Tenet Healthcare Corporation

30/07/2024 | Press release | Distributed by Public on 30/07/2024 20:04

Quarterly Report for Quarter Ending 2024 06 30 (Form 10 Q)

thc-20240630
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
ýQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2024
OR
¨Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to
Commission File Number: 1-7293
TENET HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada
(State of Incorporation)
95-2557091
(IRS Employer Identification No.)
14201 Dallas Parkway
Dallas, TX75254
(Address of principal executive offices, including zip code)
(469) 893-2200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol Name of each exchange on which registered
Common stock, $0.05 par value THC New York Stock Exchange
6.875% Senior Notes due 2031 THC31 New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YesýNo ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. YesýNo ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (each as defined in Exchange Act Rule 12b-2).
Large accelerated filerý
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨No ý
As of July 24, 2024, there were 95,822 shares (in thousands) of the Registrant's common stock outstanding.
Table of Contents
TENET HEALTHCARE CORPORATION
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Financial Statements
1
Notes to Condensed Consolidated Financial Statements
5
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
24
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
51
Item 4.
Controls and Procedures
51
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
52
Item 1A.
Risk Factors
52
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
52
Item 5.
Other Information
52
Item 6.
Exhibits
53
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in Millions, Share Amounts in Thousands
(Unaudited)
June 30, December 31,
2024 2023
ASSETS
Current assets:
Cash and cash equivalents $ 2,880 $ 1,228
Accounts receivable 2,817 2,914
Inventories of supplies, at cost 382 411
Assets held for sale 21 775
Other current assets 1,855 1,839
Total current assets 7,955 7,167
Investments and other assets 3,156 3,157
Deferred income taxes 85 77
Property and equipment, at cost, less accumulated depreciation and amortization ($6,016 at June 30, 2024 and $6,478 at December 31, 2023)
5,857 6,236
Goodwill 10,799 10,307
Other intangible assets, at cost, less accumulated amortization ($1,331 at June 30, 2024 and $1,447 at December 31, 2023)
1,413 1,368
Total assets $ 29,265 $ 28,312
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 102 $ 120
Accounts payable 1,270 1,408
Accrued compensation and benefits 788 930
Professional and general liability reserves 283 254
Accrued interest payable 149 200
Liabilities held for sale 11 69
Income tax payable 715 23
Other current liabilities 2,175 1,756
Total current liabilities 5,493 4,760
Long-term debt, net of current portion 12,769 14,882
Professional and general liability reserves 844 792
Defined benefit plan obligations 334 335
Deferred income taxes 245 326
Other long-term liabilities 1,711 1,709
Total liabilities 21,396 22,804
Commitments and contingencies
Redeemable noncontrolling interests in equity of consolidated subsidiaries 2,813 2,391
Equity:
Shareholders' equity:
Common stock, $0.05 par value; authorized 262,500 shares; 157,930 shares issued at June 30, 2024 and 157,271 shares issued at December 31, 2023
8 8
Additional paid-in capital 4,840 4,834
Accumulated other comprehensive loss (177) (181)
Retained earnings (accumulated deficit) 2,218 (192)
Common stock in treasury, at cost, 62,111 shares at June 30, 2024 and 57,321 shares at December 31, 2023
(3,414) (2,861)
Total shareholders' equity 3,475 1,608
Noncontrolling interests 1,581 1,509
Total equity 5,056 3,117
Total liabilities and equity $ 29,265 $ 28,312
See accompanying Notes to Condensed Consolidated Financial Statements.
Table of Contents
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in Millions, Except Per-Share Amounts
(Unaudited)
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Net operating revenues $ 5,103 $ 5,082 $ 10,471 $ 10,103
Grant income 5 8 5 11
Equity in earnings of unconsolidated affiliates 61 54 120 104
Operating expenses:
Salaries, wages and benefits 2,168 2,285 4,489 4,543
Supplies 908 891 1,836 1,782
Other operating expenses, net 1,148 1,125 2,302 2,218
Depreciation and amortization 208 213 416 430
Impairment and restructuring charges, and acquisition-related costs 29 16 56 37
Litigation and investigation costs 5 10 9 14
Net gains on sales, consolidation and deconsolidation of facilities (58) - (2,558) (13)
Operating income 761 604 4,046 1,207
Interest expense (203) (226) (421) (447)
Other non-operating income, net 29 6 54 4
Loss from early extinguishment of debt - (11) (8) (11)
Income before income taxes 587 373 3,671 753
Income tax expense (110) (80) (860) (164)
Net income 477 293 2,811 589
Less: Net income available to noncontrolling interests 218 170 401 323
Net income available to Tenet Healthcare Corporation common shareholders $ 259 $ 123 $ 2,410 $ 266
Earnings per share available to Tenet Healthcare Corporation common shareholders:
Basic earnings per share $ 2.66 $ 1.21 $ 24.49 $ 2.61
Diluted earnings per share $ 2.64 $ 1.15 $ 24.22 $ 2.47
Weighted average shares and dilutive securities outstanding (in thousands):
Basic 97,267 101,766 98,424 102,028
Diluted 98,444 104,778 99,557 105,354
See accompanying Notes to Condensed Consolidated Financial Statements.
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TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
Dollars in Millions
(Unaudited)
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Net income $ 477 $ 293 $ 2,811 $ 589
Other comprehensive income:
Amortization of net actuarial loss included in other non-operating income, net 2 2 4 4
Foreign currency translation adjustments and other - - 1 -
Other comprehensive income before income taxes 2 2 5 4
Income tax expense related to items of other comprehensive income - (1) (1) (1)
Total other comprehensive income, net of tax 2 1 4 3
Comprehensive net income 479 294 2,815 592
Less: Comprehensive income available to noncontrolling interests 218 170 401 323
Comprehensive income available to Tenet Healthcare Corporation common shareholders $ 261 $ 124 $ 2,414 $ 269
See accompanying Notes to Condensed Consolidated Financial Statements.
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TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
(Unaudited)
Six Months Ended June 30,
2024 2023
Net income $ 2,811 $ 589
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 416 430
Deferred income tax expense (benefit) (93) 37
Stock-based compensation expense 36 33
Impairment and restructuring charges, and acquisition-related costs 56 37
Litigation and investigation costs 9 14
Net gains on sales, consolidation and deconsolidation of facilities (2,558) (13)
Loss from early extinguishment of debt 8 11
Equity in earnings of unconsolidated affiliates, net of distributions received (3) 7
Amortization of debt discount and debt issuance costs 14 18
Net gains from the sale of investments and long-lived assets (1) (15)
Other items, net (3) (3)
Changes in cash from operating assets and liabilities:
Accounts receivable 77 7
Inventories and other current assets 16 160
Income taxes 713 (31)
Accounts payable, accrued expenses and other current liabilities (124) (168)
Other long-term liabilities 23 12
Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements (64) (78)
Net cash provided by operating activities 1,333 1,047
Cash flows from investing activities:
Purchases of property and equipment (385) (367)
Purchases of businesses or joint venture interests, net of cash acquired (510) (96)
Proceeds from sales of facilities and other assets 4,048 16
Proceeds from sales of marketable securities and long-term investments 17 26
Purchases of marketable securities and long-term investments (26) (37)
Other items, net (10) (9)
Net cash provided by (used in) investing activities 3,134 (467)
Cash flows from financing activities:
Repayments of borrowings (2,179) (1,437)
Proceeds from borrowings 8 1,362
Repurchases of common stock (548) (90)
Debt issuance costs - (15)
Distributions paid to noncontrolling interests (323) (270)
Proceeds from the sale of noncontrolling interests 10 30
Purchases of noncontrolling interests (88) (79)
Advances from managed care payers 342 -
Other items, net (37) (5)
Net cash used in financing activities (2,815) (504)
Net increase in cash and cash equivalents 1,652 76
Cash and cash equivalents at beginning of period 1,228 858
Cash and cash equivalents at end of period $ 2,880 $ 934
Supplemental disclosures:
Interest paid, net of capitalized interest $ (459) $ (445)
Income tax payments, net $ (240) $ (158)
See accompanying Notes to Condensed Consolidated Financial Statements.
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TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Description of Business and Basis of Presentation
Tenet Healthcare Corporation (together with our subsidiaries, referred to herein as "Tenet," "we" or "us") is a diversified healthcare services company headquartered in Dallas, Texas. Prior to December 31, 2023, our business was organized into three separate reporting segments: Hospital Operations and other, Ambulatory Care and Conifer. During the three months ended December 31, 2023, we combined our Hospital Operations and other and Conifer segments into a single reporting segment named Hospital Operations and Services ("Hospital Operations"). The results of the revenue cycle management and value-based care services we provide to hospitals, health systems, physician practices, employers and other clients previously reported under our Conifer segment are now combined with our Hospital Operations segment. See below for additional discussion of this change.
Our expansive, nationwide care delivery network now consists of our Hospital Operations and Ambulatory Care segments. As of June 30, 2024, our Hospital Operations segment was comprised of 52 acute care and specialty hospitals, a network of employed physicians and 148 outpatient facilities, including imaging centers, urgent care centers (each, a "UCC"), ancillary emergency facilities and micro-hospitals. Our Ambulatory Care segment is comprised of the operations of our subsidiary USPI Holding Company, Inc. ("USPI"), which held indirect ownership interests in 520 ambulatory surgery centers and 24 surgical hospitals at June 30, 2024. USPI held noncontrolling interests in 160 of these facilities, which are recorded using the equity method of accounting. In addition, we operate a Global Business Center ("GBC") in Manila, Philippines.
This quarterly report supplements our Annual Report on Form 10-K for the year ended December 31, 2023 ("Annual Report"). As permitted by the Securities and Exchange Commission for interim reporting, we have omitted certain notes and disclosures that substantially duplicate those in our Annual Report. For further information, refer to the audited Consolidated Financial Statements and notes included in our Annual Report. Unless otherwise indicated, all dollar amounts presented in our Condensed Consolidated Financial Statements and these accompanying notes are expressed in millions (except per-share amounts), and all share amounts are expressed in thousands.
Changes to prior-year presentation-As noted above, we combined our Hospital Operations and other and Conifer segments into a single reporting segment named Hospital Operations and Services (Hospital Operations) during the three months ended December 31, 2023. This change was made to reflect updates to the organizational and management structure of our Conifer and Hospital Operations and other segments. All prior-period data presented in this report has been adjusted to conform to our new reporting segment structure.
As of December 31, 2023, our business was organized into two reporting segments:
•our Hospital Operations segment, which includes (1) our acute care and specialty hospitals, physician practices, imaging centers, UCCs, ancillary emergency facilities and micro-hospitals, and (2) the revenue cycle management and value-based care services we provide to hospitals, health systems, physician practices, employers and other clients through our Conifer Health Solutions, LLC joint venture; and
•our Ambulatory Care segment, which is comprised of the ambulatory surgery center and surgical hospital operations of our subsidiary USPI.
In addition, due to its increased significance, income tax payable is now presented separately from other current liabilities in the accompanying Condensed Consolidated Balance Sheets.
Although our Condensed Consolidated Financial Statements and these related notes are unaudited, we believe all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires us to make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and these accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable given the particular circumstances in which we operate. Actual results may vary from those estimates. The financial and statistical information we report to other regulatory agencies may be prepared on a basis other than GAAP or using different assumptions or reporting periods and, therefore, may vary from the amounts presented herein. Although we make every effort to ensure that the information we report to those agencies is accurate, complete and consistent with applicable reporting guidelines, we cannot be responsible for the accuracy of the information they make available to the public.
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Operating results for the three and six-month periods ended June 30, 2024 are not necessarily indicative of the results that may be expected for the full year. Reasons for this include, but are not limited to: the impact of the demand for, and availability of, qualified medical personnel on compensation costs; overall revenue and cost trends, particularly the timing and magnitude of price changes; fluctuations in contractual allowances and cost report settlements and valuation allowances; managed care contract negotiations, settlements or terminations and payer consolidations; trends in patient accounts receivable collectability and associated implicit price concessions; the impact of cybersecurity incidents on our operations; fluctuations in interest rates; levels of malpractice insurance expense and settlement trends; impairment of long-lived assets and goodwill; restructuring charges; losses, costs and insurance recoveries related to cybersecurity incidents, natural disasters and weather-related occurrences; the future course and impact of COVID-19, or the potential emergence and effects of a future pandemic, epidemic or outbreak of an infectious disease, on our operations, financial condition and liquidity; litigation and investigation costs; acquisitions and dispositions of facilities and other assets; gains (losses) on sales, consolidation and deconsolidation of facilities; income tax rates and deferred tax asset valuation allowance activity; changes in estimates of accruals for annual incentive compensation; the timing and amounts of stock option and restricted stock unit grants to employees and directors; gains (losses) from early extinguishment of debt; and changes in occupancy levels and patient volumes.
Our hospitals and outpatient facilities are subject to various factors that affect our service mix, revenue mix and patient volumes and, thereby, impact our net patient service revenues and results of operations. These factors include, among others: changes in federal, state and local healthcare and business regulations; changes in general economic conditions nationally and regionally, including inflation and other factors; the number of uninsured and underinsured individuals in local communities treated at our facilities; disease hotspots and seasonal cycles of illness; climate and weather conditions; physician recruitment, satisfaction, retention and attrition; advances in technology and treatments that reduce length of stay or permit procedures to be performed in an outpatient rather than inpatient setting; local healthcare competitors; utilization pressure by managed care organizations, as well as managed care contract negotiations or terminations; performance data on quality measures and patient satisfaction, as well as standard charges for services; any unfavorable publicity about us, or our joint venture partners, that impacts our relationships with physicians and patients; and changing consumer behavior, including with respect to the timing of elective procedures. These considerations apply to year-to-year comparisons as well.
Cash and Cash Equivalents
We treat highly liquid investments with original maturities of three months or less as cash equivalents. Cash and cash equivalents were $2.880 billion and $1.228 billion at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024 and December 31, 2023, our book overdrafts were $165 million and $187 million, respectively, which were classified as accounts payable. Also at June 30, 2024 and December 31, 2023, $106 million and $100 million, respectively, of total cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets were intended for the operations of our insurance-related subsidiaries.
In addition, at June 30, 2024 and December 31, 2023, we had $63 million and $154 million, respectively, of property and equipment purchases accrued for items received but not yet paid. Of these amounts, $47 million and $141 million, respectively, were included in accounts payable.
During the six months ended June 30, 2024 and 2023, we recorded right-of-use assets related to non-cancellable finance leases of $30 million and $21 million, respectively, and related to non-cancellable operating leases of $124 million and $74 million, respectively, in each case excluding right-of-use assets obtained through business acquisitions.
Goodwill
The following tables provide information on changes in the carrying amount of goodwill for each of our segments:
Six Months Ended
June 30,
2024 2023
Hospital Operations:
Goodwill at beginning of period, net of accumulated impairment losses $ 3,119 $ 3,411
Purchase price allocation adjustments 31 -
Goodwill related to assets held for sale and disposed (281) (30)
Goodwill at end of period, net of accumulated impairment losses $ 2,869 $ 3,381
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Six Months Ended
June 30,
2024 2023
Ambulatory Care:
Goodwill at beginning of period $ 7,188 $ 6,712
Goodwill acquired during the year, net of purchase price allocation adjustments 815 260
Goodwill related to assets held for sale and disposed or deconsolidated facilities (73) (3)
Goodwill at end of period $ 7,930 $ 6,969
Other Intangible Assets
The following table provides information regarding other intangible assets, which were included in the accompanying Condensed Consolidated Balance Sheets:
Gross
Carrying Amount 		Accumulated
Amortization
Net Book Value
At June 30, 2024:
Other intangible assets with finite useful lives:
Capitalized software costs $ 1,568 $ (1,125) $ 443
Contracts 312 (128) 184
Other 90 (78) 12
Other intangible assets with finite lives 1,970 (1,331) 639
Other intangible assets with indefinite useful lives:
Trade names 105 - 105
Contracts 665 - 665
Other 4 - 4
Other intangible assets with indefinite lives 774 - 774
Other intangible assets, net $ 2,744 $ (1,331) $ 1,413
At December 31, 2023:
Other intangible assets with finite useful lives:
Capitalized software costs $ 1,712 $ (1,205) $ 507
Contracts 294 (164) 130
Other 91 (78) 13
Other intangible assets with finite lives 2,097 (1,447) 650
Other intangible assets with indefinite useful lives:
Trade names 105 - 105
Contracts 609 - 609
Other 4 - 4
Other intangible assets with indefinite lives 718 - 718
Other intangible assets, net $ 2,815 $ (1,447) $ 1,368
Estimated future amortization of intangible assets with finite useful lives at June 30, 2024 was as follows:
Six Months Ending
Years Ending

Later Years
December 31,
Total 2024 2025 2026 2027 2028
Amortization of intangible assets $ 639 $ 93 $ 112 $ 100 $ 89 $ 68 $ 177
We recognized amortization expense of $89 million and $84 million in the accompanying Condensed Consolidated Statements of Operations for the six months ended June 30, 2024 and 2023, respectively.
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Other Current Assets and Other Current Liabilities
The principal components of other current assets in the accompanying Condensed Consolidated Balance Sheets were as follows:
June 30, 2024 December 31, 2023
Prepaid expenses $ 379 $ 391
Contract assets 193 208
California provider fee program receivables 344 329
Receivables from other government programs 247 282
Guarantees 280 274
Non-patient receivables 310 260
Other 102 95
Total other current assets $ 1,855 $ 1,839
At June 30, 2024, other current liabilities in the accompanying Condensed Consolidated Balance Sheet included $342 million of advances received from managed care payers designed to assist healthcare providers experiencing cash flow disruptions as a result of the February 2024 cyberattack on Change Healthcare, a clearinghouse for medical claims. There were no advances from managed care payers at December 31, 2023.
Investments in Unconsolidated Affiliates
As of June 30, 2024, we controlled 384 of the facilities in our Ambulatory Care segment and, therefore, consolidated their results. We account for many of the facilities in which our Ambulatory Care segment holds ownership interests (160 of 544 at June 30, 2024), as well as additional companies in which our Hospital Operations segment holds ownership interests, under the equity method as investments in unconsolidated affiliates and report only our share of net income as equity in earnings of unconsolidated affiliates in our condensed consolidated statements of operations.Summarized financial information for these equity method investees is included in the following table. For investments acquired during the reported periods, amounts in the table include 100% of the investee's results beginning on the date of our acquisition of the investment.
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Net operating revenues $ 893 $ 830 $ 1,728 $ 1,613
Net income $ 193 $ 203 $ 409 $ 388
Net income available to the investees $ 97 $ 121 $ 220 $ 228
NOTE 2. ACCOUNTS RECEIVABLE
The principal components of accounts receivable are presented in the table below:
June 30, 2024 December 31, 2023
Patient accounts receivable $ 2,654 $ 2,719
Estimated future recoveries 139 148
Cost report settlements receivable, net of payables and valuation allowances 24 47
Accounts receivable, net $ 2,817 $ 2,914
We participate in various provider fee programs, which help reduce the amount of uncompensated care for indigent patients and those covered by Medicaid. The following table summarizes the amount and classification of assets and liabilities in the accompanying Condensed Consolidated Balance Sheets related to California's provider fee program:
June 30, 2024 December 31, 2023
Assets:
Other current assets $ 344 $ 329
Investments and other assets $ 293 $ 334
Liabilities:
Other current liabilities $ 164 $ 172
Other long-term liabilities $ 103 $ 135
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Uninsured and Charity Patient Costs
The following table presents our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses) of caring for our uninsured and charity patients:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Estimated costs for:
Uninsured patients $ 132 $ 116 $ 271 $ 239
Charity care patients 25 28 46 52
Total
$ 157 $ 144 $ 317 $ 291
NOTE 3. CONTRACT BALANCES
Hospital Operations Segment
Our Hospital Operations segment's contract assets and liabilities primarily derive from: (1) patients receiving ongoing inpatient care from one of our facilities at the end of the reporting period; and (2) timing differences between our performance of revenue cycle management and other contractually-based services and the invoicing or receipt of payment for these services. Our Hospital Operations segment's contract assets were included in other current assets, and its contract liabilities were included in other current liabilities or other long-term liabilities, depending upon when we expect to recognize the underlying revenue, in the accompanying Condensed Consolidated Balance Sheets at June 30, 2024 and December 31, 2023. Approximately 89% of our Hospital Operations segment's contract assets meet the conditions for unconditional right to payment and are reclassified to patient receivables within 90 days.
The opening and closing balances of our Hospital Operations segment's receivables, contract assets, and current and long-term contract liabilities were as follows:
Receivables Contract Assets -
Unbilled Revenue 		Contract Liabilities -
Current
Deferred Revenue 		Contract Liabilities -
Long-Term
Deferred Revenue
December 31, 2023 $ 21 $ 208 $ 59 $ 12
June 30, 2024 28 193 83 13
Increase (decrease) $ 7 $ (15) $ 24 $ 1
December 31, 2022 $ 37 $ 200 $ 110 $ 13
June 30, 2023 18 186 76 12
Decrease $ (19) $ (14) $ (34) $ (1)
The differences between the balances of our contract assets at December 31, 2023 and 2022 and the balances at June 30, 2024 and 2023 were primarily related to patients who were receiving inpatient acute care hospital services as of each year-end date, but who were discharged during the following related six-month period.
In the six months ended June 30, 2024 and 2023, we recognized revenue totaling $52 million and $70 million, respectively, from our revenue cycle management services that was included in the opening current deferred revenue liability. This revenue consists primarily of prepayments for those contract clients who were billed in advance, changes in estimates related to metric-based services, and up-front integration services that are recognized over the service period.
Contract Costs-At June 30, 2024 and December 31, 2023, unamortized client contract setup costs were $20 million and $22 million, respectively, and were presented as part of investments and other assets in the accompanying Condensed Consolidated Balance Sheets.
NOTE 4. DISPOSITION OF ASSETS AND LIABILITIES
In November 2023, we entered into a definitive agreement for the sale of three hospitals located in South Carolina and certain related operations (together, the "SC Hospitals"), all of which were held by our Hospital Operations segment. The assets and liabilities related to the SC Hospitals were included in assets held for sale and liabilities held for sale, respectively, in the accompanying Condensed Consolidated Balance Sheet at December 31, 2023. We completed the sale of the SC Hospitals in January 2024, resulting in the recognition of a pre-tax gain on sale of $1.677 billion in the six months ended June 30, 2024.
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In January 2024, we entered into a definitive agreement for the sale of four hospitals and certain related operations located in Orange County and Los Angeles County, California (the "OCLA CA Hospitals"), including facilities from both our Hospital Operations and Ambulatory Care segments. We completed the sale of the OCLA CA Hospitals in March 2024, resulting in the recognition of a pre-tax gain on sale of $526 million in the six months ended June 30, 2024.
In February 2024, we entered into a definitive agreement for the sale of two hospitals and certain related operations located in San Luis Obispo County, California (the "Central CA Hospitals"), all of which were held by our Hospital Operations segment. We completed the sale of the Central CA Hospitals in March 2024, resulting in the recognition of a pre-tax gain on sale of $275 million in the six months ended June 30, 2024.
We completed the sale of three additional ambulatory surgery centers held by our Ambulatory Care segment during the six months ended June 30, 2024, resulting in the recognition of a total pre-tax gain on the sales of $43 million.
Gains recognized from the disposition of the assets described above are included in net gains on sales, consolidation and deconsolidation of facilities in the accompanying Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2024.
Assets and liabilities classified as held for sale at June 30, 2024 were comprised of the following:
Other current assets $ 5
Other intangible assets 16
Other current liabilities (11)
Net assets held for sale $ 10
The following table presents amounts included in income before income taxes, related to a significant component of our business that was recently disposed of:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
SC Hospitals (includes a $1.677 billion gain on sale in the six months ended June 30, 2024)
$ 3 $ 32 $ 1,689 $ 60
NOTE 5. IMPAIRMENT AND RESTRUCTURING CHARGES, AND ACQUISITION-RELATED COSTS
Our impairment tests presume stable, improving or, in some cases, declining operating results in our facilities, which are based on programs and initiatives being implemented that are designed to achieve each facility's most recent projections. If these projections are not met, or negative trends occur that impact our future outlook, future impairments of long-lived assets and goodwill may occur, and we may incur additional restructuring charges, which could be material.
We record costs associated with restructuring efforts in our statement of operations as they are incurred. Our restructuring plans typically focus on the alignment of our operations in the most strategic and cost-effective structure, such as the establishment of support operations at our GBC, among other things. Certain restructuring and acquisition-related costs are based on estimates. Changes in estimates are recognized as they occur.
During the six months ended June 30, 2024, we recorded impairment and restructuring charges and acquisition-related costs of $56 million, consisting of $32 million of restructuring charges, $22 million of acquisition-related transaction costs and $2 million of impairment charges. Restructuring charges consisted of $14 million of legal costs related to the sale of certain businesses, $6 million of employee severance costs, $5 million related to the transition of various administrative functions to our GBC and $7 million of other restructuring costs.
During the six months ended June 30, 2023, we recorded impairment and restructuring charges and acquisition-related costs of $37 million, consisting of $31 million of restructuring charges, $4 million of acquisition-related transaction costs and $2 million of impairment charges. Restructuring charges consisted of $11 million of legal costs related to the sale of certain businesses, $7 million related to the transition of various administrative functions to our GBC, $6 million of employee severance costs, $2 million of contract and lease termination fees, and $5 million of other restructuring costs.
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NOTE 6. LONG-TERM DEBT
The table below presents our long-term debt included in the accompanying Condensed Consolidated Balance Sheets:
June 30, 2024 December 31, 2023
Senior unsecured notes:
6.125% due 2028
$ 2,500 $ 2,500
6.875% due 2031
362 362
Senior secured first lien notes:
4.875% due 2026
- 2,100
5.125% due 2027
1,500 1,500
4.625% due 2028
600 600
4.250% due 2029
1,400 1,400
4.375% due 2030
1,450 1,450
6.125% due 2030
2,000 2,000
6.750% due 2031
1,350 1,350
Senior secured second lien notes:
6.250% due 2027
1,500 1,500
Finance leases, mortgages and other notes 311 361
Unamortized issue costs and note discounts (102) (121)
Total long-term debt 12,871 15,002
Less: Current portion 102 120
Long-term debt, net of current portion $ 12,769 $ 14,882
Senior Unsecured Notes and Senior Secured Notes
At June 30, 2024, we had senior unsecured notes and senior secured notes with aggregate principal amounts outstanding of $12.662 billion. These notes have fixed interest rates ranging from 4.250% to 6.875% and require semi-annual interest payments in arrears. A payment of the principal and any accrued but unpaid interest is due upon the maturity date of the respective notes, which dates are staggered from February 2027 through November 2031.
In March 2024, we redeemed all $2.100 billion aggregate principal amount outstanding of our 4.875% senior secured first lien notes due 2026 in advance of their maturity date. We paid $2.100 billion using cash on hand to redeem the notes. In connection with the redemption, we recorded a loss from early extinguishment of debt of $8 million in the three months ended March 31, 2024, primarily related to the write-off of associated unamortized issuance costs.
Credit Agreement
We have a senior secured revolving credit facility (as amended, the "Credit Agreement") that provides for revolving loans in an aggregate principal amount of up to $1.500 billion with a $200 million subfacility for standby letters of credit. Outstanding revolving loans accrue interest depending on the type of loan at either (a) a base rate plus an applicable margin ranging from 0.25% to 0.75% per annum or (b) Term Secured Overnight Financing Rate ("SOFR"), Daily Simple SOFR or the Euro Interbank Offered Rate (EURIBOR) (each, as defined in the Credit Agreement) plus an applicable margin ranging from 1.25% to 1.75% per annum and (in the case of Term SOFR and Daily Simple SOFR only) a credit spread adjustment of 0.10%, in each case based on available credit. An unused commitment fee payable on the undrawn portion of the revolving loans ranges from 0.25% to 0.375% per annum based on available credit. Our borrowing availability is based on a specified percentage of eligible inventory and accounts receivable, including self-pay accounts. At June 30, 2024, we had no cash borrowings outstanding under the Credit Agreement, and we had less than $1 million of standby letters of credit outstanding. Based on our eligible receivables, $1.500 billion was available for borrowing under the Credit Agreement at June 30, 2024.
Letter of Credit Facility
We have a letter of credit facility (as amended to date, the "LC Facility") that provides for the issuance, from time to time, of standby and documentary letters of credit in an aggregate principal amount of up to $200 million. We amended the LC Facility in September 2023 to, among other things, (1) extend the scheduled maturity date from September 12, 2024 to March 16, 2027, and (2) replace the London Interbank Offered Rate (LIBOR) with Term SOFR as the reference interest rate. Drawings under any letter of credit issued under the LC Facility that we have not reimbursed within three business days after notice thereof accrue interest at a base rate, as defined in the LC Facility, plus a margin of 0.50% per annum. An unused commitment fee is payable at an initial rate of 0.25% per annum with a step up to 0.375% per annum should our secured-debt-to-EBITDA ratio equal or exceed 3.00 to 1.00 at the end of any fiscal quarter. A fee on the aggregate outstanding
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amount of issued but undrawn letters of credit accrues at a rate of 1.50% per annum. An issuance fee equal to 0.125% per annum of the aggregate face amount of each outstanding letter of credit is payable to the account of the issuer of the related letter of credit. The LC Facility is subject to an effective maximum secured debt covenant of 4.25 to 1.00. At June 30, 2024, we had $108 million of standby letters of credit outstanding under the LC Facility.
NOTE 7. GUARANTEES
At June 30, 2024, the maximum potential amount of future payments under our income guarantees to certain physicians who agree to relocate and revenue collection guarantees to hospital-based physician groups providing certain services at our hospitals was $340 million. We had a total liability of $280 million recorded for these guarantees included in other current liabilities in the accompanying Condensed Consolidated Balance Sheet at June 30, 2024.
At June 30, 2024, we also had issued guarantees of the indebtedness and other obligations of our investees to third parties, the maximum potential amount of future payments under which was approximately $80 million. Of the total, $18 million relates to the obligations of consolidated subsidiaries, which obligations were recorded in other current liabilities in the accompanying Condensed Consolidated Balance Sheet at June 30, 2024.
NOTE 8. EMPLOYEE BENEFIT PLANS
Share-Based Compensation Plans
The accompanying Condensed Consolidated Statements of Operations for the six months ended June 30, 2024 and 2023 include $36 million and $33 million, respectively, of pre-tax compensation costs related to our stock-based compensation arrangements. At June 30, 2024, there were $92 million of total unrecognized compensation costs related to our share-based compensation awards. These costs are expected to be recognized over a weighted average ("Wtd. Avg.") period of 2.2 years.
Stock Options
The following table provides information about our stock option activity during the six months ended June 30, 2024:
Number of Options
Wtd. Avg. Exercise Price
Per Share
Aggregate
Intrinsic Value
Wtd. Avg.
Remaining Life
(In Millions)
Outstanding at December 31, 2023
384,440 $ 22.79
Exercised (155,943) $ 22.64
Outstanding at June 30, 2024
228,497 $ 22.88 $ 25 3.7 years
During the six months ended June 30, 2024 and 2023, 155,943 and 76,507 stock options, respectively, were exercised with an aggregate intrinsic value of $13 million and $4 million, respectively. We did not grant any stock options during either of the six-month periods ended June 30, 2024 or 2023.
The following table provides additional information about our outstanding stock options, all of which were vested and exercisable, at June 30, 2024:
Options Outstanding and Exercisable
Range of Exercise Prices Number of
Options 		Wtd. Avg.
Remaining
Contractual Life 		Wtd. Avg.
Exercise Price
Per Share
$18.99 to $20.609
161,285 3.3 years $ 19.99
$20.61 to $35.430
67,212 4.5 years $ 29.82
228,497 3.7 years $ 22.88
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Restricted Stock Units
The following table presents information about our restricted stock unit ("RSU") activity during the six months ended June 30, 2024:
Number of RSUs
Wtd. Avg.
Grant Date Fair
Value Per RSU
Unvested at December 31, 2023 1,421,063 $ 66.46
Granted 572,055 $ 94.64
Performance-based adjustment 205,075 $ 66.48
Vested (660,080) $ 65.29
Forfeited (1,961) $ 62.64
Unvested at June 30, 2024 1,536,152 $ 81.35
We grant both time-based RSUs that vest over a prescribed period and performance-based RSUs that vest subject to the achievement of specified performance goals within a pre-established time frame. The performance-based RSUs may contain provisions that increase or decrease the number of RSUs that ultimately vest, depending upon the level of achievement. For certain of our performance-based awards, the number of RSUs that ultimately vest is also subject to adjustment based on the achievement of a market-based condition. In aggregate, these adjustments range from 0% to a maximum of 250% of the number of RSUs initially granted for awards made in 2024, from 0% to 225% for awards made in 2023 and from 0% to 200% for awards granted prior to 2023.
Previously, grants of RSUs to our non-employee directors as part of their annual compensation vested immediately and were settled on the third anniversary of the date of grant. Beginning in 2024, annual compensation grants to our non-employee directors vest on the first anniversary of the date of grant.
The table below summarizes the time-based RSUs granted during the six months ended June 30, 2024:
No. of RSUs
Vesting Terms
263,714
RSUs will vest ratably over a three-year period from the grant date
11,002
RSUs granted to our non-employee directors for the 2024-25 board service year, which will vest on the first anniversary of the grant date
The table below summarizes the performance-based RSUs granted during the six months ended June 30, 2024:
No. of RSUs
Performance Period Potential Vesting Range
Vesting Terms Minimum Maximum
291,734
RSUs will vest on the third anniversary of the grant date
2024 to 2026
- % 250 %
5,605
RSUs will vest on the third anniversary of the grant date
2024 to 2026 - % 150 %
The table below summarizes the time-based RSUs granted during the six months ended June 30, 2023:
No. of RSUs
Vesting Terms
301,562
RSUs will vest ratably over a three-year period from the grant date
42,626
RSUs will vest on the fifth anniversary of the grant date
37,740
RSUs granted to our non-employee directors for the 2023-24 board service year, which vested immediately
33,586
RSUs that were scheduled to vest, and did vest, in December 2023
7,720
RSUs will vest on the third anniversary of the grant date
The table below summarizes the performance-based RSUs granted during the six months ended June 30, 2023:
No. of RSUs
Performance Period Potential Vesting Range
Vesting Terms Minimum Maximum
301,562
RSUs will vest on the third anniversary of the grant date
2023 to 2025
- % 225 %
7,720
RSUs will vest on the third anniversary of the grant date
2023 to 2025
- % 150 %
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During the six months ended June 30, 2024 and 2023, we issued 205,075 and 185,901 RSUs as a result of our level of achievement with respect to previously-awarded performance-based RSUs.
The fair value of an RSU is based on our share price on the grant date. The fair value of an RSU with a market-based condition is estimated through the use of a Monte Carlo simulation. Significant inputs used in our valuation of these RSUs included the following:
Six Months Ended June 30,
2024 2023
Expected volatility
34.9% - 52.1%
53.6% - 65.6%
Risk-free interest rate
4.4% - 4.9%
4.2% - 4.8%
USPI Management Equity Plan
USPI maintains a separate restricted stock plan (the "USPI Management Equity Plan") under which it grants RSUs representing a contractual right to receive one share of USPI's non-voting common stock in the future. The vesting of RSUs granted under the USPI Management Equity Plan varies based on the terms of the underlying award agreement. Once the RSUs have vested and the subsequent requisite holding period is met, during specified times, the participant can sell the underlying shares to USPI at their estimated fair market value. At our sole discretion, the purchase of any non-voting common shares can be made in cash or in shares of Tenet's common stock.
The following table summarizes RSU activity under the USPI Management Equity Plan during the six months ended June 30, 2024:
Number of RSUs
Wtd. Avg.
Grant Date Fair Value Per RSU
Unvested at December 31, 2023 607,984 $ 34.13
Vested (605,987) $ 34.13
Forfeited (1,997) $ 34.13
Unvested at June 30, 2024 - $ 34.13
USPI did not make any grants under the USPI Management Equity Plan during the six months ended June 30, 2024 or 2023. At June 30, 2024, there were 453 thousand outstanding vested shares of non-voting common stock eligible to be sold to USPI.
NOTE 9. EQUITY
The following tables present the changes in consolidated equity (dollars in millions, share amounts in thousands):
Common Stock Additional
Paid-In
Capital 		Accumulated
Other
Comprehensive
Loss 		Retained Earnings
(Accumulated
Deficit) 		Treasury
Stock 		Noncontrolling
Interests 		Total Equity
Shares
Outstanding 		Issued Par
Amount
Balances at December 31, 2023 99,950 $ 8 $ 4,834 $ (181) $ (192) $ (2,861) $ 1,509 $ 3,117
Net income - - - - 2,151 - 82 2,233
Distributions paid to noncontrolling interests - - - - - - (78) (78)
Other comprehensive income - - - 2 - - - 2
Sales of businesses and noncontrolling interests, net - - (5) - - - (23) (28)
Repurchases of common stock (2,811) - - - - (280) - (280)
Stock-based compensation expense and issuance of common stock 534 - (23) - - - - (23)
Balances at March 31, 2024 97,673 8 4,806 (179) 1,959 (3,141) 1,490 4,943
Net income - - - - 259 - 97 356
Distributions paid to noncontrolling interests - - - - - - (70) (70)
Other comprehensive income - - - 2 - - - 2
Purchases of businesses and noncontrolling interests, net - - 12 - - - 64 76
Repurchases of common stock (1,990) - - - - (273) - (273)
Stock-based compensation expense and issuance of common stock 136 - 22 - - - - 22
Balances at June 30, 2024 95,819 $ 8 $ 4,840 $ (177) $ 2,218 $ (3,414) $ 1,581 $ 5,056
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Common Stock Additional
Paid-In
Capital 		Accumulated
Other
Comprehensive
Loss 		Accumulated
Deficit 		Treasury
Stock 		Noncontrolling
Interests 		Total Equity
Shares
Outstanding 		Issued Par
Amount
Balances at December 31, 2022 102,247 $ 8 $ 4,778 $ (181) $ (803) $ (2,660) $ 1,317 $ 2,459
Net income - - - - 143 - 74 217
Distributions paid to noncontrolling interests - - - - - - (61) (61)
Other comprehensive income - - - 2 - - - 2
Purchases of businesses and noncontrolling interests, net - - 2 - - - 17 19
Repurchases of common stock (906) - - - - (50) - (50)
Stock-based compensation expense and issuance of common stock 571 - (6) - - - - (6)
Balances at March 31, 2023 101,912 8 4,774 (179) (660) (2,710) 1,347 2,580
Net income - - - - 123 - 82 205
Distributions paid to noncontrolling interests - - - - - - (66) (66)
Other comprehensive income - - - 1 - - - 1
Purchases of businesses and noncontrolling interests, net - - 4 - - - 18 22
Repurchases of common stock (580) - - - - (40) - (40)
Stock-based compensation expense and issuance of common stock 177 - 22 - - - - 22
Balances at June 30, 2023 101,509 $ 8 $ 4,800 $ (178) $ (537) $ (2,750) $ 1,381 $ 2,724
Nonredeemable Noncontrolling Interests
Our nonredeemable noncontrolling interests balances at June 30, 2024 and December 31, 2023 were comprised of $201 million and $185 million, respectively, from our Hospital Operations segment, and $1.380 billion and $1.324 billion, respectively, from our Ambulatory Care segment. Net income amounts available to nonredeemable noncontrolling interests for the six months ended June 30, 2024 and 2023 in the tables above were comprised of $21 million and $14 million, respectively, from our Hospital Operations segment and $158 million and $142 million, respectively, from our Ambulatory Care segment.
