e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31,
2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 1-11239
HCA HOLDINGS, INC.
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
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27-3865930
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(State or Other Jurisdiction of
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(I.R.S. Employer Identification No.)
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Incorporation or Organization)
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One Park Plaza
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37203
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Nashville, Tennessee
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(Zip Code)
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(Address of Principal Executive
Offices)
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Registrants telephone number, including area code:
(615) 344-9551
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the Registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of February 1, 2011, there were approximately
94,889,400 shares of Registrants common stock
outstanding. There is not a market for the Registrants
common stock; therefore, the aggregate market value of the
Registrants common stock held by non-affiliates is not
calculable.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive Information
Statement in connection with its action on written consent of
stockholders in lieu of an annual meeting are incorporated by
reference into Part III hereof.
PART I
General
HCA Holdings, Inc. is one of the leading health care services
companies in the United States. At December 31, 2010, we
operated 164 hospitals, comprised of 158 general, acute care
hospitals; five psychiatric hospitals; and one rehabilitation
hospital. The 164 hospital total includes eight hospitals (seven
general, acute care hospitals and one rehabilitation hospital)
owned by joint ventures in which an affiliate of HCA is a
partner, and these joint ventures are accounted for using the
equity method. In addition, we operated 106 freestanding surgery
centers, nine of which are owned by joint ventures in which an
affiliate of HCA is a partner, and these joint ventures are
accounted for using the equity method. Our facilities are
located in 20 states and England.
The terms Company, HCA, we,
our or us, as used herein and unless
otherwise stated or indicated by context, refer to HCA Inc. and
its affiliates prior to the Corporate Reorganization (as defined
below) and to HCA Holdings, Inc. and its affiliates after the
Corporate Reorganization. The term affiliates means
direct and indirect subsidiaries of HCA Holdings, Inc. and
partnerships and joint ventures in which such subsidiaries are
partners. The terms facilities or
hospitals refer to entities owned and operated by
affiliates of HCA and the term employees refers to
employees of affiliates of HCA.
Our primary objective is to provide a comprehensive array of
quality health care services in the most cost-effective manner
possible. Our general, acute care hospitals typically provide a
full range of services to accommodate such medical specialties
as internal medicine, general surgery, cardiology, oncology,
neurosurgery, orthopedics and obstetrics, as well as diagnostic
and emergency services. Outpatient and ancillary health care
services are provided by our general, acute care hospitals,
freestanding surgery centers, diagnostic centers and
rehabilitation facilities. Our psychiatric hospitals provide a
full range of mental health care services through inpatient,
partial hospitalization and outpatient settings.
On November 17, 2006, HCA Inc. was acquired by a private
investor group comprised of affiliates of or funds sponsored by
Bain Capital Partners, LLC (Bain Capital), Kohlberg
Kravis Roberts & Co. (KKR) and Merrill
Lynch Global Private Equity (MLGPE), now BAML
Capital Partners (each a Sponsor), Citigroup Inc.
and Bank of America Corporation (the Sponsor
Assignees) and HCA founder Dr. Thomas F.
Frist, Jr. (the Frist Entities), a group we
collectively refer to as the Investors, and by
members of management and certain other investors. We refer to
the merger, the financing transactions related to the merger and
other related transactions collectively as the
Recapitalization. The merger was accounted for as a
recapitalization in our financial statements, with no
adjustments to the historical basis of our assets and
liabilities. As a result of the Recapitalization, our
outstanding capital stock is owned by the Investors, certain
members of management and key employees. On April 29, 2008,
we registered our common stock pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the
Exchange Act), thus subjecting us to the reporting
requirements of Section 13(a) of the Securities Exchange
Act of 1934, as amended. Our common stock is not traded on a
national securities exchange.
The Company was incorporated in Nevada in January 1990 and
reincorporated in Delaware in September 1993. Our principal
executive offices are located at One Park Plaza, Nashville,
Tennessee 37203, and our telephone number is
(615) 344-9551.
Corporate
Reorganization
On November 22, 2010, HCA Inc. reorganized by creating a
new holding company structure (the Corporate
Reorganization). We are the new parent company, and HCA
Inc. is now our wholly-owned direct subsidiary. As part of the
Corporate Reorganization, HCA Inc.s outstanding shares of
capital stock were automatically converted, on a share for share
basis, into identical shares of our common stock. Our amended
and restated certificate of incorporation, amended and restated
by-laws, executive officers and board of directors are the same
as HCA Inc.s in effect immediately prior to the Corporate
Reorganization, and the rights, privileges and interests of HCA
Inc.s stockholders remain the same with respect to us as
the new holding company. Additionally, as a result of the
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Corporate Reorganization, we are deemed the successor registrant
to HCA Inc. under the Exchange Act, and shares of our common
stock are deemed registered under Section 12(g) of the
Exchange Act. As part of the Corporate Reorganization, we will
become a guarantor but will not assume the debt of HCA
Inc.s outstanding secured notes.
We have assumed all of HCA Inc.s obligations with respect
to the outstanding shares previously registered on
Form S-8
for distribution pursuant to HCA Inc.s stock incentive
plan and have also assumed HCA Inc.s other equity
incentive plans that provide for the right to acquire HCA
Inc.s common stock, whether or not exercisable. We have
also assumed and agreed to perform HCA Inc.s obligations
under its other compensation plans and agreements pursuant to
which HCA Inc. is to issue equity securities to its directors,
officers, or employees. The agreements and plans we assumed were
each deemed to be automatically amended as necessary to provide
that references therein to HCA Inc. now refer to HCA Holdings,
Inc. Consequently, following the Corporate Reorganization, the
right to receive HCA Inc.s common stock under its various
compensation plans and agreements automatically converted into
rights for the same number of shares of our common stock, with
the same rights and conditions as the corresponding HCA Inc.
rights prior to the Corporate Reorganization.
Available
Information
We file certain reports with the Securities and Exchange
Commission (the SEC), including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K.
The public may read and copy any materials we file with the SEC
at the SECs Public Reference Room at
100 F Street, N.E., Washington, DC 20549. The public
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
We are an electronic filer, and the SEC maintains an Internet
site at
http://www.sec.gov
that contains the reports, proxy and information statements and
other information we file electronically. Our website address is
www.hcahealthcare.com. Please note that our website address is
provided as an inactive textual reference only. We make
available free of charge, through our website, our annual report
on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after such material is electronically
filed with or furnished to the SEC. The information provided on
our website is not part of this report, and is therefore not
incorporated by reference unless such information is
specifically referenced elsewhere in this report.
Our Code of Conduct is available free of charge upon request to
our Corporate Secretary, HCA Holdings, Inc., One Park Plaza,
Nashville, Tennessee 37203.
Business
Strategy
We are committed to providing the communities we serve with high
quality, cost-effective health care while growing our business,
increasing our profitability and creating long-term value for
our stockholders. To achieve these objectives, we align our
efforts around the following growth agenda:
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grow our presence in existing markets;
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achieve industry-leading performance in clinical and
satisfaction measures;
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recruit and employ physicians to meet need for high quality
health services;
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continue to leverage our scale and market positions to enhance
profitability; and
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selectively pursue a disciplined development strategy.
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Health
Care Facilities
We currently own, manage or operate hospitals; freestanding
surgery centers; diagnostic and imaging centers; radiation and
oncology therapy centers; comprehensive rehabilitation and
physical therapy centers; and various other facilities.
At December 31, 2010, we owned and operated 151 general,
acute care hospitals with 38,321 licensed beds, and an
additional seven general, acute care hospitals with 2,269
licensed beds are operated through joint ventures, which are
accounted for using the equity method. Most of our general,
acute care hospitals provide medical and
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surgical services, including inpatient care, intensive care,
cardiac care, diagnostic services and emergency services. The
general, acute care hospitals also provide outpatient services
such as outpatient surgery, laboratory, radiology, respiratory
therapy, cardiology and physical therapy. Each hospital has an
organized medical staff and a local board of trustees or
governing board, made up of members of the local community.
Our hospitals do not typically engage in extensive medical
research and education programs. However, some of our hospitals
are affiliated with medical schools and may participate in the
clinical rotation of medical interns and residents and other
education programs.
At December 31, 2010, we operated five psychiatric
hospitals with 506 licensed beds. Our psychiatric hospitals
provide therapeutic programs including child, adolescent and
adult psychiatric care, adult and adolescent alcohol and drug
abuse treatment and counseling.
We also operate outpatient health care facilities which include
freestanding ambulatory surgery centers (ASCs),
diagnostic and imaging centers, comprehensive outpatient
rehabilitation and physical therapy centers, outpatient
radiation and oncology therapy centers and various other
facilities. These outpatient services are an integral component
of our strategy to develop comprehensive health care networks in
select communities. Most of our ASCs are operated through
partnerships or limited liability companies, with majority
ownership of each partnership or limited liability company
typically held by a general partner or subsidiary that is an
affiliate of HCA.
Certain of our affiliates provide a variety of management
services to our health care facilities, including patient safety
programs; ethics and compliance programs; national supply
contracts; equipment purchasing and leasing contracts;
accounting, financial and clinical systems; governmental
reimbursement assistance; construction planning and
coordination; information technology systems and solutions;
legal counsel; human resources services; and internal audit
services.
Sources
of Revenue
Hospital revenues depend upon inpatient occupancy levels, the
medical and ancillary services ordered by physicians and
provided to patients, the volume of outpatient procedures and
the charges or payment rates for such services. Charges and
reimbursement rates for inpatient services vary significantly
depending on the type of payer, the type of service (e.g.,
medical/surgical, intensive care or psychiatric) and the
geographic location of the hospital. Inpatient occupancy levels
fluctuate for various reasons, many of which are beyond our
control.
We receive payment for patient services from the federal
government under the Medicare program, state governments under
their respective Medicaid or similar programs, managed care
plans, private insurers and directly from patients. The
approximate percentages of our revenues from such sources were
as follows:
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Year Ended
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December 31,
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2010
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2009
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2008
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Medicare
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24
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%
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23
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%
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23
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%
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Managed Medicare
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7
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7
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6
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Medicaid
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6
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6
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5
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Managed Medicaid
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4
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4
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3
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Managed care and other insurers
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53
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52
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53
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Uninsured
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6
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8
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10
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Total
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100
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%
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100
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%
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100
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%
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Medicare is a federal program that provides certain hospital and
medical insurance benefits to persons age 65 and over, some
disabled persons, persons with end-stage renal disease and
persons with Lou Gehrigs Disease. Medicaid is a
federal-state program, administered by the states, which
provides hospital and medical benefits to qualifying individuals
who are unable to afford health care. All of our general, acute
care hospitals located in the United States are certified as
health care services providers for persons covered under
Medicare and Medicaid programs. Amounts received under Medicare
and Medicaid programs are generally significantly less than
established hospital gross charges for the services provided.
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Our hospitals generally offer discounts from established charges
to certain group purchasers of health care services, including
private insurance companies, employers, HMOs, PPOs and other
managed care plans. These discount programs generally limit our
ability to increase revenues in response to increasing costs.
See Item 1, Business Competition.
Patients are generally not responsible for the total difference
between established hospital gross charges and amounts
reimbursed for such services under Medicare, Medicaid, HMOs or
PPOs and other managed care plans, but are responsible to the
extent of any exclusions, deductibles or coinsurance features of
their coverage. The amount of such exclusions, deductibles and
coinsurance continues to increase. Collection of amounts due
from individuals is typically more difficult than from
governmental or third-party payers. We provide discounts to
uninsured patients who do not qualify for Medicaid or charity
care under our charity care policy. These discounts are similar
to those provided to many local managed care plans. In
implementing the discount policy, we attempt to qualify
uninsured patients for Medicaid, other federal or state
assistance or charity care under our charity care policy. If an
uninsured patient does not qualify for these programs, the
uninsured discount is applied.
Medicare
Inpatient
Acute Care
Under the Medicare program, we receive reimbursement under a
prospective payment system (PPS) for general, acute
care hospital inpatient services. Under the hospital inpatient
PPS, fixed payment amounts per inpatient discharge are
established based on the patients assigned Medicare
severity diagnosis-related group (MS-DRG). The
Centers for Medicare & Medicaid Services
(CMS) completed a two-year transition to full
implementation of MS-DRGs to replace the previously used
Medicare diagnosis related groups in an effort to better
recognize severity of illness in Medicare payment rates. MS-DRGs
classify treatments for illnesses according to the estimated
intensity of hospital resources necessary to furnish care for
each principal diagnosis. MS-DRG weights represent the average
resources for a given MS-DRG relative to the average resources
for all MS-DRGs. MS-DRG payments are adjusted for area wage
differentials. Hospitals, other than those defined as
new, receive PPS reimbursement for inpatient capital
costs based on MS-DRG weights multiplied by a geographically
adjusted federal rate. When the cost to treat certain patients
falls well outside the normal distribution, providers typically
receive additional outlier payments.
MS-DRG rates are updated and MS-DRG weights are recalibrated
using cost relative weights each federal fiscal year (which
begins October 1). The index used to update the MS-DRG rates
(the market basket) gives consideration to the
inflation experienced by hospitals and entities outside the
health care industry in purchasing goods and services. The
Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act of 2010
(collectively, the Health Reform Law) provides for
annual decreases to the market basket, including a 0.25%
reduction in 2010 for discharges occurring on or after
April 1, 2010. The Health Reform Law also provides for the
following reductions to the market basket update for each of the
following federal fiscal years: 0.25% in 2011, 0.1% in 2012 and
2013, 0.3% in 2014, 0.2% in 2015 and 2016 and 0.75% in 2017,
2018 and 2019. For federal fiscal year 2012 and each subsequent
federal fiscal year, the Health Reform Law provides for the
annual market basket update to be further reduced by a
productivity adjustment. The amount of that reduction will be
the projected, nationwide productivity gains over the preceding
10 years. To determine the projection, the Department of
Health and Human Services (HHS) will use the Bureau
of Labor Statistics (BLS)
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old). The Health Reform
Law does not contain guidelines for use by HHS in projecting the
productivity figure. Based upon the latest available data,
federal fiscal year 2012 market basket reductions resulting from
this productivity adjustment are likely to range from 1.0% to
1.4%. CMS estimates that the combined market basket and
productivity adjustments will reduce Medicare payments under the
inpatient PPS by $112.6 billion from 2010 to 2019. A
decrease in payments rates or an increase in rates that is below
the increase in our costs may adversely affect the results of
our operations.
For federal fiscal year 2010, CMS initially set the MS-DRG rate
increase at the full market basket of 2.1%, but CMS reduced the
increase to 1.85% for discharges occurring on or after
April 1, 2010, as required by the Health Reform Law. For
federal fiscal year 2011, CMS increased the MS-DRG rate for
federal fiscal year 2011 by 2.35%, representing the full market
basket of 2.6% minus the 0.25% reduction required by the Health
Reform Law. CMS also applied a documentation and coding
adjustment of negative 2.9% in federal fiscal year 2011 to
account for
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increases in aggregate payments during implementation of the
MS-DRG system. This reduction represents half of the
documentation and coding adjustment that CMS intends to
implement. CMS plans to recover the remaining 2.9% and interest
in federal fiscal year 2012. The market basket update and the
documentation and coding adjustment together result in an
aggregate market basket adjustment for federal fiscal year 2011
of negative 0.55%. CMS has also announced that an additional
prospective negative adjustment of 3.9% will be needed to avoid
increased Medicare spending unrelated to patient severity of
illness. CMS did not implement this additional 3.9% reduction in
federal fiscal year 2011 but has stated that it will be required
in the future.
Further realignments in the MS-DRG system could also reduce the
payments we receive for certain specialties, including
cardiology and orthopedics. CMS has focused on payment levels
for such specialties in recent years in part because of the
proliferation of specialty hospitals. Changes in the payments
received for specialty services could have an adverse effect on
our results of operations.
The Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (MMA) provides for hospitals to receive
a 2% reduction to their market basket updates if they fail to
submit data for patient care quality indicators to the Secretary
of HHS. As required by the Deficit Reduction Act of 2005
(DRA 2005), CMS has expanded, through a series of
rulemakings, the number of quality measures that must be
reported to avoid the market basket reduction. In federal fiscal
year 2011, CMS requires hospitals to report 55 quality measures
in order to avoid the market basket reduction for inpatient PPS
payments in federal fiscal year 2012. All of our hospitals paid
under the Medicare inpatient PPS are participating in the
quality initiative by submitting the requested quality data.
While we will endeavor to comply with all data submission
requirements as additional requirements continue to be added,
our submissions may not be deemed timely or sufficient to
entitle us to the full market basket adjustment for all of our
hospitals.
As part of CMS goal of transforming Medicare from a
passive payer to an active purchaser of quality goods and
services, for discharges occurring after October 1, 2008,
Medicare no longer assigns an inpatient hospital discharge to a
higher paying MS-DRG if a selected hospital acquired condition
(HAC) was not present on admission. In this
situation, the case is paid as though the secondary diagnosis
was not present. Currently, there are ten categories of
conditions on the list of HACs. In addition, CMS has established
three National Coverage Determinations that prohibit Medicare
reimbursement for erroneous surgical procedures performed on an
inpatient or outpatient basis. The Health Reform Law provides
for reduced payments based on a hospitals HAC rates.
Beginning in federal fiscal year 2015, the 25% of hospitals with
the worst national risk-adjusted HAC rates in the previous year
will receive a 1% reduction in their total inpatient operating
Medicare payments. In addition, effective July 1, 2011, the
Health Reform Law prohibits the use of federal funds under the
Medicaid program to reimburse providers for medical services
provided to treat HACs.
The Health Reform Law also provides for reduced payments to
hospitals based on readmission rates. Beginning in federal
fiscal year 2013, inpatient payments will be reduced if a
hospital experiences excessive readmissions within a
time period specified by HHS from the date of discharge for
heart attack, heart failure, pneumonia or other conditions
designated by HHS. Hospitals with what HHS defines as excessive
readmissions for these conditions will receive reduced payments
for all inpatient discharges, not just discharges relating to
the conditions subject to the excessive readmission standard.
Each hospitals performance will be publicly reported by
HHS. HHS has the discretion to determine what
excessive readmissions means and other terms and
conditions of this program.
The Health Reform Law additionally establishes a value-based
purchasing program to further link payments to quality and
efficiency. In federal fiscal year 2013, HHS is directed to
implement a value-based purchasing program for inpatient
hospital services. Beginning in federal fiscal year 2013, CMS
will reduce the inpatient PPS payment amount for all discharges
by the following: 1% for 2013; 1.25% for 2014; 1.5% for 2015;
1.75% for 2016; and 2% for 2017 and subsequent years. For each
federal fiscal year, the total amount collected from these
reductions will be pooled and used to fund payments to reward
hospitals that meet certain quality performance standards
established by HHS. HHS will determine the quality performance
measures, the standards hospitals must achieve in order to meet
the quality performance measures and the methodology for
calculating payments to hospitals that meet the required quality
threshold. HHS will also determine the amount each hospital that
meets or exceeds the quality performance standards will receive
from the pool of dollars created by the reductions related to
the value-based
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purchasing program. On January 7, 2011, CMS issued a
proposed rule for the value-based purchasing program that would
use 17 clinical process of care measures and eight dimensions of
a patients experience of care using the Hospital Consumer
Assessment of Healthcare Providers and Systems
(HCAHPS) survey to determine incentive payments for
federal fiscal year 2013. As proposed, the incentive payments
would be calculated based on a combination of measures of
hospitals achievement of the performance standards and
their improvement in meeting the performance standards compared
to prior periods. To determine payments in federal fiscal year
2013, the baseline performance period (measurement standard) as
proposed would be July 1, 2009 through March 31, 2010.
To determine whether hospitals meet performance standards, CMS
would compare each hospitals performance in the period
July 1, 2011 through March 31, 2012 to its performance
in the baseline performance period. CMS has not yet proposed
specific threshold values for the performance standards. CMS
also proposes to add three outcome measures for federal fiscal
year 2014, for which the performance period would be
July 1, 2011 through December 31, 2012 and the
baseline performance period would be July 1, 2008 through
December 31, 2009.
Historically, the Medicare program has set aside 5.10% of
Medicare inpatient payments to pay for outlier cases. For
federal fiscal year 2010, CMS established an outlier threshold
of $23,140, and for federal fiscal year 2011, CMS reduced the
outlier threshold to $23,075. We do not anticipate that the
decrease to the outlier threshold for federal fiscal year 2011
will have a material impact on our results of operations.
Outpatient
CMS reimburses hospital outpatient services (and certain
Medicare Part B services furnished to hospital inpatients
who have no Part A coverage) on a PPS basis. CMS uses fee
schedules to pay for physical, occupational and speech
therapies, durable medical equipment, clinical diagnostic
laboratory services and nonimplantable orthotics and
prosthetics, freestanding surgery centers services and services
provided by independent diagnostic testing facilities.
Hospital outpatient services paid under PPS are classified into
groups called ambulatory payment classifications
(APCs). Services for each APC are similar clinically
and in terms of the resources they require. A payment rate is
established for each APC. Depending on the services provided, a
hospital may be paid for more than one APC for a patient visit.
The APC payment rates were updated for calendar years 2008 and
2009 by market baskets of 3.30% and 3.60%, respectively. CMS
updated payment rates for calendar year 2010 by the full market
basket of 2.1%. However, the Health Reform Law includes a 0.25%
reduction to the market basket for 2010. The Health Reform Law
also provides for the following reductions to the market basket
update for each of the following calendar years: 0.25% in 2011,
0.1% in 2012 and 2013, 0.3% in 2014, 0.2% in 2015 and 2016 and
0.75% in 2017, 2018 and 2019. For calendar year 2011, CMS
implemented a market basket update of 2.6%. With the 0.25%
reduction required by the Health Reform Law, this update results
in a market basket increase of 2.35%. For calendar year 2012 and
each subsequent calendar year, the Health Reform Law provides
for an annual market basket update to be further reduced by a
productivity adjustment. The amount of that reduction will be
the projected, nationwide productivity gains over the preceding
10 years. To determine the projection, HHS will use the BLS
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old). The Health Reform
Law does not contain guidelines for use by HHS in projecting the
productivity figure. However, CMS estimates that the combined
market basket and productivity adjustments will reduce Medicare
payments under the outpatient PPS by $26.3 billion from
2010 to 2019. CMS continues to require hospitals to submit
quality data relating to outpatient care to avoid receiving a 2%
reduction to the market basket update under the outpatient PPS.
CMS required hospitals to report data on 11 quality
measures in calendar year 2010 for the payment determination in
calendar year 2011 and requires hospitals to report
15 quality measures in calendar year 2011 to avoid reduced
payments in calendar year 2012.
Rehabilitation
CMS reimburses inpatient rehabilitation facilities
(IRFs) on a PPS basis. Under IRF PPS, patients are
classified into case mix groups based upon impairment, age,
comorbidities (additional diseases or disorders from which the
patient suffers) and functional capability. IRFs are paid a
predetermined amount per discharge that reflects the
patients case mix group and is adjusted for area wage
levels, low-income patients, rural areas and high-cost outliers.
CMS provided for a market basket update of 2.5% for federal
fiscal year 2010. However, the Health
8
Reform Law requires a 0.25% reduction to the market basket for
2010 for discharges occurring on or after April 1, 2010.
The Health Reform Law also provides for the following reductions
to the market basket update for each of the following federal
fiscal years: 0.25% in 2011, 0.1% in 2012 and 2013, 0.3% in
2014, 0.2% in 2015 and 2016 and 0.75% in 2017, 2018 and 2019.
For federal fiscal year 2011, CMS implemented a market basket
update of 2.5%. With the 0.25% reduction required by the Health
Reform Law, this update results in a market basket increase of
2.25% for federal fiscal year 2011. For federal fiscal year 2012
and each subsequent federal fiscal year, the Health Reform Law
provides for the annual market basket update to be further
reduced by a productivity adjustment. The amount of that
reduction will be the projected, nationwide productivity gains
over the preceding 10 years. To determine the projection,
HHS will use the BLS
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old). The Health Reform
Law does not contain guidelines for use by HHS in projecting the
productivity figure. However, CMS estimates that the combined
market basket and productivity adjustments will reduce Medicare
payments under the IRF PPS by $5.7 billion from 2010 to
2019. Beginning in federal fiscal year 2014, IRFs will be
required to report quality measures to CMS or will receive a two
percentage point reduction to the market basket update. As of
December 31, 2010, we had one rehabilitation hospital,
which is operated through a joint venture, and 43 hospital
rehabilitation units.
On May 7, 2004, CMS published a final rule to change the
criteria for being classified as an IRF. Pursuant to that final
rule, 75% of a facilitys inpatients over a given year had
to have been treated for at least one of 10 specified
conditions, and a subsequent regulation expanded the number of
specified conditions to 13. Since then, several statutory and
regulatory adjustments have been made to the rule, including
adjustments to the percentage of a facilitys patients that
must be treated for one of the 13 specified conditions.
Currently, the compliance threshold is set by statute at 60%.
Implementation of this 60% threshold has reduced our IRF
admissions and can be expected to continue to restrict the
treatment of patients whose medical conditions do not meet any
of the 13 approved conditions. In addition, effective
January 1, 2010, IRFs must meet additional coverage
criteria, including patient selection and care requirements
relating to pre-admission screenings, post-admission
evaluations, ongoing coordination of care and involvement of
rehabilitation physicians. A facility that fails to meet the 60%
threshold or other criteria to be classified as an IRF will be
paid under the acute care hospital inpatient or outpatient PPS,
which generally provide for lower payment amounts.
Psychiatric
Inpatient hospital services furnished in psychiatric hospitals
and psychiatric units of general, acute care hospitals and
critical access hospitals are reimbursed under a prospective
payment system (IPF PPS), a per diem payment, with
adjustments to account for certain patient and facility
characteristics. IPF PPS contains an outlier policy
for extraordinarily costly cases and an adjustment to a
facilitys base payment if it maintains a full-service
emergency department. CMS has established the IPF PPS payment
rate in a manner intended to be budget neutral and has adopted a
July 1 update cycle, with each twelve month period referred to
as a rate year. CMS issued a proposed rule that
includes changing the IPF PPS from the rate year update cycle to
a fiscal year schedule. If implemented as proposed, the rates
for 2012 would be effective from July 1, 2011 through
September 30, 2012, with future updates coinciding with the
federal fiscal year (from October 1 through September 30).
The rehabilitation, psychiatric and long-term care
(RPL) market basket update is used to update the IPF
PPS. The annual RPL market basket update for rate year 2010 was
2.1%, and the annual RPL market basket update for rate year 2011
is 2.4%. However, the Health Reform Law includes a 0.25%
reduction to the market basket for rate year 2010 and again in
2011. The Health Reform Law also provides for the following
reductions to the market basket update for rate years that begin
in the following calendar years: 0.1% in 2012 and 2013, 0.3% in
2014, 0.2% in 2015 and 2016 and 0.75% in 2017, 2018 and 2019.
For rate year 2012 and each subsequent rate year, the Health
Reform Law provides for the annual market basket update to be
further reduced by a productivity adjustment. The amount of that
reduction will be the projected, nationwide productivity gains
over the preceding 10 years. To determine the projection,
HHS will use the BLS
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old). The Health Reform
Law does not contain guidelines for use by HHS in projecting the
productivity figure. However, CMS estimates that the combined
market basket and productivity adjustments will reduce Medicare
payments under the IPF PPS by $4.3 billion from 2010 to
2019. In a proposed rule, CMS proposes a market basket update
of 3.0% for rate year 2012. If implemented as proposed, and with
the 0.25% reduction
9
required by the Health Reform Law, this would result in a market
basket update of 2.75%. As of December 31, 2010, we had
five psychiatric hospitals and 35 hospital psychiatric units.
Ambulatory
Surgery Centers
CMS reimburses ASCs using a predetermined fee schedule.
Reimbursements for ASC overhead costs are limited to no more
than the overhead costs paid to hospital outpatient departments
under the Medicare hospital outpatient PPS for the same
procedure. Effective January 1, 2008, ASC payment groups
increased from nine clinically disparate payment groups to an
extensive list of covered surgical procedures among the APCs
used under the outpatient PPS for these surgical services.
Because the new payment system has a significant impact on
payments for certain procedures, for services previously in the
nine payment groups, CMS has established a four-year transition
period for implementing the required payment rates. Moreover, if
CMS determines that a procedure is commonly performed in a
physicians office, the ASC reimbursement for that
procedure is limited to the reimbursement allowable under the
Medicare Part B Physician Fee Schedule, with limited
exceptions. In addition, all surgical procedures, other than
those that pose a significant safety risk or generally require
an overnight stay, are payable as ASC procedures. As a result,
more Medicare procedures now performed in hospitals may be moved
to ASCs, reducing surgical volume in our hospitals. Also, more
Medicare procedures now performed in ASCs may be moved to
physicians offices. Commercial third-party payers may
adopt similar policies. The Health Reform Law requires HHS to
issue a plan by January 1, 2011 for developing a
value-based purchasing program for ASCs, but HHS has not yet
publicly issued this plan. Such a program may further impact
Medicare reimbursement of ASCs or increase our operating costs
in order to satisfy the value-based standards. For federal
fiscal year 2011 and each subsequent federal fiscal year, the
Health Reform Law provides for the annual market basket update
to be reduced by a productivity adjustment. The amount of that
reduction will be the projected nationwide productivity gains
over the preceding 10 years. To determine the projection,
HHS will use the BLS
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old).
Physician
Services
Physician services are reimbursed under the physician fee
schedule (PFS) system, under which CMS has assigned
a national relative value unit (RVU) to most medical
procedures and services that reflects the various resources
required by a physician to provide the services relative to all
other services. Each RVU is calculated based on a combination of
work required in terms of time and intensity of effort for the
service, practice expense (overhead) attributable to the service
and malpractice insurance expense attributable to the service.
These three elements are each modified by a geographic
adjustment factor to account for local practice costs then
aggregated. The aggregated amount is multiplied by a conversion
factor that accounts for inflation and targeted growth in
Medicare expenditures (as calculated by the sustainable growth
rate (SGR)) to arrive at the payment amount for each
service. While RVUs for various services may change in a given
year, any alterations are required by statute to be virtually
budget neutral, such that total payments made under the PFS may
not differ by more than $20 million from what payments
would have been if adjustments were not made.
The PFS rates are adjusted each year, and reductions in both
current and future payments are anticipated. The SGR formula, if
implemented as mandated by statute, would result in significant
reductions to payments under the PFS. Since 2003, the
U.S. Congress has passed multiple legislative acts delaying
application of the SGR to the PFS. For calendar year 2011, CMS
issued a final rule that would have applied the SGR and resulted
in an aggregate reduction of 24.9% to all physician payments
under the PFS for federal fiscal year 2011. On December 15,
2010, President Obama signed legislation delaying application of
the SGR until January 1, 2012. We cannot predict whether
the U.S. Congress will intervene to prevent this reduction
to payments in the future.
Other
Under PPS, the payment rates are adjusted for the area
differences in wage levels by a factor (wage index)
reflecting the relative wage level in the geographic area
compared to the national average wage level. Beginning in
federal fiscal year 2007, CMS adjusted 100% of the wage index
factor for occupational mix. The redistributive impact of wage
index changes, while slightly negative in the aggregate, is not
anticipated to have a material
10
financial impact for 2011. However, the Health Reform Law
requires HHS to report to Congress by December 31, 2011
with recommendations on how to comprehensively reform the
Medicare wage index system.
As required by the MMA, CMS is implementing contractor reform
whereby CMS has competitively bid the Medicare fiscal
intermediary and Medicare carrier functions to 15 Medicare
Administrative Contractors (MACs), which are
geographically assigned and service both Part A and
Part B providers within a given jurisdiction. Although CMS
has awarded initial contracts to all 15 MAC jurisdictions, full
transition to the MAC jurisdictions has been delayed due to CMS
resoliciting some bids and implementing other corrective actions
in response to filed protests. While chain providers had the
option of having all hospitals use one home office MAC, HCA
chose to use the MACs assigned to the geographic areas in which
our hospitals are located. The individual MAC jurisdictions are
in varying phases of transition. During the transition periods
and for a potentially unforeseen period thereafter, all of these
changes could impact claims processing functions and the
resulting cash flow; however, we are unable to predict the
impact at this time.
Under the Recovery Audit Contractor (RAC) program,
CMS contracts with RACs on a contingency basis to conduct
post-payment reviews to detect and correct improper payments in
the fee-for-service Medicare program. The RAC program was
originally limited to certain states, but in 2010, CMS
implemented the RAC program on a permanent, nationwide basis as
required by statute.
The U.S. Congress has not permanently addressed the SGR
reductions in physician compensation under the PFS. Any repeal
of the SGR may be offset by reductions in Medicare payments to
other types of providers.
Managed
Medicare
Managed Medicare plans relate to situations where a private
company contracts with CMS to provide members with Medicare
Part A, Part B and Part D benefits. Managed
Medicare plans can be structured as HMOs, PPOs or private
fee-for-service
plans. The Medicare program allows beneficiaries to choose
enrollment in certain managed Medicare plans. In 2003, MMA
increased reimbursement to managed Medicare plans and expanded
Medicare beneficiaries health care options. Since 2003,
the number of beneficiaries choosing to receive their Medicare
benefits through such plans has increased. However, the Medicare
Improvements for Patients and Providers Act of 2008 imposed new
restrictions and implemented focused cuts to certain managed
Medicare plans. In addition, the Health Reform Law reduces, over
a three year period, premium payments to managed Medicare plans
such that CMS managed care per capita premium payments
are, on average, equal to traditional Medicare. The Health
Reform Law also implements fee payment adjustments based on
service benchmarks and quality ratings. The Congressional Budget
Office (CBO) has estimated that, as a result of
these changes, payments to plans will be reduced by
$138 billion between 2010 and 2019, while CMS has estimated
the reduction to be $145 billion. In addition, the Health
Reform Law expands the RAC program to include managed Medicare
plans. In light of the current economic downturn and the Health
Reform Law, managed Medicare plans may experience reduced
premium payments, which may lead to decreased enrollment in such
plans.
Medicaid
Medicaid programs are funded jointly by the federal government
and the states and are administered by states under approved
plans. Most state Medicaid program payments are made under a PPS
or are based on negotiated payment levels with individual
hospitals. Medicaid reimbursement is often less than a
hospitals cost of services. The Health Reform Law also
requires states to expand Medicaid coverage to all individuals
under age 65 with incomes up to 133% of the federal poverty
level (FPL) by 2014. However, the Health Reform Law
also requires states to apply a 5% income disregard
to the Medicaid eligibility standard, so that Medicaid
eligibility will effectively be extended to those with incomes
up to 138% of the FPL. In addition, effective July 1, 2011,
the Health Reform Law will prohibit the use of federal funds
under the Medicaid program to reimburse providers for medical
assistance provided to treat HACs.
Since most states must operate with balanced budgets and since
the Medicaid program is often the states largest program,
states can be expected to adopt or consider adopting legislation
designed to reduce their Medicaid expenditures. The current
economic downturn has increased the budgetary pressures on most
states, and these budgetary pressures have resulted and likely
will continue to result in decreased spending, or decreased
spending growth, for Medicaid programs in many states. The
American Recovery and Reinvestment Act of 2009
(ARRA) allocated approximately $87.0 billion to
temporarily increase the share of program costs paid by the
federal government to fund each states Medicaid program.
11
Although initially scheduled to expire at the end of 2010,
Congress has allocated additional funds to extend this increased
federal funding to states through June 2011. These funds have
helped avoid more extensive program and reimbursement cuts, but
the expiration of the increased federal funding could result in
significant reductions to state Medicaid programs.
Further, as permitted by law, certain states in which we operate
have adopted broad-based provider taxes to fund the non-federal
share of Medicaid programs. Many states have also adopted, or
are considering, legislation designed to reduce coverage, enroll
Medicaid recipients in managed care programs
and/or
impose additional taxes on hospitals to help finance or expand
the states Medicaid systems. Effective March 23,
2010, the Health Reform Law requires states to at least maintain
Medicaid eligibility standards established prior to the
enactment of the law for adults until January 1, 2014 and
for children until October 1, 2019. However, states with
budget deficits may seek a waiver from this requirement to
address eligibility standards that apply to adults making more
than 133% of the FPL.
Through DRA 2005, Congress has expanded the federal
governments involvement in fighting fraud, waste and abuse
in the Medicaid program by creating the Medicaid Integrity
Program. Among other things, DRA 2005 requires CMS to employ
private contractors, referred to as Medicaid Integrity
Contractors (MICs), to perform post-payment audits
of Medicaid claims and identify overpayments. MICs are assigned
to five geographic regions and have commenced audits in states
assigned to those regions. The Health Reform Law increases
federal funding for the MIC program for federal fiscal year 2011
and later years. In addition to MICs, several other contractors
and state Medicaid agencies have increased their review
activities. The Health Reform Law expands the RAC programs
scope to include Medicaid claims.
Managed
Medicaid
Managed Medicaid programs enable states to contract with one or
more entities for patient enrollment, care management and claims
adjudication. The states usually do not relinquish program
responsibilities for financing, eligibility criteria and core
benefit plan design. We generally contract directly with one of
the designated entities, usually a managed care organization.
The provisions of these programs are state-specific.
Enrollment in managed Medicaid plans has increased in recent
years, as state governments seek to control the cost of Medicaid
programs. However, general economic conditions in the states in
which we operate may require reductions in premium payments to
these plans and may reduce enrollment in these plans.
Electronic
Health Records
ARRA provides for Medicare and Medicaid incentive payments
beginning in federal fiscal year 2011 for eligible hospitals and
calendar year 2011 for eligible professionals that adopt and
meaningfully use certified electronic health record
(EHR) technology. A total of at least
$20 billion in incentives is being made available through
the Medicare and Medicaid EHR incentive programs to eligible
hospitals and eligible professionals in the adoption of EHRs.
Under the Medicare incentive program, acute care hospitals that
demonstrate meaningful use will receive incentive payments for
up to four fiscal years. The Medicare incentive payment amount
is the product of three factors: (1) an initial amount
comprised of a base amount of $2,000,000 plus $200 for each
acute care inpatient discharge during a payment year, beginning
with a hospitals 1,150th discharge of the year and
ending with a hospitals 23,000th discharge of the
year; (2) the Medicare share, which is the sum
of Medicare Part A and Part C acute care
inpatient-bed-days divided by the product of the total
inpatient-bed-days and a charity care factor; and (3) a
transition factor applicable to the payment year. In order to
maximize their incentive payments, acute care hospitals must
participate in the incentive program by federal fiscal year
2013. Beginning in federal fiscal year 2015, acute care
hospitals that fail to demonstrate meaningful use of certified
EHR technology will receive reduced market basket updates under
inpatient PPS.
Eligible professionals who demonstrate meaningful use are
entitled to incentive payments for up to five payment years in
an amount equal to 75% of their estimated Medicare allowed
charges for covered professional services furnished during the
relevant calendar year, subject to an annual limit. Eligible
professionals must participate in the incentive payment program
by calendar year 2012 in order to maximize their incentive
payments and must participate by calendar year 2014 in order to
receive any incentive payments. Beginning in calendar year
12
2015, eligible professionals who do not demonstrate meaningful
use of certified EHR technology will face Medicare payment
reductions.
The Medicaid EHR incentive program is voluntary for states to
implement. For participating states, the Medicaid EHR incentive
program will provide incentive payments for acute care hospitals
and eligible professionals that meet certain volume percentages
of Medicaid patients as well as childrens hospitals.
Providers may only participate in a single states Medicaid
EHR incentive program. Eligible professionals can only
participate in either the Medicaid incentive program or the
Medicare incentive program and can change this election only one
time. Hospitals may participate in both the Medicare and
Medicaid incentive programs.
To qualify for incentive payments under the Medicaid program,
providers must adopt, implement, upgrade or demonstrate
meaningful use of, certified EHR technology during their first
participation year or successfully demonstrate meaningful use of
certified EHR technology in subsequent participation years.
Payments may be received for up to six participation years. For
hospitals, the aggregate Medicaid EHR incentive amount is the
product of two factors: (1) the overall EHR amount which is
comprised of a base amount of $2,000,000 plus a
discharge-related
amount, multiplied by the Medicare share (which is set at one by
statute) multiplied by a transition factor, and (2) the
Medicaid share, which is the estimated Medicaid
inpatient-bed days plus estimated Medicaid managed care
inpatient
bed-days,
divided by the product of the estimated total inpatient
bed-days and
a charity care factor. Under the Medicaid incentive program,
eligible professionals may receive payments based on their EHR
costs, up to total amount of $63,750, or for pediatricians,
$42,500. There is no penalty for hospitals or professionals
under Medicaid for failing to meet EHR meaningful use
requirements.
Accountable
Care Organizations and Pilot Projects
The Health Reform Law requires HHS to establish a Medicare
Shared Savings Program that promotes accountability and
coordination of care through the creation of Accountable Care
Organizations (ACOs), beginning no later than
January 1, 2012. The program will allow providers
(including hospitals), physicians and other designated
professionals and suppliers to form ACOs and 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. HHS has significant discretion to determine
key elements of the program, including what steps providers must
take to be considered an ACO, how to decide if Medicare program
savings have occurred, and what portion of such savings will be
paid to ACOs. In addition, HHS will determine to what degree
hospitals, physicians and other eligible participants will be
able to form and operate an ACO without violating certain
existing laws, including the Civil Monetary Penalty Law, the
Anti-kickback Statute and the Stark Law. The Health Reform Law
does not authorize HHS to waive other laws that may impact the
ability of hospitals and other eligible participants to
participate in ACOs, such as antitrust laws.
The Health Reform Law requires HHS to establish a five-year,
voluntary national bundled payment pilot program for Medicare
services beginning no later than January 1, 2013. Under the
program, providers would agree to receive one payment for
services provided to Medicare patients for certain medical
conditions or episodes of care. HHS will have the discretion to
determine how the program will function. For example, HHS will
determine what medical conditions will be included in the
program and the amount of the payment for each condition. In
addition, the Health Reform Law provides for a five-year bundled
payment pilot program for Medicaid services to begin
January 1, 2012. HHS will select up to eight states to
participate based on the potential to lower costs under the
Medicaid program while improving care. State programs may target
particular categories of beneficiaries, selected diagnoses or
geographic regions of the state. The selected state programs
will provide one payment for both hospital and physician
services provided to Medicaid patients for certain episodes of
inpatient care. For both pilot programs, HHS will determine the
relationship between the programs and restrictions in certain
existing laws, including the Civil Monetary Penalty Law, the
Anti-kickback Statute, the Stark Law and the Health Insurance
Portability and Accountability Act of 1996 (HIPAA)
privacy, security and transaction standard requirements.
However, the Health Reform Law does not authorize HHS to waive
other laws that may impact the ability of hospitals and other
eligible participants to participate in the pilot programs, such
as antitrust laws.
13
Disproportionate
Share Hospital Payments
In addition to making payments for services provided directly to
beneficiaries, Medicare makes additional payments to hospitals
that treat a disproportionately large number of low-income
patients (Medicaid and Medicare patients eligible to receive
Supplemental Security Income). Disproportionate share hospital
(DSH) payments are determined annually based on
certain statistical information required by HHS and are
calculated as a percentage addition to MS-DRG payments. The
primary method used by a hospital to qualify for Medicare DSH
payments is a complex statutory formula that results in a DSH
percentage that is applied to payments on MS-DRGs.
Under the Health Reform Law, beginning in federal fiscal year
2014, Medicare DSH payments will be reduced to 25% of the amount
they otherwise would have been absent the law. The remaining 75%
of the amount that would otherwise be paid under Medicare DSH
will be effectively pooled, and this pool will be reduced
further each year by a formula that reflects reductions in the
national level of uninsured who are under 65 years of age.
Each DSH hospital will then be paid, out of the reduced DSH
payment pool, an amount allocated based upon its level of
uncompensated care. It is difficult to predict the full impact
of the Medicare DSH reductions. The CBO estimates
$22 billion in reductions to Medicare DSH payments between
2010 and 2019, while for the same time period, CMS estimates
reimbursement reductions totaling $50 billion.
Hospitals that provide care to a disproportionately high number
of low-income patients may receive Medicaid DSH payments. The
federal government distributes federal Medicaid DSH funds to
each state based on a statutory formula. The states then
distribute the DSH funding among qualifying hospitals. States
have broad discretion to define which hospitals qualify for
Medicaid DSH payments and the amount of such payments. The
Health Reform Law will reduce funding for the Medicaid DSH
hospital program in federal fiscal years 2014 through 2020 by
the following amounts: 2014 ($500 million); 2015
($600 million); 2016 ($600 million); 2017
($1.8 billion); 2018 ($5 billion); 2019
($5.6 billion); and 2020 ($4 billion). How such cuts
are allocated among the states and how the states allocate these
cuts among providers, have yet to be determined.
TRICARE
TRICARE is the Department of Defenses health care program
for members of the armed forces. For inpatient services, TRICARE
reimburses hospitals based on a DRG system modeled on the
Medicare inpatient PPS. The Department of Defense has also
implemented a PPS for hospital outpatient services furnished to
TRICARE beneficiaries similar to that utilized for services
furnished to Medicare beneficiaries. Because the Medicare
outpatient PPS APC rates have historically been below TRICARE
rates, the adoption of this payment methodology for TRICARE
beneficiaries has reduced our reimbursement; however, TRICARE
outpatient services do not represent a significant portion of
our patient volumes.
Annual
Cost Reports
All hospitals participating in the Medicare, Medicaid and
TRICARE programs, whether paid on a reasonable cost basis or
under a PPS, are required to meet certain financial reporting
requirements. Federal and, where applicable, state regulations
require the submission of annual cost reports covering the
revenues, costs and expenses associated with the services
provided by each hospital to Medicare beneficiaries and Medicaid
recipients.
Annual cost reports required under the Medicare and Medicaid
programs are subject to routine audits, which may result in
adjustments to the amounts ultimately determined to be due to us
under these reimbursement programs. These audits often require
several years to reach the final determination of amounts due to
or from us under these programs. Providers also have rights of
appeal, and it is common to contest issues raised in audits of
cost reports.
Managed
Care and Other Discounted Plans
Most of our hospitals offer discounts from established charges
to certain large group purchasers of health care services,
including managed care plans and private insurance companies.
Admissions reimbursed by commercial managed care and other
insurers were 32%, 34% and 35% of our total admissions for the
years ended December 31, 2010, 2009 and 2008, respectively.
Managed care contracts are typically negotiated for terms
between one and three years. While we generally received annual
average yield increases of 5% to 6% from managed care payers
during 2010, there can be no assurance that we will continue to
receive increases in the future. It is not clear what impact, if
14
any, the increased obligations on managed care payers and other
health plans imposed by the Health Reform Law will have on our
ability to negotiate reimbursement increases.
Uninsured
and Self-Pay Patients
A high percentage of our uninsured patients are initially
admitted through our emergency rooms. For the year ended
December 31, 2010, approximately 82% of our admissions of
uninsured patients occurred through our emergency rooms. The
Emergency Medical Treatment and Active Labor Act
(EMTALA) requires any hospital that participates in
the Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals
emergency room for treatment and, if the individual is suffering
from an emergency medical condition, to either stabilize that
condition or make an appropriate transfer of the individual to a
facility that can handle the condition. The obligation to screen
and stabilize emergency medical conditions exists regardless of
an individuals ability to pay for treatment. The Health
Reform Law requires health plans to reimburse hospitals for
emergency services provided to enrollees without prior
authorization and without regard to whether a participating
provider contract is in place. Further, as enacted, the Health
Reform Law contains provisions that seek to decrease the number
of uninsured individuals, including requirements and incentives,
which do not become effective until 2014, for individuals to
obtain, and large employers to provide, insurance coverage.
These mandates may reduce the financial impact of screening for
and stabilizing emergency medical conditions. However, many
factors are unknown regarding the impact of the Health Reform
Law, including how many previously uninsured individuals will
obtain coverage as a result of the law or the change, if any, in
the volume of inpatient and outpatient hospital services that
are sought by and provided to previously uninsured individuals
and the payer mix. In addition, it is difficult to predict the
full impact of the Health Reform Law due to the laws
complexity, lack of implementing regulations or interpretive
guidance, gradual and potentially delayed implementation,
pending court challenges and possible amendment or repeal.
We are taking proactive measures to reduce our provision for
doubtful accounts by, among other things:
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screening all patients, including the uninsured, through our
emergency screening protocol, to determine the appropriate care
setting in light of their condition, while reducing the
potential for bad debt; and
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increasing up-front collections from patients subject to co-pay
and deductible requirements and uninsured patients.
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15
Hospital
Utilization
We believe the most important factors relating to the overall
utilization of a hospital are the quality and market position of
the hospital and the number and quality of physicians and other
health care professionals providing patient care within the
facility. Generally, we believe the ability of a hospital to be
a market leader is determined by its breadth of services, level
of technology, emphasis on quality of care and convenience for
patients and physicians. Other factors that impact utilization
include the growth in local population, local economic
conditions and market penetration of managed care programs.
The following table sets forth certain operating statistics for
our health care facilities. Health care facility operations are
subject to certain seasonal fluctuations, including decreases in
patient utilization during holiday periods and increases in the
cold weather months. The data set forth in this table includes
only those facilities that are consolidated for financial
reporting purposes.
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Years Ended December 31,
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2010
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2009
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2008
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2007
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2006
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Number of hospitals at end of period(a)
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156
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155
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158
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161
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166
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Number of freestanding outpatient surgery centers at end of
period(b)
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97
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97
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97
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99
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98
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Number of licensed beds at end of period(c)
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|
|
38,827
|
|
|
|
38,839
|
|
|
|
38,504
|
|
|
|
38,405
|
|
|
|
39,354
|
|
Weighted average licensed beds(d)
|
|
|
38,655
|
|
|
|
38,825
|
|
|
|
38,422
|
|
|
|
39,065
|
|
|
|
40,653
|
|
Admissions(e)
|
|
|
1,554,400
|
|
|
|
1,556,500
|
|
|
|
1,541,800
|
|
|
|
1,552,700
|
|
|
|
1,610,100
|
|
Equivalent admissions(f)
|
|
|
2,468,400
|
|
|
|
2,439,000
|
|
|
|
2,363,600
|
|
|
|
2,352,400
|
|
|
|
2,416,700
|
|
Average length of stay (days)(g)
|
|
|
4.8
|
|
|
|
4.8
|
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
4.9
|
|
Average daily census(h)
|
|
|
20,523
|
|
|
|
20,650
|
|
|
|
20,795
|
|
|
|
21,049
|
|
|
|
21,688
|
|
Occupancy rate(i)
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
54
|
%
|
|
|
54
|
%
|
|
|
53
|
%
|
Emergency room visits(j)
|
|
|
5,706,200
|
|
|
|
5,593,500
|
|
|
|
5,246,400
|
|
|
|
5,116,100
|
|
|
|
5,213,500
|
|
Outpatient surgeries(k)
|
|
|
783,600
|
|
|
|
794,600
|
|
|
|
797,400
|
|
|
|
804,900
|
|
|
|
820,900
|
|
Inpatient surgeries(l)
|
|
|
487,100
|
|
|
|
494,500
|
|
|
|
493,100
|
|
|
|
516,500
|
|
|
|
533,100
|
|
|
|
|
(a) |
|
Excludes eight facilities in 2010, 2009, 2008 and 2007 and seven
facilities in 2006 that are not consolidated (accounted for
using the equity method) for financial reporting purposes. |
|
(b) |
|
Excludes nine facilities in 2010, 2007 and 2006 and eight
facilities in 2009 and 2008 that are not consolidated (accounted
for using the equity method) for financial reporting purposes. |
|
(c) |
|
Licensed beds are those beds for which a facility has been
granted approval to operate from the applicable state licensing
agency. |
|
(d) |
|
Represents the average number of licensed beds, weighted based
on periods owned. |
|
(e) |
|
Represents the total number of patients admitted to our
hospitals and is used by management and certain investors as a
general measure of inpatient volume. |
|
(f) |
|
Equivalent admissions are used by management and certain
investors as a general measure of combined inpatient and
outpatient volume. Equivalent admissions are computed by
multiplying admissions (inpatient volume) by the sum of gross
inpatient revenue and gross outpatient revenue and then dividing
the resulting amount by gross inpatient revenue. The equivalent
admissions computation equates outpatient revenue to
the volume measure (admissions) used to measure inpatient
volume, resulting in a general measure of combined inpatient and
outpatient volume. |
|
(g) |
|
Represents the average number of days admitted patients stay in
our hospitals. |
|
(h) |
|
Represents the average number of patients in our hospital beds
each day. |
|
(i) |
|
Represents the percentage of hospital licensed beds occupied by
patients. Both average daily census and occupancy rate provide
measures of the utilization of inpatient rooms. |
|
(j) |
|
Represents the number of patients treated in our emergency rooms. |
|
(k) |
|
Represents the number of surgeries performed on patients who
were not admitted to our hospitals. Pain management and
endoscopy procedures are not included in outpatient surgeries. |
|
(l) |
|
Represents the number of surgeries performed on patients who
have been admitted to our hospitals. Pain management and
endoscopy procedures are not included in inpatient surgeries. |
16
Competition
Generally, other hospitals in the local communities served by
most of our hospitals provide services similar to those offered
by our hospitals. Additionally, in recent years the number of
freestanding ASCs and diagnostic centers (including facilities
owned by physicians) in the geographic areas in which we operate
has increased significantly. As a result, most of our hospitals
operate in a highly competitive environment. In some cases,
competing hospitals are more established than our hospitals.
