TENET HEALTHCARE CORP

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 September 30, 2024, our Hospital Operations segment was comprised of 49 acute care and specialty hospitals, a network of employed physicians and 142 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 September 30, 2024. USPI held noncontrolling interests in 161 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 intotwo 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 USPI subsidiary.

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.

Operating results for the three and nine‑month periods ended September 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 $4.094 billion and $1.228 billion at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024 and December 31, 2023, our book overdrafts were $185 million and $187 million, respectively, which were classified as accounts payable. Also at September 30, 2024 and December 31, 2023, $110 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 September 30, 2024 and December 31, 2023, we had $73 million and $154 million, respectively, of property and equipment purchases accrued for items received but not yet paid. Of these amounts, $55 million and $141 million, respectively, were included in accounts payable.

During the nine months ended September 30, 2024 and 2023, we recorded right‑of‑use assets related to non‑cancellable finance leases of $51 million and $42 million, respectively, and related to non‑cancellable operating leases of $187 million and $116 million, respectively.

Goodwill

The following tables provide information on changes in the carrying amount of goodwill for each of our segments:

Other Intangible Assets

The following table provides information regarding other intangible assets, which were included in the accompanying Condensed Consolidated Balance Sheets:

Estimated future amortization of intangible assets with finite useful lives at September 30, 2024 was as follows:

We recognized amortization expense of $136 million and $128 million in the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2024 and 2023, respectively.

Other Current Assets and Other Current Liabilities

The principal components of other current assets in the accompanying Condensed Consolidated Balance Sheets were as follows:

At September 30, 2024, other current liabilities in the accompanying Condensed Consolidated Balance Sheet included $182 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 wereno advances from managed care payers at December 31, 2023.

Investments in Unconsolidated Affiliates

As of September 30, 2024, we controlled 383 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 (161 of 544 at September 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.

NOTE 2. ACCOUNTS RECEIVABLE

The principal components of accounts receivable are presented in the table below:

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:

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:

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 September 30, 2024 and December 31, 2023. Approximately 88% 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:

The differences between the balances of our contract assets at December 31, 2023 and 2022 and the balances at September 30, 2024 and 2023 were primarily related to patients who were receiving inpatient acute care and specialty hospital services as of each year‑end date, but who were discharged during the following related nine-month period.

In the nine months ended September 30, 2024 and 2023, we recognized revenue totaling $58 million and $71 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 September 30, 2024 and December 31, 2023, unamortized client contract setup costs were $19 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 ofthree 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 nine months ended September 30, 2024.

In January 2024, we entered into a definitive agreement for the sale offour 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 $527 million in the nine months ended September 30, 2024.

In February 2024, we entered into a definitive agreement for the sale oftwo 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 $271 million in the nine months ended September 30, 2024.

In August 2024, we entered into a definitive agreement for the sale of our majority ownership interests in several entities that owned or leased five hospitals and certain related operations, all located in Alabama (collectively, the “AL Hospitals”), including facilities from both our Hospital Operations and Ambulatory Care segments. We recognized a net pre-tax gain on sale of $357 million when this transaction closed in September 2024.

We completed the sale ofthree additional ambulatory surgery centers held by our Ambulatory Care segment during the nine months ended September 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 losses (gains) on sales, consolidation and deconsolidation of facilities in the accompanying Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2024.

Assets and liabilities classified as held for sale at September 30, 2024 were comprised of the following:

The following table presents amounts included in income before income taxes, related to a significant component of our business that was recently disposed of:

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 nine months ended September 30, 2024, we recorded impairment and restructuring charges and acquisition‑related costs of $75 million, consisting of $42 million of restructuring charges, $31 million of acquisition‑related transaction costs and $2 million of impairment charges. Restructuring charges consisted of $15 million of legal costs related to the sale of certain businesses, $9 million of employee severance costs, $8 million related to the transition of various administrative functions to our GBC and $10 million of other restructuring costs.

During the nine months ended September 30, 2023, we recorded impairment and restructuring charges and acquisition‑related costs of $84 million, consisting of $60 million of restructuring charges, $8 million of acquisition‑related transaction costs and $16 million of impairment charges. Restructuring charges consisted of $30 million of legal costs related to the sale of certain businesses, $9 million related to the transition of various administrative functions to our GBC, $10 million of employee severance costs, $5 million of contract and lease termination fees, and $6 million of other restructuring costs. Impairment charges for the nine months ended September 30, 2023 were primarily attributable to the write-down of an investment in an ambulatory surgery center held by our Ambulatory Care segment.

NOTE 6. LONG-TERM DEBT

The table below presents our long‑term debt included in the accompanying Condensed Consolidated Balance Sheets:

Senior Unsecured Notes and Senior Secured Notes

At September 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 September 30, 2024, we hadno 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 September 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 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 September 30, 2024, we had $106 million of standby letters of credit outstanding under the LC Facility.

NOTE 7. GUARANTEES

At September 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 $276 million. We had a total liability of $227 million recorded for these guarantees included in other current liabilities in the accompanying Condensed Consolidated Balance Sheet at September 30, 2024.

At September 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 $79 million. Of the total, $21 million relates to the obligations of consolidated subsidiaries, which obligations were recorded in other current liabilities in the accompanying Condensed Consolidated Balance Sheet at September 30, 2024.

NOTE 8. EMPLOYEE BENEFIT PLANS

Share-Based Compensation Plans

The accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2024 and 2023 include $52 million and $48 million, respectively, of pre-tax compensation costs related to our stock‑based compensation arrangements. At September 30, 2024, there were $75 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 2.0 years.