Share Repurchase Program
In October 2022, our board of directors authorized the repurchase of up to $1 billion of our common stock through a share repurchase program. Repurchases may be made in open-market or privately negotiated transactions, at management's discretion subject to market conditions and other factors, and in a manner consistent with applicable securities laws and regulations. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time before its scheduled expiration date of December 31, 2024.
The following tables summarize transactions completed under the repurchase program during the periods shown:
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Dollar Value of Shares That May Yet be Purchased Under the Program
(In Thousands) (In Thousands) (In Millions)
Six Months Ended June 30, 2024:
January 1 through January 31, 2024 - $ - - $ 550
February 1 through February 29, 2024 - $ - - $ 550
March 1 through March 31, 2024 2,811 $ 98.86 2,811 $ 272
April 1 through April 30, 2024 - $ - - $ 272
May 1 through May 31, 2024 - $ - - $ 272
June 1 through June 30, 2024 1,990 $ 135.85 1,990 $ 2
January 1 through June 30, 2024 4,801 $ 114.19 4,801
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Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Dollar Value of Shares That May Yet be Purchased Under the Program
(In Thousands) (In Thousands) (In Millions)
Six Months Ended June 30, 2023:
January 1 through January 31, 2023 - $ - - $ 750
February 1 through February 28, 2023 - $ - - $ 750
March 1 through March 31, 2023 906 $ 55.03 906 $ 700
April 1 through April 30, 2023 - $ - - $ 700
May 1 through May 31, 2023 580 $ 69.17 580 $ 660
June 1 through June 30, 2023 - $ - - $ 660
January 1 through June 30, 2023 1,486 $ 60.55 1,486
NOTE 10. NET OPERATING REVENUES
Net operating revenues for our Hospital Operations and Ambulatory Care segments primarily consist of net patient service revenues, principally for patients covered by Medicare, Medicaid, and managed care and other health plans, as well as certain uninsured patients under our Compact with Uninsured Patientsand other uninsured discount and charity programs. Net operating revenues for our Hospital Operations segment also include revenues from providing revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.
The table below presents our sources of net operating revenues:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Hospital Operations:
Net patient service revenues from hospitals and related outpatient facilities:
Medicare $ 518 $ 599 $ 1,128 $ 1,212
Medicaid 370 264 781 544
Managed care 2,383 2,565 5,039 5,068
Uninsured 11 29 30 60
Indemnity and other 137 156 291 296
Total 3,419 3,613 7,269 7,180
Other revenues(1)
543 527 1,066 1,076
Total Hospital Operations 3,962 4,140 8,335 8,256
Ambulatory Care 1,141 942 2,136 1,847
Net operating revenues $ 5,103 $ 5,082 $ 10,471 $ 10,103
(1) Primarily revenue from physician practices and revenue cycle management. Revenue from revenue cycle management services is included in other revenues for all periods presented to conform with our new reporting segment structure.
Adjustments for prior-year cost reports and related valuation allowances, principally related to Medicare and Medicaid, increased revenues by $2 million and $10 million during the six months ended June 30, 2024 and 2023, respectively. Estimated cost report settlements receivable, net of payables and valuation allowances were included in accounts receivable in the accompanying Condensed Consolidated Balance Sheets (see Note 2). We believe that we have made adequate provision for any adjustments that may result from the final determination of amounts earned under all the above arrangements with Medicare and Medicaid.
The following table presents the composition of net operating revenues for our Ambulatory Care segment:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Net patient service revenues
$ 1,100 $ 905 $ 2,054 $ 1,773
Management fees 34 30 67 60
Revenue from other sources 7 7 15 14
Net operating revenues $ 1,141 $ 942 $ 2,136 $ 1,847
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Performance Obligations
The following table includes revenue from revenue cycle management services that is expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, at the end of the reporting period:
Six Months Ending Years Ending Later Years
December 31,
Total 2024 2025 2026 2027 2028
Performance obligations $ 5,748 $ 347 $ 690 $ 689 $ 688 $ 687 $ 2,647
The amounts in the table primarily consist of revenue cycle management fixed fees, which are typically recognized ratably as the performance obligation is satisfied. The estimated revenue does not include volume- or contingency-based contracts, variable-based escalators, performance incentives, penalties or other variable consideration that is considered constrained. Our contract with Catholic Health Initiatives ("CHI"), a minority interest owner of Conifer Health Solutions, LLC, represents the majority of the fixed-fee revenue related to remaining performance obligations. Conifer's contract term with CHI ends December 31, 2032.
NOTE 11. INSURANCE
Property Insurance
We have property, business interruption and related insurance coverage to mitigate the financial impact of catastrophic events or perils that is subject to deductible provisions based on the terms of the policies. These policies are issued on an occurrence basis. For both the policy periods of April 1, 2023 through March 31, 2024 and April 1, 2024 through March 31, 2025, we have coverage totaling $850 million per occurrence, after deductibles and exclusions, with annual aggregate sub-limits of $100 million for floods, $200 million for earthquakes in California, $200 million for all other earthquakes and a per-occurrence sub-limit of $200 million per named windstorm with no annual aggregate. With respect to fires and other perils, excluding floods, earthquakes and named windstorms, the total $850 million limit of coverage per occurrence applies. Deductibles are 5% of insured values for earthquakes in California and named windstorms, and 2% of insured values for earthquakes in the New Madrid fault zone, each with a maximum deductible per claim of $25 million. All other covered losses are subject to a minimum deductible of $5 million per occurrence.
We also purchase cyber liability insurance from third parties. During the six months ended June 30, 2023, we received $31 million of insurance recoveries related to a cybersecurity incident that occurred in 2022. Of the amounts received, we recorded $27 million as net operating revenues during the same six-month period in 2023. We received less than $1 million of insurance recoveries during the six months ended June 30, 2024.
Professional and General Liability Reserves
We are self-insured for the majority of our professional and general liability claims, and we purchase insurance from third parties to cover catastrophic claims. At June 30, 2024 and December 31, 2023, the aggregate current and long-term professional and general liability reserves in the accompanying Condensed Consolidated Balance Sheets were $1.127 billion and $1.046 billion, respectively. These accruals include the reserves recorded by our captive insurance subsidiaries and our self-insured retention reserves recorded based on modeled estimates for the portion of our professional and general liability risks, including incurred but not reported claims, for which we do not have insurance coverage. Malpractice expense of $183 million and $190 million was included in other operating expenses, net, in the accompanying Condensed Consolidated Statements of Operations for the six months ended June 30, 2024 and 2023, respectively.
NOTE 12. CLAIMS AND LAWSUITS
We operate in a highly regulated and litigious industry. Healthcare companies are subject to numerous investigations by various governmental agencies. Further, private parties have the right to bring qui tam or "whistleblower" lawsuits against companies that allegedly submit false claims for payments to, or improperly retain overpayments from, the government and, in some states, private payers. We and our subsidiaries have received inquiries in recent years from government agencies, and we may receive similar inquiries in future periods. We are also subject to class action lawsuits, employment-related claims and other legal actions in the ordinary course of business, including potential claims related to, among other things, the care and treatment provided at our hospitals and outpatient facilities, the application of various federal and state labor and privacy laws, tax audits and other matters. Some of these actions may involve large demands, as well as substantial defense costs. We cannot predict the outcome of current or future legal actions against us or the effect that judgments or settlements in such matters may have on us; however, we believe that the ultimate resolution of our existing ordinary-course claims and lawsuits will not have a material effect on our business or financial condition.
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New claims or inquiries may be initiated against us from time to time. These matters could (1) require us to pay substantial damages or amounts in judgments or settlements, which, individually or in the aggregate, could exceed amounts, if any, that may be recovered under our insurance policies where coverage applies and is available, (2) cause us to incur substantial expenses, (3) require significant time and attention from our management, and (4) cause us to close or sell hospitals or otherwise modify the way we conduct business.
We record accruals for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable and we can reasonably estimate the amount of the loss or a range of loss. Significant judgment is required in both the determination of the probability of a loss and the determination as to whether a loss is reasonably estimable. These determinations are updated at least quarterly and are adjusted to reflect the effects of negotiations, settlements, rulings, advice of legal counsel and technical experts, and other information and events pertaining to a particular matter, but are subject to significant uncertainty regarding numerous factors that could affect the ultimate loss levels. If a loss on a material matter is reasonably possible and estimable, we disclose an estimate of the loss or a range of loss. We do not disclose an estimate when we have concluded that a loss is either not reasonably possible or a loss, or a range of loss, is not reasonably estimable, based on available information. Given the inherent uncertainties associated with material legal matters, especially those involving governmental agencies, and the indeterminate damages sought in some cases, we are unable to predict the ultimate liability we may incur from such matters, and an adverse outcome in one or more of these matters could be material to our results of operations or cash flows for any particular reporting period.
The following table presents reconciliations of the beginning and ending liability balances in connection with legal settlements and related costs:
Balances at
Beginning
of Period 		Litigation and
Investigation
Costs
Cash
Payments 		Balances at
End of
Period
Six Months Ended June 30, 2024 $ 40 $ 9 $ (20) $ 29
Six Months Ended June 30, 2023 $ 51 $ 14 $ (46) $ 19
NOTE 13. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES
Certain of our investees' partnership and operating agreements contain terms that, upon the occurrence of specified events, could obligate us to purchase some or all of the noncontrolling interests related to our consolidated subsidiaries. The noncontrolling interests subject to these provisions, and the income attributable to those interests, are not included as part of our equity and are presented as redeemable noncontrolling interests in the accompanying Condensed Consolidated Balance Sheets at June 30, 2024 and December 31, 2023.
The following table presents the changes in redeemable noncontrolling interests in equity of consolidated subsidiaries for the periods presented:
Six Months Ended June 30,
2024 2023
Balances at beginning of period $ 2,391 $ 2,149
Net income 222 167
Distributions paid to noncontrolling interests (175) (143)
Purchases and sales of businesses and noncontrolling interests, net 375 104
Balances at end of period $ 2,813 $ 2,277
The following tables present the composition by segment of our redeemable noncontrolling interests balances, as well as our net income available to redeemable noncontrolling interests:
June 30, 2024 December 31, 2023
Hospital Operations $ 910 $ 860
Ambulatory Care 1,903 1,531
Redeemable noncontrolling interests $ 2,813 $ 2,391
Six Months Ended June 30,
2024 2023
Hospital Operations $ 53 $ 44
Ambulatory Care 169 123
Net income available to redeemable noncontrolling interests $ 222 $ 167
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In June 2022, we entered into a share purchase agreement to acquire the 5% ownership interest then-held by Baylor University Medical Center ("Baylor") in USPI for $406 million. Under the share purchase agreement, we are obligated to make non-interest-bearing monthly payments of approximately $11 million through June 2025. At June 30, 2024, the remaining obligation under the share purchase agreement of $133 million was classified as a current liability and included in other current liabilities in the accompanying Condensed Consolidated Balance Sheet. At December 31, 2023, we had a liability of $135 million recorded in other current liabilities for the purchase of Baylor's ownership interest and $63 million recorded in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet.
NOTE 14. INCOME TAXES
A reconciliation between the amount of reported income tax expense and the amount computed by multiplying income before income taxes by the statutory federal tax rate is presented below:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Tax expense at statutory federal rate of 21% $ 123 $ 78 $ 771 $ 158
State income taxes, net of federal income tax benefit 22 12 225 28
Tax benefit attributable to noncontrolling interests (46) (35) (84) (67)
Nondeductible goodwill 2 - 128 -
Stock-based compensation tax benefit (1) (2) (6) (4)
Changes in valuation allowance 7 23 (178) 42
Other items 3 4 4 7
Income tax expense $ 110 $ 80 $ 860 $ 164
Income before income taxes for the three months ended June 30, 2024 and 2023 was $587 million and $373 million, respectively, and was $3.671 billion and $753 million for the six months ended June 30, 2024 and 2023, respectively.
Our provision for income taxes during interim reporting periods is calculated by applying an estimate of the annual effective tax rate to "ordinary" income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. In calculating "ordinary" income, non-taxable income available to noncontrolling interests was deducted from pre-tax income. During the six months ended June 30, 2024, we recorded an income tax benefit of $178 million to decrease the valuation allowance, including a decrease of $194 million for utilization of interest expense carryforwards primarily due to gains from sales of facilities, and an increase of $16 million related to state interest expense carryforwards. During the six months ended June 30, 2023, we recorded income tax expense of $42 million to increase the valuation allowance for interest expense carryforwards as a result of the limitation on business interest expense.
The Inflation Reduction Act of 2022 implemented a corporate alternative minimum tax ("CAMT") of 15% on book income of certain large corporations effective for tax years beginning after December 31, 2022. We are subject to the CAMT, however, we currently do not expect any material impact on our condensed consolidated statement of operations.
During the six months ended June 30, 2024, we increased our estimated liabilities for uncertain tax positions by $16 million. The total amount of unrecognized tax benefits as of June 30, 2024 was $77 million, of which $75 million, if recognized, would affect our effective tax rate and income tax expense.
Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our condensed consolidated statement of operations. Approximately $4 million of interest and penalties related to accrued liabilities for uncertain tax positions are included for the six months ended June 30, 2024. Total accrued interest and penalties on unrecognized tax benefits at June 30, 2024 were $7 million.
As of June 30, 2024, we expect a $4 million decrease in unrecognized federal and state tax benefits in the next 12 months as a result of the settlement of audits, the filing of amended tax returns or the expiration of statutes of limitations.
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NOTE 15. EARNINGS PER COMMON SHARE
The following table reconciles the numerators and denominators of our basic and diluted earnings per common share calculations. Net income available to our common shareholders is expressed in millions and weighted average shares are expressed in thousands.
Net Income Available
to Common
Shareholders
(Numerator)
Wtd. Avg. Shares
(Denominator)
Per-Share Amount
Three Months Ended June 30, 2024
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share
$ 259 97,267 $ 2.66
Effect of dilutive instruments 1 1,177 (0.02)
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share
$ 260 98,444 $ 2.64
Three Months Ended June 30, 2023
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share
$ 123 101,766 $ 1.21
Effect of dilutive instruments (3) 3,012 (0.06)
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share
$ 120 104,778 $ 1.15
Six Months Ended June 30, 2024
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share
$ 2,410 98,424 $ 24.49
Effect of dilutive instruments 1 1,133 (0.27)
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share
$ 2,411 99,557 $ 24.22
Six Months Ended June 30, 2023
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share
$ 266 102,028 $ 2.61
Effect of dilutive instruments (6) 3,326 (0.14)
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share
$ 260 105,354 $ 2.47
Dilutive instruments during the three and six months ended June 30, 2024 and 2023 consisted of stock options, RSUs, including RSUs issued under the USPI Management Equity Plan, deferred compensation units and dividends on subsidiary preferred stock. During the six-month period in 2023, our dilutive instruments also included a convertible instrument, namely an agreement related to the ownership interest in a Hospital Operations segment joint venture.
NOTE 16. FAIR VALUE MEASUREMENTS
We are required to provide additional disclosures about fair value measurements as part of our financial statements for each major category of assets and liabilities measured at fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities, which generally are not applicable to non-financial assets and liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability, such as internal estimates of future cash flows.
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Non-Recurring Fair Value Measurements
Our non-financial assets and liabilities not permitted or required to be measured at fair value on a recurring basis typically relate to long-lived assets held and used, long-lived assets held for sale and goodwill. The following table presents this information about assets measured at fair value on a non-recurring basis and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair values:
Total Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) 		Significant Other
Observable Inputs
(Level 2) 		Significant
Unobservable
Inputs
(Level 3)
June 30, 2024
Long-lived assets held for sale $ 21 $ - $ 21 $ -
December 31, 2023
Long-lived assets held for sale $ 775 $ - $ 775 $ -
Financial Instruments
The fair value of our long-term debt (except for borrowings under the Credit Agreement) is based on quoted market prices (Level 1). The inputs used to establish the fair value of the borrowings outstanding under the Credit Agreement are considered to be Level 2 inputs. At June 30, 2024 and December 31, 2023, the estimated fair value of our long-term debt was approximately 99.5% and 96.9%, respectively, of the carrying value of the debt.
NOTE 17. ACQUISITIONS
Preliminary purchase price allocations (representing the fair value of the consideration conveyed) for all acquisitions made during the six months ended June 30, 2024 and 2023 were as follows:
Six Months Ended June 30,
2024 2023
Current assets $ 67 $ 13
Property and equipment 42 8
Other intangible assets 132 5
Goodwill 820 257
Long-term operating lease assets 99 8
Other long-term assets 1 -
Previously held investments in unconsolidated affiliates (23) (37)
Current liabilities (67) (8)
Long-term operating lease liabilities (88) (7)
Other long-term liabilities (12) (4)
Redeemable noncontrolling interests in equity of consolidated subsidiaries (381) (95)
Noncontrolling interests (59) (31)
Cash paid, net of cash acquired (500) (96)
Gains on consolidations $ 31 $ 13
The goodwill generated from the 2024 transactions, the majority of which we believe will not be deductible for income tax purposes, can be attributed to the benefits that we expect to realize from operating efficiencies and growth strategies. The goodwill total of $820 million from acquisitions completed during the six months ended June 30, 2024 was recorded in our Ambulatory Care segment. Approximately $22 million and $4 million in transaction costs related to prospective and closed acquisitions were expensed during the six months ended June 30, 2024 and 2023, respectively, and were included in impairment and restructuring charges, and acquisition-related costs in the accompanying Condensed Consolidated Statements of Operations.
In December 2023, we acquired a 55% ownership interest in NextCare Arizona I JV, LLC and a minority ownership interest in NextCare Arizona II JV, LLC from NextCare, Inc. and certain of its affiliates ("NextCare"). Through these transactions, we acquired a controlling interest in 41 fully operational UCCs and a telehealth center, as well as a noncontrolling interest in an additional 15 fully operational UCCs, all located in Arizona. In the six months ended June 30, 2024, we increased our ownership, such that we now hold a controlling interest in all 56 NextCare UCCs, and we released $10 million of the original purchase price we had retained in escrow pending NextCare's compliance with certain conditions.
