UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

Form 10-Q(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 20202021

or

☐

TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ________

Commission file number001-15925

COMMUNITY HEALTH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

Delaware

13-3893191

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

4000 Meridian Boulevard

Franklin, Tennessee

37067

(Zip Code)

(Address of principal executive offices)

615-465-7000

615-465-7000

(Registrant’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

CYH

CYH

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☑

Smaller reporting company ☐

Non-accelerated filer ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).  Yes ☐    No ☑

As of April 24, 2020,23, 2021, there were outstanding 119,665,237132,139,544 shares of the Registrant’s Common Stock, $0.01 par value.

 

 

 

Community Health Systems, Inc.

Form10-Q

For the Three Months Ended March 31, 20202021

 

Part I.

Financial Information

Page

Item 1.

Financial Statements:

Condensed Consolidated Statements of  (Loss) Income (Loss) – Three Months Ended March 31, 20202021 and March 31, 20192020 (Unaudited)

2

Condensed Consolidated Statements of Comprehensive (Loss) Income (Loss) - Three Months Ended March 31, 20202021 and March 31, 20192020 (Unaudited)

3

Condensed Consolidated Balance Sheets -– March 31, 20202021 and December 31, 20192020 (Unaudited)

4

Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 20202021 and March 31, 20192020 (Unaudited)

5

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

24

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

52

45

Item 4.

Controls and Procedures

52

45

Part II.

Other Information

Item 1.

Legal Proceedings

53

46

Item 1A.

Risk Factors

58

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

48

Item 3.

Defaults Upon Senior Securities

61

48

Item 4.

Mine Safety Disclosures

61
Item 5.Other Information61
Item 6.Exhibits62

48

Signatures

64

Item 5.

Other Information

48

Item 6.

Exhibits

49

Signatures

50

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (LOSS)

(In millions, except share and per share data)

(Unaudited)

 

   Three Months Ended 

 

Three Months Ended

 

   March 31, 

 

March 31,

 

   2020    2019 

 

2021

 

 

2020

 

Net operating revenues

   $3,025   $3,376

 

$

3,013

 

 

$

3,025

 

Operating costs and expenses:

      

 

 

 

 

 

 

 

 

Salaries and benefits

    1,408    1,542

 

 

1,303

 

 

 

1,408

 

Supplies

    498    558

 

 

491

 

 

 

498

 

Other operating expenses

    737    811

 

 

738

 

 

 

737

 

Government and other legal settlements and related costs

    2    5

 

 

—

 

 

 

2

 

Lease cost and rent

    81    80

 

 

78

 

 

 

81

 

Pandemic relief funds

 

 

(82

)

 

 

—

 

Depreciation and amortization

    144    153

 

 

138

 

 

 

144

 

Impairment and loss on sale of businesses, net

    45    38

Impairment and (gain) loss on sale of businesses, net

 

 

21

 

 

 

45

 

Total operating costs and expenses

    2,915    3,187

 

 

2,687

 

 

 

2,915

 

Income from operations

    110    189

 

 

326

 

 

 

110

 

Interest expense, net

    262    257 

 

 

231

 

 

 

262

 

Loss from early extinguishment of debt

    4    31

 

 

71

 

 

 

4

 

Equity in earnings of unconsolidated affiliates

    (7)     (5) 

 

 

(10

)

 

 

(7

)

Loss before income taxes

    (149)     (94) 

(Benefit from) provision for income taxes

    (183)     7

Net income (loss)

    34    (101) 

Income (loss) before income taxes

 

 

34

 

 

 

(149

)

Provision for (benefit from) income taxes

 

 

69

 

 

 

(183

)

Net (loss) income

 

 

(35

)

 

 

34

 

Less: Net income attributable to noncontrolling interests

    16    17

 

 

29

 

 

 

16

 

Net income (loss) attributable to Community Health Systems, Inc. stockholders

   $18   $(118) 
        

Earnings (loss) per share attributable to Community Health Systems, Inc. common stockholders:

      

Net (loss) income attributable to Community Health Systems,

Inc. stockholders

 

$

(64

)

 

$

18

 

(Loss) earnings per share attributable to Community Health

Systems, Inc. common stockholders:

 

 

 

 

 

 

 

 

Basic

   $0.15   $(1.04) 

 

$

(0.51

)

 

$

0.15

 

        

Diluted

   $0.15   $(1.04) 

 

$

(0.51

)

 

$

0.15

 

        

Weighted-average number of shares outstanding:

      

 

 

 

 

 

 

 

 

Basic

                        114,301,519                        113,257,608

 

 

125,753,278

 

 

 

114,301,519

 

        

Diluted

    114,379,331    113,257,608

 

 

125,753,278

 

 

 

114,379,331

 

        
      

See accompanying notes to the condensed consolidated financial statements.

 

See accompanying notes to the condensed consolidated financial statements.



COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)

(In millions)

(Unaudited)

 

     Three Months Ended 
     March 31, 
     2020     2019 

Net income (loss)

   $34   $(101) 

Other comprehensive income (loss), net of income taxes:

      

Net change in fair value of interest rate swaps, net of tax

    -     (2) 

Net change in fair value ofavailable-for-sale debt securities, net of tax

    2    2

Other comprehensive income

    2    - 

Comprehensive income (loss)

    36    (101) 

Less: Comprehensive income attributable to noncontrolling interests

                        16                        17

Comprehensive income (loss) attributable to Community Health Systems, Inc. stockholders

   $20   $(118) 
            

See accompanying notes to the condensed consolidated financial statements.

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net (loss) income

 

$

(35

)

 

$

34

 

Other comprehensive (loss) income, net of income taxes:

 

 

 

 

 

 

 

 

Net change in fair value of available-for-sale debt securities,

   net of tax

 

 

(3

)

 

 

2

 

Other comprehensive (loss) income

 

 

(3

)

 

 

2

 

Comprehensive (loss) income

 

 

(38

)

 

 

36

 

Less: Comprehensive income attributable to noncontrolling

   interests

 

 

29

 

 

 

16

 

Comprehensive (loss) income attributable to Community Health

   Systems, Inc. stockholders

 

$

(67

)

 

$

20

 

See accompanying notes to the condensed consolidated financial statements.



COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)

 

          March 31, 2020                   December 31, 2019         

 

March 31,

2021

 

 

December 31,

2020

 

ASSETS

    

 

 

 

 

 

 

 

 

Current assets:

    

 

 

 

 

 

 

 

 

Cash and cash equivalents

  $246   $216 

 

$

1,251

 

 

$

1,676

 

Patient accounts receivable

   2,100    2,258 

 

 

1,961

 

 

 

1,927

 

Supplies

   354    354 

 

 

336

 

 

 

335

 

Prepaid income taxes

   47    48 

 

 

50

 

 

 

50

 

Prepaid expenses and taxes

   188    193 

 

 

190

 

 

 

184

 

Other current assets

   425    358 

 

 

316

 

 

 

338

 

  

 

   

 

 

Total current assets

   3,360    3,427 

 

 

4,104

 

 

 

4,510

 

  

 

   

 

 

Property and equipment

   9,618    9,653 

 

 

9,396

 

 

 

9,352

 

Less accumulated depreciation and amortization

   (4,096)    (4,045) 

 

 

(4,091

)

 

 

(4,030

)

  

 

   

 

 

Property and equipment, net

   5,522    5,608 

 

 

5,305

 

 

 

5,322

 

  

 

   

 

 

Goodwill

   4,322    4,328 

 

 

4,219

 

 

 

4,219

 

  

 

   

 

 

Deferred income taxes

   50    38 

 

 

59

 

 

 

59

 

  

 

   

 

 

Other assets, net

   2,191    2,208 

 

 

1,905

 

 

 

1,896

 

  

 

   

 

 

Total assets

  $15,445   $15,609 

 

$

15,592

 

 

$

16,006

 

  

 

   

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

    

 

 

 

 

 

 

 

 

Current liabilities:

    

 

 

 

 

 

 

 

 

Current maturities of long-term debt

  $30   $20 

 

$

20

 

 

$

123

 

Current operating lease liabilities

   132    136 

 

 

131

 

 

 

142

 

Accounts payable

   727    811 

 

 

730

 

 

 

783

 

Accrued liabilities:

    

 

 

 

 

 

 

 

 

Employee compensation

   593    594 

 

 

667

 

 

 

637

 

Accrued interest

   180    189 

 

 

159

 

 

 

150

 

Other

   503    532 

 

 

1,003

 

 

 

980

 

  

 

   

 

 

Total current liabilities

   2,165    2,282 

 

 

2,710

 

 

 

2,815

 

  

 

   

 

 

Long-term debt

   13,525    13,385 

 

 

11,897

 

 

 

12,093

 

  

 

   

 

 

Deferred income taxes

   29    200 

 

 

96

 

 

 

29

 

  

 

   

 

 

Long-term operating lease liabilities

   514    487 

 

 

528

 

 

 

524

 

  

 

   

 

 

Other long-term liabilities

   846    894 

 

 

1,475

 

 

 

1,599

 

  

 

   

 

 

Total liabilities

   17,079    17,248 

 

 

16,706

 

 

 

17,060

 

  

 

   

 

 

Redeemable noncontrolling interests in equity of consolidated subsidiaries

   502    502 

 

 

481

 

 

 

484

 

  

 

   

 

 

STOCKHOLDERS’ DEFICIT

    

 

 

 

 

 

 

 

 

Community Health Systems, Inc. stockholders’ deficit:

    

 

 

 

 

 

 

 

 

Preferred stock,$.01 par value per share, 100,000,000 shares authorized; none issued

   -    - 

Common stock,$.01 par value per share, 300,000,000 shares authorized; 119,678,238 shares issued and outstanding at March 31, 2020, and 117,822,631 shares issued and outstanding at December 31, 2019

   1    1 

Preferred stock, $.01 par value per share, 100,000,000 shares authorized; NaN issued

 

 

—

 

 

 

—

 

Common stock, $.01 par value per share, 300,000,000 shares authorized;

132,147,878 shares issued and outstanding at March 31, 2021, and 129,612,117

shares issued and outstanding at December 31, 2020

 

 

1

 

 

 

1

 

Additionalpaid-in capital

   2,001    2,008 

 

 

2,105

 

 

 

2,094

 

Accumulated other comprehensive loss

   (7)    (9) 

 

 

(16

)

 

 

(13

)

Accumulated deficit

   (4,200)    (4,218) 

 

 

(3,771

)

 

 

(3,707

)

  

 

   

 

 

Total Community Health Systems, Inc. stockholders’ deficit

   (2,205)    (2,218) 

 

 

(1,681

)

 

 

(1,625

)

Noncontrolling interests in equity of consolidated subsidiaries

   69    77 

 

 

86

 

 

 

87

 

  

 

   

 

 

Total stockholders’ deficit

   (2,136)    (2,141) 

 

 

(1,595

)

 

 

(1,538

)

  

 

   

 

 

Total liabilities and stockholders’ deficit

  $15,445   $15,609 

 

$

15,592

 

 

$

16,006

 

  

 

   

 

 

See accompanying notes to the condensed consolidated financial statements.

 

See accompanying notes to the condensed consolidated financial statements.



COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

  Three Months Ended 

 

Three Months Ended

 

  March 31, 

 

March 31,

 

  2020   2019 

 

2021

 

 

2020

 

Cash flows from operating activities:

    

 

 

 

 

 

 

 

 

Net income (loss)

  $34   $(101) 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Net (loss) income

 

$

(35

)

 

$

34

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

   144    153 

 

 

138

 

 

 

144

 

Deferred income taxes

   (184)    6 

 

 

68

 

 

 

(184

)

Government and other legal settlements and related costs

   2    5 

 

 

—

 

 

 

2

 

Stock-based compensation expense

   2    3 

 

 

8

 

 

 

2

 

Impairment and loss on sale of businesses, net

   45    38 

Impairment and (gain) loss on sale of businesses, net

 

 

21

 

 

 

45

 

Loss from early extinguishment of debt

   4    31 

 

 

71

 

 

 

4

 

Othernon-cash expenses, net

   49    36 

 

 

(40

)

 

 

49

 

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:

    

 

 

 

 

 

 

 

 

Patient accounts receivable

   158    (10) 

 

 

(34

)

 

 

158

 

Supplies, prepaid expenses and other current assets

   (53)    14 

 

 

(2

)

 

 

(53

)

Repayment/derecognition of Medicare accelerated payments

 

 

(18

)

 

 

—

 

Accounts payable, accrued liabilities and income taxes

   (78)    17 

 

 

(23

)

 

 

(78

)

Other

   (66)    (59) 

 

 

(53

)

 

 

(66

)

  

 

   

 

 

Net cash provided by operating activities

   57    133 

 

 

101

 

 

 

57

 

  

 

   

 

 

Cash flows from investing activities:

    

 

 

 

 

 

 

 

 

Acquisitions of facilities and other related businesses

   -    (4) 

 

 

(4

)

 

 

—

 

Purchases of property and equipment

   (99)    (121) 

 

 

(105

)

 

 

(99

)

Proceeds from disposition of hospitals and other ancillary operations

   2    161 

 

 

6

 

 

 

2

 

Proceeds from sale of property and equipment

 

 

2

 

 

 

—

 

Purchases ofavailable-for-sale debt securities and equity securities

   (17)    (15) 

 

 

(22

)

 

 

(17

)

Proceeds from sales ofavailable-for-sale debt securities and equity securities

   21    32 

 

 

26

 

 

 

21

 

Increase in other investments

   (16)    (34) 

 

 

(23

)

 

 

(16

)

  

 

   

 

 

Net cash (used in) provided by investing activities

   (109)    19 
  

 

   

 

 

Net cash used in investing activities

 

 

(120

)

 

 

(109

)

Cash flows from financing activities:

    

 

 

 

 

 

 

 

 

Repurchase of restricted stock shares for payroll tax withholding requirements

   (1)    (1) 

 

 

(5

)

 

 

(1

)

Deferred financing costs and other debt-related costs

   (32)    (25) 

 

 

(220

)

 

 

(32

)

Proceeds from noncontrolling investors in joint ventures

   -    1 

Redemption of noncontrolling investments in joint ventures

   (2)    (1) 

 

 

—

 

 

 

(2

)

Distributions to noncontrolling investors in joint ventures

   (30)    (27) 

 

 

(21

)

 

 

(30

)

Proceeds from sale-lease back

   2    - 

 

 

—

 

 

 

2

 

Other borrowings

   14    12 

 

 

3

 

 

 

14

 

Issuance of long-term debt

   1,462    1,840 

 

 

2,870

 

 

 

1,462

 

Proceeds from ABL Facility

   540    25 

 

 

—

 

 

 

540

 

Repayments of long-term indebtedness

   (1,871)    (1,895) 

 

 

(3,033

)

 

 

(1,871

)

  

 

   

 

 

Net cash provided by (used in) financing activities

   82    (71) 
  

 

   

 

 

Net cash (used in) provided by financing activities

 

 

(406

)

 

 

82

 

Net change in cash and cash equivalents

   30    81 

 

 

(425

)

 

 

30

 

Cash and cash equivalents at beginning of period

                           216                            196 

 

 

1,676

 

 

 

216

 

  

 

   

 

 

Cash and cash equivalents at end of period

  $246   $277 

 

$

1,251

 

 

$

246

 

  

 

  ��

 

 

Supplemental disclosure of cash flow information:

    

 

 

 

 

 

 

 

 

Interest payments

  $(264)   $(189) 

 

$

(203

)

 

$

(264

)

  

 

   

 

 

Income tax refunds (payments), net

  $2   $- 
  

 

   

 

 

See accompanying notes to the condensed consolidated financial statements.

 

Income tax (payments) refunds, net

 

$

—

 

 

$

2

 

See accompanying notes to the condensed consolidated financial statements.


COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The unaudited condensed consolidated financial statements of Community Health Systems, Inc. (the “Parent” or “Parent Company”) and its subsidiaries (the “Company”) as of March 31, 20202021 and December 31, 20192020 and for the three-month periods ended March 31, 20202021 and 2019,2020, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. All intercompany transactions and balances have been eliminated. The results of operations for the three months ended March 31, 2020,2021, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2020.2021. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates under different assumptions or conditions. Where applicable, the impact, if any, resulting from the emergence of a novel coronavirus(“COVID-19”) during the three months ended March 31, 2020, has been considered.

Certain information and disclosures normally included in the notes to the consolidated financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company believes the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019,2020, contained in the Company’s Annual Report on Form10-K filed with the SEC on February 20, 18, 2021 (“2020 (“2019 Form10-K”). Certain prior period amounts have been reclassified to conform to the current period presentation within the condensed consolidated statements of cash flows.

During the first quarter of 2020, the Company early adopted the SEC’s Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities rules, which simplify the disclosure requirements related to the Company’s registered debt securities under Rule3-10 of RegulationS-X (see Note 15).

Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the Parent are presented as a component of total equity on the condensed consolidated balance sheets to distinguish between the interests of the Parent Company and the interests of the noncontrolling owners. Noncontrolling interests that are redeemable or may become redeemable at a fixed or determinable price at the option of the holder or upon the occurrence of an event outside of the control of the Company are presented in mezzanine equity on the condensed consolidated balance sheets.

Substantially all of the Company’s operating costs and expenses are “cost of revenue” items. Operating costs that could be classified as general and administrative by the Company include the Company’s corporate office costs at its Franklin, Tennessee office, which were $37$60 million and $43$37 million for the three months ended March 31, 2021 and 2020, and 2019, respectively. Included in these corporate officeOperating costs is stock-based compensation of $2 million and $3 million forduring the three months ended March 31, 20202021 reflect increased stock compensation and 2019, respectively.annual cash incentive compensation compared to the three months ended March 31, 2020.

Throughout these notes to the unaudited condensed consolidated financial statements, Community Health Systems, Inc., and its consolidated subsidiaries are referred to on a collective basis as the “Company.” This drafting style is not meant to indicate that the publicly traded Parent or any particular subsidiary of the Parent owns or operates any asset, business, or property. The hospitals, operations and businesses described in this filing are owned and operated by distinct and indirect subsidiaries of Community Health Systems, Inc.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

Revenue Recognition.

Net Operating Revenues

Net operating revenues are recorded at the transaction price estimated by the Company to reflect the total consideration due from patients and third-party payors in exchange for providing goods and services in patient care. These services are considered to be a single performance obligation and have a duration of less than one year. Revenues are recorded as these goods and services are provided. The transaction price, which involves significant estimates, is determined based on the Company’s standard charges for the goods and services provided, with a reduction recorded for price concessions related to third party contractual arrangements as well as patient discounts and other patient price concessions. During both of the three month periods ended March 31, 20202021 and March 31, 2019,2020, the impact of changes to the inputs used to determine the transaction price was considered immaterial.

6

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

Currently, several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers that is not specifically tied to an individual’s care, some of which offsets a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from the Centers for Medicare & Medicaid Services (“CMS”) and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. Under these supplemental programs, the Company recognizes revenue and related expenses in the period in which amounts are estimable and collection is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and fees, taxes or other program-related costs are reflected in other operating expenses.

The Company’s net operating revenues during the three months ended March 31, 20202021 and 20192020 have been presented in the following table based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in millions):

 

  Three Months Ended 

 

Three Months Ended

 

  March 31, 

 

March 31,

 

  2020   2019 

 

2021

 

 

2020

 

Medicare

  $756   $889 

 

$

693

 

 

$

756

 

Medicaid

   407    428 

 

 

391

 

 

 

407

 

Managed Care and other third-party payors

                       1,832                        2,025 

 

 

1,915

 

 

 

1,832

 

Self-pay

   30    34 

 

 

14

 

 

 

30

 

  

 

   

 

 

Total

  $3,025   $3,376 

 

$

3,013

 

 

$

3,025

 

  

 

   

 

 

Patient Accounts Receivable

Patient accounts receivable are recorded at net realizable value based on certain assumptions determined by each payor. For third-party payors including Medicare, Medicaid, and Managed Care, the net realizable value is based on the estimated contractual reimbursement percentage, which is based on current contract prices or historical paid claims data by payor. Forself-pay accounts receivable, which includes patients who are uninsured and the patient responsibility portion for patients with insurance, the net realizable value is determined using estimates of historical collection experience without regard to aging category. These estimates are adjusted for estimated conversions of patient responsibility portions, expected recoveries and any anticipated changes in trends.  

Patient accounts receivable can be impacted by the effectiveness of the Company’s collection efforts. Additionally, significant changes in payor mix, business office operations, economic conditions or trends in federal and state governmental healthcare coverage could affect the net realizable value of accounts receivable. The Company also continually reviews the net realizable value of accounts receivable by monitoring historical cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net revenue and admissions by payor classification, aged accounts receivable by payor, days revenue outstanding, the composition ofself-pay receivables between pureself-pay patients and the patient responsibility portion of third-party insured receivables, and the impact of recent acquisitions and dispositions.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

dispositions and the impact of current economic and other events.

Final settlements for some payors and programs are subject to adjustment based on administrative review and audit by third parties. As a result of these final settlements, the Company has recorded amounts due to third-party payors of $87$102 million and $83$98 million as of March 31, 20202021 and December 31, 2019,2020, respectively, and these amounts are included in accrued liabilities-other in the accompanying condensed consolidated balance sheets. Amounts due from third-party payors were $131$123 million and $137$136 million as of March 31, 20202021 and December 31, 2019,2020, respectively, and are included in other current assets in the accompanying condensed consolidated balance sheets. Substantially all Medicare and Medicaid cost reports are final settled through 2016.

Charity Care

In the ordinary course of business, the Company renders services to patients who are financially unable to pay for hospital care. The Company’s policy is to not pursue collections for such amounts; therefore, the related charges for those patients who are financially unable to pay and that otherwise do not qualify for reimbursement from a governmental program are not reported in net operating revenues, and are thus classified as charity care. The Company determines amounts that qualify for charity care primarily based on the patient’s household income relative to the federal poverty level guidelines, as established by the federal government.  The Company updated its policy during the three months ended June 30, 2020 in a manner which increased the number of accounts qualifying for charity care. This resulted in an increase in charity care services during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

7

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

These charity care services are estimated to be $166 $229 million and $141$166 million for the three months ended March 31, 20202021 and 2019,2020, respectively, representing the value (at the Company’s standard charges) of these charity care services that are excluded from net operating revenues. The estimated cost incurred by the Company to provide these charity care services to patients who are unable to pay was approximately $19$26 million and $15$19 million during the three months ended March 31, 20202021 and 2019,2020, respectively. The estimated cost of these charity care services was determined using a ratio of cost to gross charges and applying that ratio to the gross charges associated with providing care to charity patients for the period.

Accounting for the Impairment or Disposal of Long-Lived Assets.    During the three months ended March 31, 2021, the Company recorded a net loss on disposal of approximately $21 million, of which (i) approximately $27 million was recorded to adjust the carrying value of long-lived assets at several hospitals that were sold at a sales price below carrying value, (ii) approximately $2 million was recorded related to divestiture related expenses, and (iii) approximately $8 million of gain was recorded related to the disposal of the Company’s majority interest in a surgery center that was sold on January 1, 2021. Approximately $5 million of goodwill was allocated to facilities disposed of or held for sale during the three months ended March 31, 2021. During the three months ended March 31, 2020, the Company recorded a total combined net impairment charge and gain on disposal of approximately $45 million. An impairment charge of approximately $64 million was recorded primarily to adjust the carrying value of long-lived assets at several hospitals where the Company iswas in discussions with potential buyers for divestiture at a sales price that indicatesindicated a fair value below carrying value. Included in the carrying value of the hospital disposal groups at March 31, 2020 is a net allocation of approximately $6 million of goodwill allocated from the hospital operations reporting unit based on a calculation of the disposal groups’ relative fair value compared to the total reporting unit. The impairment charge was partially offset by a gain of approximately $19 million related to three3 hospitals sold on January 1, 2020. The Company will continue to evaluate the potential for further impairment of the long-lived assets of underperforming hospitals as well as evaluate offers for potential sales. Based on such analysis, additional impairment charges may be recorded in the future.

COVID-19 Pandemic.

COVID-19, a disease caused by a novel strain of coronavirus, materially affected the Company’s results of operations during 2020 and continued to affect the Company’s results of operations during the three months ended March 31, 2021. Federal and state governments have passed legislation, promulgated regulations and taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health emergency. Sources of relief include the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPPHCE Act”), which was enacted on April 24, 2020, the Consolidated Appropriations Act, 2021 (the “CAA”), which was enacted on December 27, 2020, and the American Rescue Plan Act of 2021 (the “ARPA”), which was enacted on March 11, 2021. Together, these stimulus laws authorize over $178 billion in funding to be distributed to hospitals and other healthcare providers through the Public Health and Social Services Emergency Fund (the “PHSSEF”). In addition to the relief funding, the CARES Act provided for an expansion of the Medicare Accelerated and Advance Payment Program whereby inpatient acute care hospitals and other eligible providers were able to request accelerated payment of up to 100% of their Medicare payment amount for a six-month period to be repaid through withholding of future Medicare fee-for-service payments. Various state and local programs also exist to provide relief, either independently or through distribution of monies received via the CARES Act and other enacted federal legislation. The Company’s accounting policies for the recognition of these stimulus monies are as follows:

Pandemic Relief Funds

Through March 31, 2021, the Company received approximately $708 million in payments through the PHSSEF and various state and local programs on a cumulative basis since their enactment, of which approximately $705 million was received during the year ended December 31, 2020 and the balance of which was received during the three months ended March 31, 2021. The recognition of amounts received is conditioned upon the provision of care for individuals with possible or actual cases of COVID-19 after January 31, 2020, certification that payment will be used to prevent, prepare for and respond to coronavirus and shall reimburse the recipient only for healthcare-related expenses or lost revenues, as defined by HHS, that are attributable to coronavirus, as well as receipt of the funds. Amounts are recognized as a reduction to operating costs and expenses only to the extent the Company is reasonably assured that underlying conditions have been met.

The Company’s assessment of whether the terms and conditions for amounts received are reasonably assured of having been met is updated each reporting period and considers, among other things, the requirements set forth in the CARES Act and CAA, all applicable frequently asked questions and other interpretive guidance issued by HHS, including the Post-Payment Notice of Reporting Requirements issued on January 15, 2021, and the Company’s expenses incurred attributable to the coronavirus and its results of operations during such period as compared to the Company’s 2020 budget. The HHS guidance, specifically the various Post-Payment Notice of Reporting Requirements notices and frequently asked questions, set forth the allowable methods for quantifying eligible healthcare related expenses and lost revenues. Only healthcare related expenses attributable to coronavirus that another source has not reimbursed and is not obligated to reimburse are eligible to be claimed. The use of funds calculation takes into account expenses

8

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

attributable to each respective entity, which for the Company primarily relate to incremental labor and supply costs, as well as lost revenues. During the year ended December 31, 2020, pandemic relief funds of approximately $601 million were recognized as a reduction of operating costs and expenses up to the amount which the Company was reasonably assured that it could or would choose to comply with conditions underlying amounts received. This included the allocation of general fund distributions among subsidiaries according to total unreimbursed losses but not the allocation of targeted fund distributions due to significant uncertainties as to the meaning and interpretation of conditions specific to the allocation of such targeted distribution payments, as previously disclosed. During the three months ended March 31, 2019,2021, the Company’s assessment of uncertainties associated with the allocation of targeted distribution payments was updated for additional facts and circumstances in the period. On the basis of this updated assessment, the Company recorded a total combined impairment chargeis reasonably assured that underlying conditions for the allocation of targeted distribution payments can and loss on disposalhave been met as of March 31, 2021. During the three months ended March 31, 2021, pandemic relief funds of approximately $38$82 million to reduce the carrying valuewere recognized as a reduction of closed hospitalsoperating costs and certain hospitals that have been deemed held for sale basedexpenses on the difference betweenbasis of expenses incurred in the carrying valueperiod attributable to the coronavirus, the Company’s results of the hospital disposal groupsoperations during such period as compared to the estimated fair value lessCompany’s 2020 budget for the same period and the allocation of targeted distribution payments to various subsidiaries as noted above. Amounts recognized are denoted by the caption “pandemic relief funds” within the condensed consolidated statements of (loss) income.

Amounts received through the PHSSEF or state and local programs that have not yet been recognized as a reduction to operating costs and expenses or otherwise have not been refunded to sell.

New Accounting Pronouncements.    In March 2020,HHS or the FASB issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional expedientsvarious state and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another rate that is expected to be discontinued. The amendments in the ASU are effective for all entitieslocal agencies as of March 12, 2020 through31, 2021, primarily relate to previously divested entities and certain targeted distribution payments for which satisfaction of the underlying terms and conditions is not reasonably assured of being met as of March 31, 2021. Such amounts are reflected within accrued liabilities-other in the condensed consolidated balance sheet. Such unrecognized amounts may either be returned to HHS in one or more future periods when a procedure for doing so is established by HHS or may be recognized as a reduction in operating costs and expenses in future periods if the underlying conditions for recognition are reasonably assured of having been met. HHS’ interpretation of the underlying terms and conditions of such PHSSEF payments, including auditing and reporting requirements, continues to evolve. Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such PHSSEF payments may result in changes in the Company’s estimate of amounts for which the terms and conditions are reasonably assured of being met, and any such changes may be material. Additionally, any such changes may result in the Company’s inability to recognize additional PHSSEF payments or may result in the derecognition of amounts previously recognized, which (in any such case) may be material.

Medicare Accelerated Payments

Medicare accelerated payments of approximately $1.2 billion were received by the Company in April 2020. NaN additional Medicare accelerated payments have been received by the Company since such time, including during the three months ended March 31, 2021. Approximately $18 million and $77 million of amounts previously received were repaid to CMS or assumed by buyers related to hospitals the Company divested during the three months ended March 31, 2021 and year ended December 31, 2022.2020, respectively. Payments under the Medicare Accelerated and Advance Payment Program are advances that must be repaid. Effective October 1, 2020, the program was amended such that providers are required to repay accelerated payments beginning one year after the payment was issued. After such one-year period, Medicare payments owed to providers will be recouped according to the repayment terms. The adoptionrepayment terms specify that for the first 11 months after repayment begins, repayment will occur through an automatic recoupment of this guidance did25% of Medicare payments otherwise owed to the provider. At the end of the eleven-month period, recoupment will increase to 50% for six months. At the end of the six months (or 29 months from the receipt of the initial accelerated payment), Medicare will issue a letter for full repayment of any remaining balance, as applicable. In such event, if payment is not have a material impact onreceived within 30 days, interest will accrue at the Company’sannual percentage rate of four percent (4%) from the date the letter was issued, and will be assessed for each full 30-day period that the balance remains unpaid. As of March 31, 2021, approximately $546 million of Medicare accelerated payments are reflected within accrued liabilities-other in the condensed consolidated financial position or resultsbalance sheet while the remaining approximately $517 million is included within other long-term liabilities. The Company’s estimate of operations.

The Company has evaluated all other recently issued, but not yet effective, ASUsthe current liability is a function of historical cash receipts from Medicare and does not expect the eventual adoption of these ASUs to have a material impact on its condensed consolidated financial position or results of operations.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

repayment terms set forth above. In April 2021, CMS began recouping Medicare accelerated payments previously received by the Company.

2.  ACCOUNTING FOR STOCK-BASED COMPENSATION

Stock-based compensation awards have been granted under the Community Health Systems, Inc. Amended and Restated 2000 Stock Option and Award Plan, amended and restated as of March 20, 2013 (the “2000 Plan”), and the Community Health Systems, Inc. Amended and Restated 2009 Stock Option and Award Plan, which was amended and restated as of March 14, 201820, 2020 and approved by the Company’s stockholders at the annual meeting of stockholders held on May 15, 2018 (the12, 2020 (the “2009 Plan”). In addition, at the annual meeting of stockholders to be held on May 12, 202011, 2021 (the “2020“2021 Annual Meeting”), the Company’s stockholders will be voting on whether or not to approve the further amendment and restatement of the 2009 Plan (the “Amended 2009 Plan”) which was approved by the Board of Directors on March 20, 2020.17, 2021.  