Some competing hospitals are owned by tax-supported government
agencies and many others are owned by
not-for-profit
entities that may be supported by endowments, charitable
contributions
and/or tax
revenues and are exempt from sales, property and income taxes.
Such exemptions and support are not available to our hospitals.
In certain localities there are large teaching hospitals that
provide highly specialized facilities, equipment and services
which may not be available at most of our hospitals. We face
increasing competition from specialty hospitals, some of which
are physician-owned, and both our own and unaffiliated
freestanding ASCs for market share in high margin services.
Psychiatric hospitals frequently attract patients from areas
outside their immediate locale and, therefore, our psychiatric
hospitals compete with both local and regional hospitals,
including the psychiatric units of general, acute care hospitals.
Our strategies are designed to ensure our hospitals are
competitive. We believe our hospitals compete within local
communities on the basis of many factors, including the quality
of care, ability to attract and retain quality physicians,
skilled clinical personnel and other health care professionals,
location, breadth of services, technology offered and prices
charged. The Health Reform Law requires hospitals to publish
annually a list of their standard charges for items and
services. We have increased our focus on operating outpatient
services with improved accessibility and more convenient service
for patients, and increased predictability and efficiency for
physicians.
Two of the most significant factors to the competitive position
of a hospital are the number and quality of physicians
affiliated with or employed by the hospital. Although physicians
may at any time terminate their relationship with a hospital we
operate, our hospitals seek to retain physicians with varied
specialties on the hospitals medical staffs and to attract
other qualified physicians. We believe physicians refer patients
to a hospital on the basis of the quality and scope of services
it renders to patients and physicians, the quality of physicians
on the medical staff, the location of the hospital and the
quality of the hospitals facilities, equipment and
employees. Accordingly, we strive to maintain and provide
quality facilities, equipment, employees and services for
physicians and patients.
Another major factor in the competitive position of a hospital
is our ability to negotiate service contracts with purchasers of
group health care services. Managed care plans attempt to direct
and control the use of hospital services and obtain discounts
from hospitals established gross charges. In addition,
employers and traditional health insurers continue to attempt to
contain costs through negotiations with hospitals for managed
care programs and discounts from established gross charges.
Generally, hospitals compete for service contracts with group
health care services purchasers on the basis of price, market
reputation, geographic location, quality and range of services,
quality of the medical staff and convenience. Our future success
will depend, in part, on our ability to retain and renew our
managed care contracts and enter into new managed care contracts
on favorable terms. Other health care providers may impact our
ability to enter into managed care contracts or negotiate
increases in our reimbursement and other favorable terms and
conditions. For example, some of our competitors may negotiate
exclusivity provisions with managed care plans or otherwise
restrict the ability of managed care companies to contract with
us. The trend toward consolidation among non-government payers
tends to increase their bargaining power over fee structures. In
addition, as various provisions of the Health Reform Law are
implemented, including the establishment of American Health
Benefit Exchanges (Exchanges) and limitations on
rescissions of coverage and pre-existing condition exclusions,
non-government payers may increasingly demand reduced fees or be
unwilling to negotiate reimbursement increases. The importance
of obtaining contracts with managed care organizations varies
from community to community, depending on the market strength of
such organizations.
State certificate of need (CON) laws, which place
limitations on a hospitals ability to expand hospital
services and facilities, make capital expenditures and otherwise
make changes in operations, may also have the effect of
restricting competition. We currently operate health care
facilities in a number of states with CON laws. Before issuing a
CON, these states consider the need for additional or expanded
health care facilities or services. In
17
those states which have no CON laws or which set relatively high
levels of expenditures before they become reviewable by state
authorities, competition in the form of new services, facilities
and capital spending is more prevalent. See Item 1,
Business Regulation and Other Factors.
We and the health care industry as a whole face the challenge of
continuing to provide quality patient care while dealing with
rising costs and strong competition for patients. Changes in
medical technology, existing and future legislation, regulations
and interpretations and managed care contracting for provider
services by private and government payers remain ongoing
challenges.
Admissions, average lengths of stay and reimbursement amounts
continue to be negatively affected by payer-required
pre-admission authorization, utilization review and payer
pressure to maximize outpatient and alternative health care
delivery services for less acutely ill patients. The Health
Reform Law potentially expands the use of prepayment review by
Medicare contractors by eliminating statutory restrictions on
their use. Increased competition, admission constraints and
payer pressures are expected to continue. To meet these
challenges, we intend to expand our facilities or acquire or
construct new facilities where appropriate, to enhance the
provision of a comprehensive array of outpatient services, offer
market competitive pricing to private payer groups, upgrade
facilities and equipment and offer new or expanded programs and
services.
Regulation
and Other Factors
Licensure,
Certification and Accreditation
Health care facility construction and operation are subject to
numerous federal, state and local regulations relating to the
adequacy of medical care, equipment, personnel, operating
policies and procedures, maintenance of adequate records, fire
prevention, rate-setting and compliance with building codes and
environmental protection laws. Facilities are subject to
periodic inspection by governmental and other authorities to
assure continued compliance with the various standards necessary
for licensing and accreditation. We believe our health care
facilities are properly licensed under applicable state laws.
Each of our acute care hospitals are certified for participation
in the Medicare and Medicaid programs and are accredited by The
Joint Commission. If any facility were to lose its Medicare or
Medicaid certification, the facility would be unable to receive
reimbursement from federal health care programs. If any facility
were to lose accreditation by The Joint Commission, the facility
would be subject to state surveys, potentially be subject to
increased scrutiny by CMS and likely lose payment from
non-government payers. Management believes our facilities are in
substantial compliance with current applicable federal, state,
local and independent review body regulations and standards. The
requirements for licensure, certification and accreditation are
subject to change and, in order to remain qualified, it may
become necessary for us to make changes in our facilities,
equipment, personnel and services. The requirements for
licensure also may include notification or approval in the event
of the transfer or change of ownership. Failure to obtain the
necessary state approval in these circumstances can result in
the inability to complete an acquisition or change of ownership.
Certificates
of Need
In some states where we operate hospitals and other health care
facilities, the construction or expansion of health care
facilities, the acquisition of existing facilities, the transfer
or change of ownership and the addition of new beds or services
may be subject to review by and prior approval of state
regulatory agencies under a CON program. Such laws generally
require the reviewing state agency to determine the public need
for additional or expanded health care facilities and services.
Failure to obtain necessary state approval can result in the
inability to expand facilities, complete an acquisition or
change ownership.
State
Rate Review
Some states have adopted legislation mandating rate or budget
review for hospitals or have adopted taxes on hospital revenues,
assessments or licensure fees to fund indigent health care
within the state. In the aggregate, indigent tax provisions have
not materially, adversely affected our results of operations.
Although we do not currently operate facilities in states that
mandate rate or budget reviews, we cannot predict whether we
will operate in such states in the future, or whether the states
in which we currently operate may adopt legislation mandating
such reviews.
18
Federal
Health Care Program Regulations
Participation in any federal health care program, including the
Medicare and Medicaid programs, is heavily regulated by statute
and regulation. If a hospital fails to substantially comply with
the numerous conditions of participation in the Medicare and
Medicaid programs or performs certain prohibited acts, the
hospitals participation in the federal health care
programs may be terminated, or civil
and/or
criminal penalties may be imposed.
Anti-kickback
Statute
A section of the Social Security Act known as the
Anti-kickback Statute prohibits providers and others
from directly or indirectly soliciting, receiving, offering or
paying any remuneration with the intent of generating referrals
or orders for services or items covered by a federal health care
program. Courts have interpreted this statute broadly and held
that there is a violation of the Anti-kickback Statute if just
one purpose of the remuneration is to generate referrals, even
if there are other lawful purposes. Furthermore, the Health
Reform Law provides that knowledge of the law or the intent to
violate the law is not required. Violations of the Anti-kickback
Statute may be punished by a criminal fine of up to $25,000 for
each violation or imprisonment, civil money penalties of up to
$50,000 per violation and damages of up to three times the total
amount of the remuneration
and/or
exclusion from participation in federal health care programs,
including Medicare and Medicaid. The Health Reform Law provides
that submission of a claim for services or items generated in
violation of the Anti-kickback Statute constitutes a false or
fraudulent claim and may be subject to additional penalties
under the federal False Claims Act (FCA).
The Office of Inspector General at HHS (OIG), among
other regulatory agencies, is responsible for identifying and
eliminating fraud, abuse and waste. The OIG carries out this
mission through a nationwide program of audits, investigations
and inspections. As one means of providing guidance to health
care providers, the OIG issues Special Fraud Alerts.
These alerts do not have the force of law, but identify features
of arrangements or transactions that the government believes may
cause the arrangements or transactions to violate the
Anti-kickback Statute or other federal health care laws. The OIG
has identified several incentive arrangements that constitute
suspect practices, including: (a) payment of any incentive
by a hospital each time a physician refers a patient to the
hospital, (b) the use of free or significantly discounted
office space or equipment in facilities usually located close to
the hospital, (c) provision of free or significantly
discounted billing, nursing or other staff services,
(d) free training for a physicians office staff in
areas such as management techniques and laboratory techniques,
(e) guarantees which provide, if the physicians
income fails to reach a predetermined level, the hospital will
pay any portion of the remainder, (f) low-interest or
interest-free loans, or loans which may be forgiven if a
physician refers patients to the hospital, (g) payment of
the costs of a physicians travel and expenses for
conferences, (h) coverage on the hospitals group
health insurance plans at an inappropriately low cost to the
physician, (i) payment for services (which may include
consultations at the hospital) which require few, if any,
substantive duties by the physician, (j) purchasing goods
or services from physicians at prices in excess of their fair
market value, and (k) rental of space in physician offices,
at other than fair market value terms, by persons or entities to
which physicians refer. The OIG has encouraged persons having
information about hospitals who offer the above types of
incentives to physicians to report such information to the OIG.
The OIG also issues Special Advisory Bulletins as a means of
providing guidance to health care providers. These bulletins,
along with the Special Fraud Alerts, have focused on certain
arrangements that could be subject to heightened scrutiny by
government enforcement authorities, including:
(a) contractual joint venture arrangements and other joint
venture arrangements between those in a position to refer
business, such as physicians, and those providing items or
services for which Medicare or Medicaid pays, and
(b) certain gainsharing arrangements, i.e., the
practice of giving physicians a share of any reduction in a
hospitals costs for patient care attributable in part to
the physicians efforts.
In addition to issuing Special Fraud Alerts and Special Advisory
Bulletins, the OIG issues compliance program guidance for
certain types of health care providers. The OIG guidance
identifies a number of risk areas under federal fraud and abuse
statutes and regulations. These areas of risk include
compensation arrangements with physicians, recruitment
arrangements with physicians and joint venture relationships
with physicians.
As authorized by Congress, the OIG has published safe harbor
regulations that outline categories of activities deemed
protected from prosecution under the Anti-kickback Statute.
Currently, there are statutory exceptions and
19
safe harbors for various activities, including the following:
certain investment interests, space rental, equipment rental,
practitioner recruitment, personnel services and management
contracts, sale of practice, referral services, warranties,
discounts, employees, group purchasing organizations, waiver of
beneficiary coinsurance and deductible amounts, managed care
arrangements, obstetrical malpractice insurance subsidies,
investments in group practices, freestanding surgery centers,
ambulance replenishing, and referral agreements for specialty
services.
The fact that conduct or a business arrangement does not fall
within a safe harbor, or it is identified in a Special Fraud
Alert or Advisory Bulletin or as a risk area in the Supplemental
Compliance Guidelines for Hospitals, does not necessarily render
the conduct or business arrangement illegal under the
Anti-kickback Statute. However, such conduct and business
arrangements may lead to increased scrutiny by government
enforcement authorities.
We have a variety of financial relationships with physicians and
others who either refer or influence the referral of patients to
our hospitals and other health care facilities, including
employment contracts, leases, medical director agreements and
professional service agreements. We also have similar
relationships with physicians and facilities to which patients
are referred from our facilities. In addition, we provide
financial incentives, including minimum revenue guarantees, to
recruit physicians into the communities served by our hospitals.
While we endeavor to comply with the applicable safe harbors,
certain of our current arrangements, including joint ventures
and financial relationships with physicians and other referral
sources and persons and entities to which we refer patients, do
not qualify for safe harbor protection.
Although we believe our arrangements with physicians and other
referral sources have been structured to comply with current law
and available interpretations, there can be no assurance
regulatory authorities enforcing these laws will determine these
financial arrangements comply with the Anti-kickback Statute or
other applicable laws. An adverse determination could subject us
to liabilities under the Social Security Act and other laws,
including criminal penalties, civil monetary penalties and
exclusion from participation in Medicare, Medicaid or other
federal health care programs.
Stark
Law
The Social Security Act also includes a provision commonly known
as the Stark Law. The Stark Law prohibits physicians
from referring Medicare and Medicaid patients to entities with
which they or any of their immediate family members have a
financial relationship, if these entities provide certain
designated health services reimbursable by Medicare
or Medicaid unless an exception applies. The Stark Law also
prohibits entities that provide designated health services
reimbursable by Medicare and Medicaid from billing the Medicare
and Medicaid programs for any items or services that result from
a prohibited referral and requires the entities to refund
amounts received for items or services provided pursuant to the
prohibited referral. Designated health services
include inpatient and outpatient hospital services, clinical
laboratory services and radiology services. Sanctions for
violating the Stark Law include denial of payment, civil
monetary penalties of up to $15,000 per claim submitted and
exclusion from the federal health care programs. The statute
also provides for a penalty of up to $100,000 for a
circumvention scheme. There are exceptions to the self-referral
prohibition for many of the customary financial arrangements
between physicians and providers, including employment
contracts, leases and recruitment agreements. Unlike safe
harbors under the Anti-kickback Statute with which compliance is
voluntary, an arrangement must comply with every requirement of
a Stark Law exception or the arrangement is in violation of the
Stark Law. Although there is an exception for a physicians
ownership interest in an entire hospital, the Health Reform Law
prohibits newly created physician-owned hospitals from billing
for Medicare patients referred by their physician owners. As a
result, the law effectively prevents the formation of new
physician-owned hospitals after December 31, 2010. While
the Health Reform Law grandfathers existing physician-owned
hospitals, it does not allow these hospitals to increase the
percentage of physician ownership and significantly restricts
their ability to expand services.
Through a series of rulemakings, CMS has issued final
regulations implementing the Stark Law. Additional changes to
these regulations, which became effective October 1, 2009,
further restrict the types of arrangements facilities and
physicians may enter, including additional restrictions on
certain leases, percentage compensation arrangements, and
agreements under which a hospital purchases services under
arrangements. While these regulations were intended to
clarify the requirements of the exceptions to the Stark Law, it
is unclear how the government will interpret many of these
exceptions for enforcement purposes. CMS has indicated it is
considering
20
additional changes to the Stark Law regulations. We do not
always have the benefit of significant regulatory or judicial
interpretation of these laws and regulations. We attempt to
structure our relationships to meet an exception to the Stark
Law, but the regulations implementing the exceptions are
detailed and complex, and we cannot assure that every
relationship complies fully with the Stark Law.
Similar
State Laws
Many states in which we operate also have laws similar to the
Anti-kickback Statute that prohibit payments to physicians for
patient referrals and laws similar to the Stark Law that
prohibit certain self-referrals. The scope of these state laws
is broad, since they can often apply regardless of the source of
payment for care, and little precedent exists for their
interpretation or enforcement. These statutes typically provide
for criminal and civil penalties, as well as loss of facility
licensure.
Other
Fraud and Abuse Provisions
HIPAA broadened the scope of certain fraud and abuse laws by
adding several criminal provisions for health care fraud
offenses that apply to all health benefit programs. The Social
Security Act also imposes criminal and civil penalties for
making false claims and statements to Medicare and Medicaid.
False claims include, but are not limited to, billing for
services not rendered or for misrepresenting actual services
rendered in order to obtain higher reimbursement, billing for
unnecessary goods and services and cost report fraud. Federal
enforcement officials have the ability to exclude from Medicare
and Medicaid any investors, officers and managing employees
associated with business entities that have committed health
care fraud, even if the officer or managing employee had no
knowledge of the fraud. Criminal and civil penalties may be
imposed for a number of other prohibited activities, including
failure to return known overpayments, certain gainsharing
arrangements, billing Medicare amounts that are substantially in
excess of a providers usual charges, offering remuneration
to influence a Medicare or Medicaid beneficiarys selection
of a health care provider, contracting with an individual or
entity known to be excluded from a federal health care program,
making or accepting a payment to induce a physician to reduce or
limit services, and soliciting or receiving any remuneration in
return for referring an individual for an item or service
payable by a federal health care program. Like the Anti-kickback
Statute, these provisions are very broad. Under the Health
Reform Law, civil penalties may be imposed for the failure to
report and return an overpayment within 60 days of
identifying the overpayment or by the date a corresponding cost
report is due, whichever is later. To avoid liability, providers
must, among other things, carefully and accurately code claims
for reimbursement, promptly return overpayments and accurately
prepare cost reports.
Some of these provisions, including the federal Civil Monetary
Penalty Law, require a lower burden of proof than other fraud
and abuse laws, including the Anti-kickback Statute. Civil
monetary penalties that may be imposed under the federal Civil
Monetary Penalty Law range from $10,000 to $50,000 per act, and
in some cases may result in penalties of up to three times the
remuneration offered, paid, solicited or received. In addition,
a violator may be subject to exclusion from federal and state
health care programs. Federal and state governments increasingly
use the federal Civil Monetary Penalty Law, especially where
they believe they cannot meet the higher burden of proof
requirements under the Anti-kickback Statute. Further,
individuals can receive up to $1,000 for providing information
on Medicare fraud and abuse that leads to the recovery of at
least $100 of Medicare funds under the Medicare Integrity
Program.
The
Federal False Claims Act and Similar State Laws
The qui tam, or whistleblower, provisions of the FCA
allow private individuals to bring actions on behalf of the
government alleging that the defendant has defrauded the federal
government. Further, the government may use the FCA to prosecute
Medicare and other government program fraud in areas such as
coding errors, billing for services not provided and submitting
false cost reports. When a private party brings a qui tam
action under the FCA, the defendant is not made aware of the
lawsuit until the government commences its own investigation or
makes a determination whether it will intervene. When a
defendant is determined by a court of law to be liable under the
FCA, the defendant may be required to pay three times the actual
damages sustained by the government, plus mandatory civil
penalties of between $5,500 and $11,000 for each separate false
claim. There are many potential bases for liability under the
FCA. Liability often arises when an entity knowingly submits a
false claim for
21
reimbursement to the federal government. The FCA defines the
term knowingly broadly. Though simple negligence
will not give rise to liability under the FCA, submitting a
claim with reckless disregard to its truth or falsity
constitutes a knowing submission under the FCA and,
therefore, will qualify for liability. The Fraud Enforcement and
Recovery Act of 2009 expanded the scope of the FCA by, among
other things, creating liability for knowingly and improperly
avoiding repayment of an overpayment received from the
government and broadening protections for whistleblowers. Under
the Health Reform Law, the FCA is implicated by the knowing
failure to report and return an overpayment within 60 days
of identifying the overpayment or by the date a corresponding
cost report is due, whichever is later. Further, the Health
Reform Law expands the scope of the FCA to cover payments in
connection with the Exchanges to be created by the Health Reform
Law, if those payments include any federal funds.
In some cases, whistleblowers and the federal government have
taken the position, and some courts have held, that providers
who allegedly have violated other statutes, such as the
Anti-kickback Statute and the Stark Law, have thereby submitted
false claims under the FCA. The Health Reform Law clarifies this
issue with respect to the Anti-kickback Statute by providing
that submission of claims for services or items generated in
violation of the Anti-kickback Statute constitutes a false or
fraudulent claim under the FCA. Every entity that receives at
least $5 million annually in Medicaid payments must have
written policies for all employees, contractors or agents,
providing detailed information about false claims, false
statements and whistleblower protections under certain federal
laws, including the FCA, and similar state laws. In addition,
federal law provides an incentive to states to enact false
claims laws comparable to the FCA. A number of states in which
we operate have adopted their own false claims provisions as
well as their own whistleblower provisions under which a private
party may file a civil lawsuit in state court. We have adopted
and distributed policies pertaining to the FCA and relevant
state laws.
HIPAA
Administrative Simplification and Privacy and Security
Requirements
The Administrative Simplification Provisions of HIPAA require
the use of uniform electronic data transmission standards for
certain health care claims and payment transactions submitted or
received electronically. These provisions are intended to
encourage electronic commerce in the health care industry. HHS
has issued regulations implementing the HIPAA Administrative
Simplification Provisions and compliance with these regulations
is mandatory for our facilities. In addition, HIPAA requires
that each provider use a National Provider Identifier. In
January 2009, CMS published a final rule making changes to the
formats used for certain electronic transactions and requiring
the use of updated standard code sets for certain diagnoses and
procedures known as ICD-10 code sets. While use of the ICD-10
code sets is not mandatory until October 1, 2013, we will
be modifying our payment systems and processes to prepare for
the implementation. Implementing the ICD-10 code sets will
require significant administrative changes, but we believe that
the cost of compliance with these regulations has not had and is
not expected to have a material, adverse effect on our business,
financial position or results of operations. The Health Reform
Law requires HHS to adopt standards for additional electronic
transactions and to establish operating rules to promote
uniformity in the implementation of each standardized electronic
transaction.
The privacy and security regulations promulgated pursuant to
HIPAA extensively regulate the use and disclosure of
individually identifiable health information and require covered
entities, including health plans and most health care providers,
to implement administrative, physical and technical safeguards
to protect the security of such information. ARRA broadened the
scope of the HIPAA privacy and security regulations. In
addition, ARRA extends the application of certain provisions of
the security and privacy regulations to business associates
(entities that handle identifiable health information on behalf
of covered entities) and subjects business associates to civil
and criminal penalties for violation of the regulations. On
July 14, 2010, HHS issued a proposed rule that would
implement many of these ARRA provisions. If finalized, these
changes would likely require amendments to existing agreements
with business associates and would subject business associates
and their subcontractors to direct liability under the HIPAA
privacy and security regulations. We currently enforce a HIPAA
compliance plan, which we believe complies with HIPAA privacy
and security requirements and under which a HIPAA compliance
group monitors our compliance. The privacy regulations and
security regulations have and will continue to impose
significant costs on our facilities in order to comply with
these standards.
As required by ARRA, HHS published an interim final rule on
August 24, 2009, that requires covered entities to report
breaches of unsecured protected health information to affected
individuals without unreasonable delay but
22
not to exceed 60 days of discovery of the breach by a
covered entity or its agents. Notification must also be made to
HHS and, in certain situations involving large breaches, to the
media. HHS is required to publish on its website a list of all
covered entities that report a breach involving more than 500
individuals. Various state laws and regulations may also require
us to notify affected individuals in the event of a data breach
involving individually identifiable information.
Violations of the HIPAA privacy and security regulations may
result in civil and criminal penalties, and ARRA has
strengthened the enforcement provisions of HIPAA, which may
result in increased enforcement activity. Under ARRA, HHS is
required to conduct periodic compliance audits of covered
entities and their business associates. ARRA broadens the
applicability of the criminal penalty provisions to employees of
covered entities and requires HHS to impose penalties for
violations resulting from willful neglect. ARRA also
significantly increases the amount of the civil penalties, with
penalties of up to $50,000 per violation for a maximum civil
penalty of $1,500,000 in a calendar year for violations of the
same requirement. In addition, ARRA authorizes state attorneys
general to bring civil actions seeking either injunction or
damages in response to violations of HIPAA privacy and security
regulations that threaten the privacy of state residents. Our
facilities also remain subject to any federal or state
privacy-related laws that are more restrictive than the privacy
regulations issued under HIPAA. These laws vary and could impose
additional penalties.
There are numerous other laws and legislative and regulatory
initiatives at the federal and state levels addressing privacy
and security concerns. For example, the Federal Trade Commission
(FTC) issued a final rule in October 2007 requiring
financial institutions and creditors, which arguably included
health providers and health plans, to implement written identity
theft prevention programs to detect, prevent and mitigate
identity theft in connection with certain accounts. The FTC
delayed enforcement of this rule until December 31, 2010.
In addition, on December 18, 2010, the Red Flag Program
Clarification Act of 2010 became law, restricting the definition
of a creditor. This law may exempt many hospitals
from complying with the rule.
EMTALA
All of our hospitals in the United States are subject to EMTALA.
This federal law requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every individual who presents to the
hospitals emergency room for treatment and, if the
individual is suffering from an emergency medical condition, to
either stabilize the condition or make an appropriate transfer
of the individual to a facility able to handle the condition.
The obligation to screen and stabilize emergency medical
conditions exists regardless of an individuals ability to
pay for treatment. There are severe penalties under EMTALA if a
hospital fails to screen or appropriately stabilize or transfer
an individual or if the hospital delays appropriate treatment in
order to first inquire about the individuals ability to
pay. Penalties for violations of EMTALA include civil monetary
penalties and exclusion from participation in the Medicare
program. In addition, an injured individual, the
individuals family or a medical facility that suffers a
financial loss as a direct result of a hospitals violation
of the law can bring a civil suit against the hospital.
The government broadly interprets EMTALA to cover situations in
which individuals do not actually present to a hospitals
emergency room, but present for emergency examination or
treatment to the hospitals campus, generally, or to a
hospital-based clinic that treats emergency medical conditions
or are transported in a hospital-owned ambulance, subject to
certain exceptions. At least one court has interpreted the law
also to apply to a hospital that has been notified of a
patients pending arrival in a non-hospital owned
ambulance. EMTALA does not generally apply to individuals
admitted for inpatient services. The government has expressed
its intent to investigate and enforce EMTALA violations actively
in the future. We believe our hospitals operate in substantial
compliance with EMTALA.
Corporate
Practice of Medicine/Fee Splitting
Some of the states in which we operate have laws prohibiting
corporations and other entities from employing physicians,
practicing medicine for a profit and making certain direct and
indirect payments or fee-splitting arrangements between health
care providers designed to induce or encourage the referral of
patients to, or the recommendation of, particular providers for
medical products and services. Possible sanctions for violation
of these
23
restrictions include loss of license and civil and criminal
penalties. In addition, agreements between the corporation and
the physician may be considered void and unenforceable. These
statutes vary from state to state, are often vague and have
seldom been interpreted by the courts or regulatory agencies.
Health
Care Industry Investigations
Significant media and public attention has focused in recent
years on the hospital industry. This media and public attention,
changes in government personnel or other factors may lead to
increased scrutiny of the health care industry. While we are
currently not aware of any material investigations of the
Company under federal or state health care laws or regulations,
it is possible that governmental entities could initiate
investigations or litigation in the future at facilities we
operate and that such matters could result in significant
penalties, as well as adverse publicity. It is also possible
that our executives and managers could be included in
governmental investigations or litigation or named as defendants
in private litigation.
Our substantial Medicare, Medicaid and other governmental
billings result in heightened scrutiny of our operations. We
continue to monitor all aspects of our business and have
developed a comprehensive ethics and compliance program that is
designed to meet or exceed applicable federal guidelines and
industry standards. Because the law in this area is complex and
constantly evolving, governmental investigations or litigation
may result in interpretations that are inconsistent with our or
industry practices.
In public statements surrounding current investigations,
governmental authorities have taken positions on a number of
issues, including some for which little official interpretation
previously has been available, that appear to be inconsistent
with practices that have been common within the industry and
that previously have not been challenged in this manner. In some
instances, government investigations that have in the past been
conducted under the civil provisions of federal law may now be
conducted as criminal investigations.
Both federal and state government agencies have increased their
focus on and coordination of civil and criminal enforcement
efforts in the health care area. The OIG and the Department of
Justice (DOJ) have, from time to time, established
national enforcement initiatives, targeting all hospital
providers that focus on specific billing practices or other
suspected areas of abuse. The Health Reform Law includes
additional federal funding of $350 million over the next
10 years to fight health care fraud, waste and abuse,
including $105 million for federal fiscal year 2011 and
$65 million in federal fiscal year 2012. In addition,
governmental agencies and their agents, such as MACs, fiscal
intermediaries and carriers, may conduct audits of our health
care operations. Private payers may conduct similar post-payment
audits, and we also perform internal audits and monitoring.
In addition to national enforcement initiatives, federal and
state investigations have addressed a wide variety of routine
health care operations such as: cost reporting and billing
practices, including for Medicare outliers; financial
arrangements with referral sources; physician recruitment
activities; physician joint ventures; and hospital charges and
collection practices for self-pay patients. We engage in many of
these routine health care operations and other activities that
could be the subject of governmental investigations or
inquiries. For example, we have significant Medicare and
Medicaid billings, numerous financial arrangements with
physicians who are referral sources to our hospitals, and joint
venture arrangements involving physician investors. Certain of
our individual facilities have received, and other facilities
may receive, government inquiries from, and may be subject to
investigation by, federal and state agencies. Any additional
investigations of the Company, our executives or managers could
result in significant liabilities or penalties to us, as well as
adverse publicity.
Commencing in 1997, we became aware we were the subject of
governmental investigations and litigation relating to our
business practices. As part of the investigations, the United
States intervened in a number of qui tam actions brought
by private parties. The investigations related to, among other
things, DRG coding, outpatient laboratory billing, home health
issues, physician relations, cost report and wound care issues.
The investigations were concluded through a series of agreements
executed in 2000 and 2003 with the Criminal Division of the DOJ,
the Civil Division of the DOJ, various U.S. Attorneys
offices, CMS, a negotiating team representing states with claims
against us, and others. In January 2001, we entered into an
eight-year Corporate Integrity Act (CIA) with the
Office of Inspector General of the Department of Health and
Human Services, which expired January 24, 2009. We
submitted our final report pursuant to the CIA on April 30,
2009, and in April 2010, we received notice from the OIG that
our final report was accepted, relieving us of future
obligations under the CIA. If the government were to
24
determine that we violated or breached the CIA or other federal
or state laws relating to Medicare, Medicaid or similar
programs, we could be subject to substantial monetary fines,
civil and criminal penalties
and/or
exclusion from participation in the Medicare and Medicaid
programs and other federal and state health care programs.
Alleged violations may be pursued by the government or through
private qui tam actions. Sanctions imposed against us as
a result of such actions could have a material, adverse effect
on our results of operations and financial position.
Health
Care Reform
As enacted, the Health Reform Law will change how health care
services are covered, delivered and reimbursed through expanded
coverage of uninsured individuals, reduced growth in Medicare
program spending, reductions in Medicare and Medicaid DSH
payments, and the establishment of programs where reimbursement
is tied to quality and integration. In addition, the law reforms
certain aspects of health insurance, expands existing efforts to
tie Medicare and Medicaid payments to performance and quality,
and contains provisions intended to strengthen fraud and abuse
enforcement. More than 20 challenges to the Health Reform Law
have been filed in federal courts. Some federal district courts
have upheld the constitutionality of the Health Reform Law or
dismissed cases on procedural grounds. Others have held
unconstitutional the requirement that individuals maintain
health insurance or pay a penalty and have either found the
Health Reform Law void in its entirety or left the remainder of
the Health Reform Law intact. These lawsuits are subject to
appeal, and several are currently on appeal, including those
that hold the law unconstitutional. It is unclear how these
lawsuits will be resolved. Further, Congress is considering
bills that would repeal or revise the Health Reform Law.
Expanded
Coverage
Based on CBO and CMS estimates, by 2019, the Health Reform Law
will expand coverage to 32 to 34 million additional
individuals (resulting in coverage of an estimated 94% of the
legal U.S. population). This increased coverage will occur
through a combination of public program expansion and private
sector health insurance and other reforms.
Medicaid
Expansion
The primary public program coverage expansion will occur through
changes in Medicaid, and to a lesser extent, expansion of the
Childrens Health Insurance Program (CHIP). The
most significant changes will expand the categories of
individuals eligible for Medicaid coverage and permit
individuals with relatively higher incomes to qualify. The
federal government reimburses the majority of a states
Medicaid expenses, and it conditions its payment on the state
meeting certain requirements. The federal government currently
requires that states provide coverage for only limited
categories of low-income adults under 65 years old (e.g.,
women who are pregnant, and the blind or disabled). In addition,
the income level required for individuals and families to
qualify for Medicaid varies widely from state to state.
The Health Reform Law materially changes the requirements for
Medicaid eligibility. Commencing January 1, 2014, all state
Medicaid programs are required to provide, and the federal
government will subsidize, Medicaid coverage to virtually all
adults under 65 years old with incomes at or under 133% of
the federal poverty level (FPL). This expansion will
create a minimum Medicaid eligibility threshold that is uniform
across states. Further, the Health Reform Law also requires
states to apply a 5% income disregard to the
Medicaid eligibility standard, so that Medicaid eligibility will
effectively be extended to those with incomes up to 138% of the
FPL. These new eligibility requirements will expand Medicaid and
CHIP coverage by an estimated 16 to 18 million persons
nationwide. A disproportionately large percentage of the new
Medicaid coverage is likely to be in states that currently have
relatively low income eligibility requirements.
As Medicaid is a joint federal and state program, the federal
government provides states with matching funds in a
defined percentage, known as the federal medical assistance
percentage (FMAP). Beginning in 2014, states will
receive an enhanced FMAP for the individuals enrolled in
Medicaid pursuant to the Health Reform Law. The FMAP percentage
is as follows: 100% for calendar years 2014 through 2016; 95%
for 2017; 94% in 2018; 93% in 2019; and 90% in 2020 and
thereafter.
The Health Reform Law also provides that the federal government
will subsidize states that create non- Medicaid plans for
residents whose incomes are greater than 133% of the FPL but do
not exceed 200% of the FPL.
25
Approved state plans will be eligible to receive federal
funding. The amount of that funding per individual will be equal
to 95% of subsidies that would have been provided for that
individual had he or she enrolled in a health plan offered
through one of the Exchanges, as discussed below.
Historically, states often have attempted to reduce Medicaid
spending by limiting benefits and tightening Medicaid
eligibility requirements. Effective March 23, 2010, the
Health Reform Law requires states to at least maintain Medicaid
eligibility standards established prior to the enactment of the
law for adults until January 1, 2014 and for children until
October 1, 2019. States with budget deficits may, however,
seek a waiver from this requirement, but only to address
eligibility standards that apply to adults making more than 133%
of the FPL.
Private
Sector Expansion
The expansion of health coverage through the private sector as a
result of the Health Reform Law will occur through new
requirements on health insurers, employers and individuals.
Commencing January 1, 2014, health insurance companies will
be prohibited from imposing annual coverage limits, dropping
coverage, excluding persons based upon pre-existing conditions
or denying coverage for any individual who is willing to pay the
premiums for such coverage. Effective January 1, 2011, each
health plan must keep its annual nonmedical costs lower than 15%
of premium revenue for the group market and lower than 20% in
the small group and individual markets or rebate its enrollees
the amount spent in excess of the percentage. In addition,
effective September 23, 2010, health insurers will not be
permitted to deny coverage to children based upon a pre-existing
condition and must allow dependent care coverage for children up
to 26 years old.
Larger employers will be subject to new requirements and
incentives to provide health insurance benefits to their full
time employees. Effective January 1, 2014, employers with
50 or more employees that do not offer health insurance will be
held subject to a penalty if an employee obtains coverage
through an Exchange if the coverage is subsidized by the
government. The employer penalties will range from $2,000 to
$3,000 per employee, subject to certain thresholds and
conditions.
As enacted, the Health Reform Law uses various means to induce
individuals who do not have health insurance to obtain coverage.
By January 1, 2014, individuals will be required to
maintain health insurance for a minimum defined set of benefits
or pay a tax penalty. The penalty in most cases is $95 in 2014,
$325 in 2015, $695 in 2016, and indexed to a cost of living
adjustment in subsequent years. The Internal Revenue Service
(IRS), in consultation with HHS, is responsible for
enforcing the tax penalty, although the Health Reform Law limits
the availability of certain IRS enforcement mechanisms. In
addition, for individuals and families below 400% of the FPL,
the cost of obtaining health insurance through the Exchanges
will be subsidized by the federal government. Those with lower
incomes will be eligible to receive greater subsidies. It is
anticipated that those at the lowest income levels will have the
majority of their premiums subsidized by the federal government,
in some cases in excess of 95% of the premium amount.
To facilitate the purchase of health insurance by individuals
and small employers, each state must establish an Exchange by
January 1, 2014. Based on CBO and CMS estimates, between 29
and 31 million individuals will obtain their health
insurance coverage through an Exchange by 2019. Of that amount,
an estimated 16 million will be individuals who were
previously uninsured, and 13 to 15 million will be
individuals who switched from their prior insurance coverage to
a plan obtained through the Exchange. The Health Reform Law
requires that the Exchanges be designed to make the process of
evaluating, comparing and acquiring coverage simple for
consumers. For example, each states Exchange must maintain
an internet website through which consumers may access health
plan ratings that are assigned by the state based on quality and
price, view governmental health program eligibility requirements
and calculate the actual cost of health coverage. Health
insurers participating in an Exchange must offer a set of
minimum benefits to be defined by HHS and may offer more
benefits. Health insurers must offer at least two, and up to
five, levels of plans that vary by the percentage of medical
expenses that must be paid by the enrollee. These levels are
referred to as platinum, gold, silver, bronze and catastrophic
plans, with gold and silver being the two mandatory levels of
plans. Each level of plan must require the enrollee to share the
following percentages of medical expenses up to the
deductible/co-payment limit: platinum, 10%; gold, 20%; silver,
30%; bronze, 40%; and catastrophic, 100%. Health insurers may
establish varying deductible/co-payment levels, up to the
statutory maximum (estimated to be between $6,000 and $7,000 for
an individual). The health insurers must
26
cover 100% of the amount of medical expenses in excess of the
deductible/co-payment limit. For example, an individual making
100% to 200% of the FPL will have co-payments and deductibles
reduced to about one-third of the amount payable by those with
the same plan with incomes at or above 400% of the FPL.
Public
Program Spending
The Health Reform Law provides for Medicare, Medicaid and other
federal health care program spending reductions between 2010 and
2019. The CBO estimates that these will include
$156 billion in Medicare
fee-for-service
market basket and productivity reimbursement reductions for all
providers, the majority of which will come from hospitals; CMS
sets this estimate at $233 billion. The CBO estimates also
include an additional $36 billion in reductions of Medicare
and Medicaid disproportionate share funding ($22 billion
for Medicare and $14 billion for Medicaid). CMS estimates
include an additional $64 billion in reductions of Medicare
and Medicaid disproportionate share funding, with
$50 billion of the reductions coming from Medicare.
Payments
for Hospitals and Ambulatory Surgery Centers
Inpatient Market Basket and Productivity
Adjustment. Under the Medicare program,
hospitals receive reimbursement under a PPS for general, acute
care hospital inpatient services. CMS establishes fixed PPS
payment amounts per inpatient discharge based on the
patients assigned MS-DRG. These MS-DRG rates are updated
each federal fiscal year, which begins October 1, using a
market basket index that takes into account inflation
experienced by hospitals and other entities outside the health
care industry in purchasing goods and services.
The Health Reform Law provides for three types of annual
reductions in the market basket. The first is a general
reduction of a specified percentage each federal fiscal year
starting in 2010 and extending through 2019. These reductions
are as follows: federal fiscal year 2010, 0.25% for discharges
occurring on or after April 1, 2010; 2011 (0.25%); 2012
(0.1%); 2013 (0.1%); 2014 (0.3%); 2015 (0.2%); 2016 (0.2%); 2017
(0.75%); 2018 (0.75%); and 2019 (0.75%).
The second type of reduction to the market basket is a
productivity adjustment that will be implemented by
HHS beginning in federal fiscal year 2012. The amount of that
reduction will be the projected nationwide productivity gains
over the preceding 10 years. To determine the projection,
HHS will use the BLS
10-year
moving average of changes in specified economy-wide productivity
(the BLS data is typically a few years old). The Health Reform
Law does not contain guidelines for HHS to use in projecting the
productivity figure. Based upon the latest available data,
federal fiscal year 2012 market basket reductions resulting from
this productivity adjustment are likely to range from 1% to 1.4%.
The third type of reduction is in connection with the
value-based purchasing program discussed in more detail below.
Beginning in federal fiscal year 2013, CMS will reduce the
inpatient PPS payment amount for all discharges by the
following: 1% for 2013; 1.25% for 2014; 1.5% for 2015; 1.75% for
2016; and 2% for 2017 and subsequent years. For each federal
fiscal year, the total amount collected from these reductions
will be pooled and used to fund payments to hospitals that
satisfy certain quality metrics. While some or all of these
reductions may be recovered if a hospital satisfies these
quality metrics, the recovery amounts may be delayed.
If the aggregate of the three market basket reductions described
above is more than the annual market basket adjustments made to
account for inflation, there will be a reduction in the MS-DRG
rates paid to hospitals. For example, for the federal fiscal
year 2011 hospital inpatient PPS, the market basket increase to
account for inflation is 2.6% and the aggregate reduction due to
the Health Reform Law and the documentation and coding
adjustment is 3.15%. Thus, the rates paid to a hospital for
inpatient services in federal fiscal year 2011 will be 0.55%
less than rates paid for the same services in the prior year.
Quality-Based Payment Adjustments and Reductions for
Inpatient Services. The Health Reform Law
establishes or expands three provisions to promote value-based
purchasing and to link payments to quality and efficiency.
First, in federal fiscal year 2013, HHS is directed to implement
a value-based purchasing program for inpatient hospital
services. This program will reward hospitals that meet certain
quality performance standards established by HHS. The Health
Reform Law provides HHS considerable discretion over the
value-based purchasing program. For example, HHS will determine
the quality performance measures, the standards hospitals
27
must achieve in order to meet the quality performance measures,
and the methodology for calculating payments to hospitals that
meet the required quality threshold. HHS will also determine how
much money each hospital will receive from the pool of dollars
created by the reductions related to the value-based purchasing
program as described above. Because the Health Reform Law
provides that the pool will be fully distributed, hospitals that
meet or exceed the quality performance standards set by HHS will
receive greater reimbursement under the value-based purchasing
program than they would have otherwise. On the other hand,
hospitals that do not achieve the necessary quality performance
will receive reduced Medicare inpatient hospital payments. On
January 7, 2011, CMS issued a proposed rule for the
value-based purchasing program that would use 17 clinical
process of care measures and eight dimensions of a
patients experience of care using the HCAHPS survey to
determine incentive payments for federal fiscal year 2013. As
proposed, the incentive payments would be calculated based on a
combination of measures of hospitals achievement of the
performance standards and their improvement in meeting the
performance standards compared to prior periods. To determine
payments in federal fiscal year 2013, the baseline performance
period (measurement standard) as proposed would be July 1,
2009 through March 31, 2010. To determine whether hospitals
meet performance standards, CMS would compare each
hospitals performance in the period July 1, 2011
through March 31, 2012 to its performance in the baseline
performance period. CMS has not yet proposed specific threshold
values for the performance standards. CMS also proposes to add
three outcome measures for federal fiscal year 2014, for which
the performance period would be July 1, 2011 through
December 31, 2012 and the baseline performance period would
be July 1, 2008 through December 31, 2009.
Second, beginning in federal fiscal year 2013, inpatient
payments will be reduced if a hospital experiences
excessive readmissions within a time period
specified by HHS from the date of discharge for heart attack,
heart failure, pneumonia or other conditions designated by HHS.
Hospitals with what HHS defines as excessive
readmissions for these conditions will receive reduced
payments for all inpatient discharges, not just discharges
relating to the conditions subject to the excessive readmission
standard. Each hospitals performance will be publicly
reported by HHS. HHS has the discretion to determine what
excessive readmissions means and other terms and
conditions of this program.
Third, reimbursement will be reduced based on a facilitys
HAC rates. An HAC is a condition that is acquired by a patient
while admitted as an inpatient in a hospital, such as a surgical
site infection. Beginning in federal fiscal year 2015, the 25%
of hospitals with the worst national risk-adjusted HAC rates in
the previous year will receive a 1% reduction in their total
inpatient operating Medicare payments. In addition, effective
July 1, 2011, the Health Reform Law prohibits the use of
federal funds under the Medicaid program to reimburse providers
for medical services provided to treat HACs.
Outpatient Market Basket and Productivity
Adjustment. Hospital outpatient services paid
under PPS are classified into APCs. The APC payment rates are
updated each calendar year based on the market basket. The first
two market basket changes outlined above the general
reduction and the productivity adjustment apply to
outpatient services as well as inpatient services, although
these are applied on a calendar year basis. The percentage
changes specified in the Health Reform Law summarized above as
the general reduction for inpatients e.g., 0.2% in
2015 are the same for outpatients.
Medicare and Medicaid DSH Payments. The
Medicare DSH program provides for additional payments to
hospitals that treat a disproportionate share of low-income
patients. Under the Health Reform Law, beginning in federal
fiscal year 2014, Medicare DSH payments will be reduced to 25%
of the amount they otherwise would have been absent the law. The
remaining 75% of the amount that would otherwise be paid under
Medicare DSH will be effectively pooled, and this pool will be
reduced further each year by a formula that reflects reductions
in the national level of uninsured who are under 65 years
of age. In other words, the greater the level of coverage for
the uninsured nationally, the more the Medicare DSH payment pool
will be reduced. Each hospital will then be paid, out of the
reduced DSH payment pool, an amount allocated based upon its
level of uncompensated care.
It is difficult to predict the full impact of the Medicare DSH
reductions, and CBO and CMS estimates differ by
$38 billion. The Health Reform Law does not mandate what
data source HHS must use to determine the reduction, if any, in
the uninsured population nationally. In addition, the Health
Reform Law does not contain a definition of uncompensated
care. As a result, it is unclear how a hospitals
share of the Medicare DSH payment pool will be calculated. CMS
could use the definition of uncompensated care used
in connection with hospital cost reports.
28
However, in July 2009, CMS proposed material revisions to the
definition of uncompensated care used for cost
report purposes. Those revisions would exclude certain
significant costs that had historically been covered, such as
unreimbursed costs of Medicaid services. CMS has not issued a
final rule, and the Health Reform Law does not require HHS to
use this definition, even if finalized, for DSH purposes. How
CMS ultimately defines uncompensated care for
purposes of these DSH funding provisions could have a material
effect on a hospitals Medicare DSH reimbursements.
In addition to Medicare DSH funding, hospitals that provide care
to a disproportionately high number of low-income patients may
receive Medicaid DSH payments. The federal government
distributes federal Medicaid DSH funds to each state based on a
statutory formula. The states then distribute the DSH funding
among qualifying hospitals. Although federal Medicaid law
defines some level of hospitals that must receive Medicaid DSH
funding, states have broad discretion to define additional
hospitals that also may qualify for Medicaid DSH payments and
the amount of such payments. The Health Reform Law will reduce
funding for the Medicaid DSH hospital program in federal fiscal
years 2014 through 2020 by the following amounts: 2014
($500 million); 2015 ($600 million); 2016
($600 million); 2017 ($1.8 billion); 2018
($5 billion); 2019 ($5.6 billion); and 2020
($4 billion). How such cuts are allocated among the states,
and how the states allocate these cuts among providers, have yet
to be determined.
ACOs. The Health Reform Law requires
HHS to establish a Medicare Shared Savings Program that promotes
accountability and coordination of care through the creation of
ACOs. Beginning no later than January 1, 2012, the program
will allow providers (including hospitals), physicians and other
designated professionals and suppliers to form ACOs and
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. HHS has significant
discretion to determine key elements of the program, including
what steps providers must take to be considered an ACO, how to
decide if Medicare program savings have occurred, and what
portion of such savings will be paid to ACOs. In addition, HHS
will determine to what degree hospitals, physicians and other
eligible participants will be able to form and operate an ACO
without violating certain existing laws, including the Civil
Monetary Penalty Law, the Anti-kickback Statute and the Stark
Law. However, the Health Reform Law does not authorize HHS to
waive other laws that may impact the ability of hospitals and
other eligible participants to participate in ACOs, such as
antitrust laws.
Bundled Payment Pilot Programs. The
Health Reform Law requires HHS to establish a five-year,
voluntary national bundled payment pilot program for Medicare
services beginning no later than January 1, 2013. Under the
program, providers would agree to receive one payment for
services provided to Medicare patients for certain medical
conditions or episodes of care. HHS will have the discretion to
determine how the program will function. For example, HHS will
determine what medical conditions will be included in the
program and the amount of the payment for each condition. In
addition, the Health Reform Law provides for a five-year bundled
payment pilot program for Medicaid services to begin
January 1, 2012. HHS will select up to eight states to
participate based on the potential to lower costs under the
Medicaid program while improving care. State programs may target
particular categories of beneficiaries, selected diagnoses or
geographic regions of the state. The selected state programs
will provide one payment for both hospital and physician
services provided to Medicaid patients for certain episodes of
inpatient care. For both pilot programs, HHS will determine the
relationship between the programs and restrictions in certain
existing laws, including the Civil Monetary Penalty Law, the
Anti-kickback Statute, the Stark Law and the HIPAA privacy,
security and transaction standard requirements. However, the
Health Reform Law does not authorize HHS to waive other laws
that may impact the ability of hospitals and other eligible
participants to participate in the pilot programs, such as
antitrust laws.
Ambulatory Surgery Centers. The Health
Reform Law reduces reimbursement for ASCs through a productivity
adjustment to the market basket similar to the productivity
adjustment for inpatient and outpatient hospital services,
beginning in federal fiscal year 2011.
Medicare Managed Care (Medicare Advantage or
MA). Under the MA program, the
federal government contracts with private health plans to
provide inpatient and outpatient benefits to beneficiaries who
enroll in such plans. Nationally, approximately 22% of Medicare
beneficiaries have elected to enroll in MA plans. Effective in
2014, the Health Reform Law requires MA plans to keep annual
administrative costs lower than 15% of annual
29
premium revenue. The Health Reform Law reduces, over a three
year period, premium payments to the MA plans such that
CMS managed care per capita premium payments are, on
average, equal to traditional Medicare. In addition, the Health
Reform Law implements fee payment adjustments based on service
benchmarks and quality ratings. As a result of these changes,
payments to MA plans are estimated to be reduced by $138 to
$145 billion between 2010 and 2019. These reductions to MA
plan premium payments may cause some plans to raise premiums or
limit benefits, which in turn might cause some Medicare
beneficiaries to terminate their MA coverage and enroll in
traditional Medicare.
Specialty
Hospital Limitations
Over the last decade, we have faced significant competition from
hospitals that have physician ownership. The Health Reform Law
prohibits newly created physician-owned hospitals from billing
for Medicare patients referred by their physician owners. As a
result, the law effectively prevents the formation of new
physician-owned hospitals after December 31, 2010. While
the law grandfathers existing physician-owned hospitals, it does
not allow these hospitals to increase the percentage of
physician ownership and significantly restricts their ability to
expand services.
Program
Integrity and Fraud and Abuse
The Health Reform Law makes several significant changes to
health care fraud and abuse laws, provides additional
enforcement tools to the government, increases cooperation
between agencies by establishing mechanisms for the sharing of
information and enhances criminal and administrative penalties
for non-compliance. For example, the Health Reform Law:
(1) provides $350 million in increased federal funding
over the next 10 years to fight health care fraud, waste
and abuse; (2) expands the scope of the RAC program to
include MA plans and Medicaid; (3) authorizes HHS, in
consultation with the OIG, to suspend Medicare and Medicaid
payments to a provider of services or a supplier pending
an investigation of a credible allegation of fraud;
(4) provides Medicare contractors with additional
flexibility to conduct random prepayment reviews; and
(5) tightens up the rules for returning overpayments made
by governmental health programs and expands FCA liability to
include failure to timely repay identified overpayments.