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We are required to allocate the purchase prices of acquired businesses to assets acquired or liabilities assumed and, if applicable, noncontrolling interests based on their fair values. The excess of the purchase price allocated over those fair values is recorded as goodwill. The purchase price allocations for certain acquisitions completed in 2024 and 2023 are preliminary. We are in the process of assessing working capital balances and lease and other agreements assumed, as well as obtaining and evaluating valuations of the acquired property and equipment, management contracts and other intangible assets, and noncontrolling interests. Therefore, those purchase price allocations, including goodwill, recorded in the accompanying Condensed Consolidated Financial Statements are subject to adjustment once the assessments and valuation work are completed and evaluated. Such adjustments will be recorded as soon as practical and within the measurement period as defined by the accounting literature.
During the six months ended June 30, 2024, we adjusted the preliminary purchase allocations of certain acquisitions completed in 2023 based on the results of completed valuations. These adjustments resulted in a net increase in goodwill of $26 million.
NOTE 18. SEGMENT INFORMATION
Prior to December 31, 2023, our business was organized into three separate reporting segments: Hospital Operations and other, Ambulatory Care and Conifer. During the three months ended December 31, 2023, we combined our Hospital Operations and other and Conifer segments into a single reporting segment named Hospital Operations and Services (Hospital Operations). See Note 1 for additional discussion of this change.
Our Hospital Operations segment is comprised of our acute care and specialty hospitals, physician practices and outpatient facilities. At June 30, 2024, our subsidiaries operated 52 hospitals, serving primarily urban and suburban communities in nine states, as well as 148 outpatient facilities, primarily imaging centers, UCCs, ancillary emergency facilities and micro-hospitals. Our Hospital Operations segment also provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.
Our Ambulatory Care segment is comprised of the operations of USPI. At June 30, 2024, USPI had ownership interests in 520 ambulatory surgery centers (377 consolidated) and 24 surgical hospitals (seven consolidated) in 38 states.
The following tables include amounts for each of our reportable segments and the reconciling items necessary to agree to amounts reported in the accompanying Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations, as applicable:
June 30, 2024 December 31, 2023
Assets:
Hospital Operations $ 17,207 $ 17,268
Ambulatory Care 12,058 11,044
Total $ 29,265 $ 28,312
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Capital expenditures:
Hospital Operations $ 126 $ 112 $ 348 $ 329
Ambulatory Care 19 20 37 38
Total $ 145 $ 132 $ 385 $ 367
Net operating revenues:
Hospital Operations $ 3,962 $ 4,140 $ 8,335 $ 8,256
Ambulatory Care 1,141 942 2,136 1,847
Total $ 5,103 $ 5,082 $ 10,471 $ 10,103
Equity in earnings of unconsolidated affiliates:
Hospital Operations $ 3 $ 2 $ 6 $ 5
Ambulatory Care 58 52 114 99
Total $ 61 $ 54 $ 120 $ 104
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Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Adjusted EBITDA:
Hospital Operations $ 498 $ 473 $ 1,128 $ 965
Ambulatory Care 447 370 841 710
Total $ 945 $ 843 $ 1,969 $ 1,675
Depreciation and amortization:
Hospital Operations $ 175 $ 186 $ 352 $ 376
Ambulatory Care 33 27 64 54
Total $ 208 $ 213 $ 416 $ 430
Adjusted EBITDA $ 945 $ 843 $ 1,969 $ 1,675
Depreciation and amortization (208) (213) (416) (430)
Impairment and restructuring charges, and acquisition-related costs (29) (16) (56) (37)
Litigation and investigation costs (5) (10) (9) (14)
Interest expense (203) (226) (421) (447)
Loss from early extinguishment of debt - (11) (8) (11)
Other non-operating income, net 29 6 54 4
Net gains on sales, consolidation and deconsolidation of facilities 58 - 2,558 13
Income before income taxes $ 587 $ 373 $ 3,671 $ 753
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION TO MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of this section, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to give context to the analysis of our financial information, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows. MD&A, which should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, includes the following sections:
•Management Overview
•Forward-Looking Statements
•Sources of Revenue for Our Hospital Operations and Services Segment
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
During the three months ended December 31, 2023, we combined our Hospital Operations and other and Conifer segments into a single reporting segment named Hospital Operations and Services ("Hospital Operations"). This change was made to reflect updates to the organizational and management structure of our Conifer and Hospital Operations and other segments. All prior-period data presented in this report has been adjusted to conform to our new reporting segment structure.
Our Hospital Operations segment is comprised of our acute care and specialty hospitals, a network of employed physicians and ancillary outpatient facilities. At June 30, 2024, our subsidiaries operated 52 hospitals serving primarily urban and suburban communities in nine states. Our Hospital Operations segment also included 148 outpatient facilities at June 30, 2024, including imaging centers, urgent care centers, ancillary emergency facilities and micro-hospitals. In addition, our Hospital Operations segment provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients through our Conifer Health Solutions, LLC joint venture.
Our Ambulatory Care segment, through our USPI Holding Company, Inc. subsidiary ("USPI"), held ownership interests in 520 ambulatory surgery centers (each, an "ASC") (377 consolidated) and 24 surgical hospitals (seven consolidated) in 38 states at June 30, 2024. USPI's facilities offer a range of procedures and service lines, including, among other specialties: orthopedics, total joint replacement, and spinal and other musculoskeletal procedures; gastroenterology; and urology.
Unless otherwise indicated, all financial and statistical information included in MD&A relates to our continuing operations, with dollar amounts expressed in millions (except per adjusted admission and per adjusted patient day amounts). Continuing operations information includes the results of all hospitals operated for the entirety, or any portion of, the six months ended June 30, 2024 and 2023, and excludes the results of our hospitals and other businesses classified as discontinued operations for accounting purposes. We believe this presentation is useful to investors because it includes the operations of all facilities in continuing operations for the entire time that we owned and operated them during the relevant period. In addition, continuing operations information reflects the impact of the addition or disposition of individual hospitals and other operations on our volumes, revenues and expenses.
In certain cases, information presented in MD&A for our Hospital Operations segment is described as presented on a same-hospital basis, which includes hospitals we operated for the entire six-month periods ended June 30, 2024 and 2023. Same-hospital basis excludes the results of hospitals not operated for the full duration of both periods, as well as our discontinued operations. We present same-hospital data because we believe it provides investors with useful information regarding the performance of our current portfolio of hospitals and other operations that are comparable for the periods presented. Furthermore, same-hospital data may more clearly reflect recent trends we are experiencing with respect to volumes, revenues and expenses exclusive of variations caused by the addition or disposition of individual hospitals and other operations.
We present certain metrics as a percentage of net operating revenues because a significant portion of our operating expenses are variable, and we present certain metrics on a per adjusted admission and per adjusted patient day basis to show trends other than volume.
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The financial information provided throughout this report, including our Condensed Consolidated Financial Statements and the notes thereto, has been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). However, we use certain non-GAAP financial measures, including Adjusted EBITDA (as defined below), in this report and in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements. We use this information in our analysis of the performance of our business, excluding items we do not consider relevant to the performance of our continuing operations. In addition, we use these measures to define certain performance targets under our compensation programs.
"Adjusted EBITDA" is a non-GAAP measure we define as net income available (loss attributable) to Tenet Healthcare Corporation common shareholders before (1) the cumulative effect of changes in accounting principle, (2) net loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax, (4) income tax benefit (expense), (5) gain (loss) from early extinguishment of debt, (6) other non-operating income (expense), net, (7) interest expense, (8) litigation and investigation (costs) benefit, net of insurance recoveries, (9) net gains (losses) on sales, consolidation and deconsolidation of facilities, (10) impairment and restructuring charges and acquisition-related costs, (11) depreciation and amortization, and (12) income (loss) from divested and closed businesses (i.e., health plan businesses). Litigation and investigation costs do not include ordinary course of business malpractice and other litigation and related expense.
We also present certain operational metrics and statistics in order to provide additional insight into our operational performance efficiency and to help investors better understand management's view and strategic focus. We define these operational metrics and statistics as follows:
Adjusted admissions-represents actual admissions in the period adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual admissions by the sum of gross inpatient revenues and outpatient revenues and dividing the result by gross inpatient revenues;
Adjusted patient days-represents actual patient days in the period adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient days by the sum of gross inpatient revenues and outpatient revenues and dividing the result by gross inpatient revenues; and
Utilization of licensed beds-represents patient days divided by the number of days in the period divided by average licensed beds.
MANAGEMENT OVERVIEW
RECENT DEVELOPMENTS
In July 2024, our board of directors authorized the repurchase of up to $1.5 billion of our common stock through a new share repurchase program that has no expiration date. Repurchases may be made in open-market or privately negotiated transactions, at management's discretion subject to market conditions and other factors, and in a manner consistent with applicable securities laws and regulations. This share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time.
OPERATING ENVIRONMENT AND TRENDS
Staffing and Labor Trends-We compete with other healthcare providers in recruiting and retaining qualified personnel responsible for the operation of our facilities. There is limited availability of experienced medical support personnel nationwide, which drives up the wages and benefits required to recruit and retain employees. In particular, like others in the healthcare industry, we continue to experience shortages of advanced practice providers and critical-care nurses in certain disciplines and geographic areas. Over the past several years, we have had to rely on higher-cost contract labor, which we compete with other healthcare providers to secure, and pay premiums above standard compensation for essential workers. Although we continue to incur a higher level of contract labor expense than we have historically, our recruitment and retention efforts drove a reduction in this expense during the six months ended June 30, 2024 as compared to the same period in 2023.
We also depend on the available labor pool of semi-skilled and unskilled workers in the areas where we operate. In some of our communities, employers across various industries have increased their minimum wage, which has created more competition and, in some cases, higher labor costs for this sector of employees. Furthermore, we expect that state-mandated minimum wage increases in California are likely to result in an increase in compensation costs for certain of our employees and vendors.
Inflation and Other General Economic Conditions-Our business has been impacted by the rise in inflation and its effects on salaries, wages and benefits, as well as other costs. Medical supply prices remain high due to current economic
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conditions and other factors. In addition, our Ambulatory Care segment continues to be impacted by shipment delays in construction materials and capital equipment with respect to its de novo facility development efforts, which are a key part of our portfolio expansion strategy. In general, supply chain operational challenges may continue or worsen in the future, whether due to geopolitical conflicts, inflationary pressures and the recessionary environment, climate change, weather events or other issues yet to emerge.
Industry Trends-We believe that several key trends are continuing to shape the demand for healthcare services: (1) consumers, employers and insurers are actively seeking lower-cost solutions and better value with respect to healthcare spending; (2) patient volumes are shifting from inpatient to outpatient settings due to technological advances and demand for care that is more convenient, affordable and accessible; (3) the growing aging population requires greater chronic disease management and higher-acuity treatment; and (4) consolidation continues across the entire healthcare sector. Furthermore, the healthcare industry, in general, and the acute care hospital business, in particular, continue to be subject to significant regulatory uncertainty. Changes in federal or state healthcare laws, regulations, funding policies or reimbursement practices, especially those involving reductions to government payment rates, could have a significant impact on our future revenues and expenses.
STRATEGIES
Expanding Our Ambulatory Care Segment-We continue to focus on opportunities to expand our Ambulatory Care segment through acquisitions, organic growth, construction of new outpatient centers and strategic partnerships. We believe USPI's ASCs and surgical hospitals offer many advantages to patients and physicians, including greater affordability, predictability, flexibility and convenience. Moreover, due in part to advancements in surgical techniques, medical technology and anesthesia, as well as the lower cost structure and greater efficiencies that are attainable at a specialized outpatient site, we believe the volume and complexity of surgical cases performed in an outpatient setting will continue to increase over time. Historically, our outpatient services have generated significantly higher margins for us than inpatient services.
During the six months ended June 30, 2024, we acquired controlling ownership interests in 49 ASCs and acquired noncontrolling ownership interests in two ASCs in which we did not have a previous investment. We also continue to prioritize increasing our investment in our unconsolidated facilities, acquiring controlling ownership interests in five previously unconsolidated ASCs during the six months ended June 30, 2024, which allowed us to consolidate their financial results. In addition, we opened six de novo ASCs in which we have a noncontrolling ownership interest during the six months ended June 30, 2024.
Driving Growth in Our Hospital Systems-We remain committed to better positioning our hospital systems and competing more effectively in the ever-evolving healthcare environment by focusing on driving performance through operational effectiveness, increasing capital efficiency and margins, investing in our physician enterprise, particularly our specialist network, enhancing patient and physician satisfaction, growing our higher-demand and higher-acuity clinical service lines (including outpatient lines), expanding patient and physician access, and optimizing our portfolio of assets. Over the past several years, we have undertaken enterprise-wide cost-efficiency measures, and we continue to transition certain support operations to our Global Business Center ("GBC") in the Philippines. We incurred restructuring charges in conjunction with these initiatives in the six months ended June 30, 2024, and we could incur additional restructuring charges in the future.
From time to time, we also capitalize on opportunities to refine our portfolio of hospitals and other healthcare facilities when we believe such refinements will help us improve profitability, allocate capital more effectively in areas where we have a stronger presence, deploy proceeds on higher-return investments across our business, enhance cash flow generation and reduce our debt, among other things. Transactions completed during the six months ended June 30, 2024 included the following:
•In January 2024, we completed the sale of three hospitals located in South Carolina and certain related operations (the "SC Hospitals").
•In March 2024, we completed the sale of four hospitals and certain related operations located in Orange County and Los Angeles County, California (the "OCLA CA Hospitals").
•Also in March 2024, we completed the sale of two hospitals and certain related operations located in San Luis Obispo County, California (the "Central CA Hospitals").
We also seek advantageous opportunities to grow our portfolio of hospitals and other healthcare facilities. We have completed construction of Westover Hills Baptist Hospital, a new 92-bed acute care hospital located in the Westover Hills area of San Antonio, Texas, and we expect to begin receiving patients in July 2024. In 2023, we broke ground on a new medical campus located in Port St. Lucie, Florida, which will include the 54-bed Florida Coast Surgical Hospital, as well as medical office space. We expect to complete construction of the Port St. Lucie medical campus in late 2025.
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Improving the Customer Care Experience-As consumers continue to become more engaged in managing their health, we recognize that understanding what matters most to them and earning their loyalty is imperative to our success. As such, we have enhanced our focus on treating our patients as traditional customers by: (1) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (2) expanding service lines with growing community demand, including a focus on aging and chronic disease patients; (3) offering greater affordability and predictability, including simplified registration and discharge procedures, particularly in our outpatient centers; (4) improving our culture of service; and (5) creating health and benefit programs, patient education and health literacy materials that are customized to the needs of the communities we serve.
Improving Profitability-We continue to focus on growing patient volumes and effective cost management as a means to improve profitability. Our inpatient admissions have been constrained in recent years by increased competition, utilization pressure by managed care organizations, new delivery models that are designed to lower the utilization of acute care hospital services, the effects of higher patient co-pays, co-insurance amounts and deductibles, changing consumer behavior, and adverse economic conditions and demographic trends in certain areas where we operate. Our business has also been impacted by the rise in inflation and its effects on salaries, wages, benefits and other costs. However, we believe that emphasis on higher-demand clinical service lines (including outpatient services), focus on expanding our ambulatory care business, cultivation of our culture of service, participation in Medicare Advantage health plans that have been experiencing higher growth rates than traditional Medicare, and contracting strategies that create shared value with payers should help us grow our patient volumes over time. We are also continuing to pursue new opportunities to enhance efficiency, including further integration of enterprise-wide centralized support functions, outsourcing additional functions unrelated to direct patient care, and reducing clinical and vendor contract variation.
Reducing Our Leverage Over Time-All of our long-term debt has a fixed rate of interest, except for outstanding borrowings under our senior secured revolving credit facility (as amended to date, the "Credit Agreement"), of which we had none at June 30, 2024. In addition, the maturity dates of our notes are staggered from 2027 through 2031. We believe that our capital structure helps to minimize the near-term impact of increased interest rates, and the staggered maturities of our debt allow us to retire or refinance our debt over time. It remains our long-term objective to reduce our debt and lower our ratio of debt-to-Adjusted EBITDA, primarily through more efficient capital allocation and Adjusted EBITDA growth, which should lower our refinancing risk.
During the three months ended March 31, 2024, we redeemed all $2.100 billion aggregate principal amount outstanding of our 4.875% senior secured first lien notes due 2026 (the "2026 Senior Secured First Lien Notes") in advance of their maturity date.
Repurchasing Stock-In October 2022, our board of directors authorized the repurchase of up to $1 billion of our common stock through a share repurchase program that is scheduled to expire on December 31, 2024. In the six months ended June 30, 2024, we paid $548 million to repurchase 4,801 thousand shares, an average of $114.19 per share. In total, we repurchased $998 million of our common stock under the program in open-market or privately negotiated transactions, at management's discretion subject to market conditions and other factors, and in a manner consistent with applicable securities laws and regulations. We do not intend to make further repurchases under this program.
As noted above, in July 2024, our board of directors authorized the repurchase of up to $1.5 billion of our common stock through a new share repurchase program that has no expiration date. Repurchases may be made in open-market or privately negotiated transactions, at management's discretion subject to market conditions and other factors, and in a manner consistent with applicable securities laws and regulations. This share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time.
Our ability to execute on our strategies and respond to the aforementioned trends in the current operating environment is subject to numerous risks and uncertainties, all of which may cause actual results to be materially different from expectations. For information about risks and uncertainties that could affect our results of operations, see the Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report").
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RECENT RESULTS OF OPERATIONS
The following table presents selected operating statistics for our Hospital Operations and Ambulatory Care segments on a continuing operations basis:
Three Months Ended June 30, Increase
(Decrease)
2024 2023
Hospital Operations - hospitals and related outpatient facilities:
Number of hospitals (at end of period) 52 61 (9) (1)
Total admissions 124,626 132,754 (6.1) %
Adjusted admissions 227,994 248,589 (8.3) %
Paying admissions (excludes charity and uninsured) 118,770 126,861 (6.4) %
Charity and uninsured admissions 5,856 5,893 (0.6) %
Admissions through emergency department 91,779 99,572 (7.8) %
Emergency department visits, outpatient 492,230 545,990 (9.8) %
Total emergency department visits 584,009 645,562 (9.5) %
Total surgeries 79,387 87,846 (9.6) %
Patient days - total 623,082 677,430 (8.0) %
Adjusted patient days 1,098,328 1,215,610 (9.6) %
Average length of stay (days) 5.00 5.10 (2.0) %
Average licensed beds 14,085 15,472 (9.0) %
Utilization of licensed beds 48.6 % 48.1 % 0.5 % (1)
Total visits 1,465,651 1,401,442 4.6 %
Paying visits (excludes charity and uninsured) 1,367,786 1,328,839 2.9 %
Charity and uninsured visits 97,865 72,603 34.8 %
Ambulatory Care:
Total consolidated facilities (at end of period) 384 320 64 (1)
Total consolidated cases 415,826 346,402 20.0 %
(1)
The change is the difference between the 2024 and 2023 amounts presented.
Total admissions decreased by 8,128, or 6.1%, in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Total surgeries decreased by 8,459, or 9.6%, during the three-month period in 2024 as compared to the same period in 2023. In addition, emergency department visits during the three months ended June 30, 2024 decreased 53,760, or 9.8%, as compared to the same period in 2023. The decreases in our volumes from continuing operations in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 were primarily related to the sales of the SC Hospitals, the OCLA CA Hospitals and the Central CA Hospitals (together, the "Divested Hospitals").