The 2000 Plan allowed for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (the “IRC”), as well as stock options which did not so qualify, stock appreciation rights, restricted stock, restricted stock units, performance-based shares or units and other share awards. Prior to being amended in 2009, the 2000 Plan also allowed for the grant of phantom stock. Persons eligible to receive grants under the 2000 Plan included the Company’s directors, officers, employees and consultants. All options granted under the 2000 Plan were “nonqualified” stock options for tax purposes. Generally, vesting of these granted options occurred inone-third increments on each of the first three anniversaries of the award date. Options granted since 2008 had a10-year contractual term. Pursuant to the amendment and restatement of the 2000 Plan dated March 20, 2013, no further grants will be awarded under the 2000 Plan.9

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

The 2009 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the IRC and for the grant of stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units, performance-based shares or units and other share awards. Persons eligible to receive grants under the 2009 Plan include the Company’s directors, officers, employees and consultants. To date, all options granted under the 2009 Plan have been “nonqualified” stock options for tax purposes. Generally, vesting of these granted options occursvest inone-third increments on each of the first three anniversaries of the award date. Options granted in 2011 or laterdate and have a10-year contractual term. As of March 31, 2020, 1,318,8022021, 4,435,134 shares of unissued common stock were reserved for future grants under the 2009 Plan. In addition, if the Amended 2009 Plan is approved by the Company’s stockholders at the 20202021 Annual Meeting, 9,000,0008,000,000 additional shares of unissued common stock will be reserved for future grants under the Amended 2009 Plan.

The exercise price of all options granted under the 2000 Plan and the 2009 Plan is equal to the fair value of the Company’s common stock on the option grant date.

The following table reflects the impact of total compensation expense related to stock-based equity plans on the reported operating results for the respective periods (in millions):

 

   Three Months Ended 
   March 31, 
   2020   2019 
Effect on loss before income taxes  $                    (2)   $                    (3) 
  

 

 

   

 

 

 
Effect on net income (loss)  $(1)   $(2) 
  

 

 

   

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Effect on income (loss) before income taxes

 

$

(8

)

 

$

(2

)

Effect on net (loss) income

 

$

(6

)

 

$

(1

)

At March 31, 2020, $252021, $38 million of unrecognized stock-based compensation expense related to outstanding unvested stock options, restricted stock and restricted stock units (the terms of which are summarized below) was expected to be recognized over a weighted-average period of 29 months. Of that amount, $4$6 million relatedrelates to outstanding unvested stock options was expected to be recognized over a weighted-average period of 3130 months and $21$32 million relatedrelates to outstanding unvested restricted stock and restricted stock units was expected to be recognized over a weighted-average period of 2829 months. There were no0 modifications to awards during the three months ended March 31, 20202021 and 2019.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

2020.

The fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions and weighted-average fair values during the three months ended March 31, 20202021 and 2019:2020:

 

  Three Months Ended March 31, 

 

Three Months Ended March 31,

 

              2020                             2019             

 

2021

 

 

2020

 

Expected volatility

   73.5    %   66.6    % 

 

84.3% - 88.9%

 

 

 

73.5

%

Expected dividends

   -       - 

 

 

—

 

 

 

—

 

Expected term

   6 years   6 years 

 

3 - 6 years

 

 

6 years

 

Risk-free interest rate

   1.0    %   2.6    % 

 

0.3% - 0.9%

 

 

 

1.0

%

In determining the expected term, the Company examined concentrations of option holdings and historical patterns of option exercises and forfeitures, as well as forward-looking factors, in an effort to determine if there were any discernable employee populations. From this analysis, the Company identified two primary employee populations, one consisting of certain senior executives and the other consisting of substantially all other recipients.

The expected volatility rate was estimated based on historical volatility. In determining expected volatility, the Company also reviewed the market-based implied volatility of actively traded options of its common stock and determined that historical volatility utilized to estimate the expected volatility rate did not differ significantly from the implied volatility.

The expected term computation is based on historical exercise and cancellation patterns and forward-looking factors, where present, for each population identified. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. Thepre-vesting forfeiture rate is based on historical rates and forward-looking factors for each population identified. The Company adjusts the estimated forfeiture rate to its actual experience.

10

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

Options outstanding and exercisable under the 2000 Plan and the 2009 Plan as of March 31, 2020,2021, and changes during the three-month period following December 31, 2019,2020, was as follows (in millions, except share and per share data):

 

 

 

 

 

 

 

 

 

 

Weighted-

 

Aggregate

 

      Weighted- Aggregate 

 

 

 

 

 

Weighted-

 

 

Average

 

Intrinsic

 

      Average Intrinsic 

 

 

 

 

 

Average

 

 

Remaining

 

Value as of

 

    Weighted- Remaining     Value as of     

 

 

 

 

 

Exercise

 

 

Contractual

 

March 31,

 

    Average     Contractual     March 31, 

 

Shares

 

 

Price

 

 

Term

 

2021

 

          Shares             Exercise Price     Term 2020 

Outstanding at December 31, 2019

   1,110,134  $16.90  5.6 years 

Outstanding at December 31, 2020

 

 

1,817,525

 

 

 

8.77

 

 

 

 

 

 

 

Granted

   946,500  4.93   

 

 

749,250

 

 

 

8.81

 

 

 

 

 

 

 

Exercised

   -   -   

 

 

(65,165

)

 

 

4.97

 

 

 

 

 

 

 

Forfeited and cancelled

   (159,938)  33.90   

 

 

(173,189

)

 

 

34.66

 

 

 

 

 

 

 

  

 

   

Outstanding at March 31, 2020

   1,896,696  $9.50  8.1 years $-  
  

 

 

 

 

 

 

 

 

Exercisable at March 31, 2020

   530,192  $21.27  4.2 years $-  
  

 

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

2,328,421

 

 

$

6.96

 

 

8.6 years

 

$

16

 

Exercisable at March 31, 2021

 

 

753,496

 

 

$

7.36

 

 

7.3 years

 

$

6

 

The weighted-average grant date fair value of stock options granted during the three months ended March 31, 2021 and 2020 was $6.22 and 2019 was $3.17, and $3.08, respectively. The aggregate intrinsic value (calculated as the number ofin-the-money stock options multiplied by the difference between the Company’s closing stock price on the last trading day of the reporting period ($3.34)13.52) and the exercise price of the respective stock options) in the table above represents the amount that would have been received by the option holders had all option holders exercised their options on March 31, 2020.2021. This amount changes based on the market value of the Company’s common stock. There were noThe aggregate intrinsic value of options exercised during the three months ended March 31, 2020 and 2019.2021 was less than $1 million. There were 0 options exercised during the three months ended March 31, 2020. The aggregate intrinsic value of options vested and expected to vest approximates that of the outstanding options.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

 

The Company has also awarded restricted stock under the 2009 Plan to employees of certain subsidiaries. With respect to time-based vesting restricted stock that has been awarded under the 2009 Plan, the restrictions on these shares have generally lapsed inone-third increments on each of the first three anniversaries of the award date. In addition, certain of the restricted stock awards granted to the Company’s senior executives have contained performance objectives required to be met in addition to any time-based vesting requirements. If the applicable performance objectives are not attained, these awards will be forfeited in their entirety. For performance-based awards, granted on or after March 1, 2017, the performance objectives have beenare measured cumulatively over a three-year period. With respect to performance-based awards granted on or after March 1, 2017, ifIf the applicable target performance objective is met at the end of the three-year period, then the restricted stock award subject to such performance objective will vest in full on the third anniversary of the award date. Additionally, for these performance-based awards, based on the level of achievement for the applicable performance objective within the parameters specified in the award agreement, the number of shares to be issued in connection with the vesting of the award may be adjusted to decrease or increase the number of shares specified in the original award. Notwithstanding the above-mentioned performance objectives and vesting requirements, the restrictions with respect to restricted stock granted under the 2009 Plan may lapse earlier in the event of death, disability or termination of employment by the Company for any reason other than for cause of the holder of the restricted stock, or change in control of the Company. The entireOn March 1, 2021, restricted stock awards subject to performance objectives granted on March 1, 2017 were forfeited during the three months ended March 31, 2020 as a result2018 vested at 200% of the minimum level ofshares originally granted based on the applicableCompany’s cumulative performance compared to objectives for the 2017-20192018-2020 performance period not having been met.period. Restricted stock awards subject to performance objectives that have not yet been satisfied are not considered outstanding for purposes of determining earnings per share untilunless the performance objectives have been satisfied.satisfied on the basis of results through the end of each respective reporting period.

Restricted stock outstanding under the 2009 Plan as of March 31, 2020,2021, and changes during the three-month period following December 31, 2019,2020, was as follows:

 

 

 

 

 

 

Weighted-

 

    Weighted- 

 

 

 

 

 

Average Grant

 

    Average Grant 

 

Shares

 

 

Date Fair Value

 

              Shares                   Date Fair Value       

Unvested at December 31, 2019

   3,857,402  $5.47 

Unvested at December 31, 2020

 

 

4,555,735

 

 

$

4.84

 

Granted

   2,197,500  4.90 

 

 

2,829,250

 

 

 

7.97

 

Vested

   (988,650)  5.77 

 

 

(2,264,992

)

 

 

4.70

 

Forfeited

   (328,500)  9.19 

 

 

(37,334

)

 

 

4.94

 

  

 

  

Unvested at March 31, 2020

   4,737,752  4.89 
  

 

  

Unvested at March 31, 2021

 

 

5,082,659

 

 

 

6.65

 

11

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

Restricted stock units (“RSUs”) have been granted to the Company’s outsidenon-management directors under the 2009 Plan. Each of the Company’s then serving outsidenon-management directors received grants under the 2009 Plan of 34,06834,483 RSUs and 34,48319,296 RSUs on March 1, 20192020 and 2020,2021, respectively. Each of the 20192020 and 20202021 grants had a grant date fair value of approximately $170,000. Vesting of these RSUs occurs inone-third increments on each of the first three anniversaries of the award date or upon the director’s earlier cessation of service on the board, other than for cause. Beginning with the 2020 grant, theeach non-management director may elect, prior to the beginning of the calendar year in which the award is granted, to defer the receipt of shares of the Company’s common stock issuable upon vesting until either his or her (i) separation from service with the Company or (ii) attainment of an age specified in advance by thenon-management director. A total of 5 directors elected to defer the receipt of RSUs granted on March 1, 2020 to a future date and a total of 4 directors elected to defer the receipt of RSUs granted on March 1, 2021 to a future date.

RSUs outstanding under the 2009 Plan as of March 31, 2020,2021, and changes during the three-month period following December 31, 2019,2020, was as follows:

 

 

 

 

 

 

Weighted-

 

    Weighted- 

 

 

 

 

 

Average Grant

 

    Average Grant 

 

Shares

 

 

Date Fair Value

 

              Shares                   Date Fair Value       

Unvested at December 31, 2019

   541,576  $5.13 

Unvested at December 31, 2020

 

 

613,739

 

 

$

4.89

 

Granted

   310,347  4.93 

 

 

173,664

 

 

 

8.81

 

Vested

   (238,184)  5.47 

 

 

(247,164

)

 

 

4.81

 

Forfeited

   -   - 

 

 

—

 

 

 

—

 

  

 

  

Unvested at March 31, 2020

   613,739  4.89 
  

 

  

Unvested at March 31, 2021

 

 

540,239

 

 

 

6.19

 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

 

3.  ACQUISITIONS AND DIVESTITURES

Acquisitions

The Company accounts for all transactions that represent business combinations using the acquisition method of accounting, where the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity are recognized and measured at their fair values on the date the Company obtains controla controlling interest in the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts. Adjustments to these provisional amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed and any noncontrolling interests has been obtained, limited to one year from the acquisition date) are recorded when identified. Goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired.

Acquisition and integration expenses related to prospective and closed acquisitions included in other operating expenses on the condensed consolidated statements of income (loss) were less than $1 million for the three months ended March 31, 2020 and were approximately $1 million for the three months ended March 31, 2019.

During the three months ended March 31, 2020,2021, one or more subsidiaries of the Company paid less than $1approximately $4 million to acquire the operating assets and related businesses of certain physician practices, clinics and other ancillary businesses that operate within the communities served by the Company’s affiliated hospitals. The Company allocated the purchase price to property and equipment, working capital, noncontrolling interests and goodwill.

12

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

Divestitures

The following table provides a summary of hospitals that the Company divested during the three months ended March 31, 20202021 and the year ended December 31, 2019:2020:

 

Licensed

Licensed

Hospital

Buyer

City, State

Beds

Effective Date

2021 Divestitures:

2020 Divestitures:Lea Regional Medical Center

Covenant Health System

Hobbs, NM

68

January 1, 2021

Tennova Healthcare - Tullahoma

Vanderbilt University Medical Center

Tullahoma, TN

135

January 1, 2021

Tennova Healthcare - Shelbyville

Vanderbilt University Medical Center

Shelbyville, TN

60

January 1, 2021

Northwest Mississippi Medical Center

Delta Health System

Clarksdale, MS

181

February 1, 2021

2020 Divestitures:

Berwick Hospital Center

Fayette Holdings, Inc.

Berwick, PA

90

December 1, 2020

Brownwood Regional Medical Center

Hendrick Health System

Brownwood, TX

188

October 27, 2020

Abilene Regional Medical Center

Hendrick Health System

Abilene, TX

231

October 27, 2020

San Angelo Community Medical Center

Shannon Health System

San Angelo, TX

171

October 24, 2020

Bayfront Health St. Petersburg

Orlando Health, Inc.

St. Petersburg, FL

480

October 1, 2020

Hill Regional Hospital

AHRK Holdings, LLC

Hillsboro, TX

25

August 1, 2020

St. Cloud Regional Medical Center

Orlando Health, Inc.

St. Cloud, FL

84

July 1, 2020

Northern Louisiana Medical Center

Allegiance Health Management, Inc.

Ruston, LA

130

July 1, 2020

Shands Live Oak Regional Medical Center

HCA Healthcare, Inc., or HCA,

Live Oak, FL

25

May 1, 2020

Shands Starke Regional Medical Center

HCA

Starke, FL

49

May 1, 2020

Southside Regional Medical Center

Bon Secours Mercy Health System

Petersburg, VA

300

January 1, 2020

Southampton Memorial Hospital

Bon Secours Mercy Health System

Franklin, VA

105

January 1, 2020

Southern Virginia Regional Medical Center

Bon Secours Mercy Health System

Emporia, VA

80

January 1, 2020

2019 Divestitures:

Bluefield Regional Medical Center

Princeton Community Hospital AssociationBluefield, WV92October 1, 2019

Lake Wales Medical Center

Adventist Health SystemLake Wales, FL160September 1, 2019

Heart of Florida Regional Medical Center

Adventist Health SystemDavenport, FL193September 1, 2019

College Station Medical Center

St. Joseph Regional Health CenterCollege Station, TX167August 1, 2019

Tennova Healthcare - Lebanon

Vanderbilt University Medical CenterLebanon, TN245August 1, 2019

Chester Regional Medical Center

Medical University Hospital AuthorityChester, SC82March 1, 2019

Carolinas Hospital System - Florence

Medical University Hospital AuthorityFlorence, SC396March 1, 2019

Springs Memorial Hospital

Medical University Hospital AuthorityLancaster, SC225March 1, 2019

Carolinas Hospital System - Marion

Medical University Hospital AuthorityMullins, SC124March 1, 2019

Memorial Hospital of Salem County

Community Healthcare Associates, LLCSalem, NJ126January 31, 2019

Mary Black Health System - Spartanburg

Spartanburg Regional Healthcare SystemSpartanburg, SC207January 1, 2019

Mary Black Health System - Gaffney

Spartanburg Regional Healthcare SystemGaffney, SC125January 1, 2019

On January 30, 2020, one or more affiliates of the Company entered into definitive agreements for the sale of substantially all of the assets of each of Shands Live Oak Regional Medical Center (25 licensed beds) in Live Oak, Florida and Shands Starke Regional Medical Center (49 licensed beds) in Starke, Florida to affiliates of HCA Healthcare, Inc.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

On March 18,December 8, 2020, one or more affiliates of the Company entered into a definitive agreement for the sale of substantially all of the assets of Northern Louisiana Medical Center (130AllianceHealth Midwest (255 licensed beds) in Ruston, LouisianaMidwest City, Oklahoma, to affiliates of AllegianceSSM Health Management, Inc.Care of Oklahoma. This disposition was completed on April 1, 2021 as further described in Note 12.

The following table discloses amounts included in the condensed consolidated balance sheets for the hospitals classified as held for sale as of March 31, 20202021 and December 31, 20192020 (in millions). Other assets, net primarily includes the net property and equipment for hospitals held for sale. No divestitures or potential divestitures meet the criteria for reporting as a discontinued operation.

 

         March 31, 2020               December 31, 2019       

Other current assets

  $20   $25 

Other assets, net

   286    262 

Accrued liabilities

   25    43 

Other Hospital Closures

During the three months ended December 31, 2018, the Company completed the planned closure of Tennova – Physicians Regional Medical Center in Knoxville, Tennessee and Tennova – Lakeway Regional Medical Center in Morristown, Tennessee. The Company recorded an impairment charge of $27 million during the three months ended December 31, 2018, to adjust the fair value of the supplies, inventory and long-lived assets of these hospitals, including property and equipment and capitalized software costs, based on their estimated fair value and future utilization. During 2019, the Company recorded an impairment charge of approximately $9 million to further adjust the fair value of the supplies, inventory and long-lived assets of these hospitals, including property and equipment and capitalized software costs, based on the Company’s updated evaluation of their estimated fair value and future utilization and consideration of costs to dispose of such assets. There were no hospital closures during the three months ended March 31, 2020.

4.     GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2020 are as follows (in millions):

Balance, as of December 31, 2019

Goodwill

 $                    7,142 

Accumulated impairment losses

(2,814)

4,328 

Goodwill allocated to hospitals held for sale

(6)

Balance, as of March 31, 2020

Goodwill

7,136 

Accumulated impairment losses

(2,814)

 $4,322 

 

 

March 31,

2021

 

 

December 31,

2020

 

Other current assets

 

$

5

 

 

$

12

 

Other assets, net

 

 

2

 

 

 

11

 

Accrued liabilities

 

 

3

 

 

 

16

 

Goodwill is allocated to each identified reporting unit, which is defined as an operating segment or one level below the operating segment (referred to as a component of the entity). Management has determined that the Company’s operating segment meets the criteria to be classified as a reporting unit. At March 31, 2020, after giving effect to 2020 divestiture activity, the Company had approximately $4.3 billion of goodwill recorded.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

 

Goodwill is evaluated for impairment annually and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. The Company performed its last annual goodwill impairment evaluation during the fourth quarter of 2019 using an October 31, 2019 measurement date, which indicated no impairment.

The Company estimates the fair value of the reporting unit using both a discounted cash flow model as well as a market multiple model. The cash flow forecasts are adjusted by an appropriate discount rate based on the Company’s estimate of a market participant’s weighted-average cost of capital. These models are both based on the Company’s best estimate of future revenues and operating costs and are reconciled to the Company’s consolidated market capitalization, with consideration of the amount a potential acquirer would be required to pay, in the form of a control premium, in order to gain sufficient ownership to set policies, direct operations and control management decisions.

While no impairment was indicated in the Company’s annual goodwill evaluation as of the October 31, 2019 measurement date, the reduction in the Company’s fair value and the resulting goodwill impairment charges recorded in 2016 and 2017 reduced the carrying value of the Company’s hospital operations reporting unit to an amount equal to its estimated fair value as of such prior year measurement dates. This increases the risk that future declines in fair value could result in goodwill impairment. The determination of fair value in the Company’s goodwill impairment analysis is based on an estimate of fair value for each reporting unit utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited to, the most recent price of the Company’s common stock and fair value of long-term debt, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income tax rates, and costs of invested capital. A detailed evaluation of potential impairment indicators was performed as of March 31, 2020, which specifically considered the decline in the fair market value of the Company’s outstanding senior secured and unsecured notes and common stock during the first quarter as a result of theCOVID-19 pandemic. Volatility was observed in the prices of the Company’s outstanding debt securities and common stock and the decline in patient volumes following the emergence ofCOVID-19 was also considered. On the basis of available evidence as of March 31, 2020, no indicators of impairment were identified.

Future estimates of fair value could be adversely affected if the actual outcome of one or more of the assumptions described above changes materially in the future, including a decline in the Company’s stock price and the fair value of its long-term debt, lower than expected hospital volumes, higher market interest rates or increased operating costs. Such changes impacting the calculation of fair value, the risks of which are amplified by theCOVID-19 pandemic, could result in a material impairment charge in the future.

The determination of fair value of the Company’s hospital operations reporting unit as part of its goodwill impairment measurement represents a Level 3 fair value measurement in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.

Intangible Assets

No intangible assets other than goodwill were acquired during the three months ended March 31, 2020. The gross carrying amount of the Company’s other intangible assets subject to amortization was $1 million at both March 31, 2020 and December 31, 2019, and the net carrying amount was less than $1 million at both March 31, 2020 and December 31, 2019. The carrying amount of the Company’s other intangible assets not subject to amortization was $60 million and $63 million at March 31, 2020 and December 31, 2019, respectively. Other intangible assets are included in other assets, net on the Company’s condensed consolidated balance sheets. Substantially all of the Company’s intangible assets are contract-based intangible assets related to operating licenses, management contracts, ornon-compete agreements entered into in connection with prior acquisitions.

The gross carrying amount of capitalized software for internal use was approximately $1.1 billion at both March 31, 2020 and December 31, 2019, and the net carrying amount was approximately $301 million and $321 million at March 31, 2020 and December 31, 2019, respectively. The estimated amortization period for capitalizedinternal-use software is generally three years, except for capitalized costs related to significant system conversions, which is generally eight to ten years. There is no expected residual value for capitalizedinternal-use software. At March 31, 2020, there was approximately $39 million of capitalized costs forinternal-use software that is currently in the development stage and will begin amortization once the software project is complete and ready for its intended use. Amortization expense on capitalizedinternal-use software was $32 million and $30 million during the three months ended March 31, 2020 and 2019, respectively. Amortization expense on capitalizedinternal-use software is estimated to be $94 million for the remainder of 2020, $108 million in 2021, $52 million in 2022, $24 million in 2023, $12 million in 2024, $6 million in 2025 and $5 million thereafter.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

5.4.  INCOME TAXES

The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was approximatelyless than $1 million as of March 31, 2020.2021. A total of approximatelyless than $1 million of interest and penalties is included in the amount of the liability for uncertain tax positions at March 31, 2020.2021. It is the Company’s policy to recognize interest and penalties related to unrecognized benefits in its condensed consolidated statements of (loss) income (loss) as income tax expense.

13

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute of limitations and settlements with taxing authorities; however, the Company does not anticipate the change will have a material impact on the Company’s condensed consolidated results of operations or financial position.

The Company’s federal income tax returns for the 2009 and 2010 tax years have been settled with the Internal Revenue Service. The results of these examinations were not material to the Company’s consolidated results of operations or financial position. The Company’s federal income tax returns for the 2014 and 2015 tax years remain under examination by the Internal Revenue Service. The Company believes the results of these examinations will not be material to its condensed consolidated results of operations or financial position. The Company has extended the federal statute of limitations through December 31, 20202021 for Community Health Systems, Inc. for the tax periods ended December 31, 2014 and 2015. The Company’s federal income tax return for the 2018 tax year is under examination by the Internal Revenue Service.

The Company’s effective tax rates were 122.8%202.9% and (7.4)%122.8% for the three months ended March 31, 20202021 and 2019,2020, respectively. The difference in the Company’s effective tax rate for the three months ended March 31, 2020,2021, when compared to the three months ended March 31, 2019,2020, was primarily due to an increase in the valuation allowance recognized on IRC Section 163(j) interest carryforwards created as a result of the financing transactions completed during the three months ended March 31, 2021. The Company’s effective tax rate for the three months ended March 31, 2020 reflected the impact of discrete tax benefits of approximately $240 million related to the release of federal and state valuation allowances on IRC Section 163(j) interest carryforwards as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that was enacted during the three months ended March 31, 2020.CARES Act.

Cash paid for income taxes, net of refunds received, resulted in a net payment of less than $1 million, and a net refund of approximately $2 million and less than $1 million during the three months ended March 31, 20202021 and 2019,2020, respectively.

6.5.  LONG-TERM DEBT

Long-term debt, net of unamortized deferred debt issuance costs, and discounts or premiums, consists of the following (in millions):

 

  March 31, December 31,
  2020 2019

51⁄8% Senior Secured Notes due 2021

  $-   $1,000 

67⁄8% Senior Notes due 2022

  231   231 

61⁄4% Senior Secured Notes due 2023

  2,675   3,100 

85⁄8% Senior Secured Notes due 2024

  1,033   1,033 

65⁄8% Senior Secured Notes due 2025

  1,462   - 

8% Senior Secured Notes due 2026

  2,101   2,101 

8% Senior Secured Notes due 2027

  700   700 

67⁄8% Senior Notes due 2028

  1,700   1,700 

97⁄8% Junior-Priority Secured Notes due 2023

  1,770   1,770 

81⁄8% Junior-Priority Secured Notes due 2024

  1,355   1,355 

ABL Facility

  380   273 

Finance lease and financing obligations

  290   272 

Other

  25   17 

Less: Unamortized deferred debt issuance costs and note premium

  (167)   (147) 
 

 

 

 

 

 

 

 

Total debt

  13,555   13,405 

Less: Current maturities

  (30)   (20) 
 

 

 

 

 

 

 

 

Total long-term debt

 $                13,525  $                13,385 
 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

6⅞% Senior Notes due 2022

 

$

—

 

 

$

126

 

6¼% Senior Secured Notes due 2023

 

 

—

 

 

 

95

 

8⅝% Senior Secured Notes due 2024

 

 

—

 

 

 

1,033

 

6⅝% Senior Secured Notes due 2025

 

 

1,462

 

 

 

1,462

 

8% Senior Secured Notes due 2026

 

 

2,101

 

 

 

2,101

 

8% Senior Secured Notes due 2027

 

 

700

 

 

 

700

 

5⅝% Senior Secured Notes due 2027

 

 

1,900

 

 

 

1,900

 

6⅞% Senior Notes due 2028

 

 

767

 

 

 

767

 

6% Senior Secured Notes due 2029

 

 

900

 

 

 

900

 

4¾% Senior Secured Notes due 2031

 

 

1,095

 

 

 

—

 

9⅞% Junior-Priority Secured Notes due 2023

 

 

—

 

 

 

1,769

 

8⅛% Junior-Priority Secured Notes due 2024

 

 

1,348

 

 

 

1,348

 

6⅞% Junior-Priority Secured Notes due 2029

 

 

1,775

 

 

 

—

 

ABL Facility

 

 

—

 

 

 

—

 

Finance lease and financing obligations

 

 

238

 

 

 

239

 

Other

 

 

21

 

 

 

26

 

Less:  Unamortized deferred debt issuance costs

 

 

(390

)

 

 

(250

)

Total debt

 

 

11,917

 

 

 

12,216

 

Less: Current maturities

 

 

(20

)

 

 

(123

)

Total long-term debt

 

$

11,897

 

 

$

12,093

 

On January 28, 2021, the remaining principal amount of the 6¼% Senior Secured Notes due 2023 of approximately $95 million was redeemed using cash on hand.

On February 2, 2021, the Company completed a private offering of $1.775 billion aggregate principal amount of 6⅞% Junior-Priority Secured Notes due April 15, 2029 (the “6⅞% Junior-Priority Secured Notes due 2029”). The proceeds of the offering,

14

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)- continued

 

On February 6, 2020, CHS/Community Health Systems, Inc. (“CHS”) completed a private offering of $1.462 billion aggregate principal amount of 65⁄8together with cash on hand, were used to redeem the 9⅞% Senior Secured Notes due February 15, 2025 (the “65⁄8% Senior Secured Notes due 2025”). CHS used the net proceeds of the offering of the 65⁄8% Senior Secured Notes due 2025 to (i) purchase any and all of its 51⁄8% Senior Secured Notes due 2021 validly tendered and not validly withdrawn in the cash tender offer announced on January 23, 2020, (ii) redeem all of the 51⁄8% Senior Secured Notes due 2021 that were not purchased pursuant to such tender offer, (iii) purchase in one or more privately negotiated transactions approximately $426 million aggregate principal amount of its 61⁄4% SeniorJunior-Priority Secured Notes due 2023 in February 2021 and (iv)to pay related fees and expenses.

The 65⁄86⅞% SeniorJunior-Priority Secured Notes due 20252029 bear interest at a rate of 6.625%6.875% per annum,year payable semi-annually in arrears on FebruaryApril 15 and AugustOctober 15 of each year, commencing on AugustOctober 15, 2020.2021. The 65⁄86⅞% Senior Secured Notes are scheduled to mature on February 15, 2025. The 65⁄8% SeniorJunior-Priority Secured Notes due 20252029 are unconditionally guaranteed on a senior-priorityjunior-priority secured basis by the Company and each of the CHS current and future domestic subsidiaries of CHS/Community Health Systems, Inc. (“CHS”) that provide guarantees under the revolving asset-based loan facility (the “ABL Facility”),CHS’ ABL Facility, any capital market debt securities of CHS (including CHS’ outstanding senior notes) and certain other long-term debt of CHS.

The 65⁄86⅞% Junior-Priority Secured Notes due 2029 and the related guarantees are secured by shared (i) second-priority liens on the Non-ABL Priority Collateral that secures on a first-priority basis CHS’ senior-priority secured notes and (ii) third-priority liens on the ABL-Priority Collateral that secures on a first-priority basis the ABL Facility (and also secures on a second-priority basis CHS’ senior-priority secured notes), in each case subject to permitted liens described in the indenture governing the 6⅞% Junior-Priority Secured Notes due 2029.

At any time and from time to time prior to April 15, 2024, CHS may redeem the 6⅞% Junior-Priority Secured Notes due 2029 in whole or in part, at its option, upon not less than 15 nor more than 60 days’ prior written notice at a redemption price equal to 100% of the principal amount of the 6⅞% Junior-Priority Secured Notes due 2029 to be redeemed plus accrued and unpaid interest, if any, plus a “make-whole” premium, as described in the indenture governing the 6⅞% Junior-Priority Secured Notes due 2029. In addition, CHS may redeem up to 40% of the aggregate principal amount of the 6⅞% Junior-Priority Secured Notes due 2029 at any time prior to April 15, 2024 using the net proceeds from certain equity offerings at a redemption price of 106.875% of the principal amount of the 6⅞% Junior-Priority Secured Notes due 2029 redeemed, plus accrued and unpaid interest, if any.

At any time and from time to time on or after April 15, 2024, CHS may redeem the 6⅞% Junior-Priority Secured Notes due 2029 in whole or in part, upon not less than 15 nor more than 60 days’ prior written notice at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest, if any, on the 6⅞% Junior-Priority Secured Notes due 2029 redeemed, to, but excluding, the applicable date of redemption, if redeemed during the twelve-month period beginning on April 15 of the years indicated below:

Period

Redemption

Price

April 15, 2024 to April 14, 2025

103.438

%

April 15, 2025 to April 14, 2026

101.719

%

April 15, 2026 to April 14, 2029

100.000

%

On February 9, 2021, the Company completed a private offering of $1.095 billion aggregate principal amount of 4¾% Senior Secured Notes due 2025February 15, 2031 (the “4¾% Senior Secured Notes due 2031”). The proceeds of the offering, together with cash on hand, were used to redeem the 8⅝% Senior Secured Notes due 2024 on February 9, 2021, and to pay related fees and expenses. The 4¾% Senior Secured Notes due 2031 bear interest at a rate of 4.750% per year payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2021. The 4¾% Senior Secured Notes due 2031 are unconditionally guaranteed on a senior-priority secured basis by each of CHS’ current and future domestic subsidiaries that provide guarantees under the ABL facility, any capital market debt securities of CHS (including CHS’ outstanding senior notes) and certain other long-term debt of CHS.

The 4¾% Senior Secured Notes due 2031 and the related guarantees are secured by shared (i) first-priority liens on theNon-ABL Priority Collateral and (ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens described in the indenture governing the 65⁄84¾% Senior Secured Notes due 2025.2031.

At any time prior to February 15, 2022, CHS may redeem some or all of the 65⁄8% Senior Secured Notes due 2025 at a price equal to 100% of their principal amount plus accrued and unpaid interest, if any, to, but excluding the applicable redemption date plus a make-whole premium as defined in the indenture agreement dated February 6, 2020. After February 15, 2022,

CHS is entitled, at its option, to redeem someall or alla portion of the 65⁄84¾% Senior Secured Notes due 2031 at any time prior to February 15, 2026, upon not less than 15 nor more than 60 days’ notice, at a price equal to 100% of the principal amount of the 4¾% Senior Secured Notes due 2031 redeemed plus accrued and unpaid interest, if any, plus a “make-whole” premium, as described in the indenture governing the 4¾% Senior Secured Notes due 2031.

