HCA Healthcare Inc

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

HCA Healthcare, Inc. is a holding company whose affiliates own and operate hospitals and related health care entities. The term “affiliates” includes direct and indirect subsidiaries of HCA Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At September 30, 2024, these affiliates owned and operated 187 hospitals,125 freestanding surgery centers,23 freestanding endoscopy centers and provided extensive outpatient and ancillary services. HCA Healthcare, Inc.’s facilities are located in 20 states and England. The terms “Company,” “HCA,” “we,” “our” or “us,” as used herein and unless otherwise stated or indicated by context, refer to HCA Healthcare, Inc. and its affiliates. The terms “facilities” or “hospitals” refer to entities owned and operated by affiliates of HCA and the term “employees” refers to employees of affiliates of HCA.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature.

The majority of our expenses are “costs of revenues” items. Costs that could be classified as general and administrative would include our corporate office costs, which were $111 million and $89 million for the quarters ended September 30, 2024 and 2023, respectively, and $301 million and $253 million for thenine months ended September 30, 2024 and 2023, respectively. Operating results for the quarter and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2023.

Revenues

Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges), and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted fee-for-service rates. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues (continued)

Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual adjustments under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured and other discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record these revenues at the estimated amounts we expect to collect. Patients treated at our hospitals for non-elective care, who have income at or below 400% of the federal poverty level, are eligible for charity care. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. Our revenues by primary third-party payer classification and other (including uninsured patients) for the quarters andnine months ended September 30, 2024 and 2023 are summarized in the following table (dollars in millions):

To quantify the total impact of the trends related to uninsured patient accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the quarters andnine months ended September 30, 2024 and 2023 follows (dollars in millions):

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues (continued)

The total uncompensated care amounts include charity care of $4.001 billion and $3.531 billion, respectively, and the related estimated costs of charity care were $416 million and $382 million, respectively, for the quarters ended September 30, 2024 and 2023. The total uncompensated care amounts include charity care of $12.091 billion and $10.684 billion, respectively, and the related estimated costs of charity care were $1.233 billion and $1.133 billion, respectively, for thenine months ended September 30, 2024 and 2023.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

NOTE 2 — ACQUISITIONS AND DISPOSITIONS

During the nine months ended September 30, 2024, we paid $112 million to acquire three hospital facilities in Texas (one hospital facility acquisition was effective October 1, 2024) and $112 million to acquire nonhospital health care entities. During thenine months ended September 30, 2023, we paid $83 million to acquirea hospital facility in Texas and $198 million to acquire nonhospital health care entities. Purchase price amounts have been allocated to the related assets acquired and liabilities assumed based upon their respective fair values.

During the nine months ended September 30, 2024, we received proceeds of $295 million for the sale ofa hospital facility in California and $17 million related to sales of real estate and other health care entity investments. We recognized pretax gains of $209 million for these transactions. During thenine months ended September 30, 2023, we received proceeds of $162 million for the sale oftwo hospital facilities in Louisiana and $21 million related to sales of real estate and other health care entity investments. We recognized pretax losses of $12 million for these transactions.

NOTE 3 — INCOME TAXES

Our provisions for income taxes for the quarters ended September 30, 2024 and 2023 were$424 million and$355 million, respectively, and the effective tax rates were 25.0% and 24.8%, respectively. Our provisions for income taxes for thenine months ended September 30, 2024 and 2023 were$1.419 billion and $1.131 billion, respectively, and the effective tax rates were 24.7% and 23.7%, respectively. The increase in the effective tax rate for the nine months ended September 30, 2024 is related primarily to adjustments to our liability for unrecognized tax benefits. Our provisions for income taxes included tax benefits related to settlements of employee equity awards of $93 million and $89 million for the nine months ended September 30, 2024 and 2023, respectively.

Our gross unrecognized tax benefits were $720 million, excluding accrued interest and penalties of $261 million, as of September 30, 2024 ($639 million and $177 million, respectively, as of December 31, 2023). Unrecognized tax benefits of $465 million ($320 million as of December 31, 2023) would affect the effective tax rate, if recognized.

At September 30, 2024, the Internal Revenue Service (“IRS”) was conducting examinations of the Company’s 2016, 2017 and 2018 federal income tax returns and the 2019 returns of certain affiliates. We are also subject to examination by the IRS for tax years after 2019 as well as by state and foreign taxing authorities. Depending on the resolution of any federal, state and foreign tax disputes, the completion of examinations by federal, state or foreign taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible that our liability for unrecognized tax benefits may significantly increase or decrease within the next 12 months. However, we are currently unable to estimate the range of any possible change.

NOTE 4 — EARNINGS PER SHARE

We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding, plus the dilutive effect of outstanding equity awards, computed using the treasury stock method.

NOTE 4 — EARNINGS PER SHARE (continued)

The following table sets forth the computation of basic and diluted earnings per share for the quarters andnine months ended September 30, 2024 and 2023 (dollars and shares in millions, except per share amounts):

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES

A summary of our insurance subsidiaries’ investments at September 30, 2024 and December 31, 2023 follows (dollars in millions):

At September 30, 2024 and December 31, 2023, the investments in debt securities of our insurance subsidiaries were classified as “available-for-sale.” Changes in unrealized gains and losses that are not credit-related are recorded as adjustments to other comprehensive income (loss).