The increase in our Ambulatory Care segment's total consolidated cases of 20.0% in the three months ended June 30, 2024, as compared to the same period in 2023, was primarily attributable to incremental case volume from the ASCs we have acquired and same-facility case growth, partially offset by the impact of the closure and deconsolidation of certain facilities.
The following table presents net operating revenues by segment on a continuing operations basis:
Three Months Ended June 30, Increase
(Decrease)
Revenues 2024 2023
Hospital Operations $ 3,962 $ 4,140 (4.3) %
Ambulatory Care 1,141 942 21.1 %
Total $ 5,103 $ 5,082 0.4 %
Consolidated net operating revenues increased by $21 million, or 0.4%, in the three months ended June 30, 2024 compared to the same period in 2023. The decrease of $178 million, or 4.3%, in our Hospital Operations segment's net operating revenues for the three-month period in 2024 compared to the same period in 2023 was primarily due to the sales of the Divested Hospitals. Excluding the effect of these sales, net operating revenues during the three months ended June 30, 2024 were positively impacted by a more favorable payer mix, higher patient volume and acuity, growth in our Medicaid supplemental revenue, and negotiated commercial rate increases.
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Net operating revenues in our Ambulatory Care segment increased by $199 million, or 21.1%, in the three months ended June 30, 2024 compared to the same period in 2023. This change was primarily driven by the ASCs we have acquired, an increase in net revenue per case and higher patient acuity in the 2024 period, partially offset by the impact of the closure and deconsolidation of certain facilities.
Our accounts receivable days outstanding ("AR Days") from continuing operations were 52.9 days and 55.4 days at June 30, 2024 and December 31, 2023, respectively. Our AR Days target is less than 55 days. AR Days are calculated as our accounts receivable from continuing operations on the last date in the quarter divided by our net operating revenues for the quarter ended on that date divided by the number of days in the quarter. This calculation includes our Hospital Operations segment's contract assets and excludes our California provider fee revenues and activity related to divested facilities.
The following table provides information about selected operating expenses by segment on a continuing operations basis:
Three Months Ended June 30, Increase
(Decrease)
2024 2023
Hospital Operations:
Salaries, wages and benefits $ 1,884 $ 2,045 (7.9) %
Supplies 609 638 (4.5) %
Other operating expenses 979 993 (1.4) %
Total $ 3,472 $ 3,676 (5.5) %
Ambulatory Care:
Salaries, wages and benefits $ 284 $ 240 18.3 %
Supplies 299 253 18.2 %
Other operating expenses 169 132 28.0 %
Total $ 752 $ 625 20.3 %
Total:
Salaries, wages and benefits $ 2,168 $ 2,285 (5.1) %
Supplies 908 891 1.9 %
Other operating expenses 1,148 1,125 2.0 %
Total $ 4,224 $ 4,301 (1.8) %
Rent/lease expense(1):
Hospital Operations $ 65 $ 71 (8.5) %
Ambulatory Care 40 32 25.0 %
Total $ 105 $ 103 1.9 %
(1) Included in other operating expenses.
The following table provides information about our Hospital Operations segment's selected operating expenses per adjusted admission on a continuing operations basis:
Three Months Ended June 30, Increase
(Decrease)
2024 2023
Salaries, wages and benefits per adjusted admission $ 8,263 $ 8,225 0.5 %
Supplies per adjusted admission 2,670 2,567 4.0 %
Other operating expenses per adjusted admission 4,290 3,998 7.3 %
Total per adjusted admission $ 15,223 $ 14,790 2.9 %
Salaries, wages and benefits expense for our Hospital Operations segment decreased by $161 million, or 7.9%, in the three months ended June 30, 2024 compared to the same period in 2023. This change was primarily attributable to the sales of the Divested Hospitals. Excluding the impact of these sales, salaries, wages and benefits expense for our Hospital Operations segment increased during the three-month period in 2024 as compared to the same period in 2023. This increase was the result of annual merit increases for certain of our employees and increased employee benefits, recruiting and retention costs, as well as higher incentive compensation expense, partially offset by a substantial decrease in contract labor expense, during the three months ended June 30, 2024. On a per adjusted admission basis, salaries, wages and benefits expense in our Hospital Operations segment increased by 0.5% in the three months ended June 30, 2024 compared to the three months ended June 30, 2023.
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Supplies expense for our Hospital Operations segment decreased by $29 million, or 4.5%, during the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to the sales of the Divested Hospitals. Excluding the impact of these sales, supplies expense for 2024 increased as compared to 2023, principally due to higher patient volumes and acuity. On a per adjusted admission basis, supplies expense increased by 4.0% in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to higher patient acuity during the 2024 period.
Other operating expenses for our Hospital Operations segment decreased by $14 million, or 1.4%, in the three months ended June 30, 2024 compared to the same period in 2023, primarily due to the sales of the Divested Hospitals. Excluding the effect of these divestitures, changes in other operating expenses during the three months ended June 30, 2024 included the following:
•an increase of $17 million in medical fees;
•$14 million more in malpractice expense; and
•an $11 million increase in repair and maintenance costs.
On a per adjusted admission basis, other operating expenses in the three months ended June 30, 2024 increased by 7.3% compared to the same period in 2023, primarily due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES OVERVIEW
Cash and cash equivalents were $2.880 billion at June 30, 2024 compared to $2.481 billion at March 31, 2024. Significant cash flow items in the three months ended June 30, 2024 included:
•Net cash provided by operating activities before interest, taxes, discontinued operations, impairment and restructuring charges, and acquisition-related costs, and litigation costs and settlements of $1.318 billion;
•$342 million of advances received from managed care payers;
•Interest payments of $297 million;
•$270 million of payments to purchase approximately 1,990 thousand shares of our common stock under our share repurchase program;
•Income tax payments of $235 million;
•Distributions paid to noncontrolling interests totaling $161 million;
•Capital expenditures of $145 million; and
•$61 million of payments for purchases of businesses or joint venture interests.
Net cash provided by operating activities was $1.333 billion in the six months ended June 30, 2024 compared to $1.047 billion in the six months ended June 30, 2023. Key factors contributing to the change between the 2024 and 2023 periods included the following:
•An increase in net income before interest, taxes, depreciation and amortization, impairment and restructuring charges, acquisition-related costs, litigation costs and settlements, loss from early extinguishment of debt, other non-operating income or expense, and net gains on sales, consolidation and deconsolidation of facilities of $294 million;
•Income tax payments that were $82 million higher in the 2024 period; and
•The timing of working capital items.
FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, target, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements, including (but not limited to) disclosures regarding (1) our future earnings, financial position, and operational and strategic initiatives, (2) developments in the healthcare industry, and (3) the anticipated impacts of economic and public health conditions on our business. Forward-looking statements represent management's expectations, based on currently available information, as to the outcome and timing of future events, but, by their nature, address matters that are indeterminate. They involve known and unknown risks, uncertainties and other factors,
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many of which we are unable to predict or control, that may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. Such factors include, but are not limited to, the risks described in the Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report.
When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in our Annual Report and in this report. Should one or more of the risks and uncertainties described in these reports occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statement. We specifically disclaim any obligation to update any information contained in a forward-looking statement or any forward-looking statement in its entirety except as required by law.
All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary information.
SOURCES OF REVENUE FOR OUR HOSPITAL OPERATIONS AND SERVICES SEGMENT
We earn revenues for patient services from a variety of sources, primarily managed care payers and the federal Medicare program, as well as state Medicaid programs, indemnity-based health insurance companies and uninsured patients (that is, patients who do not have health insurance and are not covered by some other form of third-party arrangement).
The following table presents the sources of net patient service revenues for our hospitals and related outpatient facilities, expressed as percentages of net patient service revenues from all sources on a continuing operations basis:
Three Months Ended
June 30,
Increase
(Decrease)(1)
Six Months Ended
June 30,
Increase
(Decrease)(1)
2024 2023 2024 2023
Medicare 15.2 % 16.6 % (1.4) % 15.5 % 16.9 % (1.4) %
Medicaid 10.8 % 7.3 % 3.5 % 10.7 % 7.6 % 3.1 %
Managed care(2)
69.7 % 71.0 % (1.3) % 69.4 % 70.6 % (1.2) %
Uninsured 0.3 % 0.8 % (0.5) % 0.4 % 0.8 % (0.4) %
Indemnity and other 4.0 % 4.3 % (0.3) % 4.0 % 4.1 % (0.1) %
(1)
The change is the difference between the 2024 and 2023 percentages presented.
(2) Includes Medicare and Medicaid managed care programs.
Our payer mix on an admissions basis for our hospitals, expressed as a percentage of total admissions from all sources on a continuing operations basis, is presented below:
Three Months Ended
June 30,
Increase
(Decrease)(1)
Six Months Ended
June 30,
Increase
(Decrease)(1)
Admissions from: 2024 2023 2024 2023
Medicare 18.2 % 19.9 % (1.7) % 19.0 % 20.3 % (1.3) %
Medicaid 4.8 % 4.9 % (0.1) % 4.6 % 4.9 % (0.3) %
Managed care(2)
68.8 % 67.4 % 1.4 % 68.4 % 67.1 % 1.3 %
Charity and uninsured 4.7 % 4.4 % 0.3 % 4.5 % 4.4 % 0.1 %
Indemnity and other 3.5 % 3.4 % 0.1 % 3.5 % 3.3 % 0.2 %
(1)
The change is the difference between the 2024 and 2023 percentages presented.
(2) Includes Medicare and Medicaid managed care programs.
Our hospitals and outpatient facilities are subject to various factors that affect our service mix, revenue mix and patient volumes and, thereby, impact our net patient service revenues and results of operations. These factors include, among others, changes in federal, state and local healthcare and business regulations; changes in general economic conditions nationally and regionally, including inflation and other factors; the number of uninsured and underinsured individuals in local communities treated at our hospitals; cybersecurity incidents, including those targeting our vendors, and other unanticipated information technology outages; disease hotspots and seasonal cycles of illness; climate and weather conditions; physician recruitment, satisfaction, retention and attrition; advances in technology and treatments that reduce length of stay or permit procedures to be performed in an outpatient rather than an inpatient setting; local healthcare competitors; utilization pressure by managed care organizations, as well as managed care contract negotiations or terminations; performance data on quality measures and patient satisfaction, as well as standard charges for services; any unfavorable publicity about us, or our joint venture partners, that
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impacts our relationships with physicians and patients; and changing consumer behavior, including with respect to the timing of elective procedures.
GOVERNMENT PROGRAMS
The Centers for Medicare & Medicaid Services ("CMS") is an agency of the U.S. Department of Health and Human Services that administers a number of government programs authorized by federal law; it is the single largest payer of healthcare services in the United States. Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, as well as some younger people with certain disabilities and conditions, and is provided without regard to income or assets. Medicaid is co-administered by the states and is jointly funded by the federal government and state governments. Medicaid is the nation's main public health insurance program for people with low incomes and is the largest source of health coverage in the United States. The Children's Health Insurance Program ("CHIP"), which is also co-administered by the states and jointly funded, provides health coverage to children in families with incomes too high to qualify for Medicaid, but too low to afford private coverage. Unlike Medicaid, the CHIP is limited in duration and requires the enactment of reauthorizing legislation. Funding for the CHIP has been reauthorized through federal fiscal year ("FFY") 2029.
Medicare
Medicare offers its beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan (which includes "Part A" and "Part B"), is a fee-for-service ("FFS") payment system. The other option, called Medicare Advantage (sometimes called "Part C" or "MA Plans"), includes health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), private FFS Medicare special needs plans and Medicare medical savings account plans. Our total net patient service revenues from continuing operations of the hospitals and related outpatient facilities in our Hospital Operations segment for services provided to patients enrolled in the Original Medicare Plan were $518 million and $599 million for the three months ended June 30, 2024 and 2023, respectively, and $1.128 billion and $1.212 billion for the six months ended June 30, 2024 and 2023, respectively. A general description of the types of payments we receive for services provided to patients enrolled in the Original Medicare Plan is provided in our Annual Report. Recent regulatory and legislative updates to the terms of these payment systems and their estimated effect on our revenues can be found under "Regulatory and Legislative Changes" below.
Medicaid
Medicaid programs and the corresponding reimbursement methodologies vary from state-to-state and from year-to-year. Estimated revenues under various state Medicaid programs, including state-funded Medicaid managed care programs, constituted approximately 21.0% and 18.3% of the total net patient service revenues of our hospitals and related outpatient facilities for the six months ended June 30, 2024 and 2023, respectively. We also receive disproportionate share hospital ("DSH") and other supplemental revenues under various state Medicaid programs. Our total Medicaid revenues attributable to DSH and other supplemental revenues were approximately $286 million and $190 million for the three months ended June 30, 2024 and 2023, respectively, and $625 million and $395 million for the six months ended June 30, 2024 and 2023, respectively.
Several states in which we operate continue to face budgetary challenges that have resulted in reduced Medicaid funding levels to hospitals and other providers. Because most states must operate with balanced budgets, and the Medicaid program is generally a significant portion of a state's budget, states can be expected to adopt or consider adopting future legislation designed to reduce or not increase their Medicaid expenditures. In addition, some states delay issuing Medicaid payments to providers to manage state expenditures. As an alternative means of funding provider payments, many of the states where we operate have adopted supplemental payment programs authorized under the Social Security Act. Continuing pressure on state budgets and other factors, including legislative and regulatory changes, could result in future reductions to Medicaid payments, payment delays or changes to Medicaid supplemental payment programs. Federal government denials or delayed approvals of waiver applications or extension requests by the states where we operate could also materially impact our Medicaid funding levels.
Total Medicaid and Medicaid managed care net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment were $702 million and $640 million for the three months ended June 30, 2024 and 2023, respectively, and $1.524 billion and $1.312 billion for the six months ended June 30, 2024 and 2023, respectively. During the six months ended June 30, 2024, Medicaid and Medicaid managed care revenues each comprised 51.2% of our Medicaid-related net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment. All Medicaid and Medicaid managed care patient service revenues are presented net of provider taxes or assessments paid by our hospitals.
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Because we cannot predict what actions the federal government or the states may take under existing or future legislation and/or regulatory changes to address budget gaps, deficits, Medicaid expansion, Medicaid eligibility redeterminations, provider fee programs, state-directed payment programs or Medicaid Section 1115 waivers, we are unable to assess the effect that any such legislation or regulatory action might have on our business; however, the impact on our future financial position, results of operations or cash flows could be material.
Regulatory and Legislative Changes
Material updates to the information set forth in our Annual Report about the Medicare and Medicaid payment systems, as well as other government programs impacting our business, are provided below.
Proposed Payment and Policy Changes to the Medicare Inpatient Prospective Payment Systems-Section 1886(d) of the Social Security Act requires CMS to update Medicare inpatient FFS payment rates for hospitals reimbursed under the inpatient prospective payment systems ("IPPS") annually. The updates generally become effective October 1, the beginning of the FFY. In April 2024, CMS issued proposed changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2025 Rates ("Proposed IPPS Rule"). The Proposed IPPS Rule includes the following payment and policy changes, among others:
•A market basket increase of 3.0% for Medicare severity-adjusted diagnosis-related group ("MS-DRG") operating payments for hospitals reporting specified quality measure data and that are meaningful users of electronic health record ("EHR") technology; CMS also proposed a 0.4% multifactor productivity reduction required by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the "Affordable Care Act"), that results in a net operating payment update of 2.6% before budget neutrality adjustments;
•An increase in the cost outlier threshold from $42,750 to $49,237;
•A 3.0% net increase in the capital federal MS-DRG rate;
•Updates to the three factors used to determine the amount and distribution of Medicare uncompensated care disproportionate share hospital payments ("UC-DSH Amounts");
•An increase to the performance-based scoring threshold for eligible hospitals and critical access hospitals reporting under the Medicare Promoting Interoperability Program from 60 points to 80 points beginning with the EHR reporting period in calendar year ("CY") 2025;
•An update to the hospital labor market area delineation based on the Office of Management and Budget Bulletin No. 23-01; and
•Implementation of a five-year mandatory model known as the Transforming Episode Accountability Model (TEAM) that would begin January 1, 2026 and end December 31, 2030 for certain episodic categories.
According to CMS, the combined impact of the proposed payment and policy changes in the Proposed IPPS Rule for operating costs will yield an average 2.4% increase in Medicare operating MS-DRG FFS payments for hospitals in urban areas and an average 2.6% increase in such payments for proprietary hospitals in FFY 2025. We estimate that all of the proposed payment and policy changes affecting operating MS-DRG and UC-DSH Amounts will result in a 2.1% increase in our annual Medicare FFS IPPS payments, which yields an estimated increase of $29 million. Because of the uncertainty associated with various factors that may influence our future IPPS payments by individual hospital, including legislative, regulatory or legal actions, admission volumes, length of stay and case mix, as well as potential changes to the Proposed IPPS Rule, we cannot provide any assurances regarding our estimate of the impact of the proposed payment and policy changes.
Proposed Payment and Policy Changes to the Medicare Outpatient Prospective Payment and Ambulatory Surgery Center Payment Systems-In July 2024, CMS released the proposed policy changes and payment rates for the Hospital Outpatient Prospective Payment System ("OPPS") and Ambulatory Surgical Center Payment System for CY 2025 ("Proposed OPPS/ASC Rule"). The Proposed OPPS/ASC Rule includes the following payment and policy changes, among others:
•An estimated net increase of 2.6% for the OPPS rates based on a market basket increase of 3.0%, reduced by a multifactor productivity adjustment required by the Affordable Care Act of 0.4%; and
•A 2.6% increase to the Ambulatory Surgical Center payment rates.
CMS projects that the combined impact of the payment and policy changes in the Proposed OPPS/ASC Rule will yield an average 2.4% increase in Medicare FFS OPPS payments for hospitals in urban areas and an average 3.5% increase in Medicare FFS OPPS payments for proprietary hospitals. The projected annual impact of the payment and policy changes in the
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Proposed OPPS/ASC Rule is an increase to Medicare FFS hospital outpatient revenues of approximately $13 million, or 2.85%, for the facilities in our Hospital Operations segment and $17 million, or 2.57%, for USPI's ASCs and surgical hospitals. Because of the uncertainty associated with various factors that may influence our future OPPS payments, including legislative or legal actions, volumes and case mix, as well as potential changes to the Proposed OPPS/ASC Rule, we cannot provide any assurances regarding our estimates of the impact of the proposed payment and policy changes.
Proposed Payment and Policy Changes to the Medicare Physician Fee Schedule-In July 2024, CMS released the CY 2025 Medicare Physician Fee Schedule ("MPFS") Proposed Rule ("MPFS Proposed Rule"). The MPFS Proposed Rule includes updates to payment policies, payment rates and other provisions for services reimbursed under the MPFS from January 1 through December 31, 2025. Under the MPFS Proposed Rule, the CY 2025 conversion factor, which is the base rate that is used to convert relative units into payment rates, would be reduced from $33.29 to $32.36, a decrease of 2.79%, due to budget neutrality rules and the expiration of the 2.93% adjustment provided for in the Consolidated Appropriations Act, 2024. We estimate the impact of the MPFS Proposed Rule should result in a reduction of less than $5 million to our 2025 FFS MPFS revenues. Because of the uncertainty associated with various factors that may influence our future MPFS payments, including legislative, regulatory or legal actions, volumes and case mix, as well as potential changes to the MPFS Proposed Rule, we cannot provide any assurances regarding our estimate of the impact of the proposed payment and policy changes.