CHS may redeem up to 40% of the aggregate principal amount of the 4¾% Senior Secured Notes due 2031 at any time prior to February 15, 2024 using the net proceeds from certain equity offerings at a redemption price of 104.750% of the principal amount of the 4¾% Senior Secured Notes due 2031 redeemed, plus accrued and unpaid interest, if any. In addition, any time prior to February 15, 2026, but not more than once during each twelve-month period, CHS may redeem up to 10% of the original aggregate principal amount of the 4¾% Senior Secured Notes due 2031 at a redemption price equal to 103% of the principal amount of the 4¾% Senior Secured Notes due 2031 to be redeemed, plus accrued and unpaid interest, if any.

15

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

At any time and from time to time on or after February 15, 2026, CHS may redeem the 4¾% Senior Secured Notes due 2031 in whole or in part, upon not less than 15 nor more than 60 days’ prior written notice at a redemption price equal to the percentage of principal amount set forth below plus accrued and unpaid interest, if any, on the 4¾% Senior Secured Notes due 2031 redeemed, to, but excluding, the applicable date of redemption, date, if redeemed during the twelve-month period beginning on February 15 of the years set forthindicated below:

Period

Redemption

Price

 

February 15, 20222026 to February 14, 20232027

103.313 

102.375

%

February 15, 20232027 to February 14, 20242028

101.656 

101.583

%

February 15, 20242028 to February 14, 20252029

100.792

%

February 15, 2029 to February 14, 2031

100.000

%

On March 1, 2021, the Company redeemed the remaining principal amount of the 6⅞% Senior Notes due 2022 of approximately $126 million using cash on hand.

The financing and repayment transactions discussed above resulted in apre-tax andafter-tax loss from early extinguishment of debt of $4 million and $3 million, respectively, formaximum aggregate principal amount under the three months ended March 31, 2020.

ABL Facility is $1.0 billion. At March 31, 2020,2021, the available borrowing base under the ABL Facility was $769$633 million, of which the Company had 0 outstanding borrowingsborrowings. Letters of $380credit were reduced during the three months ended March 31, 2021 by $30 million in relation to a professional liability claim that was settled and funded during the three months ended December 31, 2020. Inclusive of this reduction, letters of credit totaling $120 million were issued as of $150 million.March 31, 2021. The issued letters of credit were primarily in support of potential insurance-related claims and certain bonds.

The ABL Facility contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting the Company’s ability, subject to certain exceptions, to, among other things (1) declare dividends, make distributions or redeem or repurchase capital stock, (2) prepay, redeem or repurchase other debt, (3) incur liens or grant negative pledges, (4) make loans and investments and enter into acquisitions and joint ventures, (5) incur additional indebtedness or provide certain guarantees, (6) engage in mergers, acquisitions and asset sales, (7) conduct transactions with affiliates, (8) alter the nature of the Company’s, CHS’ or the guarantors’ businesses, (9) grant certain guarantees with respect to physician practices, (10) engage in sale and leaseback transactions or (11) change the Company’s fiscal year. The Company is also required to comply with a consolidated fixed charge coverage ratio, upon certain triggering events described below, and various affirmative covenants. The consolidated fixed charge coverage ratio is calculated as the ratio of (x) consolidated EBITDA (as defined in the ABL Facility) less capital expenditures to (y) the sum of consolidated interest expense (as defined in the ABL Facility), scheduled principal payments, income taxes and restricted payments made in cash or in permitted investments. For purposes of calculating the consolidated fixed charge coverage ratio, the calculation of consolidated EBITDA as defined in the ABL Facility is a trailing12-month calculation that begins with the Company’s consolidated net income (loss), with certain adjustments for interest, taxes, depreciation and amortization, net income attributable to noncontrolling interests, stock compensation expense, restructuring costs, and the financial impact of othernon-cash ornon-recurring items recorded during any such12-month period. The consolidated fixed charge coverage ratio is a required covenant only in periods where the total borrowings outstanding under the ABL Facility reduce the amount available in the facility to less than the greater of (i) $95 million or (ii) 10% of the calculated borrowing base. As a result, in the event the Company has less than $95 million available under the ABL Facility, the Company would need to comply with the consolidated fixed charge coverage ratio. At

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

March 31, 2020,2021, the Company is not subject to the consolidated fixed charge coverage ratio as such triggering event had not occurred during the last twelve months ended March 31, 2020.

To limit the effect of changes in interest rates on a portion of the Company’s long-term borrowings, the Company is a party to one interest swap agreement with a notional amount of approximately $300 million as of March 31, 2020. The Company receives a variable rate of interest on this swap based on the three-month LIBOR in exchange for the payment of a fixed rate of interest. See Note 7 for additional information regarding this swap.2021.  

The Company paid interest of $264$203 million and $189$264 million on borrowings during the three months ended March 31, 20202021 and 2019,2020, respectively.

7.16

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

6.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments has been estimated by the Company using available market information as of March 31, 20202021 and December 31, 2019,2020, and valuation methodologies considered appropriate. The estimates presented in the table below are not necessarily indicative of amounts the Company could realize in a current market exchange (in millions):

 

 March 31, 2020 December 31, 2019 

 

March 31, 2021

 

 

December 31, 2020

 

      Carrying       Estimated Fair      Carrying      Estimated Fair  

 

Carrying

 

 

Estimated

Fair

 

 

Carrying

 

 

Estimated

Fair

 

 Amount Value Amount Value 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Assets:

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 $246  $246  $216  $216 

 

$

1,251

 

 

$

1,251

 

 

$

1,676

 

 

$

1,676

 

Investments in equity securities

 114  114  141  141 

 

 

121

 

 

 

121

 

 

 

129

 

 

 

129

 

Available-for-sale debt securities

 103  103  101  101 

 

 

115

 

 

 

115

 

 

 

110

 

 

 

110

 

Trading securities

 12  12  12  12 

 

 

12

 

 

 

12

 

 

 

12

 

 

 

12

 

Liabilities:

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51⁄8% Senior Secured Notes due 2021

  -   -  990  1,003 

67⁄8% Senior Notes due 2022

 229  173  229  188 

61⁄4% Senior Secured Notes due 2023

 2,654  2,560  3,074  3,148 

85⁄8% Senior Secured Notes due 2024

 1,024  1,028  1,023  1,099 

65⁄8% Senior Secured Notes due 2025

 1,421  1,379   -   - 

6⅞% Senior Notes due 2022

 

 

—

 

 

 

—

 

 

 

125

 

 

 

125

 

6¼% Senior Secured Notes due 2023

 

 

—

 

 

 

—

 

 

 

95

 

 

 

99

 

8⅝% Senior Secured Notes due 2024

 

 

—

 

 

 

—

 

 

 

1,025

 

 

 

1,080

 

6⅝% Senior Secured Notes due 2025

 

 

1,429

 

 

 

1,548

 

 

 

1,427

 

 

 

1,543

 

8% Senior Secured Notes due 2026

 2,071  2,004  2,070  2,182 

 

 

2,075

 

 

 

2,272

 

 

 

2,074

 

 

 

2,275

 

8% Senior Secured Notes due 2027

 691  602  691  700 

 

 

692

 

 

 

768

 

 

 

692

 

 

 

760

 

67⁄8% Senior Notes due 2028

 1,678  516  1,678  1,700 

97⁄8% Junior-Priority Secured Notes due 2023

 1,755  1,419  1,754  1,539 

81⁄8% Junior-Priority Secured Notes due 2024

 1,341  936  1,340  1,113 

5⅝% Senior Secured Notes due 2027

 

 

1,810

 

 

 

1,988

 

 

 

1,809

 

 

 

2,048

 

6⅞% Senior Notes due 2028

 

 

758

 

 

 

701

 

 

 

758

 

 

 

618

 

6% Senior Secured Notes due 2029

 

 

857

 

 

 

954

 

 

 

857

 

 

 

973

 

4¾% Senior Secured Notes due 2031

 

 

1,090

 

 

 

1,070

 

 

 

—

 

 

 

—

 

9⅞% Junior-Priority Secured Notes due 2023

 

 

—

 

 

 

—

 

 

 

1,756

 

 

 

1,861

 

8⅛% Junior-Priority Secured Notes due 2024

 

 

1,337

 

 

 

1,416

 

 

 

1,336

 

 

 

1,408

 

6⅞% Junior-Priority Secured Notes due 2029

 

 

1,614

 

 

 

1,857

 

 

 

—

 

 

 

—

 

ABL Facility and other debt

 401  401  285  285 

 

 

18

 

 

 

18

 

 

 

23

 

 

 

23

 

The carrying value of the Company’s long-term debt in the above table is presented net of unamortized deferred debt issuance costs. The estimated fair value is determined using the methodologies discussed below in accordance with accounting standards related to the determination of fair value based on the U.S. GAAP fair value hierarchy as discussed in Note 8.7. The estimated fair value for financial instruments with a fair value that does not equal its carrying value is considered a Level 1 valuation. The Company utilizes the market approach and obtains indicative pricing through publicly available subscription services such as Bloomberg to determine fair values where relevant.

Cash and cash equivalents.  The carrying amount approximates fair value due to the short-term maturity of these instruments (less than three months).

Investments in equity securities. Estimated fair value is based on closing price as quoted in public markets.

Available-for-sale debt securities.  Estimated fair value is based on closing price as quoted in public markets or other various valuation techniques.

Trading securities.  Estimated fair value is based on closing price as quoted in public markets.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

51⁄8%Senior Notes, Senior Secured Notes due 2021.and Junior-Priority Secured Notes.  Estimated fair value is based on the closing market price for these notes.

67⁄8% Senior Notes due 2022. Estimated fair value is based on the closing market price for these notes.

61⁄4% Senior Secured Notes due 2023. Estimated fair value is based on the closing market price for these notes.

85⁄8% Senior Secured Notes due 2024. Estimated fair value is based on the closing market price for these notes.

65⁄8% Senior Secured Notes due 2025. Estimated fair value is based on the closing market price for these notes.

8% Senior Secured Notes due 2026. Estimated fair value is based on the closing market price for these notes.

8% Senior Secured Notes due 2027. Estimated fair value is based on the closing market price for these notes.

67⁄8% Senior Secured Notes due 2028. Estimated fair value is based on the closing market price for these notes.

97⁄8% Junior-Priority Secured Notes due 2023. Estimated fair value is based on the closing market price for these notes.

81⁄8%Junior-Priority Secured Notes due 2024. Estimated fair value is based on the closing market price for these notes.

ABL Facility and other debt.  The carrying amount of the ABL Facility and all other debt approximates fair value due to the nature of these obligations.

Interest rate swaps. The fair value of the interest rate swap agreement is the amount at which it could be settled, based on estimates calculated by the Company using a discounted cash flow analysis based on observable market inputs and validated by comparison to estimates obtained from the counterparty. The Company incorporates credit valuation adjustments (“CVAs”) to appropriately reflect both its own nonperformance or credit risk and the respective counterparty’s nonperformance or credit risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreement for the effect of nonperformance or credit risk, the Company has considered the impact of any netting features included in the agreement.17

At March 31, 2020, the Company had one interest rate swap with a notional amount of approximately $300 million, a fixed interest rate of 2.892%, a termination date of August 30, 2020, and a fair value of approximately $2 million. The counterparty to the interest rate swap agreement exposes the Company to credit risk in the event of nonperformance by such counterparty. However, at March 31, 2020, the Company does not anticipate nonperformance by the counterparty. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company is exposed to certain risks relating to its ongoing business operations. The risk managed by using derivative instruments is interest rate risk. Companies are required to recognize all derivative instruments as either assets or liabilities at fair value in the condensed consolidated statement of financial position. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. Gains and losses on the derivative representing either ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Assuming no change in interest rates in effect as of March 31, 2020, less than $1 million of interest income resulting from the spread between the fixed and floating rates defined in the interest rate swap agreement will be recognized through its termination date of August 30, 2020.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)- continued

 

The following tabular disclosure provides the amount ofpre-tax loss recognized as a component of OCI during the three months ended March 31, 2020 and 2019 (in millions):

   

Amount of Pre-Tax Loss

        Recognized in OCI (Effective  Portion)        

Three Months Ended March 31,

 
 
 

Derivatives in Cash Flow Hedging Relationships

                      2020                                            2019                      

Interest rate swaps

  $(1)                         $(2)                       

The following tabular disclosure provides the location of the effective portion of thepre-tax loss (gain) reclassified from accumulated other comprehensive loss (“AOCL”) into interest expense on the condensed consolidated statements of income (loss) during the three months ended March 31, 2020 and 2019 (in millions):

      

    Amount of Pre-Tax Loss (Gain) Reclassified     

from AOCL into Income (Effective Portion)

Three Months Ended March 31,

 
    

Location of Loss (Gain) Reclassified from

AOCL into Income (Effective Portion)

   
                         2020                                            2019                      

Interest expense, net

    $1                          $(1)                       

The fair values of derivative instruments in the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019 were as follows (in millions):

   Asset Derivatives   Liability Derivatives 
   March 31, 2020   December 31, 2019   March 31, 2020   December 31, 2019 
   Balance      Balance      Balance      Balance    
   Sheet      Sheet      Sheet      Sheet    
    Location   Fair Value    Location   Fair Value    Location   Fair Value    Location   Fair Value 

Derivatives designated as hedging instruments

  Other
assets,
net		  $-   Other
assets,
net		  $-   Other
long-term
liabilities		  $2   Other
long-term
liabilities		  $2 

8.7.  FAIR VALUE

Fair Value Hierarchy

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Company utilizes the U.S. GAAP fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumption about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

The inputs used to measure fair value are classified into the following fair value hierarchy:

Level 1:

Quoted market prices in active markets for identical assets or liabilities.

Level 2:

Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3:

Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Level 3 includes values determined using pricing models, discounted cash flow methodologies, or similar techniques reflecting the Company’s own assumptions.

Level 1:  Quoted market prices in active markets for identical assets or liabilities.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIESLevel 2:  Observable market-based inputs or unobservable inputs that are corroborated by market data.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

Level 3:  Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Level 3 includes values determined using pricing models, discounted cash flow methodologies, or similar techniques reflecting the Company’s own assumptions.

In instances where the determination of the fair value hierarchy measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment of factors specific to the asset or liability. Transfers between levels within the fair value hierarchy are recognized by the Company on the date of the change in circumstances that requires such transfer. There were no0 transfers between levels during the three-month periods ended March 31, 20202021 or March 31, 2019.2020.

The following table sets forth, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as of March 31, 20202021 and December 31, 20192020 (in millions):

 

      March 31, 2020           Level 1             Level 2             Level 3      

 

March 31,

2021

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Investments in equity securities

  $114  $114  $-  $- 

 

$

121

 

 

$

121

 

 

$

—

 

 

$

—

 

Available-for-sale debt securities

   103   -  103   - 

 

 

115

��

 

 

—

 

 

 

115

 

 

 

—

 

Trading securities

   12   -  12   - 

 

 

12

 

 

 

—

 

 

 

12

 

 

 

—

 

  

 

 

 

 

 

 

 

Total assets

  $229  $114  $115  $- 
  

 

 

 

 

 

 

 

Fair value of interest rate swap agreement

  $2  $-  $2  $- 
  

 

 

 

 

 

 

 

Total liabilities

  $2  $-  $2  $- 
  

 

 

 

 

 

 

 

   December 31, 2019   Level 1   Level 2   Level 3 

Investments in equity securities

  $141  $141  $-  $- 

Available-for-sale debt securities

   101   -  101   - 

Trading securities

   12   -  12   - 
  

 

 

 

 

 

 

 

Total assets

  $254  $141  $113  $- 
  

 

 

 

 

 

 

 

Fair value of interest rate swap agreement

  $2  $-  $2  $- 
  

 

 

 

 

 

 

 

Total liabilities

  $2   $-   $2   $-  
  

 

 

 

 

 

 

 

Total

 

$

248

 

 

$

121

 

 

$

127

 

 

$

—

 

 

 

December 31,

2020

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Investments in equity securities

 

$

129

 

 

$

129

 

 

$

—

 

 

$

—

 

Available-for-sale debt securities

 

 

110

 

 

 

—

 

 

 

110

 

 

 

—

 

Trading securities

 

 

12

 

 

 

—

 

 

 

12

 

 

 

—

 

Total

 

$

251

 

 

$

129

 

 

$

122

 

 

$

—

 

Investments in Equity Securities,Available-for-Sale Debt Securities and Trading Securities

Investments in equity securities and trading securities classified as Level 1 are measured using quoted market prices. Level 2available-for-sale debt securities and trading securities primarily consisted of bonds and notes issued by the United States government and its agencies and domestic and foreign corporations. The estimated fair values of these securities are determined using various valuation techniques, including a multi-dimensional relational model that incorporates standard observable inputs and assumptions such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids/offers and other pertinent reference data.

As of March 31, 2020 and December 31, 2019,available-for-sale debt securities with aggregate estimated fair values of approximately $35 million and $51 million, respectively, generated gross unrealized losses of $2 million and $1 million, respectively. Aby-security impairment assessment was performed as of March 31, 2020 wherein it was determined thatCOVID-19 related changes in interest rates and market liquidity resulted in incremental unrealized losses compared to December 31, 2019. No material impairment resulted from credit loss or other factors.18

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)- continued

 

Fair Value of Interest Rate Swap Agreement

The valuation of the Company’s interest rate swap agreement is determined using market valuation techniques, including discounted cash flow analysis on the expected cash flows of each agreement. This analysis reflects the contractual terms of the agreement, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. The fair value of interest rate swap agreement is determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates based on observable market forward interest rate curves and the notional amount being hedged.

The Company incorporates CVAs to appropriately reflect both its own nonperformance or credit risk and the respective counterparty’s nonperformance or credit risk in the fair value measurement. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance or credit risk, the Company has considered the impact of any netting features included in the agreement. The CVA on the Company’s interest rate swap agreement had an immaterial effect on the fair value of the related liability at March 31, 2020 and December 31, 2019.

The majority of the inputs used to value the Company’s interest rate swap agreement, including the forward interest rate curves and market perceptions of the Company’s credit risk used in the CVAs, are observable inputs available to a market participant. As a result, the Company has determined that the interest rate swap valuation is classified in Level 2 of the fair value hierarchy.

9.8.  LEASES

The Company utilizes operating and finance leases for the use of certain hospitals, medical office buildings, and medical equipment. The Company has elected to account forCOVID-19 related concessions as though the enforceable rights and obligations for those concessions are explicit within the underlying contract. During the three months ended March 31, 2020, there were no material price concessions or other incentives received or granted by the Company.

The components of lease cost and rent expense for the three months ended March 31, 20202021 and 20192020 are as follows (in millions):

 

  Three Months Ended 
  March 31, 
  

 

 

 

Three Months Ended

March 31,

 

Lease Cost                2020                               2019               

2021

 

 

2020

 

  

 

   

 

 

Operating lease cost:

    

 

 

 

 

 

 

 

Operating lease cost

    $51      $48  

$

48

 

 

$

51

 

Short-term rent expense

   26     30  

 

25

 

 

 

26

 

Variable lease cost

   5     3  

 

6

 

 

 

5

 

Sublease income

   (1)    (1) 

 

(1

)

 

 

(1

)

  

 

   

 

 

Total operating lease cost

    $81      $80  

$

78

 

 

$

81

 

  

 

   

 

 

Finance lease cost:

    

 

 

 

 

 

 

 

Amortization ofright-of-use assets

    $3      $3  

$

3

 

 

$

3

 

Interest on finance lease liabilities

   2     2  

 

1

 

 

 

2

 

  

 

   

 

 

Total finance lease cost

    $5      $5  

$

4

 

 

$

5

 

  

 

   

 

 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

 

Supplemental balance sheet information related to leases was as follows (in millions):

 

 

Balance Sheet Classification

   March 31, 2020       December 31, 2019 

 

Balance Sheet Classification

 

March 31, 2021

 

 

December 31, 2020

 

Operating Leases:     

 

 

 

 

 

 

 

 

 

 

Operating Lease ROU Assets

  Other assets, net  $634   $607  

 

Other assets, net

 

$

647

 

 

$

642

 

 

 

 

 

 

 

 

 

 

 

Finance Leases:

     

 

 

 

 

 

 

 

 

 

 

Finance Lease ROU Assets

 

  

 Property and equipment   

 

Property and equipment

 

 

 

 

 

 

 

 

  

Land and improvements

  $8   $8  

 

Land and improvements

 

$

8

 

 

$

8

 

  

Buildings and improvements

  168   154  

 

Buildings and improvements

 

 

134

 

 

 

134

 

  

Equipment and fixtures

  11   11  

 

Equipment and fixtures

 

 

9

 

 

 

8

 

    

 

  

 

 

 

Property and equipment

 

 

151

 

 

 

150

 

  Property and equipment  187   173  

 

Less accumulated depreciation and amortization

 

 

(49

)

 

 

(46

)

  

Less accumulated depreciation and amortization

  (58)  (56) 

 

Property and equipment, net

 

$

102

 

 

$

104

 

    

 

  

 

 

 

 

 

 

 

 

 

 

 

 

  

  Property and equipment, net

  $129   $117  
    

 

  

 

 

Current finance lease liabilities

  Current maturities of long-term debt  $6   $6  

 

Current maturities of long-term debt

 

$

5

 

 

$

5

 

Long-term finance lease liabilities

  Long-term debt  122   107  

 

Long-term debt

 

 

73

 

 

 

74

 

Supplemental cash flow information related to leases for the three months ended March 31, 2021 and 2020 and 2019 areis as follows (in millions):

 

              Three Months Ended March 31,             
  

 

 

 

 

Three Months Ended

March 31,

 

Cash flow information        2020               2019       

 

2021

 

 

2020

 

  

 

   

 

 

Cash paid for amounts included in the measurement of lease liabilities:

    

 

 

 

 

 

 

 

 

Operating cash flows from operating leases (1)

  $ 47   $ 35     

 

$

56

 

 

$

47

 

Operating cash flows from finance leases

   2    2     

 

 

1

 

 

 

2

 

Financing cash flows from finance leases

   1    3     

 

 

1

 

 

 

1

 

Right-of-use assets obtained in exchange for new finance lease liabilities

   17    1     

 

 

—

 

 

 

17

 

Right-of-use assets obtained in exchange for new operating lease liabilities

   35    15     

 

 

26

 

 

 

35

 

 

(1)

Included in the change in other operating assets and liabilities in the condensed consolidated statement of cash flows.

10.     EMPLOYEE BENEFIT PLANS19

The Company provides an unfunded Supplemental Executive Retirement Plan (“SERP”) for certain members of its executive management. The Company uses a December 31 measurement date for the benefit obligations and a January 1 measurement date for its net periodic costs for the SERP. Variances from actuarially assumed rates will result in increases or decreases in benefit obligations and net periodic cost in future periods. Benefits expense under the SERP was $2 million for both of the three-month periods ended March 31, 2020 and 2019, respectively. The accrued benefit liability for the SERP totaled $74 million and $72 million at March 31, 2020 and December 31, 2019, respectively, and is included in other long-term liabilities on the condensed consolidated balance sheets. The weighted-average assumptions used in determining net periodic cost for the three months ended March 31, 2020 and March 31, 2019 were a discount rate of 3.1% and 4.2%, respectively, and an annual salary increase of 3.0%. The Company had equity investment securities in a rabbi trust generally designated to pay benefits of the SERP in the amounts of $78 million and $84 million at March 31, 2020 and December 31, 2019, respectively. These amounts are included in other assets, net on the condensed consolidated balance sheets.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)- continued

 

11.

9.  STOCKHOLDERS’ DEFICIT

Authorized capital shares of the Company include 400,000,000 shares of capital stock consisting of 300,000,000 shares of common stock and 100,000,000 shares of preferred stock. Each of the aforementioned classes of capital stock has a par value of $0.01 per share. Shares of preferred stock, noneNaN of which were outstanding as of March 31, 2020,2021, may be issued in one or more series having such rights, preferences and other provisions as determined by the Board of Directors without approval by the holders of common stock.

The Company is a holding company which operates through its subsidiaries. The Company’s ABL Facility and the indentures governing each series of the Company’s outstanding notes contain various covenants under which the assets of the subsidiaries of the Company are subject to certain restrictions relating to, among other matters, dividends and distributions, as referenced in the paragraph below.

The ABL Facility and the indentures governing each series of the Company’s outstanding notes restrict the Company’s subsidiaries from, among other matters, paying dividends and making distributions to the Company, which thereby limits the Company’s ability to pay dividends and/or repurchase stock. As of March 31, 2020,2021, under the most restrictive test in these agreements (and subject to certain exceptions), the Company has approximately $200 million of capacity to pay permitted dividends and/or repurchase shares of stock or make other restricted payments.

The following schedule presents the reconciliation of the carrying amount of total equity, equity attributable to the Company,Company’s stockholders, and equity attributable to noncontrolling interests as of March 31, 2021, and during the three-month period following December 31, 2020 (in millions):

 

 

 

 

 

 

 

Community Health Systems, Inc. Stockholders

 

 

 

 

 

 

 

 

 

 

 

Redeemable

Noncontrolling

Interest

 

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Noncontrolling

Interest

 

 

Total

Stockholders’

Deficit

 

Balance, December 31, 2020

 

$

484

 

 

 

$

1

 

 

$

2,094

 

 

$

(13

)

 

$

(3,707

)

 

$

87

 

 

$

(1,538

)

Comprehensive income (loss)

 

 

21

 

 

 

 

—

 

 

 

—

 

 

 

(3

)

 

 

(64

)

 

 

8

 

 

 

(59

)

Distributions to noncontrolling interests

 

 

(12

)

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(9

)

 

 

(9

)

Disposition of less-than-wholly owned business

 

 

(7

)

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Noncontrolling interest in acquired entity

 

 

2

 

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Adjustment to redemption value of redeemable

   noncontrolling interests

 

 

(7

)

 

 

 

—

 

 

 

7

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

7

 

Cancellation of restricted stock for tax withholdings

   on vested shares

 

 

—

 

 

 

 

—

 

 

 

(4

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4

)

Share-based compensation

 

 

—

 

 

 

 

—

 

 

 

8

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8

 

Balance, March 31, 2021

 

$

481

 

 

 

$

1

 

 

$

2,105

 

 

$

(16

)

 

$

(3,771

)

 

$

86

 

 

$

(1,595

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued

The following schedule presents the reconciliation of the carrying amount of total equity, equity attributable to the Company’s stockholders, and equity attributable to the noncontrolling interests as of March 31, 2020, and during the three-month period following December 31, 2019 (in millions):

 

    Community Health Systems, Inc. Stockholders         
 

 

 

 

 

 

 

Community Health Systems, Inc. Stockholders

 

 

 

 

 

 

 

 

 

  Redeemable
  Noncontrolling  
Interest		    Common  
Stock		     Additional  
Paid-In
Capital		   Accumulated
Other
  Comprehensive  
Loss (Income)		     Accumulated  
Deficit		     Noncontrolling  
Interest		   Total
  Stockholders’  
Deficit		 

 

Redeemable

Noncontrolling

Interest

 

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Noncontrolling

Interest

 

 

Total

Stockholders’

Deficit

 

Balance, December 31, 2019

  $502  $1   $2,008   $(9)   $(4,218)   $77   $(2,141) 

 

$

502

 

 

 

$

1

 

 

$

2,008

 

 

$

(9

)

 

$

(4,218

)

 

$

77

 

 

$

(2,141

)

Comprehensive income

   8   -    -    2    18    8    28 

Comprehensive income (loss)

 

 

8

 

 

 

—

 

 

—

 

 

 

2

 

 

 

18

 

 

 

8

 

 

 

28

 

Distributions to noncontrolling interests

   (22)   -    -    -    -    (8)    (8) 

 

 

(22

)

 

 

—

 

 

—

 

 

—

 

 

—

 

 

 

(8

)

 

 

(8

)

Purchase of subsidiary shares from noncontrolling interests

   (1)   -    (1)    -    -    -    (1) 

 

 

(1

)

 

 

—

 

 

 

(1

)

 

—

 

 

—

 

 

—

 

 

 

(1

)

Other reclassifications of noncontrolling interests

   8   -    -    -    -    (8)    (8) 

 

 

8

 

 

 

—

 

 

—

 

 

—

 

 

—

 

 

 

(8

)

 

 

(8

)

Adjustment to redemption value of redeemable noncontrolling interests

   7   -    (7)    -    -    -    (7) 

 

 

7

 

 

 

—

 

 

 

(7

)

 

—

 

 

—

 

 

—

 

 

 

(7

)

Cancellation of restricted stock for tax withholdings on vested shares

   -   -    (1)    -    -    -    (1) 

 

—

 

 

 

—

 

 

 

(1

)

 

—

 

 

—

 

 

—

 

 

 

(1

)

Share-based compensation

   -   -    2    -    -    -    2 

 

—

 

 

 

—

 

 

 

2

 

 

—

 

 

—

 

 

—

 

 

 

2

 

  

 

  

 

   

 

   

 

   

 

   

 

   

 

 

Balance, March 31, 2020

  $502  $1   $2,001   $(7)   $(4,200)   $69   $(2,136) 

 

$

502

 

 

 

$

1

 

 

$

2,001

 

 

$

(7

)

 

$

(4,200

)

 

$

69

 

 

$

(2,136

)

  

 

  

 

   

 

   

 

   

 

   

 

   

 

 

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

 

The following schedule presents the reconciliation of the carrying amount of total equity, equity attributable to the Company, and equity attributable to the noncontrolling interests as of March 31, 2019, and during the three-month period following December 31, 2018 (in millions):

      Community Health Systems, Inc. Stockholders         
 
   Redeemable
  Noncontrolling  
Interest		    Common  
Stock		     Additional  
Paid-In
Capital		   Accumulated
Other
  Comprehensive  
Loss		     Accumulated  
Deficit		     Noncontrolling  
Interest		   Total
  Stockholders’  
Deficit		 

Balance, December 31, 2018

  $504  $1   $2,017   $(10)   $(3,543)   $72   $(1,463) 

Comprehensive income (loss)

   9   -    -    -    (118)    8    (110) 

Contributions from noncontrolling interests

   1   -    -    -    -    -    - 

Distributions to noncontrolling interests

   (19)   -    -    -    -    (8)    (8) 

Purchase of subsidiary shares from noncontrolling interests

   (1)   -    -    -    -    -    - 

Other reclassifications of noncontrolling interests

   (1)   -    -    -    -    1   1 

Adjustment to redemption value of redeemable noncontrolling interests

   12  -    (12)    -    -    -    (12) 

Cancellation of restricted stock for tax withholdings on vested shares

   -   -    (1)    -    -    -    (1) 

Share-based compensation

   -   -    3    -    -    -    3 
  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2019

  $505  $1   $2,007   $(10)   $(3,661)   $73   $(1,590) 
  

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following schedule discloses the effects of changes in the Company’s ownership interest in its less-than-wholly-owned subsidiaries on Community Health Systems, Inc. stockholders’ deficit (in millions):

 

       Three Months Ended     
   March 31, 
               2020                           2019             

Net income (loss) attributable to Community Health Systems, Inc. stockholders

  $18    $(118) 

Transfers to the noncontrolling interests:

    

Net decrease in Community Health Systems, Inc.paid-in-capital for purchase of subsidiary partnership interests

   (1)    -  
  

 

 

   

 

 

 

Net transfers to the noncontrolling interests

   (1)    -  
  

 

 

   

 

 

 

Change to Community Health Systems, Inc. stockholders’ deficit from net income (loss) attributable to Community Health Systems, Inc. stockholders and transfers to noncontrolling interests

  $17    $(118) 
  

 

 

   

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net (loss) income attributable to Community Health Systems,

   Inc. stockholders

 

$

(64

)

 

$

18

 

Transfers to noncontrolling interests:

 

 

 

 

 

 

 

 

Net increase in Community Health Systems,

   Inc. paid-in-capital for purchase of

   subsidiary partnership interests

 

 

—

 

 

 

(1

)

Net transfers to noncontrolling interests

 

 

—

 

 

 

(1

)

Change to Community Health Systems, Inc. stockholders'

   deficit from net (loss) income attributable to

   Community Health Systems, Inc. stockholders and

   transfers to noncontrolling interests

 

$

(64

)

 

$

17

 

 

 

 

 

 

 

 

 

 

21

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)- continued

 

12.

