal agreed to hear an appeal of the trial court’s order granting class certification, the appeal was denied and the class certification was affirmed. As a result, the stay of the case in the trial court pending conclusion of the appellate proceedings has been lifted. We maintain commercial insurance coverage for claims of this nature, subject to specified deductibles and limitations. During the third quarter of 2022, the parties have reached a preliminary settlement, within the policy limitations of our commercial insurance coverage after satisfaction of specified deductibles, pending preparation, execution and finalization of settlement documents as well as court approval of the settlement. We are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter in the event the preliminary settlement is not finalized and approved by the court.

Other Matters:

Various other suits, claims and investigations, including government subpoenas, arising against, or issued to, us are pending and additional such matters may arise in the future. Management will consider additional disclosure from time to time to the extent it believes such matters may be or become material. The outcome of any current or future litigation or governmental or internal investigations, including the matters described above, cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters described above or that are otherwise pending because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including, but not limited to: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the matter is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties, or; (vii) there is a wide range of potential outcomes. It is possible that the outcome of these matters could have a material adverse impact on our future results of operations, financial position, cash flows and, potentially, our reputation.

(7) Segment Reporting

Our reportable operating segments consist of acute care hospital services and behavioral health care services. The “Other” segment column below includes centralized services including, but not limited to, information technology, purchasing, reimbursement, accounting and finance, taxation, legal, advertising and design and construction. The chief operating decision making group for our acute care services and behavioral health care services is comprised of our President and Chief Executive Officer and the Presidents of each operating segment. The Presidents for each operating segment also manage the profitability of each respective segment’s various facilities. The operating segments are managed separately because each operating segment represents a business unit that offers different types of healthcare services or operates in different healthcare environments. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2021. The corporate overhead allocations, as reflected below, are utilized for internal reporting purposes and are comprised of each period’s projected corporate-level operating expenses (excluding interest expense). The overhead expenses are captured and allocated directly to each segment to the extent possible, and overhead expenses incurred on behalf of both segments are captured and allocated to each segment based upon each segment’s respective percentage of total operating expenses.

	Three months ended September 30, 2022
	Acute Care Hospital Services			Behavioral Health Services (a)			Other			Total Consolidated
	(Amounts in thousands)
Gross inpatient revenues	$	9,875,794		$	2,582,448		$	-		$	12,458,242
Gross outpatient revenues	$	6,379,324		$	248,167		$	-		$	6,627,491
Total net revenues	$	1,919,678		$	1,434,828		$	(18,479	)	$	3,336,027
Income/(loss) before allocation of corporate overhead and income taxes	$	129,241		$	237,949		$	(132,978	)	$	234,212
Allocation of corporate overhead	$	(63,242	)	$	(44,882	)	$	108,124		$	0
Income/(loss) after allocation of corporate overhead and before income taxes	$	65,999		$	193,067		$	(24,854	)	$	234,212
Total assets as of September 30, 2022	$	6,039,787		$	7,336,437		$	2,676		$	13,378,900


	Nine months ended September 30, 2022
	Acute Care Hospital Services			Behavioral Health Services (a)			Other			Total Consolidated
	(Amounts in thousands)
Gross inpatient revenues	$	29,821,756		$	7,580,475					$	37,402,231
Gross outpatient revenues	$	18,360,902		$	773,769					$	19,134,671
Total net revenues	$	5,707,510		$	4,235,215		$	9,665		$	9,952,390
Income/(loss) before allocation of corporate overhead and income taxes	$	372,981		$	693,694		$	(422,750	)	$	643,925
Allocation of corporate overhead	$	(188,739	)	$	(134,946	)	$	323,685		$	0
Income/(loss) after allocation of corporate overhead and before income taxes	$	184,242		$	558,748		$	(99,065	)	$	643,925
Total assets as of September 30, 2022	$	6,039,787		$	7,336,437		$	2,676		$	13,378,900

	Three months ended September 30, 2021
	Acute Care Hospital Services			Behavioral Health Services (a)			Other			Total Consolidated
	(Amounts in thousands)
Gross inpatient revenues	$	9,497,975		$	2,470,401		$	0		$	11,968,376
Gross outpatient revenues	$	5,343,246		$	242,976		$	0		$	5,586,222
Total net revenues	$	1,822,027		$	1,328,293		$	5,679		$	3,155,999
Income/(loss) before allocation of corporate overhead and income taxes	$	208,638		$	197,779		$	(119,527	)	$	286,890
Allocation of corporate overhead	$	(58,452	)	$	(43,120	)	$	101,572		$	0
Income/(loss) after allocation of corporate overhead and before income taxes	$	150,186		$	154,659		$	(17,955	)	$	286,890
Total assets as of September 30, 2021	$	5,295,533		$	7,106,832		$	444,488		$	12,846,853


	Nine months ended September 30, 2021
	Acute Care Hospital Services			Behavioral Health Services (a)			Other			Total Consolidated
	(Amounts in thousands)
Gross inpatient revenues	$	27,279,494		$	7,471,742		$	0		$	34,751,236
Gross outpatient revenues	$	15,281,854		$	756,068		$	0		$	16,037,922
Total net revenues	$	5,271,000		$	4,075,127		$	20,739		$	9,366,866
Income/(loss) before allocation of corporate overhead and income taxes	$	600,419		$	753,681		$	(367,535	)	$	986,565
Allocation of corporate overhead	$	(174,786	)	$	(129,169	)	$	303,955		$	0
Income/(loss) after allocation of corporate overhead and before income taxes	$	425,633		$	624,512		$	(63,580	)	$	986,565
Total assets as of September 30, 2021	$	5,295,533		$	7,106,832		$	444,488		$	12,846,853

(a)

Includes net revenues generated from our behavioral health care facilities located in the U.K. amounting to approximately $167 million and $174 million for the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $516 million and $511 million for the nine-month periods ended September 30, 2022 and 2021, respectively. Total assets at our U.K. behavioral health care facilities were approximately $1.119 billion and $1.338 billion as of September 30, 2022 and 2021, respectively.

(8) Earnings Per Share Data (“EPS”) and Stock Based Compensation

Basic earnings per share are based on the weighted average number of common shares outstanding during the period. Diluted earnings per share are based on the weighted average number of common shares outstanding during the period adjusted to give effect to common stock equivalents.

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data):

	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Basic and Diluted:
Net income attributable to UHS	$	182,814		$	218,351		$	500,789		$	752,466
Less: Net income attributable to unvested restricted share grants		(179	)		(396	)		(592	)		(1,609	)
Net income attributable to UHS – basic and diluted	$	182,635		$	217,955		$	500,197		$	750,857

Weighted average number of common shares - basic		72,595			82,262			73,769			83,756
Net effect of dilutive stock options and grants based on the treasury stock method		465			1,411			743			1,275
Weighted average number of common shares and equivalents - diluted		73,060			83,673			74,512			85,031
Earnings per basic share attributable to UHS:	$	2.52		$	2.65		$	6.78		$	8.96
Earnings per diluted share attributable to UHS:	$	2.50		$	2.60		$	6.71		$	8.83

The “Net effect of dilutive stock options and grants based on the treasury stock method”, for all periods presented above, excludes certain outstanding stock options applicable to each period since the effect would have been anti-dilutive. The excluded weighted-average stock options totaled 6.7 million for the three months ended September 30, 2022 and 6.0 million for the nine months ended September 30, 2022. The excluded weighted-average stock options totaled 4.1 million for the three months ended September 30, 2021 and 4.3 million for the nine months ended September 30, 2021. All classes of our common stock have the same dividend rights.

Stock-Based Compensation:

During the three-month periods ended September 30, 2022 and 2021, pre-tax compensation costs of $15.8 million and $14.6 million, respectively, was recognized related to outstanding stock options. During the nine-month periods ended September 30, 2022 and 2021, pre-tax compensation costs of $48.6 million and $44.8 million, respectively, was recognized related to outstanding stock options. In addition, during the three-month periods ended September 30, 2022 and 2021, pre-tax compensation cost of approximately $4.9 million and $3.5 million, respectively, was recognized related to restricted stock awards, restricted stock units and performance based restricted stock units. During the nine-month periods ended September 30, 2022 and 2021, pre-tax compensation cost of approximately $13.0 million and $9.6 million, respectively, was recognized related to restricted stock awards, restricted stock units and performance based restricted stock units. As of September 30, 2022 there was approximately $170.0 million of unrecognized compensation cost related to unvested options, restricted stock awards, restricted stock units and performance based restricted stock units which is expected to be recognized over the remaining weighted average vesting period of 2.8 years. There were 1,828,573 stock options granted during the first nine months of 2022 with a weighted-average grant date fair value of $45.63 per option. There were an aggregate of 250,089 restricted units granted during the first nine months of 2022, including 73,782 performance based restricted stock units, with a weighted-average grant date fair value of $142.70 per share.

The expense associated with stock-based compensation arrangements is a non-cash charge. In the Condensed Consolidated Statements of Cash Flows, stock-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities and aggregated to $62.7 million and $55.5 million during the nine-month periods ended September 30, 2022 and 2021.

(9) Dispositions and acquisitions

Nine-month period ended September 30, 2022:

Acquisitions:

During the first nine months of 2022, we spent $19 million on the acquisition of businesses and property. In addition, in August, we spent $51 million to acquire the 20% noncontrolling ownership interest in a hospital majority owned by us, located in Washington D.C.

Divestitures:

During the first nine months of 2022, we received $12 million from the sales of assets and businesses.

Nine-month period ended September 30, 2021:

Acquisitions:

During the first nine months of 2021, we spent $39 million to acquire a 22-bed micro hospital located in Las Vegas, Nevada.

Divestitures:

During the first nine months of 2021, we received $21 million from the sale of our equity interest in a business.

(10) Dividends

We declared and paid dividends of $14.6 million, or $.20 per share, during the third quarter of 2022 and $16.4 million, or $.20 per share, during the third quarter of 2021. We declared and paid dividends of $44.2 million, or $.60 per share during the nine-month period ended September 30, 2022 and $50.3 million, or $.60 per share, during the nine-month period ended September 30, 2021. Included in the amounts above were dividend equivalents applicable to unvested restricted stock units which were accrued during 2022 and 2021 and will be, or were, paid upon vesting of the restricted stock unit.

(11) Income Taxes

Our effective income tax rates were 24.5% and 23.5% during the three-month periods ended September 30, 2022, and 2021, respectively, and 24.4% and 23.6% during the nine-month periods ended September 30, 2022, and 2021, respectively. The increase in the effective tax rates during the three and nine-month periods ended September 30, 2022, as compared to the comparable periods of 2021, was primarily due to the decreases in net income attributable to noncontrolling interests during the three and nine-month periods ended September 30, 2022, as compared to the comparable periods of 2021.

The global intangible low-taxed income (“GILTI”) provisions from the TCJA-17 require the inclusion of the earnings of certain foreign subsidiaries in excess of an acceptable rate of return on certain assets of the respective subsidiaries in our U.S. tax return for tax years beginning after December 31, 2017. An accounting policy election was made during 2018 to treat taxes related to GILTI as a period cost when the tax is incurred. We recorded a GILTI tax provision of zero for the nine months ended September 30, 2022 and 2021.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act of 2022 (“the Act”). The Act includes tax provisions, among other things, which implements (i) a 15 percent minimum tax on book income of certain large corporations; (ii) a one percent excise tax on net stock repurchases, and; (iii) several tax incentives to promote clean energy. We do not expect the Act to have a material impact on our income tax provision.

As of January 1, 2022, our unrecognized tax benefits were approximately $2 million. The amount, if recognized, that would favorably affect the effective tax rate is approximately $2 million. During the nine months ended September 30, 2022, changes to the estimated liabilities for uncertain tax positions (including accrued interest) relating to tax positions taken during prior and current periods did not have a material impact on our financial statements.

We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of September 30, 2022, we have less than $1 million of accrued interest and penalties. The U.S. federal statute of limitations remains open for 2018 and subsequent years. Foreign and U.S. state and local jurisdictions have statutes of limitations generally ranging from 3 to 4 years. The statute of limitations on certain jurisdictions could expire within the next twelve months. It is reasonably possible that the amount of uncertain tax benefits will change during the next 12 months, however, it is anticipated that any such change, if it were to occur, would not have a material impact on our results of operations.

We operate in multiple jurisdictions with varying tax laws. We are subject to audits by any of these taxing authorities. Our tax returns

have been examined by the Internal Revenue Service (“IRS”) through the year ended December 31, 2006. We believe that adequate accruals have been provided for federal, foreign and state taxes.

(12) Revenue

We recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Our estimate for amounts not expected to be collected based on historical experience will continue to be recognized as a reduction to net revenue. However, subsequent changes in estimate of collectability due to a change in the financial status of a payer, for example a bankruptcy, will be recognized as bad debt expense in operating charges.

The performance obligation is separately identifiable from other promises in the customer contract. As the performance obligations are met (i.e.: room, board, ancillary services, level of care), revenue is recognized based upon allocated transaction price. The transaction price is allocated to separate performance obligations based upon the relative standalone selling price. In instances where we determine there are multiple performance obligations across multiple months, the transaction price will be allocated by applying an estimated implicit and explicit rate to gross charges based on the separate performance obligations.

In assessing collectability, we have elected the portfolio approach. This portfolio approach is being used as we have large volume of similar contracts with similar classes of customers. We reasonably expect that the effect of applying a portfolio approach to a group of contracts would not differ materially from considering each contract separately. Management’s judgment to group the contracts by portfolio is based on the payment behavior expected in each portfolio category. As a result, aggregating all of the contracts (which are at the patient level) by the particular payer or group of payers, will result in the recognition of the same amount of revenue as applying the analysis at the individual patient level.

We group our revenues into categories based on payment behaviors. Each component has its own reimbursement structure which allows us to disaggregate the revenue into categories that share the nature and timing of payments. The other patient revenue consists primarily of self-pay, government-funded non-Medicaid, and other.

The following table disaggregates our revenue by major source for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):

	For the three months ended September 30, 2022
	Acute Care				Behavioral Health				Other			Total
Medicare	$	314,785	16	%	$	86,125	6	%				$	400,910	12	%
Managed Medicare		305,239	16	%		78,554	5	%					383,793	12	%
Medicaid		200,656	10	%		195,656	14	%					396,312	12	%
Managed Medicaid		213,723	11	%		373,456	26	%					587,179	18	%
Managed Care (HMO and PPOs)		631,670	33	%		363,442	25	%					995,112	30	%
UK Revenue		0	0	%		166,843	12	%					166,843	5	%
Other patient revenue and adjustments, net		38,427	2	%		115,969	8	%					154,396	5	%
Other non-patient revenue		215,178	11	%		54,783	4	%		(18,479	)		251,482	8	%
Total Net Revenue	$	1,919,678	100	%	$	1,434,828	100	%	$	(18,479	)		3,336,027	100	%

	For the nine months ended September 30, 2022
	Acute Care				Behavioral Health				Other			Total
Medicare	$	970,060	17	%	$	248,987	6	%				$	1,219,047	12	%
Managed Medicare		944,072	17	%		213,281	5	%					1,157,353	12	%
Medicaid		540,590	9	%		554,970	13	%					1,095,560	11	%
Managed Medicaid		547,452	10	%		1,071,792	25	%					1,619,244	16	%
Managed Care (HMO and PPOs)		1,898,040	33	%		1,104,658	26	%					3,002,698	30	%
UK Revenue		0	0	%		516,166	12	%					516,166	5	%
Other patient revenue and adjustments, net		204,660	4	%		362,697	9	%					567,357	6	%
Other non-patient revenue		602,636	11	%		162,664	4	%		9,665			774,965	8	%
Total Net Revenue	$	5,707,510	100	%	$	4,235,215	100	%	$	9,665		$	9,952,390	100	%


	For the three months ended September 30, 2021
	Acute Care				Behavioral Health				Other			Total
Medicare	$	310,483	17	%	$	96,219	7	%				$	406,702	13	%
Managed Medicare		280,674	15	%		66,249	5	%					346,923	11	%
Medicaid		136,989	8	%		146,281	11	%					283,270	9	%
Managed Medicaid		176,497	10	%		326,789	25	%					503,286	16	%
Managed Care (HMO and PPOs)		674,396	37	%		349,275	26	%					1,023,671	32	%
UK Revenue		0	0	%		173,728	13	%					173,728	6	%
Other patient revenue and adjustments, net		69,935	4	%		117,442	9	%					187,377	6	%
Other non-patient revenue		173,053	9	%		52,310	4	%		5,679			231,042	7	%
Total Net Revenue	$	1,822,027	100	%	$	1,328,293	100	%	$	5,679		$	3,155,999	100	%


	For the nine months ended September 30, 2021
	Acute Care				Behavioral Health				Other			Total
Medicare	$	954,207	18	%	$	277,438	7	%				$	1,231,645	13	%
Managed Medicare		830,627	16	%		185,323	5	%					1,015,950	11	%
Medicaid		418,335	8	%		526,945	13	%					945,280	10	%
Managed Medicaid		473,256	9	%		995,749	24	%					1,469,005	16	%
Managed Care (HMO and PPOs)		1,862,012	35	%		1,070,165	26	%					2,932,177	31	%
UK Revenue		0	0	%		510,614	13	%					510,614	5	%
Other patient revenue and adjustments, net		248,342	5	%		366,669	9	%					615,011	7	%
Other non-patient revenue		484,221	9	%		142,224	3	%		20,739			647,184	7	%
Total Net Revenue	$	5,271,000	100	%	$	4,075,127	100	%	$	20,739		$	9,366,866	100	%

(13) Lease Accounting

Our operating leases are primarily for real estate, including certain acute care facilities, off-campus outpatient facilities, medical office buildings, and corporate and other administrative offices. Our real estate lease agreements typically have initial terms of five to ten years. These real estate leases may include one or more options to renew, with renewals that can extend the lease term from five to ten years. The exercise of lease renewal options is at our sole discretion. When determining the lease term, we included options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Five of our hospital facilities are held under operating leases with Universal Health Realty Income Trust with two leases expiring in 2026, two expiring in 2033 and one expiring in 2040 (see Note 2 for additional disclosure). We are also the lessee of the real property of certain facilities from unrelated third parties.

