TENET HEALTHCARE CORP

Previous wording

Our Hospital Operations segment is comprised of our acute care and specialty hospitals, a network of employed physicians and ancillary outpatient facilities. At March 31, 2024, our subsidiaries operated 52 hospitals serving primarily urban and suburban communities in nine states. Our Hospital Operations segment also included 151 outpatient facilities at March 31, 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.

Current wording

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.

Previous wording

Our Ambulatory Care segment, through our USPI Holding Company, Inc. subsidiary (“USPI”), held ownership interests in 512 ambulatory surgery centers (each, an “ASC”) (372 consolidated) and 25 surgical hospitals (eight consolidated) in 38 states at March 31, 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.

Current wording

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.

Previous wording

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 three months ended March 31, 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.

Current wording

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.

Previous wording

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 three-month periods ended March 31, 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.

Current wording

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.

Previous wording

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. 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. We paid approximately $278 million to repurchase a total of 2,811 thousand shares during the three months ended March 31, 2024, or an average of $98.86 per share.

Current wording

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.

Previous wording

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 three months ended March 31, 2024 as compared to the same period in 2023.

Current wording

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.

Previous wording

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 will result in an increase in compensation costs for certain of our employees and vendors.

Current wording

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.

Previous wording

During the three months ended March 31, 2024, we acquired controlling ownership interests in 45 ASCs in which we did not have a previous investment, and we opened one de novo ASC in which we have a noncontrolling ownership interest. We also continue to prioritize increasing our investment in our unconsolidated facilities, acquiring a controlling ownership interest in a previously unconsolidated ASC during the three months ended March 31, 2024, which allowed us to consolidate its financial results.

Current wording

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.

Previous wording

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 three months ended March 31, 2024, and we could incur additional restructuring charges in the future.

Current wording

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.

Previous wording

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 three months ended March 31, 2024 included the following:

Current wording

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:

Previous wording

•Also 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”), and we completed the sale in March 2024.

Current wording

•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”).

Previous wording

•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”), and we completed the sale in March 2024.

Current wording

•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”).

Previous wording

We also seek advantageous opportunities to grow our portfolio of hospitals and other healthcare facilities. We are continuing construction of a new medical campus located in the Westover Hills area of San Antonio, Texas, that is expected to include a 104‑bed acute care hospital, an ASC and medical office space. The project is on schedule for completion in mid‑2024. In 2023, we broke ground on a new medical campus located in Port St. Lucie, Florida, that is expected to include a 54‑bed hospital, as well as medical office space. We expect to complete construction of the Port St. Lucie medical campus in late 2025.

Current wording

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.

Previous wording

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. Through these efforts, we intend to improve the customer care experience in every part of our operations.

Current wording

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.

Previous wording

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 the COVID‑19 pandemic, 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.

Current wording

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.

Previous wording

Total admissions increased by 2,414, or 1.8%, in the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Total surgeries decreased by 4,617, or 5.3%, during the three-month period in 2024 as compared to the same period in 2023, primarily due to the effects resulting from our sale of the SC Hospitals in January 2024. The increase in our Ambulatory Care segment’s total consolidated cases of 7.7% in the three months ended March 31, 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.

Current wording

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.

Previous wording

Consolidated net operating revenues increased by $347 million, or 6.9%, in the three months ended March 31, 2024 compared to the same period in 2023. The increase of $257 million, or 6.2%, 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 a more favorable payer mix, higher patient volume and acuity, and negotiated commercial rate increases. Also during the three months ended March 31, 2024, we recognized additional Medicaid supplemental revenues in Michigan of $88 million. These factors were partially offset by the impact of the sale of the SC Hospitals during the three months ended March 31, 2024. Net operating revenues in our Ambulatory Care segment increased by $90 million, or 9.9%, in the three months ended March 31, 2024 compared to the same period in 2023. This change was primarily driven by the ASCs we have acquired and higher net revenue per case, partially offset by the impact of the closure and deconsolidation of certain facilities.

Current wording

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.

Previous wording

Our accounts receivable days outstanding (“AR Days”) from continuing operations were 58.1 days and 55.4 days at March 31, 2024 and December 31, 2023, respectively. In February 2024, Change Healthcare, a clearinghouse for medical claims, was the target of a cyberattack. Although our systems were not compromised by the threat actor, the cyberattack disrupted the billing and collection of our patient accounts receivable and contributed to the increase in AR Days between December 31, 2023 and March 31, 2024. We do not expect this disruption will cause a permanent increase in our AR Days. 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 from continuing operations 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.

Current wording

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.

Previous wording

Salaries, wages and benefits expense for our Hospital Operations segment increased by $61 million, or 3.0%, in the three months ended March 31, 2024 compared to the same period in 2023. This change was primarily attributable to annual merit increases for certain of our employees and increased employee benefits, recruiting and retention costs in the 2024 period, as well as higher incentive compensation expense. These factors were partially offset by a substantial decrease in contract labor expense and the impact of the sales of the SC Hospitals and the OCLA CA Hospitals during the three months ended March 31, 2024. On a per adjusted admission basis, salaries, wages and benefits expense in our Hospital Operations segment increased by 3.8% in the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Current wording

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.

Previous wording

Supplies expense for our Hospital Operations segment increased by $20 million, or 3.2%, during the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase was driven by higher patient acuity, partially offset by the impact from the sale of the SC Hospitals and our cost‑efficiency measures. On a per adjusted admission basis, supplies expense increased by 3.8% in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to the higher patient acuity during the 2024 period.

Current wording

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.