Impact of
Health Reform Law on the Company
The expansion of health insurance coverage under the Health
Reform Law may result in a material increase in the number of
patients using our facilities who have either private or public
program coverage. In addition, a disproportionately large
percentage of the new Medicaid coverage is likely to be in
states that currently have relatively low income eligibility
requirements. Two such states are Texas and Florida, where about
one-half of the Companys licensed beds are located. We
also have a significant presence in other relatively low income
eligibility states, including Georgia, Kansas, Louisiana,
Missouri, Oklahoma and Virginia. Further, the Health Reform Law
provides for a value-based purchasing program, the establishment
of ACOs and bundled payment pilot programs, which will create
possible sources of additional revenue.
However, it is difficult to predict the size of the potential
revenue gains to the Company as a result of these elements of
the Health Reform Law, because of uncertainty surrounding a
number of material factors, including the following:
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how many previously uninsured individuals will obtain coverage
as a result of the Health Reform Law (while the CBO estimates
32 million, CMS estimates almost 34 million; both
agencies made a number of assumptions to derive that figure,
including how many individuals will ignore substantial subsidies
and decide to pay the penalty rather than obtain health
insurance and what percentage of people in the future will meet
the new Medicaid income eligibility requirements);
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what percentage of the newly insured patients will be covered
under the Medicaid program and what percentage will be covered
by private health insurers;
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the extent to which states will enroll new Medicaid participants
in managed care programs;
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the pace at which insurance coverage expands, including the pace
of different types of coverage expansion;
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the change, if any, in the volume of inpatient and outpatient
hospital services that are sought by and provided to previously
uninsured individuals;
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the rate paid to hospitals by private payers for newly covered
individuals, including those covered through the newly created
Exchanges and those who might be covered under the Medicaid
program under contracts with the state;
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the rate paid by state governments under the Medicaid program
for newly covered individuals;
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how the value-based purchasing and other quality programs will
be implemented;
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the percentage of individuals in the Exchanges who select the
high deductible plans, since health insurers offering those
kinds of products have traditionally sought to pay lower rates
to hospitals;
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whether the net effect of the Health Reform Law, including the
prohibition on excluding individuals based on pre-existing
conditions, the requirement to keep medical costs at or above a
specified minimum percentage of premium revenue, other health
insurance reforms and the annual fee applied to all health
insurers, will be to put pressure on the bottom line of health
insurers, which in turn might cause them to seek to reduce
payments to hospitals with respect to both newly insured
individuals and their existing business; and
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the possibility that implementation of the provisions expanding
health insurance coverage or the entire Health Reform Law will
be delayed due to court challenges or revised or eliminated as a
result of court challenges and efforts to repeal or amend the
law. More than 20 challenges to the Health Reform Law have been
filed in federal courts. Some federal district courts have
upheld the constitutionality of the Health Reform Law or
dismissed cases on procedural grounds. Others have held
unconstitutional the requirement that individuals maintain
health insurance or pay a penalty and have either found the
entire Health Reform Law void in its entirety or left the
remainder of the Health Reform Law intact. These lawsuits are
subject to appeal, and several are currently on appeal,
including those that hold the law unconstitutional.
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On the other hand, the Health Reform Law provides for
significant reductions in the growth of Medicare spending,
reductions in Medicare and Medicaid DSH payments and the
establishment of programs where reimbursement is tied to quality
and integration. Since 40.7% of our revenues in 2010 were from
Medicare and Medicaid, reductions to these programs may
significantly impact the Company and could offset any positive
effects of the Health Reform Law. It is difficult to predict the
size of the revenue reductions to Medicare and Medicaid
spending, because of uncertainty regarding a number of material
factors, including the following:
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the amount of overall revenues the Company will generate from
Medicare and Medicaid business when the reductions are
implemented;
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whether reductions required by the Health Reform Law will be
changed by statute or by judicial decision prior to becoming
effective;
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the size of the Health Reform Laws annual productivity
adjustment to the market basket beginning in 2012 payment years;
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the amount of the Medicare DSH reductions that will be made,
commencing in federal fiscal year 2014;
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the allocation to our hospitals of the Medicaid DSH reductions,
commencing in federal fiscal year 2014;
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what the losses in revenues will be, if any, from the Health
Reform Laws quality initiatives;
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how successful ACOs, in which we anticipate participating, will
be at coordinating care and reducing costs or whether they will
decrease reimbursement;
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the scope and nature of potential changes to Medicare
reimbursement methods, such as an emphasis on bundling payments
or coordination of care programs;
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whether the Companys revenues from upper payment limit
(UPL) programs will be adversely affected, because
there may be fewer indigent, non-Medicaid patients for whom the
Company provides services pursuant to UPL programs; and
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reductions to Medicare payments CMS may impose for
excessive readmissions.
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Because of the many variables involved, we are unable to predict
the net effect on the Company of the expected increases in
insured individuals using our facilities, the reductions in
Medicare spending and reductions in Medicare and Medicaid DSH
Funding, and numerous other provisions in the Health Reform Law
that may affect the Company. Further, it is unclear how efforts
to repeal or revise the Health Reform Law and federal lawsuits
challenging its constitutionality will be resolved or what the
impact would be of any resulting changes to the law.
General
Economic and Demographic Factors
The United States economy has weakened significantly in recent
years. Depressed consumer spending and higher unemployment rates
continue to pressure many industries. During economic downturns,
governmental entities often experience budget deficits as a
result of increased costs and lower than expected tax
collections. These budget deficits have forced federal, state
and local government entities to decrease spending for health
and human service programs, including Medicare, Medicaid and
similar programs, which represent significant payer sources for
our hospitals. Other risks we face from general economic
weakness include potential declines in the population covered
under managed care agreements, patient decisions to postpone or
cancel elective and nonemergency health care procedures,
potential increases in the uninsured and underinsured
populations and further difficulties in our collecting patient
co-payment and deductible receivables. The Health Reform Law
seeks to decrease over time the number of uninsured individuals,
by among other things requiring employers to offer, and
individuals to carry, health insurance or be subject to
penalties. However, it is difficult to predict the full impact
of the Health Reform Law due to the laws complexity, lack
of implementing regulations or interpretive guidance, gradual
and potentially delayed implementation, pending court
challenges, and possible amendment or repeal.
The health care industry is impacted by the overall United
States economy. The federal deficit, the growing magnitude of
Medicare expenditures and the aging of the United States
population will continue to place pressure on federal health
care programs.
Compliance
Program
We maintain a comprehensive ethics and compliance program that
is designed to meet or exceed applicable federal guidelines and
industry standards. The program is intended to monitor and raise
awareness of various regulatory issues among employees and to
emphasize the importance of complying with governmental laws and
regulations. As part of the ethics and compliance program, we
provide annual ethics and compliance training to our employees
and encourage all employees to report any violations to their
supervisor, an ethics and compliance officer or a toll-free
telephone ethics line. The Health Reform Law requires providers
to implement core elements of compliance program criteria to be
established by HHS, on a timeline to be established by HHS, as a
condition of enrollment in the Medicare or Medicaid programs,
and we may have to modify our compliance programs to comply with
these new criteria.
Antitrust
Laws
The federal government and most states have enacted antitrust
laws that prohibit certain types of conduct deemed to be
anti-competitive. These laws prohibit price fixing, concerted
refusal to deal, market monopolization, price discrimination,
tying arrangements, acquisitions of competitors and other
practices that have, or may have, an adverse effect on
competition. Violations of federal or state antitrust laws can
result in various sanctions, including criminal and civil
penalties. Antitrust enforcement in the health care industry is
currently a priority of the Federal Trade Commission. We believe
we are in compliance with such federal and state laws, but
courts or regulatory authorities may reach a determination in
the future that could adversely affect our operations.
32
Environmental
Matters
We are subject to various federal, state and local statutes and
ordinances regulating the discharge of materials into the
environment. We do not believe that we will be required to
expend any material amounts in order to comply with these laws
and regulations.
Insurance
As is typical in the health care industry, we are subject to
claims and legal actions by patients in the ordinary course of
business. Subject to a $5 million per occurrence
self-insured retention, our facilities are insured by our
wholly-owned insurance subsidiary for losses up to
$50 million per occurrence. The insurance subsidiary has
obtained reinsurance for professional liability risks generally
above a retention level of $15 million per occurrence. We
also maintain professional liability insurance with unrelated
commercial carriers for losses in excess of amounts insured by
our insurance subsidiary.
We purchase, from unrelated insurance companies, coverage for
directors and officers liability and property loss in amounts we
believe are adequate. The directors and officers liability
coverage includes a $25 million corporate deductible for
the period prior to the Recapitalization and a $1 million
corporate deductible subsequent to the Recapitalization. In
addition, we will continue to purchase coverage for our
directors and officers on an ongoing basis. The property
coverage includes varying deductibles depending on the cause of
the property damage. These deductibles range from $500,000 per
claim up to 5% of the affected property values for certain flood
and wind and earthquake related incidents.
Employees
and Medical Staffs
At December 31, 2010, we had approximately
194,000 employees, including approximately
48,000 part-time employees. References herein to
employees refer to employees of our affiliates. We
are subject to various state and federal laws that regulate
wages, hours, benefits and other terms and conditions relating
to employment. At December 31, 2010, employees at 32 of our
hospitals are represented by various labor unions. It is
possible additional hospitals may unionize in the future. We
consider our employee relations to be good and have not
experienced work stoppages that have materially, adversely
affected our business or results of operations. Our hospitals,
like most hospitals, have experienced labor costs rising faster
than the general inflation rate. In some markets, nurse and
medical support personnel availability has become a significant
operating issue to health care providers. To address this
challenge, we have implemented several initiatives to improve
retention, recruiting, compensation programs and productivity.
Our hospitals are staffed by licensed physicians, who generally
are not employees of our hospitals. However, some physicians
provide services in our hospitals under contracts, which
generally describe a term of service, provide and establish the
duties and obligations of such physicians, require the
maintenance of certain performance criteria and fix compensation
for such services. Any licensed physician may apply to be
accepted to the medical staff of any of our hospitals, but the
hospitals medical staff and the appropriate governing
board of the hospital, in accordance with established
credentialing criteria, must approve acceptance to the staff.
Members of the medical staffs of our hospitals often also serve
on the medical staffs of other hospitals and may terminate their
affiliation with one of our hospitals at any time.
We may be required to continue to enhance wages and benefits to
recruit and retain nurses and other medical support personnel or
to hire more expensive temporary or contract personnel. As a
result, our labor costs could increase. We also depend on the
available labor pool of semi-skilled and unskilled employees in
each of the markets in which we operate. Certain proposed
changes in federal labor laws, including the Employee Free
Choice Act, could increase the likelihood of employee
unionization attempts. To the extent a significant portion of
our employee base unionizes, our costs could increase
materially. In addition, the states in which we operate could
adopt mandatory nurse-staffing ratios or could reduce mandatory
nurse-staffing ratios already in place. State-mandated
nurse-staffing ratios could significantly affect labor costs,
and have an adverse impact on revenues if we are required to
limit patient admissions in order to meet the required ratios.
33
Executive
Officers of the Registrant
As of February 11, 2011, our executive officers were as
follows:
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Name
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Age
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Position(s)
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Richard M. Bracken
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Chairman of the Board and Chief Executive Officer
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R. Milton Johnson
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President, Chief Financial Officer and Director
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David G. Anderson
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63
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Senior Vice President Finance and Treasurer
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Victor L. Campbell
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Senior Vice President
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Jana J. Davis
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52
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Senior Vice President Communications
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Jon M. Foster
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49
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Group President
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Charles J. Hall
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Group President
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Samuel N. Hazen
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President Operations
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A. Bruce Moore, Jr.
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Group President Service Line and Operations
Integration
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Jonathan B. Perlin, M.D.
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President Clinical and Physician Services Group and
Chief Medical Officer
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W. Paul Rutledge
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Group President
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Joseph A. Sowell, III
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Senior Vice President Development
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Joseph N. Steakley
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Senior Vice President Internal Audit Services
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John M. Steele
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55
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Senior Vice President Human Resources
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Donald W. Stinnett
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Senior Vice President and Controller
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Juan Vallarino
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Senior Vice President Strategic Pricing and Analytics
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Beverly B. Wallace
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President NewCo Business Solutions
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Robert A. Waterman
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Senior Vice President, General Counsel and Chief Labor Relations
Officer
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Noel Brown Williams
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Senior Vice President and Chief Information Officer
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Alan R. Yuspeh
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Senior Vice President and Chief Ethics and Compliance Officer
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Richard M. Bracken has served as Chief Executive Officer
of the Company since January 2009 and was appointed as Chairman
of the Board in December 2009. Mr. Bracken served as
President and Chief Executive Officer from January 2009 to
December 2009. Mr. Bracken was appointed Chief Operating
Officer in July 2001 and served as President and Chief Operating
Officer from January 2002 to January 2009. Mr. Bracken
served as President Western Group of the Company
from August 1997 until July 2001. From January 1995 to August
1997, Mr. Bracken served as President of the Pacific
Division of the Company. Prior to 1995, Mr. Bracken served
in various hospital Chief Executive Officer and Administrator
positions with HCA-Hospital Corporation of America.
R. Milton Johnson has served as President and Chief
Financial Officer of the Company since February 2011 and was
appointed as a director in December 2009. Mr. Johnson
served as Executive Vice President and Chief Financial Officer
from July 2004 to February 2011 and as Senior Vice President and
Controller of the Company from July 1999 until July 2004.
Mr. Johnson served as Vice President and Controller of the
Company from November 1998 to July 1999. Prior to that time,
Mr. Johnson served as Vice President Tax of the
Company from April 1995 to October 1998. Prior to that time,
Mr. Johnson served as Director of Tax for Healthtrust,
Inc. The Hospital Company from September 1987 to
April 1995.
David G. Anderson has served as Senior Vice
President Finance and Treasurer of the Company since
July 1999. Mr. Anderson served as Vice President
Finance of the Company from September 1993 to July
1999 and was appointed to the additional position of Treasurer
in November 1996. From March 1993 until September 1993,
Mr. Anderson served as Vice President Finance
and Treasurer of Galen Health Care, Inc. From July 1988 to March
1993, Mr. Anderson served as Vice President
Finance and Treasurer of Humana Inc.
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Victor L. Campbell has served as Senior Vice President of
the Company since February 1994. Prior to that time,
Mr. Campbell served as HCA-Hospital Corporation of
Americas Vice President for Investor, Corporate and
Government Relations. Mr. Campbell joined HCA-Hospital
Corporation of America in 1972. Mr. Campbell serves on the
board of the Nashville Health Care Council, as a member of the
American Hospital Associations Presidents Forum, and
on the board and Executive Committee of the Federation of
American Hospitals.
Jana J. Davis was appointed Senior Vice
President Communications in February 2011. Prior to
that time, she served as Vice President of Communications for
the Company from November 1997 to February 2011. Ms. Davis
joined HCA in 1997 from Burson-Marsteller, where she was a
Managing Director and served as Corporate Practice Chair for
Latin American operations. Ms. Davis also held a number of
Public Affairs positions in the George H.W. Bush and Reagan
Administrations. Ms. Davis is an attorney and serves as
chair of the Public Relations Committee for the Federation of
American Hospitals.
Jon M. Foster was appointed Group President in February
2011. Prior to that, Mr. Foster served as
Division President for the Central and West Texas Division
from January 2006 to February 2011. Mr. Foster joined HCA
in March 2001 as President and CEO of St. Davids
HealthCare in Austin, Texas and served in that position until
February 2011. Prior to joining the company, Mr. Foster
served in various executive capacities within the Baptist Health
System, Knoxville, Tennessee and The Methodist Hospital System
in Houston, Texas.
Charles J. Hall was appointed Group President in October
2006; his formal title prior to February 2011 was
President Eastern Group. Prior to that time,
Mr. Hall had served as President North Florida
Division since April 2003. Mr. Hall had previously served
the Company as President of the East Florida Division from
January 1999 until April 2003, as a Market President in the East
Florida Division from January 1998 until December 1998, as
President of the South Florida Division from February 1996 until
December 1997, and as President of the Southwest Florida
Division from October 1994 until February 1996, and in various
other capacities since 1987.
Samuel N. Hazen was appointed President
Operations of the Company in February 2011. Mr. Hazen
served as President Western Group from July 2001 to
February 2011 and as Chief Financial Officer Western
Group of the Company from August 1995 to July 2001.
Mr. Hazen served as Chief Financial Officer
North Texas Division of the Company from February 1994 to July
1995. Prior to that time, Mr. Hazen served in various
hospital and regional Chief Financial Officer positions with
Humana Inc. and Galen Health Care, Inc.
A. Bruce Moore, Jr. was appointed Group
President Service Line and Operations Integration in
February 2011. Mr. Moore had served as
President Outpatient Services Group since January
2006. Mr. Moore served as Senior Vice President and as
Chief Operating Officer Outpatient Services Group
from July 2004 to January 2006 and as Senior Vice
President Operations Administration from July 1999
until July 2004. Mr. Moore served as Vice
President Operations Administration of the Company
from September 1997 to July 1999, as Vice President
Benefits from October 1996 to September 1997, and as Vice
President Compensation from March 1995 until October
1996.
Dr. Jonathan B. Perlin was appointed
President Clinical and Physician Services Group and
Chief Medical Officer in February 2011. Dr. Perlin had
served as President Clinical Services Group and
Chief Medical Officer from November 2007 to February 2011 and as
Chief Medical Officer and Senior Vice President
Quality of the Company from August 2006 to November 2007. Prior
to joining the Company, Dr. Perlin served as Under
Secretary for Health in the U.S. Department of Veterans
Affairs since April 2004. Dr. Perlin joined the Veterans
Health Administration in November 1999 where he served in
various capacities, including as Deputy Under Secretary for
Health from July 2002 to April 2004, and as Chief Quality and
Performance Officer from November 1999 to September 2002.
W. Paul Rutledge was appointed as Group President in
October 2005; his formal title prior to February 2011 was
President Central Group. Mr. Rutledge had
served as President of the MidAmerica Division since January
2001. He served as President of TriStar Health System from June
1996 to January 2001 and served as President of Centennial
Medical Center from May 1993 to June 1996. He has served in
leadership capacities with HCA for more than 28 years,
working with hospitals in the United States and London, England.
Joseph A. Sowell, III was appointed as Senior Vice
President and Chief Development Officer of the Company in
December 2009. From 1987 to 1996 and again from 1999 to 2009,
Mr. Sowell was a partner at the law firm of
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Waller Lansden Dortch & Davis where he specialized in
the areas of health care law, mergers and acquisitions, joint
ventures, private equity financing, tax law and general
corporate law. He also co-managed the firms corporate and
commercial transactions practice. From 1996 to 1999,
Mr. Sowell served as the head of development, and later as
the Chief Operating Officer of Arcon Healthcare.
Joseph N. Steakley has served as Senior Vice
President Internal Audit Services of the Company
since July 1999. Mr. Steakley served as Vice President
Internal Audit Services from November 1997 to July
1999. From October 1989 until October 1997, Mr. Steakley
was a partner with Ernst & Young LLP.
Mr. Steakley is a member of the board of directors of J.
Alexanders Corporation, where he serves on the
compensation committee and as chairman of the audit committee.
John M. Steele has served as Senior Vice
President Human Resources of the Company since
November 2003. Mr. Steele served as Vice
President Compensation and Recruitment of the
Company from November 1997 to October 2003. From March 1995 to
November 1997, Mr. Steele served as Assistant Vice
President Recruitment.
Donald W. Stinnett has served as Senior Vice President
and Controller since December 2008. Mr. Stinnett served as
Chief Financial Officer Eastern Group from October
2005 to December 2008 and Chief Financial Officer of the Far
West Division from July 1999 to October 2005. Mr. Stinnett
served as Chief Financial Officer and Vice President of Finance
of Franciscan Health System of the Ohio Valley from 1995 until
1999, and served in various capacities with Franciscan Health
System of Cincinnati and Providence Hospital in Cincinnati prior
to that time.
Juan Vallarino was appointed Senior Vice
President Strategic Pricing and Analytics in
February 2011. Prior to that time, Mr. Vallarino had served
as Vice President Strategic Pricing and Analytics
since October 2006. Prior to that, Mr. Vallarino served as
Vice President of Managed Care for the Western Group of the
Company from January 1998 to October 2006.
Beverly B. Wallace was appointed President
NewCo Business Solutions in February 2011. From March 2006 until
February 2011, Ms. Wallace served as President
Shared Services Group, and from January 2003 until March 2006,
Ms. Wallace served as President Financial
Services Group. Ms. Wallace served as Senior Vice
President Revenue Cycle Operations Management of the
Company from July 1999 to January 2003. Ms. Wallace served
as Vice President Managed Care of the Company from
July 1998 to July 1999. From 1997 to 1998, Ms. Wallace
served as President Homecare Division of the
Company. From 1996 to 1997, Ms. Wallace served as Chief
Financial Officer Nashville Division of the Company.
From 1994 to 1996, Ms. Wallace served as Chief Financial
Officer
Mid-America
Division of the Company.
Robert A. Waterman has served as Senior Vice President
and General Counsel of the Company since November 1997 and Chief
Labor Relations Officer since March 2009. Mr. Waterman
served as a partner in the law firm of Latham &
Watkins from September 1993 to October 1997; he was Chair of the
firms health care group during 1997.
Noel Brown Williams has served as Senior Vice President
and Chief Information Officer of the Company since October 1997.
From October 1996 to September 1997, Ms. Williams served as
Chief Information Officer for American Service Group/Prison
Health Services, Inc. From September 1995 to September 1996,
Ms. Williams worked as an independent consultant. From June
1993 to June 1995, Ms. Williams served as Vice President,
Information Services for HCA Information Services. From February
1979 to June 1993, she held various positions with HCA-Hospital
Corporation of America Information Services.
Alan R. Yuspeh has served as Senior Vice President and
Chief Ethics and Compliance Officer of the Company since May
2007. From October 1997 to May 2007, Mr. Yuspeh served as
Senior Vice President Ethics, Compliance and
Corporate Responsibility of the Company. From September 1991
until October 1997, Mr. Yuspeh was a partner with the law
firm of Howrey & Simon. As a part of his law practice,
Mr. Yuspeh served from 1987 to 1997 as Coordinator of the
Defense Industry Initiative on Business Ethics and Conduct.
36
If any of the events discussed in the following risk factors
were to occur, our business, financial position, results of
operations, cash flows or prospects could be materially,
adversely affected. Additional risks and uncertainties not
presently known, or currently deemed immaterial, may also
constrain our business and operations.
Our
substantial leverage could adversely affect our ability to raise
additional capital to fund our operations, limit our ability to
react to changes in the economy or our industry, expose us to
interest rate risk to the extent of our variable rate debt and
prevent us from meeting our obligations.
We are highly leveraged. As of December 31, 2010, our total
indebtedness was $28.225 billion. As of December 31,
2010, we had availability of $1.189 billion under our
senior secured revolving credit facility and $125 million
under our asset-based revolving credit facility, after giving
effect to letters of credit and borrowing base limitations. Our
high degree of leverage could have important consequences,
including:
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increasing our vulnerability to downturns or adverse changes in
general economic, industry or competitive conditions and adverse
changes in government regulations;
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requiring a substantial portion of cash flow from operations to
be dedicated to the payment of principal and interest on our
indebtedness, therefore reducing our ability to use our cash
flow to fund our operations, capital expenditures and future
business opportunities;
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exposing us to the risk of increased interest rates as certain
of our unhedged borrowings are at variable rates of interest;
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limiting our ability to make strategic acquisitions or causing
us to make nonstrategic divestitures;
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limiting our ability to obtain additional financing for working
capital, capital expenditures, product or service line
development, debt service requirements, acquisitions and general
corporate or other purposes; and
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limiting our ability to adjust to changing market conditions and
placing us at a competitive disadvantage compared to our
competitors who are less highly leveraged.
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We and our subsidiaries have the ability to incur additional
indebtedness in the future, subject to the restrictions
contained in our senior secured credit facilities and the
indentures governing our outstanding notes. If new indebtedness
is added to our current debt levels, the related risks that we
now face could intensify.
We may
not be able to generate sufficient cash to service all of our
indebtedness and may not be able to refinance our indebtedness
on favorable terms. If we are unable to do so, we may be forced
to take other actions to satisfy our obligations under our
indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our
debt obligations depends on our financial condition and
operating performance, which is subject to prevailing economic
and competitive conditions and to certain financial, business
and other factors beyond our control. We cannot assure you we
will maintain a level of cash flows from operating activities
sufficient to permit us to pay the principal, premium, if any,
and interest on our indebtedness.
In addition, we conduct our operations through our subsidiaries.
Accordingly, repayment of our indebtedness is dependent on the
generation of cash flow by our subsidiaries and their ability to
make such cash available to us by dividend, debt repayment or
otherwise. Our subsidiaries may not be able to, or may not be
permitted to, make distributions to enable us to make payments
in respect of our indebtedness. Each subsidiary is a distinct
legal entity, and, under certain circumstances, legal and
contractual restrictions may limit our ability to obtain cash
from our subsidiaries.
We may find it necessary or prudent to refinance our outstanding
indebtedness with longer-maturity debt at a higher interest
rate. In February, April and August of 2009 and in March of
2010, for example, we issued $310 million in aggregate
principal amount of
97/8%
second lien notes due 2017, $1.500 billion in aggregate
principal amount of
81/2%
first lien notes due 2019, $1.250 billion in aggregate
principal amount of
77/8%
first lien notes due 2020 and $1.400 billion in aggregate
principal amount of
71/4%
first lien notes due 2020, respectively. The net proceeds of
those offerings were used to prepay term loans under our cash
flow credit facility, which currently bears interest at a lower
floating rate. Our ability to refinance our indebtedness on
favorable terms, or at all, is
37
directly affected by the current global economic and financial
conditions. In addition, our ability to incur secured
indebtedness (which would generally enable us to achieve better
pricing than the incurrence of unsecured indebtedness) depends
in part on the value of our assets, which depends, in turn, on
the strength of our cash flows and results of operations, and on
economic and market conditions and other factors.
If our cash flows and capital resources are insufficient to fund
our debt service obligations or we are unable to refinance our
indebtedness, we may be forced to reduce or delay investments
and capital expenditures, or to sell assets, seek additional
capital or restructure our indebtedness. These alternative
measures may not be successful and may not permit us to meet our
scheduled debt service obligations. If our operating results and
available cash are insufficient to meet our debt service
obligations, we could face substantial liquidity problems and
might be required to dispose of material assets or operations to
meet our debt service and other obligations. We may not be able
to consummate those dispositions, or the proceeds from the
dispositions may not be adequate to meet any debt service
obligations then due.
Our debt
agreements contain restrictions that limit our flexibility in
operating our business.
Our senior secured credit facilities and the indentures
governing our outstanding notes contain various covenants that
limit our ability to engage in specified types of transactions.
These covenants limit our and certain of our subsidiaries
ability to, among other things:
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incur additional indebtedness or issue certain preferred shares;
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pay dividends on, repurchase or make distributions in respect of
our capital stock or make other restricted payments;
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make certain investments;
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sell or transfer assets;
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create liens;
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consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets; and
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enter into certain transactions with our affiliates.
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Under our asset-based revolving credit facility, when (and for
as long as) the combined availability under our asset-based
revolving credit facility and our senior secured revolving
credit facility is less than a specified amount for a certain
period of time or, if a payment or bankruptcy event of default
has occurred and is continuing, funds deposited into any of our
depository accounts will be transferred on a daily basis into a
blocked account with the administrative agent and applied to
prepay loans under the asset-based revolving credit facility and
to cash collateralize letters of credit issued thereunder.
Under our senior secured credit facilities, we are required to
satisfy and maintain specified financial ratios. Our ability to
meet those financial ratios can be affected by events beyond our
control, and there can be no assurance we will continue to meet
those ratios. A breach of any of these covenants could result in
a default under both the cash flow credit facility and the
asset-based revolving credit facility. Upon the occurrence of an
event of default under the senior secured credit facilities, the
lenders thereunder could elect to declare all amounts
outstanding under the senior secured credit facilities to be
immediately due and payable and terminate all commitments to
extend further credit. If we were unable to repay those amounts,
the lenders under the senior secured credit facilities could
proceed against the collateral granted to them to secure such
indebtedness. We have pledged a significant portion of our
assets under our senior secured credit facilities and that
collateral (other than certain European collateral securing our
senior secured European term loan facility) is also pledged as
collateral under our first lien notes. If any of the lenders
under the senior secured credit facilities accelerate the
repayment of borrowings, there can be no assurance there will be
sufficient assets to repay the senior secured credit facilities,
the first lien notes and our other indebtedness.
Our
hospitals face competition for patients from other hospitals and
health care providers.
The health care business is highly competitive, and competition
among hospitals and other health care providers for patients has
intensified in recent years. Generally, other hospitals in the
local communities we serve provide services similar to those
offered by our hospitals. In addition, CMS publicizes on its
Hospital Compare website performance data related to quality
measures and data on patient satisfaction surveys hospitals
submit in connection with their Medicare reimbursement. Federal
law provides for the future expansion of the number of
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quality measures that must be reported. Additional quality
measures and future trends toward clinical transparency may have
an unanticipated impact on our competitive position and patient
volumes. Further, the Health Reform Law requires all hospitals
to annually establish, update and make public a list of the
hospitals standard charges for items and services. If any
of our hospitals achieve poor results (or results that are lower
than our competitors) on these quality measures or on patient
satisfaction surveys or if our standard charges are higher than
our competitors, our patient volumes could decline.
In addition, the number of freestanding specialty hospitals,
surgery centers and diagnostic and imaging centers in the
geographic areas in which we operate has increased
significantly. As a result, most of our hospitals operate in a
highly competitive environment. Some of the facilities that
compete with our hospitals are owned by governmental agencies or
not-for-profit corporations supported by endowments, charitable
contributions
and/or tax
revenues and can finance capital expenditures and operations on
a tax-exempt basis. Our hospitals face increasing competition
from specialty hospitals, some of which are physician-owned, and
from both our own and unaffiliated freestanding surgery centers
for market share in high margin services and for quality
physicians and personnel. If ambulatory surgery centers are
better able to compete in this environment than our hospitals,
our hospitals may experience a decline in patient volume, and we
may experience a decrease in margin, even if those patients use
our ambulatory surgery centers. In states that do not require a
CON for the purchase, construction or expansion of health care
facilities or services, competition in the form of new services,
facilities and capital spending is more prevalent. Further, if
our competitors are better able to attract patients, recruit
physicians, expand services or obtain favorable managed care
contracts at their facilities than our hospitals and ambulatory
surgery centers, we may experience an overall decline in patient
volume. See Item 1, Business
Competition.
The
growth of uninsured and patient due accounts and a deterioration
in the collectibility of these accounts could adversely affect
our results of operations.
The primary collection risks of our accounts receivable relate
to the uninsured patient accounts and patient accounts for which
the primary insurance carrier has paid the amounts covered by
the applicable agreement, but patient responsibility amounts
(deductibles and copayments) remain outstanding. The provision
for doubtful accounts relates primarily to amounts due directly
from patients.
The amount of the provision for doubtful accounts is based upon
managements assessment of historical write-offs and
expected net collections, business and economic conditions,
trends in federal and state governmental and private employer
health care coverage, the rate of growth in uninsured patient
admissions and other collection indicators. At December 31,
2010, our allowance for doubtful accounts represented
approximately 93% of the $4.249 billion patient due
accounts receivable balance. The sum of the provision for
doubtful accounts, uninsured discounts and charity care
increased from $7.009 billion for 2008 to
$8.362 billion for 2009 and to $9.626 billion for 2010.
A continuation of the trends that have resulted in an increasing
proportion of accounts receivable being comprised of uninsured
accounts and a deterioration in the collectibility of these
accounts will adversely affect our collection of accounts
receivable, cash flows and results of operations. Prior to the
Health Reform Law being fully implemented, our facilities may
experience growth in bad debts, uninsured discounts and charity
care as a result of a number of factors, including the economic
downturn and increase in unemployment. The Health Reform Law
seeks to decrease, over time, the number of uninsured
individuals. As enacted, the Health Reform Law will, effective
January 1, 2014, expand Medicaid and incentivize employers
to offer, and require individuals to carry, health insurance or
be subject to penalties. More than 20 challenges to the Health
Reform Law have been filed in federal courts. Some federal
courts have upheld the constitutionality of the Health Reform
Law or dismissed cases on procedural grounds. Others have held
unconstitutional the requirement that individuals maintain
health insurance or pay a penalty and have either found the
Health Reform Law void in its entirety or left the remainder of
the law intact. These lawsuits are subject to appeal, and
several are currently on appeal, including those that hold the
law unconstitutional. It is difficult to predict the full impact
of the Health Reform Law due to the laws complexity, lack
of implementing regulations or interpretive guidance, gradual
and potentially delayed implementation, pending court challenges
and possible amendment or repeal, as well as our inability to
foresee how individuals and businesses will respond to the
choices afforded them by the law. In addition, even after
implementation of the Health Reform Law, we may continue to
experience bad debts and have to provide uninsured discounts and
charity care for
39
undocumented aliens who are not permitted to enroll in a health
insurance exchange or government health care programs and
certain others who may not have insurance coverage.
Changes
in government health care programs may reduce our
revenues.
A significant portion of our patient volume is derived from
government health care programs, principally Medicare and
Medicaid. Specifically, we derived approximately 41% of our
revenues from the Medicare and Medicaid programs in 2010.
Changes in government health care programs may reduce the
reimbursement we receive and could adversely affect our business
and results of operations.
In recent years, legislative and regulatory changes have
resulted in limitations on and, in some cases, reductions in
levels of payments to health care providers for certain services
under the Medicare program. For example, CMS completed a
two-year transition to full implementation of the MS-DRG system,
which represents a refinement to the existing diagnosis-related
group system. Future realignments in the MS-DRG system could
impact the margins we receive for certain services. Further, the
Health Reform Law provides for material reductions in the growth
of Medicare program spending, including reductions in Medicare
market basket updates and Medicare DSH funding. Medicare
payments in federal fiscal year 2011 for inpatient hospital
services are expected to be slightly lower than payments for the
same services in federal fiscal year 2010, because of reductions
resulting from the Health Reform Law and the MS-DRG
implementation.
Since most states must operate with balanced budgets and since
the Medicaid program is often a states largest program,
some states can be expected to enact or consider enacting
legislation designed to reduce their Medicaid expenditures. The
current economic downturn has increased the budgetary pressures
on many states, and these budgetary pressures have resulted, and
likely will continue to result, in decreased spending, or
decreased spending growth, for Medicaid programs and the CHIP in
many states. The Health Reform Law provides for material
reductions to Medicaid DSH funding. Further, many states have
also adopted, or are considering, legislation designed to reduce
coverage, enroll Medicaid recipients in managed care programs
and/or
impose additional taxes on hospitals to help finance or expand
the states Medicaid systems. Effective March 23,
2010, the Health Reform Law requires states to at least maintain
Medicaid eligibility standards established prior to the
enactment of the law for adults until January 1, 2014 and
for children until October 1, 2019. However, states with
budget deficits may seek a waiver from this requirement to
address eligibility standards that apply to adults making more
than 133% of the federal poverty level. The Health Reform Law
also provides for significant expansions to the Medicaid
program, but these changes are not required until 2014. In
addition, the Health Reform Law will result in increased state
legislative and regulatory changes in order for states to comply
with new federal mandates, such as the requirement to establish
Exchanges, and to participate in grants and other incentive
opportunities.
In some cases, commercial third-party payers rely on all or
portions of the MS-DRG system to determine payment rates, which
may result in decreased reimbursement from some commercial
third-party payers. Other changes to government health care
programs may negatively impact payments from commercial
third-party payers.
Current or future health care reform efforts, changes in laws or
regulations regarding government health care programs, other
changes in the administration of government health care programs
and changes to commercial third-party payers in response to
health care reform and other changes to government health care
programs could have a material, adverse effect on our financial
position and results of operations.
We are
unable to predict the impact of the Health Reform Law, which
represents a significant change to the health care
industry.
As enacted, the Health Reform Law will change how health care
services are covered, delivered, and reimbursed through expanded
coverage of uninsured individuals, reduced growth in Medicare
program spending, reductions in Medicare and Medicaid DSH
payments and the establishment of programs where reimbursement
is tied to quality and integration. In addition, the law reforms
certain aspects of health insurance, expands existing efforts to
tie Medicare and Medicaid payments to performance and quality,
and contains provisions intended to strengthen fraud and abuse
enforcement. The expansion of health insurance coverage under
the Health Reform Law may result in a material increase in the
number of patients using our facilities who have either private
or public program coverage. In addition, a disproportionately
large percentage of the new Medicaid coverage is likely to be in
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states that currently have relatively low income eligibility
requirements. Two such states are Texas and Florida, where about
one-half of the Companys licensed beds are located. The
Company also has a significant presence in other relatively low
income eligibility states, including Georgia, Kansas, Louisiana,
Missouri, Oklahoma and Virginia. Further, the Health Reform Law
provides for a value-based purchasing program, the establishment
of ACOs and bundled payment pilot programs, which will create
possible sources of additional revenue.
However, it is difficult to predict the size of the potential
revenue gains to the Company as a result of these elements of
the Health Reform Law, because of uncertainty surrounding a
number of material factors, including the following:
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how many previously uninsured individuals will obtain coverage
as a result of the Health Reform Law (while the CBO estimates
32 million, CMS estimates almost 34 million; both
agencies made a number of assumptions to derive that figure,
including how many individuals will ignore substantial subsidies
and decide to pay the penalty rather than obtain health
insurance and what percentage of people in the future will meet
the new Medicaid income eligibility requirements);
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what percentage of the newly insured patients will be covered
under the Medicaid program and what percentage will be covered
by private health insurers;
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the extent to which states will enroll new Medicaid participants
in managed care programs;
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the pace at which insurance coverage expands, including the pace
of different types of coverage expansion;
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the change, if any, in the volume of inpatient and outpatient
hospital services that are sought by and provided to previously
uninsured individuals;
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the rate paid to hospitals by private payers for newly covered
individuals, including those covered through the newly created
Exchanges and those who might be covered under the Medicaid
program under contracts with the state;
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the rate paid by state governments under the Medicaid program
for newly covered individuals;
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how the value-based purchasing and other quality programs will
be implemented;
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the percentage of individuals in the Exchanges who select the
high deductible plans, since health insurers offering those
kinds of products have traditionally sought to pay lower rates
to hospitals;
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whether the net effect of the Health Reform Law, including the
prohibition on excluding individuals based on pre-existing
conditions, the requirement to keep medical costs at or above a
specified minimum percentage of premium revenue, other health
insurance reforms and the annual fee applied to all health
insurers, will be to put pressure on the bottom line of health
insurers, which in turn might cause them to seek to reduce
payments to hospitals with respect to both newly insured
individuals and their existing business; and
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the possibility that implementation of the provisions expanding
health insurance coverage or the entire Health Reform Law will
be delayed due to court challenges or revised or eliminated as a
result of court challenges and efforts to repeal or amend the
law. More than 20 challenges to the Health Reform Law have been
filed in federal courts. Some federal district courts have
upheld the constitutionality of the Health Reform Law or
dismissed cases on procedural grounds. Others have held
unconstitutional the requirement that individuals maintain
health insurance or pay a penalty and have either found the
Health Reform Law void in its entirety or left the remainder of
the law intact. These lawsuits are subject to appeal, and
several are currently on appeal, including those that hold the
law unconstitutional.
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On the other hand, the Health Reform Law provides for
significant reductions in the growth of Medicare spending,
reductions in Medicare and Medicaid DSH payments and the
establishment of programs where reimbursement is tied to quality
and integration. Since 40.7% of our revenues in 2010 were from
Medicare and Medicaid, reductions to these programs may
significantly impact the Company and could offset any positive
effects of the Health Reform Law. It is difficult to predict the
size of the revenue reductions to Medicare and Medicaid
spending, because of uncertainty regarding a number of material
factors, including the following:
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the amount of overall revenues the Company will generate from
Medicare and Medicaid business when the reductions are
implemented;
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whether reductions required by the Health Reform Law will be
changed by statute or by judicial decision prior to becoming
effective;
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the size of the Health Reform Laws annual productivity
adjustment to the market basket beginning in 2012 payment years;
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the amount of the Medicare DSH reductions that will be made,
commencing in federal fiscal year 2014;
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the allocation to our hospitals of the Medicaid DSH reductions,
commencing in federal fiscal year 2014;
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what the losses in revenues will be, if any, from the Health
Reform Laws quality initiatives;
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how successful ACOs, in which we anticipate participating, will
be at coordinating care and reducing costs or whether they will
decrease reimbursement;
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the scope and nature of potential changes to Medicare
reimbursement methods, such as an emphasis on bundling payments
or coordination of care programs;
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whether the Companys revenues from UPL programs will be
adversely affected, because there may be fewer indigent,
non-Medicaid patients for whom the Company provides services
pursuant to UPL programs; and
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reductions to Medicare payments CMS may impose for
excessive readmissions.
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Because of the many variables involved, we are unable to predict
the net effect on the Company of the expected increases in
insured individuals using our facilities, the reductions in
Medicare spending, reductions in Medicare and Medicaid DSH
funding, and numerous other provisions in the Health Reform Law
that may affect the Company. Further, it is unclear how efforts
to repeal or revise the Health Reform Law and federal lawsuits
challenging its constitutionality will be resolved or what the
impact would be of any resulting changes to the law.
If we are
unable to retain and negotiate favorable contracts with
nongovernment payers, including managed care plans, our revenues
may be reduced.
Our ability to obtain favorable contracts with nongovernment
payers, including health maintenance organizations, preferred
provider organizations and other managed care plans
significantly affects the revenues and operating results of our
facilities. Revenues derived from these entities and other
insurers accounted for 53.7% and 53.4% of our revenues for 2010
and 2009, respectively. Nongovernment payers, including managed
care payers, continue to demand discounted fee structures, and
the trend toward consolidation among nongovernment payers tends
to increase their bargaining power over fee structures. As
various provisions of the Health Reform Law are implemented,
including the establishment of the Exchanges, nongovernment
payers increasingly may demand reduced fees. Our future success
will depend, in part, on our ability to retain and renew our
managed care contracts and enter into new managed care contracts
on terms favorable to us. Other health care providers may impact
our ability to enter into managed care contracts or negotiate
increases in our reimbursement and other favorable terms and
conditions. For example, some of our competitors may negotiate
exclusivity provisions with managed care plans or otherwise
restrict the ability of managed care companies to contract with
us. It is not clear what impact, if any, the increased
obligations on managed care payers and other payers imposed by
the Health Reform Law will have on our ability to negotiate
reimbursement increases. If we are unable to retain and
negotiate favorable contracts with managed care plans or
experience reductions in payment increases or amounts received
from nongovernment payers, our revenues may be reduced.
Our
performance depends on our ability to recruit and retain quality
physicians.
The success of our hospitals depends in part on the number and
quality of the physicians on the medical staffs of our
hospitals, the admitting practices of those physicians and
maintaining good relations with those physicians. Although we
employ some physicians, physicians are often not employees of
the hospitals at which they practice and, in many of the markets
we serve, most physicians have admitting privileges at other
hospitals in addition to our hospitals. Such physicians may
terminate their affiliation with our hospitals at any time. If
we are unable to provide adequate support personnel or
technologically advanced equipment and hospital facilities that
meet the needs of
42
those physicians and their patients, they may be discouraged
from referring patients to our facilities, admissions may
decrease and our operating performance may decline.
Our
hospitals face competition for staffing, which may increase
labor costs and reduce profitability.
Our operations are dependent on the efforts, abilities and
experience of our management and medical support personnel, such
as nurses, pharmacists and lab technicians, as well as our
physicians. We compete with other health care providers in
recruiting and retaining qualified management and support
personnel responsible for the daily operations of each of our
hospitals, including nurses and other nonphysician health care
professionals. In some markets, the availability of nurses and
other medical support personnel has been a significant operating
issue to health care providers. We may be required to continue
to enhance wages and benefits to recruit and retain nurses and
other medical support personnel or to hire more expensive
temporary or contract personnel. As a result, our labor costs
could increase. We also depend on the available labor pool of
semi-skilled and unskilled employees in each of the markets in
which we operate. Certain proposed changes in federal labor
laws, including the Employee Free Choice Act, could increase the
likelihood of employee unionization attempts. To the extent a
significant portion of our employee base unionizes, it is
possible our labor costs could increase materially. When
negotiating collective bargaining agreements with unions,
whether such agreements are renewals or first contracts, there
is the possibility that strikes could occur during the
negotiation process, and our continued operation during any
strikes could increase our labor costs. In addition, the states
in which we operate could adopt mandatory nurse-staffing ratios
or could reduce mandatory nurse staffing ratios already in
place. State-mandated nurse-staffing ratios could significantly
affect labor costs and have an adverse impact on revenues if we
are required to limit admissions in order to meet the required
ratios. If our labor costs increase, we may not be able to raise
rates to offset these increased costs. Because a significant
percentage of our revenues consists of fixed, prospective
payments, our ability to pass along increased labor costs is
constrained. Our failure to recruit and retain qualified
management, nurses and other medical support personnel, or to
control labor costs, could have a material, adverse effect on
our results of operations.
If we
fail to comply with extensive laws and government regulations,
we could suffer penalties or be required to make significant
changes to our operations.
The health care industry is required to comply with extensive
and complex laws and regulations at the federal, state and local
government levels relating to, among other things:
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billing and coding for services and properly handling
overpayments;
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relationships with physicians and other referral sources;
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necessity and adequacy of medical care;
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quality of medical equipment and services;
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qualifications of medical and support personnel;
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confidentiality, maintenance, data breach, identity theft and
security issues associated with health-related and personal
information and medical records;
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screening, stabilization and transfer of individuals who have
emergency medical conditions;
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licensure and certification;
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hospital rate or budget review;
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preparing and filing of cost reports;
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operating policies and procedures;
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activities regarding competitors; and
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addition of facilities and services.
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Among these laws are the federal Anti-kickback Statute, the
federal physician self-referral law (commonly called the Stark
Law), the federal FCA and similar state laws. We have a variety
of financial relationships with physicians and others who either
refer or influence the referral of patients to our hospitals and
other health care facilities, and these laws govern those
relationships. The OIG has enacted safe harbor regulations that
outline practices deemed protected from prosecution under the
Anti-kickback Statute. While we endeavor to comply with the
applicable safe harbors, certain of our current arrangements,
including joint ventures and financial relationships with
physicians and other referral sources and persons and entities
to which we refer patients, do not qualify for safe harbor
protection. Failure to qualify for a safe harbor does not mean
the arrangement necessarily violates the Anti-kickback Statute
but may subject the arrangement to greater scrutiny. However, we
cannot offer assurance that practices outside of a safe harbor
will not be found to violate the Anti-kickback Statute.
Allegations of violations of the Anti-kickback Statute may be
brought under the federal Civil Monetary Penalty Law, which
requires a lower burden of proof than other fraud and abuse
laws, including the Anti-kickback Statute.
Our financial relationships with referring physicians and their
immediate family members must comply with the Stark Law by
meeting an exception. We attempt to structure our relationships
to meet an exception to the Stark Law, but the regulations
implementing the exceptions are detailed and complex, and we
cannot provide assurance that every relationship complies fully
with the Stark Law. Unlike the Anti-kickback Statute, failure to
meet an exception under the Stark Law results in a violation of
the Stark Law, even if such violation is technical in nature.
Additionally, if we violate the Anti-kickback Statute or Stark
Law, or if we improperly bill for our services, we may be found
to violate the FCA, either under a suit brought by the
government or by a private person under a qui tam, or
whistleblower, suit. See Item 1,
Business Regulation and Other Factors.
If we fail to comply with the Anti-kickback Statute, the Stark
Law, the FCA or other applicable laws and regulations, we could
be subjected to liabilities, including civil penalties
(including the loss of our licenses to operate one or more
facilities), exclusion of one or more facilities from
participation in the Medicare, Medicaid and other federal and
state health care programs and, for violations of certain laws
and regulations, criminal penalties.
We do not always have the benefit of significant regulatory or
judicial interpretation of these laws and regulations. In the
future, different interpretations or enforcement of, or
amendment to, these laws and regulations could subject our
current or past practices to allegations of impropriety or
illegality or could require us to make changes in our
facilities, equipment, personnel, services, capital expenditure
programs and operating expenses. A determination that we have
violated these laws, or the public announcement that we are
being investigated for possible violations of these laws, could
have a material, adverse effect on our business, financial
condition, results of operations or prospects, and our business
reputation could suffer significantly. In addition, other
legislation or regulations at the federal or state level may be
adopted that adversely affect our business.
We have
been and could become the subject of governmental
investigations, claims and litigation.
Health care companies are subject to numerous investigations by
various governmental agencies. Further, under the FCA, private
parties have the right to bring qui tam, or
whistleblower, suits against companies that submit
false claims for payments to, or improperly retain overpayments
from, the government. Some states have adopted similar state
whistleblower and false claims provisions. Certain of our
individual facilities have received, and other facilities may
receive, government inquiries from, and may be subject to
investigation by, federal and state agencies. Depending on
whether the underlying conduct in these or future inquiries or
investigations could be considered systemic, their resolution
could have a material, adverse effect on our financial position,
results of operations and liquidity.
Governmental agencies and their agents, such as the Medicare
Administrative Contractors, fiscal intermediaries and carriers,
as well as the OIG, CMS and state Medicaid programs, conduct
audits of our health care operations. Private payers may conduct
similar post-payment audits, and we also perform internal audits
and monitoring. Depending on the nature of the conduct found in
such audits and whether the underlying conduct could be
considered systemic, the resolution of these audits could have a
material, adverse effect on our financial position, results of
operations and liquidity.
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As required by statute, CMS has implemented the RAC program on a
nationwide basis. Under the program, CMS contracts with RACs on
a contingency fee basis to conduct post-payment reviews to
detect and correct improper payments in the fee-for-service
Medicare program. The Health Reform Law expands the RAC
programs scope to include managed Medicare plans and to
include Medicaid claims. In addition, CMS employs MICs to
perform post-payment audits of Medicaid claims and identify
overpayments. The Health Reform Law increases federal funding
for the MIC program for federal fiscal year 2011 and later
years. In addition to RACs and MICs, the state Medicaid agencies
and other contractors have increased their review activities.
Should we be found out of compliance with any of these laws,
regulations or programs, depending on the nature of the
findings, our business, our financial position and our results
of operations could be negatively impacted.
Controls
designed to reduce inpatient services may reduce our
revenues.
Controls imposed by Medicare, managed Medicare, Medicaid,
managed Medicaid and commercial third-party payers designed to
reduce admissions and lengths of stay, commonly referred to as
utilization review, have affected and are expected
to continue to affect our facilities. Utilization review entails
the review of the admission and course of treatment of a patient
by health plans. Inpatient utilization, average lengths of stay
and occupancy rates continue to be negatively affected by
payer-required preadmission authorization and utilization review
and by payer pressure to maximize outpatient and alternative
health care delivery services for less acutely ill patients.
Efforts to impose more stringent cost controls are expected to
continue. For example, the Health Reform Law potentially expands
the use of prepayment review by Medicare contractors by
eliminating statutory restrictions on their use. Although we are
unable to predict the effect these changes will have on our
operations, significant limits on the scope of services
reimbursed and on reimbursement rates and fees could have a
material, adverse effect on our business, financial position and
results of operations.
Our
overall business results may suffer from the economic
downturn.
During periods of high unemployment, governmental entities often
experience budget deficits as a result of increased costs and
lower than expected tax collections. These budget deficits at
federal, state and local government entities have decreased, and
may continue to decrease, spending for health and human service
programs, including Medicare, Medicaid and similar programs,
which represent significant payer sources for our hospitals.
Other risks we face during periods of high unemployment include
potential declines in the population covered under managed care
agreements, patient decisions to postpone or cancel elective and
non-emergency health care procedures, potential increases in the
uninsured and underinsured populations and further difficulties
in our collecting patient co-payment and deductible receivables.
The
industry trend towards value-based purchasing may negatively
impact our revenues.
There is a trend in the health care industry towards value-based
purchasing of health care services. These value-based purchasing
programs include both public reporting of quality data and
preventable adverse events tied to the quality and efficiency of
care provided by facilities. Governmental programs including
Medicare 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 (also called never
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. Further, we have implemented a policy pursuant to which
we do not bill patients or third-party payers for fees or
expenses incurred due to certain preventable adverse events.