Supplemental cash flow information related to leases for the nine-month periods ended September 30, 2022 and 2021 are as follows (in thousands):

	Nine months ended September 30,
	2022		2021

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	93,153	$	88,113
Operating cash flows from finance leases	$	2,986	$	3,507
Financing cash flows from finance leases	$	2,621	$	2,315

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	145,446	$	20,292
Finance leases	$	1,066	$	7,690

(14) Recent Accounting Standards

In November 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832)” (“ASU 2021-10”). ASU 2021-10 provides guidance to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. ASU 2021-10 applies to all business entities that account for a transaction with a government by applying a grant or contribution accounting model by analogy to other accounting guidance (for example, a grant model within IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, or Subtopic 958-605, Not-For-Profit Entities—Revenue Recognition). ASU 2021-10 is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on our results of operations, cash flows or financial position.

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU is intended to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The pronouncement is effective immediately and can be applied to contract modifications through December 31, 2022. To the extent that, prior to December 31, 2022, the Company enters into any contract modifications for which the optional expedients are applied, the adoption of this standard is not expected to have a material impact on our results of operations, cash flows or financial position.

From time to time, new accounting guidance is issued by the FASB or other standard setting bodies that is adopted by the Company as of the effective date or, in some cases where early adoption is permitted, in advance of the effective date. The Company has assessed the recently issued guidance that is not yet effective and, unless otherwise indicated above, believes the new guidance will not have a material impact on our results of operations, cash flows or financial position.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

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

As of September 30, 2022, we owned and/or operated 359 inpatient facilities and 41 outpatient and other facilities including the following located in 39 U.S states, Washington, D.C., the United Kingdom and Puerto Rico:

Acute care facilities located in the U.S.:

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28 inpatient acute care hospitals;

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21 free-standing emergency departments, and;

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7 outpatient centers & 1 surgical hospital.

Behavioral health care facilities (331 inpatient facilities and 12 outpatient facilities):

Located in the U.S.:

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185 inpatient behavioral health care facilities, and;

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10 outpatient behavioral health care facilities.

Located in the U.K.:

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143 inpatient behavioral health care facilities, and;

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2 outpatient behavioral health care facilities.

Located in Puerto Rico:

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3 inpatient behavioral health care facilities.

As a percentage of our consolidated net revenues, net revenues from our acute care hospitals, outpatient facilities and commercial health insurer accounted for 58% during each of the three-month periods ended September 30, 2022 and 2021, and 57% and 56% during the nine-month periods ended September 30, 2022 and 2021, respectively. Net revenues from our behavioral health care facilities and commercial health insurer accounted for 43% and 42% of our consolidated net revenues during the three-month period ended September 30, 2022 and 2021, respectively, and 43% and 44% during the nine-month periods ended September 30, 2022 and 2021, respectively.

Our behavioral health care facilities located in the U.K. generated net revenues of approximately $167 million and $174 million during the three-month periods ended September 30, 2022 and 2021, respectively, and $516 million and $511 million during the nine-month periods ended September 30, 2022 and 2021, respectively. Total assets at our U.K. behavioral health care facilities were approximately $1.119 billion as of September 30, 2022 and $1.351 billion as of December 31, 2021.

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

Forward-Looking Statements and Risk Factors

You should carefully review the information contained in this Quarterly Report and should particularly consider any risk factors that we set forth in our Annual Report on Form 10-K for the year ended December 31, 2021, this Quarterly Report and in other reports or documents that we file from time to time with the Securities and Exchange Commission (the “SEC”). In this Quarterly Report, we state our beliefs of future events and of our future financial performance. This Quarterly Report contains “forward-looking statements” that reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, and the benefits and synergies to be obtained from our completed and any future acquisitions, and statements of our goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in future tense, identify forward-looking statements. In evaluating those statements, you should specifically consider various factors, including the risks related to healthcare industry trends and those set forth herein in Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Forward Looking Statements and Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 and in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-

Forward Looking Statements and Risk Factors, as included herein. Those factors may cause our actual results to differ materially from any of our forward-looking statements.

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

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we are subject to risks associated with public health threats and epidemics, including the health concerns relating to the COVID-19 pandemic. In January 2020, the Centers for Disease Control and Prevention (“CDC”) confirmed the spread of the disease to the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The federal government has declared COVID-19 a national emergency, as many federal and state authorities have implemented aggressive measures to “flatten the curve” of confirmed individuals diagnosed with COVID-19 in an attempt to curtail the spread of the virus and to avoid overwhelming the health care system;

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the impact of the COVID-19 pandemic, which began during the second half of March, 2020, has had a material effect on our operations and financial results since that time. The length and extent of the disruptions caused by the COVID‑19 pandemic are currently unknown; however, we expect such disruptions to continue into the future. Since the future volumes and severity of COVID-19 patients remain highly uncertain and subject to change, including potential increases in future COVID-19 patient volumes caused by new variants of the virus, as well as related pressures on staffing and wage rates, we are not able to fully quantify the impact that these factors will have on our future financial results. However, developments related to the COVID-19 pandemic could continue to materially affect our financial performance. Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts on our financial condition and our results of operations as a result of its macroeconomic impact, and many of our known risks described in the Risk Factors sections of our Annual Report on Form 10-K for the year ended December 31, 2021;

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the nationwide shortage of nurses and other clinical staff and support personnel has been a significant operating issue facing us and other healthcare providers. Like others in the healthcare industry, we continue to experience a shortage of nurses and other clinical staff and support personnel at our acute care and behavioral health care hospitals in many geographic areas. In some areas, the labor scarcity is putting a strain on our resources and staff, which has required us to utilize higher‑cost temporary labor and pay premiums above standard compensation for essential workers. This staffing shortage has required us to hire expensive temporary personnel and/or enhance wages and benefits to recruit and retain nurses and other clinical staff and support personnel. At certain facilities, particularly within our behavioral health care segment, we have been unable to fill all vacant positions and, consequently, have been required to limit patient volumes. These factors, which had a material unfavorable impact on our results of operations during the first nine months of 2022, are expected to continue to have an unfavorable material impact on our results of operations for the foreseeable future;

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the Centers for Medicare and Medicaid Services (“CMS”) issued an Interim Final Rule (“IFR”) effective November 5, 2021 mandating COVID-19 vaccinations for all applicable staff at all Medicare and Medicaid certified facilities. Under the IFR, facilities covered by this regulation must establish a policy ensuring all eligible staff have received the COVID-19 vaccine prior to providing any care, treatment, or other services. All eligible staff must have received the necessary shots to be fully vaccinated. The regulation also provides for exemptions based on recognized medical conditions or religious beliefs, observances, or practices. Under the IFR, facilities must develop a similar process or plan for permitting exemptions in alignment with federal law. If facilities fail to comply with the IFR by the deadlines established, they are subject to potential termination from the Medicare and Medicaid program for non-compliance. We cannot predict at this time the potential viability or impact of any additional vaccination requirements. Implementation of these rules could have an impact on staffing at our facilities for those employees that are not vaccinated in accordance with IFR requirements, and associated loss of revenues and increased costs resulting from staffing issues could have a material adverse effect on our financial results;

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the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), a stimulus package signed into law on March 27, 2020, authorizes $100 billion in grant funding to hospitals and other healthcare providers to be distributed through the Public Health and Social Services Emergency Fund (the “PHSSEF”). These funds are not required to be repaid provided the recipients attest to and comply with certain terms and conditions, including limitations on balance billing and not using PHSSEF funds to reimburse expenses or losses that other sources are obligated to reimburse. However, since the expenses and losses will be ultimately measured over the life of the COVID-19 pandemic, potential retrospective unfavorable adjustments in future periods, of funds recorded as revenues in prior periods, could occur. The U.S. Department of Health and Human Services (“HHS”) initially distributed $30 billion of this funding based on each provider’s share of total Medicare fee-for-service reimbursement in 2019. Subsequently, HHS determined that CARES Act funding (including the $30 billion already distributed) would be allocated proportional to providers’ share of 2018 net patient revenue. We have received payments from these initial distributions of the PHSSEF as disclosed herein. HHS has indicated that distributions of the remaining $50 billion will be targeted primarily to hospitals in COVID-19 high impact

areas, to rural providers, safety net hospitals and certain Medicaid providers and to reimburse providers for COVID-19 related treatment of uninsured patients. We have received payments from these targeted distributions of the PHSSEF, as disclosed herein. The CARES Act also makes other forms of financial assistance available to healthcare providers, including through Medicare and Medicaid payment adjustments and an expansion of the Medicare Accelerated and Advance Payment Program, which made available accelerated payments of Medicare funds in order to increase cash flow to providers. On April 26, 2020, CMS announced it was reevaluating and temporarily suspending the Medicare Accelerated and Advance Payment Program in light of the availability of the PHSSEF and the significant funds available through other programs. We have received accelerated payments under this program during 2020, and returned early all of those funds during the first quarter of 2021, as disclosed herein. The Paycheck Protection Program and Health Care Enhancement Act (the “PPPHCE Act”), a stimulus package signed into law on April 24, 2020, includes additional emergency appropriations for COVID-19 response, including $75 billion to be distributed to eligible providers through the PHSSEF. A third phase of PHSSEF allocations made $24.5 billion available for providers who previously received, rejected or accepted PHSSEF payments. Applicants that had not yet received PHSSEF payments of 2 percent of patient revenue were to receive a payment that, when combined with prior payments (if any), equals 2 percent of patient care revenue. Providers that have already received payments of approximately 2 percent of annual revenue from patient care were potentially eligible for an additional payment. Recipients will not be required to repay the government for PHSSEF funds received, provided they comply with HHS defined terms and conditions. On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law. The CAA appropriated an additional $3 billion to the PHSSEF, codified flexibility for providers to calculate lost revenues, and permitted parent organizations to allocate PHSSEF targeted distributions to subsidiary organizations. The CAA also provides that not less than 85 percent of the unobligated PHSSEF amounts and any future funds recovered from health care providers should be used for additional distributions that consider financial losses and changes in operating expenses in the third or fourth quarters of 2020 and the first quarter of 2021 that are attributable to the coronavirus. The CAA provided additional funding for testing, contact tracing and vaccine administration. Providers receiving payments were required to sign terms and conditions regarding utilization of the payments. Any provider receiving funds in excess of $10,000 in the aggregate will be required to report data elements to HHS detailing utilization of the payments, and we will be required to file such reports. We, and other providers, will report healthcare related expenses attributable to COVID-19 that have not been reimbursed by another source, which may include general and administrative or healthcare related operating expenses. Funds may also be applied to lost revenues, represented as a negative change in year-over-year net patient care operating income. The deadline for using all Provider Relief Fund payments depends on the date of the payment received period; payments received in the first period of April 10, 2020 to June 30, 2020 were to have been expended by June 30, 2021 and payments received in the fourth period of July 1, 2021 to December 31, 2021 must be expended by December 31, 2022. The American Rescue Plan Act of 2021 (“ARPA”), enacted on March 11, 2021, included funding directed at detecting, diagnosing, tracing, and monitoring COVID-19 infections; establishing community vaccination centers and mobile vaccine units; promoting, distributing, and tracking COVID-19 vaccines; and reimbursing rural hospitals and facilities for healthcare-related expenses and lost revenues attributable to COVID-19. ARPA increased the eligibility for, and amount of, premium tax credits to purchase health coverage through Patient Protection and Affordable Care Act, as amended by the Health and Education Reconciliation Act (collectively, the “Legislation”). Further, ARPA set the Medicaid program’s federal medical assistance percentage (“FMAP”) at 100 percent for amounts expended for COVID-19 vaccines and vaccine administration. ARPA also increases the FMAP by 5 percent for eight calendar quarters to incentivize states to expand their Medicaid programs. Finally, ARPA provides subsidies to cover 100 percent of health insurance premiums under the Consolidated Omnibus Budget Reconciliation Act through September 30, 2021. There is a high degree of uncertainty surrounding the implementation of the CARES Act, the PPPHCE Act, the CAA and ARPA, and the federal government may consider additional stimulus and relief efforts, but we are unable to predict whether additional stimulus measures will be enacted or their impact. There can be no assurance as to the total amount of financial and other types of assistance we will receive under the CARES Act, the PPPHCE Act, the CAA and the ARPA, and it is difficult to predict the impact of such legislation on our operations or how they will affect operations of our competitors. Moreover, we are unable to assess the extent to which anticipated negative impacts on us arising from the COVID-19 pandemic will be offset by amounts or benefits received or to be received under the CARES Act, the PPPHCE Act, the CAA and the ARPA;

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our ability to comply with the existing laws and government regulations, and/or changes in laws and government regulations;

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an increasing number of legislative initiatives have been passed into law that may result in major changes in the health care delivery system on a national or state level. For example, Congress has reduced to $0 the penalty for failing to maintain health coverage that was part of the original Legislation as part of the Tax Cuts and Jobs Act. President Biden has undertaken and is expected to undertake additional executive actions that will strengthen the Legislation and reverse the policies of the prior administration. To date, the Biden administration has issued executive orders implementing a special enrollment period permitting individuals to enroll in health plans outside of the annual open enrollment period and reexamining policies that may undermine the Legislation or the Medicaid program. The Inflation Reduction Act of 2022 (“IRA”) was passed on August 16, 2022, which among other things, allows for CMS to negotiate prices for certain single-

source drugs reimbursed under Medicare Part B and Part D. The ARPA’s expansion of subsidies to purchase coverage through a Legislation exchange, which the IRA continued through 2025, is anticipated to increase exchange enrollment. The Trump Administration had directed the issuance of final rules (i) enabling the formation of association health plans that would be exempt from certain Legislation requirements such as the provision of essential health benefits, (ii) expanding the availability of short-term, limited duration health insurance, (iii) eliminating cost-sharing reduction payments to insurers that would otherwise offset deductibles and other out-of-pocket expenses for health plan enrollees at or below 250 percent of the federal poverty level, (iv) relaxing requirements for state innovation waivers that could reduce enrollment in the individual and small group markets and lead to additional enrollment in short-term, limited duration insurance and association health plans and (v) incentivizing the use of health reimbursement arrangements by employers to permit employees to purchase health insurance in the individual market. The uncertainty resulting from these Executive Branch policies may have led to reduced Exchange enrollment in 2018, 2019 and 2020. It is also anticipated that these policies, to the extent that they remain as implemented, may create additional cost and reimbursement pressures on hospitals, including ours. In addition, there have been numerous political and legal efforts to expand, repeal, replace or modify the Legislation since its enactment, some of which have been successful, in part, in modifying the Legislation, as well as court challenges to the constitutionality of the Legislation. The U.S. Supreme Court rejected the latest such case on June 17, 2021, when the Court held in California v. Texas that the plaintiffs lacked standing to challenge the Legislation’s requirement to obtain minimum essential health insurance coverage, or the individual mandate. The Court dismissed the case without specifically ruling on the constitutionality of the Legislation. As a result, the Legislation will continue to remain law, in its entirety, likely for the foreseeable future. On September 7, 2022, the Legislation faced its most recent challenge when a Texas Federal District Court judge, in the case of Braidwood Management v. Becerra, ruled that a requirement that certain health plans cover services without cost sharing violates the Appointments Clause of the U.S. Constitution and that the coverage of certain HIV prevention medication violates the Religious Freedom Restoration Act. Any future efforts to challenge, replace or replace the Legislation or expand or substantially amend its provision is unknown. See below in Sources of Revenue and Health Care Reform for additional disclosure;