10.  EARNINGS PER SHARE

The following table sets forth the components of the denominator for the computation of basic and diluted earnings per share for net (loss) income (loss) attributable to Community Health Systems, Inc. common stockholders:

 

      Three Months Ended    
        March 31,      
  

 

 

 

 

Three Months Ended

 

                2020                              2019              

 

March 31,

 

  

 

  

 

 

2021

 

 

2020

 

Weighted-average number of shares outstanding — basic

   114,301,519    113,257,608 

 

 

125,753,278

 

 

 

114,301,519

 

Effect of dilutive securities:

    

 

 

 

 

 

 

 

 

Restricted stock awards

   77,336    - 

 

 

—

 

 

 

77,336

 

Employee stock options

   476    - 

 

 

—

 

 

 

476

 

Other equity-based awards

   -    - 

 

 

—

 

 

—

 

  

 

  

 

Weighted-average number of shares outstanding — diluted

   114,379,331    113,257,608 

 

 

125,753,278

 

 

 

114,379,331

 

  

 

  

 

The Company generated a loss attributable to Community Health Systems, Inc. common stockholders for the three months ended March 31, 2019,2021, so the effect of dilutive securities is not considered because their effect would be antidilutive. If the Company had generated income during the three months ended March 31, 2019,2021, the effect of restricted stock awards, employee stock options, and other equity-based awards on the diluted shares calculation would have been an increase in shares of 59,261.2,267,756 shares.

 

      Three Months Ended    
        March 31,      
  

 

 

 

 

Three Months Ended

 

                2020                              2019              

 

March 31,

 

  

 

  

 

 

2021

 

 

2020

 

Dilutive securities outstanding not included in the computation of earnings per share because their effect is antidilutive:

    

 

 

 

 

 

 

 

 

Employee stock options and restricted stock awards

   4,851,171    3,273,866 

 

 

858,586

 

 

 

4,851,171

 

  

 

  

 

13.

11.  CONTINGENCIES

The Company is a party to various legal, regulatory and governmental proceedings incidental to its business. Based on current knowledge, management does not believe that loss contingencies arising from pending legal, regulatory and governmental matters including the matters described herein, will have a material adverse effect on the condensed consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending legal, regulatory and governmental matters, some of which are beyond the Company’s control, and the very large or indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular reporting period.

With respect to all legal, regulatory and governmental proceedings, the Company considers the likelihood of a negative outcome. If the Company determines the likelihood of a negative outcome with respect to any such matter is probable and the amount of the loss can be reasonably estimated, the Company records an accrual for the estimated loss for the expected outcome of the matter. If the likelihood of a negative outcome with respect to material matters is reasonably possible and the Company is able to determine an estimate of the possible loss or a range of loss, whether in excess of a related accrued liability or where there is no accrued liability, the Company discloses the estimate of the possible loss or range of loss. However, the Company is unable to estimate a possible loss or range of loss in some instances based on the significant uncertainties involved in, and/or the preliminary nature of, certain legal, regulatory and governmental matters.

22

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)- continued

 

In connection with thespin-off of Quorum Health Corporation (“QHC”), the Company agreed to indemnify QHC for certain liabilities relating to outcomes or events occurring prior to April 29, 2016, the closing date of thespin-off, including (i) certain claims and proceedings that were known to be outstanding at or prior to the consummation of thespin-off and involved multiple facilities and (ii) certain claims, proceedings and investigations by governmental authorities or private plaintiffs related to activities occurring at or related to QHC’s healthcare facilities prior to the closing date of thespin-off, but only to the extent, in the case of clause (ii), that such claims are covered by insurance policies maintained by the Company, including professional liability and employer practices. Notwithstanding the foregoing, the Company is not required to indemnify QHC in respect of any claims or proceedings arising out of or related to the business operations of Quorum Health Resources, LLC at any time or QHC’s compliance with the corporate integrity agreement. Subsequent to thespin-off of QHC, the Office of the Inspector General provided the Company with written assurance that it would look solely at QHC for compliance for its facilities under the Company’s Corporate Integrity Agreement; however, the Office of the Inspector General declined to enter into a separate corporate integrity agreement with QHC.

Probable Contingencies

Becker v. Community Health Systems, Inc. d/b/a Community Health Systems Professional Services Corporation d/b/a Community Health Systems d/b/a Community Health Systems PSC, Inc. d/b/a Rockwood Clinic P.S. and Rockwood Clinic, P.S. (Superior Court, Spokane, Washington). This suit was filed on February 29, 2012, by a former chief financial officer at Rockwood Clinic in Spokane, Washington. Becker claims he was wrongfully terminated for allegedly refusing to certify a budget for Rockwood Clinic in 2012. On February 29, 2012, he also filed an administrative complaint with the Department of Labor, Occupational Safety and Health Administration alleging that he is a whistleblower under Sarbanes-Oxley, which was dismissed by the agency and was appealed to an administrative law judge for a hearing that occurred on January19-26, 2016. In a decision dated November 9, 2016, the law judge awarded Becker approximately $1.9 million for front pay, back pay and emotional damages with attorney fees to be later determined. The Company has appealed the award to the Administrative Review Board and is awaiting its decision. At a hearing on July 27, 2012, the trial court dismissed Community Health Systems, Inc. from the state case and subsequently certified the state case for an interlocutory appeal of the denial to dismiss his employer and the management company. The appellate court accepted the interlocutory appeal, and it was argued on April 30, 2014. On August 14, 2014, the court denied the Company’s appeal. On October 20, 2014, the Company filed a petition to review the denial with the Washington Supreme Court. The appeal was accepted and oral argument was heard on June 9, 2015. On September 15, 2015, the court denied the Company’s appeal and remanded to the trial court; a previous trial setting of September 12, 2016 has been vacated and not reset. On October 15, 2019, the Administrative Review Board released an order to show cause requiring Becker to file a brief to show cause why the Administrative Review Board should not remand the previous administrative decision for a new hearing before a new law judge. The parties have settled this case for an immaterial amount and both the administrative action and the Superior Court case have been dismissed.

2011 Class Action Shareholder Federal Securities Cases. Three purported class action cases have been filed in the United States District Court for the Middle District of Tennessee; namely, Norfolk County Retirement System v. Community Health Systems, Inc., et al., filed May 9, 2011; De Zheng v. Community Health Systems, Inc., et al., filed May 12, 2011; and Minneapolis Firefighters Relief Association v. Community Health Systems, Inc., et al., filed June 21, 2011. All three seek class certification on behalf of purchasers of the Company’s common stock between July 27, 2006 and April 11, 2011 and allege that misleading statements resulted in artificially inflated prices for the Company’s common stock. In December 2011, the cases were consolidated for pretrial purposes and NYC Funds and its counsel were selected as lead plaintiffs/lead plaintiffs’ counsel. In lieu of ruling on the Company’s motion to dismiss, the court permitted the plaintiffs to file a first amended consolidated class action complaint, which was filed on October 5, 2015. The Company’s motion to dismiss was filed on November 4, 2015 and oral argument was held on April 11, 2016. The Company’s motion to dismiss was granted on June 16, 2016 and on June 27, 2016, the plaintiffs filed a notice of appeal to the Sixth Circuit Court of Appeals. The matter was heard on May 3, 2017. On December 13, 2017, the Sixth Circuit reversed the trial court’s dismissal of the case and remanded it to the District Court. The Company filed a renewed partial motion to dismiss on February 9, 2018, which was denied by the District Court on September 24, 2018. The Company also filed a petition for a writ of certiorari to the United States Supreme Court on April 18, 2018 seeking review of the Sixth Circuit’s decision. The United States Supreme Court denied the petition for a writ of certiorari on October 1, 2018. The District Court granted the Plaintiff’s motion for class certification on July 26, 2019. The Company filed a petition for permission to appeal the District Court’s class certification order in the Sixth Circuit Court of Appeals on August 9, 2019, and that petition was denied on October 23, 2019. Trial for this matter is set for December 1, 2020. On January 21, 2020, the Company and the Plaintiff filed a stipulation of settlement indicating to the District Court that the parties had reached agreement on the principal terms of a settlement for $53 million. The settlement received preliminary approval from the District Court on January 30, 2020. Objections to the settlement are due May 18, 2020, and the hearing for final approval of the settlement is set for June 19, 2020. The Company’s $53 million reserve for this matter, which was recorded during the three months ended December 31, 2019, remains as of March 31, 2020, pending final approval of the settlement. The proposed

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)

settlement amount has been funded by the Company and is held in escrow as of March 31, 2020. Such amount is recorded in other current assets in the condensed consolidated balance sheet.

The table below presents a reconciliation of the beginning and ending liability balances (in millions) during the three months ended March 31, 2020,2021, with respect to the Company’s determination of the contingencies of the Company in respect of which an accrual has been recorded. The liability as of March 31, 2021 is comprised of individually insignificant amounts for various matters.

Summary of Recorded Amounts

 

 

 

Probable

 

 

 

Contingencies

 

Balance as of December 31, 2020

 

$

11

 

Expense

 

 

—

 

Reserve for insured claim

 

 

—

 

Cash payments

 

 

(1

)

Balance as of March 31, 2021

 

$

10

 

 

Probable
            Contingencies            

Balance as of December 31, 2019

  $ 68 

Expense

- 

Reserve for insured claim

7 

Cash payments

(7)

Balance as of March 31, 2020

  $                    68 

In accordance with applicable accounting guidance, the Company establishes a liability for litigation, regulatory and governmental matters for which, based on information currently available, the Company believes that a negative outcome is known or is probable and the amount of the loss is reasonably estimable. For all such matters (whether or not discussed in this contingencies footnote), such amounts have been recorded in other accrued liabilities on the condensed consolidated balance sheet and are included in the table above. Due to the uncertainties and difficulty in predicting the ultimate resolution of these contingencies, the actual amount could differ from the estimated amount reflected as a liability on the condensed consolidated balance sheet.

In the aggregate, attorneys’ fees and other costs incurred but not included in the table above related to probable contingencies and Contingent Value Right-related contingencies accounted for at fair value totaled $2 million and less than $1 million and approximately $2 million for the three monthmonths ended March 31, 20202021 and 2019,2020, respectively, and are included in other operating expenses in the accompanying condensed consolidated statements of income (loss). income.

Matters for which an Outcome Cannot be Assessed

For the following legal matter, due to the uncertainties surrounding the ultimate outcome of the case, the Company cannot at this time assess what the outcome may be and is further unable to reasonably estimate any loss or range of loss.12.  SUBSEQUENT EVENTS

Steadfast Insurance Company, et al v. Community Health Systems, Inc., CHS/Community Health Systems, Inc., CHSPSC, LLC and Pecos Valley of New Mexico, LLC; Community Health Systems, Inc., et al v. Steadfast Insurance Company, et al.These cases are filed in the Superior Court for the State of Delaware and the Chancery Court for the State of Delaware, respectively, and involve insurance coverage disputes related to a $73 million judgment rendered against Pecos Valley of New Mexico, LLC inAnne Sperling, et al v. Pecos Valley of New Mexico, LLC. The first case was brought by Steadfast Insurance Company in Delaware Superior Court seeking a declaration that theSperlingjudgment is not a covered loss as defined by the insurance policies that are the subject of the case. The second case, filed by the Company in Delaware Chancery Court, seeks reformation of the subject policies. TheSteadfast complaint was served on November 30, 2018. On December 13, 2018, Admiral Insurance Company, Endurance Specialty Insurance Ltd, and Illinois Union Insurance Company moved to intervene in the suit as petitioners.

The Company has initiated counterclaims against each insurer in that case, including for bad faith against Steadfast. The Company filed theCommunity Health Systems complaint on January 22, 2020. TheSperlingjudgment against Pecos Valley of New Mexico, LLC, which is the subject of this litigation and which was rendered on September 5, 2018, in First Judicial Court of the State of New Mexico, is currently on appealevaluated all material events occurring subsequent to the Court of Appeals of New Mexico. Trial of theSteadfast matter is setbalance sheet date for December 7, 2020. The Company believes the insurers’ claimsevents requiring disclosure or recognition in theSteadfast litigation are without merit and will vigorously defend the case.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued) condensed consolidated financial statements.

 

14.     SUBSEQUENT EVENTS

On April 20, 2020,1, 2021, one or more affiliates of the Company entered into a definitive agreement for the sale ofsold substantially all of the assets of San Angelo Community Medical Center (171AllianceHealth Midwest (255 licensed beds) in San Angelo, TexasMidwest City, Oklahoma, to affiliates of ShannonSSM Health System.

On April 27, 2020, one or more affiliatesCare of the Company entered intoOklahoma. The net proceeds from this sale were received at a definitive agreement for the sale of substantially all of the assets of each of Abilene Regional Medical Center (231 licensed beds) in Abilene, Texas and Brownwood Regional Medical Center (188 licensed beds) in Brownwood, Texas to subsidiaries of Hendrick Health System.

On April 27, 2020, one or more affiliates of the Company entered into a definitive agreement for the sale of the majority ownership interest in St. Cloud Regional Medical Center (84 licensed beds) in St. Cloud, Florida to affiliates of Orlando Health, Inc., who already hold the minority ownership interest.

The CARES Act, which was enactedpreliminary closing on March 27, 2020, authorizes $100 billion in funding to hospitals and other healthcare providers to be distributed through the Public Health and Social Services Emergency Fund (the “PHSSEF”). Payments from the PHSSEF are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to theCOVID-19 pandemic and are not required to be repaid provided the recipients attest to and comply with certain terms and conditions, including limitations on balance billing and not using PHSSEF funds to reimburse expenses or losses that other sources are obligated to reimburse. The U.S. Department of Health and Human Services (the “HHS”) initially distributed $30 billion of this funding based on each provider’s share of total Medicarefee-for-service reimbursement in 2019, but has announced that $50 billion in CARES Act funding (including the $30 billion already distributed) will be allocated proportional to providers’ share of 2018 net patient revenue. HHS has indicated that distributions of the remaining $50 billion will be targeted primarily to hospitals inCOVID-19 high impact areas, to rural providers, and to reimburse providers forCOVID-19-related treatment of uninsured patients. In April 2020, the Company received approximately $245 million in payments from the initial PHSSEF payments, which did not qualify for recognition during the three months ended March 31, 2020.

An additional $75 billion in emergency appropriations forCOVID-19 response will be available to eligible providers under the Paycheck Protection Program and Health Care Enhancement Act (“PPPHCE Act”), which was enacted on April 24, 2020. These funds will also be distributed through the PHSSEF. Recipients will not be required to repay the amounts received, provided they comply with terms and conditions, which have not yet been finalized.

As a way to increase cash flow to Medicare providers impacted by theCOVID-19 pandemic, the CARES Act expanded the Medicare Accelerated and Advance Payment Program. Inpatient acute care hospitals may request accelerated payments of up to 100% of the Medicare payment amount for asix-month period (not including Medicare Advantage payments), although CMS is now reevaluating pending and new applications in light of direct payments made available through PHSSEF. CMS will base payment amounts for inpatient acute care hospitals on the provider’s Medicarefee-for-service reimbursements in the last six months of 2019. Such accelerated payments are interest free for inpatient acute care hospitals for 12 months, and the program currently requires CMS to recoup the payments beginning 120 days after receipt by the provider, by withholding future Medicarefee-for-service payments for claims until the full accelerated payment has been recouped. The program currently requires any outstanding balance remaining after 12 months to be repaid by the provider or be subject to an interest rate currently set at 10.25%. In April 2020, the Company received approximately $1.2 billion of accelerated payments, which did not qualify for recognition during the three months ended March 31, 2020.

Lastly, the CARES Act provides for deferred payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. The Company began deferring the employer portion of social security taxes inmid-April 2020.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) – (Continued)2021.

 

15.     SUMMARIZED FINANCIAL INFORMATION

The 67⁄8% Senior Notes due 2022, which are senior unsecured obligations of CHS, and the 61⁄4% Senior Secured Notes due 2023, which are senior secured obligations of CHS (collectively, “the Notes”) are guaranteed on a senior basis by the Company and by certain of its existing and subsequently acquired or organized 100% owned domestic subsidiaries (collectively, the “subsidiary guarantors”). In addition, equity interests held by the Company innon-guarantor subsidiaries have been pledged as collateral under the Notes, except for equity interests held in three hospitals owned jointly with anon-profit, health organization. The Notes are fully and unconditionally guaranteed on a joint and several basis, with exceptions considered customary for such guarantees, limited to the release of the guarantee when a subsidiary guarantor’s capital stock is sold, or a sale of all of the subsidiary guarantor’s assets used in operations. There are no significant restrictions on the ability of the subsidiary guarantors to make distributions to the issuer. Summarized financial information is provided for Community Health Systems, Inc. (parent guarantor), CHS (issuer) and the subsidiary guarantors on a combined basis in accordance with SEC RegulationS-X Rules3-10 and13-01.

The accounting policies used in the preparation of this summarized financial information are consistent with those elsewhere in the condensed consolidated financial statements of the Company, except that intercompany transactions and balances of the parent, issuer and subsidiary guarantor entities withnon-guarantors entities have not been eliminated. Equity in earnings from investments innon-guarantors entities has not been presented.

From time to time, subsidiaries of the Company sell and/or repurchase noncontrolling interests in consolidated subsidiaries, which may change subsidiaries between guarantors andnon-guarantors. Amounts for prior periods have been revised to reflect the status of guarantors andnon-guarantors as of March 31, 2020.

Summarized statements of income (loss) (in millions):

 

Three Months Ended
      March 31, 2020      

Net operating revenues

$                                1,996

Income from operations

249

Net income

86

Net income attributable to Community Health Systems, Inc. Stockholders

86

Summarized balance sheets (in millions):

 

         March 31, 2020                December 31, 2019      

Current assets

  $                                2,469    $                                  2,464 

Noncurrent assets (a)

   14,450     14,596 

Current liabilities

   1,413     1,472 

Noncurrent liabilities (b)

   17,330      15,800  

 

(a)

Includes amounts due fromnon-guarantor subsidiaries of $6.5 billion at both March 31, 2020 and December 31, 2019.

(b)

Includes amounts due tonon-guarantor subsidiaries of $3.0 billion and $1.4 billion as of March 31, 2020 and December 31, 2019, respectively.

Item 2.Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

You should read this discussion together with our condensed consolidated financial statements and the accompanying notes included herein.

Throughout this Quarterly Report on Form10-Q, we refer to Community Health Systems, Inc., or the Parent Company, and its consolidated subsidiaries in a simplified manner and on a collective basis, using words like “we,” “our,” “us” and the “Company”. This drafting style is suggested by the Securities and Exchange Commission, or SEC, and is not meant to indicate that the publicly traded Parent Company or any particular subsidiary of the Parent Company owns or operates any asset, business or property. The hospitals, operations and businesses described in this filing are owned and operated by distinct and indirect subsidiaries of Community Health Systems, Inc.

Executive Overview

We are one of the largest publicly traded hospital companies in the United States and a leading operator of general acute care hospitals and outpatient facilities in communities across the country. We provide healthcare services through the hospitals that we own and operate and affiliated businesses innon-urban and selected urban markets throughout the United States. We generate revenues by providing a broad range of general and specialized hospital healthcare services and outpatient services to patients in the communities in which we are located. As of March 31, 2020,2021, we owned or leased 9985 hospitals, comprised of 9783 general acute care hospitals and two stand-alone rehabilitation or psychiatric hospitals. For the hospitals that we own and operate, weWe are paid for our services by governmental agencies, private insurers and directly by the patients we serve.

We have been implementingpreviously implemented a portfolio rationalization and deleveraging strategy by divestinginvolving the divestiture of hospitals andnon-hospital businesses that are attractivewhich concluded on December 31, 2020 (inclusive of definitive agreements with respect to strategicthe sale of five hospitals entered into in 2020 which have closed in 2021). However, we continue to receive interest from potential acquirers for certain of our hospitals, and other buyers. As discussed further below,may, from time to time, consider selling additional hospitals if we currently expectconsider any such disposition to completebe in our formal portfolio rationalization strategy by the end of the third quarter of 2020.best interests.

COVID-19 Pandemic

A novel strain of coronavirus causing the disease known asCOVID-19 was first identified in Wuhan, China in December 2019. The disease2019, and has spread throughout the world, including across the United States,States. The Secretary of the U.S. Department of Health and Human Services, or HHS, has renewed the World Health Organizationagency’s declaration of a national public health emergency, which was originally declared theCOVID-19 outbreak a pandemic in March 2020.January 2020, due to the continued consequences of the COVID-19 pandemic. In an attempt to contain the spread and impact ofCOVID-19, authorities throughout the United States and the world have implemented measurescontinued to recommend and mandate precautions such as travel bans and restrictions, quarantines,stay-at-home andshelter-in-place orders, the promotion of social distancing, and limitations on business activity. This pandemic has resulted in a significant economic downturnAs vaccines have become more available, the number of COVID-19 cases have declined in the United States in recent months, certain precautions and globallyrestrictive measures have been lessened or ended, and has also led to significant disruptionseconomic conditions have improved.

As a provider of healthcare services, we are significantly affected by the public health and volatility in capital and financial markets.

economic effects of the COVID-19 pandemic. The safety of our patients, physicians, nurses, and employees in the communities in which we serve remains our primary focus. Our hospitals, medical clinics, medical personnel, and employeesWe have been actively preparing for and responding toCOVID-19 patients and are continuing to operate and to work as essential businesses and essential employees through state and localstay-at-home orders. We are working with federal, state and local health authorities to respond to the COVID-19 cases pandemic in the communities we serve and arehave been taking or supporting measures to try to limit the spread of the virus and to mitigate the burden on the healthcare system. Certain of the measures that we have been taking (such assystem, including, at times, rescheduling or cancelling elective procedures at our hospitals and other healthcare facilities) will adversely affect our financial results.facilities. In addition, some states have been requiring hospitals to maintain a reserve of personal protective equipment and mandating COVID-19 screening for new patients and certain hospital staff.

As a provider of healthcare services, we are significantly exposed to the healthOur hospitals, medical clinics, medical personnel, and economic effects ofCOVID-19. Beginning in March 2020,employees have been actively caring for COVID-19 patients. Although we have experienced a substantial reductionbeen implementing considerable safety measures, treatment of COVID-19 patients has associated risks, which may include the manner in the number of elective surgeries, physician office visitswhich medical personnel perceive and emergency room volumes at our hospitals and other healthcare facilities duerespond to restrictive measures, including quarantines andstay-at-home andshelter-in-place orders, as well as general concerns related to the risk of contractingCOVID-19 from interacting with the healthcare system. We believe that certain of these patient volume declines reflect a deferral of healthcare services utilization to a later period, rather than a permanent reduction in demand for our services. Given the general necessity of the healthcare services we provide, we anticipate that in the future historically normal service levels may resume and that the deferral of services during the pandemic may create a backlog of demand; however, there is no assurance that either will occur.such risks. While our hospitals have not generally experienced major capacity constraints to date arising from the treatment ofCOVID-19 patients, there are hospitals in the United States that are located in centers of theCOVID-19 outbreak and have been overwhelmed in caring forCOVID-19 patients, which has prevented such hospitals from treating all patients who seek care. OurOne or more of our hospitals could be subject to such conditions in the future if a majorCOVID-19 outbreak occurs in a geographic region where any of our hospitals are located.


We may experience supply chain disruptions, including delays and price increases in equipment, pharmaceuticals and medical supplies. Staffing, equipment, and pharmaceutical and medical supplies shortages may impact our ability to admit and treat patients. We have incurred, and may continue to incur, certain increased expenses arising from theCOVID-19 pandemic, including additional labor, supply chain, capital and other expenditures.

Broad economic factors resulting from the currentCOVID-19 pandemic, including high unemployment and underemployment levels and reduced consumer spending and confidence, could alsohave affected, and may continue to affect, our service mix, revenue mix, payor mix andand/or patient volumes, as well as our ability to collect outstanding receivables. Business closures and layoffs in the geographic areas in which we operate may leadhave led to increases in the uninsured and underinsured populations, andwhich may continue to adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered. Any increase in the amount orWe have observed deterioration in the collectability of patient accounts receivable willfrom uninsured patients compared to pre-pandemic levels which, if sustained, may continue to adversely affect our financial results and require an increased level of working capital.

WeDevelopments related to COVID-19 materially affected our results of operations during 2020, and have continued to affect the Company’s results of operations during the three months ended March 31, 2021. During the three months ended March 31, 2021, COVID-19 contributed to a decrease in patient volumes which resulted in a decrease in same-store admissions and same-store adjusted admissions compared to the prior year period, but also impacted the mix of services provided and payor mix in a manner that positively impacted our same-store operating results compared to the prior year period.

While we are not able to fully quantify the impact that theCOVID-19 pandemic will have on our future financial results, during 2020, butwe expect developments related toCOVID-19 to materiallycontinue to affect our financial performance in 2020.performance. Moreover, theCOVID-19 pandemic may otherwise have material adverse effects on our results of operations, financial position, and/or our cash flows,particularly if negative economic and/or public health conditions in the United States deteriorate or negative conditions persist for a significant period of time. The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic as well as negative economic conditions arising from the pandemic, the volume of canceled or rescheduled procedures at our facilities, the volume ofCOVID-19 patients cared for across our health systems, the timing and availability of effective medical treatments and vaccines, the timing and effectiveness of the ongoing rollout of currently available vaccines, the spread of potentially more contagious and/or virulent forms of the virus and the impact of government actions and administrative regulationsregulation on the hospital industry and broader economy, including through existing and any future stimulus efforts. Furthermore, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. As discussed below under “Legislative Overview”, we have received, and may continue to receive, payments and advances made available under the Coronavirus Aid, Relief, and Economic Security Act,act, or the CARES Act, and the Paycheck Protection Program and Health Care Enhancement Act, or the PPPHCE Act, the Consolidated Appropriations Act, 2021, or the CAA, and other stimulus laws, which will behave been beneficial in addressingpartially mitigating the impact of theCOVID-19 pandemic on our results of operationsoperation and financial position.position to date. The recently enacted American Rescue Plan Act of 2021, or ARPA, is another relief package with a number provisions that affect healthcare providers. The federal government may consider additional stimulus and relief efforts but we are unable to predict whether any additional stimulus measures will be enacted or their impact, if any. We are unable to assess the extent to which anticipated ongoing negative impacts on us arising from theCOVID-19 pandemic will ultimately be offset by amounts received, and benefits which we may in the future receive, under the CARES Act, the PPPHCE Act, the CAA, the ARPA or other legislation.any future stimulus measures.

Completed Divestiture and Acquisition Activity

During the three months ended March 31, 2021, we completed the divestiture of four hospitals, including three which closed effective January 1, 2021 (for these hospitals we received net proceeds at a preliminary closing on December 31, 2020). In addition, the divestiture of one hospital was completed on February 1, 2021 for which we received immaterial net proceeds. These four hospitals represented annual net operating revenues in 2020 of approximately $179 million and, including the net proceeds for the three hospital divestitures that preliminarily closed on December 31, 2020, we received total net proceeds of approximately $23 million in connection with the disposition of these hospitals. In addition, we completed the divestiture of one additional hospital on April 1, 2021 for which we received net proceeds of approximately $5 million at a preliminary closing held on March 31, 2021.

During 2020, we completed the divestiture of 13 hospitals, including three hospitals, which closed effective January 1, 2020 (for these hospitals we received the net proceeds at a preliminary closing on December 31, 2019)., but not including the divestiture of three hospitals noted in the prior paragraph which closed on January 1, 2021. These three13 hospitals represented annual net operating revenues in 2019 of approximately $306 million$1.2 billion and, including the net proceeds for the divestiture of three hospitals that preliminarily closed on December 31, 2019, we received total net proceeds of approximately $240$845 million in connection with the disposition of these hospitals.


During 2019, we completed the divestiture of 12 hospitals, including two which closed effective January 1, 2019 (for these hospitals, we received the net proceeds at a preliminary closing on December 31, 2018). These 12 hospitals represented annual net operating revenues in 2018 of approximately $1.1 billion and, excluding the net proceeds for the two hospitals that preliminarily closed on December 31, 2018, we received total net proceeds of approximately $335 million in connection with the disposition of these hospitals.

The following table provides a summary of hospitals that we divested during the three months ended March 31, 20202021 and the year ended December 31, 2019:2020:

 

Hospital

Buyer

City, State

Licensed

Beds

Licensed
Beds

Effective Date

20202021 Divestitures:

Lea Regional Medical Center

Covenant Health System

Hobbs, NM

68

January 1, 2021

Tennova Healthcare - Tullahoma

Vanderbilt University Medical Center

Tullahoma, TN

135

January 1, 2021

Tennova Healthcare - Shelbyville

Vanderbilt University Medical Center

Shelbyville, TN

60

January 1, 2021

Northwest Mississippi Medical Center

Delta Health System

Clarksdale, MS

181

February 1, 2021

2020 Divestitures:

Berwick Hospital Center

Fayette Holdings, Inc.

Berwick, PA

90

December 1, 2020

Brownwood Regional Medical Center

Hendrick Health System

Brownwood, TX

188

October 27, 2020

Abilene Regional Medical Center

Hendrick Health System

Abilene, TX

231

October 27, 2020

San Angelo Community Medical Center

Shannon Health System

San Angelo, TX

171

October 24, 2020

Bayfront Health St. Petersburg

Orlando Health, Inc.

St. Petersburg, FL

480

October 1, 2020

Hill Regional Hospital

AHRK Holdings, LLC

Hillsboro, TX

25

August 1, 2020

St. Cloud Regional Medical Center

Orlando Health, Inc.

St. Cloud, FL

84

July 1, 2020

Northern Louisiana Medical Center

Allegiance Health Management, Inc.

Ruston, LA

130

July 1, 2020

Shands Live Oak Regional Medical Center

HCA Healthcare, Inc., or HCA,

Live Oak, FL

25

May 1, 2020

Shands Starke Regional Medical Center

HCA

Starke, FL

49

May 1, 2020

Southside Regional Medical Center

Bon Secours Mercy Health System

Petersburg, VA

300

300

January 1, 2020

Southampton Memorial Hospital

Bon Secours Mercy Health System

Franklin, VA

105

105

January 1, 2020

Southern Virginia Regional Medical Center

Bon Secours Mercy Health System

Emporia, VA

80

80

January 1, 2020

2019 Divestitures:

Bluefield Regional Medical Center

Princeton Community Hospital AssociationBluefield, WV92October 1, 2019

Lake Wales Medical Center

Adventist Health SystemLake Wales, FL160September 1, 2019

Heart of Florida Regional Medical Center

Adventist Health SystemDavenport, FL193September 1, 2019

College Station Medical Center

St. Joseph Regional Health CenterCollege Station, TX167August 1, 2019

Tennova Healthcare - Lebanon

Vanderbilt University Medical CenterLebanon, TN245August 1, 2019

Chester Regional Medical Center

Medical University Hospital AuthorityChester, SC82March 1, 2019

Carolinas Hospital System - Florence

Medical University Hospital AuthorityFlorence, SC396March 1, 2019

Springs Memorial Hospital

Medical University Hospital AuthorityLancaster, SC225March 1, 2019

Carolinas Hospital System - Marion

Medical University Hospital AuthorityMullins, SC124March 1, 2019

Memorial Hospital of Salem County

Community Healthcare Associates, LLCSalem, NJ126January 31, 2019

Mary Black Health System - Spartanburg

Spartanburg Regional Healthcare SystemSpartanburg, SC207January 1, 2019

Mary Black Health System - Gaffney

Spartanburg Regional Healthcare SystemGaffney, SC125January 1, 2019

In addition to the divestiture of the hospitals in 2019 and 2020 noted above,

On April 1, 2021, we have entered into several definitive agreements to sell a total of seven hospitals, for which we expect to receive aggregate proceeds of approximately $400 million.

On January 30, 2020, we entered into definitive agreements for the sale ofsold substantially all of the assets of each of Shands Live Oak Regional Medical Center (25AllianceHealth Midwest (255 licensed beds) in Live Oak, Florida and Shands Starke Regional Medical Center (49 licensed beds) in Starke, FloridaMidwest City, Oklahoma, to affiliates of HCA Healthcare, Inc., or HCA.

OnSSM Health Care of Oklahoma. The proceeds from this sale were received at a preliminary closing on March 18,31, 2021.

While the Company’s formal portfolio rationalization program concluded as of December 31, 2020 we(inclusive of definitive agreements entered into a definitive agreementin 2020 for the sale of substantially all of the assets of Northern Louisiana Medical Center (130 licensed beds)five hospitals which have been completed in Ruston, Louisiana to affiliates of Allegiance Health Management, Inc.

On April 20, 2020,2021), we entered into a definitive agreement for the sale of substantially all of the assets of San Angelo Community Medical Center (171 licensed beds) in San Angelo, Texas to affiliates of Shannon Health System.

On April 27, 2020, we entered into a definitive agreement for the sale of substantially all of the assets of each of Abilene Regional Medical Center (231 licensed beds) in Abilene, Texas and Brownwood Regional Medical Center (188 licensed beds) in Brownwood, Texas to subsidiaries of Hendrick Health System.