Effective July 1, 2011, the Health Reform Law will prohibit
the use of federal funds under the Medicaid program to reimburse
providers for medical assistance provided to treat HACs.
Beginning in federal fiscal year 2015, the 25% of hospitals with
the worst national risk-adjusted HAC rates in the previous year
will receive a 1% reduction in their total inpatient operating
Medicare payments. Hospitals with excessive readmissions for
45
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 Health Reform Law also requires HHS to implement a
value-based purchasing program for inpatient hospital services.
The Health Reform Law requires HHS to reduce inpatient hospital
payments for all discharges by a percentage beginning at 1% in
federal fiscal year 2013 and increasing by 0.25% each fiscal
year up to 2% in federal fiscal year 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 proposed by CMS, the
value-based purchasing program will initially calculate
incentive payments based on hospitals achievement of 17
clinical process of care measures and eight dimensions of a
patients experience of care using the HCAHPS survey and
their improvement in meeting these standards compared to prior
periods. For federal fiscal year 2013, CMS estimates the
value-based purchasing program will redistribute
$850 million among the nations hospitals.
We expect value-based purchasing programs, including programs
that condition reimbursement on patient outcome measures, to
become more common and to involve a higher percentage of
reimbursement amounts. We are unable at this time to predict how
this trend will affect our results of operations, but it could
negatively impact our revenues.
Our
operations could be impaired by a failure of our information
systems.
Any system failure that causes an interruption in service or
availability of our systems could adversely affect operations or
delay the collection of revenues. Even though we have
implemented network security measures, our servers are
vulnerable to computer viruses, break-ins and similar
disruptions from unauthorized tampering. The occurrence of any
of these events could result in interruptions, delays, the loss
or corruption of data, cessations in the availability of systems
or liability under privacy and security laws, all of which could
have a material adverse effect on our financial position and
results of operations and harm our business reputation.
The performance of our information technology and systems is
critical to our business operations. In addition to our shared
services initiatives, our information systems are essential to a
number of critical areas of our operations, including:
|
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|
|
accounting and financial reporting;
|
|
|
|
billing and collecting accounts;
|
|
|
|
coding and compliance;
|
|
|
|
clinical systems;
|
|
|
|
medical records and document storage;
|
|
|
|
inventory management;
|
|
|
|
negotiating, pricing and administering managed care contracts
and supply contracts; and
|
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|
|
monitoring quality of care and collecting data on quality
measures necessary for full Medicare payment updates.
|
If we
fail to effectively and timely implement electronic health
record systems, our operations could be adversely
affected.
As required by the ARRA, the Secretary of HHS is in the process
of developing and implementing an incentive payment program for
eligible hospitals and health care professionals that adopt and
meaningfully use certified EHR technology. HHS intends to use
the Provider Enrollment, Chain and Ownership System
(PECOS) to verify Medicare enrollment prior to
making EHR incentive program payments. During 2011, we
anticipate receiving Medicare and Medicaid incentive payments
for being a meaningful user of certified EHR technology. We
anticipate a majority of 2011 incentive payments will be
received and recognized as revenues during the fourth quarter of
2011. Medicare and Medicaid incentive payments for our eligible
hospitals and professionals are estimated to range from
$275 million to $325 million for 2011. Actual
incentive payments could vary from these estimates due to
certain
46
factors such as availability of federal funding for both
Medicare and Medicaid incentive payments, timing of the approval
of state Medicaid incentive payment plans by CMS and our ability
to implement and demonstrate meaningful use of certified EHR
technology.
We have incurred and will continue to incur both capital costs
and operating expenses in order to implement our certified EHR
technology and meet meaningful use requirements. These expenses
are ongoing and are projected to continue over all stages of
implementation of meaningful use. The timing of expenses will
not correlate with the receipt of the incentive payments and the
recognition of revenues. We estimate that operating expenses to
implement our certified EHR technology and meet meaningful use
will range from $125 million to $150 million for 2011.
Actual operating expenses could vary from these estimates. If
our hospitals and employed professionals are unable to meet the
requirements for participation in the incentive payment program,
including having an enrollment record in PECOS, we will not be
eligible to receive incentive payments that could offset some of
the costs of implementing EHR systems. Further, eligible
providers that fail to demonstrate meaningful use of certified
EHR technology will be subject to reduced payments from
Medicare, beginning in federal fiscal year 2015 for eligible
hospitals and calendar year 2015 for eligible professionals.
Failure to implement certified EHR systems effectively and in a
timely manner could have a material, adverse effect on our
financial position and results of operations.
State
efforts to regulate the construction or expansion of health care
facilities could impair our ability to operate and expand our
operations.
Some states, particularly in the eastern part of the country,
require health care providers to obtain prior approval, known as
a CON, for the purchase, construction or expansion of health
care facilities, to make certain capital expenditures or to make
changes in services or bed capacity. In giving approval, these
states consider the need for additional or expanded health care
facilities or services. We currently operate health care
facilities in a number of states with CON laws. The failure to
obtain any requested CON could impair our ability to operate or
expand operations. Any such failure could, in turn, adversely
affect our ability to attract patients to our facilities and
grow our revenues, which would have an adverse effect on our
results of operations.
Our
facilities are heavily concentrated in Florida and Texas, which
makes us sensitive to regulatory, economic, environmental and
competitive conditions and changes in those states.
We operated 164 hospitals at December 31, 2010, and 74 of
those hospitals are located in Florida and Texas. Our Florida
and Texas facilities combined revenues represented
approximately 52% of our consolidated revenues for the year
ended December 31, 2010. This concentration makes us
particularly sensitive to regulatory, economic, environmental
and competitive conditions and changes in those states. Any
material change in the current payment programs or regulatory,
economic, environmental or competitive conditions in those
states could have a disproportionate effect on our overall
business results.
In addition, our hospitals in Florida, Texas and other areas
across the Gulf Coast are located in hurricane-prone areas. In
the recent past, hurricanes have had a disruptive effect on the
operations of our hospitals in Florida, Texas and other coastal
states, and the patient populations in those states. Our
business activities could be harmed by a particularly active
hurricane season or even a single storm, and the property
insurance we obtain may not be adequate to cover losses from
future hurricanes or other natural disasters.
We may be
subject to liabilities from claims by the Internal Revenue
Service.
We are currently contesting, before the IRS Appeals Division,
certain claimed deficiencies and adjustments proposed by the IRS
Examination Division in connection with its audit of HCA
Inc.s 2005 and 2006 federal income tax returns. The
disputed items include the timing of recognition of certain
patient service revenues, the deductibility of certain debt
retirement costs and our method for calculating the tax
allowance for doubtful accounts. In addition, eight taxable
periods of HCA Inc. and its predecessors ended in 1997 through
2004, for which the primary remaining issue is the computation
of the tax allowance for doubtful accounts, are currently
pending before the IRS Examination Division. The IRS Examination
Division began an audit of HCA Inc.s 2007, 2008 and 2009
federal income tax returns in December 2010.
Management believes HCA Holdings, Inc., its predecessors,
subsidiaries and affiliates properly reported taxable income and
paid taxes in accordance with applicable laws and agreements
established with the IRS and final resolution of these disputes
will not have a material, adverse effect on our results of
operations or financial position.
47
However, if payments due upon final resolution of these issues
exceed our recorded estimates, such resolutions could have a
material, adverse effect on our results of operations or
financial position.
We may be
subject to liabilities from claims brought against our
facilities.
We are subject to litigation relating to our business practices,
including claims and legal actions by patients and others in the
ordinary course of business alleging malpractice, product
liability or other legal theories. Many of these actions involve
large claims and significant defense costs. We insure a portion
of our professional liability risks through a wholly-owned
subsidiary. Management believes our reserves for self-insured
retentions and insurance coverage are sufficient to cover
insured claims arising out of the operation of our facilities.
Our wholly-owned insurance subsidiary has entered into certain
reinsurance contracts, and the obligations covered by the
reinsurance contracts are included in its reserves for
professional liability risks, as the subsidiary remains liable
to the extent that the reinsurers do not meet their obligations
under the reinsurance contracts. If payments for claims exceed
actuarially determined estimates, are not covered by insurance,
or reinsurers, if any, fail to meet their obligations, our
results of operations and financial position could be adversely
affected.
We are
exposed to market risks related to changes in the market values
of securities and interest rate changes.
We are exposed to market risk related to changes in market
values of securities. The investments in debt and equity
securities of our wholly-owned insurance subsidiary were
$734 million and $8 million, respectively, at
December 31, 2010. These investments are carried at fair
value, with changes in unrealized gains and losses being
recorded as adjustments to other comprehensive income. At
December 31, 2010, we had a net unrealized gain of
$10 million on the insurance subsidiarys investment
securities.
We are exposed to market risk related to market illiquidity.
Liquidity of the investments in debt and equity securities of
our wholly-owned insurance subsidiary could be impaired by the
inability to access the capital markets. Should the wholly-owned
insurance subsidiary require significant amounts of cash in
excess of normal cash requirements to pay claims and other
expenses on short notice, we may have difficulty selling these
investments in a timely manner or be forced to sell them at a
price less than what we might otherwise have been able to in a
normal market environment. At December 31, 2010, our
wholly-owned insurance subsidiary had invested $250 million
($251 million par value) in tax-exempt student loan auction
rate securities that continue to experience market illiquidity.
It is uncertain if auction-related market liquidity will resume
for these securities. We may be required to recognize
other-than-temporary impairments on these long-term investments
in future periods should issuers default on interest payments or
should the fair market valuations of the securities deteriorate
due to ratings downgrades or other issue specific factors.
We are also exposed to market risk related to changes in
interest rates, and we periodically enter into interest rate
swap agreements to manage our exposure to these fluctuations.
Our interest rate swap agreements involve the exchange of fixed
and variable rate interest payments between two parties, based
on common notional principal amounts and maturity dates. The
notional amounts of the swap agreements represent balances used
to calculate the exchange of cash flows and are not our assets
or liabilities.
Since the
Recapitalization, the Investors control us and may have
conflicts of interest with us in the future.
As of December 31, 2010, the Investors indirectly owned
approximately 96.8% of our capital stock due to the
Recapitalization. As a result, the Investors have control over
our decisions to enter into any significant corporate
transaction and have the ability to prevent any transaction that
requires the approval of stockholders. For example, the
Investors could cause us to make acquisitions that increase the
amount of our indebtedness or sell assets.
Additionally, the Sponsors are in the business of making
investments in companies and may acquire and hold interests in
businesses that compete directly or indirectly with us. One or
more of the Sponsors may also pursue acquisition opportunities
that may be complementary to our business and, as a result,
those acquisition opportunities may not be available to us. So
long as investment funds associated with or designated by the
Sponsors continue to indirectly own a significant amount of the
outstanding shares of our common stock, even if such amount is
less than 50%, the Sponsors will continue to be able to strongly
influence or effectively control our decisions.
48
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
The following table lists, by state, the number of hospitals
(general, acute care, psychiatric and rehabilitation) directly
or indirectly owned and operated by us as of December 31,
2010:
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|
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|
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|
State
|
|
Hospitals
|
|
|
Beds
|
|
|
Alaska
|
|
|
1
|
|
|
|
250
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|
California
|
|
|
5
|
|
|
|
1,637
|
|
Colorado
|
|
|
7
|
|
|
|
2,259
|
|
Florida
|
|
|
38
|
|
|
|
9,808
|
|
Georgia
|
|
|
11
|
|
|
|
1,946
|
|
Idaho
|
|
|
2
|
|
|
|
481
|
|
Indiana
|
|
|
1
|
|
|
|
278
|
|
Kansas
|
|
|
4
|
|
|
|
1,286
|
|
Kentucky
|
|
|
2
|
|
|
|
384
|
|
Louisiana
|
|
|
6
|
|
|
|
1,264
|
|
Mississippi
|
|
|
1
|
|
|
|
130
|
|
Missouri
|
|
|
6
|
|
|
|
1,055
|
|
Nevada
|
|
|
3
|
|
|
|
1,074
|
|
New Hampshire
|
|
|
2
|
|
|
|
295
|
|
Oklahoma
|
|
|
2
|
|
|
|
793
|
|
South Carolina
|
|
|
3
|
|
|
|
740
|
|
Tennessee
|
|
|
12
|
|
|
|
2,345
|
|
Texas
|
|
|
36
|
|
|
|
10,410
|
|
Utah
|
|
|
6
|
|
|
|
968
|
|
Virginia
|
|
|
10
|
|
|
|
3,089
|
|
International
|
|
|
|
|
|
|
|
|
England
|
|
|
6
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164
|
|
|
|
41,196
|
|
|
|
|
|
|
|
|
|
|
In addition to the hospitals listed in the above table, we
directly or indirectly operate 106 freestanding surgery centers.
We also operate medical office buildings in conjunction with
some of our hospitals. These office buildings are primarily
occupied by physicians who practice at our hospitals. Fourteen
of our general, acute care hospitals and three of our other
properties have been mortgaged to support our obligations under
our senior secured cash flow credit facility and the first lien
secured notes we issued in 2009 and 2010. These three other
properties are also subject to second mortgages to support our
obligations under the second lien secured notes we issued in
2006 and 2009.
We maintain our headquarters in approximately
1,200,000 square feet of space in the Nashville, Tennessee
area. In addition to the headquarters in Nashville, we maintain
regional service centers related to our shared services
initiatives. These service centers are located in markets in
which we operate hospitals.
We believe our headquarters, hospitals and other facilities are
suitable for their respective uses and are, in general, adequate
for our present needs. Our properties are subject to various
federal, state and local statutes and ordinances regulating
their operation. Management does not believe that compliance
with such statutes and ordinances will materially affect our
financial position or results of operations.
49
|
|
Item 3.
|
Legal
Proceedings
|
We operate in a highly regulated and litigious industry. As a
result, various lawsuits, claims and legal and regulatory
proceedings have been and can be expected to be instituted or
asserted against us. The resolution of any such lawsuits, claims
or legal and regulatory proceedings could materially and
adversely affect our results of operations and financial
position in a given period.
Government
Investigations, Claims and Litigation
Health care companies are subject to numerous investigations by
various governmental agencies. Further, under the federal FCA,
private parties have the right to bring qui tam, or
whistleblower, suits against companies that submit
false claims for payments to, or improperly retain overpayments
from, the government. Some states have adopted similar state
whistleblower and false claims provisions. Certain of our
individual facilities have received, and from time to time,
other facilities may receive, government inquiries from, and may
be subject to investigation by, federal and state agencies.
Depending on whether the underlying conduct in these or future
inquiries or investigations could be considered systemic, their
resolution could have a material, adverse effect on our
financial position, results of operations and liquidity.
The Civil Division of the DOJ has contacted us in connection
with its nationwide review of whether, in certain cases,
hospital charges to the federal government relating to
implantable cardio-defibrillators (ICDs) met the CMS
criteria. In connection with this nationwide review, the DOJ has
indicated that it will be reviewing certain ICD billing and
medical records at 95 HCA hospitals; the review covers the
period from October 2003 to the present. The review could
potentially give rise to claims against us under the federal FCA
or other statutes, regulations or laws. At this time, we cannot
predict what effect, if any, this review or any resulting claims
could have on us.
New
Hampshire Hospital Merger Litigation
In 2006, the Foundation for Seacoast Health (the
Foundation) filed suit against HCA in state court in
New Hampshire. The Foundation alleged that both the 2006
Recapitalization transaction and a prior 1999 intra-corporate
transaction violated a 1983 agreement that placed certain
restrictions on transfers of the Portsmouth Regional Hospital.
In May 2007, the trial court ruled against the Foundation on all
its claims. On appeal, the New Hampshire Supreme Court affirmed
the ruling on the Recapitalization, but remanded to the trial
court the claims based on the 1999 intra-corporate transaction.
The trial court ruled in December 2009 that the 1999
intra-corporate transaction breached the transfer restriction
provisions of the 1983 agreement. The court will now conduct
additional proceedings to determine whether any harm has flowed
from the alleged breach, and if so, what the appropriate remedy
should be. The court may consider whether to, among other
things, award monetary damages, rescind or undo the 1999
intra-corporate transfer or give the Foundation a right to
purchase hospital assets at a price to be determined (which the
Foundation asserts should be below the fair market value of the
hospital). The trial for the remedies phase is currently set for
May 2011.
General
Liability and Other Claims
We are a party to certain proceedings relating to claims for
income taxes and related interest before the IRS Appeals
Division. For a description of those proceedings, see
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations IRS
Disputes and Note 5 to our consolidated financial
statements.
We are also subject to claims and suits arising in the ordinary
course of business, including claims for personal injuries or
for wrongful restriction of, or interference with,
physicians staff privileges. In certain of these actions
the claimants have asked for punitive damages against us, which
may not be covered by insurance. In the opinion of management,
the ultimate resolution of these pending claims and legal
proceedings will not have a material, adverse effect on our
results of operations or financial position.
|
|
Item 4.
|
(Removed
and Reserved)
|
50
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our outstanding common stock is privately held, and there is no
established public trading market for our common stock. As of
February 1, 2011, there were 669 holders of our common
stock. See Item 7, Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Financing Activities for a
description of the restrictions on our ability to pay dividends.
We did not pay any dividends in 2008 or 2009.
On January 27, 2010, our Board of Directors declared a
distribution to the Companys stockholders and holders of
vested stock options. The distribution was $17.50 per share and
vested stock option, or $1.751 billion in the aggregate.
The distribution was paid on February 5, 2010 to holders of
record on February 1, 2010. The distribution was funded
using funds available under our existing senior secured credit
facilities and approximately $100 million of cash on hand.
Pursuant to the terms of our stock option plans, the holders of
nonvested stock options received a $17.50 per share reduction to
the exercise price of their share-based awards.
On May 5, 2010, our Board of Directors declared a
distribution to the Companys stockholders and holders of
vested stock options. The distribution was $5.00 per share and
vested stock option, or $500 million in the aggregate. The
distribution was paid on May 14, 2010 to holders of record
on May 6, 2010. The distribution was funded using funds
available under our existing senior secured credit facilities.
Pursuant to the terms of our stock option plans, the holders of
nonvested stock options received a $5.00 per share reduction to
the exercise price of their share-based awards.
On November 23, 2010, our Board of Directors declared a
distribution to the Companys stockholders and holders of
stock options. The distribution was $20.00 per share and vested
stock option, or approximately $2.1 billion in the
aggregate. The distribution to stockholders and holders of
vested options was paid on December 1, 2010 to holders of
record on November 24, 2010. The distribution was funded
using the proceeds from the November 2010 issuance of
$1.525 billion aggregate principal amount of
73/4% senior
notes due 2021, together with borrowings under our existing
senior secured credit facilities. Pursuant to the terms of our
stock option plans, the holders of nonvested options received
$20.00 per share reductions (subject to certain tax imitations
that resulted in deferred distributions for a portion of the
declared distribution, which will be paid upon the vesting of
the applicable stock options) to the exercise price of the
share-based awards.
During the quarter ended December 31, 2010, we issued and
sold 80,750 shares of common stock in connection with the
cashless exercise of stock options for aggregate consideration
of $1,029,563 resulting in 46,319 net settled shares. We
also issued and sold 186,533 shares of common stock in
connection with the cash exercise of stock options for aggregate
consideration of $2,378,296. The shares were issued without
registration in reliance on the exemptions afforded by
Section 4(2) of the Securities Act of 1933, as amended, and
Rule 701 promulgated thereunder.
On April 29, 2008, we registered our common stock pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as
amended.
There were no repurchases of our common stock from
October 1, 2010 through December 31, 2010.
51
|
|
Item 6.
|
Selected
Financial Data
|
HCA
HOLDINGS, INC.
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Summary of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
$
|
30,052
|
|
|
$
|
28,374
|
|
|
$
|
26,858
|
|
|
$
|
25,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
12,484
|
|
|
|
11,958
|
|
|
|
11,440
|
|
|
|
10,714
|
|
|
|
10,409
|
|
Supplies
|
|
|
4,961
|
|
|
|
4,868
|
|
|
|
4,620
|
|
|
|
4,395
|
|
|
|
4,322
|
|
Other operating expenses
|
|
|
5,004
|
|
|
|
4,724
|
|
|
|
4,554
|
|
|
|
4,233
|
|
|
|
4,056
|
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
3,276
|
|
|
|
3,409
|
|
|
|
3,130
|
|
|
|
2,660
|
|
Equity in earnings of affiliates
|
|
|
(282
|
)
|
|
|
(246
|
)
|
|
|
(223
|
)
|
|
|
(206
|
)
|
|
|
(197
|
)
|
Gains on sales of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(243
|
)
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
1,425
|
|
|
|
1,416
|
|
|
|
1,426
|
|
|
|
1,391
|
|
Interest expense
|
|
|
2,097
|
|
|
|
1,987
|
|
|
|
2,021
|
|
|
|
2,215
|
|
|
|
955
|
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
15
|
|
|
|
(97
|
)
|
|
|
(471
|
)
|
|
|
(205
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
43
|
|
|
|
64
|
|
|
|
24
|
|
|
|
24
|
|
Transaction costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,452
|
|
|
|
28,050
|
|
|
|
27,204
|
|
|
|
25,460
|
|
|
|
23,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,231
|
|
|
|
2,002
|
|
|
|
1,170
|
|
|
|
1,398
|
|
|
|
1,863
|
|
Provision for income taxes
|
|
|
658
|
|
|
|
627
|
|
|
|
268
|
|
|
|
316
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,573
|
|
|
|
1,375
|
|
|
|
902
|
|
|
|
1,082
|
|
|
|
1,237
|
|
Net income attributable to noncontrolling interests
|
|
|
366
|
|
|
|
321
|
|
|
|
229
|
|
|
|
208
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
$
|
1,054
|
|
|
$
|
673
|
|
|
$
|
874
|
|
|
$
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
12.75
|
|
|
$
|
11.16
|
|
|
$
|
7.16
|
|
|
$
|
9.31
|
|
|
|
(a)
|
|
Diluted earnings per share
|
|
|
12.43
|
|
|
|
10.99
|
|
|
|
7.04
|
|
|
|
9.15
|
|
|
|
(a)
|
|
Cash dividends declared per share
|
|
|
42.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
23,852
|
|
|
$
|
24,131
|
|
|
$
|
24,280
|
|
|
$
|
24,025
|
|
|
$
|
23,675
|
|
Working capital
|
|
|
2,650
|
|
|
|
2,264
|
|
|
|
2,391
|
|
|
|
2,356
|
|
|
|
2,502
|
|
Long-term debt, including amounts due within one year
|
|
|
28,225
|
|
|
|
25,670
|
|
|
|
26,989
|
|
|
|
27,308
|
|
|
|
28,408
|
|
Equity securities with contingent redemption rights
|
|
|
141
|
|
|
|
147
|
|
|
|
155
|
|
|
|
164
|
|
|
|
125
|
|
Noncontrolling interests
|
|
|
1,132
|
|
|
|
1,008
|
|
|
|
995
|
|
|
|
938
|
|
|
|
907
|
|
Stockholders deficit
|
|
|
(10,794
|
)
|
|
|
(7,978
|
)
|
|
|
(9,260
|
)
|
|
|
(9,600
|
)
|
|
|
(10,467
|
)
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
3,085
|
|
|
$
|
2,747
|
|
|
$
|
1,990
|
|
|
$
|
1,564
|
|
|
$
|
1,988
|
|
Cash used in investing activities
|
|
|
(1,039
|
)
|
|
|
(1,035
|
)
|
|
|
(1,467
|
)
|
|
|
(479
|
)
|
|
|
(1,307
|
)
|
Capital expenditures
|
|
|
(1,325
|
)
|
|
|
(1,317
|
)
|
|
|
(1,600
|
)
|
|
|
(1,444
|
)
|
|
|
(1,865
|
)
|
Cash used in financing activities
|
|
|
(1,947
|
)
|
|
|
(1,865
|
)
|
|
|
(451
|
)
|
|
|
(1,326
|
)
|
|
|
(383
|
)
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hospitals at end of period(b)
|
|
|
156
|
|
|
|
155
|
|
|
|
158
|
|
|
|
161
|
|
|
|
166
|
|
Number of freestanding outpatient surgical centers at end of
period(c)
|
|
|
97
|
|
|
|
97
|
|
|
|
97
|
|
|
|
99
|
|
|
|
98
|
|
Number of licensed beds at end of period(d)
|
|
|
38,827
|
|
|
|
38,839
|
|
|
|
38,504
|
|
|
|
38,405
|
|
|
|
39,354
|
|
Weighted average licensed beds(e)
|
|
|
38,655
|
|
|
|
38,825
|
|
|
|
38,422
|
|
|
|
39,065
|
|
|
|
40,653
|
|
Admissions(f)
|
|
|
1,554,400
|
|
|
|
1,556,500
|
|
|
|
1,541,800
|
|
|
|
1,552,700
|
|
|
|
1,610,100
|
|
Equivalent admissions(g)
|
|
|
2,468,400
|
|
|
|
2,439,000
|
|
|
|
2,363,600
|
|
|
|
2,352,400
|
|
|
|
2,416,700
|
|
Average length of stay (days)(h)
|
|
|
4.8
|
|
|
|
4.8
|
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
4.9
|
|
Average daily census(i)
|
|
|
20,523
|
|
|
|
20,650
|
|
|
|
20,795
|
|
|
|
21,049
|
|
|
|
21,688
|
|
Occupancy(j)
|
|
|
53
|
%
|
|
|
53
|
%
|
|
|
54
|
%
|
|
|
54
|
%
|
|
|
53
|
%
|
Emergency room visits(k)
|
|
|
5,706,200
|
|
|
|
5,593,500
|
|
|
|
5,246,400
|
|
|
|
5,116,100
|
|
|
|
5,213,500
|
|
Outpatient surgeries(l)
|
|
|
783,600
|
|
|
|
794,600
|
|
|
|
797,400
|
|
|
|
804,900
|
|
|
|
820,900
|
|
Inpatient surgeries(m)
|
|
|
487,100
|
|
|
|
494,500
|
|
|
|
493,100
|
|
|
|
516,500
|
|
|
|
533,100
|
|
Days revenues in accounts receivable(n)
|
|
|
46
|
|
|
|
45
|
|
|
|
49
|
|
|
|
53
|
|
|
|
53
|
|
Gross patient revenues(o)
|
|
$
|
125,640
|
|
|
$
|
115,682
|
|
|
$
|
102,843
|
|
|
$
|
92,429
|
|
|
$
|
84,913
|
|
Outpatient revenues as a % of patient revenues(p)
|
|
|
38
|
%
|
|
|
38
|
%
|
|
|
37
|
%
|
|
|
37
|
%
|
|
|
36
|
%
|
|
|
|
(a)
|
|
Due to our November 2006 Merger and
Recapitalization, our capital structure and share-based
compensation plans for periods before and after the
Recapitalization are not comparable; therefore, we are
presenting earnings and dividends declared per share information
only for periods subsequent to the Recapitalization.
|
|
(b)
|
|
Excludes eight facilities in 2010,
2009, 2008 and 2007 and seven facilities in 2006 that are not
consolidated (accounted for using the equity method) for
financial reporting purposes.
|
|
(c)
|
|
Excludes nine facilities in 2010,
2007 and 2006 and eight facilities in 2009 and 2008 that are not
consolidated (accounted for using the equity method) for
financial reporting purposes.
|
|
(d)
|
|
Licensed beds are those beds for
which a facility has been granted approval to operate from the
applicable state licensing agency.
|
|
(e)
|
|
Represents the average number of
licensed beds, weighted based on periods owned.
|
|
(f)
|
|
Represents the total number of
patients admitted to our hospitals and is used by management and
certain investors as a general measure of inpatient volume.
|
|
(g)
|
|
Equivalent admissions are used by
management and certain investors as a general measure of
combined inpatient and outpatient volume. Equivalent admissions
are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and
then dividing the resulting amount by gross inpatient revenue.
The equivalent admissions computation equates
outpatient revenue to the volume measure (admissions) used to
measure inpatient volume, resulting in a general measure of
combined inpatient and outpatient volume.
|
|
(h)
|
|
Represents the average number of
days admitted patients stay in our hospitals.
|
|
(i)
|
|
Represents the average number of
patients in our hospital beds each day.
|
|
(j)
|
|
Represents the percentage of
hospital licensed beds occupied by patients. Both average daily
census and occupancy rate provide measures of the utilization of
inpatient rooms.
|
|
(k)
|
|
Represents the number of patients
treated in our emergency rooms.
|
|
(l)
|
|
Represents the number of surgeries
performed on patients who were not admitted to our hospitals.
Pain management and endoscopy procedures are not included in
outpatient surgeries.
|
|
(m)
|
|
Represents the number of surgeries
performed on patients who have been admitted to our hospitals.
Pain management and endoscopy procedures are not included in
inpatient surgeries.
|
|
(n)
|
|
Revenues per day is calculated by
dividing the revenues for the period by the days in the period.
Days revenues in accounts receivable is then calculated as
accounts receivable, net of the allowance for doubtful accounts,
at the end of the period divided by revenues per day.
|
|
(o)
|
|
Gross patient revenues are based
upon our standard charge listing. Gross charges/revenues
typically do not reflect what our hospital facilities are paid.
Gross charges/revenues are reduced by contractual adjustments,
discounts and charity care to determine reported revenues.
|
|
(p)
|
|
Represents the percentage of
patient revenues related to patients who are not admitted to our
hospitals.
|
53
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The selected financial data and the accompanying consolidated
financial statements present certain information with respect to
the financial position, results of operations and cash flows of
HCA Holdings, Inc. which should be read in conjunction with the
following discussion and analysis. The terms HCA,
Company, we, our, or
us, as used herein, refer HCA Inc. and our
affiliates prior to the Corporate Reorganization and to HCA
Holdings, Inc. and our affiliates after the Corporate
Reorganization unless otherwise stated or indicated by context.
The term affiliates means direct and indirect
subsidiaries of HCA Holdings, Inc. and partnerships and joint
ventures in which such subsidiaries are partners.
Forward-Looking
Statements
This annual report on
Form 10-K
includes certain disclosures which contain forward-looking
statements. Forward-looking statements include all
statements that do not relate solely to historical or current
facts, and can be identified by the use of words like
may, believe, will,
expect, project, estimate,
anticipate, plan, initiative
or continue. These forward-looking statements are
based on our current plans and expectations and are subject to a
number of known and unknown uncertainties and risks, many of
which are beyond our control, which could significantly affect
current plans and expectations and our future financial position
and results of operations. These factors include, but are not
limited to, (1) the ability to recognize the benefits of
the Recapitalization, (2) the impact of our substantial
indebtedness incurred to finance the Recapitalization and
distributions to stockholders and the ability to refinance such
indebtedness on acceptable terms, (3) the effects related
to the enactment of the Health Reform Law, the possible
enactment of additional federal or state health care reforms and
possible changes to the Health Reform Law and other federal,
state or local laws or regulations affecting the health care
industry, (4) increases in the amount and risk of
collectibility of uninsured accounts and deductibles and
copayment amounts for insured accounts, (5) the ability to
achieve operating and financial targets, and attain expected
levels of patient volumes and control the costs of providing
services, (6) possible changes in the Medicare, Medicaid
and other state programs, including Medicaid supplemental
payments pursuant to upper payment limit (UPL)
programs, that may impact reimbursements to health care
providers and insurers, (7) the highly competitive nature
of the health care business, (8) changes in revenue mix,
including potential declines in the population covered under
managed care agreements and the ability to enter into and renew
managed care provider agreements on acceptable terms,
(9) the efforts of insurers, health care providers and
others to contain health care costs, (10) the outcome of
our continuing efforts to monitor, maintain and comply with
appropriate laws, regulations, policies and procedures,
(11) increases in wages and the ability to attract and
retain qualified management and personnel, including affiliated
physicians, nurses and medical and technical support personnel,
(12) the availability and terms of capital to fund the
expansion of our business and improvements to our existing
facilities, (13) changes in accounting practices,
(14) changes in general economic conditions nationally and
regionally in our markets, (15) future divestitures which
may result in charges and possible impairments of long-lived
assets, (16) changes in business strategy or development
plans, (17) delays in receiving payments for services
provided, (18) the outcome of pending and any future tax
audits, appeals and litigation associated with our tax
positions, (19) potential adverse impact of known and
unknown government investigations, litigation and other claims
that may be made against us, and (20) other risk factors
described in this annual report on
Form 10-K.
As a consequence, current plans, anticipated actions and future
financial position and results of operations may differ from
those expressed in any forward-looking statements made by or on
behalf of HCA. You are cautioned not to unduly rely on such
forward-looking statements when evaluating the information
presented in this report.
2010
Operations Summary
Net income attributable to HCA Holdings, Inc. totaled
$1.207 billion for 2010, compared to $1.054 billion
for 2009. The 2010 results include net gains on sales of
facilities of $4 million and impairments of long-lived
assets of
54
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
2010
Operations Summary (Continued)
$123 million. The 2009 results include net losses on sales
of facilities of $15 million and impairments of long-lived
assets of $43 million.
Revenues increased to $30.683 billion for 2010 from
$30.052 billion for 2009. Revenues increased 2.1% on both a
consolidated basis and on a same facility basis for 2010,
compared to 2009. The consolidated revenues increase can be
attributed to the combined impact of a 0.9% increase in revenue
per equivalent admission and a 1.2% increase in equivalent
admissions. The same facility revenues increase resulted from a
0.6% increase in same facility revenue per equivalent admission
and a 1.4% increase in same facility equivalent admissions.
During 2010, consolidated admissions declined 0.1% and same
facility admissions increased 0.1%, compared to 2009. Inpatient
surgical volumes declined 1.5% on a consolidated basis and
declined 1.4% on a same facility basis during 2010, compared to
2009. Outpatient surgical volumes declined 1.4% on a
consolidated basis and declined 1.2% on a same facility basis
during 2010, compared to 2009. Emergency room visits increased
2.0% on a consolidated basis and increased 2.1% on a same
facility basis during 2010, compared to 2009.
For 2010, the provision for doubtful accounts declined
$628 million, to 8.6% of revenues from 10.9% of revenues
for 2009. The combined self-pay revenue deductions for charity
care and uninsured discounts increased $1.892 billion for
2010, compared to 2009. The sum of the provision for doubtful
accounts, uninsured discounts and charity care, as a percentage
of the sum of net revenues, uninsured discounts and charity
care, was 25.6% for 2010, compared to 23.8% for 2009. Same
facility uninsured admissions increased 5.4% and same facility
uninsured emergency room visits increased 1.2% for 2010,
compared to 2009.
Interest expense totaled $2.097 billion for 2010, compared
to $1.987 billion for 2009. The $110 million increase
in interest expense for 2010 was due primarily to an increase in
the average effective interest rate.
Cash flows from operating activities increased
$338 million, from $2.747 billion for 2009 to
$3.085 billion for 2010. The increase related primarily to
the net impact of improvements from a $198 million increase
in net income and a $547 million reduction in income tax
payments, offsetting a $384 million net decline from
changes in working capital items and the provision for doubtful
accounts.
Business
Strategy
We are committed to providing the communities we serve with high
quality, cost-effective health care while growing our business,
increasing our profitability and creating long-term value for
our stockholders. To achieve these objectives, we align our
efforts around the following growth agenda:
Grow Our Presence in Existing Markets. We
believe we are well positioned in a number of large and growing
markets that will allow us the opportunity to generate
long-term, attractive growth through the expansion of our
presence in these markets. We plan to continue recruiting and
strategically collaborating with the physician community and
adding attractive service lines such as cardiology, emergency
services, oncology and womens services. Additional
components of our growth strategy include expanding our
footprint through developing various outpatient access points,
including surgery centers, rural outreach, freestanding
emergency departments and walk-in clinics. Since our
Recapitalization, we have invested significant capital into
these markets and expect to continue to see the benefit of this
investment.
Achieve Industry-Leading Performance in Clinical and
Satisfaction Measures. Achieving high levels of
patient safety, patient satisfaction and clinical quality are
central goals of our business model. To achieve these goals, we
have implemented a number of initiatives including infection
reduction initiatives, hospitalist programs, advanced health
information technology and evidence-based medicine programs. We
routinely analyze operational practices from our best-performing
hospitals to identify ways to implement organization-wide
performance
55
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Business
Strategy (Continued)
improvements and reduce clinical variation. We believe these
initiatives will continue to improve patient care, help us
achieve cost efficiencies, grow our revenues and favorably
position us in an environment where our constituents are
increasingly focused on quality, efficacy and efficiency.
Recruit and Employ Physicians to Meet Need for High Quality
Health Services. We depend on the quality and
dedication of the health care providers and other team members
who serve at our facilities. We believe a critical component of
our growth strategy is our ability to successfully recruit and
strategically collaborate with physicians and other
professionals to provide high quality care. We attract and
retain physicians by providing high quality, convenient
facilities with advanced technology, by expanding our specialty
services and by building our outpatient operations. We believe
our continued investment in the employment, recruitment and
retention of physicians will improve the quality of care at our
facilities.
Continue to Leverage Our Scale and Market Positions to
Enhance Profitability. We believe there is
significant opportunity to continue to grow the profitability of
our company by fully leveraging the scale and scope of our
franchise. We are currently pursuing next generation performance
improvement initiatives such as contracting for services on a
multistate basis and expanding our support infrastructure for
additional clinical and support functions, such as physician
credentialing, medical transcription and electronic medical
recordkeeping. We believe our centrally managed business
processes and ability to leverage cost-saving practices across
our extensive network will enable us to continue to manage costs
effectively. We are in the process of creating a subsidiary that
will leverage key components of our support infrastructure,
including revenue cycle management, healthcare group purchasing,
supply chain management and staffing functions, by offering
these services to other hospital companies.
Selectively Pursue a Disciplined Development
Strategy. We continue to believe there are
significant growth opportunities in our markets. We will
continue to provide financial and operational resources to
successfully execute on our in-market opportunities. To
complement our in-market growth agenda, we intend to focus on
selectively developing and acquiring new hospitals, outpatient
facilities and other health care service providers. We believe
the challenges faced by the hospital industry may spur
consolidation and we believe our size, scale, national presence
and access to capital will position us well to participate in
any such consolidation. We have a strong record of successfully
acquiring and integrating hospitals and entering into joint
ventures and intend to continue leveraging this experience.
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities and the reported amounts of
revenues and expenses. Our estimates are based on historical
experience and various other assumptions we believe are
reasonable under the circumstances. We evaluate our estimates on
an ongoing basis and make changes to the estimates and related
disclosures as experience develops or new information becomes
known. Actual results may differ from these estimates.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenues
Revenues are recorded during the period the health care services
are provided, based upon the estimated amounts due from payers.
Estimates of contractual allowances under managed care health
plans are based upon the payment terms specified in the related
contractual agreements. Laws and regulations governing the
Medicare and Medicaid programs are complex and subject to
interpretation. The estimated reimbursement amounts are made on
a payer-specific basis and are recorded based on the best
information available regarding managements
56
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Revenues
(Continued)
interpretation of the applicable laws, regulations and contract
terms. Management continually reviews the contractual estimation
process to consider and incorporate updates to laws and
regulations and the frequent changes in managed care contractual
terms resulting from contract renegotiations and renewals. We
have invested significant resources to refine and improve our
computerized billing systems and the information system data
used to make contractual allowance estimates. We have developed
standardized calculation processes and related training programs
to improve the utility of our patient accounting systems.
The Emergency Medical Treatment and Active Labor Act
(EMTALA) requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals
emergency room for treatment and, if the individual is suffering
from an emergency medical condition, to either stabilize the
condition or make an appropriate transfer of the individual to a
facility able to handle the condition. The obligation to screen
and stabilize emergency medical conditions exists regardless of
an individuals ability to pay for treatment. Federal and
state laws and regulations, including but not limited to EMTALA,
require, and our commitment to providing quality patient care
encourages, the provision of services to patients who are
financially unable to pay for the health care services they
receive. The Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act of
2010 (collectively, the Health Reform Law), requires
health plans to reimburse hospitals for emergency services
provided to enrollees without prior authorization and without
regard to whether a participating provider contract is in place.
Further, as enacted, the Health Reform Law contains provisions
that seek to decrease the number of uninsured individuals,
including requirements or incentives, which do not become
effective until 2014, for individuals to obtain, and large
employers to provide, insurance coverage. These mandates may
reduce the financial impact of screening for and stabilizing
emergency medical conditions. However, many factors are unknown
regarding the impact of the Health Reform Law, including the
outcome of court challenges to the constitutionality of the law
and Congressional efforts to amend or repeal the law, how many
previously uninsured individuals will obtain coverage as a
result of the law or the change, if any, in the volume of
inpatient and outpatient hospital services that are sought by
and provided to previously uninsured individuals and the payer
mix.
We do not pursue collection of amounts related to patients who
meet our guidelines to qualify as charity care; therefore, they
are not reported in revenues. Patients treated at our hospitals
for nonelective care, who have income at or below 200% of the
federal poverty level, are eligible for charity care. The
federal poverty level is established by the federal government
and is based on income and family size. We provide discounts
from our gross charges to uninsured patients who do not qualify
for Medicaid or charity care. These discounts are similar to
those provided to many local managed care plans. After the
discounts are applied, we are still unable to collect a
significant portion of uninsured patients accounts, and we
record significant provisions for doubtful accounts (based upon
our historical collection experience) related to uninsured
patients in the period the services are provided.
Due to the complexities involved in the classification and
documentation of health care services authorized and provided,
the estimation of revenues earned and the related reimbursement
are often subject to interpretations that could result in
payments that are different from our estimates. Adjustments to
estimated Medicare and Medicaid reimbursement amounts and
disproportionate-share funds, which resulted in net increases to
revenues, related primarily to cost reports filed during the
respective year were $52 million, $40 million and
$32 million in 2010, 2009 and 2008, respectively. The
adjustments to estimated reimbursement amounts, which resulted
in net increases to revenues, related primarily to cost reports
filed during previous years were $50 million,
$60 million and $35 million in 2010, 2009 and 2008,
respectively. We expect adjustments during the next
12 months related to Medicare and Medicaid cost report
filings and settlements and disproportionate-share funds will
result in increases to revenues within generally similar ranges.
57
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Provision
for Doubtful Accounts and the Allowance for Doubtful
Accounts
The collection of outstanding receivables from Medicare, managed
care payers, other third-party payers and patients is our
primary source of cash and is critical to our operating
performance. The primary collection risks relate to uninsured
patient accounts, including patient accounts for which the
primary insurance carrier has paid the amounts covered by the
applicable agreement, but patient responsibility amounts
(deductibles and copayments) remain outstanding. The provision
for doubtful accounts and the allowance for doubtful accounts
relate primarily to amounts due directly from patients. An
estimated allowance for doubtful accounts is recorded for all
uninsured accounts, regardless of the aging of those accounts.
Accounts are written off when all reasonable internal and
external collection efforts have been performed. Our collection
policies include a review of all accounts against certain
standard collection criteria, upon completion of our internal
collection efforts. Accounts determined to possess positive
collectibility attributes are forwarded to a secondary external
collection agency and the other accounts are written off. The
accounts that are not collected by the secondary external
collection agency are written off when they are returned to us
by the collection agency (usually within 12 months).
Writeoffs are based upon specific identification and the
writeoff process requires a writeoff adjustment entry to the
patient accounting system. We do not pursue collection of
amounts related to patients that meet our guidelines to qualify
as charity care.
The amount of the provision for doubtful accounts is based upon
managements assessment of historical writeoffs and
expected net collections, business and economic conditions,
trends in federal, state, and private employer health care
coverage and other collection indicators. Management relies on
the results of detailed reviews of historical writeoffs and
recoveries at facilities that represent a majority of our
revenues and accounts receivable (the hindsight
analysis) as a primary source of information in estimating
the collectibility of our accounts receivable. We perform the
hindsight analysis quarterly, utilizing rolling twelve-months
accounts receivable collection and writeoff data. We believe our
quarterly updates to the estimated allowance for doubtful
accounts at each of our hospital facilities provide reasonable
valuations of our accounts receivable. These routine, quarterly
changes in estimates have not resulted in material adjustments
to our allowance for doubtful accounts, provision for doubtful
accounts or
period-to-period
comparisons of our results of operations. At December 31,
2010 and 2009, the allowance for doubtful accounts represented
approximately 93% and 94%, respectively, of the
$4.249 billion and $5.176 billion, respectively,
patient due accounts receivable balance. The patient due
accounts receivable balance represents the estimated uninsured
portion of our accounts receivable. The estimated uninsured
portion of Medicaid pending and uninsured discount pending
accounts is included in our patient due accounts receivable
balance.
The revenue deductions related to uninsured accounts (charity
care and uninsured discounts) generally have the inverse effect
on the provision for doubtful accounts. To quantify the total
impact of and trends related to uninsured accounts, we believe
it is beneficial to view these revenue deductions and provision
for doubtful accounts in combination, rather than each
separately. A summary of these amounts for the years ended
December 31, follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Provision for doubtful accounts
|
|
$
|
2,648
|
|
|
$
|
3,276
|
|
|
$
|
3,409
|
|
Uninsured discounts
|
|
|
4,641
|
|
|
|
2,935
|
|
|
|
1,853
|
|
Charity care
|
|
|
2,337
|
|
|
|
2,151
|
|
|
|
1,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
9,626
|
|
|
$
|
8,362
|
|
|
$
|
7,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for doubtful accounts, as a percentage of
revenues, declined from 12.0% for 2008 to 10.9% for 2009 and
declined to 8.6% for 2010. Our decision to increase uninsured
discounts during the second half of 2009 has directly
contributed to the decline in the provision for doubtful
accounts. However, the sum of the provision for
58
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Provision
for Doubtful Accounts and the Allowance for Doubtful Accounts
(Continued)
doubtful accounts, uninsured discounts and charity care, as a
percentage of the sum of net revenues, uninsured discounts and
charity care increased from 21.9% for 2008 to 23.8% for 2009 and
to 25.6% for 2010.
Days revenues in accounts receivable were 46 days,
45 days and 49 days at December 31, 2010, 2009
and 2008, respectively. Management expects a continuation of the
challenges related to the collection of the patient due
accounts. Adverse changes in the percentage of our patients
having adequate health care coverage, general economic
conditions, patient accounting service center operations, payer
mix, or trends in federal, state, and private employer health
care coverage could affect the collection of accounts
receivable, cash flows and results of operations.
The approximate breakdown of accounts receivable by payer
classification as of December 31, 2010 and 2009 is set
forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Accounts Receivable
|
|
|
Under 91 Days
|
|
91180 Days
|
|
Over 180 Days
|
|
Accounts receivable aging at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare and Medicaid
|
|
|
14
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Managed care and other insurers
|
|
|
21
|
|
|
|
4
|
|
|
|
4
|
|
Uninsured
|
|
|
17
|
|
|
|
8
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
52
|
%
|
|
|
13
|
%
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable aging at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare and Medicaid
|
|
|
12
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Managed care and other insurers
|
|
|
18
|
|
|
|
4
|
|
|
|
4
|
|
Uninsured
|
|
|
13
|
|
|
|
8
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
43
|
%
|
|
|
13
|
%
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our decisions, to increase uninsured discounts and to reduce the
length of time accounts are left with our secondary collection
agency, have contributed to improvements in our accounts
receivable aging trends, particularly for our uninsured accounts
receivable.
Professional
Liability Claims
We, along with virtually all health care providers, operate in
an environment with professional liability risks. Our facilities
are insured by our wholly-owned insurance subsidiary for losses
up to $50 million per occurrence, subject to a
$5 million per occurrence self-insured retention. We
purchase excess insurance on a claims-made basis for losses in
excess of $50 million per occurrence. Our professional
liability reserves, net of receivables under reinsurance
contracts, do not include amounts for any estimated losses
covered by our excess insurance coverage. Provisions for losses
related to professional liability risks were $222 million,
$211 million and $175 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
Reserves for professional liability risks represent the
estimated ultimate cost of all reported and unreported losses
incurred through the respective consolidated balance sheet
dates. The estimated ultimate cost includes estimates of direct
expenses and fees paid to outside counsel and experts, but does
not include the general overhead costs of our insurance
subsidiary or corporate office. Individual case reserves are
established based upon the particular circumstances of each
reported claim and represent our estimates of the future costs
that will be paid on
59
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Professional
Liability Claims (Continued)
reported claims. Case reserves are reduced as claim payments are
made and are adjusted upward or downward as our estimates
regarding the amounts of future losses are revised. Once the
case reserves for known claims are determined, information is
stratified by loss layers and retentions, accident years,
reported years, and geographic location of our hospitals.
Several actuarial methods are employed to utilize this data to
produce estimates of ultimate losses and reserves for incurred
but not reported claims, including: paid and incurred
extrapolation methods utilizing paid and incurred loss
development to estimate ultimate losses; frequency and severity
methods utilizing paid and incurred claims development to
estimate ultimate average frequency (number of claims) and
ultimate average severity (cost per claim); and
Bornhuetter-Ferguson methods which add expected development to
actual paid or incurred experience to estimate ultimate losses.
These methods use our company-specific historical claims data
and other information. Company-specific claim reporting and
settlement data collected over an approximate
20-year
period is used in our reserve estimation process. This
company-specific data includes information regarding our
business, including historical paid losses and loss adjustment
expenses, historical and current case loss reserves, actual and
projected hospital statistical data, professional liability
retentions for each policy year, geographic information and
other data.
Reserves and provisions for professional liability risks are
based upon actuarially determined estimates. The estimated
reserve ranges, net of amounts receivable under reinsurance
contracts, were $1.067 billion to $1.276 billion at
December 31, 2010 and $1.024 billion to
$1.270 billion at December 31, 2009. Our estimated
reserves for professional liability claims may change
significantly if future claims differ from expected trends. We
perform sensitivity analyses which model the volatility of key
actuarial assumptions and monitor our reserves for adequacy
relative to all our assumptions in the aggregate. Based on our
analysis, we believe the estimated professional liability
reserve ranges represent the reasonably likely outcomes for
ultimate losses. We consider the number and severity of claims
to be the most significant assumptions in estimating reserves
for professional liabilities. A 2% change in the expected
frequency trend could be reasonably likely and would increase
the reserve estimate by $16 million or reduce the reserve
estimate by $15 million. A 2% change in the expected claim
severity trend could be reasonably likely and would increase the
reserve estimate by $71 million or reduce the reserve
estimate by $65 million. We believe adequate reserves have
been recorded for our professional liability claims; however,
due to the complexity of the claims, the extended period of time
to settle the claims and the wide range of potential outcomes,
our ultimate liability for professional liability claims could
change by more than the estimated sensitivity amounts and could
change materially from our current estimates.
The reserves for professional liability risks cover
approximately 2,700 and 2,600 individual claims at
December 31, 2010 and 2009, respectively, and estimates for
unreported potential claims. The time period required to resolve
these claims can vary depending upon the jurisdiction and
whether the claim is settled or litigated. The average time
period between the occurrence and payment of final settlement
for our professional liability claims is approximately five
years, although the facts and circumstances of each individual
claim can result in an
occurrence-to-settlement
timeframe that varies from this average. The estimation of the
timing of payments beyond a year can vary significantly.
Reserves for professional liability risks were
$1.262 billion and $1.322 billion at December 31,
2010 and 2009, respectively. The current portion of these
reserves, $268 million and $265 million at
December 31, 2010 and 2009, respectively, is included in
other accrued expenses. Obligations covered by
reinsurance contracts are included in the reserves for
professional liability risks, as the insurance subsidiary
remains liable to the extent reinsurers do not meet their
obligations. Reserves for professional liability risks (net of
$14 million and $53 million receivable under
reinsurance contracts at December 31, 2010 and 2009,
respectively) were $1.248 billion and $1.269 billion
at December 31, 2010 and 2009, respectively. The estimated
total net reserves for professional liability risks at
60
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Professional
Liability Claims (Continued)
December 31, 2010 and 2009 are comprised of
$758 million and $680 million, respectively, of case
reserves for known claims and $490 million and
$589 million, respectively, of reserves for incurred but
not reported claims.