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under the Legislation, hospitals are required to make public a list of their standard charges, and effective January 1, 2019, CMS has required that this disclosure be in machine-readable format and include charges for all hospital items and services and average charges for diagnosis-related groups. On November 27, 2019, CMS published a final rule on “Price Transparency Requirements for Hospitals to Make Standard Charges Public.” This rule took effect on January 1, 2021 and requires all hospitals to also make public their payor-specific negotiated rates, minimum negotiated rates, maximum negotiated rates, and cash for all items and services, including individual items and services and service packages, that could be provided by a hospital to a patient. Failure to comply with these requirements may result in daily monetary penalties. On November 2, 2021, CMS released a final rule amending several hospital price transparency policies and increasing the amount of penalties for noncompliance through the use of a scaling factor based on hospital bed count;

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as part of the CAA, Congress passed legislation aimed at preventing or limiting patient balance billing in certain circumstances. The CAA addresses surprise medical bills stemming from emergency services, out-of-network ancillary providers at in-network facilities, and air ambulance carriers. The legislation prohibits surprise billing when out-of-network emergency services or out-of-network services at an in-network facility are provided, unless informed consent is received. In these circumstances providers are prohibited from billing the patient for any amounts that exceed in-network cost-sharing requirements. HHS, the Department of Labor and the Department of the Treasury have issued interim final rules, which begin to implement the legislation. The rules are expected to limit our ability to receive payment for services at usually higher out-of-network rates in certain circumstances and prohibit out-of-network payments in other circumstances. On February 28, 2022, a district judge in the Eastern District of Texas invalidated portions of the rule governing aspects of the Independent Dispute Resolution (“IDR”) process. In light of this decision, the government issued a final rule on August 19, 2022 eliminating the rebuttable presumption in favor of the qualifying payment amount (“QPA”) by the IDR entity and providing additional factors the IDR entity should consider when choosing between two competing offers. On September 22, 2022, the Texas Medical Association filed a lawsuit challenging the IDR process provided in the updated final rule and alleging that the final rule unlawfully elevates the QPA above other factors the IDR entity must consider. The American Hospital Association and American Medical Association have announced their intent to join this case as amici supporting the Texas Medical Association;

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possible unfavorable changes in the levels and terms of reimbursement for our charges by third party payers or government based payers, including Medicare or Medicaid in the United States, and government based payers in the United Kingdom;

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our ability to enter into managed care provider agreements on acceptable terms and the ability of our competitors to do the same;

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the outcome of known and unknown litigation, government investigations, false claims act allegations, and liabilities and other claims asserted against us and other matters as disclosed in Note 6 to the Consolidated Financial Statements - Commitments and Contingencies and the effects of adverse publicity relating to such matters;

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the unfavorable impact on our business of a continued or worsening deterioration in economic, business and credit market conditions, including a continuation or worsening of inflationary pressures on our operating expenses (most particularly labor and supply costs) since our ability, to pass on to payers, the increased costs associated with providing healthcare services to our patients (most particularly Medicare and Medicaid patients) is limited;

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competition from other healthcare providers (including physician owned facilities) in certain markets;

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technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for healthcare;

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our ability to attract and retain qualified personnel, nurses, physicians and other healthcare professionals and the impact on our labor expenses resulting from a shortage of nurses and other healthcare professionals;

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demographic changes;

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there is a heightened risk of future cybersecurity threats, including ransomware attacks targeting healthcare providers. If successful, future cyberattacks could have a material adverse effect on our business. Any costs that we incur as a result of a data security incident or breach, including costs to update our security protocols to mitigate such an incident or breach could be significant. Any breach or failure in our operational security systems can result in loss of data or an unauthorized disclosure of or access to sensitive or confidential member or protected personal or health information and could result in significant penalties or fines, litigation, loss of customers, significant damage to our reputation and business, and other losses. Previously, we had experienced a cyberattack in September, 2020 that had an adverse effect on our operating results during the fourth quarter of 2020, before giving effect to partial recovery of the loss through receipt of commercial insurance proceeds and collection of previously reserved patient accounts;

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the availability of suitable acquisition and divestiture opportunities and our ability to successfully integrate and improve our acquisitions since failure to achieve expected acquisition benefits from certain of our prior or future acquisitions could result in impairment charges for goodwill and purchased intangibles;

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

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as discussed below in Sources of Revenue, we receive revenues from various state and county-based programs, including Medicaid in all the states in which we operate. We receive annual Medicaid revenues of approximately $100 million, or greater, from each of Texas, California, Nevada, Illinois, Pennsylvania, Washington, D.C., Kentucky, Florida and Massachusetts. We also receive Medicaid disproportionate share hospital payments in certain states including Texas and South Carolina. We are therefore particularly sensitive to potential reductions in Medicaid and other state-based revenue programs as well as regulatory, economic, environmental and competitive changes in those states. We can provide no assurance that reductions to revenues earned pursuant to these programs, and the effect of the COVID-19 pandemic on state budgets, particularly in the above-mentioned states, will not have a material adverse effect on our future results of operations;

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our ability to continue to obtain capital on acceptable terms, including borrowed funds, to fund the future growth of our business;

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our inpatient acute care and behavioral health care facilities may experience decreasing admission and length of stay trends;

•

our financial statements reflect large amounts due from various commercial and private payers and there can be no assurance that failure of the payers to remit amounts due to us will not have a material adverse effect on our future results of operations;

•

the Budget Control Act of 2011 (the “2011 Act”) imposed annual spending limits for most federal agencies and programs aimed at reducing budget deficits by $917 billion between 2012 and 2021, according to a report released by the Congressional Budget Office. Among its other provisions, the law established a bipartisan Congressional committee, known as the Joint Select Committee on Deficit Reduction (the “Joint Committee”), which was tasked with making recommendations aimed at reducing future federal budget deficits by an additional $1.5 trillion over 10 years. The Joint Committee was unable to reach an agreement by the November 23, 2011 deadline and, as a result, across-the-board cuts to discretionary, national defense and Medicare spending were implemented on March 1, 2013 resulting in Medicare payment reductions of up to 2% per fiscal year with a uniform percentage reduction across all Medicare programs. The Bipartisan Budget Act of 2015, enacted on November 2, 2015, continued the 2% reductions to Medicare reimbursement imposed under the 2011 Act. Recent legislation has suspended payment reductions through December 31, 2021 in exchange for extended cuts through 2030. Subsequent legislation extended the payment reduction suspension through March 31, 2022, with a 1% payment reduction from then until June 30, 2022 and the full 2% payment reduction thereafter. We cannot predict whether Congress will restructure the implemented Medicare payment reductions or what other federal budget deficit reduction initiatives may be proposed by Congress going forward. See below in 2019 Novel Coronavirus Disease Medicare and Medicaid Payment Related Legislation – Medicare Sequestration Relief, for additional disclosure related to the favorable effect the legislative extensions have had on our results of operations during 2020 and 2021;

•

uninsured and self-pay patients treated at our acute care facilities unfavorably impact our ability to satisfactorily and timely collect our self-pay patient accounts;

•

changes in our business strategies or development plans;

•

in June, 2016, the United Kingdom affirmatively voted in a non-binding referendum in favor of the exit of the United Kingdom (“U.K.”) from the European Union (the “Brexit”) and it was approved by vote of the British legislature. On March 29, 2017, the United Kingdom triggered Article 50 of the Lisbon Treaty, formally starting negotiations regarding its exit from the European Union. On January 31, 2020, the U.K. formally exited the European Union. On December 24, 2020, the United Kingdom and the European Union reached a post-Brexit trade and cooperation agreement that created new business and security requirements and preserved the United Kingdom’s tariff- and quota-free access to the European Union member states. The trade and cooperation agreement was provisionally applied as of January 1, 2021 and entered into force on May 1, 2021, following ratification by the European Union. We do not know to what extent Brexit will ultimately impact the business and regulatory environment in the U.K., the European Union, or other countries. Any of these effects of Brexit, and others we cannot anticipate, could harm our business, financial condition and results of operations;

•

in 2021, the rate of inflation in the United States began to increase and has since risen to levels not experienced in over 40 years. We are experiencing inflationary pressures, primarily in personnel costs, and we anticipate impacts on other cost areas within the next twelve months. The extent of any future impacts from inflation on our business and our results of operations will be dependent upon how long the elevated inflation levels persist and the extent to which the rate of inflation further increases, if at all, neither of which we are able to predict. If elevated levels of inflation were to persist or if the rate of inflation were to accelerate, our expenses could increase faster than anticipated and we may utilize our capital resources sooner than expected. Further, given the complexities of the reimbursement landscape in which we operate, our payors may be unwilling or unable to increase reimbursement rates to compensate for inflationary impacts. Although we have hedged some of our floating rate indebtedness, the rapid increase in interest rates have increased our interest expense significantly increasing our expenses and reducing our free cash flow. As such, the effects of inflation may adversely impact our results of operations, financial condition and cash flows;

•

we have exposure to fluctuations in foreign currency exchange rates, primarily the pound sterling. We have international subsidiaries that operate in the United Kingdom. We routinely hedge our exposures to foreign currencies with certain financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations, but these hedges may be inadequate to protect us from currency exchange rate fluctuations. To the extent that these hedges are inadequate, our reported financial results or the way we conduct our business could be adversely affected. Furthermore, if a financial counterparty to our hedges experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, we may experience material financial losses, and;

•

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

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

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies or estimates from those disclosed in our 2021 Annual Report on Form 10-K.

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

Results of Operations

COVID-19, Clinical Staffing Shortage and Effects of Inflation:

The impact of the COVID-19 pandemic, which began during the second half of March, 2020, has had a material effect on our operations and financial results since that time. The length and extent of the disruptions caused by the COVID‑19 pandemic are currently unknown; however, we expect such disruptions to continue into the future. Since the future volumes and severity of COVID-19 patients remain highly uncertain and subject to change, including potential increases in future COVID-19 patient volumes caused by new variants of the virus, as well as related pressures on staffing and wage rates, we are not able to fully quantify the impact that these factors will have on our future financial results. However, developments related to the COVID-19 pandemic could continue to materially affect our financial performance.

The healthcare industry is labor intensive and salaries, wages and benefits are subject to inflationary pressures, as are supplies expense and other operating expenses. In addition, the nationwide shortage of nurses and other clinical staff and support personnel has been a significant operating issue facing us and other healthcare providers. Like others in the healthcare industry, we continue to experience a shortage of nurses and other clinical staff and support personnel at our acute care and behavioral health care hospitals in many geographic areas. In some areas, the labor scarcity is putting a strain on our resources and staff, which has required us to utilize higher‑cost temporary labor and pay premiums above standard compensation for essential workers. This staffing shortage has required us to hire expensive temporary personnel and/or enhance wages and benefits to recruit and retain nurses and other clinical staff and support personnel. At certain facilities, particularly within our behavioral health care segment, we have been unable to fill all vacant positions and, consequently, have been required to limit patient volumes. These factors, which had a material unfavorable impact on our results of operations during the first nine months of 2022, are expected to continue to have an unfavorable material impact on our results of operations for the foreseeable future.

Although our ability to pass on increased costs associated with providing healthcare to Medicare and Medicaid patients is limited due to various federal, state and local laws which, in certain circumstances, limit our ability to increase prices, we have begun negotiating increased rates from commercial insurers to defray our increased cost of providing patient care. In addition, we have implemented various productivity enhancement programs and cost reduction initiatives including, but not limited to, the following: team-based patient care initiatives designed to optimize the level of patient care services provided by our licensed nurses/clinicians; efforts to reduce utilization of, and rates paid for, premium pay labor; consolidation of medical supply vendors to increase purchasing discounts; review and reduction of clinical variation in connection with the utilization of medical supplies, and; various other efforts to increase productivity and/or reduce costs including investments in new information technology applications.

Financial results for the three-month periods ended September 30, 2022 and 2021:

The following table summarizes our results of operations and is used in the discussion below for the three-month periods ended September 30, 2022 and 2021 (dollar amounts in thousands):

	Three months ended September 30, 2022						Three months ended September 30, 2021
	Amount			% of Net Revenues			Amount		% of Net Revenues
Net revenues	$	3,336,027			100.0	%	$	3,155,999		100.0	%
Operating charges:
Salaries, wages and benefits		1,677,431			50.3	%		1,556,448		49.3	%
Other operating expenses		837,241			25.1	%		754,072		23.9	%
Supplies expense		366,337			11.0	%		367,834		11.7	%
Depreciation and amortization		145,874			4.4	%		134,462		4.3	%
Lease and rental expense		33,264			1.0	%		28,375		0.9	%
Subtotal-operating expenses		3,060,147			91.7	%		2,841,191		90.0	%
Income from operations		275,880			8.3	%		314,808		10.0	%
Interest expense, net		35,653			1.1	%		21,199		0.7	%
Other (income) expense, net		6,015			0.2	%		6,719		0.2	%
Income before income taxes		234,212			7.0	%		286,890		9.1	%
Provision for income taxes		57,401			1.7	%		67,515		2.1	%
Net income		176,811			5.3	%		219,375		7.0	%
Less: Income (loss) attributable to noncontrolling interests		(6,003	)		(0.2	)%		1,024		0.0	%
Net income attributable to UHS	$	182,814			5.5	%	$	218,351		6.9	%

Net revenues increased by 5.7%, or $180 million, to $3.34 billion during the three-month period ended September 30, 2022, as compared to $3.16 billion during the third quarter of 2021. The net increase was primarily attributable to: (i) a $126 million or 4.1% increase in net revenues generated from our acute care hospital services and behavioral health services operated during both periods (which we refer to as “Same Facility”), and; (ii) $54 million of other combined net increases.

Income before income taxes (before income attributable to noncontrolling interests) decreased by $53 million, or 18%, to $234 million during the three-month period ended September 30, 2022 as compared to $287 million during the third quarter of 2021. The $53 million net decrease was due to:

•

a decrease of $79 million at our acute care facilities, as discussed below in Acute Care Hospital Services;

•

an increase of $40 million at our behavioral health care facilities, as discussed below in Behavioral Health Services, and;

•

a decrease of $14 million due to an increase in interest expense due to an increase in our aggregate average outstanding borrowings as well as an increase in our weighted average cost of borrowings, as discussed below in Other Operating Results-Interest Expense.

Net income attributable to UHS decreased by $36 million, or 16%, to $183 million during the three-month period ended September 30, 2022 as compared to $218 million during the third quarter of 2021. This decrease was attributable to:

•

a $53 million decrease in income before income taxes, as discussed above;

•

an increase of $7 million due to a decrease in income (loss) attributable to noncontrolling interests, and;

•

an increase of $10 million resulting from a decrease in the provision for income taxes due primarily to the income tax benefit recorded in connection with the $46 million decrease in pre-tax income.

