Docoh
Loading...

THC Tenet Healthcare

Filed: 30 Apr 21, 4:17pm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
Form 10-Q
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2021
 
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from               to               
 
Commission File Number 1-7293
 
_________________________________________
TENET HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)
_________________________________________
Nevada95-2557091
(State of Incorporation)(IRS Employer Identification No.)
14201 Dallas Parkway
Dallas, TX 75254
(Address of principal executive offices, including zip code)
 
(469) 893-2200
(Registrant’s telephone number, including area code)
_________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common stock,$0.05 par valueTHCNew York Stock Exchange
6.875% Senior Notes due 2031THC31New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.   Yes x No ¨
 
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.   Yes x No ¨
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (each as defined in Exchange Act Rule 12b-2).
Large accelerated filerxAccelerated filer¨Non-accelerated filer¨
Smaller reporting companyEmerging growth company

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

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).   Yes ☐ No x

At April 23, 2021, there were 106,790,357 shares of the Registrant’s common stock outstanding.


TENET HEALTHCARE CORPORATION
TABLE OF CONTENTS
i

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in Millions
(Unaudited)
March 31,December 31,
20212020
ASSETS
Current assets:
Cash and cash equivalents$2,141 $2,446 
Accounts receivable2,745 2,690 
Inventories of supplies, at cost368 368 
Assets held for sale139 140 
Other current assets1,306 1,503 
Total current assets 6,699 7,147 
Investments and other assets2,577 2,534 
Deferred income taxes297 325 
Property and equipment, at cost, less accumulated depreciation and amortization
   ($6,172 at March 31, 2021 and $6,043 at December 31, 2020)
6,592 6,692 
Goodwill8,799 8,808 
Other intangible assets, at cost, less accumulated amortization
   ($1,331 at March 31, 2021 and $1,284 at December 31, 2020)
1,590 1,600 
Total assets $26,554 $27,106 
LIABILITIES AND EQUITY  
Current liabilities:  
Current portion of long-term debt$137 $145 
Accounts payable1,103 1,207 
Accrued compensation and benefits907 942 
Professional and general liability reserves263 243 
Accrued interest payable290 248 
Liabilities held for sale68 70 
Contract liabilities917 659 
Other current liabilities1,245 1,333 
Total current liabilities 4,930 4,847 
Long-term debt, net of current portion15,098 15,574 
Professional and general liability reserves763 735 
Defined benefit plan obligations478 497 
Deferred income taxes29 29 
Contract liabilities – long-term655 918 
Other long-term liabilities1,593 1,617 
Total liabilities 23,546 24,217 
Commitments and contingencies00
Redeemable noncontrolling interests in equity of consolidated subsidiaries1,992 1,952 
Equity:  
Shareholders’ equity:  
Common stock, $0.05 par value; authorized 262,500,000 shares; 155,021,894 shares issued at
   March 31, 2021 and 154,407,524 shares issued at December 31, 2020
Additional paid-in capital4,841 4,844 
Accumulated other comprehensive loss(282)(281)
Accumulated deficit(2,031)(2,128)
Common stock in treasury, at cost, 48,334,419 shares at March 31, 2021 and
   48,337,947 shares at December 31, 2020
(2,413)(2,414)
Total shareholders’ equity123 28 
Noncontrolling interests 893 909 
Total equity 1,016 937 
Total liabilities and equity $26,554 $27,106 

See accompanying Notes to Condensed Consolidated Financial Statements.


TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in Millions, Except Per-Share Amounts
(Unaudited) 
Three Months Ended
March 31,
20212020
Net operating revenues $4,781 $4,520 
Grant income31 0 
Equity in earnings of unconsolidated affiliates42 28 
Operating expenses:
Salaries, wages and benefits2,201 2,187 
Supplies804 763 
Other operating expenses, net1,072 1,013 
Depreciation and amortization224 203 
Impairment and restructuring charges, and acquisition-related costs20 55 
Litigation and investigation costs13 
Net gains on sales, consolidation and deconsolidation of facilities(2)
Operating income 520 327 
Interest expense(240)(243)
Other non-operating income, net10 
Loss from early extinguishment of debt(23)
Income from continuing operations, before income taxes 267 85 
Income tax benefit (expense)(45)75 
Income from continuing operations, before discontinued operations 222 160 
Discontinued operations:
Loss from operations(1)
Loss from discontinued operations 0 (1)
Net income222 159 
Less: Net income available to noncontrolling interests125 66 
Net income available to Tenet Healthcare Corporation common shareholders $97 $93 
Amounts available (attributable) to Tenet Healthcare Corporation common shareholders
Income from continuing operations, net of tax$97 $94 
Loss from discontinued operations, net of tax(1)
Net income available to Tenet Healthcare Corporation common shareholders$97 $93 
Earnings (loss) per share available (attributable) to Tenet Healthcare Corporation common shareholders:
Basic
Continuing operations$0.91 $0.90 
Discontinued operations(0.01)
 $0.91 $0.89 
Diluted
Continuing operations$0.90 $0.89 
Discontinued operations(0.01)
 $0.90 $0.88 
Weighted average shares and dilutive securities outstanding (in thousands):
Basic106,309 104,353 
Diluted108,065 105,733 

See accompanying Notes to Condensed Consolidated Financial Statements.

2

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
Dollars in Millions
(Unaudited)
 
Three Months Ended
March 31,
20212020
Net income$222 $159 
Other comprehensive income:
Amortization of net actuarial loss included in other non-operating income, net
Unrealized gains on debt securities held as available-for-sale
Other comprehensive income before income taxes3 3 
Income tax expense related to items of other comprehensive income(4)(2)
Total other comprehensive income (loss), net of tax(1)1 
Comprehensive net income221 160 
Less: Comprehensive income available to noncontrolling interests125 66 
Comprehensive income available to Tenet Healthcare Corporation common shareholders$96 $94 

See accompanying Notes to Condensed Consolidated Financial Statements.

3

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
(Unaudited)
Three Months Ended
March 31,
20212020
Net income$222 $159 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization224 203 
Deferred income tax expense (benefit)24 (79)
Stock-based compensation expense14 13 
Impairment and restructuring charges, and acquisition-related costs20 55 
Litigation and investigation costs13 
Net gains on sales, consolidation and deconsolidation of facilities(2)
Loss from early extinguishment of debt23 
Equity in earnings of unconsolidated affiliates, net of distributions received28 (11)
Amortization of debt discount and debt issuance costs10 
Pre-tax loss from discontinued operations
Other items, net(7)
Changes in cash from operating assets and liabilities:  
Accounts receivable(53)14 
Inventories and other current assets130 23 
Income taxes19 
Accounts payable, accrued expenses and other current liabilities(87)(144)
Other long-term liabilities(51)
Payments for restructuring charges, acquisition-related costs, and litigation costs and
   settlements
(51)(68)
Net cash provided by operating activities534 129 
Cash flows from investing activities:  
Purchases of property and equipment(121)(182)
Purchases of businesses or joint venture interests, net of cash acquired(25)(55)
Proceeds from sales of facilities and other assets13 11 
Proceeds from sales of marketable securities, long-term investments and other assets10 
Purchases of marketable securities and equity investments(11)(4)
Other long-term assets(8)(2)
Other items, net18 
Net cash used in investing activities(145)(204)
Cash flows from financing activities:  
Repayments of borrowings under credit facility(240)
Proceeds from borrowings under credit facility740 
Repayments of other borrowings(541)(48)
Proceeds from other borrowings
Debt issuance costs(1)
Distributions paid to noncontrolling interests(119)(76)
Proceeds from sale of noncontrolling interests
Purchases of noncontrolling interests(2)
Proceeds from exercise of stock options and employee stock purchase plan
Medicare advances and grants received by unconsolidated affiliates19 
Other items, net(68)40 
Net cash provided by (used in) financing activities(694)426 
Net increase (decrease) in cash and cash equivalents(305)351 
Cash and cash equivalents at beginning of period2,446 262 
Cash and cash equivalents at end of period$2,141 $613 
Supplemental disclosures:  
Interest paid, net of capitalized interest$(190)$(172)
Income tax payments, net$(2)$(3)
 
See accompanying Notes to Condensed Consolidated Financial Statements.

4

TENET HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

NOTE 1. BASIS OF PRESENTATION 

Description of Business and Basis of Presentation

Tenet Healthcare Corporation (together with our subsidiaries, referred to herein as “Tenet,” “we,” “our” or “us”) is a diversified healthcare services company headquartered in Dallas, Texas. Through an expansive care network that includes USPI Holding Company, Inc. (“USPI”), at March 31, 2021 we operated 65 hospitals and over 540 other healthcare facilities, including surgical hospitals, ambulatory surgery centers, urgent care and imaging centers, and other care sites and clinics. We also operate Conifer Health Solutions, LLC through our Conifer Holdings, Inc. (“Conifer”) subsidiary, which provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.
 
This quarterly report supplements our Annual Report on Form 10-K for the year ended December 31, 2020 (“Annual Report”). As permitted by the Securities and Exchange Commission for interim reporting, we have omitted certain notes and disclosures that substantially duplicate those in our Annual Report. For further information, refer to the audited Consolidated Financial Statements and notes included in our Annual Report. Unless otherwise indicated, all financial and statistical data included in these notes to our Condensed Consolidated Financial Statements relate to our continuing operations, with dollar amounts expressed in millions (except per-share amounts).

Although the Condensed Consolidated Financial Statements and related notes within this document are unaudited, we believe all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. In preparing our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), we are required to make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and these accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable given the particular circumstances in which we operate. Actual results may vary from those estimates. Financial and statistical information we report to other regulatory agencies may be prepared on a basis other than GAAP or using different assumptions or reporting periods and, therefore, may vary from amounts presented herein. Although we make every effort to ensure that the information we report to those agencies is accurate, complete and consistent with applicable reporting guidelines, we cannot be responsible for the accuracy of the information they make available to the public.
 
Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full year. Reasons for this include, but are not limited to: the impact of the COVID-19 pandemic on our operations, business, financial condition and cash flows; overall revenue and cost trends, particularly the timing and magnitude of price changes; fluctuations in contractual allowances and cost report settlements and valuation allowances; managed care contract negotiations, settlements or terminations and payer consolidations; trends in patient accounts receivable collectability and associated implicit price concessions; fluctuations in interest rates; levels of malpractice insurance expense and settlement trends; impairment of long-lived assets and goodwill; restructuring charges; losses, costs and insurance recoveries related to natural disasters and other weather-related occurrences; litigation and investigation costs; acquisitions and dispositions of facilities and other assets; gains (losses) on sales, consolidation and deconsolidation of facilities; income tax rates and deferred tax asset valuation allowance activity; changes in estimates of accruals for annual incentive compensation; the timing and amounts of stock option and restricted stock unit grants to employees and directors; gains (losses) from early extinguishment of debt; and changes in occupancy levels and patient volumes. Factors that affect service mix, revenue mix, patient volumes and, thereby, the results of operations at our hospitals and related healthcare facilities include, but are not limited to: changes in federal, state and local healthcare and business regulations, including mandated closures and other operating restrictions; the business environment, economic conditions and demographics of local communities in which we operate; the number of uninsured and underinsured individuals in local communities treated at our hospitals; disease hotspots and seasonal cycles of illness; climate and weather conditions; physician recruitment, satisfaction, retention and attrition; advances in technology and treatments that reduce length of stay; local healthcare competitors; utilization pressure by managed care organizations, as well as managed care contract negotiations or terminations; hospital performance data on quality measures and patient satisfaction, as well as standard charges for services; any unfavorable publicity about us, or our joint venture partners, that impacts our relationships with physicians and patients; and changing consumer behavior, including with respect to the timing of elective procedures. These considerations apply to year-to-year comparisons as well.

Certain prior-year amounts have been reclassified to conform to the current year presentation. In the accompanying Condensed Consolidated Balance Sheets, income tax receivable has been reclassified to other current assets, as it is no longer significant enough to present separately.
5


COVID-19 Pandemic

During 2020, federal, state and local authorities undertook several actions designed to assist healthcare providers in providing care to COVID-19 and other patients and to mitigate the adverse economic impact of the COVID-19 pandemic. Legislative actions taken by the federal government during 2020 included the Coronavirus Aid, Relief, and Economic Security Act, the Paycheck Protection Program and Health Care Enhancement Act, the Continuing Appropriations Act, 2021 and Other Extensions Act, and the Consolidated Appropriations Act, 2021 (collectively, the “COVID Acts”). Through the COVID Acts, the federal government authorized funding to be distributed through the Public Health and Social Services Emergency Fund (“Provider Relief Fund” or “PRF”). Additionally, the COVID Acts revised the Medicare accelerated payment program in an attempt to disburse payments to hospitals and other care providers more quickly and permitted employers to defer payment of the 6.2% employer Social Security tax beginning March 27, 2020 through December 31, 2020. Our participation in these programs and related accounting policies are summarized below.

Grant Income. During the three months ended March 31, 2021, we received cash payments of $59 million from the Provider Relief Fund and state and local grant programs, including $28 million received by our unconsolidated affiliates. We recognize grant payments as income when there is reasonable assurance that we have complied with the conditions associated with the grant. Our estimates could change materially in the future based on our operating performance or COVID-19 activities, as well as the government’s grant compliance guidance. Grant income recognized by our Hospital Operations and other (“Hospital Operations”) and Ambulatory Care segments is presented in grant income and grant income recognized through our unconsolidated affiliates is presented in equity in earnings of unconsolidated affiliates in our statement of operations. During the three months ended March 31, 2021, we recognized grant income of $24 million in our Hospital Operations segment and $7 million in our Ambulatory Care segment. We recognized an additional $6 million of Provider Relief Fund income during this period, which was classified as equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statement of Operations for the three months ended March 31, 2021.

Disbursements from the Provider Relief Fund and other state and local programs began in the second quarter of 2020; therefore, no grant payments were received or grant income recognized during the three months ended March 31, 2020. At both March 31, 2021 and December 31, 2020, we had deferred grant payments remaining of $18 million, which amounts were recorded in other current liabilities in the accompanying Condensed Consolidated Balance Sheets for those periods.

Medicare Accelerated Payment Program. In certain circumstances, when a hospital is experiencing financial difficulty due to delays in receiving payment for the Medicare services it provided, it may be eligible for an accelerated or advance payment pursuant to the Medicare accelerated payment program. The COVID Acts revised the Medicare accelerated payment program in an attempt to disburse payments to healthcare providers more quickly. Recipients may retain the accelerated payments for one year from the date of receipt before recoupment commences, which will be effectuated by a 25% offset of claims payments for 11 months, followed by a 50% offset for the succeeding six months. At the end of the 29-month period, interest on the unpaid balance will be assessed at 4.00% per annum. The initial 11-month recoupment period began in April 2021.

Our Hospital Operations and Ambulatory Care segments both received advance payments from the Medicare accelerated payment program during 2020. No additional advances were received in the three months ended March 31, 2021. Advances totaling $857 million and $603 million were included in contract liabilities and $639 million and $902 million were included in contract liabilities – long term in the accompanying Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020, respectively.

Deferral of Employer Payroll Tax Match Payments. Social Security taxes deferred under the COVID Acts are required to be paid in equal amounts over two years, with payments due in December 2021 and December 2022. We had deferred Social Security tax payments totaling $130 million included in accrued compensation and benefits and $130 million included in other long‑term liabilities in the accompanying Condensed Consolidated Balance Sheets at both March 31, 2021 and December 31, 2020.

Cash and Cash Equivalents
 
We treat highly liquid investments with original maturities of three months or less as cash equivalents. Cash and cash equivalents were $2.141 billion and $2.446 billion at March 31, 2021 and December 31, 2020, respectively. At March 31, 2021 and December 31, 2020, our book overdrafts were $171 million and $154 million, respectively, which were classified as accounts payable.
 
6

At March 31, 2021 and December 31, 2020, $172 million and $166 million, respectively, of total cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets were intended for the operations of our captive insurance subsidiaries.
 
Also at March 31, 2021 and December 31, 2020, we had $42 million and $93 million, respectively, of property and equipment purchases accrued for items received but not yet paid. Of these amounts, $36 million and $85 million, respectively, were included in accounts payable.

During the three months ended March 31, 2021 and 2020, we recorded right-of-use assets related to non‑cancellable finance leases of $11 million and $15 million, respectively, and related to non-cancellable operating leases of $46 million and $54 million, respectively.
 
Other Intangible Assets
 
The following tables provide information regarding other intangible assets, which were included in the accompanying Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020: 
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
At March 31, 2021:
Capitalized software costs$1,836 $(1,125)$711 
Trade names102 102 
Contracts872 (116)756 
Other111 (90)21 
Total$2,921 $(1,331)$1,590 
Gross
Carrying
Amount
Accumulated
Amortization
 Net Book
Value
At December 31, 2020:
Capitalized software costs$1,800 $(1,084)$716 
Trade names102 102 
Contracts872 (111)761 
Other110 (89)21 
Total$2,884 $(1,284)$1,600 
 
Estimated future amortization of intangibles with finite useful lives at March 31, 2021 is as follows: 
  Nine Months
Ending
Years EndingLater Years
December 31,
 Total20212022202320242025
Amortization of intangible assets$907 $128 $125 $112 $102 $87 $353 
 
We recognized amortization expense of $47 million and $41 million in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020, respectively.

7

Investments in Unconsolidated Affiliates

We control 291 of the facilities within our Ambulatory Care segment and, therefore, consolidate their results. We account for many of the facilities our Ambulatory Care segment operates (108 of 399 at March 31, 2021), as well as additional companies in which our Hospital Operations segment holds ownership interests, under the equity method as investments in unconsolidated affiliates and report only our share of net income as equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Operations. In the three months ended March 31, 2021, equity in earnings of unconsolidated affiliates included $6 million from PRF grants recognized by our Ambulatory Care segment’s unconsolidated affiliates. Summarized financial information for these equity method investees is included in the following table. For investments acquired during the reported periods, amounts reflect 100% of the investee’s results beginning on the date of our acquisition of the investment.
 Three Months Ended
March 31,
 20212020
Net operating revenues$634 $566 
Net income$165 $109 
Net income available to the investees$102 $69 

NOTE 2. ACCOUNTS RECEIVABLE
 
The principal components of accounts receivable are shown in the table below: 
 March 31, 2021December 31, 2020
Continuing operations:  
Patient accounts receivable$2,544 $2,499 
Estimated future recoveries156 156 
Net cost reports and settlements receivable and valuation allowances43 34 
 2,743 2,689 
Discontinued operations
Accounts receivable, net $2,745 $2,690 

The following table summarizes the amount and classification of assets and liabilities in the accompanying Condensed Consolidated Balance Sheets related to California’s provider fee program at March 31, 2021 and December 31, 2020:
 March 31, 2021December 31, 2020
Assets:
Other current assets$255 $378 
Investments and other assets$277 $206 
Liabilities:
Other current liabilities$122 $110 
Other long-term liabilities$52 $56 

The following table shows our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses) of caring for our uninsured and charity patients in the three months ended March 31, 2021 and 2020:
 Three Months Ended
March 31,
 20212020
Estimated costs for:  
Uninsured patients$168 $156 
Charity care patients20 40 
Total$188 $196 
 
8

NOTE 3. CONTRACT BALANCES

Hospital Operations Segment
    
Amounts related to services provided to patients for which we have not billed and that do not meet the conditions of unconditional right to payment at the end of the reporting period are contract assets. For our Hospital Operations segment, our contract assets include services that we have provided to patients who are still receiving inpatient care in our facilities at the end of the reporting period. Our Hospital Operations segment’s contract assets were included in other current assets in the accompanying Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020. Approximately 91% of our Hospital Operations segment’s contract assets meet the conditions for unconditional right to payment and are reclassified to patient receivables within 90 days.