Changes in our professional liability reserves, net of
reinsurance recoverable, for the years ended December 31,
are summarized in the following table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net reserves for professional liability claims, January 1
|
|
$
|
1,269
|
|
|
$
|
1,330
|
|
|
$
|
1,469
|
|
Provision for current year claims
|
|
|
272
|
|
|
|
258
|
|
|
|
239
|
|
Favorable development related to prior years claims
|
|
|
(50
|
)
|
|
|
(47
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
|
222
|
|
|
|
211
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for current year claims
|
|
|
7
|
|
|
|
4
|
|
|
|
7
|
|
Payments for prior years claims
|
|
|
236
|
|
|
|
268
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total claim payments
|
|
|
243
|
|
|
|
272
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for professional liability claims, December 31
|
|
$
|
1,248
|
|
|
$
|
1,269
|
|
|
$
|
1,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The favorable development related to prior years claims
resulted from declining claim frequency and moderating claim
severity trends. We believe these favorable trends are primarily
attributable to tort reforms enacted in key states, particularly
Texas, and our risk management and patient safety initiatives,
particularly in the area of obstetrics.
Income
Taxes
We calculate our provision for income taxes using the asset and
liability method, under which deferred tax assets and
liabilities are recognized by identifying the temporary
differences that arise from the recognition of items in
different periods for tax and accounting purposes. Deferred tax
assets generally represent the tax effects of amounts expensed
in our income statement for which tax deductions will be claimed
in future periods.
Although we believe we have properly reported taxable income and
paid taxes in accordance with applicable laws, federal, state or
international taxing authorities may challenge our tax positions
upon audit. Significant judgment is required in determining and
assessing the impact of uncertain tax positions. We report a
liability for unrecognized tax benefits from uncertain tax
positions taken or expected to be taken in our income tax
return. During each reporting period, we assess the facts and
circumstances related to uncertain tax positions. If the
realization of unrecognized tax benefits is deemed probable
based upon new facts and circumstances, the estimated liability
and the provision for income taxes are reduced in the current
period. Final audit results may vary from our estimates.
Results
of Operations
Revenue/Volume
Trends
Our revenues depend upon inpatient occupancy levels, the
ancillary services and therapy programs ordered by physicians
and provided to patients, the volume of outpatient procedures
and the charge and negotiated payment rates for such services.
Gross charges typically do not reflect what our facilities are
actually paid. Our facilities have entered into agreements with
third-party payers, including government programs and managed
care health plans, under which the facilities are paid based
upon the cost of providing services, predetermined rates per
diagnosis,
61
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations (Continued)
Revenue/Volume
Trends (Continued)
fixed per diem rates or discounts from gross charges. We do not
pursue collection of amounts related to patients who meet our
guidelines to qualify for charity care; therefore, they are not
reported in revenues. We provide discounts to uninsured patients
who do not qualify for Medicaid or charity care that are similar
to the discounts provided to many local managed care plans.
Revenues increased 2.1% to $30.683 billion for 2010 from
$30.052 billion for 2009 and increased 5.9% for 2009 from
$28.374 billion for 2008. The increase in revenues in 2010
can be primarily attributed to the combined impact of a 0.9%
increase in revenue per equivalent admission and a 1.2% increase
in equivalent admissions compared to the prior year. The
increase in revenues in 2009 can be primarily attributed to the
combined impact of a 2.6% increase in revenue per equivalent
admission and a 3.2% increase in equivalent admissions compared
to 2008. The decline in the rate of revenue growth from 5.9% for
2009 compared to 2008 to 2.1% for 2010 compared to 2009 is
primarily due to a decline in the rate of volume growth
(equivalent admission growth declined from 3.2% for 2009
compared to 2008 to 1.2% for 2010 compared to 2009) and a
decline in uninsured revenues (uninsured revenues were
$1.732 billion, $2.350 billion and $2.695 billion
for the years ended December 31, 2010, 2009 and 2008,
respectively) resulting from our increased uninsured discounts
(uninsured discounts were $4.641 billion,
$2.935 billion and $1.853 billion for the years ended
December 31, 2010, 2009 and 2008, respectively).
Consolidated admissions declined 0.1% in 2010 compared to 2009
and increased 1.0% in 2009 compared to 2008. Consolidated
inpatient surgeries declined 1.5% and consolidated outpatient
surgeries declined 1.4% during 2010 compared to 2009.
Consolidated inpatient surgeries increased 0.3% and consolidated
outpatient surgeries declined 0.4% during 2009 compared to 2008.
Consolidated emergency room visits increased 2.0% during 2010
compared to 2009 and increased 6.6% during 2009 compared to 2008.
Same facility revenues increased 2.1% for the year ended
December 31, 2010 compared to the year ended
December 31, 2009 and increased 6.1% for the year ended
December 31, 2009 compared to the year ended
December 31, 2008. The 2.1% increase for 2010 can be
primarily attributed to the combined impact of a 0.6% increase
in same facility revenue per equivalent admission and a 1.4%
increase in same facility equivalent admissions. The 6.1%
increase for 2009 can be primarily attributed to the combined
impact of a 2.6% increase in same facility revenue per
equivalent admission and a 3.4% increase in same facility
equivalent admissions.
Same facility admissions increased 0.1% in 2010 compared to 2009
and increased 1.2% in 2009 compared to 2008. Same facility
inpatient surgeries declined 1.4% and same facility outpatient
surgeries declined 1.2% during 2010 compared to 2009. Same
facility inpatient surgeries increased 0.5% and same facility
outpatient surgeries declined 0.1% during 2009 compared to 2008.
Same facility emergency room visits increased 2.1% during 2010
compared to 2009 and increased 7.0% during 2009 compared to 2008.
Same facility uninsured emergency room visits increased 1.2% and
same facility uninsured admissions increased 5.4% during 2010
compared to 2009. Same facility uninsured emergency room visits
increased 6.5% and same facility uninsured admissions increased
4.7% during 2009 compared to 2008.
62
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations (Continued)
Revenue/Volume
Trends (Continued)
The approximate percentages of our admissions related to
Medicare, managed Medicare, Medicaid, managed Medicaid, managed
care and other insurers and the uninsured for the years ended
December 31, 2010, 2009 and 2008 are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Medicare
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
35
|
%
|
Managed Medicare
|
|
|
10
|
|
|
|
10
|
|
|
|
9
|
|
Medicaid
|
|
|
9
|
|
|
|
9
|
|
|
|
8
|
|
Managed Medicaid
|
|
|
8
|
|
|
|
7
|
|
|
|
7
|
|
Managed care and other insurers
|
|
|
32
|
|
|
|
34
|
|
|
|
35
|
|
Uninsured
|
|
|
7
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The approximate percentages of our inpatient revenues related to
Medicare, managed Medicare, Medicaid, managed Medicaid, managed
care plans and other insurers and the uninsured for the years
ended December 31, 2010, 2009 and 2008 are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Medicare
|
|
|
31
|
%
|
|
|
31
|
%
|
|
|
31
|
%
|
Managed Medicare
|
|
|
9
|
|
|
|
8
|
|
|
|
8
|
|
Medicaid
|
|
|
9
|
|
|
|
8
|
|
|
|
7
|
|
Managed Medicaid
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Managed care and other insurers
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
Uninsured(a)
|
|
|
3
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Increases in discounts to uninsured revenues have resulted in
declines in the percentage of our inpatient revenues related to
the uninsured, as the percentage of uninsured admissions
compared to total admissions has increased slightly. |
At December 31, 2010, we owned and operated 38 hospitals
and 32 surgery centers in the state of Florida. Our Florida
facilities revenues totaled $7.490 billion,
$7.343 billion and $7.009 billion for the years ended
December 31, 2010, 2009 and 2008, respectively. At
December 31, 2010, we owned and operated 36 hospitals and
23 surgery centers in the state of Texas. Our Texas
facilities revenues totaled $8.352 billion,
$8.042 billion and $7.351 billion for the years ended
December 31, 2010, 2009 and 2008, respectively. During
2010, 2009 and 2008, 57%, 57% and 55% of our admissions and 52%,
51% and 51%, respectively, of our revenues were generated by our
Florida and Texas facilities. Uninsured admissions in Florida
and Texas represented 63%, 64% and 63% of our uninsured
admissions during 2010, 2009 and 2008, respectively.
We receive a significant portion of our revenues from government
health programs, principally Medicare and Medicaid, which are
highly regulated and subject to frequent and substantial
changes. We have increased the indigent care services we provide
in several communities in the state of Texas, in affiliation
with other hospitals. The state of Texas has been involved in
the effort to increase the indigent care provided by private
hospitals. As a result of this additional indigent care provided
by private hospitals, public hospital districts or counties in
Texas
63
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations (Continued)
Revenue/Volume
Trends (Continued)
have available funds that were previously devoted to indigent
care. The public hospital districts or counties are under no
contractual or legal obligation to provide such indigent care.
The public hospital districts or counties have elected to
transfer some portion of these available funds to the
states Medicaid program. Such action is at the sole
discretion of the public hospital districts or counties. It is
anticipated that these contributions to the state will be
matched with federal Medicaid funds. The state then may make
supplemental payments to hospitals in the state for Medicaid
services rendered. Hospitals receiving Medicaid supplemental
payments may include those that are providing additional
indigent care services. Such payments must be within the federal
UPL established by federal regulation. Our Texas Medicaid
revenues included $657 million, $474 million and
$262 million during 2010, 2009 and 2008, respectively, of
Medicaid supplemental payments pursuant to UPL programs.
The American Recovery and Reinvestment Act of 2009 provides for
Medicare and Medicaid incentive payments beginning in 2011 for
eligible hospitals and professionals that adopt and meaningfully
use certified electronic health record (EHR)
technology. We estimate a majority of our eligible hospitals
will attest to adopting, implementing, upgrading or
demonstrating meaningful use of certified EHR technology during
the fourth quarter of 2011, and we will not recognize any
revenues related to the Medicare or Medicaid incentive payments
until we are able to complete these attestations. We currently
estimate that, during 2011 (primarily during our fourth
quarter), the amount of Medicare or Medicaid incentive payments
realizable (and revenues recognized) will be in the range of
$275 million to $325 million. Actual incentive
payments could vary from these estimates due to certain factors
such as availability of federal funding for both Medicare and
Medicaid incentive payments, timing of the approval of state
Medicaid incentive payment plans by CMS and our ability to
implement and demonstrate meaningful use of certified EHR
technology. We have incurred and will continue to incur both
capital costs and operating expenses in order to implement our
certified EHR technology and meet meaningful use requirements.
These expenses are ongoing and are projected to continue over
all stages of implementation of meaningful use. The timing of
recognizing the expenses will not correlate with the receipt of
the incentive payments and the recognition of revenues. We
estimate that operating expenses to implement our certified EHR
technology and meet meaningful use will be in the range of
$125 million to $150 million for 2011. Actual
operating expenses could vary from these estimates. There can be
no assurance that we will be able to demonstrate meaningful use
of certified EHR technology, and the failure to do so could have
a material, adverse effect on our results of operations.
64
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations (Continued)
Operating
Results Summary
The following are comparative summaries of operating results for
the years ended December 31, 2010, 2009 and 2008 (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
|
100.0
|
|
|
$
|
30,052
|
|
|
|
100.0
|
|
|
$
|
28,374
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
12,484
|
|
|
|
40.7
|
|
|
|
11,958
|
|
|
|
39.8
|
|
|
|
11,440
|
|
|
|
40.3
|
|
Supplies
|
|
|
4,961
|
|
|
|
16.2
|
|
|
|
4,868
|
|
|
|
16.2
|
|
|
|
4,620
|
|
|
|
16.3
|
|
Other operating expenses
|
|
|
5,004
|
|
|
|
16.3
|
|
|
|
4,724
|
|
|
|
15.7
|
|
|
|
4,554
|
|
|
|
16.1
|
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
8.6
|
|
|
|
3,276
|
|
|
|
10.9
|
|
|
|
3,409
|
|
|
|
12.0
|
|
Equity in earnings of affiliates
|
|
|
(282
|
)
|
|
|
(0.9
|
)
|
|
|
(246
|
)
|
|
|
(0.8
|
)
|
|
|
(223
|
)
|
|
|
(0.8
|
)
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
4.6
|
|
|
|
1,425
|
|
|
|
4.8
|
|
|
|
1,416
|
|
|
|
5.0
|
|
Interest expense
|
|
|
2,097
|
|
|
|
6.8
|
|
|
|
1,987
|
|
|
|
6.6
|
|
|
|
2,021
|
|
|
|
7.1
|
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
(97
|
)
|
|
|
(0.3
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
0.4
|
|
|
|
43
|
|
|
|
0.1
|
|
|
|
64
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,452
|
|
|
|
92.7
|
|
|
|
28,050
|
|
|
|
93.3
|
|
|
|
27,204
|
|
|
|
95.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,231
|
|
|
|
7.3
|
|
|
|
2,002
|
|
|
|
6.7
|
|
|
|
1,170
|
|
|
|
4.1
|
|
Provision for income taxes
|
|
|
658
|
|
|
|
2.2
|
|
|
|
627
|
|
|
|
2.1
|
|
|
|
268
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,573
|
|
|
|
5.1
|
|
|
|
1,375
|
|
|
|
4.6
|
|
|
|
902
|
|
|
|
3.2
|
|
Net income attributable to noncontrolling interests
|
|
|
366
|
|
|
|
1.2
|
|
|
|
321
|
|
|
|
1.1
|
|
|
|
229
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
|
3.9
|
|
|
$
|
1,054
|
|
|
|
3.5
|
|
|
$
|
673
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% changes from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2.1
|
%
|
|
|
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
5.6
|
%
|
|
|
|
|
Income before income taxes
|
|
|
11.5
|
|
|
|
|
|
|
|
71.1
|
|
|
|
|
|
|
|
(16.3
|
)
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
|
14.5
|
|
|
|
|
|
|
|
56.7
|
|
|
|
|
|
|
|
(23.0
|
)
|
|
|
|
|
Admissions(a)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
Equivalent admissions(b)
|
|
|
1.2
|
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
0.9
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
Same facility % changes from prior year(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2.1
|
|
|
|
|
|
|
|
6.1
|
|
|
|
|
|
|
|
7.0
|
|
|
|
|
|
Admissions(a)
|
|
|
0.1
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
Equivalent admissions(b)
|
|
|
1.4
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
0.6
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the total number of patients admitted to our
hospitals and is used by management and certain investors as a
general measure of inpatient volume. |
|
(b) |
|
Equivalent admissions are used by management and certain
investors as a general measure of combined inpatient and
outpatient volume. Equivalent admissions are computed by
multiplying admissions (inpatient volume) by the sum of gross
inpatient revenue and gross outpatient revenue and then dividing
the resulting amount by gross inpatient revenue. The equivalent
admissions computation equates outpatient revenue to
the volume measure (admissions) used to measure inpatient
volume, resulting in a general measure of combined inpatient and
outpatient volume. |
|
(c) |
|
Same facility information excludes the operations of hospitals
and their related facilities that were either acquired, divested
or removed from service during the current and prior year. |
65
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations (Continued)
Operating
Results Summary (Continued)
Supplemental
Non-GAAP Disclosures
Operating Measures on a Cash Revenues Basis
(Dollars in millions)
The results of operations presented on a cash revenues basis for
the years ended December 31, 2010, 2009 and 2008 (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
GAAP %
|
|
|
GAAP %
|
|
|
|
|
|
GAAP %
|
|
|
GAAP %
|
|
|
|
|
|
GAAP %
|
|
|
GAAP %
|
|
|
|
|
|
|
of Cash
|
|
|
of
|
|
|
|
|
|
of Cash
|
|
|
of
|
|
|
|
|
|
of Cash
|
|
|
of
|
|
|
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
|
|
|
Revenues
|
|
|
Revenues
|
|
|
|
Amount
|
|
|
Ratios(b)
|
|
|
Ratios(b)
|
|
|
Amount
|
|
|
Ratios(b)
|
|
|
Ratios(b)
|
|
|
Amount
|
|
|
Ratios(b)
|
|
|
Ratios(b)
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
|
|
|
|
|
100.0
|
%
|
|
$
|
30,052
|
|
|
|
|
|
|
|
100.0
|
%
|
|
$
|
28,374
|
|
|
|
|
|
|
|
100.0
|
%
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
|
|
|
|
|
|
|
|
3,276
|
|
|
|
|
|
|
|
|
|
|
|
3,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash revenues(a)
|
|
|
28,035
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
26,776
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
24,965
|
|
|
|
100.0
|
%
|
|
|
|
|
Salaries and benefits
|
|
|
12,484
|
|
|
|
44.5
|
|
|
|
40.7
|
|
|
|
11,958
|
|
|
|
44.7
|
|
|
|
39.8
|
|
|
|
11,440
|
|
|
|
45.8
|
|
|
|
40.3
|
|
Supplies
|
|
|
4,961
|
|
|
|
17.7
|
|
|
|
16.2
|
|
|
|
4,868
|
|
|
|
18.2
|
|
|
|
16.2
|
|
|
|
4,620
|
|
|
|
18.5
|
|
|
|
16.3
|
|
Other operating expenses
|
|
|
5,004
|
|
|
|
17.9
|
|
|
|
16.3
|
|
|
|
4,724
|
|
|
|
17.6
|
|
|
|
15.7
|
|
|
|
4,554
|
|
|
|
18.3
|
|
|
|
16.1
|
|
% changes from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
Cash revenues
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
Revenue per equivalent admission
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
Cash revenue per equivalent admission
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Cash revenues is defined as
reported revenues less the provision for doubtful accounts. We
use cash revenues as an analytical indicator for purposes of
assessing the effect of uninsured patient volumes, adjusted for
the effect of both the revenue deductions related to uninsured
accounts (charity care and uninsured discounts) and the
provision for doubtful accounts (which relates primarily to
uninsured accounts), on our revenues and certain operating
expenses, as a percentage of cash revenues. Variations in the
revenue deductions related to uninsured accounts generally have
the inverse effect on the provision for doubtful accounts.
During 2010, uninsured discounts increased $1.706 billion
and the provision for doubtful accounts declined
$628 million, compared to 2009. During 2009, uninsured
discounts increased $1.082 billion and the provision for
doubtful accounts declined $133 million, compared to 2008.
Cash revenues is commonly used as an analytical indicator within
the health care industry. Cash revenues should not be considered
as a measure of financial performance under generally accepted
accounting principles. Because cash revenues is not a
measurement determined in accordance with generally accepted
accounting principles and is thus susceptible to varying
calculations, cash revenues, as presented, may not be comparable
to other similarly titled measures of other health care
companies.
|
|
(b)
|
|
Salaries and benefits, supplies and
other operating expenses, as a percentage of cash revenues (a
non-GAAP financial measure), present the impact on these ratios
due to the adjustment of deducting the provision for doubtful
accounts from reported revenues and results in these ratios
being non-GAAP financial measures. We believe these non-GAAP
financial measures are useful to investors to provide
disclosures of our results of operations on the same basis as
that used by management. Management uses this information to
compare certain operating expense categories as a percentage of
cash revenues. Management finds this information useful to
evaluate certain expense category trends without the influence
of whether adjustments related to revenues for uninsured
accounts are recorded as revenue adjustments (charity care and
uninsured discounts) or operating expenses (provision for
doubtful accounts), and thus the expense category trends are
generally analyzed as a percentage of cash revenues. These
non-GAAP financial measures should not be considered
alternatives to GAAP financial measures. We believe this
supplemental information provides management and the users of
our financial statements with useful information for
period-to-period
comparisons. Investors are encouraged to use GAAP measures when
evaluating our overall financial performance.
|
66
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2010 and 2009
Net income attributable to HCA Holdings, Inc. totaled
$1.207 billion for the year ended December 31, 2010
compared to $1.054 billion for the year ended
December 31, 2009. Financial results for 2010 include net
gains on sales of facilities of $4 million and asset
impairment charges of $123 million. Financial results for
2009 include net losses on sales of facilities of
$15 million and asset impairment charges of
$43 million.
Revenues increased 2.1% to $30.683 billion for 2010 from
$30.052 billion for 2009. The increase in revenues was due
primarily to the combined impact of a 0.9% increase in revenue
per equivalent admission and a 1.2% increase in equivalent
admissions compared to 2009. Same facility revenues increased
2.1% due primarily to the combined impact of a 0.6% increase in
same facility revenue per equivalent admission and a 1.4%
increase in same facility equivalent admissions compared to
2009. Cash revenues (reported revenues less the provision for
doubtful accounts) increased 4.7% for 2010, compared to 2009.
During 2010, consolidated admissions declined 0.1% and same
facility admissions increased 0.1% for 2010, compared to 2009.
Consolidated inpatient surgical volumes declined 1.5%, and same
facility inpatient surgeries declined 1.4% during 2010 compared
to 2009. Consolidated outpatient surgical volumes declined 1.4%,
and same facility outpatient surgeries declined 1.2% during 2010
compared to 2009. Emergency room visits increased 2.0% on a
consolidated basis and increased 2.1% on a same facility basis
during 2010 compared to 2009.
Salaries and benefits, as a percentage of revenues, were 40.7%
in 2010 and 39.8% in 2009. Salaries and benefits, as a
percentage of cash revenues, were 44.5% in 2010 and 44.7% in
2009. Salaries and benefits per equivalent admission increased
3.2% in 2010 compared to 2009. Same facility labor rate
increases averaged 2.7% for 2010 compared to 2009.
Supplies, as a percentage of revenues, were 16.2% in both 2010
and 2009. Supplies, as a percentage of cash revenues, were 17.7%
in 2010 and 18.2% in 2009. Supply costs per equivalent admission
increased 0.7% in 2010 compared to 2009. Supply costs per
equivalent admission increased 2.4% for medical devices, 0.8%
for blood products, and 2.9% for general medical and surgical
items, and declined 0.7% for pharmacy supplies in 2010 compared
to 2009.
Other operating expenses, as a percentage of revenues, increased
to 16.3% in 2010 from 15.7% in 2009. Other operating expenses,
as a percentage of cash revenues, increased to 17.9% in 2010
from 17.6% in 2009. Other operating expenses are primarily
comprised of contract services, professional fees, repairs and
maintenance, rents and leases, utilities, insurance (including
professional liability insurance) and nonincome taxes. The major
component of the increase in other operating expenses, as a
percentage of revenues, was related to indigent care costs in
certain Texas markets which increased to $354 million for
2010 from $248 million for 2009. Provisions for losses
related to professional liability risks were $222 million
and $211 million for 2010 and 2009, respectively.
Provision for doubtful accounts declined $628 million, from
$3.276 billion in 2009 to $2.648 billion in 2010, and
as a percentage of revenues, declined to 8.6% for 2010 from
10.9% in 2009. The provision for doubtful accounts and the
allowance for doubtful accounts relate primarily to uninsured
amounts due directly from patients. The decline in the provision
for doubtful accounts can be attributed to the
$1.892 billion increase in the combined self-pay revenue
deductions for charity care and uninsured discounts during 2010,
compared to 2009. The sum of the provision for doubtful
accounts, uninsured discounts and charity care, as a percentage
of the sum of net revenues, uninsured discounts and charity
care, was 25.6% for 2010, compared to 23.8% for 2009. At
December 31, 2010, our allowance for doubtful accounts
represented approximately 93% of the $4.249 billion total
patient due accounts receivable balance, including accounts, net
of estimated contractual discounts, related to patients for
which eligibility for Medicaid coverage or uninsured discounts
was being evaluated.
67
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2010 and 2009 (Continued)
Equity in earnings of affiliates increased from
$246 million for 2009 to $282 million for 2010. Equity
in earnings of affiliates relates primarily to our Denver,
Colorado market joint venture.
Depreciation and amortization declined, as a percentage of
revenues, to 4.6% in 2010 from 4.8% in 2009. Depreciation
expense was $1.416 billion for 2010 and $1.419 billion
for 2009.
Interest expense increased to $2.097 billion for 2010 from
$1.987 billion for 2009. The increase in interest expense
was due primarily to an increase in the average effective
interest rate. Our average debt balance was $26.751 billion
for 2010 compared to $26.267 billion for 2009. The average
interest rate for our long-term debt increased from 7.6% for
2009 to 7.8% for 2010.
Net gains on sales of facilities were $4 million for 2010
and were related to sales of real estate and other health care
entity investments. Net losses on sales of facilities were
$15 million for 2009 and included $8 million of net
losses on the sales of three hospital facilities and
$7 million of net losses on sales of real estate and other
health care entity investments.
Impairments of long-lived assets were $123 million for 2010
and included $74 million related to two hospital facilities
and $49 million related to other health care entity
investments, which includes $35 million for the writeoff of
capitalized engineering and design costs related to certain
building safety requirements (California earthquake standards)
that have been revised. Impairments of long-lived assets were
$43 million for 2009 and included $19 million related
to goodwill and $24 million related to property and
equipment.
The effective tax rate was 35.3% and 37.3% for 2010 and 2009,
respectively. The effective tax rate computations exclude net
income attributable to noncontrolling interests as it relates to
consolidated partnerships. Our provisions for income taxes for
2010 and 2009 were reduced by $44 million and
$12 million, respectively, related to reductions in
interest expense related to taxing authority examinations.
Excluding the effect of these adjustments, the effective tax
rate for 2010 and 2009 would have been 37.6% and 38.0%,
respectively.
Net income attributable to noncontrolling interests increased
from $321 million for 2009 to $366 million for 2010.
The increase in net income attributable to noncontrolling
interests related primarily to growth in operating results of
hospital joint ventures in two Texas markets.
Years
Ended December 31, 2009 and 2008
Net income attributable to HCA Holdings, Inc. totaled
$1.054 billion for the year ended December 31, 2009
compared to $673 million for the year ended
December 31, 2008. Financial results for 2009 include
losses on sales of facilities of $15 million and asset
impairment charges of $43 million. Financial results for
2008 include gains on sales of facilities of $97 million
and asset impairment charges of $64 million.
Revenues increased 5.9% to $30.052 billion for 2009 from
$28.374 billion for 2008. The increase in revenues was due
primarily to the combined impact of a 2.6% increase in revenue
per equivalent admission and a 3.2% increase in equivalent
admissions compared to 2008. Same facility revenues increased
6.1% due primarily to the combined impact of a 2.6% increase in
same facility revenue per equivalent admission and a 3.4%
increase in same facility equivalent admissions compared to
2008. Cash revenues (reported revenues less the provision for
doubtful accounts) increased 7.2% for 2009, compared to 2008.
During 2009, consolidated admissions increased 1.0% and same
facility admissions increased 1.2% for 2009, compared to 2008.
Consolidated inpatient surgical volumes increased 0.3%, and same
facility inpatient surgeries increased 0.5% during 2009 compared
to 2008. Consolidated outpatient surgical volumes declined 0.4%,
and same
68
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2009 and 2008 (Continued)
facility outpatient surgeries declined 0.1% during 2009 compared
to 2008. Emergency department visits increased 6.6% on a
consolidated basis and increased 7.0% on a same facility basis
during 2009 compared to 2008.
Salaries and benefits, as a percentage of revenues, were 39.8%
in 2009 and 40.3% in 2008. Salaries and benefits, as a
percentage of cash revenues, were 44.7% in 2009 and 45.8% in
2008. Salaries and benefits per equivalent admission increased
1.3% in 2009 compared to 2008. Same facility labor rate
increases averaged 3.7% for 2009 compared to 2008.
Supplies, as a percentage of revenues, were 16.2% in 2009 and
16.3% in 2008. Supplies, as a percentage of cash revenues, were
18.2% in 2009 and 18.5% in 2008. Supply costs per equivalent
admission increased 2.1% in 2009 compared to 2008. Same facility
supply costs increased 5.9% for medical devices, 4.0% for
pharmacy supplies, 7.1% for blood products and 7.0% for general
medical and surgical items in 2009 compared to 2008.
Other operating expenses, as a percentage of revenues, declined
to 15.7% in 2009 from 16.1% in 2008. Other operating expenses,
as a percentage of cash revenues, declined to 17.6% in 2009 from
18.3% in 2008. Other operating expenses are primarily comprised
of contract services, professional fees, repairs and
maintenance, rents and leases, utilities, insurance (including
professional liability insurance) and nonincome taxes. The
overall decline in other operating expenses, as a percentage of
revenues, is comprised of relatively small reductions in several
areas, including utilities, employee recruitment and travel and
entertainment. Other operating expenses include
$248 million and $144 million of indigent care costs
in certain Texas markets during 2009 and 2008, respectively.
Provisions for losses related to professional liability risks
were $211 million and $175 million for 2009 and 2008,
respectively.
Provision for doubtful accounts declined $133 million, from
$3.409 billion in 2008 to $3.276 billion in 2009, and
as a percentage of revenues, declined to 10.9% for 2009 from
12.0% in 2008. The provision for doubtful accounts and the
allowance for doubtful accounts relate primarily to uninsured
amounts due directly from patients. The decline in the provision
for doubtful accounts can be attributed to the
$1.486 billion increase in the combined self-pay revenue
deductions for charity care and uninsured discounts during 2009,
compared to 2008. The sum of the provision for doubtful
accounts, uninsured discounts and charity care, as a percentage
of the sum of net revenues, uninsured discounts and charity
care, was 23.8% for 2009, compared to 21.9% for 2008. At
December 31, 2009, our allowance for doubtful accounts
represented approximately 94% of the $5.176 billion total
patient due accounts receivable balance, including accounts, net
of estimated contractual discounts, related to patients for
which eligibility for Medicaid coverage or uninsured discounts
was being evaluated.
Equity in earnings of affiliates increased from
$223 million for 2008 to $246 million for 2009. Equity
in earnings of affiliates relates primarily to our Denver,
Colorado market joint venture.
Depreciation and amortization decreased, as a percentage of
revenues, to 4.8% in 2009 from 5.0% in 2008. Depreciation
expense was $1.419 billion for 2009 and $1.412 billion
for 2008.
Interest expense declined to $1.987 billion for 2009 from
$2.021 billion for 2008. The decline in interest expense
was due to reductions in the average debt balance. Our average
debt balance was $26.267 billion for 2009 compared to
$27.211 billion for 2008. The average interest rate for our
long-term debt increased from 7.4% for 2008 to 7.6% for 2009.
Net losses on sales of facilities were $15 million for 2009
and included $8 million of net losses on the sales of three
hospital facilities and $7 million of net losses on sales
of real estate and other health care entity investments. Gains
on sales of facilities were $97 million for 2008 and
included $81 million of gains on the sales of two hospital
facilities and $16 million of net gains on sales of real
estate and other health care entity investments.
69
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2009 and 2008 (Continued)
Impairments of long-lived assets were $43 million for 2009
and included $19 million related to goodwill and
$24 million related to property and equipment. Impairments
of long-lived assets were $64 million for 2008 and included
$48 million related to goodwill and $16 million
related to property and equipment.
The effective tax rate was 37.3% and 28.5% for 2009 and 2008,
respectively. The effective tax rate computations exclude net
income attributable to noncontrolling interests as it relates to
consolidated partnerships. Primarily as a result of reaching a
settlement with the IRS Appeals Division and the revision of the
amount of a proposed IRS adjustment related to prior taxable
periods, we reduced our provision for income taxes by
$69 million in 2008. Excluding the effect of these
adjustments, the effective tax rate for 2008 would have been
35.8%.
Net income attributable to noncontrolling interests increased
from $229 million for 2008 to $321 million for 2009.
The increase in net income attributable to noncontrolling
interests related primarily to growth in operating results of
hospital joint ventures in two Texas markets.
Liquidity
and Capital Resources
Our primary cash requirements are paying our operating expenses,
servicing our debt, capital expenditures on our existing
properties, acquisitions of hospitals and other health care
entities, distributions to stockholders and distributions to
noncontrolling interests. Our primary cash sources are cash
flows from operating activities, issuances of debt and equity
securities and dispositions of hospitals and other health care
entities.
Cash provided by operating activities totaled
$3.085 billion in 2010 compared to $2.747 billion in
2009 and $1.990 billion in 2008. Working capital totaled
$2.650 billion at December 31, 2010 and
$2.264 billion at December 31, 2009. The
$338 million increase in cash provided by operating
activities for 2010, compared to 2009, was primarily comprised
of the net impact of the $198 million increase in net
income, a $547 million improvement from lower income tax
payments and a $384 million decline from changes in
operating assets and liabilities and the provision for doubtful
accounts. The $757 million increase in cash provided by
operating activities for 2009, compared to 2008, related
primarily to the $473 million increase in net income and
$143 million improvement from changes in operating assets
and liabilities and the provision for doubtful accounts. Cash
payments for interest and income taxes declined
$387 million for 2010 compared to 2009 and increased
$203 million for 2009 compared to 2008.
Cash used in investing activities was $1.039 billion,
$1.035 billion and $1.467 billion in 2010, 2009 and
2008, respectively. Excluding acquisitions, capital expenditures
were $1.325 billion in 2010, $1.317 billion in 2009
and $1.600 billion in 2008. We expended $233 million,
$61 million and $85 million for acquisitions of
hospitals and health care entities during 2010, 2009 and 2008,
respectively. Expenditures for acquisitions in 2010 included two
hospital facilities, and in 2009 and 2008 were generally
comprised of outpatient and ancillary services entities. Planned
capital expenditures are expected to approximate
$1.6 billion in 2011. At December 31, 2010, there were
projects under construction which had an estimated additional
cost to complete and equip over the next five years of
$1.7 billion. We expect to finance capital expenditures
with internally generated and borrowed funds.
During 2010, we received cash proceeds of $37 million from
sales of other health care entities and real estate investments.
We also received net cash proceeds of $472 million related
to net changes in our investments. During 2009, we received cash
proceeds of $41 million from dispositions of three
hospitals and sales of other health care entities and real
estate investments. We also received net cash proceeds of
$303 million related to net changes in our investments.
During 2008, we received cash proceeds of $143 million from
dispositions of two hospitals and $50 million from sales of
other health care entities and real estate investments.
70
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity
and Capital Resources (Continued)
Cash used in financing activities totaled $1.947 billion in
2010, $1.865 billion in 2009 and $451 million in 2008.
During 2010, we paid $4.257 billion in distributions to our
stockholders and received net proceeds of $2.533 billion
from our debt issuance and debt repayment activities. During
2009 and 2008, we used cash proceeds from sales of facilities
and available cash provided by operations to make net debt
repayments of $1.459 billion and $260 million,
respectively. During 2010, we received contributions from
noncontrolling interests of $57 million. During 2010, 2009
and 2008, we made distributions to noncontrolling interests of
$342 million, $330 million and $178 million,
respectively. We paid debt issuance costs of $50 million
and $70 million for 2010 and 2009, respectively. During
2010, we received income tax benefits of $114 million for
certain items (primarily the cash distributions to holders of
our stock options) that were deductible expenses for tax
purposes, but were recognized as adjustments to
stockholders deficit for financial reporting purposes. We
or our affiliates, including affiliates of the Sponsors, may in
the future repurchase portions of our debt securities, subject
to certain limitations, from time to time in either the open
market or through privately negotiated transactions, in
accordance with applicable SEC and other legal requirements. The
timing, prices, and sizes of purchases depend upon prevailing
trading prices, general economic and market conditions, and
other factors, including applicable securities laws. Funds for
the repurchase of debt securities have, and are expected to,
come primarily from cash generated from operations and borrowed
funds.
In addition to cash flows from operations, available sources of
capital include amounts available under our senior secured
credit facilities ($1.314 billion as of December 31,
2010 and $1.523 billion as of January 31,
2011) and anticipated access to public and private debt
markets.
During 2010, our Board of Directors declared three distributions
to our stockholders and holders of stock options. The
distributions totaled $42.50 per share and vested stock option,
or $4.332 billion in the aggregate. The distributions were
funded using funds available under our existing senior secured
credit facilities, proceeds from the November 2010 issuance of
$1.525 billion aggregate principal amount of
73/4% senior
unsecured notes due 2021 and cash on hand.
On May 5, 2010, our Board of Directors granted approval for
the Company to file with the Securities and Exchange Commission
(SEC) a registration statement on
Form S-1
relating to a proposed initial public offering of its common
stock. We filed the
Form S-1
on May 7, 2010. In connection with the Corporate
Reorganization, on December 15, 2010, HCA Holdings,
Inc.s Board of Directors granted approval for the Company
to file with the SEC a registration statement on
Form S-1
relating to a proposed initial public offering of its common
stock. The
Form S-1
was filed on December 22, 2010, with HCA Inc. at the same
time filing a request to withdraw its registration statement on
Form S-1.
We intend to use the anticipated net proceeds to repay certain
of our existing indebtedness, as will be determined prior to our
offering, and for general corporate purposes. Upon completion of
the offering and in connection with our termination of the
management agreement we have with affiliates of the Investors,
we will be required to pay a termination fee based upon the net
present value of our future obligations under the management
agreement.
Investments of our professional liability insurance subsidiary,
to maintain statutory equity and pay claims, totaled
$742 million and $1.316 billion at December 31,
2010 and 2009, respectively. Investments were reduced during
2010 as a result of the insurance subsidiary distributing
$500 million of excess capital to the Company. The
insurance subsidiary maintained net reserves for professional
liability risks of $452 million and $590 million at
December 31, 2010 and 2009, respectively. Our facilities
are insured by our wholly-owned insurance subsidiary for losses
up to $50 million per occurrence; however, since January
2007, this coverage is subject to a $5 million per
occurrence self-insured retention. Net reserves for the
self-insured professional liability risks retained were
$796 million and $679 million at December 31,
2010 and 2009, respectively. Claims payments, net of reinsurance
recoveries, during the next 12 months are expected to
approximate $265 million. We estimate that approximately
71
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity
and Capital Resources (Continued)
$165 million of the expected net claim payments during the
next 12 months will relate to claims subject to the
self-insured retention.
Financing
Activities
Due to the Recapitalization, we are a highly leveraged company
with significant debt service requirements. Our debt totaled
$28.225 billion and $25.670 billion at
December 31, 2010 and 2009, respectively. Our interest
expense was $2.097 billion for 2010 and $1.987 billion
for 2009.
During March 2010, we issued $1.400 billion aggregate
principal amount of
71/4% senior
secured first lien notes due 2020 at a price of 99.095% of their
face value, resulting in $1.387 billion of gross proceeds.
After the payment of related fees and expenses, we used the
proceeds to repay outstanding indebtedness under our senior
secured term loan facilities. During November 2010, we issued
$1.525 billion aggregate principal amount of
73/4% senior
unsecured notes due 2021 at a price of 100% of their face value.
After the payment of related fees and expenses, we used the
proceeds to make a distribution to our stockholders and
optionholders. During February 2009, we issued $310 million
aggregate principal amount of
97/8% senior
secured second lien notes due 2017 at a price of 96.673% of
their face value, resulting in $300 million of gross
proceeds. During April 2009, we issued $1.500 billion
aggregate principal amount of
81/2% senior
secured first lien notes due 2019 at a price of 96.755% of their
face value, resulting in $1.451 billion of gross proceeds.
During August 2009, we issued $1.250 billion aggregate
principal amount of
77/8% senior
secured first lien notes due 2020 at a price of 98.254% of their
face value, resulting in $1.228 billion of gross proceeds.
After the payment of related fees and expenses, we used the
proceeds from these debt issuances to repay outstanding
indebtedness under our senior secured term loan facilities.
Management believes that cash flows from operations, amounts
available under our senior secured credit facilities and our
anticipated access to public and private debt markets will be
sufficient to meet expected liquidity needs during the next
twelve months.
72
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Contractual
Obligations and Off-Balance Sheet Arrangements
As of December 31, 2010, maturities of contractual
obligations and other commercial commitments are presented in
the table below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Contractual Obligations(a)
|
|
Total
|
|
|
Current
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Long-term debt including interest, excluding the senior secured
credit facilities(b)
|
|
$
|
29,803
|
|
|
$
|
1,845
|
|
|
$
|
4,824
|
|
|
$
|
5,053
|
|
|
$
|
18,081
|
|
Loans outstanding under the senior secured credit facilities,
including interest(b)
|
|
|
12,013
|
|
|
|
848
|
|
|
|
7,828
|
|
|
|
1,147
|
|
|
|
2,190
|
|
Operating leases(c)
|
|
|
1,876
|
|
|
|
269
|
|
|
|
466
|
|
|
|
293
|
|
|
|
848
|
|
Purchase and other obligations(c)
|
|
|
225
|
|
|
|
37
|
|
|
|
44
|
|
|
|
36
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
43,917
|
|
|
$
|
2,999
|
|
|
$
|
13,162
|
|
|
$
|
6,529
|
|
|
$
|
21,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial Commitments Not Recorded on the
|
|
Commitment Expiration by Period
|
|
Consolidated Balance Sheet
|
|
Total
|
|
|
Current
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Surety bonds(d)
|
|
$
|
59
|
|
|
$
|
52
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
|
|
Letters of credit(e)
|
|
|
82
|
|
|
|
9
|
|
|
|
41
|
|
|
|
32
|
|
|
|
|
|
Physician commitments(f)
|
|
|
33
|
|
|
|
26
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Guarantees(g)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
176
|
|
|
$
|
87
|
|
|
$
|
54
|
|
|
$
|
33
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We have not included obligations to pay net estimated
professional liability claims ($1.248 billion at
December 31, 2010, including net reserves of
$452 million relating to the wholly-owned insurance
subsidiary) in this table. The estimated professional liability
claims, which occurred prior to 2007, are expected to be funded
by the designated investment securities that are restricted for
this purpose ($742 million at December 31, 2010). We
also have not included obligations related to unrecognized tax
benefits of $413 million at December 31, 2010, as we
cannot reasonably estimate the timing or amounts of cash
payments, if any, at this time. |
|
(b) |
|
Estimates of interest payments assume that interest rates,
borrowing spreads and foreign currency exchange rates at
December 31, 2010, remain constant during the period
presented. |
|
(c) |
|
Amounts relate to future operating lease obligations, purchase
obligations and other obligations and are not recorded in our
consolidated balance sheet. Amounts also include physician
commitments that are recorded in our consolidated balance sheet. |
|
(d) |
|
Amounts relate primarily to instances in which we have agreed to
indemnify various commercial insurers who have provided surety
bonds to cover self-insured workers compensation claims,
utility deposits and damages for malpractice cases which were
awarded to plaintiffs by the courts. These cases are currently
under appeal and the bonds will not be released by the courts
until the cases are closed. |
|
(e) |
|
Amounts relate primarily to various insurance programs and
employee benefit plan obligations for which we have letters of
credit outstanding. |
|
(f) |
|
In consideration for physicians relocating to the communities in
which our hospitals are located and agreeing to engage in
private practice for the benefit of the respective communities,
we make advances to physicians, normally over a period of one
year, to assist in establishing the physicians practices.
The actual amount of these commitments to be advanced often
depends upon the financial results of the physicians
private practices |
73
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Contractual
Obligations and Off-Balance Sheet Arrangements
(Continued)
|
|
|
|
|
during the recruitment agreement payment period. The physician
commitments reflected were based on our maximum exposure on
effective agreements at December 31, 2010. |
|
(g) |
|
We have entered into guarantee agreements related to certain
leases. |
Market
Risk
We are exposed to market risk related to changes in market
values of securities. The investments in debt and equity
securities of our wholly-owned insurance subsidiary were
$734 million and $8 million, respectively, at
December 31, 2010. These investments are carried at fair
value, with changes in unrealized gains and losses being
recorded as adjustments to other comprehensive income. At
December 31, 2010, we had a net unrealized gain of
$10 million on the insurance subsidiarys investment
securities.
We are exposed to market risk related to market illiquidity.
Liquidity of the investments in debt and equity securities of
our wholly-owned insurance subsidiary could be impaired by the
inability to access the capital markets. Should the wholly-owned
insurance subsidiary require significant amounts of cash in
excess of normal cash requirements to pay claims and other
expenses on short notice, we may have difficulty selling these
investments in a timely manner or be forced to sell them at a
price less than what we might otherwise have been able to in a
normal market environment. At December 31, 2010, our
wholly-owned insurance subsidiary had invested $250 million
($251 million par value) in tax-exempt student loan auction
rate securities that continue to experience market illiquidity.
It is uncertain if auction-related market liquidity will resume
for these securities. We may be required to recognize
other-than-temporary
impairments on these long-term investments in future periods
should issuers default on interest payments or should the fair
market valuations of the securities deteriorate due to ratings
downgrades or other issue specific factors.
We are also exposed to market risk related to changes in
interest rates, and we periodically enter into interest rate
swap agreements to manage our exposure to these fluctuations.
Our interest rate swap agreements involve the exchange of fixed
and variable rate interest payments between two parties, based
on common notional principal amounts and maturity dates. The
notional amounts of the swap agreements represent balances used
to calculate the exchange of cash flows and are not our assets
or liabilities. Our credit risk related to these agreements is
considered low because the swap agreements are with creditworthy
financial institutions. The interest payments under these
agreements are settled on a net basis. These derivatives have
been recognized in the financial statements at their respective
fair values. Changes in the fair value of these derivatives,
which are designated as cash flow hedges, are included in other
comprehensive income, and changes in the fair value of
derivatives which have not been designated as hedges are
recorded in operations.
With respect to our interest-bearing liabilities, approximately
$3.037 billion of long-term debt at December 31, 2010
was subject to variable rates of interest, while the remaining
balance in long-term debt of $25.188 billion at
December 31, 2010 was subject to fixed rates of interest.
Both the general level of interest rates and, for the senior
secured credit facilities, our leverage affect our variable
interest rates. Our variable debt is comprised primarily of
amounts outstanding under the senior secured credit facilities.
Borrowings under the senior secured credit facilities bear
interest at a rate equal to an applicable margin plus, at our
option, either (a) a base rate determined by reference to
the higher of (1) the federal funds rate plus 0.50% and
(2) the prime rate of Bank of America or (b) a LIBOR
rate for the currency of such borrowing for the relevant
interest period. The applicable margin for borrowings under the
senior secured credit facilities may fluctuate according to a
leverage ratio. The average effective interest rate for our
long-term debt increased from 7.6% for 2009 to 7.8% for 2010.
On March 2, 2009, we amended our $13.550 billion and
1.000 billion senior secured cash flow credit facility,
dated as of November 17, 2006, as amended February 16,
2007 (the cash flow credit facility), to allow for
one or more future issuances of additional secured notes, which
may include notes that are secured on a pari passu basis
or
74
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Market
Risk (Continued)
on a junior basis with the obligations under the cash flow
credit facility, so long as (1) such notes do not require,
subject to certain exceptions, scheduled repayments, payment of
principal or redemption prior to the scheduled term loan B-1
maturity date, (2) the terms of such notes, taken as a
whole, are not more restrictive than those in the cash flow
credit facility and (3) no subsidiary of HCA Inc. that is
not a U.S. guarantor is an obligor of such additional
secured notes, and such notes are not secured by any European
collateral securing the cash flow credit facility. The
U.S. security documents related to the cash flow credit
facility were also amended and restated in connection with the
amendment in order to give effect to the security interests to
be granted to holders of such additional secured notes.
On March 2, 2009, we amended our $2.000 billion senior
secured asset-based revolving credit facility, dated as of
November 17, 2006, as amended and restated as of
June 20, 2007 (the ABL credit facility), to
allow for one or more future issuances of additional secured
notes or loans, which may include notes or loans that are
secured on a pari passu basis or on a junior basis with
the obligations under the cash flow credit facility, so long as
(1) such notes or loans do not require, subject to certain
exceptions, scheduled repayments, payment of principal or
redemption prior to the scheduled term loan B-1 maturity date,
(2) the terms of such notes or loans, as applicable, taken
as a whole, are not more restrictive than those in the cash flow
credit facility and (3) no subsidiary of HCA Inc. that is
not a U.S. guarantor is an obligor of such additional
secured notes. The amendment to the ABL credit facility also
altered the excess facility availability requirement to include
a separate minimum facility availability requirement applicable
to the ABL credit facility and increased the applicable LIBOR
and ABR margins for all borrowings under the ABL credit facility
by 0.25% each.
On June 18, 2009, the cash flow credit facility was amended
to permit the unlimited incurrence of new term loans to
refinance the term loans initially incurred as well as any
previously incurred refinancing term loans and to permit the
establishment of commitments under a replacement cash flow
revolver under the cash flow credit facility to replace all or a
portion of the revolving commitments initially established under
the cash flow credit facility as well as any previously issued
replacement revolvers. On April 6, 2010 the cash flow
credit facility was further amended to (i) extend the
maturity date for $2.0 billion of the tranche B term
loans from November 17, 2013 to March 31, 2017 and
(ii) increase the ABR margin and LIBOR margin with respect
to such extended term loans to 2.25% and 3.25%, respectively.
On November 8, 2010, an amended and restated joinder
agreement was entered into with respect to the cash flow credit
facility to establish a new replacement revolving credit series,
which will mature on November 17, 2015. The replacement
revolving credit commitments will become effective upon the
earlier of (i) our receipt of all or a portion of the
proceeds (including by way of contribution) from an initial
public offering of the common stock of HCA Inc. or its direct or
indirect parent company (the IPO Proceeds Condition)
and (ii) May 17, 2012, subject to the satisfaction of
certain other conditions. If the IPO Proceeds Condition has not
been satisfied, on May 17, 2012 or, if the IPO Proceeds
Condition has been satisfied prior to May 17, 2012, on
November 17, 2012, the applicable ABR and LIBOR margins
with respect to the replacement revolving loans will be
increased from the applicable ABR and LIBOR margins of the
existing revolving loans based upon the achievement of a certain
leverage ratio, which level will decrease from the levels of the
existing revolving loans.
The estimated fair value of our total long-term debt was
$28.738 billion at December 31, 2010. The estimates of
fair value are based upon the quoted market prices for the same
or similar issues of long-term debt with the same maturities.
Based on a hypothetical 1% increase in interest rates, the
potential annualized reduction to future pretax earnings would
be approximately $30 million. To mitigate the impact of
fluctuations in interest rates, we generally target a portion of
our debt portfolio to be maintained at fixed rates.
Our international operations and the European term loan expose
us to market risks associated with foreign currencies. In order
to mitigate the currency exposure related to debt service
obligations through December 31,
75
HCA
HOLDINGS, INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Market
Risk (Continued)
2011 under the European term loan, we have entered into cross
currency swap agreements. A cross currency swap is an agreement
between two parties to exchange a stream of principal and
interest payments in one currency for a stream of principal and
interest payments in another currency over a specified period.
Financial
Instruments
Derivative financial instruments are employed to manage risks,
including foreign currency and interest rate exposures, and are
not used for trading or speculative purposes. We recognize
derivative instruments, such as interest rate swap agreements
and foreign exchange contracts, in the consolidated balance
sheets at fair value. Changes in the fair value of derivatives
are recognized periodically either in earnings or in
stockholders equity, as a component of other comprehensive
income, depending on whether the derivative financial instrument
qualifies for hedge accounting, and if so, whether it qualifies
as a fair value hedge or a cash flow hedge. Gains and losses on
derivatives designated as cash flow hedges, to the extent they
are effective, are recorded in other comprehensive income, and
subsequently reclassified to earnings to offset the impact of
the hedged items when they occur. Changes in the fair value of
derivatives not qualifying as hedges, and for any portion of a
hedge that is ineffective, are reported in earnings.
The net interest paid or received on interest rate swaps is
recognized as interest expense. Gains and losses resulting from
the early termination of interest rate swap agreements are
deferred and amortized as adjustments to expense over the
remaining period of the debt originally covered by the
terminated swap.
Effects
of Inflation and Changing Prices
Various federal, state and local laws have been enacted that, in
certain cases, limit our ability to increase prices. Revenues
for general, acute care hospital services rendered to Medicare
patients are established under the federal governments
prospective payment system. Total
fee-for-service
Medicare revenues approximated 23.5% in 2010, 22.8% in 2009 and
23.1% in 2008 of our revenues.
Management believes hospital industry operating margins have
been, and may continue to be, under significant pressure because
of changes in payer mix and growth in operating expenses in
excess of the increase in prospective payments under the
Medicare program. In addition, as a result of increasing
regulatory and competitive pressures, our ability to maintain
operating margins through price increases to non-Medicare
patients is limited.
IRS
Disputes
At December 31, 2010, we were contesting, before the IRS
Appeals Division, certain claimed deficiencies and adjustments
proposed by the IRS Examination Division in connection with its
audit of HCA Inc.s 2005 and 2006 federal income tax
returns. The disputed items include the timing of recognition of
certain patient service revenues, the deductibility of certain
debt retirement costs and our method for calculating the tax
allowance for doubtful accounts. In addition, eight taxable
periods of HCA Inc. and its predecessors ended in 1997 through
2004, for which the primary remaining issue is the computation
of the tax allowance for doubtful accounts, were pending before
the IRS Examination Division as of December 31, 2010. The
IRS Examination Division began an audit of HCA Inc.s 2007,
2008 and 2009 federal income tax returns in December 2010.