Financial results for the nine-month periods ended September 30, 2022 and 2021:

The following table summarizes our results of operations and is used in the discussion below for the nine-month periods ended September 30, 2022 and 2021 (dollar amounts in thousands):

	Nine months ended September 30, 2022						Nine months ended September 30, 2021
	Amount			% of Net Revenues			Amount			% of Net Revenues
Net revenues	$	9,952,390			100.0	%	$	9,366,866			100.0	%
Operating charges:
Salaries, wages and benefits		5,061,173			50.9	%		4,542,156			48.5	%
Other operating expenses		2,526,060			25.4	%		2,233,590			23.8	%
Supplies expense		1,092,403			11.0	%		1,052,977			11.2	%
Depreciation and amortization		433,508			4.4	%		399,850			4.3	%
Lease and rental expense		97,075			1.0	%		88,848			0.9	%
Subtotal-operating expenses		9,210,219			92.5	%		8,317,421			88.8	%
Income from operations		742,171			7.5	%		1,049,445			11.2	%
Interest expense, net		83,002			0.8	%		64,455			0.7	%
Other (income) expense, net		15,244			0.2	%		(1,575	)		(0.0	)%
Income before income taxes		643,925			6.5	%		986,565			10.5	%
Provision for income taxes		157,312			1.6	%		232,844			2.5	%
Net income		486,613			4.9	%		753,721			8.0	%
Less: Income attributable to noncontrolling interests		(14,176	)		(0.1	)%		1,255			0.0	%
Net income attributable to UHS	$	500,789			5.0	%	$	752,466			8.0	%

Net revenues increased by 6.3%, or $586 million, to $9.95 billion during the nine-month period ended September 30, 2022, as compared to $9.37 billion during the comparable period of 2021. The net increase was primarily attributable to: (i) a $400 million, or 4.4%, increase in net revenues generated from our acute care hospital services and behavioral health services, on a Same Facility basis, and; (ii) $186 million of other combined net increases.

Income before income taxes (before income attributable to noncontrolling interests) decreased by $343 million, or 35%, to $644 million during the nine-month period ended September 30, 2022, as compared to $987 million during the comparable period of 2021. The $343 million net decrease was due to:

•

a decrease of $227 million at our acute care facilities, as discussed below in Acute Care Hospital Services;

•

a decrease of $60 million at our behavioral health care facilities, as discussed below in Behavioral Health Services;

•

a decrease of $19 million due to an increase in interest expense due to an increase in our aggregate average outstanding borrowings as well as an increase in our weighted average cost of borrowings, as discussed below in Other Operating Results-Interest Expense, and;

•

$37 million of other combined net decreases.

Net income attributable to UHS decreased by $252 million, or 33%, to $501 million during the nine-month period ended September 30, 2022, as compared to $752 million during the first nine months of 2021. This decrease was attributable to:

•

a $343 million decrease in income before income taxes, as discussed above;

•

an increase of $15 million due to a decrease in income (loss) attributable to noncontrolling interests, and;

•

an increase of $76 million resulting from a decrease in the provision for income taxes due primarily to the income tax benefit recorded in connection with the $328 million decrease in pre-tax income.

Increase to self-insured professional and general liability reserves:

Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimates of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies.

As a result of unfavorable trends experienced during 2022 and 2021, our results of operations during the nine-month periods ended September 30, 2022 and 2021 included increases to our reserves for self-insured professional and general liability claims amounting to approximately $16 million and $41 million, respectively.

During the nine-month period ended September 30, 2022, approximately $10 million of the increase to our reserves for self-insured professional and general liability claims is included in our Same Facility basis acute care hospitals services’ results, and approximately $6 million is included in our behavioral health services’ results. During the nine-month period ended September 30, 2021, approximately $31 million of the increase to our reserves for self-insured professional and general liability claims is included in our

Same Facility basis acute care hospitals services’ results, and approximately $10 million is included in our behavioral health services’ results.

Acute Care Hospital Services

Same Facility Basis Acute Care Hospital Services

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

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

The following table summarizes the results of operations for our acute care facilities on a Same Facility basis and is used in the discussion below for the three and nine-month periods ended September 30, 2022 and 2021 (dollar amounts in thousands):

	Three months ended					Three months ended					Nine months ended					Nine months ended
	September 30, 2022					September 30, 2021					September 30, 2022					September 30, 2021
	Amount		% of Net Revenues			Amount		% of Net Revenues			Amount		% of Net Revenues			Amount		% of Net Revenues
Net revenues	$	1,813,899		100.0	%	$	1,797,161		100.0	%	$	5,419,224		100.0	%	$	5,182,893		100.0	%
Operating charges:
Salaries, wages and benefits		791,902		43.7	%		756,524		42.1	%		2,405,034		44.4	%		2,154,354		41.6	%
Other operating expenses		474,086		26.1	%		411,348		22.9	%		1,380,670		25.5	%		1,216,665		23.5	%
Supplies expense		299,888		16.5	%		316,890		17.6	%		903,092		16.7	%		902,479		17.4	%
Depreciation and amortization		88,931		4.9	%		82,811		4.6	%		269,506		5.0	%		246,954		4.8	%
Lease and rental expense		18,738		1.0	%		17,508		1.0	%		53,804		1.0	%		55,666		1.1	%
Subtotal-operating expenses		1,673,545		92.3	%		1,585,081		88.2	%		5,012,106		92.5	%		4,576,118		88.3	%
Income from operations		140,354		7.7	%		212,080		11.8	%		407,118		7.5	%		606,775		11.7	%
Interest expense, net		234		0.0	%		255		0.0	%		1,350		0.0	%		749		0.0	%
Other (income) expense, net		384		0.0	%		436		0.0	%		806		0.0	%		436		0.0	%
Income before income taxes	$	139,736		7.7	%	$	211,389		11.8	%	$	404,962		7.5	%	$	605,590		11.7	%

Three-month periods ended September 30, 2022 and 2021:

During the three-month period ended September 30, 2022, as compared to the comparable prior year quarter, net revenues from our acute care hospital services, on a Same Facility basis, increased by $17 million or 0.9%. Income before income taxes (and before income attributable to noncontrolling interests) decreased by $72 million, or 34%, amounting to $140 million, or 7.7% of net revenues during the third quarter of 2022, as compared to $211 million, or 11.8% of net revenues during the third quarter of 2021.

During the three-month period ended September 30, 2022, net revenue per adjusted admission decreased by 2.5% while net revenue per adjusted patient day increased 4.5%, as compared to the comparable quarter of 2021. During the three-month period ended September 30, 2022, as compared to the comparable prior year quarter, inpatient admissions to our acute care hospitals decreased by 2.4% while adjusted admissions (adjusted for outpatient activity) increased by 1.9%. Patient days at these facilities decreased by 9.0% and adjusted patient days decreased by 5.0% during the three-month period ended September 30, 2022, as compared to the comparable prior year quarter. The average length of inpatient stay at these facilities was 4.9 days and 5.3 days during the three-month periods ended September 30, 2022 and 2021, respectively. The occupancy rate, based on the average available beds at these facilities, was 62% and 71% during the three-month periods ended September 30, 2022 and 2021, respectively.

On a Same Facility basis during the three-month period ended September 30, 2022, as compared to the comparable quarter of 2021, salaries, wages and benefits expense increased $35 million or 4.7%. The increase during the third quarter of 2022, as compared to the third quarter of 2021, was due primarily to higher labor costs due, in part, to the healthcare labor shortage, partially offset by a reduction in higher-cost temporary labor and pay premiums above standard compensation for nurses and other clinicians.

Other operating expenses increased $63 million, or 15.3%, during the third quarter of 2022, as compared to the comparable quarter of 2021. Operating expenses, consisting primarily of medical costs incurred in connection with our commercial health insurer, increased approximately $31 million during the third quarter of 2022 as compared to the comparable quarter of 2021. Excluding the operating expenses incurred in connection with our commercial health insurer, other operating expenses increased $32 million, or 9.6%.

Supplies expense decreased $17 million, or 5.4%, during the third quarter of 2022, as compared to the third quarter of 2021. The decrease was due primarily to a decrease in the number of patients with a COVID-19 diagnosis treated at our hospitals, who generally require more intensive medical resources and supplies.

During the third quarter of 2022, we experienced a decrease in the number of patients with a COVID-19 diagnosis treated in our acute care hospitals, as compared to the comparable quarter in the prior year. As a percentage of total admissions, patients diagnosed with COVID-19 comprised 14% of our inpatient admissions during the third quarter of 2021, but only 6% of our inpatient admissions during the third quarter of 2022. This decline in COVID-19 patients unfavorably impacted our net revenues due to lower acuity and less incremental government reimbursement associated with COVID-19 patients. While overall surgical volumes tended to recover to pre-pandemic levels during the third quarter of 2022, there was a measurable shift from inpatient surgeries to outpatient surgeries, which further contributed to the lower than expected revenues. Although we were able to continue to reduce the amount of higher-cost temporary labor and pay premiums above standard compensation for nurses and other clinicians at our acute care hospitals, there was insufficient revenue growth to offset the accelerated rate of wage increases and other inflationary pressures.

Nine-month periods ended September 30, 2022 and 2021:

During the nine-month period ended September 30, 2022, as compared to the comparable prior year period, net revenues from our acute care hospital services, on a Same Facility basis, increased by $236 million or 4.6%. Income before income taxes (and before income attributable to noncontrolling interests) decreased by $201 million, or 33%, amounting to $405 million, or 7.5% of net revenues during the first nine months of 2022, as compared to $606 million, or 11.7% of net revenues during the comparable period of 2021.

During the nine-month period ended September 30, 2022, net revenue per adjusted admission increased by 1.0% while net revenue per adjusted patient day increased by 2.6%, as compared to the comparable period of 2021. During the nine-month period ended September 30, 2022, as compared to the comparable period of 2021, inpatient admissions to our acute care hospitals decreased by 0.3% and adjusted admissions (adjusted for outpatient activity) increased by 2.2%. Patient days at these facilities decreased by 1.8% and adjusted patient days increased by 0.6% during the nine-month period ended September 30, 2022, as compared to the comparable period of 2021. The average length of inpatient stay at these facilities was 5.1 days during each of the nine-month periods ended September 30, 2022 and 2021. The occupancy rate, based on the average available beds at these facilities, was 64% during the nine-month period ended September 30, 2022, as compared to 67% during the comparable period of 2021.

On a Same Facility basis during the three-month period ended September 30, 2022, as compared to the comparable quarter of 2021, salaries, wages and benefits expense increased $251 million or 11.6%. The increase during the first nine months of 2022, as compared to the comparable period of 2021, was due primarily to higher labor costs due, in part, to the healthcare labor shortage as well as an increase in patients with COVID‑19 treated earlier in 2022 at our hospitals which increased the demand for care and pressured our staffing resources requiring us to utilize higher‑cost temporary labor and pay premiums above standard compensation for essential workers. During the second and third quarters of 2022, we experienced a decrease in patients with COVID-19 which resulted in reductions in higher-cost temporary labor and pay premiums, as compared to the first quarter of 2022.

Other operating expenses increased $164 million, or 13.5%, during the first nine months of 2022, as compared to the comparable period of 2021. Operating expenses, consisting primarily of medical costs incurred in connection with our commercial health insurer, increased approximately $95 million during the first nine months of 2022, as compared to the comparable period of 2021. Excluding the operating expenses incurred in connection with our commercial health insurer, other operating expenses increased $69 million, or 6.9%.

Supplies expense increased only slightly during the first nine months of 2022, as compared to the comparable period of 2021. Offsetting increased cost of supplies experienced during the first nine months of 2022, as compared to the comparable period of 2021, was a decrease in the number of patients with a COVID-19 diagnosis treated at our hospitals, who generally require more intensive medical resources and supplies.

All Acute Care Hospitals

The following table summarizes the results of operations for all our acute care operations during the three and nine-month periods ended September 30, 2022 and 2021. These amounts include: (i) our acute care results on a same facility basis, as indicated above; (ii) the impact of provider tax assessments which increased net revenues and other operating expenses but had no impact on income before income taxes, and; (iii) certain other amounts including, if applicable, the results of recently acquired/opened ancillary facilities and businesses. Dollar amounts below are reflected in thousands.

	Three months ended September 30, 2022					Three months ended September 30, 2021					Nine months ended September 30, 2022					Nine months ended September 30, 2021
	Amount		% of Net Revenues			Amount		% of Net Revenues			Amount		% of Net Revenues			Amount		% of Net Revenues
Net revenues	$	1,919,678		100.0	%	$	1,822,027		100.0	%	$	5,707,510		100.0	%	$	5,271,000		100.0	%
Operating charges:
Salaries, wages and benefits		824,942		43.0	%		757,962		41.6	%		2,497,888		43.8	%		2,157,060		40.9	%
Other operating expenses		535,463		27.9	%		436,475		24.0	%		1,550,044		27.2	%		1,305,544		24.8	%
Supplies expense		311,404		16.2	%		316,950		17.4	%		935,559		16.4	%		902,654		17.1	%
Depreciation and amortization		96,020		5.0	%		83,794		4.6	%		285,558		5.0	%		248,462		4.7	%
Lease and rental expense		21,990		1.1	%		17,518		1.0	%		63,324		1.1	%		55,676		1.1	%
Subtotal-operating expenses		1,789,819		93.2	%		1,612,699		88.5	%		5,332,373		93.4	%		4,669,396		88.6	%
Income from operations		129,859		6.8	%		209,328		11.5	%		375,137		6.6	%		601,604		11.4	%
Interest expense, net		234		0.0	%		255		0.0	%		1,350		0.0	%		749		0.0	%
Other (income) expense, net		384		0.0	%		436		0.0	%		806		0.0	%		436		0.0	%
Income before income taxes	$	129,241		6.7	%	$	208,637		11.5	%	$	372,981		6.5	%	$	600,419		11.4	%

Three-month periods ended September 30, 2022 and 2021:

During the three-month period ended September 30, 2022, as compared to the comparable prior year quarter, net revenues from our acute care hospital services increased by $98 million, or 5.4%, due to: (i) the $17 million, or 0.9% increase in Same Facility revenues, as discussed above, and; (ii) $81 million of other combined increases due to facilities and businesses acquired during the past year, the revenues generated at a newly constructed, 170-bed acute care hospital located in Reno, Nevada, that opened in early April, 2022 and an increase in provider tax assessments.

Income before income taxes decreased by $79 million, or 38%, to $129 million, or 6.7% of net revenues during the third quarter of 2022, as compared to $209 million, or 11.5% of net revenues during the third quarter of 2021. The $79 million decrease in income before income taxes from our acute care hospital services resulted from the $72 million, or 34%, decrease in income before income taxes at our hospitals, on a Same Facility basis, as discussed above, and $7 million of other combined net decreases related primarily to the start-up losses incurred at the newly constructed hospital located in Reno, Nevada, that opened in early April, 2022.

During the three-month period ended September 30, 2022, as compared to the comparable quarter of 2021, salaries, wages and benefits expense increased $67 million or 8.8%. The increase was due to the $35 million, or 4.7%, above-mentioned increase related to our acute care hospital services, on a Same Facility basis, as well as a combined increase of $32 million due to the facilities and businesses acquired/opened during the past year.

Other operating expenses increased $99 million, or 22.7%, during the third quarter of 2022, as compared to the comparable quarter of 2021. The increase was due to the $63 million, or 15.3%, above-mentioned increase related to our acute care hospital services, on a Same Facility basis, and a combined increase of $36 million due to the facilities and businesses acquired/opened during the past year as well as an increase in provider tax assessments.

Supplies expense decreased $6 million, or 1.7%, during the third quarter of 2022, as compared to the third quarter of 2021. The decrease was due primarily to the $17 million, or 5.4%, above-mentioned decrease related to our acute care hospital services, on a Same Facility basis, partially offset by a combined increase of $11 million due to the facilities and businesses acquired/opened during the past year.

Nine-month periods ended September 30, 2022 and 2021:

During the nine-month period ended September 30, 2022, as compared to the comparable prior year period, net revenues from our acute care hospital services increased by $437 million, or 8.3%, due to: (i) the $236 million, or 4.6% increase in Same Facility revenues, as discussed above, and; (ii) $201 million of other combined increases due to facilities and businesses acquired during the past year, the revenues generated at the newly constructed and recently opened hospital located in Reno, Nevada, and an increase in provider tax assessments.

Income before income taxes decreased by $227 million, or 38%, to $373 million, or 6.5% of net revenues during the first nine months of 2022, as compared to $600 million, or 11.4% of net revenues during the first nine months of 2021. The $227 million decrease in income before income taxes from our acute care hospital services resulted from the $201 million, or 33%, decrease in income before income taxes at our hospitals, on a Same Facility basis, as discussed above, and $26 million of other combined net decreases related primarily to the start-up losses incurred at the recently opened hospital located in Reno, Nevada.