On April 27, 2020, we entered into a definitive agreement for the sale of the majority ownership interest in St. Cloud Regional Medical Center (84 licensed beds) in St. Cloud, Florida to affiliates of Orlando Health, Inc., who already hold the minority ownership interest.

These divestitures, which are expected to be completed at various times during the second and third quarters of 2020, will mark the end of our formal portfolio rationalization strategy, which commenced in 2017. There can be no assurance that these potential divestitures subject to definitive agreements will be completed, or if they are completed, the ultimate timing of the completion of these divestitures. We continue to receive interest from potential acquirers for certain of our hospitals, and may, from time to time, consider selling additional hospitals following the completion of our formal portfolio rationalization strategy, if we consider any such disposition to be in our best interests.

We expect to use proceeds from any such divestitures to be used for general corporate purposes.purposes and capital expenditures.

During the three months ended March 31, 2020,2021, we paid less than $1approximately $4 million to acquire the operating assets and related businesses of certain physician practices, clinics and other ancillary businesses that operate within the communities served by our hospitals.We allocated the purchase price to property and equipment, working capital, noncontrolling interests and goodwill.

Overview of Operating Results

Our net operating revenues for the three months ended March 31, 20202021 decreased $351$12 million to approximately $3.0$3.013 billion compared to approximately $3.4$3.025 billion for the three months ended March 31, 2019,2020, primarily as a result of developments related toCOVID-19 as highlighted above, and hospitals divested during 20192020, and 2020.developments related to COVID-19 as highlighted above. On a same-store basis, net operating revenues for the three months ended March 31, 2020 decreased $109 million, also primarily as a result of theCOVID-19 pandemic.2021 increased $269 million.

We had a net incomeloss of $34$35 million during the three months ended March 31, 2020,2021, compared to a net lossincome of $101$34 million for the three months ended March 31, 2019. 2020. Net loss for the three months ended March 31, 2021 included the following:

•

an after-tax charge of $93 million associated with a loss on the early extinguishment of debt,

•

an after-tax benefit of $64 million for the recognition of pandemic relief funds,

•

an after-tax charge of $17 million to adjust the carrying value of long-lived assets at several hospitals that were sold at a sales price below carrying value, net of gains recognized upon the sale of certain facilities.

Net income for the three months ended March 31, 2020 included the following:

an

•

an after-tax charge of $1 million for government and other legal settlements and related costs,


 

an

•

an after-tax charge of $3 million for loss from early extinguishment of debt,

an

•

an after-tax charge of $35 million for the impairment of goodwill and long-lived assets of hospitals sold or held for sale based on their estimated fair values,

anafter-tax charge of $1 million for legal expenses related to the final global resolution and settlement of certain Health Management Associates, Inc., or HMA, legal proceedings entered into with the U.S. Department of Justice in

•

an after-tax charge of $1 million for legal expenses related to the final global resolution and settlement of certain Health Management Associates, Inc., or HMA, legal proceedings entered into with the U.S. Department of Justice during the three months ended September 30, 2018, or the HMA Legal Matters, and

•

income of approximately $240 million due to discrete tax benefits related to the release of federal and state valuation allowances on IRC Section 163(j) interest carryforwards as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act that was enacted during the three months ended March 31, 2020.

Net

loss for the three months ended March 31, 2019 included the following:2020.

anafter-tax charge of $4 million for government and other legal settlements and related costs,

anafter-tax charge of $29 million for the impairment of goodwill and long-lived assets of hospitals sold or held for sale based on their estimated fair values,

anafter-tax charge of $23 million for loss from early extinguishment of debt, and

anafter-tax charge of $1 million for legal expenses related to the settlement of the HMA Legal Matters.

Consolidated inpatient admissions for the three months ended March 31, 2020,2021, decreased 13.3%14.0%, compared to the three months ended March 31, 2019.2020. Consolidated adjusted admissions for the three months ended March 31, 2020,2021, decreased 12.8%15.8%, compared to the three months ended March 31, 2019.2020. Same-store inpatient admissions for the three months ended March 31, 2020,2021, decreased 5.2%4.9%, compared to the three months ended March 31, 2019,2020, and same-store adjusted admissions for the three months ended March 31, 2020,2021, decreased 4.8%7.2%, compared to the three months ended March 31, 2019.2020. These same-store decreases primarily resulted from the impact of the COVID-19 pandemic.

Self-pay revenues represented approximately 0.5% and 1.0% of net operating revenues for both of the three-month periodsthree months ended March 31, 2021 and 2020, and 2019.respectively. The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 5.5%7.6% and 4.2%5.5% for the three months ended March 31, 20202021 and 2019,2020, respectively. Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 0.6%0.9% and 0.5%0.6% for the three months ended March 31, 2021 and 2020, and 2019, respectively.

Legislative Overview

The U.S. Congress and certain state legislatures have introduced and passed a large number of proposals and legislation designed to make major changes in the healthcare system, including changes that have impacted access to health insurance. The most prominent of these recent efforts, the Affordable Care Act, affected how healthcare services are covered, delivered and reimbursed. The Affordable Care Act increased health insurance coverage through a combination of public program expansion and private sector health insurance reforms and mandated that substantially all U.S. citizens maintain health insurance. The Affordable Care Act also made a number of changes to Medicare and Medicaid, such as a productivity offset to the Medicare market basket update and reductions to the Medicare and Medicaid disproportionate share hospital, or DSH, payments. However, reductions to DSH payments have been delayed by the CAA through 2023.

However, theThe future of the Affordable Care Act is uncertain. SinceThe law has been subject to legislative and regulatory changes and court challenges and, although the 2016current presidential election, significant changes have been madeadministration has indicated its intent to protect the Affordable Care Act, its implementation, and its interpretation, and the current presidential administration and certain members of Congress have stated their intent to repeal or make additional significantit is possible that there may be continued changes to the law.law, its implementation or its interpretation. For example, final rules issued in 2018 expand availability of association health plans and allow the sale of short-term, limited-duration health plans, neither of which are required to cover all of the essential health benefits mandated by the Affordable Care Act. Additionally, effective January 1, 2019, the financial penalty associated with the individual mandate was eliminated as part of the 2017 tax reform legislation that was enacted in December 2017.legislation. In December 2018, as a result of this change, a federal judge in Texas found the individual mandate unconstitutional and determined the rest of the Affordable Care Act was therefore invalid. In December 2019, the Fifth Circuit Court of Appeals upheld this decision with respect to the individual mandate, but remanded for further consideration of how this affects the rest of the law. In November 2020, the U.S. Supreme Court heard oral arguments regarding this case. Pending the appeals process,a decision, the law remains in effect. The elimination of the individual mandate penalty and other changes may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased.

Of critical importance to us will be the potential impact of any changes specific to the Medicaid program, including the funding and expansion provisions of the Affordable Care Act or any subsequent legislation or agency initiatives. Historically, the states with the greatest reductions in the number of uninsured adult residents have expanded Medicaid. A number of states have opted out of the Medicaid coverage expansion provisions, but could ultimately decide to expand their programs at a later date. Of the 1716 states in which we operated hospitals as of March 31, 2020, eight2021, nine states have taken action to expand their Medicaid programs. At this time, the other nineseven states have not, including Florida, Alabama, Tennessee and Texas, where we operated a significant number of hospitals as of March 31, 2020.2021. Some states use, or have applied to use, waivers granted by the Centers for Medicare and Medicaid Services, or CMS, to implement expansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards. CMS administrators have indicated that they are increasing state flexibility in the administration of Medicaid programs. For example, CMS has granted a limited number of state applications for waivers that allow a state to condition Medicaid enrollment on work or other community engagement. Several states have similar applications pending.


We believe that the Affordable Care Act has had a positive impact on net operating revenues and income as the result of the expansion of private sector and Medicaid coverage that has occurred. However, other provisions of the Affordable Care Act, such as requirements related to employee health insurance coverage and changes to Medicare and Medicaid reimbursement, have increased our operating costs or adversely impacted the reimbursement we receive. Legislative and executive branch efforts related to healthcare reform could result in increased prices for consumers purchasing health insurance coverage, or the sale of insurance plans that contain gaps in coverage, which could destabilize insurance markets and impact the rates of uninsured or underinsured adults.markets. Some current initiatives, requirements and proposals, including those aimed at price transparency andout-of-network charges, may impact prices and the relationships between hospitals and insurers. In addition, members of Congress have proposed measures that would expand government-sponsored coverage, including single-payor models.

It is difficult to predict the ongoing effect of the Affordable Care Act due to executive orders, changes to the law’s implementation, clarifications and modifications resulting from the rule-making process, judicial interpretations resulting from court challenges to its constitutionality and interpretation, whether and how many states ultimately decide to expand Medicaid coverage, the number of uninsured who elect to purchase health insurance coverage, budgetary issues at federal and state levels, and efforts to change or repeal the statute. We may not be able to fully realize the positive impact the Affordable Care Act may otherwise have on our business, results of operations, cash flow, capital resources and liquidity. We cannot predict whether we will be able to modify certain aspects of our operations to offset any potential adverse consequences from the Affordable Care Act or the impact of any alternative provisions that may be adopted.

In recent years, a number of laws, including the Affordable Care Act and Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, have promoted shifting from traditionalfee-for-service reimbursement models to alternative payment models that tie reimbursement to quality and cost of care. CMS currently administers various ACOsaccountable care organizations and bundled payment demonstration projects and has indicated that it will continue to pursue similar initiatives. However, theCOVID-19 pandemic may impact provider performance and data reporting under these initiatives. CMS has temporarily modified requirements of certain programs by, for example, extending reporting deadlines.

As a result of theCOVID-19 pandemic, federal and state governments have passed legislation, promulgated regulations, and taken other administrative actions intended to assist healthcare providers in providing care toCOVID-19 and other patients during the public health emergency. These measures include temporary relief from Medicare conditions of participation requirements for healthcare providers, temporary relaxation of licensure requirements for healthcare professionals, temporary relaxation of privacy restrictions for telehealth remote communications, promoting use of telehealth by temporarily expanding the scope of services for which Medicare reimbursement is available, and limited waivers of fraud and abuse laws for activities related toCOVID-19 during the emergency period.

One of the primary sources of relief for healthcare providers is the CARES Act, an economic stimulus package signed into law on March 27, 2020. The PPPHCE Act and the CAA, both expansions of the CARES Act includes $100that include additional emergency appropriations, were signed into law on April 24, 2020 and December 27, 2020, respectively. The ARPA, another relief package with numerous provisions that affect healthcare providers, was enacted on March 11, 2021. In total, these stimulus laws authorize over $178 billion in funding to be distributed through the PHSSEF to eligible providers, including public entities and Medicare- and/or Medicaid-enrolled providers. PHSSEF payments are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to theCOVID-19 pandemic and are not required to be repaid, provided that recipients attest to and comply with certain terms and conditions, including limitations on balance billing, and not using PHSSEF funds to reimburse expenses or losses that other sources have been or are obligated to reimburse. reimburse and audit and reporting requirements.

In addition, the CARES Act expanded the Medicare Accelerated and Advance Payment Program to increase cash flow to providers impacted by theCOVID-19 pandemic. Inpatient acute care hospitals maywere able to request an accelerated paymentspayment of up to 100% of thetheir Medicare payment amount for asix-month period (not including Medicare Advantage payments), although CMS is now reevaluating pending and new applications in light of direct payments made available through the PHSSEF. period. The Medicare Accelerated and Advanced Payment Program payments are advances that providers must repay. CMS must recoup theProviders are required to repay accelerated payments beginning 120 daysone year after receipt by the provider by withholding futurepayment was issued. After such one-year period, Medicare payments owed to providers will be recouped according to the repayment terms. The repayment terms specify that for claims. the first 11 months after repayment begins, repayment will occur through an automatic recoupment of 25% of Medicare payments otherwise owed to the provider. At the end of the eleven-month period, recoupment will increase to 50% for six months. At the end of the six months (or 29 months from the receipt of the initial accelerated payment), Medicare will issue a letter for full repayment of any remaining balance, as applicable. In such event, if payment is not received within 30 days, interest will accrue at the annual percentage rate of four percent (4%) from the date the letter was issued, and will be assessed for each full 30-day period that the balance remains unpaid.

The CARES Act also includesand related legislation include other provisions offering financial relief, for example temporarily liftingsuspending the Medicare sequester,sequestration payment adjustment from May 1, 2020 through December 31, 2021, which would have otherwise reduced payments to Medicare providers by 2%, delaying as required by the Budget Control Act of 2011 (but also extending sequestration through 2030). These laws also delay scheduled reductions to Medicaid DSH payments, providingprovide a 20%add-on to the inpatient PPS DRG rate forCOVID-19 patients for the duration of the public health emergency, and permittingpermit the deferral of payment of the employer portion of social security


taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. However, in addition to providing funding for healthcare providers, the ARPA increases the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the Pay-As-You-Go Act of 2010, or PAYGO Act. As a result, absent congressional action, Medicare spending will be reduced by up to four percentage points in fiscal year 2022, in addition to the existing sequestration requirements of the Budget Control Act of 2011.

Through March 31, 2021, we have received approximately $708 million in payments through the PHSSEF and various state and local programs on a cumulative basis since their enactment of which approximately $705 million was received during the year ended December 31, 2020 and the balance of which was received during the three months ended March 31, 2021. The estimate of the amount of payments received through the PHSSEF or state and local programs for which we are reasonably assured of meeting the underlying terms and conditions is based on, among other things, the CARES Act, the CAA, various Post-Payment Notice of Reporting Requirements issued by HHS during the period, responses to frequently asked questions as published by HHS, expenses incurred attributable to coronavirus and our results of operations during such period as compared to our 2020 budget. The PHSSEF and state and local program payments recognized to-date did not impact net operating revenues, and had a positive impact on net income attributable to Community Health Systems, Inc. common stockholders during the three months ended March 31, 2021, in the amount of $62 million. No amounts were recognized during the three months ended March 31, 2020. Amounts received through the PHSSEF or state and local programs that have not yet been recognized as a reduction in operating costs and expenses or otherwise have not been refunded to HHS are included within accrued liabilities-other in the condensed consolidated balance sheet, and such unrecognized amounts may be returned to HHS in one or more future periods when a procedure for doing so is established by HHS or may be recognized as a reduction in operating costs and expenses in future periods if the underlying conditions for recognition are reasonably assured of being met.  

HHS’ interpretation of the underlying terms and conditions of such PHSSEF payments, including auditing and reporting requirements, continues to evolve. Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such PHSSEF payments may result in changes in our estimate of amounts for which the terms and conditions are reasonably assured of being met, and any such changes may be material. Additionally, any such changes may result in our inability to recognize additional PHSSEF payments or may result in the derecognition of amounts previously recognized, which (in any such case) may be material. In addition, to the funds appropriated under the CARES Act, the PPPHCE Act, a stimulus package signed into lawextent that any unrecognized PHSSEF payments that have been or may be received by us do not qualify for reimbursement based on April 24, 2020, includes additional emergency appropriations forCOVID-19 response, including $75 billion to be distributed to eligible providers through the PHSSEF. This funding is also intended to reimburse providers for lost revenues and healthcare-related expenses attributable to theCOVID-19 pandemic. Applicants for the funds willfuture operations, we may be required to submitreturn such unrecognized payments to HHS following the end of the COVID-19 pandemic or other future time as may be determined by HHS guidance.

With respect to the Medicare Accelerated and Advanced Payment Program, we received Medicare accelerated payments of approximately $1.2 billion in April 2020. No additional Medicare accelerated payments have been received by us since such time and approximately $18 million and $77 million of amounts previously received were repaid to CMS or assumed by buyers related to hospitals we divested during the three months ended March 31, 2021 and the year ended December 31, 2020, respectively. As a justification statementresult of CMS no longer accepting new applications for accelerated payments, we do not expect to receive additional Medicare accelerated payments. As of March 31, 2021 approximately $546 million of Medicare accelerated payments are reflected within accrued liabilities-other in the payments. Recipients will not be required to repaycondensed consolidated balance sheet while the government for fundsremaining approximately $517 million is included within other long-term liabilities. In April 2021, CMS began recouping Medicare accelerated payments previously received provided they comply with terms and conditions, which have not yet been finalized.by the Company.

Due to the recent enactment of the CARES Act and the PPPHCE Act,other stimulus legislation, there is still a high degree of uncertainty surrounding their implementation, and the public health emergency continues to evolve. Some of the measures allowing for flexibility in delivery of care and various financial supports for health care providers are available only for the duration of the public health emergency, and it is unclear whether or for how long the public health emergency declaration will be extended. The current declaration expires July 20, 2021. The HHS Secretary may choose to renew the declaration for successive 90-day periods for as long as the emergency continues to exist and may terminate the declaration whenever he determines that the public health emergency no longer exists, but has indicated that the public health emergency will likely extend through 2021 and that HHS will provide states with 60 days’ notice prior to termination of the declaration. The federal government may consider additional stimulus and relief efforts, but we are unable to predict whether additional stimulus measures will be enacted or their impact on us. There can be no assurance as to the total amount of financial and other types of assistance we will receive under the CARES Act, other enacted stimulus legislation, or future measures, if any, and it is difficult to predict the impact of such measures on our operations or how they will affect operations of our competitors. Further, there can be no assurance that the terms of provider relief funding or other programs will not change or be interpreted in ways that affect our funding or eligibility to participate or our ability to comply with applicable requirements and retain amounts received. We continue to assess the potential impact of the CARES Act the PPPHCE Act,and other enacted stimulus legislation, the potential impact of future stimulus measures, if any, and the impact of other laws, regulations, and guidance related toCOVID-19 on our business, results of operations, financial condition and cash flows.

In June 2019, the U.S. Supreme Court ruled inAzar v. Allina Health Services that the U.S. Department of Health and Human ServicesHHS failed to comply with statutory notice and comment rulemaking procedures before announcing an earlier policy related to DSH payments made under Medicare to hospitals. FollowingIn response to this adverse ruling, unlessCMS proposed a new rule in August 2020 in an attempt to retroactively cure the underlying procedural


errors cited by the U.S. DepartmentSupreme Court as the basis in their decision. CMS’ action has introduced uncertainty regarding the potential outcomes of Healththis case and Human Servicessuch action is ablewidely expected to successfullyresult in further litigation. If HHS or CMS are unsuccessful in their attempt to assert the proposed rule or another legal basis for thistheir policy, one potential outcome is the federal government could be required to reimburse hospitals, including us,our affiliated hospitals, for Medicare DSH Medicare payments which otherwise would have been payable over certain prior time periods absent the enactment of this policy. While the ruling in this case was specific to the DSH payments calculated for federal fiscal year 2012 for the plaintiff hospitals, we believe that prior time periods with the potential for higher DSH payments because of the precedent of this ruling could include federal fiscal years 2005 to 2013. There continues to be uncertainty regarding the extent to which, if any, Medicare DSH Medicare payments will be remitted to usour affiliated hospitals as the result of this ruling, and if so the timing of any such payments. However, we anticipate that if it is ultimately determined that weour affiliated hospitals are entitled to receive such Medicare DSH Medicare payments for these prior time periods, these payments could have a material positive impact on anon-recurring basis in any future period in which net income is recognized in respect thereof as well as on our cash flows from operations in any future period in which these payments are received.

As a result of our current levels of cash, funds we have received and may in the future receive under the CARES Act, the PPPHCE Act, orAct. Other enacted stimulus legislation and any future stimulus measures, available borrowing capacity, long-term outlook on our debt repayments, the refinancing of certain of our notes, proceeds from the sale of hospitals and ourthe continued projection of our ability to generate cash flows, we anticipate that we will be able to invest the necessary capital in our business over the next twelve months. We believe there continues to be ample opportunity to strengthen our market share in substantially all of our markets by decreasing the need for patients to travel outside their communities for healthcare. Furthermore, we will continue to strive to improve operating efficiencies and procedures in order to improve the performance of our hospitals.

Sources of Revenue

The following table presents the approximate percentages of net operating revenues by payor source for the periods indicated. The data for the periods presented are not strictly comparable due to the effect that hospital acquisitions and divestitures have had on these statistics.

 

          Three Months Ended         
  March 31, 

 

Three Months Ended March 31,

 

          2020                    2019         

 

2021

 

 

2020

 

Medicare

   25.0  %     26.3  % 

 

 

23.0

%

 

 

25.0

%

Medicaid

   13.5       12.7   

 

 

13.0

 

 

 

13.5

 

Managed Care and other third-party payors

   60.5       60.0   

 

 

63.5

 

 

 

60.5

 

Self-pay

   1.0       1.0   

 

 

0.5

 

 

 

1.0

 

Total

   100.0  %       100.0  %   

 

 

100.0

%

 

 

100.0

%

       

As shown above, we receive a substantial portion of our revenues from the Medicare and Medicaid programs. Included in Managed Care and other third-party payors is operating revenues from insurance companies with which we have insurance provider contracts, Medicare managed care, insurance companies for which we do not have insurance provider contracts, workers’ compensation carriers andnon-patient service revenue, such as rental income and cafeteria sales. In the future, we generally expect the portion of revenues received from the Medicare and Medicaid programs to increase over the long-term due to the general aging of the population and the impactsimpact of the Affordable Care Act. The Affordable Care Act has increased the number of insured patients in states that have expanded Medicaid, which in turn, has reduced the percentage of revenues fromself-pay patients. However, it is unclear whether the trend of increased coverage will continue, duecontinue. In addition, there has been a trend toward increased enrollment in part to the impact of theCOVID-19 pandemicMedicare and the elimination of the financial penalty associated with the individual mandate, effective January 1, 2019. Further, theMedicaid managed care, which may adversely affect our operating revenue. The Affordable Care Act imposes significant reductions in amounts the government pays Medicare managed care plans. The trend toward increased enrollment in Medicare and Medicaid managed care may adversely affect our operating revenue. AnFurther, an executive order issued in October 2019 seeks to accelerate thisthe shift away from traditionalfee-for-service Medicare to Medicare managed care. We may also be impacted by regulatory requirements imposed on insurers, such as minimum medical-loss ratios and specific benefit requirements. Furthermore, in the normal course of business, managed care programs, insurance companies and employers actively negotiate the amounts paid to hospitals. Our relationships with payors may be impacted by price transparency initiatives andout-of-network billing proposals.restrictions. There can be no assurance that we will retain our existing reimbursement arrangements or that these third-party payors will not attempt to further reduce the rates they pay for our services.

Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-based reimbursement and other payment methods. In addition, we are reimbursed bynon-governmental payors using a variety of payment methodologies. Amounts we receive for the treatment of patients covered by Medicare, Medicaid andnon-governmental payors are generally less than our standard billing rates. We account for the differences between the estimated program reimbursement rates and our standard billing rates as contractual allowance adjustments, which we deduct from gross revenues to arrive at net operating revenues. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement


estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net (loss) income (loss) by an insignificant amount in each of the three-month periods ended March 31, 20202021 and 2019.2020.

The payment rates under the Medicare program for hospital inpatient and outpatient acute care services are based on a prospective payment system, depending upon the diagnosis of a patient’s condition. These rates are indexed for inflation annually, although increases have historically been less than actual inflation. On August 16, 2019,September 18, 2020, CMS issued the final rule to increase this index by 3.0%2.4% for hospital inpatient acute care services that are reimbursed under the prospective payment system, beginning October 1, 2019.2020. The final rule also provides for a 0.4 percentage point multifactor productivity reduction and a positive 0.5 percentage point adjustmentincrease in accordance with MACRA, which, together with other changes to payment policies is expected to yield an average 2.9% increase in reimbursement for hospital inpatient acute care services. An additional reduction applies to hospitalsHospitals that do not submit required patient quality data.data are subject to a reduction in payments. We are complying with this data submission requirement. Payments may also be affected by various other adjustments, such as admission and medical review criteria for inpatient services commonly known as the “two midnight rule.” This rule limits when services to Medicare beneficiaries are payable as inpatient hospital services. Reductions in the rate of increase or overall reductions in Medicare reimbursement may cause a decline in the growth of our net operating revenues.

Payment rates under the Medicaid program vary by state. In addition to the base payment rates for specific claims for services rendered to Medicaid enrollees, several states utilize supplemental reimbursement programs to make separate payments that are not specifically tied to an individual’s care, some of which offset a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from CMS and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. The programs are generally authorized for a specified period of time and require CMS’s approval to be extended. We are unable to predict whether or on what terms CMS will extend the supplemental programs in the states in which we operate. Under these supplemental programs, we recognize revenue and related expenses in the period in which amounts are estimable and collection is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and included as Medicaid revenue in the table above, and fees, taxes or other program related costs are reflected in other operating expenses.

Results of Operations

Our hospitals offer a variety of services involving a broad range of inpatient and outpatient medical and surgical services. These include general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic services, psychiatric and rehabilitation services. TheHistorically, the strongest demand for hospital services generally occurs during January through April and the weakest demand for these services generally occurs during the summer months. Accordingly, eliminating the effects of new acquisitions and/or divestitures, our net operating revenues and earnings are historically highest during the first quarter and lowest during the third quarter. As previously noted, the COVID-19 pandemic has disrupted the pattern of demand for services we provide.

The following tables summarize, for the periods indicated, selected operating data.

 

 

Three Months Ended

 

  

Three Months Ended

March 31,

 

March 31,

 

            2020                       2019          

 

2021

 

 

2020

 

Operating results, as a percentage of net operating revenues:

     

 

 

 

 

 

 

 

 

Net operating revenues

   100.0 %     100.0 % 

 

 

100.0

%

 

 

100.0

%

Operating expenses (a)

   (90.1)     (88.8) 

 

 

(83.9

)

 

 

(90.1

)

Depreciation and amortization

   (4.8)     (4.5) 

 

 

(4.6

)

 

 

(4.8

)

Impairment and loss on sale of businesses, net

   (1.5)     (1.1) 

Impairment and gain (loss) on sale of businesses, net

 

 

(0.7

)

 

 

(1.5

)

Income from operations

   3.6     5.6 

 

 

10.8

 

 

 

3.6

 

Interest expense, net

   (8.7)     (7.6) 

 

 

(7.7

)

 

 

(8.7

)

Loss from early extinguishment of debt

   (0.1)     (0.9) 

 

 

(2.3

)

 

 

(0.1

)

Equity in earnings of unconsolidated affiliates

   0.3     0.1 

 

 

0.3

 

 

 

0.3

 

Loss before income taxes

   (4.9)     (2.8) 

Benefit from (provision for) income taxes

   6.0     (0.2) 

Net income (loss)

   1.1     (3.0) 

Income (loss) before income taxes

 

 

1.1

 

 

 

(4.9

)

(Provision for) benefit from income taxes

 

 

(2.3

)

 

 

6.0

 

Net (loss) income

 

 

(1.2

)

 

 

1.1

 

Less: Net income attributable to noncontrolling interests

   (0.5)     (0.5) 

 

 

(0.9

)

 

 

(0.5

)

Net income (loss) attributable to Community Health Systems, Inc. stockholders

   0.6 %     (3.5) % 

Net (loss) income attributable to Community Health

Systems, Inc. stockholders

 

 

(2.1

)%

 

 

0.6

%

   

Three Months Ended

March 31,

 
               2020                             2019             

Percentage (decrease) increase from prior year:

     

Net operating revenues

   (10.4)%     (8.5)% 

Admissions (b)

   (13.3)     (13.4) 

Adjusted admissions (c)

   (12.8)     (12.8) 

Average length of stay (d)

   (2.2)     - 

Net income (loss) attributable to Community Health Systems, Inc.

   115.3     (372.0) 

Same-store percentage increase (decrease) from prior year (e):

     

Net operating revenues

   (3.5)%     3.1% 

Admissions (b)

   (5.2)     (0.1) 

Adjusted admissions (c)

   (4.8)     0.8 

 

 

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Percentage (decrease) increase from prior year:

 

 

 

 

 

 

 

 

Net operating revenues

 

 

(0.4

)%

 

 

(10.4

)%

Admissions (b)

 

 

(14.0

)

 

 

(13.3

)

Adjusted admissions (c)

 

 

(15.8

)

 

 

(12.8

)

Average length of stay (d)

 

 

11.1

 

 

 

(2.2

)

Net (loss) income attributable to Community Health

   Systems, Inc.

 

 

(455.6

)

 

 

115.3

 

Same-store percentage increase (decrease) from prior year (e):

 

 

 

 

 

 

 

 

Net operating revenues

 

 

9.8

%

 

 

(3.5

)%

Admissions (b)

 

 

(4.9

)

 

 

(5.2

)

Adjusted admissions (c)

 

 

(7.2

)

 

 

(4.8

)

(a)

Operating expenses include salaries and benefits, supplies, other operating expenses, government and other legal settlements and related costs, and lease cost and rent.rent, net of the reduction in operating expenses through March 31, 2021, resulting from the recognition of pandemic relief funds.

(b)

Admissions represents the number of patients admitted for inpatient treatment.

(c)

Adjusted admissions is a general measure of combined inpatient and outpatient volume. We computed adjusted admissions by multiplying admissions by gross patient revenues and then dividing that number by gross inpatient revenues.

(d)

Average length of stay represents the average number of days inpatients stay in our hospitals.

(e)

Includes acquired hospitals to the extent we operated them in both periods and excludesExcludes information for the hospitals sold or closed during 20192020 and the three months ended March 31, 2020.2021.

Items (b) – (e) are metrics used to manage our performance. These metrics provide useful insight to investors about the volume and acuity of services we provide, which aid in evaluating our financial results.

Three Months Ended March 31, 20202021 Compared to Three Months Ended March 31, 20192020

Net operating revenues decreased by 10.4%0.4% to approximately $3.0$3.013 billion for the three months ended March 31, 2020,2021, from approximately $3.4$3.025 billion for the three months ended March 31, 2019.2020. Net operating revenues on a same-store basis from hospitals that were operated throughout both periods decreased $109increased $269 million, or 3.5%9.8%, during the three months ended March 31, 2020,2021, as compared to the three months ended March 31, 2019.2020. The decreaseincrease in same-store net operating revenues was primarily due to COVID-19 pandemic-induced changes in the mix of services provided and payor mix compared to the prior period, partially offset by a decline in volumes resulting from theCOVID-19 pandemic.Non-same-store net operating revenues decreased $243$281 million during the three months ended March 31, 2020,2021, in comparison to the prior year period, with the decrease attributable primarily to the divestiture of hospitals during 20192020 and 2020.2021. On a consolidated basis, inpatient admissions decreased by 13.3%14.0% during the three months ended March 31, 20202021 as compared to the three months ended March 31, 2019.2020. Also on a consolidated basis, adjusted admissions decreased by 12.8%15.8% during the three months ended March 31, 20202021 as compared to the three months ended March 31, 2019.2020. On a same-store basis, net operating revenues per adjusted admission increased 1.4%18.3%, while inpatient admissions decreased by 5.2%4.9% and adjusted admissions decreased by 4.8%7.2% for the three months ended March 31, 2020,2021, compared to the three months ended March 31, 2019.2020.

Operating costs and expenses, as a percentage of net operating revenues, increaseddecreased from 94.4% during the three months ended March 31, 2019 to 96.4% during the three months ended March 31, 2020.2020 to 89.2% during the three months ended March 31, 2021. Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, increaseddecreased from 88.8% for the three months ended March 31, 2019 to 90.1% for the three months ended March 31, 2020.2020 to 83.9% for the three months ended March 31, 2021. Salaries and benefits, as a percentage of net operating revenues, increaseddecreased from 45.7% for the three months ended March 31, 2019 to 46.4% for the three months ended March 31, 2020.2020 to 43.2% for the three months ended March 31, 2021. Supplies, as a percentage of net operating revenues, decreased from 16.5% for the three months ended March 31, 2020 to 16.3% for the three months ended March 31, 2021. Other operating expenses, as a percentage of net operating revenues, increased from 24.1% for the three months ended March 31, 2019 to 24.4% for the three months ended March 31, 2020. Salaries and benefits and other operating expenses increased as a percentage of net operating revenues due2020 to a decline in net operating revenues resulting from24.5% for theCOVID-19 pandemic. Supplies, as a percentage of net operating revenues, remained consistent at 16.5% for both of the three-month periods three months ended March 31, 2020 and 2019.2021. Expense related to government and other legal settlements and related costs, as a percentage of net operating revenues, remained consistent atdecreased from 0.1% for both of the three-month periodsthree months ended March 31, 2020 and 2019.to less than 0.1% during the three months ended March 31, 2021. Lease cost and rent, as a percentage of net operating revenues, increaseddecreased from 2.4% for the three months ended March 31, 2019 to 2.7% for the three months ended March 31, 2020 to 2.6% for the three months ended March 31, 2021. Pandemic relief funds, as a percentage of net operating revenues, was (2.7)% for the three months ended March 31, 2021, compared to 0% for the three months ended March 31, 2020. The decrease in salaries and benefits, as a percentage of net operating revenues, during the three months ended March 31, 2021 compared to March 31, 2020 is primarily due to the reduction in personnel associated with divestitures. The increase in pandemic relief funds (reflected as a reduction to operating costs and expenses), as a percentage of net operating revenues, during the three months ended March 31, 2021 compared to March 31, 2020 is due to pandemic relief funds not having been received during the three months ended March 31, 2020.