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)

Scheduled maturities of investments in debt securities at September 30, 2024 were as follows (dollars in millions):

The average expected maturity of the investments in debt securities at September 30, 2024 was 4.5 years, compared to the average scheduled maturity of 8.3 years. Expected and scheduled maturities may differ because the issuers of certain securities have the right to call, prepay or otherwise redeem such obligations prior to their scheduled maturity date.

NOTE 6 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

Accounting Standards Codification 820, Fair Value Measurements and Disclosures(“ASC 820”), emphasizes fair value is a market-based measurement, and fair value measurements should be determined based on the assumptions market participants would use in pricing assets or liabilities. ASC 820 utilizes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

The investments of our insurance subsidiaries are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

The following tables summarize the investments of our insurance subsidiaries measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):

NOTE 6 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)

The estimated fair value of our long-term debt was $42.593 billion and $38.253 billion at September 30, 2024 and December 31, 2023, respectively, compared to carrying amounts, excluding debt issuance costs and discounts, aggregating $43.343 billion and $39.926 billion, respectively. The estimates of fair value are generally based on Level 2 inputs, including quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.

NOTE 7 — LONG-TERM DEBT

A summary of long-term debt at September 30, 2024 and December 31, 2023, including related interest rates at September 30, 2024, follows (dollars in millions):

During February 2024, we issued $4.500 billion aggregate principal amount of senior notes comprised of (i) $1.000 billion aggregate principal amount of 5.450% senior notes due 2031 (the “Existing 2031 Notes”), (ii) $1.300 billion aggregate principal amount of 5.600% senior notes due 2034, (iii) $1.500 billion aggregate principal amount of 6.000% senior notes due 2054 and (iv) $700 million aggregate principal amount of 6.100% senior notes due 2064. We used the net proceeds to repay borrowings under our asset-based revolving credit facility and for general corporate purposes. During March 2024, we repaid all of the $2.000 billion aggregate principal amount of 5.000% senior notes due 2024 at maturity.

During August 2024, we issued $3.000 billion aggregate principal amount of senior notes comprised of (i) $750 million aggregate principal amount of 5.450% senior notes due 2031 (the “New 2031 Notes”), (ii) $1.250 billion aggregate principal amount of 5.450% senior notes due 2034 and (iii) $1.000 billion aggregate principal amount of 5.950% senior notes due 2054. The New 2031 Notes represent a further issuance of our Existing 2031 Notes, issued during February 2024, and together with the New 2031 Notes, the aggregate principal amount of these notes is $1.750 billion. We used the net proceeds to repay borrowings under our asset-based revolving credit facility and for general corporate purposes.

NOTE 8 — CONTINGENCIES

We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians’ staff privileges. In certain of these actions the claimants may seek punitive damages against us which may not be covered by insurance. We are also subject to claims by various taxing authorities for additional taxes and related interest and penalties. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations, financial position or liquidity.

Health care companies are routinely subject to investigations by various governmental agencies. Under the federal False Claims Act (“FCA”), private parties have the right to bringqui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received, and from time to time, other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse effect on our results of operations, financial position or liquidity.

NOTE 9 — SHARE REPURCHASE TRANSACTIONS AND OTHER COMPREHENSIVE LOSS

During January 2024 and 2023, our Board of Directors authorized share repurchase programs for up to $6 billion and $3 billion, respectively, of our outstanding common stock. During thenine months ended September 30, 2024, we repurchased 13.059 million shares of our common stock at an average price of $332.49 per share through market purchases pursuant to the January 2023 authorization (which was completed during the first quarter of 2024) and the January 2024 authorization. At September 30, 2024, we had $2.433 billion of repurchase authorization available under the January 2024 authorization.

The components of accumulated other comprehensive loss are as follows (dollars in millions):

NOTE 10 — SEGMENT AND GEOGRAPHIC INFORMATION

We operate in one line of business, which is operating hospitals and related health care entities. We operate inthree geographically organized groups: the National, American and Atlantic Groups. At September 30, 2024, the National Group included 55 hospitals located in Alaska, California, Idaho, Indiana, Kentucky, Nevada, New Hampshire, North Carolina, Tennessee, Utah and Virginia; the American Group included 62 hospitals located in Colorado, central Kansas, Louisiana and Texas; and the Atlantic Group included 62 hospitals located in Florida, Georgia, northern Kansas, Missouri and South Carolina. We also operate eight hospitals in England, and these facilities are included in the Corporate and other group.

NOTE 10 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, gains and losses on sales of facilities, losses on retirement of debt, income taxes and net income attributable to noncontrolling interests. We use adjusted segment EBITDA as an analytical indicator for purposes of allocating resources to geographic areas and assessing their performance. Adjusted segment EBITDA is commonly used as an analytical indicator within the health care industry and also serves as a measure of leverage capacity and debt service ability. Adjusted segment EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted segment EBITDA are significant components in understanding and assessing financial performance. Because adjusted segment EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, adjusted segment EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The geographic distributions of our revenues, equity in earnings and losses of affiliates, adjusted segment EBITDA and depreciation and amortization for the quarters andnine months ended September 30, 2024 and 2023 are summarized in the following table (dollars in millions):

FINANCIAL CONDITION AND RESULTS OF OPERATIONS