During the nine-month period ended September 30, 2022, as compared to the comparable period of 2021, salaries, wages and benefits expense increased $341 million or 15.8%. The increase was due to the $251 million, or 11.6%, above-mentioned increase related to our acute care hospital services, on a Same Facility basis, as well as a combined increase of $90 million due to the facilities and businesses acquired/opened during the past year.

Other operating expenses increased $245 million, or 18.7%, during the first nine months of 2022, as compared to the comparable period of 2021. The increase was due to the $164 million, or 13.5%, above-mentioned increase related to our acute care hospital services, on a Same Facility basis, and a combined increase of $81 million due to the facilities and businesses acquired/opened during the past year as well as an increase in provider tax assessments.

Supplies expense increased $33 million, or 3.6%, during the first nine months of 2022, as compared to the comparable period of 2021. Since supplies expense was relatively unchanged for our acute care hospital services, on a Same Facility basis, the increase was due to the expense incurred at the facilities and businesses acquired/opened during the past year.

Please see Results of Operations - COVID-19, Clinical Staffing Shortage and Effects of Inflation above for additional disclosure regarding the factors impacting our operating costs.

Charity Care and Uninsured Discounts:

The following tables show the amounts recorded at our acute care hospitals for charity care and uninsured discounts, based on charges at established rates, for the three and nine-month periods ended September 30, 2022 and 2021:

Uncompensated care:

Amounts in millions	Three Months Ended										Nine Months Ended
	September 30,					September 30,					September 30,					September 30,
		2022	%				2021	%				2022	%				2021	%
Charity care	$	192		31	%	$	189		33	%	$	612		36	%	$	535		35	%
Uninsured discounts	429			69	%	378			67	%		1,103		64	%		987		65	%
Total uncompensated care	$	621		100	%	$	567		100	%	$	1,715		100	%	$	1,522		100	%

Estimated cost of providing uncompensated care:

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

	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
Amounts in millions		2022		2021		2022		2021
Estimated cost of providing charity care	$	21	$	20	$	66	$	57
Estimated cost of providing uninsured discounts related care	46		41		119		107
Estimated cost of providing uncompensated care	$	67	$	61	$	185	$	164

Behavioral Health Services

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

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

The following table summarizes the results of operations for our behavioral health care facilities, on a Same Facility basis, and is used in the discussions below for the three and nine-month periods ended September 30, 2022 and 2021 (dollar amounts in thousands):

Same Facility—Behavioral Health

	Three months ended September 30, 2022						Three months ended September 30, 2021					Nine months ended September 30, 2022						Nine months ended September 30, 2021
	Amount			% of Net Revenues			Amount		% of Net Revenues			Amount			% of Net Revenues			Amount		% of Net Revenues
Net revenues	$	1,403,013			100.0	%	$	1,294,141		100.0	%	$	4,148,344			100.0	%	$	3,984,260		100.0	%
Operating charges:
Salaries, wages and benefits		774,406			55.2	%		717,807		55.5	%		2,288,386			55.2	%		2,125,205		53.3	%
Other operating expenses		271,295			19.3	%		267,083		20.6	%		811,223			19.6	%		774,583		19.4	%
Supplies expense		55,036			3.9	%		51,111		3.9	%		156,976			3.8	%		150,902		3.8	%
Depreciation and amortization		44,566			3.2	%		46,004		3.6	%		134,451			3.2	%		137,417		3.4	%
Lease and rental expense		10,617			0.8	%		10,012		0.8	%		32,026			0.8	%		30,999		0.8	%
Subtotal-operating expenses		1,155,920			82.4	%		1,092,017		84.4	%		3,423,062			82.5	%		3,219,106		80.8	%
Income from operations		247,093			17.6	%		202,124		15.6	%		725,282			17.5	%		765,154		19.2	%
Interest expense, net		1,151			0.1	%		994		0.1	%		2,757			0.1	%		2,321		0.1	%
Other (income) expense, net		(664	)		(0.0	)%		27		0.0	%		(1,422	)		(0.0	)%		435		0.0	%
Income before income taxes	$	246,606			17.6	%	$	201,103		15.5	%	$	723,947			17.5	%	$	762,398		19.1	%

Three-month periods ended September 30, 2022 and 2021:

During the three-month period ended September 30, 2022, as compared to the comparable prior year quarter, net revenues from our behavioral health services, on a Same Facility basis, increased by $109 million or 8.4%. Income before income taxes (and before income attributable to noncontrolling interests) increased by $46 million, or 23%, amounting to $247 million or 17.6% of net revenues during the third quarter of 2022, as compared to $201 million or 15.5% of net revenues during the third quarter of 2021.

During the three-month period ended September 30, 2022, net revenue per adjusted admission increased by 4.2% while net revenue per adjusted patient day increased by 5.0%, as compared to the comparable quarter of 2021. During the three-month period ended September 30, 2022, as compared to the comparable prior year quarter, inpatient admissions to our behavioral health care hospitals increased by 4.3% and adjusted admissions increased by 4.0%. Patient days at these facilities increased by 3.6% and adjusted patient days increased by 3.3% during the three-month period ended September 30, 2022, as compared to the comparable prior year quarter. The average length of inpatient stay at these facilities was 13.5 days and 13.6 days during the three-month periods ended September 30, 2022 and 2021, respectively. The occupancy rate, based on the average available beds at these facilities, was 72% and 70% during the three-month periods ended September 30, 2022 and 2021, respectively.

On a Same Facility basis during the three-month period ended September 30, 2022, as compared to the comparable quarter of 2021, salaries, wages and benefits expense increased $57 million or 7.9%. The increase during the third quarter of 2022, as compared to the third quarter of 2021, was due, in part, to increased staffing levels related to the increased patient volumes. As a percentage of net revenues during each quarter, salaries, wages and benefits expense decreased to 55.2% during the third quarter of 2022 as compared to 55.5% during the third quarter of 2021.

Other operating expenses increased $4 million, or 1.6%, during the third quarter of 2022, as compared to the comparable quarter of 2021. Supplies expense increased $4 million, or 7.7%, during the third quarter of 2022, as compared to the third quarter of 2021 due, in part, to increased patient volumes.

Nine-month periods ended September 30, 2022 and 2021:

During the nine-month period ended September 30, 2022, as compared to the comparable prior year period, net revenues from our behavioral health services, on a Same Facility basis, increased by $164 million or 4.1%. Income before income taxes (and before income attributable to noncontrolling interests) decreased by $38 million, or 5%, amounting to $724 million or 17.5% of net revenues during the first nine months of 2022 as compared to $762 million or 19.1% of net revenues during the first nine months of 2021.

During the nine-month period ended September 30, 2022, net revenue per adjusted admission increased by 4.2% while net revenue per adjusted patient day increased by 3.9%, as compared to the comparable period of 2021. During the nine-month period ended September 30, 2022, as compared to the comparable prior year period, inpatient admissions and adjusted admissions to our behavioral health care hospitals each increased by 0.6%. Patient days and adjusted patient days at these facilities each increased by 0.9% during the nine-month period ended September 30, 2022, as compared to the comparable prior year period. The average length of inpatient stay at these facilities was 13.5 days during each of the nine-month periods ended September 30, 2022 and 2021. The occupancy rate, based on the average available beds at these facilities, was 71% during each of the nine-month periods ended September 30, 2022 and 2021.

On a Same Facility basis during the nine-month period ended September 30, 2022, as compared to the comparable period of 2021, salaries, wages and benefits expense increased $163 million or 7.7%. The increase during the first nine months of 2022, as compared to the comparable period of 2021, was due, in part, to a nationwide shortage of nurses and other clinical staff and support personnel at

our behavioral health care hospitals which pressured our staffing resources and required us to utilize higher‑cost temporary labor and pay premiums above standard compensation for essential workers.

Other operating expenses increased $37 million, or 4.7%, during the first nine months of 2022, as compared to the comparable period of 2021. Supplies expense increased $6 million, or 4.0%, during the first nine months of 2022, as compared to the comparable period of 2021.

All Behavioral Health Care Facilities

The following table summarizes the results of operations for all our behavioral health care services during the three and nine-month periods ended September 30, 2022 and 2021. These amounts include: (i) our behavioral health care results on a Same Facility basis, as indicated above; (ii) the impact of provider tax assessments which increased net revenues and other operating expenses but had no impact on income before income taxes, and; (iii) certain other amounts including the results of facilities acquired or opened during the past year (if applicable) as well as the results of certain facilities that were closed or restructured during the past year. Dollar amounts below are reflected in thousands.

	Three months ended September 30, 2022						Three months ended September 30, 2021					Nine months ended September 30, 2022						Nine months ended September 30, 2021
	Amount			% of Net Revenues			Amount		% of Net Revenues			Amount			% of Net Revenues			Amount		% of Net Revenues
Net revenues	$	1,434,828			100.0	%	$	1,328,293		100.0	%	$	4,235,215			100.0	%	$	4,075,127		100.0	%
Operating charges:
Salaries, wages and benefits		782,909			54.6	%		727,137		54.7	%		2,310,761			54.6	%		2,144,735		52.6	%
Other operating expenses		300,406			20.9	%		292,794		22.0	%		898,655			21.2	%		847,780		20.8	%
Supplies expense		55,482			3.9	%		51,712		3.9	%		158,315			3.7	%		152,273		3.7	%
Depreciation and amortization		46,861			3.3	%		47,205		3.6	%		138,803			3.3	%		140,870		3.5	%
Lease and rental expense		11,010			0.8	%		10,421		0.8	%		32,803			0.8	%		31,789		0.8	%
Subtotal-operating expenses		1,196,668			83.4	%		1,129,269		85.0	%		3,539,337			83.6	%		3,317,447		81.4	%
Income from operations		238,160			16.6	%		199,024		15.0	%		695,878			16.4	%		757,680		18.6	%
Interest expense, net		1,375			0.1	%		1,218		0.1	%		4,106			0.1	%		3,564		0.1	%
Other (income) expense, net		(1,164	)		(0.1	)%		27		0.0	%		(1,922	)		(0.0	)%		435		0.0	%
Income before income taxes	$	237,949			16.6	%	$	197,779		14.9	%	$	693,694			16.4	%	$	753,681		18.5	%

Three-month periods ended September 30, 2022 and 2021:

During the three-month period ended September 30, 2022, as compared to the comparable prior year quarter, net revenues generated from our behavioral health services increased by $107 million, or 8.0%.

Income before income taxes increased by $40 million, or 20%, to $238 million or 16.6% of net revenues during the third quarter of 2022, as compared to $198 million or 14.9% of net revenues during the third quarter of 2021. The increase in income before income taxes at our behavioral health facilities during the third quarter of 2022, as compared to the third quarter of 2021, was primarily attributable to the $46 million, or 23% increase in income before income taxes experienced at our behavioral health facilities, on a same facility basis, as discussed above, as well as $5 million of other combined net decreases consisting primarily of the startup losses incurred at various facilities opened during the past year.

During the three-month period ended September 30, 2022, as compared to the comparable quarter of 2021, salaries, wages and benefits expense increased $56 million or 7.7%. The increase was due to our behavioral health services, on a Same Facility basis, as discussed above.

Other operating expenses increased $8 million, or 2.6%, during the third quarter of 2022, as compared to the comparable quarter of 2021. Supplies expense increased $4 million, or 7.3%, during the third quarter of 2022, as compared to the third quarter of 2021.

Nine-month periods ended September 30, 2022 and 2021:

During the nine-month period ended September 30, 2022, as compared to the comparable prior year period, net revenues generated from our behavioral health services increased by $160 million, or 3.9% due primarily to the above-mentioned $164 million, or 4.1% increase in net revenues on a Same Facility basis.

Income before income taxes decreased by $60 million, or 8%, to $694 million or 16.4% of net revenues during the first nine months of 2022, as compared to $754 million or 18.5% of net revenues during the first nine months of 2021. The decrease in income before income taxes at our behavioral health facilities during the first nine months of 2022, as compared to the compared period of 2021, was primarily attributable to the $38 million, or 5% decrease in income before income taxes experienced at our behavioral health facilities, on a Same Facility basis, as discussed above, as well as $22 million of other combined net decreases consisting primarily of the startup losses incurred at various facilities opened during the past year.

During the nine-month period ended September 30, 2022, as compared to the comparable period of 2021, salaries, wages and benefits expense increased $166 million or 7.7%. The increase was due to our behavioral health services, on a same facility basis, as discussed above.

Other operating expenses increased $51 million, or 6.0%, during the first nine months of 2022, as compared to the comparable period of 2021. The increase was due primarily to the $37 million, or 4.7%, above-mentioned increase related to our behavioral health services, on a Same Facility basis. Supplies expense increased $6 million, or 4.0%, during the first nine months of 2022, as compared to the comparable period of 2021.

Sources of Revenue

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

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

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

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

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

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

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

A 2012 U.S. Supreme Court ruling limited the federal government’s ability to expand health insurance coverage by holding unconstitutional sections of the Legislation that sought to withdraw federal funding for state noncompliance with certain Medicaid coverage requirements. Pursuant to that decision, the federal government may not penalize states that choose not to participate in the Medicaid expansion by reducing their existing Medicaid funding. Therefore, states can choose to expand or not to expand their Medicaid program without risking the loss of federal Medicaid funding. As a result, many states, including Texas, have not expanded their Medicaid programs without the threat of loss of federal funding. CMS has previously granted section 1115 demonstration waivers providing for work and community engagement requirements for certain Medicaid eligible individuals. CMS has also released

guidance to states interested in receiving their Medicaid funding through a block grant mechanism. The Biden administration has signaled its intent to withdraw previously issued section 1115 demonstrations aligned with these policies. However, if implemented, the previously issued section 1115 demonstrations are anticipated to lead to reductions in coverage, and likely increases in uncompensated care, in states where these demonstration waivers are granted.

On December 14, 2018, a Texas Federal District Court deemed the Legislation to be unconstitutional in its entirety. The Court concluded that the Individual Mandate is no longer permissible under Congress’s taxing power as a result of the Tax Cut and Jobs Act of 2017 (“TCJA”) reducing the individual mandate’s tax to $0 (i.e., it no longer produces revenue, which is an essential feature of a tax), rendering the Legislation unconstitutional. The Court also held that because the individual mandate is “essential” to the Legislation and is inseverable from the rest of the law, the entire Legislation is unconstitutional. That ruling was ultimately appealed to the United States Supreme Court, which decided in California v. Texas that the plaintiffs in the matter lacked standing to bring their constitutionality claims. The Court did not reach the plaintiffs’ merits arguments, which specifically challenged the constitutionality of the Legislation’s individual mandate and the entirety of the Legislation itself. As a result, the Legislation will continue to be law, and HHS and its respective agencies will continue to enforce regulations implementing the law. However, on September 7, 2022, the Legislation faced its most recent challenge when a Texas Federal District Court judge, in the case of Braidwood Management v. Becerra, ruled that a requirement that certain health plans cover services without cost sharing violates the Appointments Clause of the U.S. Constitution and that the coverage of certain HIV prevention medication violates the Religious Freedom Restoration Act.

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

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

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

The impact of the Legislation on each of our hospitals may vary. Because Legislation provisions are effective at various times over the next several years, we anticipate that many of the provisions in the Legislation may be subject to further revision. Initiatives to repeal the Legislation, in whole or in part, to delay elements of implementation or funding, and to offer amendments or supplements to modify its provisions have been persistent. The ultimate outcomes of legislative attempts to repeal or amend the Legislation and legal challenges to the Legislation are unknown. Legislation has already been enacted that eliminated the individual mandate penalty, effective January 1, 2019, related to the obligation to obtain health insurance that was part of the original Legislation. In addition, Congress previously considered legislation that would, in material part: (i) eliminate the large employer mandate to offer health insurance coverage to full-time employees; (ii) permit insurers to impose a surcharge up to 30 percent on individuals who go uninsured for more than two months and then purchase coverage; (iii) provide tax credits towards the purchase of health insurance, with a phase-out of tax credits accordingly to income level; (iv) expand health savings accounts; (v) impose a per capita cap on federal funding of state Medicaid programs, or, if elected by a state, transition federal funding to block grants, and; (vi) permit states to seek a waiver of certain federal requirements that would allow such state to define essential health benefits differently from federal standards and that would allow certain commercial health plans to take health status, including pre-existing conditions, into account in setting premiums.