PRIVATE INSURANCE
Managed Care
We currently have thousands of managed care contracts with various HMOs and PPOs. HMOs generally maintain a full-service healthcare delivery network comprised of physician, hospital, pharmacy and ancillary service providers that HMO members must access through an assigned "primary care" physician. The member's care is then managed by his or her primary care physician and other network providers in accordance with the HMO's quality assurance and utilization review guidelines so that appropriate healthcare can be efficiently delivered in the most cost-effective manner. HMOs typically provide reduced benefits or reimbursement (or none at all) to their members who use non-contracted healthcare providers for non-emergency care. PPOs generally offer limited benefits to members who use non-contracted healthcare providers. PPO members who use contracted healthcare providers receive a preferred benefit, typically in the form of lower co-pays, co-insurance or deductibles. As employers and employees have demanded more choice, managed care plans have developed hybrid products that combine elements of both HMO and PPO plans, including high-deductible healthcare plans that may have limited benefits, but cost the employee less in premiums.
The amount of our managed care net patient service revenues, including Medicare and Medicaid managed care programs, from our hospitals and related outpatient facilities during the three months ended June 30, 2024 and 2023 was $2.383 billion and $2.565 billion, respectively, and $5.039 billion and $5.068 billion during the six months ended June 30, 2024 and 2023, respectively. Our top 10 managed care payers generated 69% of our managed care net patient service revenues for the six months ended June 30, 2024. During the same period, national payers generated 48% of our managed care net patient service revenues; the remainder came from regional or local payers. At both June 30, 2024 and December 31, 2023, 68% of our Hospital Operations segment's net accounts receivable were due from managed care payers.
Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted FFS rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient's bill is subject to adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. We believe it is reasonably likely for there to be an approximately 3% increase or decrease in the estimated contractual allowances related to managed care plans. Based on reserves at June 30, 2024, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $25 million. Some of the factors that can contribute to changes in the contractual allowance estimates include: (1) changes in reimbursement levels for procedures, supplies and drugs when threshold levels are triggered; (2) changes in reimbursement levels when stop-loss or outlier limits are reached; (3) changes in the admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (4) final coding of in-house and discharged-not-final-billed patients that change reimbursement levels; (5) secondary benefits determined after primary insurance payments; and (6) reclassification of patients among insurance plans with different coverage and payment levels. Contractual allowance estimates are periodically reviewed for accuracy by taking into consideration known contract terms, as well as payment history. We believe our estimation and review process enables us to identify instances on a timely basis where such estimates need to be revised. We do not believe there were any adjustments to estimates of patient bills that were material to our revenues during the six months
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ended June 30, 2024. In addition, on a corporate-wide basis, we do not record any general provision for adjustments to estimated contractual allowances for managed care plans. Managed care accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for these payers and other factors that affect the estimation process.
In recent years, managed care governmental admissions have increased as a percentage of total managed care admissions. However, in the six months ended June 30, 2024, admissions growth from commercial managed care plans was greater than the growth in admissions from Medicare and Medicaid managed care programs. Commercial managed care plans typically generate higher yields than managed care governmental insurance plans. In the six months ended June 30, 2024, our commercial managed care net inpatient revenue per admission from the hospitals in our Hospital Operations segment was approximately 65% higher than our aggregate yield on a per-admission basis from government payers including Medicare and Medicaid managed care programs. Although we have benefited from year-over-year aggregate managed care pricing improvements for some time, we have seen these improvements moderate in recent years, and we believe this moderation could continue into the future, subject to incremental pricing improvements to address inflationary pressures.
Indemnity
An indemnity-based agreement generally requires the insurer to reimburse an insured patient for healthcare expenses after those expenses have been incurred by the patient, subject to policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her utilization of healthcare and selection of healthcare providers.
UNINSURED PATIENTS
Uninsured patients are patients who do not qualify for government programs payments, such as Medicare and Medicaid, do not have some form of private insurance and, therefore, are responsible for their own medical bills. A significant number of our uninsured patients are admitted through our hospitals' emergency departments and often require high-acuity treatment that is more costly to provide and, therefore, results in higher billings, which are the least collectible of all accounts.
Self-pay accounts receivable, which include amounts due from uninsured patients, as well as co-pays, co-insurance amounts and deductibles owed to us by patients with insurance, pose significant collectability problems. At both June 30, 2024 and December 31, 2023, 4% of our Hospital Operations segment's accounts receivable was self-pay. Further, a significant portion of our implicit price concessions relates to self-pay amounts. The revenue cycle management services we provide are subject to various statutes and regulations regarding consumer protection in areas including finance, debt collection and credit reporting activities. For additional information, see Item 1, Business - Laws and Regulations Affecting Revenue Cycle Management Services, of Part I of our Annual Report.
We perform systematic analyses to focus our attention on the drivers of implicit price concessions for each hospital. While emergency department use is the primary contributor to our implicit price concessions in the aggregate, this is not the case at all hospitals. As a result, we have increased our focus on targeted initiatives that concentrate on non-emergency department patients as well. These initiatives are intended to promote process efficiencies in collecting self-pay accounts, as well as co-pay, co-insurance and deductible amounts owed to us by patients with insurance, that we deem highly collectible. We leverage a statistical-based collections model that aligns our operational capacity to maximize our collections performance. We are dedicated to modifying and refining our processes as needed, enhancing our technology and improving staff training throughout the revenue cycle process in an effort to increase collections and reduce accounts receivable.
Over the longer term, several other initiatives we have previously announced should also help address the challenges associated with serving uninsured patients. For example, our Compact with Uninsured Patients("Compact") is designed to offer managed care-style discounts to certain uninsured patients, which enables us to offer lower rates to those patients who historically had been charged standard gross charges. Under the Compact, the discount offered to uninsured patients is recognized as a contractual allowance, which reduces net operating revenues at the time the self-pay accounts are recorded. The uninsured patient accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for self-pay accounts and other factors that affect the estimation process.
We also provide financial assistance through our charity and uninsured discount programs to uninsured patients who are unable to pay for the healthcare services they receive. Our policy is not to pursue collection of amounts determined to qualify for financial assistance; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital's eligibility for Medicaid DSH payments. These payments are intended to mitigate our cost of uncompensated care. Some states have also developed provider fee or other supplemental payment programs to mitigate the shortfall of Medicaid reimbursement compared to the cost of caring for Medicaid patients.
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The initial expansion of health insurance coverage under the Affordable Care Act resulted in an increase in the number of patients using our facilities with either private or public program coverage and a decrease in uninsured and charity care admissions, along with reductions in Medicare and Medicaid reimbursement to healthcare providers, including us. However, we continue to provide uninsured discounts and charity care due to the failure of certain states to expand Medicaid coverage and for persons living in the country who are not permitted to enroll in a health insurance exchange or government healthcare insurance program.
Federal legislation passed during the COVID-19 pandemic included a requirement that state Medicaid programs keep people continuously enrolled during the COVID-19 federal Public Health Emergency in exchange for a temporary increase to the Federal Medical Assistance Percentage. This continuous enrollment condition ended on March 31, 2023 and, on April 1, 2023, states were permitted to begin eligibility redeterminations on their Medicaid populations and disenroll individuals no longer eligible. The resulting volume of redeterminations has caused backlogs in the processing of new applications, which has increased the overall certification timeframe. We expect the certification timing will return to normal as these backlogs are resolved. Although we have not been materially adversely affected to date, any increase in the volume of uninsured patients could have an impact on our uncompensated care expense.
The following table presents our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses) of caring for our uninsured and charity patients:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Estimated costs for:
Uninsured patients $ 132 $ 116 $ 271 $ 239
Charity care patients 25 28 46 52
Total $ 157 $ 144 $ 317 $ 291
RESULTS OF OPERATIONS
The following tables present our consolidated net operating revenues, operating expenses and operating income, both in dollar amounts and as percentages of net operating revenues, on a continuing operations basis:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Net operating revenues:
Hospital Operations $ 3,962 $ 4,140 $ 8,335 $ 8,256
Ambulatory Care 1,141 942 2,136 1,847
Net operating revenues 5,103 5,082 10,471 10,103
Grant income 5 8 5 11
Equity in earnings of unconsolidated affiliates 61 54 120 104
Operating expenses:
Salaries, wages and benefits 2,168 2,285 4,489 4,543
Supplies 908 891 1,836 1,782
Other operating expenses, net 1,148 1,125 2,302 2,218
Depreciation and amortization 208 213 416 430
Impairment and restructuring charges, and acquisition-related costs 29 16 56 37
Litigation and investigation costs 5 10 9 14
Net gains on sales, consolidation and deconsolidation of facilities (58) - (2,558) (13)
Operating income $ 761 $ 604 $ 4,046 $ 1,207
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Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Net operating revenues 100.0 % 100.0 % 100.0 % 100.0 %
Grant income 0.1 % 0.2 % - % 0.1 %
Equity in earnings of unconsolidated affiliates 1.2 % 1.1 % 1.1 % 1.0 %
Operating expenses:
Salaries, wages and benefits 42.5 % 45.0 % 42.9 % 45.0 %
Supplies 17.8 % 17.5 % 17.5 % 17.6 %
Other operating expenses, net 22.4 % 22.1 % 21.9 % 22.0 %
Depreciation and amortization 4.1 % 4.3 % 4.0 % 4.2 %
Impairment and restructuring charges, and acquisition-related costs 0.6 % 0.3 % 0.5 % 0.4 %
Litigation and investigation costs 0.1 % 0.2 % 0.1 % 0.1 %
Net gains on sales, consolidation and deconsolidation of facilities (1.1) % - % (24.4) % (0.1) %
Operating income 14.9 % 11.9 % 38.6 % 11.9 %
The following tables present our net operating revenues, operating expenses and operating income, both in dollar amounts and as percentages of net operating revenues, by segment on a continuing operations basis:
Three Months Ended
June 30, 2024 		Six Months Ended
June 30, 2024
Hospital Operations Ambulatory Care Hospital Operations Ambulatory Care
Net operating revenues $ 3,962 $ 1,141 $ 8,335 $ 2,136
Grant income 5 - 5 -
Equity in earnings of unconsolidated affiliates 3 58 6 114
Operating expenses:
Salaries, wages and benefits 1,884 284 3,968 521
Supplies 609 299 1,263 573
Other operating expenses, net 979 169 1,987 315
Depreciation and amortization 174 34 351 65
Impairment and restructuring charges, and acquisition-related costs 15 14 30 26
Litigation and investigation costs 5 - 9 -
Net gains on sales, consolidation and deconsolidation of facilities - (58) (2,473) (85)
Operating income $ 304 $ 457 $ 3,211 $ 835
Net operating revenues 100.0 % 100.0 % 100.0 % 100.0 %
Grant income 0.1 % - % 0.1 % - %
Equity in earnings of unconsolidated affiliates 0.1 % 5.1 % 0.1 % 5.3 %
Operating expenses:
Salaries, wages and benefits 47.6 % 24.9 % 47.6 % 24.4 %
Supplies 15.4 % 26.2 % 15.2 % 26.8 %
Other operating expenses, net 24.7 % 14.8 % 23.8 % 14.8 %
Depreciation and amortization 4.3 % 3.0 % 4.3 % 3.0 %
Impairment and restructuring charges, and acquisition-related costs 0.4 % 1.2 % 0.4 % 1.2 %
Litigation and investigation costs 0.1 % - % 0.1 % - %
Net gains on sales, consolidation and deconsolidation of facilities - % (5.1) % (29.7) % (4.0) %
Operating income 7.7 % 40.1 % 38.5 % 39.1 %
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Three Months Ended
June 30, 2023 		Six Months Ended
June 30, 2023
Hospital Operations Ambulatory Care Hospital Operations Ambulatory Care
Net operating revenues $ 4,140 $ 942 $ 8,256 $ 1,847
Grant income 7 1 10 1
Equity in earnings of unconsolidated affiliates 2 52 5 99
Operating expenses:
Salaries, wages and benefits 2,045 240 4,068 475
Supplies 638 253 1,272 510
Other operating expenses, net 993 132 1,966 252
Depreciation and amortization 186 27 376 54
Impairment and restructuring charges, and acquisition-related costs 14 2 32 5
Litigation and investigation costs 5 5 8 6
Net gains on sales, consolidation and deconsolidation of facilities - - - (13)
Operating income $ 268 $ 336 $ 549 $ 658
Net operating revenues 100.0 % 100.0 % 100.0 % 100.0 %
Grant income 0.2 % 0.1 % 0.1 % 0.1 %
Equity in earnings of unconsolidated affiliates - % 5.5 % 0.1 % 5.4 %
Operating expenses:
Salaries, wages and benefits 49.4 % 25.5 % 49.3 % 25.7 %
Supplies 15.4 % 26.9 % 15.4 % 27.6 %
Other operating expenses, net 24.0 % 14.0 % 23.8 % 13.6 %
Depreciation and amortization 4.5 % 2.8 % 4.6 % 3.1 %
Impairment and restructuring charges, and acquisition-related costs 0.3 % 0.2 % 0.4 % 0.3 %
Litigation and investigation costs 0.1 % 0.5 % 0.1 % 0.3 %
Net gains on sales, consolidation and deconsolidation of facilities - % - % - % (0.7) %
Operating income 6.5 % 35.7 % 6.6 % 35.6 %
Consolidated net operating revenues increased by $21 million and $368 million, or 0.4% and 3.6%, for the three and six months ended June 30, 2024, respectively, compared to the three and six months ended June 30, 2023. Our Hospital Operations segment's net operating revenues increased by $79 million, or 1.0%, for the six months ended June 30, 2024 as compared to the same period in 2023. Although total admissions decreased by 2.1% during the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, our net patient revenue per adjusted admission concurrently increased by 6.0%. The increase in our net operating revenues was driven by a more favorable payer mix, higher patient acuity, growth in our Medicaid supplemental revenue and negotiated commercial rate increases, partially offset by the impact from the sales of the Divested Hospitals.
RESULTS OF OPERATIONS BY SEGMENT
Our operations are reported in two segments:
•Hospital Operations, which is comprised of our acute care and specialty hospitals, a network of employed physicians and ancillary outpatient facilities, as well as the revenue cycle management and value-based care services that we provide to hospitals, health systems, physician practices, employers and other clients; and
•Ambulatory Care, which is comprised of USPI's ASCs and surgical hospitals.
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Hospital Operations Segment
The following tables present operating statistics, revenues and expenses of our hospitals and related outpatient facilities on a same-hospital basis, unless otherwise indicated:
Same-Hospital Same-Hospital
Three Months Ended
June 30, 		Increase
(Decrease) 		Six Months Ended
June 30, 		Increase
(Decrease)
Admissions, Patient Days and Surgeries 2024 2023 2024 2023
Number of hospitals (at end of period) 52 52 - 52 52 - (1)
Total admissions 124,630 118,452 5.2 % 249,380 238,166 4.7 %
Adjusted admissions 227,999 222,732 2.4 % 451,911 442,646 2.1 %
Paying admissions (excludes charity and uninsured) 118,781 112,912 5.2 % 237,881 227,069 4.8 %
Charity and uninsured admissions 5,849 5,540 5.6 % 11,499 11,097 3.6 %
Admissions through emergency department 91,761 87,938 4.3 % 185,120 177,832 4.1 %
Paying admissions as a percentage of total admissions 95.3 % 95.3 % - % 95.4 % 95.3 % 0.1 % (1)
Charity and uninsured admissions as a percentage of total admissions 4.7 % 4.7 % - % 4.6 % 4.7 % (0.1) % (1)
Emergency department admissions as a percentage of total admissions 73.6 % 74.2 % (0.6) % 74.2 % 74.7 % (0.5) % (1)
Surgeries - inpatient 32,523 31,125 4.5 % 64,130 61,583 4.1 %
Surgeries - outpatient 46,863 47,124 (0.6) % 90,648 93,600 (3.2) %
Total surgeries 79,386 78,249 1.5 % 154,778 155,183 (0.3) %
Patient days - total 622,981 607,853 2.5 % 1,272,067 1,236,913 2.8 %
Adjusted patient days 1,098,142 1,097,950 - % 2,220,695 2,211,629 0.4 %
Average length of stay (days) 5.00 5.13 (2.5) % 5.10 5.19 (1.7) %
Licensed beds (at end of period) 14,085 14,053 0.2 % 14,085 14,053 0.2 %
Average licensed beds 14,085 14,053 0.2 % 14,085 14,053 0.2 %
Utilization of licensed beds 48.6 % 47.5 % 1.1 % 49.6 % 48.6 % 1.0 % (1)
(1)
The change is the difference between the 2024 and 2023 amounts or percentages presented.
Same-Hospital Same-Hospital
Three Months Ended
June 30, 		Increase
(Decrease) 		Six Months Ended
June 30, 		Increase
(Decrease)
Outpatient Visits 2024 2023 2024 2023
Total visits 1,271,665 1,264,107 0.6 % 2,507,836 2,510,448 (0.1) %
Paying visits (excludes charity and uninsured) 1,196,546 1,197,272 (0.1) % 2,358,243 2,377,246 (0.8) %
Charity and uninsured visits 75,119 66,835 12.4 % 149,593 133,202 12.3 %
Emergency department visits 492,117 485,995 1.3 % 985,029 960,111 2.6 %
Surgery visits 46,863 47,124 (0.6) % 90,648 93,600 (3.2) %
Paying visits as a percentage of total visits 94.1 % 94.7 % (0.6) % 94.0 % 94.7 % (0.7) % (1)
Charity and uninsured visits as a percentage of total visits 5.9 % 5.3 % 0.6 % 6.0 % 5.3 % 0.7 % (1)
(1)
The change is the difference between the 2024 and 2023 percentages presented.
Same-Hospital Same-Hospital
Three Months Ended
June 30, 		Increase
(Decrease) 		Six Months Ended
June 30, 		Increase
(Decrease)
Revenues 2024 2023 2024 2023
Total segment net operating revenues $ 3,986 $ 3,692 8.0 % $ 7,973 $ 7,355 8.4 %
Selected revenue data - hospitals and related outpatient facilities:
Net patient service revenues $ 3,444 $ 3,184 8.2 % $ 6,915 $ 6,317 9.5 %
Net patient service revenue per adjusted admission $ 15,105 $ 14,295 5.7 % $ 15,302 $ 14,271 7.2 %
Net patient service revenue per adjusted patient day $ 3,136 $ 2,900 8.1 % $ 3,114 $ 2,856 9.0 %
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Same-Hospital Same-Hospital
Three Months Ended
June 30, 		Increase
(Decrease) 		Six Months Ended
June 30, 		Increase
(Decrease)
Selected Operating Expenses 2024 2023 2024 2023
Salaries, wages and benefits $ 1,872 $ 1,836 2.0 % $ 3,763 $ 3,639 3.4 %
Supplies 609 573 6.3 % 1,210 1,143 5.9 %
Other operating expenses, net 966 890 8.5 % 1,884 1,764 6.8 %
$ 3,447 $ 3,299 4.5 % $ 6,857 $ 6,546 4.8 %
Same-Hospital Same-Hospital
Selected Operating Expenses as a Percentage of Net Operating Revenues Three Months Ended
June 30,
Increase
(Decrease)(1)
Six Months Ended
June 30,
Increase
(Decrease)(1)
2024 2023 2024 2023
Salaries, wages and benefits 47.0 % 49.7 % (2.7) % 47.2 % 49.5 % (2.3) %
Supplies 15.3 % 15.5 % (0.2) % 15.2 % 15.5 % (0.3) %
Other operating expenses, net 24.2 % 24.1 % 0.1 % 23.6 % 24.0 % (0.4) %
(1)
The change is the difference between the 2024 and 2023 percentages presented.