Management believes HCA Holdings, Inc., its predecessors and
affiliates properly reported taxable income and paid taxes in
accordance with applicable laws and agreements established with
the IRS and final resolution of these disputes will not have a
material, adverse effect on our results of operations or
financial position. However, if payments due upon final
resolution of these issues exceed our recorded estimates, such
resolutions could have a material, adverse effect on our results
of operations or financial position.
76
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Information with respect to this Item is provided under the
caption Market Risk under Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Information with respect to this Item is contained in our
consolidated financial statements indicated in the Index to
Consolidated Financial Statements on
Page F-1
of this annual report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
|
|
1.
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
|
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined
under
Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act). Based on this
evaluation, our principal executive officer and our principal
financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by
this annual report.
|
|
2.
|
Internal
Control Over Financial Reporting
|
(a) Managements Report on Internal Control Over
Financial Reporting
Our management is responsible for establishing and maintaining
effective internal control over financial reporting, as such
term is defined in Exchange Act
Rule 13a-15(f).
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective, can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an assessment of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
assessment under the framework in Internal Control
Integrated Framework, our management concluded that our internal
control over financial reporting was effective as of
December 31, 2010.
Ernst & Young, LLP, the independent registered public
accounting firm that audited our consolidated financial
statements included in this
Form 10-K,
has issued a report on our internal control over financial
reporting, which is included herein.
(b) Attestation Report of the Independent Registered Public
Accounting Firm
77
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
HCA Holdings, Inc.
We have audited HCA Holdings, Inc.s internal control over
financial reporting as of December 31, 2010, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). HCA Holdings,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, HCA Holdings, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of HCA Holdings, Inc. as of
December 31, 2010 and 2009, and the related consolidated
statements of income, stockholders deficit, and cash flows
for each of the three years in the period ended
December 31, 2010 and our report dated February 17,
2011 expressed an unqualified opinion thereon.
Nashville, Tennessee
February 17, 2011
78
(c) Changes in Internal Control Over Financial Reporting
During the fourth quarter of 2010, there have been no changes in
our internal control over financial reporting that have
materially affected or are reasonably likely to materially
affect our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
Action
on Written Consent of Controlling Stockholder
On February 16, 2011, Hercules Holding II, LLC, the holder
of 91,845,692 shares, or approximately 96.8%, of the issued
and outstanding shares of capital stock of the Company, executed
a written consent approving: (1) the removal and
re-election of thirteen directors to serve as members of the
Companys Board of Directors, to hold office until their
successors are duly elected and qualified or until the earlier
of their death, resignation or removal, (2) the
Companys Amended and Restated Certificate of
Incorporation, (3) an increase in the number of authorized
shares of the Companys common stock from One Hundred
Twenty-Five Million (125,000,000) to One Billion Eight Hundred
Million (1,800,000,000), as reflected in the Companys
Amended and Restated Certificate of Incorporation, (4) the
amendment and restatement of the 2006 Stock Incentive Plan for
Key Employees of HCA Holdings, Inc. and its Affiliates, as
Amended and Restated (the 2006 Stock Incentive Plan)
and (5) HCA Inc.s Amended and Restated Certificate of
Incorporation. Pursuant to SEC rules, the foregoing consent will
become effective on or about March 9, 2011. The written
consent contemplates that the Amended and Restated Certificate
of Incorporation and the 2006 Stock Incentive Plan will be
effective immediately prior to and subject to the effectiveness
of the registration statement relating to the anticipated
initial public offering of the Companys common stock. A
notice of the foregoing stockholder action has been sent to the
holders of record of the Companys issued and outstanding
capital stock as of the close of business on the record date,
February 7, 2011.
Amendment
to Employment Agreements
Effective as of February 9, 2011, the Company entered into
amendments to employment agreements with Richard M. Bracken, R.
Milton Johnson, Samuel N. Hazen and Beverly B. Wallace
reflecting the new titles and responsibilities resulting from
the Companys internal reorganization. In addition,
Mr. Johnsons amendment reflects that he shall serve
as a member of the Board of Directors of the Company for so long
as he is an officer of the Company.
The foregoing description does not purport to be complete and is
qualified in its entirety by reference to the amendments to the
employment agreements, copies of which are filed as
Exhibits 10.29(h)-(k)
and are incorporated herein by reference.
Amendment
to the Stock Option Agreements under the 2006 Plan
On February 16, 2011, the Company entered into an Omnibus
Amendment to Stock Option Agreements Issued Under the 2006 Stock
Incentive Plan for Key Employees of HCA Holdings, Inc. and its
Affiliates, as amended and restated (the Option
Amendment).
The Amendment modifies the definition of the term Investor
Return as contained in each option agreement.
Specifically, the Option Amendment would allow the consideration
of the Fair Market Value of the HCA stock held directly or
indirectly by the Investors to be deemed cash
proceeds under the Investor Return Options with respect to
1/3
upon each of the closing of the Companys initial public
offering, December 31, 2011, and December 31, 2012. In
addition, the Amendment further clarifies how the term
Fair Market Value will be determined for the
purposes of the definition of Investor Return, which
for these purposes will refer to the average closing trading
price over the thirty days preceding each relevant year end
testing date.
The foregoing description does not purport to be complete and is
qualified in its entirety by reference to the Option Amendment,
a copy of which is filed as Exhibit 10.38 hereto and is
incorporated herein by reference.
79
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item regarding the identity and
business experience of our directors and executive officers is
set forth under the heading Action 1 Election
of Directors in the definitive information statement to be
filed in connection with our written consent of stockholders in
lieu of an annual meeting with respect to our directors and is
set forth in Item 1 of Part I of this annual report on
Form 10-K
with respect to our executive officers. The information required
by this Item contained in the definitive information statement
is incorporated herein by reference.
Information on the beneficial ownership reporting for our
directors and executive officers required by this Item is
contained under the caption Section 16(a) Beneficial
Ownership Reporting Compliance in the definitive
information statement to be filed in connection with our written
consent of stockholders in lieu of an annual meeting and is
incorporated herein by reference.
Information on our Audit and Compliance Committee and Audit
Committee Financial Experts required by this Item is contained
under the caption Corporate Governance in the
definitive information statement to be filed in connection with
our written consent of stockholders in lieu of an annual meeting
and is incorporated herein by reference.
We have a Code of Conduct which is applicable to all our
directors, officers and employees (the Code of
Conduct). The Code of Conduct is available on the Ethics
and Compliance and Corporate Governance pages of our website at
www.hcahealthcare.com. To the extent required pursuant to
applicable SEC regulations, we intend to post amendments to or
waivers from our Code of Conduct (to the extent applicable to
our chief executive officer, principal financial officer or
principal accounting officer) at this location on our website or
report the same on a Current Report on
Form 8-K.
Our Code of Conduct is available free of charge upon request to
our Corporate Secretary, HCA Holdings, Inc., One Park Plaza,
Nashville, TN 37203.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is set forth under the
headings Executive Compensation and
Compensation Committee Interlocks and Insider
Participation in the definitive information statement to
be filed in connection with our written consent of stockholders
in lieu of an annual meeting, which information is incorporated
herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information about security ownership of certain beneficial
owners required by this Item is set forth under the heading
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters in the
definitive information statement to be filed in connection with
our written consent of stockholders in lieu of an annual
meeting, which information is incorporated herein by reference.
Information about our equity compensation plans required by this
Item is set forth under the heading
Action 4 Approval of 2006 Stock Incentive
Plan for Key Employees of HCA Holdings, Inc. and its Affiliates,
as Amended and Restated in the definitive information
statement to be filed in connection with our written consent of
stockholders in lieu of an annual meeting, which information is
incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item is set forth under the
headings Certain Relationships and Related Party
Transactions and Corporate Governance in the
definitive information statement to be filed in connection with
our written consent of stockholders in lieu of an annual
meeting, which information is incorporated herein by reference.
80
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item is set forth under the
heading Principal Accountant Fees and Services in
the definitive information statement to be filed in connection
with our written consent of stockholders in lieu of an annual
meeting, which information is incorporated herein by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) Documents filed as part of the report:
1. Financial Statements. The accompanying Index to
Consolidated Financial Statements on
page F-1
of this annual report on
Form 10-K
is provided in response to this item.
2. List of Financial Statement Schedules. All
schedules are omitted because the required information is either
not present, not present in material amounts or presented within
the consolidated financial statements.
3. List of Exhibits
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2
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.1
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Agreement and Plan of Merger, dated July 24, 2006, by and
among HCA Inc., Hercules Holding II, LLC and Hercules
Acquisition Corporation (filed as Exhibit 2.1 to the
Companys Current Report on
Form 8-K
filed July 25, 2006, and incorporated herein by reference).
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2
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.2
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Merger Agreement, dated November 22, 2010, by and among HCA
Inc., HCA Holdings, Inc., and HCA Merger Sub LLC (filed as
Exhibit 2.1 to the Companys Current Report on
Form 8-K
filed November 24, 2010, and incorporated herein by
reference).
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3
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.1
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Amended and Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Companys Current Report
on Form 8-K filed November 24, 2010, and incorporated
herein by reference).
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3
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.2
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Amended and Restated Bylaws of the Company (filed as
Exhibit 3.2 to the Companys Current Report on
Form 8-K filed November 24, 2010, and incorporated
herein by reference).
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4
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.1
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Specimen Certificate for shares of Common Stock, par value $0.01
per share, of the Company. (filed as Exhibit 3 to the
Companys Form 8-A/A Amendment No. 2, filed
March 11, 2004 (file no. 001-11239), and incorporated
herein by reference).
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4
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.2
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Indenture, dated November 17, 2006, among HCA Inc., the
guarantors party thereto and The Bank of New York, as trustee
(filed as Exhibit 4.1 to the Companys Current Report
on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
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4
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.3
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Security Agreement, dated as of November 17, 2006, among
HCA Inc., the subsidiary grantors party thereto and The Bank of
New York, as collateral agent (filed as Exhibit 4.2 to the
Companys Current Report on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
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4
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.4
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Pledge Agreement, dated as of November 17, 2006, among HCA
Inc., the subsidiary pledgors party thereto and The Bank of New
York, as collateral agent (filed as Exhibit 4.3 to the
Companys Current Report of
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
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4
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.5(a)
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Form of
91/8% Senior
Secured Notes due 2014 (included in Exhibit 4.2).
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4
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.5(b)
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Form of
91/4% Senior
Secured Notes due 2016 (included in Exhibit 4.2).
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4
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.5(c)
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Form of
95/8%/103/8% Senior
Secured Toggle Notes due 2016 (included in Exhibit 4.2).
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4
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.6
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Indenture, dated February 19, 2009, among HCA Inc, the
guarantors party thereto, The Bank of New York Mellon, as
collateral agent and The Bank of New York Mellon
Trust Company, N.A., as trustee (filed as Exhibit 4.1
to the Companys Current Report on
Form 8-K
filed February 25, 2009, and incorporated herein by
reference).
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4
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.7
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Form of
97/8% Senior
Secured Notes due 2017 (included in Exhibit 4.6).
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81
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4
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.8(a)
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$13,550,000,000 1,000,000,000 Credit
Agreement, dated as of November 17, 2006, among HCA Inc.,
HCA UK Capital Limited, the lending institutions from time to
time parties thereto, Banc of America Securities LLC,
J.P. Morgan Securities Inc., Citigroup Global Markets Inc.
and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as joint lead arrangers and joint bookrunners,
Bank of America, N.A., as administrative agent, JPMorgan Chase
Bank, N.A. and Citicorp North America, Inc., as co-syndication
agents and Merrill Lynch Capital Corporation, as documentation
agent (filed as Exhibit 4.8 to the Companys Current
Report on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
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4
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.8(b)
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Amendment No. 1 to the Credit Agreement, dated as of
February 16, 2007, among HCA Inc., HCA UK Capital Limited,
the lending institutions from time to time parties thereto, Bank
of America, N.A., as administrative agent, JPMorgan Chase Bank,
N.A., and Citicorp North America, Inc., as Co-Syndication
Agents, Banc of America Securities, LLC, J.P. Morgan
Securities Inc., Citigroup Global Markets Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as joint
lead arrangers and bookrunners, Deutsche Bank Securities and
Wachovia Capital Markets LLC, as joint bookrunners and Merrill
Lynch Capital Corporation, as documentation agent (filed as
Exhibit 4.7(b) to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).
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4
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.8(c)
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Amendment No. 2 to the Credit Agreement, dated as of
March 2, 2009, among HCA Inc., HCA UK Capital Limited, the
lending institutions from time to time parties thereto, Bank of
America, N.A., as administrative agent, JPMorgan Chase Bank,
N.A., and Citicorp North America, Inc., as Co-Syndication
Agents, Banc of America Securities, LLC, J.P. Morgan
Securities Inc., Citigroup Global Markets Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as joint
lead arrangers and bookrunners, Deutsche Bank Securities and
Wachovia Capital Markets LLC, as joint bookrunners and Merrill
Lynch Capital Corporation, as documentation agent (filed as
exhibit 4.8(c) to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).
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4
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.8(d)
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Amendment No. 3 to the Credit Agreement, dated as of
June 18, 2009, among HCA Inc., HCA UK Capital Limited, the
lending institutions from time to time parties thereto, Bank of
America, N.A., as administrative agent, JPMorgan Chase Bank,
N.A., and Citicorp North America, Inc., as Co-Syndication
Agents, Banc of America Securities, LLC, J.P. Morgan
Securities Inc., Citigroup Global Markets Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as joint
lead arrangers and bookrunners, Deutsche Bank Securities and
Wachovia Capital Markets LLC, as joint bookrunners and Merrill
Lynch Capital Corporation, as documentation agent (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed June 22, 2009, and incorporated herein by reference).
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4
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.8(e)
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Extension Amendment No. 1 to the Credit Agreement, dated as
of April 6, 2010, among HCA Inc., HCA UK Capital Limited,
the lending institutions from time to time parties thereto, Bank
of America, N.A., as administrative agent and collateral agent
(filed as Exhibit 10.1 to the Companys Current Report
on
Form 8-K
filed April 8, 2010, and incorporated herein by reference).
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4
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.8(f)
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Amended and Restated Joinder Agreement No. 1, dated as of
November 8, 2010, by and among each of the financial
institutions listed as a Replacement-1 Revolving Credit
Lender on Schedule A thereto, HCA Inc., Bank of
America, N.A., as Administrative Agent and as Collateral Agent,
and the other parties listed on the signature pages thereto
(filed as Exhibit 4.1 to the Companys Quarterly
Report on
Form 10-Q
filed November 9, 2010, and incorporated herein by
reference).
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4
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.9
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U.S. Guarantee, dated November 17, 2006, among HCA Inc.,
the subsidiary guarantors party thereto and Bank of America,
N.A., as administrative agent (filed as Exhibit 4.9 to the
Companys Current Report on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
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4
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.10
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Indenture, dated as of April 22, 2009, among HCA Inc., the
guarantors party thereto, Deutsche Bank Trust Company
Americas, as paying agent, registrar and transfer agent, and Law
Debenture Trust Company of New York, as trustee (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed April 28, 2009, and incorporated herein by reference).
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4
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.11
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Security Agreement, dated as November 17, 2006, and amended
and restated as of March 2, 2009, among the Company, the
Subsidiary Grantors named therein and Bank of America, N.A., as
Collateral Agent (filed as exhibit 4.10 to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).
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4
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.12
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Pledge Agreement, dated as of November 17, 2006, and
amended and restated as of March 2, 2009, among the
Company, the Subsidiary Pledgors named therein and Bank of
America, N.A., as Collateral Agent (filed as exhibit 4.11
to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).
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4
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.13
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Form of
81/2% Senior
Secured Notes due 2019 (included in Exhibit 4.10).
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4
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.14
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Indenture, dated as of August 11, 2009, among HCA Inc., the
guarantors party thereto, Deutsche Bank Trust Company
Americas, as paying agent, registrar and transfer agent, and Law
Debenture Trust Company of New York, as trustee (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed August 17, 2009, and incorporated herein by
reference).
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4
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.15
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Form of
77/8% Senior
Secured Notes due 2020 (included in Exhibit 4.14).
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4
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.16
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Indenture, dated as of March 10, 2010, among HCA Inc., the
guarantors party thereto, Deutsche Bank Trust Company
Americas, as paying agent, registrar and transfer agent, and Law
Debenture Trust Company of New York, as trustee (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed March 12, 2010, and incorporated herein by reference).
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4
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.17
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Form of
71/4% Senior
Secured Notes due 2020 (included in Exhibit 4.16).
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4
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.18(a)
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$2,000,000,000 Amended and Restated Credit Agreement, dated as
of June 20, 2007, among HCA Inc., the subsidiary borrowers
parties thereto, the lending institutions from time to time
parties thereto, Banc of America Securities LLC,
J.P. Morgan Securities Inc., Citigroup Global Markets Inc.
and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as joint lead arrangers and joint bookrunners,
Bank of America, N.A., as administrative agent, JPMorgan Chase
Bank, N.A. and Citicorp North America, Inc., as co-syndication
agents, and Merrill Lynch Capital Corporation, as documentation
agent (filed as Exhibit 4.1 to the Companys Current
Report on
Form 8-K
filed June 26, 2007, and incorporated herein by reference).
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4
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.18(b)
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Amendment No. 1 to the $2,000,000,000 Amended and Restated
Credit Agreement, dated as of March 2, 2009, among HCA
Inc., the subsidiary borrowers parties thereto, the lending
institutions from time to time parties thereto, Banc of America
Securities LLC, J.P. Morgan Securities Inc., Citigroup
Global Markets Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as joint lead arrangers
and joint bookrunners, Bank of America, N.A., as administrative
agent, JPMorgan Chase Bank, N.A. and Citicorp North America,
Inc., as co-syndication agents, and Merrill Lynch Capital
Corporation, as documentation agent (filed as
exhibit 4.12(b) to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).
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4
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.19
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Security Agreement, dated as of November 17, 2006, among
HCA Inc., the subsidiary borrowers party thereto and Bank of
America, N.A., as collateral agent (filed as Exhibit 4.13
to the Companys Current Report on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
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4
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.20(a)
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General Intercreditor Agreement, dated as of November 17,
2006, between Bank of America, N.A., as First Lien Collateral
Agent, and The Bank of New York, as Junior Lien Collateral Agent
(filed as Exhibit 4.13(a) to the Companys
Registration Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
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.20(b)
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Additional General Intercreditor Agreement, dated as of
April 22, 2009, by and among Bank of America, N.A., in its
capacity as First Lien Collateral Agent, The Bank of New York
Mellon, in its capacity as Junior Lien Collateral Agent and in
its capacity as 2006 Second Lien Trustee and The Bank of New
York Mellon Trust Company, N.A., in its capacity as 2009
Second Lien Trustee (filed as Exhibit 4.6 to the
Companys Current Report on
Form 8-K
filed April 28, 2009, and incorporated herein by reference).
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4
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.20(c)
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Additional General Intercreditor Agreement, dated as of
August 11, 2009, by and among Bank of America, N.A., in its
capacity as First Lien Collateral Agent, The Bank of New York
Mellon, in its capacity as Junior Lien Collateral Agent and in
its capacity as trustee for the Second Lien Notes issued on
November 17, 2006, and The Bank of New York Mellon
Trust Company, N.A., in its capacity as trustee for the
Second Lien Notes issued on February 19, 2009 (filed as
Exhibit 4.6 to the Companys Current Report on
Form 8-K
filed August 17, 2009, and incorporated herein by
reference).
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4
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.20(d)
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Receivables Intercreditor Agreement, dated as of
November 17, 2006, among Bank of America, N.A., as ABL
Collateral Agent, Bank of America, N.A., as CF Collateral Agent
and The Bank of New York, as Bonds Collateral Agent (filed as
Exhibit 4.13(b) to the Companys Registration
Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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83
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4
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.20(e)
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Additional Receivables Intercreditor Agreement, dated as of
April 22, 2009, by and between Bank of America, N.A. as ABL
Collateral Agent, and Bank of America, N.A. as New First Lien
Collateral Agent (filed as Exhibit 4.7 to the
Companys Current Report on
Form 8-K
filed April 28, 2009, and incorporated herein by reference).
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4
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.20(f)
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Additional Receivables Intercreditor Agreement, dated as of
August 11, 2009, by and between Bank of America, N.A., as
ABL Collateral Agent, and Bank of America, N.A., as New First
Lien Collateral Agent (filed as Exhibit 4.7 to the
Companys Current Report on
Form 8-K
filed August 17, 2009, and incorporated herein by
reference).
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4
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.20(g)
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First Lien Intercreditor Agreement, dated as of April 22,
2009, among Bank of America, N.A. as Collateral Agent, Bank of
America, N.A. as Authorized Representative under the Credit
Agreement and Law Debenture Trust Company of New York as
the Initial Additional Authorized Representative (filed as
Exhibit 4.5 to the Companys Current Report on
Form 8-K
filed April 28, 2009, and incorporated herein by reference).
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4
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.21
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Registration Rights Agreement, dated as of November 22,
2010, among HCA Holdings, Inc., Hercules Holding II, LLC and
certain other parties thereto (filed as Exhibit 4.4 to the
Companys Current Report on
Form 8-K
filed November 24, 2010, and incorporated herein by
reference).
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4
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.22
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Registration Rights Agreement, dated as of March 16, 1989,
by and among HCA-Hospital Corporation of America and the persons
listed on the signature pages thereto (filed as
Exhibit 4.14 to the Companys Registration Statement
on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
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.23
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Assignment and Assumption Agreement, dated as of
February 10, 1994, between HCA-Hospital Corporation of
America and the Company relating to the Registration Rights
Agreement, as amended (filed as Exhibit 4.15 to the
Companys Registration Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
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.24(a)
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Indenture, dated as of December 16, 1993 between the
Company and The First National Bank of Chicago, as Trustee
(filed as Exhibit 4.16(a) to the Companys
Registration Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
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.24(b)
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First Supplemental Indenture, dated as of May 25, 2000
between the Company and Bank One Trust Company, N.A., as
Trustee (filed as Exhibit 4.16(b) to the Companys
Registration Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
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.24(c)
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Second Supplemental Indenture, dated as of July 1, 2001
between the Company and Bank One Trust Company, N.A., as
Trustee (filed as Exhibit 4.16(c) to the Companys
Registration Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
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.24(d)
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Third Supplemental Indenture, dated as of December 5, 2001
between the Company and The Bank of New York, as Trustee (filed
as Exhibit 4.16(d) to the Companys Registration
Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
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.24(e)
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Fourth Supplemental Indenture, dated as of November 14,
2006, between the Company and The Bank of New York, as Trustee
(filed as Exhibit 4.1 to the Companys Current Report
on
Form 8-K
filed November 16, 2006, and incorporated herein by
reference).
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4
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.25
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Form of 7.5% Debentures due 2023 (filed as
Exhibit 4.17 to the Companys Registration Statement
on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
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.26
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Form of 8.36% Debenture due 2024 (filed as
Exhibit 4.18 to the Companys Registration Statement
on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
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.27
|
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Form of Fixed Rate Global Medium-Term Note (filed as
Exhibit 4.19 to the Companys Registration Statement
on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
|
.28
|
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Form of Floating Rate Global Medium-Term Note (filed as
Exhibit 4.20 to the Companys Registration Statement
on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
|
.29
|
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Form of 7.69% Note due 2025 (filed as Exhibit 4.10 to
the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2004 (File
No. 001-11239),
and incorporated herein by reference).
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4
|
.30
|
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Form of 7.19% Debenture due 2015 (filed as
Exhibit 4.22 to the Companys Registration Statement
on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
|
.31
|
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Form of 7.50% Debenture due 2095 (filed as
Exhibit 4.23 to the Companys Registration Statement
on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
|
84
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4
|
.32
|
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Form of 7.05% Debenture due 2027 (filed as
Exhibit 4.24 to the Companys Registration Statement
on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
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4
|
.33(a)
|
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77/8% Note
in the principal amount of $100,000,000 due 2011 (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed January 31, 2001 (File
No. 001-11239),
and incorporated herein by reference).
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4
|
.33(b)
|
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77/8% Note
in the principal amount of $400,000,000 due 2011 (filed as
Exhibit 4.2 to the Companys Current Report on
Form 8-K
filed January 31, 2001 (File
No. 001-11239),
and incorporated herein by reference).
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4
|
.34(a)
|
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6.95% Note due 2012 in the principal amount of $400,000,000
(filed as Exhibit 4.29(a) to the Companys
Registration Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
|
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4
|
.34(b)
|
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6.95% Note due 2012 in the principal amount of $100,000,000
(filed as Exhibit 4.29(b) to the Companys
Registration Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
|
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4
|
.35(a)
|
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6.30% Note due 2012 in the principal amount of $400,000,000
(filed as Exhibit 4.1 to the Companys Current Report
on
Form 8-K
dated September 18, 2002 (File
No. 001-11239),
and incorporated herein by reference).
|
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4
|
.35(b)
|
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6.30% Note due 2012 in the principal amount of $100,000,000
(filed as Exhibit 4.2 to the Companys Current Report
on
Form 8-K
dated September 18, 2002 (File
No. 001-11239),
and incorporated herein by reference).
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4
|
.36(a)
|
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6.25% Note due 2013 in the principal amount of $400,000,000
(filed as Exhibit 4.1 to the Companys Current Report
on
Form 8-K
dated February 5, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
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4
|
.36(b)
|
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|
|
63/4% Note
due 2013 in the principal amount of $100,000,000 (filed as
Exhibit 4.2 to the Companys Current Report on
Form 8-K
dated February 5, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
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4
|
.37(a)
|
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|
|
63/4% Note
due 2013 in the principal amount of $400,000,000 (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
dated July 23, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
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4
|
.37(b)
|
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63/4% Note
due 2013 in the principal amount of $100,000,000 (filed as
Exhibit 4.2 to the Companys Current Report on
Form 8-K
dated July 23, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
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4
|
.38
|
|
|
|
7.50% Note due 2033 in the principal amount of $250,000,000
(filed as Exhibit 4.2 to the Companys Current Report
on
Form 8-K
dated November 6, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
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4
|
.39
|
|
|
|
5.75% Note due 2014 in the principal amount of $500,000,000
(filed as Exhibit 4.1 to the Companys Current Report
on
Form 8-K
dated March 8, 2004 (File
No. 001-11239),
and incorporated herein by reference).
|
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4
|
.40(a)
|
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|
|
6.375% Note due 2015 in the principal amount of
$500,000,000 (filed as Exhibit 4.2 to the Companys
Current Report on
Form 8-K
dated November 16, 2004 (File
No. 001-11239),
and incorporated herein by reference).
|
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4
|
.40(b)
|
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|
|
6.375% Note due 2015 in the principal amount of
$250,000,000 (filed as Exhibit 4.3 to the Companys
Current Report on
Form 8-K
dated November 16, 2004 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.41(a)
|
|
|
|
6.500% Note due 2016 in the principal amount of
$500,000,000 (filed as Exhibit 4.1 to the Companys
Current Report on
Form 8-K
filed on February 8, 2006, and incorporated herein by
reference).
|
|
4
|
.41(b)
|
|
|
|
6.500% Note due 2016 in the principal amount of $500,000,000
(filed as Exhibit 4.2 to the Companys Current Report
on
Form 8-K
filed on February 8, 2006, and incorporated herein by
reference).
|
|
4
|
.42
|
|
|
|
Indenture, dated as of November 23, 2010, among HCA
Holdings, Inc., Deutsche Bank Trust Company Americas, as
paying agent, registrar and transfer agent, and Law Debenture
Trust Company of New York, as trustee (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed November 24, 2010, and incorporated herein by
reference).
|
85
|
|
|
|
|
|
|
|
4
|
.43
|
|
|
|
Form of
73/4% Senior
Notes due 2021 (included in Exhibit 4.43).
|
|
10
|
.1(a)
|
|
|
|
Amended and Restated Columbia/HCA Healthcare Corporation 1992
Stock and Incentive Plan (filed as Exhibit 10.7(b) to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 1998 (File
No. 001-11239),
and incorporated herein by reference).*
|
|
10
|
.1(b)
|
|
|
|
First Amendment to Amended and Restated Columbia/HCA Healthcare
Corporation 1992 Stock and Incentive Plan (filed as
Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999 (File
No. 001-11239),
and incorporated herein by reference).*
|
|
10
|
.2
|
|
|
|
HCA-Hospital Corporation of America Nonqualified Initial Option
Plan (filed as Exhibit 4.6 to the Companys
Registration Statement on
Form S-3
(File
No. 33-52379),
and incorporated herein by reference).*
|
|
10
|
.3
|
|
|
|
Form of Indemnity Agreement with certain officers and directors
(filed as Exhibit 10.3 to the Companys Registration
Statement on
Form S-4
(File
No. 333-145054)
and incorporated herein by reference).
|
|
10
|
.4
|
|
|
|
Form of Galen Health Care, Inc. 1993 Adjustment Plan (filed as
Exhibit 4.15 to the Companys Registration Statement
on
Form S-8
(File
No. 33-50147)
and incorporated herein by reference).
|
|
10
|
.5
|
|
|
|
Form of HCA-Hospital Corporation of America 1992 Stock
Compensation Plan (filed as Exhibit 4.2 to the
Companys Registration Statement on
Form S-8
(File
No. 33-52253),
and incorporated herein by reference).*
|
|
10
|
.6
|
|
|
|
Columbia/HCA Healthcare Corporation 2000 Equity Incentive Plan
(filed as Exhibit A to the Companys Proxy Statement
for the Annual Meeting of Stockholders on May 25, 2000, and
incorporated herein by reference).*
|
|
10
|
.7
|
|
|
|
Form of Non-Qualified Stock Option Award Agreement (Officers)
(filed as Exhibit 99.2 to the Companys Current Report
on
Form 8-K
dated February 2, 2005 (File
No. 001-11239),
and incorporated herein by reference).*
|
|
10
|
.8
|
|
|
|
HCA 2005 Equity Incentive Plan (filed as Exhibit B to the
Companys Proxy Statement for the Annual Meeting of
Shareholders on May 26, 2005, and incorporated herein by
reference).*
|
|
10
|
.9
|
|
|
|
Form of 2005 Non-Qualified Stock Option Agreement (Officers)
(filed as Exhibit 99.2 to the Companys Current Report
on
Form 8-K
dated October 6, 2005, and incorporated herein by
reference).*
|
|
10
|
.10
|
|
|
|
Form of 2006 Non-Qualified Stock Option Award Agreement
(Officers) (filed as Exhibit 10.2 to the Companys
Current Report on
Form 8-K
dated February 1, 2006, and incorporated herein by
reference).*
|
|
10
|
.11
|
|
|
|
2006 Stock Incentive Plan for Key Employees of HCA Inc. and its
Affiliates (filed as Exhibit 10.11 to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.12
|
|
|
|
Management Stockholders Agreement dated November 17,
2006 (filed as Exhibit 10.12 to the Companys Annual
Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).
|
|
10
|
.13
|
|
|
|
Sale Participation Agreement dated November 17, 2006 (filed
as Exhibit 10.13 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).
|
|
10
|
.14
|
|
|
|
Form of Option Rollover Agreement (filed as Exhibit 10.14
to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.15
|
|
|
|
Form of Stock Option Agreement (2007) (filed as
Exhibit 10.15 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.16
|
|
|
|
Form of Stock Option Agreement (2008) (filed as
Exhibit 10.16 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference).*
|
|
10
|
.17
|
|
|
|
Form of Stock Option Agreement (2009) (filed as
Exhibit 10.17 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).*
|
|
10
|
.18
|
|
|
|
Form of Stock Option Agreement (2010) (filed as
Exhibit 10.20 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009, and
incorporated herein by reference).*
|
86
|
|
|
|
|
|
|
|
10
|
.19
|
|
|
|
Form of 2x Time Stock Option Agreement (filed as
Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2009, and
incorporated herein by reference).
|
|
10
|
.20
|
|
|
|
Exchange and Purchase Agreement (filed as Exhibit 10.16 to
the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).
|
|
10
|
.21
|
|
|
|
Civil and Administrative Settlement Agreement, dated
December 14, 2000 between the Company, the United States
Department of Justice and others (filed as Exhibit 99.2 to
the Companys Current Report on
Form 8-K
dated December 20, 2000 (File
No. 001-11239),
and incorporated herein by reference).
|
|
10
|
.22
|
|
|
|
Plea Agreement, dated December 14, 2000 between the
Company, Columbia Homecare Group, Inc., Columbia Management
Companies, Inc. and the United States Department of Justice
(filed as Exhibit 99.3 to the Companys Current Report
on
Form 8-K
dated December 20, 2000 (File
No. 001-11239),
and incorporated herein by reference).
|
|
10
|
.23
|
|
|
|
Corporate Integrity Agreement, dated December 14, 2000
between the Company and the Office of Inspector General of the
United States Department of Health and Human Services (filed as
Exhibit 99.4 to the Companys Current Report on
Form 8-K
dated December 20, 2000 (File
No. 001-11239),
and incorporated herein by reference).
|
|
10
|
.24
|
|
|
|
Management Agreement, dated November 17, 2006, among HCA
Inc., Bain Capital Partners, LLC, Kohlberg Kravis
Roberts & Co. L.P., Dr. Thomas F. Frist, Jr.,
Patricia F. Elcan, William R. Frist and Thomas F. Frist III, and
Merrill Lynch Global Partners, Inc. (filed as Exhibit 10.20
to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).
|
|
10
|
.25
|
|
|
|
Retirement Agreement between the Company and Thomas F. Frist,
Jr., M.D. dated as of January 1, 2002 (filed as
Exhibit 10.30 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2001 (File
No. 001-11239),
and incorporated herein by reference).*
|
|
10
|
.26
|
|
|
|
Amended and Restated HCA Supplemental Executive Retirement Plan,
effective December 22, 2010, except as provided therein.*
|
|
10
|
.27
|
|
|
|
Amended and Restated HCA Restoration Plan, effective
December 22, 2010.*
|
|
10
|
.28(a)
|
|
|
|
HCA Inc.
2008-2009
Senior Officer Performance Excellence Program (filed as
Exhibit 10.27 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference).*
|
|
10
|
.28(b)
|
|
|
|
HCA Inc. Amendment No. 1 to the
2008-2009
Senior Officer Performance Excellence Program (filed as
Exhibit 10.28(b) to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).*
|
|
10
|
.29(a)
|
|
|
|
Employment Agreement dated November 16, 2006 (Richard M.
Bracken) (filed as Exhibit 10.27(b) to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.29(b)
|
|
|
|
Employment Agreement dated November 16, 2006 (R. Milton
Johnson) (filed as Exhibit 10.27(c) to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.29(c)
|
|
|
|
Employment Agreement dated November 16, 2006 (Samuel N.
Hazen) (filed as Exhibit 10.27(d) to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.29(d)
|
|
|
|
Employment Agreement dated November 16, 2006 (William P.
Rutledge) (filed as Exhibit 10.27(e) to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.29(e)
|
|
|
|
Employment Agreement dated November 16, 2006 (Beverly B.
Wallace) (filed as Exhibit 10.28(e) to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference).*
|
|
10
|
.29(f)
|
|
|
|
Amended and Restated Employment Agreement dated October 27,
2008 (Jack O. Bovender, Jr.) (filed as Exhibit 10.29(f) to
the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).*
|
|
10
|
.29(g)
|
|
|
|
Amendment to Employment Agreement effective January 1, 2009
(Richard M. Bracken) (filed as Exhibit 10.29(g) to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).*
|
87
|
|
|
|
|
|
|
|
10
|
.29(h)
|
|
|
|
Amendment No. 2 to Employment Agreement effective
February 9, 2011 (Richard M. Bracken).*
|
|
10
|
.29(i)
|
|
|
|
Amendment to Employment Agreement effective February 9,
2011 (R. Milton Johnson).*
|
|
10
|
.29(j)
|
|
|
|
Amendment to Employment Agreement effective February 9,
2011 (Samuel N. Hazen).*
|
|
10
|
.29(k)
|
|
|
|
Amendment to Employment Agreement effective February 9,
2011 (Beverly B. Wallace).*
|
|
10
|
.30
|
|
|
|
Administrative Settlement Agreement dated June 25, 2003 by
and between the United States Department of Health and Human
Services, acting through the Centers for Medicare and Medicaid
Services, and the Company (filed as Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
|
10
|
.31
|
|
|
|
Civil Settlement Agreement by and among the United States of
America, acting through the United States Department of Justice
and on behalf of the Office of Inspector General of the
Department of Health and Human Services, the TRICARE Management
Activity (filed as Exhibit 10.2 to the Companys
Quarterly Report of
Form 10-Q
for the quarter ended June 30, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
|
10
|
.32
|
|
|
|
Form of Amended and Restated Limited Liability Company Agreement
of Hercules Holding II, LLC dated as of November 17, 2006,
among Hercules Holding II, LLC and certain other parties thereto
(filed as Exhibit 10.3 to the Companys Registration
Statement on
Form 8-A,
filed April 29, 2008 (File
No. 000-18406)
and incorporated herein by reference).
|
|
10
|
.33
|
|
|
|
Indemnification Priority and Information Sharing Agreement,
dated as of November 1, 2009, between HCA Inc. and certain
other parties thereto (filed as Exhibit 10.35 to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 (File
No. 001-11239),
and incorporated herein by reference).
|
|
10
|
.34
|
|
|
|
HCA Inc. 2010 Senior Officer Performance Excellence Program
(filed as Exhibit 10.1 to the Companys Current Report
on
Form 8-K
dated April 6, 2010, and incorporated herein by reference).*
|
|
10
|
.35
|
|
|
|
Form of Restricted Share Unit Agreement (Officers) (filed as
Exhibit 10.2 to the Companys Current Report on
Form 8-K
dated April 6, 2010, and incorporated herein by reference).*
|
|
10
|
.36
|
|
|
|
Assignment and Assumption Agreement, dated November 22,
2010, by and among HCA Inc., HCA Holdings, Inc. and HCA Merger
Sub LLC (filed as Exhibit 10.1 to the Companys
Current Report on
Form 8-K
filed November 24, 2010, and incorporated herein by
reference).
|
|
10
|
.37
|
|
|
|
Omnibus Amendment to Various Stock and Option Plans and the
Management Stockholders Agreement, dated November 22,
2010 (filed as Exhibit 10.2 to the Companys Current
Report on
Form 8-K
filed November 24, 2010, and incorporated herein by
reference).*
|
|
10
|
.38
|
|
|
|
Omnibus Amendment to Stock Option Agreements Issued Under the
2006 Stock Incentive Plan for Key Employees of HCA Holdings,
Inc. and its Affiliates, as amended, effective February 16,
2011.*
|
|
21
|
|
|
|
|
List of Subsidiaries.
|
|
23
|
|
|
|
|
Consent of Ernst & Young LLP.
|
|
31
|
.1
|
|
|
|
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
|
|
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
* |
|
Management compensatory plan or arrangement. |
88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HCA HOLDINGS, INC.
|
|
|
|
By:
|
/s/ Richard
M. Bracken
|
Richard M. Bracken
Chairman of the Board and
Chief Executive Officer
Dated: February 17, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Richard
M. Bracken
Richard
M. Bracken
|
|
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
|
|
February 17, 2011
|
|
|
|
|
|
/s/ R.
Milton Johnson
R.
Milton Johnson
|
|
President, Chief Financial Officer and Director (Principal
Financial Officer and Principal Accounting Officer)
|
|
February 17, 2011
|
|
|
|
|
|
/s/ Christopher
J. Birosak
Christopher
J. Birosak
|
|
Director
|
|
February 17, 2011
|
|
|
|
|
|
/s/ John
P. Connaughton
John
P. Connaughton
|
|
Director
|
|
February 17, 2011
|
|
|
|
|
|
/s/ James
D. Forbes
James
D. Forbes
|
|
Director
|
|
February 17, 2011
|
|
|
|
|
|
/s/ Kenneth
W. Freeman
Kenneth
W. Freeman
|
|
Director
|
|
February 17, 2011
|
|
|
|
|
|
/s/ Thomas
F. Frist, III
Thomas
F. Frist, III
|
|
Director
|
|
February 17, 2011
|
|
|
|
|
|
/s/ William
R. Frist
William
R. Frist
|
|
Director
|
|
February 17, 2011
|
|
|
|
|
|
/s/ Christopher
R. Gordon
Christopher
R. Gordon
|
|
Director
|
|
February 17, 2011
|
|
|
|
|
|
/s/ Michael
W. Michelson
Michael
W. Michelson
|
|
Director
|
|
February 17, 2011
|
|
|
|
|
|
/s/ James
C. Momtazee
James
C. Momtazee
|
|
Director
|
|
February 17, 2011
|
|
|
|
|
|
/s/ Stephen
G. Pagliuca
Stephen
G. Pagliuca
|
|
Director
|
|
February 17, 2011
|
|
|
|
|
|
/s/ Nathan
C. Thorne
Nathan
C. Thorne
|
|
Director
|
|
February 17, 2011
|
89
HCA
HOLDINGS, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-44
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
HCA Holdings, Inc.
We have audited the accompanying consolidated balance sheets of
HCA Holdings, Inc. as of December 31, 2010 and 2009, and
the related consolidated statements of income,
stockholders deficit, and cash flows for each of the three
years in the period ended December 31, 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of HCA Holdings, Inc. at December 31,
2010 and 2009, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2010, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), HCA
Holdings, Inc.s internal control over financial reporting
as of December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 17, 2011 expressed an
unqualified opinion thereon.
Nashville, Tennessee
February 17, 2011
F-2
HCA
HOLDINGS, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009
AND 2008
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
$
|
30,052
|
|
|
$
|
28,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
12,484
|
|
|
|
11,958
|
|
|
|
11,440
|
|
Supplies
|
|
|
4,961
|
|
|
|
4,868
|
|
|
|
4,620
|
|
Other operating expenses
|
|
|
5,004
|
|
|
|
4,724
|
|
|
|
4,554
|
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
3,276
|
|
|
|
3,409
|
|
Equity in earnings of affiliates
|
|
|
(282
|
)
|
|
|
(246
|
)
|
|
|
(223
|
)
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
1,425
|
|
|
|
1,416
|
|
Interest expense
|
|
|
2,097
|
|
|
|
1,987
|
|
|
|
2,021
|
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
15
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
43
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,452
|
|
|
|
28,050
|
|
|
|
27,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,231
|
|
|
|
2,002
|
|
|
|
1,170
|
|
Provision for income taxes
|
|
|
658
|
|
|
|
627
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,573
|
|
|
|
1,375
|
|
|
|
902
|
|
Net income attributable to noncontrolling interests
|
|
|
366
|
|
|
|
321
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
$
|
1,054
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
12.75
|
|
|
$
|
11.16
|
|
|
$
|
7.16
|
|
Diluted earnings per share
|
|
$
|
12.43
|
|
|
$
|
10.99
|
|
|
$
|
7.04
|
|
Shares used in earnings per share calculations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
94,656
|
|
|
|
94,465
|
|
|
|
94,051
|
|
Diluted
|
|
|
97,080
|
|
|
|
95,945
|
|
|
|
95,668
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
HCA
HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2010 AND 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
411
|
|
|
$
|
312
|
|
Accounts receivable, less allowance for doubtful accounts of
$3,939 and $4,860
|
|
|
3,832
|
|
|
|
3,692
|
|
Inventories
|
|
|
897
|
|
|
|
802
|
|
Deferred income taxes
|
|
|
931
|
|
|
|
1,192
|
|
Other
|
|
|
848
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,919
|
|
|
|
6,577
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,215
|
|
|
|
1,202
|
|
Buildings
|
|
|
9,438
|
|
|
|
9,108
|
|
Equipment
|
|
|
14,310
|
|
|
|
13,575
|
|
Construction in progress
|
|
|
678
|
|
|
|
784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,641
|
|
|
|
24,669
|
|
Accumulated depreciation
|
|
|
(14,289
|
)
|
|
|
(13,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
11,352
|
|
|
|
11,427
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary
|
|
|
642
|
|
|
|
1,166
|
|
Investments in and advances to affiliates
|
|
|
869
|
|
|
|
853
|
|
Goodwill
|
|
|
2,693
|
|
|
|
2,577
|
|
Deferred loan costs
|
|
|
374
|
|
|
|
418
|
|
Other
|
|
|
1,003
|
|
|
|
1,113
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,852
|
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,537
|
|
|
$
|
1,460
|
|
Accrued salaries
|
|
|
895
|
|
|
|
849
|
|
Other accrued expenses
|
|
|
1,245
|
|
|
|
1,158
|
|
Long-term debt due within one year
|
|
|
592
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,269
|
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
27,633
|
|
|
|
24,824
|
|
Professional liability risks
|
|
|
995
|
|
|
|
1,057
|
|
Income taxes and other liabilities
|
|
|
1,608
|
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
Equity securities with contingent redemption rights
|
|
|
141
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Common stock $0.01 par; authorized
125,000,000 shares 2010 and 2009; outstanding
94,885,500 shares 2010 and
94,637,400 shares 2009
|
|
|
1
|
|
|
|
1
|
|
Capital in excess of par value
|
|
|
389
|
|
|
|
226
|
|
Accumulated other comprehensive loss
|
|
|
(428
|
)
|
|
|
(450
|
)
|
Retained deficit
|
|
|
(11,888
|
)
|
|
|
(8,763
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders deficit attributable to HCA Holdings,
Inc.
|
|
|
(11,926
|
)
|
|
|
(8,986
|
)
|
Noncontrolling interests
|
|
|
1,132
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,794
|
)
|
|
|
(7,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,852
|
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
HCA
HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (Deficit) Attributable to HCA Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Common Stock
|
|
|
Capital in
|
|
|
Other
|
|
|
|
|
|
Attributable to
|
|
|
|
|
|
|
Shares
|
|
|
Par
|
|
|
Excess of
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Noncontrolling
|
|
|
|
|
|
|
(000)
|
|
|
Value
|
|
|
Par Value
|
|
|
Loss
|
|
|
Deficit
|
|
|
Interests
|
|
|
Total
|
|
|
Balances, December 31, 2007
|
|
|
94,182
|
|
|
$
|
1
|
|
|
$
|
112
|
|
|
$
|
(172
|
)
|
|
$
|
(10,479
|
)
|
|
$
|
938
|
|
|
$
|
(9,600
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
673
|
|
|
|
229
|
|
|
|
902
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(432
|
)
|
|
|
673
|
|
|
|
229
|
|
|
|
470
|
|
Share-based benefit plans
|
|
|
185
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(178
|
)
|
|
|
(178
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
6
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
94,367
|
|
|
|
1
|
|
|
|
165
|
|
|
|
(604
|
)
|
|
|
(9,817
|
)
|
|
|
995
|
|
|
|
(9,260
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,054
|
|
|
|
321
|
|
|
|
1,375
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
1,054
|
|
|
|
321
|
|
|
|
1,529
|
|
Share-based benefit plans
|
|
|
270
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330
|
)
|
|
|
(330
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
|
94,637
|
|
|
|
1
|
|
|
|
226
|
|
|
|
(450
|
)
|
|
|
(8,763
|
)
|
|
|
1,008
|
|
|
|
(7,978
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,207
|
|
|
|
366
|
|
|
|
1,573
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
1,207
|
|
|
|
366
|
|
|
|
1,595
|
|
Share-based benefit plans
|
|
|
248
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,332
|
)
|
|
|
(342
|
)
|
|
|
(4,674
|
)
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
57
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2010
|
|
|
94,885
|
|
|
$
|
1
|
|
|
$
|
389
|
|
|
$
|
(428
|
)
|
|
$
|
(11,888
|
)
|
|
$
|
1,132
|
|
|
$
|
(10,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
HCA
HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,573
|
|
|
$
|
1,375
|
|
|
$
|
902
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash from operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,789
|
)
|
|
|
(3,180
|
)
|
|
|
(3,328
|
)
|
Inventories and other assets
|
|
|
(287
|
)
|
|
|
(191
|
)
|
|
|
159
|
|
Accounts payable and accrued expenses
|
|
|
229
|
|
|
|
280
|
|
|
|
(198
|
)
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
3,276
|
|
|
|
3,409
|
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
1,425
|
|
|
|
1,416
|
|
Income taxes
|
|
|
27
|
|
|
|
(520
|
)
|
|
|
(448
|
)
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
15
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
43
|
|
|
|
64
|
|
Amortization of deferred loan costs
|
|
|
81
|
|
|
|
80
|
|
|
|
79
|
|
Share-based compensation
|
|
|
32
|
|
|
|
40
|
|
|
|
32
|
|
Pay-in-kind
interest
|
|
|
|
|
|
|
58
|
|
|
|
|
|
Other
|
|
|
31
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,085
|
|
|
|
2,747
|
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,325
|
)
|
|
|
(1,317
|
)
|
|
|
(1,600
|
)
|
Acquisition of hospitals and health care entities
|
|
|
(233
|
)
|
|
|
(61
|
)
|
|
|
(85
|
)
|
Disposal of hospitals and health care entities
|
|
|
37
|
|
|
|
41
|
|
|
|
193
|
|
Change in investments
|
|
|
472
|
|
|
|
303
|
|
|
|
21
|
|
Other
|
|
|
10
|
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,039
|
)
|
|
|
(1,035
|
)
|
|
|
(1,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
|
|
2,912
|
|
|
|
2,979
|
|
|
|
|
|
Net change in revolving bank credit facilities
|
|
|
1,889
|
|
|
|
(1,335
|
)
|
|
|
700
|
|
Repayment of long-term debt
|
|
|
(2,268
|
)
|
|
|
(3,103
|
)
|
|
|
(960
|
)
|
Distributions to noncontrolling interests
|
|
|
(342
|
)
|
|
|
(330
|
)
|
|
|
(178
|
)
|
Contributions from noncontrolling interests
|
|
|
57
|
|
|
|
|
|
|
|
|
|
Payment of debt issuance costs
|
|
|
(50
|
)
|
|
|
(70
|
)
|
|
|
|
|
Distributions to stockholders
|
|
|
(4,257
|
)
|
|
|
|
|
|
|
|
|
Income tax benefits
|
|
|
114
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,947
|
)
|
|
|
(1,865
|
)
|
|
|
(451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
99
|
|
|
|
(153
|
)
|
|
|
72
|
|
Cash and cash equivalents at beginning of period
|
|
|
312
|
|
|
|
465
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
411
|
|
|
$
|
312
|
|
|
$
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments
|
|
$
|
1,994
|
|
|
$
|
1,751
|
|
|
$
|
1,979
|
|
Income tax payments, net of refunds
|
|
$
|
517
|
|
|
$
|
1,147
|
|
|
$
|
716
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1
|
ACCOUNTING
POLICIES
|
Reporting
Entity and Corporate Reorganization
On November 17, 2006, HCA Inc. completed its merger (the
Merger) with Hercules Acquisition Corporation,
pursuant to which the Company was acquired by Hercules Holding
II, LLC (Hercules Holding), a Delaware limited
liability company owned by a private investor group comprised of
affiliates of, or funds sponsored by, Bain Capital Partners,
LLC, Kohlberg Kravis Roberts & Co., BAML Capital
Partners (formerly Merrill Lynch Global Private Equity) (each a
Sponsor), affiliates of Citigroup Inc. and Bank of
America Corporation (the Sponsor Assignees) and
affiliates of HCA founder, Dr. Thomas F. Frist Jr., (the
Frist Entities, and together with the Sponsors and
the Sponsor Assignees, the Investors), and by
members of management and certain other investors. The Merger,
the financing transactions related to the Merger and other
related transactions are collectively referred to in this annual
report as the Recapitalization. The Merger was
accounted for as a recapitalization in our financial statements,
with no adjustments to the historical basis of our assets and
liabilities. As a result of the Recapitalization, our
outstanding capital stock is owned by the Investors, certain
members of management and key employees. On April 29, 2008,
HCA Inc.s common stock was registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as
amended, thus subjecting us to the reporting requirements of
Section 13(a) of the Securities Exchange Act of 1934, as
amended (the Exchange Act). Our common stock is not
traded on a national securities exchange.
On November 22, 2010, HCA Inc. reorganized by creating a
new holding company structure (the Corporate
Reorganization). HCA Holdings, Inc. became the new parent
company, and HCA Inc. is now HCA Holdings, Inc.s
wholly-owned direct subsidiary. As part of the Corporate
Reorganization, HCA Inc.s outstanding shares of common
stock were automatically converted, on a share for share basis,
into identical shares of HCA Holdings, Inc.s common stock.