In addition to legislative changes, the Legislation can be significantly impacted by executive branch actions. President Biden is expected to undertake executive actions that will strengthen the Legislation and may reverse the policies of the prior administration. The Trump Administration had directed the issuance of final rules (i) enabling the formation of health plans that would be exempt from certain Legislation essential health benefits requirements; (ii) expanding the availability of short-term, limited duration health

insurance; (iii) eliminating cost-sharing reduction payments to insurers that would otherwise offset deductibles and other out-of-pocket expenses for health plan enrollees at or below 250 percent of the federal poverty level; (iv) relaxing requirements for state innovation waivers that could reduce enrollment in the individual and small group markets and lead to additional enrollment in short-term, limited duration insurance and association health plans; and (vi) incentivizing the use of health reimbursement arrangements by employers to permit employees to purchase health insurance in the individual market. The uncertainty resulting from these Executive Branch policies led to reduced Exchange enrollment in 2018, 2019 and 2020. To date, the Biden administration has issued executive orders implementing a special enrollment period permitting individuals to enroll in health plans outside of the annual open enrollment period and reexamining policies that may undermine the ACA or the Medicaid program. The ARPA’s expansion of subsidies to purchase coverage through an exchange contributed to increased exchange enrollment in 2021. The IRA’s extension of the subsidies through 2025 is expected to increase exchange enrollment in future years. The recent and on-going COVID-19 pandemic and related U.S. National Emergency declaration may significantly increase the number of uninsured patients treated at our facilities extending beyond the most recent CBO published estimates due to increased unemployment and loss of group health plan health insurance coverage. It is also anticipated that these policies may create additional cost and reimbursement pressures on hospitals.

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

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

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

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

In August, 2022, CMS published its IPPS 2023 final payment rule which provides for a 4.1% market basket increase to the base Medicare MS-DRG blended rate. When statutorily mandated budget neutrality factors, annual geographic wage index updates, documenting and coding adjustments, and adjustments mandated by the Legislation are considered, without consideration for the required Medicare DSH payments changes and increase to the Medicare Outlier threshold, the overall increase in IPPS payments is approximately 4.6.%. Including DSH payments, an increase to the Medicare Outlier threshold and certain other adjustments, we estimate our overall increase from the final IPPS 2023 rule (covering the period of October 1, 2022 through September 30, 2023) will approximate 4.4%. This projected impact from the IPPS 2023 final rule includes an increase of approximately 0.5% to partially restore cuts made as a result of the American Taxpayer Relief Act of 2012 (“ATRA”), as required by the 21st Century Cures Act, but excludes the impact of the sequestration reductions related to the 2011 Act, Bipartisan Budget Act of 2015, and Bipartisan Budget Act of 2018, as discussed below.

In August, 2021, CMS published its IPPS 2022 final payment rule which provides for a 2.7% market basket increase to the base Medicare MS-DRG blended rate. When statutorily mandated budget neutrality factors, annual geographic wage index updates, documenting and coding adjustments, and adjustments mandated by the Legislation are considered, without consideration for the required Medicare DSH payments changes and increase to the Medicare Outlier threshold, the overall final increase in IPPS payments is approximately 2.5%. Including DSH payments and certain other adjustments, we estimate our overall increase from the final IPPS 2022 rule (covering the period of October 1, 2021 through September 30, 2022) will approximate 1.5%. This projected impact from

the IPPS 2022 final rule includes an increase of approximately 0.5% to partially restore cuts made as a result of the ATRA, as required by the 21st Century Cures Act but excludes the impact of the sequestration reductions related to the 2011 Act, Bipartisan Budget Act of 2015, and Bipartisan Budget Act of 2018, as discussed below.

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

The 2011 Act included the imposition of annual spending limits for most federal agencies and programs aimed at reducing budget deficits by $917 billion between 2012 and 2021, according to a report released by the Congressional Budget Office. Among its other provisions, the law established a bipartisan Congressional committee, known as the Joint Committee, which was responsible for developing recommendations aimed at reducing future federal budget deficits by an additional $1.5 trillion over 10 years. The Joint Committee was unable to reach an agreement by the November 23, 2011 deadline and, as a result, across-the-board cuts to discretionary, national defense and Medicare spending were implemented on March 1, 2013 resulting in Medicare payment reductions of up to 2% per fiscal year. Recent legislation suspended payment reductions through December 31, 2021, in exchange for extended cuts through 2030. In December, 2021, the suspended 2% payment reduction was extended until June 30, 2022 and partially suspended at a 1% payment reduction for an additional three-month period that ended on June 30, 2022.

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

In July, 2022, CMS published its Psych PPS final rule for the federal fiscal year 2023. Under this final rule, payments to our behavioral health care hospitals and units are estimated to increase by 3.8% compared to federal fiscal year 2022. This amount includes the effect of the 4.1% net market basket update which reflects the offset of a 0.3% productivity adjustment.

In July, 2021, CMS published its Psych PPS final rule for the federal fiscal year 2022. Under this final rule, payments to our psychiatric hospitals and units are estimated to increase by 2.2% compared to federal fiscal year 2021. This amount includes the effect of the 2.0% net market basket update which reflects the offset of a 0.7% productivity adjustment.

CMS’s calendar year 2018 final OPPS rule, issued on November 13, 2017, substantially reduced Medicare Part B reimbursement for 340B Program drugs paid to hospitals. Beginning January 1, 2018, CMS reimbursement for certain separately payable drugs or biologicals that are acquired through the 340B Program by a hospital paid under the OPPS (and not excepted from the payment adjustment policy) is the average sales price of the drug or biological minus 22.5 percent, an effective reduction of 26.89% in payments for 340B program drugs. In December, 2018, the U.S. District Court for the District of Columbia ruled that HHS did not have statutory authority to implement the 2018 Medicare OPPS rate reduction related to hospitals that qualify for drug discounts under the federal 340B Program and granted a permanent injunction against the payment reduction. On July 31, 2020, the U.S. Court of Appeals for the D.C. Circuit reversed the District Court and held that HHS’s decision to lower drug reimbursement rates for 340B hospitals rests on a reasonable interpretation of the Medicare statute. As a result, we recognized $8 million of revenues during 2020 that were previously reserved in a prior year. These payment reductions were challenged before the U.S. Supreme Court, which held in American Hospital Association v. Becerra that because HHS did not conduct a survey of hospitals’ acquisition costs in 2018 and 2019, its decision to vary reimbursement rates only for 340B hospitals in those years was unlawful. The matter has been remanded for further consideration, and so the final result of such lawsuit cannot be fully predicted at this time.

In November, 2022, CMS issued its OPPS final rule for 2023. The hospital market basket increase is 4.1% and the productivity adjustment reduction is -0.3% for a net market basket increase of 3.8%. The final rule provides that in light of the Supreme Court decision in American Hospital Association v. Becerra, CMS is applying the default rate, generally average sales price plus 6 percent, to 340B acquired drugs and biologicals for 2023. CMS stated they will address the remedy for 340B drug payments from 2018-2022 in future rulemaking prior to the CY 2024 OPPS/ASC proposed rule. During the 2018-2022 time period, we recorded an aggregate of approximately $45 million to $50 million of Medicare revenues related to the prior 340B payment policy. When other statutorily required adjustments and hospital patient service mix are considered as well as impact of the aforementioned 340B Program policy change, we estimate that our overall Medicare OPPS update for 2023 will aggregate to a net increase of 0.9% which includes a 0.3% increase to behavioral health division partial hospitalization rates.

On November 2, 2021, CMS issued its OPPS final rule for 2022. The hospital market basket increase is 2.7% and the productivity adjustment reduction is -0.7% for a net market basket increase of 2.0%. When other statutorily required adjustments and hospital patient service mix are considered, we estimate that our overall Medicare OPPS update for 2022 will aggregate to a net increase of 2.4% which includes a 3.0% increase to behavioral health division partial hospitalization rates.

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

In November, 2019, CMS finalized its Hospital Price Transparency rule that implements certain requirements under the June 24, 2019 Presidential Executive Order related to Improving Price and Quality Transparency in American Healthcare to Put Patients First. Under this final rule, effective January 1, 2021, CMS will require: (1) hospitals make public their standard changes (both gross charges and payer-specific negotiated charges) for all items and services online in a machine-readable format, and; (2) hospitals to make public standard charge data for a limited set of “shoppable services” the hospital provides in a form and manner that is more consumer friendly. On November 2, 2021, CMS released a final rule increasing the monetary penalty that CMS can impose on hospitals that fail to comply with the price transparency requirements. We believe that our hospitals are in full compliance with the applicable federal regulations.

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

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

The Legislation substantially increases the federally and state-funded Medicaid insurance program, and authorizes states to establish federally subsidized non-Medicaid health plans for low-income residents not eligible for Medicaid starting in 2014. However, the Supreme Court has struck down portions of the Legislation requiring states to expand their Medicaid programs in exchange for increased federal funding. Accordingly, many states in which we operate have not expanded Medicaid coverage to individuals at 133% of the federal poverty level. Facilities in states not opting to expand Medicaid coverage under the Legislation may be additionally penalized by corresponding reductions to Medicaid disproportionate share hospital payments beginning in fiscal year 2024, as discussed below. We can provide no assurance that further reductions to Medicaid revenues, particularly in the above-mentioned states, will not have a material adverse effect on our future results of operations.

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

Various State Medicaid Supplemental Payment Programs:

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

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

Texas Uncompensated Care/Upper Payment Limit Payments:

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

On December 21, 2017, CMS approved the 1115 Waiver for the period January 1, 2018 to September 30, 2022. The Waiver continued to include UC and DSRIP payment pools with modifications and new state specific reporting deadlines that if not met by THHSC will result in material decreases in the size of the UC and DSRIP pools. For UC during the initial two years of this renewal, the UC program will remain relatively the same in size and allocation methodology. For year three of this waiver renewal, the federal fiscal year (“FFY”) 2020, and through FFY 2022, the size and distribution of the UC pool will be determined based on charity care costs reported to HHSC in accordance with Medicare cost report Worksheet S-10 principles. In September 2019, CMS approved the annual UC pool size in the amount of $3.9 billion for demonstration years (“DYs”) 9, 10 and 11 (October 1, 2019 to September 30, 2022). In June 2022, HHSC announced that CMS approved the UC Pool size for Demonstration Years 12 through 16 (October 1, 2022 to September 30, 2027) for the current 1115 Waiver which will be $4.51 billion per year. The UC pool will be resized again in 2027 for DYs 17 through 19 (October 1, 2027 to September 30, 2030). On April 16, 2021, CMS rescinded its January 15, 2021, 1115 Waiver ten year expedited renewal approval that was effective through September 30, 2030. In July, 2021, HHSC submitted another 1115 Waiver renewal application to CMS which reflects the same terms and conditions agreed to by CMS on January 15, 2021, in order to receive an extension beyond September 30, 2022. On April 22, 2022, CMS withdrew its rescission of the 1115 Waiver and now considers the 1115 Waiver approved as extended and governed by the special terms and conditions that CMS approved on January 15, 2021.

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

On March 26, 2021, HHSC published a final rule that will apply to program periods on or after September 1, 2021, and UHRIP will be re-named the Comprehensive Hospital Increase Reimbursement Program (“CHIRP”). CHIRP will be comprised of a UHRIP component and an Average Commercial Incentive Award component. CHIRP has a pool size of $4.7 billion. On March 25, 2022, CMS approved the CHIRP program retroactive to September 1, 2021 through August 31, 2022. The impact of the CHIRP program is reflected in the State Medicaid Supplemental Payment Program Table below including approximately $12 million of estimated CHIRP revenues which were recorded during the first quarter of 2022, attributable to the period September 1, 2021 through December 31, 2021, net of associated provider taxes. On August 1, 2022, CMS approved the CHIRP program, with a pool of $5.2 billion, for the rate period effective September 1, 2022 to August 31, 2023.

During the three and nine-month periods ended September 30, 2022, certain of our acute care hospitals located in Texas recorded an aggregate of $25 million in Quality Incentive Fund (“QIF”) payments, applicable to the period September 1, 2020 to August 31, 2021 in connection with the state’s UHRIP program. This revenue was earned pursuant to contract terms with various Medicaid managed care plans which requires the annual payout of QIF funds when a managed care service delivery area’s actual claims-based UHRIP payments are less than targeted UHRIP payments for a specific rate year. We anticipate that these hospitals may be entitled to an additional $5 million of QIF revenue during the fourth quarter of 2022, increasing the 2022 aggregate to approximately $30 million. We also anticipate that these hospitals may be entitled to a comparable amount of aggregate QIF revenue during 2023.

On January 11, 2021, HHSC announced that CMS approved the pre-print modification that HHSC submitted for UHRIP period March 1, 2021 through August 31, 2021. CMS approved rate changes that will now increase rates for private Institutions of Mental Disease (“IMD”) for services provided to patients under age 21 or patients 65 years of age or older. Subsequent CMS UHRIP and CHIRP program approvals continue to include IMD’s eligible patient population. The impact of these programs are included in the Medicaid Supplemental Payment Programs table below.

On September 24, 2021, HHSC finalized New Fee-for-Service Supplemental Payment Program: Hospital Augmented Reimbursement Program (“HARP”) to be effective October 1, 2021. The HARP program continues the financial transition for providers who have historically participated in the Delivery System Reform Incentive Payment program described below. The program will provide additional funding to hospitals to help offset the cost hospitals incur while providing Medicaid services.

HHSC financial model released concurrent with the publication of the final rule indicates net potential incremental Medicaid reimbursements to us of approximately $15 million annually, without consideration of any potential adverse impact on future Medicaid DSH or Medicaid UC payments. This program remains subject to CMS approval.

Texas Delivery System Reform Incentive Payments:

In addition, the Texas Medicaid Section 1115 Waiver included a DSRIP pool to incentivize hospitals and other providers to transform their service delivery practices to improve quality, health status, patient experience, coordination, and cost-effectiveness. DSRIP pool payments are incentive payments to hospitals and other providers that develop programs or strategies to enhance access to health care, increase the quality of care, the cost-effectiveness of care provided and the health of the patients and families served. In FFY 2022, DSRIP funding under the waiver is eliminated except for certain carryover DSRIP projects. In connection with this DSRIP program, our results of operations included revenues of approximately $18 million and $30 million recorded during the nine-month periods ended September 30, 2022 and 2021, respectively, all of which was recorded during the second quarter of each year.

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

The following table summarizes the revenues, Provider Taxes and net benefit related to each of the above-mentioned Medicaid supplemental programs for the three and nine-month periods ended September 30, 2022 and 2021. The Provider Taxes are recorded in other operating expenses on the Condensed Consolidated Statements of Income as included herein.

	(amounts in millions)
	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2022			2021			2022			2021
Texas UC/UPL:
Revenues	$	87		$	40		$	213		$	107
Provider Taxes		(30	)		(12	)		(76	)		(31	)
Net benefit	$	57		$	28		$	137		$	76

Texas DSRIP:
Revenues	$	0		$	0		$	27		$	44
Provider Taxes		0			0			(9	)		(14	)
Net benefit	$	0		$	0		$	18		$	30

Various other state programs:
Revenues	$	112		$	83		$	329		$	317
Provider Taxes		(41	)		(36	)		(119	)		(111	)
Net benefit	$	71		$	47		$	210		$	206

Total all Provider Tax programs:
Revenues	$	199		$	123		$	569		$	468
Provider Taxes		(71	)		(48	)		(204	)		(156	)
Net benefit	$	128		$	75		$	365		$	312

We estimate that our aggregate net benefit from the Texas and various other state Medicaid supplemental payment programs will approximate $491 million (net of Provider Taxes of $289 million) during the year ending December 31, 2022. These amounts are based upon various terms and conditions that are out of our control including, but not limited to, the states’/CMS’s continued approval of the programs and the applicable hospital district or county making IGTs consistent with 2021 levels.

Future changes to these terms and conditions could materially reduce our net benefit derived from the programs which could have a material adverse impact on our future consolidated results of operations. In addition, Provider Taxes are governed by both federal and state laws and are subject to future legislative changes that, if reduced from current rates in several states, could have a material adverse impact on our future consolidated results of operations. As described below in 2019 Novel Coronavirus Disease Medicare and Medicaid Payment Related Legislation, a 6.2% increase to the Medicaid Federal Matching Assistance Percentage (“FMAP”) is included in the Families First Coronavirus Response Act. The impact of the enhanced FMAP Medicaid supplemental and DSH payments are reflected in our financial results for the three and nine-month periods ended September 30, 2022 and 2021. We are unable to estimate the prospective financial impact of this provision at this time as our financial impact is contingent on unknown state action during future eligible federal fiscal quarters.