Previous wording

Other operating expenses for our Hospital Operations segment increased by $35 million, or 3.6%, in the three months ended March 31, 2024 compared to the same period in 2023. The changes in other operating expenses for the three months ended March 31, 2024 included:

Current wording

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:

Previous wording

On a per adjusted admission basis, other operating expenses in the three months ended March 31, 2024 increased by 4.3% compared to the same period in 2023, primarily due to the factors described above.

Current wording

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.

Previous wording

Cash and cash equivalents were $2.481 billion at March 31, 2024 compared to $1.228 billion at December 31, 2023. Significant cash flow items in the three months ended March 31, 2024 included:

Current wording

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:

Previous wording

•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 $778 million;

Current wording

•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;

Previous wording

•$278 million of payments to purchase approximately 2,811 thousand shares of our common stock under our share repurchase program;

Current wording

•$270 million of payments to purchase approximately 1,990 thousand shares of our common stock under our share repurchase program;

Previous wording

•$162 million of distributions paid to noncontrolling interests;

Current wording

•Distributions paid to noncontrolling interests totaling $161 million;

Previous wording

•$449 million of payments for purchases of businesses or joint venture interests;

Current wording

•$61 million of payments for purchases of businesses or joint venture interests.

Previous wording

•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 $192 million;

Current wording

•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;

Previous wording

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; 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 impacts our relationships with physicians and patients; and changing consumer behavior, including with respect to the timing of elective procedures.

Current wording

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 impacts our relationships with physicians and patients; and changing consumer behavior, including with respect to the timing of elective procedures.

Previous wording

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 $610 million and $613 million for the three months ended March 31, 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.

Current wording

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.

Previous wording

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 21.4% and 18.8% of the total net patient service revenues of our hospitals and related outpatient facilities for the three months ended March 31, 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 $339 million and $205 million for the three months ended March 31, 2024 and 2023, respectively. The increase in Medicaid revenues attributable to DSH during the three months ended March 31, 2024, as compared to the same period in 2023, included a favorable impact from additional supplemental revenues in Michigan of $88 million.

Current wording

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.

Previous wording

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 $822 million and $672 million for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024, Medicaid and Medicaid managed care revenues each comprised 50.0% 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.

Current wording

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.

Previous wording

Payment and Policy Changes to the Medicare Outpatient Prospective Payment and Ambulatory Surgery Center Payment Systems—In November 2023, CMS released the final policy changes and payment rates for the Hospital Outpatient Prospective Payment System (“OPPS”) and Ambulatory Surgical Center Payment System for CY 2024 (“Final OPPS/ASC Rule”). The Final OPPS/ASC Rule includes the following payment and policy changes, among others:

Current wording

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:

Previous wording

•An estimated net increase of 3.1% for the OPPS rates based on a market basket increase of 3.3%, reduced by a multifactor productivity adjustment required by the Affordable Care Act of 0.2%; and

Current wording

•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

Previous wording

•A 3.1% increase to the Ambulatory Surgical Center payment rates.

Current wording

•A 2.6% increase to the Ambulatory Surgical Center payment rates.

Previous wording

CMS projects that the combined impact of the payment and policy changes in the Final OPPS/ASC Rule will yield an average 3.2% increase in Medicare FFS OPPS payments for hospitals in urban areas and an average 4.6% increase in Medicare FFS OPPS payments for proprietary hospitals. The projected annual impact of the payment and policy changes in the Final OPPS/ASC Rule is an increase to Medicare FFS hospital outpatient revenues of approximately $23 million, or 4.13%, for the facilities in our Hospital Operations segment and $16 million, or 2.64%, 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, we cannot provide any assurances regarding our estimate of the impact of the final payment and policy changes.

Current wording

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.

Previous wording

Payment and Policy Changes to the Medicare Physician Fee Schedule—In November 2023, CMS released the CY 2024 Medicare Physician Fee Schedule (“MPFS”) Final Rule (“MPFS Final Rule”). The MPFS Final Rule includes updates to payment policies, payment rates and other provisions for services reimbursed under the MPFS from January 1 through December 31, 2024. Under the MPFS Final Rule, the CY 2024 conversion factor, which is the base rate that is used to convert relative units into payment rates, was reduced from $33.89 to $32.74, a decrease of 3.4%, due to budget neutrality rules and the adjustment provided for in the Consolidated Appropriations Act, 2023 (“CAA, 2023”). The CAA, 2023 provided for a 2.5% positive adjustment to the MPFS CY 2023 conversion factor and a 1.25% positive adjustment to the CY 2024 conversion factor, resulting in a 1.25% decrease in the CY 2024 conversion factor from the CY 2023 conversion factor. In March 2024, the Consolidated Appropriations Act, 2024 (“CAA, 2024”) provided for a 1.68% increase to the CY 2024 conversion factor, or $33.29, for dates of service between March 9 and December 31, 2024. We estimate the impact of the MPFS Final Rule, inclusive of the CAA, 2024 adjustment, should result in a reduction of less than $4 million to our 2024 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, we cannot provide any assurances regarding our estimate of the impact of the final payment and policy changes.

Current wording

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.

Previous wording

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 March 31, 2024 and 2023 was $2.656 billion and $2.503 billion, respectively. Our top 10 managed care payers generated 68% of our managed care net patient service revenues for the three months ended March 31, 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 March 31, 2024 and December 31, 2023, 74% and 68%, respectively, of our Hospital Operations segment’s net accounts receivable were due from managed care payers.

Current wording

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.

Previous wording

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 March 31, 2024, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $80 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 three months ended March 31, 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.

Current wording

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 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.

Previous wording

In recent years, managed care governmental admissions have increased as a percentage of total managed care admissions. However, in the three months ended March 31, 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 three months ended March 31, 2024, our commercial managed care net inpatient revenue per admission from the hospitals in our Hospital Operations segment was approximately 66% 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.

Current wording

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.