HCA Holdings, Inc.s amended and restated certificate of
incorporation, amended and restated by-laws, executive officers
and board of directors are the same as HCA Inc.s in effect
immediately prior to the Corporate Reorganization, and the
rights, privileges and interests of HCA Inc.s stockholders
remain the same with respect to HCA Holdings, Inc., as the new
holding company. Additionally, as a result of the Corporate
Reorganization, HCA Holdings, Inc. was deemed the successor
registrant to HCA Inc. under the Securities and Exchange Act of
1934, as amended, and shares of HCA Holdings, Inc.s common
stock are deemed registered under Section 12(g) of the
Exchange Act.
HCA Holdings, Inc. is a holding company whose affiliates own and
operate hospitals and related health care entities. The term
affiliates includes direct and indirect subsidiaries
of HCA Holdings, Inc. and partnerships and joint ventures in
which such subsidiaries are partners. At December 31, 2010,
these affiliates owned and operated 156 hospitals, 97
freestanding surgery centers and provided extensive outpatient
and ancillary services. Affiliates of HCA Holdings, Inc. are
also partners in joint ventures that own and operate eight
hospitals and nine freestanding surgery centers, which are
accounted for using the equity method. HCA Holdings, Inc.s
facilities are located in 20 states and England. The terms
Company, HCA, we,
our or us, as used herein and unless
otherwise stated or indicated by context, refer to HCA Inc. and
its affiliates prior to the Corporate Reorganization and to HCA
Holdings, Inc. and its affiliates after the Corporate
Reorganization. The term facilities or
hospitals refer to entities owned and operated by
affiliates of HCA and the term employees
refers to employees of affiliates of HCA.
Basis of
Presentation
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
The consolidated financial statements include all subsidiaries
and entities controlled by HCA. We generally define
control as ownership of a majority of the voting
interest of an entity. The consolidated financial statements
F-7
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Basis of
Presentation (Continued)
include entities in which we absorb a majority of the
entitys expected losses, receive a majority of the
entitys expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the
entity. Significant intercompany transactions have been
eliminated. Investments in entities we do not control, but in
which we have a substantial ownership interest and can exercise
significant influence, are accounted for using the equity method.
We have completed various acquisitions and joint venture
transactions. The accounts of these entities have been included
in our consolidated financial statements for periods subsequent
to our acquisition of controlling interests. The majority of our
expenses are cost of revenue items. Costs that could
be classified as general and administrative include our
corporate office costs, which were $178 million,
$164 million and $174 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
Revenues
Revenues consist primarily of net patient service revenues that
are recorded based upon established billing rates less
allowances for contractual adjustments. Revenues are recorded
during the period the health care services are provided, based
upon the estimated amounts due from the patients and third-party
payers. Third-party payers include federal and state agencies
(under the Medicare and Medicaid programs), managed care health
plans, commercial insurance companies and employers. Estimates
of contractual allowances under managed care health plans are
based upon the payment terms specified in the related
contractual agreements. Contractual payment terms in managed
care agreements are generally based upon predetermined rates per
diagnosis, per diem rates or discounted
fee-for-service
rates. Revenues related to uninsured patients and copayment and
deductible amounts for patients who have health care coverage
may have discounts applied (uninsured discounts and contractual
discounts). We also record a provision for doubtful accounts
(based primarily on historical collection experience) related to
these uninsured accounts to record the net self pay accounts
receivable at the estimated amounts we expect to collect. Our
revenues from our third party payers and the uninsured for the
years ended December 31, are summarized in the following
table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Ratio
|
|
|
2009
|
|
|
Ratio
|
|
|
2008
|
|
|
Ratio
|
|
|
Medicare
|
|
$
|
7,203
|
|
|
|
23.5
|
%
|
|
$
|
6,866
|
|
|
|
22.8
|
%
|
|
$
|
6,550
|
|
|
|
23.1
|
%
|
Managed Medicare
|
|
|
2,162
|
|
|
|
7.0
|
|
|
|
2,006
|
|
|
|
6.7
|
|
|
|
1,696
|
|
|
|
6.0
|
|
Medicaid
|
|
|
1,962
|
|
|
|
6.4
|
|
|
|
1,691
|
|
|
|
5.6
|
|
|
|
1,408
|
|
|
|
5.0
|
|
Managed Medicaid
|
|
|
1,165
|
|
|
|
3.8
|
|
|
|
1,113
|
|
|
|
3.7
|
|
|
|
895
|
|
|
|
3.2
|
|
Managed care and other insurers
|
|
|
15,675
|
|
|
|
51.1
|
|
|
|
15,324
|
|
|
|
51.1
|
|
|
|
14,355
|
|
|
|
50.5
|
|
International (managed care and other insurers)
|
|
|
784
|
|
|
|
2.6
|
|
|
|
702
|
|
|
|
2.3
|
|
|
|
775
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,951
|
|
|
|
94.4
|
|
|
|
27,702
|
|
|
|
92.2
|
|
|
|
25,679
|
|
|
|
90.5
|
|
Uninsured
|
|
|
1,732
|
|
|
|
5.6
|
|
|
|
2,350
|
|
|
|
7.8
|
|
|
|
2,695
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
30,683
|
|
|
|
100.0
|
%
|
|
$
|
30,052
|
|
|
|
100.0
|
%
|
|
$
|
28,374
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. As a result,
there is at least a reasonable possibility recorded estimates
will change by a material amount. Estimated reimbursement
amounts are adjusted in subsequent periods as cost reports are
prepared and filed and as final settlements are determined (in
relation to certain government programs, primarily Medicare,
this is generally referred to as the cost report
filing and settlement process). The adjustments to estimated
Medicare and Medicaid reimbursement amounts and
disproportionate-share funds, which resulted in net increases to
revenues, related primarily to cost reports filed during the
respective year were $52 million, $40 million and
$32 million in 2010,
F-8
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Revenues
(Continued)
2009 and 2008, respectively. The adjustments to estimated
reimbursement amounts, which resulted in net increases to
revenues, related primarily to cost reports filed during
previous years were $50 million, $60 million and
$35 million in 2010, 2009 and 2008, respectively.
The Emergency Medical Treatment and Active Labor Act
(EMTALA) requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals
emergency room for treatment and, if the individual is suffering
from an emergency medical condition, to either stabilize the
condition or make an appropriate transfer of the individual to a
facility able to handle the condition. The obligation to screen
and stabilize emergency medical conditions exists regardless of
an individuals ability to pay for treatment. Federal and
state laws and regulations, including but not limited to EMTALA,
require, and our commitment to providing quality patient care
encourages, us to provide services to patients who are
financially unable to pay for the health care services they
receive. Because we do not pursue collection of amounts
determined to qualify as charity care, they are not reported in
revenues. Patients treated at hospitals for nonelective care,
who have income at or below 200% of the federal poverty level,
are eligible for charity care. The federal poverty level is
established by the federal government and is based on income and
family size. We provide discounts to uninsured patients who do
not qualify for Medicaid or charity care. These discounts are
similar to those provided to many local managed care plans. In
implementing the discount policy, we first attempt to qualify
uninsured patients for Medicaid, other federal or state
assistance or charity care. If an uninsured patient does not
qualify for these programs, the uninsured discount is applied.
The revenue deductions related to uninsured accounts (charity
care and uninsured discounts) generally have the inverse impact
on the provision for doubtful accounts. To quantify the total
impact of and trends related to uninsured accounts, we believe
it is beneficial to view charity care, uninsured discounts and
the provision for doubtful accounts in combination, rather than
each separately. A summary of these amounts for the years ended
December 31, follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
Ratio
|
|
|
2009
|
|
|
Ratio
|
|
|
2008
|
|
|
Ratio
|
|
|
Charity care
|
|
$
|
2,337
|
|
|
|
24
|
%
|
|
$
|
2,151
|
|
|
|
26
|
%
|
|
$
|
1,747
|
|
|
|
25
|
%
|
Uninsured discounts
|
|
|
4,641
|
|
|
|
48
|
|
|
|
2,935
|
|
|
|
35
|
|
|
|
1,853
|
|
|
|
26
|
|
Provision for doubtful accounts
|
|
|
2,648
|
|
|
|
28
|
|
|
|
3,276
|
|
|
|
39
|
|
|
|
3,409
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total uncompensated care
|
|
$
|
9,626
|
|
|
|
100
|
%
|
|
$
|
8,362
|
|
|
|
100
|
%
|
|
$
|
7,009
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the estimated cost of total uncompensated care for
the years ended December 31, follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Gross patient charges
|
|
$
|
125,640
|
|
|
$
|
115,682
|
|
|
$
|
102,843
|
|
Patient care costs (salaries and benefits, supplies, other
operating expenses and depreciation and amortization)
|
|
|
23,870
|
|
|
|
22,975
|
|
|
|
22,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost-to-charges
ratio
|
|
|
19.0
|
%
|
|
|
19.9
|
%
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total uncompensated care
|
|
$
|
9,626
|
|
|
$
|
8,362
|
|
|
$
|
7,009
|
|
Multiplied by the
cost-to-charges
ratio
|
|
|
19.0
|
%
|
|
|
19.9
|
%
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated cost of total uncompensated care
|
|
$
|
1,829
|
|
|
$
|
1,664
|
|
|
$
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-9
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Revenues
(Continued)
The sum of charity care, uninsured discounts and the provision
for doubtful accounts, as a percentage of the sum of revenues,
uninsured discounts and charity care increased from 21.9% for
2008, to 23.8% for 2009 and to 25.6% for 2010.
The trend of the three components of uncompensated care indicate
that our decision to increase our uninsured discounts has
resulted in the provision for doubtful accounts declining from
49% of total uncompensated care for 2008 to 28% of total
uncompensated care for 2010, and uninsured discounts have
increased from 26% of total uncompensated care for 2008 to 48%
of total uncompensated care for 2010.
Cash and
Cash Equivalents
Cash and cash equivalents include highly liquid investments with
a maturity of three months or less when purchased. Our insurance
subsidiarys cash equivalent investments in excess of the
amounts required to pay estimated professional liability claims
during the next twelve months are not included in cash and cash
equivalents as these funds are not available for general
corporate purposes. Carrying values of cash and cash equivalents
approximate fair value due to the short-term nature of these
instruments.
Our cash management system provides for daily investment of
available balances and the funding of outstanding checks when
presented for payment. Outstanding, but unpresented, checks
totaling $384 million and $392 million at
December 31, 2010 and 2009, respectively, have been
included in accounts payable in the consolidated
balance sheets. Upon presentation for payment, these checks are
funded through available cash balances or our credit facility.
Accounts
Receivable
We receive payments for services rendered from federal and state
agencies (under the Medicare and Medicaid programs), managed
care health plans, commercial insurance companies, employers and
patients. We recognize that revenues and receivables from
government agencies are significant to our operations, but do
not believe there are significant credit risks associated with
these government agencies. We do not believe there are any other
significant concentrations of revenues from any particular payer
that would subject us to any significant credit risks in the
collection of our accounts receivable.
Additions to the allowance for doubtful accounts are made by
means of the provision for doubtful accounts. Accounts written
off as uncollectible are deducted from the allowance for
doubtful accounts and subsequent recoveries are added. The
amount of the provision for doubtful accounts is based upon
managements assessment of historical and expected net
collections, business and economic conditions, trends in
federal, state and private employer health care coverage and
other collection indicators. The provision for doubtful accounts
and the allowance for doubtful accounts relate to
uninsured amounts (including copayment and
deductible amounts from patients who have health care coverage)
due directly from patients. Accounts are written off when all
reasonable internal and external collection efforts have been
performed. We consider the return of an account from the
secondary external collection agency to be the culmination of
our reasonable collection efforts and the timing basis for
writing off the account balance. Writeoffs are based upon
specific identification and the writeoff process requires a
writeoff adjustment entry to the patient accounting system.
Management relies on the results of detailed reviews of
historical writeoffs and recoveries at facilities that represent
a majority of our revenues and accounts receivable (the
hindsight analysis) as a primary source of
information to utilize in estimating the collectibility of our
accounts receivable. We perform the hindsight analysis
quarterly, utilizing rolling twelve-months accounts receivable
collection and writeoff data. At December 31, 2010 and
2009, the allowance for doubtful accounts represented
approximately 93% and 94%, respectively, of the
$4.249 billion and $5.176 billion, respectively,
patient due accounts receivable balance. The patient due
accounts receivable balance represents the estimated uninsured
F-10
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Accounts
Receivable (Continued)
portion of our accounts receivable. The estimated uninsured
portion of Medicaid pending and uninsured discount pending
accounts is included in our patient due accounts receivable
balance. Days revenues in accounts receivable were 46 days,
45 days and 49 days at December 31, 2010, 2009
and 2008, respectively. Adverse changes in general economic
conditions, patient accounting service center operations, payer
mix or trends in federal or state governmental health care
coverage could affect our collection of accounts receivable,
cash flows and results of operations.
Inventories
Inventories are stated at the lower of cost
(first-in,
first-out) or market.
Property
and Equipment and Amortizable Intangibles
Depreciation expense, computed using the straight-line method,
was $1.416 billion in 2010, $1.419 billion in 2009 and
$1.412 billion in 2008. Buildings and improvements are
depreciated over estimated useful lives ranging generally from
10 to 40 years. Estimated useful lives of equipment vary
generally from four to 10 years.
Debt issuance costs are amortized based upon the terms of the
respective debt obligations. The gross carrying amount of
deferred loan costs at December 31, 2010 and 2009 was
$712 million and $689 million, respectively, and
accumulated amortization was $338 million and
$271 million, respectively. Amortization of deferred loan
costs is included in interest expense and was $81 million,
$80 million and $79 million for 2010, 2009 and 2008,
respectively.
When events, circumstances or operating results indicate the
carrying values of certain long-lived assets and related
identifiable intangible assets (excluding goodwill) expected to
be held and used, might be impaired, we prepare projections of
the undiscounted future cash flows expected to result from the
use of the assets and their eventual disposition. If the
projections indicate the recorded amounts are not expected to be
recoverable, such amounts are reduced to estimated fair value.
Fair value may be estimated based upon internal evaluations that
include quantitative analyses of revenues and cash flows,
reviews of recent sales of similar facilities and independent
appraisals.
Long-lived assets to be disposed of are reported at the lower of
their carrying amounts or fair value less costs to sell or
close. The estimates of fair value are usually based upon recent
sales of similar assets and market responses based upon
discussions with and offers received from potential buyers.
Investments
of Insurance Subsidiary
At December 31, 2010 and 2009, the investments of our
wholly-owned insurance subsidiary were classified as
available-for-sale
as defined in Accounting Standards Codification
(ASC) No. 320, Investments Debt
and Equity Securities and are recorded at fair value. The
investment securities are held for the purpose of providing the
funding source to pay professional liability claims covered by
the insurance subsidiary. We perform a quarterly assessment of
individual investment securities to determine whether declines
in market value are temporary or
other-than-temporary.
Our investment securities evaluation process involves multiple
subjective judgments, often involves estimating the outcome of
future events, and requires a significant level of professional
judgment in determining whether an impairment has occurred. We
evaluate, among other things, the financial position and near
term prospects of the issuer, conditions in the issuers
industry, liquidity of the investment, changes in the amount or
timing of expected future cash flows from the investment, and
recent downgrades of the issuer by a rating agency, to determine
if, and when, a decline in the fair value of an investment below
amortized cost is considered
other-than-temporary.
The length of time and extent to which the fair value of the
investment is less than amortized
F-11
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Investments
of Insurance Subsidiary (Continued)
cost and our ability and intent to retain the investment, to
allow for any anticipated recovery of the investments fair
value, are important components of our investment securities
evaluation process.
Goodwill
Goodwill is not amortized, but is subject to annual impairment
tests. In addition to the annual impairment review, impairment
reviews are performed whenever circumstances indicate a possible
impairment may exist. Impairment testing for goodwill is done at
the reporting unit level. Reporting units are one level below
the business segment level, and our impairment testing is
performed at the operating division or market level. We compare
the fair value of the reporting unit assets to the carrying
amount, on at least an annual basis, to determine if there is
potential impairment. If the fair value of the reporting unit
assets is less than their carrying value, we compare the fair
value of the goodwill to its carrying value. If the fair value
of the goodwill is less than its carrying value, an impairment
loss is recognized. Fair value of goodwill is estimated based
upon internal evaluations of the related long-lived assets for
each reporting unit that include quantitative analyses of
revenues and cash flows and reviews of recent sales of similar
facilities. We recognized goodwill impairments of
$14 million, $19 million and $48 million during
2010, 2009 and 2008, respectively.
During 2010, goodwill increased by $125 million related to
acquisitions, declined by $14 million related to
impairments and increased by $5 million related to foreign
currency translation and other adjustments. During 2009,
goodwill increased by $5 million related to acquisitions,
decreased by $19 million related to impairments and
increased by $11 million related to foreign currency
translation and other adjustments.
Since January 1, 2000, we have recognized total goodwill
impairments of $102 million in the aggregate. None of the
goodwill impairments related to evaluations of goodwill at the
reporting unit level, as all recognized goodwill impairments
during this period related to goodwill allocated to asset
disposal groups.
Physician
Recruiting Agreements
In order to recruit physicians to meet the needs of our
hospitals and the communities they serve, we enter into minimum
revenue guarantee arrangements to assist the recruited
physicians during the period they are relocating and
establishing their practices. A guarantor is required to
recognize, at the inception of a guarantee, a liability for the
fair value of the stand-ready obligation undertaken in issuing
the guarantee. We expense the total estimated guarantee
liability amount at the time the physician recruiting agreement
becomes effective as we are not able to justify recording a
contract-based asset based upon our analysis of the related
control, regulatory and legal considerations.
The physician recruiting liability amounts of $15 million
and $24 million at December 31, 2010 and 2009,
respectively, represent the amount of expense recognized in
excess of payments made through December 31, 2010 and 2009,
respectively. At December 31, 2010 the maximum amount we
could have to pay under all effective minimum revenue guarantees
was $48 million.
Professional
Liability Claims
Reserves for professional liability risks were
$1.262 billion and $1.322 billion at December 31,
2010 and 2009, respectively. The current portion of the
reserves, $268 million and $265 million at
December 31, 2010 and 2009, respectively, is included in
other accrued expenses in the consolidated balance
sheets. Provisions for losses related to professional liability
risks were $222 million, $211 million and
$175 million for 2010, 2009 and 2008, respectively, and are
included in other operating expenses in our
consolidated income statements. Provisions for losses related to
professional liability risks are based upon actuarially
determined estimates. Loss and loss expense
F-12
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Professional
Liability Claims (Continued)
reserves represent the estimated ultimate net cost of all
reported and unreported losses incurred through the respective
consolidated balance sheet dates. The reserves for unpaid losses
and loss expenses are estimated using individual case-basis
valuations and actuarial analyses. Those estimates are subject
to the effects of trends in loss severity and frequency. The
estimates are continually reviewed and adjustments are recorded
as experience develops or new information becomes known.
Adjustments to the estimated reserve amounts are included in
current operating results. The reserves for professional
liability risks cover approximately 2,700 and 2,600 individual
claims at December 31, 2010 and 2009, respectively, and
estimates for unreported potential claims. The time period
required to resolve these claims can vary depending upon the
jurisdiction and whether the claim is settled or litigated.
During 2010 and 2009, $243 million and $272 million,
respectively, of net payments were made for professional and
general liability claims. The estimation of the timing of
payments beyond a year can vary significantly. Although
considerable variability is inherent in professional liability
reserve estimates, we believe the reserves for losses and loss
expenses are adequate; however, there can be no assurance the
ultimate liability will not exceed our estimates.
A portion of our professional liability risks is insured through
a wholly-owned insurance subsidiary. Subject to a
$5 million per occurrence self-insured retention, our
facilities are insured by our wholly-owned insurance subsidiary
for losses up to $50 million per occurrence. The insurance
subsidiary has obtained reinsurance for professional liability
risks generally above a retention level of $15 million per
occurrence. We also maintain professional liability insurance
with unrelated commercial carriers for losses in excess of
amounts insured by our insurance subsidiary.
The obligations covered by reinsurance contracts are included in
the reserves for professional liability risks, as the insurance
subsidiary remains liable to the extent the reinsurers do not
meet their obligations under the reinsurance contracts. The
amounts receivable under the reinsurance contracts include
$11 million and $28 million at December 31, 2010
and 2009, respectively, recorded in other assets and
$3 million and $25 million at December 31, 2010
and 2009, respectively, recorded in other current
assets.
Financial
Instruments
Derivative financial instruments are employed to manage risks,
including interest rate and foreign currency exposures, and are
not used for trading or speculative purposes. We recognize
derivative instruments, such as interest rate swap agreements
and foreign exchange contracts, in the consolidated balance
sheets at fair value. Changes in the fair value of derivatives
are recognized periodically either in earnings or in
stockholders equity, as a component of other comprehensive
income (loss), depending on whether the derivative financial
instrument qualifies for hedge accounting, and if so, whether it
qualifies as a fair value hedge or a cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair
value hedges are recorded in earnings, along with the changes in
the fair value of the hedged items related to the hedged risk.
Gains and losses on derivatives designated as cash flow hedges,
to the extent they are effective, are recorded in other
comprehensive income (loss), and subsequently reclassified to
earnings to offset the impact of the forecasted transactions
when they occur. In the event the forecasted transaction to
which a cash flow hedge relates is no longer likely, the amount
in other comprehensive income (loss) is recognized in earnings
and generally the derivative is terminated. Changes in the fair
value of derivatives not qualifying as hedges, and for any
portion of a hedge that is ineffective, are reported in earnings.
The net interest paid or received on interest rate swaps is
recognized as interest expense. Gains and losses resulting from
the early termination of interest rate swap agreements are
deferred and amortized as adjustments to interest expense over
the remaining term of the debt originally covered by the
terminated swap.
F-13
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Noncontrolling
Interests in Consolidated Entities
The consolidated financial statements include all assets,
liabilities, revenues and expenses of less than 100% owned
entities that we control. Accordingly, we have recorded
noncontrolling interests in the earnings and equity of such
entities.
Related
Party Transactions Management Agreement
Affiliates of the Investors entered into a management agreement
with us pursuant to which such affiliates will provide us with
management services. Under the management agreement, the
affiliates of the Investors are entitled to receive an aggregate
annual management fee of $15 million, which amount
increases annually at a rate equal to the percentage increase in
Adjusted EBITDA (as defined in the Management Agreement) in the
applicable year compared to the preceding year, and
reimbursement of
out-of-pocket
expenses incurred in connection with the provision of services
pursuant to the agreement. The annual management fee was
$18 million for 2010 and $15 million for both 2009 and
2008. The management agreement has an initial term expiring on
December 31, 2016, provided that the term will be extended
annually for one additional year unless we or the Investors
provide notice to the other of their desire not to automatically
extend the term. In addition, the management agreement provides
that the affiliates of the Investors are entitled to receive a
fee equal to 1% of the gross transaction value in connection
with certain financing, acquisition, disposition, and change of
control transactions, as well as a termination fee based on the
net present value of future payment obligations under the
management agreement in the event of an initial public offering
or under certain other circumstances. The agreement also
contains customary exculpation and indemnification provisions in
favor of the Investors and their affiliates.
|
|
NOTE 2
|
SHARE-BASED
COMPENSATION
|
Certain management holders of outstanding HCA stock options
retained certain of their stock options (the Rollover
Options) in lieu of receiving the Merger consideration.
The Rollover Options remain outstanding in accordance with the
terms of the governing stock incentive plans and grant
agreements pursuant to which the holder originally received the
stock option grants, except the exercise price and number of
shares subject to the rollover option agreement were adjusted so
that the aggregate intrinsic value for each applicable option
holder was maintained and the exercise price for substantially
all the options was adjusted to $12.75 per option. Pursuant to
the rollover option agreement, 10,967,500 prerecapitalization
HCA stock options were converted into 2,285,200 Rollover
Options, of which 1,021,900 are outstanding and exercisable at
December 31, 2010.
2006
Stock Incentive Plan
The 2006 Stock Incentive Plan for Key Employees of HCA Holdings
Inc. and its Affiliates (the 2006 Plan) is designed
to promote the long term financial interests and growth of the
Company and its subsidiaries by attracting and retaining
management and other personnel and key service providers and to
motivate management personnel by means of incentives to achieve
long range goals and further the alignment of interests of
participants with those of our stockholders through
opportunities for increased stock, or stock-based, ownership in
the Company. A portion of the options under the 2006 Plan vests
solely based upon continued employment over a specific period of
time, and a portion of the options vests based both upon
continued employment over a specific period of time and upon the
achievement of predetermined financial and Investor return
targets over time. We granted 214,100 and 1,785,900 options
under the 2006 Plan during 2010 and 2009, respectively. As of
December 31, 2010, 4,495,400 options granted under the 2006
Plan have vested, of which 4,269,800 are outstanding and
exercisable, and there were 329,700 shares available for
future grants under the 2006 Plan.
F-14
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2
|
SHARE-BASED
COMPENSATION (Continued)
|
Stock
Option Activity
The fair value of each stock option award is estimated on the
grant date, using option valuation models and the weighted
average assumptions indicated in the following table. Awards
under the 2006 Plan generally vest based on continued employment
and based upon achievement of certain financial and Investor
return targets. Each grant is valued as a single award with an
expected term equal to the average expected term of the
component vesting tranches. We use historical option exercise
behavior data and other factors to estimate the expected term of
the options. The expected term of the option is limited by the
contractual term, and employee post-vesting termination behavior
is incorporated in the historical option exercise behavior data.
Compensation cost is recognized on the straight-line attribution
method. The straight-line attribution method requires that total
compensation expense recognized must at least equal the vested
portion of the grant-date fair value. The expected volatility is
derived using historical stock price information of certain peer
group companies for a period of time equal to the expected
option term. The risk-free interest rate is the approximate
yield on United States Treasury Strips having a life equal to
the expected option life on the date of grant. The expected life
is an estimate of the number of years an option will be held
before it is exercised.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Risk-free interest rate
|
|
|
2.07
|
%
|
|
|
1.45
|
%
|
|
|
2.50
|
%
|
Expected volatility
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
30
|
%
|
Expected life, in years
|
|
|
5
|
|
|
|
5
|
|
|
|
4
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Information regarding stock option activity during 2010, 2009
and 2008 is summarized below (share amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic Value
|
|
|
|
Options
|
|
|
Price
|
|
|
Contractual Term
|
|
|
(dollars in millions)
|
|
|
Options outstanding, December 31, 2007
|
|
|
11,172
|
|
|
$
|
43.54
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
357
|
|
|
|
58.21
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(480
|
)
|
|
|
15.01
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(412
|
)
|
|
|
51.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2008
|
|
|
10,637
|
|
|
|
45.02
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,786
|
|
|
|
88.74
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(506
|
)
|
|
|
17.16
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(390
|
)
|
|
|
52.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2009
|
|
|
11,527
|
|
|
|
52.78
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
214
|
|
|
|
70.87
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(383
|
)
|
|
|
18.30
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(140
|
)
|
|
|
35.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2010
|
|
|
11,218
|
|
|
|
38.64
|
|
|
|
6.3 years
|
|
|
$
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, December 31, 2010
|
|
|
5,292
|
|
|
$
|
51.12
|
|
|
|
6.0 years
|
|
|
$
|
281
|
|
During 2010, our Board of Directors declared three distributions
to the Companys stockholders and holders of stock options.
The distributions totaled $42.50 per share and vested stock
option. Pursuant to the terms of our stock option plans, the
holders of nonvested stock options received $42.50 per share
reductions (subject to certain tax
F-15
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2
|
SHARE-BASED
COMPENSATION (Continued)
|
Stock
Option Activity (Continued)
related limitations for certain stock options that resulted in
deferred distributions for a portion of the declared
distribution, which will be paid upon the vesting of the
applicable stock options) to the exercise price of the
share-based awards.
The weighted average fair values of stock options granted during
2010, 2009 and 2008 were $32.13, $15.96 and $14.01 per share,
respectively. The total intrinsic value of stock options
exercised in the year ended December 31, 2010 was
$32 million. As of December 31, 2010, the unrecognized
compensation cost related to nonvested awards was
$44 million.
|
|
NOTE 3
|
ACQUISITIONS
AND DISPOSITIONS
|
During 2010, we paid $163 million to acquire two hospitals
and $70 million to acquire other health care entities.
During 2009, we paid $61 million to acquire nonhospital
health care entities. During 2008, we paid $18 million to
acquire one hospital and $67 million to acquire other
health care entities. Purchase price amounts have been allocated
to the related assets acquired and liabilities assumed based
upon their respective fair values. The purchase price paid in
excess of the fair value of identifiable net assets of acquired
entities aggregated $125 million, $5 million and
$43 million in 2010, 2009 and 2008, respectively. The
consolidated financial statements include the accounts and
operations of the acquired entities subsequent to the respective
acquisition dates. The pro forma effects of the acquired
entities on our results of operations for periods prior to the
respective acquisition dates were not significant.
During 2010, we received proceeds of $37 million and
recognized a net pretax gain of $4 million ($2 million
after tax) from sales of nonhospital health care entities and
real estate investments. During 2009, we received proceeds of
$3 million and recognized a net pretax loss of
$8 million ($5 million after tax) on the sales of
three hospitals. We also received proceeds of $38 million
and recognized a net pretax loss of $7 million
($4 million after tax) from sales of other health care
entities and real estate investments. During 2008, we received
proceeds of $143 million and recognized a net pretax gain
of $81 million ($48 million after tax) from the sales
of two hospitals. We also received proceeds of $50 million
and recognized a net pretax gain of $16 million
($10 million after tax) from sales of other health care
entities and real estate investments.
|
|
NOTE 4
|
IMPAIRMENTS
OF LONG-LIVED ASSETS
|
During 2010, we recorded pretax charges of $123 million to
reduce the carrying value of identified assets to estimated fair
value. The $123 million asset impairment includes
$57 million related to a hospital facility in our Central
Group, $5 million related to other health care entity
investments in our Eastern Group, $17 million related to a
hospital facility in our Western Group and $44 million
related to Corporate and other, which includes $35 million
for the writeoff of capitalized engineering and design costs
related to certain building safety requirements (California
earthquake standards) that have been revised. During 2009, we
recorded pretax charges of $43 million to reduce the
carrying value of identified assets to estimated fair value. The
$43 million asset impairment includes $15 million
related to certain hospital facilities and other health care
entity investments in our Central Group, $14 million
related to other health care entity investments in our Eastern
Group and $14 million related to certain hospital
facilities in our Western Group. During 2008, we recorded pretax
charges of $64 million to reduce the carrying value of
identified assets to estimated fair value. The $64 million
asset impairment includes $55 million related to other
health care entity investments in our Eastern Group and
$9 million related to certain hospital facilities in our
Central Group.
The asset impairment charges did not have a significant impact
on our operations or cash flows and are not expected to
significantly impact cash flows for future periods. The
impairment charges affected our property and equipment asset
category by $109 million, $24 million and
$16 million in 2010, 2009 and 2008, respectively.
F-16
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for income taxes consists of the following
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
401
|
|
|
$
|
809
|
|
|
$
|
699
|
|
State
|
|
|
26
|
|
|
|
75
|
|
|
|
56
|
|
Foreign
|
|
|
33
|
|
|
|
21
|
|
|
|
25
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
161
|
|
|
|
(274
|
)
|
|
|
(505
|
)
|
State
|
|
|
17
|
|
|
|
(37
|
)
|
|
|
(29
|
)
|
Foreign
|
|
|
20
|
|
|
|
33
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
658
|
|
|
$
|
627
|
|
|
$
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes reflects $69 million,
$18 million and $20 million ($44 million,
$12 million and $12 million net of tax, respectively)
reductions in interest related to taxing authority examinations
for the years ended December 31, 2010, 2009 and 2008,
respectively.
A reconciliation of the federal statutory rate to the effective
income tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
2.7
|
|
|
|
3.2
|
|
|
|
3.7
|
|
Change in liability for uncertain tax positions
|
|
|
0.3
|
|
|
|
(0.2
|
)
|
|
|
(7.4
|
)
|
Nondeductible intangible assets
|
|
|
|
|
|
|
0.4
|
|
|
|
0.4
|
|
Tax exempt interest income
|
|
|
(0.4
|
)
|
|
|
(0.8
|
)
|
|
|
(2.5
|
)
|
Income attributable to noncontrolling interests from
consolidated partnerships
|
|
|
(5.8
|
)
|
|
|
(6.0
|
)
|
|
|
(5.6
|
)
|
Other items, net
|
|
|
(2.3
|
)
|
|
|
(0.3
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
29.5
|
%
|
|
|
31.3
|
%
|
|
|
22.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of a settlement reached with the Appeals Division of
the Internal Revenue Service (the IRS) and the
revision of a proposed IRS adjustment related to prior taxable
years, we reduced our provision for income taxes by
$69 million in 2008.
A summary of the items comprising the deferred tax assets and
liabilities at December 31 follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Depreciation and fixed asset basis differences
|
|
$
|
|
|
|
$
|
211
|
|
|
$
|
|
|
|
$
|
258
|
|
Allowances for professional liability and other risks
|
|
|
329
|
|
|
|
|
|
|
|
288
|
|
|
|
|
|
Accounts receivable
|
|
|
1,011
|
|
|
|
|
|
|
|
1,453
|
|
|
|
|
|
Compensation
|
|
|
202
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
Other
|
|
|
776
|
|
|
|
400
|
|
|
|
740
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,318
|
|
|
$
|
611
|
|
|
$
|
2,671
|
|
|
$
|
594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 5
|
INCOME
TAXES (Continued)
|
At December 31, 2010, state net operating loss
carryforwards (expiring in years 2011 through
2030) available to offset future taxable income
approximated $65 million. Utilization of net operating loss
carryforwards in any one year may be limited and, in certain
cases, result in an adjustment to intangible assets. Net
deferred tax assets related to such carryforwards are not
significant.
At December 31, 2010, we were contesting, before the IRS
Appeals Division, certain claimed deficiencies and adjustments
proposed by the IRS Examination Division in connection with its
audit of HCA Inc.s 2005 and 2006 federal income tax
returns. The disputed items include the timing of recognition of
certain patient service revenues, the deductibility of certain
debt retirement costs and our method for calculating the tax
allowance for doubtful accounts. In addition, eight taxable
periods of HCA Inc. and its predecessors ended in 1997 through
2004, for which the primary remaining issue is the computation
of the tax allowance for doubtful accounts, were pending before
the IRS Examination Division as of December 31, 2010. The
IRS Examination Division began an audit of HCA Inc.s 2007,
2008 and 2009 federal income tax returns in December 2010.
The following table summarizes the activity related to our
unrecognized tax benefits (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance at January 1
|
|
$
|
485
|
|
|
$
|
482
|
|
Additions (reductions) based on tax positions related to the
current year
|
|
|
(18
|
)
|
|
|
44
|
|
Additions for tax positions of prior years
|
|
|
61
|
|
|
|
11
|
|
Reductions for tax positions of prior years
|
|
|
(78
|
)
|
|
|
(33
|
)
|
Settlements
|
|
|
(134
|
)
|
|
|
(8
|
)
|
Lapse of applicable statutes of limitations
|
|
|
(3
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
313
|
|
|
$
|
485
|
|
|
|
|
|
|
|
|
|
|
During 2010, we finalized settlements with the Appeals Division
of the IRS resolving the deductibility of our 2003 government
settlement payment, the timing of certain patient service
revenues for 2003 and 2004 and the method for calculating the
tax allowance for doubtful accounts for certain affiliated
partnerships for 2003 and 2004.
Our liability for unrecognized tax benefits was
$413 million, including accrued interest of
$115 million and excluding $15 million that was
recorded as reductions of the related deferred tax assets, as of
December 31, 2010 ($628 million, $156 million and
$13 million, respectively, as of December 31, 2009).
Unrecognized tax benefits of $190 million
($236 million as of December 31, 2009) would
affect the effective rate, if recognized. The liability for
unrecognized tax benefits does not reflect deferred tax assets
of $63 million ($77 million as of December 31,
2009) related to deductible interest and state income taxes
or a refundable deposit of $82 million ($104 million
as of December 31, 2009), which is recorded in noncurrent
assets.
Depending on the resolution of the IRS disputes, the completion
of examinations by federal, state or international taxing
authorities, or the expiration of statutes of limitation for
specific taxing jurisdictions, we believe it is reasonably
possible that our liability for unrecognized tax benefits may
significantly increase or decrease within the next
12 months. However, we are currently unable to estimate the
range of any possible change.
|
|
NOTE 6
|
EARNINGS PER SHARE
|
We compute basic earnings per share using the weighted average
number of common shares outstanding. We compute diluted earnings
per share using the weighted average number of common shares
outstanding plus the dilutive effect of outstanding stock
options, computed using the treasury stock method. The following
table sets
F-18
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 6
|
EARNINGS PER SHARE (Continued)
|
forth the computations of basic and diluted earnings per share
for the years ended December 31, 2010, 2009 and 2008
(dollars in millions, except per share amounts, and shares in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
$
|
1,054
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
94,656
|
|
|
|
94,465
|
|
|
|
94,051
|
|
Effect of dilutive stock options
|
|
|
2,424
|
|
|
|
1,480
|
|
|
|
1,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used for diluted earnings per share
|
|
|
97,080
|
|
|
|
95,945
|
|
|
|
95,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
12.75
|
|
|
$
|
11.16
|
|
|
$
|
7.16
|
|
Diluted earnings per share
|
|
$
|
12.43
|
|
|
$
|
10.99
|
|
|
$
|
7.04
|
|
|
|
NOTE 7
|
INVESTMENTS
OF INSURANCE SUBSIDIARY
|
A summary of the insurance subsidiarys investments at
December 31 follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Amounts
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
312
|
|
|
$
|
12
|
|
|
$
|
(1
|
)
|
|
$
|
323
|
|
Auction rate securities
|
|
|
251
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
250
|
|
Asset-backed securities
|
|
|
26
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
26
|
|
Money market funds
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
724
|
|
|
|
13
|
|
|
|
(3
|
)
|
|
|
734
|
|
Equity securities
|
|
|
8
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
732
|
|
|
$
|
14
|
|
|
$
|
(4
|
)
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts classified as current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Amounts
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
668
|
|
|
$
|
30
|
|
|
$
|
(3
|
)
|
|
$
|
695
|
|
Auction rate securities
|
|
|
401
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
396
|
|
Asset-backed securities
|
|
|
43
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
42
|
|
Money market funds
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,288
|
|
|
|
30
|
|
|
|
(9
|
)
|
|
|
1,309
|
|
Equity securities
|
|
|
8
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,296
|
|
|
$
|
31
|
|
|
$
|
(11
|
)
|
|
|
1,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts classified as current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment carrying value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7
|
INVESTMENTS
OF INSURANCE SUBSIDIARY (Continued)
|
At December 31, 2010 and 2009 the investments of our
insurance subsidiary were classified as
available-for-sale.
During 2010, investments in debt securities were reduced as a
result of the insurance subsidiary distributing
$500 million of excess capital to the Company. Changes in
temporary unrealized gains and losses are recorded as
adjustments to other comprehensive income (loss). At
December 31, 2010 and 2009, $92 million and
$100 million, respectively, of our investments were subject
to the restrictions included in insurance bond collateralization
and assumed reinsurance contracts.
Scheduled maturities of investments in debt securities at
December 31, 2010 were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Due in one year or less
|
|
$
|
148
|
|
|
$
|
148
|
|
Due after one year through five years
|
|
|
166
|
|
|
|
173
|
|
Due after five years through ten years
|
|
|
117
|
|
|
|
120
|
|
Due after ten years
|
|
|
16
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447
|
|
|
|
458
|
|
Auction rate securities
|
|
|
251
|
|
|
|
250
|
|
Asset-backed securities
|
|
|
26
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
724
|
|
|
$
|
734
|
|
|
|
|
|
|
|
|
|
|
The average expected maturity of the investments in debt
securities at December 31, 2010 was 2.9 years,
compared to the average scheduled maturity of 11.4 years.
Expected and scheduled maturities may differ because the issuers
of certain securities have the right to call, prepay or
otherwise redeem such obligations prior to their scheduled
maturity date. The average expected maturities for our auction
rate and asset-backed securities were derived from valuation
models of expected cash flows and involved managements
judgment. The average expected maturities for our auction rate
and asset-backed securities at December 31, 2010 were
4.1 years and 5.6 years, respectively, compared to
average scheduled maturities of 24.1 years and
25.6 years, respectively.
The cost of securities sold is based on the specific
identification method. Sales of securities for the years ended
December 31 are summarized below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds
|
|
$
|
329
|
|
|
$
|
141
|
|
|
$
|
23
|
|
Gross realized gains
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Gross realized losses
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash proceeds
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
4
|
|
Gross realized gains
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
Gross realized losses
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
NOTE 8
|
FINANCIAL
INSTRUMENTS
|
Interest
Rate Swap Agreements
We have entered into interest rate swap agreements to manage our
exposure to fluctuations in interest rates. These swap
agreements involve the exchange of fixed and variable rate
interest payments between two parties based
F-20
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 8
|
FINANCIAL
INSTRUMENTS (Continued)
|
Interest
Rate Swap Agreements (Continued)
on common notional principal amounts and maturity dates.
Pay-fixed interest rate swaps effectively convert LIBOR indexed
variable rate obligations to fixed interest rate obligations.
Pay-variable interest rate swaps effectively convert fixed
interest rate obligations to LIBOR indexed variable rate
obligations. The interest payments under these agreements are
settled on a net basis. The net interest payments, based on the
notional amounts in these agreements, generally match the timing
of the related liabilities, for the interest rate swap
agreements which have been designated as cash flow hedges. The
notional amounts of the swap agreements represent amounts used
to calculate the exchange of cash flows and are not our assets
or liabilities. Our credit risk related to these agreements is
considered low because the swap agreements are with creditworthy
financial institutions.
The following table sets forth our interest rate swap
agreements, which have been designated as cash flow hedges, at
December 31, 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Maturity Date
|
|
|
Value
|
|
|
Pay-fixed interest rate swaps
|
|
$
|
7,100
|
|
|
|
November 2011
|
|
|
$
|
(277
|
)
|
Pay-fixed interest rate swaps (starting November 2011)
|
|
|
3,000
|
|
|
|
December 2016
|
|
|
|
(114
|
)
|
Certain of our interest rate swaps are not designated as hedges,
and changes in fair value are recognized in results of
operations. The following table sets forth our interest rate
swap agreements, which were not designated as hedges, at
December 31, 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Maturity Date
|
|
|
Value
|
|
|
Pay-fixed interest rate swap
|
|
$
|
500
|
|
|
|
March 2011
|
|
|
$
|
(3
|
)
|
Pay-variable interest rate swap
|
|
|
500
|
|
|
|
March 2011
|
|
|
|
|
|
Pay-fixed interest rate swap
|
|
|
900
|
|
|
|
November 2011
|
|
|
|
(35
|
)
|
Pay-variable interest rate swap
|
|
|
900
|
|
|
|
November 2011
|
|
|
|
3
|
|
During the next 12 months, we estimate $330 million
will be reclassified from other comprehensive income
(OCI) to interest expense.
Cross
Currency Swaps
The Company and certain subsidiaries have incurred obligations
and entered into various intercompany transactions where such
obligations are denominated in currencies, other than the
functional currencies of the parties executing the trade. In
order to mitigate the currency exposure risks and better match
the cash flows of our obligations and intercompany transactions
with cash flows from operations, we enter into various cross
currency swaps. Our credit risk related to these agreements is
considered low because the swap agreements are with creditworthy
financial institutions.
Certain of our cross currency swaps are not designated as
hedges, and changes in fair value are recognized in results of
operations. The following table sets forth our cross currency
swap agreement which was not designated as a hedge at
December 31, 2010 (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Maturity Date
|
|
|
Value
|
|
|
Euro United States Dollar Currency Swap
|
|
|
351 Euro
|
|
|
|
December 2011
|
|
|
$
|
39
|
|
F-21
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 8
|
FINANCIAL
INSTRUMENTS (Continued)
|
Derivatives Results
of Operations
The following tables present the effect of our interest rate and
cross currency swaps on our results of operations for the year
ended December 31, 2010 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Loss
|
|
|
Amount of Loss
|
|
|
|
Amount of Loss (Gain)
|
|
|
Reclassified from
|
|
|
Reclassified from
|
|
|
|
Recognized in OCI on
|
|
|
Accumulated OCI
|
|
|
Accumulated OCI
|
|
Derivatives in Cash Flow Hedging Relationships
|
|
Derivatives, Net of Tax
|
|
|
into Operations
|
|
|
into Operations
|
|
|
Interest rate swaps
|
|
$
|
170
|
|
|
|
Interest expense
|
|
|
$
|
384
|
|
Cross currency swaps
|
|
|
(9
|
)
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
161
|
|
|
|
|
|
|
$
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Loss
|
|
|
Amount of Loss
|
|
|
|
Recognized in
|
|
|
Recognized in
|
|
|
|
Operations on
|
|
|
Operations on
|
|
Derivatives Not Designated as Hedging Instruments
|
|
Derivatives
|
|
|
Derivatives
|
|
|
Interest rate swaps
|
|
|
Other operating expenses
|
|
|
$
|
3
|
|
Cross currency swap
|
|
|
Other operating expenses
|
|
|
|
40
|
|
Credit-risk-related
Contingent Features
We have agreements with each of our derivative counterparties
that contain a provision where we could be declared in default
on our derivative obligations if repayment of the underlying
indebtedness is accelerated by the lender due to our default on
the indebtedness. As of December 31, 2010, we have not been
required to post any collateral related to these agreements. If
we had breached these provisions at December 31, 2010, we
would have been required to settle our obligations under the
agreements at their aggregate, estimated termination value of
$404 million.
|
|
NOTE 9
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE
|
ASC 820, Fair Value Measurements and Disclosures
(ASC 820) defines fair value, establishes a
framework for measuring fair value, and expands disclosures
about fair value measurements. ASC 820 applies to reported
balances that are required or permitted to be measured at fair
value under existing accounting pronouncements.
ASC 820 emphasizes fair value is a market-based measurement, not
an entity-specific measurement. Therefore, a fair value
measurement should be determined based on the assumptions market
participants would use in pricing the asset or liability. As a
basis for considering market participant assumptions in fair
value measurements, ASC 820 establishes a fair value
hierarchy that distinguishes between market participant
assumptions based on market data obtained from sources
independent of the reporting entity (observable inputs
classified within Levels 1 and 2 of the hierarchy) and the
reporting entitys own assumptions about market participant
assumptions (unobservable inputs classified within Level 3
of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities. Level 2 inputs
are inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
or indirectly. Level 2 inputs may include quoted prices for
similar assets and liabilities in active markets, as well as
inputs observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates, and
yield curves observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs for the asset or
liability, which are typically based on an entitys own
assumptions, as there is little, if any, related market
activity. In instances where the determination of the fair value
measurement is based on inputs from different levels of the fair
value hierarchy, the level in the fair value hierarchy within
which the entire fair value measurement falls is based on the
lowest level input significant to the fair value measurement in
its entirety. Our assessment of the significance
F-22
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE (Continued)
|
of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to
the asset or liability.
Cash
Traded Investments
Our cash traded investments are generally classified within
Level 1 or Level 2 of the fair value hierarchy because
they are valued using quoted market prices, broker or dealer
quotations, or alternative pricing sources with reasonable
levels of price transparency. Certain types of cash traded
instruments are classified within Level 3 of the fair value
hierarchy because they trade infrequently and therefore have
little or no price transparency. Such instruments include
auction rate securities (ARS) and limited
partnership investments. The transaction price is initially used
as the best estimate of fair value.
Our wholly-owned insurance subsidiary had investments in
tax-exempt ARS, which are backed by student loans substantially
guaranteed by the federal government, of $250 million
($251 million par value) at December 31, 2010. We do
not currently intend to attempt to sell the ARS as the liquidity
needs of our insurance subsidiary are expected to be met by
other investments in its investment portfolio. These securities
continue to accrue and pay interest semi-annually based on the
failed auction maximum rate formulas stated in their respective
Official Statements. During 2010 and 2009, certain issuers and
their broker/dealers redeemed or repurchased $150 million
and $172 million, respectively, of our ARS at par value.
The valuation of these securities involved managements
judgment, after consideration of market factors and the absence
of market transparency, market liquidity and observable inputs.
Our valuation models derived a fair market value compared to
tax-equivalent yields of other student loan backed variable rate
securities of similar credit worthiness and similar effective
maturities.
Derivative
Financial Instruments
We have entered into interest rate and cross currency swap
agreements to manage our exposure to fluctuations in interest
rates and foreign currency risks. The valuation of these
instruments is determined using widely accepted valuation
techniques, including discounted cash flow analysis on the
expected cash flows of each derivative. This analysis reflects
the contractual terms of the derivatives, including the period
to maturity, and uses observable market-based inputs, including
interest rate curves, foreign exchange rates and implied
volatilities. To comply with the provisions of ASC 820, we
incorporate credit valuation adjustments to reflect both our own
nonperformance risk and the respective counterpartys
nonperformance risk in the fair value measurements.
Although we determined the majority of the inputs used to value
our derivatives fall within Level 2 of the fair value
hierarchy, the credit valuation adjustments associated with our
derivatives utilize Level 3 inputs, such as estimates of
current credit spreads to evaluate the likelihood of default by
us and our counterparties. We assessed the significance of the
impact of the credit valuation adjustments on the overall
valuation of our derivative positions and at December 31,
2010 and 2009, we determined the credit valuation adjustments
were not significant to the overall valuation of our derivatives.
F-23
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE (Continued)
|
The following table summarizes our assets and liabilities
measured at fair value on a recurring basis as of
December 31, 2010 and 2009, aggregated by the level in the
fair value hierarchy within which those measurements fall
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
323
|
|
|
$
|
|
|
|
$
|
323
|
|
|
$
|
|
|
Auction rate securities
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
Asset-backed securities
|
|
|
26
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
Money market funds
|
|
|
135
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
734
|
|
|
|
135
|
|
|
|
349
|
|
|
|
250
|
|
Equity securities
|
|
|
8
|
|
|
|
2
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary
|
|
|
742
|
|
|
|
137
|
|
|
|
354
|
|
|
|
251
|
|
Less amounts classified as current assets
|
|
|
(100
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
642
|
|
|
$
|
37
|
|
|
$
|
354
|
|
|
$
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap (Other assets)
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
39
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (Income taxes and other liabilities)
|
|
$
|
426
|
|
|
$
|
|
|
|
$
|
426
|
|
|
$
|
|
|
F-24
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
ASSETS
AND LIABILITIES MEASURED AT FAIR VALUE (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
and Liabilities
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and municipalities
|
|
$
|
695
|
|
|
$
|
|
|
|
$
|
695
|
|
|
$
|
|
|
Auction rate securities
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
|
396
|
|
Asset-backed securities
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
Money market funds
|
|
|
176
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,309
|
|
|
|
176
|
|
|
|
737
|
|
|
|
396
|
|
Equity securities
|
|
|
7
|
|
|
|
2
|
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary
|
|
|
1,316
|
|
|
|
178
|
|
|
|
741
|
|
|
|
397
|
|
Less amounts classified as current assets
|
|
|
(150
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,166
|
|
|
$
|
28
|
|
|
$
|
741
|
|
|
$
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency swap (Other assets)
|
|
$
|
79
|
|
|
$
|
|
|
|
$
|
79
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps (Income taxes and other liabilities)
|
|
$
|
528
|
|
|
$
|
|
|
|
$
|
528
|
|
|
$
|
|
|
Cross currency swaps (Income taxes and other liabilities)
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
The following table summarizes the activity related to the
auction rate and equity securities investments of our insurance
subsidiary which have fair value measurements based on
significant unobservable inputs (Level 3) during the
year ended December 31, 2010 (dollars in millions):
|
|
|
|
|
Asset balances at December 31, 2009
|
|
$
|
397
|
|
Unrealized gains included in other comprehensive income
|
|
|
4
|
|
Settlements
|
|
|
(150
|
)
|
|
|
|
|
|
Asset balances at December 31, 2010
|
|
$
|
251
|
|
|
|
|
|
|
The estimated fair value of our long-term debt was
$28.738 billion and $25.659 billion at
December 31, 2010 and 2009, respectively, compared to
carrying amounts aggregating $28.225 billion and
$25.670 billion, respectively. The estimates of fair value
are generally based upon the quoted market prices or quoted
market prices for similar issues of long-term debt with the same
maturities.