Texas and South Carolina Medicaid Disproportionate Share Hospital Payments:

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

Upon meeting certain conditions and serving a disproportionately high share of Texas’ and South Carolina’s low income patients, five of our facilities located in Texas and one facility located in South Carolina received additional reimbursement from each state’s DSH fund. The South Carolina and Texas DSH programs were renewed for each state’s 2023 DSH fiscal year (covering the period of October 1, 2022 through September 30, 2023).

In connection with these DSH programs, included in our financial results was an aggregate of approximately $17 million and $12 million during the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $41 million and $35 million during the nine-month periods ended September 30, 2022 and 2021, respectively. We expect the aggregate reimbursements to our hospitals pursuant to the Texas and South Carolina 2022 fiscal year programs to be approximately $54 million.

The Legislation and subsequent federal legislation provides for a significant reduction in Medicaid disproportionate share payments beginning in federal fiscal year 2024 (see above in Sources of Revenues and Health Care Reform-Medicaid Revisions for additional disclosure related to the delay of these DSH reductions). HHS is to determine the amount of Medicaid DSH payment cuts imposed on each state based on a defined methodology. As Medicaid DSH payments to states will be cut, consequently, payments to Medicaid-participating providers, including our hospitals in Texas and South Carolina, will be reduced in the coming years. Based on the CMS final rule published in September, 2019, beginning in fiscal year 2024 (as amended by the CARES Act and the CAA), annual Medicaid DSH payments in South Carolina and Texas could be reduced by approximately 65% and 41%, respectively, from 2021 DSH payment levels.

Our behavioral health care facilities in Texas have been receiving Medicaid DSH payments since FFY 2016. As with all Medicaid DSH payments, hospitals are subject to state audits that typically occur up to three years after their receipt. DSH payments are subject to a federal Hospital Specific Limit (“HSL”) and are not fully known until the DSH audit results are concluded. In general, freestanding psychiatric hospitals tend to provide significantly less charity care than acute care hospitals and therefore are at more risk for retroactive recoupment of prior year DSH payments in excess of their respective HSL. In light of the retroactive HSL audit risk for freestanding psychiatric hospitals, we have established DSH reserves for our facilities that have been receiving funds since FFY 2016. These DSH reserves are also impacted by the resolution of federal DSH litigation related to Children’s Hospital Association of Texas v. Azar (“CHAT”) where the calculation of HSL was being challenged. In August, 2019, DC Circuit Court of Appeals issued a unanimous decision in CHAT and reversed the judgment of the district court in favor of CMS and ordered that CMS’s “2017 Rule” (regarding Medicaid DSH Payments—Treatment of Third Party Payers in Calculating Uncompensated Care Costs) be reinstated. CMS has not issued any additional guidance post the ruling. In April 2020, the plaintiffs in the case have petitioned the Supreme Court of the United States to hear their case. Additionally, there have been separate legal challenges on this same issue in the Fifth and Eight Circuits. On November 4, 2019, in Missouri Hosp. Ass’n v. Azar, the United States Court of Appeals for the Eighth Circuit issued an opinion upholding the 2017 Rule. On April 20, 2020, in Baptist Memorial Hospital v. Azar, the United States Court of Appeals of the Fifth Circuit issued a decision also upholding the 2017 Rule. In light of these court decisions, we continue to maintain reserves in the financial statements for cumulative Medicaid DSH and UC reimbursements related to our behavioral health hospitals located in Texas that amounted to $37 million as of September 30, 2022 and $40 million as of December 31, 2021.

Nevada SPA:

In Nevada, CMS approved a state plan amendment (“SPA”) in August, 2014 that implemented a hospital supplemental payment program retroactive to January 1, 2014. This SPA has been approved for additional state fiscal years including the 2022 fiscal year covering the period of July 1, 2021 through June 30, 2022. CMS approval for the 2023 fiscal year, which is still pending, is expected to occur.

In connection with this program, included in our financial results was approximately $5 million during each of the three-month period ended September 30, 2022 and 2021, and approximately $16 million during each of the nine-month periods ended September 30, 2022 and 2021. We estimate that our reimbursements pursuant to this program will approximate $21 million during the year ended December 31, 2022.

California SPA:

In California, CMS issued formal approval of the 2017-19 Hospital Fee Program in December, 2017 retroactive to January 1, 2017 through September 30, 2019. In September, 2019, the state submitted a request to renew the Hospital Fee Program for the period July 1, 2019 to December 31, 2021. On February 25, 2020, CMS approved this renewed program. These approvals include the Medicaid inpatient and outpatient fee-for-service supplemental payments and the overall provider tax structure but did not yet include the

approval of the managed care rate setting payment component for certain rate periods (see table below). The managed care payment component consists of two categories of payments, “pass-through” payments and “directed” payments. The pass-through payments are similar in nature to the prior Hospital Fee Program payment method whereas the directed payment method will be based on actual concurrent hospital Medicaid managed care in-network patient volume.

California Hospital Fee Program CMS Approval Status:


Hospital Fee Program Component	CMS Methodology Approval Status	CMS Rate Setting Approval Status
Fee For Service Payment	Approved through December 31, 2022	Approved through December 31, 2021; Paid through December 31, 2021
Managed Care-Pass-Through Payment	Approved through December 31, 2022	Approved through June 30, 2019; Paid in advance of approval through December 31, 2021
Managed Care-Directed Payment	Approved through December 31, 2022	Approved through June 30, 2019; Paid in advance of approval through December 30, 2020

In connection with the existing program, included in our financial results was approximately $10 million and $11 million during the three-month periods ended September 30, 2022 and 2021, respectively, and $38 million and $35 million during the nine-month periods ended September 30, 2022 and 2021, respectively. We estimate that our reimbursements pursuant to this program will approximate $50 million during the year ended December 31, 2022. The aggregate impact of the California supplemental payment program, as outlined above, is included in the above State Medicaid Supplemental Payment Program table.

Kentucky Hospital Rate Increase Program (“HRIP”):

In early 2021, CMS approved the Kentucky Medicaid Managed Care Hospital Rate Increase Program (“HRIP”) for SFY 2021, which covered the period of July 1, 2020 through June 30, 2021. In December 2021, CMS approved the HRIP program period for the period July 1, 2021 to December 31, 2021. Included in our financial results was approximately $18 million and $8 million during the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $47 million and $65 million during the nine-month periods ended September 30, 2022 and 2021, respectively.

Programs such as HRIP require an annual state submission and approval by CMS. In December, 2021, CMS approved the program for the period of January 1, 2022 through December 31, 2022 at rates similar to the prior year. We estimate that our reimbursements pursuant to HRIP will approximate $59 million during the year ended December 31, 2022.

Florida Medicaid Managed Care Directed Payment Program (“DPP”):

During the fourth quarter of 2021, we recorded approximately $23 million of increased reimbursement resulting from the Medicaid managed care directed payment program for the 2021 rate period (covering the period of October 1, 2020 to September 30, 2021). Various DPP related legislative and regulatory approvals result in the retroactive payment of the increased reimbursement after the applicable rate year has ended. The payment methodology and amount of the 2022 DPP (covering the period of October 1, 2021 to September 30, 2022) is expected to be comparable to the 2021 DPP. As a result, if CMS and other legislative and regulatory approvals occur in connection with the 2022 DPP, we estimate that our reimbursements pursuant to the 2022 DPP will approximate $32 million, net of Provider Taxes, during the year ended December 31, 2022, all of which we expect to record during the fourth quarter. This amount reflects additional Medicaid managed regions in the state participating in the program during the 2022 DPP year.

Oklahoma Transition to Managed Care and Implementation of a Medicaid Managed Care DPP

In May, 2022, Oklahoma enacted legislation (SB 1337 and SB 1396) that directs the Oklahoma Health Care Authority to: (i) transition its Medicaid program from a fee for service payment model to a managed care payment model by no later than October 1, 2023, and: (ii) concurrently implement a Medicaid managed care DPP using a managed care gap of ninety percent (90%) average commercial rates. Although we estimate that the DPP as enacted may have a favorable impact on our future results of operations, we are unable to quantify the ultimate impact since implementation of this legislation is subject to various administrative and regulatory steps including the awarding of managed care contracts as well as CMS’ approval of the DPP.

Risk Factors Related To State Supplemental Medicaid Payments:

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

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

HITECH Act: In July 2010, HHS published final regulations implementing the health information technology (“HIT”) provisions of the American Recovery and Reinvestment Act (referred to as the “HITECH Act”). The final regulation defines the “meaningful use” of Electronic Health Records (“EHR”) and establishes the requirements for the Medicare and Medicaid EHR payment incentive programs. The final rule established an initial set of standards and certification criteria. The implementation period for these Medicare and Medicaid incentive payments started in federal fiscal year 2011 and can end as late as 2016 for Medicare and 2021 for the state Medicaid programs. State Medicaid program participation in this federally funded incentive program is voluntary but all of the states in which our eligible hospitals operate have chosen to participate. Our acute care hospitals qualified for these EHR incentive payments upon implementation of the EHR application assuming they meet the “meaningful use” criteria. The government’s ultimate goal is to promote more effective (quality) and efficient healthcare delivery through the use of technology to reduce the total cost of healthcare for all Americans and utilizing the cost savings to expand access to the healthcare system.

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

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

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

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

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

Surprise Billing Interim Final Rule: On September 30, 2021, the Department of Labor, and the Department of the Treasury, along with the Office of Personnel Management (“OPM”), released an interim final rule with comment period, entitled “Requirements Related to Surprise Billing; Part II.” This rule is related to Title I (the “No Surprises Act”) of Division BB of the Consolidated Appropriations Act, 2021, and establishes new protections from surprise billing and excessive cost sharing for consumers receiving health care items/services. It implements additional protections against surprise medical bills under the No Surprises Act, including provisions related to the independent dispute resolution process, good faith estimates for uninsured (or self-pay) individuals, the patient-provider dispute resolution process, and expanded rights to external review. On February 28, 2022, a district judge in the Eastern District of Texas invalidated portions of the rule governing aspects of the Independent Dispute Resolution (“IDR”) process. In light of this decision, the government issued a final rule on August 19, 2022 eliminating the rebuttable presumption in favor of the qualifying payment amount (“QPA”) by the IDR entity and providing additional factors the IDR entity should consider when choosing between two competing offers. On September 22, 2022, the Texas Medical Association filed a lawsuit challenging the IDR process provided in the updated final rule and alleging that the final rule unlawfully elevates the QPA above other factors the IDR entity must consider. The American Hospital Association and American Medical Association have announced their intent to join this case as amici supporting the Texas Medical Association. We do not expect the interim final rule or the August 19, 2022 final rule to have a material impact on our results of operations.

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

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

Implemented Medicare Reductions and Reforms:



	•	The Legislation reduced the market basket update for inpatient and outpatient hospitals and inpatient behavioral health facilities by 0.25% in each of 2010 and 2011, by 0.10% in each of 2012 and 2013, 0.30% in 2014, 0.20% in each of 2015 and 2016 and 0.75% in each of 2017, 2018 and 2019.
	•	The Legislation implemented certain reforms to Medicare Advantage payments, effective in 2011.
	•	A Medicare shared savings program, effective in 2012.
	•	A hospital readmissions reduction program, effective in 2012.
	•	A value-based purchasing program for hospitals, effective in 2012.
	•	A national pilot program on payment bundling, effective in 2013.
	•	Reduction to Medicare DSH payments, effective in 2014, as discussed above.

Medicaid Revisions:



	•	Expanded Medicaid eligibility and related special federal payments, effective in 2014.
	•	The Legislation (as amended by subsequent federal legislation) requires annual aggregate reductions in federal DSH funding from FFY 2024 through FFY 2027. Medicaid DSH reductions have been delayed several times. Commencing in federal fiscal year 2024, and continuing through 2027, DSH payments will be reduced by $8 billion annually.

Health Insurance Revisions:



	•	Large employer insurance reforms, effective in 2015.
	•	Individual insurance mandate and related federal subsidies, effective in 2014. As noted above in Health Care Reform, the Tax Cuts and Jobs Act enacted into law in December, 2017 eliminated the individual insurance federal mandate penalty beginning January 1, 2019.
	•	Federally mandated insurance coverage reforms, effective in 2010 and forward.

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

Value-Based Purchasing:

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

The Legislation required HHS to implement a value-based purchasing program for inpatient hospital services which became effective on October 1, 2012. The Legislation requires HHS to reduce inpatient hospital payments for all discharges by 2% in FFY 2017 and subsequent years. HHS will pool the amount collected from these reductions to fund payments to reward hospitals that meet or exceed certain quality performance standards established by HHS. HHS will determine the amount each hospital that meets or exceeds the quality performance standards will receive from the pool of dollars created by these payment reductions. As part of the FFY 2022

IPPS final rule and FFY 2023 final rule, as discussed above, and as a result of the on-going COVID-19 pandemic, CMS has implemented a budget neutral payment policy to fully offset the 2% VBP withhold during each of FFY 2022 and FFY 2023.

Hospital Acquired Conditions:

The Legislation prohibits the use of federal funds under the Medicaid program to reimburse providers for medical assistance provided to treat hospital acquired conditions (“HAC”). Beginning in FFY 2015, hospitals that fall into the top 25% of national risk-adjusted HAC rates for all hospitals in the previous year will receive a 1% reduction in their total Medicare payments. As part of the FFY 2023 final rule discussed above, and as a result of the on-going COVID-19 pandemic, CMS will suppress all six measures in the HAC Reduction Program for the FY 2023 program year and eliminate the HAC reduction program’s one percent payment penalty.

Readmission Reduction Program:

In the Legislation, Congress also mandated implementation of the hospital readmission reduction program (“HRRP”). Hospitals with excessive readmissions for conditions designated by HHS will receive reduced payments for all inpatient discharges, not just discharges relating to the conditions subject to the excessive readmission standard. The HRRP currently assesses penalties on hospitals having excess readmission rates for heart failure, myocardial infarction, pneumonia, acute exacerbation of chronic obstructive pulmonary disease (COPD) and elective total hip arthroplasty (THA) and/or total knee arthroplasty (TKA), excluding planned readmissions, when compared to expected rates. In the fiscal year 2015 IPPS final rule, CMS added readmissions for coronary artery bypass graft (CABG) surgical procedures beginning in fiscal year 2017. To account for excess readmissions, an applicable hospital's base operating DRG payment amount is adjusted for each discharge occurring during the fiscal year. Readmissions payment adjustment factors can be no more than a 3 percent reduction. As part of the FFY 2023 IPPS final rule discussed above, CMS will modify all of the condition-specific readmission measures to include an adjustment for patient history of COVID-19 for FFY 2024.

Accountable Care Organizations:

The Legislation requires HHS to establish a Medicare Shared Savings Program that promotes accountability and coordination of care through the creation of accountable care organizations (“ACOs”). The ACO program allows providers (including hospitals), physicians and other designated professionals and suppliers to voluntarily work together to invest in infrastructure and redesign delivery processes to achieve high quality and efficient delivery of services. The program is intended to produce savings as a result of improved quality and operational efficiency. ACOs that achieve quality performance standards established by HHS will be eligible to share in a portion of the amounts saved by the Medicare program. CMS is also developing and implementing more advanced ACO payment models that require ACOs to assume greater risk for attributed beneficiaries. On December 21, 2018, CMS published a final rule that, in general, requires ACO participants to take on additional risk associated with participation in the program. On April 30, 2020, CMS issued an interim final rule with comment in response to the COVID-19 national emergency permitting ACOs with current agreement periods expiring on December 31, 2020 the option to extend their existing agreement period by one year, and permitting certain ACOs to retain their participation level through 2021. It remains unclear to what extent providers will pursue federal ACO status or whether the required investment would be warranted by increased payment.