In certain circumstances, when a hospital is experiencing financial difficulty due to delays in receiving payment for the Medicare services it provided, it may be eligible for an accelerated or advance payment pursuant to the Medicare accelerated payment program. As discussed in Note 1, the COVID Acts revised the Medicare accelerated payment program in an attempt to disburse payments to hospitals more quickly. During the year ended December 31, 2020, our Hospital Operations segment received advance payments from the Medicare accelerated payment program following its expansion under the COVID Acts. These advance payments were recorded as contract liabilities in the accompanying Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020. No additional advances were received in the three months ended March 31, 2021.

The opening and closing balances of contract assets and contract liabilities for our Hospital Operations segment are as follows:
Contract Liability –Contract Liability –
CurrentLong-term
Contract AssetsAdvances from MedicareAdvances from Medicare
December 31, 2020$208 $510 $819 
March 31, 2021180 734 595 
Increase (decrease)$(28)$224 $(224)

December 31, 2019$170 $$
March 31, 2020151 
Decrease$(19)$0 $0 

Ambulatory Care Segment

During the year ended December 31, 2020, our Ambulatory Care segment also received advance payments from the expanded Medicare accelerated payment program. At March 31, 2021 and December 31, 2020, contract liabilities included $66 million and $51 million, respectively, and contract liabilities – long-term included $38 million and $62 million, respectively, of Medicare advance payments received by our unconsolidated affiliates for whom we provide cash management services.

The opening and closing balances of contract liabilities for our Ambulatory Care segment are as follows:
Contract Liability –Contract Liability –
CurrentLong-term
Advances from MedicareAdvances from Medicare
December 31, 2020$93 $83 
March 31, 2021123 44 
Increase (decrease)$30 $(39)

Our Ambulatory Care segment did not have any outstanding payments from the Medicare accelerated payment program at March 31, 2020 and December 31, 2019.

Conifer Segment

Conifer enters into contracts with customers to provide revenue cycle management and other services, such as value‑based care, consulting and project services. The payment terms and conditions in our customer contracts vary. In some cases, customers are invoiced in advance and (for other than fixed-price fee arrangements) a true-up to the actual fee is included on a subsequent invoice. In other cases, payment is due in arrears. In addition, some contracts contain performance incentives,
9

penalties and other forms of variable consideration. When the timing of Conifer’s delivery of services is different from the timing of payments made by the customers, Conifer recognizes either unbilled revenue (performance precedes contractual right to invoice the customer) or deferred revenue (customer payment precedes Conifer service performance). In the following table, customers that prepay prior to obtaining control/benefit of the service are represented by deferred contract revenue until the performance obligations are satisfied. Unbilled revenue represents arrangements in which Conifer has provided services to and the customer has obtained control/benefit of services prior to the contractual invoice date. Contracts with payment in arrears are recognized as receivables in the month the service is performed.
    
The opening and closing balances of Conifer’s receivables, contract assets and contract liabilities are as follows:
Contract Liability –Contract Liability –
Contract Asset –CurrentLong-Term
ReceivablesUnbilled RevenueDeferred RevenueDeferred Revenue
December 31, 2020$56 $20 $56 $16 
March 31, 202156 14 60 16 
Increase (decrease)$0 $(6)$4 $0 
December 31, 2019$26 $11 $61 $18 
March 31, 202023 61 17 
Decrease$(3)$(4)$0 $(1)

The difference between the opening and closing balances of Conifer’s contract assets and contract liabilities are primarily related to prepayments for those customers who are billed in advance, changes in estimates related to metric-based services, and up-front integration services that are typically not distinct and are, therefore, recognized over the performance obligation period to which they relate. Our Conifer segment’s receivables and contract assets were reported as part of other current assets in our accompanying Condensed Consolidated Balance Sheets, and its current and long-term contract liabilities were reported as part of contract liabilities and contract liabilities – long-term, respectively, in our accompanying Condensed Consolidated Balance Sheets.

In the three months ended March 31, 2021 and 2020, Conifer recognized $49 million and $54 million, respectively, of revenue that was included in the opening current deferred revenue liability. This revenue consists primarily of prepayments for those customers who are billed in advance, changes in estimates related to metric-based services, and up‑front integration services that are recognized over the services period.

Contract Costs

During both of the three months ended March 31, 2021 and 2020, we recognized amortization expense related to deferred contract setup costs of $1 million. At March 31, 2021 and December 31, 2020, the unamortized customer contract costs were $23 million and $24 million, respectively, and are presented as part of investments and other assets in the accompanying Condensed Consolidated Balance Sheets.

NOTE 4. ASSETS AND LIABILITIES HELD FOR SALE 
    
In December 2020, we entered into a definitive agreement to sell the majority of our urgent care centers operated under the MedPost and CareSpot brands by our Hospital Operations and Ambulatory Care segments. As a result, the assets and liabilities associated with these facilities were classified as held for sale at both March 31, 2021 and December 31, 2020 in the accompanying Condensed Consolidated Balance Sheets. At March 31, 2021, assets and liabilities held for sale associated with these facilities totaled $125 million and $68 million, respectively. We completed the sale of these facilities on April 30, 2021.

In the three months ended September 30, 2020, a building we owned in the Philadelphia area met the criteria to be classified as held for sale. As a result, the building and related assets were classified as held for sale at both March 31, 2021 and December 31, 2020 in the accompanying Condensed Consolidated Balance Sheets. At March 31, 2021, assets held for sale related to this building totaled $14 million. We completed the sale of the building in April 2021 for $16 million.

10

Assets and liabilities classified as held for sale at March 31, 2021 were comprised of the following:
Accounts receivable$14 
Other current assets
Investments and other long-term assets41 
Property and equipment39 
Goodwill39 
Current liabilities(31)
Long-term liabilities(37)
Net assets held for sale$71 
    
NOTE 5. IMPAIRMENT AND RESTRUCTURING CHARGES, AND ACQUISITION-RELATED COSTS
 
During the three months ended March 31, 2021, we recorded impairment and restructuring charges and acquisition‑related costs of $20 million, consisting of $16 million of restructuring charges and $4 million of acquisition-related costs. Restructuring charges consisted of $4 million of employee severance costs, $6 million related to the transition of various administrative functions to our Global Business Center (“GBC”) in the Philippines and $6 million of other restructuring costs. Acquisition‑related costs consisted of $4 million of transaction costs.

During the three months ended March 31, 2020, we recorded impairment and restructuring charges and acquisition‑related costs of $55 million, consisting of $54 million or restructuring charges and $1 million of acquisition-related costs. Restructuring charges consisted of $10 million of employee severance costs, $15 million related to the transition of various administrative functions to our GBC, $23 million of charges due to the termination of USPI’s previous management equity plan, $1 million of contract and lease termination fees, and $5 million of other restructuring costs. Acquisition-related costs consisted of $1 million of transaction costs.

Our impairment tests presume stable, improving or, in some cases, declining operating results in our facilities, which are based on programs and initiatives being implemented that are designed to achieve each facility’s most recent projections. If these projections are not met, or if in the future negative trends occur that impact our future outlook, impairments of long-lived assets and goodwill may occur, and we may incur additional restructuring charges, which could be material.
 
At March 31, 2021, our continuing operations consisted of 3 reportable segments, Hospital Operations, Ambulatory Care and Conifer. Our segments are reporting units used to perform our goodwill impairment analysis.
 
We periodically incur costs to implement restructuring efforts for specific operations, which are recorded in our statement of operations as they are incurred. Our restructuring plans focus on various aspects of operations, including aligning our operations in the most strategic and cost-effective structure, such as the establishment of offshore support operations at our GBC. Certain restructuring and acquisition-related costs are based on estimates. Changes in estimates are recognized as they occur. 

11

NOTE 6. LONG-TERM DEBT

The table below shows our long-term debt at March 31, 2021 and December 31, 2020:
 March 31, 2021December 31, 2020
Senior unsecured notes:  
6.750% due 2023$1,872 $1,872 
7.000% due 2025478 
6.125% due 20282,500 2,500 
6.875% due 2031362 362 
Senior secured first lien notes:  
4.625% due 20241,870 1,870 
4.625% due 2024600 600 
7.500% due 2025700 700 
4.875% due 20262,100 2,100 
5.125% due 20271,500 1,500 
4.625% due 2028600 600 
Senior secured second lien notes:
5.125% due 20251,410 1,410 
6.250% due 20271,500 1,500 
Finance leases, mortgage and other notes383 403 
Unamortized issue costs and note discounts(162)(176)
Total long-term debt15,235 15,719 
Less current portion137 145 
Long-term debt, net of current portion$15,098 $15,574 

Senior Unsecured Notes and Senior Secured Notes

In March 2021, we retired approximately $478 million aggregate principal amount of our 7.000% senior unsecured notes due 2025 in advance of their maturity date. We paid approximately $495 million from cash on hand to retire the notes. In connection with the retirement, we recorded a loss from early extinguishment of debt of $23 million in the three months ended March 31, 2021, primarily related to the difference between the purchase price and the par value of the notes, as well as the write-off of associated unamortized issuance costs.

Credit Agreement

We have a senior secured revolving credit facility that provides for revolving loans in an aggregate principal amount of up to $1.900 billion with a $200 million subfacility for standby letters of credit. We amended our credit agreement (as amended to date, the “Credit Agreement”) in April 2020 to, among other things, (i) increase the aggregate revolving credit commitments from the previous limit of $1.500 billion to $1.900 billion (the “Increased Commitments”), subject to borrowing availability, and (ii) increase the advance rate and raise limits on certain eligible accounts receivable in the calculation of the borrowing base, in each case, for an incremental period of 364 days. In April 2021, we further amended the Credit Agreement to, among other things, extend the availability of the Increased Commitments through April 22, 2022 and reduce the interest rate margins. At March 31, 2021, we had 0 cash borrowings outstanding under the Credit Agreement, and we had less than $1 million of standby letters of credit outstanding. Based on our eligible receivables, $1.900 billion was available for borrowing under the revolving credit facility at March 31, 2021.

The Credit Agreement continues to have a scheduled maturity date of September 12, 2024, and obligations under the Credit Agreement continue to be guaranteed by substantially all of our domestic wholly owned hospital subsidiaries and secured by a first-priority lien on the eligible inventory and accounts receivable owned by us and the subsidiary guarantors, including receivables for Medicaid supplemental payments.

Outstanding revolving loans accrue interest at either (i) a base rate plus a margin ranging from 0.25% to 0.75% per annum, or (ii) the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.25% to 1.75% per annum, in each case based on available credit. An unused commitment fee payable on the undrawn portion of the revolving loans ranges from 0.25% to 0.375% per annum based on available credit. Our borrowing availability is based on a specified percentage of eligible inventory and accounts receivable, including self-pay accounts. 

12

Letter of Credit Facility
 
In March 2020, we amended our letter of credit facility (as amended, the “LC Facility”) to extend the scheduled maturity date of the LC Facility from March 7, 2021 to September 12, 2024 and to increase the aggregate principal amount of standby and documentary letters of credit that from time to time may be issued thereunder from $180 million to $200 million. On July 29, 2020, we further amended the LC Facility to incrementally increase the maximum secured debt covenant from 4.25 to 1.00 on a quarterly basis up to 6.00 to 1.00 for the quarter ended March 31, 2021, which maximum ratio will step down incrementally on a quarterly basis through the quarter ending December 31, 2021. Obligations under the LC Facility are guaranteed and secured by a first‑priority pledge of the capital stock and other ownership interests of certain of our wholly owned domestic hospital subsidiaries on an equal ranking basis with our senior secured first lien notes.

Drawings under any letter of credit issued under the LC Facility that we have not reimbursed within 3 business days after notice thereof accrue interest at a base rate plus a margin of 0.50% per annum. An unused commitment fee is payable at an initial rate of 0.25% per annum with a step up to 0.375% per annum should our secured-debt-to-EBITDA ratio equal or exceed 3.00 to 1.00 at the end of any fiscal quarter. A fee on the aggregate outstanding amount of issued but undrawn letters of credit accrues at a rate of 1.50% per annum. An issuance fee equal to 0.125% per annum of the aggregate face amount of each outstanding letter of credit is payable to the account of the issuer of the related letter of credit. At March 31, 2021, we had $92 million of standby letters of credit outstanding under the LC Facility.
 
NOTE 7. GUARANTEES
 
At March 31, 2021, the maximum potential amount of future payments under our income guarantees to certain physicians who agree to relocate and revenue collection guarantees to hospital-based physician groups providing certain services at our hospitals was $122 million. We had a total liability of $98 million recorded for these guarantees included in other current liabilities in the accompanying Condensed Consolidated Balance Sheet at March 31, 2021.
 
At March 31, 2021, we also had issued guarantees of the indebtedness and other obligations of our investees to third parties, the maximum potential amount of future payments under which was approximately $81 million. Of the total, $10 million relates to the obligations of consolidated subsidiaries, which obligations were recorded in the accompanying Condensed Consolidated Balance Sheet at March 31, 2021.
 
NOTE 8. EMPLOYEE BENEFIT PLANS

Share-Based Compensation Plans
 
The accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 include $14 million and $13 million, respectively, of pre-tax compensation costs related to our stock-based compensation arrangements.

Stock Options
 
The following table summarizes stock option activity during the three months ended March 31, 2021:
OptionsWeighted Average
Exercise Price
Per Share
Aggregate
Intrinsic Value
Weighted Average
Remaining Life
(In Millions)
Outstanding at December 31, 2020912,531 $22.51 
Exercised(293,581)20.68 
Outstanding at March 31, 2021618,950 $23.38 $18 6.9 years
Vested and expected to vest at March 31, 2021618,950 $23.38 $18 6.9 years
Exercisable at March 31, 2021391,748 $19.96 $13 6.5 years

There were 293,581 and 27,167 stock options exercised during the three months ended March 31, 2021 and 2020, respectively, with aggregate intrinsic values of $10 million and less than $1 million, respectively. We did not grant any stock options during the months ended March 31, 2021 and 2020.

At March 31, 2021, there were $1 million of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of less than one year.
13


The following table summarizes information about our outstanding stock options at March 31, 2021:
 Options OutstandingOptions Exercisable
Range of Exercise Prices Number of
Options
Weighted Average
Remaining
Contractual Life
Weighted Average
Exercise Price
Number of
Options
Weighted Average
Exercise Price
$18.99 to $20.609391,748 6.5 years$19.96 391,748 $19.96 
$20.61 to $35.430227,202 7.6 years29.26 N/A
618,950 6.9 years$23.38 391,748 $19.96 

Restricted Stock Units
 
The following table summarizes RSU activity during the three months ended March 31, 2021: 
Restricted Stock UnitsWeighted Average Grant
Date Fair Value Per Unit
Unvested at December 31, 20202,095,206 $25.87 
Granted708,577 54.94 
Vested(304,688)26.12 
Forfeited(14,582)27.74 
Unvested at March 31, 20212,484,513 $34.26 
 
In the three months ended March 31, 2021, we granted an aggregate of 708,577 restricted stock units (“RSUs”). Of these, 260,071 will vest and be settled ratably over a three-year period from the grant date, 189,215 will vest and be settled ratably over 8 quarterly periods from the grant date, and 14,192 will vest and be settled on December 31, 2021. We also granted 3,057 RSUs to a new member of our board of directors, consisting of an initial grant of 1,372 units and a pro-rata annual grant of 1,685 units. Both the initial grant and the annual grant vested immediately, however, the initial grant settles upon separation from the board, while the annual grant settles on the third anniversary of the grant date. In addition, we granted 241,150 performance-based RSUs, the vesting of which is contingent on our achievement of specified performance goals for the years 2021 to 2023. Provided the goals are achieved, the performance-based RSUs will vest and settle on the third anniversary of the grant date. The actual number of performance-based RSUs that could vest will range from 0% to 200% of the 241,150 units granted, depending on our level of achievement with respect to the performance goals.

In the three months ended March 31, 2020, we granted an aggregate of 1,423,953 RSUs. Of these, 493,929 will vest and be settled ratably over a three-year period from the grant date, 104,167 will vest and be settled ratably over a four‑year period from the grant date, and 359,713 will vest and be settled ratably over 11 quarterly periods from the grant date. In addition, we granted 386,016 performance-based RSUs; the vesting of these RSUs is contingent on our achievement of specified performance goals for the years 2020 to 2022. Provided the goals are achieved, the performance‑based RSUs will vest and settle on the third anniversary of the grant date. The actual number of performance-based RSUs that could vest will range from 0% to 200% of the 386,016 units granted, depending on our level of achievement with respect to the performance goals. We also granted 80,128 performance-based RSUs to a Conifer senior officer, which were subsequently forfeited.

The fair value of an RSU is based on our share price on the grant date. For certain of the performance-based RSU grants during the three months ended March 31, 2021 and 2020, the number of units that will ultimately vest is subject to adjustment based on the achievement of a market-based condition. As noted above, the fair value of these RSUs is estimated through the use of a Monte Carlo simulation. Significant inputs used in our valuation of these RSUs included the following:
Three Months Ended
March 31,
20212020
Expected volatility71.76 %54.74 %
Risk-free interest rate0.22 %1.16 %

At March 31, 2021, there were $58 million of total unrecognized compensation costs related to RSUs. These costs are expected to be recognized over a weighted average period of 2.0 years.
 
14

USPI Management Equity Plan

USPI maintains a separate management equity plan under which it grants RSUs representing a contractual right to receive one share of USPI’s non-voting common stock in the future. RSUs granted under the plan generally vest 20% in each of the first three years on the anniversary of the grant date with the remaining 40% vesting on the fourth anniversary of the grant date. Once the requisite holding period is met, during specified times the participant can sell the underlying shares to USPI at their estimated fair market value. At our sole discretion, the purchase of any non-voting common shares can be made in cash or in shares of Tenets common stock.