Depreciation and amortization, as a percentage of net operating revenues, increaseddecreased from 4.5% for the three months ended March 31, 2019 to 4.8% for the three months ended March 31, 2020 to 4.6% for the three months ended March 31, 2021, primarily due to a decrease in net operating revenues as a result of theCOVID-19 pandemic.ceasing depreciation on property and equipment at hospitals sold or held for sale.

Impairment and (gain) loss on sale of businesses, net was $21 million for the three months ended March 31, 2021, compared to $45 million for the three months ended March 31, 2020, comparedrelated primarily to $38divestitures in each respective period.

Interest expense, net, decreased by $31 million to $231 million for the three months ended March 31, 2019, related to impairment of the long-lived assets and reporting unit goodwill allocated to hospitals classified as held for sale or sold during the respective periods.

Interest expense, net, increased by $5 million2021 compared to $262 million for the three months ended March 31, 2020 compared to $257 million for the three months ended March 31, 2019. 2020. This was primarily due to our debt refinancing activityactivities in 2020 and 2021 as discussed further in Capital Resources.

Loss from early extinguishment of debt of $71 million was recognized during the three months ended March 31, 20202021, as a result of the refinancing of certain of our outstanding notes as discussed further in Capital Resources, compared to the same period in 2019, which resulted in an increase in interest expense of $5 million. We also had one additional day of interest expense since 2020 was a leap year, which resulted in a $3 million increase in interest expense during the three months ended March 31, 2020, compared to the same period 2019. These increases were partially offset by a decrease in our average outstanding debt during the three months ended March 31, 2020, which resulted in a decrease in interest expense of $3 million, compared to the same period in 2019.

Resources. Loss from early extinguishment of debt of $4 million was recognized during the three months ended March 31, 2020, as a result of the refinancing of certain of our outstanding notes as discussed further in Capital Resources. Loss from early extinguishment of debt of $31 million was recognized during the three months ended March 31, 2019, as a result of the Credit Facility amendment and repayment of the term loans thereunder.notes.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, increased from 0.1%was (0.3%) for both of the three months ended March 31, 2019 to 0.3% for the three months ended March 31,2021 and 2020.

The net results of the above-mentioned changes resulted in lossincome before income taxes increasing $55$183 million from $94a $149 million net loss for the three months ended March 31, 2020 to net income of $34 million for the three months ended March 31, 2019 to $149 million for the three months ended March 31, 2020.2021.

Our benefit fromprovision for income taxes for the three months ended March 31, 20202021 was $183$69 million compared to a provision forbenefit from income taxes of $7$183 million for the three months ended March 31, 2019.2020. Our effective tax rates were 122.8%202.9% and (7.4)%122.8% for the three months ended March 31, 20202021 and 2019,2020, respectively. The difference in our effective tax rate for the three months ended March 31, 2020, when2021, compared to the three months ended March 31, 2019,2020, was primarily due to an increase in the valuation allowance recognized on IRC Section 163(j) interest carryforwards created as a result of financing transactions completed during the three months ended March 31, 2021. The effective tax rate for the three months ended March 31, 2020 reflects discrete tax benefits of approximately $240 million related to the release of federal and state valuation allowances on IRC Section 163(j) interest carryforwards as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act that was enacted induring the three months ended March 31, 2020.2020

Net (loss) income, (loss), as a percentage of net operating revenues, was (3.0)(1.2)% for the three months ended March 31, 20192021 compared to 1.1% for the three months ended March 31, 2020.

Net income attributable to noncontrolling interests as a percentage of net operating revenues remained consistent at 0.5%was 0.9% for both of the three-month periodsthree months ended March 31, 2020 and 2019.2021, compared to 0.5% for the three months ended March 31, 2020.

Net incomeloss attributable to Community Health Systems, Inc. was $(64) million for the three months ended March 31, 2021, compared to net income of $18 million for the three months ended March 31, 2020, compared to a net loss attributable to Community Health Systems, Inc. of $118 million for the three months ended March 31, 2019.2020.

Liquidity and Capital Resources

Net cash provided by operating activities decreased $76increased $44 million, from approximately $133 million for the three months ended March 31, 2019, to approximately $57 million for the three months ended March 31, 2020. The decrease in cash provided by operating activities was primarily the result of timing of interest payments, compared2020, to the same period in 2019. Total cash paid for interest during the three months ended March 31, 2020 increased to approximately $264 million compared to $189$101 million for the three months ended March 31, 2019.2021. The increase was primarily attributable to the timing and amount of interest payments. Cash paid for interest was $203 million during the three months ended March 31, 2021 compared to $264 million for the three months ended March 31, 2020.  Cash paid for income taxes, net of refunds received, resulted in a net refundpayment of $2 million and less than $1 million, and a net refund of approximately $2 million during the three months ended March 31, 20202021 and 2019,2020, respectively.

Our net cash used in investing activities was approximately $120 million for the three months ended March 31, 2021, compared to approximately $109 million for the three months ended March 31, 2020, compared to net cash provided by investing activities of approximately $19 million for the three months ended March 31, 2019, a decrease of approximately $128$11 million. The cash used in investing activities during the three months ended March 31, 2020,2021 was primarily impacted by a decrease in proceeds provided by divestitures of hospitals and other ancillary operations of $159 million as a result of fewer hospital divestitures in the first three months of 2020 compared to the same period in 2019 (including the receipt of the net proceeds for the hospitals divested effective January 1, 2020, on December 31, 2019), and a decrease in cash provided by the net impact of the purchases and sales ofavailable-for-sale securities and equity securities of $13 million. The decrease in cash provided by investing activities was partially offset by a decreasean increase in cash used in the purchase of property and equipment of $22$6 million, and a decreasean increase of $4 million in the cash used in thefor acquisition of facilities and other related equipmentbusinesses, and an increase in cash used to purchase other investments of $7 million. The increase in cash used in investing activities was partially offset by a $4 million as a resultincrease in cash proceeds from dispositions of fewer physician practice, clinichospitals and other ancillary business acquisitionsoperations, and a $2 million increase in cash proceeds from the firstsale of property and equipment.


Our net cash used in financing activities was $406 million for the three months of 2020ended March 31, 2021, compared to the same period in 2019 and a decrease in cash used for other investments (primarily frominternal-use software expenditures and physician recruiting costs) of $18 million.

Our net cash provided by financing activities wasof $82 million for the three months ended March 31, 2020, compared to netan increase in cash used in financing activities of approximately $71 million for the three months ended March 31, 2019, an increase of approximately $153$488 million. The increase in cash provided by financing activities, in comparison to the prior year period,This was primarily due to the net effect of our debt repayment,repayments, refinancing activity,activities, and cash paid for deferred financing costs and other debt-related costs.

The CARES Act, which was enacted on March 27, 2020, authorizes $100 billion in funding to hospitals and other healthcare providers to be distributed through the PHSSEF. The PPPHCA Act, which was enacted on April 24, 2020, includes additional emergency appropriations forCOVID-19 response, including $75 billion to be distributed to eligible providers through the PHSSEF. Payments from the PHSSEF are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to theCOVID-19 pandemic and are not required to be repaid provided the recipients attest to and comply with certain terms and conditions, including limitations on balance billing and not using PHSSEF funds to reimburse expenses or losses that other sources are obligated to reimburse. HHS initially distributed $30 billion of this funding based on each provider’s share of total Medicarefee-for-service reimbursement in 2019, but has announced that $50 billion in CARES Act funding (including the $30 billion already distributed) will be allocated proportional to providers’ share of 2018 net patient revenue. HHS has indicated that distributions of the remaining $50 billion will be targeted primarily to hospitals inCOVID-19 high impact areas, to rural providers, and to reimburse providers forCOVID-19-related treatment of uninsured patients. In April 2020, we received approximately $245 million in payments from the initial funding of the PHSSEF as noted above, which did not qualify for recognitioncosts during the three months ended March 31, 2020. The HHS has2021.

Amounts received through the PHSSEF or state and local programs that had not yet announcedbeen recognized as a reduction in operating costs and expenses or otherwise refunded to HHS as of March 31, 2021 totaled approximately $25 million. Such amount is included within accrued liabilities-other in the precise methodcondensed consolidated balance sheet, and such unrecognized amounts may either be returned to HHS in one or more future periods when a procedure for doing so is established by which certainHHS or may be recognized as a reduction in operating costs and expenses in future payments fromperiods if the PHSSEF will be determined or allocated, so the potential impact to us of future payments from the PHSSEF is unclear.underlying conditions for recognition are met.

As a way to increase cash flow tonoted above, we received Medicare providers impacted by theCOVID-19 pandemic, the CARES Act expandedaccelerated payments of approximately $1.2 billion in April 2020 under the Medicare Accelerated and Advance PaymentAdvanced Payments Program. Inpatient acute care hospitals may requestNo additional Medicare accelerated payments of up to 100% of their anticipated Medicare payment amount for asix-month period (not including Medicare Advantage payments), although CMS is now reevaluating pending and new applications in light of direct payments made available through PHSSEF. CMS will base payment amounts for inpatient acute care hospitals on the provider’s Medicarefee-for-service reimbursements in the last six months of 2019. Such accelerated payments are interest free for inpatient acute care hospitals for 12 months, and the program currently requires CMS to recoup the payments beginning 120 days after receipthave been received by the provider, by withholding future Medicarefee-for-service payments for claims untilus since such time as the full accelerated payment has been recouped. The program currently requires the provider must repay any outstanding balance remaining after 12 monthsand approximately $18 million and $77 million of amounts previously received were repaid to CMS or be subjectedassumed by buyers related to an interest rate currently set at 10.25%. In April 2020,hospitals we received approximately $1.2 billion of such accelerated payments, which did not qualify for recognitiondivested during the three months ended March 31, 2020.2021 and year ended December 31, 2020, respectively. As of March 31, 2021, approximately $546 million of Medicare accelerated payments are reflected within accrued liabilities-other in the condensed consolidated balance sheet while the remaining approximately $517 million are included within other long-term liabilities. In April 2021, CMS began recouping Medicare accelerated payments previously received by the Company.

The CARES Act provides for deferred payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. We began deferring the employer portion of social security taxes inmid-April 2020. 2020 and, as of December 31, 2020, we had deferred approximately $144 million. As of March 31, 2021, of this amount, approximately $72 million is included within accrued liabilities employee compensation and approximately $72 million is included within other long-term liabilities in the condensed consolidated balance sheet.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the three months ended March 31, 20202021 from those disclosed in the table on page 7264 of our 2019Annual Report on Form10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission, or SEC, on February 18, 2021, or 2020 Form 10-K, except as discussed below related to debt refinancing activity during 2020.

2021.

Capital Expenditures

Cash expenditures for purchases of facilities and other related businesses were approximately $4 million for the three months ended March 31, 2021, compared to less than $1 million for the three months ended March 31, 2020, compared to $4 million for the three months ended March 31, 2019.2020. Our expenditures for the three months ended March 31,1, 2021 and 2020 and 2019 were primarily related to physician practices and other ancillary services.

Excluding the cost to construct replacement and de novo hospitals, our cash expenditures for routine capital for the three months ended March 31, 20202021 totaled $70$76 million compared to $117$63 million for the three months ended March 31, 2019.2020. These capital expenditures related primarily to the purchase of additional equipment, minor renovations and information systems infrastructure. Costs to construct replacement hospitals totaled $16 million for the three months ended March 31, 2021, related primarily to the construction of a replacement facility in Fort Wayne, Indiana. Costs to construct replacement hospitals totaled $29 million for the three months ended March 31, 2020, comparedrelated primarily to $4 million forthe construction of a replacement facility in La Porte, Indiana. During the three months ended March 31, 2019. The costs to construct replacement hospitals for the three months ended March 31,2021 and 2020, we also had cash expenditures of $13 million and 2019 primarily$8 million, respectively, that represent both planning and construction costs for two de novo hospitals in the replacement facility at La Porte, Indiana.Tucson, Arizona market. We commenced operations for an 18-bed micro-hospital in that market during the fourth quarter of 2020, while the other de novo hospital is expected to be completed by the end of 2021 and have 52 beds.  

Pursuant to a hospital purchase agreement from our March 1, 2016 acquisition of Northwest Health - La Porte, formerly known as La Porte Hospital, and Northwest Health – Starke, formerly known as Starke Hospital, we committed to build replacement facilities in both La Porte, Indiana and Knox, Indiana. Under the terms of such agreement, construction of the replacement hospital for LaPorte Hospital is required to be completed within five years of the date of acquisition, or March 2021. In addition, constructionThe completion of the replacement facility for Northwest Health – La Porte, in La Porte, Indiana, and transfer of operations, including renaming the hospital to Northwest Health – La Porte, was completed on October 24, 2020. Construction of the replacement facility for Northwest Health - Starke Hospital is required to be completed within five years of the date we enter into a new lease with Starke County, Indiana, the hospital lessor, or in the event we do not enter into a new lease with Starke County, construction shall be completed by September 30, 2026. We have not entered into a new lease with the lessor for Northwest Health - Starke Hospital and currently anticipate completing construction of the Northwest Health - Starke Hospital replacement facility in 2026. Construction costs including equipment costs, for the La Porte andNorthwest Health - Starke replacement facilities arefacility is currently estimated to be approximately $128 million and $15 million, respectively.million.


Capital Resources

Net working capital was approximately $1.2$1.4 billion at March 31, 2020,2021, compared to $1.1$1.7 billion at December 31, 2019.2020. Net working capital increaseddecreased by approximately $50$301 million between December 31, 20192020 and March 31, 2020. This increase2021. The decrease is primarily due to the increasesdecrease in other current assetscash, as a result of debt repayments, refinancing activities and cash and cash equivalents and a decrease in accounts payable, partially offset by a decrease in patient accounts receivablepaid for deferred financing costs during the three months ended March 31, 2020.2021, partially offset by a decrease in current maturities of long-term debt.

In addition to cash flows from operations, available sources of capital include amounts available under the asset-based loan (ABL) credit agreement, or the ABL Credit Agreement, which we entered into on April 3, 2018, as well as anticipated access to public and private debt markets.

Pursuant to the ABL Credit Agreement, the lenders have extended to CHS/Community Health Systems Inc., or CHS, a revolving asset-based loan facility, or the ABL Facility, in the maximum aggregate principal amount of $1.0 billion, subject to borrowing base capacity. At March 31, 2020,2021, the available borrowing base under the ABL Facility was $769$633 million, of which we had no outstanding borrowingsborrowings. Letters of $380credit were reduced during the three months ended March 31, 2021 by $30 million in relation to a professional liability claim that was settled and funded during the three months ended December 31, 2020. Inclusive of this reduction, letters of credit totaling $120 million were issued as of $150 million.March 31, 2021. The issued letters of credit were primarily in support of potential insurance-related claims and certain bonds. Principal amounts outstanding under the ABL Facility, if any, will be due and payable in full on April 3, 2023.

The ABL Facility contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting our ability, subject to certain exceptions, to, among other things (1) declare dividends, make distributions or redeem or repurchase capital stock, (2) prepay, redeem or repurchase other debt, (3) incur liens or grant negative pledges, (4) make loans and investments and enter into acquisitions and joint ventures, (5) incur additional indebtedness or provide certain guarantees, (6) engage in mergers, acquisitions and asset sales, (7) conduct transactions with affiliates, (8) alterOn January 28, 2021, the natureremaining principal amount of our businesses, (9) grant certain guarantees with respect to physician practices, (10) engage in sale and leaseback transactions or (11) change our fiscal year. We are also required to comply with a consolidated fixed coverage ratio, upon certain triggering events described below, and various affirmative covenants. The consolidated fixed coverage ratio is calculated as the ratio6¼% Senior Secured Notes due 2023 of (x) consolidated EBITDA (as defined in the ABL Facility) less capital expenditures to (y) the sum of consolidated interest expense (as defined in the ABL Facility), scheduled principal payments, income taxes and restricted payments made in cash or in permitted investments. For purposes of calculating the consolidated fixed charge coverage ratio, the calculation of consolidated EBITDA as defined in the ABL Facility is a trailing12-month calculation that begins with our consolidated net income, with certain adjustments for interest, taxes, depreciation and amortization, net income attributable to noncontrolling interests, stock compensation expense, restructuring costs, and the financial impact of othernon-cash ornon-recurring items recorded during any such12-month period. The consolidated fixed charge coverage ratio is a required covenant only in periods where the total borrowings outstanding under the ABL Facility reduce the amount available in the facility to less than the greater of (i)approximately $95 million or (ii) 10% of the calculated borrowing base. As a result, in

the event we have less than $95 million available under the ABL Facility, we would need to comply with the consolidated fixed charge coverage ratio. At March 31, 2020, we were not subject to the consolidated fixed charge coverage ratio as such triggering event had not occurred during the last twelve months ended March 31, 2020.was redeemed using cash on hand.

On February 6, 2020, CHS2, 2021, we completed a private offering of $1.462$1.775 billion aggregate principal amount of 65⁄86⅞% Junior-Priority Secured Notes due April 15, 2029 (the “6⅞% Junior-Priority Secured Notes due 2029”). The proceeds of the offering were used, together with cash on hand, to redeem the 9⅞% Junior-Priority Secured Notes due 2023 via a tender offer which was funded on February 2, 2021, or to the extent not tendered, to fund the redemption of the remaining notes on February 4, 2021, and to pay related fees and expenses. The 6⅞% Junior-Priority Secured Notes due 2029 bear interest at a rate of 6.875% per year payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2021.

On February 9, 2021, we completed a private offering of $1.095 billion aggregate principal amount of 4¾% Senior Secured Notes due February 15, 20252031 (the “65⁄8“4¾% Senior Secured Notes due 2025”2031”). CHS used the netThe proceeds of the offering ofwere used, together with cash on hand, to redeem the 65⁄88⅝% Senior Secured Notes due 20252024 on February 9, 2021 and to (i) purchase anypay related fees and all of its 51⁄8expenses. The 4¾% Senior Secured Notes due 2021 validly tendered and not validly withdrawn in the cash tender offer announced on January 23, 2020, (ii) redeem all of the 51⁄8% Senior Secured Notes due 2021 that were not purchased pursuant to such tender offer, (iii) purchase in one or more privately negotiated transactions approximately $426 million aggregate principal amount of its 61⁄4% Senior Secured Notes due 2023 and (iv) pay related fees and expenses.

The 65⁄8% Senior Secured Notes due 20252031 bear interest at a rate of 6.625%4.750% per annum,year payable semi-annually in arrears on February 15 and August 15, of each year, commencing on August 15, 2020. The 65⁄82021.

On March 1, 2021, we redeemed the remaining principal amount of the 6⅞% Senior Secured Notes are scheduled to mature on February 15, 2025. The 65⁄8% Senior Secured Notes due 2025 are unconditionally guaranteed2022 of approximately $126 million using cash on a senior-priority secured basis by us and each of the CHS current and future domestic subsidiaries that provide guarantees under the ABL Facility, any capital market debt securities of CHS (including CHS’ outstanding senior notes) and certain other long-term debt of CHS. The 65⁄8% Senior Secured Notes due 2025 and the related guarantees are secured by shared (i) first-priority liens on theNon-ABL Priority Collateral and (ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens described in the indenture governing the 65⁄8% Senior Secured Notes due 2025.

As of March 31, 2020, we are currently a party to one interest rate swap agreement to limit the effect of changes in interest rates on all of our variable rate debt. We receive a variable rate of interest on this swap based on the three-month LIBOR, in exchange for the payment by us of a fixed rate of interest.hand.

Our ability to meet the restricted covenants and financial ratios and tests in the ABL Facility and the indentures governing our outstanding notes can be affected by events beyond our control, and we cannot assure you that we will meet those tests. A breach of any of these covenants could result in a default under the ABL Facility and/or the indentures that govern our outstanding notes. Upon the occurrence of an event of default under the ABL Facility or indentures that govern our outstanding notes, all amounts outstanding under the ABL Facility and the indentures that govern our outstanding notes may become immediately due and payable and all commitments under the ABL Facility to extend further credit may be terminated.

As of March 31, 2020,2021, approximately $30$20 million of our total long-termoutstanding debt of $13.5$11.9 billion is due within the next 12 months.

Proceeds, if any, from the previously announced portfolio rationalization strategy, which is anticipated to formally conclude in the third quarter of this year, are expected to be used for general corporate purposes.

In April 2020,Through March 31, 2021, we received relief via the CARES Act, including approximately $245 million in payments through the PHSSEF and approximately $1.2 billion of accelerated payments pursuant to the Medicare Accelerated and Advance Payment Program.Program, of which approximately $1.1 billion remained outstanding as of March 31, 2021. As previously noted, PHSSEFof March 31, 2021, approximately $546 million of Medicare accelerated payments are not required to be repaid, subject to certain terms and conditions,reflected within accrued liabilities-other in the condensed consolidated balance sheet while payments receivedthe remaining approximately $517 million are included within other long-term liabilities. Recoupment of these funds by CMS began in April 2021 under the Medicare Acceleratedrepayment framework more specifically described above under “Legislation Overview” of this “Management’s Discussion and Advance Payment Program are required to be repaid.Analysis of Financial Condition and Results of Operations.” Additionally, the CARES Act permitspermitted the deferral of payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. We believe thatThrough December 31, 2020, we had deferred approximately $144 million of which, approximately $72 million is included within accrued liabilities employee compensation and approximately $72 million is included within other long-term liabilities as of March 31, 2021, in the condensed consolidated balance sheets. The deferral of the employer portion of social security taxes which we began doing in mid-April 2020, along with the funds received under the CARES Act provisions noted above, will positivelyrepayment of Medicare accelerated payments are expected to negatively impact our cash flows from operations during 2020.2021.


As previously discussed, we may require an increased level of working capital if we experience extended billing and collection cycles resulting from negative economic conditions (including high unemployment and underemployment levels) arising from theCOVID-19 pandemic, which may impact service mix, revenue mix, payor mix and patient volumes, as well as our ability to collect outstanding receivables. AnyA material increase in the amount or deterioration in the collectability of accounts receivable will adversely affect our cash flows and results of operations, requiring an increased level of working capital.

We believe that internally generated cash flows funds we have received under the CARES Act, and funds we may receive in the future, under the CARES Act and the PPPHCE Act, and current levels of availability for additional borrowing under the ABL Facility, as well as our continued access to the capital markets, will be sufficient to finance acquisitions, capital expenditures, working capital requirements, and any debt repurchases or other debt repayments we may elect to make or be required to make through the next 12 months. PHSSEF funds that we have received and may continue to receive under the CARES Act and related legislation will be used according to their terms and conditions as reimbursement for lost revenues and incremental expenses attributable to COVID-19, including working capital requirements and capital expenditures. As noted above, theCOVID-19 pandemic has resulted in, and may continue to result in, significant disruptions of financial and capital markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. Additionally, while we have received PHSSEF payments and accelerated Medicare payments under the CARES Act and werelated legislation and may continue to receive additional amounts in the future under the CARES Act and the PPPHCE Act,be able to utilize PHSSEF payments which have been received, as noted above, there is no assurance regarding the extent to which anticipated ongoing negative impacts on us arising from theCOVID-19 pandemic will be offset by amounts and benefits received under the CARES Act, and which we may recognize or receive in the future under the CARES Act and the PPPHCE Act,related legislation or other legislation.any future stimulus measures.

We may elect from time to time to continue to purchase our outstanding debt in open market purchases, privately negotiated transactions or otherwise. Any such debt repurchases will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions, applicable securities laws requirements, and other factors.

Off-balance Sheet Arrangements

Off-balance sheet arrangements consist of letters of credit of $150$120 million issued on the ABL Facility, primarily in support of potential insurance-related claims and certain bonds, as well as approximately $18$12 million representing the maximum potential amount of future payments under physician recruiting guarantee commitments in excess of the liability recorded at March 31, 2020.2021.

As previously discussed, we have a commitment to build one replacement facility. As part of an acquisition in 2016, we agreed to build a replacement facility in Knox, Indiana.  The estimated construction costs, including equipment costs, are currently estimated to be approximately $15 million. We have incurred no cost to date for the construction of the replacement facility in Knox, Indiana.

Noncontrolling Interests

We have sold noncontrolling interests in certain of our subsidiaries or acquired subsidiaries with existing noncontrolling interest ownership positions. As of March 31, 2020,2021, we have hospitals in 10 of the markets we serve, with noncontrolling physician ownership interests ranging from 1% to 40%. In addition, as of March 31, 2020,2021, we have ninefive other hospitals with noncontrolling interests owned bynon-profit entities. entities or a for-profit subsidiary of a non-profit entity. Redeemable noncontrolling interests in equity of consolidated subsidiaries was $502$481 million and $484 million at both March 31, 20202021 and December 31, 2019,2020, respectively, and noncontrolling interests in equity of consolidated subsidiaries was $69$86 million and $77$87 million as ofat March 31, 20202021 and December 31, 2019,2020, respectively. The amount of net income attributable to noncontrolling interests was $16$29 million and $17$16 million for the three months ended March 31, 20202021 and 2019,2020, respectively. As a result of the change in the Stark Law “whole hospital” exception included in the Affordable Care Act, we are not permitted to introduce physician ownership at any of our hospital facilities that did not have physician ownership at the time of the adoption of the Affordable Care Act, or increase the aggregate percentage of physician ownership in any of our former or existing hospital joint ventures in excess of the aggregate physician ownership level held at the time of the adoption of the Affordable Care Act.

Reimbursement, Legislative and Regulatory Changes

Ongoing legislative and regulatory efforts could reduce or otherwise adversely affect the payments we receive from Medicare and Medicaid and other payors. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings, interpretations and discretion which may further affect payments made under those programs, and the federal and state governments might, in the future, reduce the funds available under those programs or require more stringent utilization and quality reviews of hospital facilities. Additionally, there may be a continued rise in managed care programs and additional restructuring of the financing and delivery of healthcare in the United States. These events could cause our future financial results to be adversely impacted. We cannot estimate the impact of Medicare and Medicaid reimbursement changes that have been enacted or are under consideration. We cannot predict whether additional reimbursement reductions will be made or whether any such changes or other restructuring of the financing and delivery of healthcare would have a material adverse effect on our business, financial conditions, results of operations, cash flow, capital resources and liquidity.


Inflation

The healthcare industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. In addition, our suppliers pass along rising costs to us in the form of higher prices. We have implemented cost control measures, including our case and resource management program, to curb increases in operating costs and expenses. We have generally offset increases in operating costs by increasing reimbursement for services, expanding services and reducing costs in other areas. However, we cannot predict our ability to cover or offset future cost increases, particularly any increases in our cost of providing health insurance benefits to our employees. Moreover, as noted above, we have incurred, and may continue to incur, increased expenses arising from theCOVID-19 pandemic, including additional labor, equipment, pharmaceutical, medical supplies, and other expenditures.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those policies that involve a significant level of estimation uncertainty and have had or are reflectivereasonably likely to have a material impact on the financial condition or results of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions.operations of the registrant. We believe that our critical accounting policies are limited to those described below.

Revenue Recognition

We record net operating revenues at the transaction price estimated to reflect the total consideration due from patients and third-party payors in exchange for providing goods and services in patient care. These services are considered to be a single performance obligation and have a duration of less than one year. Revenues are recorded as these goods and services are provided. The transaction price, which involves significant estimates, is determined based on our standard charges for the goods and services provided, with a reduction recorded for price concessions related to third party contractual arrangements as well as patient discounts and patient price concessions. During botheach of the three monththree-month periods ended March 31, 20202021 and 2019,2020, the impact of changes to the inputs used to determine the transaction price was considered immaterial to the current period.

Currently, several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers to offset a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from the CMS and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. Under these supplemental programs, we recognize revenue and related expenses in the period in which amounts are estimable and collection is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and fees, taxes or other program-related costs are reflected in other operating expenses.

Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-reimbursement and other payment methods. In addition, we are reimbursed bynon-governmental payors using a variety of payment methodologies. Amounts we receive for treatment of patients covered by these programs are generally less than the standard billing rates. Explicit price concessions are recorded for contractual allowances that are calculated and recorded through internally-developed data collection and analysis tools to automate the monthly estimation of required contractual allowances. Within this automated system, payors’ historical paid claims data are utilized to calculate the contractual allowances. This data is automatically updated on a monthly basis. All hospital contractual allowance calculations are subjected to monthly review by management to ensure reasonableness and accuracy. We account for the differences between the estimated program reimbursement rates and the standard billing rates as contractual allowance adjustments, which is one component of the deductions from gross revenues to arrive at net operating revenues. The process of estimating contractual allowances requires us to estimate the amount expected to be received based on payor contract provisions. The key assumption in this process is the estimated contractual reimbursement percentage, which is based on payor classification, historical paid claims data and, when applicable, application of the expected managed care plan reimbursement based on contract terms.

Due to the complexities involved in these estimates, actual payments we receive could be different from the amounts we estimate and record. If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at March 31, 20202021 from our estimated reimbursement percentage, net income (loss)loss for the three months ended March 31, 20202021 would have changed by approximately $74$82 million, and net accounts receivable at March 31, 20202021 would have changed by $95$105 million. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance adjustments related to final settlements and previous program


reimbursement estimates impacted net operating revenues and net (loss) income (loss) by an insignificant amount for each of the three-month periods ended March 31, 20202021 and 2019.

2020.

Patient Accounts Receivable

Substantially all of our accounts receivable are related to providing healthcare services to patients at our hospitals and affiliated businesses. Collection of these accounts receivable is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and outstanding patient balances for which the primary insurance payor has paid some but not all of the outstanding balance, with the remaining outstanding balance (generally deductibles andco-payments) owed by the patient. For all procedures scheduled in advance, our policy is to verify insurance coverage prior to the date of the procedure. Insurance coverage is not verified in advance of procedures forwalk-in and emergency room patients.

We estimate any adjustments to the transaction price for implicit price concessions by reserving a percentage of allself-pay accounts receivable without regard to aging category, based on collection history, adjusted for expected recoveries and any anticipated changes in trends. Our ability to estimate the transaction price and any implicit price concessions is not impacted by not utilizing an aging of our net accounts receivable as we believe that substantially all of the risk exists at the point in time such accounts are identified asself-pay. The percentage used to reserve for allself-pay accounts is based on our collection history. We believe that we collect substantially all of our third-party insured receivables, which include receivables from governmental agencies.

Patient accounts receivable are recorded at net realizable value based on certain assumptions determined by each payor. For third-party payors including Medicare, Medicaid, and Managed Care, the net realizable value is based on the estimated contractual reimbursement percentage, which is based on current contract prices or historical paid claims data by payor. Forself-pay accounts receivable, which includes patients who are uninsured and the patient responsibility portion for patients with insurance, the net realizable value is determined using estimates of historical collection experience without regard to aging category. These estimates are adjusted for estimated conversions of patient responsibility portions, expected recoveries and any anticipated changes in trends.

Patient accounts receivable can be impacted by the effectiveness of our collection efforts. Additionally, significant changes in payor mix, business office operations, economic conditions or trends in federal and state governmental healthcare coverage could affect the net realizable value of accounts receivable. We also continually review the net realizable value of accounts receivable by monitoring historical cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net revenue and admissions by payor classification, aged accounts receivable by payor, days revenue outstanding, the composition ofself-pay receivables between pureself-pay patients and the patient responsibility portion of third-party insured receivables, and the impact of recent acquisitions and dispositions.dispositions and the impact of current economic and other events. If the actual collection percentage differed by 1% at March 31, 20202021 from our estimated collection percentage as a result of a change in expected recoveries, net income (loss)loss for the three months ended March 31, 20202021 would have changed by $52$39 million, and net accounts receivable at March 31, 20202021 would have changed by $67$51 million. We also continually review our overall reserve adequacy by monitoring historical cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net revenue and admissions by payor classification, days revenue outstanding, the composition ofself-pay receivables between pureself-pay patients and the patient responsibility portion of third-party insured receivables and the impact of recent acquisitions and dispositions.