2019 Novel Coronavirus Disease Medicare and Medicaid Payment Related Legislation

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

•

Waivers and Flexibilities for Hospitals and other Healthcare Facilities including those for physical environment requirements and certain Emergency Medical Treatment & Labor Act provisions

•

Provider Enrollment Flexibilities

•

Flexibility and Relief for State Medicaid Programs including those under section 1135 Waivers

•

Suspension of Certain Enforcement Activities

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

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

•

Medicaid FMAP Enhancement

•

The FMAP was increased by 6.2% retroactive to the federal fiscal quarter beginning January 1, 2020 and each subsequent federal fiscal quarter for all states and U.S. territories during the declared public health emergency, in accordance with specified conditions.

•

Public Health Emergency Declaration

•

The HHS Secretary renewed the public health emergency (“PHE”) effective October 13, 2022 for ninety (90) days. As a result, states would be eligible for the enhanced FMAP through the end of federal fiscal quarter ending March 31, 2023 should the PHE not be rescinded by the Secretary before the end of the ninety day period.

•

Creation of a $250 billion Public Health and Social Services Emergency Fund (“PHSSEF”)

•

Makes grants available to hospitals and other healthcare providers to cover unreimbursed healthcare related expenses or lost revenues attributable to the public health emergency resulting from the coronavirus.

•

During 2021, we received approximately $189 million in PHSSEF grants from the federal government as provided for by the CARES Act. As previously disclosed, we returned these funds to HHS during the second quarter of 2021. Since our intent was to return these funds, our financial results for the year ended December 31, 2021 include no impact from the receipt of these federal funds. Reimbursements recorded pursuant the PHSSEF and other various state and local governmental stimulus programs did not have a significant impact on our financial results during the nine-month period ended September 30, 2022. Our results of operations for the nine-month period ended September 30, 2021 included approximately $13 million of reimbursements recorded in connection with these programs.

•

During the year ended December 31, 2020, we received approximately $417 million of funds from various governmental stimulus programs, most notably the PHSSEF as provided for by the CARES Act. As mentioned above, included financial results for the year ended December 31, 2020 was approximately $413 million of revenues recognized in connection with funds received from these federal, state and local governmental stimulus programs.

•

All PHSSEF receipts are subject to meeting the applicable terms and conditions of the various distribution programs as of September 30, 2021. The Consolidated Appropriations Act, 2021 (H.R. 133) enacted on December 27, 2020 includes language that provides specific instructions on: (1) the redistribution of PHSSEF grant payments by a parent company among its subsidiaries, and; (2) the calculation of lost revenue in a PHSSEF grant entitlement determination. The HHS terms and conditions for all grant recipients and specific fund distributions are located at https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/for-providers/index.html

•

Reimburse hospitals at Medicare rates for uncompensated COVID-19 care for the uninsured

•

Our financial results included revenues recorded in connection with this COVID-19 uninsured program amounting to approximately $4 million and $19 million during the three-month periods ended September 30, 2022 and 2021, respectively, and $22 million and $50 million during the nine-month periods ended September 30, 2022 and 2021, respectively. Revenue for the eligible patient encounters is recorded in the period in which the encounter is deemed eligible for this program net of any normal accounting reserves.

•

Effective March 22, 2022, HHS announced that the HRSA COVID-19 Uninsured Program and Coverage Assistance Fund is no longer accepting claims due to insufficient funding.

•

Medicare Sequestration Relief

•

Suspension of the 2% Medicare sequestration offset for Medicare services provided from May 1, 2020 through December 31, 2021 by various legislative extensions. In December, 2021, the suspended 2% payment reduction was extended until March 31, 2022 and partially suspended at a 1% payment reduction for an additional three-month period that ended on June 30, 2022.

•

Our financial results included revenues recorded in connection with this Medicare sequestration relief program amounting to $0 and $11 million during the three-month periods ended September 30, 2022 and 2021, respectively, and $17 million and $34 million during the nine-month periods ended September 30, 2022 and 2021, respectively.

•

Medicare add-on for inpatient hospital COVID-19 patients

•

Increases the payment that would otherwise be made to a hospital for treating a Medicare patient admitted with COVID-19 by twenty percent (20%) for the duration of the COVID-19 public health emergency.

•

Our financial results included revenues recorded in connection with this COVID-19 Medicare add-on program amounting to approximately $7 million and $8 million during the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $25 million and $27 million during the nine-month periods ended September 30, 2022 and 2021, respectively. These payments were intended to offset the increased expenses associated with the treatment of Medicare COVID-19 patients.

•

Expansion of the Medicare Accelerated and Advance Payment Program (“MAAPP”)

•

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

In addition to statutory and regulatory changes to the Medicare program and each of the state Medicaid programs, our operations and reimbursement may be affected by administrative rulings, new or novel interpretations and determinations of existing laws and

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

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

Other Operating Results

Interest Expense:

As reflected on the schedule below, interest expense was $36 million and $21 million during the three-month periods ended September 30, 2022 and 2021, respectively, and $83 million and $64 million during the nine-month periods ended September 30, 2022 and 2021, respectively (amounts in thousands):

	Three Months Ended September 30, 2022			Three Months Ended September 30, 2021			Nine Months Ended September 30, 2022			Nine Months Ended September 30, 2021
Revolving credit & demand notes (a.)	$	1,440		$	502		$	7,752		$	1,502
Tranche A term loan facility (a.)		22,177			6,460			37,710			20,576
Tranche B term loan facility (a.)		-			1,352			-			5,941
$400 million, 5.00% Senior Notes due 2026 (b.)		-			4,000			-			14,000
$800 million, 2.65% Senior Notes due 2030 (c.)		5,356			5,356			16,069			16,113
$700 million, 1.65% Senior Notes due 2026 (d.)		2,931			1,205			8,794			1,205
$500 million, 2.65% Senior Notes due 2032 (e.)		3,345			1,376			10,035			1,376
Accounts receivable securitization program (f.)		10			10			30			777
Subtotal-revolving credit, demand notes, Senior Notes, term loan facilities and accounts receivable securitization program		35,259			20,261			80,390			61,490
Amortization of financing fees		1,259			1,087			3,481			3,205
Other combined interest expense		1,441			1,322			5,052			4,197
Capitalized interest on major projects		(2,199	)		(1,305	)		(5,738	)		(2,957	)
Interest income		(107	)		(166	)		(183	)		(1,480	)
Interest expense, net	$	35,653		$	21,199		$	83,002		$	64,455

(a.)

In June, 2022 we entered into the ninth amendment to our credit agreement dated November 15, 2010, as amended (the “Credit Agreement”), which, among other things, added a new incremental tranche A term loan facility in the aggregate principal amount of $700 million. In September, 2021 we entered into an eighth amendment which modified the definition of “Adjusted LIBO Rate”. In August, 2021 we entered into a seventh amendment to our Credit Agreement which provided for the amendment and restatement of the previously existing credit facility including, among other things, the following: (i) a $1.2 billion aggregate amount revolving credit facility that is scheduled to mature in August, 2026 ($189.2 million of borrowings outstanding as of September 30, 2022); (ii) a tranche A term loan facility with $2.35 billion of outstanding borrowings as of September 30, 2022 (including the $700 million increase provided for by the ninth amendment in June, 2022), and; (iii) repayment of a portion of the previously outstanding tranche A term loan facility borrowings ($150 million) and all of the tranche B term loan facility borrowings ($488 million). Repayment of the $638 million of previously outstanding borrowings under the tranche A and tranche B term loan facilities were funded utilizing a portion of the proceeds generated from the August, 2021 issuance of the $700 million, 1.65% Senior Notes due in 2026, and the $500 million, 2.65%, Senior Notes due in 2032.

(b.)

In September, 2021 we redeemed the entire $400 million aggregate principal amount of our previously outstanding 5.00% Senior Secured Notes that were scheduled to mature in 2026 at a cash redemption price equal to the sum of 102.50% of the aggregate principal amount. This redemption was funded utilizing a portion of the proceeds generated from the August, 2021 issuance of the $700 million, 1.65% Senior Notes due in 2026, and the $500 million, 2.65% Senior Notes due in 2032, as discussed in (d.) and (e.) below.

(c.)

In September, 2020 we completed the offering of $800 million aggregate principal amount of 2.65% Senior Notes due in 2030.

(d.)

In August, 2021 we completed the offering of $700 million aggregate principal amount of 1.65% Senior Notes due in 2026.

(e.)

In August, 2021 we completed the offering of $500 million aggregate principal amount of 2.65% Senior Notes due in 2032.

(f.)

Our accounts receivable securitization program was amended in April, 2021 to reduce the borrowing commitment to $20 million (from $450 million previously), amended in April, 2022 to extend the maturity date to July 22, 2022, amended in July, 2022 to extend the maturity date to September, 2022, and amended in September, 2022 to extend the maturity date to December, 2022. There are no outstanding borrowings as of September 30, 2022.

Interest expense increased approximately $14 million during the three-month period ended September 30, 2022, as compared to the three-month period ended September 30, 2021, due primarily to a net $15 million increase in aggregate interest expense on our revolving credit, demand notes, senior notes, term loan facilities and accounts receivable securitization program. The increase resulted from: (i) an increase in the aggregate average outstanding borrowings ($4.46 billion during the three months ended September 30, 2022 as compared to $3.70 billion during the three months ended September 30, 2021), and; (ii) an increase in the weighted average cost of borrowings pursuant to these facilities (3.08% and 2.13% during the three-month periods ended September 30, 2022 and 2021, respectively). The weighted average effective interest rate pursuant to these facilities, including amortization of deferred financing costs, original issue discount and designated interest rate swap expense/income, was 3.21% and 2.26% during the three-month periods ended September 30, 2022 and 2021, respectively.

Interest expense increased approximately $19 million during the nine-month period ended September 30, 2022, as compared to the nine-month period ended September 30, 2021, primarily due to a net $19 million increase on our revolving credit, demand notes, senior notes, term loan facilities and accounts receivable securitization program. The increase resulted from: (i) an increase in the aggregate average outstanding borrowings ($4.37 billion during the nine months ended September 30, 2022 as compared to $3.69 billion during the nine months ended September 30, 2021), and; (ii) an increase in the weighted average cost of borrowings pursuant to these facilities (2.41% and 2.19% during the nine-month periods ended September 30, 2022 and 2021, respectively). The weighted average effective interest rates pursuant to these facilities, including amortization of deferred financing costs, original issue discount and designated interest rate swap expense/income, were 2.53% and 2.31% during the nine-month periods ended September 30, 2022 and 2021, respectively.

Provision for Income Taxes and Effective Tax Rates:

The effective tax rates, as calculated by dividing the provision for income taxes by income before income taxes, were as follows for the three and nine-month periods ended September 30, 2022 and 2021 (dollar amounts in thousands):

	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2022			2021			2022			2021
Provision for income taxes	$	57,401		$	67,515		$	157,312		$	232,844
Income before income taxes		234,212			286,890			643,925			986,565
Effective tax rate		24.5	%		23.5	%		24.4	%		23.6	%

The provision for income taxes decreased $10 million during the three-month period ended September 30, 2022, as compared to the third quarter of 2021, due primarily to the income tax benefit recorded in connection with the $46 million decrease in pre-tax income.

The provision for income taxes decreased $76 million during the nine-month period ended September 30, 2022, as compared to the comparable period of 2021, due primarily to the income tax benefit recorded in connection with the $327 million decrease in pre-tax income.

Liquidity

Net cash provided by operating activities

Net cash provided by operating activities was $699 million during the nine-month period ended September 30, 2022 and $562 million during the first nine months of 2021. The net increase of $137 million was attributable to the following:

•

a favorable change of $695 million from the early return of the Medicare accelerated payments which were received during 2020 and repaid during the first quarter of 2021;

•

an unfavorable change of $245 million resulting from a decrease in net income plus depreciation and amortization expense, stock-based compensation expense, gain/loss on sale of assets and businesses, costs related to extinguishment of debt and provision for asset impairment;

•

an unfavorable change of $227 million from other working capital accounts due primarily to the timing of disbursements for accrued compensation;

•

an unfavorable change of $126 million in accounts receivable due, in part, to the timing of receipt of certain supplemental reimbursements and the opening of new facilities, and;

•

$40 million of other combined net favorable changes.

Days sales outstanding (“DSO”): Our DSO are calculated by dividing our net revenue by the number of days in the nine-month periods. The result is divided into the accounts receivable balance at September 30^th of each year to obtain the DSO. Our DSO were 52 days and 51 days at September 30, 2022 and 2021, respectively.

Net cash used in investing activities

During the first nine months of 2022, we used $399 million of net cash in investing activities as follows:

•

$570 million spent on capital expenditures including capital expenditures for equipment, renovations and new projects at various existing facilities;

•

$177 million received in connection with net cash inflows from forward exchange contracts that hedge our investment in the U.K. against movements in exchange rates;

•

$19 million spent on the acquisition of businesses and property, and;

•

$12 million received from the sales of assets and businesses.

During the first nine months of 2021, we used $660 million of net cash in investing activities as follows:

•

$666 million spent on capital expenditures including capital expenditures for equipment, renovations and new projects at various existing facilities;

•

$39 million spent on acquisition of business and property;

•

$21 million received from the sale of our equity interest in a business;

•

$20 million received in connection with the implementation of information technology applications (consists primarily of refunded costs previously paid), and;

•

$4 million received in connection with net cash inflows from forward exchange contracts that hedge our investment in the U.K. against movements in exchange rates.

Net cash used in financing activities

During the first nine months of 2022, we used $303 million of net cash in financing activities as follows:

•

generated $705 million of additional borrowings consisting primarily of the $700 million generated pursuant to the new tranche A term loan facility which commenced in June, 2022;

•

spent $723 million to repurchase shares of our Class B Common Stock in connection with: (i) open market purchases pursuant to our stock repurchase program ($703 million), and; (ii) income tax withholding obligations related to stock-based compensation programs ($20 million);

•

spent $194 million on net repayments of debt as follows: (i) $153 million related to our revolving credit facility; (ii) $36 million related to our tranche A term loan facility, and; (iii) $5 million related to other debt facilities;

•

spent $49 million in connection with the purchase of ownership interests from minority members, net of sales, consisting primarily of our purchase of George Washington University’s 20% ownership in George Washington University Hospital (we now own 100% of the hospital);

•

spent $44 million to pay quarterly cash dividends of $.20 per share;

•

generated $10 million from the issuance of shares of our Class B Common Stock pursuant to the terms of employee stock purchase plans;

•

spent $5 million to pay profit distributions related to noncontrolling interests in majority owned businesses, and;

•

spent $3 million to pay financing costs.

During the first nine months of 2021, we used $936 million of net cash in financing activities as follows:

•

spent $3.027 billion on net repayments of debt as follows: (i) $1.9 billion related to our tranche A term loan facility; (ii) $490 million related to our previously outstanding tranche B term loan facility; (iii) $410 million related to the early redemption of our previously outstanding $400 million, 5.00% senior secured notes which were scheduled to mature in June, 2026; (iv) $225 million in connection with our accounts receivable securitization program, and; (v) $2 million related to other debt facilities;

•

generated $2.912 billion of additional borrowings as follows: (i) $1.7 billion related to our tranche A term loan facility; (ii) $699 million (net of discount) related to the August, 2021 issuance of $700 million, 1.65% senior secured notes due in September, 2026; (iii) $499 million (net of discount) related to the August, 2021 issuance of $500 million, 2.65% senior secured notes due in January, 2032, and; (iv) received $14 million of proceeds related to other debt facilities;

•

spent $770 million to repurchase shares of our Class B Common Stock in connection with: (i) open market purchases pursuant to our stock repurchase program ($751 million), and; (ii) income tax withholding obligations related to stock-based compensation programs ($19 million);

•

spent $50 million to pay quarterly cash dividends of $.20 per share;

•

spent $18 million to pay financing costs incurred in connection with various financing transactions;

•

received $13 million in connection with the sale of ownership interest to minority members;

•

generated $10 million from the issuance of shares of our Class B Common Stock pursuant to the terms of employee stock purchase plans, and;

•

spent $6 million to pay profit distributions related to noncontrolling interests in majority owned businesses.

Expected capital expenditures during remainder of 2022

During the full year of 2022, we expect to spend approximately $760 million to $810 million on capital expenditures which includes expenditures for capital equipment, construction of new facilities, and renovations and expansions at existing hospitals. During the first nine months of 2022, we spent approximately $570 million on capital expenditures. During the remaining three months of 2022, we expect to spend approximately $190 million to $240 million on capital expenditures.

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

Capital Resources

Credit Facilities and Outstanding Debt Securities