Revenues
Same-hospital net operating revenues increased by $294 million, or 8.0%, during the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to a more favorable payer mix, higher patient volume and acuity, growth in our Medicaid supplemental revenue, and negotiated commercial rate increases.
Same-hospital net operating revenues increased by $618 million, or 8.4%, during the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to the same factors discussed above.
The following table presents our consolidated net accounts receivable by payer:
June 30, 2024 December 31, 2023
Medicare $ 132 $ 151
Medicaid 80 61
Cost report settlements receivable, net of payables and valuation allowances 24 47
Managed care 1,592 1,667
Self-pay uninsured 27 35
Self-pay balance after insurance 77 71
Estimated future recoveries 139 148
Other payers 274 281
Total Hospital Operations 2,345 2,461
Ambulatory Care 472 453
Accounts receivable, net $ 2,817 $ 2,914
The collection of accounts receivable is a key area of focus for our business. At June 30, 2024 and December 31, 2023, our Hospital Operations segment collection rate on self-pay accounts was approximately 29.0% and 29.9%, respectively. Our self-pay collection rate includes payments made by patients, including co-pays, co-insurance amounts and deductibles paid by patients with insurance. Based on our accounts receivable from uninsured patients and co-pays, co-insurance amounts and deductibles owed to us by patients with insurance at June 30, 2024, a 10% decrease or increase in our self-pay collection rate, or approximately 2.9%, which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to patient accounts receivable of approximately $10 million. There are various factors that can impact collection trends, such as changes in the economy and inflation, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, the volume of patients through our emergency departments, the increased burden of co-pays and deductibles to be made by patients with insurance, successful cyberattacks against us or the third-party systems we interact with, and business practices related to collection efforts. These factors continuously change and can have an impact on collection trends and our estimation process.
We also typically experience ongoing managed care payment delays and disputes; however, we continue to work with these payers to obtain adequate and timely reimbursement for our services. Our estimated Hospital Operations segment collection rate from managed care payers was approximately 95.9% and 96.7% at June 30, 2024 and December 31, 2023, respectively.
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We manage our implicit price concessions using hospital-specific goals and benchmarks such as (1) total cash collections, (2) point-of-service cash collections, (3) AR Days and (4) accounts receivable by aging category. The following table presents the approximate aging by payer of our net accounts receivable from the continuing operations of our Hospital Operations segment of $2.321 billion and $2.414 billion at June 30, 2024 and December 31, 2023, respectively. Cost report settlements receivable, net of payables and related valuation allowances, of $24 million and $47 million at June 30, 2024 and December 31, 2023, respectively, are excluded from the table.
Medicare Medicaid Managed
Care 		Indemnity,
Self-Pay
and Other 		Total
At June 30, 2024
0-60 days 89 % 50 % 58 % 22 % 53 %
61-120 days 5 % 24 % 18 % 16 % 17 %
121-180 days 3 % 14 % 11 % 9 % 10 %
Over 180 days 3 % 12 % 13 % 53 % 20 %
Total 100 % 100 % 100 % 100 % 100 %
At December 31, 2023
0-60 days 93 % 46 % 58 % 23 % 54 %
61-120 days 5 % 23 % 16 % 14 % 15 %
121-180 days 1 % 13 % 9 % 7 % 8 %
Over 180 days 1 % 18 % 17 % 56 % 23 %
Total 100 % 100 % 100 % 100 % 100 %
We continue to implement revenue cycle initiatives intended to improve our cash flow. These initiatives are focused on standardizing and improving patient access processes, including pre-registration, registration, verification of eligibility and benefits, liability identification and collections at point-of-service, and financial counseling. These initiatives are intended to reduce denials, improve service levels to patients and increase the quality of accounts that end up in accounts receivable. Although we continue to focus on improving our methodology for evaluating the collectability of our accounts receivable, we may incur future charges if there are unfavorable changes in the trends affecting the net realizable value of our accounts receivable.
Patient advocates from our Eligibility and Enrollment Services program ("EES") screen patients in the hospital to determine whether those patients meet eligibility requirements for financial assistance programs. They also expedite the process of applying for these government programs. Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending, under the EES, net of appropriate implicit price concessions. Based on recent trends, approximately 96% of all accounts in the EES are ultimately approved for benefits under a government program, such as Medicaid.
The following table presents the approximate amount of accounts receivable in the EES still awaiting determination of eligibility under a government program by aging category:
June 30, 2024 December 31, 2023
0-60 days $ 113 $ 103
61-120 days 32 33
121-180 days 14 9
Over 180 days 17 16
Total $ 176 $ 161
Salaries, Wages and Benefits
Same-hospital salaries, wages and benefits expense increased by $36 million, or 2.0%, in the three months ended June 30, 2024 compared to the same period in 2023. This change was primarily attributable to increased employee recruiting and retention costs, higher incentive compensation expense, and annual merit increases for certain of our employees in the 2024 period, partially offset by a decrease in contract labor expense. Same-hospital salaries, wages and benefits expense as a percentage of net operating revenues decreased by 270 basis points to 47.0% in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Salaries, wages and benefits expense for the three months ended June 30, 2024 and 2023 included stock-based compensation expense of $18 million and $14 million, respectively.
Same-hospital salaries, wages and benefits expense increased by $124 million, or 3.4%, in the six months ended June 30, 2024 compared to the same period in 2023. In addition to the factors discussed above, this increase was also
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attributable to higher employee benefit costs. As a percentage of net operating revenues, same-hospital salaries, wages and benefits decreased by 230 basis points to 47.2% in the six months ended June 30, 2024 compared to the six months ended June 30, 2023. Salaries, wages and benefits expense for the six months ended June 30, 2024 and 2023 included stock-based compensation expense of $31 million and $24 million, respectively.
Supplies
Same-hospital supplies expense increased by $36 million, or 6.3%, in the three months ended June 30, 2024 compared to the same period in 2023. This increase was driven by higher patient volumes and acuity, partially offset by our cost-efficiency measures. We strive to control supplies expense through product standardization, consistent contract terms and end-to-end contract management, improved utilization, bulk purchases, focused spending with a smaller number of vendors, and operational improvements. Same-hospital supplies expense as a percentage of net operating revenues in the three months ended June 30, 2024 was comparable with the same period in 2023.
Same-hospital supplies expense increased by $67 million, or 5.9%, in the six months ended June 30, 2024 compared to the same period in 2023. This increase was driven by the same factors described above. Same-hospital supplies expense as a percentage of net operating revenues decreased by 30 basis points to 15.2% in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.
Other Operating Expenses, Net
Same-hospital other operating expenses increased by $76 million, or 8.5%, in the three months ended June 30, 2024 compared to the same period in 2023. The changes in other operating expenses for the three months ended June 30, 2024 included increases in malpractice expense and medical fees of $19 million and $17 million, respectively. Same-hospital other operating expenses as a percentage of net operating revenues increased by 10 basis points to 24.2% for the three months ended June 30, 2024 compared to 24.1% for the three months ended June 30, 2023.
Same-hospital other operating expenses increased by $120 million, or 6.8%, in the six months ended June 30, 2024 compared to the same period in 2023. The changes in other operating expenses during the six months ended June 30, 2024 included:
•$38 million more in medical fees;
•an increase of $12 million in repair and maintenance costs; and
•gains recognized during the 2023 period that were $10 million higher than in the 2024 period.
Same-hospital other operating expenses as a percentage of net operating revenues decreased by 40 basis points to 23.6% for the six months ended June 30, 2024 compared to 24.0% for the six months ended June 30, 2023.
Ambulatory Care Segment
Our Ambulatory Care segment is comprised of USPI's ASCs and surgical hospitals. USPI operates its surgical facilities in partnership with local physicians and, in many of these facilities, a health system partner. In most cases, we hold ownership interests in the facilities and operate them through separate legal entities. USPI operates facilities on a day-to-day basis through management services contracts. Our sources of earnings from each facility consist of:
•management and administrative services revenues from the facilities USPI operates through management services contracts, usually computed as a percentage of each facility's net revenues; and
•our share of each facility's net income (loss), which is computed by multiplying the facility's net income (loss) times the percentage of each facility's equity interests owned by USPI.
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Our role as an owner and day-to-day manager provides us with significant influence over the operations of each facility. For many of the facilities our Ambulatory Care segment holds an ownership interest in (160 of 544 facilities at June 30, 2024), this influence does not represent control of the facility, so we account for our investment in each of these facilities under the equity method for an unconsolidated affiliate. USPI controls 384 of the facilities our Ambulatory Care segment operates, and we account for these investments as consolidated subsidiaries. Our net earnings from a facility are the same under either method, but the classification of those earnings differs. For consolidated subsidiaries, our financial statements reflect 100% of the revenues and expenses of the subsidiaries. The net profit attributable to owners other than USPI is classified within net income available to noncontrolling interests. For unconsolidated affiliates, our statements of operations reflect our earnings in two line items:
•equity in earnings of unconsolidated affiliates-our share of the net income (loss) of each facility, which is based on the facility's net income (loss) and the percentage of the facility's outstanding equity interests owned by USPI; and
•management and administrative services revenues, which is included in our net operating revenues-income we earn in exchange for managing the day-to-day operations of each facility, usually computed as a percentage of each facility's net revenues.
Our Ambulatory Care segment's operating income is driven by the performance of all facilities USPI operates and by USPI's ownership interests in those facilities, but our individual revenue and expense line items contain only consolidated businesses, which represent 71% of those facilities. This translates to trends in consolidated operating income that often do not correspond with changes in consolidated revenues and expenses, which is why we disclose certain statistical and financial data on a pro forma systemwide basis that includes both consolidated and unconsolidated (equity method) facilities.
The following table presents selected revenue and expense information for our Ambulatory Care segment:
Three Months Ended
June 30, 		Increase
(Decrease) 		Six Months Ended
June 30, 		Increase
(Decrease)
2024 2023 2024 2023
Net operating revenues $ 1,141 $ 942 21.1 % $ 2,136 $ 1,847 15.6 %
Grant income $ - $ 1 (100.0) % $ - $ 1 (100.0) %
Equity in earnings of unconsolidated affiliates $ 58 $ 52 11.5 % $ 114 $ 99 15.2 %
Salaries, wages and benefits $ 284 $ 240 18.3 % $ 521 $ 475 9.7 %
Supplies $ 299 $ 253 18.2 % $ 573 $ 510 12.4 %
Other operating expenses, net $ 169 $ 132 28.0 % $ 315 $ 252 25.0 %
Revenues
Our Ambulatory Care segment's net operating revenues increased by $199 million, or 21.1%, during the three months ended June 30, 2024 compared to the same period in 2023. The change was driven by a $167 million increase from acquisitions, as well as a $63 million increase in same-facility net operating revenues due primarily to negotiated commercial rate increases and higher patient acuity. These impacts were partially offset by a decrease of $31 million in net operating revenues due primarily to the closure and deconsolidation of certain facilities.
Ambulatory Care net operating revenues increased by $289 million, or 15.6%, during the six months ended June 30, 2024 compared to the same period in 2023. The change was driven by a $234 million increase from acquisitions, as well as a $95 million increase in same-facility net operating revenues due primarily to negotiated commercial rate increases and higher patient acuity. These impacts were partially offset by a decrease of $40 million in net operating revenues due primarily to the closure and deconsolidation of certain facilities.
Salaries, Wages and Benefits
Salaries, wages and benefits expense increased by $44 million, or 18.3%, during the three months ended June 30, 2024 compared to the same period in 2023. This change was driven by a $58 million increase from acquisitions, partially offset by a $5 million decrease in same-facility salaries, wages and benefits expense and a decrease of $9 million primarily due to the closure and deconsolidation of certain facilities. As a percentage of net operating revenues, salaries, wages and benefits expense decreased to 24.9% for the three months ended June 30, 2024 from 25.5% for the same period in 2023 due to enhanced labor management processes. Salaries, wages and benefits expense included $1 million and $5 million of stock-based compensation expense in the three-month periods ended June 30, 2024 and 2023, respectively.
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Salaries, wages and benefits expense increased by $46 million, or 9.7%, during the six months ended June 30, 2024 compared to the same period in 2023. This change was driven by a $74 million increase from acquisitions, partially offset by a $10 million decrease in same-facility salaries, wages and benefits expense and a decrease of $18 million due primarily to the closure and deconsolidation of certain facilities. As a percentage of net operating revenues, salaries, wages and benefits expense decreased to 24.4% for the six months ended June 30, 2024 from 25.7% for the same period in 2023. Salaries, wages and benefits expense included $5 million and $9 million of stock-based compensation expense in the six months ended June 30, 2024 and 2023, respectively.
Supplies
Supplies expense increased by $46 million, or 18.2%, during the three months ended June 30, 2024 compared to the same period in 2023. The change was driven by a $38 million increase from acquisitions, as well as a $20 million increase in same-facility supplies expense due primarily to higher prices for certain supplies, partially offset by a decrease of $12 million attributable to the closure and deconsolidation of certain facilities. Supplies expense as a percentage of net operating revenues decreased to 26.2% for the three months ended June 30, 2024 from 26.9% for the same period in 2023.
Supplies expense increased by $63 million, or 12.4%, during the six months ended June 30, 2024 compared to the same period in 2023. The change was driven by a $55 million increase from acquisitions, as well as a $26 million increase in same-facility supplies expense due primarily to higher prices for certain supplies, partially offset by a decrease of $18 million due to the closure and deconsolidation of certain facilities. Supplies expense as a percentage of net operating revenues decreased to 26.8% for the six months ended June 30, 2024 compared to 27.6% for the same period in 2023.
Other Operating Expenses, Net
Other operating expenses increased by $37 million, or 28.0%, during the three months ended June 30, 2024 compared to the same period in 2023. The change was driven by a $15 million increase in same-facility other operating expenses and a $29 million increase from acquisitions, partially offset by a decrease of $7 million primarily due to the closure and deconsolidation of certain facilities. Other operating expenses as a percentage of net operating revenues increased to 14.8% for the three months ended June 30, 2024 from 14.0% for the same period in 2023.
Other operating expenses increased by $63 million, or 25.0%, during the six months ended June 30, 2024 compared to the same period in 2023. The change was driven by a $39 million increase from acquisitions and a $35 million increase in same-facility other operating expenses, partially offset by a decrease of $11 million primarily due to the closure and deconsolidation of certain facilities. Other operating expenses as a percentage of net operating revenues increased to 14.8% for the six months ended June 30, 2024 from 13.6% for the same period in 2023.
Facility Growth
The following table presents the year-over-year changes in our same-facility revenue and cases on a pro forma systemwide basis, which includes both consolidated and unconsolidated (equity method) facilities.
Three Months Ended
June 30, 2024 		Six Months Ended
June 30, 2024
Net revenues 7.1 % 6.8 %
Cases 0.2 % - %
Net revenue per case 6.8 % 6.8 %
While we do not record the revenues of unconsolidated facilities, we believe this information is important in understanding the financial performance of our Ambulatory Care segment because these revenues are the basis for calculating our management services revenues and, together with the expenses of our unconsolidated facilities, are the basis for our equity in earnings of unconsolidated affiliates.
Joint Ventures with Health System Partners
The table below provides information about the ownership structure of the facilities operated by our Ambulatory Care segment:
June 30, 2024
Owned with a health system partner 221
Owned without a health system partner 323
Total 544
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Facility Acquisitions and Investment
The table below presents the aggregate amounts we paid to acquire various ownership interests in ambulatory care facilities:
Six Months Ended June 30,
2024 2023
Purchases of controlling interests $ 500 $ 96
Equity investment in unconsolidated affiliates and consolidated facilities that did not result in a change in control 10 9
Total $ 510 $ 105
The table below reflects the change in the number of ASCs operated by our Ambulatory Care segment since December 31, 2023:
Six Months Ended
June 30, 2024
Acquisitions 51
De novo 6
Dispositions/Mergers (9)
Net increase in number of facilities operated 48
During the six months ended June 30, 2024, we acquired ownership interests in 51 ASCs in which we did not have a prior investment. We acquired controlling ownership interests in 49 of these ASCs and noncontrolling ownership interests in the remaining two. In addition, we acquired controlling ownership interests in five previously unconsolidated ASCs, four located in New Jersey and one in Florida. We paid an aggregate of $500 million to acquire ownership interests in all of the aforementioned facilities during the six months ended June 30, 2024.
We also regularly engage in the purchase of equity interests with respect to our investments in unconsolidated affiliates and consolidated facilities that do not result in a change in control. These transactions are primarily the acquisitions of equity interests in ASCs and the investment of additional cash in facilities that need capital for new acquisitions, new construction or other business growth opportunities. During the six months ended June 30, 2024, we invested approximately $10 million in such transactions.
Consolidated
Impairment and Restructuring Charges, and Acquisition-Related Costs
The following tables present information about our impairment and restructuring charges, and acquisition-related costs:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Consolidated:
Impairment charges $ 1 $ 1 $ 2 $ 2
Restructuring charges 18 13 32 31
Acquisition-related costs 10 2 22 4
Total impairment and restructuring charges, and acquisition-related costs $ 29 $ 16 $ 56 $ 37
By segment:
Hospital Operations $ 15 $ 14 $ 30 $ 32
Ambulatory Care 14 2 26 5
Total impairment and restructuring charges, and acquisition-related costs $ 29 $ 16 $ 56 $ 37
During the three months ended June 30, 2024, restructuring charges consisted of $7 million of legal costs related to the sale of certain businesses, $5 million of employee severance costs, $2 million related to the transition of various administrative functions to our GBC and $4 million of other restructuring costs. Restructuring charges for the three months ended June 30, 2023 consisted of $7 million of legal costs related to the sale of certain businesses, $3 million related to the transition
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of various administrative functions to our GBC, $2 million of employee severance costs and $1 million of other restructuring costs.
Restructuring charges for the six months ended June 30, 2024 consisted of $14 million of legal costs related to the sale of certain businesses, $6 million of employee severance costs, $5 million related to the transition of various administrative functions to our GBC and $7 million of other restructuring costs. Restructuring charges for the six months ended June 30, 2023 consisted of $11 million of legal costs related to the sale of certain businesses, $7 million related to the transition of various administrative functions to our GBC, $6 million of employee severance costs, $2 million of contract and lease termination fees, and $5 million of other restructuring costs.
Acquisition-related costs for all of the periods in the table above consisted entirely of transaction costs.
Litigation and Investigation Costs
Litigation and investigation costs totaled $5 million and $9 million during the three and six months ended June 30, 2024, respectively, and $10 million and $14 million for the same periods in 2023, respectively.
Net Gains on Sales, Consolidation and Deconsolidation of Facilities
We recorded gains from the sale, consolidation and deconsolidation of facilities totaling $58 million and $2.558 billion during the three and six months ended June 30, 2024, respectively. In the three months ended June 30, 2024, we recorded a gain of $36 million from the consolidation of certain facilities in which we previously owned a noncontrolling interest and a gain of $20 million from the sale of an ASC, all related to our Ambulatory Care segment.
During the six months ended June 30, 2024, we also recognized a pre-tax gain of $1.677 billion related to our sale of the SC Hospitals, a pre-tax gain of $526 million from the sale of the OCLA CA Hospitals, a pre-tax gain of $275 million from our sale of the Central CA Hospitals and a gain of $23 million related to the sale of two ASCs by our Ambulatory Care segment.