The following table summarizes RSU activity under USPI’s management equity plan during the three months ended March 31, 2021:
Restricted Stock UnitsWeighted Average Grant
Date Fair Value Per Unit
Unvested at December 31, 20202,025,056 $34.13 
Vested(373,499)34.13 
Forfeited(47,112)34.13 
Unvested at March 31, 20211,604,445 $34.13 

Employee Retirement Plans
 
In the three months ended March 31, 2021 and 2020, we recognized service cost related to 1 of our frozen non‑qualified defined benefit pension plans of less than $1 million for both periods in salaries, wages and benefits expense. Additionally, in the three months ended March 31, 2021 and 2020, we recognized a benefit of $1 million and expense of $2 million, respectively, related to other components of net periodic pension cost and net periodic postretirement benefit cost related to our frozen qualified and non-qualified defined benefit plans in other non-operating income, net, in the accompanying Condensed Consolidated Statements of Operations.

NOTE 9. EQUITY

Changes in Shareholders’ Equity

The following tables show the changes in consolidated equity during the three months ended March 31, 2021 and 2020 (dollars in millions, share amounts in thousands):
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Treasury
Stock
Noncontrolling
Interests
Total Equity
Shares
Outstanding
Issued Par
Amount
Balances at December 31, 2020106,070 $7 $4,844 $(281)$(2,128)$(2,414)$909 $937 
Net income— — — — 97 — 44 141 
Distributions paid to noncontrolling interests— — — — — — (61)(61)
Other comprehensive loss— — — (1)— — — (1)
Accretion of redeemable noncontrolling interests— — (3)— — — — (3)
Purchases (sales) of businesses and noncontrolling interests, net— — (10)— — — (9)
Stock-based compensation expense and issuance of common stock617 10 — — — 12 
Balances at March 31, 2021106,687 $8 $4,841 $(282)$(2,031)$(2,413)$893 $1,016 

15

Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Treasury
Stock
Noncontrolling
Interests
Total Equity
Shares
Outstanding
Issued Par
Amount
Balances at December 31, 2019104,197 $7 $4,760 $(257)$(2,513)$(2,414)$854 $437 
Net income— — — — 93 — 32 125 
Distributions paid to noncontrolling interests— — — — — — (40)(40)
Other comprehensive income— — — — — — 
Accretion of redeemable noncontrolling interests— — (1)— — — — (1)
Purchases (sales) of businesses and noncontrolling interests, net— — (30)— — — 15 (15)
Cumulative effect of accounting change— — — — (14)— — (14)
Stock-based compensation expense and issuance of common stock331 — 10 — — — — 10 
Balances at March 31, 2020104,528 $7 $4,739 $(256)$(2,434)$(2,414)$861 $503 
 
Our noncontrolling interests balances at March 31, 2021 and December 31, 2020 were comprised of $113 million and $116 million, respectively, from our Hospital Operations segment, and $780 million and $793 million, respectively, from our Ambulatory Care segment. Our net income available to noncontrolling interests for the three months ended March 31, 2021 and 2020 in the table above were comprised of $4 million and $2 million, respectively, from our Hospital Operations segment, and $40 million and $30 million, respectively, from our Ambulatory Care segment.
 
NOTE 10. NET OPERATING REVENUES

Net operating revenues for our Hospital Operations and Ambulatory Care segments primarily consist of net patient service revenues, principally for patients covered by Medicare, Medicaid, managed care and other health plans, as well as certain uninsured patients under our Compact with Uninsured Patients and other uninsured discount and charity programs. Net operating revenues for our Conifer segment primarily consist of revenues from providing revenue cycle management services to health systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities.

The table below shows our sources of net operating revenues less implicit price concessions from continuing operations:
Three Months Ended
March 31,
20212020
Hospital Operations:  
Net patient service revenues from hospitals and related outpatient facilities:
Medicare$688 $705 
Medicaid259 281 
Managed care2,480 2,321 
Uninsured47 40 
Indemnity and other176 193 
Total3,650 3,540 
Other revenues(1)
297 294 
Hospital Operations total prior to inter-segment eliminations3,947 3,834 
Ambulatory Care646 490 
Conifer310 332 
Inter-segment eliminations(122)(136)
Net operating revenues$4,781 $4,520 
(1)Primarily physician practices revenues.

Adjustments for prior-year cost reports and related valuation allowances, principally related to Medicare and Medicaid, increased revenues in the three months ended March 31, 2021 and 2020 by $5 million and $4 million, respectively. Estimated cost report settlements and valuation allowances were included in accounts receivable in the accompanying
16

Condensed Consolidated Balance Sheets (see Note 2). We believe that we have made adequate provision for any adjustments that may result from final determination of amounts earned under all the above arrangements with Medicare and Medicaid.

The table below shows the composition of net operating revenues for our Ambulatory Care segment:
Three Months Ended
March 31,
20212020
Net patient service revenues$619 $464 
Management fees22 21 
Revenue from other sources
Net operating revenues$646 $490 

The table below shows the composition of net operating revenues for our Conifer segment:
Three Months Ended
March 31,
20212020
Revenue cycle services – Tenet$118 $134 
Revenue cycle services – other customers169 176 
Other services – Tenet
Other services – other customers19 20 
Net operating revenues$310 $332 

Other services represent approximately 7% of Conifer’s revenue for both of the three months ended March 31, 2021 and 2020 and include value-based care services, consulting services and other client-defined projects.

Performance Obligations

The following table includes Conifer’s revenue that is expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, at the end of the reporting period. The amounts in the table primarily consist of revenue cycle management fixed fees, which are typically recognized ratably as the performance obligation is satisfied. The estimated revenue does not include volume- or contingency-based contracts, performance incentives, penalties or other variable consideration that is considered constrained. Conifer’s contract with Catholic Health Initiatives (“CHI”), a minority interest owner of Conifer Health Solutions, LLC, represents the majority of the fixed-fee revenue related to remaining performance obligations. Conifer’s contract term with CHI ends December 31, 2032.
  Nine Months
Ending
Years EndingLater Years
December 31,
 Total20212022202320242025
Performance obligations$6,602 $454 $603 $603 $549 $549 $3,844 

NOTE 11. PROPERTY AND PROFESSIONAL AND GENERAL LIABILITY INSURANCE
 
Property Insurance
 
We have property, business interruption and related insurance coverage to mitigate the financial impact of catastrophic events or perils that is subject to deductible provisions based on the terms of the policies. These policies are on an occurrence basis. For both of the policy periods April 1, 2020 through March 31, 2021 and April 1, 2021 through March 31, 2022, we have coverage totaling $850 million per occurrence, after deductibles and exclusions, with annual aggregate sub-limits of $100 million for floods, $200 million for earthquakes and a per-occurrence sub-limit of $200 million for named windstorms with no annual aggregate. With respect to fires and other perils, excluding floods, earthquakes and named windstorms, the total $850 million limit of coverage per occurrence applies. Deductibles are 5% of insured values up to a maximum of $40 million for California earthquakes, $25 million for floods and named windstorms, and 2% of insured values for New Madrid fault earthquakes, with a maximum per claim deductible of $25 million. Floods and certain other covered losses, including fires and other perils, have a minimum deductible of $1 million.

17

Professional and General Liability Reserves
 
We are self-insured for the majority of our professional and general liability claims and purchase insurance from third‑parties to cover catastrophic claims. At March 31, 2021 and December 31, 2020, the aggregate current and long-term professional and general liability reserves in the accompanying Condensed Consolidated Balance Sheets were $1.026 billion and $978 million, respectively. These reserves include the reserves recorded by our captive insurance subsidiaries and our self‑insured retention reserves recorded based on modeled estimates for the portion of our professional and general liability risks, including incurred but not reported claims, for which we do not have insurance coverage.
 
If the aggregate limit of any of our professional and general liability policies is exhausted, in whole or in part, it could deplete or reduce the limits available to pay any other material claims applicable to that policy period.
 
Malpractice expense of $91 million and $73 million was included in other operating expenses, net, in the accompanying Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020, respectively.
 
NOTE 12. CLAIMS AND LAWSUITS

We operate in a highly regulated and litigious industry. Healthcare companies are subject to numerous investigations by various governmental agencies. Further, private parties have the right to bring qui tam or “whistleblower” lawsuits against companies that allegedly submit false claims for payments to, or improperly retain overpayments from, the government and, in some states, private payers. We and our subsidiaries have received inquiries in recent years from government agencies, and we may receive similar inquiries in future periods. We are also subject to class action lawsuits, employment-related claims and other legal actions in the ordinary course of business. Some of these actions may involve large demands, as well as substantial defense costs. We cannot predict the outcome of current or future legal actions against us or the effect that judgments or settlements in such matters may have on us.

We record accruals for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable and we can reasonably estimate the amount of the loss or a range of loss. Significant judgment is required in both the determination of the probability of a loss and the determination as to whether a loss is reasonably estimable. These determinations are updated at least quarterly and are adjusted to reflect the effects of negotiations, settlements, rulings, advice of legal counsel and technical experts, and other information and events pertaining to a particular matter, but are subject to significant uncertainty regarding numerous factors that could affect the ultimate loss levels. If a loss on a material matter is reasonably possible and estimable, we disclose an estimate of the loss or a range of loss. In cases where we have not disclosed an estimate, we have concluded that the loss is either not reasonably possible or the loss, or a range of loss, is not reasonably estimable, based on available information. Given the inherent uncertainties associated with these matters, especially those involving governmental agencies, and the indeterminate damages sought in some cases, there is significant uncertainty as to the ultimate liability we may incur from these matters, and an adverse outcome in one or more of these matters could be material to our results of operations or cash flows for any particular reporting period.

Government Investigation of Detroit Medical Center

Detroit Medical Center (“DMC”) is subject to an ongoing investigation commenced in October 2017 by the U.S. Attorney’s Office for the Eastern District of Michigan and the Civil Division of the DOJ for potential violations of the Stark law, the Medicare and Medicaid anti-kickback and anti-fraud and abuse amendments codified under Section 1128B(b) of the Social Security Act, and the federal False Claims Act related to DMC’s employment of nurse practitioners and physician assistants (“Mid-Level Practitioners”) from 2006 through 2017. As previously disclosed, a media report was published in August 2017 alleging that 14 Mid-Level Practitioners were terminated by DMC earlier in 2017 due to compliance concerns. We are cooperating with the investigation; however, we are unable to determine the potential exposure, if any, at this time.

Other Matters

In July 2019, certain of the entities that purchased from us the operations of Hahnemann University Hospital and St. Christopher’s Hospital for Children in Philadelphia commenced Chapter 11 bankruptcy proceedings. As previously disclosed in our Form 8-K filed September 1, 2017, the purchasers assumed our funding obligations under the Pension Fund for Hospital and Health Care Employees of Philadelphia and Vicinity (the “Fund”), a pension plan related to the operations at Hahnemann University Hospital. Pursuant to rules under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), under certain circumstances we could become liable for withdrawal liability in the event a withdrawal is triggered
18

with respect to the Fund. In addition, pursuant to applicable ERISA rules, we could become secondarily liable if the purchasers fail to satisfy their obligations to the Fund.

We are also subject to claims and lawsuits arising in the ordinary course of business, including potential claims related to, among other things, the care and treatment provided at our hospitals and outpatient facilities, the application of various federal and state labor laws, tax audits and other matters. Although the results of these claims and lawsuits cannot be predicted with certainty, we believe that the ultimate resolution of these ordinary course claims and lawsuits will not have a material effect on our business or financial condition.

New claims or inquiries may be initiated against us from time to time, including lawsuits from patients, employees and others exposed to COVID-19 at our facilities. These matters could (1) require us to pay substantial damages or amounts in judgments or settlements, which, individually or in the aggregate, could exceed amounts, if any, that may be recovered under our insurance policies where coverage applies and is available, (2) cause us to incur substantial expenses, (3) require significant time and attention from our management, and (4) cause us to close or sell hospitals or otherwise modify the way we conduct business.

The following table presents reconciliations of the beginning and ending liability balances in connection with legal settlements and related costs recorded in continuing operations during the three months ended March 31, 2021 and 2020.
Balances at
Beginning
of Period
Litigation and
Investigation
Costs
Cash
Payments
Balances at
End of
Period
Three Months Ended March 31, 2021$26 $13 $(15)$24 
Three Months Ended March 31, 2020$86 $$(2)$86 

For the three months ended March 31, 2021 and 2020, we recorded costs of $13 million and $2 million, respectively, in continuing operations in connection with significant legal proceedings and governmental investigations.

NOTE 13. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES
 
We have a put call agreement (the “Baylor Put/Call Agreement”) with Baylor University Medical Center (“Baylor”) that contains put and call options with respect to the 5% ownership interest Baylor holds in USPI. Each year starting in 2021, Baylor may put up to one-third of their total shares in USPI held as of April 1, 2017 by delivering notice by the end of January of such year. In each year that Baylor does not put the full 33.3% of USPI’s shares allowable, we may call the difference between the number of shares Baylor put and the maximum number of shares they could have put that year. In addition, the Baylor Put/Call Agreement contains a call option pursuant to which we have the ability to acquire all of Baylor’s ownership interest by 2024. We have the ability to choose whether to settle the purchase price for the Baylor put/call, which is mutually agreed-upon fair market value, in cash or shares of our common stock. Baylor did not deliver a put notice to us in January 2021. In February 2021, we notified Baylor of our intention to exercise our call option to purchase 33.3% of the USPI shares held by Baylor as of April 1, 2017. Based on the nature of the Baylor Put/Call Agreement, Baylor’s minority interest in USPI was classified as a redeemable noncontrolling interest in the accompanying Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020.

The following table shows the changes in redeemable noncontrolling interests in equity of consolidated subsidiaries during the three months ended March 31, 2021 and 2020:
 Three Months Ended
March 31,
 20212020
Balances at beginning of period $1,952 $1,506 
Net income81 34 
Distributions paid to noncontrolling interests(58)(36)
Accretion of redeemable noncontrolling interests
Purchases and sales of businesses and noncontrolling interests, net14 21 
Balances at end of period $1,992 $1,526 
 
19

The following tables show the composition by segment of our redeemable noncontrolling interests balances at March 31, 2021 and December 31, 2020, as well as our net income available to redeemable noncontrolling interests for the three months ended March 31, 2021 and 2020:
 March 31, 2021December 31, 2020
Hospital Operations$280 $267 
Ambulatory Care1,284 1,273 
Conifer428 412 
Redeemable noncontrolling interests$1,992 $1,952 
 Three Months Ended
March 31,
 20212020
Hospital Operations$13 $(9)
Ambulatory Care52 27 
Conifer16 16 
Net income available to redeemable noncontrolling interests$81 $34 

NOTE 14. INCOME TAXES
 
During the three months ended March 31, 2021, we recorded income tax expense of $45 million in continuing operations on a pre-tax income of $267 million compared to an income tax benefit of $75 million on pre-tax income of $85 million during the three months ended March 31, 2020. For the three months ended March 31, 2021, the provision for income taxes was calculated by applying an estimate of the annual effective tax rate for the full year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. In calculating “ordinary” income, non‑taxable income or loss attributable to noncontrolling interests was deducted from pre-tax income or loss in the determination of the annualized effective tax rate used to calculate income taxes for the quarter. For the three months ended March 31, 2020, we utilized the discrete effective tax rate method, as allowed by the Financial Accounting Standards Board Accounting Standards Codification 740-270-30-18, “Income Taxes–Interim Reporting,” to calculate the interim income tax provision. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. We believe that the use of this discrete method in 2020 was more appropriate than the annual effective tax rate method as the estimated annual effective tax rate method was not reliable due to the high degree of uncertainty in estimating annual pre-tax income due to the impact of the COVID-19 pandemic and the evolving guidance by the government on utilization of grant funds. The reconciliation between the amount of recorded income tax expense (benefit) and the amount calculated at the statutory federal tax rate is shown in the following table:
Three Months Ended
March 31,
20212020
Tax expense at statutory federal rate of 21%$56 $18 
State income taxes, net of federal income tax benefit13 
Tax benefit attributable to noncontrolling interests(25)(14)
Nontaxable gains
Stock-based compensation(1)
Change in valuation allowance(90)
Other items
Income tax expense (benefit)$45 $(75)
    
As a result of the change in the business interest expense disallowance rules under the COVID Acts, we recorded an income tax benefit of $91 million in the three months ended March 31, 2020 to decrease the valuation allowance for interest expense carryforwards due to the additional deduction of interest expense.

During the three months ended March 31, 2021, there were 0 adjustments to our estimated liabilities for uncertain tax positions. The total amount of unrecognized tax benefits at March 31, 2021 was $31 million, of which $29 million, if recognized, would impact our effective tax rate and income tax expense (benefit) from continuing operations. 

Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our statement of operations. There were 0 accrued interest and penalties on unrecognized tax benefits at March 31, 2021.
 
20

At March 31, 2021, 0 significant changes in unrecognized federal and state tax benefits were expected in the next 12 months as a result of the settlement of audits, the filing of amended tax returns or the expiration of statutes of limitations.
 
NOTE 15. EARNINGS PER COMMON SHARE
 
The following table is a reconciliation of the numerators and denominators of our basic and diluted earnings per common share calculations for our continuing operations for three months ended March 31, 2021 and 2020. Net income available to our common shareholders is expressed in millions and weighted average shares are expressed in thousands.
 Net Income Available
to Common
Shareholders
(Numerator)
Weighted
Average Shares
(Denominator)
Per-Share
Amount
Three Months Ended March 31, 2021   
Net income available to Tenet Healthcare Corporation common shareholders
for basic earnings per share
$97 106,309 $0.91 
Effect of dilutive stock options, restricted stock units and deferred compensation units— 1,756 (0.01)
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share$97 108,065 $0.90 
Three Months Ended March 31, 2020   
Net income available to Tenet Healthcare Corporation common shareholders
for basic earnings per share
$94 104,353 $0.90 
Effect of dilutive stock options, restricted stock units and deferred compensation units— 1,380 (0.01)
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share$94 105,733 $0.89 

NOTE 16. FAIR VALUE MEASUREMENTS
 
Fair Value Measurements

We are required to provide additional disclosures about fair value measurements as part of our financial statements for each major category of assets and liabilities measured at fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities, which generally are not applicable to non-financial assets and liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability, such as internal estimates of future cash flows.

Our non-financial assets and liabilities not permitted or required to be measured at fair value on a recurring basis typically relate to long-lived assets held and used, long-lived assets held for sale and goodwill. The following tables present information about assets measured at fair value at March 31, 2021 and December 31, 2020 and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair values:
TotalQuoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
At March 31, 2021:
Long-lived assets held for sale$139 $$139 $
At December 31, 2020:
Long-lived assets held for sale$140 $$140 $
Long-lived assets held and used483 483 
$623 $0 $623 $0 

21

Financial Instruments
    
The fair value of our long-term debt (except for borrowings under the Credit Agreement) is based on quoted market prices (Level 1). The inputs used to establish the fair value of the borrowings outstanding under the Credit Agreement are considered to be Level 2 inputs, which include inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly. At March 31, 2021 and December 31, 2020, the estimated fair value of our long-term debt was approximately 104.4% and 104.5%, respectively, of the carrying value of the debt.