Our policy is towrite-off gross accounts receivable if the balance is under $10.00 or when such amounts are placed with outside collection agencies. We believe this policy accurately reflects our ongoing collection efforts and is consistent with industry practices. We had approximately $3.6$3.2 billion at March 31, 20202021, and $3.8$3.3 billion December 31, 2019,2020, being pursued by various outside collection agencies. We expect to collect less than 3%, net of estimated collection fees, of the amounts being pursued by outside collection agencies. As these amounts have beenwritten-off, they are not included in our accounts receivable. Collections on amounts previouslywritten-off are recognized as a recovery of net operating revenues when received. However, we take into consideration estimated collections of these future amountswritten-off in determining the implicit price concessions used to measure the transaction price for the applicable portfolio of patient accounts receivable.

All of the following information is derived from our hospitals, excluding clinics, unless otherwise noted.

Patient accounts receivable from our hospitals represent approximately 98% of our total consolidated accounts receivable.

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 5753 days and 5852 days at March 31, 20202021 and December 31, 2019,2020, respectively.


Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $15.9$15.3 billion as of March 31, 20202021 and approximately $16.6$14.8 billion as of December 31, 2019.2020. The approximate percentage of total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) summarized by aging categories is as follows:

As of March 31, 2020:

As of March 31, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   % of Gross Receivables 

 

% of Gross Receivables

 

Payor       0 - 90 Days            90 - 180 Days            180 - 365 Days            Over 365 Days     

 

0 - 90

Days

 

 

90 - 180

Days

 

 

180 - 365

Days

 

 

Over 365

Days

 

Medicare

    12 %      - %      - %      1 %  

 

 

14

%

 

 

—

%

 

 

—

%

 

 

—

%

Medicaid

    6 %      1 %      1 %      1 %  

 

 

7

%

 

 

1

%

 

 

1

%

 

 

1

%

Managed Care and Other

    26 %      4 %      3 %      2 %  

 

 

33

%

 

 

4

%

 

 

3

%

 

 

3

%

Self-Pay

    10 %      8 %      11 %      14 %  

 

 

7

%

 

 

5

%

 

 

9

%

 

 

12

%

As of December 31, 2019:

As of December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   % of Gross Receivables 

 

% of Gross Receivables

 

Payor       0 - 90 Days            90 - 180 Days            180 - 365 Days            Over 365 Days     

 

0 - 90

Days

 

 

90 - 180

Days

 

 

180 - 365

Days

 

 

Over 365

Days

 

Medicare

    13 %      1 %      - %      1 % 

 

 

13

%

 

 

1

%

 

 

—

%

 

 

—

%

Medicaid

    6 %      1 %      1 %      1 % 

 

 

7

%

 

 

1

%

 

 

1

%

 

 

1

%

Managed Care and Other

    27 %      4 %      3 %      2 % 

 

 

31

%

 

 

4

%

 

 

3

%

 

 

3

%

Self-Pay

    9 %      8 %      10 %      13 % 

 

 

8

%

 

 

6

%

 

 

9

%

 

 

12

%

The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and implicit price concessions) summarized by payor is as follows:

 

      March 31,           December 31,    

 

March 31,

 

 

December 31,

 

  2020   2019

 

2021

 

 

2020

 

Insured receivables

   58.1 %     59.5 % 

 

 

67.3

%

 

 

64.3

%

Self-pay receivables

   41.9      40.5  

 

 

32.7

 

 

 

35.7

 

Total

   100.0 %     100.0 % 

 

 

100.0

%

 

 

100.0

%

The combined total at our hospitals and clinics for the estimated implicit price concessions forself-pay accounts receivable and allowances for otherself-pay discounts and contractuals, as a percentage of grossself-pay receivables, was approximately 90%91% at both March 31, 20202021 and December 31, 2019.2020. If the receivables that have beenwritten-off, but where collections are still being pursued by outside collection agencies, were included in both the allowances and grossself-pay receivables specified above, the percentage of combined allowances to totalself-pay receivables would have been 93% and 94% at both March 31, 20202021 and December 31, 2019, respectively.2020.

Goodwill and Other Intangibles

Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired. Goodwill is evaluated for impairment annually and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. During 2017, we early adopted Accounting Standards Update, or ASU2017-04, which allows a company to record a goodwill impairment when the reporting units carrying value exceeds the fair value determined in step one. We performed our last annual goodwill impairment evaluation during the fourth quarter of 20192020 using the October 31, 20192020 measurement date, which indicated no impairment.

At March 31, 2020,2021, we had approximately $4.3$4.2 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.

While A detailed evaluation of potential impairment indicators was performed as of March 31, 2021. On the basis of available evidence as of March 31, 2021, no impairment was indicated in our annual goodwill evaluation as of the October 31, 2019 measurement date, the reduction in our fair value and the resulting goodwill impairment charges recorded in 2016 and 2017 reduced the carrying value of our hospital operations reporting unit to an amount equal to our estimated fair value as of such prior year measurement dates. This increases the risk that future declines in fair value could result in goodwill impairment. indicators were identified.

The determination of fair value in step one of our goodwill impairment analysis is based on an estimate of fair value for the hospital operations reporting unit utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited to, the


most recent price of our common stock or fair value of our long-term debt, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income tax rates, and costs of invested capital. A detailed evaluation of potential impairment indicators was performed as of March 31, 2020, which specifically considered the decline in the fair market value of our outstanding senior secured and unsecured notes and common stock during the first quarter as a result of theCOVID-19 pandemic. Volatility was observed in the prices of our outstanding debt securities and common stock and the decline in patient volumes following the emergence ofCOVID-19 was also considered. On the basis of available evidence as of March 31, 2020, no indicators of impairment were identified.

Future estimates of fair value could be adversely affected if the actual outcome of one or more of the assumptions described above changes materially in the future, including a decline in or volatility of our stock price and the fair value of its our long-term debt, lower than expected hospital volumes, higher market interest rates or increased operating costs. Such changes impacting the calculation of our fair value, the risks of which are amplified by theCOVID-19 pandemic, could result in a material impairment charge in the future.

Impairment or Disposal of Long-Lived Assets

Whenever events or changes in circumstances indicate that the carrying values of certain long-lived assets may be impaired, we project the undiscounted cash flows expected to be generated by these assets. If the projections indicate that the reported amounts are not expected to be recovered, such amounts are reduced to their estimated fair value based on a quoted market price, if available, or an estimate based on valuation techniques available in the circumstances.

Professional Liability Claims

As part of our business of owning and operating hospitals, we are subject to legal actions alleging liability on our part. We accrue for losses resulting from such liability claims, as well as loss adjustment expenses that areout-of-pocket and directly related to such liability claims. These directout-of-pocket expenses include fees of outside counsel and experts. We do not accrue for costs that are part of our corporate overhead, such as the costs of ourin-house legal and risk management departments. The losses resulting from professional liability claims primarily consist of estimates for known claims, as well as estimates for incurred but not reported claims. The estimates are based on specific claim facts, our historical claim reporting and payment patterns, the nature and level of our hospital operations, and actuarially determined projections. The actuarially determined projections are based on our actual claim data, including historic reporting and payment patterns which have been gathered over an approximately20-year period. As discussed below, since we purchase excess insurance on a claims-made basis that transfers risk to third-party insurers, the liability we accrue does include an amount for the losses covered by our excess insurance. We also record a receivable for the expected reimbursement of losses covered by our excess insurance. Since we believe that the amount and timing of our future claims payments are reliably determinable, we discount the amount we accrue for losses resulting from professional liability claims using the risk-free interest rate corresponding to the timing of our expected payments.

The net present value of the projected payments was discounted using a weighted-average risk-free rate of 2.0%1.8% as of March 31, 20202021 and 2.6% and 3.1% in 2019 and 2018, respectively.December 31, 2020. This liability is adjusted for new claims information in the period such information becomes known to us. Professional malpractice expense includes the losses resulting from professional liability claims and loss adjustment expense, as well as paid excess insurance premiums, and is presented within other operating expenses in the accompanying condensed consolidated statements of income (loss). income.

Our processes for obtaining and analyzing claims and incident data are standardized across all of our hospitals and have been consistent for many years. We monitor the outcomes of the medical care services that we provide and for each reported claim, we obtain various information concerning the facts and circumstances related to that claim. In addition, we routinely monitor current key statistics and volume indicators in our assessment of utilizing historical trends. The average lag period between claim occurrence and payment of a final settlement is between three and four years, although the facts and circumstances of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after settlement with the claimant is reached, settled claims represent approximately 1.0% of the total liability at the end of any period.

For purposes of estimating our individual claim accruals, we utilize specific claim information, including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years, geography, and claims relating to the acquired HMA hospitals versus claims relating to our other hospitals. Several actuarial methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses our company-specific historical claims data and other information. This company-specific data includes information regarding our business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data.


Based on these analyses, we determine our estimate of the professional liability claims. The determination of management’s estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of management. Changes in reserving data or the trends and factors that influence reserving data may signal fundamental shifts in our future claim development patterns or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover, since our methods and models use different types of data and we select our liability from the results of all of these methods, we typically cannot quantify the precise impact of such factors on our estimates of the liability. Due to our standardized and consistent processes for handling claims and the long history and depth of our company-specific data, our methodologies have historically produced reliably determinable estimates of ultimate paid losses. Management considers any changes in the amount and pattern of its historical paid losses up through the most recent reporting period to identify any fundamental shifts or trends in claim development experience in determining the estimate of professional liability claims. However, due to the subjective nature of this estimate and the impact that previously unforeseen shifts in actual claim experience can have, future estimates of professional liability could be adversely impacted when actual paid losses develop unexpectedly based on assumptions and settlement events that were not previously known or anticipated.

We are primarily self-insured for these claims; however, we obtain excess insurance that transfers the risk of loss to a third-party insurer for claims in excess of our self-insured retentions. Our excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002, substantially all of our professional and general liability risks were subject to a less than $1 million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2 million per occurrence. Substantially all claims reported after June 1, 2003 and before June 1, 2005 are self-insured up to $4 million per claim. Substantially all claims reported on or after June 1, 2005 and before June 1, 2014 are self-insured up to $5 million per claim. Substantially all claims reported on or after June 1, 2014 and before June 1, 2018 are self-insured up to $10 million per claim. Substantially all claims reported on or after June 1, 2018 are self-insured up to $15 million per claim. Management, on occasion, has selectively increased the insured risk at certain hospitals based upon insurance pricing and other factors and may continue that practice in the future. Excess insurance for all hospitals has been purchased through commercial insurance companies and generally covers us for liabilities in excess of the self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of which totals up to $95 million per occurrence and in the aggregate for claims reported on or after June 1, 2003, up to $145 million per occurrence and in the aggregate for claims reported on or after January 1, 2008, up to $195 million per occurrence and in the aggregate for claims reported on or after June 1, 2010, and up to at least $215 million per occurrence and in the aggregate for claims reported on or after June 1, 2015. In addition, for integrated occurrence malpractice claims, there is an additional $50 million of excess coverage for claims reported on or after June 1, 2014 and an additional $75 million of excess coverage for claims reported on or after June 1, 2015.2015 through June 1, 2020. The $75 million in integrated occurrence coverage will also apply to claims reported between June 1, 2020 and May 31, 2021 for events that occurred prior to June 1, 2020 but which were not previously known or reported. For certain policy years prior to June 1, 2014, if the first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention will increase to $10 million per claim for any subsequent claims in that policy year until our total aggregate coverage is met. Beginning June 1, 2018, this drop-down provision in the excess policies attaches over the $15 million per claim self-insured retention.

Effective June 1, 2014, the hospitals acquired from HMA were insured on a claims-made basis as described above and through commercial insurance companies as described above for substantially all claims reported on or after June 1, 2014 except for physician-related claims with an occurrence date prior to June 1, 2014. Prior to June 1, 2014, the former HMA hospitals obtained insurance coverage through a wholly-owned captive insurance subsidiary and a risk retention group subsidiary which are domiciled in the Cayman Islands and South Carolina, respectively. Those insurance subsidiaries, which are collectively referred to as the “Insurance Subsidiaries,” provided (i) claims-made coverage to all of the former HMA hospitals and (ii) occurrence-basis coverage to most of the physicians employed by the former HMA hospitals. The employed physicians not covered by the Insurance Subsidiaries generally maintained claims-made policies with unrelated third party insurance companies. To mitigate the exposure of the program covering the former HMA hospitals and other healthcare facilities, the Insurance Subsidiaries bought claims-made reinsurance policies from unrelated third parties for claims above self-retention levels of $10 million or $15 million per claim, depending on the policy year.

Effective January 1, 2008, the former Triad hospitals were insured on a claims-made basis as described above and through commercial insurance companies as described above for substantially all claims occurring on or after January 1, 2002 and reported on or after January 1, 2008. Substantially all losses for the former Triad hospitals in periods prior to May 1, 1999 were insured through a wholly-owned insurance subsidiary of HCA, Triad’s owner prior to that time, and excess loss policies maintained by HCA. HCA has agreed to indemnify the former Triad hospitals in respect of claims covered by such insurance policies arising prior to May 1, 1999. From May 1, 1999 through December 31, 2006, the former Triad hospitals obtained insurance coverage on a claims incurred basis from HCA’s wholly-owned insurance subsidiary with excess coverage obtained from other carriers that is subject to certain deductibles. Effective for claims incurred after December 31, 2006, Triad began insuring its claims from $1 million to $5 million through its wholly-owned captive insurance company, replacing the coverage provided by HCA. Substantially all claims occurring during 2007 were self-insured up to $10 million per claim.


There were no significant changes in our estimate of the reserve for professional liability claims during the three months ended March 31, 2020.2021.

Income Taxes

We must make estimates in recording provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets. We believe that future income will enable us to realize certain deferred tax assets, subject to the valuation allowance we have established.

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was approximatelyless than $1 million as of March 31, 2020.2021. A total of approximatelyless than $1 million of interest and penalties is included in the amount of liability for uncertain tax positions at March 31, 2020.2021. It is our policy to recognize interest and penalties related to unrecognized benefits in our condensed consolidated statements of (loss) income (loss) as income tax expense.

It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute of limitations and settlements with taxing authorities; however, we do not anticipate the change will have a material impact on our consolidated results of operations or consolidated financial position.

Our federal income tax returns for the 2009 and 2010 tax years have been settled with the Internal Revenue Service. The results of these examinations were not material to our consolidated results of operations or consolidated financial position. Our federal income tax returns for the 2014 and 2015 tax years remain under examination by the Internal Revenue Service. We believe the results of these examinations will not be material to our consolidated results of operations or consolidated financial position. We have extended the federal statute of limitations through December 31, 20202021 for Community Health Systems, Inc. for the tax periods ended December 31, 2014 and 2015. Our federal income tax return for the 2018 tax year is under examination by the Internal Revenue Service.

Recent Accounting Pronouncements


In March 2020, the FASB issued Accounting Standards Update, orASU, 2020-04, or Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another rate that is expected to be discontinued. The amendments in the ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of this guidance did not have a material impact on our condensed consolidated financial position or results of operations.

We have evaluated all other recently issued, but not yet effective, ASUs and does not expect the eventual adoption of these ASUs to have a material impact on its condensed consolidated financial position or results of operations.

FORWARD-LOOKING STATEMENTS

Some of the matters discussed in this Report include “forward-looking statements” within the meaning of the federal securities laws, which involve risks, assumptions and uncertainties. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “thinks,” and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. These factors include, among other things:

developments related to

•

developments related to COVID-19, including, without limitation, related to the length and severity of the pandemic; the volume of canceled or rescheduled procedures; the volume of COVID-19 patients cared for across our health systems; the timing and availability of effective medical treatments and vaccines, including the timing and effectiveness of the ongoing rollout of currently available vaccines; the spread of potentially more contagious and/or virulent forms of the virus; measures we are taking to respond to the COVID-19 pandemic; the impact of government and administrative regulation on us; changes in net revenue due to patient volumes, payor mix and negative macroeconomic conditions; increased expenses related to labor, supply chain, capital and severity of the pandemic; the volume of canceled or rescheduled procedures; the volume ofCOVID-19 patients cared for across our health systems; measures we are taking to respond to theCOVID-19 pandemic; the impact of government and administrative regulation on us; changes in net revenue due to patient volumes, payor mix and deteriorating macroeconomic conditions; potential increased expenses related to labor, supply chain or other expenditures; workforce disruptions; and supply shortages and disruptions;

•

uncertainty regarding the implementation of the CARES Act, the PPPHCE Act, the CAA, the ARPA and any other future stimulus measures related to COVID-19, including the magnitude and timing of any future payments or benefits we may receive or realize thereunder;

•

general economic and business conditions, both nationally and in the regions in which we operate, including economic and business conditions resulting from the COVID-19 pandemic;

•

the impact of current or future federal and state health reform initiatives, including, without limitation, the Affordable Care Act, and the potential for the Affordable Care Act to be repealed or found unconstitutional or otherwise invalidated, or for additional changes to the law, its implementation or its interpretation (including through executive orders and court challenges);

•

the extent to and manner in which states support increases, decreases or changes in Medicaid programs, implement health insurance exchanges or alter the provision of healthcare to state residents through regulation or otherwise;

•

the future and long-term viability of health insurance exchanges and potential changes to the beneficiary enrollment process;

•

risks associated with our substantial indebtedness, leverage and debt service obligations, including our ability to refinance such indebtedness on acceptable terms or to incur additional indebtedness, and our ability to remain in compliance with debt covenants;

•

demographic changes;

•

changes in, or the failure to comply with, federal, state or local laws or governmental regulations affecting our business, including any such laws or governmental regulations which are adopted in connection with the COVID-19 pandemic;

•

potential adverse impact of known and unknown government investigations, audits, and federal and state false claims act litigation and other legal proceedings;

•

our ability, where appropriate, to enter into and maintain provider arrangements with payors and the terms of these arrangements, which may be further affected by the increasing consolidation of health insurers and managed care companies and vertical integration efforts involving payors and healthcare providers;

•

changes in, or the failure to comply with, contract terms with payors and changes in reimbursement policies or rates paid by federal or state healthcare programs or commercial payors;

•

any potential impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets;

•

changes in inpatient or outpatient Medicare and Medicaid payment levels and methodologies;

•

the effects related to the implementation of sequestration spending reductions pursuant to both the Budget Control Act of 2011 and the PAYGO Act and the potential for future deficit reduction legislation;


•

increases in the amount and risk of collectability of patient accounts receivable, including decreases in collectability which may result from, among other things, self-pay growth and difficulties in recovering payments for which patients are responsible, including co-pays and deductibles;

•

the efforts of insurers, healthcare providers, large employer groups and others to contain healthcare costs, including the trend toward value-based purchasing;

•

increases in wages as a result of inflation or competition for highly technical positions and rising supply and drug costs due to market pressure from pharmaceutical companies and new product releases;

•

liabilities and other claims asserted against us, including self-insured malpractice claims;

•

competition;

•

our ability to attract and retain, at reasonable employment costs, qualified personnel, key management, physicians, nurses and other healthcare workers;

•

trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals or via telehealth;

•

changes in medical or other technology;

•

changes in U.S. GAAP;

•

the availability and terms of capital to fund any additional acquisitions or replacement facilities or other capital expenditures;

•

our ability to successfully make acquisitions or complete divestitures, our ability to complete any such acquisitions or divestitures on desired terms or at all, the timing of the completion of any such acquisitions or divestitures, and our ability to realize the intended benefits from any such acquisitions or divestitures;

•

the impact that changes in our relationships with joint venture or syndication partners could have on effectively operating our hospitals or ancillary services or in advancing strategic opportunities;

•

our ability to successfully integrate any acquired hospitals, or to recognize expected synergies from acquisitions;

•

the impact of seasonal severe weather conditions, including the timing and amount of insurance recoveries in relation to severe weather events;

•

our ability to obtain adequate levels of insurance, including general liability, professional liability, and directors and officers liability insurance;

•

timeliness of reimbursement payments received under government programs;

•

effects related to pandemics, epidemics, or outbreaks of infectious diseases, including the novel coronavirus causing the disease known as COVID-19 as noted above;

•

the impact of cyber-attacks or security breaches;

•

any failure to comply with the terms of the Corporate Integrity Agreement;

•

the concentration of our revenue in a small number of states;

•

our ability to realize anticipated cost savings and other benefits from our current strategic and operational cost savings initiatives;

•

any changes in or interpretations of income tax laws and regulations; and

•

the other risk factors set forth in our 2020 Form 10-K, and our other public filings with the SEC.


 

uncertainty regarding the implementation of the CARES Act, the PPPHCE Act, and any other future stimulus measures related toCOVID-19, including the magnitude and timing of any future payments or benefits we may receive thereunder;

general economic and business conditions, both nationally and in the regions in which we operate, including economic and business conditions resulting from theCOVID-19 pandemic;

the impact of current or future federal and state health reform initiatives, including, without limitation, the Affordable Care Act, and the potential for the Affordable Care Act to be repealed or found unconstitutional or otherwise invalidated, or for additional changes to the law, its implementation or its interpretation (including through executive orders and court challenges);

the extent to and manner in which states support increases, decreases or changes in Medicaid programs, implement health insurance exchanges or alter the provision of healthcare to state residents through regulation or otherwise;

the future and long-term viability of health insurance exchanges and potential changes to the beneficiary enrollment process;

risks associated with our substantial indebtedness, leverage and debt service obligations, including our ability to refinance such indebtedness on acceptable terms or to incur additional indebtedness, and our ability to remain in compliance with debt covenants, as well as risks associated with disruptions in the financial and capital markets as the result of theCOVID-19 pandemic which could impact us from a financing and liquidity perspective;

demographic changes;

changes in, or the failure to comply with, federal, state or local laws or governmental regulations affecting our business, including any such laws or governmental regulations which are adopted in connection with theCOVID-19 pandemic;

potential adverse impact of known and unknown government investigations, audits, and federal and state false claims act litigation and other legal proceedings;

our ability, where appropriate, to enter into and maintain provider arrangements with payors and the terms of these arrangements, which may be further affected by the increasing consolidation of health insurers and managed care companies and vertical integration efforts involving payors and healthcare providers;

changes in, or the failure to comply with, contract terms with payors and changes in reimbursement policies or rates paid by federal or state healthcare programs or commercial payors;

any potential additional impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets;

changes in inpatient or outpatient Medicare and Medicaid payment levels and methodologies;

the effects related to the continued implementation of the sequestration spending reductions and the potential for future deficit reduction legislation;

increases in the amount and risk of collectability of patient accounts receivable, including decreases in collectability which may result from, among other things,self-pay growth and difficulties in recovering payments for which patients are responsible, includingco-pays and deductibles;

the efforts of insurers, healthcare providers, large employer groups and others to contain healthcare costs, including the trend toward value-based purchasing;

increases in wages as a result of inflation or competition for highly technical positions and rising supply and drug costs due to market pressure from pharmaceutical companies and new product releases;

liabilities and other claims asserted against us, including self-insured malpractice claims;

competition;

our ability to attract and retain, at reasonable employment costs, qualified personnel, key management, physicians, nurses and other healthcare workers;

trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals or via telehealth;

changes in medical or other technology;

changes in U.S. GAAP;

the availability and terms of capital to fund any additional acquisitions or replacement facilities or other capital expenditures;

our ability to successfully make acquisitions or complete divestitures, including the disposition of hospitals andnon-hospital businesses pursuant to our portfolio rationalization and deleveraging strategy, our ability to complete any such acquisitions or divestitures on desired terms or at all, the timing of the completion of any such acquisitions or divestitures, and our ability to realize the intended benefits from any such acquisitions or divestitures;

the impact that changes in our relationships with joint venture or syndication partners could have on effectively operating our hospitals or ancillary services or in advancing strategic opportunities;

our ability to successfully integrate any acquired hospitals, or to recognize expected synergies from acquisitions;

the impact of seasonal severe weather conditions, including the timing and amount of insurance recoveries in relation to severe weather events;

our ability to obtain adequate levels of insurance, including general liability, professional liability, and directors and officers liability insurance;

timeliness of reimbursement payments received under government programs;

effects related to pandemics, epidemics, or outbreaks of infectious diseases, including the coronavirus known asCOVID-19 as noted above;

the impact of cyber-attacks or security breaches;

any failure to comply with the terms of the Corporate Integrity Agreement;

the concentration of our revenue in a small number of states;

our ability to realize anticipated cost savings and other benefits from our current strategic and operational cost savings initiatives;

changes in interpretations, assumptions and expectations regarding the Tax Cuts and Jobs Act; and

the other risk factors set forth in our 2019 Form10-K, and our other public filings with the SEC.

Although we believe that these forward-looking statements are based upon reasonable assumptions, these assumptions are inherently subject to significant regulatory, economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond our control. Accordingly, we cannot give any assurance that our expectations will in fact occur, and we caution that actual results may differ materially from those in the forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this filing. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3.Quantitative and QualitativeQualitative Disclosures about Market Risk

We are exposed to interest rate changes, primarily as a result of the ABL Facility which bears interest based on floating rates. In order to manage the volatility relating to the market risk, we entered into interest rate swap agreements to manage our exposure to these fluctuations, as described under the heading “Liquidity and Capital Resources” in Part I, Item 2. We utilize risk management procedures and controls in executing derivative financial instrument transactions. We do not execute transactions or hold derivative financial instruments for trading purposes. Derivative financial instruments related to interest rate sensitivity of debt obligations are used with the goal of mitigating a portion of the exposure when it is cost effective to do so. As of March 31, 2020, our one outstanding interest rate swap agreement with a notional amount of $300 million and a termination date of August 30, 2020 represented approximately 78.9% of our variable rate debt.

A 1% change in interest rates on variable rate debt in excess of that amount covered by interest rate swaps would have resulted in interest expense fluctuating less than $1 million and approximately $3 million forDuring the three months ended March 31, 2021, there have been no material changes in the quantitative and qualitative disclosures set forth in Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our 2020 and 2019, respectively.Form 10-K.

Item 4.Controls andControls and Procedures

Our Chief Executive Officer and Chief Financial Officer, with the participation of other members of management, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e)) under the Securities and Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on such evaluations, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective (at the reasonable assurance level) to ensure that the information required to be included in this report has been recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that the information required to be included in this report was accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting during the three months ended March 31, 20202021 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.


PART II OTHER INFORMATION

From time to time, we receive inquiries or subpoenas from state regulators, state Medicaid Fraud Control units, fiscal intermediaries, the Centers for Medicare and& Medicaid Services, the Department of Justice and other government entities regarding various Medicare and Medicaid issues. In addition to the matters discussed below, we are currently responding to subpoenas and administrative demands concerning (a) an inquiry regarding sleep labs at two Louisiana hospitals (one formerly owned), (b) a subpoena related to certain services provided by a formerly-employed physician to Medicaid beneficiaries at one of our New Mexico hospitals, (c) an inquiry regarding certain services performed by one of our affiliated emergency services companies in Pennsylvania, (d)(b) a civil investigative demand related to call coverage services provided by a cardiology group at one of our Tennessee hospitals; and (e)(c) a civil investigative demand related to charges for certain emergency department services at our four New Mexico hospitals and (d) a subpoena related to certain critical care procedures performed at one of our Texas hospitals. In addition, we are subject to other claims and lawsuits arising in the ordinary course of our business including lawsuits and claims related to billing practices and the administration of charity care policies at our hospitals. Based on current knowledge, management does not believe that loss contingencies arising from pending legal, regulatory and governmental matters, including the matters described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending legal, regulatory and governmental matters, some of which are beyond our control, and the very large or indeterminate damages sought in some of these matters, 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. Settlements of suits involving Medicare and Medicaid issues routinely require both monetary payments as well as corporate integrity agreements. Additionally, qui tam or “whistleblower” actions initiated under the civil False Claims Act may be pending but placed under seal by the court to comply with the False Claims Act’s requirements for filing such suits. In September 2014, the Criminal Division of the United States Department of Justice, or DOJ, announced that all qui tam cases will be shared with their Division to determine if a parallel criminal investigation should be opened. The Criminal Division has also frequently stated an intention to pursue corporations in criminal prosecutions. From time to time, we detect issues ofnon-compliance with Federal healthcare laws pertaining to claims submission and reimbursement practices and/or financial relationships with physicians. We avail ourselves of various mechanisms to address potential overpayments arising out of these issues, including repayment of claims, rebilling of claims, and participation in voluntary disclosure protocols offered by the Centers for Medicare and& Medicaid Services and the Office of the Inspector General. Participating in voluntary repayments and voluntary disclosure protocols can have the potential for significant settlement obligations or even enforcement action.

The following legal proceedings are described in detail because, although they may not be required to be disclosed in this Part II, Item 1 under SEC rules, due to the nature of the business of the Company, we believe that the following discussion of these matters may provide useful information to security holders. This discussion does not include claims and lawsuits covered by medical malpractice, general liability or employment practices insurance and risk retention programs, none of which claims or lawsuits would in any event be required to be disclosed in this Part II, Item 1 under SEC rules. Certain of the matters referenced below are also discussed in Note 13 of the Notes to Consolidated Financial Statements included under Part I, Item 1 of this Form10-Q.

Shareholder Litigation

2011 Class Action Shareholder Federal Securities Cases. Three purported class action cases have been filed in the United States District Court for the Middle District of Tennessee; namely, Norfolk County Retirement System v. Community Health Systems, Inc., et al., filed May 9, 2011; De Zheng v. Community Health Systems, Inc., et al., filed May 12, 2011; and Minneapolis Firefighters Relief Association v. Community Health Systems, Inc., et al., filed June 21, 2011. All three seek class certification on behalf of purchasers of our common stock between July 27, 2006 and April 11, 2011 and allege that misleading statements resulted in artificially inflated prices for our common stock. In December 2011, the cases were consolidated for pretrial purposes and NYC Funds and its counsel were selected as lead plaintiffs/lead plaintiffs’ counsel. In lieu of ruling on our motion to dismiss, the court permitted the plaintiffs to file a first amended consolidated class action complaint which was filed on October 5, 2015. Our motion to dismiss was filed on November 4, 2015 and oral argument took place on April 11, 2016. Our motion to dismiss was granted on June 16, 2016 and on June 27, 2016, the plaintiffs filed a notice of appeal to the Sixth Circuit Court of Appeals. The matter was heard on May 3, 2017. On December 13, 2017, the Sixth Circuit reversed the trial court’s dismissal of the case and remanded it to the District Court. We filed a renewed partial motion to dismiss on February 9, 2018, which was denied by the District Court on September 24, 2018. We also filed a petition for writ of certiorari with the United States Supreme Court on April 18, 2018 seeking review of the Sixth Circuit’s decision. The United States Supreme Court denied the petition for a writ of certiorari on October 1, 2018. The District Court granted the Plaintiff’s motion for class certification on July 26, 2019. We filed a petition for permission to appeal the District Court’s class certification order in the Sixth Circuit Court of Appeals on August 9, 2019, and that petition was denied on October 23, 2019. On January 21, 2020, the Company and the Plaintiff filed a stipulation of settlement indicating to the District Court that the parties had reached agreement on the principal terms of a settlement for $53 million. The settlement received preliminary approval from the District Court on January 30, 2020. Objections to the settlement are due May 18, 2020, and the hearing for final approval of the settlement is set for June 19, 2020. Our $53 million reserve for this matter, which was recorded during the three months ended December 31, 2019, remains as of March 31, 2020, pending final approval of the settlement. The proposed settlement amount has been funded by us and is held in escrow as of March 31, 2020. Such amount is recorded in other current assets in the condensed consolidated balance sheet.

Caleb Padilla, individually and on behalf of all others similarly situated v Community Health Systems, Inc., Wayne T. Smith, Larry Cash, and Thomas J. Aaron. This purported federal securities class action was filed in the United States District Court for the Middle District of Tennessee on May 30, 2019. It seeks class certification on behalf of purchasers of our common stock between February 20, 2017 and February 27, 2018 and alleges misleading statements resulted in artificially inflated prices for our common stock. On November 20, 2019, the District Court appointed Arun Bhattacharya and Michael Gaviria as lead plaintiffs in the case. The lead plaintiffs filed a consolidated class complaint on January 21, 2020. The Company filed a motion to dismiss the consolidated class complaint on March 23, 2020. That motion is pending. We believe this matter is without merit and will vigorously defend this case.