There were no gains or losses related to the sale, consolidation or deconsolidation of facilities recognized during the three months ended June 30, 2023. We recorded net gains of $13 million during the six months ended June 30, 2023, primarily related to the consolidation of facilities by our Ambulatory Care segment.
Interest Expense
Interest expense for the three and six months ended June 30, 2024 was $203 million and $421 million, respectively, compared to $226 million and $447 million for the same periods in 2023.
Loss from Early Extinguishment of Debt
We did not incur a loss from the early extinguishment of debt during the three months ended June 30, 2024. During the six months ended June 30, 2024, we recorded losses of $8 million related to the redemption of our 2026 Senior Secured First Lien Notes. This loss derived from the write-off of unamortized issuance costs associated with these notes.
We recorded losses from the early extinguishment of debt totaling $11 million during the three and six months ended June 30, 2023. These losses related to the redemption of all of the outstanding principal of our 4.625% senior secured first lien notes due September 2024 and our 4.625% senior secured first lien notes due July 2024 during the three months ended June 30, 2023.
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Income Tax Expense
A reconciliation between the amount of reported income tax expense and the amount computed by multiplying income from continuing operations before income taxes by the statutory federal tax rate is presented below:
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Tax expense at statutory federal rate of 21% $ 123 $ 78 $ 771 $ 158
State income taxes, net of federal income tax benefit 22 12 225 28
Tax benefit attributable to noncontrolling interests (46) (35) (84) (67)
Nondeductible goodwill 2 - 128 -
Stock-based compensation tax benefit (1) (2) (6) (4)
Changes in valuation allowance 7 23 (178) 42
Other items 3 4 4 7
Income tax expense $ 110 $ 80 $ 860 $ 164
Income before income taxes for the three months ended June 30, 2024 and 2023 was $587 million and $373 million, respectively, and $3.671 billion and $753 million for the six months ended June 30, 2024 and 2023, respectively. The increase in our valuation allowance during the three months ended June 30, 2024 was related to state interest limitations and the utilization of interest expense carryforwards. The decrease in our valuation allowance during the six months ended June 30, 2024 was primarily related to the utilization of interest expense carryforwards primarily due to gains from sales of facilities and state interest limitations. The increase in our valuation allowance during the three and six months ended June 30, 2023 was primarily related to interest expense carryforwards as a result of the limitation on business interest expense.
Net Income Available to Noncontrolling Interests
Net income available to noncontrolling interests was $218 million for the three months ended June 30, 2024 compared to $170 million for the same period in 2023. Net income available to noncontrolling interests in the 2024 period was comprised of $174 million related to our Ambulatory Care segment and $44 million related to our Hospital Operations segment.
Net income available to noncontrolling interests was $401 million for the six months ended June 30, 2024 compared to $323 million for the same period in 2023. Net income available to noncontrolling interests in the 2024 period was comprised of $327 million related to our Ambulatory Care segment and $74 million related to our Hospital Operations segment.
ADDITIONAL SUPPLEMENTAL NON-GAAP DISCLOSURES
As noted in the introduction to MD&A, we use certain non-GAAP financial measures, including Adjusted EBITDA, in this report and in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements. We believe Adjusted EBITDA is useful to investors and analysts because it presents additional information about our financial performance. Investors, analysts, company management and our board of directors utilize this non-GAAP measure, in addition to GAAP measures, to track our financial and operating performance and compare that performance to peer companies, which utilize similar non-GAAP measures in their presentations. The human resources committee of our board of directors also uses certain non-GAAP measures to evaluate management's performance for the purpose of determining incentive compensation. We believe that Adjusted EBITDA is a useful measure, in part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to GAAP and other non-GAAP measures, as factors in determining the estimated fair value of shares of our common stock. Company management also regularly reviews the Adjusted EBITDA performance for each reporting segment. We do not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance. The non-GAAP Adjusted EBITDA measure we utilize may not be comparable to similarly titled measures reported by other companies. Because this measure excludes many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly, investors are encouraged to use GAAP measures when evaluating our financial performance.
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The following table presents the reconciliation of Adjusted EBITDA to net income available to Tenet Healthcare Corporation common shareholders (the most comparable GAAP term):
Three Months Ended
June 30, 		Six Months Ended
June 30,
2024 2023 2024 2023
Net income available to Tenet Healthcare Corporation common shareholders $ 259 $ 123 $ 2,410 $ 266
Less:
Net income available to noncontrolling interests (218) (170) (401) (323)
Income tax expense (110) (80) (860) (164)
Loss from early extinguishment of debt - (11) (8) (11)
Other non-operating income, net 29 6 54 4
Interest expense (203) (226) (421) (447)
Operating income 761 604 4,046 1,207
Litigation and investigation costs (5) (10) (9) (14)
Net gains on sales, consolidation and deconsolidation of facilities 58 - 2,558 13
Impairment and restructuring charges, and acquisition-related costs (29) (16) (56) (37)
Depreciation and amortization (208) (213) (416) (430)
Adjusted EBITDA $ 945 $ 843 $ 1,969 $ 1,675
Net operating revenues $ 5,103 $ 5,082 $ 10,471 $ 10,103
Net income available to Tenet Healthcare Corporation common shareholders as a % of net operating revenues 5.1 % 2.4 % 23.0 % 2.6 %
Adjusted EBITDA as a % of net operating revenues (Adjusted EBITDA margin) 18.5 % 16.6 % 18.8 % 16.6 %
LIQUIDITY AND CAPITAL RESOURCES
CASH REQUIREMENTS
There have been no material changes to our obligations to make future cash payments under scheduled contractual obligations, such as debt and lease agreements, and under contingent commitments, such as standby letters of credit and minimum revenue guarantees, as disclosed in our Annual Report, except for the matters set forth below and the additional lease obligations and other long-term debt transactions disclosed in Notes 1 and 6, respectively, to our accompanying Condensed Consolidated Financial Statements.
Long-Term Debt
At June 30, 2024, using the last 12 months of Adjusted EBITDA, our ratio of total long-term debt, net of cash and cash equivalent balances, to Adjusted EBITDA was 2.61x. We anticipate this ratio will fluctuate from quarter to quarter based on earnings performance, the timing of tax payments and other factors, including in the event we use our Credit Agreement as a source of liquidity or enter into acquisitions that involve the assumption of long-term debt. We seek to manage this ratio and increase the efficiency of our balance sheet by following our business plan and managing our cost structure, including through potential future asset divestitures, and through other changes in our capital structure. As part of our long-term objective to manage our capital structure, we continue to evaluate opportunities to retire, purchase, redeem and refinance outstanding debt subject to prevailing market conditions, our liquidity requirements, operating results, contractual restrictions and other factors. Our ability to improve our leverage and capital structure is subject to numerous risks and uncertainties, many of which are described in the Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report.
Interest payments, net of capitalized interest, were $459 million and $445 million in the six months ended June 30, 2024 and 2023, respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, except for $231 million of standby letters of credit outstanding and guarantees at June 30, 2024.
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Other Cash Requirements
Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations), hospital expansion focused on higher acuity services, equipment and information systems additions and replacements, introduction of new medical technologies (including robotics), design and construction of new facilities, and various other capital improvements. We continue to implement our portfolio diversification strategy into ambulatory surgery and have a baseline intention to invest $250 million annually in ambulatory business acquisitions and de novo facilities. Capital expenditures were $385 million and $367 million in the six months ended June 30, 2024 and 2023, respectively.
We anticipate that our capital expenditures for continuing operations for the year ending December 31, 2024 will total approximately $800 million to $900 million, including $154 million that was accrued as a liability at December 31, 2023.
We made net payments for income tax obligations of $240 million during the six months ended June 30, 2024 and $158 million during the same period in 2023. The current portion of our income tax payable was $715 million at June 30, 2024 and $23 million at December 31, 2023. The increase in this balance during the six months ended June 30, 2024 was primarily attributable to income tax payments associated with the gains on sale of the Divested Hospitals. In June 2024, the Internal Revenue Service announced tax relief for businesses in the federal disaster zone created by the severe storms that took place in Texas in April and May 2024. The relief defers the deadline for filing of federal tax returns and tax payments until November 2024.
SOURCES AND USES OF CASH
Our liquidity for the six months ended June 30, 2024 was primarily derived from net cash provided by operating activities, cash on hand and the proceeds from the sale of the Divested Hospitals. We had $2.880 billion of cash and cash equivalents on hand at June 30, 2024 to fund our operations and capital expenditures, and our borrowing availability under our Credit Agreement was $1.500 billion based on our borrowing base calculation at June 30, 2024.
Our primary source of operating cash is the collection of accounts receivable. As such, our operating cash flow is impacted by levels of cash collections, as well as levels of implicit price concessions, due to shifts in payer mix and other factors. Our Credit Agreement provides additional liquidity to manage fluctuations in operating cash caused by these factors.
During the six months ended June 30, 2024, we received advance payments from managed care payers designed to assist healthcare providers experiencing cash flow disruptions as a result of the February 2024 cyberattack on Change Healthcare, a clearinghouse for medical claims. At June 30, 2024, total advances of $342 million were included in other current liabilities in the accompanying Condensed Consolidated Balance Sheet. We are currently unable to predict when these advances will be repaid.
Net cash provided by operating activities was $1.333 billion in the six months ended June 30, 2024 compared to $1.047 billion in the six months ended June 30, 2023. Key factors contributing to the change between the 2024 and 2023 periods included the following:
•An increase in net income before interest, taxes, depreciation and amortization, impairment and restructuring charges, acquisition-related costs, litigation costs and settlements, loss from early extinguishment of debt, other non-operating income or expense, and net gains on sales, consolidation and deconsolidation of facilities of $294 million;
•Income tax payments that were $82 million higher in the 2024 period; and
•The timing of working capital items.
Net cash provided by investing activities was $3.134 billion during the six months ended June 30, 2024 as compared to net cash used in investing activities of $467 million during the six months ended June 30, 2023. Proceeds from sale of facilities and other assets were $4.032 billion higher during the 2024 period, primarily due to the sales of the Divested Hospitals, partially offset by increased payments of $414 million for purchases of businesses or joint venture interests, primarily due to our Ambulatory Care segment's acquisition activity, and increased capital expenditures of $18 million during the six months ended June 30, 2024.
Net cash used in financing activities was $2.815 billion and $504 million in the six months ended June 30, 2024 and 2023, respectively. The primary factors contributing to the change between the 2024 and 2023 periods included: (1) the 2023 period included proceeds from the issuance of $1.350 billion aggregate principal amount of our 6.750% senior secured first lien
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notes due May 2031, (2) higher long-term debt payments of $742 million during the six months ended June 30, 2024, including the redemption of all $2.100 billion aggregate principal amount then outstanding of our 2026 Senior Secured First Lien Notes, (3) payments totaling $548 million to repurchase 4,801 thousand shares of our common stock under our share repurchase program during the 2024 period and (4) the receipt of advances totaling $342 million from managed care payers during the six months ended June 30, 2024.
We record our equity securities and our debt securities classified as available-for-sale at fair market value. The majority of our investments are valued based on quoted market prices or other observable inputs. We have no investments that we expect will be negatively affected by the current economic conditions and materially impact our financial condition, results of operations or cash flows.
DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS
Credit Agreement-At June 30, 2024, our Credit Agreement provided for revolving loans in an aggregate principal amount of up to $1.500 billion with a $200 million subfacility for standby letters of credit. At June 30, 2024, we had no cash borrowings outstanding under the Credit Agreement, and we had less than $1 million of standby letters of credit outstanding. Based on our eligible receivables, $1.500 billion was available for borrowing under the Credit Agreement at June 30, 2024. We were in compliance with all covenants and conditions in our Credit Agreement at June 30, 2024.
Letter of Credit Facility-We have a letter of credit facility (as amended to date, the "LC Facility") that provides for the issuance, from time to time, of standby and documentary letters of credit in an aggregate principal amount of up to $200 million. At June 30, 2024, we were in compliance with all covenants and conditions in the LC Facility, and we had $108 million of standby letters of credit outstanding thereunder.
Senior Unsecured Notes and Senior Secured Notes-At June 30, 2024, we had outstanding senior unsecured notes and senior secured notes with aggregate principal amounts outstanding of $12.662 billion. These notes have fixed interest rates and require semi-annual interest payments in arrears. The principal and any accrued but unpaid interest is due upon the maturity date of the respective notes, which dates are staggered from February 2027 through November 2031.
In March 2024, we redeemed all $2.100 billion aggregate principal amount outstanding of our 2026 Senior Secured First Lien Notes in advance of their maturity date. We used $2.100 billion of cash on hand to redeem the notes.
For additional information regarding our long-term debt, see Note 6 to the accompanying Condensed Consolidated Financial Statements and Note 8 to the Consolidated Financial Statements included in our Annual Report.
LIQUIDITY
From time to time, we expect to engage in additional capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at that time. We believe our existing debt agreements provide flexibility for future secured or unsecured borrowings.
Our cash on hand fluctuates day-to-day throughout the year based on the timing and levels of routine cash receipts and disbursements, including our book overdrafts, and required cash disbursements, such as interest payments and income tax payments. These fluctuations can result in material intra-quarter net operating and investing uses of cash that have caused, and in the future may cause, us to use our Credit Agreement as a source of liquidity. We believe that existing cash and cash equivalents on hand, borrowing availability under our Credit Agreement and anticipated future cash provided by our operating activities should be adequate to meet our current cash needs. These sources of liquidity, in combination with any potential future debt incurrence, should also be adequate to finance planned capital expenditures, payments on the current portion of our long-term debt, payments to current and former joint venture partners, including those related to our share purchase agreement with Baylor, and other presently known operating needs.
Long-term liquidity for debt service and other purposes will be dependent on the amount of cash provided by operating activities and, subject to favorable market and other conditions, the successful completion of future borrowings and potential refinancings. However, our cash requirements could be materially affected by the use of cash in acquisitions of businesses, repurchases of securities, the exercise of put rights or other exit options by our joint venture partners, and contractual or regulatory commitments to fund capital expenditures in, or intercompany borrowings to, businesses we own. In addition, liquidity could be adversely affected by a deterioration in our results of operations, including our ability to generate sufficient cash from operations, as well as by the various risks and uncertainties discussed in this section, other sections of this report and in our Annual Report, including any costs associated with legal proceedings and government investigations.
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We have not relied on commercial paper or other short-term financing arrangements or entered into repurchase agreements or other short-term financing arrangements not otherwise reported in our balance sheet. In addition, we do not have significant exposure to floating interest rates given that all of our current long-term indebtedness has fixed rates of interest except for borrowings, if any, under our Credit Agreement.
CRITICAL ACCOUNTING ESTIMATES
In preparing our Condensed Consolidated Financial Statements in conformity with GAAP, we must use estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may vary from those estimates.
We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different outcomes under different conditions or when using different assumptions. Our critical accounting estimates have not changed from the description provided in our Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table presents information about certain of our market-sensitive financial instruments at June 30, 2024. The fair values were determined based on quoted market prices for the same or similar instruments. The average effective interest rates presented are based on the rate in effect at the end of the reporting period. The effects of unamortized discounts and issue costs are excluded from the table.
Maturity Date, Years Ending December 31,
2024 2025 2026 2027 2028 Thereafter Total Fair Value
(Dollars in Millions)
Fixed-rate long-term debt
$ 56 $ 91 $ 60 $ 3,036 $ 3,124 $ 6,606 $ 12,973 $ 12,594
Average effective interest rates 7.3 % 8.0 % 8.8 % 5.7 % 5.9 % 5.5 % 5.7 %
We have no affiliation with partnerships, trusts or other entities (sometimes referred to as "special-purpose" or "variable-interest" entities) whose purpose is to facilitate off-balance sheet financial transactions or similar arrangements by us. As a result, we have no exposure to the financing, liquidity, market or credit risks associated with such entities. We do not hold or issue derivative instruments for trading purposes and are not a party to any instruments with leverage or prepayment features.
ITEM 4. CONTROLS AND PROCEDURES
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this report. The evaluation was performed under the supervision and with the participation of management, including our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective as of June 30, 2024 to ensure that material information is recorded, processed, summarized and reported by management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the SEC rules thereunder.
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Because we provide healthcare services in a highly regulated industry, we have been and expect to continue to be party to various lawsuits, claims and regulatory investigations from time to time. For information regarding material legal proceedings in which we are involved, see Note 12 to our accompanying Condensed Consolidated Financial Statements, which is incorporated by reference.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below presents share repurchase transactions completed during the three months ended June 30, 2024:
Period Total Number of Shares Purchased Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Program(1)
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program
(In Thousands) (In Thousands) (In Millions)
April 1 through April 30, 2024 - $ - - $ 272
May 1 through May 31, 2024 - $ - - $ 272
June 1 through June 30, 2024 1,990 $ 135.85 1,990 $ 2
(1)
In October 2022, our board of directors authorized the repurchase of up to $1 billion of our common stock through a share repurchase program that expires on December 31, 2024. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time before its scheduled expiration. We do not intend to make further repurchases under this program.
The table does not include shares tendered to satisfy the exercise price in connection with cashless exercises of employee stock options or shares tendered to satisfy tax withholding obligations in connection with employee or director equity awards.
The repurchases completed in the three months ended June 30, 2024 were made in open-market or privately negotiated transactions, at management's discretion subject to market conditions and other factors, and in a manner consistent with applicable securities laws and regulations.
In July 2024, our board of directors authorized the repurchase of up to $1.5 billion of our common stock through a new share repurchase program that has no expiration date. Repurchases may be made in open-market or privately negotiated transactions, at management's discretion subject to market conditions and other factors, and in a manner consistent with applicable securities laws and regulations. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time.
ITEM 5. OTHER INFORMATION
(c) Trading Plans
During the three months ended June 30, 2024, none of our directors or Section 16 officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.
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ITEM 6. EXHIBITS
Unless otherwise indicated, the following exhibits are filed (or, in the case of Exhibit 32, furnished) with this report:
(10) Material Contracts
(a)
Form of Award used to evidence annual grants of restricted stock units to directors after 2023 under the Tenet Healthcare 2019 Stock Incentive Plan*
(31) Rule 13a-14(a)/15d-14(a) Certifications
(a)
Certification of Saumya Sutaria, M.D., Chief Executive Officer
(b)
Certification of Sun Park, Executive Vice President and Chief Financial Officer
(32)
Section 1350 Certifications of Saumya Sutaria, M.D., Chief Executive Officer, and Sun Park, Executive Vice President and Chief Financial Officer
(101 SCH) Inline XBRL Taxonomy Extension Schema Document
(101 CAL) Inline XBRL Taxonomy Extension Calculation Linkbase Document
(101 DEF) Inline XBRL Taxonomy Extension Definition Linkbase Document
(101 LAB) Inline XBRL Taxonomy Extension Label Linkbase Document
(101 PRE) Inline XBRL Taxonomy Extension Presentation Linkbase Document
(101 INS) Inline XBRL Taxonomy Extension Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document
(104)
Cover page from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 formatted in Inline XBRL (included in Exhibit 101)
* Management contract or compensatory plan or arrangement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TENET HEALTHCARE CORPORATION
(Registrant)
Date: July 30, 2024 By: /s/ R. SCOTT RAMSEY
R. Scott Ramsey
Senior Vice President, Controller
(Principal Accounting Officer)
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