NOTE 17. ACQUISITIONS

Preliminary purchase price allocations (representing the fair value of the consideration conveyed) for all acquisitions made during the three months ended March 31, 2021 and 2020 are as follows: 
Three Months Ended
March 31,
20212020
Current assets$$
Property and equipment18 
Other intangible assets
Goodwill25 83 
Other long-term assets, including previously held equity method investments
Current liabilities(7)(8)
Long-term liabilities(2)(6)
Redeemable noncontrolling interests in equity of consolidated subsidiaries(11)(30)
Noncontrolling interests(2)(11)
Cash paid, net of cash acquired(25)(55)
Gains on consolidations$0 $0 

The goodwill generated from these transactions, the majority of which will be deductible for income tax purposes, can be attributed to the benefits that we expect to realize from operating efficiencies and growth strategies. The goodwill total of $25 million from acquisitions completed during the three months ended March 31, 2021 was recorded in our Ambulatory Care segment. Approximately $4 million and $1 million in transaction costs related to prospective and closed acquisitions were expensed during the three-month periods ended March 31, 2021 and 2020, respectively, and were included in impairment and restructuring charges, and acquisition-related costs in the accompanying Condensed Consolidated Statements of Operations.
 
We are required to allocate the purchase prices of acquired businesses to assets acquired or liabilities assumed and, if applicable, noncontrolling interests based on their fair values. The excess of the purchase price allocated over those fair values is recorded as goodwill. We are in process of assessing working capital balances as well as obtaining and evaluating valuations of the acquired property and equipment, management contracts and other intangible assets, and noncontrolling interests for some of our 2021 and 2020 acquisitions. Therefore, those purchase price allocations, including goodwill, recorded in the accompanying Condensed Consolidated Financial Statements are subject to adjustment once the assessments and valuation work are completed and evaluated. Such adjustments are recorded as soon as practical within the measurement period as defined by the accounting literature.
 
NOTE 18. SEGMENT INFORMATION
 
Our business consists of our Hospital Operations segment, our Ambulatory Care segment and our Conifer segment. The factors for determining the reportable segments include the manner in which management evaluates operating performance combined with the nature of the individual business activities.
 
Our Hospital Operations segment is comprised of acute care and specialty hospitals, ancillary outpatient facilities, micro-hospitals, imaging centers, physician practices and urgent care centers. At March 31, 2021, our subsidiaries operated 65 hospitals serving primarily urban and suburban communities in 9 states. Most of the urgent care centers in our Hospital Operations segment were classified as held for sale at March 31, 2021 and December 31, 2020.

Our Ambulatory Care segment is comprised of the operations of USPI. At March 31, 2021, USPI had interests in 312 ambulatory surgery centers and 24 surgical hospitals in 30 states. At March 31, 2021, our Ambulatory Care segment also included 24 imaging centers, which were transferred to our Hospital Operations segment effective April 1, 2021. The total assets associated with the imaging centers transferred to our Hospital Operations segment constituted less than 1% of our consolidated total assets at March 31, 2021. Additionally, our Ambulatory Care segment included 39 urgent care centers at
22

March 31, 2021, which were classified as held for sale at March 31, 2021 and December 31, 2020. At March 31, 2021, we owned 95% of USPI.
 
Our Conifer segment provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients. At March 31, 2021, Conifer provided services to approximately 640 Tenet and non-Tenet hospitals and other clients nationwide. In 2012, we entered into an agreement documenting the terms and conditions of various services Conifer provides to Tenet hospitals (“RCM Agreement”), as well as an agreement documenting certain administrative services our Hospital Operations segment provides to Conifer. In March 2021, we entered into a month-to-month agreement amending the RCM Agreement effective January 1, 2021 (“Amended RCM Agreement”) to update certain terms and conditions related to the revenue cycle management services Conifer provides to Tenet hospitals. We believe the pricing terms for the services provided under the Amended RCM Agreement are commercially reasonable and consistent with estimated third-party terms. At March 31, 2021, we owned 76% of Conifer Health Solutions, LLC, which is Conifer’s principal subsidiary.
 
The following tables include amounts for each of our reportable segments and the reconciling items necessary to agree to amounts reported in the accompanying Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations, as applicable:
March 31, 2021December 31, 2020
Assets:  
Hospital Operations$17,555 $18,048 
Ambulatory Care8,027 8,048 
Conifer972 1,010 
Total $26,554 $27,106 
Three Months Ended
March 31,
20212020
Capital expenditures:  
Hospital Operations$110 $167 
Ambulatory Care11 
Conifer
Total $121 $182 
Net operating revenues:  
Hospital Operations total prior to inter-segment eliminations$3,947 $3,834 
Ambulatory Care646 490 
Conifer
Tenet122 136 
Other clients188 196 
Total Conifer revenues310 332 
Inter-segment eliminations(122)(136)
Total $4,781 $4,520 
Equity in earnings of unconsolidated affiliates:  
Hospital Operations$$
Ambulatory Care38 26 
Total $42 $28 
Adjusted EBITDA:  
Hospital Operations$434 $342 
Ambulatory Care257 156 
Conifer86 87 
Total $777 $585 

23

Three Months Ended
March 31,
20212020
Depreciation and amortization:
Hospital Operations$190 $175 
Ambulatory Care25 19 
Conifer
Total $224 $203 
Adjusted EBITDA$777 $585 
Depreciation and amortization(224)(203)
Impairment and restructuring charges, and acquisition-related costs(20)(55)
Litigation and investigation costs(13)(2)
Interest expense(240)(243)
Loss from early extinguishment of debt(23)
Other non-operating income, net10 
Net gains on sales, consolidation and deconsolidation of facilities
Income from continuing operations, before income taxes$267 $85 

NOTE 19. SUBSEQUENT EVENTS
 
Amended Credit Facility

As discussed in Note 6, on April 19, 2021, we amended our Credit Agreement to, among other things, extend the temporary increase of the aggregate revolving credit commitments from the previous limit of $1.500 billion to $1.900 billion through April 22, 2022. In addition, the amendment decreased the margins applied to the credit facility’s borrowing rates. As amended, the margin applicable to base rate loans ranges from 0.25% to 0.75% per annum and the margin applicable to LIBOR loans ranges from 1.25% to 1.75% per annum.

Sale of Urgent Care Centers

On April 30, 2021, we completed the sale of the majority of our urgent care centers operated under the MedPost and CareSpot brands to an unaffiliated independent urgent care provider. We received net cash proceeds of approximately $80 million for the sale of these facilities.
24

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
INTRODUCTION TO MANAGEMENT’S DISCUSSION AND ANALYSIS
 
The purpose of this section, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the context within which our financial information may be analyzed, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows. MD&A, which should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, includes the following sections:

Management Overview
Forward-Looking Statements
Sources of Revenue for Our Hospital Operations Segment
Results of Operations
Liquidity and Capital Resources
Off-Balance Sheet Arrangements
Critical Accounting Estimates
 
Our business consists of our Hospital Operations and other (“Hospital Operations”) segment, our Ambulatory Care segment and our Conifer segment. Our Hospital Operations segment is comprised of acute care and specialty hospitals, ancillary outpatient facilities, micro-hospitals, imaging centers, physician practices and urgent care centers. At March 31, 2021, our subsidiaries operated 65 hospitals serving primarily urban and suburban communities in nine states. Our Ambulatory Care segment is comprised of the operations of USPI Holding Company, Inc. (“USPI”), in which we own a 95% interest. At March 31, 2021, USPI had interests in 312 ambulatory surgery centers, 39 urgent care centers, 24 imaging centers and 24 surgical hospitals in 30 states. Effective April 1, 2021, we transferred the Ambulatory Care segment’s imaging centers to our Hospital Operations segment. As described in Note 4 to the accompanying Condensed Consolidated Financial Statements, certain of the facilities in our Hospital Operations and Ambulatory Care segments were classified as held for sale at March 31, 2021 and December 31, 2020. Our Conifer segment provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients, through our Conifer Holdings, Inc. (“Conifer”) subsidiary. At March 31, 2021, Conifer provided services to approximately 640 Tenet and non-Tenet hospitals and other clients nationwide. At March 31, 2021, we owned 76% of Conifer Health Solutions, LLC, which is Conifer’s principal subsidiary.

Unless otherwise indicated, all financial and statistical information included in MD&A relates to our continuing operations, with dollar amounts expressed in millions (except per adjusted patient admission and per adjusted patient day amounts). Continuing operations information includes the results of our same 65 hospitals operated throughout the three months ended March 31, 2021 and 2020. Continuing operations information excludes the results of our hospitals and other businesses that have been classified as discontinued operations for accounting purposes.

MANAGEMENT OVERVIEW

RECENT DEVELOPMENTS

Multi-Year Agreement with UnitedHealthcare—In April 2021, we signed a new multi-year contract with UnitedHealthcare four months prior to the scheduled renewal date. The contract will provide many UnitedHealthcare
members with continued in-network access to our hospitals, physician clinics and outpatient centers, including USPI’s surgical facilities.

Sale of Urgent Care Centers—We completed the sale of the majority of our urgent care centers operated under the MedPost and CareSpot brands to an unaffiliated independent urgent care provider on April 30, 2021. We received net cash proceeds of approximately $80 million for the sale of these facilities and will recognize a gain on the sale in the three months ending June 30, 2021.

25

IMPACT OF THE COVID-19 PANDEMIC

The spread of COVID-19 and the ensuing response of federal, state and local authorities beginning in March 2020 resulted in a material reduction in our patient volumes and also adversely affected our net operating revenues in the year ended December 31, 2020. Restrictive measures, including travel bans, social distancing, quarantines and shelter‑in‑place orders, reduced the number of procedures performed at our facilities, as well as the volume of emergency room and physician office visits. We began experiencing gradual and continued improvement in patient volumes in May 2020 as various states eased stay‑at‑home restrictions and our facilities were permitted to resume elective surgeries and other procedures; however, the COVID-19 pandemic continues to impact all three segments of our business, as well as our patients, communities and employees. Broad economic factors resulting from the pandemic, including increased unemployment rates and reduced consumer spending, continue to impact our patient volumes, service mix and revenue mix. The pandemic has also continued to have an adverse effect on our operating expenses to varying degrees in 2021. In some of our markets, we have been required to utilize higher-cost temporary labor and pay premiums above standard compensation for essential workers. In addition, we have experienced significant price increases in medical supplies, particularly for personal protective equipment (“PPE”), and we have encountered supply chain disruptions, including shortages and delays.

As described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in Part II of our Annual Report on Form 10-K for the year ended December 31, 2020 (“Annual Report”) and below under “Sources of Revenue for Our Hospital Operations Segment,” various legislative actions have mitigated some of the economic disruption caused by the COVID-19 pandemic on our business. Additional funding for the Public Health and Social Services Emergency Fund (“Provider Relief Fund” or “PRF”) was among the provisions of the COVID-19 relief legislation. In the three months ended March 31, 2021, we received cash payments of $59 million, and we recognized approximately $31 million and $6 million as grant income and in equity in earnings of unconsolidated affiliates, respectively, in our accompanying Condensed Consolidated Statements of Operations due to grants from the Provider Relief Fund and other state and local grant programs.

Throughout MD&A, we have provided additional information on the impact of the COVID-19 pandemic on our results of operations and the steps we have taken, and are continuing to take, in response. The ultimate extent and scope of the pandemic remains unknown. For information about risks and uncertainties around COVID-19 that could affect our results of operations, financial condition and cash flows, see the Risk Factors section in Part I of our Annual Report.

TRENDS AND STRATEGIES

As described above and throughout MD&A, we experienced a significant disruption to our business in 2020 due to the COVID-19 pandemic. Although we have seen gradual and continued improvement in our patient volumes, we continue to experience negative impacts of the pandemic on our business in varying degrees, the length and extent of which are currently unknown. While demand for our services is expected to further rebound in the future, we have taken, and continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and operating revenues from the pandemic. Since the COVID-19 pandemic began to disrupt our business in March 2020, we have sold new senior notes and senior secured first lien notes, redeemed existing senior notes, including those with the highest interest rate and nearest maturity date of all of our long-term debt, and amended our revolving credit facility. We also decreased our employee headcount throughout the organization, and we deferred certain operating expenses that were not expected to impact our response to the COVID-19 pandemic. In addition, we reduced certain variable costs across the enterprise. We believe these actions, together with government relief packages, to the extent available to us, will help us to continue operating during the uncertainty caused by the COVID-19 pandemic. For further information on our liquidity, see “Liquidity and Capital Resources” below.

In recent years, the healthcare industry, in general, and the acute care hospital business, in particular, have experienced significant regulatory uncertainty based, in large part, on administrative, legislative and judicial efforts to significantly modify or repeal and potentially replace the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act” or “ACA”). It is difficult to predict the full impact of regulatory uncertainty on our future revenues and operations. In addition, we believe that several key trends have shaped the demand for healthcare services in recent years: (1) consumers, employers and insurers are actively seeking lower-cost solutions and better value as they focus more on healthcare spending; (2) patient volumes are shifting from inpatient to outpatient settings due to technological advancements and demand for care that is more convenient, affordable and accessible; (3) the growing aging population requires greater chronic disease management and higher-acuity treatment; and (4) consolidation continues across the entire healthcare sector.

26

Driving Growth in Our Hospital Systems—We are committed to better positioning our hospital systems and competing more effectively in the ever-evolving healthcare environment by focusing on driving performance through operational effectiveness, increasing capital efficiency and margins, investing in our physician enterprise, particularly our specialist network, enhancing patient and physician satisfaction, growing our higher-demand and higher-acuity clinical service lines (including outpatient lines), expanding patient and physician access, and optimizing our portfolio of assets. Over the past several years, we have undertaken enterprise-wide cost-reduction initiatives, comprised primarily of workforce reductions (including streamlining corporate overhead and centralized support functions), the renegotiation of contracts with suppliers and vendors, and the consolidation of office locations. Moreover, we established offshore support operations in the Philippines. In conjunction with these initiatives and our cost-saving efforts in response to the COVID-19 pandemic, we incurred restructuring charges related to employee severance payments of $4 million in the three months ended March 31, 2021, and we expect to incur additional such restructuring charges throughout 2021.

We also continue to exit service lines, businesses and markets that we believe are no longer a core part of our long‑term growth strategy. In April 2021, we completed the sale of the majority of our urgent care centers operated under the MedPost and CareSpot brands by our Hospital Operations and Ambulatory Care segments. We intend to continue to further refine our portfolio of hospitals and other healthcare facilities when we believe such refinements will help us improve profitability, allocate capital more effectively in areas where we have a stronger presence, deploy proceeds on higher-return investments across our business, enhance cash flow generation, reduce our debt and lower our ratio of debt‑to‑Adjusted EBITDA.

Improving the Customer Care Experience—As consumers continue to become more engaged in managing their health, we recognize that understanding what matters most to them and earning their loyalty is imperative to our success. As such, we have enhanced our focus on treating our patients as traditional customers by: (1) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (2) expanding service lines aligned with growing community demand, including a focus on aging and chronic disease patients; (3) offering greater affordability and predictability, including simplified registration and discharge procedures, particularly in our outpatient centers; (4) improving our culture of service; and (5) creating health and benefit programs, patient education and health literacy materials that are customized to the needs of the communities we serve. Through these efforts, we intend to improve the customer care experience in every part of our operations.

Expansion of Our Ambulatory Care Segment—We continue to focus on opportunities to expand our Ambulatory Care segment through organic growth, building new outpatient centers, corporate development activities and strategic partnerships. In December 2020, we acquired controlling ownership interests in 45 ambulatory surgery centers from SurgCenter Development (the “SCD Centers”), which significantly increased USPI’s presence in the musculoskeletal surgery market, a high-demand clinical service line, particularly for an aging population. In the three months ended March 31, 2021, we acquired controlling ownership interests in three ambulatory surgery centers located in Maryland and one in Florida. We believe USPI’s surgery centers and surgical hospitals offer many advantages to patients and physicians, including greater affordability, predictability, flexibility and convenience. Moreover, due in part to advancements in medical technology, and due to the lower cost structure and greater efficiencies that are attainable at a specialized outpatient site, we believe the volume and complexity of surgical cases performed in an outpatient setting will continue to increase following the containment of the COVID-19 pandemic. Historically, our outpatient services have generated significantly higher margins for us than inpatient services.

Driving Conifer’s Growth While Pursuing a Tax-Free Spin-Off—We previously announced a number of actions to support our goals of improving financial performance and enhancing shareholder value, including the exploration of strategic alternatives for Conifer. In July 2019, we announced our intention to pursue a tax-free spin-off of Conifer as a separate, independent, publicly traded company. Completion of the proposed spin-off is subject to a number of conditions, including, among others, assurance that the separation will be tax-free for U.S. federal income tax purposes, finalization of Conifer’s capital structure, the effectiveness of appropriate filings with the Securities and Exchange Commission (“SEC”), and final approval from our board of directors. Although in March 2021 we entered into a month-to-month agreement amending and updating certain terms and conditions related to the revenue cycle management services Conifer provides to Tenet hospitals (“Amended RCM Agreement”), the execution of a comprehensive amendment to and restatement of the master services agreement between Conifer and Tenet remains an additional prerequisite to the spin-off of Conifer. Although we are continuing to pursue the Conifer spin-off, there can be no assurance regarding the timeframe for completion, the allocation of assets and liabilities between Tenet and Conifer, that the other conditions of the spin-off will be met, or that it will be completed at all.

Conifer serves approximately 640 Tenet and non-Tenet hospital and other clients nationwide. In addition to providing revenue cycle management services to health systems and physicians, Conifer provides support to both providers and self‑insured employers seeking assistance with clinical integration, financial risk management and population health management. Conifer remains focused on driving growth by continuing to market and expand its revenue cycle management
27

and value-based care solutions businesses. We believe that our success in growing Conifer and increasing its profitability depends in part on our success in executing the following strategies: (1) attracting hospitals and other healthcare providers that currently handle their revenue cycle management processes internally as new clients; (2) generating new client relationships through opportunities from USPI and Tenet’s acute care hospital acquisition and divestiture activities; (3) expanding revenue cycle management and value-based care service offerings through organic development and small acquisitions; and (4) leveraging data from tens of millions of patient interactions for continued enhancement of the value-based care environment to drive competitive differentiation.

Improving Profitability—As we return to more normal operations, we will continue to focus on growing patient volumes and effective cost management as a means to improve profitability. We believe our inpatient admissions have been constrained in recent years (prior to the COVID-19 pandemic) by increased competition, utilization pressure by managed care organizations, new delivery models that are designed to lower the utilization of acute care hospital services, the effects of higher patient co-pays, co-insurance amounts and deductibles, changing consumer behavior, and adverse economic conditions and demographic trends in certain of our markets. However, we also believe that emphasis on higher-demand clinical service lines (including outpatient services), focus on expanding our ambulatory care business, cultivation of our culture of service, participation in Medicare Advantage health plans that have been experiencing higher growth rates than traditional Medicare, and contracting strategies that create shared value with payers should help us grow our patient volumes over time. We are also continuing to explore new opportunities to enhance efficiency, including further integration of enterprise-wide centralized support functions, outsourcing additional functions unrelated to direct patient care, and reducing clinical and vendor contract variation.

Reducing Our Leverage Over Time—All of our outstanding long-term debt has a fixed rate of interest, except for outstanding borrowings under our revolving credit facility, and the maturity dates of our notes are staggered from 2023 through 2031. We believe that our capital structure minimizes the near-term impact of increased interest rates, and the staggered maturities of our debt allow us to refinance our debt over time. It is our long‑term objective to reduce our debt and lower our ratio of debt-to-Adjusted EBITDA, primarily through more efficient capital allocation and Adjusted EBITDA growth, which should lower our refinancing risk. In March 2021, we retired approximately $478 million aggregate principal amount of our 7.000% senior unsecured notes due 2025 (the “2025 Senior Notes”), which reduces future annual cash interest expense payments by approximately $33 million.

Our ability to execute on our strategies and respond to the aforementioned trends is subject to the extent and scope of the impact on our operations of the COVID-19 pandemic, as well as a number of other risks and uncertainties, all of which may cause actual results to be materially different from expectations. For information about risks and uncertainties that could affect our results of operations, see the Forward-Looking Statements section in this report, as well as the Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report.

28

RESULTS OF OPERATIONS—OVERVIEW
 
We have provided below certain selected operating statistics for the three months ended March 31, 2021 and 2020 on a continuing operations basis. The following tables also show information about facilities in our Ambulatory Care segment that we control and, therefore, consolidate. We believe this information is useful to investors because it reflects our current portfolio of operations and the recent trends we are experiencing with respect to volumes, revenues and expenses. We present certain metrics on a per adjusted patient admission basis to show trends other than volume.
Continuing Operations
Three Months Ended March 31,
Selected Operating Statistics20212020Increase
(Decrease)
Hospital Operations – hospitals and related outpatient facilities:
Number of hospitals (at end of period)65 65 — (1)
Total admissions147,674 165,735 (10.9)%
Adjusted patient admissions(2) 
251,017 290,912 (13.7)%
Paying admissions (excludes charity and uninsured)138,756 155,820 (11.0)%
Charity and uninsured admissions8,918 9,915 (10.1)%
Admissions through emergency department112,730 122,291 (7.8)%
Emergency department visits, outpatient450,830 641,282 (29.7)%
Total emergency department visits563,560 763,573 (26.2)%
Total surgeries89,964 95,352 (5.7)%
Patient days — total797,489 810,479 (1.6)%
Adjusted patient days(2) 
1,321,890 1,385,763 (4.6)%
Average length of stay (days)5.40 4.89 10.4 %
Average licensed beds17,178 17,218 (0.2)%
Utilization of licensed beds(3)
51.6 %51.7 %(0.1)%(1)
Total visits1,401,217 1,616,527 (13.3)%
Paying visits (excludes charity and uninsured)1,312,096 1,499,538 (12.5)%
Charity and uninsured visits89,121 116,989 (23.8)%
Ambulatory Care:
Total consolidated facilities (at end of period)291 244 47 (1)
Total cases553,814 501,226 10.5 %
(1)The change is the difference between the 2021 and 2020 amounts shown.
(2)Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
(3)Utilization of licensed beds represents patient days divided by number of days in the period divided by average licensed beds.
 
Total admissions decreased by 18,061, or 10.9%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, and total surgeries decreased by 5,388, or 5.7%, in the 2021 period compared to the 2020 period. Total emergency department visits decreased 26.2% in the three months ended March 31, 2021 compared to the same period in the prior year. The decrease in our patient volumes from continuing operations in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 continues to reflect the overall adverse impact of the COVID-19 pandemic. Despite the severe weather impact of Winter Storm Uri in February 2021, our Ambulatory Care total cases increased 10.5% in the three months ended March 31, 2021 compared to the 2020 period primarily due to the acquisition of the SCD Centers in December 2020.
Continuing Operations
Three Months Ended March 31,
Revenues20212020Increase
(Decrease)
Net operating revenues:
Hospital Operations prior to inter-segment eliminations$3,947 $3,834 2.9 %
Ambulatory Care646 490 31.8 %
Conifer310 332 (6.6)%
Inter-segment eliminations(122)(136)(10.3)%
Total$4,781 $4,520 5.8 %

29

Net operating revenues increased by $261 million, or 5.8%, in the three months ended March 31, 2021 compared to the same period in 2020, primarily due to higher patient acuity, USPI’s acquisition of the SCD Centers in December 2020 and a more favorable payer mix, partially offset by lower patient volumes. During the three months ended March 31, 2021, we recognized $31 million of grant income, which amount is not included in net operating revenues.

Our accounts receivable days outstanding (“AR Days”) from continuing operations were 55.8 days at March 31, 2021 and 55.6 days at December 31, 2020, compared to our target of less than 55 days. AR Days are calculated as our accounts receivable from continuing operations on the last date in the quarter divided by our net operating revenues from continuing operations for the quarter ended on that date divided by the number of days in the quarter. This calculation includes our Hospital Operations segment’s contract assets, as well as the accounts receivable of the urgent care facilities classified as held for sale on our Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020. The AR Days calculation excludes our California provider fee revenues.
 Continuing Operations
Three Months Ended March 31,
Selected Operating Expenses20212020Increase
(Decrease)
Hospital Operations:
Salaries, wages and benefits$1,857 $1,846 0.6 %
Supplies646 650 (0.6)%
Other operating expenses916 862 6.3 %
Total$3,419 $3,358 1.8 %
Ambulatory Care:   
Salaries, wages and benefits$174 $162 7.4 %
Supplies157 112 40.2 %
Other operating expenses103 86 19.8 %
Total$434 $360 20.6 %
Conifer:   
Salaries, wages and benefits$170 $179 (5.0)%
Supplies— %
Other operating expenses53 65 (18.5)%
Total$224 $245 (8.6)%
Total:   
Salaries, wages and benefits$2,201 $2,187 0.6 %
Supplies804 763 5.4 %
Other operating expenses1,072 1,013 5.8 %
Total$4,077 $3,963 2.9 %
Rent/lease expense(1):
   
Hospital Operations$77 $65 18.5 %
Ambulatory Care27 23 17.4 %
Conifer— %
Total$107 $91 17.6 %
(1) Included in other operating expenses.
 Continuing Operations
Three Months Ended March 31,
Selected Operating Expenses per Adjusted Patient Admission20212020Increase
(Decrease)
Hospital Operations:
Salaries, wages and benefits per adjusted patient admission(1)
$7,396 $6,347 16.5 %
Supplies per adjusted patient admission(1)
2,571 2,236 15.0 %
Other operating expenses per adjusted patient admission(1)
3,647 2,961 23.2 %
Total per adjusted patient admission$13,614 $11,544 17.9 %
(1)
Adjusted patient admissions represents actual patient admissions adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient admissions by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
    
Salaries, wages and benefits for our Hospital Operations segment increased $11 million, or 0.6%, in the three months ended March 31, 2021 compared to the same period in 2020. This change was primarily attributable to increased contract labor costs, as well as increased incentive compensation and annual merit increases for certain of our employees, partially offset by
30

lower health benefits costs. A higher average length of patient stay and a greater number of employed physicians also contributed to the increase. The increase was also partially offset by reduced patient volumes as a result of the COVID-19 pandemic and our continuing cost efficiency initiatives. On a per adjusted patient admission basis, salaries, wages and benefits increased 16.5% in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 due to reduced patient volumes as a result of the COVID-19 pandemic.

Supplies expense for our Hospital Operations segment decreased $4 million, or 0.6%, in the three months ended March 31, 2021 compared to the same period in 2020. The decrease was primarily due to reduced patient volumes and our continued focus on cost efficiency initiatives, partially offset by increased costs for certain supplies as a result of the COVID-19 pandemic. On a per adjusted patient admission basis, supplies expense increased 15.0% in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to increased costs for certain supplies as a result of the COVID-19 pandemic and growth in our higheracuity, supplyintensive surgical services.

Other operating expenses for our Hospital Operations segment increased $54 million, or 6.3%, in the three months ended March 31, 2021 compared to the same period in 2020. The increase was primarily due to higher malpractice expense, increased rent and lease expense, higher medical fees, and increased legal and consulting fees. On a per adjusted patient admission basis, other operating expenses increased 23.2% in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 due to the decrease in patient volumes as a result of the COVID-19 pandemic and the fact that there is a high level of fixed costs (e.g., rent expense) in other operating expenses.
 
LIQUIDITY AND CAPITAL RESOURCES OVERVIEW
 
Cash and cash equivalents were $2.141 billion at March 31, 2021 compared to $2.446 billion at December 31, 2020.
 
Significant cash flow items in the three months ended March 31, 2021 included:

Net cash provided by operating activities before interest, taxes, discontinued operations and restructuring charges, acquisition-related costs, and litigation costs and settlements of $777 million;

Cash received from federal, state and local grants of $59 million ($31 million is included in net cash provided by operating activities, and $28 million of grant funds received by our Ambulatory Care segment’s unconsolidated affiliates is included in net cash provided by financing activities);

Debt payments of $541 million, including $495 million of cash to retire our 2025 Senior Notes;

Interest payments of $190 million;

Capital expenditures of $121 million;

$119 million of distributions paid to noncontrolling interests;

Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements of $51 million;

Purchases of businesses and joint venture interests of $25 million; and

Purchases of marketable securities and equity investments of $11 million.

31

Net cash provided by operating activities was $534 million in the three months ended March 31, 2021 compared to $129 million in the three months ended March 31, 2020. Key factors contributing to the change between the 2021 and 2020 periods include the following:

An increase in net income before interest, taxes, discontinued operations and restructuring charges, acquisition-related costs, and litigation costs and settlements of $192 million (including $31 million of cash received from federal and state grants in the 2021 period);

Additional cash inflows of $54 million related to supplemental Medicaid programs in California and Texas;

Reduced cash outflows of $67 million attributable to a decrease in malpractice claim payments;

Additional cash outflows of $79 million due to an increase in our annual 401(k) match funding;

A decrease of $17 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements; and

The timing of other working capital items, including improved patient accounts receivable collection performance.

FORWARD-LOOKING STATEMENTS
 
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, target, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements, including (but not limited to) disclosure regarding (i) the impact of the COVID-19 pandemic, (ii) our future earnings, financial position, and operational and strategic initiatives, and (iii) developments in the healthcare industry. Forward-looking statements represent management’s expectations, based on currently available information, as to the outcome and timing of future events, but, by their nature, address matters that are indeterminate. They involve known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. Such factors include, but are not limited to, the risks described in the Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report.
 
When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in our Annual Report and in this report. Should one or more of the risks and uncertainties described in these reports occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statement. We specifically disclaim any obligation to update any information contained in a forward-looking statement or any forward-looking statement in its entirety except as required by law.
 
All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary information.
 
32

SOURCES OF REVENUE FOR OUR HOSPITAL OPERATIONS SEGMENT
 
We earn revenues for patient services from a variety of sources, primarily managed care payers and the federal Medicare program, as well as state Medicaid programs, indemnity-based health insurance companies and uninsured patients (that is, patients who do not have health insurance and are not covered by some other form of third-party arrangement).
 
The following table shows the sources of net patient service revenues less implicit price concessions for our hospitals and related outpatient facilities, expressed as percentages of net patient service revenues less implicit price concessions from all sources:
 Three Months Ended
March 31,
Net Patient Service Revenues Less Implicit Price Concessions from:20212020
Increase
(Decrease)
(1)
Medicare18.8 %19.9 %(1.1)%
Medicaid7.1 %7.9 %(0.8)%
Managed care(2)
68.0 %65.6 %2.4 %
Uninsured1.3 %1.1 %0.2 %
Indemnity and other4.8 %5.5 %(0.7)%
(1)The change is the difference between the 2021 and 2020 percentages shown.
(2)Includes Medicare and Medicaid managed care programs.
    
Our payer mix on an admissions basis for our hospitals and related outpatient facilities, expressed as a percentage of total admissions from all sources, is shown below:
 Three Months Ended
March 31,
Admissions from:20212020
Increase
(Decrease)
(1)
Medicare21.4 %24.5 %(3.1)%
Medicaid5.7 %6.0 %(0.3)%
Managed care(2)
63.7 %60.7 %3.0 %
Charity and uninsured6.0 %6.0 %— %
Indemnity and other3.2 %2.8 %0.4 %
(1)The change is the difference between the 2021 and 2020 percentages shown.
(2)Includes Medicare and Medicaid managed care programs.
    
GOVERNMENT PROGRAMS
 
The Centers for Medicare and Medicaid Services (“CMS”), an agency of the U.S. Department of Health and Human Services (“HHS”), is the single largest payer of healthcare services in the United States. Approximately 61 million individuals rely on healthcare benefits through Medicare, and approximately 79 million individuals are enrolled in Medicaid and the Children’s Health Insurance Program (“CHIP”). These three programs are authorized by federal law and administered by CMS. Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, as well as some younger people with certain disabilities and conditions, and is provided without regard to income or assets. Medicaid is co-administered by the states and is jointly funded by the federal government and state governments. Medicaid is the nation’s main public health insurance program for people with low incomes and is the largest source of health coverage in the United States. The CHIP, which is also co-administered by the states and jointly funded, provides health coverage to children in families with incomes too high to qualify for Medicaid, but too low to afford private coverage. Unlike Medicaid, the CHIP is limited in duration and requires the enactment of reauthorizing legislation. Funding for the CHIP has been reauthorized through federal fiscal year (“FFY”) 2027.
 
33

Medicare
 
Medicare offers its beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan (which includes “Part A” and “Part B”), is a fee-for-service (“FFS”) payment system. The other option, called Medicare Advantage (sometimes called “Part C” or “MA Plans”), includes health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), private FFS Medicare special needs plans and Medicare medical savings account plans. Our total net patient service revenues from continuing operations of the hospitals and related outpatient facilities in our Hospital Operations segment for services provided to patients enrolled in the Original Medicare Plan for the three months ended March 31, 2021 and 2020 were $688 million and $705 million, respectively.

A general description of the types of payments we receive for services provided to patients enrolled in the Original Medicare Plan is provided in our Annual Report. Recent regulatory and legislative updates to the terms of these payment systems and their estimated effect on our revenues can be found under “Regulatory and Legislative Changes” below.

Medicaid

Medicaid programs and the corresponding reimbursement methodologies vary from state-to-state and from year‑to‑year. Even prior to the COVID-19 pandemic, several states in which we operate faced budgetary challenges that resulted in reduced Medicaid funding levels to hospitals and other providers. Because most states must operate with balanced budgets, and the Medicaid program is generally a significant portion of a state’s budget, states can be expected to adopt or consider adopting future legislation designed to reduce or not increase their Medicaid expenditures. In addition, some states delay issuing Medicaid payments to providers to manage state expenditures. As an alternative means of funding provider payments, many of the states in which we operate have adopted supplemental payment programs authorized under the Social Security Act. Continuing pressure on state budgets and other factors could adversely affect the Medicaid supplemental payments our hospitals receive.

Estimated revenues under various state Medicaid programs, including state-funded Medicaid managed care programs, constituted approximately 16.9% and 18.1% of total net patient service revenues less implicit price concessions of our acute care hospitals and related outpatient facilities for the three months ended March 31, 2021 and 2020, respectively. We also receive disproportionate share hospital (“DSH”) and other supplemental revenues under various state Medicaid programs. For the three months ended March 31, 2021 and 2020, our total Medicaid revenues attributable to DSH and other supplemental revenues were approximately $180 million and $182 million, respectively. The 2021 period included $46 million related to the California provider fee program, $62 million related to the Michigan provider fee program, $33 million related to Medicaid DSH programs in multiple states, $6 million related to the Texas Section 1115 waiver program, and $33 million from a number of other state and local programs.

Total Medicaid and Managed Medicaid net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment from Medicaid-related programs in the states in which our facilities are located, as well as from Medicaid programs in neighboring states, for the three months ended March 31, 2021 and 2020 were $617 million and $641 million, respectively. These revenues are presented net of provider taxes or assessments paid by our hospitals, which are reported as an offset reduction to FFS Medicaid revenue.

Medicaid and Managed Medicaid revenues comprised 42% and 58%, respectively, of our Medicaid-related net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment for the three months ended March 31, 2021.

Because we cannot predict what actions the federal government or the states may take under existing or future legislation and/or regulatory changes to address budget gaps, deficits, Medicaid expansion, provider fee programs or Medicaid Section 1115 waivers, we are unable to assess the effect that any such legislation or regulatory action might have on our business; however, the impact on our future financial position, results of operations or cash flows could be material.

Regulatory and Legislative Changes
 
Material updates to the information set forth in our Annual Report about the Medicare and Medicaid payment systems, as well as other government programs impacting our business, are provided below.

Proposed Payment and Policy Changes to the Medicare Inpatient Prospective Payment Systems—Section 1886(d) of the Social Security Act requires CMS to update inpatient FFS payment rates for hospitals reimbursed under the inpatient prospective payment systems (“IPPS”) annually. The updates generally become effective October 1, the beginning of the
34

federal fiscal year. In April 2021, CMS issued proposed changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2022 Rates (“Proposed IPPS Rule”). The Proposed IPPS Rule includes the following proposed payment and policy changes:

A market basket increase of 2.5% for Medicare severity-adjusted diagnosis-related group (“MS-DRG”) operating payments for hospitals reporting specified quality measure data and that are meaningful users of electronic health record technology; CMS also proposed a 0.2% multifactor productivity reduction required by the ACA and a 0.5% increase required by the Medicare Access and CHIP Reauthorization Act that collectively result in a net operating payment update of 2.8% before budget neutrality adjustments;

Updates to the three factors used to determine the amount and distribution of Medicare uncompensated care disproportionate share (“UC-DSH”) payments;

A 1.22% net increase in the capital federal MS-DRG rate;

An increase in the cost outlier threshold from $29,064 to $30,967;

An extension of the New COVID-19 Treatments Add-on Payment for certain eligible products through the end of the FFY in which the public health emergency as declared by the Secretary of HHS ends; and

The establishment of new requirements and the revision of existing requirements for the Hospital Value-Based Purchasing, Hospital Readmissions Reduction and Hospital Acquired Condition Reduction programs.

According to CMS, the combined impact of the proposed payment and policy changes in the Proposed IPPS Rule for operating costs will yield an average 2.7% increase in Medicare operating MS-DRG FFS payments for hospitals in urban areas and an average 2.8% increase in such payments for proprietary hospitals in FFY 2022. We estimate that all of the proposed payment and policy changes affecting operating MS-DRG and UC-DSH payments will result in an estimated 1.6% increase in our annual Medicare FFS IPPS payments, which yields an estimated increase of approximately $32 million. Because of the uncertainty associated with various factors that may influence our future IPPS payments by individual hospital, including legislative, regulatory or legal actions, admission volumes, length of stay and case mix, as well as potential changes to the Proposed IPPS Rule, we cannot provide any assurances regarding our estimates of the impact of the proposed payment and policy changes.

Public Health and Social Services Emergency FundDuring the three months ended March 31, 2021, our Hospital Operations and Ambulatory Care segments recognized approximately $24 million of Provider Relief Fund grant income associated with lost revenues and COVID-related costs. We recognized an additional $6 million of Provider Relief Fund grant income from our unconsolidated affiliates during this period. Our Hospital Operations and Ambulatory Care segments also recognized $7 million of grant income from state and local grant programs during the three months ended March 31, 2021. Grant income recognized by our Hospital Operations and Ambulatory Care segments was presented in grant income and grant income recognized through our unconsolidated affiliates was presented in equity in earnings of unconsolidated affiliates in our accompanying Condensed Consolidated Statement of Operations for the three months ended March 31, 2021. Based on the uncertainty regarding future estimates of lost revenues and COVID-related costs or the impact of further updates to HHS guidance, if any, we cannot provide any assurances regarding the amount of grant income to be recognized in the future.

Medicare and Medicaid Payment Policy ChangesEffective May 1, 2020, the 2% sequestration reduction on Medicare FFS and Medicare Advantage payments to hospitals, physicians and other providers was suspended, but it had been scheduled to resume on April 1, 2021. On April 14, 2021, President Biden signed H.R. 1868, which included an extension of the suspension of the 2% sequestration reduction through December 31, 2021. The impact of the suspension on our operations was an increase of approximately $20 million of revenues in the three months ended March 31, 2021. We expect the suspension to result in an increase of approximately $80 million of revenues for the year ending December 31, 2021. Because of the uncertainty associated with various factors that may influence our future Medicare and Medicaid payments, including future legislative, legal or regulatory actions, or changes in volumes and case mix, there is a risk that actual payments received under, or the ultimate impact of, these programs will differ materially from our expectations.

35

The American Rescue Plan Act of 2021During the three months ended March 31, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (“ARPA”), a $1.9 trillion COVID-19 relief package, which includes a number of provisions that affect hospitals and health systems, specifically:

Additional funding for rural health care providers for COVID-19 relief;

An incentive for states that have not already done so to expand Medicaid by temporarily increasing each respective state’s Federal Medical Assistance Percentage for their base program by five percentage points for two years;

Federal subsidies valued at 100% of the health insurance premium for eligible individuals and families to remain on their employer-based coverage through September 30, 2021;

Additional COVID-19 funding for vaccines, treatment, PPE, testing, contact tracing and workforce development; and

Funding to the Department of Labor for worker protection activities.

Significant Litigation

340B Litigation

The 340B program allows certain hospitals (i.e., only nonprofit organizations with specific federal designations and/or funding) (“340B Hospitals”) to purchase drugs at discounted rates from drug manufacturers. In the final rule regarding Hospital Outpatient Prospective Payment System (“OPPS”) payment and policy changes for calendar year (“CY”) 2018, CMS reduced the payment for 340B Drugs from the average sale price (“ASP”) plus 6% to ASP minus 22.5% and made a corresponding budget‑neutral increase to payments to all hospitals for other drugs and services reimbursed under the OPPS (the “340B Payment Adjustment”). In the final rules regarding OPPS payment and policy changes for CYs 2019, 2020 and 2021, CMS continued the 340B Payment Adjustment. Certain hospital associations and hospitals commenced litigation challenging CMS’ authority to impose the 340B Payment Adjustment for CYs 2018, 2019 and 2020. Previously, the U.S. District Court for the District of Columbia (the “District Court”) held that the adoption of the 340B Payment Adjustment in the CYs 2018 and 2019 OPPS Final Rules exceeded CMS’ statutory authority by reducing drug reimbursement rates for 340B Hospitals. During the three months ended September 2020, the U.S. Court of Appeals for the District of Columbia Circuit (the “Appeals Court”) reversed the District Court’s holding, finding that HHS’ decision to reduce the payment rate for 340B Drugs was based on a reasonable interpretation of the Medicare statute. The Appeals Court subsequently denied the 340B Hospital’s petition for a rehearing. During the three months ended March 31, 2021, the 340B Hospitals filed a timely petition asking the U.S. Supreme Court (“Supreme Court”) to reverse the Appeals Court’s decision. We cannot predict whether the Supreme Court will agree to review the Appeals Court’s decision or what further actions CMS or Congress might take with respect to the 340B program; however, a reversal of the current payment policy and return to the prior 340B payment methodology could have an adverse effect on our net operating revenues and cash flows.

PRIVATE INSURANCE

Managed Care

We currently have thousands of managed care contracts with various HMOs and PPOs. HMOs generally maintain a full-service healthcare delivery network comprised of physician, hospital, pharmacy and ancillary service providers that HMO members must access through an assigned “primary care” physician. The member’s care is then managed by his or her primary care physician and other network providers in accordance with the HMO’s quality assurance and utilization review guidelines so that appropriate healthcare can be efficiently delivered in the most cost-effective manner. HMOs typically provide reduced benefits or reimbursement (or none at all) to their members who use non-contracted healthcare providers for non-emergency care.

PPOs generally offer limited benefits to members who use non-contracted healthcare providers. PPO members who use contracted healthcare providers receive a preferred benefit, typically in the form of lower co-pays, co-insurance or deductibles. As employers and employees have demanded more choice, managed care plans have developed hybrid products that combine elements of both HMO and PPO plans, including high-deductible healthcare plans that may have limited benefits, but cost the employee less in premiums.

36

The amount of our managed care net patient service revenues, including Medicare and Medicaid managed care programs, from our hospitals and related outpatient facilities during the three months ended March 31, 2021 and 2020 was $2.480 billion and $2.321 billion, respectively. Our top 10 managed care payers generated 61% of our managed care net patient service revenues for the three months ended March 31, 2021. During the same period, national payers generated 43% of our managed care net patient service revenues. The remainder came from regional or local payers. At March 31, 2021 and December 31, 2020, 65% and 66%, respectively, of our net accounts receivable for our Hospital Operations segment were due from managed care payers.

Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted FFS rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient’s bill is subject to adjustment on a patient‑by‑patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. We believe it is reasonably likely for there to be an approximately 3% increase or decrease in the estimated contractual allowances related to managed care plans. Based on reserves at March 31, 2021, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $17 million. Some of the factors that can contribute to changes in the contractual allowance estimates include: (1) changes in reimbursement levels for procedures, supplies and drugs when threshold levels are triggered; (2) changes in reimbursement levels when stop-loss or outlier limits are reached; (3) changes in the admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (4) final coding of in-house and discharged‑not‑final‑billed patients that change reimbursement levels; (5) secondary benefits determined after primary insurance payments; and (6) reclassification of patients among insurance plans with different coverage and payment levels. Contractual allowance estimates are periodically reviewed for accuracy by taking into consideration known contract terms, as well as payment history. We believe our estimation and review process enables us to identify instances on a timely basis where such estimates need to be revised. We do not believe there were any adjustments to estimates of patient bills that were material to our revenues. In addition, on a corporate-wide basis, we do not record any general provision for adjustments to estimated contractual allowances for managed care plans. Managed care accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for these payers and other factors that affect the estimation process.

We expect managed care governmental admissions to continue to increase as a percentage of total managed care admissions over the near term. However, the managed Medicare and Medicaid insurance plans typically generate lower yields than commercial managed care plans, which have been experiencing an improved pricing trend. Although we have benefited from solid year-over-year aggregate managed care pricing improvements for some time, we have seen these improvements moderate in recent years, and we believe this moderation could continue into the future. In the three months ended March 31, 2021, our commercial managed care net inpatient revenue per admission from the hospitals in our Hospital Operations segment was approximately 85% higher than our aggregate yield on a per admission basis from government payers, including managed Medicare and Medicaid insurance plans.

Indemnity

An indemnity-based agreement generally requires the insurer to reimburse an insured patient for healthcare expenses after those expenses have been incurred by the patient, subject to policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her utilization of healthcare and selection of healthcare providers.

UNINSURED PATIENTS

Uninsured patients are patients who do not qualify for government programs payments, such as Medicare and Medicaid, do not have some form of private insurance and, therefore, are responsible for their own medical bills. A significant number of our uninsured patients are admitted through our hospitals’ emergency departments and often require high-acuity treatment that is more costly to provide and, therefore, results in higher billings, which are the least collectible of all accounts.

Self-pay accounts receivable, which include amounts due from uninsured patients, as well as co-pays, co-insurance amounts and deductibles owed to us by patients with insurance, pose significant collectability problems. At both March 31, 2021 and December 31, 2020, approximately 4% of our net accounts receivable for our Hospital Operations segment was self-pay. Further, a significant portion of our implicit price concessions relates to self-pay amounts. We provide revenue cycle management services through Conifer, which is subject to various statutes and regulations regarding consumer protection
37

in areas including finance, debt collection and credit reporting activities. For additional information, see Item 1, Business — Regulations Affecting Conifer’s Operations, of Part I of our Annual Report.

Conifer has performed systematic analyses to focus our attention on the drivers of bad debt expense for each hospital. While emergency department use is the primary contributor to our implicit price concessions in the aggregate, this is not the case at all hospitals. As a result, we have increased our focus on targeted initiatives that concentrate on non-emergency department patients as well. These initiatives are intended to promote process efficiencies in collecting self-pay accounts, as well as co-pay, co-insurance and deductible amounts owed to us by patients with insurance, that we deem highly collectible. We leverage a statistical-based collections model that aligns our operational capacity to maximize our collections performance. We are dedicated to modifying and refining our processes as needed, enhancing our technology and improving staff training throughout the revenue cycle process in an effort to increase collections and reduce accounts receivable.

Over the longer term, several other initiatives we have previously announced should also help address the challenges associated with serving uninsured patients. For example, our Compact with Uninsured Patients (“Compact”) is designed to offer managed care-style discounts to certain uninsured patients, which enables us to offer lower rates to those patients who historically had been charged standard gross charges. Under the Compact, the discount offered to uninsured patients is recognized as a contractual allowance, which reduces net operating revenues at the time the self-pay accounts are recorded. The uninsured patient accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for self-pay accounts and other factors that affect the estimation process.

We also provide financial assistance through our charity and uninsured discount programs to uninsured patients who are unable to pay for the healthcare services they receive. Our policy is not to pursue collection of amounts determined to qualify for financial assistance; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital’s eligibility for Medicaid DSH payments. These payments are intended to mitigate our cost of uncompensated care. Some states have also developed provider fee or other supplemental payment programs to mitigate the shortfall of Medicaid reimbursement compared to the cost of caring for Medicaid patients.

The initial expansion of health insurance coverage under the Affordable Care Act resulted in an increase in the number of patients using our facilities with either health insurance exchange or government healthcare insurance program coverage. However, we continue to have to provide uninsured discounts and charity care due to the failure of states to expand Medicaid coverage and for persons living in the country who are not permitted to enroll in a health insurance exchange or government healthcare insurance program.

The following table shows our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses) of caring for our uninsured and charity patients in the three months ended March 31, 2021 and 2020:
 Three Months Ended
March 31,
 20212020
Estimated costs for:  
Uninsured patients$168 $156 
Charity care patients20 40 
Total$188 $196 

38

RESULTS OF OPERATIONS
 
The following two tables summarize our consolidated net operating revenues, operating expenses and operating income from continuing operations, both in dollar amounts and as percentages of net operating revenues, for the three months ended March 31, 2021 and 2020. We present metrics as a percentage of net operating revenues because a significant portion of our costs are variable.
 Three Months Ended
March 31,
 20212020
Net operating revenues:  
Hospital Operations$3,947 $3,834 
Ambulatory Care646 490 
Conifer310 332 
Inter-segment eliminations(122)(136)
Net operating revenues 4,781 4,520 
Grant income31  
Equity in earnings of unconsolidated affiliates42 28 
Operating expenses:  
Salaries, wages and benefits2,201 2,187 
Supplies804 763 
Other operating expenses, net1,072 1,013 
Depreciation and amortization224 203 
Impairment and restructuring charges, and acquisition-related costs20 55 
Litigation and investigation costs13 
Net gains on sales, consolidation and deconsolidation of facilities— (2)
Operating income$520 $327 
 Three Months Ended
March 31,
 20212020
Net operating revenues100.0 %100.0 %
Grant income0.6 %— %
Equity in earnings of unconsolidated affiliates0.9 %0.6 %
Operating expenses:  
Salaries, wages and benefits46.0 %48.4 %
Supplies16.8 %16.9 %
Other operating expenses, net22.4 %22.4 %
Depreciation and amortization4.7 %4.5 %
Impairment and restructuring charges, and acquisition-related costs0.4 %1.2 %
Litigation and investigation costs0.3 %— %
Net gains on sales, consolidation and deconsolidation of facilities— %— %
Operating income10.9 %7.2 %
 
Total net operating revenues increased by $261 million, or 5.8%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Hospital Operations net operating revenues net of inter-segment eliminations increased by $127 million, or 3.4%, for the three months ended March 31, 2021 compared to the same period in 2020. These increases were primarily due to higher patient acuity and a more favorable payer mix, partially offset by lower patient volumes in the 2021 period. Our Hospital Operations segment also recognized income from federal, state and local grants totaling $24 million during the three months ended March 31, 2021, which was not included in net operating revenues.

Ambulatory Care net operating revenues increased by $156 million, or 31.8%, for the three months ended March 31, 2021 compared to the prior-year period despite the severe weather impact of Winter Storm Uri in February 2021. The change was driven by an increase in same-facility net operating revenues of $44 million due primarily to higher patient volumes and acuity, incremental revenue from new service lines and improved terms of our managed care contracts, as well as an increase from acquisitions of $118 million. These increases were partially offset by a decrease of $6 million due to the closure or deconsolidation of facilities. Our Ambulatory Care segment also recognized income from federal grants totaling $7 million during the three months ended March 31, 2021, which was not included in net operating revenues.

39

Conifer’s total net operating revenues decreased by $22 million, or 6.6%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The portion of Conifer’s revenues from third-party customers, which are not eliminated in consolidation, decreased $8 million, or 4.1%, for the three months ended March 31, 2021 compared to the same period in 2020. This decrease was primarily attributable to expected client attrition, partially offset by new business expansion. The remainder of the decrease in Conifer’s total net operating revenues was primarily driven by the revised terms in the Amended RCM Agreement.

The following table shows selected operating expenses of our three reportable business segments. Information for our Hospital Operations segment is presented on a same-hospital basis, which includes the results of our same 65 hospitals operated throughout the three months ended March 31, 2021 and 2020. We present same-hospital data because we believe it provides investors with useful information regarding the performance of our hospitals and other operations that are comparable for the periods presented.
 Three Months Ended
March 31,
Selected Operating Expenses20212020Increase
(Decrease)
Hospital Operations — Same-Hospital:
Salaries, wages and benefits$1,857 $1,846 0.6 %
Supplies646 651 (0.8)%
Other operating expenses916 870 5.3 %
Total$3,419 $3,367 1.5 %
Ambulatory Care:   
Salaries, wages and benefits$174 $162 7.4 %
Supplies157 112 40.2 %
Other operating expenses103 86 19.8 %
Total$434 $360 20.6 %
Conifer:   
Salaries, wages and benefits$170 $179 (5.0)%
Supplies— %
Other operating expenses53 65 (18.5)%
Total$224 $245 (8.6)%
Total:
Salaries, wages and benefits$2,201 $2,187 0.6 %
Supplies804 764 5.2 %
Other operating expenses1,072 1,021 5.0 %
Total$4,077 $3,972 2.6 %
Rent/lease expense(1):
   
Hospital Operations$77 $65 18.5 %
Ambulatory Care27 23 17.4 %
Conifer— %
Total$107 $91 17.6 %
(1) Included in other operating expenses.

RESULTS OF OPERATIONS BY SEGMENT
 
Our operations are reported in three segments:

Hospital Operations, which is comprised of acute care and specialty hospitals, ancillary outpatient facilities, micro-hospitals, imaging centers, physician practices and urgent care centers. As described in Note 4 to the accompanying Condensed Consolidated Financial Statements, certain of these facilities were classified as held for sale at March 31, 2021.

Ambulatory Care, which is comprised of USPI’s ambulatory surgery centers, urgent care centers and surgical hospitals. As described in Note 4 to the accompanying Condensed Consolidated Financial Statements, certain of these facilities were classified as held for sale at March 31, 2021. For the three months ended March 31, 2021 and 2020, our Ambulatory Care segment also included imaging centers, which were transferred to our Hospital Operations segment effective April 1, 2021.

40

Conifer, which provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.
 
Hospital Operations Segment
 
The following tables show operating statistics of our continuing operations hospitals and related outpatient facilities on a same-hospital basis, unless otherwise indicated, which includes the results of our same 65 hospitals operated throughout the three months ended March 31, 2021 and 2020. We present same-hospital data because we believe it provides investors with useful information regarding the performance of our hospitals and other operations that are comparable for the periods presented. We present certain metrics on a per-adjusted-patient-admission and per-adjusted-patient-day basis to show trends other than volume. We present certain metrics as a percentage of net operating revenues because a significant portion of our operating expenses are variable.
 Same-Hospital
Continuing Operations
 Three Months Ended
March 31,
Admissions, Patient Days and Surgeries20212020Increase
(Decrease)
Number of hospitals (at end of period)65 65 — (1)
Total admissions147,674 165,735 (10.9)%
Adjusted patient admissions(2)
251,017 290,912 (13.7)%
Paying admissions (excludes charity and uninsured)138,756 155,820 (11.0)%
Charity and uninsured admissions8,918 9,915 (10.1)%
Admissions through emergency department112,730 122,291 (7.8)%
Paying admissions as a percentage of total admissions94.0 %94.0 %— %(1)
Charity and uninsured admissions as a percentage of total admissions6.0 %6.0 %— %(1)
Emergency department admissions as a percentage of total admissions76.3 %73.8 %2.5 %(1)
Surgeries — inpatient36,787 41,962 (12.3)%
Surgeries — outpatient53,177 53,390 (0.4)%
Total surgeries89,964 95,352 (5.7)%
Patient days — total797,489 810,479 (1.6)%
Adjusted patient days(2)
1,321,890 1,385,763 (4.6)%
Average length of stay (days)5.40 4.89 10.4 %
Licensed beds (at end of period)17,178 17,219 (0.2)%
Average licensed beds17,178 17,218 (0.2)%
Utilization of licensed beds(3)
51.6 %51.7 %(0.1)%(1)
(1)The change is the difference between the 2021 and 2020 amounts shown.
(2)Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
(3)Utilization of licensed beds represents patient days divided by number of days in the period divided by average licensed beds.
 Same-Hospital
Continuing Operations
 Three Months Ended
March 31,
Outpatient Visits20212020Increase
(Decrease)
Total visits1,401,217 1,616,527 (13.3)%
Paying visits (excludes charity and uninsured)1,312,098 1,499,540 (12.5)%
Charity and uninsured visits89,119 116,987 (23.8)%
Emergency department visits450,830 641,282 (29.7)%
Surgery visits53,177 53,390 (0.4)%
Paying visits as a percentage of total visits93.6 %92.8 %0.8 %(1)
Charity and uninsured visits as a percentage of total visits6.4 %7.2 %(0.8)%(1)
(1)The change is the difference between the 2021 and 2020 amounts shown.
41

 Same-Hospital
Continuing Operations
 Three Months Ended
March 31,
Revenues20212020Increase
(Decrease)
Total segment net operating revenues(1)
$3,822 $3,700 3.3 %
Selected revenue data – hospitals and related outpatient facilities:
Net patient service revenues(1)(2)
$3,647 $3,542 3.0 %
Net patient service revenue per adjusted patient admission(1)(2)
$14,529 $12,176 19.3 %
Net patient service revenue per adjusted patient day(1)(2)
$2,759 $2,556 7.9 %
(1)Revenues are net of implicit price concessions.
(2)Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
 Same-Hospital
Continuing Operations
 Three Months Ended
March 31,
Total Segment Selected Operating Expenses20212020Increase
(Decrease)
Salaries, wages and benefits as a percentage of net operating revenues48.6 %49.9 %(1.3)%(1)
Supplies as a percentage of net operating revenues16.9 %17.6 %(0.7)%(1)
Other operating expenses as a percentage of net operating revenues24.0 %23.5 %0.5 %(1)
(1)The change is the difference between the 2021 and 2020 amounts shown.
    
Revenues

Same-hospital net operating revenues increased $122 million, or 3.3%, during the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to higher patient acuity and a more favorable payer mix, partially offset by lower patient volumes in the 2021 period. Our Hospital Operations segment also recognized income from federal, state and local grants totaling $24 million in the three months ended March 31, 2021, which is not included in net operating revenues. Same-hospital admissions decreased 10.9% in the three months ended March 31, 2021 compared to the same period in 2020. Same-hospital outpatient visits decreased 13.3% in the three months ended March 31, 2021 compared to the prior-year period.

The following table shows the consolidated net accounts receivable by payer at March 31, 2021 and December 31, 2020:
 March 31, 2021December 31, 2020
Medicare$174 $152 
Medicaid50 49 
Net cost report settlements receivable and valuation allowances43 34 
Managed care1,593 1,567 
Self-pay uninsured34 32 
Self-pay balance after insurance72 74 
Estimated future recoveries156 156 
Other payers325 318 
Total Hospital Operations2,447 2,382 
Ambulatory Care296 307 
Total discontinued operations
 $2,745 $2,690 

Collection of accounts receivable has been a key area of focus, particularly over the past several years. At March 31, 2021, our Hospital Operations segment collection rate on self-pay accounts was approximately 26.1%. Our self‑pay collection rate includes payments made by patients, including co-pays, co-insurance amounts and deductibles paid by patients with insurance. Based on our accounts receivable from uninsured patients and co-pays, co-insurance amounts and deductibles owed to us by patients with insurance at March 31, 2021, a 10% decrease or increase in our self-pay collection rate, or approximately 2%, which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to patient accounts receivable of approximately $9 million. There are various factors that can impact collection
42

trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, the volume of patients through our emergency departments, the increased burden of co-pays and deductibles to be made by patients with insurance, and business practices related to collection efforts. These factors, many of which have been affected by the COVID-19 pandemic, continuously change and can have an impact on collection trends and our estimation process.

Payment pressure from managed care payers also affects the collectability of our accounts receivable. We typically experience ongoing managed care payment delays and disputes; however, we continue to work with these payers to obtain adequate and timely reimbursement for our services. Our estimated Hospital Operations segment collection rate from managed care payers was approximately 97.2% at March 31, 2021.
 
We manage our implicit price concessions using hospital-specific goals and benchmarks such as (1) total cash collections, (2) point-of-service cash collections, (3) AR Days and (4) accounts receivable by aging category. The following tables present the approximate aging by payer of our net accounts receivable from the continuing operations of our Hospital Operations segment of $2.404 billion and $2.348 billion at March 31, 2021 and December 31, 2020, respectively, excluding cost report settlements receivable and valuation allowances of $43 million and $34 million, respectively, at March 31, 2021 and December 31, 2020:
 March 31, 2021
 MedicareMedicaidManaged
Care
Indemnity,
Self-Pay
and Other
Total
0-60 days90 %39 %58 %24 %51 %
61-120 days%30 %17 %13 %16 %
121-180 days%12 %%%%
Over 180 days%19 %17 %55 %25 %
Total 100 %100 %100 %100 %100 %
 December 31, 2020
 MedicareMedicaidManaged
Care
Indemnity,
Self-Pay
and Other
Total
0-60 days91 %33 %58 %24 %52 %
61-120 days%31 %15 %13 %14 %
121-180 days%14 %%%%
Over 180 days%22 %19 %55 %26 %
Total 100 %100 %100 %100 %100 %
 
Conifer continues to implement revenue cycle initiatives to improve our cash flow. These initiatives are focused on standardizing and improving patient access processes, including pre-registration, registration, verification of eligibility and benefits, liability identification and collections at point-of-service, and financial counseling. These initiatives are intended to reduce denials, improve service levels to patients and increase the quality of accounts that end up in accounts receivable. Although we continue to focus on improving our methodology for evaluating the collectability of our accounts receivable, we may incur future charges if there are unfavorable changes in the trends affecting the net realizable value of our accounts receivable.

At March 31, 2021, we had a cumulative total of patient account assignments to Conifer of $2.321 billion related to our continuing operations. These accounts have already been written off and are not included in our receivables or in the allowance for doubtful accounts; however, an estimate of future recoveries from all the accounts assigned to Conifer is determined based on our historical experience and recorded in accounts receivable.
    
Patient advocates from Conifer’s Medicaid Eligibility Program (“MEP”) screen patients in the hospital to determine whether those patients meet eligibility requirements for financial assistance programs. They also expedite the process of applying for these government programs. Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending, under the MEP, with appropriate contractual allowances recorded. Based on recent trends, approximately 98% of all accounts in the MEP are ultimately approved for benefits under a government program, such as Medicaid.

43

The following table shows the approximate amount of accounts receivable in the MEP still awaiting determination of eligibility under a government program at March 31, 2021 and December 31, 2020 by aging category:
 March 31, 2021December 31, 2020
0-60 days $80 $91 
61-120 days10 24 
121-180 days
Over 180 days
Total $100 $127 

Salaries, Wages and Benefits
 
Same-hospital salaries, wages and benefits increased $11 million, or 0.6%, in the three months ended March 31, 2021 compared to the same period in 2020. This change was primarily attributable to increased contract labor costs, as well as increased incentive compensation and annual merit increases for certain of our employees, partially offset by lower health benefits costs. A higher average length of patient stay and a greater number of employed physicians also contributed to the increase. This increase was partially offset by reduced patient volumes as a result of the COVID-19 pandemic and our continuing cost efficiency initiatives. Same-hospital salaries, wages and benefits as a percentage of net operating revenues decreased by 130 basis points to 48.6% in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to increased patient revenues. Salaries, wages and benefits expense for the three months ended March 31, 2021 and 2020 included stock-based compensation expense of $10 million and $7 million, respectively.

Supplies
 
Same-hospital supplies expense decreased $5 million, or 0.8%, in the three months ended March 31, 2021 compared to the same period in 2020. The decrease was primarily due to reduced patient volumes and our continued focus on cost efficiency initiatives, including the practices described below. The impact of these factors was partially offset by increased costs for certain supplies as a result of the COVID-19 pandemic and growth in our higher-acuity, supply-intensive surgical services. Same-hospital supplies expense as a percentage of net operating revenues decreased by 70 basis points to 16.9% in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to increased patient revenues.

We strive to control supplies expense through product standardization, consistent contract terms and end‑to‑end contract management, improved utilization, bulk purchases, focused spending with a smaller number of vendors and operational improvements. The items of current cost-reduction focus include PPE, cardiac stents and pacemakers, orthopedics, implants, and high-cost pharmaceuticals.

Other Operating Expenses, Net
 
Same-hospital other operating expenses increased by $46 million, or 5.3%, in the three months ended March 31, 2021 compared to the same period in 2020. Same-hospital other operating expenses as a percentage of net operating revenues increased by 50 basis points to 24.0% for the three months ended March 31, 2021 compared to 23.5% for the three months ended March 31, 2020. The changes in other operating expenses included:

increased malpractice expense of $18 million;

increased rent and lease expense of $12 million;

increased medical fees of $8 million; and

increased legal and consulting fees of $5 million.

44

Ambulatory Care Segment
 
Our Ambulatory Care segment is comprised of USPI’s ambulatory surgery centers and surgical hospitals. At March 31, 2021, our Ambulatory Care segment also included imaging centers, which were transferred to our Hospital Operations segment effective April 1, 2021, and urgent care centers, which were classified as held for sale at March 31, 2021 and December 31, 2020. USPI operates its surgical facilities in partnership with local physicians and, in many of these facilities, a health system partner. We hold an ownership interest in each facility, with each being operated through a separate legal entity in most cases. USPI operates facilities on a day-to-day basis through management services contracts. Our sources of earnings from each facility consist of:

management services revenues, computed as a percentage of each facility’s net revenues (often net of implicit price concessions); and

our share of each facility’s net income (loss), which is computed by multiplying the facility’s net income (loss) times the percentage of each facility’s equity interests owned by USPI.
 
Our role as an owner and day-to-day manager provides us with significant influence over the operations of each facility. For many of the facilities our Ambulatory Care segment operates (108 of 399 facilities at March 31, 2021), this influence does not represent control of the facility, so we account for our investment in the facility under the equity method for an unconsolidated affiliate. USPI controls 291 of the facilities our Ambulatory Care segment operates, and we account for these investments as consolidated subsidiaries. Our net earnings from a facility are the same under either method, but the classification of those earnings differs. For consolidated subsidiaries, our financial statements reflect 100% of the revenues and expenses of the subsidiaries, after the elimination of intercompany amounts. The net profit attributable to owners other than USPI is classified within “net income available to noncontrolling interests.”
 
For unconsolidated affiliates, our statements of operations reflect our earnings in two line items:
 
equity in earnings of unconsolidated affiliates—our share of the net income (loss) of each facility, which is based on the facility’s net income (loss) and the percentage of the facility’s outstanding equity interests owned by USPI; and
 
management and administrative services revenues, which is included in our net operating revenues—income we earn in exchange for managing the day-to-day operations of each facility, usually quantified as a percentage of each facility’s net revenues less implicit price concessions.
 
Our Ambulatory Care segment operating income is driven by the performance of all facilities USPI operates and by USPI’s ownership interests in those facilities, but our individual revenue and expense line items contain only consolidated businesses, which represent 73% of those facilities. This translates to trends in consolidated operating income that often do not correspond with changes in consolidated revenues and expenses, which is why we disclose certain statistical and financial data on a pro forma systemwide basis that includes both consolidated and unconsolidated (equity method) facilities.
 
Results of Operations
 
The following table summarizes certain statement of operations items for the periods indicated:
 Three Months Ended
March 31,
Ambulatory Care Results of Operations20212020Increase (Decrease)
Net operating revenues$646 $490 31.8 %
Grant income$$— N/A
Equity in earnings of unconsolidated affiliates$38 $26 46.2 %
Salaries, wages and benefits$174 $162 7.4 %
Supplies$157 $112 40.2 %
Other operating expenses, net$103 $86 19.8 %
 
Our Ambulatory Care net operating revenues increased by $156 million, or 31.8%, during the three months ended March 31, 2021 as compared to the same period in 2020 despite the severe weather impact of Winter Storm Uri in February 2021. The change was driven by an increase in same-facility net operating revenues of $44 million due primarily to higher patient volumes and acuity, incremental revenue from new service lines and improved terms of our managed care contracts, as
45

well as an increase from acquisitions of $118 million. These increases were partially offset by a decrease of $6 million due to the closure or deconsolidation of facilities. Our Ambulatory Care segment also recognized income from federal grants totaling $7 million during the three months ended March 31, 2021, which is not included in net operating revenues.
 
Salaries, wages and benefits expense increased by $12 million, or 7.4%, during the three months ended March 31, 2021 as compared to the same period in 2020. Salaries, wages and benefits expense was impacted by an increase from acquisitions of $19 million, offset by a decrease in same-facility salaries, wages and benefits expense of $5 million due to expense management efforts and $2 million due to the closure or deconsolidation of facilities. Salaries, wages and benefits expense for three months ended March 31, 2021 and 2020 included stock-based compensation expense of $3 million and $5 million, respectively.

Supplies expense increased by $45 million, or 40.2%, during the three months ended March 31, 2021 as compared to the same period in 2020. The change was driven by an increase from acquisitions of $37 million, as well as an increase in same‑facility supplies expense of $10 million due primarily to an increase in cases at our consolidated centers, higher costs driven by the higher level of patient acuity, and higher pricing of certain supplies as a result of the COVID-19 pandemic, partially offset by a decrease of $2 million due to the closure or deconsolidation of facilities.

Other operating expenses increased by $17 million, or 19.8%, during the three months ended March 31, 2021 as compared to the same period in 2020. The change was driven by an increase from acquisitions of $13 million, as well as an increase in same-facility other operating expenses of $5 million, partially offset by a decrease of $1 million due to the closure of facilities.
 
Facility Growth
 
The following table summarizes the changes in our same-facility revenue year-over-year on a pro forma systemwide basis, which includes both consolidated and unconsolidated (equity method) facilities. While we do not record the revenues of unconsolidated facilities, we believe this information is important in understanding the financial performance of our Ambulatory Care segment because these revenues are the basis for calculating our management services revenues and, together with the expenses of our unconsolidated facilities, are the basis for our equity in earnings of unconsolidated affiliates.
Ambulatory Care Facility GrowthThree Months Ended
March 31, 2021
Net revenues6.7%
Cases2.6%
Net revenue per case4.0%
 
Joint Ventures with Health System Partners
 
USPI’s business model is to jointly own its facilities with local physicians and, in many of these facilities, a not‑for‑profit health system partner. Accordingly, as of March 31, 2021, the majority of facilities in our Ambulatory Care segment are operated in this model.
Ambulatory Care FacilitiesThree Months Ended
March 31, 2021
Facilities: 
With a health system partner225 
Without a health system partner174 
Total facilities operated399 
Change from December 31, 2020: 
Acquisitions
De novo
Dispositions/Mergers(2)
Total increase in number of facilities operated3 
    
During the three months ended March 31, 2021, we acquired controlling interests in three ambulatory surgery centers in Maryland and one in Florida. We paid cash totaling approximately $24 million for these acquisitions. The Maryland facilities are jointly owned with physicians. The Florida facility is jointly owned with a health system partner and physicians. During the three months ended March 31, 2021, we deconsolidated two surgery centers in which we previously had a controlling interest and sold ownership to a health care system for approximately $12 million.
46


We also regularly engage in the purchase of equity interests with respect to our investments in unconsolidated affiliates and consolidated facilities that do not result in a change of control. These transactions are primarily the acquisitions of equity interests in ambulatory surgery centers and the investment of additional cash in facilities that need capital for acquisitions, new construction or other business growth opportunities. During the three months ended March 31, 2021, we invested approximately $1 million in such transactions.

Conifer Segment
 
Our Conifer segment generated net operating revenues of $310 million and $332 million during the three months ended March 31, 2021 and 2020, respectively, a portion of which was eliminated in consolidation as described in Note 18 to the accompanying Condensed Consolidated Financial Statements. Conifer revenues from third-party customers, which are not eliminated in consolidation, decreased $8 million, or 4.1%, for the three months ended March 31, 2021 compared to the 2020 period. These decreases were attributable to expected client attrition, partially offset by new business expansion.
 
Salaries, wages and benefits expense for Conifer decreased $9 million, or 5.0%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to continued expense discipline and cost savings realized through our Global Business Center (“GBC”) in the Philippines. Salaries, wages and benefits expense in the three months ended March 31, 2021 and 2020 included stock-based compensation expense of $1 million in both periods.
 
Other operating expenses for Conifer decreased $12 million, or 18.5%, in the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

In March 2021, we entered into the Amended RCM Agreement effective January 1, 2021. The Amended RCM Agreement updates certain terms and conditions related to the revenue cycle management services Conifer provides to Tenet hospitals. Conifer’s contract with Tenet represented 39.4% of the net operating revenues Conifer recognized in the three months ended March 31, 2021.

Consolidated 

Impairment and Restructuring Charges, and Acquisition-Related Costs

During the three months ended March 31, 2021, we recorded impairment and restructuring charges and acquisition‑related costs of $20 million, consisting of $16 million of restructuring charges and $4 million of acquisition-related costs. Restructuring charges consisted of $4 million of employee severance costs, $6 million related to the transition of various administrative functions to our GBC and $6 million of other restructuring costs. Acquisitionrelated costs consisted of $4 million of transaction costs. Our impairment and restructuring charges and acquisition‑related costs for the three months ended March 31, 2021 were comprised of $10 million from our Hospital Operations segment, $4 million from our Ambulatory Care segment and $6 million from our Conifer segment.

During the three months ended March 31, 2020, we recorded impairment and restructuring charges and acquisition‑related costs of $55 million, consisting of $54 million of restructuring charges and $1 million of acquisition-related costs. Restructuring charges consisted of $10 million of employee severance costs, $15 million related to the transition of various administrative functions to our GBC, $23 million of charges due to the termination of USPI’s previous management equity plan, $1 million of contract and lease termination fees, and $5 million of other restructuring costs. Acquisition-related costs consisted of $1 million of transaction costs. Our impairment and restructuring charges and acquisition-related costs for the three months ended March 31, 2020 were comprised of $18 million from our Hospital Operations segment, $24 million from our Ambulatory Care segment and $13 million from our Conifer segment.

Litigation and Investigation Costs

Litigation and investigation costs for the three months ended March 31, 2021 and 2020 were $13 million and $2 million, respectively.

47

Net Gains on Sales, Consolidation and Deconsolidation of Facilities

During the three months ended March 31, 2020, we recorded net gains on sales, consolidation and deconsolidation of facilities of approximately $2 million, primarily comprised of aggregate gains of $11 million related to consolidation changes of certain USPI businesses due to ownership changes, partially offset by a loss of $6 million related to post-closing adjustments on the 2019 sale of three of our hospitals in the Chicago area and a loss of $3 million related to post-closing adjustments on the 2018 sale of MacNeal Hospital.

Interest Expense

Interest expense for the three months ended March 31, 2021 was $240 million compared to $243 million for the same period in 2020.

Loss from Early Extinguishment of Debt

Loss from early extinguishment of debt was $23 million for the three months ended March 31, 2021 related to the retirement of our 2025 Senior Notes in advance of their maturity date, as described in Note 6 to the accompanying Condensed Consolidated Financial Statements.

Income Tax Expense

During the three months ended March 31, 2021, we recorded income tax expense of $45 million in continuing operations on a pre-tax income of $267 million compared to an income tax benefit of $75 million on pre-tax income of $85 million during the three months ended March 31, 2020. The reconciliation between the amount of recorded income tax expense (benefit) and the amount calculated at the statutory federal tax rate is shown in the following table:
Three Months Ended
March 31,
20212020
Tax expense at statutory federal rate of 21%$56 $18 
State income taxes, net of federal income tax benefit13 
Tax benefit attributable to noncontrolling interests(25)(14)
Nontaxable gains— 
Stock-based compensation(1)— 
Change in valuation allowance— (90)
Other items
Income tax expense (benefit)$45 $(75)

Net Income Available to Noncontrolling Interests

Net income available to noncontrolling interests was $125 million for the three months ended March 31, 2021 compared to $66 million for the three months ended March 31, 2020. Net income available to noncontrolling interests for the 2021 period was comprised of $17 million related to our Hospital Operations segment, $92 million related to our Ambulatory Care segment and $16 million related to our Conifer segment. Of the portion related to our Ambulatory Care segment, $4 million related to the minority interests in USPI.

ADDITIONAL SUPPLEMENTAL NON-GAAP DISCLOSURES
 
The financial information provided throughout this report, including our Condensed Consolidated Financial Statements and the notes thereto, has been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, we use certain non-GAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements, some of which are recurring or involve cash payments. We use this information in our analysis of the performance of our business, excluding items we do not consider relevant to the performance of our continuing operations. In addition, we use these measures to define certain performance targets under our compensation programs.
 
“Adjusted EBITDA” is a non-GAAP measure we define as net income available (loss attributable) to Tenet Healthcare Corporation common shareholders before (1) the cumulative effect of changes in accounting principle, (2) net loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax, (4) income tax benefit
48

(expense), (5) gain (loss) from early extinguishment of debt, (6) other non-operating income (expense), net, (7) interest expense, (8) litigation and investigation (costs) benefit, net of insurance recoveries, (9) net gains (losses) on sales, consolidation and deconsolidation of facilities, (10) impairment and restructuring charges and acquisition-related costs, (11) depreciation and amortization, and (12) income (loss) from divested and closed businesses (i.e., our health plan businesses). Litigation and investigation costs do not include ordinary course of business malpractice and other litigation and related expense.
 
We believe the foregoing non-GAAP measure is useful to investors and analysts because it presents additional information about our financial performance. Investors, analysts, company management and our board of directors utilize this non-GAAP measure, in addition to GAAP measures, to track our financial and operating performance and compare that performance to peer companies, which utilize similar non‑GAAP measures in their presentations. The human resources committee of our board of directors also uses certain non‑GAAP measures to evaluate management’s performance for the purpose of determining incentive compensation. We believe that Adjusted EBITDA is a useful measure, in part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to GAAP and other non-GAAP measures, as factors in determining the estimated fair value of shares of our common stock. Company management also regularly reviews the Adjusted EBITDA performance for each operating segment. We do not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance. The non-GAAP Adjusted EBITDA measure we utilize may not be comparable to similarly titled measures reported by other companies. Because this measure excludes many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly, investors are encouraged to use GAAP measures when evaluating our financial performance.
 
The following table shows the reconciliation of Adjusted EBITDA to net income available to Tenet Healthcare Corporation common shareholders (the most comparable GAAP term) for the three months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
 20212020
Net income available to Tenet Healthcare Corporation common shareholders $97 $93 
Less: Net income available to noncontrolling interests(125)(66)
Loss from discontinued operations, net of tax— (1)
Income from continuing operations222 160 
Income tax benefit (expense)(45)75 
Loss from early extinguishment of debt(23)— 
Other non-operating income, net10 
Interest expense(240)(243)
Operating income 520 327 
Litigation and investigation costs(13)(2)
Net gains on sales, consolidation and deconsolidation of facilities— 
Impairment and restructuring charges, and acquisition-related costs(20)(55)
Depreciation and amortization(224)(203)
Adjusted EBITDA$777 $585 
Net operating revenues$4,781 $4,520 
Net income available to Tenet Healthcare Corporation common shareholders
   as a % of net operating revenues
2.0 %2.1 %
Adjusted EBITDA as % of net operating revenues (Adjusted EBITDA margin) 16.3 %12.9 %

LIQUIDITY AND CAPITAL RESOURCES
 
CASH REQUIREMENTS
 
There have been no material changes to our obligations to make future cash payments under contracts, such as debt and lease agreements, and under contingent commitments, such as standby letters of credit and minimum revenue guarantees, as disclosed in our Annual Report, except for additional lease obligations and the long-term debt transactions disclosed in Notes 1 and 6, respectively, to our accompanying Condensed Consolidated Financial Statements.
 
At March 31, 2021, using the last 12 months of Adjusted EBITDA, our ratio of total long-term debt, net of cash and cash equivalent balances, to Adjusted EBITDA was 3.92x. This ratio at March 31, 2021 was temporarily impacted by the increase in cash received from advances from Medicare. We anticipate this ratio will fluctuate from quarter to quarter based on
49

earnings performance and other factors, including the use of our revolving credit facility as a source of liquidity, repayment of Medicare advances in 2021 and 2022 and acquisitions that involve the assumption of long-term debt. We seek to manage this ratio and increase the efficiency of our balance sheet by following our business plan and managing our cost structure, including through possible asset divestitures, and through other changes in our capital structure. As part of our long-term objective to manage our capital structure, we may seek to retire, purchase, redeem or refinance some of our outstanding debt or issue equity or convertible securities, in each case subject to prevailing market conditions, our liquidity requirements, operating results, contractual restrictions and other factors. Our ability to achieve our leverage and capital structure objectives is subject to numerous risks and uncertainties, many of which are described in the Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report.
 
Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations), equipment and information systems additions and replacements, introduction of new medical technologies, design and construction of new buildings, and various other capital improvements, as well as commitments to make capital expenditures in connection with acquisitions of businesses. Capital expenditures were $121 million and $182 million in the three months ended March 31, 2021 and 2020, respectively. We anticipate that our capital expenditures for continuing operations for the year ending December 31, 2021 will total approximately $700 million to $750 million, including $93 million that was accrued as a liability at December 31, 2020.
 
Interest payments, net of capitalized interest, were $190 million and $172 million in the three months ended March 31, 2021 and 2020, respectively.
 
Income tax payments, net of tax refunds, were $2 million in the three months ended March 31, 2021 compared to $3 million in the three months ended March 31, 2020.
 
SOURCES AND USES OF CASH
 
Our liquidity for the three months ended March 31, 2021 was primarily derived from net cash provided by operating activities, cash on hand and borrowings under our revolving credit facility. During the three months ended March 31, 2021, we also received supplemental funds from federal, state and local grants provided under COVID-19 relief legislation. We had $2.141 billion of cash and cash equivalents on hand at March 31, 2021 to fund our operations and capital expenditures, and our borrowing availability under our credit facility was $1.900 billion based on our borrowing base calculation at March 31, 2021.
 
When operating under normal conditions, our primary source of operating cash is the collection of accounts receivable. As such, our operating cash flow is impacted by levels of cash collections, as well as levels of implicit price concessions, due to shifts in payer mix and other factors.
 
Net cash provided by operating activities was $534 million in the three months ended March 31, 2021 compared to $129 million in the three months ended March 31, 2020. Key factors contributing to the change between the 2021 and 2020 periods include the following:

An increase in net income before interest, taxes, discontinued operations and restructuring charges, acquisition-related costs, and litigation costs and settlements of $192 (including $31 million of cash received from federal and state grants in the 2021 period);

Additional cash inflows of $54 million related to supplemental Medicaid programs in California and Texas;

Reduced cash outflows of $67 million attributable to a decrease in malpractice claim payments;

Additional cash outflows of $79 million due to an increase in our annual 401(k) match funding;

A decrease of $17 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements; and

The timing of other working capital items, including improved patient accounts receivable collection performance.

Net cash used in investing activities was $145 million for the three months ended March 31, 2021 compared to $204 million for the three months ended March 31, 2020. The 2021 amount included a decrease in investments for purchases of businesses or joint venture interests of $30 million compared to the 2020 period. Capital expenditures were $121 million and $182 million in the three months ended March 31, 2021 and 2020, respectively.
50

 
Net cash used in financing activities was $694 million for the three months ended March 31, 2021 compared to net cash provided by financing activities of $426 million for the three months ended March 31, 2020. The 2021 amount included payments of $541 million to reduce our long-term debt, including a payment of $495 million to retire our 2025 Senior Notes, and distributions to noncontrolling interests of $119 million. The 2020 amount included borrowings, net of repayments, of $500 million under our credit facility.
 
We record our equity securities and our debt securities classified as available-for-sale at fair market value. The majority of our investments are valued based on quoted market prices or other observable inputs. We have no investments that we expect will be negatively affected by the current economic conditions such that they will materially impact our financial condition, results of operations or cash flows.
 
DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS
 
Credit Agreement—We have a senior secured revolving credit facility that, at March 31, 2021, provided for revolving loans in an aggregate principal amount of up to $1.900 billion with a $200 million subfacility for standby letters of credit. At March 31, 2021, we had no cash borrowings outstanding under the revolving credit facility, and we had less than $1 million of standby letters of credit outstanding. Based on our eligible receivables, $1.900 billion was available for borrowing under the revolving credit facility at March 31, 2021. At March 31, 2021, we were in compliance with all covenants and conditions in our senior secured revolving credit facility.

On April 24, 2020, we amended our credit agreement (as amended to date, the “Credit Agreement”) to, among other things, (i) increase the aggregate revolving credit commitments from $1.500 billion to $1.900 billion (the “Increased Commitments”), subject to borrowing availability, and (ii) increase the advance rate and raise limits on certain eligible accounts receivable in the calculation of the borrowing base, in each case, for an incremental period of 364 days. In April 2021, we further amended the Credit Agreement to, among other things, extend the availability of the Increased Commitments through April 22, 2022 and reduce the interest rate margins. See Note 6 to the accompanying Condensed Consolidated Financial Statements for additional information about our Credit Facility and related amendments.
 
Letter of Credit Facility—In March 2020, we amended our letter of credit facility (as amended, the “LC Facility”) to extend the scheduled maturity date of the LC Facility from March 7, 2021 to September 12, 2024 and to increase the aggregate principal amount of standby and documentary letters of credit that from time to time may be issued thereunder from $180 million to $200 million. On July 29, 2020, we further amended the LC Facility to incrementally increase the maximum secured debt covenant from 4.25 to 1.00 on a quarterly basis up to 6.00 to 1.00 for the quarter ended March 31, 2021, which maximum ratio will step down incrementally on a quarterly basis through the quarter ending December 31, 2021. Obligations under the LC Facility are guaranteed and secured by a first‑priority pledge of the capital stock and other ownership interests of certain of our wholly owned domestic hospital subsidiaries on an equal ranking basis with our senior secured first lien notes. At March 31, 2021, we were in compliance with all covenants and conditions in the LC Facility. At March 31, 2021, we had $92 million of standby letters of credit outstanding under the LC Facility.

Senior Unsecured and Senior Secured Notes—In March 2021, we retired approximately $478 million aggregate principal amount of our 2025 Senior Notes in advance of their maturity date. We paid approximately $495 million from cash on hand to retire the notes. In connection with the retirement, we recorded a loss from early extinguishment of debt of $23 million in the three months ended March 31, 2021, primarily related to the difference between the purchase price and the par value of the notes, as well as the write-off of associated unamortized issuance costs.
 
For additional information regarding our long-term debt, see Note 6 to the accompanying Condensed Consolidated Financial Statements and Note 8 to the Consolidated Financial Statements included in our Annual Report.
 
LIQUIDITY
 
Broad economic factors resulting from the COVID-19 pandemic, including increased unemployment rates and reduced consumer spending, are impacting our service mix, revenue mix and patient volumes. Business closings and layoffs in the areas we operate have led to increases in the uninsured and underinsured populations and adversely affect demand for our services, as well as the ability of patients to pay for services as rendered. Any increase in the amount of or deterioration in the collectability of patient accounts receivable could adversely affect our cash flows and results of operations. If general economic conditions continue to deteriorate or remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be impacted.

51

While demand for our services is expected to further rebound in the future, we have taken, and continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and operating revenues from the pandemic. These actions included the sale and redemption of various senior unsecured and senior secured notes, which eliminated any significant debt maturities until June 2023 and will reduce our future annual cash interest expense payments. In April 2021, we further amended our Credit Agreement to extend the availability of the Incremental Amounts through April 22, 2022. Additionally, we have continued cost efficiency initiatives, as well as necessary cost reductions due to the decline in patient volumes associated with the COVID-19 pandemic, to substantially offset incremental costs, including temporary staffing and premium pay, as well as higher supply costs for PPE. We have also sought to compensate for the COVID-19 pandemic’s disruption of our patient volumes and mix by growing our services for which demand has been more resilient, including our higher-acuity service lines. While the length of time that will be required for our patient volumes and mix to return to pre-pandemic levels is unknown, especially demand for lower-acuity services, we believe demand for our higher-acuity service lines will continue to grow. We believe these actions, together with government relief packages, to the extent available to us, will help us to continue operating during the uncertainty caused by the COVID-19 pandemic.

From time to time, we expect to engage in additional capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at that time. We believe our existing debt agreements provide flexibility for future secured or unsecured borrowings.
 
Our cash on hand fluctuates day-to-day throughout the year based on the timing and levels of routine cash receipts and disbursements, including our book overdrafts, and required cash disbursements, such as interest payments and income tax payments, as well as cash disbursements required to respond to the COVID-19 pandemic. Cash flows from operating activities in the first quarter of the calendar year are usually lower than in subsequent quarters of the year, primarily due to the timing of certain working capital requirements during the first quarter, including our annual 401(k) matching contributions and annual incentive compensation payouts. These fluctuations result in material intra-quarter net operating and investing uses of cash that have caused, and in the future will cause, us to use our Credit Agreement as a source of liquidity. We believe that existing cash and cash equivalents on hand, borrowing availability under our Credit Agreement, anticipated future cash provided by our operating activities and possible additional government relief packages should be adequate to meet our current cash needs. These sources of liquidity, in combination with any potential future debt incurrence, should also be adequate to finance planned capital expenditures, payments on the current portion of our long-term debt, payments to joint venture partners, including those related to put and call arrangements and other presently known operating needs.
 
Long-term liquidity for debt service and other purposes will be dependent on the amount of cash provided by operating activities and, subject to favorable market and other conditions, the successful completion of future borrowings and potential refinancings. However, our cash requirements could be materially affected by the use of cash in acquisitions of businesses, repurchases of securities, the exercise of put rights or other exit options by our joint venture partners, and contractual commitments to fund capital expenditures in, or intercompany borrowings to, businesses we own. In addition, liquidity could be adversely affected by a deterioration in our results of operations, including our ability to generate sufficient cash from operations, as well as by the various risks and uncertainties discussed in this section, other sections of this report and in our Annual Report, including any costs associated with legal proceedings and government investigations.
 
We do not rely on commercial paper or other short-term financing arrangements nor do we enter into repurchase agreements or other short-term financing arrangements not otherwise reported in our balance sheet. In addition, we do not have significant exposure to floating interest rates given that all of our current long-term indebtedness has fixed rates of interest except for borrowings under our Credit Agreement.
 
OFF-BALANCE SHEET ARRANGEMENTS
 
We have no off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, except for $187 million of standby letters of credit outstanding and guarantees at March 31, 2021.
 
CRITICAL ACCOUNTING ESTIMATES
 
In preparing our Condensed Consolidated Financial Statements in conformity with GAAP, we must use estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may vary from those estimates.
 
52

We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different outcomes under different conditions or when using different assumptions.
 
Our critical accounting estimates have not changed from the description provided in our Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The following table presents information about certain of our market-sensitive financial instruments at March 31, 2021. The fair values were determined based on quoted market prices for the same or similar instruments. The average effective interest rates presented are based on the rate in effect at the reporting date. The effects of unamortized discounts and issue costs are excluded from the table.
 Maturity Date, Years Ending December 31,
 20212022202320242025ThereafterTotalFair Value
 (Dollars in Millions)
Fixed rate long-term debt$113 $103 $1,930 $2,495 $2,131 $8,625 $15,397 $16,081 
Average effective interest rates4.4 %4.7 %6.7 %4.6 %5.9 %5.6 %5.6 %
 
We have no affiliation with partnerships, trusts or other entities (sometimes referred to as “special-purpose” or “variable-interest” entities) whose purpose is to facilitate off-balance sheet financial transactions or similar arrangements by us. As a result, we have no exposure to the financing, liquidity, market or credit risks associated with such entities.
 
We do not hold or issue derivative instruments for trading purposes and are not a party to any instruments with leverage or prepayment features.

ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report with respect to our operations that existed prior to the acquisition of controlling ownership interests in the SCD Centers by USPI’s subsidiaries in December 2020. The evaluation was performed under the supervision and with the participation of management, including our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at March 31, 2021 to ensure that material information is recorded, processed, summarized and reported by management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the SEC rules thereunder.
 
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

53

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

Because we provide healthcare services in a highly regulated industry, we have been and expect to continue to be party to various lawsuits, claims and regulatory investigations from time to time. For information regarding material legal proceedings in which we are involved, see Note 12 to our accompanying Condensed Consolidated Financial Statements, which is incorporated by reference.

ITEM 1A. RISK FACTORS
 
There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 6. EXHIBITS
 
    Unless otherwise indicated, the following exhibits are filed with this report: 
(10)Material Contracts
(a)
(31)Rule 13a-14(a)/15d-14(a) Certifications
(a)
(b)
(32)
(101 SCH)Inline XBRL Taxonomy Extension Schema Document
(101 CAL)Inline XBRL Taxonomy Extension Calculation Linkbase Document
(101 DEF)Inline XBRL Taxonomy Extension Definition Linkbase Document
(101 LAB)Inline XBRL Taxonomy Extension Label Linkbase Document
(101 PRE)Inline XBRL Taxonomy Extension Presentation Linkbase Document
(101 INS)Inline XBRL Taxonomy Extension Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
(104)Cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 formatted in Inline XBRL (included in Exhibit 101)

54

SIGNATURES
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 TENET HEALTHCARE CORPORATION
(Registrant)
 
Date: April 30, 2021By:/s/ R. SCOTT RAMSEY
 R. Scott Ramsey
 Senior Vice President, Controller
 (Principal Accounting Officer)
55