PadillaDerivativePadillaDerivative Litigation. FourFive purported shareholder derivative cases have been filed in two District Courts relating to the factual allegations in the Padillalitigation;Padillalitigation; namely, Faisal Hussain v. Wayne T. Smith, et al, filed August 12, 2019 in the United States District Court for the District of Delaware; Roger Trombley v. Wayne T. Smith, et al, filed August 20, 2019 in the United States District Court for the Middle District of Tennessee; Susheel Tanjavoor v. Wayne T. Smith, et al., filed August 29, 2019, in the United States District Court for the District of Delaware; and Roofers Local No. 149 Pension Fund v. John A. Clerico, et al, filed October 30, 2019, in the United States District Court for the District of Delaware; and Kevin Aronson v. Wayne T. Smith, et al, filed April 29, 2020 in the United States District Court for the District of Delaware. All fourfive seek relief derivatively and on behalf of Community Health Systems, Inc. against certain Company officers and directors based on alleged breaches of fiduciary duty, unjust enrichment, and other acts related to certain Company disclosures in 2017 and 2018 regarding the Company’s adoption of Accounting Standards Update2014-09, which the Company adopted effective January 1, 2018. All four cases have been stayed by agreement.

Section 220 Demand. On September 19, 2019, the Company receivedThe defendants filed a demand from Kevin Aronson, a Company shareholder, purportingMotion to demand inspection of certain Company books and records pursuant to Title 8, Section 220 of the Delaware General Corporation Law Code. The alleged grounds for Mr. Aronson’s demand are similar to the allegations in both thePadillaandPadilladerivative litigation. The Company has provided a response to Mr. Aronson’s demand.Stay on October 21, 2020, which is pending.


Other Government Investigations

Florida LIP Program CIDs – On September 14, 2017, our hospital in St. Petersburg, Florida received a CID from the United States Department of Justice for information concerning its historic participation in the Florida Low Income Pool Program. The Low Income Pool Program, or LIP, is a funding pool to support healthcare providers that provide uncompensated care to Florida residents who are uninsured or underinsured. The CID sought documentation related to agreements between the hospital and Pinellas County. On June 13, 2019, an additional ten of our affiliated hospitals in Florida received CIDs related to the same subject matter, along with two CIDs addressed to our affiliated management company and the parent company. We are cooperating fully with this investigation.

Commercial Litigation and Other Lawsuits

Becker v. Community Health Systems, Inc. d/b/a Community Health Systems Professional Services Corporation d/b/a Community Health Systems d/b/a Community Health Systems PSC, Inc. d/b/a Rockwood Clinic P.S. and Rockwood Clinic, P.S. (Superior Court, Spokane, Washington).This suit was filed on February 29, 2012, by a former chief financial officer at Rockwood Clinic in Spokane, Washington. Becker claims he was wrongfully terminated for allegedly refusing to certify a budget for Rockwood Clinic in 2012. On February 29, 2012, he also filed an administrative complaint with the Department of Labor, Occupational Safety and Health Administration alleging that he is a whistleblower under Sarbanes-Oxley, which was dismissed by the agency and was appealed to an administrative law judge for a hearing that occurred onJanuary 19-26, 2016. In a decision dated November 9, 2016, the law judge awarded Becker approximately $1.9 million for front pay, back pay and emotional damages with attorney fees to be later determined. We have appealed the award to the Administrative Review Board and are awaiting its decision. At a hearing on July 27, 2012, the trial court dismissed Community Health Systems, Inc. from the state case and subsequently certified the state case for an interlocutory appeal of the denial to dismiss his employer and the management company. The appellate court accepted the interlocutory appeal, and it was argued on April 30, 2014. On August 14, 2014, the court denied our appeal. On October 20, 2014, we filed a petition to review the denial with the Washington Supreme Court. Our appeal was accepted and oral argument was heard on June 9, 2015. On September 15, 2015, the court denied our appeal and remanded to the trial court; a previous trial setting of September 12, 2016 has been vacated and not reset. On October 15, 2019, the Administrative Review Board released an order to show cause requiring Becker to file a brief to show cause why the Administrative Review Board should not remand the previous administrative decision for a new hearing before a new law judge. The parties have settled this case for an immaterial amount and both the administrative action and the Superior Court case have been dismissed.

Cyber Attack. As previously disclosed on a Current Report on Form8-K filed by us on August 18, 2014, our computer network was the target of an external, criminal cyber-attack that we believe occurred between April and June, 2014. We and Mandiant (a FireEye Company), the forensic expert engaged by us in connection with this matter, believe the attacker was a foreign “Advanced Persistent Threat” group who used highly sophisticated malware and technology to attack our systems. The attacker was able to bypass our security measures and successfully copy and transfer outside the Company certainnon-medical patient identification data (such as patient names, addresses, birthdates, telephone numbers and social security numbers), but not including patient credit card, medical or clinical information. We worked closely with federal law enforcement authorities in connection with their investigation and prosecution of those determined to be responsible for this attack. Mandiant has conducted a thorough investigation of this incident and continues to advise us regarding security and monitoring efforts. We have provided appropriate notification to affected patients and regulatory agencies as required by federal and state law. We have offered identity theft protection services to individuals affected by this attack.

We believe that all class actions, litigation, and investigations related to the data breach have been resolved. In March 2020, we resolved and settled both the State Attorneys General and U.S. Department of Health and Human Services Office for Civil Rights investigations. The settlement with the Office for Civil Rights includes a Corrective Action Plan, and the settlement with the State Attorneys General includes an agreed injunction.

Gibson, individually and on behalf of all others similarly situated v. National Healthcare of Leesville, Inc. d/b/a Byrd Regional Medical Center. This case is a purported class action lawsuit filed in the 30th Judicial District Court for the State of Louisiana and served on August 3, 2016, claiming our formerly affiliated Leesville, Louisiana hospital violated payor contracts by allegedly improperly asserting hospital liens against third-party tortfeasors and seeking class certifications for any similarly situated plaintiffs. The court has certified a class and denied our motion for summary judgment. We appealed both rulings to the Louisiana Third Circuit Court of Appeals, which affirmed the trial court’s decisions on March 7, 2019. We filed an application for writ of certiorari to the Louisiana Supreme Court, which was denied on May 29, 2019. Plaintiff’s motion for approval of notice of class action was granted on October 24, 2019. We believe these claims are without merit and will vigorously defend the case.

Bowden, individually and on behalf of all others similarly situated v. Ruston Louisiana Hospital Company, LLC d/b/a Northern Louisiana Medical Center.This case is a purported class action lawsuit filed in the 3rd Judicial District Court for the State of Louisiana and served on September 7, 2016, claiming our affiliated Ruston, Louisiana hospital violated payor contracts by allegedly improperly asserting hospital liens against third-party tortfeasors and seeking class certifications for any similarly situated plaintiffs. Our motion for summary judgment is pending, as is plaintiff’s motion for class certification. We believe these claims are without merit and will vigorously defend the case.

Zwick Partners, LP and Aparna Rao, individually and on behalf of all others similarly situated v. Quorum Health Corporation, Community Health Systems, Inc., Wayne T. Smith, W. Larry Cash, Thomas D. Miller, and Michael J. Culotta. This purported class action lawsuit previously filed in the United States District Court, Middle District of Tennessee was amended on April 17, 2017 to include Community Health Systems, Inc., Wayne T. Smith and W. Larry Cash as additional defendants. The plaintiffs seek to represent a class of Quorum Health Corporation, or QHC, shareholders and allege that the failure to record a goodwill and long-lived asset impairment charge against QHC at the time of thespin-off of QHC violated federal securities laws. The District Court denied all defendants’ motions to dismiss on April 20, 2018. The plaintiffs moved for class certification. Plaintiffs also amended their complaint on September 14, 2018. We moved to dismiss the additional claims in the plaintiffs’ September 14, 2018 amended complaint and responded to plaintiffs’ class certification motion. On March 29, 2019, the court granted our motion to dismiss the additional claims. The court granted the plaintiffs’ motion for class certification on that same date. On April 12, 2019, we filed a petition for permission to appeal the court’s order granting class certification with the United States Court of Appeals for the Sixth Circuit, which was denied on July 31, 2019. On May 17, 2019, the plaintiffs moved to amend their complaint for a third time to add additional claims, which the District Court denied on August 2, 2019. The trial for this matter is set for July 7, 2020. We believe the claims are without merit and will vigorously defend the case.

Steadfast Insurance Company, et al v. Community Health Systems, Inc., CHS/Community Health Systems, Inc., CHSPSC, LLC and Pecos Valley of New Mexico, LLC; Community Health Systems, Inc., et al v. Steadfast Insurance Company, et al.al; Anne Sperling, et al v. Community Insurance Group SPC, Ltd. These cases are filed in the Superior Court for the State of Delaware, and the Chancery Court for the State of Delaware, and the First Judicial District Court for the State of New Mexico, respectively, and involve insurance coverage disputes related to a $73 million judgment rendered against Pecos Valley of New Mexico, LLC inAnne Sperling, et al v. Pecos Valley of New Mexico, LLC (“Sperling I”). The first case was brought by Steadfast Insurance Company in Delaware Superior Court seeking a declaration that theSperling I judgment is not a covered loss as defined by the insurance policies that are the subject of the case. The second case, filed by the Company in Delaware Chancery Court, seeks reformation of the subject policies. The third case (“Sperling II”), filed by the plaintiffs in Sperling I, seeks recovery from Pecos Valley of New Mexico, LLC’s insurers for the judgment awarded the plaintiffs in their separate, previous action against Pecos Valley of New Mexico, LLC. The Steadfast complaint was served on November 30, 2018. On December 13, 2018, Admiral Insurance Company, Endurance Specialty Insurance Ltd, and Illinois Union Insurance Company moved to intervene in the suit as petitioners. The Company has initiated counterclaims against each insurer in that case, including for bad faith against Steadfast. The Company filed theCommunity Health Systems complaint on January 22, 2020.The2020. Sperlingjudgment against II was filed on July 24, 2019.  Plaintiffs amended their complaint to add Pecos Valley of New Mexico, LLC which is the subject of these litigationsas a defendant in that action on May 21, 2020, and which was rendered on September 5, 2018, in First Judicial Court of the StatePecos Valley of New Mexico, is currentlyLLC filed a third party action against certain insurer defendants in the case on appeal toJuly 6, 2020. On November 12, 2020, Pecos Valley and one of its insurers reached a settlement with the Court of Appeals of New Mexico.plaintiffs in Sperling I, and as a result the Sperling I case was dismissed with prejudice on November 19, 2020. The Steadfast, Community Health Systems, Inc. and Sperling II cases remain pending. Trial ofin theSteadfast matterand Community Health Systems, Inc. consolidated cases is set for December 7, 2020.13, 2021. The Company believesSperling II case is stayed pending the insurers’ claims in theoutcome of Steadfast litigation are without merit andCommunity Health Systems, Inc. The Company will vigorously defend the case.

and prosecute these cases.

Becky Kirk, Perry Ayoob, and Dawn Karzenoski, as representatives of a class of similarly situated persons, and on behalf of the CHS/Community Health Systems, Inc. Retirement Savings Plan v. Retirement Committee of CHS/Community Health Systems, Inc., John and Jane Does1-20, Principal Life Insurance Company, Principal Management Corporation, and Principal Global Investors, LLC.This purported class action was filed in the United States District Court for the Middle District of Tennessee on August 8, 2019. The plaintiffs seek to represent a class of current and former participants in the CHS/Community Health Systems, Inc. Retirement Savings Plan and allege that the defendants breached their fiduciary duties by offering certain investments in the Plan that were more expensive and/or did not perform as well as other marketplace alternatives. We filedhave reached a motion to dismisstentative, immaterial settlement with the complaintplaintiffs which was preliminarily approved by the District Court on October 18, 2019, which is pending. We believe these claims are without merit and will vigorously defendDecember 8, 2020. The District Court approved the case.settlement at a Final Fairness Hearing on April 12, 2021.

Thomas Mason, MD, Steven Folstad, MD andMid-Atlantic Emergency Medical Associates, PA v Health Management Associates, LLC f/k/a Health Management Associates, Inc., Mooresville Hospital Management Associates d/b/a Lake Norman Regional Medical Center and Statesville HMA, LLC d/b/a Davis Regional Medical Center, Envision Healthcare Corporation f/k/a Emergency Medical Services Corporation, Emcare Holdings, Inc., Emergency Medical Services, LP. This alleged wrongful retaliation case is filed in the United States District Court for the Western District of North Carolina. The plaintiffs allege their agreements with the defendants were terminated in retaliation for plaintiffs’ alleged refusal to admit patients unnecessarily to the defendant hospitals or otherwise perform unnecessary diagnostic testing. The allegations of the complaint relate to time periods prior to the hospitals’ affiliation with the Company. The plaintiffs filed a Third Amended Complaint on April 26, 2019. The defendants filed motions to dismiss, which were granted in part and denied in part on September 5, 2019. Trial of this matter is set for January 3, 2022. We believe these claims are without merit and will vigorously defend the case.

Qui Tam Matters Where the Government Declined Intervention

U.S. and the StateTower Health, f/k/a Reading Health System, et al v CHS/Community Health Systems, Inc., et al. This breach of Mississippi ex rel. W. Blake Vanderlan, M.D. v. Jackson HMA, LLC d/b/a Central Mississippi Medical Center and Merit Health Central.By order filed on August 31, 2017,contract action is pending in the United States District Court for the SouthernEastern District of Mississippi orderedPennsylvania. The plaintiffs allege breaches of an asset purchase agreement in connection with the unsealingsale of this qui tam suit.Pottstown Memorial Medical Center. The unsealing revealedalleged breaches regard plaintiffs’ contention that on August 31, 2017 the United States had declineddefendants failed to intervene indisclose certain conditions related to the allegations that certain alleged EMTALA violations atphysical plant of the hospital, resulted in a violationalong with various other alleged breaches of the False Claims Act. Both the hospital and the United States haveasset purchase agreement. The plaintiffs filed motions to dismiss the litigation, and those motions are pending.an amended complaint on July 22, 2019. Trial for this matter is set for May 3, 2021. We believe this matter isthese claims are without merit and will vigorously defend thisthe case.

U.S. ex rel. Derek Lewis and Joey Neiman v. Community Health Systems, Inc., Medhost, Inc., et al. By order filed on March 14, 2019, the United States District Court for the Southern District of Florida ordered the unsealing of this qui tam suit. The order revealed that the United States had declined to intervene in the action. The complaint alleges that Community Health Systems, Inc. and its affiliated hospitals (CHS Hospitals) violated the False Claims Act by submitting claims for EHR Meaningful Use incentive payments that they knew or should have known were false. The allegations regarding falsity generally relate to the CHS Hospitals’ use of certain software products sold to them byco-defendant, Medhost, Inc. The plaintiffs amended their complaint on July 26, 2019. We filed a motion to dismiss the complaint on September 24, 2019, which is pending. We believe this matter is without merit and will vigorously defend this case.

U.S. ex rel. Maur v. Elie Hage-Korban, M.D., Delta Clinics, PLC d/b/a The Heart and Vascular Center of West Tennessee. Community Health Systems, Inc., Knoxville HMA Holdings, LLC d/b/a/ Tennova Healthcare, Jackson Hospital Corporation d/b/a/ Regional Jackson, and Dyersburg Hospital Company, LLC, d/b/ Dyersburg Regional Medical Center. By order filed on April 30, 2019, the United States District Court for the Western District of Tennessee ordered the unsealing of this qui tam lawsuit. The order revealed that the United States had declined to intervene in the action. The complaint alleges the defendants violated the False Claims Act by submitting claims for payment related to certain cardiac procedures performed by defendant Dr. Elie Hage-Korban at two hospitals formerly affiliated with the Company. Dr. Hage-Korban was not employed by either hospital or their affiliates. The plaintiff amended his complaint on July 24, 2019. We filed a motion to dismiss the complaint on September 30, 2019, which the District Court granted on February 25, 2020. On March 18, 2020, the plaintiff filed a Notice of Appeal to the United States Court of Appeals for the Sixth Circuit of all claims except those related to defendant Community Health Systems, Inc. We believe this matter is without merit and will vigorously defend this case.


Management of Significant Legal Proceedings

In accordance with our governance documents, including our Governance Guidelines and the charter of the Audit and Compliance Committee, our management of significant legal proceedings is overseen by the independent members of the Board of Directors and, in particular, the Audit and Compliance Committee. The Audit and Compliance Committee is charged with oversight of compliance, regulatory and litigation matters, and enterprise risk management. Management has been instructed to refer all significant legal proceedings and allegations of financial statement fraud, error, or misstatement to the Audit and Compliance Committee for its oversight and evaluation. Consistent with New York Stock Exchange and Sarbanes-Oxley independence requirements, the Audit and Compliance Committee is comprised entirely of individuals who are independent of our management, and all four members of the Audit and Compliance Committee are “audit committee financial experts” as defined in the Securities Exchange Act of 1934, as amended.

In addition, the Audit and Compliance Committee and the other independent members of the Board of Directors oversee the functions of the voluntary compliance program, including its auditing and monitoring functions and confidential disclosure program. In recent years, the voluntary compliance program has addressed the potential for a variety of billing errors that might be the subject of audits and payment denials by the CMS Recovery Audit Contractors’ permanent project, includingMS-DRG coding, outpatient hospital and physician coding and billing, and medical necessity for services (including a focus on hospital stays of very short duration). Efforts by management, through the voluntary compliance program, to identify and limit risk from these government audits have included significant policy and guidance revisions, training and education, and auditing. The Board of Directors now oversees and reviews periodic reports of our compliance with the Corporate Integrity Agreement, or CIA, that we entered into with the United States Department of Health and Human Services Office of the Inspector General during 2014 and which was amended and extended in September 2018.

Item 1A.  Risk Factors

The following supplements the Company’s risk factors previously disclosed in the 2019 Form10-K by adding the following risk factors that take into account developments with respect toCOVID-19 and the federal stimulus legislation specified below since the filing of the 2019 Form10-K. Except as set forth below, thereThere have been no material changes with regard to the risk factors previously disclosed in the 20192020 Form10-K.

We expect theCOVID-19 pandemic to materially affect our financial performance in 2020, and such pandemic may otherwise have material adverse effects on our results of operations, financial condition, and/or our cash flows.

COVID-19 was first identified in Wuhan, China in December 2019. The disease has spread throughout the world, including across the United States, and the World Health Organization declared theCOVID-19 outbreak a pandemic in March 2020. In an attempt to contain the spread and impact ofCOVID-19, authorities throughout the United States and the world have implemented measures such as travel bans and restrictions, quarantines,stay-at-home andshelter-in-place orders, the promotion of social distancing, and limitations on business activity. This pandemic has resulted in a significant economic downturn in the United States and globally, and has also led to significant disruptions and volatility in capital and financial markets.

We are working with federal, state and local health authorities to respond toCOVID-19 cases in the communities we serve and are taking or supporting measures to try to limit the spread of the virus and to mitigate the burden on the healthcare system. Certain of the measures we have been taking (such as rescheduling or cancelling elective procedures at our hospitals and other healthcare facilities) will adversely affect our financial results that we may be unable to fully quantify.

Beginning in March 2020, theCOVID-19 pandemic has caused us to experience a substantial reduction in the number of elective surgeries, physician office visits and emergency room volumes at our hospitals and other healthcare facilities due to restrictive measures, including quarantines andshelter-in-place orders, as well as general concerns related to the risk of contractingCOVID-19 from interacting with the healthcare system. We believe that certain of these patient volume declines reflect a deferral of healthcare services utilization to a later period, rather than a permanent reduction in demand for our services. Given the general necessity of the healthcare services we provide, we anticipate that in the future historically normal service levels may resume and that the deferral of services may create a backlog of demand; however, there is no assurance that either will occur. In addition, while our hospitals have not experienced major capacity constraints to date arising from the treatment ofCOVID-19 patients, there are hospitals in the United States that are located in centers of theCOVID-19 outbreak and have been overwhelmed in caring forCOVID-19 patients, which has prevented such hospitals from treating all patients who seek care. Our hospitals could be subject to such conditions in the future if a majorCOVID-19 outbreak occurs in a geographic region where any of our hospitals are located.

We may experience supply chain disruptions, including shortages, delays and price increases in equipment, pharmaceuticals and medical supplies, particularly personal protective equipment, or PPE. Staffing, equipment, and pharmaceutical and medical supplies shortages may also impact our ability to admit and treat patients. We have also incurred, and may continue to incur, increased expenses arising from theCOVID-19 pandemic, including additional supply chain and other expenditures.

We have been implementing considerable safety measures at our hospitals and healthcare facilities, and we have instituted a work-from-home policy for certain of our corporate and administrative offices. Nevertheless, exposure toCOVID-19 patients has increased risks to our physicians, nurses and other medical staff, which may further reduce our operating capacity. All of these developments could result in reduced employee morale, labor unrest, work stoppages or other workforce disruptions.

Broad economic factors resulting from the currentCOVID-19 pandemic, including increased unemployment and underemployment levels and reduced consumer spending and confidence, also affect our service mix, revenue mix, payor mix and patient volumes, as well as our ability to collect outstanding receivables. Business closures and layoffs in the geographic areas in which we operate may lead to increases in the uninsured and underinsured populations and adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered. Any increase in the amount or deterioration in the collectability of patient accounts receivable will adversely affect our financial results, and require an increased level of working capital. In addition, our financial performance may be adversely affected by federal or state laws, regulations, orders, or other governmental or regulatory actions addressing the currentCOVID-19 pandemic or the U.S. healthcare system, which, if adopted, could result in direct or indirect restrictions with respect to our business that adversely impact us. We may also be subject to lawsuits from patients, employees and others exposed toCOVID-19 at our facilities. Such actions may involve large demands, as well as substantial defense costs. Our professional and general liability insurance may not cover all claims against us.

We are not able to fully quantify the impact that theCOVID-19 pandemic will have on our financial results during 2020, but expect developments related toCOVID-19 to materially affect our financial performance in 2020. Moreover, theCOVID-19 pandemic may otherwise have material adverse effects on our results of operations, financial position, and/or our cash flows. The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic and negative economic conditions arising from the pandemic, the volume of canceled or rescheduled procedures at our facilities, and the volume ofCOVID-19 patients cared for across our health systems, and the impact of government actions and administrative regulation on the hospital industry and broader economy, including through existing and any future stimulus efforts.COVID-19 developments continue to evolve quickly, and additional developments may occur which we are unable to predict. Furthermore, theCOVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future. Finally, theCOVID-19 pandemic could heighten the level of risk in certain of the other risk factors described in the 2019 Form10-K, any of which could have a material effect on us.

There is a high degree of uncertainty regarding the implementation and impact of the CARES Act and the PPPHCE Act. There can be no assurance as to the total amount and types of assistance we will receive or that we will be able to benefit from provisions intended to increase access resources and ease regulatory burdens for healthcare providers.

The CARES Act is a $2 trillion economic stimulus package signed into law on March 27, 2020, in response to theCOVID-19 pandemic. For hospitals and other healthcare providers, it authorizes $100 billion in funding to be distributed through the PHSSEF. These funds are intended to reimburse eligible providers, including public entities and Medicare- and/or Medicaid-enrolled providers and suppliers, lost revenues and incremental expenses attributable toCOVID-19. Recipients are not required to repay these funds, provided that they attest to and comply with certain terms and conditions, including limitations on balance billing and not using funds received from the PHSSEF to reimburse expenses or losses that other sources are obligated to reimburse. HHS allocated half of the provider relief funding for general distribution to Medicare providers impacted byCOVID-19. Inmid-April 2020, HHS distributed $30 billion of this funding based on each provider’s share of total Medicarefee-for-service reimbursement in 2019, and the agency has started to distribute an additional $20 billion such that the total $50 billion of general distribution funding will be allocated proportional to providers’ share of 2018 net patient revenue. As noted above, we have received payments from the initial funding of the PHSSEF. For the $50 billion of targeted allocations, HHS has indicated that $10 billion will be allocated for targeted distribution to hospitals in geographic areas particularly impacted by theCOVID-19 pandemic and $10 billion will be allocated for rural health clinics and hospitals. Much of the remaining $30 billion is expected to be used to reimburse healthcare providers that submit claim requests forCOVID-19-related treatment of uninsured patients at Medicare rates.

The CARES Act also makes other forms of financial assistance available to healthcare providers, including through Medicare and Medicaid payments adjustments and an expansion of the Medicare Accelerated and Advance Payment Program, which makes available accelerated payments of Medicare funds in order to increase cash flow to providers. As noted above, we have received

accelerated payments under this program. In addition to financial assistance, the CARES Act includes provisions intended to increase access to medical supplies and equipment and ease legal and regulatory burdens on healthcare providers. Many of these measures, such as flexibility related to the provision of telehealth services, are effective only for the duration of the public health emergency. The CARES Act also includes numerous income tax provisions including changes to the business interest expense deduction rules.

In addition to the funds appropriated under the CARES Act, the PPPHCE Act, a stimulus package signed into law on April 24, 2020, includes additional emergency appropriations forCOVID-19 response, including $75 billion to be distributed to eligible providers through the PHSSEF. This funding is also intended to reimburse providers for lost revenues and healthcare-related expenses attributable to theCOVID-19 pandemic. Applicants for the funds will be required to submit a justification statement for the payments. Recipients will not be required to repay the government for funds received, provided they comply with terms and conditions, which have not yet been finalized.

Due to the recent enactment of the CARES Act and the PPPHCE Act, there is still a high degree of uncertainty surrounding their implementation, and the public health emergency continues to evolve. The federal government may consider additional stimulus and relief efforts, but we are unable to predict whether additional stimulus measures will be enacted or their impact. There can be no assurance as to the total amount of financial and other types of assistance we will receive under the CARES Act and the PPPHCE Act, and it is difficult to predict the impact of such legislation on our operations or how they will affect operations of our competitors. Moreover, we are unable to assess the extent to which anticipated negative impacts on us arising from theCOVID-19 pandemic will be offset by amounts or benefits received under the CARES Act, and which we may in the future receive under the CARES Act and the PPPHCE Act. We continue to assess the potential impact ofCOVID-19 and government responses to the pandemic on our business, results of operations, financial position and cash flows.

Item 2.  Unregistered Sale of Equity Securities and Use of Proceeds

The following table contains information about our purchases of common stock during the three months ended March 31, 2020.2021.

 

Period    

Total Number of Shares

Purchased (a)

    

Average Price Paid per

Share

     

Total Number of Shares

Purchased as Part of Publicly

Announced Plans or

Programs (b)

     

Maximum Number of Shares

That May Yet Be Purchased

Under the Plans or Programs

(b)

 

January 1, 2020 -

                        

January 31, 2020

   2,738  $    2.75    -    - 

February 1, 2020 -

        

February 29, 2020

   -    -    -    - 

March 1, 2020 -

        

March 31, 2020

   248,839    4.93    -    - 
              

Total

   251,577  $    4.91    -    - 
              

Period

 

Total

Number

of Shares

Purchased (a)

 

 

Average

Price

Paid per

Share

 

 

Total

Number

of Shares

Purchased as

Part of

Publicly

Announced

Plans or

Programs (b)

 

 

Maximum

Number of

Shares That

May Yet Be

Purchased

Under the

Plans or

Programs (b)

 

January 1, 2021 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 31, 2021

 

 

5,114

 

 

$

7.28

 

 

 

—

 

 

 

—

 

February 1, 2021 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2021

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

March 1, 2021 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

 

563,370

 

 

 

8.81

 

 

 

—

 

 

 

—

 

Total

 

 

568,484

 

 

$

8.80

 

 

 

—

 

 

 

—

 

 

(a)

251,577568,484 shares were withheld to satisfy the payment of tax obligations related to the vesting of restricted stock awards.

(b)

We had no publicly announced plans or open market repurchase programs for shares of our common stock during the three months ended March 31, 2020.2021.

The ABL Facility and the indentures governing each series of our outstanding notes restrict our subsidiaries from, among other matters, paying dividends and making distributions to us, which thereby limits our ability to pay dividends and/or repurchase stock. As of March 31, 2020,2021, under the most restrictive test in these agreements (and subject to certain exceptions), we have approximately $200 million of capacity to pay permitted dividends and/or repurchase shares of stock or make other restricted payments.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.MineMine Safety Disclosures

Not applicable.

Item 5.OtherInformation

None.


Item 6.Exhibits

 

No.

    No.    

Description

4.1

Indenture, dated as of February 6, 2020,2, 2021, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the guarantors party thereto, Regions Bank, as Trustee and Collateral Agent, relating to the 6.875% Junior-Priority Secured Notes due 2029 (incorporated by reference to Exhibit 4.1 to Community Health Systems, Inc.'s Current Report on Form 8-K filed February 2, 2021 (No. 001-15925))

4.2

Form of 6.875% Junior-Priority Secured Note due 2029 (included in Exhibit 4.1)

4.3

Amended and Restated Junior-Priority Collateral Agreement, dated as of February 2, 2021, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the grantors named therein and Regions Bank, as Collateral Agent (incorporated by reference to Exhibit 4.2 to Community Health Systems, Inc.'s Current Report on Form 8-K filed February 2, 2021 (No. 001-15925))

4.4

Indenture, dated as of February 9, 2021, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the guarantors party thereto, Regions Bank, as Trustee, and Credit Suisse AG as Collateral Agent, relating to the 6.625%4.750% Senior Secured Notes due 20252031 (incorporated by reference to Exhibit 4.1 to Community Health Systems, Inc.’s's Current Report on Form8-K filed February 6, 20209, 2021 (No.001-15925))

4.2

Form of 6.625% Senior Secured Note due 2025 (included in Exhibit 4.1)

4.3

*Fifteenth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 6.875% Senior Notes due 2022, dated as of March  27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee

4.4

*Eighth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 6.250% Senior Secured Notes due 2023, dated as of March  27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee and Credit Suisse AG, as Collateral Agent

4.5

*

Fifth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 9.875%Form of 4.750% Junior-Priority Secured NotesNote due 2023, dated as of March  27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto, and Regions Bank, as Trustee and as Junior-Priority Collateral Agent2029 (included in Exhibit 4.4)

4.6

*Fifth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.125% Junior-Priority Secured Notes due 2024, dated as of March  27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto, and Regions Bank, as Trustee and as Junior-Priority Collateral Agent

4.7

*Fifth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.625% Senior Secured Notes due 2024, dated as of March  27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee and Credit Suisse AG, as Collateral Agent

4.8

*Fifth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2026, dated as of March  27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee and Credit Suisse AG, as Collateral Agent

4.9

*First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2027, dated as of March  27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee and Credit Suisse AG, as Collateral Agent

4.10

*First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 6.875% Senior Notes due 2028, dated as of March  27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee

4.11

*First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 6.625% Senior Secured Notes due 2025, dated as of March  27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee and Credit Suisse AG, as Collateral Agent

10.1

*†

Form of Performance Based Restricted Stock Award Agreement (Senior Officers) for Community Health Systems Inc. 2009 Stock OptionSupplemental Executive Benefits, dated December 31, 2008, as amended and Award Plan (for awards granted on or after Marchrestated as of April 1, 2020)

22.1

*List of Subsidiary Guarantors2015, December 11, 2019, and Issuers of Guaranteed SecuritiesFebruary 16, 2021

31.1

*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

**

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

**

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS101

*

The following financial information from our quarterly report on Form 10-Q for the quarter and three months ended March 31, 2021 and 2020, filed with the SEC on April 29, 2021, formatted in Inline Extensible Business Reporting Language: (i) the condensed consolidated statements of (loss) income for the three months ended March 31, 2021 and March 31, 2020, (ii) the condensed consolidated statements of comprehensive (loss) income for the three months ended March 31, 2021 and March 31, 2020, (iii) the condensed consolidated balance sheets at March 31, 2021 and December 31, 2020, (iv) the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and March 31, 2020, and (v) the notes to the condensed consolidated financial statements. The instance document does not appear in the Interactive Data File because its XBRL Instance Documenttags are embedded within the Inline XBRL document.

101.SCH104

*XBRL Taxonomy Extension Schema

101.CAL

*

*

Cover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Calculation Linkbaseand contained in Exhibit 101).

*

        101.DEF*XBRL Taxonomy Extension Definition Linkbase
101.LAB*XBRL Taxonomy Extension Label Linkbase
101.PRE*XBRL Taxonomy Extension Presentation Linkbase

Filed herewith.

**

Furnished herewith.

†

Indicates a management contract or compensatory plan or arrangement


 

*     Filed herewith.

**   Furnished herewith.

†     Indicates a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

COMMUNITY HEALTH SYSTEMS, INC.

(Registrant)

By:

By:

/s/  Wayne T. SmithTim L. Hingtgen

        Wayne T. Smith

Tim L. Hingtgen

        Chairman of the Board and

Chief Executive Officer

By:

By:

/s/   Kevin J. Hammons

Kevin J. Hammons

        Executive Vice

President and

Chief Financial Officer

By:

By:

/s/   Jason K. Johnson

Jason K. Johnson

Senior Vice President and

Chief Accounting Officer

Date:  April 29, 20202021

 

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