F-25
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of long-term debt at December 31, including
related interest rates at December 31, 2010, follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Senior secured asset-based revolving credit facility (effective
interest rate of 1.5%)
|
|
$
|
1,875
|
|
|
$
|
715
|
|
Senior secured revolving credit facility (effective interest
rate of 1.8%)
|
|
|
729
|
|
|
|
|
|
Senior secured term loan facilities (effective interest rate of
6.9%)
|
|
|
7,530
|
|
|
|
8,987
|
|
Senior secured first lien notes (effective interest rate of 8.4%)
|
|
|
4,075
|
|
|
|
2,682
|
|
Other senior secured debt (effective interest rate of 7.1%)
|
|
|
322
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
First lien debt
|
|
|
14,531
|
|
|
|
12,746
|
|
|
|
|
|
|
|
|
|
|
Senior secured cash-pay notes (effective interest rate of 9.7%)
|
|
|
4,501
|
|
|
|
4,500
|
|
Senior secured toggle notes (effective interest rate of 10.0%)
|
|
|
1,578
|
|
|
|
1,578
|
|
|
|
|
|
|
|
|
|
|
Second lien debt
|
|
|
6,079
|
|
|
|
6,078
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured notes (effective interest rate of 7.1%)
|
|
|
7,615
|
|
|
|
6,846
|
|
|
|
|
|
|
|
|
|
|
Total debt (average life of 6.1 years, rates averaging 7.3%)
|
|
|
28,225
|
|
|
|
25,670
|
|
Less amounts due within one year
|
|
|
592
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,633
|
|
|
$
|
24,824
|
|
|
|
|
|
|
|
|
|
|
Senior
Secured Credit Facilities And Other First Lien Debt
In connection with the Recapitalization, we entered into
(i) a $2.000 billion senior secured asset-based
revolving credit facility with a borrowing base of 85% of
eligible accounts receivable, subject to customary reserves and
eligibility criteria ($125 million available at
December 31, 2010) (the ABL credit facility)
and (ii) a senior secured credit agreement (the cash
flow credit facility and, together with the ABL credit
facility, the senior secured credit facilities),
consisting of a $2.000 billion revolving credit facility
($1.189 billion available at December 31, 2010 after
giving effect to certain outstanding letters of credit), a
$2.750 billion term loan A ($1.618 billion outstanding
at December 31, 2010), a $8.800 billion term loan B
consisting of a $6.800 billion senior secured term loan B-1
and a $2.000 billion senior secured term loan B-2
($3.525 billion outstanding under term loan B-1 at
December 31, 2010 and $2.000 billion outstanding under
term loan B-2 at December 31, 2010) and a
1.000 billion European term loan
(291 million, or $387 million, outstanding at
December 31, 2010) under which one of our European
subsidiaries is the borrower.
Borrowings under the senior secured credit facilities bear
interest at a rate equal to, at our option, either (a) a
base rate determined by reference to the higher of (1) the
federal funds rate plus 0.50% or (2) the prime rate of Bank
of America or (b) a LIBOR rate for the currency of such
borrowing for the relevant interest period, plus, in each case,
an applicable margin. The applicable margin for borrowings under
the senior secured credit facilities may be reduced subject to
attaining certain leverage ratios.
The ABL credit facility and the $2.000 billion revolving
credit facility portion of the cash flow credit facility expire
November 2012. The term loan facilities require quarterly
installment payments. The final payment under term loan A is in
November 2012. The final payments under term loan B-1 and the
European term loan are in November 2013. During April 2010, we
entered into an amendment of our senior secured term loan B
facility extending the maturity of $2.000 billion of loans
outstanding thereunder from November 2013 to March 2017. On
November 8, 2010, an amended and restated joinder agreement
was entered into with respect to the cash flow credit facility
to establish a new replacement revolving credit series, which
will mature on November 17, 2015. Under the
F-26
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 10
|
LONG-TERM
DEBT (Continued)
|
Senior
Secured Credit Facilities And Other First Lien Debt
(Continued)
amended and restated joinder agreement, these replacement
revolving credit commitments will become effective, subject to
certain conditions, upon the earlier of (i) the initial
public offering of our common stock and (ii) May 17,
2012. The senior secured credit facilities contain a number of
covenants that restrict, subject to certain exceptions, our (and
some or all of our subsidiaries) ability to incur
additional indebtedness, repay subordinated indebtedness, create
liens on assets, sell assets, make investments, loans or
advances, engage in certain transactions with affiliates, pay
dividends and distributions, and enter into sale and leaseback
transactions. In addition, we are required to satisfy and
maintain a maximum total leverage ratio covenant under the cash
flow credit facility and, in certain situations under the ABL
credit facility, a minimum interest coverage ratio covenant.
During April 2009, we issued $1.500 billion aggregate
principal amount of
81/2% senior
secured first lien notes due 2019 at a price of 96.755% of their
face value, resulting in $1.451 billion of gross proceeds.
During August 2009, we issued $1.250 billion aggregate
principal amount of
77/8% senior
secured first lien notes due 2020 at a price of 98.254% of their
face value, resulting in $1.228 billion of gross proceeds.
During March 2010, we issued $1.400 billion aggregate
principal amount of
71/4% senior
secured first lien notes due 2020 at a price of 99.095% of their
face value, resulting in $1.387 billion of gross proceeds.
After the payment of related fees and expenses, we used the
proceeds from these debt issuances to repay outstanding
indebtedness under our senior secured term loan facilities.
We use interest rate swap agreements to manage the variable rate
exposure of our debt portfolio. At December 31, 2010, we
had entered into effective interest rate swap agreements, in a
total notional amount of $7.100 billion, in order to hedge
a portion of our exposure to variable rate interest payments
associated with the senior secured credit facility. The effect
of the interest rate swaps is reflected in the effective
interest rates for the senior secured credit facilities.
Senior
Secured Notes And Other Second Lien Debt
During November 2006, we issued $4.200 billion of senior
secured notes (comprised of $1.000 billion of
91/8% notes
due 2014 and $3.200 billion of
91/4% notes
due 2016), and $1.500 billion of
95/8% cash/103/8%
in-kind senior secured toggle notes (which allow us, at our
option, to pay interest in-kind during the first five years) due
2016, which are subject to certain standard covenants. We made
the interest payment for the interest period ended in May 2009
by paying in-kind ($78 million) instead of paying interest
in cash.
During February 2009, we issued $310 million aggregate
principal amount of
97/8% senior
secured second lien notes due 2017 at a price of 96.673% of
their face value, resulting in $300 million of gross
proceeds. After the payment of related fees and expenses, we
used the proceeds to repay outstanding indebtedness under our
senior secured term loan facilities.
Senior
Unsecured Notes
During November 2010, we issued $1.525 billion aggregate
principal amount of
73/4% senior
unsecured notes due 2021 (the 2021 Notes) at a price
of 100% of their face value, resulting in $1.525 billion of
gross proceeds. After the payment of related fees and expenses,
we used the proceeds to make a distribution to our stockholders
and optionholders.
General
Debt Information
The senior secured credit facilities and senior secured notes
are fully and unconditionally guaranteed by substantially all
existing and future, direct and indirect, wholly-owned material
domestic subsidiaries that are Unrestricted
Subsidiaries under our Indenture (the 1993
Indenture) dated December 16, 1993 (except for
F-27
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 10
|
LONG-TERM
DEBT (Continued)
|
General
Debt Information (Continued)
certain special purpose subsidiaries that only guarantee and
pledge their assets under our ABL credit facility). In addition,
borrowings under the European term loan are guaranteed by all
material, wholly-owned European subsidiaries.
All obligations under the ABL credit facility, and the
guarantees of those obligations, are secured, subject to
permitted liens and other exceptions, by a first-priority lien
on substantially all of the receivables of the borrowers and
each guarantor under such ABL credit facility (the
Receivables Collateral).
All obligations under the cash flow credit facility and the
guarantees of such obligations are secured, subject to permitted
liens and other exceptions, by:
|
|
|
|
|
a first-priority lien on the capital stock owned by HCA Inc., or
by any U.S. guarantor, in each of their respective
first-tier subsidiaries;
|
|
|
|
a first-priority lien on substantially all present and future
assets of HCA Inc. and of each U.S. guarantor other than
(i) Principal Properties (as defined in the
1993 Indenture), (ii) certain other real properties and
(iii) deposit accounts, other bank or securities accounts,
cash, leaseholds, motor-vehicles and certain other
exceptions; and
|
|
|
|
a second-priority lien on certain of the Receivables Collateral.
|
Our senior secured first lien notes and the related guarantees
are secured by first-priority liens, subject to permitted liens,
on our and our subsidiary guarantors assets, subject to
certain exceptions, that secure our cash flow credit facility on
a first-priority basis and are secured by second priority liens,
subject to permitted liens, on our and our subsidiary
guarantors assets that secure our ABL credit facility on a
first priority basis and our other cash flow credit facility on
a second-priority basis.
Our second lien debt and the related guarantees are secured by
second-priority liens, subject to permitted liens, on our and
our subsidiary guarantors assets, subject to certain
exceptions, that secure our cash flow credit facility on a
first-priority basis and are secured by third-priority liens,
subject to permitted liens, on our and our subsidiary
guarantors assets that secure our asset-based revolving
credit facility on a first priority basis and our other cash
flow credit facility on a second-priority basis.
Maturities of long-term debt in years 2012 through 2015 are
$4.195 billion, $4.952 billion, $1.681 billion
and $1.676 billion, respectively.
We operate in a highly regulated and litigious industry. As a
result, various lawsuits, claims and legal and regulatory
proceedings have been and can be expected to be instituted or
asserted against us. The resolution of any such lawsuits, claims
or legal and regulatory proceedings could have a material,
adverse effect on our results of operations or financial
position.
Health care companies are subject to numerous investigations by
various governmental agencies. Under the federal false claims
act (FCA) private parties have the right to bring
qui tam, or whistleblower, suits against
companies that submit false claims for payments to, or
improperly retain overpayments from, the government. Some states
have adopted similar state whistleblower and false claims
provisions. Certain of our individual facilities have received
government inquiries from federal and state agencies and our
facilities may receive such inquiries in future periods.
Depending on whether the underlying conduct in these or future
inquiries or investigations could be considered systemic, their
resolution could have a material, adverse effect on our results
of operations or financial position.
F-28
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 11
|
CONTINGENCIES
(Continued)
|
We are subject to claims and suits arising in the ordinary
course of business, including claims for personal injuries or
wrongful restriction of, or interference with, physicians
staff privileges. In certain of these actions the claimants may
seek punitive damages against us which may not be covered by
insurance. It is managements opinion that the ultimate
resolution of these pending claims and legal proceedings will
not have a material, adverse effect on our results of operations
or financial position.
The Civil Division of the Department of Justice
(DOJ) has contacted us in connection with its
nationwide review of whether, in certain cases, hospital charges
to the federal government relating to implantable
cardio-defibrillators (ICDs) met the Centers for
Medicare & Medicaid Services criteria. In connection
with this nationwide review, the DOJ has indicated it will be
reviewing certain ICD billing and medical records at 95 HCA
hospitals; the review covers the period from October 2003 to the
present. The review could potentially give rise to claims
against us under the federal FCA or other statutes, regulations
or laws. At this time, we cannot predict what effect, if any,
this review or any resulting claims could have on us.
The Companys certificate of incorporation was amended and
restated, effective November 19, 2010. The amended and
restated certificate of incorporation authorizes the Company to
issue up to 125,000,000 shares of common stock, and our
amended and restated by-laws set the number of directors
constituting the board of directors of the Company at not less
than one nor more than 15.
Distributions
During 2010, our Board of Directors declared three distributions
to its stockholders and holders of stock options. The
distributions totaled $42.50 per share and vested stock option,
or $4.332 billion in the aggregate. The distributions were
funded using funds available under our senior secured credit
facilities, proceeds from the 2021 Notes offering and cash on
hand. Pursuant to the terms of our stock option plans, the
holders of nonvested stock options received $42.50 per share
reductions (subject to certain tax related limitations for
certain stock options that resulted in deferred distributions
for a portion of the declared distribution, which will be paid
upon the vesting of the applicable stock options) to the
exercise price of their share-based awards.
Registration
Statement Filings
On May 5, 2010, HCA Inc.s Board of Directors granted
approval for HCA Inc. to file with the Securities and Exchange
Commission (SEC) a registration statement on
Form S-1
relating to a proposed initial public offering of its common
stock. The
Form S-1
was filed on May 7, 2010.
In connection with the Corporate Reorganization, on
December 15, 2010, HCA Holdings, Inc.s Board of
Directors granted approval for the Company to file with the SEC
a registration statement on
Form S-1
relating to a proposed initial public offering of its common
stock. The
Form S-1
was filed on December 22, 2010, and HCA Inc. filed a
request to withdraw its registration statement on
Form S-1
at the same time.
Stockholder
Agreements and Equity Securities with Contingent
Redemption Rights
The stockholder agreements, among other things, contain
agreements among the parties with respect to restrictions on the
transfer of shares, including tag along rights and drag along
rights, registration rights (including customary indemnification
provisions) and other rights. Pursuant to the management
stockholder agreements, the applicable employees can elect to
have the Company redeem their common stock and vested stock
options in the events of death or permanent disability, prior to
the consummation of the initial public offering of common stock
by the Company. At December 31, 2010, there were 2,216,500
common shares and 5,291,700 vested stock options that were
subject to these contingent redemption terms.
F-29
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 13
|
EMPLOYEE
BENEFIT PLANS
|
We maintain contributory, defined contribution benefit plans
that are available to employees who meet certain minimum
requirements. Certain of the plans require that we match
specified percentages of participant contributions up to certain
maximum levels (generally, 100% of the first 3% to 9%, depending
upon years of vesting service, of compensation deferred by
participants for periods subsequent to March 31, 2008, and
50% of the first 3% of compensation deferred by participants for
periods prior to April 1, 2008). The cost of these plans
totaled $307 million for 2010, $283 million for 2009
and $233 million for 2008. Our contributions are funded
periodically during each year.
We maintained a noncontributory, defined contribution retirement
plan which covered substantially all employees. Benefits were
determined as a percentage of a participants salary and
vest over specified periods of employee service. Benefits
expense was $46 million for 2008. There was no expense for
2010 and 2009 as the noncontributory plan and the related
participant account balances were merged into the contributory
HCA 401(k) Plan effective April 1, 2008.
We maintain the noncontributory, nonqualified Restoration Plan
to provide certain retirement benefits for eligible employees.
Eligibility for the Restoration Plan is based upon earning
eligible compensation in excess of the Social Security Wage Base
and attaining 1,000 or more hours of service during the plan
year. Company credits to participants account balances
(the Restoration Plan is not funded) depend upon
participants compensation, years of vesting service and
certain IRS limitations related to the HCA 401(k) plan. Benefits
expense under this plan was $19 million for 2010,
$26 million for 2009 and $2 million for 2008. Accrued
benefits liabilities under this plan totaled $84 million at
December 31, 2010 and $73 million at December 31,
2009.
We maintain a Supplemental Executive Retirement Plan
(SERP) for certain executives. The plan is designed
to ensure that upon retirement the participant receives the
value of a prescribed life annuity from the combination of the
SERP and our other benefit plans. Benefits expense under the
plan was $27 million for 2010, $24 million for 2009
and $20 million for 2008. Accrued benefits liabilities
under this plan totaled $197 million at December 31,
2010 and $152 million at December 31, 2009.
We maintain defined benefit pension plans which resulted from
certain hospital acquisitions in prior years. Benefits expense
under these plans was $30 million for 2010,
$39 million for 2009, and $24 million for 2008.
Accrued benefits liabilities under these plans totaled
$131 million at December 31, 2010 and
$115 million at December 31, 2009.
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION
|
We operate in one line of business, which is operating hospitals
and related health care entities. During the years ended
December 31, 2010, 2009 and 2008, approximately 23.5%,
22.8% and 23.1%, respectively, of our revenues related to
patients participating in the
fee-for-service
Medicare program.
Our operations are structured into three geographically
organized groups: the Eastern Group includes 48 consolidating
hospitals located in the Eastern United States, the Central
Group includes 46 consolidating hospitals located in the Central
United States and the Western Group includes 56 consolidating
hospitals located in the Western United States. We also operate
six consolidating hospitals in England, and these facilities are
included in the Corporate and other group.
Adjusted segment EBITDA is defined as income before depreciation
and amortization, interest expense, losses (gains) on sales of
facilities, impairments of long-lived assets, income taxes and
net income attributable to noncontrolling interests. We use
adjusted segment EBITDA as an analytical indicator for purposes
of allocating resources to geographic areas and assessing
performance. Adjusted segment EBITDA is commonly used as an
analytical indicator within the health care industry, and also
serves as a measure of leverage capacity and debt service
ability. Adjusted segment EBITDA should not be considered as a
measure of financial performance under
F-30
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION (Continued)
|
generally accepted accounting principles, and the items excluded
from adjusted segment EBITDA are significant components in
understanding and assessing financial performance. Because
adjusted segment EBITDA is not a measurement determined in
accordance with generally accepted accounting principles and is
thus susceptible to varying calculations, adjusted segment
EBITDA, as presented, may not be comparable to other similarly
titled measures of other companies.
The geographic distributions of our revenues, equity in earnings
of affiliates, adjusted segment EBITDA, depreciation and
amortization, assets and goodwill are summarized in the
following table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
9,006
|
|
|
$
|
8,807
|
|
|
$
|
8,570
|
|
Central Group
|
|
|
7,222
|
|
|
|
7,225
|
|
|
|
6,740
|
|
Western Group
|
|
|
13,467
|
|
|
|
13,140
|
|
|
|
12,118
|
|
Corporate and other
|
|
|
988
|
|
|
|
880
|
|
|
|
946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,683
|
|
|
$
|
30,052
|
|
|
$
|
28,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
Central Group
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Western Group
|
|
|
(278
|
)
|
|
|
(241
|
)
|
|
|
(219
|
)
|
Corporate and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(282
|
)
|
|
$
|
(246
|
)
|
|
$
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted segment EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
1,580
|
|
|
$
|
1,469
|
|
|
$
|
1,288
|
|
Central Group
|
|
|
1,272
|
|
|
|
1,325
|
|
|
|
1,061
|
|
Western Group
|
|
|
3,107
|
|
|
|
2,867
|
|
|
|
2,270
|
|
Corporate and other
|
|
|
(91
|
)
|
|
|
(189
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,868
|
|
|
$
|
5,472
|
|
|
$
|
4,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
354
|
|
|
$
|
364
|
|
|
$
|
358
|
|
Central Group
|
|
|
352
|
|
|
|
352
|
|
|
|
359
|
|
Western Group
|
|
|
581
|
|
|
|
578
|
|
|
|
552
|
|
Corporate and other
|
|
|
134
|
|
|
|
131
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,421
|
|
|
$
|
1,425
|
|
|
$
|
1,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted segment EBITDA
|
|
$
|
5,868
|
|
|
$
|
5,472
|
|
|
$
|
4,574
|
|
Depreciation and amortization
|
|
|
1,421
|
|
|
|
1,425
|
|
|
|
1,416
|
|
Interest expense
|
|
|
2,097
|
|
|
|
1,987
|
|
|
|
2,021
|
|
Losses (gains) on sales of facilities
|
|
|
(4
|
)
|
|
|
15
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
123
|
|
|
|
43
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
2,231
|
|
|
$
|
2,002
|
|
|
$
|
1,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Eastern Group
|
|
$
|
4,922
|
|
|
$
|
5,018
|
|
Central Group
|
|
|
5,271
|
|
|
|
5,173
|
|
Western Group
|
|
|
9,169
|
|
|
|
8,847
|
|
Corporate and other
|
|
|
4,490
|
|
|
|
5,093
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,852
|
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern
|
|
|
Central
|
|
|
Western
|
|
|
Corporate
|
|
|
|
|
|
|
Group
|
|
|
Group
|
|
|
Group
|
|
|
and Other
|
|
|
Total
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
596
|
|
|
$
|
1,018
|
|
|
$
|
742
|
|
|
$
|
221
|
|
|
$
|
2,577
|
|
Acquisitions
|
|
|
14
|
|
|
|
|
|
|
|
65
|
|
|
|
46
|
|
|
|
125
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
Foreign currency translation and other
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
8
|
|
|
|
(2
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
608
|
|
|
$
|
1,019
|
|
|
$
|
815
|
|
|
$
|
251
|
|
|
$
|
2,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 14
|
SEGMENT
AND GEOGRAPHIC INFORMATION (Continued)
|
|
|
NOTE 15
|
OTHER
COMPREHENSIVE LOSS
|
The components of accumulated other comprehensive loss are as
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
Unrealized
|
|
|
Foreign
|
|
|
|
|
|
in Fair
|
|
|
|
|
|
|
Gains (Losses) on
|
|
|
Currency
|
|
|
Defined
|
|
|
Value of
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
Translation
|
|
|
Benefit
|
|
|
Derivative
|
|
|
|
|
|
|
Securities
|
|
|
Adjustments
|
|
|
Plans
|
|
|
Instruments
|
|
|
Total
|
|
|
Balances at December 31, 2007
|
|
$
|
14
|
|
|
$
|
34
|
|
|
$
|
(44
|
)
|
|
$
|
(176
|
)
|
|
$
|
(172
|
)
|
Unrealized losses on
available-for-sale
securities, net of $25 income tax benefit
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
Foreign currency translation adjustments, net of $33 income tax
benefit
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Defined benefit plans, net of $40 income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
(68
|
)
|
Change in fair value of derivative instruments, net of $194
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(334
|
)
|
|
|
(334
|
)
|
Expense reclassified into operations from other comprehensive
income, net of $4 and $42, respectively, income tax benefits
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
70
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
(30
|
)
|
|
|
(28
|
)
|
|
|
(106
|
)
|
|
|
(440
|
)
|
|
|
(604
|
)
|
Unrealized gains on
available-for-sale
securities, net of $25 of income taxes
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Foreign currency translation adjustments, net of $14 of income
taxes
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Defined benefit plans, net of $8 income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Change in fair value of derivative instruments, net of $76
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133
|
)
|
|
|
(133
|
)
|
Expense reclassified into operations from other comprehensive
income, net of $6 and $127, respectively, income tax benefits
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
218
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
14
|
|
|
|
(3
|
)
|
|
|
(106
|
)
|
|
|
(355
|
)
|
|
|
(450
|
)
|
Unrealized gains on
available-for-sale
securities, net of $1 of income taxes
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Foreign currency translation adjustments, net of $9 of income
tax benefit
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
Defined benefit plans, net of $28 income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
(48
|
)
|
Change in fair value of derivative instruments, net of $94
income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(161
|
)
|
|
|
(161
|
)
|
(Income) expense reclassified into operations from other
comprehensive income, net of $(4), $7 and $140, respectively,
income (taxes) benefits
|
|
|
(9
|
)
|
|
|
|
|
|
|
11
|
|
|
|
244
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010
|
|
$
|
6
|
|
|
$
|
(19
|
)
|
|
$
|
(143
|
)
|
|
$
|
(272
|
)
|
|
$
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 16
|
ACCRUED
EXPENSES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
A summary of other accrued expenses at December 31 follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Professional liability risks
|
|
$
|
268
|
|
|
$
|
265
|
|
Interest
|
|
|
309
|
|
|
|
283
|
|
Taxes other than income
|
|
|
197
|
|
|
|
190
|
|
Other
|
|
|
471
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,245
|
|
|
$
|
1,158
|
|
|
|
|
|
|
|
|
|
|
A summary of activity for the allowance of doubtful accounts
follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
Accounts
|
|
|
|
|
Balance at
|
|
for
|
|
Written off,
|
|
Balance
|
|
|
Beginning
|
|
Doubtful
|
|
Net of
|
|
at End
|
|
|
of Year
|
|
Accounts
|
|
Recoveries
|
|
of Year
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008
|
|
$
|
3,711
|
|
|
$
|
3,409
|
|
|
$
|
(2,379
|
)
|
|
$
|
4,741
|
|
Year ended December 31, 2009
|
|
|
4,741
|
|
|
|
3,276
|
|
|
|
(3,157
|
)
|
|
|
4,860
|
|
Year ended December 31, 2010
|
|
|
4,860
|
|
|
|
2,648
|
|
|
|
(3,569
|
)
|
|
|
3,939
|
|
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION
|
On November 22, 2010, HCA Inc. reorganized by creating a
new holding company structure. HCA Holdings, Inc. became the new
parent company, and HCA Inc. is now HCA Holdings, Inc.s
wholly-owned direct subsidiary. On November 23, 2010, HCA
Holdings, Inc. issued the 2021 Notes. These notes are senior
unsecured obligations and are not guaranteed by any of our
subsidiaries.
The senior secured credit facilities and senior secured notes
described in Note 10 are fully and unconditionally
guaranteed by substantially all existing and future, direct and
indirect, wholly-owned material domestic subsidiaries that are
Unrestricted Subsidiaries under our Indenture dated
December 16, 1993 (except for certain special purpose
subsidiaries that only guarantee and pledge their assets under
our ABL credit facility).
Our condensed consolidating balance sheets at December 31,
2010 and 2009 and condensed consolidating statements of income
and cash flows for each of the three years in the period ended
December 31, 2010, segregating HCA Holdings, Inc. issuer,
HCA Inc. issuer, the subsidiary guarantors, the subsidiary
non-guarantors and eliminations, follow.
F-34
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
For The Year Ended December 31, 2010
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HCA
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,647
|
|
|
$
|
13,036
|
|
|
$
|
|
|
|
$
|
30,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
|
|
|
|
7,315
|
|
|
|
5,169
|
|
|
|
|
|
|
|
12,484
|
|
Supplies
|
|
|
|
|
|
|
|
|
|
|
2,825
|
|
|
|
2,136
|
|
|
|
|
|
|
|
4,961
|
|
Other operating expenses
|
|
|
|
|
|
|
5
|
|
|
|
2,634
|
|
|
|
2,365
|
|
|
|
|
|
|
|
5,004
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
1,632
|
|
|
|
1,016
|
|
|
|
|
|
|
|
2,648
|
|
Equity in earnings of affiliates
|
|
|
(1,215
|
)
|
|
|
|
|
|
|
(107
|
)
|
|
|
(175
|
)
|
|
|
1,215
|
|
|
|
(282
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
782
|
|
|
|
639
|
|
|
|
|
|
|
|
1,421
|
|
Interest expense
|
|
|
12
|
|
|
|
2,700
|
|
|
|
(761
|
)
|
|
|
146
|
|
|
|
|
|
|
|
2,097
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Impairments of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
65
|
|
|
|
|
|
|
|
123
|
|
Management fees
|
|
|
|
|
|
|
|
|
|
|
(454
|
)
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,203
|
)
|
|
|
2,705
|
|
|
|
13,924
|
|
|
|
11,811
|
|
|
|
1,215
|
|
|
|
28,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,203
|
|
|
|
(2,705
|
)
|
|
|
3,723
|
|
|
|
1,225
|
|
|
|
(1,215
|
)
|
|
|
2,231
|
|
Provision for income taxes
|
|
|
(4
|
)
|
|
|
(955
|
)
|
|
|
1,299
|
|
|
|
318
|
|
|
|
|
|
|
|
658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,207
|
|
|
|
(1,750
|
)
|
|
|
2,424
|
|
|
|
907
|
|
|
|
(1,215
|
)
|
|
|
1,573
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
322
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,207
|
|
|
$
|
(1,750
|
)
|
|
$
|
2,380
|
|
|
$
|
585
|
|
|
$
|
(1,215
|
)
|
|
$
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
For The Year Ended December 31, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
17,584
|
|
|
$
|
12,468
|
|
|
$
|
|
|
|
$
|
30,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
7,149
|
|
|
|
4,809
|
|
|
|
|
|
|
|
11,958
|
|
Supplies
|
|
|
|
|
|
|
2,846
|
|
|
|
2,022
|
|
|
|
|
|
|
|
4,868
|
|
Other operating expenses
|
|
|
14
|
|
|
|
2,497
|
|
|
|
2,213
|
|
|
|
|
|
|
|
4,724
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
2,043
|
|
|
|
1,233
|
|
|
|
|
|
|
|
3,276
|
|
Equity in earnings of affiliates
|
|
|
(2,540
|
)
|
|
|
(95
|
)
|
|
|
(151
|
)
|
|
|
2,540
|
|
|
|
(246
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
787
|
|
|
|
638
|
|
|
|
|
|
|
|
1,425
|
|
Interest expense
|
|
|
2,356
|
|
|
|
(500
|
)
|
|
|
131
|
|
|
|
|
|
|
|
1,987
|
|
Losses (gains) on sales of facilities
|
|
|
|
|
|
|
17
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
15
|
|
Impairments of long-lived assets
|
|
|
|
|
|
|
34
|
|
|
|
9
|
|
|
|
|
|
|
|
43
|
|
Management fees
|
|
|
|
|
|
|
(443
|
)
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(170
|
)
|
|
|
14,335
|
|
|
|
11,345
|
|
|
|
2,540
|
|
|
|
28,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
170
|
|
|
|
3,249
|
|
|
|
1,123
|
|
|
|
(2,540
|
)
|
|
|
2,002
|
|
Provision for income taxes
|
|
|
(884
|
)
|
|
|
1,189
|
|
|
|
322
|
|
|
|
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,054
|
|
|
|
2,060
|
|
|
|
801
|
|
|
|
(2,540
|
)
|
|
|
1,375
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
61
|
|
|
|
260
|
|
|
|
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
1,054
|
|
|
$
|
1,999
|
|
|
$
|
541
|
|
|
$
|
(2,540
|
)
|
|
$
|
1,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING INCOME STATEMENT
For The Year Ended December 31, 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
16,507
|
|
|
$
|
11,867
|
|
|
$
|
|
|
|
$
|
28,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
|
|
|
|
6,846
|
|
|
|
4,594
|
|
|
|
|
|
|
|
11,440
|
|
Supplies
|
|
|
|
|
|
|
2,671
|
|
|
|
1,949
|
|
|
|
|
|
|
|
4,620
|
|
Other operating expenses
|
|
|
(6
|
)
|
|
|
2,445
|
|
|
|
2,115
|
|
|
|
|
|
|
|
4,554
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
2,073
|
|
|
|
1,336
|
|
|
|
|
|
|
|
3,409
|
|
Equity in earnings of affiliates
|
|
|
(2,100
|
)
|
|
|
(82
|
)
|
|
|
(141
|
)
|
|
|
2,100
|
|
|
|
(223
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
776
|
|
|
|
640
|
|
|
|
|
|
|
|
1,416
|
|
Interest expense
|
|
|
2,190
|
|
|
|
(328
|
)
|
|
|
159
|
|
|
|
|
|
|
|
2,021
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
(5
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
Management fees
|
|
|
|
|
|
|
(426
|
)
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
13,970
|
|
|
|
11,050
|
|
|
|
2,100
|
|
|
|
27,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(84
|
)
|
|
|
2,537
|
|
|
|
817
|
|
|
|
(2,100
|
)
|
|
|
1,170
|
|
Provision for income taxes
|
|
|
(757
|
)
|
|
|
803
|
|
|
|
222
|
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
673
|
|
|
|
1,734
|
|
|
|
595
|
|
|
|
(2,100
|
)
|
|
|
902
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
53
|
|
|
|
176
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
673
|
|
|
$
|
1,681
|
|
|
$
|
419
|
|
|
$
|
(2,100
|
)
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2010
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HCA
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
156
|
|
|
$
|
249
|
|
|
$
|
|
|
|
$
|
411
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
2,214
|
|
|
|
1,618
|
|
|
|
|
|
|
|
3,832
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
547
|
|
|
|
350
|
|
|
|
|
|
|
|
897
|
|
Deferred income taxes
|
|
|
931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
931
|
|
Other
|
|
|
202
|
|
|
|
|
|
|
|
223
|
|
|
|
423
|
|
|
|
|
|
|
|
848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,139
|
|
|
|
|
|
|
|
3,140
|
|
|
|
2,640
|
|
|
|
|
|
|
|
6,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
6,817
|
|
|
|
4,535
|
|
|
|
|
|
|
|
11,352
|
|
Investments of insurance subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
642
|
|
|
|
|
|
|
|
642
|
|
Investments in and advances to affiliates
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
|
621
|
|
|
|
|
|
|
|
869
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,635
|
|
|
|
1,058
|
|
|
|
|
|
|
|
2,693
|
|
Deferred loan costs
|
|
|
23
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
374
|
|
Investments in and advances to subsidiaries
|
|
|
14,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,282
|
)
|
|
|
|
|
Other
|
|
|
776
|
|
|
|
39
|
|
|
|
21
|
|
|
|
167
|
|
|
|
|
|
|
|
1,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,220
|
|
|
$
|
390
|
|
|
$
|
11,861
|
|
|
$
|
9,663
|
|
|
$
|
(14,282
|
)
|
|
$
|
23,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
919
|
|
|
$
|
618
|
|
|
$
|
|
|
|
$
|
1,537
|
|
Accrued salaries
|
|
|
|
|
|
|
|
|
|
|
556
|
|
|
|
339
|
|
|
|
|
|
|
|
895
|
|
Other accrued expenses
|
|
|
12
|
|
|
|
296
|
|
|
|
328
|
|
|
|
609
|
|
|
|
|
|
|
|
1,245
|
|
Long-term debt due within one year
|
|
|
|
|
|
|
554
|
|
|
|
12
|
|
|
|
26
|
|
|
|
|
|
|
|
592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
850
|
|
|
|
1,815
|
|
|
|
1,592
|
|
|
|
|
|
|
|
4,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,525
|
|
|
|
25,758
|
|
|
|
95
|
|
|
|
255
|
|
|
|
|
|
|
|
27,633
|
|
Intercompany balances
|
|
|
25,985
|
|
|
|
(16,130
|
)
|
|
|
(12,833
|
)
|
|
|
2,978
|
|
|
|
|
|
|
|
|
|
Professional liability risks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
995
|
|
|
|
|
|
|
|
995
|
|
Income taxes and other liabilities
|
|
|
483
|
|
|
|
425
|
|
|
|
505
|
|
|
|
195
|
|
|
|
|
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,005
|
|
|
|
10,903
|
|
|
|
(10,418
|
)
|
|
|
6,015
|
|
|
|
|
|
|
|
34,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities with contingent redemption rights
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficit) equity attributable to HCA
Holdings, Inc.
|
|
|
(11,926
|
)
|
|
|
(10,513
|
)
|
|
|
22,167
|
|
|
|
2,628
|
|
|
|
(14,282
|
)
|
|
|
(11,926
|
)
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
1,020
|
|
|
|
|
|
|
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,926
|
)
|
|
|
(10,513
|
)
|
|
|
22,279
|
|
|
|
3,648
|
|
|
|
(14,282
|
)
|
|
|
(10,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,220
|
|
|
$
|
390
|
|
|
$
|
11,861
|
|
|
$
|
9,663
|
|
|
$
|
(14,282
|
)
|
|
$
|
23,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
95
|
|
|
$
|
217
|
|
|
$
|
|
|
|
$
|
312
|
|
Accounts receivable, net
|
|
|
|
|
|
|
2,135
|
|
|
|
1,557
|
|
|
|
|
|
|
|
3,692
|
|
Inventories
|
|
|
|
|
|
|
489
|
|
|
|
313
|
|
|
|
|
|
|
|
802
|
|
Deferred income taxes
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,192
|
|
Other
|
|
|
81
|
|
|
|
148
|
|
|
|
350
|
|
|
|
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,273
|
|
|
|
2,867
|
|
|
|
2,437
|
|
|
|
|
|
|
|
6,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
7,034
|
|
|
|
4,393
|
|
|
|
|
|
|
|
11,427
|
|
Investments of insurance subsidiary
|
|
|
|
|
|
|
|
|
|
|
1,166
|
|
|
|
|
|
|
|
1,166
|
|
Investments in and advances to affiliates
|
|
|
|
|
|
|
244
|
|
|
|
609
|
|
|
|
|
|
|
|
853
|
|
Goodwill
|
|
|
|
|
|
|
1,641
|
|
|
|
936
|
|
|
|
|
|
|
|
2,577
|
|
Deferred loan costs
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
Investments in and advances to subsidiaries
|
|
|
21,830
|
|
|
|
|
|
|
|
|
|
|
|
(21,830
|
)
|
|
|
|
|
Other
|
|
|
963
|
|
|
|
19
|
|
|
|
131
|
|
|
|
|
|
|
|
1,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,484
|
|
|
$
|
11,805
|
|
|
$
|
9,672
|
|
|
$
|
(21,830
|
)
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
908
|
|
|
$
|
552
|
|
|
$
|
|
|
|
$
|
1,460
|
|
Accrued salaries
|
|
|
|
|
|
|
542
|
|
|
|
307
|
|
|
|
|
|
|
|
849
|
|
Other accrued expenses
|
|
|
282
|
|
|
|
293
|
|
|
|
583
|
|
|
|
|
|
|
|
1,158
|
|
Long-term debt due within one year
|
|
|
802
|
|
|
|
9
|
|
|
|
35
|
|
|
|
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,084
|
|
|
|
1,752
|
|
|
|
1,477
|
|
|
|
|
|
|
|
4,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
24,427
|
|
|
|
103
|
|
|
|
294
|
|
|
|
|
|
|
|
24,824
|
|
Intercompany balances
|
|
|
6,636
|
|
|
|
(10,387
|
)
|
|
|
3,751
|
|
|
|
|
|
|
|
|
|
Professional liability risks
|
|
|
|
|
|
|
|
|
|
|
1,057
|
|
|
|
|
|
|
|
1,057
|
|
Income taxes and other liabilities
|
|
|
1,176
|
|
|
|
421
|
|
|
|
171
|
|
|
|
|
|
|
|
1,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,323
|
|
|
|
(8,111
|
)
|
|
|
6,750
|
|
|
|
|
|
|
|
31,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities with contingent redemption rights
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficit) equity attributable to HCA
Holdings, Inc.
|
|
|
(8,986
|
)
|
|
|
19,787
|
|
|
|
2,043
|
|
|
|
(21,830
|
)
|
|
|
(8,986
|
)
|
Noncontrolling interests
|
|
|
|
|
|
|
129
|
|
|
|
879
|
|
|
|
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,986
|
)
|
|
|
19,916
|
|
|
|
2,922
|
|
|
|
(21,830
|
)
|
|
|
(7,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,484
|
|
|
$
|
11,805
|
|
|
$
|
9,672
|
|
|
$
|
(21,830
|
)
|
|
$
|
24,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Year Ended December 31, 2010
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HCA
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,207
|
|
|
$
|
(1,750
|
)
|
|
$
|
2,424
|
|
|
$
|
907
|
|
|
$
|
(1,215
|
)
|
|
$
|
1,573
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities
|
|
|
12
|
|
|
|
13
|
|
|
|
(1,759
|
)
|
|
|
(1,113
|
)
|
|
|
|
|
|
|
(2,847
|
)
|
Provision for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
1,632
|
|
|
|
1,016
|
|
|
|
|
|
|
|
2,648
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
782
|
|
|
|
639
|
|
|
|
|
|
|
|
1,421
|
|
Income taxes
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Gains on sales of facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Impairments of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
65
|
|
|
|
|
|
|
|
123
|
|
Amortization of deferred loan costs
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
Share-based compensation
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Equity in earnings of affiliates
|
|
|
(1,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
63
|
|
|
|
(1,625
|
)
|
|
|
3,137
|
|
|
|
1,510
|
|
|
|
|
|
|
|
3,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(602
|
)
|
|
|
(723
|
)
|
|
|
|
|
|
|
(1,325
|
)
|
Acquisition of hospitals and health care entities
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
(212
|
)
|
|
|
|
|
|
|
(233
|
)
|
Disposal of hospitals and health care entities
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
8
|
|
|
|
|
|
|
|
37
|
|
Change in investments
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
471
|
|
|
|
|
|
|
|
472
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
13
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(596
|
)
|
|
|
(443
|
)
|
|
|
|
|
|
|
(1,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
|
|
1,525
|
|
|
|
1,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,912
|
|
Net change in revolving bank credit facilities
|
|
|
|
|
|
|
1,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,889
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(2,164
|
)
|
|
|
(32
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
|
(2,268
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
(281
|
)
|
|
|
|
|
|
|
(342
|
)
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
57
|
|
Payment of debt issuance costs
|
|
|
(23
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
Distributions to stockholders
|
|
|
(4,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,257
|
)
|
Income tax benefits
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
Changes in intercompany balances with affiliates, net
|
|
|
2,590
|
|
|
|
556
|
|
|
|
(2,387
|
)
|
|
|
(759
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(6
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(57
|
)
|
|
|
1,625
|
|
|
|
(2,480
|
)
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
(1,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
6
|
|
|
|
|
|
|
|
61
|
|
|
|
32
|
|
|
|
|
|
|
|
99
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
217
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
156
|
|
|
$
|
249
|
|
|
$
|
|
|
|
$
|
411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Year Ended December 31, 2009
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,054
|
|
|
$
|
2,060
|
|
|
$
|
801
|
|
|
$
|
(2,540
|
)
|
|
$
|
1,375
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities
|
|
|
90
|
|
|
|
(1,882
|
)
|
|
|
(1,299
|
)
|
|
|
|
|
|
|
(3,091
|
)
|
Provision for doubtful accounts
|
|
|
|
|
|
|
2,043
|
|
|
|
1,233
|
|
|
|
|
|
|
|
3,276
|
|
Depreciation and amortization
|
|
|
|
|
|
|
787
|
|
|
|
638
|
|
|
|
|
|
|
|
1,425
|
|
Income taxes
|
|
|
(520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(520
|
)
|
Losses (gains) on sales of facilities
|
|
|
|
|
|
|
17
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
15
|
|
Impairments of long-lived assets
|
|
|
|
|
|
|
34
|
|
|
|
9
|
|
|
|
|
|
|
|
43
|
|
Amortization of deferred loan costs
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Share-based compensation
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Pay-in-kind
interest
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
Equity in earnings of affiliates
|
|
|
(2,540
|
)
|
|
|
|
|
|
|
|
|
|
|
2,540
|
|
|
|
|
|
Other
|
|
|
50
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(1,688
|
)
|
|
|
3,057
|
|
|
|
1,378
|
|
|
|
|
|
|
|
2,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
(720
|
)
|
|
|
(597
|
)
|
|
|
|
|
|
|
(1,317
|
)
|
Acquisition of hospitals and health care entities
|
|
|
|
|
|
|
(38
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
(61
|
)
|
Disposal of hospitals and health care entities
|
|
|
|
|
|
|
21
|
|
|
|
20
|
|
|
|
|
|
|
|
41
|
|
Change in investments
|
|
|
|
|
|
|
(7
|
)
|
|
|
310
|
|
|
|
|
|
|
|
303
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(744
|
)
|
|
|
(291
|
)
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
|
|
2,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,979
|
|
Net change in revolving bank credit facilities
|
|
|
(1,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,335
|
)
|
Repayment of long-term debt
|
|
|
(2,972
|
)
|
|
|
(7
|
)
|
|
|
(124
|
)
|
|
|
|
|
|
|
(3,103
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
(70
|
)
|
|
|
(260
|
)
|
|
|
|
|
|
|
(330
|
)
|
Payment of debt issuance costs
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
3,107
|
|
|
|
(2,275
|
)
|
|
|
(832
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(21
|
)
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,688
|
|
|
|
(2,352
|
)
|
|
|
(1,201
|
)
|
|
|
|
|
|
|
(1,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
|
|
|
|
(39
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
(153
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
134
|
|
|
|
331
|
|
|
|
|
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
95
|
|
|
$
|
217
|
|
|
$
|
|
|
|
$
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
HCA
HOLDINGS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The Year Ended December 31, 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
HCA Inc.
|
|
|
Subsidiary
|
|
|
Non-
|
|
|
|
|
|
Condensed
|
|
|
|
Issuer
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
673
|
|
|
$
|
1,734
|
|
|
$
|
595
|
|
|
$
|
(2,100
|
)
|
|
$
|
902
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities
|
|
|
(11
|
)
|
|
|
(2,085
|
)
|
|
|
(1,271
|
)
|
|
|
|
|
|
|
(3,367
|
)
|
Provision for doubtful accounts
|
|
|
|
|
|
|
2,073
|
|
|
|
1,336
|
|
|
|
|
|
|
|
3,409
|
|
Depreciation and amortization
|
|
|
|
|
|
|
776
|
|
|
|
640
|
|
|
|
|
|
|
|
1,416
|
|
Income taxes
|
|
|
(448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(448
|
)
|
Gains on sales of facilities
|
|
|
|
|
|
|
(5
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
(97
|
)
|
Impairments of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
Amortization of deferred loan costs
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
Share-based compensation
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Equity in earnings of affiliates
|
|
|
(2,100
|
)
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(19
|
)
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(1,775
|
)
|
|
|
2,474
|
|
|
|
1,291
|
|
|
|
|
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
(927
|
)
|
|
|
(673
|
)
|
|
|
|
|
|
|
(1,600
|
)
|
Acquisition of hospitals and health care entities
|
|
|
|
|
|
|
(34
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
(85
|
)
|
Disposal of hospitals and health care entities
|
|
|
|
|
|
|
27
|
|
|
|
166
|
|
|
|
|
|
|
|
193
|
|
Change in investments
|
|
|
|
|
|
|
(26
|
)
|
|
|
47
|
|
|
|
|
|
|
|
21
|
|
Other
|
|
|
|
|
|
|
(4
|
)
|
|
|
8
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(964
|
)
|
|
|
(503
|
)
|
|
|
|
|
|
|
(1,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in revolving bank credit facilities
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700
|
|
Repayment of long-term debt
|
|
|
(851
|
)
|
|
|
(4
|
)
|
|
|
(105
|
)
|
|
|
|
|
|
|
(960
|
)
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
(32
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
(178
|
)
|
Changes in intercompany balances with affiliates, net
|
|
|
1,935
|
|
|
|
(1,505
|
)
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(9
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,775
|
|
|
|
(1,541
|
)
|
|
|
(685
|
)
|
|
|
|
|
|
|
(451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
|
|
|
|
(31
|
)
|
|
|
103
|
|
|
|
|
|
|
|
72
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
165
|
|
|
|
228
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
134
|
|
|
$
|
331
|
|
|
$
|
|
|
|
$
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
HCA
HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
SUPPLEMENTAL
CONDENSED CONSOLIDATING FINANCIAL INFORMATION AND OTHER
COLLATERAL-RELATED INFORMATION (Continued)
|
Healthtrust, Inc. The Hospital Company
(Healthtrust) is the first-tier subsidiary of HCA
Inc. The common stock of Healthtrust has been pledged as
collateral for the senior secured credit facilities and senior
secured notes described in Note 9.
Rule 3-16
of
Regulation S-X
under the Securities Act requires the filing of separate
financial statements for any affiliate of the registrant whose
securities constitute a substantial portion of the collateral
for any class of securities registered or being registered. We
believe the separate financial statements requirement applies to
Healthtrust due to the pledge of its common stock as collateral
for the senior secured notes. Due to the corporate structure
relationship of HCA and Healthtrust, HCAs operating
subsidiaries are also the operating subsidiaries of Healthtrust.
The corporate structure relationship, combined with the
application of push-down accounting in Healthtrusts
consolidated financial statements related to HCAs debt and
financial instruments, results in the consolidated financial
statements of Healthtrust being substantially identical to the
consolidated financial statements of HCA. The consolidated
financial statements of HCA and Healthtrust present the
identical amounts for revenues, expenses, net income, assets,
liabilities, total stockholders deficit, net cash provided
by operating activities, net cash used in investing activities
and net cash used in financing activities. Certain individual
line items in the HCA consolidated statements of
stockholders deficit and cash flows are combined into one
line item in the Healthtrust consolidated statements of
stockholders deficit and cash flows.
Reconciliations of the HCA Holdings, Inc. Consolidated
Statements of Stockholders Deficit and Consolidated
Statements of Cash Flows presentations to the Healthtrust,
Inc. The Hospital Company Consolidated Statements of
Stockholders Deficit and Consolidated Statements of Cash
Flows presentations for the years ended December 31, 2010,
2009 and 2008 are as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Presentation in HCA Holdings, Inc. Consolidated Statements of
Stockholders Deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based benefit plans
|
|
$
|
43
|
|
|
$
|
47
|
|
|
$
|
40
|
|
Other
|
|
|
120
|
|
|
|
14
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presentation in Healthtrust, Inc. The Hospital
Company Consolidated Statements of Stockholders Deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from HCA Holdings, Inc., net of contributions to
HCA Holdings, Inc.
|
|
$
|
163
|
|
|
$
|
61
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presentation in HCA Holdings, Inc. Consolidated Statements of
Cash Flows (cash flows from financing activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Presentation in Healthtrust Inc. The Hospital
Company Consolidated Statements of Cash Flows (cash flows from
financing activities):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash distributions to HCA Holdings, Inc.
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the consolidated financial statements of Healthtrust
being substantially identical to the consolidated financial
statements of HCA, except for the items presented in the tables
above, the separate consolidated financial statements of
Healthtrust are not presented.
|
|
NOTE 18
|
SUBSEQUENT
EVENT
|
February 16, 2011 Increase in Authorized Shares and
Stock Split
On February 16, 2011, our Board of Directors approved an
increase in the number of authorized shares to
1,800,000,000 shares of common stock and a 4.505 -to-one
split of the Companys issued and outstanding common stock.
The increase in the authorized shares and the stock split are
expected to become effective immediately prior to the
effectiveness of the initial public offering of our common
stock. Since the increase in the authorized shares and the stock
split are not yet effective, the common share and per common
share amounts in these consolidated financial statements and
notes to consolidated financial statements have not been
restated.
F-43
HCA
HOLDINGS, INC.
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Revenues
|
|
$
|
7,544
|
|
|
$
|
7,756
|
|
|
$
|
7,647
|
|
|
$
|
7,736
|
|
Net income
|
|
$
|
476
|
(a)
|
|
$
|
378
|
(b)
|
|
$
|
325
|
(c)
|
|
$
|
394
|
(d)
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
388
|
(a)
|
|
$
|
293
|
(b)
|
|
$
|
243
|
(c)
|
|
$
|
283
|
(d)
|
Basic earnings per share
|
|
$
|
4.11
|
(a)
|
|
$
|
3.09
|
(b)
|
|
$
|
2.57
|
(c)
|
|
$
|
2.99
|
(d)
|
Diluted earnings per share
|
|
$
|
4.02
|
(a)
|
|
$
|
3.01
|
(b)
|
|
$
|
2.49
|
(c)
|
|
$
|
2.91
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Revenues
|
|
$
|
7,431
|
|
|
$
|
7,483
|
|
|
$
|
7,533
|
|
|
$
|
7,605
|
|
Net income
|
|
$
|
432
|
(e)
|
|
$
|
365
|
(f)
|
|
$
|
274
|
(g)
|
|
$
|
304
|
(h)
|
Net income attributable to HCA Holdings, Inc.
|
|
$
|
360
|
(e)
|
|
$
|
282
|
(f)
|
|
$
|
196
|
(g)
|
|
$
|
216
|
(h)
|
Basic earnings per share
|
|
$
|
3.81
|
(e)
|
|
$
|
3.00
|
(f)
|
|
$
|
2.07
|
(g)
|
|
$
|
2.29
|
(h)
|
Diluted earnings per share
|
|
$
|
3.76
|
(e)
|
|
$
|
2.96
|
(f)
|
|
$
|
2.04
|
(g)
|
|
$
|
2.24
|
(h)
|
|
|
|
(a) |
|
First quarter results include $12 million of costs related
to the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(b) |
|
Second quarter results include $57 million of costs related
to the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(c) |
|
Third quarter results include $1 million of losses on sales
of facilities (See NOTE 3 of the notes to consolidated
financial statements) and $6 million of costs related to
the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(d) |
|
Fourth quarter results include $3 million of gains on sales
of facilities (See NOTE 3 of the notes to consolidated
financial statements) and $2 million of costs related to
the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(e) |
|
First quarter results include $3 million of losses on sales
of facilities (See NOTE 3 of the notes to consolidated
financial statements) and $6 million of costs related to
the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(f) |
|
Second quarter results include $2 million of losses on
sales of facilities (See NOTE 3 of the notes to
consolidated financial statements) and $2 million of costs
related to the impairments of long-lived assets (See NOTE 4
of the notes to consolidated financial statements). |
|
(g) |
|
Third quarter results include $2 million of costs related
to the impairments of long-lived assets (See NOTE 4 of the
notes to consolidated financial statements). |
|
(h) |
|
Fourth quarter results include $4 million of losses on
sales of facilities (See NOTE 3 of the notes to
consolidated financial statements) and $24 million of costs
related to the impairments of long-lived assets (See NOTE 4
of the notes to consolidated financial statements). |
F-44