Stock Options

The following table provides information about our stock option activity during the nine months ended September 30, 2024:

During the nine months ended September 30, 2024 and 2023,185,943 and 76,507 stock options, respectively, were exercised with an aggregate intrinsic value of $17 million and $4 million, respectively. We didnot grant any stock options during either of the nine-month periods ended September 30, 2024 or 2023.

The following table provides additional information about our outstanding stock options, all of which were vested and exercisable, at September 30, 2024:

Restricted Stock Units

The following table presents information about our restricted stock unit (“RSU”) activity during the nine months ended September 30, 2024:

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 nine months ended September 30, 2024:

The table below summarizes the performance-based RSUs granted during the nine months ended September 30, 2024:

The table below summarizes the time-based RSUs granted during the nine months ended September 30, 2023:

The table below summarizes the performance-based RSUs granted during the nine months ended September 30, 2023:

During the nine months ended September 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:

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 receiveone 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 nine months ended September 30, 2024:

USPI didnot make any grants under the USPI Management Equity Plan during the nine months ended September 30, 2024 or 2023. In August 2024, USPI notified participants of its intention to repurchase all outstanding shares at their estimated fair value. At September 30, 2024, there were 446 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):

Nonredeemable Noncontrolling Interests

Our nonredeemable noncontrolling interests balances at September 30, 2024 and December 31, 2023 were comprised of $204 million and $185 million, respectively, from our Hospital Operations segment, and $1.388 billion and $1.324 billion, respectively, from our Ambulatory Care segment. Net income amounts available to nonredeemable noncontrolling interests for the nine months ended September 30, 2024 and 2023 in the tables above were comprised of $35 million and $22 million, respectively, from our Hospital Operations segment and $239 million and $209 million, respectively, from our Ambulatory Care segment.

2022 Share Repurchase Program

In October 2022, our board of directors authorized the repurchase of up to $1.000 billion of our common stock through a share repurchase program (the “2022 share repurchase program”). We do not intend to make further repurchases under the 2022 share repurchase program following our board of directors’ approval of a new share repurchase program, as discussed below.

The following table summarizes transactions completed under the 2022 share repurchase program during the periods shown:

2024 Share Repurchase Program

In July 2024, our board of directors authorized the repurchase of up to $1.500 billion of our common stock through a share repurchase program that has no expiration date (the “2024 share repurchase program”). The 2024 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. The following table summarizes transactions completed under the 2024 share repurchase program during the periods shown:

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 Patients and 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:

Net adjustments for prior‑year cost reports and related valuation allowances, principally related to Medicare and Medicaid, didnot result in a change in revenues during the nine months ended September 30, 2024, but increased revenues by $24 million during the same period in 2023. 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:

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:

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 nine months ended September 30, 2024, we received $3 million of insurance recoveries related to a cybersecurity incident that occurred in 2022, none of which was included in net operating revenues during that period. We received $41 million of insurance recoveries during the nine months ended September 30, 2023 related to the same 2022 cybersecurity incident. Of the amounts received, we recorded $34 million as net operating revenues during the same nine-month period in 2023.

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 September 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 $1.141 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 $245 million and $271 million was included in other operating expenses, net, in the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 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.

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:

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 September 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:

The divestiture of the AL Hospitals during the three months ended September 30, 2024 resulted in a decrease of $175 million in our redeemable noncontrolling interest balance during the same period.

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:

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 September 30, 2024, the remaining obligation under the share purchase agreement of $100 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:

Income before income taxes for the three months ended September 30, 2024 and 2023 was $922 million and $345 million, respectively, and was $4.593 billion and $1.098 billion for the nine months ended September 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 nine months ended September 30, 2024, we recorded an income tax benefit of $176 million to decrease the valuation allowance, including a decrease of $193 million primarily for utilization of interest expense carryforwards due to gains from sales of facilities, and an increase of $17 million related to state interest expense carryforwards. During the nine months ended September 30, 2023, we recorded income tax expense of $66 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 nine months ended September 30, 2024, we increased our estimated liabilities for uncertain tax positions by $16 million. The total amount of unrecognized tax benefits as of September 30, 2024 was $73 million, of which $71 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 $5 million of interest and penalties related to accrued liabilities for uncertain tax positions are included for the nine months ended September 30, 2024. Total accrued interest and penalties on unrecognized tax benefits at September 30, 2024 were $8 million.

As of September 30, 2024, no significant changes in unrecognized federal and state tax benefits were expected 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.

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.

Dilutive instruments during the three and nine months ended September 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 nine-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.

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:

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 September 30, 2024 and December 31, 2023, the estimated fair value of our long‑term debt was approximately 99.9% 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 nine months ended September 30, 2024 and 2023 were as follows:

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. We recognized goodwill totaling $836 million in our Ambulatory Care segment and $11 million in our Hospital Operations segment during the nine months ended September 30, 2024. Approximately $31 million and $8 million in transaction costs related to prospective and closed acquisitions were expensed during the nine months ended September 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 nine months ended September 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.

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 nine months ended September 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 $19 million, which was comprised of a net increase in goodwill for our Hospital Operations segment of $31 million and a net decrease of $12 million for our Ambulatory Care segment.

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 September 30, 2024, our subsidiaries operated 49 hospitals, serving primarily urban and suburban communities ineight states, as well as 142 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 September 30, 2024, USPI had ownership interests in 520 ambulatory surgery centers (376 consolidated) and 24 surgical hospitals (seven consolidated) in 37 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: