UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☑
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
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 001-15925
COMMUNITY HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
4000 Meridian Boulevard
Franklin, Tennessee
(Address of principal executive offices)
13-3893191
(IRS Employer
Identification No.)
37067
(Zip Code)
Registrant’s telephone number, including area code:
(615) 465-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $.01 par value
Trading Symbol(s)
CYH
Name of Each Exchange on Which Registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☑
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☑ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☑ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐
Non-accelerated filer ☐
Accelerated filer ☑
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error
to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☑
The aggregate market value of the voting stock held by non-affiliates of the Registrant was $546,992,362. Market value is determined by reference to the closing price on June 30, 2023 of the
Registrant’s Common Stock as reported by the New York Stock Exchange. The Registrant does not (and did not at June 30, 2023) have any non-voting common stock outstanding. As of February
14, 2024, there were 136,737,166 shares of common stock, par value $.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required for Part III of this annual report is incorporated by reference to portions of the Registrant’s definitive proxy statement for its 2024 annual meeting of stockholders
to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year ended December 31, 2023.
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
COMMUNITY HEALTH SYSTEMS, INC.
Year ended December 31, 2023
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Principal Accountant Fees and Services
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
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Item 1. Business of Community Health Systems, Inc.
Overview of Our Company
We are one of the nation’s largest healthcare companies. Our affiliates are leading providers of healthcare services, developing and operating healthcare
delivery systems in 40 distinct markets across 15 states. As of December 31, 2023, our subsidiaries own or lease 71 affiliated hospitals, with approximately
12,000 beds, and operate more than 1,000 sites of care, including physician practices, urgent care centers, freestanding emergency departments,
occupational medicine clinics, imaging centers, cancer centers and ambulatory surgery centers. We generate revenues by providing a broad range of general
and specialized hospital healthcare services and outpatient services to patients in the communities in which we are located. For the hospitals that we own
and operate, we are paid for our services by governmental agencies, private insurers and directly by the patients we serve. Services provided through our
hospitals and outpatient facilities include general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics,
diagnostic, psychiatric and rehabilitation services. An integral part of providing these services is our network of affiliated physicians at our hospitals and
affiliated businesses. As of December 31, 2023, we employed approximately 1,500 physicians and an additional 1,100 licensed healthcare practitioners.
Through our management and operation of these businesses, we provide standardization and centralization of operations across key business areas; strategic
assistance to expand and improve services and facilities; implementation of patient safety and quality of care improvement programs and assistance in the
recruitment of additional physicians and licensed healthcare practitioners to the markets in which our hospitals are located. In a number of our markets, we
have partnered with local physicians, for-profit entities and/or not-for-profit providers in the ownership of our facilities.
Throughout this Form 10-K, we refer to Community Health Systems, Inc., or the Parent Company, and its consolidated subsidiaries in a simplified
manner and on a collective basis, using words like “we,” “our,” “us” and the “Company.” This drafting style is suggested by the Securities and Exchange
Commission, or SEC, and is not meant to indicate that the publicly-traded Parent Company or any particular subsidiary of the Parent Company owns or
operates any asset, business or property. The hospitals, operations and businesses described in this filing are owned and operated, and management services
provided, by distinct and indirect subsidiaries of Community Health Systems, Inc.
Available Information
Our website address is www.chs.net and the investor relations section of our website is located at www.chs.net/investor-relations. Notwithstanding the
foregoing, the information contained on our website as noted above or elsewhere in this Form 10-K is not incorporated by reference into this Form 10-K.
We make available free of charge, through the investor relations section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K as well as amendments to those reports, as soon as reasonably practical after they are filed with, or furnished to, the SEC. The
SEC maintains a website that contains our reports, proxy and information statements, and other information that we file electronically with the SEC at
www.sec.gov.
We also make available free of charge, through the investor relations section of our website, our By-laws, our Governance Guidelines, our Code of
Conduct and the charters of our Audit and Compliance Committee, Compensation Committee and Governance and Nominating Committee.
We have included the Chief Executive Officer and the Chief Financial Officer certifications regarding the public disclosure required by Sections 302
and 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2, 32.1 and 32.2 to this Form 10-K.
Our Business Strategy
The key elements of our business strategy are to:
Become a market leader and increase market share in the communities we serve
We operate across diverse markets that range from sole community providers to large regional networks. We are able to leverage our significant scale
and standardized systems to provide cost-effective services and best practices for our affiliate operations. Each of our markets develops and executes a
strategic plan with short- and long-term goals, based on their unique opportunities and the needs of their respective communities. In addition, as an
organization, we have implemented a number of strategic initiatives designed to improve market position, expand services to our patients, and capture a
greater share of healthcare spending in our markets. These include:
•
Strengthening regional networks and local market operations;
• Expanding patient access points, health services and infrastructure;
• Recruiting and/or employing additional primary care physicians and specialists; and
1
• Developing a more consumer-centric experience and facilitating connections between episodes of care.
Strengthening Regional Networks and Local Market Operations. We believe opportunities exist in select markets to create healthcare networks
consisting of multiple hospitals and corresponding outpatient services.
Regional networks are able to expand the breadth of services provided for our patients, centralize key services, deliver care in an organized and efficient
way across the network, improve alignment with physicians and other providers, and make services more attractive to managed care and other payors.
Currently, 43 of our hospitals operate in 12 unique regional networks.
We also operate healthcare systems that are built around a single acute-care hospital. In these markets, we are focused on supporting the hospital with
physician practices, outpatient services, clinical collaborations and partnerships that offer our patients health services across the continuum of care. These
hospitals and their related outpatient services may operate in competitive markets or as sole community providers.
Expanding Patient Access Points, Health Services and Infrastructure. When expanding services—in both the acute and non-acute care settings—our
approach is data-driven and strategic to ensure our investments are responsive to community and patient needs and produce sound financial results. While
we continue to provide health services across a broad spectrum, we have focused our attention and resources on service lines we believe have the greatest
potential for growth, including primary care, emergency medicine, orthopedics, neuroscience, cardiovascular care, surgical services and behavioral health.
Significant investments have been made in existing markets to expand the scale of inpatient offerings, including through increasing bed capacity and
constructing new surgical and procedural suites. As the shift to delivering health services in outpatient settings accelerates, we continue to expand our care
offerings beyond hospital walls to include more outpatient access through primary care practices, urgent care centers, free-standing emergency departments,
ambulatory surgery centers, imaging and diagnostic centers and direct-to-consumer virtual health visits. We endeavor to advance the scale and breadth of
inpatient and outpatient capabilities through both direct investments and strategic partnerships.
We believe expanding our patient access footprint can attract new patients and increase patient retention, as well as our ability to connect patients from
one episode of care to the next appropriate care setting. We also believe our investments will enhance our long-term growth and generate increased revenue,
earnings, and operating margins by providing a solid return on investment.
Recruiting and/or Employing Additional Primary Care Physicians and Specialists. The physician-patient relationship is the foundation on which
healthcare services are built. Understanding this, we continuously assess our communities to identify service gaps and practice opportunities in order to
recruit an optimal mix of primary care physicians and specialists. We analyze demographic data and referral trends and employ recruiters at the corporate
level to support local hospital administrators in their physician recruitment efforts. In some markets, we employ physicians through recruitment or
acquisition of their existing practices. However, most physicians in our communities and on our medical staffs remain in private practice and are not our
employees.
We work hard to develop positive, collaborative relationships with physicians. We currently participate in 11 Medicare Shared Savings Program
Accountable Care Organizations, which include approximately 3,500 employed and independent physicians in our communities. We look forward to
continuing to realize the benefits of these organizations, including opportunities to strengthen quality, deepen clinical collaboration and demonstrate
performance under a reimbursement system moving toward more value-based incentives and payments.
Developing a More Consumer-Centric Experience and Facilitating Connections between Episodes of Care. Consumers continue to take a more active
role in healthcare decision-making, especially as they assume increasing responsibility for the cost of their healthcare. The rise in consumerism is
highlighting customer expectations that have not always been prioritized in the healthcare setting. We are working on ways to create more enduring
relationships with our patients by providing services that help people navigate their healthcare journeys and enable more seamless connections across
episodes of care in our healthcare systems, hospitals, and physician practices. Some of these initiatives include:
• A centralized and proprietary transfer center offering services to connect emergency department and hospitalized patients requiring transfer to
facilities that can best meet their needs;
• Centralized patient scheduling call centers and online scheduling to ease appointment scheduling;
•
Patient navigation and next appointment scheduling from existing points of care;
• Availability of virtual health for certain services provided in the hospital and for direct-to-consumer, on-demand virtual visits with physicians and
other healthcare practitioners;
• Digital marketing and consumer engagement campaigns; and
• Other technology-enabled initiatives that support connected healthcare experiences, such as patient portals, text message appointment reminders,
gaps-in-care campaigns and post-discharge surveys.
2
Increase productivity and operating efficiencies to enhance profitability
Our hospital management teams are supported by experienced corporate leaders who have significant industry knowledge and a proven track record of
success. Local hospitals benefit from centralized clinical, operational, financial and regulatory expertise that encompasses nearly every aspect of our
business. Additionally, we are able to leverage deep and meaningful data sources to facilitate informed decision-making and drive operational
improvements across the enterprise in areas such as drug and supply procurement, workforce optimization and staffing and emergency department and
operating room performance.
Standard policies and procedures in areas ranging from physician practice management to patient accounting to construction and facilities management
help to facilitate best practices, reduce variation and improve operating results. The following areas highlight some of our standardized and centralized
platforms.
Billing and Collections. We have adopted standard policies and procedures with respect to billing and collections. We have automated various
components of the collection cycle, including statements and collection letters, to help facilitate timely and accurate progression of our accounts through
the collection cycle. We have consolidated local hospital billing and collection functions into three centralized business offices and have completed the
transition of our hospital billing departments to this new infrastructure. These efforts have resulted in lower patient claim denials, higher underpayment
recoveries and reduced operating costs.
Physician Support. We support newly recruited physicians to facilitate a smooth and effective transition into our communities. We have implemented
programs to improve physician workflow, reduce physician turnover, optimize staffing at physician clinics and standardize onboarding processes.
Human Resources. We have created a centralized nurse recruitment program to support our hospitals in their efforts to recruit the nurses needed for the
delivery of high quality care, which are a priority due to workforce shortages across the healthcare industry. We also operate nursing school programs on
some of our hospital campuses and partner with nursing schools in many of our communities. In addition, we have expanded programs aimed at employee
retention and satisfaction, including an expanded employee benefits program with higher levels of tuition reimbursement and student loan support. We also
operate leadership development programs and have established rewards and recognition initiatives.
Procurement and Materials Management. We have standardized and centralized supply chain operations to improve procurement of the medical
supplies, equipment and pharmaceuticals used in our hospitals. We have a noncontrolling ownership interest in and participation agreement with
HealthTrust Purchasing Group, L.P., or HealthTrust, a group purchasing organization, or GPO, which benefits members through scaled pricing. HealthTrust
contracts with certain vendors who supply a substantial portion of our medical supplies, equipment and pharmaceuticals.
Case and Resource Management. The primary goal of our case management program is to deliver safe, high-quality care in an efficient and cost
effective manner. The program focuses on:
• Appropriate management of length of stay consistent with national standards and benchmarks;
• Reducing unnecessary utilization;
• Developing and implementing operational best practices;
• Discharge planning; and
• Compliance with applicable regulatory standards.
Our case management program integrates the functions of utilization review, discharge planning, assessment of medical necessity and resource
management. Patients are assessed upon presentation to the hospital and throughout their course of care with ongoing reviews. Industry-standard criteria are
utilized in patient assessments and discharge plans are adjusted according to patient needs. Cases are monitored to prevent delays in service or unnecessary
utilization of resources. When a patient is ready for discharge, a case manager works with the patient’s attending physician to evaluate and coordinate the
patient’s needs for continued care in the post-acute setting.
Continuously improve patient safety and quality of care
We maintain quality assurance programs to monitor, support and advance quality of care standards and to meet Medicare and Medicaid accreditation
and regulatory requirements. We maintain an emphasis on patient safety and clinical outcomes and we are continuously focused on ways to improve
patient, physician and employee satisfaction. We believe that a focus on continuous improvement yields the best results for patients, reduces risk and
liability, and creates value for the people and communities we serve.
3
We have developed and implemented programs to support and monitor patient safety and quality of care that include:
•
Standardized data and benchmarks to monitor clinical outcomes, hospital performance and quality improvement efforts;
• Recommended policies and procedures based on medical and scientific evidence;
• Training with evidence-based tools for improving patient safety and quality of care and patient, physician and employee satisfaction;
• Leveraging technology and information sharing around evidence-based clinical best practices;
• Training programs for hospital management and clinical staff regarding regulatory and reporting requirements; and
•
Specific leadership methods and error-prevention tools to create safer care environments for patients and staff.
We have also expanded our network of outpatient services to create greater access and more convenience for our patients, including through significant
expansion of our ability to provide remote patient care.
We have operated a Patient Safety Organization, or PSO, since 2012. Our PSO is listed by the U.S. Department of Health and Human Services, or HHS,
Agency for Healthcare Research and Quality. We believe our PSO has assisted, and will continue to assist us, in improving patient safety at our hospitals.
The PSO has been recertified by the Agency for Healthcare Research and Quality through 2026.
Over the past decade, we have instituted numerous programs to improve safety in our hospitals and other patient care environments. We are also
deploying innovative programs to deliver better outcomes including, for example, remote monitoring for patients with certain chronic conditions,
maternal/fetal monitoring using machine learning and artificial intelligence, as well as tele-sitting technology.
Industry Overview
According to the Centers for Medicare & Medicaid Services, or CMS, national healthcare expenditures grew 4.1% in 2022 to over $4.4 trillion, an
increase from the growth of 3.2% experienced in 2021. The increase in 2022 reflected strong growth in Medicaid and private health insurance spending that
was partially offset by continued declines in federal spending associated with developments regarding the COVID-19 pandemic. National healthcare
expenditures accounted for approximately 17.3% of total U.S. gross domestic product in 2022. CMS projections indicate that total U.S. healthcare spending
is expected to grow at an average annual rate of 5.5% for 2024 through 2031. CMS anticipates that total U.S. healthcare annual expenditures will exceed
$7.1 trillion by 2031, accounting for approximately 19.6% of the total U.S. gross domestic product. The CMS projections of healthcare spending are
constructed using a current-law framework. The most recent historical data was published in December 2023, and the most recent projections for future
years were published in June 2023, and do not take into account the actual expenditures in 2023. Since the health sector has been significantly affected by
the COVID-19 pandemic since 2020, CMS expects that the unwinding of various measures related to the COVID-19 public health emergency will affect
projected trends. CMS expects the expiration of pandemic-related provisions, coupled with recent legislation, to impact health insurance enrollment trends.
Going forward, CMS expects changes in spending growth to be influenced more by health-specific factors, such as medical-specific price inflation, the use
and intensity of medical care, and demographic impacts associated with the continuing enrollment of the baby-boom generation in Medicare, and less by
federal supplemental payments to providers and federal public health spending.
Hospital services, the market within the healthcare industry in which we primarily operate, is the largest single category of healthcare expenditures.
Hospital care expenditures totaled nearly $1.4 trillion in 2022, an increase of 2.2% over 2021, slowing in comparison to the growth rate of 4.5% in 2021.
The slower growth rate in 2022 was driven by slower growth in spending for hospital care by private health insurance, Medicare and Medicaid, and by a
decline in other private revenues. Trends in hospital prices and use of services also contributed to the lower growth in 2022. CMS projects that the hospital
services category will grow at an average of 6.1% annually from 2024 through 2031, reaching over $2.3 trillion by 2031.
U.S. Hospital Industry. The U.S. hospital industry is broadly defined to include acute care, rehabilitation and psychiatric facilities that are either public
(government owned and operated), not-for-profit private (religious or secular), or for-profit institutions (investor owned). According to the American
Hospital Association, there are approximately 5,000 community hospitals in the U.S., which are not-for-profit owned, investor owned, or state or local
government owned. Of these hospitals, approximately 35% are located in communities not located within a metropolitan area designated by the U.S. Office
of Management and Budget and the Census Bureau. We believe that a majority of these hospitals are owned by not-for-profit or governmental entities.
These facilities offer a broad range of healthcare services, including internal medicine, general surgery, cardiology, oncology, orthopedics, OB/GYN and
emergency services. In addition, hospitals offer other ancillary services, including psychiatric, diagnostic, rehabilitation, home care and outpatient surgery
services.
4
Factors Affecting Performance. Among the many factors that can influence a hospital’s financial and operating performance are:
•
•
•
•
•
•
facility size and location;
facility ownership structure (e.g., tax-exempt or investor owned);
a facility’s ability to participate in GPOs, such as HealthTrust;
facility payor mix;
the terms of contracts with third-party payors, including managed care plans; and
the extent of Medicaid expansion.
Patients needing the most complex care are more often served by the larger and/or more specialized urban hospitals. We believe opportunities exist in
selected urban markets to create networks between urban hospitals and non-urban hospitals in order to expand the breadth of services offered in the non-
urban hospitals while improving physician alignment in those markets and making them more attractive to managed care organizations.
Hospital Industry Trends
Demographic Trends. According to the U.S. Census Bureau, in 2023, there were nearly 58 million Americans aged 65 or older in the U.S., comprising
approximately 17.3% of the total U.S. population. By the year 2030, the number of Americans aged 65 or older is expected to climb to 71 million, or 20.6%
of the total population. The number of people aged 85 and older is also expected to increase from 6 million in 2022 to 9 million by the year 2030. These
anticipated increases will increase demand for healthcare services and, as importantly, the demand for innovative, more sophisticated means of delivering
those services. Hospitals, as the largest category of care in the healthcare market, will be among those impacted most directly by this increase in demand.
Based on data compiled for us, the populations of the service areas where our hospitals are located grew 6.7% from 2018 to 2023 and are expected to grow
by 2.6% from 2023 to 2028. The number of people aged 65 or older in these service areas grew by 16.4% from 2018 to 2023 and is expected to grow by
13.5% from 2023 to 2028. People aged 65 or older comprised 18.6% of the total population in our service areas in 2023, and they may comprise an
estimated 20.6% of the total population in our service areas by 2028.
Consolidation. In addition to our own acquisitions and dispositions in recent years, consolidation activity in the hospital industry, primarily through
mergers and acquisitions involving both for-profit and not-for-profit hospital systems, is continuing. Reasons for this activity include:
•
•
•
•
•
•
•
•
ample supply of available capital;
valuation levels;
financial performance issues, including challenges associated with changes in reimbursement and collectability of self-pay revenue;
the desire to enhance the local availability of healthcare in the community;
the need and ability to recruit primary care physicians and specialists;
the need to achieve general economies of scale and to gain access to standardized and centralized functions, including favorable supply agreements
and access to professional liability coverage;
changes to healthcare payment models that emphasize cost-effective delivery of service and quality of outcomes for the entire episode of care; and
regulatory changes.
The payor industry is also consolidating and acquiring health services providers in an effort to offer more expansive, competitive programs.
Trends in Payment for Healthcare Services. As discussed in more detail in the Government Regulation section of this Form 10-K, growing financial and
economic pressures on the healthcare industry have resulted in a shift away from traditional reimbursement models. Government and private third-party
payors are increasingly adopting and exploring value-based purchasing initiatives, which typically emphasize the cost-effective delivery of care and quality
of outcomes. In addition, health insurance coverage models have evolved, with increased enrollment in Medicare Managed Care and Medicaid managed
care programs and in high-deductible health plans. We may face greater risk of write-offs of uncollectible amounts from patients enrolled in high-deductible
health plans.
5
Shift to Outpatient Services. Because of the growing availability of stand-alone outpatient healthcare facilities, the increase in the services that can be
provided at these locations, and payor policies requiring or promoting treatment in outpatient settings, many individuals are seeking a broader range of
services at outpatient facilities. This trend has contributed to an increase in outpatient services while inhibiting the growth of inpatient admissions. Changes
to Medicare policy affecting the reimbursement methodology for certain items and services provided by off-campus provider-based hospital departments
have generally resulted in reduced payment rates for these hospital outpatient settings. In addition, CMS makes annual updates to the Inpatient Only List,
which is a list of procedures eligible to be reimbursed by Medicare only if performed in an inpatient setting. To the extent procedures become eligible to be
reimbursed by Medicare if performed in outpatient settings, demand for outpatient services may increase in comparison to demand for inpatient services.
Selected Operating Data
The following table sets forth operating statistics for each of the years presented for our hospitals. Statistics for 2023 include a full year of operations for
71 hospitals and partial periods for eight hospitals that were divested, and one hospital in which we sold a majority ownership during the year, reflecting the
operations of these hospitals prior to divestiture. Statistics for 2022 include a full year of operations for 79 hospitals and partial periods for one hospital that
was divested, one hospital that opened and three hospitals that were closed during the year, reflecting the operations of these hospitals prior to divestiture,
opening, or closure as applicable. Statistics for 2021 include a full year of operations for 83 hospitals, and partial periods for five hospitals that were
divested reflecting the operations of these hospitals prior to divestiture and one hospital that ceased to operate as a stand-alone hospital and began operating
as a campus of another hospital offering only emergency room and outpatient services (statistics for 2021 reflect the operations of that hospital prior to
being consolidated into another hospital).
Consolidated Data
Number of hospitals (at end of period)
Licensed beds (at end of period)(1)
Beds in service (at end of period)(2)
Admissions(3)
Adjusted admissions(4)
Patient days(5)
Average length of stay (days)(6)
Occupancy rate (beds in service)(7)
Net operating revenues
Net inpatient revenues as a % of net operating revenues
Net outpatient revenues as a % of net operating revenues
Net (loss) income attributable to Community Health Systems, Inc.
stockholders
Net (loss) income attributable to Community Health Systems, Inc.
stockholders as a % of net operating revenues
Adjusted EBITDA(8)
Adjusted EBITDA as a % of net operating revenues(8)
Liquidity Data
Net cash flows provided by (used in) operating activities
Net cash flows provided by (used in) operating activities as a % of net
operating revenues
Net cash flows used in investing activities
Net cash flows used in financing activities
6
2023
Year Ended December 31,
2022
(Dollars in millions)
2021
71
11,902
10,234
435,913
992,552
1,957,536
4.5
52.4 %
12,490 $
46.6 %
53.4 %
80
12,832
10,936
434,765
975,737
2,052,864
4.7
49.2 %
12,211 $
46.8 %
53.2 %
(133 ) $
46 $
(1.1 )%
1,453 $
11.6 %
0.4 %
1,466 $
12.0 %
83
13,289
11,629
442,445
950,717
2,190,405
5.0
51.1 %
12,368
48.3 %
51.7 %
230
1.9 %
1,969
15.9 %
210 $
300 $
(131 )
1.7 %
(26 ) $
(264 ) $
2.5 %
(259 ) $
(430 ) $
(1.1 )%
(524 )
(514 )
$
$
$
$
$
$
Same-Store Data(9)
Admissions(3)
Adjusted admissions(4)
Patient days(5)
Average length of stay (days)(6)
Occupancy rate (beds in service)(7)
Net operating revenues
Income from operations
Income from operations as a % of net operating revenues
Depreciation and amortization
Equity in earnings of unconsolidated affiliates
2023
Year Ended December 31,
2022
(Dollars in millions)
Increase (Decrease)
413,529
942,074
1,864,128
4.5
49.9 %
12,009 $
942 $
7.8 %
485 $
(8 ) $
399,355
894,388
1,895,988
4.7
51.5 %
11,457
973
8.5 %
491
(14 )
$
$
$
$
3.5 %
5.3 %
4.8 %
(3.2 )%
(1)
(2)
(3)
(4)
(5)
(6)
Licensed beds are the number of beds for which the appropriate state agency licenses for a facility regardless of whether the beds are actually
available for patient use.
Beds in service are the number of beds that are readily available for patient use.
Admissions represent the number of patients admitted for inpatient treatment.
Adjusted admissions is a general measure of combined inpatient and outpatient volume. We computed adjusted admissions by multiplying
admissions by gross patient revenues and then dividing that number by gross inpatient revenues.
Patient days represent the total number of days of care provided to inpatients.
Average length of stay (days) represents the average number of days inpatients stay in our hospitals.
(7) We calculated occupancy rate percentages by dividing the average daily number of inpatients by the weighted-average number of beds in service.
(8)
EBITDA is a non-GAAP financial measure which consists of net (loss) income attributable to Community Health Systems, Inc. before interest,
income taxes, and depreciation and amortization. Adjusted EBITDA, also a non-GAAP financial measure, is EBITDA adjusted to add back net
income attributable to noncontrolling interests and to exclude loss (gain) from early extinguishment of debt, impairment and (gain) loss on sale of
businesses, expense from third-party consulting costs associated with significant process and systems redesign across multiple functions as part of
the Company’s previously disclosed multi-year initiative to modernize and consolidate technology platforms and associated processes, gain on sale
of equity interests in Macon Healthcare, LLC as completed in the third quarter of 2021, expense related to government and other legal matters and
related costs, income during the fourth quarter of 2021 associated with the settlement of litigation for the recovery of amounts of certain professional
liability claims settled in 2020 covered by third-party insurance policies, expense related to employee termination benefits and other restructuring
charges, the impact of a change in estimate to increase the professional liability claims accrual recorded during the fourth quarter of 2022 with
respect to claims incurred in prior years related to divested locations and the gain on sale by HealthTrust of a majority interest in CoreTrust
completed during the fourth quarter of 2022. The Company has from time to time sold noncontrolling interests in certain of its subsidiaries or
acquired subsidiaries with existing noncontrolling interest ownership positions. The Company believes that it is useful to present Adjusted EBITDA
because it adds back the portion of EBITDA attributable to these third-party interests. The Company reports Adjusted EBITDA as a measure of
financial performance. Adjusted EBITDA is a key measure used by management to assess the operating performance of the Company’s hospital
operations and to make decisions on the allocation of resources. Adjusted EBITDA is also used to evaluate the performance of the Company’s
executive management team and is one of the primary metrics used in connection with determining short-term cash incentive compensation and the
achievement of vesting criteria with respect to performance-based equity awards. In addition, management utilizes Adjusted EBITDA in assessing
the Company’s consolidated results of operations and operational performance and in comparing the Company’s results of operations between
periods. The Company believes it is useful to provide investors and other users of the Company’s financial statements this performance measure to
align with how management assesses the Company’s results of operations. Adjusted EBITDA also is comparable to a similar metric called
Consolidated EBITDA, as defined in the Company’s asset-based loan facility, or the ABL Facility, and the Company’s existing note indentures,
which is a key component in the determination of the Company’s compliance with certain covenants under the ABL Facility and such note
indentures (including the Company’s ability to service debt and incur capital expenditures), and is used to determine the interest rate and
commitment fee payable under the ABL Facility (although Adjusted EBITDA does not include all of the adjustments described in the ABL Facility).
Adjusted EBITDA includes the Adjusted EBITDA attributable to hospitals that were divested during the course of such year, but in each case solely
to the extent relating to the period prior to the consummation of the applicable divestiture. For further discussion of Consolidated
7
EBITDA and how that measure is utilized in the calculation of covenants in the ABL Facility, see the Capital Resources section of Part II, Item 7 of
this Form 10-K.
Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP. It should not be considered in isolation or as a substitute for
net income, operating income, or any other performance measure calculated in accordance with U.S. GAAP. The items excluded from Adjusted
EBITDA are significant components in understanding and evaluating financial performance. The Company believes such adjustments are
appropriate as the magnitude and frequency of such items can vary significantly and are not related to the assessment of normal operating
performance. Additionally, this calculation of Adjusted EBITDA may not be comparable to similarly titled measures disclosed by other companies.
The following table reflects the reconciliation of Adjusted EBITDA, as defined, to net (loss) income attributable to Community Health Systems, Inc.
stockholders as derived directly from our Consolidated Financial Statements for the years ended December 31, 2023, 2022 and 2021 (in millions):
Net (loss) income attributable to Community Health Systems, Inc.
stockholders
Adjustments:
Provision for income taxes
Depreciation and amortization
Net income attributable to noncontrolling interests
Interest expense, net
(Gain) loss from early extinguishment of debt
Gain from CoreTrust Transaction
Gain on sale of equity interests in Macon Healthcare, LLC
Impairment and (gain) loss on sale of businesses, net
Expense from government and other legal matters and
related costs
(Income) expense from the settlement of professional liability claims
for which the third-party insurers' obligation to insure the
Company for the underlying loss has been settled
Expense related to employee termination benefits and other
restructuring charges
Change in estimate for professional claims liability
related to divested locations
Expense from business transformation costs
Adjusted EBITDA
Year Ended December 31,
2022
2023
2021
$
(133 ) $
46 $
191
505
149
830
(72 )
—
—
(87 )
36
—
12
170
534
133
858
(253 )
(119 )
—
71
5
—
6
230
131
540
138
885
79
—
(39 )
24
—
(19 )
—
—
22
1,453 $
15
—
1,466 $
—
—
1,969
$
(9)
Same-store operating results and statistical information include the results of businesses operated in the comparable current year and prior year
periods and exclude businesses divested or closed in the periods presented.
Sources of Revenue
The following table presents the approximate percentages of net operating revenues by payor source for the periods indicated. The data for the periods
presented are not strictly comparable due to the effect that businesses acquired, sold, closed or opened during each of the respective periods, as applicable,
have had on these statistics.
Medicare
Medicare Managed Care
Medicaid
Managed Care and other third-party payors
Self-pay
Total
Year Ended December 31,
2022
2023
2021
19.9 %
16.8
14.3
47.9
1.1
100.0 %
20.9 %
16.1
14.8
47.5
0.7
100.0 %
21.4 %
15.1
13.5
49.1
0.9
100.0 %
As shown above, we receive a substantial portion of our revenues from the Medicare, Medicare Managed Care and Medicaid programs. Included in
Managed Care and other third-party payors is net operating revenues from insurance companies with which we
8
have insurance provider contracts, insurance companies for which we do not have insurance provider contracts, workers’ compensation carriers and non-
patient service revenue, such as gain (loss) on investments, rental income and cafeteria sales. We generally expect the portion of revenues received from the
Medicare, Medicare Managed Care and Medicaid programs to increase over the long-term due to the general aging of the population and other factors,
including health reform initiatives. There has been a trend toward increased enrollment in Medicare Managed Care and Medicaid managed care programs,
which may adversely affect our net operating revenues. We may also be impacted by regulatory requirements imposed on insurers, such as minimum
medical-loss ratios and specific benefit requirements. Furthermore, in the normal course of business, managed care programs, insurance companies and
employers actively negotiate the amounts paid to hospitals. Our relationships with payors may be impacted by price transparency initiatives and out-of-
network billing restrictions, including those in the No Surprises Act. There can be no assurance that we will retain our existing reimbursement
arrangements or that third-party payors will not attempt to further reduce the rates they pay for our services.
Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems
and provisions of cost-based reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of
payment methodologies. Amounts we receive for the treatment of patients covered by Medicare, Medicaid and non-governmental payors are generally less
than our standard billing rates. We account for the differences between the estimated program reimbursement rates and our standard billing rates as
contractual allowance adjustments, which we deduct from gross revenues to arrive at net operating revenues. Final settlements under some of these
programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program
reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance
adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues by an insignificant amount in each
of the years ended December 31, 2023, 2022 and 2021.
The payment rates under the Medicare program for hospital inpatient and outpatient acute care services are based on prospective payment systems,
which depend upon a patient’s diagnosis or the clinical complexity of services provided to a patient, among other factors. These rates are indexed for
inflation annually, although increases have historically been less than actual inflation.
Payment rates under the Medicaid program vary by state. In addition to the base payment rates for specific claims for services rendered to Medicaid
enrollees, several states utilize supplemental reimbursement programs to make separate payments that are not specifically tied to an individual’s care, some
of which offset a portion of the cost of providing care to Medicaid and indigent patients. These programs are funded with a combination of state and federal
resources, including, in certain instances, fees or taxes levied on the providers. The programs are generally authorized by CMS for a specified period of
time and require CMS’s approval to be extended. We are unable to predict whether or on what terms CMS will extend the supplemental programs in the
states in which we operate. Under these supplemental programs, we recognize revenue and related expenses in the period in which amounts are estimable
and payment is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and included as Medicaid revenue in the
table above, and fees, taxes or other program related costs are reflected in other operating expenses.
As of December 31, 2023, Indiana, Alabama, Texas and Florida represented our only areas of significant geographic concentration. Net operating
revenues generated by our hospitals in Indiana, as a percentage of consolidated net operating revenues, were 17.1% in 2023, 17.3% in 2022 and 16.4% in
2021. Net operating revenues generated by our hospitals in Alabama, as a percentage of consolidated net operating revenues, were 14.4% in 2023, 13.3% in
2022 and 13.0% in 2021. Net operating revenues generated by our hospitals in Texas, as a percentage of consolidated net operating revenues, were 11.7%
in 2023, 11.7% in 2022 and 11.0% in 2021. Net operating revenues generated by our hospitals in Florida, as a percentage of consolidated net operating
revenues, were 11.1% in 2023, 11.6% in 2022 and 12.2% in 2021.
Hospital revenues depend upon inpatient occupancy levels, the volume of outpatient procedures and the payment rates for hospital services provided,
which are a function of amounts charged, rates negotiated with third-party payors and rates determined by government payors. Charges and payment rates
for routine inpatient services vary significantly depending on the type of service performed and the geographic location of the hospital. In recent years, we
have experienced a significant increase in revenue received from outpatient services. We attribute this increase to:
•
•
advances in technology, which have permitted us to provide more services on an outpatient basis, and
pressure from Medicare and Medicaid programs, insurance companies and managed care plans to reduce the length and number of inpatient hospital
stays and to reduce costs by providing services on an outpatient rather than on an inpatient basis.
Healthcare facility operations are also subject to certain seasonal fluctuations, including decreases in patient utilization during holiday periods and
increases in colder weather months. Variations in the prevalence and severity of outbreaks of illnesses, such as COVID-19, have also resulted in, and may
continue to result in, similar fluctuations of our business.
9
Government Regulation
Overview. Participants in the healthcare industry are required to comply with extensive government regulation at the federal, state and local levels. If we
fail to comply with applicable laws and regulations, we may be subject to criminal penalties and civil sanctions, our hospitals could lose their licenses and
we could lose our ability to participate in Medicare, Medicaid and other government programs. These legal and regulatory standards address, among other
issues, licensure, certification, and enrollment with government programs; the necessity and adequacy of medical care; quality of medical equipment and
services; qualifications of medical and support personnel; operating policies and procedures; screening, stabilization and transfer of individuals who have
emergency medical conditions; billing and coding for services; handling overpayments; classifications of levels of care provided; preparing and filing cost
reports; relationships with referral sources and referral recipients; maintenance of adequate records; hospital use; rate-setting; building codes;
environmental protection; privacy and security; interoperability and refraining from information blocking; debt collection; balance billing and billing for
out-of-network services; and communications with patients and consumers.
Hospitals are subject to periodic inspection by federal, state and local authorities to determine their compliance with applicable regulations and
requirements necessary for licensing and certification. All of our hospitals are licensed under appropriate state laws and are qualified to participate in
Medicare and Medicaid programs. In addition, most of our hospitals are accredited by The Joint Commission. This accreditation indicates that a hospital
satisfies the applicable health and administrative standards to participate in Medicare and Medicaid programs.
Government regulations are subject to change. If applicable laws and regulations change, we may have to make changes to our facilities, equipment,
personnel and services so that our hospitals remain certified as hospitals and qualified to participate in these programs. We believe that our hospitals are in
substantial compliance with current federal, state and local regulations and standards. We cannot be certain that governmental officials responsible for
enforcing these laws or whistleblowers will not assert that we are in violation of them or that such statutes or regulations will be interpreted by the courts in
a manner consistent with our interpretation.
Healthcare Reform, including Price Transparency. The healthcare industry is subject to changing political, regulatory, and economic influences that
may affect our business. In recent years, the U.S. Congress and certain state legislatures have introduced and passed a large number of proposals and
legislation affecting the healthcare system, including laws intended to impact access to health insurance and reduce healthcare costs and government
spending. The most prominent of these efforts, the Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed, and
expanded health insurance coverage through a combination of public program expansion and private sector health insurance reforms. The Affordable Care
Act has been, and continues to be, subject to legislative and regulatory changes and court challenges.
To increase access to health insurance during the COVID-19 pandemic, the American Rescue Plan Act of 2021, or the ARPA, enhanced subsidies for
individuals eligible to purchase coverage through Affordable Care Act marketplaces. Subsequent legislation extended these enhanced subsidies through
2025. In addition, Medicaid enrollment increased as a result of COVID-19 relief legislation that authorized a temporary increase in federal funds for certain
Medicaid expenditures in states that maintained continuous Medicaid enrollment, among other requirements. However, this “continuous coverage”
requirement expired on April 1, 2023, which has led to Medicaid coverage disruptions and dis-enrollments of Medicaid enrollees. These and other changes
and initiatives may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased.
Of critical importance to us is the potential impact of any changes specific to the Medicaid program, including the funding and expansion provisions of
the Affordable Care Act and subsequent legislation or agency initiatives. Historically, the states with the greatest reductions in the number of uninsured
adult residents have expanded Medicaid under the Affordable Care Act. A number of states have opted out of the Medicaid coverage expansion provisions,
but could ultimately decide to expand their programs at a later date. Of the 15 states in which we operated hospitals as of December 31, 2023, nine states
have expanded their Medicaid programs. At this time, the other six states have not, including Florida, Alabama, Tennessee, Mississippi and Texas, where
we operated a significant number of hospitals as of December 31, 2023. Some states use, or have applied to use, waivers granted by CMS to implement
expansion, impose different eligibility or enrollment conditions, or otherwise implement programs that vary from federal standards.
Other recent reform initiatives and proposals at the federal and state levels include those focused on price transparency and limiting out-of-network
charges, which may impact prices, our competitive position and the relationships between hospitals, insurers, patients, and ancillary providers (such as
anesthesiologists, radiologists, and pathologists). For example, the No Surprises Act imposes requirements on providers and health plans intended to
prevent “surprise” medical bills. Among other restrictions and requirements, the law prohibits providers from charging patients an amount beyond the in-
network cost sharing amount for services rendered by out-of-network providers, subject to limited exceptions. For services for which balance billing is
prohibited (even when no balance billing occurs), the No Surprises Act may limit the amounts received by out-of-network providers from health plans and
establishes an independent dispute resolution process for providers and payors to handle payment disputes that cannot be resolved through direct
negotiations. The No Surprises Act also requires that providers provide a good faith estimate of expected charges to uninsured or self-pay patients for
scheduled items and services, in advance of the date of the scheduled item or service or upon request. Based on these
10
estimates, such patients may invoke a patient-provider dispute resolution process to challenge charges in certain circumstances. The regulations and related
guidance implementing the No Surprises Act, including those establishing the provider-payer dispute resolution process, have been and continue to be
subject to legal challenges.
Other trends toward transparency and value-based purchasing may impact the competitive position and patient volumes of providers. For example, the
CMS Care Compare website makes available to the public certain data that hospitals submit in connection with Medicare reimbursement claims, including
hospital performance data on quality measures and patient satisfaction. In addition, Medicare reimbursement for hospitals is adjusted based on quality and
efficiency measures, and CMS currently administers various accountable care organizations and bundled payment demonstration projects. The CMS
Innovation Center has highlighted the need to accelerate the movement to value-based care and drive broader system transformation.
Fraud and Abuse Laws. Participation in the Medicare and Medicaid programs is heavily regulated by federal statute and regulation. If a hospital fails to
comply substantially with the requirements for participating in the programs, the hospital’s participation may be terminated and/or civil or criminal
penalties may be imposed. For example, a hospital may lose its ability to participate in the Medicare program if it engages in any of the following acts:
• making claims to Medicare for services not provided or misrepresenting actual services provided in order to obtain higher payments;
•
•
paying money to induce the referral of patients where services are reimbursable under a federal health program; or
paying money to limit or reduce the services provided to Medicare beneficiaries.
Any person or entity that knowingly and willfully defrauds or attempts to defraud a healthcare benefit program, including private healthcare plans, may
be subject to fines, imprisonment or both. Additionally, any person or entity that knowingly and willfully falsifies or conceals a material fact or makes any
material false or fraudulent statements in connection with the delivery or payment of healthcare services by a healthcare benefit plan is subject to a fine,
imprisonment or both.
A section of the Social Security Act known as the “Anti-Kickback Statute” prohibits some business practices and relationships under Medicare,
Medicaid and other federal healthcare programs. These practices include the payment, receipt, offer, or solicitation of remuneration of any kind in exchange
for items or services that are reimbursed under a federal healthcare program. Courts have interpreted this statute broadly and have held that there is a
violation of the Anti-Kickback Statute if just one purpose of the remuneration is to generate referrals.
The Office of Inspector General of the Department of Health and Human Services, or OIG, is responsible for identifying and investigating fraud and
abuse activities in federal healthcare programs. As authorized by Congress, the OIG publishes regulations outlining activities and business relationships
that would be deemed not to violate the Anti-Kickback Statute. These regulations are known as “safe harbor” regulations. The failure of a particular activity
to comply with the safe harbor regulations does not necessarily mean that the activity violates the Anti-Kickback Statute; however, such failure may lead to
increased scrutiny by government enforcement authorities.
The OIG also provides guidance to healthcare providers by identifying types of activities that could violate the Anti-Kickback Statute. The OIG has
identified the following incentive arrangements as potential violations of the Anti-Kickback Statute:
•
•
•
•
•
•
•
•
•
•
•
payment of any incentive by the hospital when a physician refers a patient to the hospital;
use of free or significantly discounted office space or equipment for physicians in facilities usually located close to the hospital;
provision of free or significantly discounted billing, nursing, or other staff services;
free training for a physician’s office staff, including management and laboratory techniques (but excluding compliance training);
guarantees that if the physician’s income fails to reach a predetermined level, the hospital will pay any portion of the remainder;
low-interest or interest-free loans or loans that may be forgiven if a physician refers patients to the hospital;
payment of the costs of a physician’s travel and expenses for conferences or an honorarium for speaker events;
payment of services that require few, if any, substantive duties by the physician, or payment for services in excess of the fair market value of the
services rendered;
coverage on the hospital’s group health insurance plans at an inappropriately low cost to the physician;
purchasing goods or services from physicians at prices in excess of their fair market value;
rental of space in physician offices, at other than fair market value; or
11
•
physician-owned entities (often referred to as physician-owned distributorships) that derive revenue from selling, or arranging for the sale of,
implantable medical devices ordered by their physician-owners for use on procedures that physician-owners perform on their own patients at
hospitals or ASCs.
We have a variety of financial relationships with physicians who refer patients to our hospitals. Physicians own interests in a number of our facilities.
Physicians may also own our stock. We also have contracts with physicians providing for a variety of financial arrangements, including employment
contracts, leases, management agreements and professional service agreements. We provide financial incentives to recruit physicians to relocate to
communities served by our hospitals. These incentives include relocation, reimbursement for certain direct expenses, income guarantees and, in some cases,
loans. Although we strive to comply with the Anti-Kickback Statute, taking into account available guidance including the “safe harbor” regulations, we
cannot assure you that regulatory authorities will not determine otherwise. If that happens, we could be subject to criminal and civil penalties and/or
exclusion from participating in Medicare, Medicaid or other government healthcare programs. Civil monetary penalties increase annually based on updates
to the consumer price index.
The Social Security Act also includes a provision commonly known as the “Stark Law.” This law prohibits physicians from referring Medicare and
Medicaid patients to healthcare entities in which they or any of their immediate family members have ownership interests or other financial arrangements.
These types of referrals are commonly known as “self-referrals.” Sanctions for violating the Stark Law include denial of payment, civil monetary penalties
that are increased annually based on updates to the consumer price index and exclusion from federal healthcare programs.
There are ownership and compensation arrangement exceptions to the self-referral prohibition. CMS has issued regulations that interpret these
exceptions and other provisions of the Stark Law. One exception allows a physician to refer patients to a healthcare entity in which the physician has an
ownership interest if the entity is located in a rural area, as defined in the statute. There are also exceptions for many of the customary financial
arrangements between physicians and providers, including employment contracts, leases and recruitment agreements.
Another exception to the Stark Law, known as the “whole hospital” exception, allows a physician to make a referral to a hospital if the physician owns
an interest in the entire hospital, as opposed to an ownership interest in a department of the hospital, and the hospital meets certain “grandfathering”
requirements imposed by the Affordable Care Act. These requirements prohibit physicians from increasing the aggregate percentage of their ownership in
the hospital and restrict the ability of physician-owned hospitals from expanding the capacity of their aggregate licensed beds, operating rooms and
procedure rooms, beyond the ownership percentage and capacities in place in 2010. The whole hospital exception also contains additional public disclosure
requirements. A hospital is considered to be physician-owned if any physician, or an immediate family member of a physician, holds debt, stock or other
types of investment in the hospital or in any owner of the hospital, excluding physician ownership through publicly-traded securities that meet certain
conditions.
In addition to the restrictions and disclosure requirements applicable to physician-owned hospitals under the Stark Law, CMS regulations require
physician-owned hospitals and their physician owners to disclose certain ownership information to patients. Physician-owned hospitals must disclose their
physician ownership in writing to patients and must make a list of their physician owners available upon request. Additionally, each physician owner who is
a member of a physician-owned hospital’s medical staff must agree, as a condition of continued medical staff membership or admitting privileges, to
disclose in writing to all patients whom they refer to the hospital their (or an immediate family member’s) ownership interest in the hospital. If a hospital
fails to comply with these regulations, the hospital could lose its Medicare provider agreement and be unable to participate in Medicare.
Law enforcement authorities, including the OIG, the courts and Congress have in recent years increased scrutiny of arrangements between healthcare
providers and potential referral sources to ensure that the arrangements are not designed as a mechanism to improperly pay for patient referrals and/or other
business. Investigators have demonstrated a willingness to look behind the formalities of a business transaction to determine the underlying purpose of
payments between healthcare providers and potential referral sources.
Many states in which we operate have also adopted laws that prohibit payments to physicians in exchange for referrals, similar to the federal Anti-
Kickback Statute, or that otherwise prohibit fraud and abuse activities. Many states have also passed self-referral legislation similar to the Stark Law,
prohibiting the referral of patients to entities with which the physician has a financial relationship. Often these state laws are broad in scope and may apply
regardless of the source of payment for care. These statutes typically provide for criminal and civil penalties, as well as loss of licensure. Little precedent
exists for the interpretation or enforcement of these state laws.
Our operations could be adversely affected by the failure of our arrangements to comply with the Anti-Kickback Statute, the Stark Law, billing laws and
regulations, state fraud and abuse laws, evolving interpretations of current requirements or the adoption of new, federal or state laws or regulations. We are
unable to predict whether other legislation or regulations at the federal or state level in any of these areas will be adopted, what form such legislation or
regulations may take or how they may affect our operations. We are
12
continuing to enter into new financial arrangements with physicians and other providers in a manner structured to comply in all material respects with these
laws. We strive to comply with applicable fraud and abuse laws. We cannot assure you, however, that governmental officials responsible for enforcing these
laws or whistleblowers will not assert that we are in violation of them or that such statutes or regulations ultimately will be interpreted by the courts in a
manner consistent with our interpretation.
Federal False Claims Act and Similar State Laws. Another significant enforcement mechanism used within the healthcare industry is the federal False
Claims Act, or FCA, which can be used to prosecute Medicare and other government program fraud involving issues such as coding errors, billing for
service not provided and submitting false cost reports. The FCA covers payments involving federal funds in connection with the health insurance
exchanges created under the Affordable Care Act, if those payments involve any federal funds. Liability under the FCA often arises when an entity
knowingly submits a false claim for reimbursement to the federal government. The FCA broadly defines the term “knowingly.” Although simple
negligence will not give rise to liability under the FCA, submitting a claim with reckless disregard to its truth or falsity may constitute “knowingly”
submitting a false claim and result in liability. Among the many other potential bases for liability under the FCA is the knowing and improper failure to
report and refund amounts owed to the government within 60 days of identifying an overpayment. An overpayment is deemed to be identified when a
person has, or should have through reasonable diligence, determined that an overpayment was received and quantified the overpayment. Submission of a
claim for an item or service generated in violation of the Anti-Kickback Statute constitutes a false or fraudulent claim under the FCA. In some cases,
whistleblowers, the federal government and courts have taken the position that providers who allegedly have violated other statutes, such as the Stark Law,
have thereby submitted false claims under the FCA.
When a defendant is determined by a court of law to be liable under the FCA, the defendant must pay three times the actual damages sustained by the
government, plus substantial civil penalties for each separate false claim. These civil monetary penalties are adjusted annually based on updates to the
consumer price index. Settlements entered into prior to litigation usually involve a less severe calculation of damages. The FCA also contains “qui tam,” or
whistleblower provisions, which allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the federal
government. If the government intervenes in the action and prevails, the party filing the initial complaint may share in any settlement or judgment. If the
government does not intervene in the action, the whistleblower plaintiff may pursue the action independently and may receive a larger share of any
settlement or judgment. When a private party brings a qui tam action under the FCA, the defendant generally will not be made aware of the lawsuit until the
government commences its own investigation or determines whether it will intervene. Every entity that receives at least $5 million annually in Medicaid
payments must have written policies for all employees, contractors and agents providing detailed information about false claims, false statements and
whistleblower protections under certain federal laws, including the FCA, and similar state laws.
A number of states, including states in which we operate, have adopted their own false claims provisions as well as their own whistleblower provisions
whereby a private party may file a civil lawsuit in state court. Federal law provides an incentive to states to enact false claims laws that are comparable to
the FCA. From time to time, companies in the healthcare industry, including ours, may be subject to actions under the FCA or similar state laws.
Corporate Practice of Medicine; Fee-Splitting. Some states prohibit unlicensed persons or business entities, including corporations, from employing
physicians or certain other health professionals. Some states also prohibit direct or indirect payments to, or entering into fee-splitting arrangements with,
healthcare providers and unlicensed persons or business entities. Possible sanctions for violations of these restrictions include loss of a healthcare provider’s
license, civil and criminal penalties and rescission of business arrangements. These laws vary from state to state, are often vague and have seldom been
interpreted by the courts or regulatory agencies. We structure our arrangements with healthcare providers to comply with the relevant state law. However,
we cannot provide assurance that governmental officials responsible for enforcing these laws will not assert that we, or transactions in which we are
involved, are in violation of these laws. These laws may also be interpreted by the courts in a manner inconsistent with our interpretations.
Emergency Medical Treatment and Active Labor Act. The Emergency Medical Treatment and Active Labor Act, or EMTALA, imposes federal
requirements as to the care that must be provided to anyone who comes to facilities providing emergency medical services seeking care before they may be
transferred to another facility or otherwise denied care. Under this law, healthcare facilities are required to screen patients for emergency medical conditions
and stabilize them where such conditions exist, regardless of an individual’s ability to pay for treatment. Sanctions for failing to fulfill these requirements
include exclusion from participation in Medicare and Medicaid programs and civil money penalties, which are increased annually based on updates to the
consumer price index. In addition, the law creates private civil remedies that enable an individual who suffers personal harm as a direct result of a violation
of the law to sue the offending hospital for damages and equitable relief. A medical facility that suffers a financial loss as a direct result of another
participating hospital’s violation of the law also has a similar right. Although we believe that our practices comply with the law, we can give no assurance
that governmental officials responsible for enforcing the law will not assert we are in violation of this law or that interpretations of the law will not change.
In particular, hospitals may face conflicting interpretations as to the requirements imposed by EMTALA as interpreted by HHS in relation to state laws that
limit access to abortion or other reproductive health services. For example, CMS has provided guidance regarding EMTALA obligations specific to patients
who are
13
pregnant or are experiencing pregnancy loss and the preemption of state law. This guidance is the subject of legal challenges, including pending cases in
Texas and Ohio that have allowed state restrictions to remain in effect or stayed or have limited application of the guidance as the cases continue.
Conversion Legislation. Many states, including some where we have hospitals and others where we may in the future acquire hospitals, have adopted
legislation regarding the sale or other disposition of hospitals operated by not-for-profit entities. In other states that do not have specific legislation, the
attorneys general have demonstrated an interest in these transactions under their general obligations to protect charitable assets from waste. These
legislative and administrative efforts primarily focus on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the not-
for-profit seller. While these reviews and, in some instances, approval processes can add additional time to the closing of a hospital acquisition, we have not
had any significant difficulties or delays in completing the acquisition process. There can be no assurance, however, that future actions on the state level
will not seriously delay or even prevent our ability to acquire hospitals. If these activities are widespread, they could limit our ability to acquire hospitals.
Antitrust Laws. The federal government and most states have enacted antitrust laws that prohibit certain types of conduct deemed to be anti-competitive.
These laws prohibit price fixing, market allocation, bid-rigging, concerted refusal to deal, market monopolization, price discrimination, tying arrangements,
acquisitions of competitors and other practices that have, or may have, an adverse effect on competition. Recently, some states have also passed legislation
requiring for-profit healthcare entities, including hospitals, to notify the state attorneys general or other designated entities in advance of sales or other
transactions. Violations of federal or state antitrust laws can result in various sanctions, including criminal and civil penalties. Antitrust enforcement in the
healthcare industry is currently a priority of the Federal Trade Commission, or FTC, and the U.S. Department of Justice. We believe we are in compliance
with such federal and state laws, but courts or regulatory authorities may reach a determination in the future that could adversely affect our operations.
Certificates of Need. The construction of new facilities, the acquisition of existing facilities, significant capital expenditures and the addition of new
services at our facilities may be subject to state laws that require prior approval by state regulatory agencies. These certificate of need, or CON, laws
generally require that a state agency determine the public need and give approval prior to the construction or acquisition of facilities, significant capital
expenditure or the addition of new services. As of December 31, 2023, we operated 53 hospitals in 11 states that have adopted CON laws. If we fail to
obtain necessary state approval, we will not be able to expand our facilities, complete acquisitions or significant capital expenditures or add new services in
these states. Violation of these state laws may result in the imposition of civil sanctions or the revocation of a provider’s licenses.
HIPAA Administrative Simplification and Privacy, Security and Interoperability Requirements. The Health Insurance Portability and Accountability Act
of 1996, or HIPAA, requires the use of uniform transaction standards for healthcare claims and payment transactions submitted or received electronically.
These provisions are intended to encourage electronic commerce in the healthcare industry. HHS has established transaction standards and code sets that all
healthcare providers must use when submitting or receiving certain healthcare transactions electronically and has issued operating rules to promote
uniformity in the implementation of each standardized electronic transaction. HIPAA also requires that each provider use a National Provider Identifier.
As required by HIPAA, HHS has issued privacy and security regulations that extensively regulate the use and disclosure of protected health
information, and require covered entities, including health plans and most healthcare providers, to implement administrative, physical and technical
safeguards to protect the security of individually identifiable health information that is electronically maintained or transmitted. Business associates
(entities that handle protected health information on behalf of covered entities) are subject to direct liability for violation of applicable provisions of the
regulations. In addition, a covered entity may be subject to penalties as a result of a business associate violating HIPAA, if the business associate is found to
be an agent of the covered entity.
Covered entities must report breaches of unsecured protected health information to affected individuals without unreasonable delay, but not to exceed
60 days of discovery of the breach by the covered entity or its agents. Notification must also be made to HHS and, in certain situations involving large
breaches, to the media. HHS is required to publish on its website a list of all covered entities that report a breach involving more than 500 individuals. All
non-permitted uses or disclosures of unsecured protected health information are presumed to be breaches unless the covered entity or business associate
establishes that there is a low probability the information has been compromised. Various state laws and regulations may also require us to notify affected
individuals in the event of a data breach involving individually identifiable information.
Violations of the HIPAA privacy and security regulations may result in criminal penalties and in substantial civil penalties per violation. The civil
penalties are adjusted annually based on updates to the consumer price index. HHS is required to perform compliance audits. In addition to enforcement by
HHS, state attorneys general are authorized to bring civil actions seeking either injunction or damages in response to violations of HIPAA privacy and
security regulations that threaten the privacy of state residents. HHS may resolve HIPAA violations through informal means, such as allowing a covered
entity to implement a corrective action plan,
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but HHS has the discretion to move directly to impose monetary penalties and is required to impose penalties for violations resulting from willful neglect.
We are also subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA or that apply to
other types of information. These laws vary and could impose additional penalties and subject us to additional privacy and security restrictions. For
example, the FTC uses its consumer protection authority to initiate enforcement actions in response to data breaches. In addition, various states have
enacted, and other states are considering, laws and regulations concerning the privacy and security of consumer and other personal information. To the
extent we are subject to such requirements, these laws and regulations often have far-reaching effects, are subject to amendments and changing
requirements and updates to regulators’ enforcement priorities, may require us to modify our data processing practices and policies, and may subject our
business to a risk of increased potential liability. These laws and regulations often provide for civil penalties for violations, as well as a private right of
action for data breaches, which may increase the likelihood or impact of data breach litigation. We have developed and utilize an information privacy and
security compliance plan as part of our effort to comply with HIPAA and other federal and state privacy and security requirements. The privacy regulations
and security laws and regulations have imposed, and will continue to impose, significant costs on us in order to comply with these standards.
Healthcare providers and industry participants are also subject to an increasing number of requirements intended to promote the interoperability and
exchange of patient health information. For example, healthcare providers and certain other entities are subject to information blocking restrictions pursuant
to the 21st Century Cures Act that prohibit practices that are likely to interfere with the access, exchange or use of electronic health information, except as
required by law or specified by HHS as a reasonable and necessary activity. Violations may result in penalties or other significant disincentives. In
November 2023, HHS issued a proposed rule to establish disincentives for certain types of providers. If finalized, hospitals found to have committed
information blocking would not qualify as “meaningful electronic health record users” under the Medicare Promoting Interoperability Program and as a
result would lose 75% of the annual market basket increase they would otherwise receive.
Payment
Medicare. Medicare is a federal health insurance program that provides certain hospital and medical insurance benefits to persons age 65 and over, some
disabled persons, persons with end-stage renal disease and persons with amyotrophic lateral sclerosis, also known as ALS or Lou Gehrig’s Disease.
Payments for inpatient acute hospital services are generally made pursuant to a prospective payment system, or PPS. Under the inpatient PPS, our
hospitals are paid a predetermined amount for each hospital discharge based on the patient’s diagnosis. Specifically, each discharge is assigned to a
Medicare severity diagnosis-related group, commonly known as an “MS-DRG,” based upon the patient’s condition and treatment during the relevant
inpatient stay. The MS-DRGs are severity-adjusted to account for the severity of each patient’s condition and expected resource consumption. Each MS-
DRG has a payment weight assigned to it that is based on the average resources used to treat Medicare patients in that MS-DRG. MS-DRG payments are
based on national averages and not on charges or costs specific to a hospital. Medicare sets discharge base rates (standardization payment amounts), which
are adjusted according to the MS-DRG relative weights and geographic factors. In addition, hospitals may qualify for an “outlier” payment when a patient’s
treatment costs are extraordinarily high and exceed a specified regulatory threshold.
The MS-DRG payment rates for inpatient acute services are adjusted by an update factor on October 1 of each year, the beginning of the federal fiscal
year. The index used to adjust the MS-DRG payment rates, known as the “market basket index,” gives consideration to the inflation experienced by
hospitals in purchasing goods and services. MS-DRG payment rates were increased by the “market basket index” update of 4.1% and 3.3% for each of
federal fiscal years 2023 and 2024, respectively, subject to certain adjustments. For federal fiscal year 2023, the market basket update was adjusted by the
following percentage points: a positive 0.5 percentage point adjustment in accordance with the Medicare Access and CHIP Reauthorization Act of 2015, or
MACRA, and a 0.3 percentage point reduction for the productivity adjustment. For federal fiscal year 2024, the market basket update was reduced by 0.2
percentage points for the productivity adjustment. A reduction of 25% of the market basket update occurs if patient quality data is not submitted, and a
reduction of 75% of the market basket update occurs for hospitals that fail to demonstrate meaningful use of certified electronic health records, or EHR,
technology without receiving a hardship exception. Additional adjustments may apply, depending on patient-specific or hospital-specific factors.
The MS-DRG payment rates are also adjusted to promote value-based purchasing, linking payments to quality and efficiency. First, hospitals that meet
or exceed certain quality performance standards receive greater reimbursement under CMS’s Hospital Value-Based Purchasing Program, while hospitals
that do not satisfy certain quality performance standards receive reduced Medicare inpatient hospital payments. CMS withholds 2% of participating
hospitals’ Medicare payments and uses the total amount collected to fund payments that reward hospitals based on a set of quality and resource use
measures. CMS scores each hospital on its achievement relative to other hospitals and improvement relative to that hospital’s own past performance.
Second, hospitals experiencing “excess readmissions” within 30 days from the patient’s date of discharge following treatment for designated conditions or
procedures during a prior performance review period receive reduced payments for all inpatient discharges in the fiscal year, not just discharges relating to
the conditions or procedures subject to the readmission standard. The payment reduction, which can be up to 3% of a hospital’s
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base payments, is determined by assessing that hospital’s readmissions relative to hospitals with similar proportions of dual-eligible patients. Third, the
bottom quartile of hospitals based on the national risk-adjusted hospital acquired condition, or HAC, rates in the previous year have their total inpatient
operating Medicare payments reduced by 1%. Moreover, Medicare does not reimburse for care related to certain HACs. For cases in which a designated
HAC was not present on admission, CMS does not allow the discharge to be assigned to a higher-paying MS-DRG based on the HAC, and the case is paid
as though the secondary diagnosis (HAC) was not present.
In addition, hospitals may qualify for Medicare disproportionate share hospital, or DSH, payment adjustments when their percentage of low-income
patients exceeds specified regulatory thresholds. A majority of our hospitals qualify to receive these adjustments. The methodology for calculating DSH
payment adjustments is affected by shifts in CMS payment policy. For example, in August 2023, CMS changed the DSH formula by altering how days of
care provided to patients who are eligible for benefits from Section 1115 Demonstrations are included in the Medicaid fraction and by excluding from the
Medicaid fraction days of care of patients for which hospitals are paid from demonstration-authorized uncompensated or undercompensated care pools.
This change will effectively decrease DSH payments for many hospitals. CMS also distributes an additional payment to each DSH hospital for its
proportion of uncompensated care costs relative to the uncompensated care amount of other DSH hospitals. The uncompensated care amount is hospital-
specific and generally includes charity care and non-Medicare and non-reimbursable Medicare bad debt. The Medicare DSH adjustments and
uncompensated care payments as a percentage of net operating revenues were 0.75% and 0.88% for the years ended December 31, 2023 and 2022,
respectively.
We also receive Medicare reimbursement for hospital outpatient services through a PPS. Services paid under the hospital outpatient PPS are grouped
into ambulatory payment classifications, or APCs. Services for each APC are similar clinically and in terms of the resources they require. APC payment
rates are generally determined by applying a conversion factor, which CMS updates annually using a market basket. For calendar year 2023, CMS
estimated an increase in hospital outpatient PPS payments of 3.8%. This reflected a market basket increase of 4.1%, with a negative 0.3 percentage point
productivity adjustment. For calendar year 2024, CMS estimated an increase in hospital outpatient PPS payments of 3.1%, reflecting a market basket
increase of 3.3%, with a negative 0.2 percentage point productivity adjustment. A 2.0 percentage point reduction to the market basket update applies to
hospitals that do not submit required patient quality data.
The Medicare reimbursement for outpatient services may also be affected by broad shifts in payment policy. For example, recent changes related to the
340B Drug Pricing Program have implications for all hospitals reimbursed under the outpatient PPS, including those, like ours, that do not participate in the
program. The 340B program allows non-profit healthcare organizations to purchase certain outpatient drugs from pharmaceutical manufacturers at
discounted rates. In 2018, CMS implemented a payment policy that reduced Medicare payments for 340B hospitals for most drugs obtained at 340B-
discounted rates and that resulted in increased payments for non-340B hospitals. In June 2022, the U.S. Supreme Court invalidated past payment cuts for
hospitals participating in the 340B Drug Pricing Program. In light of the U.S. Supreme Court decision and to achieve budget neutrality, CMS implemented
a reduction of approximately 3.1% to payment rates for non-drug services under the outpatient PPS for calendar year 2023. HHS directed that $9 billion be
paid to affected 340B providers in one-time lump sum payments as the remedy for calendar years 2018 through 2022. In order to comply with budget
neutrality requirements, HHS finalized a corresponding offset in future non-drug item and service payments for all outpatient PPS providers (except new
providers) that will reduce the outpatient PPS conversion factor by 0.5% annually. This adjustment will start in calendar year 2026 and continue for
approximately 16 years.
CMS has implemented an expanded site-neutral payment policy for off-campus provider-based departments paid under the outpatient PPS. Under the
policy, all off-campus provider-based departments are paid the Medicare Physician Fee Schedule, or MPFS, -equivalent rate for clinic visits, which is
generally substantially lower than the outpatient PPS rate. The MPFS-equivalent rate for calendar year 2024 is approximately 40% of the outpatient PPS
rate.
CMS uses fee schedules to pay for physician services, physical, occupational and speech therapies, durable medical equipment, clinical diagnostic
laboratory services, freestanding surgery center services, and certain other items and services. Under the MPFS, CMS has assigned a national relative value
unit, or RVU, to most medical procedures and services that reflects the resources required to provide the services relative to all other services. Each RVU is
calculated based on a combination of the time and intensity of work required, overhead expense attributable to the service, and professional liability
insurance expense. These elements are each modified by a geographic adjustment factor to account for local practice costs and are then aggregated. To
determine the payment rate for a particular service, the sum of the geographically adjusted RVUs is multiplied by a conversion factor. For calendar year
2024, CMS decreased the conversion factor by approximately 3.4%.
CMS requires physicians and certain other healthcare clinicians to participate in one of two tracks under the Quality Payment Program, or QPP, which is
a payment methodology intended to reward high-quality patient care. Under both tracks, performance data collected each performance year affects
Medicare payments two years later. CMS expects to transition increasing financial risk to providers as QPP evolves. The Advanced Alternative Payment
Model, or Advanced APM, encourages participation in specific innovative payment models approved by CMS through financial incentives. For
performance year 2023 and years prior, providers
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were able to earn Medicare incentive payments. Beginning in the 2024 performance year, qualifying providers will instead receive positive adjustments to
their MPFS payment rates (performance year 2024 determines adjustments in payment year 2026). In addition, providers are exempt from the reporting
requirements and payment adjustments imposed under the Merit-Based Incentive Payment System, or MIPS, if the provider has sufficient participation in
an Advanced APM. Alternatively, providers may participate in the MIPS track, under which physicians receive performance-based payment incentives or
payment reductions based on their performance with respect to clinical quality, resource use, clinical improvement activities, and meeting Promoting
Interoperability standards related to the meaningful use of EHRs.
In addition to the Medicare reimbursement reductions and adjustment discussed above, the Budget Control Act of 2011, or BCA, requires automatic
spending reductions to reduce the federal deficit, resulting in a uniform percentage reduction across all Medicare programs of 2% per fiscal year that
extends through the first seven months of 2032. These reductions apply to certain other federally funded healthcare programs, including TRICARE. As a
result of the ARPA, an additional Medicare payment reduction of up to 4% was required to take effect in January 2022, although Congress has delayed
implementation of this reduction until 2025. We anticipate that the federal deficit will continue to place pressure on government healthcare programs, and it
is possible that future deficit reduction legislation will impose additional spending reductions.
Medicaid. Medicaid is a program funded jointly by state and federal governments, and administered by the states, that provides hospital and medical
benefits to qualifying low-income individuals. Medicaid enrollment increased as a result of COVID-19 relief legislation that authorized a temporary
increase in federal funds for certain Medicaid expenditures in states that maintained continuous Medicaid enrollment, among other requirements. The end
of the continuous enrollment condition in 2023, including the resumption of redeterminations for Medicaid enrollees, has resulted in significant coverage
disruptions and dis-enrollments of enrollees, and Medicaid enrollment is generally expected to decline through fiscal year 2024 (which ends June 30, 2024,
in most states).
Most state Medicaid payments are made under a PPS or under programs that negotiate payment levels with individual hospitals. In addition to the base
payment rates for specific claims for services rendered to Medicaid enrollees, states utilize supplemental reimbursement programs to make separate
payments that are not specifically tied to an individual’s care. Supplemental payments may be in the form of Medicaid DSH payments, which are intended
to offset hospitals’ uncompensated care costs. Medicaid DSH payments as a percentage of our net operating revenues were 0.21% and 0.39% for the years
ended December 31, 2023 and 2022, respectively. The Affordable Care Act and subsequent legislation provide for reductions to the Medicaid DSH
program, but Congress has delayed the implementation of these reductions. Under current law, Medicaid DSH payments will be reduced by $8.0 billion for
the period from March 9, 2024 through September 30, 2024 and per year in each of federal fiscal years 2025 through 2027. Supplemental payments may
also be in the form of non-DSH payments, such as upper payment limit payments, which are intended to address the difference between Medicaid fee-for-
service payments and Medicare reimbursement rates, and payments under other programs that vary by state under Section 1115 waivers. These
supplemental reimbursement programs are generally authorized by CMS for a specified period of time and require CMS’s approval to be extended. CMS is
considering changes to both types of programs, and we are unable to predict whether or on what terms CMS will extend the supplemental programs in the
states in which we operate.
The federal government and many states are using or considering various strategies to reduce Medicaid expenditures, outside of the pandemic response.
In response to budgetary pressures, certain states in which we operate have adopted broad taxes on healthcare providers to fund the non-federal share of
Medicaid programs. In addition, many states currently operate, or have applied to CMS to operate, Medicaid programs under waivers to standard Medicaid
program requirements.
In recent years, aspects of existing or proposed Medicaid waiver programs have been subject to legal challenge, resulting in uncertainty. The prior
presidential administration increased state flexibility in the administration of Medicaid programs, including by allowing states to condition enrollment on
work or other community engagement or to use a block grant funding structure. However, the current presidential administration has implemented policies
intended to strengthen Medicaid programs. For example, it has rescinded approvals of waivers for work and community engagement requirements, which
have also been rejected by several courts, and is reexamining block grant funding structures. However, a federal court permitted Georgia to impose work
and community engagement requirements under a Medicaid demonstration program that launched in mid-2023.
TRICARE. TRICARE is the Department of Defense’s healthcare program for active duty service members of the armed forces and others, including
certain family members, retirees, and survivors. For inpatient services, TRICARE generally reimburses hospitals based on a DRG system modeled on the
Medicare inpatient PPS. For outpatient services, TRICARE reimburses hospitals based on a PPS that is similar to that utilized for services furnished to
Medicare beneficiaries.
Annual Cost Reports. Hospitals participating in the Medicare and some Medicaid programs, whether paid on a reasonable cost basis or under a PPS, are
required to meet specified financial reporting requirements. Federal and, where applicable, state regulations require submission of annual cost reports
identifying medical costs and expenses associated with the services provided by each hospital to Medicare beneficiaries and Medicaid recipients.
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Annual cost reports required under the Medicare and some Medicaid programs are subject to routine governmental audits. These audits may result in
adjustments to the amounts ultimately determined to be due to us under these reimbursement programs. Finalization of these audits often takes several
years. Providers can appeal any final determination made in connection with an audit.
Medicare and Medicaid Managed Care. Under the Managed Medicare program, also known as Medicare Part C, or Medicare Advantage, the federal
government contracts with private health plans to provide members with Medicare benefits. The plans may choose to offer supplemental benefits and
impose higher premiums and cost-sharing obligations. Similarly, managed Medicaid programs enable states to contract with private entities to handle
program responsibilities like care management and claims adjudication. Enrollment in Managed Medicare and managed Medicaid programs has increased
in recent years as the federal and state governments seek to control healthcare costs.
Medicare Administrative Contractors. CMS competitively bids the Medicare fiscal intermediary and Medicare carrier functions to Medicare
Administrative Contractors, or MACs, in 12 jurisdictions. Each MAC is geographically assigned and serves both Part A and Part B providers within a given
jurisdiction. Chain providers had the option of having all hospitals use one home office MAC, and we chose to do so. CMS periodically re-solicits bids, and
the MAC servicing a geographic area can change as a result of the bid competition. MAC transition periods can impact claims processing functions and the
resulting cash flow.
Medicare and Medicaid Integrity. CMS contracts with third parties to promote the integrity of the Medicare program through review of quality concerns
and detection of improper payments. Quality Improvement Organizations, or QIOs, for example, are groups of physicians and other healthcare quality
experts that work on behalf of CMS to ensure that Medicare pays only for goods and services that are reasonable and necessary and that are provided in the
most appropriate setting. Under the Recovery Audit Contractor, or RAC, program, CMS contracts with RACs nationwide to conduct post-payment reviews
to detect and correct improper payments in the Medicare program, as required by statute. RACs review claims submitted to Medicare for billing
compliance, including correct coding and medical necessity. Compensation for RACs is on a contingency basis and based upon the amount of
overpayments and underpayments identified, if any. CMS limits the number of claims that RACs may audit by limiting the number of records that RACs
may request from hospitals based on each provider’s claim denial rate for the previous year.
The RAC program’s scope also includes Medicaid claims. States may coordinate with Medicaid RACs regarding recoupment of overpayments and refer
suspected fraud and abuse to appropriate law enforcement agencies. Medicaid RAC programs vary by state in design and operation. Under the Medicaid
Integrity Program, CMS contracts with Unified Program Integrity Contractors, or UPICs, to perform audits, investigations and other integrity activities.
Working across five geographic jurisdictions, UPICs collaborate with states and coordinate provider investigations across the Medicare and Medicaid
programs.
We maintain policies and procedures to respond to the RAC requests and payment denials. Payment recoveries resulting from RAC reviews and denials
are appealable, and we pursue reversal of adverse determinations at appropriate appeal levels. In recent years, there have been significant delays in the
Medicare appeals process. However, HHS has taken steps to streamline the appeals process and, as of March 2023, it had nearly eliminated the backlog.
Nevertheless, we may experience significant delays in appealing any RAC payment denials. Depending upon the growth of RAC programs and our success
in appealing claims in future periods, our cash flows and results of operations could be negatively impacted.
Accountable Care Organizations. Accountable Care Organizations, or ACOs, have gained traction in both the public and private sectors. An ACO is a
network of providers and suppliers (including hospitals, physicians and other designated professionals) that work together to invest in infrastructure and
redesign delivery processes to achieve high quality and efficient delivery of services. ACOs are intended to produce savings as a result of improved quality
and operational efficiency. For example, the Medicare Shared Savings Program seeks to promote accountability and coordination of care for Medicare fee-
for-service beneficiaries through the creation of ACOs. Medicare-approved ACOs that achieve quality performance standards established by HHS are
eligible to share in a portion of the amounts saved by the Medicare program. HHS has significant discretion to determine key elements of Medicare ACO
programs. Certain waivers and exceptions are available from fraud and abuse laws for ACOs.
The Center for Medicare and Medicaid Innovation, or CMS Innovation Center, is responsible for establishing demonstration projects and other
initiatives in order to identify, develop, test and encourage the adoption of new methods of delivering and paying for healthcare that create savings under
the Medicare and Medicaid programs, while maintaining or improving quality of care. In a strategic report issued in 2021 and updated in 2022, the CMS
Innovation Center highlighted the need to accelerate the movement to value-based care and drive broader system transformation. By 2030, the CMS
Innovation Center aims to have all fee-for-service Medicare beneficiaries and most Medicaid beneficiaries in a care relationship with accountability for
quality and total cost of care. CMS also indicated it will streamline its payment model portfolio and consider how to ensure broad provider participation.
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Bundled Payment Initiatives. Providers participating in bundled payment initiatives accept accountability for costs and quality of care by agreeing to
receive one payment for services provided to Medicare patients for certain medical conditions or episodes of care. By rewarding providers for increasing
quality and reducing costs and penalizing providers if costs exceed a certain amount, bundled payment models are intended to lead to higher quality, more
coordinated care at a lower cost to the Medicare program. The CMS Innovation Center has implemented bundled payment models, including the Bundled
Payment for Care Improvement Advanced, or BPCI Advanced, initiative, which is expected to run through December 2025. Generally, participation in
bundled payment programs is voluntary, but CMS currently requires hospitals in selected markets to participate in bundled payment initiatives for specific
orthopedic procedures and end-stage renal disease treatment. A mandatory radiation oncology bundled payment model was expected to begin January 1,
2023, but CMS has delayed its implementation until a future date to be determined by the agency. CMS has indicated that it will provide six months’
notice before starting the model. In its 2021 strategy refresh, the CMS Innovation Center signaled its intent to increase provider participation through
implementation of more mandatory models. We expect value-based purchasing programs, including models that condition reimbursement on patient
outcome measures, to become more common with both governmental and non-governmental payors.
Commercial Insurance and Managed Care Companies. Our hospitals provide services to individuals covered by private healthcare insurance or by
health plans administered by managed care companies. These payors pay our hospitals or in some cases reimburse their policyholders based upon the
hospital’s established charges and the coverage provided in the insurance policy. Payors try to limit their costs by negotiating with hospitals and other
healthcare providers for discounts to established charges. Commercial insurers and managed care companies also seek to reduce payments to hospitals by
establishing payment rules that in effect re-characterize the services ordered by physicians. For example, some payors vigorously review each patient’s
length of stay in the hospital and re-characterize as outpatient all inpatient stays of less than a particular duration (e.g., 24 hours). Similarly, some payors
have prior authorization requirements designed to shift certain procedures to outpatient settings, where payment rates are typically lower. Reductions in
payments for services provided by our hospitals to individuals covered by these payors could adversely affect us.
Supply Contracts
We purchase items, primarily medical supplies, medical equipment and pharmaceuticals, under an agreement with HealthTrust, a GPO in which we are
a noncontrolling partner. The current term of this agreement expires in December 2024, with automatic renewal terms of one year unless either party
terminates by giving notice of non-renewal. As of December 31, 2023, we had a 12.6% ownership interest in HealthTrust. By participating in this
organization, we are able to procure items at competitively priced rates for our hospitals. There can be no assurance that our arrangement with HealthTrust
will continue to provide the discounts that we have historically received.
Competition
The hospital industry is highly competitive. The competition among hospitals and other healthcare providers, including urgent care centers and other
outpatient providers, for patients has intensified with the implementation of price transparency initiatives and as patients have become more conscious of
rising costs and quality of care in their healthcare decision-making process. The majority of our hospitals are located in generally larger non-urban service
areas in which we believe we are the primary, if not the sole, provider of general acute care health services. Those hospitals in non-urban service areas may
face limited or no direct competition because there are no other hospitals in their primary service areas. However, these hospitals face competition from
hospitals outside of their primary service area, including hospitals in urban areas that provide more complex services. Patients in those service areas may
travel to these other hospitals for a variety of reasons, including the need for services we do not offer, payor networks that exclude our providers or
physician referrals. Patients who are required to seek services from these other hospitals may subsequently shift their preferences to those hospitals for
services we do provide. Our other hospitals, in selected urban service areas, may face competition from hospitals that are more established than our
hospitals. Some of our competitors offer services, including extensive medical research and medical education programs, that are not offered by our
facilities. In addition, in certain markets where we operate, large teaching hospitals provide highly specialized facilities, equipment and services that may
not be available at our hospitals. We also face competition from other specialized care providers, including outpatient surgery, orthopedic, oncology and
diagnostic centers. Some competitors are implementing physician alignment strategies, such as employing physicians, acquiring physician practice groups,
and participating in ACOs or other clinical integration models. Cost-reduction strategies by large employer groups and their affiliates may increase this
competition. We believe that we will continue to face increased competition in outpatient service models that become more integrated through acquisitions
or partnerships between physicians, specialized care providers, and managed care payors.
In most markets in which we are not the sole provider of general acute care health services, our primary competitor is a municipal or not-for-profit
hospital. These hospitals are owned by tax-supported governmental agencies or not-for-profit entities supported by endowments and charitable
contributions. These hospitals are exempt from sales, property and income taxes. Such exemptions and support are not available to our hospitals and may
provide the tax-supported or not-for-profit entities an advantage in funding general and capital expenditures and offering services more specialized than
those available at our hospitals.
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The number and quality of the physicians on a hospital’s staff is an important factor in a hospital’s competitive position. Physicians decide whether a
patient is admitted to the hospital and the procedures to be performed. Admitting physicians may be on the medical staffs of other hospitals in addition to
those of our hospitals. We attempt to attract our physicians’ patients to our hospitals by offering quality services and facilities, convenient locations and
state-of-the-art equipment.
Trends towards transparency and value-based purchasing may impact our competitive position, ability to obtain or maintain favorable contract terms
and patient volumes. CMS publicizes on its Care Compare website data that hospitals submit in connection with Medicare reimbursement claims, including
performance data related to quality measures and patient satisfaction surveys. The quality measures that must be reported by providers, some of which
impact reimbursement under value-based purchasing initiatives, continue to evolve. In addition, hospitals are required to publish online a list of their
standard charges for all items and services, including gross charges, discounted cash prices and payor-specific and de-identified negotiated charges, in a
machine-readable, publicly accessible online file. Hospitals are also required to publish a consumer-friendly list of standard charges for certain “shoppable”
services (i.e., services that can be scheduled by a patient in advance) and any associated ancillary services or, alternatively, maintain an online price
estimator tool. Further, CMS requires most health insurers to publish online charges negotiated with providers for healthcare services. Starting January 1,
2024, most health insurers must also provide online price comparison tools to help individuals get personalized cost estimates for all covered items and
services. In addition, the No Surprises Act requires providers to send to an insured patient’s health plan a good faith estimate of the expected charges for
scheduled items or services, including billing and diagnostic codes, prior to the scheduled date of the items or services. The estimate must cover any item or
service that is reasonably expected to be provided together with the primary items or services, including those that may be provided by other providers. For
uninsured or self-pay patients, providers must provide a good faith estimate of expected charges for scheduled items or services, in advance of the date of
the scheduled item or service or upon request of the individual. If the actual charges to an uninsured or self-pay patient exceed the estimate by an amount
determined by regulation to be substantial (currently $400), the patient may invoke a patient-provider dispute resolution process established by regulation
to challenge the higher amount. HHS is deferring enforcement of portions of the good faith estimate requirements until it issues additional regulations.
Compliance Program
We take an operations team approach to compliance and utilize corporate experts for program design efforts and facility leaders for employee-level
implementation. We believe compliance is another area that demonstrates our utilization of standardization and centralization techniques and initiatives,
which yield efficiencies and consistency throughout our facilities. We recognize that our compliance with applicable laws and regulations depends on
individual employee actions as well as company operations. Our approach focuses on integrating compliance responsibilities with operational functions.
This approach is intended to reinforce our company-wide commitment to operate strictly in accordance with the laws and regulations that govern our
business.
Our company-wide compliance program has been in place since 1997. Currently, the program’s elements include leadership, management and oversight
at the highest levels, a Code of Conduct, risk area specific policies and procedures, employee education and training, an internal system for reporting
concerns, auditing and monitoring programs and a means for enforcing the program’s policies.
The compliance program continues to be expanded and developed to meet the industry’s expectations and our needs. Specific written policies,
procedures, training and educational materials and programs, as well as auditing and monitoring activities, have been prepared and implemented to address
the functional and operational aspects of our business. Included within these functional areas are materials and activities for business sub-units, including
laboratory, radiology, pharmacy, emergency, surgery, observation, home care, skilled nursing and clinics. Specific areas identified through regulatory
interpretation and enforcement activities have also been addressed in our program. Claims preparation and submission, including coding, billing and cost
reports, comprise the bulk of these areas. Financial arrangements with physicians and other referral sources, including compliance with the federal Anti-
Kickback Statute and the Stark Law, emergency department treatment and transfer requirements and other patient disposition issues, are also the focus of
policy and training, standardized documentation requirements and review and audit. Another focus of the program is the interpretation and implementation
of the HIPAA standards for privacy and security.
We have a Code of Conduct, which applies to all directors, officers, employees and consultants, and a confidential disclosure program to enhance the
statement of ethical responsibility expected of our employees and business associates who work in the accounting, financial reporting and asset
management areas of our Company. Our Code of Conduct is posted on our website at www.chs.net/company-overview/code-of-conduct.
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Human Capital
Overview
At December 31, 2023, we had approximately 61,000 employees, including approximately 13,000 part-time employees. References herein to
“employees” refer to employees of our affiliates. We are subject to various state and federal laws that regulate wages, hours, benefits and other terms and
conditions relating to employment. At December 31, 2023, certain employees at three of our hospitals are represented by various labor unions. It is possible
that union organizing efforts will take place at additional hospitals in the future. We consider our employee relations to be good and have not experienced
work stoppages that have materially, adversely affected our business or results of operations.
Our industry has been facing unprecedented workforce challenges, which have given rise to significant operating issues for healthcare providers. To
address this challenge, we have implemented several initiatives to improve retention, recruiting, compensation programs and productivity. An area that has
been particularly challenging for providers is registered nurse, or RN, recruitment and retention. We had a centralized clinical recruiting function in place
for a limited number of our markets beginning in 2018 which has now been expanded to cover all of our health systems. Our team of recruiters and sourcers
began focusing primarily on bedside nursing roles, but they also recruit for licensed practical nurse, case management, and director level positions. Given
the success we have had with recruitment of these roles, we have expanded the function to also cover difficult-to-fill allied health positions. Since we have
implemented our centralized recruiting function, we have seen an increase in clinical position hires and a decreased time-to-fill for these key patient care
roles, which has decreased our level of reliance on higher cost contract labor. In addition to these efforts, we have been working to bring international RNs
through the visa process to our hospitals. We have significantly expanded this effort by working with various outside firms specializing in international
recruitment, and we are also offering a direct-to-hire model. We believe that these efforts will aid in our ability to take patient transfer requests, shorten
emergency department wait times and lessen dependency on high cost contract labor. Finally, we have expanded our hospital-based nursing programs
through our partnership with Jersey College and have eight campuses open in six states. Partnerships with other local nursing programs have also been
strengthened across the enterprise to expand clinical faculty and increase enrollment.
Due to the challenges noted above and other factors, our hospitals and other healthcare facilities, like many other healthcare providers, have experienced
increased labor costs. We may be required to continue to enhance wages and benefits to recruit and retain nurses and other medical support personnel or to
hire more expensive temporary or contract personnel. We also depend on the available labor pool of semi-skilled and unskilled employees in each of the
markets in which we operate. In some of our markets, employers across various industries have increased their wages for these roles, which has created
more competition for this sector of employees. As a result of these and other factors, our labor costs could continue to increase. Moreover, potential
changes to federal labor laws and regulations, including those supported by the current presidential administration, could increase the likelihood of
employee unionization activity and the ability of employees to unionize. The extent of unionization may affect labor costs in the future. In addition, the
states in which we operate could adopt mandatory nurse-staffing ratios or could revise mandatory nurse-staffing ratios already in place. State-mandated
nurse-staffing ratios or other measures to regulate staffing could significantly affect labor costs and have an adverse impact on revenues if we are required
to limit patient admissions in order to comply with such requirements.
Our hospitals are staffed by licensed physicians, including both employed physicians and physicians who are not employees of our hospitals. Some
physicians provide services in our hospitals under contracts, which generally describe a term of service, provide and establish the duties and obligations of
such physicians, require the maintenance of certain performance criteria and fix compensation for such services. Any licensed physician may apply to be
accepted to the medical staff of any of our hospitals, but the hospital’s medical staff and the appropriate governing board of the hospital, in accordance with
established credentialing criteria, must approve acceptance to the staff. Members of the medical staffs of our hospitals often also serve on the medical staffs
of other hospitals and may terminate their affiliation with one of our hospitals at any time.
We believe that our employees are vital contributors to our success, and we devote significant resources to recruit, retain and develop our workforce.
Certain areas of focus in this regard are summarized below.
Diversity, Equity and Inclusion
We believe that a diverse workforce is a catalyst for positive and consistent patient outcomes and high quality care. With inclusion as our strategy,
diversity and equity are the outcomes we expect. Our objective is to recruit and retain a diverse population of employees with respect to their experiences,
education, socioeconomic status, race, color, ethnicity, religion, national origin, disability, culture, sexual orientation and gender identity or expression that
are reflective of the communities we serve. As of December 31, 2023, approximately 80% of our employees were women and approximately 29% were
people of color.
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As we strive to deepen our culture of inclusion, our goal is to strengthen our individual and collective cultural competence through both formal training
and development programs and by informally sharing lived experiences and relating to one another. We are committed to building a diverse talent pipeline
through a variety of venues and programs such as internships, residencies, mentorship programs and by partnering with diverse professional organizations.
We formed the Diversity Leadership Committee in 2021, which has undertaken various actions with respect to diversity, equity and inclusion objectives
such as retaining and developing high potential employees, improving patient experience and outcomes and increasing supplier diversity. We intend to
leverage data to inform and measure the effectiveness of our diversity, equity and inclusion efforts over time.
Training and Talent Development
The delivery of high quality patient care is predicated on proper education and continued training. We provide a wide range of development programs
and resources to support our employees, including temporary and contract personnel. In this regard, our talent development strategy is facilitated through
our Advanced Learning Center platform, or ALC, a web-based portal, which provides employees and contractors access to computer based training courses
as well as instructor-led classes. Our ALC provides training in many areas, including clinical, compliance, information technology, employee development,
health information management, human resources, workplace safety and security, as well as hands-on resuscitation skills training. We offer continuing
education credits for many of these disciplines. We are committed to continue to offer a quality library of training courses, which, at present, consists of
approximately 9,300 courses published companywide, with a significant number of additional courses published at local facility levels.
The quality of our training is assured through a robust annual course review process. Each course is reviewed by the author or subject matter expert for
current accuracy of content, relevancy and utilization. Updates are made based on current standards as well as feedback from individuals who complete the
courses. Under the direction of our senior leadership, some courses are assigned to learners based on their role in our organization. The vast majority of the
library is available for self-enrollment by our employees at no additional cost to the learner.
We also provide a wide range of other development programs and resources as part of our Pathways benefit offering. Pathways includes an expanded
tuition reimbursement program for all staff looking to further their education in any discipline offered by our health systems, a new student loan repayment
program for numerous key clinical roles and reimbursement for licenses and certifications that are required for each individual role. We operate nursing
school programs on some of our hospital campuses and partner with nursing schools in many of our communities, as a way to provide educational
pathways to those desiring to become professional nurses; an executive development program, which identifies and develops qualified personnel for
leadership-level positions at our healthcare facilities; our Community Leadership Excellence and Development Series, or LEADS, which is a proprietary
training program for directors, managers and supervisors at our hospitals and corporate offices; and residency training programs.
Employee Safety
The safety of our employees is of the utmost importance and is key to the continuous delivery of high quality patient care. We strive to protect our
employees through continued communication, data analysis, equipment evaluation and education. Leadership methods, which employ a “safety-first”
mindset, are practiced in our hospitals, including in safety huddles performed regularly by personnel at our hospitals. Each huddle consists of a three-part
agenda: (1) a look back at any significant safety or quality issues in the past 24 hours, (2) a look ahead to any anticipated safety or quality issues in the next
24 hours, and (3) a follow-up on safety critical issues requiring a rapid response.
Environmental Matters
We are subject to a number of federal, state and local environmental laws, rules and regulations that govern, among other things, our disposal of
medical waste, as well as our use, storage, transportation and disposal of hazardous and toxic materials. In addition, we could be affected by climate change
to the extent that climate change results in severe weather conditions or other disruptions impacting the communities in which our facilities are located or
adversely impacts general economic conditions, including in communities in which our facilities are located. Moreover, legal requirements regulating
greenhouse gas emissions and energy inputs or otherwise associated with the transition to a lower carbon economy may increase in the future, which could
increase our costs associated with compliance and otherwise disrupt and adversely affect our operations.
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At the current time, our compliance with environmental legal requirements, including legal requirements relating to climate change, does not have a
material effect on our capital expenditures, financial results or operations. However, it is possible that future environmental-related developments may
impact us, including as a result of climate change and/or new legal requirements associated with the transition to a lower carbon economy, in a manner that
we are currently unable to predict.
We recognize the environment is an exhaustible resource and the importance of using the environment and its resources responsibly. We have taken
actions with respect to various sustainability matters with a focus on the reduction of our carbon footprint, water and energy usage and material waste. For
additional information about our ongoing environmental sustainability actions and practices, refer to our most recent Environmental Sustainability Report,
which is available in the Company Overview-Sustainability section of our website. Notwithstanding the foregoing, the information on our website,
including our most recent Environmental Sustainability Report, is not incorporated by reference into this Form 10-K.
Professional Liability Claims
As part of our business of owning and operating hospitals, we are subject to legal actions alleging liability on our part. To cover claims arising out of the
operations of hospitals, we maintain professional liability insurance and general liability insurance on a claims-made basis in excess of those amounts for
which we are self-insured, in amounts we believe to be sufficient for our operations. We also maintain umbrella liability coverage for claims, which, due to
their nature or amount, are not covered by our other insurance policies. However, our insurance coverage does not cover all claims against us or may not
continue to be available at a reasonable cost for us to maintain adequate levels of insurance. For a further discussion of our insurance coverage, see our
discussion of professional liability claims in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7
of this Form 10-K.
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Item 1A. Risk Factors
Our business faces a variety of risks. If any of the events or circumstances described in any of the following risk factors occurs, our business, results of
operations or financial condition could be materially and adversely affected, and our actual results may differ materially from those predicted in any
forward-looking statements we make in any public disclosures. The considerations and risks that follow are organized within relevant headings but may be
relevant to other headings as well. Additional factors that could affect our business, results of operations and financial condition are discussed elsewhere in
this Report (including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Form 10-K).
Moreover, risks or uncertainties not presently known to us, or that we currently deem immaterial, also may adversely affect our business, results of
operations and financial condition.
Summary of Risk Factors
The following is a summary of the risk factors set forth below.
Risks Related to Our Indebtedness
• Our indebtedness could adversely affect our ability to meet obligations under existing indebtedness or raise additional capital.
• We may be able to incur substantially more debt.
• We may not be able to generate sufficient cash to service all of our indebtedness.
• We have a substantial amount of indebtedness with certain series of our outstanding notes and other debt scheduled to mature in close proximity to
each other.
• Restrictive covenants in the agreements governing our indebtedness may adversely affect us.
• Higher interest rates could adversely impact us.
•
If we are unable to make payments on our indebtedness, we could be in default under the terms of our indebtedness agreements.
Risks Related to Economic Conditions
• Our financial results have been, and may continue to be, adversely impacted by negative macroeconomic conditions.
Risks Related to Our Business
•
If we are unable to complete divestitures as advisable, our performance could be adversely affected.
• The impact of past acquisitions, as well as potential future acquisitions, could have a negative effect on our operations.
•
If we are unable to effectively compete, patients could use other hospitals and healthcare providers.
• We may be adversely affected by consolidation among health insurers and other industry participants.
• The failure to obtain our medical supplies at favorable prices could cause our operating results to decline.
• Our revenues may decline if reimbursement rates are reduced or if we do not maintain favorable contract terms with payors.
• Growth in self-pay volume or deterioration in collectability could adversely affect our financial performance.
•
Some of the non-urban communities in which we operate face challenging economic conditions.
• The demand for our services can be impacted by factors beyond our control.
• A deterioration of public health conditions associated with COVID-19, or a future pandemic, epidemic or outbreak of an infectious disease could
adversely impact our business.
• The industry trend towards value-based purchasing may negatively impact our business.
• Our revenues are somewhat concentrated in a relatively small number of states.
Risks Related to Human Capital
• Our performance depends on our ability to recruit and retain quality physicians.
• Our labor costs have been, and may continue to be, adversely affected by competitive labor market conditions and the shortage of qualified nurses
and other healthcare personnel.
• We may be unable to attract, hire and retain a highly qualified and diverse workforce, including key management.
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• We may be adversely impacted by the inability of third parties with whom we contract to provide hospital-based physicians as the result of industry-
wide disruptions in the market for outsourced medical specialists.
Risks Related to Legal Proceedings
• We are the subject of various legal, regulatory and governmental proceedings.
• We could be subject to substantial uninsured liabilities or increased insurance costs as a result of significant legal actions.
Risks Related to Government Regulation
• Our business may be adversely impacted by health reform initiatives.
•
If we fail to comply with extensive laws and regulations, we could suffer penalties or be required to make changes to our operations.
• Any failure to comply with legal requirements governing the privacy and security of health information could adversely affect us.
• Healthcare technology initiatives, particularly those related to sharing patient data and interoperability, may adversely affect our operations.
•
State efforts to regulate the construction, acquisition or expansion of healthcare facilities could adversely impact us.
• We may incur additional tax liabilities.
Risks Related to Impairment
•
If the fair value of our reporting unit declines, a material non-cash charge to earnings from impairment of our goodwill could result.
• A significant decline in operating results at one or more of our facilities could result in an impairment in the fair value of our long-lived assets.
Risks Related to Cybersecurity and Technology
• Our operations could be significantly impacted by interruptions or restrictions in access to our information systems.
• A cyber-attack or security breach could harm our business and patients and expose us to liability.
•
•
If we fail to comply with technology agreements, we may be required to pay damages and could lose license rights.
If the redesign and consolidation of key business functions, including through the implementation of a core enterprise resource planning system does
not proceed as expected or is not completed successfully, our business and financial results may be adversely impacted.
For a more complete discussion of these risk factors, see below.
Risks Related to Our Indebtedness
Our level of indebtedness could adversely affect our ability to refinance existing indebtedness or raise additional capital to fund our operations, limit
our ability to react to changes in the economy or our industry and prevent us from meeting our obligations under the agreements related to our
indebtedness.
We have a significant amount of indebtedness, which is more fully described in the Liquidity and Capital Resources section of “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Form 10-K and Note 6 of the Notes to Consolidated
Financial Statements included under Part II, Item 8 of this Form 10-K. The maximum aggregate principal amount under the ABL Facility is $1.0 billion,
subject to borrowing base capacity. At December 31, 2023, we had outstanding borrowings of $247 million and approximately $637 million of additional
borrowing capacity (after taking into consideration $81 million of outstanding letters of credit) under the ABL Facility.
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Our substantial leverage could have important consequences, including the following:
•
•
•
•
•
•
it may limit our ability to refinance existing indebtedness or obtain additional debt or equity financing for working capital, capital expenditures, debt
service requirements, acquisitions and general corporate or other purposes;
a substantial portion of our cash flows from operations will be dedicated to the payment of principal and interest on our indebtedness and will not be
available for other purposes, including to fund our operations, capital expenditures, financial obligations and future business opportunities;
some of our borrowings, including any borrowings under the ABL Facility, accrue interest at variable rates, exposing us to the risk of increased
interest rates, which risk is heightened by the current high interest rate environment;
it may limit our ability to make strategic acquisitions or cause us to make nonstrategic divestitures;
it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that are less
highly leveraged; and
it may increase our vulnerability in connection with adverse changes in general economic, industry or competitive conditions, or government
regulations or other adverse developments.
Despite current indebtedness levels, we may still be able to incur substantially more debt. This could further exacerbate the risks described in this
section.
We and our subsidiaries have the ability to incur substantial additional indebtedness in the future, subject to restrictions contained in the ABL Facility
and the indentures governing our outstanding notes. The maximum aggregate principal amount under the ABL Facility is $1.0 billion, subject to borrowing
base capacity. At December 31, 2023, we had outstanding borrowings of $247 million and approximately $637 million of additional borrowing capacity
(after taking into consideration $81 million of outstanding letters of credit) under the ABL Facility. The aggregate amount we may draw under the ABL
Facility may not exceed the “borrowing base” (as calculated thereunder) less outstanding letters of credit thereunder, which fluctuates from time to time.
Aside from the ABL Facility, our ability to incur other additional secured debt (other than secured debt used to refinance existing secured debt) is highly
limited by certain of the indentures governing our outstanding notes. If additional indebtedness is added to our current debt levels, the related risks that we
currently face related to indebtedness as noted in this section could increase.
We may not be able to generate sufficient cash to service all of our indebtedness, and we may be forced to take other actions to satisfy our obligations
under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our indebtedness depends on our financial and operating performance, which is subject to
prevailing economic and competitive conditions and to financial, business, regulatory and other factors beyond our control. We cannot assure you that we
will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
In addition, the borrower under the ABL Facility and issuer of our outstanding notes is a holding company with no direct operations. Its principal assets
are the equity interests we hold in our operating subsidiaries. As a result, we are dependent upon dividends and other payments from our subsidiaries to
generate the funds necessary to meet our outstanding debt service and other obligations. Our subsidiaries may not generate sufficient cash from operations
to enable us to make principal and interest payments on our indebtedness. In addition, any payments of dividends, distributions, loans or advances to us by
our subsidiaries could be subject to legal and contractual restrictions.
Our subsidiaries are permitted under the terms of our indebtedness to incur additional indebtedness that may restrict payments from those subsidiaries to
us. The agreements governing the current and future indebtedness of our subsidiaries may not permit those subsidiaries to provide us with sufficient cash to
fund payments on our indebtedness when due. Our non-guarantor subsidiaries are separate and distinct legal entities, and they have no obligation,
contingent or otherwise, to pay amounts due under the terms of our indebtedness or to make any funds available to pay those amounts, whether by
dividend, distribution, loan or other payment. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face
substantial liquidity problems and may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or
refinance our indebtedness. Our ability to refinance our indebtedness on favorable terms, or at all, is directly affected by the then current macroeconomic
conditions, financial and capital market conditions as well as the then current interest rate environment. In addition, our ability to incur additional secured
indebtedness (which would generally enable us to achieve better pricing than the incurrence of unsecured indebtedness) depends in part on the value of our
assets, which depends, in turn, on the strength of our cash flows and results of operations, and on economic and market conditions and other factors. We
may find it necessary or prudent to refinance certain of our outstanding indebtedness, the terms of which may not be favorable to us.
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We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled
debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including the ABL Facility and
the indentures governing our outstanding notes. For example, the ABL Facility and the indentures governing our outstanding notes restrict our ability to
dispose of certain assets and use the proceeds from any dispositions. We may not be able to consummate those dispositions and any proceeds we receive
may not be adequate to meet any debt service obligations then due.
We have a substantial amount of indebtedness under certain series of our outstanding notes and other debt scheduled to mature in close proximity to
each other.
As further described in the Liquidity and Capital Resources section of “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Part II, Item 7 of this Form 10-K and Note 6 of the Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form
10-K, we have a substantial amount of indebtedness under certain series of our outstanding notes and other debt scheduled to mature in close proximity to
each other. As a result, we may not have sufficient cash to repay all amounts owing under such indebtedness and there can be no assurance that we will
have the ability to borrow or otherwise raise the amounts necessary to repay all such amounts, and the prior maturity of such other substantial indebtedness
may make it difficult to refinance the notes or repay them at maturity. Our ability to refinance our indebtedness on favorable terms, or at all, is dependent
on (among other things) conditions in the credit and capital markets, which are beyond our control.
Restrictive covenants in the agreements governing our indebtedness may adversely affect us.
The ABL Facility and the indentures governing our outstanding notes contain various covenants that limit our ability to take certain actions, including
our ability to:
•
•
•
incur, assume or guarantee additional indebtedness;
issue redeemable stock and preferred stock;
repurchase capital stock;
• make restricted payments, including paying dividends and making certain loans, acquisitions and investments;
•
•
•
•
•
redeem subordinated debt;
create liens;
sell or otherwise dispose of assets, including capital stock of subsidiaries;
impair security interests;
enter into agreements that restrict dividends and certain other payments from subsidiaries;
• merge, consolidate, sell or otherwise dispose of substantially all our assets;
•
•
enter into transactions with affiliates; and
guarantee certain obligations.
In addition, the ABL Facility contains restrictive covenants and may, in certain circumstances, require us to maintain a specified financial ratio and
satisfy other financial condition tests. Our ability to meet these restrictive covenants and financial ratio and tests (if applicable) may be affected by events
beyond our control, and we cannot assure you that we will meet those tests.
In addition, our ability to incur additional secured debt (other than (i) secured debt to refinance existing secured debt and (ii) indebtedness incurred
under our ABL Facility) is highly limited.
A breach of any of these covenants could result in a default under the ABL Facility and the indentures governing our outstanding notes. Upon the
occurrence of an event of default under the ABL Facility or any of the indentures governing our outstanding notes, all amounts outstanding under the
applicable indebtedness may become immediately due and payable and all commitments under the ABL Facility to extend further credit may be terminated.
If we were unable to repay those amounts, the holders of such indebtedness could, subject to applicable intercreditor agreements, proceed against the
collateral granted to them to secure that indebtedness. If holders of any of our indebtedness accelerate the maturity date of any of our indebtedness, we
cannot assure you that we will have sufficient assets to repay the indebtedness that has been accelerated (and all other indebtedness that is also accelerated
by virtue of applicable cross-acceleration provisions in the agreements governing our indebtedness).
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Higher interest rates could increase the cost of refinancing our indebtedness and could cause our debt service obligations to increase significantly.
The current high interest rate environment could adversely impact us. If interest rates remain at their current elevated levels or continue to increase, this
could adversely impact our ability to refinance existing indebtedness or obtain additional debt financing on acceptable terms or at all, and otherwise could
increase our debt service obligations in connection with future debt refinancings. In addition, any borrowings under the ABL Facility are at variable rates of
interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on such variable rate indebtedness would increase even
though the amount borrowed remained the same, and our net income would decrease. As of December 31, 2023, we had outstanding borrowings of $247
million under the ABL Facility.
If we default on our obligations to pay our indebtedness, or if we otherwise fail to comply with the various covenants in the instruments governing our
indebtedness, we could be in default under the terms of the agreements governing our indebtedness.
If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if
any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the
instruments governing our indebtedness, including covenants in the ABL Facility and the indentures governing our outstanding notes, we could be in
default under the terms of the agreements governing such indebtedness. In the event of any default, the holders of such indebtedness could elect to declare
all the funds borrowed to be immediately due and payable, together with accrued and unpaid interest; the lenders under the ABL Facility could elect to
terminate their commitments thereunder, cease making further loans and direct the applicable collateral agents to institute foreclosure proceedings against
our assets; and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from
the required lenders under the ABL Facility to avoid being in default. If we breach our covenants under the ABL Facility and seek a waiver, we may not be
able to obtain a waiver from the required lenders. If this occurs, we would be in default under the ABL Facility, the lenders could exercise their rights, as
described above, and we could be forced into bankruptcy or liquidation.
Risks Related to Economic Conditions
Our financial results have been, and may continue to be, adversely impacted by negative macroeconomic conditions.
Economic conditions in the United States continue to be challenging in various respects, and the United States economy continues to experience
significant inflationary pressures, elevated interest rates, challenging labor market conditions, and possible adverse effects associated with current
geopolitical instability. Taking into account these factors, we have incurred in certain recent periods, and may continue to incur, increased expenses arising
from factors such as wage inflation for permanent employees, increased rates for and utilization of temporary contract labor (including contract nursing
personnel), and increased rates for outsourced medical specialists. Moreover, if economic conditions in the United States significantly deteriorate, any such
developments could materially and adversely affect our results of operations, financial position, and/or our cash flows.
Other risks we face during periods of economic weakness include potential declines in the population covered under commercial insurance agreements,
increased patient decisions to postpone or cancel elective and non-emergency healthcare procedures (including delaying surgical procedures), which may
lead to poorer health and higher acuity interventions, potential increases in the uninsured and underinsured populations, increased adoption of health plan
structures that shift financial responsibility to patients, and increased difficulties in collecting patient receivables for copayment and deductible receivables.
In addition, negative macroeconomic conditions in the United States have resulted in, and may continue to result in, increased budget deficits at federal,
state and local governmental levels, which may continue to negatively impact spending for health and human services programs, including Medicare,
Medicaid and similar programs, which represent significant third-party payor sources for our healthcare facilities. Moreover, it is difficult to predict
whether, when, or what additional deficit reduction initiatives may be proposed by Congress, but future legislation may include additional Medicare
spending reductions, which may adversely affect our business and financial results due to our reliance on Medicare payments. Further, there is ongoing
uncertainty regarding the federal budget and federal spending levels, including the possible impacts of a failure to increase the “debt ceiling.” Any U.S.
government default on its debt could have broad macroeconomic effects. In addition, negative macroeconomic conditions in the United States (including
elevated interest rates) have had, and may continue to have, an adverse impact on capital market conditions, which could limit our ability to refinance
existing indebtedness or obtain additional debt or equity financing on acceptable terms or at all.
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Risks Related to Our Business
If we are unable to complete divestitures as we may deem advisable, our results of operations and financial condition could be adversely affected.
We have divested certain of our hospitals and non-hospital businesses in recent years, and may give consideration to divesting certain additional
hospitals and non-hospital businesses. For a description of recent divestitures, see “Acquisition, Divestiture and Closure Activity” under Part II, Item 7 of
this Form 10-K. Generally, these hospitals and non-hospital businesses are not in one of our strategically beneficial service areas, are less complementary to
our business strategy and/or have lower operating margins. In addition, we continue to receive interest from potential acquirers for certain of our hospitals
and non-hospital businesses. As such, we may sell additional hospitals and/or non-hospital businesses if we consider any such disposition to be in our best
interests. However, there is no assurance that potential divestitures will be completed or, if they are completed, the aggregate amount of proceeds we will
receive, that potential divestitures will be completed within our targeted timeframe, or that potential divestitures will be completed on terms favorable to us.
Moreover, the current negative macroeconomic environment may make it more difficult for us to complete divestitures on acceptable terms, or at all.
Additionally, the results of operations for these hospitals and non-hospital businesses that we may divest and the potential gains or losses on the sales of
those businesses may adversely affect our results of operations. We may also incur asset impairment charges related to potential or completed divestitures
that reduce our profitability. In addition, after entering into a definitive agreement, we may be subject to the satisfaction of pre-closing conditions as well as
necessary regulatory and governmental notices and approvals, which, if not satisfied or obtained, may prevent us from completing the sale. Divestitures
may also involve continued financial exposure related to the divested business, such as through indemnities or retained obligations, that present risk to us.
Any future divestiture activities may present financial, managerial, and operational risks. Those risks include diversion of management attention from
improving existing operations; additional restructuring charges and the related impact from separating personnel, renegotiating contracts, and restructuring
financial and other systems; adverse effects on existing business relationships with patients and third-party payors; and the potential that the collectability
of any patient accounts receivable retained from any divested hospital may be adversely impacted. Any of these factors could adversely affect our financial
condition and results of operations.
The impact of past acquisitions, as well as potential future acquisitions, could have a negative effect on our operations.
Our business strategy has historically included growth by acquisitions, and we may complete additional acquisitions in the future. However, not-for-
profit hospital systems and other for-profit hospital companies generally attempt to acquire the same type of hospitals as we may desire to acquire. Some of
the competitors for our acquisitions have greater financial resources than we have. Furthermore, some hospitals are sold through an auction process, which
may result in higher purchase prices than we believe are reasonable. Therefore, we may not be able to acquire additional hospitals on terms favorable to us.
In addition, many of the hospitals we have previously acquired have had lower operating margins than we do and operating losses incurred prior to the
time we acquired them. Hospitals or other businesses acquired in the future may have similar financial performance issues. In the past, we have experienced
delays in improving the operating margins or effectively integrating the operations of certain acquired hospitals and other businesses. In the future, if we are
unable to improve the operating margins of acquired hospitals or other businesses, operate them profitably, or effectively integrate their operations, our
results of operations and business may be adversely affected.
Moreover, hospitals or other businesses that we have acquired, or in the future could acquire, may have unknown or contingent liabilities, including
liabilities associated with ongoing legal proceedings or for failure to comply with healthcare laws and regulations. Although we generally seek
indemnification from sellers covering these matters, we may nevertheless have material liabilities for past activities of acquired hospitals.
If we are unable to effectively compete, patients could use other hospitals and healthcare providers, and our business may be adversely impacted.
The healthcare industry is highly competitive among hospitals and other healthcare providers, such as urgent care centers and other outpatient providers
and other industry participants, for patients, affiliations with physicians and acquisitions. Changes in licensure or other regulations, recognition of new
provider types or payment models, and industry consolidation could negatively impact our competitive position. For example, in states with certificate of
need or similar prior approval requirements, removal of these requirements could remove barriers to entry and increase competition in our service areas.
Our hospitals, our competitors, and other healthcare industry participants are increasingly implementing physician alignment strategies, such as acquiring
physician practice groups, employing physicians and participating in ACOs or other clinical integration models. Increasing consolidation within the
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payor industry, vertical integration efforts involving payors and healthcare providers, and cost-reduction strategies by payors, large employer groups and
their affiliates may impact our ability to contract with payors on favorable terms, participate in favorable payment tiers or provider networks, and otherwise
affect our competitive position. Legislative and regulatory initiatives, such as changes in Texas law that eliminated restrictions on tiered networks and
steering patients to particular providers, may accelerate or otherwise impact these trends.
The majority of our hospitals are located in generally larger non-urban service areas in which we believe we are the primary, if not the sole, provider of
general acute care health services. As a result, the most significant competition for providers of general acute care services are hospitals outside of our
primary service areas, typically hospitals in larger urban areas that provide more complex services. Patients in our primary service areas may travel to other
hospitals because of physician referrals, payor networks that exclude our providers or the need for services we do not offer, among other reasons. Patients
who receive services from these other hospitals may subsequently shift their preferences to those hospitals for the services we provide.
Our other hospitals, in selected urban service areas, may face competition from hospitals that are more established than our hospitals. Some of our
competitors offer services, including extensive medical research and medical education programs, that are not offered by our facilities. In addition, in
certain markets where we operate, there are large teaching hospitals that provide highly specialized facilities, equipment and services that may not be
available at our hospitals. We also face competition from other specialized care providers, including outpatient surgery, orthopedic, oncology and diagnostic
centers.
At December 31, 2023, 43 of our hospitals competed with one or more non-affiliated hospitals in their respective primary service areas. In most markets
in which we are not the sole provider of general acute care health services, our primary competitor is a municipal or not-for-profit hospital. These hospitals
are owned by tax-supported governmental agencies or not-for-profit entities supported by endowments and charitable contributions. These hospitals are
exempt from sales, property and income taxes. Such exemptions and support are not available to our hospitals and may provide the tax-supported or not-
for-profit entities an advantage in funding general and capital expenditures and offering services more specialized than those available at our hospitals. If
our competitors are better able to attract patients with these offerings, we may experience an overall decline in patient volume.
Trends toward transparency and value-based purchasing may have an impact on our competitive position, ability to obtain and maintain favorable
contract terms, and patient volumes in ways that are difficult to predict. The CMS Care Compare website makes available to the public certain data that
hospitals submit in connection with Medicare reimbursement claims, including performance data related to quality measures and patient satisfaction
surveys. Further, every hospital must establish and update annually a public, online listing of the hospital’s standard charges for all items and services,
including discounted cash prices and payor-specific charges, and must also publish a consumer-friendly list of standard charges for certain “shoppable”
services or, alternatively, maintain an online price estimator tool for the shoppable services. HHS also requires health insurers to publish online charges
negotiated with providers for healthcare services, and health insurers must provide online price comparison tools to help individuals get personalized cost
estimates for all covered items and services. If any of our hospitals achieve poor results (or results that are lower than our competitors) on the quality
measures or on patient satisfaction surveys, or if our standard charges are higher than our competitors, we may attract fewer patients.
The No Surprises Act creates additional price transparency requirements that may impact our competitive position, including requiring providers to
send uninsured or self-pay patients and health plans of insured patients a good faith estimate of the expected charges and diagnostic codes prior to the
scheduled date of the service or item or upon request. Until HHS issues additional regulations, HHS is deferring enforcement of portions of the good faith
estimate requirements. It is unclear how price transparency requirements and similar initiatives will affect consumer behavior, our relationships with
payors, or our ability to set and negotiate prices.
We expect these competitive trends to continue. If we are unable to compete effectively with other hospitals and other healthcare providers, patients
may seek healthcare services at providers other than our hospitals and affiliated businesses.
We may be adversely affected by consolidation among health insurers and other industry participants.
In recent years, a number of health insurers have merged or increased efforts to consolidate with other non-governmental payors. Insurers are also
increasingly pursuing alignment initiatives with healthcare providers. Consolidation within the health insurance industry may result in insurers having
increased negotiating leverage and competitive advantages, such as greater access to performance and pricing data. Our ability to negotiate prices and
favorable terms with health insurers in certain markets could be affected negatively as a result of this consolidation. Also, the shift toward value-based
payment models could be accelerated if larger insurers, including those engaging in consolidation activities, find these models to be financially beneficial.
We cannot predict whether we will be able to negotiate favorable terms with payors and otherwise respond effectively to the impact of increased
consolidation in the payor industry or vertical integration efforts.
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The failure to obtain our medical supplies at favorable prices could cause our operating results to decline.
We have a participation agreement with HealthTrust, a GPO. The current term of this agreement extends through the end of December 2024, with
automatic renewal terms of one year, unless either party terminates by giving notice of non-renewal. GPOs attempt to obtain favorable pricing on medical
supplies with manufacturers and vendors, sometimes by negotiating exclusive supply arrangements in exchange for discounts. To the extent these exclusive
supply arrangements are challenged or deemed unenforceable, we could incur higher costs for our medical supplies obtained through HealthTrust. Further,
costs of supplies and drugs may continue to increase due to market pressure from pharmaceutical companies and new product releases, among other factors.
Also, there can be no assurance that our arrangement with HealthTrust will provide the discounts we expect to achieve.
If reimbursement rates paid by federal or state healthcare programs or commercial payors are reduced, if we are unable to maintain favorable contract
terms with payors or comply with our payor contract obligations, if insured individuals move to insurance plans with greater coverage exclusions or
narrower networks, or if insurance coverage is otherwise restricted or reduced, our net operating revenues may decline.
During the year ended December 31, 2023, 34.2% of our net operating revenues came from the Medicare and Medicaid programs. However, as federal
healthcare expenditures continue to increase and state governments continue to face budgetary shortfalls, federal and state governments have made, and
continue to make, significant changes in the Medicare and Medicaid programs, including reductions in reimbursement levels. For example, as a result of
sequestration measures that extend through April 2032, Medicare payments are automatically reduced by 2%. In addition, as a result of the ARPA, an
additional Medicare payment reduction of up to 4% was required to take effect in January 2022; however, Congress has delayed implementation of this
reduction until 2025. In addition, CMS may implement changes through new or modified demonstration projects authorized pursuant to Medicaid waivers.
Some of these changes have decreased, or could decrease, the amount of money we receive for our services relating to these programs.
In addition, government and commercial payors as well as other third parties from whom we receive payment for our services attempt to control
healthcare costs by, for example, requiring hospitals to discount payments for their services in exchange for exclusive or preferred participation in their
benefit plans, restricting coverage through utilization review, reducing coverage of inpatient and emergency room services and shifting care to outpatient
settings, requiring prior authorizations, and implementing alternative payment models. The ability of commercial payors to control healthcare costs using
these measures may be enhanced by the increasing consolidation of insurance and managed care companies, vertical integration of health insurers with
healthcare providers and regulatory changes.
Limitations on balance billing may also reduce the amount that hospitals and other providers are able to collect for out-of-network services. For
example, the No Surprises Act prohibits providers from charging patients an amount beyond the in-network cost sharing amount for services rendered by
out-of-network providers, subject to limited exceptions. For services for which balance billing is prohibited (even when no balance billing occurs), the No
Surprises Act includes provisions that may limit the amounts received by out-of-network providers by health plans, and also establishes an independent
dispute resolution process for providers and payors to handle payment disputes that cannot be resolved through direct negotiation. The regulations and
related guidance implementing the No Surprises Act, including those establishing the dispute resolution process, are the subject of legal challenges and,
potentially, regulatory changes.
In addition, price transparency initiatives may impact our ability to obtain or maintain favorable contract terms. For example, the No Surprises Act
requires providers to send health plans of insured patients a good faith estimate of the expected charges and diagnostic codes prior to the scheduled date of
the service or item. HHS is deferring enforcement of certain requirements related to good faith estimates until the agency issues additional regulations.
Further, hospitals are required to publish online payor-specific negotiated charges and de-identified minimum and maximum charges. In addition, health
insurers must provide online price comparison tools to help individuals get personalized cost estimates for covered items and services.
During the year ended December 31, 2023, 64.7% of our net operating revenues came from commercial payors. Our contracts with payors require us to
comply with a number of terms related to the provision of services and billing for services. If we are unable to negotiate increased reimbursement rates,
maintain existing rates or other favorable contract terms, effectively respond to payor cost controls and reimbursement policies or comply with the terms of
our payor contracts, the payments we receive for our services may be reduced. Also, we are increasingly involved in disputes with payors and experience
payment denials, both prospectively and retroactively. In addition, enrollment of individuals in high-deductible health plans, sometimes referred to as
consumer-directed plans, has increased over the last decade. In comparison to traditional health plans, these plans tend to have lower reimbursement rates
for providers along with higher co-pays and deductibles due from the patient, which subjects us to increased collection cost and risk. Further, high-
deductible health plans may exclude our hospitals and employed physicians from coverage.
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If we experience continued growth in self-pay volume and revenues or if we experience deterioration in the collectability of patient responsibility
accounts, our financial condition or results of operations could be adversely affected.
Our primary collection risks relate to uninsured patients and outstanding patient balances for which the primary insurance payor has paid some but not
all of the outstanding balance, with the remaining outstanding balance (generally deductibles and co-payments) owed by the patient. Collections are
impacted by the economic ability of patients to pay and the effectiveness of our collection efforts. Significant changes in payor mix, business office
operations, economic conditions or trends in federal and state governmental healthcare coverage may affect our collection of accounts receivable and are
considered in our estimates of accounts receivable collectability.
In recent years, federal and state legislatures have considered or passed various proposals impacting or potentially impacting the size of the uninsured
population. The number and identity of states that choose to expand or otherwise modify Medicaid programs and the terms of expansion and other program
modifications continue to evolve. Further, early COVID-related legislation authorized a temporary increase in federal funds for state Medicaid expenditures
in states that maintained continuous Medicaid enrollment, among other requirements. The resumption of Medicaid eligibility redeterminations following
the expiration of this continuous coverage requirement in April 2023 has resulted in significant Medicaid coverage disruptions and dis-enrollments.
Medicaid enrollment is generally expected to decline through fiscal year 2024 (which ends June 30, 2024, in most states). CMS has required certain states
to pause disenrollments due to noncompliant renewal systems. The ARPA temporarily increased the value of premium tax credit subsidies for subsidy-
eligible individuals purchasing health insurance coverage through the federal and state-run marketplaces and expanded eligibility for the tax credit
subsidies to more individuals. Subsequent legislation extended the enhanced subsidies through 2025. In addition, although the federal financial penalty
associated with the Affordable Care Act’s mandate that individuals enroll in an insurance plan has been effectively eliminated, some states have imposed
individual health insurance mandates with financial penalties for noncompliance. Other states have explored or offer public health insurance options. These
variables, among others, make it difficult to predict the number of uninsured individuals and what percentage of our total revenue will be comprised of self-
pay revenues.
We may be adversely affected by the growth in patient responsibility accounts as a result of the adoption of plan structures, including health savings
accounts, narrow networks and tiered networks, that shift greater responsibility for care to individuals through greater exclusions and copayment and
deductible amounts. Further, our ability to collect patient responsibility accounts may be limited by statutory, regulatory and investigatory initiatives,
including private lawsuits directed at hospital charges and collection practices for uninsured and underinsured patients and regulatory restrictions on
charges for out-of-network services. For example, the No Surprises Act requires providers to send uninsured and self-pay patients a good faith estimate of
expected charges for items and services. The estimate must be provided in advance of the scheduled date for the item or service or upon request and cover
items and services that are reasonably expected to be provided together with the primary item or services, including those that may be provided by other
providers. If the uninsured or self-pay patient receives a bill that is substantially greater than the expected charges in the good faith estimate or the provider
furnishes an item or service that was not included in the good faith estimate, they may initiate a patient-provider dispute resolution process established by
regulation. In addition, a deterioration of economic conditions in the United States could potentially lead to higher levels of uninsured patients, result in
higher levels of patients covered by lower paying government programs, result in fiscal uncertainties for both government payors and private insurers
and/or limit the economic ability of patients to make payments for which they are responsible. If we experience continued growth in self-pay volume or
deterioration in collectability of patient responsibility accounts, our financial condition or results of operations could be adversely affected.
Some of the non-urban communities in which we operate face challenging economic conditions, and the failure of certain employers, or the closure of
certain manufacturing and other facilities in our markets, could have a disproportionate impact on our hospitals.
Some of the non-urban communities in which we operate have been facing particularly challenging economic conditions, which in certain instances
predate, and/or are broader than or disproportionately exacerbated by, the current negative macroeconomic conditions impacting the United States
economy. In addition, the economies in the non-urban communities in which our hospitals primarily operate are often dependent on a small number of large
employers, especially manufacturing or similar facilities. These employers often provide income and health insurance for a disproportionately large number
of community residents who may depend on our hospitals for care. The failure of one or more large employers, or the closure or substantial reduction in the
number of individuals employed at manufacturing or other facilities located in or near many of the non-urban communities in which our hospitals primarily
operate, could cause affected employees to move elsewhere for employment or lose insurance coverage that was otherwise available to them. When patients
are experiencing personal financial difficulties or have concerns about general economic conditions, they may delay or forgo elective procedures, choose to
seek care in emergency rooms and purchase high-deductible insurance plans or no insurance at all, which increases a hospital’s dependence on self-pay
revenue and may adversely affect our results of operations.
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The demand for services provided by our hospitals and affiliated providers can be impacted by factors beyond our control.
Our admissions and adjusted admissions as well as acuity trends may be impacted by factors beyond our control. For example, seasonal fluctuations in
the severity of influenza and other critical illnesses, such as COVID-19, unplanned shutdowns or unavailability of our facilities due to weather or other
unforeseen events, decreases in trends in high acuity service offerings, changes in competition from other service providers, turnover in physicians
affiliated with our hospitals, or changes in medical technology can have an impact on the demand for services at our hospitals and affiliated providers.
In addition, certain of our facilities are located in hurricane-prone coastal regions in Florida and other states, and our operations may be adversely
impacted by hurricanes, tornadoes, winter storms, and other severe weather conditions, which adverse weather conditions may be more frequent and/or
severe as the result of climate change. Moreover, we could be affected by climate change and other environmental issues to the extent such issues adversely
affect the general economy or specific markets, adversely impact our supply chain or increase the costs of supplies needed for our operations, or otherwise
result in disruptions impacting the communities in which our facilities are located. In addition, legal requirements regulating greenhouse gas emissions and
energy inputs or otherwise associated with the transition to a lower carbon economy may increase in the future, which could increase our costs associated
with compliance and otherwise disrupt and adversely affect our operations. The impact of these or other factors beyond our control could have an adverse
effect on our business, financial position and results of operations.
A deterioration of public health conditions associated with COVID-19, or a future pandemic, epidemic or outbreak of an infectious disease in the
markets in which we operate or that otherwise impacts our facilities could adversely impact our business.
As a provider of healthcare services, we were significantly impacted by the public health and economic effects of the COVID-19 pandemic. If public
health conditions related to COVID-19 significantly worsen, our business and financial results could be adversely impacted. Moreover, conditions related to
COVID-19 continue to evolve, and we may not be able to predict or effectively respond to future developments.
In response to the COVID-19 pandemic, the federal government authorized financial relief for eligible healthcare providers through the Public Health
and Social Services Emergency Fund, or PHSSEF. Although recipients are not required to repay funding received, provided they attest to and comply with
certain terms and conditions, changes to interpretations of guidance on the underlying terms and conditions may result in the derecognition of amounts
previously realized. To the extent that any unrecognized PHSSEF payments that have been received by us do not qualify for reimbursement, we may be
required to return such payments. Further, we may be subject to or incur costs from related government actions including payment recoupment, audits and
inquiries by governmental authorities, and criminal, civil or administrative penalties.
In addition, if a future pandemic, epidemic, or outbreak of an infectious disease or other public health crisis were to affect our markets, our business
could be adversely affected. Any such crisis could diminish the public trust in healthcare facilities, especially hospitals that fail to accurately or timely
diagnose, or that are treating (or have treated) patients affected by, contagious diseases. If any of our facilities are involved, or perceived as being involved,
in treating patients for such a contagious disease, other patients might cancel elective procedures or fail to seek needed care at our facilities. Patient
volumes may decline or volumes of uninsured and underinsured patients may increase, depending on the economic circumstances surrounding the
pandemic, epidemic, or outbreak. Further, a pandemic, epidemic, or outbreak might adversely impact our business by causing a temporary shutdown or
diversion of patients, by causing disruption or delays in supply chains for materials and products or by causing staffing shortages in our facilities. Although
we have contingency plans in place, including infection control and disaster plans, the potential impact of, as well as the public’s and government’s
response to, any such future pandemic, epidemic or outbreak of an infectious disease with respect to our markets or our facilities is difficult to predict and
could adversely impact our business.
The industry trend towards value-based purchasing may negatively impact our business.
There is a trend toward value-based purchasing of healthcare services across the healthcare industry among both government and commercial payors.
Generally, value-based purchasing initiatives tie payment to the quality and efficiency of care. For example, hospital payments may be negatively impacted
by the occurrence of HACs. Medicare does not reimburse for care related to HACs, by disallowing the hospital to be assigned a higher paying MS-DRG if
certain HACs were not present on admission and the identified HAC is the only condition resulting in the assignment of the higher paying MS-DRG.
Hospitals in the bottom quartile of HAC rates receive a 1% reduction in their total Medicare payments the following year. In addition, federal funds may
not be used under the Medicaid program to reimburse providers for services provided to treat HACs. Hospitals that experience excess readmissions for
designated conditions receive reduced payments for all inpatient discharges in the fiscal year. HHS also reduces Medicare inpatient hospital payments for
all discharges by a required percentage and pools the amount collected from these reductions to fund payments to reward hospitals that meet or exceed
certain quality performance standards. Further, Medicare and Medicaid require hospitals to report certain quality data to receive full reimbursement
updates.
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HHS continues to focus on tying Medicare payments to quality or value through alternative payment models, which generally aim to make providers
attentive to the quality and cost of care they deliver to patients. Examples of alternative payment models include ACOs and bundled payment arrangements.
An ACO is a care coordination model intended to produce savings as a result of improved quality and operational efficiency. By 2030, the CMS Innovation
Center aims to have all fee-for-service Medicare beneficiaries and the vast majority of Medicaid beneficiaries in an accountable care relationship with
providers who are responsible for quality and total medical costs. In bundled payment models, providers receive one payment for services provided to
patients for certain medical conditions or episodes of care, accepting accountability for costs and quality of care. Providers may receive supplemental
Medicare payments or owe repayments to CMS depending on whether spending exceeds or falls below a specified spending target and whether certain
quality standards are met. Generally, participation in Medicare bundled payment programs is voluntary, but CMS currently requires hospitals in selected
markets to participate in bundled payment initiatives for specific orthopedic procedures and end-stage renal disease treatment. A mandatory radiation
oncology bundled payment model was expected to begin January 1, 2023, but CMS has indefinitely delayed its implementation. CMS has signaled its
intent to streamline its payment models and to increase provider participation through implementation of more mandatory models.
There are also several state-driven value-based care initiatives. For example, some states have aligned quality metrics across payors through legislation
or regulation. Commercial payors are transitioning toward value-based reimbursement arrangements as well. Further, many commercial payors require
hospitals to report quality data and restrict reimbursement for certain preventable adverse events.
We expect value-based purchasing programs, including programs that condition reimbursement on patient outcome measures, to become more common
and to involve a higher percentage of reimbursement amounts. It is unclear whether these and other alternative payment models will successfully coordinate
care and reduce costs or whether they will decrease aggregate reimbursement. While we believe we are adapting our business strategies to compete in a
value-based reimbursement environment, we are unable at this time to predict how this trend will affect our results of operations. If we perform at a level
below the outcomes demonstrated by our competitors, are unable to meet or exceed the quality performance standards under any applicable value-based
purchasing program, or otherwise fail to effectively provide or coordinate the efficient delivery of quality healthcare services, our reputation in the industry
may be negatively impacted, we may receive reduced reimbursement amounts and we may owe repayments to payors, causing our revenues to decline.
Our revenues are somewhat concentrated in a relatively small number of states, which makes us particularly sensitive to regulatory and economic
changes in those states.
Our revenues are particularly sensitive to regulatory and economic changes in states in which we generate a significant portion of our revenues,
including Indiana, Alabama, Texas and Florida. Accordingly, any change in the current demographic, economic, competitive, or regulatory conditions in
these states could have an adverse effect on our business, financial condition, or results of operations. Changes to the Medicaid programs in these states
could also have an adverse effect on our business, financial condition, results of operations, or cash flows. For example, the Texas Healthcare
Transformation and Quality Improvement Program, or the Texas Waiver Program, which enables the expansion of Medicaid managed care programs in the
state, provides funding for uncompensated care and includes several directed payment programs, is operated under a waiver granted pursuant to Section
1115 of the Social Security Act. The Texas waiver continues through 2030, but directed payment programs have more limited approval periods, such as the
Comprehensive Hospital Increase Reimbursement Program, or CHIRP, which is currently set to expire on August 31, 2024. If Texas is unable to obtain
future extensions or other approvals of the directed payment program or similar programs, our revenues could be negatively impacted. It is difficult to
predict whether and how Medicaid programs, including their waiver programs, might be modified, extended or eliminated, any of which could negatively
impact our revenues.
Risks Related to Human Capital
Our performance depends on our ability to recruit and retain quality physicians.
The success of our healthcare facilities depends in part on the number and quality of the physicians on the medical staffs of our healthcare facilities, our
ability to employ quality physicians, the admitting and utilization practices of employed and independent physicians, maintaining good relations with those
physicians and controlling costs related to the employment of physicians. Although we employ some physicians, physicians are often not employees at our
healthcare facilities at which they practice. In many of the markets we serve, many physicians have admitting privileges at other healthcare facilities in
addition to our healthcare facilities. Such physicians may terminate their affiliation with or employment by our healthcare facilities at any time. Moreover,
we are facing increased competition from health insurers and private equity-backed companies seeking to acquire or affiliate with physicians or physician
practices.
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We may face increased challenges recruiting and retaining quality physicians as the physician population reaches retirement age, especially if there is a
shortage of physicians willing and able to provide comparable services. In some markets, physician recruitment and retention may be affected by a shortage
of physicians in certain specialties or the difficulties physicians may experience in obtaining professional liability insurance. The types, amount and
duration of compensation and assistance we can provide when recruiting physicians are limited by the federal Physician Self-Referral Law (commonly
known as the Stark Law), the federal Anti-Kickback Statute, similar state laws and implementing regulations. If we are unable to provide adequate support
personnel or technologically advanced equipment and facilities that meet the needs of those physicians and their patients, our ability to recruit and retain
quality physicians may be negatively impacted.
Our performance and labor costs have been, and may continue to be, adversely affected by challenging labor market conditions and the shortage of
qualified nurses and other healthcare personnel.
The operations of our healthcare facilities are dependent on the efforts, abilities and experience of our facility management, healthcare professionals,
such as nurses, pharmacists, lab technicians, and medical support personnel. We compete with other healthcare providers in recruiting and retaining
qualified facility management and personnel responsible for the daily operations of our healthcare facilities, including nurses, other non-physician
healthcare professionals and medical support personnel.
The healthcare industry has been experiencing a challenging labor market arising out of current macroeconomic conditions, and our hospitals and other
healthcare facilities, like many other healthcare providers, have experienced increased labor costs. In some markets in which we operate, a shortage of
available nurses, other healthcare professionals and medical support personnel has been a significant operating issue for healthcare providers, which has
been exacerbated by current labor market conditions as noted above. Due to such challenges and other factors, our hospitals and other healthcare facilities,
like other healthcare providers, have experienced increased labor costs. We may be required to continue to enhance wages and benefits to recruit and retain
nurses, other healthcare professionals and medical support personnel, and/or to hire more expensive temporary or contract personnel. In addition, to the
extent we are unable to maintain sufficient staffing levels at our hospitals, we may be required to limit the acute healthcare services provided at certain of
our hospitals, which would have a corresponding adverse effect on our net revenues. We also depend on the available labor pool of semi-skilled and
unskilled employees in each of the markets in which we operate. In some of our markets, employers across various industries have increased their wages
for these roles, which has created more competition for this sector of employees. The impact of labor shortages across the healthcare industry may result in
other healthcare facilities, such as nursing homes, limiting admissions, which may constrain our ability to discharge patients to such facilities and further
exacerbate the demand on our resources.
In addition, the states in which we operate could adopt mandatory nurse-staffing ratios, could revise mandatory nurse-staffing ratios already in place or
adopt other measures aimed at regulating staffing. State-mandated nurse-staffing ratios and similar measures could significantly affect labor costs and have
an adverse impact on revenues if we are required to limit admissions or incur other costs in order to comply with such requirements.
We may be unable to attract, hire, and retain a highly qualified and diverse workforce, including key management.
At December 31, 2023, certain employees at three of our hospitals were represented by various labor unions. While we have not experienced work
stoppages to date that have material and adversely affected our business or results of operations, increased or ongoing labor union activity could adversely
affect our labor costs or otherwise adversely impact us. In addition, when negotiating collective bargaining agreements with unions, whether such
agreements are renewals or first contracts, there is the possibility that strikes could occur during the negotiation process, and our continued operation
during any strikes could increase our labor costs and otherwise adversely impact us. Finally, potential changes to federal labor laws and regulations,
including those supported by the current presidential administration, could increase the likelihood of employee unionization activity and the ability of
employees to unionize, which could adversely impact our operations and financial results.
If our labor costs continue to increase, we may not be able to raise rates to offset these increased costs. Because a significant percentage of our revenues
consists of fixed, prospective payments, our ability to pass along increased labor costs is constrained. In the event we are not entirely effective at recruiting
and retaining qualified facility management, nurses and other medical support personnel, or in controlling labor costs, this could continue to have an
adverse effect on our results of operations.
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We may be adversely impacted by the inability of third parties with whom we contract to provide hospital-based physicians as the result of industry-wide
disruptions in the market for outsourced medical specialists.
We contract with various third parties who provide hospital-based physicians, including emergency, anesthesiology, hospitalist/inpatient care, radiology,
tele-radiology and surgery. Third-party providers of hospital-based physicians, including those with whom we contract, have experienced significant
disruption in the form of regulatory changes, including those stemming from enactment of the No Surprises Act, challenging labor market conditions
resulting from a shortage of physicians and inflationary wage-related pressures, as well as increased competition through consolidation of physician groups.
In some instances, providers of outsourced medical specialists have become insolvent and unable to fulfill their contracts with us for providing hospital-
based physicians. The success of our hospitals depends in part on the adequacy of staffing, including through contracts with third parties. If we are unable
to adequately contract with providers, or the providers with whom we contract become unable to fulfill their contracts, our admissions may decrease, and
our operating performance, capacity and growth prospects may be adversely affected. Further, our efforts to mitigate the potential impact to our business
from third-party providers who are unable to fulfill their contracts to provide hospital-based physicians, including through acquisitions of outsourced
medical specialist businesses, employment of physicians and re-negotiation or assumption of existing contracts, may be unsuccessful. These developments
with respect to providers of outsourced medical specialists, and our inability to effectively respond to and mitigate the potential impact of such
developments, may disrupt our ability to provide healthcare services, which may adversely impact our business and financial results.
Risks Related to Legal Proceedings
We are the subject of various legal, regulatory and governmental proceedings that, if resolved unfavorably, could have an adverse effect on us, and we
may be subject to other loss contingencies, both known and unknown.
We are a party to various legal, regulatory and governmental proceedings and other related matters. Those proceedings include, among other things,
government investigations. In addition, we are and may become subject to other loss contingencies, both known and unknown, which may relate to past,
present and future facts, events, circumstances and occurrences. Should an unfavorable outcome occur in connection with our current or potential future
legal, regulatory or governmental proceedings or other loss contingencies, or if we become subject to any such loss contingencies in the future, there could
be an adverse impact on our financial position, results of operations and liquidity.
In particular, government investigations, as well as qui tam lawsuits, may lead to significant fines, penalties, damages payments or other sanctions,
including exclusion from government healthcare programs. Settlements of lawsuits involving Medicare and Medicaid issues routinely require both
monetary payments and corporate integrity agreements, each of which could have an adverse effect on our business, financial condition, results of
operations and/or cash flows.
We could be subject to substantial uninsured liabilities or increased insurance costs as a result of significant legal actions.
Physicians, hospitals and other healthcare providers have become subject to an increasing number of legal actions alleging professional liability, product
liability, or related legal theories. Even in states that have imposed caps on damages, litigants are seeking recoveries under new theories of liability that
might not be subject to the caps on damages. Many of these actions involve large claims and significant defense costs. To protect us from the cost of these
claims, we maintain claims-made professional liability insurance and general liability insurance coverage in excess of those amounts for which we are self-
insured. This insurance coverage is in amounts that we believe to be sufficient for our operations; however, our insurance coverage may not continue to be
available at a reasonable cost for us to maintain adequate levels of insurance. Additionally, our insurance coverage does not cover all claims against us,
such as fines, penalties, or other damage and legal expense payments resulting from qui tam lawsuits. 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 or on our insurance costs. Additionally, all professional
and general liability insurance we purchase is subject to policy limitations. 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. Furthermore,
one or more of our insurance carriers could become insolvent and unable to fulfill its or their obligations to defend, pay or reimburse us when those
obligations become due. In that case, or if payments of claims exceed our estimates or are not covered by our insurance, it could have an adverse effect on
our business, financial condition or results of operations.
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Risks Related to Government Regulation
Our business may be adversely impacted by health reform initiatives.
In recent years, the healthcare industry has undergone significant changes, many of which have been aimed at reducing costs and government spending.
The U.S. Congress and certain state legislatures have introduced, considered or passed a large number of proposals and legislation affecting the healthcare
system, including laws intended to impact access to health insurance.
The Affordable Care Act is the most prominent of these legislative reform efforts. The law affects how healthcare services are covered, delivered, and
reimbursed, and expanded health insurance coverage through a combination of public program expansion and private sector health insurance reforms. In
addition, some states have imposed individual health insurance mandates, and other states have explored or offer public health insurance options. To
increase access to health insurance during the COVID-19 pandemic, the ARPA enhanced subsidies for individuals eligible to purchase coverage through
Affordable Care Act marketplaces. Subsequent legislation extended these enhanced subsidies through 2025. These changes and initiatives may impact the
number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased.
The Affordable Care Act has been, and continues to be, subject to legislative and regulatory changes and court challenges. There is uncertainty
regarding whether, when, and how the Affordable Care Act will be further changed, whether the Affordable Care Act will be repealed or replaced, and how
the Affordable Care Act will be interpreted and implemented. Changes to the interpretation or implementation of the Affordable Care Act could eliminate
or alter provisions beneficial to us while leaving in place provisions reducing our reimbursement, or otherwise have an adverse effect on our business.
Other recent reform initiatives and proposals at the federal and state levels include those focused on price transparency and out-of-network charges,
which may impact prices, our competitive position, patient volumes and the relationships between hospitals, patients, payors, and ancillary providers (such
as anesthesiologists, radiologists, and pathologists). For example, among other consumer protections, the No Surprises Act imposes various requirements
on providers and health plans intended to prevent “surprise” medical bills. The CMS Care Compare website makes publicly available certain data on
hospital performance on quality measures and patient satisfaction. Further, Medicare reimbursement for hospitals is adjusted based on quality and
efficiency measures.
There is also uncertainty regarding whether, when, and what other health reform measures will be adopted through governmental avenues and/or the
private sector, the timing and implementation of any such efforts, and the impact of those efforts on providers as well as other healthcare industry
participants. For example, some members of Congress have proposed measures that would expand government-funded coverage. CMS administrators may
make changes to Medicaid payment models and grant states various flexibilities in the administration of state Medicaid programs, including changes
encouraging the adoption of value-based care models. Some of these changes may result in coverage reductions or decreased enrollment. Reductions in the
number of insured individuals or the scope of insurance coverage may have an adverse effect on our business. Other industry participants, such as private
payors and large employer groups and their affiliates, may also introduce financial or delivery system reforms. It is difficult to predict the nature and/or
success of current and future health reform initiatives, any of which may have an adverse impact on our business.
If we fail to comply with extensive laws and government regulations, including fraud and abuse laws, we could suffer penalties or be required to make
significant changes to our operations.
The healthcare industry is governed by extensive and complex laws and regulations at the federal, state and local government levels. These laws and
regulations include requirements related to, among other issues, licensure, certification, and enrollment with government programs; the necessity and
adequacy of medical care; quality of medical equipment and services; qualifications of medical and support personnel; operating policies and procedures;
screening, stabilization and transfer of individuals who have emergency medical conditions; restrictions on the provision of medical care, including with
respect to reproductive care; distribution, maintenance and dispensing of pharmaceuticals and controlled substances; billing and coding for services; proper
handling of overpayments; classification of levels of care provided; preparing and filing cost reports; relationships with referral sources and referral
recipients; maintenance of adequate records; hospital use; rate-setting; building codes; environmental protection; privacy and security; interoperability and
refraining from information blocking; development and use of artificial intelligence and other predictive algorithms; debt collection; limits or prohibitions
on balance billing and billing for out-of-network services; and communications with patients and consumers. Examples of these laws include, but are not
limited to, HIPAA, the Stark Law, the federal Anti-Kickback Statute, the federal False Claims Act, the EMTALA and similar state laws.
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There are heightened coordinated civil and criminal enforcement efforts by both federal and state government agencies relating to the healthcare
industry, including the hospital segment. Enforcement actions have focused on financial arrangements between hospitals and physicians, billing for services
without adequately documenting medical necessity and billing for services outside the coverage guidelines for such services. Specific to our hospitals, we
have received inquiries and subpoenas from various governmental agencies regarding these and other matters, and we are also subject to various claims and
lawsuits relating to such matters. For a further discussion of these matters, see “Legal Proceedings” in Part I, Item 3 of this Form 10-K.
If we fail to comply with applicable laws and regulations, which are subject to change, we could be subject to liabilities, including civil penalties,
money damages, the loss of our licenses to operate one or more facilities, exclusion of one or more facilities from participation in the Medicare, Medicaid
and other federal and state healthcare programs, civil lawsuits and criminal penalties. The costs of compliance with, and the other burdens imposed by,
these and other laws or regulatory actions may increase our operational costs, result in interruptions or delays in the availability of systems and/or result in a
patient volume decline. We may also face audits or investigations by government agencies relating to our compliance with these regulations. An adverse
outcome under any such investigation or audit could result in liability, result in adverse publicity, and adversely affect our business. In the future, evolving
interpretations or enforcement of applicable laws or regulations could subject our current practices to allegations of impropriety or illegality or could
require us to make changes in our facilities or operations. In addition, other legislation or regulations may be adopted that could adversely affect our
business.
Actual or perceived failures to comply with legal requirements regarding the privacy and security of health information or other regulated, sensitive or
confidential information, or legal requirements regarding data privacy or data protection, could adversely affect our business, results of operations and
financial condition.
The data protection landscape is rapidly evolving, and we are subject to numerous state and federal laws, requirements and regulations governing the
collection, use, storage, processing, disclosure, retention, privacy and security of health-related and other regulated, sensitive or confidential information,
and may become subject to additional legal requirements of this nature in the future. For example, the Health Insurance Portability and Accountability Act
of 1996, the Health Information Technology for Economic and Clinical Health Act of 2009, each as amended, and the privacy and security regulations that
implement these laws (collectively, “HIPAA”), establish national privacy and security standards for the protection of protected health information, or PHI,
by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the business associates with whom such
covered entities contract for services. HIPAA requires covered entities like us to develop and maintain policies and procedures with respect to the privacy
and security of PHI and to adopt administrative, physical and technical safeguards to protect such information. HIPAA also regulates permissible uses and
disclosures of PHI; for example, HHS issued guidance indicating certain data collected on websites and mobile applications offered by HIPAA-regulated
entities may be PHI and warning against the use of third-party tracking technologies such as pixels and cookies on such sites. Covered entities must notify
affected individuals without unreasonable delay of breaches of unsecured PHI, the HHS Office for Civil Rights, or OCR, which enforces HIPAA, and, in
the case of larger breaches, the media. Failure to comply with the HIPAA privacy and security standards can result in civil monetary penalties, resolution
agreements, monitoring agreements, and, in certain circumstances, criminal penalties including fines and/or imprisonment. A covered entity may be subject
to penalties as a result of a business associate violating HIPAA. In addition, state attorneys general may enforce the HIPAA privacy and security regulations
in response to violations that threaten the privacy of state residents. Although HIPAA does not create a private right of action allowing individuals to sue in
civil court for violations, the laws and regulations have been used as the basis for duty of care in state civil suits such as those for negligence or
recklessness in the misuse or breach of PHI.
There are numerous other laws and legislative and regulatory initiatives at the federal and state levels governing the confidentiality, privacy, availability,
integrity and security of PHI and other types of personal information. Certain state laws may be more stringent, broader in scope or offer greater individual
rights with respect to PHI than HIPAA, state laws may differ from each other, and the interplay of federal and state laws may be subject to varying
interpretations by courts and government agencies, all of which may complicate compliance efforts. Where state laws are more protective than HIPAA or
apply more broadly, we have to comply with their stricter provisions. Not only do some of these state laws impose fines and other penalties upon violators,
but some may afford private rights of action to individuals who believe their personal information has been misused. We may not remain in compliance
with diverse privacy and security requirements in all of the jurisdictions in which we do business, particularly to the extent they are inconsistent, rapidly
changing and/or ambiguous and uncertain as to their applicability to our business practices.
To the extent we use, may use or permit the data we create, receive, maintain, and transmit to be used by any artificial intelligence, or AI, or machine
learning, or ML, platforms, we may be subject to additional risks under health privacy and other laws and regulations. The regulatory framework for
AI/ML, particularly in patient care (e.g., through the use of clinical decision support tools), is evolving and remains uncertain. For example, in December
2023, HHS finalized transparency requirements for AI and other predictive algorithms used in certified health information technology, such as decision
support interventions. New laws, regulations, and policies may be adopted, including as a result of a recent executive order on AI, and existing laws and
regulations may be interpreted in new ways that would affect our operations and the ways in which we may use AI technology. If we are unable to use
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AI/ML as the result of such laws and regulations, regulators restrict our ability to use AI/ML for certain purposes or our confidential information becomes
part of a dataset that is accessible by other third-party AI/ML applications and uses, it could make our business less efficient, result in competitive
disadvantages, increase our operating costs, hinder our ability to provide services, and subject us to potential liabilities. Further, the cost to comply with
such laws and regulations could be significant and could adversely affect our business, financial condition and results of operations. Any failure or
perceived failure by us to comply with AI laws and regulations could result in proceedings, investigations or actions against us by individuals, consumer
rights groups, government agencies or others. We could incur significant costs in investigating and defending such claims and, if found liable, pay
significant damages or fines or be required to make changes to our technology and business. Further, to the extent that we rely on or use the output of
AI/ML, any inaccuracies, biases or errors could hinder our ability to provide services and otherwise have adverse impacts on us, our business, our results of
operations or financial condition. Further, any such proceedings and any subsequent adverse outcomes may subject us to significant negative publicity.
While the full impact of regulatory and legal risks associated with AI/ML is unknown, if any of these events were to occur, our business, results of
operations and financial condition could be materially adversely affected.
In addition, we are subject to consumer protection laws and regulations in connection with our business activities. For example, the FTC uses its
consumer protection authority to initiate enforcement actions in response to data breaches. Failing to take appropriate steps to keep consumers’ personal
information secure may violate the Federal Trade Commission Act, or the FTCA. For information that is not subject to HIPAA and deemed to be “personal
health records,” the FTC may also impose penalties for violations of the Health Breach Notification Rule, or HBNR, to the extent we are considered a
“personal health record-related entity” or “third party service provider.” The FTC has recently taken several enforcement actions under HBNR and
indicated that the FTC will continue to protect consumer privacy through greater use of the agency’s enforcement authorities. As a result, we expect
scrutiny by federal and state regulators and others of our collection, use and disclosure of health information. Additionally, federal and state consumer
protection laws are increasingly being applied by FTC and states’ attorneys general to regulate the collection, use, storage, and disclosure of personal or
personally identifiable information, through websites or otherwise, and to regulate the presentation of website content. Our marketing and patient
engagement activities are subject to communications laws such as the Telephone Consumer Protection Act, or the TCPA, and the Controlling the Assault of
Non-Solicited Pornography and Marketing Act, or CAN-SPAM. Determination by a court or regulatory agency that our calling, texting or email practices
violate the TCPA or CAN-SPAM could subject us to civil penalties and could require us to change some portions of our business. Even an unsuccessful
challenge by patients or regulatory authorities of our activities could result in adverse publicity and could require a costly response from and defense by us.
Other federal and state laws that restrict the use and protect the privacy and security of personally identifiable information may not be preempted by
HIPAA, may apply to new categories of health information, such as “consumer health data”, and may be subject to varying interpretations by the courts and
government agencies. These varying interpretations can create complex compliance issues for us and our partners and potentially expose us to additional
expense, adverse publicity, and liability, any of which could adversely affect our business.
Although we strive to comply with applicable laws and regulations, the requirements related to the collection, use, storage, processing, disclosure,
retention, privacy and security of health and other regulated, sensitive or confidential information are evolving rapidly and may be interpreted or applied in
an inconsistent manner across jurisdictions. The cost of compliance with these laws and regulations is high and is likely to increase in the future. Any
failure or perceived failure by us to comply with applicable data privacy and security laws or regulations, our internal policies and procedures or our
contracts governing our processing of health and other regulated, sensitive or confidential information, or to otherwise adequately address privacy and
security concerns, could result in negative publicity, government investigations and enforcement actions, claims by third parties and damage to our
reputation, any of which could have a material adverse effect on our business, operations, or financial results.
Healthcare technology initiatives, particularly those related to sharing patient data and interoperability, may adversely affect our business and results
of operations.
Under the Health Information Technology for Economic and Clinical Health Act, or HITECH, and other laws, eligible hospitals that fail to demonstrate
meaningful use of certified EHR technology and have not applied and qualified for a hardship exception are subject to reduced reimbursement from
Medicare. Eligible healthcare professionals are also subject to positive or negative payment adjustments based, in part, on their use of EHR technology.
Thus, if our hospitals and employed professionals are unable to properly adopt, maintain, and utilize certified EHR systems, we could be subject to
penalties and lawsuits that may have an adverse effect on our consolidated financial position and consolidated results of operations.
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As EHR technologies have become widespread, the federal government’s focus has shifted to increasing patient access to healthcare data and promoting
interoperability. The 21st Century Cures Act and implementing regulations prohibit information blocking by healthcare providers and certain other entities.
Information blocking is defined as engaging in activities that are likely to interfere with the access, exchange or use of electronic health information,
subject to limited exceptions. Current and future initiatives related to healthcare technology (including AI/ML), data sharing, and interoperability may
require changes to our operations, impose new and complex obligations on us, affect our relationships with providers, vendors, healthcare information
exchanges and other third parties and require investments in infrastructure. We may be subject to significant penalties or other disincentives or experience
reputational damage for failure to comply with applicable laws and regulations. It is difficult to predict how these initiatives will affect our relationships
with providers and vendors, participation in healthcare information exchanges or networks, the exchange of patient data and patient engagement.
State efforts to regulate the construction, acquisition or expansion of healthcare facilities could limit our ability to build or acquire additional
healthcare facilities, renovate our facilities or expand the breadth of services we offer.
Some states in which we operate require a CON or other prior approval for the construction or acquisition of healthcare facilities, capital expenditures
exceeding a prescribed amount, changes in bed capacity or services and some other matters. In evaluating a proposal, these states consider the need for
additional or expanded healthcare facilities or services. If we are not able to obtain required CONs or other prior approvals, we will not be able to acquire,
operate, replace or expand our facilities or expand the breadth of services we offer. Furthermore, if a CON or other prior approval upon which we relied to
invest in construction of a replacement or expanded facility were to be lost through an appeal process or revoked, we may not be able to recover the value
of our investment.
Many states have adopted legislation regarding the sale or other disposition of hospitals operated by municipal or not-for-profit entities. In some states
that do not have specific legislation, the attorneys general have demonstrated an interest in these transactions under their general obligation to protect the
use of charitable assets. These legislative and administrative efforts focus primarily on the appropriate valuation of the assets divested and the use of the
proceeds of the sale by the non-profit seller. In addition, some states require for-profit entities, including hospitals, to notify state attorneys general or other
designated entities in advance of sales or other transactions. While these notice requirements, reviews and, in some instances, approval processes can add
additional time to the closing of a hospital acquisition, we have not yet had any significant difficulties or delays in completing acquisitions. However, if we
encounter delays when we seek to acquire hospitals or a state prohibits a transaction, these restrictions could have a negative impact on our business and
growth plans.
We may incur additional tax liabilities.
We are subject to tax in the United States as well as those states in which we do business. Changes in tax laws, including increased rates, or
interpretations of tax laws by taxing authorities or other standard setting bodies, could increase our tax obligations and materially and adversely impact our
results of operations.
Risks Related to Impairment
If the fair value of our reporting unit declines, a material non-cash charge to earnings from impairment of our goodwill could result.
On an ongoing basis, under U.S. GAAP, we evaluate, based on the fair value of our reporting unit, whether the carrying value of our goodwill is
impaired when events or changes in circumstances indicate that such carrying value may not be recoverable. Goodwill is evaluated for impairment annually
and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value.
In assessing the fair value of this reporting unit, we consider, among other things, the most recent price of our common stock and fair value of our long-
term debt, our recent financial results, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income
tax rates, costs of invested capital and a discount rate. We performed our last annual goodwill impairment evaluation during the fourth quarter of 2023
using the October 31, 2023 measurement date, which indicated no impairment.
We could record material impairment charges in the future if our estimates or assumptions with respect to such fair value determination change in the
future. In this regard, we recorded material non-cash impairment charges with respect to our hospital operations reporting unit in 2016 and 2017.
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A significant decline in operating results or other indicators of impairment at one or more of our facilities could result in a material non-cash charge to
earnings to impair the value of long-lived assets.
Our operations are capital intensive and require significant investment in long-lived assets, such as property, equipment and other long-lived intangible
assets, including capitalized internal-use software. If one of our facilities experiences declining operating results or is adversely impacted by one or more of
these risk factors, we may not be able to recover the carrying value of those assets through our future operating cash flows. On an ongoing basis, we
evaluate whether changes in future undiscounted cash flows reflect an impairment in the fair value of our long-lived assets. Additionally, if we decide to
sell a business, we evaluate whether a business or a group of businesses is impaired based on an analysis of the selling price from a definitive agreement
compared to the carrying value of the net assets being sold. If the carrying value of our long-lived assets is impaired, we may incur a material non-cash
charge to earnings.
Risks Related to Cybersecurity and Technology
Our operations could be significantly impacted by interruptions or restrictions in access to our information systems.
Our operations depend heavily on the proper function, availability and security of our information systems, as well as those of our third-party providers,
to collect, maintain, process and use sensitive data and other clinical, operational and financial information. Information systems require an ongoing
commitment of significant resources to maintain and enhance existing systems and to develop new systems in order to keep pace with continual changes in
information technology. Failure to adequately manage implementation of new technology, updates or enhancements of platforms or interfaces between
platforms could place us at a competitive disadvantage, disrupt our operations, and have a material, adverse impact on our business and results of
operations. Further, we may be adversely impacted by costs associated with new and expensive technology. In addition, we rely on third-party providers of
financial, clinical, patient accounting and network information services, including those that interface with our own systems, and, as a result, we face
operational challenges in maintaining multiple provider platforms and facilitating the interface of such systems with one another. We rely on these third-
party providers to have appropriate controls to protect confidential information and other sensitive or regulated data. While we take steps to require third-
party providers to protect confidential information and sensitive data, we do not control the information systems of third-party providers, and in some cases
we may have difficulty accessing information archived on third-party systems.
Our networks and information systems, and the networks and information systems of third parties that we rely upon, are also subject to disruption due to
events such as a major earthquake, natural disaster, fire, telecommunications failure, power outages, new system implementations, computer viruses,
ransomware or other malware, security breaches, cyber-attacks (including ransomware), human errors (such as inadvertent misuse by employees), acts of
war, terrorist or criminal activities or other catastrophic events. Disaster recovery planning, whether conducted by us or a third party, cannot account for all
eventualities, and may not be sufficient to mitigate against or recover from such events. If the information systems on which we rely fail or are interrupted
or if our access to these systems is limited in the future, or if we experience data loss or manipulation, it could result in unauthorized disclosure, misuse,
loss or alteration of such data, interruptions and delays in our normal business operations, potential liability under applicable laws, regulatory penalties, and
damage to our reputation. Any of these could have an adverse effect on our business, financial condition or results of operations.
A cyber-attack or security breach could result in the compromise of our facilities, confidential data or critical data systems and give rise to potential
harm to patients, remediation and other expenses, expose us to liability under HIPAA, privacy and data protection laws and regulations, consumer
protection laws, common law or other theories, subject us to litigation and federal and state governmental inquiries or actions, damage our reputation,
adversely impact our financial results and otherwise be disruptive to our business.
We rely extensively on information technology systems to manage clinical and financial data, to communicate with our patients, payors, vendors and
other third parties, to summarize and analyze operating results, and for a number of other critical operational functions. We have made significant
investments in technology to protect our systems, equipment and medical devices and information from cybersecurity risks. These risks include incidents
involving ransomware and other malicious software, phishing, or other attempts by third parties to access, acquire, use, disclose, misappropriate or
manipulate our information or disrupt our operations. Although we monitor and routinely test our security systems and processes and have redundancies as
well as other proactive measures designed to protect the integrity, security and availability of the systems and data we manage and control, there can be no
assurance that we, or our third-party vendors and providers, will not be subject to security breaches and other cybersecurity incidents. In this regard, we are
frequently the target of cybersecurity attacks and other threats that could have a security impact, and we have experienced cybersecurity incidents from time
to time. In particular, on February 13, 2023, we disclosed a security incident in which a third-party vendor who provides a secure file transfer software
platform utilized by our subsidiaries experienced a security
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breach whereby PHI and personal information of certain patients of our healthcare facilities were exposed to an unauthorized third party.
The current cyber threat environment presents increased risk for all companies, particularly companies in the healthcare industry, as the volume and
intensity of cyber-attacks on hospitals and health systems has continued to increase, and we expect to experience an increase in cybersecurity threats in the
future. Moreover, advanced new attacks against our information systems and devices or those of our third-party vendors create risk of cybersecurity
incidents, including ransomware, malware and phishing incidents. The preventive actions we take to reduce the risk of such incidents and protect our
systems and data may not be sufficient in the future. In addition, cybersecurity threats continue to evolve. For example, remote code execution
vulnerabilities in certain applications have presented a new attack vector for potential malicious attackers. Additionally, the rapid evaluation and increased
adoption of artificial intelligence technologies may heighten our cybersecurity risks by making cyber-attacks more difficult to detect, contain and mitigate.
Because the techniques used in cyber-attacks change frequently and may not be immediately recognized, we may experience security or data breaches that
remain undetected for an extended time. Cybersecurity and the continued development and enhancement of our controls, process and practices designed to
protect our information systems from attack, damage or unauthorized access, acquisition, use or disclosure remain a priority for us. Our ability to recover
from a ransomware or other cyber-attack is dependent on these practices, including successful backup systems and other recovery procedures. We may be
required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any
information security vulnerabilities, and we still might not be able to anticipate or prevent certain attack methods.
Further, cybersecurity threats, including those that result in a data or security breach, could impact the integrity, availability or security of PHI and other
data subject to privacy laws and regulations, disrupt our information technology systems, equipment, medical devices or business, and threaten the access
and utilization of critical information technology and data. Our ability to provide various healthcare services could be affected, particularly with respect to
telehealth services. In addition, medical devices that connect to hospital networks or the internet may be vulnerable to cybersecurity incidents, which may
impact patient safety.
We may be at increased risk because we outsource certain services or functions to, or have systems that interface with, third parties. Some of these third
parties’ information systems are also subject to the risks outlined above and may store or have access to our data and may not have effective controls,
processes, or practices to protect our information from attack, damage, or unauthorized access, acquisition, use or disclosure. A breach or attack affecting
any of these third parties could harm our business. In addition, the definitive agreements we enter into in connection with the divestiture of hospitals
routinely obligate us to provide transition services to the buyer, including access to our legacy information systems, for a defined transition period. By
providing access to our information systems to non-employees, we may be exposed to cyber-attacks, ransomware or security or data breaches that originate
outside of our internal processes and practices designed to prevent such threats from occurring. Further, consumer confidence in the integrity, availability
and confidentiality of information systems and information, including patient information and operations data, in the healthcare industry generally could be
impacted to the extent there are successful cyber-attacks at other healthcare services companies, which could have a material adverse effect on our business,
operations, or financial results.
If we or our information, systems are subject to cyber-attacks or security or data breaches in the future, or the information systems of third parties with
whom we conduct business are subject to cyber-attacks or security or data breaches in the future in a manner which impacts us or our information systems,
this could result in harm to patients; business and operational interruptions and delays; the loss, misappropriation, corruption or unauthorized access,
acquisition, use or disclosure of data or inability to access data; litigation and potential liability under privacy, security, breach notification and consumer
protection laws or other applicable laws, including HIPAA; reputational damage, federal and state governmental inquiries, civil monetary penalties,
settlement agreements, corrective action plans and monitoring requirements, any of which could have an adverse effect on our business, financial condition
or results of operations. Moreover, any significant cybersecurity event may require us to devote significant management time and resources to address and
respond to any such event, interfere with the pursuit of other important business strategies and initiatives, and cause us to incur additional expenditures,
which could be material, including to investigate such events, remedy cybersecurity problems, recover lost data, prevent future compromises and adapt
systems and practices in response to such events. Moreover, there is no assurance that any remedial actions will meaningfully limit the success of future
attempts to breach our information systems, particularly because malicious actors are increasingly sophisticated and utilize tools and techniques specifically
designed to circumvent security measures, avoid detection and obfuscate forensic evidence, which means we may be unable to identify, investigate or
remediate effectively or in a timely manner.
Additionally, while we have insurance coverage in place designed to address certain aspects of cybersecurity risks, such insurance coverage may be
insufficient to cover all losses or all types of claims that may arise.
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If we fail to comply with our obligations under license or technology agreements with third parties, we may be required to pay damages and we could
lose license rights that are critical to our business.
We license certain intellectual property, including technologies and software from third parties, that is important to our business, and in the future we
may enter into additional agreements that provide us with licenses to valuable intellectual property or technology. If we fail to comply with any of the
obligations under our license agreements, we may be required to pay damages and the licensor may have the right to terminate the license. Termination by
the licensor would cause us to lose valuable rights, and could prevent us from selling our solutions and services, or adversely impact our ability to
commercialize future solutions and services. Our business would suffer if any current or future licenses terminate, if the licensors fail to abide by the terms
of the license agreement, if the licensors fail to enforce licensed intellectual property against infringing third parties, if the licensed intellectual property are
found to be invalid or unenforceable, or if we are unable to enter into necessary license agreements on acceptable terms or at all. Any of the foregoing
could have an adverse effect on our business, financial condition or results of operations.
If the redesign and consolidation of key business functions, including through the implementation of a core enterprise resource planning system, or
ERP, does not proceed as expected or is not completed successfully, our business and financial results may be adversely impacted.
We have undertaken a transformative process of redesigning numerous workflows that is intended to modernize and consolidate our technology
platforms and associated processes across our organization. As part of this process, we have created and continue to expand shared business operations to
carry out certain financial and operational functions, and are implementing a new ERP. Implementation of individual modules of the ERP and other aspects
of this process, which began in the fourth quarter of 2023, are expected to occur over a multi-year period. The redesign of various business processes and
implementation of this ERP and other aspects of this transformative process requires an investment of significant personnel and financial resources,
including substantial expenditures for third-party consultants and system hardware and software. This implementation process could disrupt our operations
or otherwise adversely affect us, including as the result of delays, disruptions to business continuity, higher than anticipated expenditures, potential design
defects, data migration issues, diversion of management’s attention from other key priorities, increased cybersecurity risks and adverse impacts on the
effectiveness of our internal controls over financial reporting. If we are unable to complete this redesign and consolidation of key business functions,
including the implementation of the ERP, effectively, on a timely basis, or at all, our financial position, results of operations and cash flows may be
adversely affected. Moreover, there is no assurance that this new ERP and other aspects of this process, once implemented, will meet our current or future
business needs or will operate as intended.
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Item 1B. Unresolved Staff Comments
None
Item 1C. Cybersecurity
Risk Management
We place the utmost importance on information security and privacy, including protecting the personal medical, financial and insurance information of
our patients and employees, and have a cybersecurity risk management program designed to assess, identify and manage material risks from cybersecurity
threats. Our cybersecurity risk management program is designed to employ industry best practices across our operations and business functions, including
through monitoring and assessing our threat environment; vulnerability assessments; detecting and responding to cyber attacks, cybersecurity incidents, and
data breaches; cybersecurity crisis preparedness and incident response plans; and investments in cybersecurity infrastructure and technology intended to
reduce cybersecurity risk. Key aspects of our cybersecurity risk management program include the following:
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adoption of the National Institute of Standards and Technology, or NIST, Cybersecurity Framework to assess the maturity of our
cybersecurity programs;
periodic comprehensive Cybersecurity Program Assessments conducted by an external cybersecurity consultant;
enterprise-wide security and privacy policies that are reviewed and updated annually;
information security and privacy trainings included in mandatory onboarding and annual compliance training for all personnel;
regular testing, both by internal and external resources, of information security defenses;
incident response procedures;
Third Party Cyber Risk Program to assess cybersecurity and information security risk associated with third parties that perform contracted
services using information on our network; and
a Security Operations Center that is designed to continuously monitor information on our network, investigate potential cyber threats and
report on information security incidents.
We engage consulting firms and other third parties in connection with our cybersecurity risk management processes. For example, third parties are
engaged from time to time to conduct evaluations of our security controls, including penetration testing and independent audits, and to advise the Board of
Directors, the Audit and Compliance Committee of the Board of Directors and/or our management team regarding cybersecurity matters.
We have processes to oversee and identify material cybersecurity risks associated with our use of third-party service providers. As part of these
processes, we conduct cybersecurity due diligence where deemed advisable with respect to third-party service providers that will be accessing our
information technology systems, including access to view or store sensitive data, prior to their engagement. Moreover, we have processes designed to
oversee and identify material cybersecurity risks associated with the information systems of third-party service providers. In addition, third-party service
providers that have access to our information technology systems, including access to view or store sensitive data, are contractually obligated to report
cybersecurity incidents to us so that we can assess the impact of any such incident on our business.
The current cyber threat environment presents increased risk for all companies, particularly companies in our industry, as the volume and intensity of
cybersecurity attacks on hospitals and health systems has continued to increase. We are regularly the target of cybersecurity attacks and other threats that
could have a security impact, and we have experienced security incidents from time to time. In particular, on February 13, 2023, we disclosed a security
breach in which a third-party vendor that provides a secure file transfer software platform utilized by our subsidiaries experienced a security breach
whereby personal information of certain patients of our healthcare facilities were exposed to the attacker.
We do not believe that risks we have identified to date from cybersecurity threats, including as a result of any previous cybersecurity incidents, have
materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition. However,
despite our security measures, there is no assurance that we, or the third parties with which we interact, will not experience a cybersecurity incident in the
future that materially affects us. For additional information regarding the risks to us associated with cybersecurity incidents, see “A cyber-attack or security
breach could result in the compromise of our facilities, confidential data or critical data systems and give rise to potential harm to patients, remediation
and
44
other expenses, expose us to liability under HIPAA, privacy and data protection laws and regulations, consumer protection laws, common law or other
theories, subject us to litigation and federal and state governmental inquiries and actions, damage our reputation, adversely impact our financial results
and otherwise be disruptive to our business.” included in Part I, Item 1A of this Form 10-K.
We maintain a cybersecurity insurance policy that provides coverage in connection with cybersecurity incidents. However, costs and damages
associated with cybersecurity incidents may not be fully insured under our insurance policy, and (to the extent otherwise covered) are subject to applicable
deductibles.
Governance
Our cybersecurity risk management processes are integrated into our overall risk management system. Our Board of Directors is responsible for the
overall supervision of our risk management activities. The Board's oversight of the material risks faced by us occurs at both the full board level and at the
committee level. In addition, the Audit and Compliance Committee has primary oversight responsibility regarding our information security, data security,
data privacy, and other cybersecurity programs, procedures and risks. Further, the Audit and Compliance Committee and our Board of Directors receive
updates at least quarterly from management, including our Chief Information Security Officer, or the CISO, covering our programs for managing
cybersecurity risks, including data privacy and data protection risks. Additionally, the Audit and Compliance Committee and the Board of Directors
actively participate in discussions with management and among themselves regarding cybersecurity risks.
Risk management is administered at a management level through a multi-disciplinary Enterprise Risk Committee comprised of members of
management, including our CISO. The Enterprise Risk Committee identifies and monitors what we believe to be the key risks currently facing the
organization, including cybersecurity risks. A comprehensive presentation regarding our enterprise risk management process and our key risks is presented
to the full Board of Directors on an annual basis.
In addition, we have established a Cyber Risk Executive Steering Committee, a multi-disciplinary management-level team chaired by our CISO which
is responsible for assessing and overseeing our information security and cybersecurity risk management policies, practices and priorities and for assessing
and monitoring key cybersecurity risks with respect to reporting such risks within the organization.
At a management level, our cybersecurity risk management efforts are led by our CISO. Our current CISO was appointed as our Vice President and
Chief Information Security Officer in 2021. Our current CISO has expertise in cybersecurity risk management through his more than 25 years of experience
in cybersecurity, technology and data privacy roles, including his service with the Company since 2021 and his service as chief information security officer
at another large organization prior to being employed by us. In addition, other individuals on our IT security team have cybersecurity experience or
certifications relevant to their respective role.
A key component of our enterprise risk management program is our incident response plan, which provides for controls and procedures in connection
with cybersecurity incidents. Under this plan, we have established a cybersecurity incident command, a multi-disciplinary management-level team led by
the CISO. The plan provides that the incident response team will conduct an initial assessment in the event of a cybersecurity incident meeting certain
criteria elevated for the review of senior members of the IT security team. In such event, the plan provides that the incident response team will assess
whether a cybersecurity incident has the potential to materially impact the organization and whether public disclosure is required or advisable in connection
therewith, and further provides that, if appropriate, any such cybersecurity incident may be further elevated for the review of senior management, the Audit
and Compliance Committee and/or the Board of Directors.
Item 2. Properties
We own our corporate headquarters building located in Franklin, Tennessee. In addition to the headquarters in Franklin, we maintain regional service
centers related to certain of our shared services initiatives. These service centers are located near our corporate headquarters or in the markets in which we
operate hospitals.
Most of our hospitals are general care hospitals offering a wide range of inpatient and outpatient medical services. These services generally include
general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic, psychiatric and rehabilitation
services. In addition, some of our hospitals provide skilled nursing and home care services based on individual community needs.
For each of our hospitals owned or leased as of December 31, 2023, the following table shows its location, the date of its acquisition or lease inception
and the number of licensed beds:
45
Hospital
Alabama
South Baldwin Regional Medical Center
Grandview Medical Center
Flowers Hospital
Medical Center Enterprise
Gadsden Regional Medical Center
Crestwood Medical Center
Alaska
Mat-Su Regional Medical Center
Arizona
Western Arizona Regional Medical Center
Northwest Medical Center
Oro Valley Hospital
Northwest Medical Center Sahuarita
Northwest Medical Center Houghton
Arkansas
Northwest Health System
Northwest Medical Center - Bentonville
Northwest Medical Center - Springdale
Willow Creek Women’s Hospital
Northwest Health Physician’s Specialty Hospital
Siloam Springs Regional Hospital
Florida
North Okaloosa Medical Center
Shorepoint Health Port Charlotte
Shorepoint Health Punta Gorda
Lower Keys Medical Center
Physicians Regional Healthcare System - Collier
Physicians Regional Healthcare System - Pine Ridge
Santa Rosa Medical Center
Georgia
East Georgia Regional Medical Center
Indiana
Lutheran Health Network
Bluffton Regional Medical Center
Dupont Hospital
Lutheran Hospital
Lutheran Musculoskeletal Center
Lutheran Downtown Hospital
Dukes Memorial Hospital
Kosciusko Community Hospital
Northwest Health - Porter Hospital
Northwest Health - La Porte Hospital
Northwest Health - Starke Hospital
Mississippi
Merit Health Wesley
Merit Health River Region
Merit Health Biloxi
City
Licensed
Beds(1)
Foley
Birmingham
Dothan
Enterprise
Gadsden
Huntsville
112
434
235
131
346
180
Date of
Acquisition/
Lease
Inception
June, 2000
July, 2007
July, 2007
July, 2007
July, 2007
July, 2007
Ownership
Type
Leased
Owned
Owned
Owned
Owned
Owned
Palmer
125
July, 2007
Owned
Bullhead City
Tucson
Oro Valley
Sahuarita
Houghton
Bentonville
Springdale
Johnson
Fayetteville
Siloam Springs
Crestview
Port Charlotte
Punta Gorda
Key West
Naples
Naples
Milton
July, 2000
July, 2007
July, 2007
139
287
176
18 November, 2020
44
June, 2022
128
222
64
20
73
110
254
208
167
130
227
129
July, 2007
July, 2007
July, 2007
April, 2016
February, 2009
March, 1996
January, 2014
January, 2014
January, 2014
January, 2014
January, 2014
January, 2014
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Statesboro
149
January, 2014
Owned
Bluffton
Fort Wayne
Fort Wayne
Fort Wayne
Fort Wayne
Peru
Warsaw
Valparaiso
La Porte
Knox
Hattiesburg
Vicksburg
Biloxi
46
40
131
396
37
191
25
72
301
227
53
July, 2007
July, 2007
July, 2007
July, 2007
July, 2007
July, 2007
July, 2007
May, 2007
March, 2016
March, 2016
211
351
153
July, 2007
July, 2007
January, 2014
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Merit Health Central
Merit Health Rankin
Merit Health Madison
Merit Health River Oaks
Merit Health Woman's Hospital
Merit Health Natchez
Missouri
Moberly Regional Medical Center
Northeast Regional Medical Center
Poplar Bluff Regional Medical Center
New Mexico
Eastern New Mexico Medical Center
Carlsbad Medical Center
Mountain View Regional Medical Center
North Carolina
Lake Norman Regional Medical Center
Davis Regional Medical Center
Oklahoma
AllianceHealth Madill
AllianceHealth Durant
Pennsylvania
Commonwealth Health Network
Wilkes-Barre General Hospital
Regional Hospital of Scranton
Moses Taylor Hospital
Tennessee
Tennova Healthcare - Cleveland
Tennova Healthcare - Clarksville
Tennova - Jefferson Memorial Hospital
Tennova - LaFollette Medical Center
Tennova - Newport Medical Center
Tennova - North Knoxville Medical Center
Tennova - Turkey Creek Medical Center
Texas
Lake Granbury Medical Center
Laredo Medical Center
Navarro Regional Hospital
Longview Regional Medical Center
Woodland Heights Medical Center
DeTar Healthcare System
Cedar Park Regional Medical Center
Total Licensed Beds at December 31, 2023
Total Hospitals at December 31, 2023
Jackson
Brandon
Canton
Flowood
Flowood
Natchez
Moberly
Kirksville
Poplar Bluff
Roswell
Carlsbad
Las Cruces
Mooresville
Statesville
Madill
Durant
Wilkes-Barre
Scranton
Scranton
Cleveland
Clarksville
Jefferson City
LaFollette
Newport
Powell
Knoxville
Granbury
Laredo
Corsicana
Longview
Lufkin
Victoria
Cedar Park
Leased
Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
379
134
67
160
109
179
January, 2014
January, 2014
January, 2014
January, 2014
January, 2014
October, 2014
99 November, 1993
93 December, 2000
410
January, 2014
162
99
168
April, 1998
July, 2007
July, 2007
123
144
January, 2014
January, 2014
25
138
January, 2014
January, 2014
369
186
122
April, 2009
May, 2011
January, 2012
351
270
58
66
130
116
111
October, 2005
July, 2007
January, 2014
January, 2014
January, 2014
January, 2014
January, 2014
73
326
162
224
149
278
126 December, 2007
January, 1997
October, 2003
July, 2007
July, 2007
July, 2007
July, 2007
11,902
71
(1)
Licensed beds are the number of beds for which the appropriate state agency licenses for a facility regardless of whether the beds are actually
available for patient use.
The real property of substantially all of our wholly-owned hospitals is also encumbered by mortgages to support obligations under the ABL Facility and
outstanding senior secured notes.
47
Item 3. Legal Proceedings
From time to time, we receive inquiries or subpoenas from state regulators, state Medicaid Fraud Control units, fiscal intermediaries, CMS, the U.S.
Department of Justice and other government entities regarding various Medicare and Medicaid issues. In addition, we are subject to other claims and
lawsuits arising in the ordinary course of our business including lawsuits and claims related to billing and collection practices at our hospitals. Based on
current knowledge, management does not believe that loss contingencies arising from pending legal, regulatory and governmental matters, including the
matters described herein, will have a material adverse effect on the consolidated financial position or liquidity of the Company. However, in light of the
inherent uncertainties involved in pending legal, regulatory and governmental matters, some of which are beyond our control, and the very large or
indeterminate damages sought in some of these matters, an adverse outcome in one or more of these matters could be material to our results of operations
or cash flows for any particular reporting period. Settlements of suits involving Medicare and Medicaid issues routinely require both monetary payments as
well as corporate integrity agreements. Additionally, qui tam or “whistleblower” actions initiated under the FCA may be pending but placed under seal by
the court to comply with the FCA’s requirements for filing such suits. In September 2014, the Criminal Division of the U.S. Department of Justice
announced that all qui tam cases will be shared with their Division to determine if a parallel criminal investigation should be opened. The Criminal
Division has also frequently stated an intention to pursue corporations in criminal prosecutions, including in its most recent Memorandum dated September
15, 2022. From time to time, we detect issues of non-compliance with Federal healthcare laws pertaining to claims submission and reimbursement practices
and/or financial relationships with physicians. We avail ourselves of various mechanisms to address potential overpayments arising out of these issues,
including repayment of claims, rebilling of claims, and participation in voluntary disclosure protocols offered by CMS and the Office of Inspector General.
Participating in voluntary repayments and voluntary disclosure protocols can have the potential for significant settlement obligations or even enforcement
action.
The following legal proceedings are described in detail because, although certain legal proceedings may not be required to be disclosed in this Part I,
Item 3 under SEC rules, due to the nature of the business of the Company, we believe that the following discussion of these matters may provide useful
information to security holders. This discussion does not include claims and lawsuits covered by medical professional liability, general liability or
employment practices insurance and risk retention programs, none of which claims or lawsuits would in any event be required to be disclosed in this Part I,
Item 3 under SEC rules.
Shareholder Litigation
Caleb Padilla, individually and on behalf of all others similarly situated v. Community Health Systems, Inc., Wayne T. Smith, Larry Cash, and Thomas
J. Aaron. This purported federal securities class action was filed in the United States District Court for the Middle District of Tennessee on May 30, 2019. It
seeks class certification on behalf of purchasers of our common stock between February 20, 2017 and February 27, 2018 and alleges misleading statements
resulted in artificially inflated prices for our common stock. On November 20, 2019, the District Court appointed Arun Bhattacharya and Michael Gaviria
as lead plaintiffs in the case. The lead plaintiffs filed a consolidated class complaint on January 21, 2020. The Company filed a motion to dismiss the
consolidated class complaint on March 23, 2020, and the District Court denied that motion on August 17, 2022. We reached a tentative settlement of this
matter, which was preliminarily approved by the District Court on May 31, 2023. The Court granted final approval of the settlement on October 13, 2023.
Padilla Derivative Litigation. Four purported shareholder derivative cases have been filed in two District Courts relating to the factual allegations in the
Padilla litigation; three of these cases have been consolidated in In re Community Health Systems, Inc. Shareholder Derivative Litigation and are pending in
the United States District Court for the District of Delaware; namely, Faisal Hussain v. Wayne T. Smith, et al, filed August 12, 2019; Susheel Tanjavoor v.
Wayne T. Smith, et al., filed August 29, 2019; and Kevin Aronson v. Wayne T. Smith, et al, filed April 29, 2020. The fourth case, Roger Trombley v. Wayne T.
Smith, et al, filed August 20, 2019 (now Patrick Ayers v Wayne T. Smith, et al), is pending in the United States District Court for the Middle District of
Tennessee. All four cases seek relief derivatively and on behalf of Community Health Systems, Inc. against certain Company officers and directors based
on alleged breaches of fiduciary duty, unjust enrichment, and other acts related to certain Company disclosures in 2017 and 2018 regarding the Company’s
adoption of Accounting Standards Update 2014-09, which the Company adopted effective January 1, 2018. We have reached a tentative settlement of these
cases, which was preliminarily approved by the District Court on December 4, 2023. The District Court granted final approval of the settlement on January
29, 2024 and ordered dismissal of the case.
Government Investigations and Qui Tam Litigation
U.S. ex rel Larry Bomar v. Bayfront HMA Medical Center, LLC, et al – On September 14, 2017, our former hospital in St. Petersburg, Florida received a
civil investigative demand, or CID, from the United States Department of Justice for information concerning its historic participation in the Florida Low
Income Pool Program. The Low Income Pool Program, or LIP, is a funding pool to support healthcare providers that provide uncompensated care to Florida
residents who are uninsured or underinsured. The CID sought documentation related to agreements between the hospital and Pinellas County. On June 13,
2019, an additional ten of our
48
affiliated hospitals in Florida received CIDs related to the same subject matter, along with two CIDs addressed to our affiliated management company and
the Parent Company. We cooperated fully with the investigation. On September 15, 2021, the United States District Court for the Middle District of Florida
ordered the unsealing of this qui tam complaint, which contains allegations related to the information sought in the September 14, 2017 CID. Specifically,
the relator claims our former hospital in St. Petersburg – Bayfront Medical Center St. Petersburg – along with other, unaffiliated hospitals violated the False
Claims Act by allegedly making certain contributions to a non-profit entity for the purpose of receiving supplemental Medicaid funding. The United States
has declined to intervene in the case. We filed a motion to dismiss on November 23, 2021, which the District Court granted without prejudice on January
24, 2023. The relator filed a first amended complaint on February 14, 2023, our response to which was filed on February 28, 2023. The District Court
granted our motion to dismiss with prejudice on August 21, 2023. The relator has filed a notice of appeal to the United States Court of Appeals for the
Eleventh Judicial Circuit. We have reached a tentative settlement of this matter, which is subject to approval by the Department of Justice.
On January 11, 2024, we received a Civil Investigative Demand from the Department of Justice for documents and information relating to a variety of
subjects, including practices and procedures related to utilization review, inpatient admissions and inpatient dialysis at our hospitals. We are cooperating
fully with this investigation.
Commercial Litigation and Other Lawsuits
Thomas Mason, MD, Steven Folstad, MD and Mid-Atlantic Emergency Medical Associates, PA v Health Management Associates, LLC f/k/a Health
Management Associates, Inc., Mooresville Hospital Management Associates d/b/a Lake Norman Regional Medical Center, Statesville HMA, LLC d/b/a
Davis Regional Medical Center, Envision Healthcare Corporation f/k/a Emergency Medical Services Corporation, Emcare Holdings, Inc., and Emergency
Medical Services, LP. This alleged wrongful retaliation case is filed in the United States District Court for the Western District of North Carolina. The
plaintiffs allege their agreements with the defendants were terminated in retaliation for plaintiffs’ alleged refusal to admit patients unnecessarily to the
defendant hospitals or otherwise perform unnecessary diagnostic testing. The allegations of the complaint relate to time periods prior to the hospitals’
affiliation with the Company. The plaintiffs filed a Third Amended Complaint on April 26, 2019. The defendants filed motions to dismiss, which were
granted in part and denied in part on September 5, 2019. We have settled this matter, and the District Court ordered dismissal of the case on November 2,
2023.
Tower Health, f/k/a Reading Health System, et al v CHS/Community Health Systems, Inc., et al. This breach of contract action is pending in the United
States District Court for the Eastern District of Pennsylvania. The plaintiffs allege breaches of an asset purchase agreement in connection with the sale of
Pottstown Memorial Medical Center. The alleged breaches regard plaintiffs’ contention that the defendants failed to disclose certain conditions related to
the physical plant of the hospital, along with various other alleged breaches of the asset purchase agreement. The plaintiffs filed an amended complaint on
July 22, 2019. Trial for this matter began May 3, 2021, and closed on October 5, 2021. On September 6, 2022, the District Court issued a Memorandum
Opinion denying all of Tower Health’s claims and entering a judgment in favor of the Company. The district Court also awarded the Company its attorneys’
fees and costs. On October 4, 2022, Tower Health filed a Rule 59 motion to alter or amend the District Court’s judgment and a Rule 15 motion to amend its
pleadings. The Company has filed oppositions to both motions and has separately moved for its attorney’s fees. On August 11, 2023, the District Court
denied Tower Health’s Rule 59 and Rule 15 motions. Tower Health has filed a notice of appeal to the United States Court of Appeals for the Third Judicial
District. Our motion for attorneys’ fees is still pending. We continue to vigorously defend this case.
Daniel H. Golden, as Litigation Trustee of the QHC Litigation Trust, and Wilmington Savings Fund Society, FSB, solely in its capacity as indenture
trustee v Community Health Systems, Inc., et al. A complaint in this case was filed on October 25, 2021 in the United States Bankruptcy Court for the
District of Delaware against various persons, including the Company, certain subsidiaries of the Company, certain former executive officers of the
Company and Credit Suisse Securities (USA) LLC. Plaintiff Daniel H. Golden is the litigation trustee for a litigation trust, which was formed under the plan
of reorganization of Quorum Health Corporation, or QHC, and certain affiliated entities confirmed by order of the United States Bankruptcy Court for the
District of Delaware wherein QHC and certain affiliated entities contributed various causes of action to such litigation trust. Plaintiff Wilmington Savings
Fund Society is the indenture trustee for certain notes issued by QHC. The complaint seeks damages and other forms of recovery arising out of certain
alleged actions taken by the Company and the other defendants in connection with the spin-off of QHC, which was completed on April 29, 2016, and
includes claims for unjust enrichment and for avoidance of certain transactions and payments by QHC to the Company connected with the spin-off,
including the $1.21 billion special dividend paid by QHC to the Company as part of the spin-off transactions. We filed a motion to dismiss on January 14,
2022, and oral argument on that motion was heard on July 21, 2022. On March 16, 2023, the District Court granted in part and denied in part our motion to
dismiss. We continue to vigorously defend this case.
49
Federal Trade Commission v. Novant Health, Inc. and Community Health Systems, Inc. On January 25, 2024, the Federal Trade Commission filed a
Complaint for Temporary Restraining Order and Preliminary Injunction in the United States District Court for the Western District of North Carolina
seeking to enjoin the consummation of our proposed sale of Lake Norman Regional Medical Center and Davis Regional Medical Center to Novant Health,
Inc., or Novant, pursuant to the terms of a definitive agreement dated as of February 28, 2023, as amended, entered into by us with Novant. The FTC
alleges, among other things, that the proposed sale of the two hospitals would violate federal antitrust laws. The administrative merits hearing on this matter
will begin on April 29, 2024. We will vigorously defend this case and plan to consummate this contemplated transaction with Novant in accordance with
the terms of the definitive agreement in the event that we and Novant prevail in this litigation.
Management of Significant Legal Proceedings
In accordance with our governance documents, including our Governance Guidelines and the charter of the Audit and Compliance Committee, our
management of significant legal proceedings is overseen by the independent members of the Board of Directors and, in particular, the Audit and
Compliance Committee. The Audit and Compliance Committee is charged with oversight of compliance, regulatory and litigation matters, and enterprise
risk management. Management has been instructed to refer all significant legal proceedings and allegations of financial statement fraud, error, or
misstatement to the Audit and Compliance Committee for its oversight and evaluation. Consistent with New York Stock Exchange and Sarbanes-Oxley
independence requirements, the Audit and Compliance Committee is comprised entirely of individuals who are independent of our management, and are
financially literate in accordance with New York Stock Exchange listing standards. In addition, four of the five members of the Audit and Compliance
Committee are “audit committee financial experts” as defined in the Securities Exchange Act of 1934, as amended.
In addition, the Audit and Compliance Committee and the other independent members of the Board of Directors oversee the functions of the voluntary
compliance program, including its auditing and monitoring functions and confidential disclosure program. In recent years, the voluntary compliance
program has addressed the potential for a variety of billing errors that might be the subject of audits and payment denials by the CMS Recovery Audit
Contractors’ permanent project, including MS-DRG coding, outpatient hospital and physician coding and billing, and medical necessity for services
(including a focus on hospital stays of very short duration). Efforts by management, through the voluntary compliance program, to identify and limit risk
from these government audits have included significant policy and guidance revisions, training and education, and auditing.
Item 4. Mine Safety Disclosures
Not applicable.
50
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
We completed an initial public offering of our common stock on June 14, 2000. Our common stock began trading on June 9, 2000 and is listed on the
New York Stock Exchange under the symbol CYH. As of February 14, 2024, there were approximately 185 holders of record of our common stock.
Stock Performance Graph
The following graph sets forth the cumulative return of our common stock during the five year period ended December 31, 2023, as compared to the
cumulative return of the Standard & Poor’s 500 Stock Index (S&P 500) and the cumulative return of the Dow Jones Healthcare Index. The graph assumes
an initial investment of $100 in our common stock and in each of the foregoing indices and the reinvestment of dividends where applicable. The
comparisons in the graph below are based on historical data and are not indicative of, or intended to forecast, future performance of our common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Community Health Systems, Inc., the S&P 500 Index, and the Dow Jones US Health Care Index
We are a holding company which operates through our subsidiaries. The ABL Facility and the indentures governing the senior and senior secured notes
contain various covenants under which the assets of our subsidiaries are subject to certain restrictions relating to, among other matters, dividends and
distributions, as referenced in the paragraph below.
51
The ABL Facility and the indentures governing each series of our outstanding notes restrict our subsidiaries from, among other matters, paying
dividends and making distributions to us, which thereby limits our ability to pay dividends and/or repurchase stock. As of December 31, 2023, under the
most restrictive test in these agreements (and subject to certain exceptions), we have approximately $300 million of capacity to pay permitted dividends
and/or repurchase shares of stock or make other restricted payments.
The following table contains information about our purchases of common stock during the three months ended December 31, 2023.
Period
October 1, 2023 -
October 31, 2023
November 1, 2023 -
November 30, 2023
December 1, 2023 -
December 31, 2023
Total
Total
Number
of Shares
Purchased
(a)
Average
Price
Paid per
Share
Total
Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs(b)
Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Plans or
Programs(b)
7,181 $
2.90
—
—
—
7,181 $
—
2.90
—
—
—
—
—
—
—
—
Includes 7,181 shares withheld by us to satisfy the payment of tax obligations related to the vesting of restricted stock awards.
(a)
(b) We had no publicly announced plans or open market repurchase programs for shares of our common stock during the three months ended December
31, 2023.
Item 6. Reserved
Reserved.
52
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read this discussion together with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements
included elsewhere in this Form 10-K.
Executive Overview
We are one of the nation’s largest healthcare companies. Our affiliates are leading providers of healthcare services, developing and operating healthcare
delivery systems in 40 distinct markets across 15 states. As of December 31, 2023, our subsidiaries own or lease 71 affiliated hospitals, with approximately
12,000 beds, and operate more than 1,000 sites of care, including physician practices, urgent care centers, freestanding emergency departments,
occupational medicine clinics, imaging centers, cancer centers and ambulatory surgery centers. We generate revenues by providing a broad range of general
and specialized hospital healthcare services and outpatient services to patients in the communities in which we are located. For the hospitals that we own
and operate, we are paid for our services by governmental agencies, private insurers and directly by the patients we serve.
Economic conditions in the United States continue to be challenging in various respects, and the United States economy continues to experience
significant inflationary pressures, elevated interest rates and challenging labor market conditions. Taking into account these factors, we have incurred in
certain recent periods, and may continue to incur, increased expenses arising from factors such as wage inflation for permanent employees, increased rates
for and utilization of temporary contract labor (including contract nursing personnel) and increased rates for outsourced medical specialists. While we have
implemented cost containment and other measures to try to counteract these developments, we may be unable to fully offset the impact of these factors on
the operation of our business.
If economic conditions in the United States further significantly deteriorate and/or public health conditions related to the COVID-19 pandemic
significantly worsen, any such developments could materially and adversely affect our results of operations, financial position, and/or our cash flows.
Acquisition, Divestiture and Closure Activity
During the year ended December 31, 2023, we paid approximately $38 million to acquire the operating assets and related businesses of certain
physician practices, clinics, ambulatory surgery centers and other ancillary businesses that operate within the communities served by our hospitals. We
allocated the purchase price in connection with these acquisitions to property and equipment, intangible assets, working capital, noncontrolling interests and
goodwill.
During 2023, we completed the divestiture of eight hospitals and the sale of a majority interest in one hospital. These hospitals represented annual net
operating revenues in 2022 of approximately $594 million and we received total net proceeds of approximately $518 million in connection with these
dispositions, inclusive of approximately $85 million received at a preliminary closing on December 30, 2022 in connection with the disposition of
Greenbrier Valley Medical Center.
During 2022, we completed the divestiture of one hospital. This hospital represented annual net operating revenues in 2021 of approximately $18
million, and we received total net proceeds of less than $1 million in connection with this disposition.
During 2021, we completed the divestiture of five hospitals, including three which closed effective January 1, 2021 (for these hospitals we received net
proceeds at a preliminary closing on December 31, 2020). These five hospitals represented annual net operating revenues in 2020 of approximately $275
million and, including the net proceeds for the three hospital divestitures that preliminarily closed on December 31, 2020, we received total net proceeds of
approximately $28 million in connection with the disposition of these hospitals.
53
The following table provides a summary of hospitals that we divested (or, in the case of Lutheran Rehabilitation Hospital, in which the Company sold a
majority interest) during the years ended December 31, 2023, 2022 and 2021:
Hospital
2023 Divestitures:
Greenbrier Valley Medical Center
Plateau Medical Center
Medical Center of South Arkansas
Lutheran Rehabilitation Hospital
AllianceHealth Ponca City
AllianceHealth Woodward
Bravera Health Brooksville
Bravera Health Spring Hill
Bravera Health Seven Rivers
2022 Divestiture:
AllianceHealth Seminole
2021 Divestitures:
Lea Regional Medical Center
Tennova Healthcare - Tullahoma
Tennova Healthcare - Shelbyville
Northwest Mississippi Medical Center
AllianceHealth Midwest
Buyer
Vandalia Health, Inc.
Vandalia Health, Inc.
SARH Holdings, Inc.
Select Medical Corporation
Integris Health
Integris Health
Tampa General Hospital
Tampa General Hospital
Tampa General Hospital
City, State
Ronceverte, WV
Oak Hill, WV
El Dorado, AR
Fort Wayne, IN
Ponca City, OK
Woodward, OK
Brooksville, FL
Spring Hill, FL
Crystal River, FL
Licensed
Beds
Effective Date
122
25
166
36
140
87
120
124
128
January 1, 2023
April 1, 2023
July 1, 2023
September 1, 2023
November 1, 2023
November 1, 2023
December 1, 2023
December 1, 2023
December 1, 2023
SSM Health Care of Oklahoma, Inc.
Seminole, OK
32
July 1, 2022
Covenant Health System
Vanderbilt University Medical Center
Vanderbilt University Medical Center
Delta Health System
SSM Health Care of Oklahoma, Inc.
Hobbs, NM
Tullahoma, TN
Shelbyville, TN
Clarksdale, MS
Midwest City, OK
84
135
60
181
255
January 1, 2021
January 1, 2021
January 1, 2021
February 1, 2021
April 1, 2021
During the three months ended September 30, 2022, we completed the closure of Shorepoint Health Venice hospital (312 licensed beds) in Venice,
Florida. We recorded an impairment charge of approximately $29 million during the year ended December 31, 2022, to adjust the fair value of the long-
lived assets of this hospital, including property and equipment and capitalized software costs, based on their estimated fair value.
During the three months ended September 30, 2022, the provision of inpatient services and substantially all outpatient services ceased at First Hospital
Wyoming Valley (psychiatric hospital) (149 licensed beds) in Wilkes-Barre, Pennsylvania, resulting in the closure of this facility being substantially
complete as of September 30, 2022. We completed the closure of First Hospital Wyoming Valley during the three months ended December 31, 2022. We
recorded an impairment charge of approximately $15 million during the year ended December 31, 2022, to adjust the fair value of the long-lived assets of
this hospital, including property and equipment and capitalized software costs, based on their estimated fair value.
Effective December 31, 2022, the lease for AllianceHealth Clinton (56 licensed beds) in Clinton, Oklahoma expired and was not renewed. We recorded
an impairment charge of approximately $1 million during the year ended December 31, 2022 in conjunction with exiting the lease to operate this hospital.
On July 30, 2021, we sold our unconsolidated equity interests in Macon Healthcare, LLC, a joint venture with certain subsidiaries of HCA representing
two hospitals in Macon, Georgia, in which we owned a 38% interest. We received $110 million in cash in connection with the sale of these equity interests
and recognized a pre-tax gain of approximately $39 million on the sale of our investments in unconsolidated affiliates during the year ended December 31,
2021.
In addition to hospitals divested in 2021, 2022 and in 2023, we have entered into a definitive agreement to sell two hospitals as noted below where the
divestiture has not yet been completed. On February 28, 2023, we entered into a definitive agreement for the sale of substantially all of the assets of Lake
Norman Regional Medical Center (123 licensed beds) in Mooresville, North Carolina, and Davis Regional Medical Center (144 licensed beds) in
Statesville, North Carolina, to Novant Health, Inc. For additional information regarding this potential disposition, see the Current Report on Form 8-K filed
by us on February 28, 2023. On January 25, 2024, the Federal Trade Commission, or FTC, filed a complaint seeking to enjoin the consummation of the sale
of these hospitals to Novant. For additional information regarding this litigation, see the Legal Proceedings section of Part I, Item 3 of this Form 10-K.
Taking into account this FTC action, there can be no assurance that this transaction with Novant will be completed, or if this transaction is completed, the
ultimate timing of the completion of this transaction.
Moreover, we may give consideration to divesting certain additional hospitals and non-hospital businesses. Generally, these hospitals and non-hospital
businesses are not in one of our strategically beneficial services areas, are less complementary to our business strategy and/or have lower operating
margins. In addition, we continue to receive interest from potential acquirers for certain of our hospitals and non-hospital businesses. As such, we may sell
additional hospitals and/or non-hospital businesses if we consider any such disposition to be in our best interests. We expect proceeds from any such
divestitures to be used for general corporate purposes (including potential debt repayments and/or debt repurchases) and capital expenditures.
54
Overview of Operating Results
Our net operating revenues for the year ended December 31, 2023 increased $279 million to approximately $12.5 billion compared to approximately
$12.2 billion for the year ended December 31, 2022. On a same-store basis, net operating revenues for the year ended December 31, 2023 increased $552
million.
We had net income of $16 million during the year ended December 31, 2023, compared to $179 million for the year ended December 31, 2022. Net
income for the year ended December 31, 2023 included the following:
•
•
•
•
•
an after-tax charge of $28 million for expense related to government and other legal matters and related costs,
an after-tax benefit of $61 million for gain from early extinguishment of debt,
an after-tax charge of $17 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology
platforms and associated processes,
an after-tax benefit of $42 million resulting from gains on the sale of five hospitals and the sale of a majority interest in one hospital, offset by losses
on the sale of three hospitals and impairment of long-lived assets that were idled, disposed or held-for-sale, and
an after-tax charge of $10 million for restructuring charges related to the closure of businesses as well as service line closures and consolidations at
certain hospitals.
Net income for the year ended December 31, 2022 included the following:
•
•
•
•
•
•
an after-tax charge of $4 million for expense related to government and other legal matters and related costs,
an after-tax benefit of $208 million for gain from early extinguishment of debt,
an after-tax benefit of $93 million from the gain on the sale of a majority interest in CoreTrust Holdings, LLC, or CoreTrust, by Healthtrust
Purchasing Group, L.P., a group purchasing organization in which we are a noncontrolling partner, or the CoreTrust Transaction,
an after-tax charge of $12 million for the change in estimate of the professional claims liability related to divested locations,
an after-tax charge of $55 million for the impairment of long-lived assets of divested and closed businesses based on their estimated fair values, and
an after-tax charge of $5 million for restructuring charges related to the closure of businesses as well as service line closures and consolidations at
certain hospitals.
Consolidated inpatient admissions for the year ended December 31, 2023, increased 0.3%, compared to the year ended December 31, 2022, and
consolidated adjusted admissions for the year ended December 31, 2023, increased 1.7%, compared to the year ended December 31, 2022. Same-store
inpatient admissions for the year ended December 31, 2023, increased 3.5%, compared to the year ended December 31, 2022, and same-store adjusted
admissions for the year ended December 31, 2023, increased 5.3%, compared to the year ended December 31, 2022.
Self-pay revenues represented approximately 1.1% and 0.7% of net operating revenues for the years ended December 31, 2023 and 2022, respectively.
The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 10.4% and 11.5%
for the years ended December 31, 2023 and 2022, respectively. Direct and indirect costs incurred in providing charity care services as a percentage of net
operating revenues was approximately 1.1% and 1.4% for the years ended December 31, 2023 and 2022, respectively.
Overview of Legislative and Other Governmental Developments
The healthcare industry is subject to changing political, regulatory, and economic influences that may affect our business. In recent years, the U.S.
Congress and certain state legislatures have introduced and passed a large number of proposals and legislation affecting the healthcare system, including
laws intended to impact access to health insurance and reduce healthcare costs and government spending. The most prominent of these efforts, the
Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed, and expanded health insurance coverage through a
combination of public program expansion and private sector health insurance reforms. The Affordable Care Act has been, and continues to be, subject to
legislative and regulatory changes and court challenges. To increase access to health insurance during the COVID-19 pandemic, the ARPA enhanced
subsidies for individuals eligible to purchase coverage through Affordable Care Act marketplaces. Subsequent legislation extended these enhanced
subsidies through 2025. In addition, early COVID-related legislation required states to maintain continuous Medicaid enrollment, among other conditions,
to receive a temporary increase in federal funds for Medicaid expenditures. The expiration of this “continuous coverage” requirement in April 2023 has
resulted in significant Medicaid coverage disruptions and dis-enrollments. CMS has required certain
55
states to pause disenrollments due to noncompliant renewal systems. These and other changes and initiatives may impact the number of individuals that
elect to obtain public or private health insurance or the scope of such coverage, if purchased.
Of critical importance to us is the potential impact of any changes specific to the Medicaid program, including the funding and expansion provisions of
the Affordable Care Act and subsequent legislation or agency initiatives. Historically, the states with the greatest reductions in the number of uninsured
adult residents have expanded Medicaid under the Affordable Care Act. A number of states have opted out of the Medicaid coverage expansion provisions,
but could ultimately decide to expand their programs at a later date. Of the 15 states in which we operated hospitals as of December 31, 2023, nine states
have taken action to expand their Medicaid programs. At this time, the other six states have not, including Florida, Alabama, Tennessee, Mississippi and
Texas, where we operated a significant number of hospitals as of December 31, 2023. Some states use, or have applied to use, waivers granted by CMS to
implement expansion, impose different eligibility or enrollment conditions, or otherwise implement programs that vary from federal standards.
Other recent reform initiatives and proposals at the federal and state levels include those focused on price transparency and limiting out-of-network
charges, which may impact prices, our competitive position and the relationships between hospitals, insurers, patients, and ancillary providers (such as
anesthesiologists, radiologists, and pathologists). For example, the No Surprises Act imposes various requirements on providers and health plans intended
to prevent “surprise” medical bills. Among other restrictions and requirements, the law prohibits providers from charging patients an amount beyond the in-
network cost sharing amount for services rendered by out-of-network providers, subject to limited exceptions. For services for which balance billing is
prohibited (even when no balance billing occurs), the No Surprises Act may limit the amounts received by out-of-network providers from health plans, and
also establishes a dispute resolution process for providers and payors to handle payment disputes that cannot be resolved through direct negotiations. The
regulations and related guidance implementing the No Surprises Act have been and continue to be subject to legal challenges. The No Surprises Act also
requires providers to provide a good faith estimate of expected charges to uninsured or self-pay patients for scheduled items and services, in advance of the
date of the scheduled item or service or upon request. Based on these estimates, patients may invoke a patient-provider dispute resolution process
established by regulation to challenge charges in certain circumstances.
Other trends toward transparency and value-based purchasing may impact the competitive position and patient volumes of providers. For example, the
CMS Care Compare website makes available to the public certain data that hospitals submit in connection with Medicare reimbursement claims, including
hospital performance data on quality measures and patient satisfaction. In addition, Medicare reimbursement for hospitals is adjusted based on quality and
efficiency measures, and CMS currently administers various accountable care organizations and bundled payment demonstration projects. The CMS
Innovation Center has highlighted the need to accelerate the movement to value-based care and drive broader system transformation.
Throughout the acute phase of the COVID-19 pandemic that began in 2020, federal and state governments passed legislation, promulgated regulations
and took other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health
emergency and to provide financial relief. The public health emergency declared by HHS in response to the pandemic expired in May 2023. Although
federal and state governments have terminated most of the temporary measures that were implemented to assist providers, the effects of certain of these
measures, including those intended to provide financial relief during the public health emergency, continue to impact providers. For example, the BCA
sequestration was extended several times as part of COVID-relief and subsequent legislation, and the payment reductions are currently set to continue
through April 2032. Further, the ARPA, in addition to providing funding for healthcare providers, increased the federal budget deficit in a manner that
triggers an additional statutorily mandated sequestration under the Pay-As-You Go Act of 2010. As a result, an additional Medicare spending reduction of
up to 4% was required to take effect in January 2022. However, Congress has delayed implementation of this payment reduction until 2025.
We received pandemic relief fund payments through various federal, state and local programs of approximately $161 million and $58 million during the
years ended December 31, 2022 and 2021. Approximately $173 million and $148 million during the years ended December 31, 2022 and 2021,
respectively, was recognized as pandemic relief funds within the consolidated statements of (loss) income. We did not receive or recognize any significant
level of payments or benefits under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, or other COVID-19 related stimulus and
relief legislation during the year ended December 31, 2023 and does not expect to receive or recognize any significant level of payments or benefit under
the CARES Act and other existing legislation related to COVID-19 in future periods.
56
Reimbursement by government programs may be affected by broad shifts in payment policy. For example, recent changes related to the 340B Drug
Pricing Program have implications for all hospitals reimbursed under the outpatient PPS, including those, like ours, that do not participate in the program.
In 2018, CMS implemented a payment policy that reduced Medicare payments for 340B hospitals for most drugs obtained at 340B-discounted rates and
that resulted in increased payments for non-340B hospitals. In June 2022, the U.S. Supreme Court, in American Hospital Association v. Becerra,
invalidated past payment cuts for hospitals participating in the 340B Drug Pricing Program. In light of the U.S. Supreme Court decision and to achieve
budget neutrality, CMS implemented a reduction of approximately 3.1% to payment rates for non-drug services under the outpatient PPS for calendar year
2023. In addition, HHS directed that $9 billion be paid to affected 340B providers in one-time lump sum payments as the remedy for calendar years 2018
through 2022. Moreover, in order to comply with budget neutrality requirements, HHS finalized a corresponding offset in future non-drug item and service
payments for all outpatient PPS providers (except new providers) that will reduce the outpatient PPS conversion factor by 0.5% annually. This adjustment
will start in calendar year 2026 and continue for approximately 16 years. This reduction to payment rates adversely affected our results for the year ended
December 31, 2023, and the reduction to the outpatient PPS conversion factor as noted above is anticipated to adversely impact our results.
Sources of Revenue
The following table presents the approximate percentages of net operating revenues by payor source for the periods indicated. The data for the periods
presented are not strictly comparable due to the effect that businesses acquired, sold, closed or opened during each of the respective periods, as applicable,
have had on these statistics.
Medicare
Medicare Managed Care
Medicaid
Managed Care and other third-party payors
Self-pay
Total
Year Ended December 31,
2022
2023
2021
19.9 %
16.8
14.3
47.9
1.1
100.0 %
20.9 %
16.1
14.8
47.5
0.7
100.0 %
21.4 %
15.1
13.5
49.1
0.9
100.0 %
As shown above, we receive a substantial portion of our revenues from the Medicare, Medicare Managed Care and Medicaid programs. Included in
Managed Care and other third-party payors is net operating revenues from insurance companies with which we have insurance provider contracts,
insurance companies for which we do not have insurance provider contracts, workers’ compensation carriers and non-patient service revenue, such as gain
(loss) on investments, rental income and cafeteria sales. We generally expect the portion of revenues received from the Medicare, Medicare Managed Care
and Medicaid programs to increase over the long-term due to the general aging of the population and other factors, including health reform initiatives.
There has been a trend toward increased enrollment in Medicare Managed Care and Medicaid managed care programs, which may adversely affect our net
operating revenues. We may also be impacted by regulatory requirements imposed on insurers, such as minimum medical-loss ratios and specific benefit
requirements. Furthermore, in the normal course of business, managed care programs, insurance companies and employers actively negotiate the amounts
paid to hospitals. Our relationships with payors may be impacted by price transparency initiatives and out-of-network billing restrictions, including those in
the No Surprises Act. There can be no assurance that we will retain our existing reimbursement arrangements or that third-party payors will not attempt to
further reduce the rates they pay for our services.
Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems
and provisions of cost-based reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of
payment methodologies. Amounts we receive for the treatment of patients covered by Medicare, Medicaid and non-governmental payors are generally less
than our standard billing rates. We account for the differences between the estimated program reimbursement rates and our standard billing rates as
contractual allowance adjustments, which we deduct from gross revenues to arrive at net operating revenues. Final settlements under some of these
programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program
reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance
adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues by an insignificant amount in each
of the years ended December 31, 2023, 2022 and 2021.
The payment rates under the Medicare program for hospital inpatient and outpatient acute care services are based on prospective payment systems,
which depend upon a patient’s diagnosis or the clinical complexity of services provided to a patient, among other factors. These rates are indexed for
inflation annually, although increases have historically been less than actual inflation. On August 1, 2023, CMS published the final rule to increase this
index by 3.3% for hospital inpatient acute care services that are reimbursed under the prospective payment system for federal fiscal year 2024 (which began
October 1, 2023). Together with other changes to
57
payment policies, payment rates for hospital inpatient acute care services are expected to increase approximately 3.1%. Hospitals that do not submit
required patient quality data are subject to a reduction in payments. We are complying with this data submission requirement. Payments may also be
affected by various other adjustments, including those that depend on patient-specific or hospital specific factors. For example, the “two midnight rule”
establishes admission and medical review criteria for inpatient services limiting when services to Medicare beneficiaries are payable as inpatient hospital
services. Reductions in the rate of increase or overall reductions in Medicare reimbursement may cause a decline in the growth of our net operating
revenues.
Payment rates under the Medicaid program vary by state. In addition to the base payment rates for specific claims for services rendered to Medicaid
enrollees, several states utilize supplemental reimbursement programs to make separate payments that are not specifically tied to an individual’s care, some
of which offset a portion of the cost of providing care to Medicaid and indigent patients. These programs are funded with a combination of state and federal
resources, including, in certain instances, fees or taxes levied on the providers. The programs are generally authorized by CMS for a specified period of
time and require CMS’s approval to be extended. We are unable to predict whether or on what terms CMS will extend the supplemental programs in the
states in which we operate. Under these supplemental programs, we recognize revenue and related expenses in the period in which amounts are estimable
and payment is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and included as Medicaid revenue in the
table above, and fees, taxes or other program related costs are reflected in other operating expenses.
Results of Operations
Our hospitals and other sites of care offer a broad variety of inpatient and outpatient medical and surgical services. These include general acute care,
emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic services, psychiatric and rehabilitation services.
Utilization of services and our results of operations are dependent on a multitude of factors including seasonal fluctuations in demand. Historically, the
strongest demand for hospital services generally occurs during the winter months, and the weakest demand generally occurs during the summer months.
The following tables summarize, for the periods indicated, selected operating data.
Operating results, as a percentage of net operating revenues:
Net operating revenues
Operating expenses (a)
Depreciation and amortization
Impairment and gain (loss) on sale of businesses, net
Income from operations
Interest expense, net
Gain (loss) from early extinguishment of debt
Gain on sale of equity interests in Macon Healthcare, LLC
Gain from CoreTrust Transaction
Equity in earnings of unconsolidated affiliates
Income before income taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interests
Net (loss) income attributable to Community Health Systems,
Inc. stockholders
58
Year Ended December 31,
2022
2023
2021
100.0 %
(89.0 )
(4.0 )
0.7
7.7
(6.7 )
0.6
—
—
0.1
1.7
(1.6 )
0.1
(1.2 )
100.0 %
(88.3 )
(4.4 )
(0.6 )
6.7
(7.0 )
2.1
—
1.0
0.1
2.9
(1.4 )
1.5
(1.1 )
100.0 %
(84.1 )
(4.4 )
(0.2 )
11.3
(7.2 )
(0.6 )
0.3
—
0.2
4.0
(1.0 )
3.0
(1.1 )
(1.1 )%
0.4 %
1.9 %
Percentage increase (decrease) from prior year:
Net operating revenues
Admissions (b)
Adjusted admissions (c)
Average length of stay (d)
Net (loss) income attributable to Community Health Systems,
Inc. stockholders
Same-store percentage (decrease) increase from prior year (e):
Net operating revenues
Admissions (b)
Adjusted admissions (c)
Year Ended December 31,
2023
2022
2.3 %
0.3
1.7
(4.3 )
(1.3 )%
(1.7 )
2.6
(6.0 )
(389.1 )
(80.0 )
4.8 %
3.5
5.3
(0.2 )%
0.5
5.0
(a)
(b)
(c)
(d)
(e)
Operating expenses include salaries and benefits, supplies, other operating expenses, and lease cost and rent, net of the reduction in operating
expenses resulting from the recognition of pandemic relief funds.
Admissions represents the number of patients admitted for inpatient treatment.
Adjusted admissions is a general measure of combined inpatient and outpatient volume. Adjusted admissions is computed by multiplying
admissions by gross patient revenues and then dividing that number by gross inpatient revenues.
Average length of stay represents the average number of days inpatients stay in our hospitals.
Excludes information for businesses sold or closed during each of the respective periods, as applicable.
Items (b) – (e) are metrics used to manage our performance. These metrics provide useful insight to investors about the volume and acuity of services
we provide, which aid in evaluating our financial results.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Net operating revenues increased by 2.3% to approximately $12.5 billion for the year ended December 31, 2023, from approximately $12.2 billion for
the year ended December 31, 2022. Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $552
million, or 4.8%, during the year ended December 31, 2023, compared to the same period in 2022. On a period-over-period basis, the increase in net
operating revenues was primarily attributable to higher inpatient and outpatient volumes, increased reimbursement rates, higher acuity and an increase in
non-patient revenue, partially offset by unfavorable changes in payor mix. Non-same-store net operating revenues decreased $273 million during the year
ended December 31, 2023, compared to the same period in 2022, with the decrease attributable primarily to the divestiture of hospitals during 2022 and
2023. On a consolidated basis, inpatient admissions increased by 0.3% and adjusted admissions increased by 1.7% during the year ended December 31,
2023, compared to the same period in 2022. On a same-store basis, net operating revenues per adjusted admission decreased 0.5%, while inpatient
admissions increased by 3.5% and adjusted admissions increased by 5.3% for the year ended December 31, 2023, compared to the same period in 2022.
Operating costs and expenses, as a percentage of net operating revenues, decreased from 93.3% during the year ended December 31, 2022 to 92.3%
during the year ended December 31, 2023. Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale
of businesses, as a percentage of net operating revenues, increased from 88.3% for the year ended December 31, 2022 to 89.0% for the year ended
December 31, 2023. Salaries and benefits decreased as a percentage of net operating revenues from 43.6% for the year ended December 31, 2022 to 43.4%
for the year ended December 31, 2023, primarily due to an increase in net operating revenues, partially offset by increased hiring commensurate with lower
utilization of contract labor. Supplies, as a percentage of net operating revenues, decreased from 16.2% for the year ended December 31, 2022 to 16.0% for
the year ended December 31, 2023. Other operating expenses, as a percentage of net operating revenues, decreased from 27.3% for the year ended
December 31, 2022 to 27.0% for the year ended December 31, 2023, primarily due to an increase in net operating revenues and lower utilization of and
rates paid for contract labor, partially offset by higher costs for professional liability insurance and higher rates paid for outsourced medical specialists.
Lease cost and rent, as a percentage of net operating revenues, remained consistent at 2.6% for the years ended December 31, 2023 and 2022. Pandemic
relief funds, as a percentage of net operating revenues, were 0.0% for the year ended December 31, 2023, compared to (1.4)% for the same period in 2022.
Depreciation and amortization, as a percentage of net operating revenues, decreased to 4.0% for the year ended December 31, 2023 from 4.4% for the
year ended December 31, 2022.
59
Impairment and (gain) loss on sale of businesses, net was a gain of $87 million for the year ended December 31, 2023, compared to expense of $71
million for the same period in 2022. The gain in 2023 and the expense in 2022 related primarily to divestiture activity during each respective period as
discussed more specifically under “Acquisition, Divestiture and Closure Activity” herein.
Interest expense, net, decreased by $28 million to $830 million for the year ended December 31, 2023 compared to $858 million for the same period in
2022. This was primarily due to our refinancing activity during 2023 and 2022.
Gain from early extinguishment of debt of $72 million was recognized during the year ended December 31, 2023, compared to a gain from early
extinguishment of debt of $253 million in the same period in 2022, as a result of our refinancing activity during the years ended December 31, 2023 and
2022.
There was no gain from the CoreTrust Transaction during the year ended December 31, 2023. Gain from the CoreTrust Transaction of $119 million was
recognized during the year ended December 31, 2022.
Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, remained consistent at (0.1)% for the years ended December
31, 2023 and 2022.
The net results of the above-mentioned changes resulted in income before income taxes decreasing $142 million to $207 million for the year ended
December 31, 2023 from $349 million for the same period in 2022.
Our provision for income taxes for the years ended December 31, 2023 and 2022 was $191 million and $170 million, respectively, and the effective tax
rates were 92.3% and 48.7% for the years ended December 31, 2023 and 2022, respectively. The increase in the provision for income taxes for the year
ended December 31, 2023, compared to the same period in 2022 was primarily due to non-deductible goodwill related to divested hospitals in 2023
compared to 2022. The difference in our effective tax rate for the year ended December 31, 2023, compared to the same period in 2022 was due to the
aforementioned increase in the provision for income taxes and the decrease in income before taxes.
Net income, as a percentage of net operating revenues, was 0.1% for the year ended December 31, 2023, compared to 1.5% for the same period in 2022.
Net income attributable to noncontrolling interests, as a percentage of net operating revenues, was 1.2% for the year ended December 31, 2023,
compared to 1.1% for the same period in 2022.
Net (loss) income attributable to Community Health Systems, Inc. was $(133) million for the year ended December 31, 2023, compared to net income
of $46 million for the same period in 2022.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Net operating revenues decreased by 1.3% to approximately $12.2 billion for the year ended December 31, 2022, from approximately $12.4 billion for
the year ended December 31, 2021. Net operating revenues on a same-store basis from hospitals that were operated throughout both periods decreased $27
million, or 0.2%, during the year ended December 31, 2022, compared to the same period in 2021. On a period-over-period basis, there was a decline in net
operating revenues as a result of fewer inpatient admissions, which was partially offset by an increase in outpatient visits and surgeries. Also, lower overall
acuity of services was partially offset by improved reimbursement rates. Non-same-store net operating revenues decreased $130 million during the year
ended December 31, 2022, compared to the same period in 2021, with the decrease attributable primarily to the divestiture of hospitals during 2021 and
2022. On a consolidated basis, inpatient admissions decreased by 1.7% during the year ended December 31, 2022, compared to the same period in 2021.
Also on a consolidated basis, adjusted admissions increased by 2.6% during the year ended December 31, 2022, as compared to the same period in 2021.
On a same-store basis, net operating revenues per adjusted admission decreased 5.0%, while inpatient admissions increased by 0.5% and adjusted
admissions increased by 5.0% for the year ended December 31, 2022, compared to the same period in 2021.
Operating costs and expenses, as a percentage of net operating revenues, increased from 88.7% during the year ended December 31, 2021 to 93.3%
during the year ended December 31, 2022. Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale
of businesses, as a percentage of net operating revenues, increased from 84.1% for the year ended December 31, 2021 to 88.3% for the year ended
December 31, 2022. Salaries and benefits increased as a percentage of net operating revenues from 42.4% for the year ended December 31, 2021 to 43.6%
for the year ended December 31, 2022, primarily due to wage increases driven by inflation and competitive labor market conditions. Supplies, as a
percentage of net operating revenues, decreased from 16.5% for the year ended December 31, 2021 to 16.2% for the year ended December 31, 2022. Other
operating expenses, as a percentage of net operating revenues, increased from 23.9% for the year ended December 31, 2021 to 27.3% for the year ended
December 31, 2022, primarily due to higher costs for contract labor, professional liability insurance and medical specialist fees. Lease cost and rent, as a
percentage of net operating revenues, increased from 2.5% for the year ended December 31, 2021 to
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2.6% for the year ended December 31, 2022. Pandemic relief funds, as a percentage of net operating revenues, were (1.4)% for the year ended December
31, 2022, compared to (1.2)% for the same period in 2021.
Depreciation and amortization, as a percentage of net operating revenues, remained consistent at 4.4% for both years ended December 31, 2022 and
2021.
Impairment and (gain) loss on sale of businesses was $71 million for the year ended December 31, 2022, which primarily related to a hospital
divestiture and the closure or non-renewal of leases for three hospitals as discussed more specifically under “Acquisition, Divestiture, Closures and Other
Activity” herein, compared to $24 million for the same period in 2021, which related primarily to divestitures during the period.
Interest expense, net, decreased by $27 million to $858 million for the year ended December 31, 2022 compared to $885 million for the same period in
2021. This was primarily due to our debt refinancing activity during 2021 and 2022.
Gain from early extinguishment of debt of $253 million was recognized during the year ended December 31, 2022, compared to a loss from early
extinguishment of debt of $79 million in the same period in 2021, as a result of the refinancing of certain of our outstanding notes in each period as well as
open market and privately negotiated repurchases of certain of our outstanding notes completed during the year ended December 31, 2022.
There was no pre-tax gain recognized on the sale of unconsolidated equity interests during the year ended December 31, 2022. A pre-tax gain of $39
million was recognized during the year ended December 31, 2021 on the sale of unconsolidated equity interests in Macon Healthcare, LLC, a joint venture
with certain subsidiaries of HCA representing two hospitals in Macon, Georgia, in which we owned a 38% interest.
Gain from the CoreTrust Transaction of $119 million was recognized during the year ended December 31, 2022, as discussed below under the heading
“Liquidity and Capital Resources.” There was no gain from the CoreTrust Transaction recognized during the year ended December 31, 2021.
Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, decreased to (0.1)% for the year ended December 31, 2022
from (0.2)% for the year ended December 31, 2021, primarily due to the sale of our unconsolidated equity interests in Macon Healthcare, LLC during the
year ended December 31, 2021.
The net results of the above-mentioned changes resulted in income before income taxes decreasing $150 million to $349 million for the year ended
December 31, 2022 from $499 million for the year ended December 31, 2021.
Our provision for income taxes for the years ended December 31, 2022 and 2021 was $170 million and $131 million, respectively, and the effective tax
rates were 48.7% and 26.3% for the years ended December 31, 2022 and 2021, respectively. The increase in the provision for income taxes for the year
ended December 31, 2022, compared to the same period in 2021 was primarily due to an increase in non-deductible interest for 2022 compared to 2021,
compounded by an adverse change in the Internal Revenue Code Section 163(j) limit for deductible interest expense beginning in 2022. The difference in
our effective tax rate for the year ended December 31, 2022, compared to the same period in 2021 was due to the aforementioned increase in the provision
for income taxes and the decline in income before taxes.
Net income, as a percentage of net operating revenues, was 1.5% for the year ended December 31, 2022, compared to 3.0% for the same period in 2021.
Net income attributable to noncontrolling interests, as a percentage of net operating revenues, remained consistent at 1.1% for both years ended
December 31, 2022 and 2021.
Net income attributable to Community Health Systems, Inc. was $46 million for the year ended December 31, 2022, compared to $230 million for the
same period in 2021.
Liquidity and Capital Resources
2023 Compared to 2022
Net cash provided by operating activities was approximately $210 million for the year ended December 31, 2023, compared to $300 million for the
year ended December 31, 2022. The decrease in cash provided by operating activities is partially the result of the payment of accumulated benefits under
the Company's supplemental executive retirement plan, or SERP. Because securities are held in a rabbi trust to be used for the payment of SERP benefits,
the aforementioned cash outflow is offset by inflows from sales of investments, which are reflected as a cash inflow from investing activities as noted
below. Total cash paid for interest decreased to
61
approximately $801 million for the year ended December 31, 2023, from approximately $835 million for the year ended December 31, 2022. Cash paid for
income taxes, net of refunds received, resulted in a net payment of $91 million and $6 million during the years ended December 31, 2023 and 2022,
respectively.
Our net cash used in investing activities was approximately $26 million for the year ended December 31, 2023, compared to approximately $259
million for the year ended December 31, 2022, a decrease of approximately $233 million. The decrease in net cash used in investing activities during the
year ended December 31, 2023, compared to the prior year, was primarily impacted by an increase of $99 million in cash from the net impact of the
purchases and sales of available-for-sale debt and equity securities, including securities sold to pay SERP benefits as noted above, an increase of $343
million in cash proceeds from dispositions of hospitals and other ancillary operations, a decrease of $8 million in cash used to purchase investments in
unconsolidated affiliates, an increase of $29 million in cash paid for acquisitions of facilities and other related businesses, an increase of $52 million in cash
used for the purchase of property and equipment, an increase of $5 million in cash used to purchase other investments, a decrease of $10 million in cash
proceeds from the sale of property and equipment, and a decrease resulting from $121 million in cash representing our share of proceeds from the
CoreTrust Transaction distributed during the year ended December 31, 2022, compared to the year ended December 31, 2023.
Our net cash used in financing activities was $264 million for the year ended December 31, 2023, compared to $430 million for the year ended
December 31, 2022, a decrease of $166 million. This was primarily due to the net effect of our debt repayments, refinancing activities, and cash paid for
deferred financing costs and other debt-related costs during the years ended December 31, 2023 and 2022.
2022 Compared to 2021
Net cash provided by operating activities was approximately $300 million for the year ended December 31, 2022, compared to net cash used in
operating activities of $131 million for the year ended December 31, 2021, with the change primarily attributable to the repayment of Medicare accelerated
payments in 2021. Total cash paid for interest increased to approximately $835 million for the year ended December 31, 2022, from approximately $778
million for the year ended December 31, 2021. Cash paid for income taxes, net of refunds received, resulted in a net payment of $6 million and $4 million
during the years ended December 31, 2022 and 2021, respectively.
Our net cash used in investing activities was approximately $259 million for the year ended December 31, 2022, compared to approximately $524
million for the year ended December 31, 2021, a decrease of approximately $265 million. The decrease in net cash used in investing activities during the
year ended December 31, 2022, compared to the prior year, primarily resulted from a decrease of $54 million in cash used for the purchase of property and
equipment, an increase of $28 million in cash proceeds from the sale of property and equipment, a decrease of $53 million in cash used to purchase other
investments, a decrease of $65 million in cash used in the net impact of the purchases and sales of available-for-sale debt and equity securities, an increase
resulting from $121 million in cash representing our share of proceeds from the CoreTrust Transaction distributed during the year ended December 31,
2022, and an increase of $72 million in cash proceeds from dispositions of hospitals and other ancillary operations. These items, which decreased cash used
in investing activities, were partially offset by an increase of $6 million in cash paid for acquisitions of facilities and other related businesses, an increase of
$12 million in cash used to purchase investments in unconsolidated affiliates, and a decrease of $110 million in cash from the sale of equity interests in
Macon Healthcare, LLC during the year ended December 31, 2022, compared to the year ended December 31, 2021.
Our net cash used in financing activities was $430 million for the year ended December 31, 2022, compared to approximately $514 million for the year
ended December 31, 2021, a decrease of approximately $84 million. This was primarily due to the net effect of our debt repayments, refinancing activities,
and cash paid for deferred financing costs and other debt-related costs during the years ended December 31, 2022 and 2021.
Liquidity
Net working capital was approximately $1.1 billion and $896 million at December 31, 2023 and December 31, 2022, respectively. Net working capital
increased by approximately $170 million between December 31, 2022 and December 31, 2023. The increase is primarily due to the increase in accounts
receivable, other current assets and prepaid expenses and taxes as well as decreases in current operating lease liabilities, accrued liabilities for employee
compensation, accrued interest, and other current accrued liabilities during the year ended December 31, 2023, partially offset by a decrease in cash,
supplies and prepaid income taxes and an increase in accounts payable.
62
In addition to cash flows from operations, available sources of capital include amounts available under the asset-based loan (ABL) credit agreement, or
the ABL Credit Agreement, as amended and restated on November 22, 2021, and anticipated access to public and private debt markets as well as proceeds
from the disposition of hospitals or other investments such as our minority equity interests in various businesses, as applicable.
Pursuant to the ABL Credit Agreement, the lenders have extended to CHS/Community Health Systems, Inc., or CHS, a revolving asset-based loan
facility. The maximum aggregate amount under the ABL Facility is $1.0 billion, subject to borrowing base capacity. At December 31, 2023, we had
outstanding borrowings of $247 million and approximately $637 million of additional borrowing capacity (after taking into consideration $81 million of
outstanding letters of credit) under the ABL Facility. Principal amounts outstanding under the ABL Facility, if any, will be due and payable in full on
November 22, 2026.
2023 Financing Activity
On December 22, 2023, we completed a private offering of $1.000 billion aggregate principal amount of 10⅞% Senior Secured Notes due January 15,
2032, or the 10⅞% Senior Secured Notes due 2032. The proceeds of the offering were used, together with cash on hand, to redeem $985 million aggregate
principal amount of 8% Senior Secured Notes due 2026 via a tender offer, which was funded on December 28, 2023, and to pay related fees and expenses.
The 10⅞% Senior Secured Notes due 2032 bear interest at a rate of 10.875% per year payable semi-annually in arrears on February 15 and August 15 of
each year, commencing on August 15, 2024.
During the year ended December 31, 2023, we extinguished a portion of certain series of our outstanding notes through a combination of open market
and privately negotiated repurchases, as follows (in millions):
6% Senior Secured Notes due 2029
6⅞% Junior-Priority Secured Notes due 2029
6⅛% Junior-Priority Secured Notes due 2030
Total principal amount of debt extinguished
Principal Amount
256
142
4
402
$
$
A pre-tax gain from early extinguishment of debt of approximately $72 million was recognized associated with these financing activities during the year
ended December 31, 2023.
2022 Financing Activity
On February 4, 2022, we completed a private offering of $1.535 billion aggregate principal amount of 5¼% Senior Secured Notes due May 15, 2030, or
the 5¼% Senior Secured Notes due 2030. The proceeds of the offering were used to redeem the 6⅝% Senior Secured Notes due 2025 on February 4, 2022,
and to pay related fees and expenses. The 5¼% Senior Secured Notes due 2030 bear interest at a rate of 5.250% per year payable semi-annually in arrears
on May 15 and November 15, commencing on November 15, 2022.
During the year ended December 31, 2022, we extinguished a portion of certain series of our outstanding notes through a combination of open market
and privately negotiated repurchases, as follows (in millions):
6⅞% Senior Notes due 2028
4¾% Senior Secured Notes due 2031
6⅞% Junior-Priority Secured Notes due 2029
6⅛% Junior-Priority Secured Notes due 2030
Total principal amount of debt extinguished
$
$
Principal Amount
11
37
389
208
645
A pre-tax gain from early extinguishment of debt of approximately $253 million was recognized associated with these financing activities during the
year ended December 31, 2022.
Additional Liquidity Information
For information regarding our amended and restated asset-based loan (ABL) credit agreement and our other outstanding indebtedness, see Note 6 of the
Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K. Our ability to meet the restricted covenants and financial
ratios and tests in the ABL Facility and the indentures governing our outstanding notes can be affected by events beyond our control, and we cannot assure
you that we will meet those tests. A breach of any of these covenants could result in a default under the ABL Facility and/or the indentures that govern our
outstanding notes. Upon the occurrence of an event of default under the ABL Facility or indentures that govern our outstanding notes, all amounts
outstanding
63
under the ABL Facility and the indentures that govern our outstanding notes may become immediately due and payable and all commitments under the
ABL Facility to extend further credit may be terminated.
As of December 31, 2023, approximately $21 million of our outstanding debt of approximately $11.5 billion is due within the next 12 months and
approximately 98% of our outstanding debt has a fixed rate of interest. Our debt as a percentage of total capitalization was 111% at December 31, 2023,
compared to 112% at December 31, 2022.
Net proceeds from divestitures, if any, are expected to be used for general corporate purposes (including potential debt repayments and/or debt
repurchases) and capital expenditures.
Ongoing negative economic conditions may negatively impact our service mix, revenue mix, payor mix and patient volumes, as well as our ability to
collect outstanding receivables. Any material increase in our billing cycles or deterioration in the collectability of our accounts receivable would adversely
affect our cash flows and results of operations and may require an increased level of working capital.
We believe that our current levels of cash, internally generated cash flows and current levels of availability for additional borrowing under the ABL
Facility, our anticipated continued access to the capital markets, and the use of proceeds from any potential future dispositions as noted above, will be
sufficient to finance acquisitions, capital expenditures, working capital requirements, and any debt repurchases or other debt repayments we may elect to
make or be required to make through the next 12 months and the foreseeable future thereafter. However, ongoing negative economic conditions (including
inflationary conditions and elevated interest rate levels) have resulted in, and may continue to result in, significant disruptions of financial and capital
markets, which could reduce our ability to access capital and negatively affect our liquidity in the future.
As noted above, during the years ended December 31, 2023 and 2022, we extinguished a portion of certain series of our outstanding notes through open
market and privately negotiated repurchases, and we may elect from time to time to continue to purchase our outstanding debt in open market purchases,
privately negotiated transactions or otherwise. Any such debt repurchases will depend upon prevailing market conditions, our liquidity requirements,
contractual restrictions, applicable securities laws requirements, and other factors.
Capital Resources
Material cash requirements from known contractual and other obligations primarily consist of purchase obligations, long-term debt and related interest
payments, operating leases, finance leasing and financing obligations, and capital expenditures related to routine capital, information systems infrastructure
and applications, replacement or de novo construction projects and bed expansion projects, certain commitments and other investments. Refer to Notes 6, 9
and 15 of the Notes to Consolidated Financial Statements for amounts outstanding as of December 31, 2023 related to long-term debt, and related interest
payments, operating leases, finance leasing and financing obligations, and certain commitments.
Purchase obligations include supplies and third-party services purchased in the normal course of business. Open purchase orders total $342 million as of
December 31, 2023 and substantially all such amounts are due in the next 12 months. Other investments includes, among other things, purchases of
investments in unconsolidated affiliates which are expected to be incurred within the next 24 months.
Cash expenditures for purchases of facilities and other related businesses were approximately $38 million in 2023, $9 million in 2022 and $3 million in
2021. Our expenditures for the years ended December 31, 2023, 2022 and 2021, were primarily related to physician practices, clinics, ambulatory surgery
centers and other ancillary businesses, including the purchase of certain assets from American Physician Partners as described in Note 3 of the Notes to
Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K.
Excluding the cost to construct replacement and de novo hospitals, our cash expenditures for routine capital for the year ended December 31, 2023
totaled $466 million compared to $358 million in 2022 and $321 million in 2021. These capital expenditures related primarily to the purchase of additional
equipment, major and minor renovations that result in additional bed capacity, and information systems infrastructure. The costs to construct replacement
hospitals and de novo hospitals during the year ended December 31, 2023 were approximately $1 million. Costs to construct replacement hospitals totaled
$17 million and $63 million for the years ended December 31, 2022 and 2021, respectively, primarily related to the construction of a replacement facility in
Fort Wayne, Indiana. During the years ended December 31, 2022 and 2021, we also had cash expenditures of $40 million and $85 million, respectively, that
represent both planning and construction costs primarily for de novo hospitals.
64
Pursuant to a hospital purchase agreement from our March 1, 2016 acquisition of Northwest Health - Starke, formerly known as Starke Hospital, we
committed to spend up to $15 million toward the construction of a replacement facility in Knox, Indiana. Construction is required to be completed within
five years of the date we enter into a new lease with Starke County, Indiana, the hospital lessor, or in the event we do not enter into a new lease with Starke
County, construction shall be completed by September 30, 2026. We have not entered into a new lease with the lessor for Northwest Health - Starke.
In addition to the commitment to spend up to $15 million toward the construction of a replacement facility in Knox, Indiana, other off-balance sheet
arrangements consist of letters of credit issued on the ABL Facility, primarily in support of potential insurance-related claims and specified outstanding
bonds of approximately $81 million as well as approximately $6 million representing the maximum potential amount of future payments under physician
recruiting guarantee commitments in excess of the liability recorded at December 31, 2023.
We expect total capital expenditures of approximately $350 million to $400 million in 2024.
Reimbursement, Legislative and Regulatory Changes
Ongoing legislative and regulatory efforts, and judicial interpretations, could reduce or otherwise adversely affect the payments we receive from
Medicare and Medicaid and other payors. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to
administrative rulings, interpretations and discretion, and which are at times subject to court challenges, which may further affect payments made under
those programs. Further, the federal and state governments might, in the future, reduce the funds available under those programs, require repayment of
previously received funds or require more stringent utilization and quality reviews of hospital facilities. Additionally, there may be a continued rise in
managed care programs and further restructuring of the financing and delivery of healthcare in the United States. These events could cause our future
financial results to be adversely impacted. We cannot estimate the impact of Medicare and Medicaid reimbursement changes that have been enacted or
otherwise determined, or that are currently or may in the future be under consideration. We cannot predict whether additional reimbursement reductions
will be made or whether any such changes or other restructuring of the financing and delivery of healthcare would have a material adverse effect on our
business, financial conditions, results of operations, cash flow, capital resources and liquidity.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial
statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those policies that involve a significant level of estimation uncertainty and have had or are reasonably likely
to have a material impact on the financial condition or results of operations of the registrant. We believe that our critical accounting policies are limited to
those described below. The following information should be read in conjunction with our significant accounting policies included in Note 1 of the Notes to
Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K.
Revenue Recognition
Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems
and provisions of cost-reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment
methodologies. Amounts we receive for treatment of patients covered by these programs are generally less than our standard billing rates. Explicit price
concessions are recorded for contractual allowances that are calculated and recorded through a combination of internally- and externally-developed data
collection and analysis tools to automate the monthly estimation of required contractual allowances. Within these automated systems, payors’ historical
paid claims data and contracted amounts are utilized to calculate the contractual allowances. This data is updated on a monthly basis. All hospital
contractual allowance calculations are subjected to monthly review by management to ensure reasonableness and accuracy. We account for the differences
between the estimated program reimbursement rates and the standard billing rates as contractual allowance adjustments, which is one component of the
deductions from gross revenues to arrive at net operating revenues. The process of estimating contractual allowances requires us to estimate the amount
expected to be received based on payor contract provisions. The key assumption in this process is the estimated contractual reimbursement percentage,
which is based on payor classification, historical paid claims data and, when applicable, application of the expected managed care plan reimbursement
based on contract terms.
65
Due to the complexities involved in these estimates, actual payments we receive could be different from the amounts we estimate and record. If the
actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at December 31, 2023 from our
estimated reimbursement percentage, net income for the year ended December 31, 2023 would have changed by approximately $97 million, and net
accounts receivable at December 31, 2023 would have changed by $124 million. Final settlements under some of these programs are subject to adjustment
based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement estimates as contractual
allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance adjustments related to final settlements
and previous program reimbursement estimates impacted net operating revenues by an insignificant amount for each of the years ended December 31,
2023, 2022 and 2021.
Patient Accounts Receivable
Substantially all of our accounts receivable are related to providing healthcare services to patients at our hospitals and affiliated businesses. Collection
of these accounts receivable is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured
patients and outstanding patient balances for which the primary insurance payor has paid some but not all of the outstanding balance, with the remaining
outstanding balance (generally deductibles and co-payments) owed by the patient. For all procedures scheduled in advance, our policy is to verify insurance
coverage prior to the date of the procedure. Insurance coverage is not verified in advance of procedures for walk-in and emergency room patients.
We estimate any adjustments to the transaction price for implicit price concessions by reserving a percentage of all self-pay accounts receivable without
regard to aging category, based on collection history, adjusted for expected recoveries and any anticipated changes in trends. Our ability to estimate the
transaction price and any implicit price concessions is not impacted by not utilizing an aging of our net accounts receivable as we believe that substantially
all of the risk exists at the point in time such accounts are identified as self-pay. The percentage used to reserve for all self-pay accounts is based on our
collection history. We believe that we collect substantially all of our third-party insured receivables, which include receivables from governmental agencies.
Patient accounts receivable can be impacted by the effectiveness of our collection efforts and, as described in our significant accounting policies
included in Note 1 of the Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K, numerous factors may affect the net
realizable value of accounts receivable. If the actual collection percentage differed by 1% at December 31, 2023 from our estimated collection percentage
as a result of a change in expected recoveries, net income for the year ended December 31, 2023 would have changed by $37 million, and net accounts
receivable at December 31, 2023 would have changed by $48 million. We also continually review our overall reserve adequacy by monitoring historical
cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net operating revenues and admissions by payor
classification, days revenue outstanding, the composition of self-pay receivables between pure self-pay patients and the patient responsibility portion of
third-party insured receivables and the impact of recent acquisitions and dispositions.
Our policy is to write-off gross accounts receivable if the balance is under $10.00 or when such amounts are placed with outside collection agencies. We
believe this policy accurately reflects our ongoing collection efforts and is consistent with industry practices. We had approximately $1.7 billion at both
December 31, 2023 and 2022, being pursued by various outside collection agencies. We expect to collect less than 4%, net of estimated collection fees, of
the amounts being pursued by outside collection agencies. As these amounts have been written-off, they are not included in our accounts receivable.
Collections on amounts previously written-off are recognized as a recovery of net operating revenues when received. However, we take into consideration
estimated collections of these future amounts written-off in determining the implicit price concessions used to measure the transaction price for the
applicable portfolio of patient accounts receivable.
All of the following information is derived from our hospitals, excluding clinics, unless otherwise noted.
Patient accounts receivable from our hospitals represent approximately 98% of our total consolidated accounts receivable.
Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 58
days and 56 days at December 31, 2023 and 2022, respectively.
Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $16.8 billion as of
December 31, 2023 and approximately $15.9 billion as of December 31, 2022. The approximate percentage of total gross accounts receivable (prior to
allowance for contractual adjustments and implicit price concessions) summarized by aging categories is as follows:
66
As of December 31, 2023:
Medicare
Medicare Managed Care
Medicaid
Other third-party payors
Self-Pay
As of December 31, 2022:
Payor
0 - 90 Days
90 - 180 Days
180 - 365 Days
Over 365 Days
% of Gross Receivables
10 %
16 %
6 %
18 %
7 %
1 %
3 %
1 %
3 %
6 %
1 %
3 %
1 %
3 %
7 %
— %
2 %
1 %
3 %
8 %
Payor
0 - 90 Days
90 - 180 Days
180 - 365 Days
Over 365 Days
% of Gross Receivables
Medicare
Medicare Managed Care
Medicaid
Managed Care and other third-party payors
Self-Pay
11 %
15 %
7 %
18 %
7 %
1 %
3 %
1 %
3 %
6 %
— %
3 %
1 %
3 %
8 %
— %
1 %
1 %
2 %
9 %
The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and implicit price concessions)
summarized by payor type is as follows:
Insured receivables
Self-pay receivables
Total
December 31,
2023
2022
72.1 %
27.9
100.0 %
69.5 %
30.5
100.0 %
The combined total at our hospitals and clinics for the estimated implicit price concessions for self-pay accounts receivable and allowances for other
self-pay discounts and contractuals, as a percentage of gross self-pay receivables, was approximately 91% at both December 31, 2023 and 2022. If the
receivables that have been written-off, but where collections are still being pursued by outside collection agencies, were included in both the allowances
and gross self-pay receivables specified above, the percentage of combined allowances to total self-pay receivables would have been 93% at both
December 31, 2023 and 2022.
Goodwill
At December 31, 2023, we had approximately $4.0 billion of goodwill recorded, all of which resides at our hospital operations reporting unit. Goodwill
represents the excess of the fair value of the consideration conveyed in an acquisition over the fair value of net assets acquired. Goodwill is evaluated for
impairment annually and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its
carrying value. We performed our last annual goodwill impairment evaluation during the fourth quarter of 2023 using the October 31, 2023 measurement
date, which indicated no impairment.
The determination of fair value in our goodwill impairment analysis is based on an estimate of fair value for the hospital operations reporting unit
utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited to, the most recent price of our common stock
and fair value of our long-term debt, our recent financial results, estimates of future revenue and expense growth, estimated market multiples, expected
capital expenditures, income tax rates, costs of invested capital and a discount rate.
Future estimates of fair value could be adversely affected if the actual outcome of one or more of the assumptions described above changes materially in
the future, including as a result of any decline in or increased volatility of our stock price and the fair value of our long-term debt, lower than expected
hospital volumes and/or net operating revenues, higher market interest rates, increased operating costs or other adverse impacts on our financial results.
Such changes impacting the calculation of our fair value could result in a material impairment charge in the future.
67
Professional Liability Claims
As part of our business of providing healthcare services, we are subject to legal actions alleging liability on our part. We accrue for losses resulting from
such liability claims, as well as loss adjustment expenses that are out-of-pocket and directly related to such liability claims. These direct out-of-pocket
expenses include fees of outside counsel and experts. We do not accrue for costs that are part of our corporate overhead, such as the costs of our in-house
legal and risk management departments. The losses resulting from professional liability claims primarily consist of estimates for known claims, as well as
estimates for incurred but not reported claims. The estimates are based on specific claim facts, our historical claim reporting and payment patterns, the
nature and level of our hospital operations, and actuarially determined projections. The actuarially determined projections are based on our actual claim
data, including historic reporting and payment patterns, which have been gathered over the life of the Company. As discussed below, since we purchase
excess insurance on a claims-made basis that transfers risk to third-party insurers, the estimated liability for professional and general liability claims does
include an amount for the losses covered by our excess insurance. We also record a receivable for the expected reimbursement of losses covered by our
excess insurance. Since we believe that the amount and timing of our future claims payments are reliably determinable, we discount the amount we accrue
for losses resulting from professional liability claims.
The net present value of the projected payments was discounted using weighted-average interest rates of 3.7% in 2023, 3.8% in 2022 and 1.8% in 2021.
This liability is adjusted for new claims information in the period such information becomes known to us. Professional liability expense includes the losses
resulting from professional liability claims and loss adjustment expense, as well as excess insurance premiums, and is presented within other operating
expenses in the accompanying consolidated statements of (loss) income.
Our processes for obtaining and analyzing claims and incident data are standardized across all of our businesses and have been consistent for many
years. We monitor the outcomes of the medical care services that we provide and for each reported claim, we obtain various information concerning the
facts and circumstances related to that claim. In addition, we routinely monitor current key statistics and volume indicators in our assessment of utilizing
historical trends. The average lag period between claim occurrence and payment of a final settlement is between three and four years, although the facts and
circumstances of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after
settlement with the claimant is reached, settled claims represent approximately 1% of the total liability at the end of any period.
For purposes of estimating our individual claim accruals, we utilize specific claim information, including the nature of the claim, the expected claim
amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals for known claims are
determined, information is stratified by loss layers and retentions, accident years, reported years and geography. Several actuarial methods are used against
this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses our company-specific
historical claims data and other information. Company-specific data includes information regarding our business, including historical paid losses and loss
adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census information,
employed physician information, professional liability retentions for each policy year, geographic information and other data. Significant assumptions are
made on the basis of the aforementioned information in estimating reserves for incurred but not reported claims. A 1% change in assumptions for either
severity or frequency as of December 31, 2023 would have increased or decreased the reserve between $5 million to $15 million.
Based on these analyses, we determine our estimate of the professional liability claims. The determination of management’s estimate, including the
preparation of the reserve analysis that supports such estimate, involves subjective judgment of management. Changes in reserve data or the trends and
factors that influence reserve data may signal fundamental shifts in our future claim development patterns or may simply reflect single-period anomalies.
Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover, since our methods and
models use different types of data and we select our liability from the results of all of these methods, we typically cannot quantify the precise impact of
such factors on our estimates of the liability. Due to our standardized and consistent processes for handling claims and the long history and depth of our
company-specific data, our methodologies have historically produced reliably determinable estimates of ultimate paid losses. Management considers any
changes in the amount and pattern of its historical paid losses up through the most recent reporting period to identify any fundamental shifts or trends in
claim development experience in determining the estimate of professional liability claims. However, due to the subjective nature of this estimate and the
impact that previously unforeseen shifts in actual claim experience can have, future estimates of professional liability could be adversely impacted when
actual paid losses develop unexpectedly based on assumptions and settlement events that were not previously known or anticipated.
68
Accrual for professional liability claims, beginning of year
Liability for insured claims (1)
Expense (income) related to:
Current accident year
Prior accident years
Expense (income) from discounting
Total incurred loss and loss expense (2)
Paid claims and expenses related to:
Current accident year
Prior accident years
Total paid claims and expenses
Accrual for professional liability claims, end of year
Year Ended December 31,
2022
2023
2021
467 $
17
98
69
1
168
—
(209 )
(209 )
443 $
533 $
(5 )
92
19
(18 )
93
—
(154 )
(154 )
467 $
602
(22 )
108
(18 )
(4 )
86
(1 )
(132 )
(133 )
533
$
$
(1)
(2)
The liability for insured claims is recorded in the consolidated balance sheets with a corresponding insurance recovery receivable.
Total expense, including premiums for insured coverage, was $208 million in 2023, $132 million in 2022 and $98 million in 2021.
In the ordinary course of business, our expense with respect to professional liability claims, which is actuarially determined, is limited to amounts not
covered by third-party insurance policies, which typically provide coverage for professional liability claims. During the year ended December 31, 2020, we
incurred expenses in the amount of approximately $50 million related to the settlement of a professional liability claim for which our third-party insurers’
obligation to provide coverage to us in connection with the underlying loss was being litigated. The subject of the litigation for the recovery of the full
amount of the $50 million settlement was whether the claim was covered under the subject policies. This litigation was settled during the year ended
December 31, 2021, and in connection with this settlement, approximately $22 million was recovered from various third-party insurers related to their
obligation to provide coverage for the professional liability claim. During the year ended December 31, 2022, we experienced an increase in the amounts
paid or expected to be paid to settle outstanding professional liability claims related to divested locations, compared to the same period in the prior year and
to previous actuarially determined estimates. This resulted in a change in estimate of $15 million during the three months and year ended December 31,
2022. During the year ended December 31, 2023, we experienced an increase in the amounts paid or expected to be paid to settle outstanding professional
liability claims, compared to the same period in the prior year and to previous actuarially determined estimates due to adverse claim developments. There
were no other significant changes in our estimate of the reserve for professional liability claims during the years ended December 31, 2023, 2022 and 2021.
We are primarily self-insured for professional liability claims; however, we obtain excess insurance that transfers the risk of loss to a third-party insurer
for claims in excess of our self-insured retentions. Our excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002,
substantially all of our professional and general liability risks were subject to a less than $1 million per occurrence self-insured retention and for claims
reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2 million per occurrence. Substantially all claims reported after June
1, 2003 and before June 1, 2005 are self-insured up to $4 million per claim. Substantially all claims reported on or after June 1, 2005 and before June 1,
2014 are self-insured up to $5 million per claim. Substantially all claims reported on or after June 1, 2014 and before June 1, 2018 are self-insured up to
$10 million per claim. Substantially all claims reported on or after June 1, 2018 are self-insured up to $15 million per claim. Management, on occasion, has
selectively increased the insured risk at certain hospitals based upon insurance pricing and other factors and may continue that practice in the future.
Excess insurance for all hospitals has been purchased through commercial insurance companies and generally covers us for liabilities in excess of the
self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of which totals up to $95 million per occurrence and in the
aggregate for claims reported on or after June 1, 2003, up to $145 million per occurrence and in the aggregate for claims reported on or after January 1,
2008, up to $195 million per occurrence and in the aggregate for claims reported on or after June 1, 2010, and up to at least $215 million per occurrence
and in the aggregate for claims reported on or after June 1, 2015. In addition, for integrated occurrence professional liability claims, there is an additional
$50 million of excess coverage for claims reported on or after June 1, 2014 and an additional $75 million of excess coverage for claims reported on or after
June 1, 2015 through June 1, 2020. The $75 million in integrated occurrence coverage will also apply to claims reported between June 1, 2020 and June 1,
2024 for events that occurred prior to June 1, 2020 but which were not previously known or reported. For certain policy years prior to June 1, 2014, if the
first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention will increase to $10 million per claim for any subsequent
claims in that policy year until our total aggregate coverage is met. Beginning June 1, 2018, this drop-down provision in the excess policies attaches over
the $15 million per claim self-insured retention.
69
Income Taxes
We must make estimates in recording provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any
valuation allowances that might be required against the deferred tax assets. We believe that future income will enable us to realize certain deferred tax
assets, subject to the valuation allowance we have established.
The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was $45 million as of December 31, 2023. A total of $2
million of interest and penalties is included in the amount of liability for uncertain tax positions at December 31, 2023. It is our policy to recognize interest
and penalties related to unrecognized benefits in our consolidated statements of income as income tax expense.
It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute of limitations and
settlements with taxing authorities; however, we do not anticipate the change will have a material impact on our consolidated results of operations or
consolidated financial position.
Our federal income tax return for the 2018 tax year is under examination by the Internal Revenue Service. We believe the result of this examination will
not be material to our consolidated results of operations or consolidated financial position. In addition, we have extended our federal statute of limitations
through June 30, 2025 for the tax period ended December 31, 2018.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2023-07, “Segment Reporting
(Topic 280), Improvements to Reportable Segment Disclosures.” This ASU includes additional requirements for the disclosure of significant segment
expenses and segment measure(s) of profit or loss, as well as new disclosure requirements for entities with a single reportable segment and certain
qualitative information about the chief operating decision maker. This ASU is effective for annual periods beginning after December 15, 2023 and interim
periods beginning after December 15, 2024. The amendments in this ASU must be applied retrospectively to all periods presented. Early adoption is
permitted. We are currently evaluating the impact that adoption of this ASU will have on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740), Improvements to Income Tax Disclosures.” This ASU establishes new
requirements for the categorization and disaggregation of information in the rate reconciliation as well as for disaggregation of income taxes paid.
Additionally, this ASU modifies and eliminates certain existing requirements for indefinitely reinvested foreign earnings and unrecognized tax benefits.
This ASU is effective for annual periods beginning after December 15, 2024 and interim periods beginning after December 15, 2025. The amendments in
this ASU should be applied on a prospective basis and early adoption is permitted. We are currently evaluating the impact that adoption of this ASU will
have on our consolidated financial statements.
We have evaluated all other recently issued, but not yet effective, ASUs and do not expect the eventual adoption of these ASUs to have a material
impact on our consolidated financial position or results of operations.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 that involve risk and uncertainties. Statements that
are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,”
“believes,” “estimates,” “thinks,” and similar expressions are forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our actual results and performance to be materially different from any future results or performance
expressed or implied by these forward-looking statements. A number of factors could affect the future results of the Company or the healthcare industry
generally and could cause the Company’s expected results to differ materially from those expressed in this Form 10-K. These factors include, among other
things:
•
general economic and business conditions, both nationally and in the regions in which we operate, including the current negative macroeconomic
conditions, ongoing inflationary pressures that have significantly increased and may continue to significantly increase our expenses, the current high
interest rate environment, ongoing challenging labor market conditions and labor shortages, and current geopolitical instability, as well as the
potential impact on us of financial, credit and capital conditions, including the potential impact of such conditions on our ability to access credit,
liquidity and capital market sources on acceptable terms or at all;
•
the impact of current or future federal and state health reform initiatives;
70
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the extent to and manner in which states adopt changes to Medicaid programs, implement health insurance exchanges or alter or reduce the
provision of, or payment for, healthcare to state residents through legislation, regulation or otherwise;
changes related to health insurance enrollment, including those affecting the beneficiary enrollment process and the stability of health insurance
exchanges;
risks associated with our substantial indebtedness, leverage and debt service obligations, including our ability to refinance such indebtedness on
acceptable terms or to incur additional indebtedness, and our ability to remain in compliance with debt covenants;
demographic changes;
changes in, or the failure to comply with, federal, state or local laws or governmental regulations affecting our business;
potential adverse impact of known and unknown legal, regulatory and governmental proceedings and other loss contingencies, including
governmental investigations and audits, and federal and state false claims act litigation;
our ability, where appropriate, to enter into and maintain provider arrangements with payors and the terms of these arrangements, which may be
further affected by the increasing consolidation of health insurers and managed care companies and vertical integration efforts involving payors and
healthcare providers;
changes in, or the failure to comply with, contract terms with payors and changes in reimbursement policies, methodologies or rates paid by federal
or state healthcare programs or commercial payors;
security breaches, cyber-attacks, loss of data, other cybersecurity threats or incidents, and any actual or perceived failures to comply with legal
requirements governing the privacy and security of health information or other regulated, sensitive or confidential information, or legal requirements
regarding data privacy or data protection;
any potential impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other
intangible assets;
the effects related to the sequestration spending reductions pursuant to both the Budget Control Act of 2011 and the Pay-As-You-Go Act of 2010 and
the potential for future deficit reduction legislation;
increases in the amount and risk of collectability of patient accounts receivable, including decreases in collectability which may result from, among
other things, self-pay growth and difficulties in recovering payments for which patients are responsible, including co-pays and deductibles;
the efforts of insurers, healthcare providers, large employer groups and others to contain healthcare costs, including the trend toward value-based
purchasing;
the impact of competitive labor market conditions and the shortage of nurses, including in connection with our ability to hire and retain qualified
nurses, physicians, other medical personnel and key management, and increased labor expenses as a result of such competitive labor market
conditions, inflation and competition for such positions;
the inability of third parties with whom we contract to provide hospital-based physicians and the effectiveness of our efforts to mitigate such non-
performance including through acquisitions of outsourced medical specialist businesses, engagement with new or replacement providers,
employment of physicians and re-negotiation or assumption of existing contracts;
any failure to obtain medical supplies or pharmaceuticals at favorable prices;
liabilities and other claims asserted against us, including self-insured professional liability claims;
competition;
trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals or via
telehealth;
changes in medical or other technology;
any failure of our ongoing process of redesigning and consolidating key business functions, including through the implementation of a new core
enterprise resource planning system, to proceed as expected or to be completed successfully;
changes in U.S. GAAP;
the availability and terms of capital to fund any additional acquisitions or replacement facilities or other capital expenditures;
our ability to successfully make acquisitions or complete divestitures, our ability to complete any such acquisitions or divestitures on desired terms
or at all, the timing of the completion of any such acquisitions or divestitures, and our ability to realize the intended benefits from any such
acquisitions or divestitures;
71
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the impact that changes in our relationships with joint venture or syndication partners could have on effectively operating our hospitals or ancillary
services or in advancing strategic opportunities;
our ability to successfully integrate any acquired hospitals and/or outpatient facilities, or to recognize expected synergies from acquisitions;
the impact of severe weather conditions and climate change, as well as the timing and amount of insurance recoveries in relation to severe weather
events;
our ability to obtain adequate levels of insurance, including general liability, professional liability, cyber liability and directors and officers liability
insurance;
timeliness of reimbursement payments received under government programs;
effects related to pandemics, epidemics, or outbreaks of infectious diseases, including the impact of any future developments related to COVID-19
and the COVID-19 pandemic on our business, results of operations, financial condition, and/or cash flows;
any failure to comply with our obligations under license or technology agreements;
challenging economic conditions in non-urban communities in which we operate;
the concentration of our revenue in a small number of states;
our ability to realize anticipated cost savings and other benefits from our current strategic and operational cost savings initiatives;
any changes in or interpretations of income tax laws and regulations; and
the risk factors set forth in this Form 10-K and our other public filings with the SEC.
Although we believe that these forward-looking statements are based upon reasonable assumptions, these assumptions are inherently subject to
significant regulatory, economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond
our control. Accordingly, we cannot give any assurance that our expectations will in fact occur, and we caution that actual results may differ materially
from those in the forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-
looking statements. These forward-looking statements are made as of the date of this filing. We undertake no obligation to revise or update any forward-
looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to changes in market value of marketable securities including debt and equity securities held by our wholly-
owned captive insurance subsidiaries as well as securities held for certain deferred compensation plans. Available-for-sale debt securities are reported at fair
value as determined by quoted market prices, with unrealized gains and losses reported as a separate component of stockholders’ deficit. Trading securities
are reported at fair value with unrealized gains and losses included in earnings. Other comprehensive income, net of tax, included an unrealized gain of $6
million during the year ended December 31, 2023.
We are exposed to market risk related to market illiquidity. Investments in debt and equity securities of our insurance subsidiaries could be impaired by
the inability to access the capital markets. Should the insurance subsidiaries require significant amounts of cash in excess of normal cash requirements to
pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less
than what we might otherwise have been able to in a normal market environment. We may be required to recognize credit-related impairments on our
investment securities in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to
ratings downgrades or other issue-specific factors.
We are also exposed to market risk related to changes in interest rates, primarily as a result of the ABL Facility, which bears interest based on floating
rates. At December 31, 2023, we had outstanding borrowings of $247 million under the ABL Facility.
The estimated fair value of our long-term debt, excluding finance leases, was approximately $9.6 billion at December 31, 2023. The estimates of fair
value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities. Based on a hypothetical 1%
increase in interest rates, the potential annualized reduction to future pre-tax earnings would be approximately $118 million. To mitigate the impact of
fluctuations in interest rates, we generally target a majority of our debt portfolio to be maintained at fixed rates.
72
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Community Health Systems, Inc. Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Statements of (Loss) Income for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2023, 20221 and 2021
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
73
Page
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78
79
80
81
82
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Community Health Systems, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Community Health Systems, Inc. and subsidiaries (the “Companyˮ) as of December
31, 2023 and 2022, the related consolidated statements of (loss) income, comprehensive (loss) income, stockholders’ deficit, and cash flows, for each of the
three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statementsˮ). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2024 expressed an unqualified opinion on
the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical
audit matters or on the accounts or disclosures to which they relate.
Patient Accounts Receivable — Refer to Note 1 to the financial statements
Critical Audit Matter Description
Patient accounts receivable are recorded net of implicit price concessions for insured and self-pay patients. The Company’s primary collection risks
relate to uninsured patients and outstanding patient balances for which the primary insurance payor has paid some, but not all of the outstanding balance,
with the remaining outstanding balance (generally deductibles and co-payments) owed by the patient. The Company estimates any adjustments to the
transaction price for implicit price concessions by reserving a percentage of all self-pay accounts receivable without regard to aging category, based on
collection history, adjusted for expected recoveries and any anticipated changes in trends.
74
Given that auditing management’s estimate of self-pay price concessions was complex and judgmental due to the significant data inputs and subjective
assumptions utilized in determining related amounts, performing audit procedures to evaluate whether the self-pay price concessions were appropriately
recorded as of December 31, 2023, required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the net realizable value of self-pay accounts receivable included the following, among others:
• We tested management’s internal controls that address the risks of material misstatement related to the Company’s estimation of implicit self-pay
price concessions.
• We evaluated management’s methodology and related assumptions, including cash collections, by comparing actual results to management’s
historical estimates.
• We tested the underlying data related to the recognition of patient level charges and the subsequent activities, including cash collections and non-
cash adjustments.
• We tested the mathematical accuracy of the estimates applied to period-end accounts receivable.
• We evaluated the appropriateness of the industry, economic, and Company factors that were used in determining the net realizable value of self-
pay accounts receivable.
Professional Liability Claims — Refer to Note 15 to the financial statements
Critical Audit Matter Description
As part of the Company’s business of providing health care services, they are subject to legal actions alleging liability on their part. The Company
accrues for losses resulting from such liability claims, as well as loss adjustment expenses that are out-of-pocket and directly related to such liability claims.
These direct out-of-pocket expenses include fees of outside counsel and experts.
The Company is self-insured for professional liability claims up to certain self-insured retention limits based on the policy year. Professional liabilities
consist of the projected settlement value of reported and unreported claims. The self-insurance reserves are estimated based on the Company’s historical
claims experience, supplemented with industry experience, as necessary, and is established using actuarial methods followed in the insurance industry.
Given the subjectivity of estimating the projected settlement value of reported and unreported claims, performing audit procedures to evaluate whether
professional liability claims were appropriately recorded as of December 31, 2023, required a high degree of auditor judgment and an increased extent of
effort, including the need to involve our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the self-insured professional liability claims included the following, among others:
• We tested management’s internal controls that address the risks of material misstatement related to professional liability claims, including those
over the projection of the settlement value of reported and unreported claims.
• We evaluated the assumptions used by management to estimate the self-insurance reserves by:
o
o
Testing the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial
estimate were reasonable.
Comparing management’s prior-year assumptions of expected development and ultimate loss to actual amounts incurred during the current
year to identify potential bias in the determination of the self-insurance reserves.
• With the assistance of our actuarial specialists, we developed independent estimates of the professional liability claims, including loss data and
industry claim development factors, and compared our estimates to management’s estimates.
75
Goodwill Impairment – Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
Goodwill is evaluated for impairment annually and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the
reporting unit below its' carrying value. The Company estimates the fair value of the reporting unit using both a discounted cash flow model as well as a
market multiple model.
The determination of fair value using the discounted cash flow model requires management to make significant estimates and assumptions related to
forecasts of revenue growth rates, EBITDA (earnings before interest, income taxes, and depreciation and amortization) margins, and a discount rate. The
determination of fair value using the market multiple model requires management to make significant assumptions related to revenue and EBITDA
multiples. The fair value of the Company’s hospital reporting unit exceeded the carrying value as of the annual measurement date of October 31st and,
therefore, no impairment was recognized.
Given the significant estimates and assumptions management makes to estimate the fair value of the hospital reporting unit and the sensitivity of such
assumptions, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future
revenues, EBITDA margins, and revenue and EBITDA multiples, and the selection of the discount rates for the hospital reporting unit required a high
degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the fair value of the hospital reporting unit included the following, among others:
• We tested the effectiveness of controls over the Company’s evaluation of goodwill impairment, including the controls over the determination of
the fair value of the reporting unit.
• We evaluated the reasonableness of revenue and EBITDA growth in management's forecasts by evaluating historical forecasts to actual results
and comparing the forecasts used in the income approach to (1) historical results, (2) internal communications to management and the Board of
Directors, and (3) forecasted information included in Company’s press releases as well as in analyst and industry reports of the Company and
companies in its peer group.
• With the assistance of our fair value specialists, we evaluated the discount rate, including developing a range of independent estimates, and
comparing those to the discount rate selected by management.
• With the assistance of fair value specialists, we evaluated the revenue and EBITDA multiples in the market approach and performed the
following:
o We evaluated the valuation methodology and calculations in the market approach.
o We independently calculated the revenue and EBITDA multiples of the Company and compared them to the multiples selected by
management.
o We evaluated the weighting of the revenue and EBITDA multiples in determining the fair value calculated in the market approach.
/s/ Deloitte & Touche LLP
Nashville, Tennessee
February 21, 2024
We have served as the Company’s auditor since 1996.
76
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
Net operating revenues
Operating costs and expenses:
Salaries and benefits
Supplies
Other operating expenses
Lease cost and rent
Pandemic relief funds
Depreciation and amortization
Impairment and (gain) loss on sale of businesses, net
Total operating costs and expenses
Income from operations
Interest expense, net of interest income of $2 in both 2023
and 2022 and $3 in 2021
(Gain) loss from early extinguishment of debt
Gain on sale of equity interests in Macon Healthcare, LLC
Gain from CoreTrust Transaction
Equity in earnings of unconsolidated affiliates
Income before income taxes
Provision for income taxes
Net income
Less: Net income attributable to noncontrolling interests
Net (loss) income attributable to Community Health
Systems, Inc. stockholders
(Loss) earnings per share attributable to Community Health Systems,
Inc. stockholders:
Basic
Diluted
Weighted-average number of shares outstanding:
Basic
Diluted
See accompanying notes to the consolidated financial statements.
Year Ended December 31,
2023
2021
2022
(In millions, except share and per share data)
$
12,490 $
12,211 $
12,368
5,415
1,993
3,388
319
—
505
(87 )
11,533
957
830
(72 )
—
—
(8 )
207
191
16
149
5,330
1,975
3,336
317
(173 )
534
71
11,390
821
858
(253 )
—
(119 )
(14 )
349
170
179
133
$
$
$
(133 ) $
46 $
(1.02 ) $
(1.02 ) $
0.35 $
0.35 $
5,242
2,042
2,958
308
(148 )
540
24
10,966
1,402
885
79
(39 )
—
(22 )
499
131
368
138
230
1.82
1.76
130,445,677
128,808,387
126,754,852
130,445,677
130,060,319
130,597,410
77
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Net income
Other comprehensive income (loss), net of income taxes:
Net change in fair value of available-for-sale debt securities, net
of tax of $1, $5 and $1 for the years ended December 31, 2023,
2022 and 2021, respectively
Amortization and recognition of unrecognized pension cost
components, net of tax of $0, $3 and $0 for the years ended
December 31, 2023, 2022 and 2021, respectively
Other comprehensive income (loss)
Comprehensive income
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive (loss) income attributable to Community Health Systems,
Inc. stockholders
See accompanying notes to the consolidated financial statements.
78
2023
Year Ended December 31,
2022
(In millions)
2021
$
16 $
179 $
368
6
(17 )
1
7
23
149
10
(7 )
172
133
$
(126 ) $
39 $
(5 )
3
(2 )
366
138
228
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
December 31,
2023
2022
(In millions, except share data)
ASSETS
$
38 $
Current assets:
Cash and cash equivalents
Patient accounts receivable (Note 1)
Supplies
Prepaid income taxes
Prepaid expenses and taxes
Other current assets
Total current assets
Property and equipment
Land and improvements
Buildings and improvements
Equipment and fixtures
Property and equipment
Less accumulated depreciation and amortization
Property and equipment, net
Goodwill
Deferred income taxes
Other assets, net of accumulated amortization of $1,518 and $1,392 at December 31, 2023
and 2022, respectively
Total assets
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt
Current operating lease liabilities
Accounts payable
Accrued liabilities:
Employee compensation
Accrued interest
Other
Total current liabilities
Long-term debt
Deferred income taxes
Long-term operating lease liabilities
Other long-term liabilities
Total liabilities
Redeemable noncontrolling interests in equity of consolidated subsidiaries
Commitments and contingencies (Note 15)
STOCKHOLDERS’ DEFICIT
Community Health Systems, Inc. stockholders’ deficit:
Preferred stock, $.01 par value per share, 100,000,000 shares authorized;
none issued
Common stock, $.01 par value per share, 300,000,000 shares authorized;
136,774,911 shares issued and outstanding at December 31, 2023, and
134,703,717 shares issued and outstanding at December 31, 2022
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Community Health Systems, Inc. stockholders’ deficit
Noncontrolling interests in equity of consolidated subsidiaries
Total stockholders’ deficit
Total liabilities and stockholders’ deficit
See accompanying notes to the consolidated financial statements.
79
$
$
$
2,231
328
76
260
275
3,208
474
5,951
3,086
9,511
(4,304 )
5,207
3,958
29
2,053
14,455 $
21 $
124
912
571
160
354
2,142
11,466
369
563
739
15,279
323
118
2,040
353
99
237
235
3,082
497
6,038
3,104
9,639
(4,274 )
5,365
4,166
49
2,007
14,669
21
148
773
637
189
418
2,186
11,614
354
605
644
15,403
541
—
—
1
2,185
(14 )
(3,564 )
(1,392 )
245
(1,147 )
14,455 $
1
2,084
(21 )
(3,431 )
(1,367 )
92
(1,275 )
14,669
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Community Health Systems, Inc. Stockholders
Redeema
ble
Noncontr
olling
Common Stock
Interests
Shares
Amou
nt
Capital
Accumulate
d
Other
Comprehen
sive
Additiona
l
Paid-in
Accumul
ated
Noncontrol
ling
Total
Stockholder
s’
Balance, December 31, 2020
Comprehensive income (loss)
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Purchase of subsidiary shares from noncontrolling interests
Other reclassifications of noncontrolling interests
Disposition of less-than-wholly owned hospital
Noncontrolling interests in acquired entity
Adjustment to redemption value of redeemable
noncontrolling interests
Cancellation of restricted stock for tax withholdings on
vested shares
Issuance of common stock in connection with the exercise
of stock options
Stock-based compensation
Balance, December 31, 2021
Comprehensive income (loss)
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Purchase of subsidiary shares from noncontrolling interests
Noncontrolling interests in acquired entity
Adjustment to redemption value of redeemable
noncontrolling interests
Cancellation of restricted stock for tax withholdings on
vested shares
Issuance of common stock in connection with the exercise
of stock options
Stock-based compensation
Balance, December 31, 2022
Comprehensive income (loss)
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Purchase of subsidiary shares from noncontrolling interests
Other reclassifications of noncontrolling interests
Noncontrolling interests in acquired entity
Adjustment to redemption value of redeemable
noncontrolling interests
Cancellation of restricted stock for tax withholdings on
vested shares
Issuance of common stock in connection with the exercise
of stock options
Stock-based compensation
Balance, December 31, 2023
$
$
484
100
1
(82 )
(32 )
1
(7 )
2
13
—
—
—
480
92
2
(80 )
1
6
40
—
—
—
541
73
1
(72 )
(7 )
(266 )
10
43
—
—
—
323
$
129,612,117
—
—
—
—
—
—
—
$
1
—
—
—
—
—
—
—
—
—
(584,379 )
—
65,499
3,053,045
132,146,282
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
(828,952 )
—
56,500
3,329,887
134,703,717
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
(722,606 )
—
See accompanying notes to the consolidated financial statements.
80
Deficit
$
(13 ) $
Loss
(In millions, except share data)
2,094
—
—
—
17
—
—
—
(2 )
—
—
—
1
—
—
(3,707 ) $
230
—
—
—
—
—
—
(13 )
(5 )
—
25
2,118
—
—
—
(6 )
—
(40 )
(8 )
—
20
2,084
—
—
—
5
121
—
(43 )
(4 )
—
—
—
—
(14 )
(7 )
—
—
—
—
—
—
—
—
(21 )
7
—
—
—
—
—
—
—
—
—
—
—
(3,477 )
46
—
—
—
—
—
—
—
—
(3,431 )
(133 )
—
—
—
—
—
—
—
Interests
Deficit
$
87
38
—
(39 )
(4 )
—
—
—
—
—
—
—
82
41
11
(45 )
—
3
—
—
—
—
92
76
4
(69 )
—
142
—
—
—
—
—
245
$
(1,538 )
266
—
(39 )
13
1
—
—
(13 )
(5 )
—
25
(1,290 )
80
11
(45 )
(6 )
3
(40 )
(8 )
—
20
(1,275 )
(50 )
4
(69 )
5
263
—
(43 )
(4 )
—
22
(1,147 )
15,001
2,778,799
136,774,911
—
—
1
$
$
—
22
2,185
$
—
—
(14 ) $
—
—
(3,564 ) $
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization
Deferred income taxes
Stock-based compensation expense
Impairment and (gain) loss on sale of businesses, net
(Gain) loss from early extinguishment of debt
Gain on sale of equity interests in Macon Healthcare, LLC
Gain from CoreTrust Transaction
Other non-cash expenses, net
Changes in operating assets and liabilities, net of effects of acquisitions
and divestitures:
Patient accounts receivable
Supplies, prepaid expenses and other current assets
Repayment/derecognition of Medicare accelerated payments
Accounts payable, accrued liabilities and income taxes
Other
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Acquisitions of facilities and other related businesses
Purchases of property and equipment
Proceeds from disposition of hospitals and other ancillary operations
Proceeds from sale of property and equipment
Purchases of available-for-sale debt securities and equity securities
Proceeds from sales of available-for-sale debt securities and equity
securities
Purchases of investments in unconsolidated affiliates
Proceeds from sale of equity interests in Macon Healthcare, LLC
Distribution of CoreTrust Transaction proceeds
Increase in other investments
Net cash used in investing activities
Cash flows from financing activities:
Repurchase of restricted stock shares for payroll tax withholding
requirements
Deferred financing costs and other debt-related costs
Proceeds from noncontrolling investors in joint ventures
Redemption of noncontrolling investments in joint ventures
Distributions to noncontrolling investors in joint ventures
Other borrowings
Issuance of long-term debt
Proceeds from ABL Facility
Repayments of long-term indebtedness
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Interest payments
Income tax (payments) refunds, net
See accompanying notes to the consolidated financial statements.
2023
Year Ended December 31,
2022
(In millions)
2021
$
16
$
179
$
505
35
22
(87 )
(72 )
—
—
181
(193 )
(82 )
—
(50 )
(65 )
210
(38 )
(467 )
432
28
(137 )
232
(11 )
—
—
(65 )
(26 )
(4 )
(3 )
5
(1 )
(141 )
39
989
3,176
(4,324 )
(264 )
(80 )
118
38
$
534
165
20
71
(253 )
—
(119 )
182
22
(128 )
—
(158 )
(215 )
300
(9 )
(415 )
89
38
(114 )
110
(19 )
—
121
(60 )
(259 )
(8 )
(74 )
13
(5 )
(125 )
48
1,535
542
(2,356 )
(430 )
(389 )
507
118
$
(801 ) $
(91 ) $
(835 ) $
(6 ) $
$
$
$
81
368
540
170
25
24
79
(39 )
—
78
(136 )
1
(1,081 )
16
(176 )
(131 )
(3 )
(469 )
17
10
(171 )
102
(7 )
110
—
(113 )
(524 )
(5 )
(313 )
—
(19 )
(121 )
60
4,310
—
(4,426 )
(514 )
(1,169 )
1,676
507
(778 )
(4 )
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business. Community Health Systems, Inc. is a holding company and operates no business in its own name. On a consolidated basis, Community
Health Systems, Inc. and its subsidiaries (collectively the “Company”) own, lease and operate general acute care hospitals as well as outpatient facilities in
communities across the country. As of December 31, 2023, the Company’s subsidiaries own or lease 71 affiliated hospitals, with approximately 12,000
beds, and operate more than 1,000 sites of care, including physician practices, urgent care centers, freestanding emergency departments, occupational
medicine clinics, imaging centers, cancer centers and ambulatory surgery centers. Throughout these notes to the consolidated financial statements,
Community Health Systems, Inc. (the “Parent Company”) and its consolidated subsidiaries are referred to on a collective basis as the “Company.” This
drafting style is not meant to indicate that the publicly-traded Parent Company or any particular subsidiary of the Parent Company owns or operates any
asset, business, or property. The hospitals, operations and businesses described in this filing are owned and operated, and management services provided,
by distinct and indirect subsidiaries of Community Health Systems, Inc.
As of December 31, 2023, Indiana, Alabama, Texas and Florida represent the only areas of significant geographic concentration. Net operating revenues
generated by the Company’s hospitals in Indiana, as a percentage of consolidated net operating revenues, were 17.1% in 2023, 17.3% in 2022, and 16.4%
in 2021. Net operating revenues generated by the Company’s hospitals in Alabama, as a percentage of consolidated net operating revenues, were 14.4% in
2023, 13.3% in 2022 and 13.0% in 2021. Net operating revenues generated by the Company’s hospitals in Texas, as a percentage of consolidated net
operating revenues, were 11.7% in 2023, 11.7% in 2022 and 11.0% in 2021. Net operating revenues generated by the Company’s hospitals in Florida, as a
percentage of consolidated net operating revenues, were 11.1% in 2023, 11.6% in 2022 and 12.2% in 2021.
Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from
these estimates under different assumptions or conditions.
Principles of Consolidation. The consolidated financial statements include the accounts of the Parent Company, its subsidiaries, all of which are
controlled by the Parent Company through majority voting control, and variable interest entities for which the Company is the primary beneficiary. All
intercompany accounts, profits and transactions have been eliminated. Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the
Parent Company are presented as a component of total equity to distinguish between the interests of the Parent Company and the interests of the
noncontrolling owners. Revenues, expenses and income from these subsidiaries are included in the consolidated amounts as presented in the consolidated
statements of (loss) income, along with a net income measure that separately presents the amounts attributable to the controlling interests and the amounts
attributable to the noncontrolling interests for each of the periods presented. Noncontrolling interests that are redeemable or may become redeemable at a
fixed or determinable price at the option of the holder or upon the occurrence of an event outside of the control of the Company are presented in mezzanine
equity in the consolidated balance sheets.
Cost of Revenue. Substantially all of the Company’s operating costs and expenses are “cost of revenue” items. Operating costs that could be classified
as general and administrative by the Company would include the Company’s corporate office costs at its Franklin, Tennessee office, which were
collectively $248 million, $229 million and $222 million for the years ended December 31, 2023, 2022 and 2021, respectively. Included in these corporate
office costs is stock-based compensation of $22 million, $20 million and $25 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Cash Equivalents. The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents.
Supplies. Supplies, principally medical supplies, are stated at the lower of cost (first-in, first-out basis) or market.
Marketable Securities. The Company’s marketable securities consist of debt securities that are classified as trading or available-for-sale and equity
securities. Available-for-sale debt securities are reported at fair value as determined by quoted market prices, with unrealized gains and losses reported as a
separate component of stockholders’ deficit. Trading securities are reported at fair value with unrealized gains and losses included in earnings. Other
comprehensive income (loss), net of tax, included an unrealized gain of $6 million and unrealized losses of $17 million and $5 million during the years
ended December 31, 2023, 2022 and 2021, respectively.
Property and Equipment. Property and equipment are recorded at cost. Depreciation is recognized using the straight-line method over the estimated
useful lives of the land and improvements (3 to 20 years), buildings and improvements (5 to 40 years) and equipment and fixtures (3 to 18 years). Costs
capitalized as construction in progress were $343 million and $234 million at December 31, 2023 and 2022, respectively. Expenditures for renovations and
other significant improvements are capitalized; however, maintenance and repairs which do not improve or extend the useful lives of the respective assets
are charged to operations as incurred.
82
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Interest capitalized related to construction in progress was $13 million, $9 million and $13 million for the years ended December 31, 2023, 2022 and 2021,
respectively. Purchases of property and equipment and internal-use software accrued in accounts payable and not yet paid were $101 million and $87
million at December 31, 2023 and 2022, respectively.
The Company also leases certain facilities and equipment under finance leases (see Note 9). Such assets are amortized on a straight-line basis over the
lesser of the term of the lease or the remaining useful lives of the applicable assets. During the year ended December 31, 2023, the Company had non-cash
investing activity of $1 million related to certain facility and equipment additions that were financed through finance leases and other debt.
Goodwill. Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired.
Goodwill arising from business combinations is not amortized. Goodwill is required to be evaluated for impairment at the same time every year and when
an event occurs or circumstances change such that it is more likely than not that impairment may exist. The Company performs its annual testing of
impairment for goodwill in the fourth quarter of each year. There was no goodwill impairment charge during the years ended December 31, 2023, 2022 and
2021 as a result of the Company’s annual impairment evaluation.
Other Assets. Other assets consist of the insurance recovery receivable from excess insurance carriers related to the Company’s self-insured
professional liability and workers’ compensation insurance liability; costs to recruit physicians to the Company’s markets, which are deferred and expensed
over the term of the respective physician recruitment contract, generally three years, and included in amortization expense; equity method investments;
right-of-use (“ROU”) assets for operating leases; and capitalized internal-use software costs, which are expensed over the expected useful life, which is
generally three years for routine software, and included in amortization expense.
Revenue Recognition.
Net Operating Revenues
Net operating revenues are recorded at the transaction price estimated by the Company to reflect the total consideration due from patients and third-
party payors in exchange for providing goods and services in patient care. These services are considered to be a single performance obligation and have a
duration of less than one year. Revenues are recorded as these goods and services are provided. The transaction price, which involves significant estimates,
is determined based on the Company’s standard charges for the goods and services provided, with a reduction recorded for price concessions related to
third-party contractual arrangements as well as patient discounts and other patient price concessions. During each of the years ended December 31, 2023,
2022 and 2021, the impact of changes to the inputs used to determine the transaction price was considered immaterial.
Currently, several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers that is not specifically
tied to an individual’s care, some of which offsets a portion of the cost of providing care to Medicaid and indigent patients. These programs are authorized
by Centers for Medicare & Medicaid Services (“CMS”) and are funded with a combination of state and federal resources, including, in certain instances,
fees or taxes levied on the providers. Under these supplemental programs, the Company recognizes revenue and related expenses in the period in which
amounts are estimable and payment is reasonably assured. Reimbursement under these programs is reflected in net operating revenues. Taxes or other
program-related costs are reflected in other operating expenses.
The Company’s net operating revenues during the years ended December 31, 2023, 2022 and 2021 have been presented in the following table based on
an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in millions):
Medicare
Medicare Managed Care
Medicaid
Managed Care and other third-party payors
Self-pay
Total
Year Ended December 31,
2022
2023
2021
2,484 $
2,103
1,790
5,978
135
12,490 $
2,547 $
1,968
1,807
5,806
83
12,211 $
2,650
1,861
1,671
6,076
110
12,368
$
$
83
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Patient Accounts Receivable
Patient accounts receivable are recorded at net realizable value based on certain assumptions determined by each payor. For third-party payors including
Medicare, Medicare Managed Care, Medicaid and Managed Care, the net realizable value is based on the estimated contractual reimbursement percentage,
which is based on current contract prices or historical paid claims data by payor. For self-pay accounts receivable, which includes patients who are
uninsured and the patient responsibility portion for patients with insurance, the net realizable value is determined using estimates of historical collection
experience without regard to aging category. These estimates are adjusted for estimated conversions of patient responsibility portions, expected recoveries
and any anticipated changes in trends.
Patient accounts receivable can be impacted by the effectiveness of the Company’s collection efforts. Additionally, significant changes in payor mix,
business office operations, economic conditions or trends in federal and state governmental healthcare coverage could affect the net realizable value of
accounts receivable. The Company also continually reviews the net realizable value of accounts receivable by monitoring historical cash collections as a
percentage of trailing net operating revenues, as well as by analyzing current period net operating revenues and admissions by payor classification, days
revenue outstanding, the composition of self-pay receivables between pure self-pay patients and the patient responsibility portion of third-party insured
receivables, the impact of recent acquisitions and dispositions and the impact of current macroeconomic conditions and other events.
Final settlements for some payors and programs are subject to adjustment based on administrative review and audit by third parties. As a result of these
final settlements, the Company has recorded amounts due to third-party payors of $97 million and $101 million as of December 31, 2023 and 2022,
respectively, and these amounts are included in accrued liabilities-other in the accompanying consolidated balance sheets. Amounts due from third-party
payors were $130 million and $97 million as of December 31, 2023 and 2022, respectively, and are included in other current assets in the accompanying
consolidated balance sheets. Substantially all Medicare and Medicaid cost reports are final settled through 2019.
Charity Care
In the ordinary course of business, the Company renders services to patients who are financially unable to pay for hospital care. The Company’s policy
is to not pursue collections for such amounts; therefore, the related charges for those patients who are financially unable to pay and that otherwise do not
qualify for reimbursement from a governmental program are not reported in net operating revenues, and are thus classified as charity care. The Company
determines amounts that qualify for charity care based on the patient’s household income relative to the federal poverty level guidelines, as established by
the federal government.
These charity care services are estimated to be $1.3 billion, $1.4 billion and $1.1 billion for the years ended December 31, 2023, 2022 and 2021,
respectively, representing the value (at the Company’s standard charges) of these charity care services that are excluded from net operating revenues. The
estimated cost incurred by the Company to provide these charity care services to patients who are unable to pay was approximately $140 million, $166
million and $123 million for the years ended December 31, 2023, 2022 and 2021, respectively. The estimated cost of these charity care services was
determined using a ratio of cost to gross charges and applying that ratio to the gross charges associated with providing care to charity patients for the
period. The Company determines amounts that qualify for charity care based on the patient’s household income relative to the federal poverty level
guidelines, as established by the federal government. The Company updated its policy during the three months ended March 31, 2022 in a manner which
increased the number of accounts qualifying for charity care. This resulted in an increase in charity care services during the year ended December 31, 2022,
compared to the same period in 2021.
Leases. Leases are recorded in the consolidated balance sheets through recognition of a liability for the discounted present value of future fixed lease
payments and a corresponding ROU asset. The ROU asset recorded at commencement of the lease represents the right to use the underlying asset over the
lease term in exchange for the lease payments. Leases with an initial term of 12 months or less that do not have an option to purchase the underlying asset
that is deemed reasonably certain to be exercised are not recorded in the consolidated balance sheets; rather, rent expense for these leases is recognized on a
straight-line basis over the lease term, or when incurred if a month-to-month lease. When readily determinable, the Company uses the interest rate implicit
in a lease to determine the present value of future lease payments. For leases where the implicit rate is not readily determinable, the Company’s incremental
borrowing rate is utilized. The Company calculates its incremental borrowing rate on a quarterly basis using a third-party financial model that estimates the
rate of interest the Company would have to pay to borrow an amount equal to the total lease payments on a collateralized basis over a term similar to the
lease. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
84
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Physician Income Guarantees. The Company enters into physician recruiting agreements under which it supplements physician income to a minimum
amount over a period of time, typically one year, while the physicians establish themselves in the community. As part of the agreements, the physicians are
committed to practice in the community for a period of time, typically three years, which extends beyond their income guarantee period. The Company
records an asset and liability for the estimated fair value of minimum revenue guarantees on new agreements and the asset is amortized over the life of each
respective agreement. Adjustments to the ultimate value of the guarantee paid to physicians are recognized in the period that the change in estimate is
identified. As of December 31, 2023 and 2022, the unamortized portion of these physician income guarantees was $9 million and $12 million, respectively,
and is recorded in other assets in the consolidated balance sheets.
Concentrations of Credit Risk. The Company grants unsecured credit to its patients, most of whom reside in the service area of the Company’s
facilities and are insured under third-party payor agreements. Because of the economic diversity of the Company’s facilities and non-governmental third-
party payors, Medicare represents the only significant concentration of credit risk from payors. Accounts receivable, net of contractual allowances, from
Medicare was $194 million and $198 million at December 31, 2023 and 2022, respectively, representing 6% of consolidated net accounts receivable at both
December 31, 2023 and 2022.
Accounting for the Impairment or Disposal of Long-Lived Assets. During the year ended December 31, 2023, the Company recorded a net gain of
approximately $87 million, comprised of a gain of $145 million related to the sale of five hospitals and the sale of a majority interest in one hospital, offset
by (i) an approximate $49 million impairment charge to adjust the carrying value of long-lived assets at three hospitals that were sold at a sales price below
carrying value, and (ii) an approximate $9 million impairment charge recorded to reduce the carrying value of several assets that were idled, disposed of or
held-for-sale. During the year ended December 31, 2023, approximately $186 million of goodwill was allocated from the hospital operations reporting unit
associated with the disposal groups for which impairment charges or a gain on sale was recorded during the period.
During the year ended December 31, 2022, the Company recorded an impairment charge of approximately $71 million, of which (i) approximately $7
million was recorded to adjust the carrying value of long-lived assets at hospitals and related businesses that were sold at a sales price below carrying value,
(ii) approximately $44 million was recorded to reduce the carrying value of closed hospitals to estimated fair value less costs to sell, (iii) approximately $9
million was recorded related to the expiration or planned non-renewal of leases to operate certain hospitals, and (iv) approximately $11 million was
recorded to reduce the carrying value of several assets that were either idled, disposed or held-for-sale.
Income Taxes. The Company accounts for income taxes under the asset and liability method, in which deferred income tax assets and liabilities are
recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in
the consolidated statements of (loss) income during the period in which the tax rate change becomes law.
Other Comprehensive Loss. Other comprehensive loss is the change in equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources.
Segment Reporting. A public company is required to report annual and interim financial and descriptive information about its reportable operating
segments. Operating segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Aggregation of similar operating
segments into a single reportable operating segment is permitted if the businesses have similar economic characteristics and meet the criteria established by
U.S. GAAP. The Company operates a single operating segment represented by hospital operations (which includes the Company's acute care hospitals and
related healthcare entities that provide inpatient and outpatient healthcare services).
COVID-19 Pandemic. Throughout the acute phase of the COVID-19 pandemic that began in 2020, federal and state governments passed legislation,
promulgated regulations and took other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients
during the public health emergency and to provide financial relief. Various stimulus laws, including the Coronavirus Aid, Relief and Economic Security Act
(the “CARES Act”) and the American Rescue Plan Act of 2021 (the “ARPA”), among others, authorized significant funding to be distributed to eligible
healthcare providers through the Public Health and Social Services Emergency Fund (the “PHSSEF”). PHSSEF payments were intended to compensate
healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic and are not required to be repaid,
provided that recipients attest to and comply with certain terms and conditions, including audit and reporting requirements. Various state and local
programs also exist to provide relief, either independently or through distribution of monies received via the CARES Act and other enacted federal
legislation.
85
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company received pandemic relief fund payments through various federal, state and local programs of approximately $161 million and $58 million
during the years ended December 31, 2022 and 2021. Approximately $173 million and $148 million during the years ended December 31, 2022 and 2021,
respectively, was recognized as pandemic relief funds within the consolidated statements of (loss) income. The Company did not receive or recognize any
significant level of payments or benefits under the CARES Act or other COVID-19 related stimulus and relief legislation during the year ended December
31, 2023 and does not expect to receive or recognize any significant level of payments or benefit under the CARES Act and other existing legislation
related to COVID-19 in future periods.
New Accounting Pronouncements. In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2023-07, “Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures.” This ASU includes additional requirements for
the disclosure of significant segment expenses and segment measure(s) of profit or loss, as well as new disclosure requirements for entities with a single
reportable segment and certain qualitative information about the chief operating decision maker. This ASU is effective for annual periods beginning after
December 15, 2023 and interim periods beginning after December 15, 2024. The amendments in this ASU must be applied retrospectively to all periods
presented. Early adoption is permitted. The Company is currently evaluating the impact that adoption of this ASU will have on its consolidated financial
statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740), Improvements to Income Tax Disclosures.” This ASU establishes new
requirements for the categorization and disaggregation of information in the rate reconciliation as well as for disaggregation of income taxes paid.
Additionally, this ASU modifies and eliminates certain existing requirements for indefinitely reinvested foreign earnings and unrecognized tax benefits.
This ASU is effective for annual periods beginning after December 15, 2024 and interim periods beginning after December 15, 2025. The amendments in
this ASU should be applied on a prospective basis and early adoption is permitted. The Company is currently evaluating the impact that adoption of this
ASU will have on its consolidated financial statements.
The Company has evaluated all other recently issued, but not yet effective, ASUs and does not expect the eventual adoption of these ASUs to have a
material impact on its consolidated financial position or results of operations.
2. ACCOUNTING FOR STOCK-BASED COMPENSATION
Stock-based compensation awards have been granted under the Community Health Systems, Inc. Amended and Restated 2009 Stock Option and Award
Plan, which was most recently amended and restated as of March 22, 2023 and most recently approved by the Company’s stockholders at the annual
meeting of stockholders held on May 9, 2023 (the “2009 Plan”).
The 2009 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (“IRC”) and for the
grant of stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance-based shares or units
and other share awards. Persons eligible to receive grants under the 2009 Plan include the Company’s directors, officers, employees and consultants. To
date, all options granted under the 2009 Plan have been “nonqualified” stock options for tax purposes. Generally, these options vest in one-third increments
on each of the first three anniversaries of the option grant date and expire on the tenth anniversary of the option grant date. The exercise price of all options
granted under the 2009 Plan is equal to the fair value of the Company’s common stock on the option grant date. As of December 31, 2023, 9,017,113 shares
of unissued common stock were reserved for future grants under the 2009 Plan.
The following table reflects the impact of total compensation expense related to stock-based equity plans on the reported operating results for the
respective periods (in millions):
Effect on income before income taxes
Effect on net income
Year Ended December 31,
2022
2023
2021
$
$
(22 ) $
(17 ) $
(20 ) $
(15 ) $
(25 )
(20 )
At December 31, 2023, $27 million of unrecognized stock-based compensation expense related to outstanding unvested stock options, restricted stock
and RSUs (the terms of which are summarized below) was expected to be recognized over a weighted-average period of 20 months. Of that amount, $5
million related to outstanding unvested stock options was expected to be recognized over a weighted-average period of 20 months and $22 million related
to outstanding unvested restricted stock and RSUs was expected to be recognized over a weighted-average period of 20 months. There were no
modifications to awards during the years ended December 31, 2023, 2022 and 2021.
86
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions and weighted-average fair
values during the years ended December 31, 2023, 2022 and 2021:
Expected volatility
Expected dividends
Expected term
Risk-free interest rate
Year Ended December 31,
2022
2023
87.3%
84.3% - 87.5%
—
6 years
4.2%
—
3 - 6 years
1.5% - 1.6%
2021
84.3% - 88.9%
—
3 - 6 years
0.3% - 0.9%
In determining the expected term, the Company examined concentrations of option holdings and historical patterns of option exercises and forfeitures,
as well as forward-looking factors, in an effort to determine if there were any discernible employee populations. From this analysis, in determining the
expected term for the year ended December 31, 2023, the Company identified one population, consisting of persons receiving grants of stock options.
Additionally, in determining the expected term for the years ended December 31, 2022 and 2021, two populations were identified, one consisting of certain
senior executives who have since retired as executive officers, and the other consisting of substantially all other recipients.
The expected volatility rate was estimated based on historical volatility. In determining expected volatility, the Company also reviewed the market-
based implied volatility of actively traded options of its common stock and determined that historical volatility utilized to estimate the expected volatility
rate did not differ significantly from the implied volatility.
The expected term computation is based on historical exercise and cancellation patterns and forward-looking factors, where present, for each population
identified. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The pre-vesting forfeiture rate is based on
historical rates and forward-looking factors for each population identified. The Company adjusts the estimated forfeiture rate to its actual experience.
Options outstanding and exercisable under the 2009 Plan as of December 31, 2023, and changes during each of the years in the three-year period prior
to December 31, 2023, were as follows (in millions, except share and per share data):
Outstanding at December 31, 2020
Granted
Exercised
Forfeited and cancelled
Outstanding at December 31, 2021
Granted
Exercised
Forfeited and cancelled
Outstanding at December 31, 2022
Granted
Exercised
Forfeited and cancelled
Outstanding at December 31, 2023
Exercisable at December 31, 2023
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value as of
December 31,
2023
8.77
8.81
5.03
33.14
6.77
10.18
4.97
13.41
7.32
6.15
4.95
—
7.07
6.46
7.3 years $
6.4 years $
—
—
Shares
1,817,525 $
749,250
(65,499 )
(199,523 )
2,301,753
760,000
(56,500 )
(173,502 )
2,831,751
814,000
(15,001 )
—
3,630,750 $
2,071,994 $
The weighted-average grant date fair value of stock options granted during the years ended December 31, 2023, 2022 and 2021, was $4.61, $7.25 and
$6.22, respectively. The aggregate intrinsic value (calculated as the number of in-the-money stock options multiplied by the difference between the
Company’s closing stock price on the last trading day of the reporting period ($3.13) and the exercise price of the respective stock options) in the table
above represents the amount that would have been received by the option holders had all option holders exercised their options on December 31, 2023. This
amount changes based on the market value of the Company’s common stock. The aggregate intrinsic value of options exercised during the years ended
December 31, 2023, 2022 and
87
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2021 was less than $1 million for all three years. The aggregate intrinsic value of options vested and expected to vest approximates that of the outstanding
options.
The Company has also awarded restricted stock under the 2009 Plan to employees of certain subsidiaries. With respect to time-based vesting restricted
stock that has been awarded under the 2009 Plan, the restrictions on these shares have generally lapsed in one-third increments on each of the first three
anniversaries of the award date. In addition, certain of the restricted stock awards granted to the Company’s senior executives have contained performance
objectives required to be met in addition to any time-based vesting requirements. If the applicable performance objectives are not attained, these awards
will be forfeited in their entirety. For performance-based awards, the performance objectives are measured cumulatively over a three-year period. If the
applicable target performance objective is met at the end of the three-year period, then the restricted stock award subject to such performance objective will
vest in full on the third anniversary of the award date. Additionally, for these performance-based awards, based on the level of achievement for the
applicable performance objective within the parameters specified in the award agreement, the number of shares to be issued in connection with the vesting
of the award may be adjusted to decrease or increase the number of shares specified in the original award. Notwithstanding the above-mentioned
performance objectives and vesting requirements, the restrictions with respect to restricted stock granted under the 2009 Plan may lapse earlier in the event
of death, disability, change in control of the Company or, other than for performance-based awards, termination of employment by the Company for any
reason other than for cause of the holder of the restricted stock. On March 1, 2023, restricted stock awards subject to performance objectives granted on
March 1, 2020 vested at 100% of the shares originally granted based on the Company’s cumulative performance compared to objectives for the 2020
through 2022 performance period. Restricted stock awards subject to performance objectives that have not yet been satisfied are not considered outstanding
for purposes of determining diluted earnings per share unless the performance objectives have been satisfied on the basis of results through the end of each
respective reporting period.
Restricted stock outstanding under the 2009 Plan as of December 31, 2023, and changes during each of the years in the three-year period prior to
December 31, 2023, were as follows:
Unvested at December 31, 2020
Granted
Vested
Forfeited
Unvested at December 31, 2021
Granted
Vested
Forfeited
Unvested at December 31, 2022
Granted
Vested
Forfeited
Unvested at December 31, 2023
Shares
Weighted-
Average Grant
Date Fair Value
4,555,735 $
2,929,250
(2,312,328 )
(177,343 )
4,995,314
3,253,000
(2,561,575 )
(145,674 )
5,541,065
2,746,000
(2,164,570 )
(68,672 )
6,053,823
4.84
8.16
4.68
6.33
6.30
8.95
5.70
8.89
8.53
6.04
6.85
8.16
8.00
RSUs have been granted to the Company’s non-management directors under the 2009 Plan. Each of the Company’s then serving non-management
directors received grants under the 2009 Plan of 29,268 RSUs, 17,682 RSUs and 19,296 RSUs on March 1, 2023, 2022 and 2021, respectively. Both the
March 2023 and 2022 grants had a grant date fair value of approximately $180,000 and the March 2021 grant had a fair value of approximately $170,000.
In addition to the grants set forth above, on March 1, 2023, the non-employee Chairman of the Board of Directors was awarded an additional RSU grant of
43,089 RSUs with a grant date fair value of approximately $265,000 as additional compensation for serving as Chairman of the Board of Directors. Vesting
of these RSUs occurs in one-third increments on each of the first three anniversaries of the award date or upon the director’s earlier cessation of service on
the board, other than for cause. Each non-management director may elect, prior to the beginning of the calendar year in which the award is granted, to defer
the receipt of shares of the Company’s common stock issuable upon vesting until either his or her (i) separation from service with the Company or (ii)
attainment of an age specified in advance by the non-management director. A total of four directors elected to defer the receipt of RSUs granted on March
1, 2021 and March 1, 2023 to a future date and a total of three directors elected to defer the receipt of RSUs granted on March 1, 2022 to a future date.
88
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
RSUs outstanding under the 2009 Plan as of December 31, 2023, and changes during each of the years in the three-year period prior to December 31,
2023, were as follows:
Unvested at December 31, 2020
Granted
Vested
Forfeited
Unvested at December 31, 2021
Granted
Vested
Forfeited
Unvested at December 31, 2022
Granted
Vested
Forfeited
Unvested at December 31, 2023
Shares
Weighted-
Average Grant
Date Fair Value
613,739 $
173,664
(300,805 )
—
486,598
176,820
(151,058 )
—
512,360
365,037
(101,471 )
—
775,926
4.89
8.81
5.09
—
6.17
9.66
5.63
—
7.54
6.15
7.75
—
6.86
3. ACQUISITIONS, DIVESTITURES AND CLOSURES
Acquisitions
The Company accounts for all transactions that represent business combinations using the acquisition method of accounting, where the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity are recognized and measured at their fair values on the date the
Company obtains control in the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and
recorded as provisional amounts. Adjustments to these provisional amounts during the measurement period (defined as the date through which all
information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed and any noncontrolling interests has
been obtained, limited to one year from the acquisition date) are recorded when identified. Goodwill is determined as the excess of the fair value of the
consideration conveyed in the acquisition over the fair value of the net assets acquired.
The Company accounts for asset acquisitions pursuant to a cost accumulation model. Direct transaction costs are recognized as part of the cost of an
acquisition. The Company also evaluates which elements of a transaction should be accounted for as part of an asset acquisition and which should be
accounted for separately. The cost of an asset acquisition, including transaction costs, is allocated to identifiable assets acquired and liabilities assumed
based on a relative fair value basis. Goodwill is not recognized in an asset acquisition.
During the years ended December 31, 2023, 2022 and 2021, one or more subsidiaries of the Company paid approximately $38 million, $9 million and
$3 million, respectively, to acquire the operating assets and related businesses of certain physician practices, clinics, ambulatory surgery centers and other
ancillary businesses that operate within the communities served by the Company’s affiliated hospitals. During the year ended December 31, 2023, a
majority of the amount paid related to the Company's purchase of certain assets from American Physician Partners (“APP”) for approximately $20 million.
This transaction, which resulted in the Company recording a definite-lived intangible asset for the acquisition of an assembled workforce, was accounted
for as an asset acquisition. In connection with these acquisitions, inclusive of APP, the Company allocated the purchase price to property and equipment,
working capital, intangible assets, noncontrolling interests and goodwill.
89
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Divestitures
The following table provides a summary of hospitals that the Company divested (or, in the case of Lutheran Rehabilitation Hospital, in which the
Company sold a majority interest) during the years ended December 31, 2023, 2022 and 2021.
Hospital
2023 Divestitures:
Greenbrier Valley Medical Center
Plateau Medical Center
Medical Center of South Arkansas
Lutheran Rehabilitation Hospital
AllianceHealth Ponca City
AllianceHealth Woodward
Bravera Health Brooksville
Bravera Health Spring Hill
Bravera Health Seven Rivers
2022 Divestitures:
AllianceHealth Seminole
2021 Divestitures:
Lea Regional Medical Center
Tennova Healthcare - Tullahoma
Tennova Healthcare - Shelbyville
Northwest Mississippi Medical Center
AllianceHealth Midwest
Buyer
City, State
Licensed
Beds
Effective Date
Vandalia Health, Inc.
Vandalia Health, Inc.
SARH Holdings, Inc.
Select Medical Corporation
Integris Health
Integris Health
Tampa General Hospital
Tampa General Hospital
Tampa General Hospital
Ronceverte, WV
Oak Hill, WV
El Dorado, AR
Fort Wayne, IN
Ponca City, OK
Woodward, OK
Brooksville, FL
Spring Hill, FL
Crystal River, FL
122
25
166
36
140
87
120
124
128
January 1, 2023
April 1, 2023
July 1, 2023
September 1, 2023
November 1, 2023
November 1, 2023
December 1, 2023
December 1, 2023
December 1, 2023
SSM Health Care of Oklahoma, Inc.
Seminole, OK
32
July 1, 2022
Covenant Health System
Vanderbilt University Medical Center
Vanderbilt University Medical Center
Delta Health System
SSM Health Care of Oklahoma, Inc.
Hobbs, NM
Tullahoma, TN
Shelbyville, TN
Clarksdale, MS
Midwest City, OK
84
135
60
181
255
January 1, 2021
January 1, 2021
January 1, 2021
February 1, 2021
April 1, 2021
On February 28, 2023, the Company entered into a definitive agreement for the sale of substantially all of the assets of Lake Norman Regional Medical
Center (123 licensed beds) in Mooresville, North Carolina, and Davis Regional Medical Center (144 licensed beds) in Statesville, North Carolina, to
Novant Health, Inc. In January 2024, the Federal Trade Commission filed a Complaint for Temporary Restraining Order and Preliminary Injunction seeking
to enjoin the consummation of the aforementioned sale of Lake Norman Regional Medical Center and Davis Regional Medical Center to Novant Health,
Inc. An administrative merits hearing on such matter is scheduled for April 29, 2024. These hospitals were classified as held-for-sale as of December 31,
2023.
The following table discloses amounts included in the consolidated balance sheet for hospitals and other assets classified as held-for-sale as of
December 31, 2023 and 2022 (in millions). Other assets, net primarily includes goodwill and the net property and equipment for hospitals held-for-sale. No
hospitals were classified as held-for-sale as of December 31, 2021 and no divestitures or potential divestitures meet the criteria for reporting as a
discontinued operation as of December 31, 2023, 2022, or 2021.
Other current assets
Other assets, net
Accrued liabilities
Closures
2023
$
December 31,
6
218
(13 )
2022
$
6
132
(4 )
During the three months ended September 30, 2022, the Company completed the closure of Shorepoint Health Venice hospital (312 licensed beds) in
Venice, Florida. The Company recorded an impairment charge of approximately $29 million during the year ended December 31, 2022, to adjust the fair
value of the long-lived assets of this hospital, including property and equipment and capitalized software costs, based on their estimated fair value.
During the three months ended September 30, 2022, the provision of inpatient services and substantially all outpatient services ceased at First Hospital
Wyoming Valley (psychiatric hospital) (149 licensed beds) in Wilkes-Barre, Pennsylvania, resulting in the closure of this facility being substantially
complete as of September 30, 2022. The Company completed the closure of First Hospital Wyoming Valley during the three months ended December 31,
2022. The Company recorded an impairment charge of approximately $15 million during the year ended December 31, 2022, to adjust the fair value of the
long-lived assets of this hospital, including property and equipment and capitalized software costs, based on their estimated fair value.
90
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Other
On December 31, 2022, the lease for AllianceHealth Clinton (56 licensed beds) in Clinton, Oklahoma, expired and was not renewed. The Company
recorded an impairment charge of approximately $1 million during the year ended December 31, 2022 in conjunction with exiting the lease to operate this
hospital.
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill for the years ended 2023 and 2022 are as follows (in millions):
Balance, beginning balance
Goodwill
Accumulated impairment losses
Goodwill acquired as part of acquisitions during current year
Goodwill allocated to hospitals divested or held-for-sale
Balance, end of year
Goodwill
Accumulated impairment losses
2023
2022
6,980 $
(2,814 )
4,166
23
(231 )
6,772
(2,814 )
3,958 $
7,033
(2,814 )
4,219
11
(64 )
6,980
(2,814 )
4,166
$
$
Goodwill is allocated to each identified reporting unit, which is defined as an operating segment or one level below the operating segment (referred to as
a component of the entity). Management has determined that the Company’s operating segment meets the criteria to be classified as a reporting unit. At
December 31, 2023, after giving effect to the 2023 acquisition and divestiture activity, the Company had approximately $3.958 billion of goodwill
recorded.
Goodwill is evaluated for impairment annually and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the
reporting unit below its carrying value. The Company performed its last annual goodwill impairment evaluation during the fourth quarter of 2023 using an
October 31, 2023 measurement date, which indicated no impairment.
The Company estimates the fair value of the reporting unit using both a discounted cash flow model as well as a market multiple model. The cash flow
forecasts are adjusted by an appropriate discount rate based on the Company’s estimate of a market participant’s weighted-average cost of capital. These
models are both based on the Company’s best estimate of future revenues and operating costs and are reconciled to the Company’s consolidated market
capitalization, with consideration of the amount a potential acquirer would be required to pay, in the form of a control premium, in order to gain sufficient
ownership to set policies, direct operations and control management decisions.
The determination of fair value in the Company’s goodwill impairment analysis is based on an estimate of fair value for the reporting unit utilizing
known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited to, the most recent price of the Company’s common
stock and fair value of long-term debt, the Company’s recent financial results, estimates of future revenue and expense growth, estimated market multiples,
expected capital expenditures, income tax rates, costs of invested capital and a discount rate.
Future estimates of fair value could be adversely affected if the actual outcome of one or more of the assumptions described above changes materially in
the future, including as a result of any decline in the Company’s stock price and the fair value of its long-term debt, an increase in the volatility of the
Company’s stock price and the fair value of its long-term debt, lower-than-expected hospital volumes and/or net operating revenues, higher market interest
rates, increased operating costs or other adverse impacts on the Company’s financial results. Such changes impacting the calculation of fair value could
result in a material impairment charge in the future.
The determination of fair value of the Company’s hospital operations reporting unit as part of its goodwill impairment measurement represents a Level
3 fair value measurement in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs.
91
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Intangible Assets
During the year ended December 31, 2023, the Company acquired goodwill and a definite-lived intangible asset for the acquisition of an assembled
workforce. No intangible assets other than goodwill were acquired during the year ended 2022. The gross carrying amount of the Company’s other
intangible assets subject to amortization was $27 million and $4 million at December 31, 2023 and 2022, respectively, and the net carrying amount was $20
million and $2 million at December 31, 2023 and 2022, respectively. The carrying amount of the Company’s other intangible assets not subject to
amortization was $41 million and $50 million at December 31, 2023 and 2022, respectively. Other intangible assets are included in other assets, net on the
Company’s consolidated balance sheets. The Company’s intangible assets include an assembled workforce and various contract-based intangible assets
related to operating licenses, management contracts, or non-compete agreements entered into in connection with prior acquisitions.
The weighted-average remaining amortization period for the intangible assets subject to amortization is approximately three years. There are no
expected residual values related to these intangible assets. Amortization expense on these intangible assets was $5 million, $1 million and less than $1
million during the years ended December 31, 2023, 2022 and 2021, respectively. Amortization expense on intangible assets is estimated to be $8 million,
$8 million and $4 million in 2024, 2025 and 2026, respectively.
The gross carrying amount of capitalized software for internal use was approximately $959 million and $968 million at December 31, 2023 and 2022,
respectively, and the net carrying amount was approximately $144 million and $170 million at December 31, 2023 and 2022, respectively. The estimated
amortization period for capitalized internal-use software is generally three years. There is no expected residual value for capitalized internal-use software.
At December 31, 2023, there were approximately $68 million of capitalized costs for internal-use software that is currently in the development stage and
will begin amortization once the software project is complete and ready for its intended use. Amortization expense on capitalized internal-use software was
$80 million, $85 million and $108 million during the years ended December 31, 2023, 2022 and 2021, respectively. Amortization expense on capitalized
internal-use software is estimated to be $57 million in 2024, $39 million in 2025, $27 million in 2026, $12 million in 2027, $7 million in 2028 and $2
million thereafter.
5. INCOME TAXES
The provision for income taxes consists of the following (in millions):
Current:
Federal
State
Deferred:
Federal
State
Total provision for income taxes for income
92
Year Ended December 31,
2022
2023
2021
$
$
149 $
7
156
(5 )
40
35
191 $
— $
5
5
166
(1 )
165
170 $
(46 )
6
(40 )
161
10
171
131
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table reconciles the differences between the statutory federal income tax rate and the effective tax rate (dollars in millions):
Provision for income taxes at statutory
federal rate
State income taxes, net of federal income tax benefit
Net income attributable to noncontrolling interests
Change in valuation allowance
Change in uncertain tax position
Nondeductible goodwill
Amended return adjustments
Other
Provision for income taxes and
effective tax rate for income
2023
Year Ended December 31,
2022
2021
Amount
%
Amount
%
Amount
%
$
44
37
(31 )
88
10
29
9
5
21.0 % $
17.9
(14.9 )
42.5
4.9
14.1
4.3
2.5
73
3
(28 )
122
—
—
—
—
21.0 % $
0.8
(8.0 )
34.9
—
—
—
—
105
44
(29 )
33
—
—
(22 )
—
$
191
92.3 % $
170
48.7 % $
131
21.0 %
8.7
(5.8 )
6.8
—
—
(4.4 )
—
26.3 %
The Company’s effective tax rates were 92.3%, 48.7% and 26.3% for the years ended December 31, 2023, 2022 and 2021, respectively. The increase in
the Company’s effective tax rate for the year ended December 31, 2023, when compared to the year ended December 31, 2022, was primarily due to non-
deductible goodwill related to hospitals divested in 2023 and a decrease in income before taxes. The increase in the Company’s effective tax rate for the
year ended December 31, 2022, when compared to the year ended December 31, 2021, was primarily due to an increase in non-deductible interest for 2022
compared to 2021, compounded by an adverse change in the IRC Section 163(j) limit for deductible interest expense beginning in 2022.
Deferred income taxes are based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities
under the provisions of the enacted tax laws. Deferred income taxes as of December 31, 2023 and 2022 consist of (in millions):
Net operating loss and credit carryforwards
Property and equipment
Self-insurance liabilities
Prepaid expenses
Intangibles
Investments in unconsolidated affiliates
Other liabilities
Long-term debt and interest
Accounts receivable
IRC Section 163(j) interest limitation
Accrued vacation
Accrued bonus
Other comprehensive income
Right-of-use assets
Right-of-use liability
Stock-based compensation
Deferred compensation
IRC Section 481(a) adjustments
Other
Total
Valuation allowance
Total deferred income taxes
December 31,
2023
2022
Assets
Liabilities
Assets
Liabilities
533 $
—
16
—
—
—
—
32
16
582
19
27
4
—
173
4
38
—
19
1,463
(983 )
480 $
— $
326
—
30
163
72
7
—
—
—
—
—
—
165
—
—
—
57
—
820
—
820 $
553 $
—
30
—
—
—
—
41
16
448
19
19
6
—
156
5
51
—
19
1,363
(829 )
534 $
—
323
—
31
148
58
9
—
—
—
—
—
—
148
—
—
—
122
—
839
—
839
$
$
93
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company believes that the net deferred tax assets will ultimately be realized, except as noted below. Its conclusion is based on its estimate of future
taxable income and the expected timing of temporary difference reversals. The Company has gross state net operating loss carryforwards of approximately
$9.9 billion, which expire from 2024 through 2043. The Company’s tax affected federal and state net operating loss and credit carryforwards are
approximately less than $1 million and $533 million, respectively. A valuation allowance of approximately $983 million has been recognized for state net
operating loss carryforwards, state credit carryforwards and federal and state deferred tax assets that the Company does not expect to be able to realize.
With respect to the deferred tax liability pertaining to intangibles, as included above, goodwill purchased in connection with certain of the Company’s
business acquisitions is amortizable for income tax reporting purposes. However, for financial reporting purposes, there is no corresponding amortization
allowed with respect to such purchased goodwill.
The valuation allowance for federal and state jurisdictions where the Company concluded that the associated deferred tax assets would not be realized
increased by $88 million and $66 million, respectively, for the year ended December 31, 2023, and increased by $122 million and decreased by $108
million, respectively, for the year ended December 31, 2022.
The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was $45 million as of December 31, 2023. A total of $2
million of interest and penalties is included in the amount of the liability for uncertain tax positions at December 31, 2023. It is the Company’s policy to
recognize interest and penalties related to unrecognized benefits in its consolidated statements of (loss) income as income tax expense.
It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute of limitations and
settlements with taxing authorities; however, the Company does not anticipate the change will have a material impact on the Company’s consolidated
results of operations or consolidated financial position.
The following is a tabular reconciliation of the total amount of unrecognized tax benefit for the years ended December 31, 2023, 2022 and 2021 (in
millions):
Unrecognized tax benefit, beginning of year
Gross increases — tax positions in current period
Reductions — tax positions in prior period
Unrecognized tax benefit, end of year
Year Ended December 31,
2022
2023
2021
$
$
50 $
9
(1 )
58 $
42 $
8
—
50 $
45
5
(8 )
42
The Company’s income tax return for the 2018 tax year remains under examination by the Internal Revenue Service. The Company believes the result
of this examination will not be material to its consolidated results of operations or consolidated financial position. The Company has extended the federal
statute of limitations through June 30, 2025 for Community Health Systems, Inc. for the tax period ended December 31, 2018.
Cash paid for income taxes, net of refunds received, was $91 million, $6 million and $4 million during the years ended December 31, 2023, 2022 and
2021, respectively.
94
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6. LONG-TERM DEBT
Long-term debt, net of unamortized debt issuance costs and discounts or premiums, consists of the following (in millions):
8% Senior Secured Notes due 2026
8% Senior Secured Notes due 2027
5⅝% Senior Secured Notes due 2027
6⅞% Senior Notes due 2028
6% Senior Secured Notes due 2029
5¼% Senior Secured Notes due 2030
4¾% Senior Secured Notes due 2031
10⅞% Senior Secured Notes due 2032
6⅞% Junior-Priority Secured Notes due 2029
6⅛% Junior-Priority Secured Notes due 2030
ABL Facility
Finance lease and financing obligations
Other
Less: Unamortized deferred debt issuance costs and note discount
Total debt
Less: Current maturities
Total long-term debt
8% Senior Secured Notes due 2026
December 31,
2023
2022
1,116 $
700
1,900
756
644
1,535
1,058
1,000
1,244
1,227
247
366
32
(338 )
11,487
(21 )
11,466 $
2,101
700
1,900
756
900
1,535
1,058
—
1,386
1,232
53
380
36
(402 )
11,635
(21 )
11,614
$
$
On March 6, 2019, CHS/Community Health Systems, Inc. (“CHS”) completed a private offering of $1.601 billion aggregate principal amount of the 8%
Senior Secured Notes due March 15, 2026 (the “8% Senior Secured Notes due 2026”). The net proceeds from this issuance were used to finance the
repayment of approximately $1.557 billion aggregate principal amount of CHS’ then outstanding Term H Facility and related fees and expenses. On
November 19, 2019, CHS completed a tack-on offering of $500 million aggregate principal amount of the additional 2026 Notes, increasing the total
aggregate principal amount of the 8% Senior Secured Notes due 2026 to $2.101 billion. CHS used the proceeds from the additional 2026 Notes to repay
amounts outstanding under the ABL Facility and redeem all $121 million aggregate principal amount of CHS’ then outstanding 7⅛% Senior Notes due
2020. The additional 2026 Notes have identical terms, other than issue date, issue price and the date from which interest initially accrued, as the 8% Senior
Secured Notes due 2026 issued on March 6, 2019. The 8% Senior Secured Notes due 2026 bear interest at a rate of 8.000% per annum, payable semi-
annually in arrears on March 15 and September 15 of each year. Interest on the 8% Senior Secured Notes due 2026 accrues from the initial issuance date of
the 8% Senior Secured Notes due 2026. Interest is calculated on the basis of a 360-day year comprised of 12 30-day months. The 8% Senior Secured Notes
due 2026 are scheduled to mature on March 15, 2026. The 8% Senior Secured Notes due 2026 are unconditionally guaranteed on a senior-priority secured
basis by the Company and each of the CHS current and future domestic subsidiaries that provide guarantees under the ABL Facility, any capital market
debt securities of CHS (including CHS᾿ outstanding senior notes) and certain other long-term debt of CHS.
The 8% Senior Secured Notes due 2026 and the related guarantees are secured by shared (i) first-priority liens on the Non-ABL Priority Collateral and
(ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens
described in the indenture governing the 8% Senior Secured Notes due 2026.
After March 15, 2022, CHS is entitled, at its option, to redeem all or a portion of the 8% Senior Secured Notes due 2026 upon not less than 15 nor more
than 60 days’ notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest
payment date), if redeemed during the periods set forth below:
Period
March 15, 2023 to March 14, 2024
March 15, 2024 to March 14, 2026
Redemption Price
102.000 %
100.000 %
95
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
8% Senior Secured Notes due 2027
On November 19, 2019, CHS issued approximately $700 million aggregate principal amount of the 8% Senior Secured Notes due December 15, 2027
(the “8% Senior Secured Notes due 2027”) in connection with the 2019 Exchange Offer. No cash proceeds were received from the 2019 Exchange Offer.
The 8% Senior Secured Notes due 2027 bear interest at a rate of 8.000% per annum, payable semi-annually in arrears on June 15 and December 15 of each
year. Interest on the 8% Senior Secured Notes due 2027 accrues from the initial issuance date of the 8% Senior Secured Notes due 2027. Interest is
calculated on the basis of a 360-day year comprised of 12 30-day months. The 8% Senior Secured Notes due 2027 are scheduled to mature on December
15, 2027. The 8% Senior Secured Notes due 2027 are unconditionally guaranteed on a senior-priority secured basis by the Company and each of CHS’
current and future domestic subsidiaries that provide guarantees under the ABL Facility, any capital market debt securities of CHS (including CHS᾿
outstanding senior notes) and certain other long-term debt of CHS.
The 8% Senior Secured Notes due 2027 and the related guarantees are secured by shared (i) first-priority liens on the Non-ABL Priority Collateral and
(ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens
described in the indenture governing the 8% Senior Secured Notes due 2027.
CHS may redeem some or all of the 8% Senior Secured Notes due 2027 at any time on or after December 15, 2022 upon not less than 15 nor more than
60 days’ notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest
payment date), if redeemed during the periods set forth below:
Period
December 15, 2023 to December 14, 2024
December 15, 2024 to December 14, 2027
5⅝% Senior Secured Notes due 2027
Redemption Price
102.000 %
100.000 %
On December 28, 2020, CHS completed a private offering of $1.9 billion aggregate principal amount of 5⅝% Senior Secured Notes due March 15,
2027 (the “5⅝% Senior Secured Notes due 2027”). The proceeds of the offering were used to repurchase approximately $2.579 billion of the outstanding
principal amount of 6¼% Senior Secured Notes due 2023 that were validly tendered and accepted for purchase pursuant to the early tender deadline of a
tender offer that launched on December 11, 2020, and to pay related fees. The remaining principal value of 6¼% Senior Secured Notes due 2023 that were
not validly tendered as of the early tender deadline were redeemed or repurchased via the completion of the tender offer on January 11, 2021 or redemption
on January, 28, 2021. The 5⅝% Senior Secured Notes due 2027, which mature on March 15, 2027, bear interest at a rate of 5⅝% per year payable semi-
annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2021. The 5⅝% Senior Secured Notes due 2027 are
unconditionally guaranteed on a senior-priority secured basis by the Company and each of CHS’ current and future domestic subsidiaries that provide
guarantees under the ABL Facility, any capital market debt securities of CHS (including CHS’ outstanding senior notes) and certain other long-term debt of
CHS.
The 5⅝% Senior Secured Notes due 2027 and the related guarantees are secured by shared (i) first-priority liens on the Non-ABL Priority Collateral and
(ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens
described in the indenture governing the 5⅝% Senior Secured Notes due 2027.
At any time and from time to time on or after December 15, 2023, CHS may redeem the 5⅝% Senior Secured Notes due 2027 in whole or in part, upon
not less than 15 no more than 60 days’ prior written notice at a redemption price equal to the percentage of principal amount set forth below plus accrued
and unpaid interest, if any, on the 5⅝% Senior Secured Notes due 2027 redeemed, to, but excluding, the applicable date of redemption, if redeemed during
the 12 month period beginning on December 15 of the years indicated below:
Period
December 15, 2023 to December 14, 2024
December 15, 2024 to December 14, 2025
December 15, 2025 to December 14, 2027
Redemption Price
102.813 %
101.406 %
100.000 %
96
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6⅞% Senior Notes due 2028
On November 19, 2019, CHS issued approximately $1.7 billion aggregate principal amount of the 6⅞% Senior Notes due April 1, 2028 (“the 6⅞%
Senior Notes due 2028”) in connection with the 2019 Exchange Offer. No cash proceeds were received in the 2019 Exchange Offer. The 6⅞% Senior Notes
due 2028 bear interest at a rate of 6.875% per annum, payable semi-annually in arrears on April 1 and October 1 of each year. Interest on the 6⅞% Senior
2028 Notes accrues from the initial issuance date of the 6⅞% Senior Notes due 2028. Interest is calculated on the basis of a 360-day year comprised of 12
30-day months. The 6⅞% Senior Notes due 2028 are scheduled to mature on April 1, 2028. The 6⅞% Senior Notes due 2028 are unconditionally
guaranteed on a senior-priority unsecured basis by the Company and each of the CHS current and future domestic subsidiaries that provide guarantees
under the ABL Facility, any capital market debt securities of CHS (including CHS᾿ outstanding senior notes) and certain other long-term debt of CHS.
CHS may redeem some or all of the 6⅞% Senior Notes due 2028 at any time on or after April 1, 2023 upon not less than 15 nor more than 60 days’
notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any,
to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if
redeemed during the periods set forth below:
Period
April 1, 2023 to March 31, 2024
April 1, 2024 to March 31, 2025
April 1, 2025 to March 31, 2028
Redemption Price
103.438 %
101.719 %
100.000 %
On December 7, 2020, CHS entered into a privately negotiated agreement with a multi-asset investment manager who has certain funds and accounts
which are holders of the 6⅞% Senior Notes due 2028. Pursuant to the agreement, the Company exchanged $700 million aggregate principal amount of the
6⅞% Senior Notes due 2028 for an aggregate consideration of $400 million of cash and 10 million newly issued shares of the Company’s common stock.
The exchange transaction was completed on December 9, 2020 and the shares of common stock issued in the exchange were not, and are not required to be,
registered under the Securities Act of 1933 pursuant to an exemption from registration provisions via Section 3(a)(9) of the Securities Act of 1933. A gain
from early extinguishment of debt of approximately $205 million was recognized associated with this exchange.
During the year ended December 31, 2020, the Company extinguished $226 million in principal of the 6⅞% Senior Notes due 2028 through open
market repurchases and approximately $7 million via a tender offer that commenced on October 30, 2020 and expired on November 30, 2020.
6% Senior Secured Notes due 2029
On December 28, 2020, CHS completed a private offering of $900 million aggregate principal amount of 6% Senior Secured Notes due January 15,
2029 (the “6% Senior Secured Notes due 2029”). The proceeds of the offering were used, together with proceeds from the 5⅝% Senior Secured Notes due
2027 described above, to repurchase approximately $2.579 billion of the outstanding principal amount of 6¼% Senior Secured Notes due 2023 that were
validly tendered and accepted for purchase pursuant to the early tender deadline of a tender offer that launched on December 11, 2020, and to pay related
fees. The remaining principal value of 6¼% Senior Secured Notes due 2023 that were not validly tendered as of the early tender deadline were redeemed or
repurchased via the completion of the tender offer on January 11, 2021 or redemption on January, 28, 2021. The 6% Senior Secured Notes due 2029, which
mature on January 15, 2029, bear interest at a rate of 6% per year payable semi-annually in arrears on January 15 and July 15 of each year, commencing on
July 15, 2021. The 6% Senior Secured Notes due 2029 are unconditionally guaranteed on a senior-priority secured basis by each of CHS’ current and future
domestic subsidiaries that provide guarantees under the ABL Facility, any capital market debt securities of CHS (including CHS’ outstanding senior notes)
and certain other long-term debt of CHS.
The 6% Senior Secured Notes due 2029 and the related guarantees are secured by shared (i) first-priority liens on the Non-ABL Priority Collateral and
(ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens
described in the indenture governing the 6% Senior Secured Notes due 2029.
CHS is entitled, at its option, to redeem all or a portion of the 6% Senior Secured Notes due 2029 at any time prior to January 15, 2024, upon not less
than 15 nor more than 60 days’ notice, at a price equal to 100% of the principal amount of the 6% Senior Secured Notes due 2029 redeemed plus accrued
and unpaid interest, if any, plus a “make-whole” premium, as described in the indenture governing the 6% Senior Secured Notes due 2029.
97
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
CHS may redeem up to 40% of the aggregate principal amount of the 6% Senior Secured Notes due 2029 at any time prior to January 15, 2024 using
the net proceeds from certain equity offerings at the redemption price of 106.000% of the principal amount of the 6% Senior Secured Notes due 2029
redeemed, plus accrued and unpaid interest, if any.
At any time and from time to time on or after January 15, 2024, CHS may redeem the 6% Senior Secured Notes due 2029 in whole or in part, upon not
less than 15 nor more than 60 days’ prior written notice at a redemption price equal to the percentage of principal amount set forth below plus accrued and
unpaid interest, if any, on the 6% Senior Secured Notes due 2029 redeemed, to, but excluding, the applicable date of redemption, if redeemed during the 12
month period beginning on January 15 of the years indicated below:
Period
January 15, 2024 to January 14, 2025
January 15, 2025 to January 14, 2026
January 15, 2026 to January14, 2029
5¼% Senior Secured Notes due 2030
Redemption Price
103.000 %
101.500 %
100.000 %
On February 4, 2022, CHS completed a private offering of $1.535 billion aggregate principal amount of 5¼% Senior Secured Notes due May 15, 2030
(the “5¼% Senior Secured Notes due 2030”). The proceeds of the offering were used to redeem the 6⅝% Senior Secured Notes due 2025 on February 4,
2022, and to pay related fees and expenses. The 5¼% Senior Secured Notes due 2030 bear interest at a rate of 5.250% per year payable semi-annually in
arrears on May 15 and November 15, commencing on November 15, 2022. The 5¼% Senior Secured Notes due 2030 are unconditionally guaranteed on a
senior-priority secured basis by each of CHS’ current and future domestic subsidiaries that provide guarantees under the ABL Facility, any capital market
debt securities of CHS (including CHS’ outstanding senior notes) and certain other long-term debt of CHS.
The 5¼% Senior Secured Notes due 2030 and the related guarantees are secured by shared (i) first-priority liens on the Non-ABL Priority Collateral and
(ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens
described in the indenture governing the 5¼% Senior Secured Notes due 2030.
CHS is entitled, at its option, to redeem all or a portion of the 5¼% Senior Secured Notes due 2030 at any time prior to May 15, 2025, upon not less
than 10 nor more than 60 days’ notice, at a price equal to 100% of the principal amount of the 5¼% Senior Secured Notes due 2030 redeemed plus accrued
and unpaid interest, if any, plus a “make-whole” premium, as described in the indenture governing the 5¼% Senior Secured Notes due 2030.
CHS may redeem up to 40% of the aggregate principal amount of the 5¼% Senior Secured Notes due 2030 at any time prior to May 15, 2025 using the
net proceeds from certain equity offerings at a redemption price of 105.250% of the principal amount of the 5¼% Senior Secured Notes due 2030
redeemed, plus accrued and unpaid interest, if any. In addition, any time prior to May 15, 2025, but not more than once during each 12 month period, CHS
may redeem up to 10% of the original aggregate principal amount of the 5¼% Senior Secured Notes due 2030 at a redemption price equal to 103% of the
principal amount of the 5¼% Senior Secured Notes due 2030 to be redeemed, plus accrued and unpaid interest, if any.
At any time and from time to time on or after May 15, 2025, CHS may redeem the 5¼% Senior Secured Notes due 2030 in whole or in part, upon not
less than 10 nor more than 60 days’ prior written notice at a redemption price equal to the percentage of principal amount set forth below plus accrued and
unpaid interest, if any, on the 5¼% Senior Secured Notes due 2030 redeemed, to, but excluding, the applicable date of redemption, if redeemed during the
12 month period beginning on May 15 of the years indicated below:
Period
May 15, 2025 to May 14, 2026
May 15, 2026 to May 14, 2027
May 15, 2027 to May 14, 2030
Redemption Price
102.625 %
101.313 %
100.000 %
98
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
4¾% Senior Secured Notes due 2031
On February 9, 2021, CHS completed a private offering of $1.095 billion aggregate principal amount of 4¾% Senior Secured Notes due February 15,
2031 (the “4¾% Senior Secured Notes due 2031”). The proceeds of the offering, together with cash on hand, were used to redeem the 8⅝% Senior Secured
Notes due 2024 on February 9, 2021, and to pay related fees and expenses. The 4¾% Senior Secured Notes due 2031 bear interest at a rate of 4.750% per
year payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2021. The 4¾% Senior Secured Notes due 2031 are
unconditionally guaranteed on a senior-priority secured basis by each of CHS’ current and future domestic subsidiaries that provide guarantees under the
ABL Facility, any capital market debt securities of CHS (including CHS’ outstanding senior notes) and certain other long-term debt of CHS.
The 4¾% Senior Secured Notes due 2031 and the related guarantees are secured by shared (i) first-priority liens on the Non-ABL Priority Collateral and
(ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens
described in the indenture governing the 4¾% Senior Secured Notes due 2031.
CHS is entitled, at its option, to redeem all or a portion of the 4¾% Senior Secured Notes due 2031 at any time prior to February 15, 2026, upon not less
than 15 nor more than 60 days’ notice, at a price equal to 100% of the principal amount of the 4¾% Senior Secured Notes due 2031 redeemed plus accrued
and unpaid interest, if any, plus a “make-whole” premium, as described in the indenture governing the 4¾% Senior Secured Notes due 2031.
CHS may redeem up to 40% of the aggregate principal amount of the 4¾% Senior Secured Notes due 2031 at any time prior to February 15, 2024 using
the net proceeds from certain equity offerings at a redemption price of 104.750% of the principal amount of the 4¾% Senior Secured Notes due 2031
redeemed, plus accrued and unpaid interest, if any. In addition, any time prior to February 15, 2026, but not more than once during each 12 month period,
CHS may redeem up to 10% of the original aggregate principal amount of the 4¾% Senior Secured Notes due 2031 at a redemption price equal to 103% of
the principal amount of the 4¾% Senior Secured Notes due 2031 to be redeemed, plus accrued and unpaid interest, if any.
At any time and from time to time on or after February 15, 2026, CHS may redeem the 4¾% Senior Secured Notes due 2031 in whole or in part, upon
not less than 15 nor more than 60 days’ prior written notice at a redemption price equal to the percentage of principal amount set forth below plus accrued
and unpaid interest, if any, on the 4¾% Senior Secured Notes due 2031 redeemed, to, but excluding, the applicable date of redemption, if redeemed during
the 12 month period beginning on February 15 of the years indicated below:
Period
February 15, 2026 to February 14, 2027
February 15, 2027 to February 14, 2028
February 15, 2028 to February 14, 2029
February 15, 2029 to February 14, 2031
10⅞% Senior Secured Notes due 2032
Redemption
Price
102.375 %
101.583 %
100.792 %
100.000 %
On December 22, 2023, CHS completed a private offering of $1.000 billion aggregate principal amount of 10⅞% Senior Secured Notes due January 15,
2032 (the “10⅞% Senior Secured Notes due 2032”). The proceeds of the offering, together with cash on hand, were used to redeem $985 million aggregate
principal value of the 8% Senior Secured Notes due 2026 on December 28, 2023, and to pay related fees and expenses. The 10⅞% Senior Secured Notes
due 2032 bear interest at a rate of 10.875% per year payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2024. The
10⅞% Senior Secured Notes due 2032 are unconditionally guaranteed on a senior-priority secured basis by the Company and each of CHS’ current and
future domestic subsidiaries that provide guarantees under the ABL Facility, any capital market debt securities of CHS (including CHS’ outstanding senior
notes) and certain other long-term debt of CHS.
The 10⅞% Senior Secured Notes due 2032 and the related guarantees are secured by shared (i) first-priority liens on the Non-ABL Priority Collateral
and (ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens
described in the indenture governing the 10⅞% Senior Secured Notes due 2032.
99
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
CHS is entitled, at its option, to redeem all or a portion of the 10⅞% Senior Secured Notes due 2032 at any time prior to February 15, 2027, upon not
less than 10 nor more than 60 days’ notice, at a price equal to 100% of the principal amount of the 10⅞% Senior Secured Notes due 2032 redeemed plus
accrued and unpaid interest, if any, plus a “make-whole” premium, as described in the indenture governing the 10⅞% Senior Secured Notes due 2032.
CHS may redeem up to 40% of the aggregate principal amount of the 10⅞% Senior Secured Notes due 2032 at any time prior to February 15, 2027
using the net proceeds from certain equity offerings at a redemption price of 110.875% of the principal amount of the 10⅞% Senior Secured Notes due
2032 redeemed, plus accrued and unpaid interest, if any. In addition, any time prior to February 15, 2027, but not more than once during each 12 month
period, CHS may redeem up to 10% of the original aggregate principal amount of the 10⅞% Senior Secured Notes due 2032 at a redemption price equal to
103% of the principal amount of the 10⅞% Senior Secured Notes due 2032 to be redeemed, plus accrued and unpaid interest, if any.
At any time and from time to time on or after February 15, 2027, CHS may redeem the 10⅞% Senior Secured Notes due 2032 in whole or in part, upon
not less than 10 nor more than 60 days’ prior written notice at a redemption price equal to the percentage of principal amount set forth below plus accrued
and unpaid interest, if any, on the 10⅞% Senior Secured Notes due 2032 redeemed, to, but excluding, the applicable date of redemption, if redeemed during
the 12 month period beginning on February 15 of the years indicated below:
Period
February 15, 2027 to February 14, 2028
February 15, 2028 to February 14, 2029
February 15, 2029 to January 14, 2032
6⅞% Junior-Priority Secured Notes due 2029
Redemption
Price
105.438 %
102.719 %
100.000 %
On February 2, 2021, CHS completed a private offering of $1.775 billion aggregate principal amount of 6⅞% Junior-Priority Secured Notes due April
15, 2029 (the “6⅞% Junior-Priority Secured Notes due 2029”). The proceeds of the offering, together with cash on hand, were used to redeem the 9⅞%
Junior-Priority Secured Notes due 2023 in February 2021 and to pay related fees and expenses. The 6⅞% Junior-Priority Secured Notes due 2029 bear
interest at a rate of 6.875% per year payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2021. The 6⅞%
Junior-Priority Secured Notes due 2029 are unconditionally guaranteed on a junior-priority secured basis by the Company and each of the current and
future domestic subsidiaries of CHS that provide guarantees under CHS’ ABL Facility, any capital market debt securities of CHS (including CHS’
outstanding senior notes) and certain other long-term debt of CHS.
The 6⅞% Junior-Priority Secured Notes due 2029 and the related guarantees are secured by shared (i) second-priority liens on the Non-ABL Priority
Collateral that secures on a first-priority basis CHS’ senior-priority secured notes and (ii) third-priority liens on the ABL-Priority Collateral that secures on
a first-priority basis the ABL Facility (and also secures on a second-priority basis CHS’ senior-priority secured notes), in each case subject to permitted
liens described in the indenture governing the 6⅞% Junior-Priority Secured Notes due 2029.
At any time and from time to time prior to April 15, 2024, CHS may redeem the 6⅞% Junior-Priority Secured Notes due 2029 in whole or in part, at its
option, upon not less than 15 nor more than 60 days’ prior written notice at a redemption price equal to 100% of the principal amount of the 6⅞% Junior-
Priority Secured Notes due 2029 to be redeemed plus accrued and unpaid interest, if any, plus a “make-whole” premium, as described in the indenture
governing the 6⅞% Junior-Priority Secured Notes due 2029.
CHS may redeem up to 40% of the aggregate principal amount of the 6⅞% Junior-Priority Secured Notes due 2029 at any time prior to April 15, 2024
using the net proceeds from certain equity offerings at a redemption price of 106.875% of the principal amount of the 6⅞% Junior-Priority Secured Notes
due 2029 redeemed, plus accrued and unpaid interest, if any.
100
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At any time and from time to time on or after April 15, 2024, CHS may redeem the 6⅞% Junior-Priority Secured Notes due 2029 in whole or in part,
upon not less than 15 nor more than 60 days’ prior written notice at a redemption price equal to the percentage of principal amount set forth below plus
accrued and unpaid interest, if any, on the 6⅞% Junior-Priority Secured Notes due 2029 redeemed, to, but excluding, the applicable date of redemption, if
redeemed during the 12 month period beginning on April 15 of the years indicated below:
Period
April 15, 2024 to April 14, 2025
April 15, 2025 to April 14, 2026
April 15, 2026 to April 14, 2029
6⅛% Junior-Priority Secured Notes due 2030
Redemption
Price
103.438 %
101.719 %
100.000 %
On May 19, 2021, CHS completed a private offering of $1.440 billion aggregate principal amount of 6⅛% Junior-Priority Secured Notes due April 1,
2030 (the “6⅛% Junior-Priority Secured Notes due 2030”). The proceeds of the offering, together with cash on hand, were used to redeem the 8⅛% Junior-
Priority Secured Notes due 2024 on May 19, 2021, and to pay related fees and expenses. The 6⅛% Junior-Priority Secured Notes due 2030 bear interest at
a rate of 6.125% per year payable semi-annually in arrears on April 1 and October 1, commencing on October 1, 2021. The 6⅛% Junior-Priority Secured
Notes due 2030 are unconditionally guaranteed on a junior-priority secured basis by each of CHS’ current and future domestic subsidiaries that provide
guarantees under the ABL Facility, any capital market debt securities of CHS (including CHS’ outstanding senior notes) and certain other long-term debt of
CHS.
The 6⅛% Junior-Priority Secured Notes due 2030 and the related guarantees are secured by shared (i) second-priority liens on the Non-ABL Priority
Collateral and (ii) third-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted
liens described in the indenture governing the 6⅛% Junior-Priority Secured Notes due 2030.
CHS is entitled, at its option, to redeem all or a portion of the 6⅛% Junior-Priority Secured Notes due 2030 at any time prior to April 1, 2025, upon not
less than 15 nor more than 60 days’ notice, at a price equal to 100% of the principal amount of the 6⅛% Junior-Priority Secured Notes due 2030 redeemed
plus accrued and unpaid interest, if any, plus a “make-whole” premium, as described in the indenture governing the 6⅛% Junior-Priority Secured Notes due
2030.
CHS may redeem up to 40% of the aggregate principal amount of the 6⅛% Junior-Priority Secured Notes due 2030 at any time prior to May 15, 2024
using the net proceeds from certain equity offerings at a redemption price of 106.125% of the principal amount of the 6⅛% Junior-Priority Secured Notes
due 2030 redeemed, plus accrued and unpaid interest, if any.
At any time and from time to time on or after April 1, 2025, CHS may redeem the 6⅛% Junior-Priority Secured Notes due 2030 in whole or in part,
upon not less than 15 nor more than 60 days’ prior written notice at a redemption price equal to the percentage of principal amount set forth below plus
accrued and unpaid interest, if any, on the 6⅛% Junior-Priority Secured Notes due 2030 redeemed, to, but excluding, the applicable date of redemption, if
redeemed during the 12 month period beginning on April 1 of the years indicated below:
Period
April 1, 2025 to March 31, 2026
April 1, 2026 to March 31, 2027
April 1, 2027 to March 31, 2030
Redemption Price
103.063 %
101.531 %
100.000 %
101
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
During the years ended December 31, 2023 and 2022, the Company extinguished a portion of certain series of its outstanding notes through open
market repurchases, and privately negotiated repurchases with a limited number of holders, as follows (in millions):
6⅞% Senior Notes due 2028
6% Senior Secured Notes due 2029
4¾% Senior Secured Notes due 2031
6⅞% Junior-Priority Secured Notes due 2029
6⅛% Junior-Priority Secured Notes due 2030
Total principal amount of debt extinguished
December 31,
2023
2022
—
256
—
142
4
402
$
$
11
—
37
389
208
645
$
$
Financing and repayment transactions discussed above, including open market and privately negotiated repurchases, resulted in a pre-tax and after-tax
gain from early extinguishment of debt of $72 million and $61 million, respectively, for the year ended December 31, 2023, a pre-tax and after-tax gain
from early extinguishment of debt of $253 million and $208 million, respectively, for the year ended December 31, 2022, a pre-tax and after-tax loss from
early extinguishment of $79 million and $116 million, respectively, for the year ended December 31, 2021.
ABL Facility
On November 22, 2021, the Company and CHS entered into an amendment and restatement agreement (the “Amendment”) to refinance and replace the
asset-based loan (ABL) credit agreement (the “ABL Credit Agreement” and, as amended by the Amendment, the “Amended and Restated ABL Credit
Agreement”), dated as of April 3, 2018, with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders and other agents party thereto. Pursuant
to the Amended and Restated ABL Credit Agreement, the lenders have extended to CHS a revolving asset-based loan facility in the maximum aggregate
principal amount of $1.0 billion, subject to borrowing base capacity. The ABL Facility includes borrowing capacity available for letters of credit of $200
million. CHS and all domestic subsidiaries of CHS that guarantee CHS’ other outstanding senior and senior secured indebtedness guarantee the obligations
of CHS under the ABL Facility. Subject to certain exceptions, all obligations under the ABL Facility and the related guarantees are secured by a perfected
first-priority security interest in substantially all of the receivables, deposit, collection and other accounts and contract rights, books, records and other
instruments related to the foregoing of the Company, CHS and the guarantors, as well as a perfected junior-priority security interest in substantially all of
the other assets of the Company, CHS and the guarantors, subject to customary exceptions and intercreditor arrangements. At December 31, 2023, the
Company had outstanding borrowings of $247 million and approximately $637 million of additional borrowing capacity (after taking into consideration the
$81 million of outstanding letters of credit) under the ABL Facility. The issued letters of credit were primarily in support of potential insurance-related
claims and certain bonds.
Borrowings under the ABL Facility bear interest at a rate per annum equal to an applicable percentage, plus, at the borrower’s option, either (a) a base
rate or (b) the Federal Reserve’s secured overnight financing rate (“SOFR”). The applicable margin under the ABL Facility is determined based on excess
availability as a percentage of the maximum commitment amount under the ABL Facility at a rate per annum of 0.75%, 1.00% and 1.25% for loans based
on the base rate and 1.75%, 2.00% and 2.25% for loans based on SOFR. The applicable commitment fee rate under the ABL Facility is determined based
on average utilization as a percentage of the maximum commitment amount under the ABL Facility at a rate per annum of either 0.25% or 0.375% times
the unused portion of the ABL Facility.
Principal amounts outstanding under the ABL Facility will be due and payable in full on November 22, 2026. The ABL Facility includes a 91-day
springing maturity applicable if more than $350 million in the aggregate principal amount of the 8% Senior Secured Notes due 2026, 5⅝% Senior Secured
Notes due 2027 or any indebtedness incurred to refinance the foregoing are scheduled to mature or similarly become due on a date prior to November 22,
2026. In such event, principal amounts outstanding under the ABL Facility will be accelerated and all amounts outstanding under the ABL Facility will
become immediately due and payable.
The ABL Facility contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting the
Company’s ability, subject to certain exceptions, to, among other things (1) declare dividends, make distributions or redeem or repurchase capital stock, (2)
prepay, redeem or repurchase other debt, (3) incur liens or grant negative pledges, (4) make loans and investments and enter into acquisitions and joint
ventures, (5) incur additional indebtedness or provide certain guarantees, (6) engage in mergers, acquisitions and asset sales, (7) conduct transactions with
affiliates, (8) alter the nature of the Company’s, CHS’ or the guarantors’ businesses, (9) grant certain guarantees with respect to physician practices, (10)
engage in
102
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
sale and leaseback transactions or (11) change the Company’s fiscal year. The Company is also required to comply with a consolidated fixed coverage ratio,
upon certain triggering events described below, and various affirmative covenants. The consolidated fixed coverage ratio is calculated as the ratio of (x)
consolidated EBITDA (as defined in the ABL Facility) less capital expenditures to (y) the sum of consolidated interest expense (as defined in the ABL
Facility), scheduled principal payments, income taxes and restricted payments made in cash or in permitted investments. For purposes of calculating the
consolidated fixed charge coverage ratio, the calculation of consolidated EBITDA as defined in the ABL Facility is a trailing 12-month calculation that
begins with the Company’s consolidated net income, with certain adjustments for interest, taxes, depreciation and amortization, net income attributable to
noncontrolling interests, stock compensation expense, restructuring costs, and the financial impact of other non-cash or non-recurring items recorded during
any such 12-month period. The consolidated fixed charge coverage ratio is a required covenant only in periods where the total borrowings outstanding
under the ABL Facility reduce the amount available in the facility to less than the greater of (i) $95 million or (ii) 10% of the calculated borrowing base. As
a result, in the event the Company has less than $95 million available under the ABL Facility, the Company would need to comply with the consolidated
fixed charge coverage ratio. At December 31, 2023, the Company is not subject to the consolidated fixed charge coverage ratio as such triggering event had
not occurred during the year ended December 31, 2023.
In addition, in the event the amount of borrowings and letters of credit outstanding at any time under the ABL Facility exceeds the borrowing base at
such time, the Company will be required to, first, repay outstanding borrowings and, second, replace or cash collateralize outstanding letters of credit, in an
aggregate amount sufficient to eliminate such excess.
Events of default under the ABL Facility include, but are not limited to, (1) CHS’ failure to pay principal, interest, fees or other amounts under the ABL
Facility Agreement when due (taking into account any applicable grace period), (2) any representation or warranty proving to have been materially
incorrect when made, (3) covenant defaults subject, with respect to certain covenants, to an available cure and applicable grace periods, (4) bankruptcy and
insolvency events, (5) a cross default to certain other debt, (6) certain undischarged judgments (not paid within an applicable grace period), (7) a change of
control (as defined), (8) certain ERISA-related defaults and (9) the invalidity or impairment of specified security interests, guarantees or subordination
provisions in favor of the ABL agent or lenders under the ABL Facility.
As of December 31, 2023, the scheduled maturities of long-term debt outstanding, including finance lease and financing obligations for each of the next
five years and thereafter are as follows (in millions):
Year Ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total maturities
Less: Deferred debt issuance costs
Less: Unamortized note discount
Total long-term debt
Amount
21
12
1,372
2,609
765
7,045
11,824
(322 )
(15 )
11,487
$
$
The Company paid interest of $801 million, $835 million and approximately $778 million on borrowings during the years ended December 31, 2023,
2022 and 2021, respectively.
103
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments has been estimated by the Company using available market information as of December 31, 2023 and 2022, and
valuation methodologies considered appropriate. The estimates presented in the table below are not necessarily indicative of amounts the Company could
realize in a current market exchange (in millions):
Assets:
Cash and cash equivalents
Investments in equity securities
Available-for-sale debt securities
Trading securities
Liabilities:
8% Senior Secured Notes due 2026
8% Senior Secured Notes due 2027
5⅝% Senior Secured Notes due 2027
6⅞% Senior Notes due 2028
6% Senior Secured Notes due 2029
5¼% Senior Secured Notes due 2030
4¾% Senior Secured Notes due 2031
10⅞% Senior Secured Notes due 2032
6⅞% Junior-Priority Secured Notes due 2029
6⅛% Junior-Priority Secured Notes due 2030
ABL Facility and other debt
December 31, 2023
December 31, 2022
Carrying
Amount
Estimated
Fair
Value
Carrying
Amount
Estimated
Fair
Value
$
38 $
69
182
5
38 $
69
182
5
118 $
107
179
5
1,109
695
1,847
750
622
1,458
1,054
982
1,162
1,167
275
1,114
679
1,767
470
580
1,287
834
1,047
812
781
275
2,083
693
1,833
749
865
1,448
1,053
—
1,282
1,164
85
118
107
179
5
1,917
631
1,633
389
751
1,166
766
—
720
615
85
The carrying value of the Company’s long-term debt in the above table is presented net of unamortized deferred debt issuance costs. The estimated fair
value is determined using the methodologies discussed below in accordance with accounting standards related to the determination of fair value based on
the U.S. GAAP fair value hierarchy as discussed in Note 8. The estimated fair value for financial instruments with a fair value that does not equal its
carrying value is considered a Level 1 valuation. The Company utilizes the market approach and obtains indicative pricing through publicly available
subscription services such as Bloomberg to determine fair values where relevant.
Cash and cash equivalents. The carrying amount approximates fair value due to the short-term maturity of these instruments (less than three months).
Investments in equity securities. Estimated fair value is based on closing price as quoted in public markets.
Available-for-sale debt securities. Estimated fair value is based on closing price as quoted in public markets or other various valuation techniques.
Trading securities. Estimated fair value is based on closing price as quoted in public markets.
Senior Notes, Senior Secured Notes and Junior-Priority Secured Notes. Estimated fair value is based on the closing market price for these notes.
ABL Facility and other debt. The carrying amount of the ABL Facility and all other debt approximates fair value due to the nature of these obligations.
104
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
8. FAIR VALUE
Fair Value Hierarchy
Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the
assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value
measurements, the Company utilizes the U.S. GAAP fair value hierarchy that distinguishes between market participant assumptions based on market data
obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting
entity’s own assumption about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
The inputs used to measure fair value are classified into the following fair value hierarchy:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Level 3
includes values determined using pricing models, discounted cash flow methodologies, or similar techniques reflecting the Company’s own
assumptions.
In instances where the determination of the fair value hierarchy measurement is based on inputs from different levels of the fair value hierarchy, the
level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value
measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires
judgment of factors specific to the asset or liability. Transfers between levels within the fair value hierarchy are recognized by the Company on the date of
the change in circumstances that requires such transfer. There were no transfers between levels during the years ended December 31, 2023 or 2022.
The following table sets forth, by level within the fair value hierarchy, the financial assets recorded at fair value on a recurring basis as of December 31,
2023 and 2022 (in millions):
Investments in equity securities
Available-for-sale debt securities
Trading securities
Total assets
Investments in equity securities
Available-for-sale debt securities
Trading securities
Total assets
December 31,
2023
Level 1
Level 2
Level 3
69 $
182
5
256 $
69 $
—
—
69 $
— $
182
5
187 $
December 31,
2022
Level 1
Level 2
Level 3
107 $
179
5
291 $
107 $
—
—
107 $
— $
179
5
184 $
$
$
$
$
—
—
—
—
—
—
—
—
Investments in Equity Securities, Available-for-Sale Debt Securities and Trading Securities
Investments in equity securities classified as Level 1 are measured using quoted market prices. Level 2 available-for-sale debt securities and trading
securities primarily consist of bonds and notes issued by the United States government and its agencies and domestic and foreign corporations. The
estimated fair values of these securities are determined using various valuation techniques, including a multi-dimensional relational model that incorporates
standard observable inputs and assumptions such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities,
bids/offers and other pertinent reference data.
105
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Supplemental information regarding the Company’s available-for-sale debt securities (all of which had no withdrawal restrictions) is set forth in the
table below (in millions):
As of December 31, 2023:
Government
Corporate
Mortgage and asset-backed securities
Total available-for-sale debt securities
As of December 31, 2022:
Government
Corporate
Mortgage and asset-backed securities
Total available-for-sale debt securities
Gross
Gross
Amortized
Cost
Unrealized Unrealized
Gains
Losses
Estimated
Fair
Values
118 $
65
16
199 $
— $
—
—
— $
(10 ) $
(6 )
(1 )
(17 ) $
108
59
15
182
Gross
Gross
Amortized
Cost
Unrealized Unrealized
Gains
Losses
Estimated
Fair
Values
107 $
69
25
201 $
— $
—
—
— $
(11 ) $
(9 )
(2 )
(22 ) $
96
60
23
179
$
$
$
$
As of December 31, 2023 and 2022, investments with aggregate estimated fair values of approximately $145 million (306 investments) and $169
million (348 investments), respectively, generated the gross unrealized losses disclosed in the above table. At each reporting date, the Company performs an
evaluation of impaired securities to determine if the unrealized losses are other-than-temporary. This evaluation considers a number of factors including,
but not limited to, the length of time and extent to which the fair value has been less than cost, and management’s ability and intent to hold the securities
until fair value recovers. Based on the results of this evaluation, management concluded that as of December 31, 2023, there were no other-than-temporary
losses related to available-for-sale debt securities. The recent declines in value of the securities and/or length of time they have been below cost, as well as
the Company’s ability and intent to hold the securities for a reasonable period of time sufficient for a projected recovery of fair value, have caused
management to conclude that the securities, that have generated gross unrealized losses, were not other-than-temporarily impaired. Management will
continue to monitor and evaluate the recoverability of the Company’s available-for-sale debt securities.
The contractual maturities of debt-based securities held by the Company as of December 31, 2023 and 2022, excluding mutual fund holdings, are set
forth in the table below (in millions). Expected maturities will differ from contractual maturities because the issuers of the debt securities may have the
right to prepay their obligations without prepayment penalties.
December 31, 2023
December 31, 2022
Amortized
Cost
Estimated
Fair Values
Amortized
Cost
Estimated
Fair Values
Within 1 year
After 1 year and through year 5
After 5 years and through year 10
After 10 years
$
19 $
63
63
54
19 $
62
57
44
13 $
74
56
58
Gross realized gains and losses on sales of available-for-sale debt securities are summarized in the table below (in millions):
Realized gains
Realized losses
Year Ended December 31,
2022
2023
2021
$
— $
(2 )
— $
(2 )
13
70
48
48
1
(1 )
Other investment income, which includes interest and dividends, related to all investment securities was $7 million, $6 million and $5 million for the
years ended December 31, 2023, 2022 and 2021, respectively.
106
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Net losses and gains recognized during the years ended December 31, 2023, 2022 and 2021 for investments in equity securities, which are broken out
between investments sold during the year and investments held at the end of the year, are summarized in the table below (in millions):
Net gains and (losses) recognized during the year on equity securities
Less: Net (losses) and gains recognized during the year on equity
securities sold during the year
Unrealized gains and (losses) recognized during the year on equity
securities held at the end of year
$
$
9. LEASES
2023
Year Ended December 31,
2022
11
$
(28 )
$
2021
(5 )
16
$
(2 )
(26 )
$
20
13
7
The Company utilizes operating and finance leases for the use of certain hospitals, medical office buildings, and medical equipment. All lease
agreements generally require the Company to pay maintenance, repairs, property taxes and insurance costs, which are variable amounts based on actual
costs incurred during each applicable period. Such costs are not included in the determination of the ROU asset or lease liability. Variable lease cost also
includes escalating rent payments that are not fixed at commencement but are based on an index that is determined in future periods over the lease term
based on changes in the Consumer Price Index or other measures of cost inflation. Most leases include one or more options to renew the lease at the end of
the initial term, with renewal terms that generally extend the lease at the then market rate of rental payment. Certain leases also include an option to buy the
underlying asset at or a short time prior to the termination of the lease. All such options are at the Company’s discretion and are evaluated at the
commencement of the lease, with only those that are reasonably certain of exercise included in determining the appropriate lease term.
The components of lease cost and rent expense for the years ended December 31, 2023, 2022 and 2021 are as follows (in millions):
Lease Cost
Operating lease cost:
Operating lease cost
Short-term rent expense
Variable lease cost
Sublease income
Total operating lease cost
Finance lease cost:
Amortization of ROU assets
Interest on finance lease liabilities
Total finance lease cost
Year Ended December 31,
2022
2023
2021
$
$
$
$
211
90
23
(5 )
319
13
13
26
$
$
$
$
211
87
24
(5 )
317
13
15
28
$
$
$
$
196
92
25
(5 )
308
9
9
18
107
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Supplemental balance sheet information related to leases was as follows (in millions):
—
261
12
273
(56 )
217
3
220
197
9
4
166
143
Operating Leases:
Operating Lease ROU Assets
Finance Leases:
Finance Lease ROU Assets
Balance Sheet Classification
December 31,
2023
December 31,
2022
Other assets, net
$
665 $
738
Property and equipment
Land and improvements
Buildings and improvements
Equipment and fixtures
Property and equipment
Less accumulated depreciation and
amortization
Property and equipment, net
$
$
$
— $
246
10
256
(55 )
201 $
2 $
214
Current finance lease liabilities
Long-term finance lease liabilities
Current maturities of long-term debt
Long-term debt
Supplemental cash flow information related to leases for the years ended December 31, 2023, 2022 and 2021 are as follows (in millions):
Cash flow information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (1)
Operating cash flows from finance leases
Financing cash flows from finance leases
ROU assets obtained in exchange for new finance lease liabilities
ROU assets obtained in exchange for new operating lease liabilities
Weighted-average remaining lease term:
Operating leases
Finance leases
Weighted-average discount rate:
Operating leases
Finance leases
Year Ended December 31,
2022
2023
2021
$
200 $
13
3
1
102
204 $
15
9
42
195
9 years
30 years
8 years
31 years
6 years
30 years
8.8 %
6.2 %
8.0 %
6.4 %
8.1 %
6.3 %
(1)
Included in the change in other operating assets and liabilities in the consolidated statements of cash flows.
Commitments relating to noncancellable operating and finance leases and financing obligations for each of the next five years and thereafter are as
follows (in millions):
Year Ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total minimum future payments
Less: Imputed interest
Total liabilities
Less: Current portion
Long-term liabilities
Operating
Finance
Financing
Obligations
$
$
181 $
144
118
92
75
467
1,077
(390 )
687
(124 )
563 $
16 $
15
16
16
16
472
551
(335 )
216
(2 )
214 $
13
13
13
13
14
59
125
26
151
(3 )
148
108
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2023, there were approximately $36 million of assets underlying approved but pending leases that have not yet commenced,
primarily for leases of various real-estate and medical equipment.
10. EMPLOYEE BENEFIT PLANS
The Company maintains various benefit plans, including defined contribution plans, defined benefit plans and deferred compensation plans, for which
certain of the Company’s subsidiaries are the plan sponsors. The CHS/Community Health Systems, Inc. Retirement Savings Plan is a defined contribution
plan that covers the majority of the Company’s employees. Employees at locations whose employment is covered by collective bargaining agreements are
generally eligible to participate in the CHS/Community Health Systems, Inc. Standard 401(k) Plan. Total expense to the Company under the 401(k) plans
was $64 million, $70 million and $65 million for the years ended December 31, 2023, 2022 and 2021, respectively, and is recorded in salaries and benefits
expense in the consolidated statements of (loss) income.
The Company maintains unfunded deferred compensation plans that allow participants to defer receipt of a portion of their compensation. The liability
for the deferred compensation plans was $123 million and $127 million as of December 31, 2023 and 2022, respectively, and is included in other long-term
liabilities in the consolidated balance sheets. Assets designated to pay benefits under these plans are discussed below.
The Company provides an unfunded Supplemental Executive Retirement Plan (“SERP”) for certain members of its executive management. The
Company uses a December 31 measurement date for the benefit obligations and a January 1 measurement date for its net periodic costs for the SERP.
Variances from actuarially assumed rates will result in increases or decreases in benefit obligations and net periodic cost in future periods. Benefits expense
under the SERP was $8 million for the year ended December 31, 2023 and $11 million for both of the years ended December 31, 2022 and 2021. The
accrued benefit liability for the SERP totaled $42 million and $91 million at December 31, 2023 and 2022, respectively. The weighted-average assumptions
used in determining net periodic cost for the year ended December 31, 2023 were a discount rate of 5.1% and an annual salary increase of 3.0%. The
weighted-average assumptions used in determining net periodic cost for the year ended December 31, 2022 were a discount rate of 2.7% and an annual
salary increase of 3.0%.
During 2021 and 2023, certain members of executive management of the Company that were participants in the SERP retired and met the requirements
for payout of their SERP retirement benefit. The SERP payout provisions require payment to the participant in an actuarially determined lump sum amount
six months after the participant retires from the Company. There were no material settlement losses during the years ended December 31, 2023, 2022 and
2021.
As of December 31, 2023, the Company had assets of $126 million in a non-qualified plan trust generally designated to pay benefits of the deferred
compensation plans and the SERP, consisting of equity securities of $15 million and company-owned life insurance contracts of $111 million. As of
December 31, 2022, the Company had assets of $181 million in a non-qualified plan trust generally designated to pay benefits of the deferred compensation
plans and the SERP, consisting of equity securities of $46 million and company-owned life insurance contracts of $135 million.
The Company maintains the CHS/Community Health Systems, Inc. Retirement Income Plan (“Pension Plan”), which is a defined benefit, non-
contributory pension plan that covers certain employees at three of its formerly owned hospitals. The Pension Plan provides benefits to covered individuals
satisfying certain age and service requirements. Employer contributions to the Pension Plan are in accordance with the minimum funding requirements of
the Employee Retirement Income Security Act of 1974, as amended. The Company does not expect to make contributions to the Pension Plan in 2024.
In September 2021, the lifetime obligation of the Pension Plan with respect to certain participants was transferred to a third-party insurer via an
irrevocable annuity contract. The third-party insurer began paying benefits to the participants as of November 1, 2021. This action resulted in a partial plan
settlement and recognition of a less than $1 million settlement charge during the year ended December 31, 2021.
The Company uses a December 31 measurement date for the benefit obligations and a January 1 measurement date for its net periodic costs for the
Pension Plan. Variances from actuarially assumed rates will result in increases or decreases in benefit obligations, net periodic cost and funding
requirements in future periods. Benefits expense under the Pension Plan was less than $1 million for each of the years ended December 31, 2023, 2022 and
2021, inclusive of the aforementioned partial plan settlement during the year ended December 31, 2021. The accrued benefit liability for the Pension Plan
totaled $2 million at both December 31, 2023 and 2022, and is included in other long-term liabilities in the consolidated balance sheets. The weighted-
average assumptions used for determining the net periodic cost for the years ended December 31, 2023 and 2022 were discount rates of 5.2% and 2.8%,
respectively, and the expected long-term rates of return on assets of 5.5% and 4.3%, respectively.
109
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
11. STOCKHOLDERS’ DEFICIT
Authorized capital shares of the Company include 400,000,000 shares of capital stock consisting of 300,000,000 shares of common stock and
100,000,000 shares of preferred stock. Each of the aforementioned classes of capital stock has a par value of $0.01 per share. Shares of preferred stock,
none of which were outstanding as of December 31, 2023, may be issued in one or more series having such rights, preferences and other provisions as
determined by the Board of Directors without approval by the holders of common stock.
The Company is a holding company, which operates through its subsidiaries. The ABL Facility and the indentures governing each series of the
Company’s outstanding notes contain various covenants under which the assets of the subsidiaries of the Company are subject to certain restrictions
relating to, among other matters, dividends and distributions, as referenced in the paragraph below.
The ABL Facility and the indentures governing each series of the Company’s outstanding notes restrict the Company’s subsidiaries from, among other
matters, paying dividends and making distributions to the Company, which thereby limits the Company’s ability to pay dividends and/or repurchase stock.
As of December 31, 2023, under the most restrictive test in these agreements (and subject to certain exceptions), the Company has approximately $300
million of capacity to pay permitted dividends and/or repurchase shares of stock or make other restricted payments.
The following schedule discloses the effects of changes in the Company’s ownership interest in its less-than-wholly-owned subsidiaries on Community
Health Systems, Inc. stockholders’ deficit (in millions):
Net (loss) income attributable to Community Health Systems,
Inc. stockholders
Transfers to the noncontrolling interests:
Net increase (decrease) in Community Health Systems, Inc.
paid-in-capital for purchase of subsidiary partnership interests
Net transfers to the noncontrolling interests
Change to Community Health Systems, Inc. stockholders’ deficit
from net (loss) income attributable to Community Health Systems,
Inc. stockholders and transfers to noncontrolling interests
12. EARNINGS PER SHARE
Year Ended December 31,
2022
2023
2021
$
(133 ) $
46 $
230
5
5
(6 )
(6 )
$
(128 ) $
40 $
17
17
247
The following table sets forth the components of the denominator for the computation of basic and diluted (loss) earnings per share for net (loss) income
attributable to Community Health Systems, Inc. stockholders:
Weighted-average number of shares outstanding — basic
Effect of dilutive securities:
Restricted stock awards
Employee stock options
Other equity-based awards
Weighted-average number of shares outstanding — diluted
2023
130,445,677
Year Ended December 31,
2022
128,808,387
—
—
—
130,445,677
842,055
278,057
131,820
130,060,319
2021
126,754,852
2,803,938
726,130
312,490
130,597,410
The Company generated a net loss attributable to Community Health Systems, Inc. stockholders for the year ended December 31, 2023, so the effect of
dilutive securities is not considered because their effect would be antidilutive. If the Company had generated net income, the effect of stock awards and
options on the diluted shares calculation would have been an increase of 422,487 shares during the year ended December 31, 2023.
Dilutive securities outstanding not included in the computation of earnings
per share because their effect is antidilutive:
Employee stock options and restricted stock awards
6,210,811
4,406,764
774,981
Year Ended December 31,
2022
2023
2021
110
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13. EQUITY INVESTMENTS
On July 30, 2021, the Company sold its unconsolidated equity interests in Macon Healthcare, LLC, a joint venture with certain subsidiaries of HCA
representing two hospitals in Macon, Georgia, in which the Company held a 38% interest. The Company received $110 million in cash in connection with
the sale of its equity interests and, as a result, recognized a pre-tax gain of approximately $39 million on the sale of equity interests in Macon Healthcare,
LLC during the year ended December 31, 2021.
On December 31, 2016, the Company sold 80% of its ownership interest in the legal entity that owned and operated its home care agency business. As
part of the divestiture of its controlling interest in the home care agency business, the Company recorded an equity method investment representing its
remaining 20% ownership. Since December 31, 2016 and primarily in conjunction with the divestiture of hospitals, the Company has divested its remaining
20% ownership in certain home care agency businesses.
In March 2005, the Company began purchasing items, primarily medical supplies, medical equipment and pharmaceuticals, under an agreement with
HealthTrust Purchasing Group, L.P. (“HealthTrust”), a group purchasing organization in which the Company is a noncontrolling partner. Effective October
1, 2022, HealthTrust completed the sale of a majority interest in CoreTrust Holdings, LLC (“CoreTrust”) to a third party. Proceeds for the sale of interest in
CoreTrust were distributed to members of HealthTrust and the Company received approximately $121 million in connection with such distribution during
the year ended December 31, 2022. A gain of approximately $119 million was recognized associated with this transaction as included in the line item “Gain
from CoreTrust Transaction” within the consolidated statements of (loss) income. As of December 31, 2023, the Company had a 12.6% ownership interest
in HealthTrust.
The Company’s investment in all of its unconsolidated affiliates was $170 million and $155 million at December 31, 2023 and 2022, respectively, and is
included in other assets, net in the accompanying consolidated balance sheets. Included in the Company’s results of operations is the Company’s equity in
pre-tax earnings from its investments in unconsolidated affiliates, which was $8 million, $14 million and $22 million for the years ended December 31,
2023, 2022 and 2021, respectively.
14. COMPREHENSIVE LOSS
The following tables present information about items reclassified out of accumulated other comprehensive loss (“AOCL”) by component for the years
ended December 31, 2023 and 2022 (in millions, net of tax):
Balance as of December 31, 2022
Other comprehensive income
before reclassifications
Amounts reclassified from
AOCL
Net current-period other
comprehensive income
Balance as of December 31, 2023
$
$
Change in
Fair Value of
Available-for-Sale
Debt
Securities
Change in
Unrecognized
Pension Cost
Components
(19 )
$
(2 ) $
AOCL
6
—
6
(13 )
$
111
1
—
1
(1 ) $
(21 )
7
—
7
(14 )
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Balance as of December 31, 2021
Other comprehensive (loss)
income before reclassifications
Amounts reclassified from
AOCL
Net current-period other
comprehensive (loss) income
Balance as of December 31, 2022
$
$
Change in
Fair Value of
Available-for-Sale
Debt
Securities
Change in
Unrecognized
Pension Cost
Components
(2 )
$
(12 )
$
AOCL
(16 )
(1 )
(17 )
(19 )
$
10
—
10
(2 )
$
(14 )
(6 )
(1 )
(7 )
(21 )
There were no significant reclassifications to net (loss) income out of AOCL for the years ended December 31, 2023 and 2022.
15. COMMITMENTS AND CONTINGENCIES
Construction and Other Capital Commitments. Pursuant to a hospital purchase agreement from the Company’s March 1, 2016 acquisition of
Northwest Health – Starke, formerly known as Starke Hospital, the Company is committed to spend up to $15 million toward the construction of a
replacement facility in Knox, Indiana. Under the terms of such agreement, the construction of the replacement facility for Northwest Health - Starke is
required to be completed within five years of the date the Company entered into a new lease with Starke County, Indiana, the hospital lessor, or in the event
the Company does not enter into a new lease with Starke County, construction shall be completed by September 30, 2026. The Company has not entered
into a new lease with the lessor for Northwest Health - Starke.
Physician Recruiting Commitments. As part of its physician recruitment strategy, the Company provides income guarantee agreements to certain
physicians who agree to relocate to its communities and commit to remain in practice there. Under such agreements, the Company is required to make
payments to the physicians in excess of the amounts they earned in their practice up to the amount of the income guarantee. These income guarantee
periods are typically for 12 months. Such payments are recoverable by the Company from physicians who do not fulfill their commitment period, which is
typically three years, to the respective community. At December 31, 2023, the maximum potential amount of future payments under these guarantees in
excess of the liability recorded is $6 million.
112
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Professional Liability Claims. As part of the Company's business of providing healthcare services, it is subject to legal actions alleging liability on its
part. The Company accrues for losses resulting from such liability claims, as well as loss adjustment expenses that are out-of-pocket and directly related to
such liability claims. These direct out-of-pocket expenses include fees of outside counsel and experts. The Company does not accrue for costs that are part
of corporate overhead, such as the costs of in-house legal and risk management departments. The losses resulting from professional liability claims
primarily consist of estimates for known claims, as well as estimates for incurred but not reported claims. The estimates are based on specific claim facts,
historical claim reporting and payment patterns, the nature and level of hospital operations, and actuarially determined projections. The actuarially
determined projections are based on the Company's actual claim data, including historic reporting and payment patterns, which have been gathered over the
life of the Company. As discussed below, since the Company purchases excess insurance on a claims-made basis that transfers risk to third-party insurers,
the estimated liability for professional and general liability claims does include an amount for the losses covered by excess insurance. The Company also
records a receivable for the expected reimbursement of losses covered by this excess insurance. Since the Company believes that the amount and timing of
its future claims payments are reliably determinable, it discounts the amount that is accrued for losses resulting from professional liability claims.
The net present value of the projected payments was discounted using weighted-average interest rates of 3.7% in 2023, 3.8% in 2022 and 1.8% in 2021.
This liability is adjusted for new claims information in the period such information becomes known. The Company’s estimated liability for professional and
general liability claims was $443 million and $467 million as of December 31, 2023 and 2022, respectively. The estimated undiscounted claims liability
was $498 million and $516 million as of December 31, 2023 and 2022, respectively. The current portion of the liability for professional and general
liability claims was $119 million and $159 million as of December 31, 2023 and 2022, respectively, and is included in other accrued liabilities in the
accompanying consolidated balance sheets, with the long-term portion recorded in other long-term liabilities. Professional liability expense includes the
losses resulting from professional liability claims and loss adjustment expense, as well as excess insurance premiums, and is presented within other
operating expenses in the accompanying consolidated statements of (loss) income.
The Company’s processes for obtaining and analyzing claims and incident data are standardized across all of its businesses and have been consistent for
many years. The Company monitors the outcomes of the medical care services that it provides and for each reported claim, the Company obtains various
information concerning the facts and circumstances related to that claim. In addition, the Company routinely monitors current key statistics and volume
indicators in its assessment of utilizing historical trends. The average lag period between claim occurrence and payment of a final settlement is between
three and four years, although the facts and circumstances of individual claims could result in the timing of such payments being different from this
average. Since claims are paid promptly after settlement with the claimant is reached, settled claims represent approximately 1% or less of the total liability
at the end of any period.
For purposes of estimating its individual claim accruals, the Company utilizes specific claim information, including the nature of the claim, the expected
claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals for known claims
are determined, information is stratified by loss layers and retentions, accident years, reported years and geography. Several actuarial methods are used
against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses company-
specific historical claims data and other information. This company-specific data includes information regarding the Company’s business, including
historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of
hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data.
Based on these analyses, the Company determines its estimate of the professional liability claims. The determination of management’s estimate,
including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of management. Changes in reserve data or the
trends and factors that influence reserve data may signal fundamental shifts in the Company’s future claim development patterns or may simply reflect
single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover,
since the Company’s methods and models use different types of data and the Company selects its liability from the results of all of these methods, it
typically cannot quantify the precise impact of such factors on its estimates of the liability. Due to the Company’s standardized and consistent processes for
handling claims and the long history and depth of company-specific data, the Company’s methodologies have produced reliably determinable estimates of
ultimate paid losses. Management considers any changes in the amount and pattern of its historical paid losses up through the most recent reporting period
to identify any fundamental shifts or trends in claim development experience in determining the estimate of professional liability claims. However, due to
the subjective nature of this estimate and the impact that previously unforeseen shifts in actual claim experience can have, future estimates of professional
liability could be adversely impacted when actual paid losses develop unexpectedly based on assumptions and settlement events that were not previously
known or anticipated.
113
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
During the year ended December 31, 2020, the Company incurred expenses in the amount of approximately $50 million related to the settlement of a
professional liability claim for which the Company’s third-party insurers’ obligation to provide coverage to the Company in connection with the underlying
loss was being litigated. In the ordinary course of business, the Company’s expense with respect to professional liability claims, which is actuarially
determined, is limited to amounts not covered by third-party insurance policies, which typically provide coverage for professional liability claims. The
subject of the litigation for the recovery of the full amount of the $50 million settlement was whether the claim was covered under the subject policies. This
litigation was settled during the three months ended December 31, 2021, and in connection with this settlement, approximately $22 million was recovered
from various third-party insurers related to their obligation to provide coverage for the professional liability claim. During the year ended December 31,
2022, the Company experienced an increase in the amounts paid or expected to be paid to settle outstanding professional liability claims related to divested
locations, compared to the same period in the prior year and to previous actuarially determined estimates. This resulted in a change in estimate of $15
million during the three months and year ended December 31, 2022. During the year ended December 31, 2023, the Company experienced an increase in
the amounts paid or expected to be paid to settle outstanding professional liability claims, compared to the same period in the prior year and to previous
actuarially determined estimates due to adverse claim developments. There were no other significant changes in the Company’s estimate of the reserve for
professional liability claims during the years ended December 31, 2023, 2022 and 2021.
The Company is primarily self-insured for professional liability claims; however, the Company obtains excess insurance that transfers the risk of loss to
a third-party insurer for claims in excess of the Company’s self-insured retentions. The Company’s excess insurance is underwritten on a claims-made
basis. For claims reported prior to June 1, 2002, substantially all of the Company’s professional and general liability risks were subject to a less than $1
million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2 million
per occurrence. Substantially all claims reported after June 1, 2003 and before June 1, 2005 are self-insured up to $4 million per claim. Substantially all
claims reported on or after June 1, 2005 and before June 1, 2014 are self-insured up to $5 million per claim. Substantially all claims reported on or after
June 1, 2014 and before June 1, 2018 are self-insured up to $10 million per claim. Substantially all claims reported on or after June 1, 2018 are self-insured
up to $15 million per claim. Management, on occasion, has selectively increased the insured risk at certain hospitals based upon insurance pricing and other
factors and may continue that practice in the future.
Excess insurance for all hospitals has been purchased through commercial insurance companies and generally covers the Company for liabilities in
excess of the self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of which totals up to $95 million per occurrence
and in the aggregate for claims reported on or after June 1, 2003, up to $145 million per occurrence and in the aggregate for claims reported on or after
January 1, 2008, up to $195 million per occurrence and in the aggregate for claims reported on or after June 1, 2010, and up to at least $215 million per
occurrence and in the aggregate for claims reported on or after June 1, 2015. In addition, for integrated professional liability claims, there is an additional
$50 million of excess coverage for claims reported on or after June 1, 2014 and an additional $75 million of excess coverage for claims reported on or after
June 1, 2015 through June 1, 2020. The $75 million in integrated occurrence coverage will also apply to claims reported between June 1, 2020 and June 1,
2024 for events that occurred prior to June 1, 2020 but which were not previously known or reported. For certain policy years prior to June 1, 2014, if the
first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention will increase to $10 million per claim for any subsequent
claims in that policy year until the Company’s total aggregate coverage is met. Beginning June 1, 2018, this drop-down provision in the excess policies
attaches over the $15 million per claim self-insured retention.
Legal Matters. The Company is a party to various legal, regulatory and governmental proceedings incidental to its business. Based on current
knowledge, management does not believe that loss contingencies arising from pending legal, regulatory and governmental matters will have a material
adverse effect on the consolidated financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in pending legal,
regulatory and governmental matters, some of which are beyond the Company’s control, and the very large or indeterminate damages sought in some of
these matters, an adverse outcome in one or more of these matters could be material to the Company’s results of operations or cash flows for any particular
reporting period.
With respect to all legal, regulatory and governmental proceedings, the Company considers the likelihood of a negative outcome. If the Company
determines the likelihood of a negative outcome with respect to any such matter is probable and the amount of the loss can be reasonably estimated, the
Company records an accrual for the estimated loss for the expected outcome of the matter. If the likelihood of a negative outcome with respect to material
matters is reasonably possible and the Company is able to determine an estimate of the possible loss or a range of loss, whether in excess of a related
accrued liability or where there is no accrued liability, the Company discloses the estimate of the possible loss or range of loss. However, the Company is
unable to estimate a possible loss or range of loss in some instances based on the significant uncertainties involved in, and/or the preliminary nature of,
certain legal, regulatory and governmental matters.
114
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Summary of Recorded Amounts
The table below presents a reconciliation of the beginning and ending liability balances (in millions) during the years ended December 31, 2023 and
2022, with respect to the Company’s determination of the contingencies of the Company in respect of which an accrual has been recorded. The liability as
of December 31, 2023 is comprised of individually insignificant amounts for various matters.
Balance as of December 31, 2021
Expense
Reserve for insured claim
Cash payments
Balance as of December 31, 2022
Expense
Reserve for insured claim
Cash payments
Balance as of December 31, 2023
Probable
Contingencies
20
8
—
(17 )
11
38
5
(47 )
7
$
$
In accordance with applicable accounting guidance, the Company establishes a liability for litigation, regulatory and governmental matters for which,
based on information currently available, the Company believes that a negative outcome is known or is probable and the amount of the loss is reasonably
estimable. For all such matters (whether or not discussed in this contingencies footnote), such amounts have been recorded in other accrued liabilities in the
consolidated balance sheets and are included in the table above. Due to the uncertainties and difficulty in predicting the ultimate resolution of these
contingencies, the actual amount could differ from the estimated amount reflected as a liability in the consolidated balance sheets.
16. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
Parent Company Only
Condensed Balance Sheets
(In millions)
ASSETS
Prepaid income taxes
Total current assets
Deferred income taxes
Other assets, net
Total assets
LIABILITIES AND STOCKHOLDERS' DEFICIT
Intercompany payable
Deferred income taxes
Other long-term liabilities
Total liabilities
Community Health Systems, Inc. stockholders’ deficit:
Preferred stock
Common stock
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total Community Health Systems, Inc. stockholders’ deficit
Total liabilities and stockholders' deficit
See note to condensed financial statements of Parent Company.
115
December 31,
2023
2022
$
$
$
77 $
77
29
—
106 $
1,083 $
369
46
1,498
—
1
2,185
(14 )
(3,564 )
(1,392 )
$
106 $
99
99
49
—
148
1,159
354
2
1,515
—
1
2,084
(21 )
(3,431 )
(1,367 )
148
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Parent Company Only
Condensed Statements of (Loss) Income
(In millions)
Net operating revenues
Operating costs and expenses:
Salaries and benefits
Supplies
Other operating expenses
Lease cost and rent
Pandemic relief funds
Depreciation and amortization
Impairment and (gain) loss on sale of businesses, net
Total operating costs and expenses
Income from operations
Interest expense, net
(Gain) loss from early extinguishment of debt
Equity in loss (earnings) of unconsolidated affiliates
(Loss) income before income taxes
Provision for (benefit from) income taxes
Net (loss) income
Less: Net income attributable to noncontrolling interests
Net (loss) income attributable to Community Health Systems, Inc.
stockholders
See note to condensed financial statements of Parent Company.
116
Year Ended December 31,
2022
2023
2021
$
— $
— $
—
—
—
—
—
—
—
—
—
—
—
133
(133 )
—
(133 )
—
—
—
—
—
—
—
—
—
—
—
—
(46 )
46
—
46
—
$
(133 ) $
46 $
—
—
—
—
—
—
—
—
—
—
—
—
(230 )
230
—
230
—
230
COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Parent Company Only
Condensed Statements of Comprehensive (Loss) Income
(In millions)
Net (loss) income
Equity in other comprehensive (loss) income of affiliates,
net of income taxes:
Net change in fair value of available-for-sale debt securities, net of tax
Amortization and recognition of unrecognized pension cost
components, net of tax
Other comprehensive income (loss)
Comprehensive (loss) income
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive (loss) income attributable to Community Health Systems,
Inc. stockholders
See note to condensed financial statements of Parent Company.
Parent Company Only
Condensed Statements of Cash Flows
(In millions)
Cash flows from operating activities:
Net cash used in operating activities
Cash flows from investing activities:
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Repurchase of restricted stock shares for payroll tax withholding
requirements
Changes in intercompany balances with affiliates, net
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
See note to condensed financial statements of Parent Company.
1. Basis of Presentation
2023
Year Ended December 31,
2022
(In millions)
2021
$
(133 ) $
46 $
230
6
1
7
(126 )
—
(17 )
10
(7 )
39
—
$
(126 ) $
39 $
Year Ended December 31,
2022
2023
2021
$
(85 ) $
(13 ) $
—
—
(4 )
89
85
—
—
— $
(8 )
21
13
—
—
— $
$
(5 )
3
(2 )
228
—
228
(11 )
—
(5 )
16
11
—
—
—
The Parent Company is a holding company and operates no business in its own name; all of the Company’s business operations are conducted
through subsidiaries of the Parent Company. The Company’s outstanding indebtedness restricts the ability of subsidiaries to dividend or otherwise
provide funds to the Parent Company. Accordingly, these financial statements have been presented on a “parent-only” basis. Under parent-only
presentation, the Parent Company’s investments in its consolidated subsidiaries are presented under the equity method of accounting. These
parent-only financial statements should be read in conjunction with consolidated financial statements of Community Health Systems, Inc.
117
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, with the participation of other members of management, have evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities and Exchange Act of 1934, as amended, as of the
end of the period covered by this report. Based on such evaluations, our Chief Executive Officer and Chief Financial Officer concluded that, as of such
date, our disclosure controls and procedures were effective (at the reasonable assurance level) to ensure that the information required to be included in this
report has been recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that the
information required to be included in this report was accumulated and communicated to management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
As previously disclosed, we have undertaken a multi-year, transformative process of redesigning numerous workflows that is intended to modernize and
consolidate our technology platforms and associated processes across our organization. As part of this process, we have created and continue to expand
shared business operations to carry out certain financial and operational functions and are implementing a new enterprise resource planning system, or ERP.
In connection with these changes, new internal controls have been implemented and certain existing internal controls have been replaced or modified. As
the phased implementation of the ERP system continues along with continued expansion of shared business operations, additional changes to internal
controls over financial reporting may result and such changes may be material. Other than changes associated with the aforementioned multi-year process
that occurred during the three months ended December 31, 2023, there have been no changes in internal control over financial reporting that occurred
during this three month period that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
Management’s report on internal control over financial reporting is included herein at page 119.
The attestation report from Deloitte & Touche LLP, our independent registered public accounting firm, on our internal control over financial reporting is
included herein at page 120.
Item 9B. Other Information
None. Without limiting the generality of the foregoing, during the three months ended December 31, 2023, no director or officer of the Company
adopted or terminated any “Rule 10b5-1 trading arrangement,” or any “non-Rule 10b-5 trading arrangement,” as such terms are defined in Item 408(a) of
Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
118
Management’s Report on Internal Control over Financial Reporting
We are responsible for the preparation and integrity of the consolidated financial statements appearing in our Annual Report on Form 10-K. The
consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and include
amounts based on management’s estimates and judgments. All other financial information in this report has been presented on a basis consistent with the
information included in the consolidated financial statements.
We are also responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rule 13a-15(f) under the
Securities and Exchange Act of 1934, as amended). We maintain a system of internal controls that is designed to provide reasonable assurance as to the fair
and reliable preparation and presentation of the consolidated financial statements, as well as to safeguard assets from unauthorized use or disposition.
Our control environment is the foundation for our system of internal control over financial reporting and is embodied in our Code of Conduct. It sets the
tone of our organization and includes factors such as integrity and ethical values. Our internal control over financial reporting is supported by formal
policies and procedures which are reviewed, modified and improved as changes occur in business conditions and operations.
The Audit and Compliance Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with members of
management, the internal auditors and the independent registered public accounting firm to review and discuss internal control over financial reporting and
accounting and financial reporting matters. The independent registered public accounting firm and internal auditors report to the Audit and Compliance
Committee and have full and free access to the Audit and Compliance Committee at any time.
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the
documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this
evaluation. We have concluded that our internal control over financial reporting was effective as of December 31, 2023, based on these criteria.
Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial
reporting, which is included herein.
We do not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected.
119
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Community Health Systems, Inc.,
Franklin, Tennessee
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Community Health Systems, Inc., and subsidiaries (the “Company”) as of December 31,
2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 21, 2024, expressed an unqualified
opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Nashville, Tennessee
February 21, 2024
120
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The Company has adopted a Code of Conduct that is applicable to all members of the Board of Directors and our officers, as well as employees of our
subsidiaries. A copy of the current version of our Code of Conduct is available in the Company-Overview — Corporate Governance section of our internet
website at www.chs.net/company-overview/corporate-governance. A copy of the Code of Conduct is also available in print, free of charge, to any
stockholder who requests it by writing to Community Health Systems, Inc., Investor Relations, at 4000 Meridian Boulevard, Franklin, TN 37067. The
Company intends to post amendments to or waivers, if any, from its Code of Conduct at this location on its website, in each case to the extent such
amendment or waiver would otherwise require the filing of a Current Report on Form 8-K pursuant to Item 5.05 thereof.
The committee report of the Audit and Compliance Committee of the Board of Directors is presented below. Information required by Item 10 of Part III
is incorporated herein by reference to the Company’s definitive proxy statement to be filed under Regulation 14A in connection with the Annual Meeting of
the Stockholders of the Company scheduled to be held on May 10, 2024.
AUDIT AND COMPLIANCE COMMITTEE REPORT
The Audit and Compliance Committee of the Board of Directors of the Company is composed of five directors, each of whom is “independent” as
defined by the applicable listing standards of the New York Stock Exchange and Section 10A-3 of the Exchange Act and are financially literate in
accordance with New York Stock Exchange listing standards. In addition, four of our five Audit and Compliance Committee members meet the Securities
and Exchange Commission definition of “audit committee financial expert.” The Audit and Compliance Committee operates under a written charter
adopted by the Board of Directors, which is posted on our corporate website (www.chs.net) and which is reviewed by the Committee annually, in
conjunction with the Committee’s annual self-evaluation. The Company’s management is responsible for its internal controls and the financial reporting
process. Our independent registered public accounting firm, Deloitte & Touche LLP, is responsible for performing an independent audit of our consolidated
financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and to issue its reports thereon.
The Audit and Compliance Committee is responsible for, among other things, monitoring and overseeing these processes, and recommending to the Board
of Directors: (i) that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K; and (ii) the selection of the
independent registered public accounting firm to audit the consolidated financial statements of the Company.
In keeping with that responsibility, the Audit and Compliance Committee has reviewed and discussed the Company’s audited consolidated financial
statements with management and with the independent registered public accounting firm, reviewed internal controls and accounting procedures and
provided oversight review of the Company’s corporate compliance program. In addition, the Audit and Compliance Committee has discussed with the
Company’s independent registered public accounting firm the matters required to be discussed by the applicable requirements of the Public Company
Accounting Oversight Board.
The Audit and Compliance Committee discussed with the Company’s internal auditors and independent registered public accounting firm the overall
scope and plans for their respective audits. The Audit and Compliance Committee met with the internal auditors and the independent registered public
accounting firm with and without management present to discuss the results of their examinations, their evaluations of the Company’s internal controls and
the overall quality of the Company’s financial reporting.
The Audit and Compliance Committee has received the written disclosures and the letter from the independent registered public accounting firm
required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the
audit committee concerning independence. The Audit and Compliance Committee has discussed with the independent registered public accounting firm its
independence and also has reviewed the amount of fees paid to the independent registered accounting firm for audit and non-audit services.
Based on the Audit and Compliance Committee’s discussions with management and the independent registered public accounting firm and the Audit
and Compliance Committee’s review of the representations of management and the materials it received from the independent registered public accounting
firm as described above, the Audit and Compliance Committee recommended to the Board of Directors that the audited consolidated financial statements
be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for filing with the SEC.
121
This report is respectfully submitted by the Audit and Compliance Committee of the Board of Directors.
THE AUDIT AND COMPLIANCE COMMITTEE
Michael Dinkins, Chair
Ronald L. Burgess, Jr.
James S. Ely III
Elizabeth T. Hirsch
H. James Williams, Ph.D.
Item 11. Executive Compensation
Information required by Item 11 of Part III is incorporated herein by reference to the Company’s definitive proxy statement to be filed under Regulation
14A in connection with the Annual Meeting of the Stockholders of the Company scheduled to be held on May 10, 2024.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by Item 12 of Part III is incorporated herein by reference to the Company’s definitive proxy statement to be filed under Regulation
14A in connection with the Annual Meeting of the Stockholders of the Company scheduled to be held on May 10, 2024.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by Item 13 of Part III is incorporated herein by reference to the Company’s definitive proxy statement to be filed under Regulation
14A in connection with the Annual Meeting of the Stockholders of the Company scheduled to be held on May 10, 2024.
Item 14. Principal Accounting Fees and Services
Information required by Item 14 of Part III is incorporated herein by reference to the Company’s definitive proxy statement to be filed under Regulation
14A in connection with the Annual Meeting of the Stockholders of the Company scheduled to be held on May 10, 2024.
122
Item 15. Exhibits and Financial Statement Schedules
Item 15(a) 1. Financial Statements
PART IV
Reference is made to the index of financial statements and supplementary data under Item 8 in Part II.
Item 15(a) 2. Financial Statement Schedules
The following financial statement schedule is included within the notes to the consolidated financial statements at page 115 hereof:
Schedule I – Condensed Financial Information of Registrant
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the
schedule.
123
Item 15(a) 3. Exhibits
The following exhibits are either filed with this Report or incorporated herein by reference.
No.
2.1
Description
Separation and Distribution Agreement, dated April 29, 2016, by and between Community Health Systems, Inc. and Quorum Health
Corporation (incorporated by reference to Exhibit 2.1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed May 2,
2016 (No. 001-15925))
2.2
Tax Matters Agreement, dated April 29, 2016, by and between Community Health Systems, Inc. and Quorum Health Corporation
(incorporated by reference to Exhibit 2.2 to Community Health Systems, Inc.’s Current Report on Form 8-K filed May 2, 2016 (No. 001-
15925))
2.3
2.4
2.5
2.6
Employee Matters Agreement, dated April 29, 2016, by and between Community Health Systems, Inc. and Quorum Health Corporation
(incorporated by reference to Exhibit 2.3 to Community Health Systems, Inc.’s Current Report on Form 8-K filed May 2, 2016 (No. 001-
15925))
Amendment to the Employee Matters Agreement, effective as of April 29, 2016, by and between Community Health Systems, Inc. and
Quorum Health Corporation (incorporated by reference to Exhibit 2.1 to Community Health Systems, Inc.’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2016 filed November 2, 2016 (No. 001-15925))
Asset Purchase Agreement, dated as of September 14, 2022, by and among CHS/Community Health Systems, Inc., as Seller, CAMC
Greenbrier Valley Medical Center, Inc., as Buyer, and Vandalia Health, Inc., as amended (incorporated by reference to Exhibit 2.1 to
Community Health Systems, Inc.’s Current Report on Form 8-K filed January 3, 2023 (No. 001-15925))
Asset Purchase Agreement, as amended, dated as of December 30, 2022, by and between CHS/Community Health Systems, Inc., CAMC
Plateau Medical Center, Inc. and Vandalia Health, Inc. (incorporated by reference to Exhibit 2.1 to Community Health Systems, Inc.’s
Current Report on Form 8-K filed April 3, 2023 (No. 001-15925))
2.7*
Asset Purchase Agreement, dated as of February 28, 2023, as amended, by and between CHS/Community Health Systems, Inc. and
Novant Health, Inc.
2.8
Asset Purchase Agreement, dated as of July 24, 2023, as amended, by and among subsidiaries of CHS/Community Health Systems, Inc.
and Florida Health Sciences Center, Inc. d/b/a Tampa General Hospital and certain of its subsidiaries named therein (incorporated by
reference to Exhibit 2.1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed December 1, 2023 (No. 001-15925))
3.1
Form of Restated Certificate of Incorporation of Community Health Systems, Inc. (incorporated by reference to Exhibit 3.1 to
Amendment No. 4 to Community Health Systems, Inc.’s Registration Statement on Form S-1/A filed June 8, 2000 (No. 333-31790))
3.2
Certificate of Amendment to the Restated Certificate of Incorporation of Community Health Systems, Inc., dated May 18, 2010
(incorporated by reference to Exhibit 3.2 to Community Health Systems, Inc.’s Current Report on Form 8-K filed May 20, 2010 (No.
001-15925))
3.3
Amended and Restated By-laws of Community Health Systems, Inc. (as of September 13, 2023) (incorporated by reference to Exhibit
3.1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed September 13, 2023 (No. 001-15925))
4.1
4.2
Description of Community Health System, Inc.’s Common Stock (incorporated by reference to Exhibit 4.2 to Community Health
Systems, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2019 filed February 20, 2020 (No. 001-15925))
Indenture, dated as of March 6, 2019, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the guarantors
party thereto, Regions Bank, as Trustee, and Credit Suisse AG, as Collateral Agent, relating to the 8.000% Senior Secured Notes due
2026 (incorporated by reference to Exhibit 4.1 to Community Health Systems, Inc.'s Current Report on Form 8-K filed March 6, 2019
(No. 001-15925))
4.3
Form of 8.000% Senior Secured Note due 2026 (included in Exhibit 4.2)
124
No.
4.4
4.5
4.6
Description
First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2026, dated as of
March 31, 2019, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee and
Credit Suisse AG, as Collateral Agent (incorporated by reference to Exhibit 4.10 to Community Health Systems, Inc.’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2019 filed May 1, 2019 (No. 001-15925))
Second Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2026, dated as of
July 1, 2019, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee and Credit
Suisse AG, as Collateral Agent (incorporated by reference to Exhibit 4.9 to Community Health Systems, Inc.’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2019 filed October 30, 2019 (No. 001-15925))
Third Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2026, dated as of
September 27, 2019, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee
and Credit Suisse AG, as Collateral Agent (incorporated by reference to Exhibit 4.18 to Community Health Systems, Inc.’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2019 filed October 30, 2019 (No. 001-15925))
4.7
Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2026, dated as of
November 19, 2019, by and among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the guarantors party
thereto and Regions Bank, as Trustee and Credit Suisse AG, as Collateral Agent (incorporated by reference to Exhibit 4.4 to Community
Health Systems, Inc.'s Current Report on Form 8-K filed November 19, 2019 (No. 001-15925))
4.8
4.9
4.10*
4.11
4.12
4.13
4.14
Fifth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2026, dated as of
March 27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee and
Credit Suisse AG, as Collateral Agent (incorporated by reference to Exhibit 4.8 to Community Health Systems, Inc.’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2020 filed April 29, 2020 (No. 001-15925))
Sixth Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2026, dated as of
December 11, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee
and Credit Suisse AG, as Collateral Agent (incorporated by reference to Exhibit 4.65 to Community Health Systems, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2020 filed February 18, 2021 (No. 001-15925))
Seventh Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2026, dated as of
November 13, 2023, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee
and Credit Suisse AG, as Collateral Agent
Indenture, dated as of November 19, 2019, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the
guarantors party thereto, Regions Bank, as Trustee, and Credit Suisse AG, as Collateral Agent, relating to the 8.000% Senior Secured
Notes due 2027 (incorporated by reference to Exhibit 4.1 to Community Health Systems, Inc.'s Current Report on Form 8-K filed
November 19, 2019 (No. 001-15925))
Form of 8.000% Senior Secured Note due 2027 (included in Exhibit 4.11)
First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2027, dated as of
March 27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee and
Credit Suisse AG, as Collateral Agent (incorporated by reference to Exhibit 4.9 to Community Health Systems, Inc.’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2020 filed April 29, 2020 (No. 001-15925))
Second Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2027, dated as of
December 11, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee
and Credit Suisse AG, as Collateral Agent (incorporated by reference to Exhibit 4.69 to Community Health Systems, Inc.’s Annual
Report on Form 10-K for the year ended December 31, 2020 filed February 18, 2021 (No. 001-15925))
125
No.
Description
4.15*
Third Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 8.000% Senior Secured Notes due 2027, dated as of
November 13, 2023, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee
and Credit Suisse AG, as Collateral Agent
4.16
4.17
4.18
4.19
4.20*
4.21
Indenture, dated as of November 19, 2019, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the
guarantors party thereto, and Regions Bank, as Trustee, relating to the 6.875% Senior Unsecured Notes due 2028 (incorporated by
reference to Exhibit 4.2 to Community Health Systems, Inc.'s Current Report on Form 8-K filed November 19, 2019 (No. 001-15925))
Form of 6.875% Senior Unsecured Note due 2028 (included in Exhibit 4.16)
First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 6.875% Senior Unsecured Notes due 2028, dated as of
March 27, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee
(incorporated by reference to Exhibit 4.10 to Community Health Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2020 filed April 29, 2020 (No. 001-15925))
Second Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 6.875% Senior Unsecured Notes due 2028, dated as
of December 11, 2020, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee
(incorporated by reference to Exhibit 4.73 to Community Health Systems, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2020 filed February 18, 2021 (No. 001-15925))
Third Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 6.875% Senior Unsecured Notes due 2028, dated as of
November 13, 2023, by and among CHS/Community Health Systems, Inc., the guarantors party thereto and Regions Bank, as Trustee
Indenture, dated as of December 28, 2020, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the
guarantors party thereto, Regions Bank, as Trustee, and Credit Suisse AG, as Collateral Agent, relating to the 5.625% Senior Secured
Notes due 2027 (incorporated by reference to Exhibit 4.1 to Community Health Systems, Inc.'s Current Report on Form 8-K filed
December 28, 2020 (No. 001-15925))
4.22
Form of 5.625% Senior Secured Note due 2027 (included in Exhibit 4.21)
4.23*
4.24
First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 5.625% Senior Secured Notes due 2027, dated as of
November 13, 2023, by and among CHS/Community Health Systems, Inc., the guarantors party thereto, Regions Bank, as Trustee, and
Credit Suisse AG, as Collateral Agent
Indenture, dated as of December 28, 2020, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the
guarantors party thereto, Regions Bank, as Trustee, and Credit Suisse AG, as Collateral Agent, relating to the 6.000% Senior Secured
Notes due 2029 (incorporated by reference to Exhibit 4.2 to Community Health Systems, Inc.'s Current Report on Form 8-K filed
December 28, 2020 (No. 001-15925))
4.25
Form of 6.000% Senior Secured Note due 2029 (included in Exhibit 4.24)
4.26*
4.27
First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 6.000% Senior Secured Notes due 2029, dated as of
November 13, 2023, by and among CHS/Community Health Systems, Inc., the guarantors party thereto, Regions Bank, as Trustee, and
Credit Suisse AG, as Collateral Agent
Indenture, dated as of February 2, 2021, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the guarantors
party thereto, and Regions Bank, as Trustee and Collateral Agent, relating to the 6.875% Junior-Priority Secured Notes due 2029
(incorporated by reference to Exhibit 4.1 to Community Health Systems, Inc.'s Current Report on Form 8-K filed February 2, 2021 (No.
001-15925))
4.28
Form of 6.875% Junior-Priority Secured Note due 2029 (included in Exhibit 4.27)
4.29*
4.30
First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 6.875% Junior-Priority Secured Notes due 2029, dated
as of November 13, 2023, by and among CHS/Community Health Systems, Inc., the guarantors party thereto, and Regions Bank, as
Trustee and Collateral Agent
Indenture, dated as of February 9, 2021, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the guarantors
party thereto, Regions Bank, as Trustee, and Credit Suisse AG, Collateral Agent, relating to the
126
No.
Description
4.750% Senior Secured Notes due 2031 (incorporated by reference to Exhibit 4.1 to Community Health Systems, Inc.'s Current Report
on Form 8-K filed February 9, 2021 (No. 001-15925))
4.31
Form of 4.750% Senior Secured Note due 2031 (included in Exhibit 4.30)
4.32*
4.33
First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 4.750% Senior Secured Notes due 2031, dated as of
November 13, 2023, by and among CHS/Community Health Systems, Inc., the guarantors party thereto, Regions Bank, as Trustee, and
Credit Suisse AG, as Collateral Agent
Indenture, dated as of May 19, 2021, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the guarantors
party thereto, and Regions Bank, as Trustee and Collateral Agent, relating to the 6.125% Junior-Priority Secured Notes due 2030
(incorporated by reference to Exhibit 4.1 to Community Health Systems, Inc.'s Current Report on Form 8-K filed May 20, 2021 (No.
001-15925))
4.34
Form of 6.125% Junior-Priority Secured Note due 2030 (included in Exhibit 4.33)
4.35*
4.36
First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 6.125% Junior-Priority Secured Notes due 2030, dated
as of November 13, 2023, by and among CHS/Community Health Systems, Inc., the guarantors party thereto, and Regions Bank, as
Trustee and Collateral Agent
Indenture, dated as of February 4, 2022, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the guarantors
party thereto, Regions Bank, as Trustee, and Credit Suisse AG as Collateral Agent, relating to the 5.250% Senior Secured Notes due
2030 (incorporated by reference to Exhibit 4.1 to Community Health Systems, Inc.'s Current Report on Form 8-K filed February 4, 2022
(No. 001-15925))
4.37
Form of 5.250% Senior Secured Note due 2030 (included in Exhibit 4.36)
4.38*
4.39
4.40
4.41
First Supplemental Indenture relating to CHS/Community Health Systems, Inc.’s 5.250% Senior Secured Notes due 2030, dated as of
November 13, 2023, by and among CHS/Community Health Systems, Inc., the guarantors party thereto, Regions Bank, as Trustee, and
Credit Suisse AG, as Collateral Agent
Indenture, dated as of December 22, 2023, among CHS/Community Health Systems, Inc., Community Health Systems, Inc., the
guarantors party thereto, Regions Bank, as Trustee, and Credit Suisse AG as Collateral Agent, relating to the 10.875% Senior Secured
Notes due 2032 (incorporated by reference to Exhibit 4.1 to Community Health Systems, Inc.'s Current Report on Form 8-K filed
December 26, 2023 (No. 001-15925))
Form of 10.875% Senior Secured Note due 2032 (included in Exhibit 4.39)
First Lien Intercreditor Agreement, dated as of August 17, 2012, among Credit Suisse AG, as Collateral Agent, Credit Suisse AG, as
authorized representative, Regions Bank, as Trustee and authorized representative, and the additional authorized representatives party
thereto (incorporated by reference to Exhibit 4.2 to Community Health Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2012 filed November 1, 2012 (No. 001-15925))
4.42
Second Amended and Restated ABL Intercreditor Agreement, dated as of February 4, 2022, among JPMorgan Chase Bank, N.A., as
ABL Agent, Credit Suisse AG, as Senior-Priority Collateral Agent, Regions Bank, as 2025 Secured Notes Trustee, 2026 Secured Notes
Trustee, March 2027 Secured Notes Trustee, December 2027 Secured Notes Trustee, 2029 Secured Notes Trustee, 2030 Secured Notes
Trustee, 2031 Secured Noted Trustee, Junior-Priority Collateral Agent, 2029 Junior-Priority Secured Notes Trustee and 2030 Junior-
Priority Secured Notes Trustee, CHS/Community Health Systems, Inc., Community Health Systems, Inc., the subsidiary guarantors party
thereto and each additional agent from time to time party thereto (incorporated by reference to Exhibit 4.2 to Community Health
Systems, Inc.'s Current Report on Form 8-K filed February 4, 2022 (No. 001-15925))
4.43
Amended and Restated Junior-Priority Collateral Agreement, dated as of February 2, 2021, among CHS/Community Health Systems,
Inc., Community Health Systems, Inc., the grantors named therein and Regions Bank, as Collateral Agent (incorporated by reference to
Exhibit 4.2 to Community Health Systems, Inc.'s Current Report on Form 8-K filed February 2, 2021 (No. 001-15925))
4.44
Amended and Restated Senior-Junior Lien Intercreditor Agreement, dated as of February 4, 2022, among CHS/Community Health
Systems, Inc., Community Health Systems, Inc., the subsidiaries party thereto, Credit Suisse AG, Cayman Islands Branch, as Initial
Senior-Priority Collateral Agent, Regions Bank, as Initial Junior-Priority
127
No.
Description
Collateral Agent and each additional agent from time to time party thereto (incorporated by reference to Exhibit 4.3 to Community
Health Systems, Inc.'s Current Report on Form 8-K filed February 4, 2022 (No. 001-15925))
4.45
Junior-Priority Lien Pari Passu Intercreditor Agreement, dated as of June 22, 2018, among Regions Bank, as Collateral Agent, Regions
Bank, in its capacity as Trustee under the 2023 Notes Indenture, Regions Bank, in its capacity as Trustee under the 2024 Notes Indenture
and each additional authorized representative from time to time party thereto (incorporated by reference to Exhibit 4.06 to Community
Health Systems, Inc.'s Current Report on Form 8-K filed June 25, 2018 (No. 001-15925))
10.1
Second Amended and Restated Guarantee and Collateral Agreement, dated as of July 25, 2007, as amended and restated as of November
5, 2010, as further amended as of August 17, 2012, and as further amended and restated as of November 19, 2019, among
CHS/Community Health Systems, Inc., Community Health Systems, Inc., the subsidiary guarantors party thereto and Credit Suisse AG,
as Collateral Agent (incorporated by reference to Exhibit 4.5 to Community Health Systems, Inc.’s Current Report on Form 8-K filed
November 19, 2019 (No. 001-15925))
10.2
Amendment and Restatement Agreement to the ABL Credit Agreement, dated as of November 22, 2021, among CHS/Community
Health Systems, Inc., as the Borrower, Community Health Systems, Inc., as the Parent, the subsidiaries of the Borrower party thereto, the
lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent (incorporated by reference to
Exhibit 10.1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed on November 22, 2021 (No. 001-15925))
10.3
10.4†
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
Guarantee and Collateral Agreement to ABL Credit Agreement, dated as of April 3, 2018, among CHS/Community Health Systems,
Inc., as the Borrower, Community Health Systems, Inc., as the Parent, the subsidiaries of the Borrower party thereto, and JPMorgan
Chase Bank, N.A., as Collateral Agent (incorporated by reference to Exhibit 10.4 to Community Health Systems, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2018 filed May 2, 2018 (No. 001-15925))
Form of Indemnification Agreement between Community Health Systems, Inc. and its directors and executive officers (incorporated by
reference to Exhibit 10.8 to Amendment No. 2 to Community Health Systems, Inc.’s Registration Statement on Form S-1/A filed May 2,
2000 (No. 333-31790))
CHS/Community Health Systems, Inc. Amended and Restated Supplemental Executive Retirement Plan, as amended and restated as of
January 1, 2009 (incorporated by reference to Exhibit 10.13 to Community Health Systems, Inc.’s Annual Report on Form 10-K for the
year ended December 31, 2008 filed February 27, 2009 (No. 001-15925))
Amendment No. 1, dated as of September 13, 2011, to the CHS/Community Health Systems, Inc. Amended and Restated Supplemental
Executive Retirement Plan, as amended and restated as of January 1, 2009 (incorporated by reference to Exhibit 10.1 to Community
Health Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 filed October 28, 2011 (No. 001-
15925))
Amendment No. 2, dated as of January 1, 2014, to the CHS/Community Health Systems, Inc. Amended and Restated Supplemental
Executive Retirement Plan, as amended and restated as of January 1, 2009 (incorporated by reference to Exhibit 10.1 to Community
Health Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed May 7, 2014 (No. 001-15925))
CHS/Community Health Systems, Inc. 2018 Supplemental Executive Retirement Plan, executed on May 15, 2018 and effective January
1, 2018 (incorporated by reference to Exhibit 10.5 to Community Health Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2018 filed July 27, 2018 (No. 001-15925))
Supplemental Executive Retirement Plan Trust, dated June 1, 2005, by and between CHS/Community Health Systems, Inc., as grantor,
and Wachovia Bank, N.A., as Trustee (incorporated by reference to Exhibit 10.3 to Community Health Systems, Inc.’s Current Report
on Form 8-K filed June 1, 2005 (No. 001-15925))
Community Health Systems Supplemental Executive Benefits, dated December 31, 2008, as amended and restated as of February 15,
2023 (incorporated by reference to Exhibit 10.2 to Community Health Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2023 filed May 2, 2023 (No. 001-15925))
CHS/Community Health Systems, Inc. Deferred Compensation Plan, amended and restated effective January 1, 2014 (incorporated by
reference to Exhibit 10.25 to Community Health Systems, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013
filed February 26, 2014 (No. 001-15925))
128
No.
Description
10.12†
Community Health Systems Deferred Compensation Plan Trust, amended and restated effective February 26, 1999 (incorporated by
reference to Exhibit 10.18 to Community Health Systems, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2002
filed March 27, 2003 (No. 001-15925))
10.13†
CHS NQDCP, effective as of September 1, 2009 (incorporated by reference to Exhibit 4.2 to Community Health Systems, Inc.’s
Registration Statement on Form S-8 filed December 11, 2009 (No. 333-163691))
10.14†
CHS NQDCP Adoption Agreement, executed as of August 11, 2009 (incorporated by reference to Exhibit 4.3 to Community Health
Systems, Inc.’s Registration Statement on Form S-8 filed December 11, 2009 (No. 333-163691))
10.15†
Guarantee, dated December 9, 2009, made by Community Health Systems, Inc. in favor of CHS/Community Health Systems, Inc. with
respect to CHS/Community Health Systems, Inc.’s payment obligations under the CHS/Community Health Systems, Inc. Deferred
Compensation Plan and the NQDCP (incorporated by reference to Exhibit 4.4 to Community Health Systems, Inc.’s Registration
Statement on Form S-8 filed December 11, 2009 (No. 333-163691))
10.16†
Community Health Systems, Inc. 2019 Employee Performance Incentive Plan, as amended and restated September 13, 2023
(incorporated by reference to Exhibit 10.1 to Community Health Systems, Inc.'s Current Report on Form 10-Q for the quarter ended
September 30, 2023 filed October 26, 2023 (No. 001-15925))
10.17†
10.18†
10.19†
Community Health Systems, Inc. Directors’ Fees Deferral Plan, as amended and restated on May 11, 2021 (incorporated by reference to
Exhibit 10.2 to Community Health Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 filed July 29,
2021 (No. 001-15925))
Community Health Systems, Inc. 2009 Stock Option and Award Plan, as amended and restated as of March 22, 2023 (incorporated by
reference to Exhibit 10.1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed on May 10, 2023 (No. 001-15925))
Form of Nonqualified Stock Option Agreement (Employee) for Community Health Systems, Inc. 2009 Stock Option and Award Plan
(incorporated by reference to Exhibit 10.39 to Community Health Systems, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2013 filed February 26, 2014 (No. 001-15925))
10.20†
Form of Restricted Stock Award Agreement for Community Health Systems, Inc. 2009 Stock Option and Award Plan (incorporated by
reference to Exhibit 10.3 to Community Health Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed
July 31, 2013 (No. 001-15925))
10.21†
Form of Performance Based Restricted Stock Award Agreement (Senior Officers) for Community Health Systems, Inc. 2009 Stock
Option and Award Plan (for awards granted on or after March 1, 2020 through February 28, 2022) (incorporated by reference to Exhibit
10.1 to Community Health Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed April 29, 2020
(No. 001-15925))
10.22†
Form of Performance Based Restricted Stock Award Agreement (Senior Officers) for Community Health Systems, Inc. 2009 Stock
Option and Award Plan (for awards granted on or after March 1, 2023) (incorporated by reference to Exhibit 10.1 to Community Health
Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed May 2, 2022 (No. 001-15925))
10.23†
Form of Director Restricted Stock Unit Award Agreement for Community Health Systems, Inc. 2009 Stock Option and Award Plan
(incorporated by reference to Exhibit 10.1 to Community Health Systems, Inc.’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2019 filed October 30, 2019 (No. 001-15925))
10.24†
Amendment of Certain Agreements under the Community Health Systems, Inc. 2009 Stock Option and Award Plan, dated as of
December 7, 2022, between Community Health Systems, Inc. and Wayne T. Smith, as Grantee (incorporated by reference to Exhibit 10.1
to Community Health Systems, Inc.’s Current Report on Form 8-K filed December 8, 2022 (No. 001-15925))
10.25†
Form of Change in Control Severance Agreement (incorporated by reference to Exhibit 10.3 to Community Health Systems, Inc.’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 filed May 7, 2014 (No. 001-15925))
10.26
Participation Agreement entered into as of January 1, 2005, by and between Community Health Systems Professional Services
Corporation and HealthTrust Purchasing Group, L.P. (incorporated by reference to Exhibit 10.1 to Community Health Systems, Inc.’s
Current Report on Form 8-K filed January 7, 2005 (No. 001-15925))
129
No.
Description
10.27
Amendment effective as of January 1, 2015, by and between CHSPSC, LLC and HealthTrust Purchasing Group, L.P., to Participation
Agreement entered into as of January 1, 2005, by and between Community Health Systems Professional Services Corporation and
HealthTrust Purchasing Group, L.P. (incorporated by reference to Exhibit 10.36 to Community Health Systems, Inc.’s Annual Report on
Form 10-K for the year ended December 31, 2014 filed February 25, 2015 (No. 001-15925))
21*
List of Subsidiaries
23.1*
Consent of Deloitte & Touche LLP
31.1*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
32.2**
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
97†*
99.1
101*
Community Health Systems, Inc. Amended and Restated Clawback Policy, dated September 13, 2023
Notice of (I) Pendency and Proposed Settlement of Stockholder Derivative Action; (II) Settlement Fairness Hearing; and (III) Motion for
an Award of Attorney’s Fees and Litigation Expenses, dated December 8, 2023, and Stipulation and Agreement of Settlement, dated
November 13, 2023 (incorporated by reference to Exhibit 99.1 to Community Health Systems, Inc.’s Current Report on Form 8-K filed
December 8, 2023 (No. 001-15925))
The following financial information from our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on
February 21, 2024, formatted in Inline Extensible Business Reporting Language: (i) the consolidated statements of (loss) income for the
years ended December 31, 2023, 2022 and 2021, (ii) the consolidated statements of comprehensive (loss) income for the years ended
December 31, 2023, 2022 and 2021, (iii) the consolidated balance sheets at December 31, 2023 and December 31, 2022, (iv) the
consolidated statements of stockholders’ deficit for the years ended December 31, 2023, 2022 and 2021, (v) the consolidated statements
of cash flows for the years ended December 31, 2023, 2022 and 2021, and (vi) the notes to the consolidated financial statements. 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 Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith.
** Furnished herewith.
† Indicates a management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None.
130
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
COMMUNITY HEALTH SYSTEMS, INC.
By:
/s/ Tim L. Hingtgen
Tim L. Hingtgen
Director and
Chief Executive Officer
Date: February 21, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name
/s/ Tim L. Hingtgen
Tim L. Hingtgen
/s/ Kevin J. Hammons
Kevin J. Hammons
/s/ Jason K. Johnson
Jason K. Johnson
/s/ Wayne T. Smith
Wayne T. Smith
/s/ Susan W. Brooks
Susan W. Brooks
/s/ Ronald L. Burgess, Jr.
Ronald L. Burgess, Jr.
/s/ John A. Clerico
John A. Clerico
/s/ Michael Dinkins
Michael Dinkins
/s/ James S. Ely III
James S. Ely III
/s/ John A. Fry
John A. Fry
/s/ Joseph A. Hastings, D.M.D
Joseph A. Hastings, D.M.D
/s/ Elizabeth T. Hirsch
Elizabeth T. Hirsch
/s/ William Norris Jennings, M.D.
William Norris Jennings, M.D.
/s/ K. Ranga Krishnan, MBBS
K. Ranga Krishnan, MBBS
/s/ H. James Williams, Ph.D.
H. James Williams, Ph.D.
Title
Director and
Chief Executive Officer
President and
Chief Financial Officer
Senior Vice President and
Chief Accounting Officer
Chairman of the
Board of Directors
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
131
Date
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
February 21, 2024
Exhibit 2.7
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
CHS/COMMUNITY HEALTH SYSTEMS, INC.
AND
NOVANT HEALTH, INC.
February 28, 2023
TABLE OF CONTENTS
1.
PURCHASE OF ASSETS.
2.
3.
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.1
2.2
2.3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
3.14
3.15
1
Assets
Excluded Assets
Assumed Liabilities
Excluded Liabilities
Sale of the Acquired Company Ownership Interests
Purchase Price
Net Working Capital, Estimates and Audits
Transition Patients
Prorations
CLOSING.
Closing
Actions of Seller at Closing
Actions of Buyer at Closing
REPRESENTATIONS AND WARRANTIES OF SELLER
Existence and Capacity
Powers; Consents; Absence of Conflicts With Other Agreements, Etc.
Binding Agreement
Financial Statements
Absence of Certain Changes
Licenses
Medicare Participation/Accreditation
Regulatory Compliance
Equipment
Real Property
Title to Other Assets
Employee Benefit Plans
Litigation or Proceedings
Environmental Laws
Taxes
Page
1
1
3
4
5
6
7
7
8
10
10
10
10
12
13
13
14
14
14
15
15
16
17
17
17
19
19
20
21
21
TABLE OF CONTENTS
(continued)
Employee Relations
The Contracts
Supplies
Insurance
Third-Party Payor Cost Reports
Medical Staff Matters
Condition of Assets
Experimental Procedures
Intellectual Property
Compliance Program
Certificates of Need
Certain Representations with Respect to the Hospitals
Partial Subsidiary
REPRESENTATIONS AND WARRANTIES OF BUYER
Existence and Capacity
Powers; Consents; Absence of Conflicts With Other Agreements, Etc.
Binding Agreement
Availability of Funds
COVENANTS OF SELLER PRIOR TO CLOSING
Information
Operations
Negative Covenants
Governmental Approvals
Antitrust Matters
Additional Financial Information
No-Shop Clause
Efforts to Close
Estoppels and Contract Consents
3.16
3.17
3.18
3.19
3.20
3.21
3.22
3.23
3.24
3.25
3.26
3.27
3.28
4.1
4.2
4.3
4.4
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
4.
5.
5.10
Employee List
COVENANTS OF BUYER PRIOR TO CLOSING
6.
2
Page
22
23
24
24
24
24
25
25
25
25
26
26
27
27
27
27
28
28
28
28
28
29
30
30
31
31
31
31
32
32
TABLE OF CONTENTS
(continued)
Governmental Approvals
Antitrust Matters
Title Commitment and Surveys
Efforts to Close
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
Representations/Warranties
Governmental Approvals
Title Policy
Actions/Proceedings
No Material Adverse Change.
Insolvency
Material Consents
Vesting/Recordation
Closing Deliveries
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
Representations/Warranties
Governmental Approvals
Actions/Proceedings
Insolvency
Closing Deliveries
SELLER'S COVENANT NOT TO COMPETE
ADDITIONAL AGREEMENTS.
Allocation of Purchase Price
Termination Prior to Closing
Post-Closing Access to Information
Preservation and Access to Records After the Closing
Tax and Medicare Effect
Reproduction of Documents
Cooperation on Tax Matters
Cost Reports
7.
8.
9.
10.
6.1
6.2
6.3
6.4
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
7.9
8.1
8.2
8.3
8.4
8.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
3
Page
32
32
33
34
34
34
34
35
35
35
35
35
35
36
36
36
36
36
36
36
36
37
37
37
37
38
38
39
39
39
TABLE OF CONTENTS
(continued)
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Misdirected Payments, Etc.
Employee Matters
Indigent Care Policies
Use of Controlled Substance Permits
Medical Staff Matters
Information Services Agreement
Transition Services Agreement
Billing and Collection Agreement
License Agreement
Access to Records Including as to Recovery and Audit Information
Continuation of Insurance
Quality Reporting
Telephone Access
Guaranties
Medicare Transition Agreement
11.
INDEMNIFICATION.
12.
11.1
11.2
11.3
11.4
11.5
11.6
11.7
12.1
12.2
12.3
12.4
12.5
12.6
4
Indemnification by Buyer
Indemnification by Seller
Limitations
Notice and Control of Litigation
Notice of Claim
Mitigation
Exclusive Remedy
MISCELLANEOUS.
Schedules and Exhibits
Additional Assurances
Consented Assignment
Consents, Approvals and Discretion
Legal Fees and Costs
Choice of Law
Page
40
40
41
41
41
42
42
42
42
42
42
42
43
43
43
43
43
44
44
44
45
45
45
46
46
46
46
46
47
47
TABLE OF CONTENTS
(continued)
Benefit/Assignment
No Brokerage
Cost of Transaction
Confidentiality
Public Announcements
Waiver of Breach
Notice
Severability
Gender and Number
Divisions and Headings
Survival
Affiliates
Material Adverse Effect
Waiver of Jury Trial
Accounting Date
No Inferences
Limited Third Party Beneficiaries
Entire Agreement/Amendment
Risk of Loss
Other Definitions
12.7
12.8
12.9
12.10
12.11
12.12
12.13
12.14
12.15
12.16
12.17
12.18
12.19
12.20
12.21
12.22
12.23
12.24
12.25
12.26
5
Page
47
47
47
47
48
48
49
49
49
50
50
50
50
50
51
51
51
51
51
51
Description Exhibit
Seller Entities A
Buyer Entities B
Limited Power of Attorney C
Description Schedule
EXHIBITS
SCHEDULES
1.2
3.10(a)
1.3
1.4
1.7
3.4
1.1(a)(i)
1.1(a)(ii)
Owned Real Property
Leased Real Property
Contracts 1.1(g)
Provider Numbers 1.1(j)
Excluded Assets
Assumed Liabilities
Excluded Liabilities
Net Working Capital
Financial Statements
Absence of Certain Changes 3.5
Licenses 3.6
Medicare Participation/Accreditation 3.7
Regulatory Compliance 3.8
Real Property 3.10
Real Property – Violations
Zoning 3.10(b)
Tenants and Rent 3.10(c)
Rent Roll 3.10(d)
Eminent Domain 3.10(e)
Right of First Refusal (Real Property) 3.10(f)
Employee Benefit Plans 3.12
Litigation or Proceedings
Environmental Laws
Taxes
Employee Relations
3.19
Insurance
Third-Party Payor Cost Reports
Medical Staff Matters 3.21
3.22
Condition of Assets
3.24
Intellectual Property
3.25
Compliance Program
Certificates of Need
3.26
Certain Representations with Respect to the Hospitals 3.27
Partial Subsidiary 3.28
Material Consents 7.7
3.13
3.20
3.15
3.16
3.14
vi
Defined Term Section
GLOSSARY OF CERTAIN DEFINED TERMS
2.2(c)
1.1
1.3
1.2
1.4
11.2
3.14
2.2(j)
Introduction
Accounting Firm 1.7(c)
Affiliate 12.18
Agreement
Assets
Assignment and Assumption Agreement
Assumed Liabilities
Balance Sheet Date 3.4(a)
Benefit Plans 3.12(a)
Business Associate Agreement
Introduction
Buyer
Buyer Entities Recital B
Buyer Plans 10.10(a)
Buyer Indemnified Parties
CERCLA
Closing 2.1
Closing Date 2.1
Code
3.12(a)
Contracts 1.1(g)
ERISA 3.12(a)
Excluded Assets
Excluded Liabilities
Facilities Recital D
Financial Statements
FTC 5.5
GAAP
Government Entity 3.8
Hospitals Recital C
HSR Act 5.5
Immaterial Contracts
Indemnified Party 11.4
Indemnifying Party 11.4
Information Services Agreement 2.2(j)
Justice Department 5.5
Leased Real Property
License Agreement 2.2(m)
Material Adverse Effect 12.19
1.7(a)
Net Working Capital
Owned Real Property
1.1(a)
Permitted Encumbrances
Purchase Price
RCRA
3.14
Real Property 1.1(a)
Seller
Seller Cost Reports 10.8
Introduction
1.7(a)
1.1(a)
3.17
3.10
3.4
1.6
vii
11.1
3.6
Seller Entities Recital A
Seller Indemnified Parties
State Health Agency
Surveys 6.3(b)
Termination Notice 12.1
Title Commitment 6.3(a)
Title Company
6.3(a)
Title Policy
WARN Act
6.3(a)
3.16(c)
viii
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the “Agreement”) is made and entered into as of February 28, 2023, by
and between CHS/COMMUNITY HEALTH SYSTEMS, INC., a Delaware corporation (“Seller”), and NOVANT HEALTH,
INC., a North Carolina non-profit corporation which is exempt from federal income tax as an organization described in Section
501(c)(3) of the Code (“Buyer”).
RECITALS:
A. Seller owns or controls, directly or indirectly, the organizations listed on Exhibit A attached hereto (each a “Seller
Entity” and together the “Seller Entities”).
B. Buyer owns or controls, directly or indirectly, the organizations listed on Exhibit B attached hereto (each a “Buyer
Entity” and together the “Buyer Entities”).
C. The Seller Entities directly or indirectly own and operate Lake Norman Regional Medical Center in Mooresville,
North Carolina, and Davis Regional Medical Center in Statesville, North Carolina (each, a “Hospital” and collectively, the
“Hospitals”).
D. Seller desires to cause the Seller Entities to sell to the Buyer Entities and Buyer desires to cause the Buyer Entities
to purchase substantially all of the assets of the Seller Entities which are directly or indirectly related to, necessary for, or used in
connection with, the operation of the Hospitals, together with certain related businesses, including but not limited to medical
office buildings, outpatient care facilities, physician practices and ancillary services (collectively with the Hospitals, the
“Facilities”), on the terms and conditions set forth in this Agreement.
E. A Seller Entity owns all of the issued and outstanding membership interests (the “Acquired Company Ownership
Interests”) in Piedmont Surgical Center of Excellence, LLC, a Delaware limited liability company (the “Acquired Company”).
F. Such Seller Entity desires to sell to a Buyer Entity and the Buyer desires that a Buyer Entity purchase from the
applicable Seller Entity the Acquired Company Ownership Interests, on the terms and conditions set forth in this Agreement.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the premises and the mutual agreements, covenants, representations,
and warranties hereinafter set forth and other good and valuable consideration, the receipt and adequacy of which are forever
acknowledged and confessed, the parties hereto agree as follows:
1. PURCHASE OF ASSETS.
1.1 Assets. Subject to the terms and conditions of this Agreement, as of the Closing (as defined in Section 2.1 hereof),
Seller agrees to cause the Seller Entities to sell, convey, transfer, assign and deliver to the Buyer Entities, and Buyer agrees to
cause the Buyer Entities to purchase, all of the assets owned or used by the Seller Entities in connection with the operation of the
Facilities, other than the Excluded Assets (hereinafter defined)(collectively, the “Assets”), which Assets shall include, without
limitation, the following:
(a) fee simple title to the real property described in Schedule 1.1(a)(i) hereto, together with all improvements,
any construction in progress, any other buildings and fixtures thereon, and all rights, privileges and easements appurtenant thereto
(collectively, the “Owned Real Property”), and leasehold title to the real property that is leased, sub-leased or otherwise licensed
by the Seller Entities pursuant to the leases, subleases or licenses described in Schedule 1.1(a)(ii) (collectively, the “Leased Real
Property”) (the Owned Real Property and the Leased Real Property are collectively referred to herein as the “Real Property”);
furniture and furnishings of the Seller Entities;
(b) all tangible personal property, including, without limitation, all major, minor or other equipment, vehicles,
(c) all supplies and inventory used or held for use in respect of the Facilities;
(d) assumable deposits and prepaid expenses that have continuing value to the Buyer Entities;
(e) all claims of the Seller Entities against third parties to the extent such claims relate to the condition of the
Assets and, to the extent assignable, all warranties (express or implied) and rights and claims assertable by (but not against) the
Seller Entities related to the Assets;
(f)
to the extent legally transferable, all right, title and interest in the financial, patient, medical staff and
personnel records relating to the Facilities (including, without limitation, all equipment records, medical administrative libraries,
medical records, documents, catalogs, books, records, files, operating policies and procedures, manuals and current personnel
records);
(g) all rights and interests in the contracts, commitments, leases, licenses and agreements listed in Schedule
1.1(g) hereto and all Immaterial Contracts (hereinafter defined) (the contracts being assigned are referred to herein as the
“Contracts”);
(h) all licenses and permits, to the extent legally assignable, held by the Seller Entities relating to the
ownership, development, and operation of the Facilities (including, without limitation, any pending or granted governmental
approvals);
Schedule 3.24, all goodwill associated therewith, and all applications or registration associated therewith;
(i)
the trade names, trademarks, service marks (or variations thereof), domain names and copyrights listed in
(j)
to the extent legally transferable, all provider numbers listed in Schedule 1.1(j);
(k) all goodwill associated with the Facilities and the Assets;
(l) petty cash;
(m) the telephone numbers used in connection with the business or operation of the Facilities;
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transferable, and all rights in warranties of any manufacturer or vendor with respect thereto;
(n) all computer hardware and data processing equipment located at the Facilities to the extent assignable or
items specifically set forth, all other businesses and ventures owned by the Seller Entities in connection with the Facilities;
(o) whether or not reflected in the financial statements, wherever located and whether or not similar to the
hereof and the Closing Date; and
(p) all property and rights of the foregoing types arising or acquired by the Seller Entities between the date
and used or held for use in the business of the Facilities or the Assets.
(q) all other property of every kind, character or description owned, leased or licensed by the Seller Entities
1.2 Excluded Assets . Those assets of the Seller Entities described below, together with any assets described in
Schedule 1.2 hereto, shall be retained by the Seller Entities (collectively, the “Excluded Assets”) and shall not be conveyed to the
Buyer Entities:
(a) cash, cash equivalents and marketable securities (except petty cash);
reserves, working capital trust assets, and assets and investments restricted as to use) and accrued earnings thereon;
(b) board-designated, restricted and trustee-held or escrowed funds (such as funded depreciation, debt service
(c)
all amounts payable to the Seller Entities in respect of third-party payors pursuant to retrospective
settlements (including, without limitation, pursuant to Medicare, Medicaid and CHAMPUS/TRICARE cost reports filed or to be
filed by the Seller Entities for periods prior to the Effective Time, retrospective payment of claims that are the subject of Centers
for Medicare and Medicaid Services (“CMS”) Recovery Audit Contractor appeals, and all payments for periods prior to the
Effective Time related to all Medicaid programs including but not limited to Uncompensated Care (UC), Disproportionate Share
(DSH), Delivery System Reform Incentive Payment (DSRIP), Uniform Hospitals Rate Increase Program (UHRIP), Hospitals
Quality-Based Payment Program for Potentially Preventable Readmissions (PPR) and Potentially Preventable Complications
(PPC), and Uncompensated Trauma Care), and all appeals and appeal rights of the Seller Entities relating to such settlements,
including cost report settlements, for periods prior to the Effective Time;
(d) all Seller Entity records relating to (i) litigation files and records, cost report records relating to periods of
time prior to Closing, tax returns and minute books, and (ii) the Excluded Assets and Excluded Liabilities to the extent that the
applicable Buyer Entity does not need the same in connection with the operation of the Facilities, as well as all records which, by
law, the Seller Entities are required to maintain in their possession;
expenses related to Excluded Assets and Excluded Liabilities (such as prepaid legal expenses);
(e) prepaid insurance, prepaid assets dedicated to the Seller Entities' benefit plans and any reserves or prepaid
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all accounts receivable arising from the rendering of services to patients at the Facilities, billed and
unbilled, recorded or unrecorded, with collection agencies or otherwise, accrued and existing in respect of services rendered prior
to the Effective Time;
(f)
(g) any and all names, symbols, trademarks, logos or other symbols used in connection with the Facilities and
the Assets which include the names “CHS,” “Community Health Systems” or any variants thereof or any other names which are
proprietary to Seller or its Affiliates and are not used exclusively in the connection with the operation of the Facilities (the
“Excluded Marks”);
(h) any computer software and programs which are proprietary to Seller or its Affiliates;
(i)
receivables from or obligations with Seller or its Affiliates;
assets held in connection with any self-funded insurance programs and reserves, if any;
(j)
the Seller Entities' insurance proceeds arising from pre-Effective Time incidents and the Seller Entities'
the Facilities prior to the Effective Time or to the Excluded Assets or Excluded Liabilities;
(k) any claims of the Seller Entities against third parties to the extent that such claims relate to the operation of
standard operating procedures and marketing brochures, data and studies or analyses;
(l) all of Seller's or any Affiliate's proprietary manuals, marketing materials, policy and procedure manuals,
sponsored, maintained, contributed to or required to be contributed to by the Seller Entities' or any of their Affiliates;
(m) all assets and rights related to the Benefit Plans and any other benefit plan, program, or arrangement that is
(n) all assets solely relating to home health or hospice operations;
by virtue of the Facilities being an Affiliate of Seller;
(o) all national or regional contracts of Seller or any Affiliate which are made available to any of the Facilities
(p)
the electronic funds transfer accounts of the Facilities;
included in the Contracts; and
(q) all rights of the Seller Entities in any contracts, commitments, leases and agreements which are not
respect to periods prior to the Effective Time.
(r) any claims against third-party payors relating to underpayments or violation of prompt pay statutes with
1.3 Assumed Liabilities . In connection with the conveyance of the Assets hereunder, Buyer shall cause the Buyer
Entities to assume, as of the Effective Time, the future payment and performance of the following liabilities (the “Assumed
Liabilities”) of the Seller Entities:
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(a) all obligations accruing from and after the Effective Time with respect to the Contracts;
(b)
the finance lease obligations set forth in Schedule 1.3 hereto; and
(c) all obligations and liabilities as of the Effective Time in respect of accrued vacation and holiday benefits of
Seller Employees who are hired by the Buyer Entities as of the Effective Time, and related taxes, but only to the extent included
in the determination of Net Working Capital.
1.4 Excluded Liabilities . Except for the Assumed Liabilities, the Buyer Entities shall not assume and under no
circumstances shall the Buyer Entities be obligated to pay or assume, and none of the assets of the Buyer Entities shall be or
become liable for or subject to any liability, indebtedness, commitment, or obligation of the Seller Entities, whether known or
unknown, fixed or contingent, recorded or unrecorded, currently existing or hereafter arising or otherwise (collectively, the
“Excluded Liabilities”), including, without limitation, the following Excluded Liabilities:
(a) any debt, obligation, expense or liability that is not an Assumed Liability;
to have occurred prior to the Effective Time;
(b) claims or potential claims for medical malpractice or general liability relating to acts or omissions asserted
(c)
those claims and obligations (if any) specified in Schedule 1.4 hereto;
(d) any liabilities or obligations associated with or arising out of any of the Excluded Assets;
(e)
liabilities and obligations of the Seller Entities in respect of periods prior to the Effective Time arising
under the terms of the Medicare, Medicaid, CHAMPUS/TRICARE, Blue Cross, or other third-party payor programs, as well as
under the Coronavirus Aid, Relief, and Economic Security Act (Pub. L. 116-136), as amended (the “CARES Act”), including,
without limitation, in respect of any cost report, any audit under the Medicare RAC program or any noncompliance with
applicable law or contractual obligations related to the billing or collection of services, CARES Act funding and any liability
arising pursuant to the Medicare, Medicaid, CHAMPUS/TRICARE, Blue Cross, or any other third-party payor programs as a
result of the consummation of any of the transactions contemplated under this Agreement;
(f)
federal, state or local tax liabilities or obligations of the Seller Entities in respect of periods prior to the
Effective Time or resulting from the consummation of the transactions contemplated herein including, without limitation, any
income tax, any franchise tax, any tax recapture, any sales and/or use tax, and any FICA, FUTA, workers’ compensation, and any
and all other taxes or amounts due and payable as a result of the exercise by the employees at the Facilities of such employees’
right to vacation, sick leave, and holiday benefits accrued while in the employ of the Seller Entities (provided, however, that this
clause (f) shall not apply to any and all taxes payable with respect to any employee benefits constituting Assumed Liabilities
under Section 1.3(c) hereof);
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(g)
liability for any and all claims by or on behalf of the Seller Entities’ employees relating to periods prior to
the Effective Time including, without limitation, liability for any compensation-related payments, pension, profit sharing,
deferred compensation, equity or equity-related compensation, incentive compensation, fringe benefit, tuition reimbursement,
severance, termination pay, change in control or retention payments, bonuses or any other employee benefit plan of whatever kind
or nature or any employee health and welfare benefit plans, liability for any EEOC claim, ADA claim, FMLA claim, wage and
hour claim, unemployment compensation claim, or workers’ compensation claim, and any liabilities or obligations to former
employees of the Seller Entities under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (provided,
however, that this clause (g) shall not apply to any and all employee benefits constituting Assumed Liabilities under Section
1.3(c) hereof);
(h) any obligation or liability accruing, arising out of, or relating to any federal, state or local investigations of,
or claims or actions against, the Seller Entities or any of their Affiliates or any of their employees, medical staff, agents, vendors
or representatives with respect to acts or omissions prior to the Effective Time;
(i) any civil or criminal obligation or liability accruing, arising out of, or relating to any acts or omissions of
the Seller Entities, their Affiliates or, to the extent related to their services to the Seller Entities, their directors, officers,
employees and agents claimed to violate any constitutional provision, statute, ordinance or other law, rule, regulation or order of
any governmental entity;
Contract;
(j)
liabilities or obligations arising out of any breach by the Seller Entities prior to the Effective Time of any
commitment that is not expressly assumed by the Buyer Entities in this Agreement;
(k)
liabilities or obligations arising as a result of any breach by the Seller Entities at any time of any contract or
any transaction of the Seller Entities occurring after the Effective Time;
(l) any debt, obligation, expense, or liability of the Seller Entities arising out of or incurred solely as a result of
(m) any liability of the Seller Entities relating to violations of law, including but not limited to violations of
federal or state laws regulating fraud such as the federal Anti-Kickback Law (42 U.S.C. § 1320(a)-7(b) et seq.) (the “Anti-
Kickback Law”), the Ethics in Patient Referrals Act (42 U.S.C. § 1395mm et seq.) (the “Stark Law”), and the False Claims Act
(31 U.S.C. § 3729 et seq.) (the “False Claims Act”); and
(n) all liabilities and obligations relating to any oral agreements, oral contracts or oral understandings with any
referral sources including, but not limited to, physicians, unless reduced to writing, identified in Schedule 1.1(g) hereto, and
expressly assumed as part of the Contracts.
1.5 Sale of the Acquired Company Ownership Interests. Subject to the terms and conditions of this Agreement, at the
Closing, a Seller Entity shall sell, convey, transfer and deliver
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to a Buyer Entity, free and clear of all encumbrances, and the Buyer Entity shall purchase from the Seller Entity, the Acquired
Company Ownership Interests.
1.6 Purchase Price. The purchase price (the “Purchase Price”) for the Assets and the Acquired Company Ownership
Interests shall be Three Hundred Twenty Million Dollars ($320,000,000), plus or minus the amount by which the Net Working
Capital (as defined in Section 1.7(a)) of the Seller Entities as of the Effective Time exceeds or is less than Five Million Six
Hundred Eighty-Nine Thousand Dollars ($5,689,000), respectively, and minus the amount of the capitalized leases set forth in
Schedule 1.3 that are assumed by the Buyer Entities. The Purchase Price shall be calculated as of the Closing based upon the
estimated Net Working Capital (as determined in accordance with Section 1.7(b)). The Purchase Price shall be adjusted after the
Closing in accordance with Section 1.7(a) to reflect the actual Net Working Capital as of the Effective Time (as determined in
accordance with Section 1.7(b)). The Purchase Price shall be due and payable on the Closing Date by wire transfer of
immediately available funds to an account designated by Seller.
1.7 Net Working Capital, Estimates and Audits.
(a) Net Working Capital . As used herein, the term “Net Working Capital” shall mean the aggregate current
assets of the Seller Entities conveyed to the Buyer Entities pursuant to Section 1.1 hereof (excluding those Excluded Assets
which would otherwise be included in current assets), minus the aggregate current liabilities of the Seller Entities assumed by the
Buyer Entities pursuant to Section 1.3 hereof (excluding those Excluded Liabilities which would otherwise be included in current
liabilities), all as determined in accordance with United States generally accepted accounting principles in effect from time to
time in accordance with standards established by the Financial Accounting Standards Board (“GAAP”). In any case, with respect
to the computation of Net Working Capital (i) the following shall be included in current assets: petty cash, prepaid expenses and
deposits, and supplies and inventory, and (ii) the following shall be included in current liabilities: accrued liabilities for vacation
and holiday benefits for employees of the Seller Entities who are hired by the Buyer Entities. For the avoidance of doubt, the
computation of Net Working Capital shall not include any of the foregoing as they relate to the Partial Subsidiary.
(b) Estimates and Adjustments. Attached hereto as Schedule 1.7 is a schedule of the mutually agreed upon Net
Working Capital as of December 31, 2022, together with the principles, specifications and methodologies used in determining
such Net Working Capital. At least ten (10) business days prior to Closing, Seller shall deliver to Buyer a reasonable estimate of
Net Working Capital as of the end of the most recently ended calendar month prior to the Closing Date for which financial
statements are available and containing reasonable detail and supporting documents showing the derivation of such estimate. The
Net Working Capital shall be estimated following the same mutually agreed upon principles, specifications and methodologies
used to determine the Net Working Capital as of December 31, 2022, as specified in Schedule 1.7, and shall be used for purposes
of calculating the Purchase Price as of the Closing. Within ninety (90) days after the Closing, Seller shall deliver to Buyer its
determination of the Net Working Capital as of the Closing (following the same principles, specifications and methodologies used
to determine the Net Working Capital as set forth in Schedule 1.7 and the estimated Net Working Capital as of the Closing). Each
party shall have full access to the financial books and records pertaining to the Facilities to confirm or audit Net Working Capital
computations. Should Buyer
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disagree with Seller’s determination of Net Working Capital, it shall notify Seller within sixty (60) days after Seller’s delivery of
its determination of Net Working Capital. If Seller and Buyer fail to agree within thirty (30) days after Buyer’s delivery of notice
of disagreement on the amount of Net Working Capital, such disagreement shall be resolved in accordance with the procedure set
forth in Section 1.7(c), which shall be the exclusive remedy for resolving accounting disputes relative to the determination of Net
Working Capital. The Purchase Price shall be increased or decreased based on actual Net Working Capital as of the Closing, and
within five (5) business days after determination thereof any increase shall be paid in cash by Buyer to Seller, and any decrease
shall be paid in cash to Buyer by Seller.
(c) Dispute of Adjustments. In the event that Seller and Buyer are not able to agree on the actual Net Working
Capital within thirty (30) days after Buyer’s delivery of notice of disagreement, Seller and Buyer shall each have the right to
require that such disputed determination be submitted to such independent certified public accounting firm as Seller and Buyer
may then mutually agree upon in writing (the “Accounting Firm”) for computation or verification in accordance with the
provisions of this Agreement. The Accounting Firm shall review the matters in dispute and, acting as arbitrators, shall promptly
decide the proper amounts of such disputed entries (which decision shall also include a final calculation of Net Working Capital).
The submission of the disputed matter to the Accounting Firm shall be the exclusive remedy for resolving accounting disputes
relative to the determination of Net Working Capital. The Accounting Firm’s determination shall be binding upon Seller and
Buyer, and such Accounting Firm’s fees and expenses shall be borne equally by Seller and Buyer.
(d) Physical Inventory. If requested by Buyer, at least ten (10) business days prior to the Closing, Seller shall
cause a physical inventory to be taken of the inventory and supplies on hand at the Facilities by employees or representatives of
Seller or its Affiliates as near in time as possible to the Closing Date and with the results extended and adjusted through the
Closing Date. Seller shall permit representatives or employees of Buyer to observe such inventory process. All inventory items
shall be valued at the lower of Seller’s cost or market on a first-in first-out basis. The parties acknowledge that the inventory to
be taken pursuant to this Section 1.7(d) will not be conducted until immediately prior to the Closing Date and, as such, the results
of such inventory may not be available until sometime after the Closing Date. Accordingly, the parties agree that for purposes of
determining the estimated Net Working Capital as of the Closing Date, inventory with respect to the operation of the Facilities
shall be calculated as reflected by the latest available unaudited balance sheets of the Seller Entities if the results of such
inventory are not available. For purposes of determining the actual Net Working Capital, inventory shall be valued as determined
pursuant to this Section 1.7(d).
1.8 Transition Patients . To compensate the Seller Entities for services rendered and medicine, drugs and supplies
provided up to the Effective Time with respect to patients who are admitted as inpatients to the Hospitals prior to the Effective
Time but who are not discharged until after the Effective Time (such patients being referred to herein as the “Transition Patients”
and services rendered to them being referred to herein as the “Transition Services”), the parties shall take the following actions:
(a) As soon as practicable after the Closing Date, there shall be delivered to both parties a statement itemizing
the Transition Services provided by each of the parties to Transition Patients whose medical care is paid for, in whole or in part,
by Medicare, Medicaid,
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TRICARE, Blue Cross or any other third-party payor who pays on a DRG, case rate or other similar basis (the “DRG Transition
Patients”). The Buyer Entities shall pay to the Seller Entities an amount equal to (i) the total DRG and outlier payments
(including capital and any deposits, deductibles or co-payments received by the Buyer Entities or the Seller Entities) per the
remittance advice received by the Buyer Entities on behalf of a DRG Transition Patient, multiplied by a fraction, the numerator of
which shall be the total charges for the Transition Services provided to such DRG Transition Patient by the Seller Entities, and
the denominator of which shall be the sum of the total charges for all services provided to such DRG Transition Patient by the
Seller Entities and the Buyer Entities both up to and after the Effective Time, minus (ii) any deposits, deductibles or co-payments
made or payable by such DRG Transition Patients to the Seller Entities.
(b) As of Effective Time, cut-off billings (“Interim Billings”) for all Transition Patients not covered by Section
1.8(a) shall be prepared and sent following the discharge of the patient from the Hospitals. Any payments received by either the
Buyer Entities or the Seller Entities for such Interim Billings are the property of the Seller Entities and shall be paid to the Seller
Entities, when and as received by the Buyer Entities, within ten (10) business days of receipt.
(c)
If the Buyer Entities receive amounts related to any Medicare, Medicaid, Medicaid Managed Care,
TRICARE or other third-party payor program (such as the Hospitals Uncompensated Care Fund/Medicaid disproportionate share
and Medicaid Managed Care Delivery System, Medicare disproportionate share payments, periodic interim payments (“PIP”), bi-
weekly payments for Medicare bad debt, payments for costs paid on a pass-through basis, such as capital costs, and MIPS or
other MACRA-based payments), associated with the operation of the Hospitals or the Facilities prior to the Effective Time, the
Buyer Entities shall tender the amount applicable to the period prior to the Effective Time to the Seller Entities within ten (10)
business days of receipt. If the Seller Entities receive amounts related to any Medicare, Medicaid, Medicaid Managed Care,
TRICARE or other third-party payor program (such as Hospitals Uncompensated Care Fund/Medicaid disproportionate share and
Medicaid Managed Care Delivery System, Medicare disproportionate share payments, PIP payments, bi-weekly payments for
Medicare bad debt, or payments for pass-through costs, such as capital costs, and MIPS or other MACRA-based payments),
associated with the operation of the Hospitals or the Facilities relating to periods after the Effective Time, the Seller Entities shall
tender the same to the Buyer Entities within ten (10) business days of receipt. It is the intent of the parties that the Buyer Entities
and the Seller Entities shall receive any and all amounts related to any other Medicare, Medicaid, Medicaid Managed Care, or
other third-party payor program (such as Hospitals Uncompensated Care Fund/Medicaid disproportionate share and Medicaid
Managed Care Delivery System, Medicare disproportionate share payments, PIP payments, bi-weekly payments for Medicare
bad debt, and pass-through costs payments (including capital costs)) applicable to the period of time the Hospitals or the Facilities
were owned by such party, calculated as the payment multiplied by a fraction, the numerator of which shall be the number of days
the Hospitals or the Facilities were owned by the party during the period attributable to the payment and the denominator of
which shall be the total number of days attributable to the payment. In conjunction with a Medicare cost report, the Medicare
Audit Contractor (“MAC”) may apply bi-weekly payments to a party that are not applicable to its period of ownership. If this
occurs, the parties agree to make payments to one another so that each party receives third party payments applicable to the
period of time it owned the Hospitals or the Facilities in accordance with the methodology delineated above.
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(d) All payments required by this Section 1.8 shall be made within ten (10) business days of a party’s receipt of
payment with respect to a Transition Patient, accompanied by copies of remittances and other supporting documentation as
reasonably required by the other party. In the event that the Buyer Entities and the Seller Entities are unable to agree on any
amount to be paid under this Section 1.8, then such amount shall be determined through the binding process provided in Section
1.7(c) at the joint equal expense of the Buyer Entities and the Seller Entities.
1.9 Prorations. Except as otherwise provided herein (for example, with respect to the determination of Net Working
Capital) or as settled at the Closing, within ninety (90) days after the Closing Date (hereinafter defined), the Seller Entities and
the Buyer Entities shall prorate as of the Effective Time any amounts which become due and payable on or after the Closing Date
with respect to (i) the Contracts, (ii) ad valorem taxes, if any, on the Assets (which shall be prorated as of the Closing), (iii)
personal property taxes on the Assets (which shall be prorated as of the Closing), (iv) rent, if any, for the Leased Real Property,
and (v) all utilities servicing any of the Assets, including water, sewer, telephone, electricity and gas service. Any such amounts
which are not available within ninety (90) days after the Closing Date shall be similarly prorated as soon as practicable thereafter.
For purposes of this Section 1.9, the portion of any amount payable for a period that starts before the Effective Time and ends
after the Effective Time (a “Straddle Period”) that will be prorated and allocable to the Seller Entities shall equal the amount of
such amount payable for the entire Straddle Period (or, in the case of such taxes determined on an arrears basis, the amount of
such taxes for the immediately preceding period), multiplied by a fraction, the numerator of which is the number of calendar days
in the Straddle Period ending prior to the Effective Time and the denominator of which is the number of calendar days in the
entire Straddle Period.
2. CLOSING.
2.1 Closing. Subject to the satisfaction or waiver by the appropriate party of all of the conditions precedent to Closing
specified in Sections 7 and 8 hereof, the consummation of the transactions contemplated by and described in this Agreement (the
“Closing”) shall take place via electronic exchange of closing deliverables on the last business day of the month in which all of
the conditions precedent to the obligations of the parties (other than those conditions that by their terms are to be satisfied at the
Closing) have been satisfied or waived, or such other date as the parties may mutually designate in writing (the date of
consummation is referred to herein as the “Closing Date”). The Closing shall be effective as of 12:00:01 a.m., local time, on the
first day of the next calendar month immediately following the Closing Date, or at such other time as the parties may mutually
designate in writing (such time, the “Effective Time”).
2.2 Actions of Seller at Closing. At the Closing and unless otherwise waived in writing by Buyer, Seller shall deliver
to Buyer the following:
(a) Deeds containing special warranty of title, fully executed by each applicable Seller Entity in recordable
form, conveying to each applicable Buyer Entity fee title to the Owned Real Property (the “Deeds”), and Assignments of Leases,
fully executed by each applicable Seller Entity, assigning to each applicable Buyer Entity leasehold title to the Leased Real
Property (the “Assignments of Leases”), subject only to the Permitted Encumbrances and the Assumed Liabilities;
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(b) A General Assignment, Conveyance and Bill of Sale, fully executed by each applicable Seller Entity,
conveying to each applicable Buyer Entity all of such Seller Entity’s right, title and interest in the Assets, free and clear of all
liabilities, claims, liens, security interests and restrictions other than the Assumed Liabilities;
(c) An Assignment and Assumption Agreement (the “Assignment and Assumption Agreement”), fully
executed by each applicable Seller Entity, conveying to each applicable Buyer Entity such Seller Entity’s interest in the Contracts;
(d) Copies of corporate resolutions duly adopted by the Board of Directors of Seller and each Seller Entity,
authorizing and approving the performance of the transactions contemplated hereby and the execution and delivery of this
Agreement and the documents described herein, certified as true and of full force as of the Closing, by the appropriate officers of
Seller and each Seller Entity;
precedent contained in Section 7.1 of this Agreement;
(e) Certificate of the President or a Vice President of Seller, certifying as to the satisfaction of the condition
(f) Certificates of incumbency for the respective officers of Seller and each Seller Entity executing this
Agreement and any other agreements or instruments contemplated herein or making certifications for the Closing dated as of the
Closing Date;
incorporated or formed, dated the most recent practical date prior to the Closing;
(g) Certificates of existence and good standing of Seller and each Seller Entity from the state in which it is
Assets;
(h) All Certificates of Title and other documents evidencing an ownership interest conveyed as part of the
(i) A standard form owner’s affidavit (modified as necessary to make factually accurate) as required by the
Title Company (as defined in Section 6.3 hereof) to issue the Title Policy (as defined in Section 6.3 hereof) as described in and
provided by Section 7.3 hereof;
(j) An Information Technology Transition Services Agreement under which Seller or a Seller Affiliate will
provide or arrange for the provision of information technology and related services consistent with historical practice at the
Facilities during a transition period of twelve (12) months (the “Information Services Agreement”) and a related Business
Associate Agreement (the “Business Associate Agreement”) fully executed by Seller or an Affiliate of Seller;
(k) A Hospitals Transition Services Agreement under which Seller or a Seller Affiliate will provide or arrange
for the provision of billing and collection services consistent with historical practice at the Hospitals during a transition period of
twelve (12) months (the “Transition Services Agreement”), fully executed by Seller or an Affiliate of Seller;
(l) A Clinic Billing and Collection Agreement under which Seller or a Seller Affiliate will provide or arrange
for the provision of billing and collection services consistent with historical practice at the Facilities during a transition period of
twelve (12) months (the “Billing and Collection Agreement”), fully executed by Seller or an Affiliate of Seller;
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(m) A license agreement under which Buyer will be licensed to use the policy and procedure manuals used at
the Facilities immediately prior to the Effective Time (the “License Agreement”), fully executed by Seller or an Affiliate of
Seller;
Treasury Regulations 1.1445-2(c)(3) and 1.897-2(h);
(n) A certification (in such form as may be reasonably requested by Buyer) conforming to the requirements of
executed by the appropriate Seller Entity;
(o) An Assignment of Membership Interests representing the Acquired Company Ownership Interests, duly
(p) Resignations of the officers and directors of the Acquired Company;
(q) Minute books of the Acquired Company; and
effect the transactions contemplated hereby.
(r) Such other instruments and documents as the parties reasonably agree are appropriate and necessary to
2.3 Actions of Buyer at Closing. At the Closing and unless otherwise waived in writing by Seller, Buyer shall deliver
to Seller the following:
(a) An amount equal to the Purchase Price in immediately available funds;
(b) The Assignment of Leases, fully executed by each applicable Buyer Entity, pursuant to which the Buyer
Entities shall assume the future payment and performance of the leases of the Leased Real Property as provided in this
Agreement;
(c) The Assignment and Assumption Agreements, fully executed by each applicable Buyer Entity, pursuant to
which the Buyer Entities shall assume the future payment and performance of the Contracts and the Assumed Liabilities as
provided in this Agreement;
(d) Copies of resolutions duly adopted by the Board of Directors of Buyer and each Buyer Entity authorizing
and approving their respective performance of the transactions contemplated hereby and the execution and delivery of this
Agreement and the documents described herein, certified as true and in full force as of the Closing, by the appropriate officers of
Buyer and each Buyer Entity;
precedent contained in Section 8.1 of this Agreement;
(e) Certificate of the President or a Vice President of Buyer, certifying as to the satisfaction of the condition
(f) Certificates of incumbency for the respective officers of Buyer and each Buyer Entity executing this
Agreement and any other agreements or instruments contemplated herein or making certifications for the Closing dated as of the
Closing Date;
incorporated or formed, dated the most recent practical date prior to Closing;
(g) Certificates of existence and good standing of Buyer and each Buyer Entity from the state in which each is
executed by Buyer or its Affiliates(s), as applicable;
(h) The Information Services Agreement and the Business Associate Agreement attached thereto, fully
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(i) The Transition Services Agreement, fully executed by Buyer or its Affiliates, as applicable;
(j) The Billing and Collection Agreement, fully executed by Buyer or its Affiliates, as applicable;
(k) The License Agreement, fully executed by Buyer or its Affiliates(s), as applicable; and
effect the transactions contemplated hereby.
(l) Such other instruments and documents as the parties reasonably agree are appropriate and necessary to
3. REPRESENTATIONS AND WARRANTIES OF SELLER. As of the date hereof, and, when read in light of any
Schedules which have been updated in accordance with the provisions of Section 12.1 hereof, as of the Closing Date, Seller
represents and warrants to Buyer and the Buyer Entities the following:
3.1 Existence and Capacity.
(a) Seller is a corporation, duly organized and validly existing in good standing under the laws of the State of
Delaware. Seller has the requisite power and authority to enter into this Agreement, to perform its obligations hereunder and to
conduct its business as now being conducted. Each Seller Entity is a limited partnership, limited liability company or corporation,
duly organized and validly existing in good standing under the laws of the state of its formation or incorporation, as the case may
be. Each Seller Entity has the requisite power and authority to conduct its business as now being conducted.
(b) The Acquired Company (i) is a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware, and (ii) has the limited liability company power and authority to own or lease
and to operate its assets and to conduct its business as currently conducted. The Acquired Company has not engaged in any
business other than certain actions taken in connection with filing a Certificate of Need Application with the North Carolina
Department of Health and Human Services with respect to a specialty ambulatory surgical facility.
(c) Statesville HMA, LLC owns all of the Acquired Company Ownership Interests. The Acquired Company
Ownership Interests have been duly authorized, validly issued, fully paid and non-assessable. There are no outstanding equity
securities of the Acquired Company, including (i) securities which are convertible into or exchangeable for any membership
interests of the Acquired Company, (i) contracts, arrangements, commitments or restrictions relating to the issuance, sale,
transfer, purchase or obtaining of capital stock or other equity securities of the Acquired Company, or (iii) options, warrants,
rights, calls or commitments of any character granted or issued by the Acquired Company governing the issuance of its
membership interests.
(d) Statesville HMA, LLC has good and marketable title to, and owns, the Acquired Company Ownership
Interests, beneficially and of record. The Acquired Company Ownership Interests are held free of any liens, claims, security
interests or other encumbrances.
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Statesville HMA, LLC has full voting power over the Acquired Company Ownership Interests, subject to no proxy, shareholders’
agreement, voting trust or other agreement relating to the voting of any of the Acquired Company Ownership Interests. Other
than this Agreement, there is no agreement between Statesville HMA, LLC and any other person with respect to the disposition
of the Acquired Company Ownership Interests.
3.2 Powers; Consents; Absence of Conflicts With Other Agreements, Etc. The execution, delivery, and performance
of this Agreement by Seller and all other agreements referenced herein, or ancillary hereto, to which Seller is a party, and the
consummation by Seller and each Seller Entity of the transactions contemplated by this Agreement and the documents described
herein, as applicable:
organizational documents, and have been duly authorized by all appropriate corporate action;
(a) are within its corporate powers, are not in contravention of corporate law or of the terms of its
(b) except as provided in Sections 5.4 and 5.5, do not require any approval or consent required to be obtained
by Seller of, or filing required to be made by Seller with, any governmental agency or authority bearing on the validity of this
Agreement which is required by law or the regulations of any such agency or authority;
(c) assuming the receipt of any consents required pursuant to the Contracts, will neither conflict with, nor
result in any breach or contravention of, or the creation of any lien, charge, or encumbrance under, any indenture, agreement,
lease, instrument or understanding to which it is a party or by which it is bound;
may be subject; and
(d) will not violate any statute, law, rule, or regulation of any governmental authority to which it or the Assets
or the Assets may be subject.
(e) will not violate any judgment, decree, writ or injunction of any court or governmental authority to which it
3.3 Binding Agreement. This Agreement and all agreements to which Seller or any of the Seller Entities will become a
party pursuant hereto are and will constitute the valid and legally binding obligations of Seller and/or such Seller Entities,
respectively, and are and will be enforceable against it or them in accordance with the respective terms hereof or thereof.
3.4 Financial Statements . Seller has delivered to Buyer copies of the following financial statements of the Seller
Entities and the Partial Subsidiary (“Financial Statements”), which Financial Statements are maintained on an accrual basis:
(a) Unaudited Balance Sheet dated as of September 30, 2022 (the “Balance Sheet Date”);
(b) Unaudited Income Statement for the nine-month period ended on the Balance Sheet Date; and
(c) Unaudited Balance Sheets and Income Statements for the fiscal years ended December 31, 2021 and 2020.
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Except as set forth in Schedule 3.4, such Financial Statements have been (and the monthly financial statements delivered
pursuant to Section 5.6 will be) prepared in accordance with GAAP, applied on a consistent basis throughout the periods
indicated. Such Balance Sheets present fairly in all material respects (and, in the case of financial statements delivered pursuant
to Section 5.6, will present fairly in all material respects) the financial condition of each Seller Entity and the Partial Subsidiary
as of the dates indicated thereon, and such Income Statements present fairly in all material respects (and, in the case of financial
statements delivered pursuant to Section 5.6, will present fairly in all material respects) the results of operations of each Seller
Entity and the Partial Subsidiary for the periods indicated thereon.
3.5 Absence of Certain Changes. Except as set forth in Schedule 3.5 hereto, since the Balance Sheet Date there has not
been any:
expected to have a Material Adverse Effect (hereinafter defined);
(a) event, change or circumstance that, individually or in the aggregate, has had or would reasonably be
Partial Subsidiary;
(b) material damage, destruction, or loss (whether or not covered by insurance) affecting the Facilities or the
Partial Subsidiary;
(c) actual or threatened employee strike, work stoppage, or labor dispute pertaining to the Facilities or the
(d) sale, assignment, transfer, or disposition of any item of property, plant or equipment included in the Assets
having a value, individually or in the aggregate, in excess of Fifty Thousand Dollars ($50,000) (other than supplies), except in the
ordinary course of business consistent with past practices;
(e)
increases in the compensation payable by the Seller Entities or the Partial Subsidiary to any of their
employees or independent contractors outside of the ordinary course of business, or any increase in, or institution of, any bonus,
retention, severance, insurance, pension, profit-sharing or other employee benefit plan, remuneration or arrangements made to,
for or with such employees;
the ordinary course of business;
(f) adjustments or write-offs in accounts receivable or reductions in reserves for accounts receivable outside
changes in depreciation or amortization policies;
(g) changes in the accounting methods or practices employed by the Seller Entities or the Partial Subsidiary, or
of the Facilities; or
(h) material changes in the scope of patient care services or a reduction in staffed or licensed bed count at any
the ordinary course of business.
(i) material transaction pertaining to any of the Facilities by any Seller Entity or the Partial Subsidiary outside
3.6 Licenses. Each Facility is duly licensed pursuant to the applicable laws of the State of North Carolina and is in
compliance in all material respects with all state and local licensure rules and regulations. The pharmacies, laboratories, and all
other ancillary departments owned or operated by the Seller Entities and located at the Facilities or operated for the benefit of the
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Facilities which are required to be specially licensed are duly licensed by the appropriate licensing agency (the “State Health
Agency”). The Seller Entities and the Partial Subsidiary have all material licenses, registrations, permits, and approvals which are
needed to operate the businesses owned or operated by them at the Facilities as currently operated. Seller has delivered to Buyer
an accurate list (Schedule 3.6) of all such licenses, registrations, permits and approvals owned or held by the Seller Entities and
the Partial Subsidiary relating to the ownership, development, or operation of the Facilities or the Assets, all of which are now
and as of the Closing shall be in good standing.
3.7 Medicare Participation/Accreditation . Each of the Seller Entities and the Partial Subsidiary are qualified for
participation in the Medicare, Medicaid and CHAMPUS/TRICARE programs, has current and valid provider contracts with such
programs, is and for the past six (6) years has been, in compliance in all material respects with the conditions of participation in
such programs. The Hospitals have received all approvals or qualifications necessary for capital reimbursement for the Hospitals.
Except as set forth in Schedule 3.7, the Hospitals are duly accredited, with no contingencies, by The Joint Commission. Copies
of the most recent accreditation letters from The Joint Commission pertaining to the Hospitals have been made available to
Buyer. All billing practices of the Seller Entities and the Partial Subsidiary with respect to the Facilities to all third-party payors,
including the Medicare, Medicaid and CHAMPUS/TRICARE programs and private insurance companies, have been in
compliance with all applicable laws, regulations and policies of such third-party payors and the Medicare, Medicaid and
CHAMPUS/TRICARE programs, and neither the Seller Entities nor the Facilities or the Partial Subsidiary have billed or received
any payment or reimbursement in excess of amounts allowed by law. Neither the Seller Entities, the Partial Subsidiary nor any of
their officers, directors, managing employees, service providers or controlling shareholders are excluded from participation in the
Medicare, Medicaid or CHAMPUS/TRICARE programs, nor to Seller's knowledge is any such exclusion threatened. Except as
set forth in Schedule 3.7, the Seller, the Seller Entities, or the Partial Subsidiary have not received any written notice from any of
the Medicare, Medicaid or CHAMPUS/TRICARE programs, or any other third-party payor programs of any pending or, to
Seller's knowledge, threatened investigations or surveys relating to the Facilities. Except as set forth in Schedule 3.7, no Seller
Entity or Partial Subsidiary (i) is a party to a Corporate Integrity Agreement with the Office of Inspector General of the United
Sates Department of Health and Human Services, (ii) has any reporting obligations pursuant to any settlement agreement entered
into with any governmental entity, (iii) has been, to Seller's knowledge, within the past six (6) years the subject of any
governmental payer program investigation conducted by any federal or state enforcement agency, (iv) is and has been, to Seller's
knowledge, within the past six (6) years a defendant in any qui tam/False Claims Act litigation, (v) during the past six (6) years
has been served with or received any search warrant, subpoena, civil investigative demand, or, to Seller's knowledge, contact
letter or telephone or personal contact by or from any federal or state enforcement agency, and (vi) has to Seller's knowledge,
during the past six (6) years received any written complaints from any employee, independent contractor, vendor, physician or
other person or organization that would indicate that such Seller Entity or Partial Subsidiary have violated any material healthcare
law or regulation. The Seller Entities required to be registered have registered with the QNet Exchange (“QNet”) as required by
The Centers for Medicare and Medicaid Services (“CMS”) under its Hospitals Quality Initiative Program (the “HQI Program”)
and are listed in Schedule 3.7. The Seller Entities have submitted all quality data required under the HQI Program to CMS or its
agent, and all quality data required under the ORYX Core Measure Performance Measurement System (“ORYX”) to The Joint
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Commission, for all calendar quarters concluded prior to the date of this Agreement, except for any quarter for which the
respective reporting deadlines have not yet expired. All such submissions of quality data have been made in accordance with
applicable reporting deadlines and in the form and manner required by CMS and The Joint Commission, respectively. The Seller
Entities have not received notice of any reduction in reimbursement under the Medicare program resulting from their failure to
report quality data to CMS or its agent as required under the HQI Program. Seller has provided Buyer with the HQI Program
“validation results” for all calendar quarters concluded prior to the date of this Agreement, except for any quarter for which the
respective reporting deadlines have not yet expired.
3.8 Regulatory Compliance. Except as set forth in Schedule 3.8, the Seller Entities and the Partial Subsidiary are and
during the past six (6) years have been in compliance in all material respects with all applicable statutes, rules, regulations, and
requirements of the Government Entities having jurisdiction over the Facilities and the operations of the Facilities. As used
herein, “Government Entity” means any government or any agency, bureau, board, directorate, commission, court, department,
official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local. The Seller
Entities and the Partial Subsidiary have timely and accurately filed all reports, data, and other information required to be filed
with the Government Entities. Neither the Seller Entities, the Partial Subsidiary, nor any of their employees have committed a
material violation of federal or state laws regulating fraud, including but not limited to the federal Anti-Kickback Law, the Stark
Law, and the False Claims Act. The Seller Entities' and the Partial Subsidiary’s contracts and other arrangements with physicians
are and during the past six (6) years have been in compliance in all material respects with all applicable state corporate practice of
medicine and fee-splitting laws and regulations, as well as the federal Anti-Kickback Law and Stark Law. Except as set forth in
Schedule 3.8, the Seller Entities and the Partial Subsidiary are and during the past six (6) years have been in compliance in all
material respects with the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and all rules and regulations
promulgated pursuant to HIPAA, and the requirements of the federal Health Information Technology for Economic and Clinical
Health Act enacted on February 17, 2009, and all other applicable United States federal and state laws and regulations as
presently existing or later adopted, and as amended from time to time, which govern the confidentiality, privacy and security
(including gathering, use, transmission, processing, receipt, reporting, disclosure, maintenance and storage) of patient
information.
3.9 Equipment. Seller has delivered to Buyer a schedule as of the Balance Sheet Date which takes into consideration
all the material equipment associated with, or constituting any part of, the Facilities and the Assets.
3.10 Real Property. For purposes of the representation provided in this Section 3.10, that certain real property that is
leased by the Partial Subsidiary pursuant to the that certain Medical Office Space Lease, by and between Langtree Endoscopy
Center, LLC and 309 Alcove, LLC dated December 07, 2018, as amended by Addendum to Medical Office Space Lease dated
December 07, 2018, as amended by First Amendment to Medical Office Space Lease dated July 1, 2020 (106 Alexander Drive
(f/k/a 309 Alcove Road), Suite 101, Mooresville, NC) (the “Partial Subsidiary Leased Real Property”) shall be deemed to be
included in the “Real Property” as a “Leased Real Property.” Except as set forth in Schedule 3.10, the Seller Entities or the
Partial Subsidiary own good and indefeasible fee simple and/or good and valid leasehold title, as the case may be, to the
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Real Property. The Real Property will be conveyed to the Buyer Entities (except for the Partial Subsidiary Leased Real Property,
which will remain with the Partial Subsidiary) free and clear of any and all liens, encumbrances or other restrictions except (i)
any lien for taxes not yet due and payable, (ii) any lease obligations under the Contracts assumed by the Buyer Entities, (iii)
easements, restrictions and other matters of record, so long as such matters do not, collectively or individually, materially
interfere with the operations of the Facilities in a manner consistent with the current use by the Seller Entities or the Partial
Subsidiary, (iv) zoning regulations and other governmental laws, rules, regulations, codes, orders and directives affecting the Real
Property, (v) unrecorded easements, discrepancies, boundary line disputes, overlaps, encroachments and other matters that would
be revealed by an accurate survey or inspection of the Real Property, so long as such matters do not, collectively or individually,
materially interfere with the operations of the Facilities in a manner consistent with the current use by the Seller Entities or the
Partial Subsidiary, (vi) any encumbrances or defects that do not materially interfere with the operations of the Facilities in a
manner consistent with the current use by the Seller Entities or the Partial Subsidiary, (vii) the matters described in Schedule 3.10,
and (viii) with respect to the Leased Real Property, any encumbrances which encumber the fee interest in such property
(collectively, the “Permitted Encumbrances”). With respect to the Real Property:
(a) Except as set forth in Schedule 3.10(a), neither Seller nor any of the Seller Entities or the Partial Subsidiary
has received during the past three (3) years written notice from any Government Entity of a violation of any applicable ordinance
or other law, order or regulation with respect to the Owned Real Property, which violation has not been corrected;
(b) Except as set forth in Schedule 3.10(b), to the knowledge of Seller, the Owned Real Property and its
operation are in material compliance with all applicable zoning ordinances (or is considered legally nonconforming or
“grandfathered” thereunder);
(c) There are no tenants or other persons or entities occupying any space in the Real Property, other than
pursuant to tenant leases described in Schedule 3.10(c), and no tenants have paid rent in advance for more than one month and no
improvement credit or other tenant allowance of any nature is owed to any tenant, nor is any landlord improvement work
required, nor do any rent abatements or other incentives exist, except as disclosed in Schedule 3.10(c);
(d) Attached to Schedule 3.10(d) is a “rent roll” which sets forth for those leases where a Seller Entity is
landlord: (i) the address of the property; (ii) the names of then current tenants; (ii) the square footage leased; (iii) the expiration
date of the lease; (iv) the rental payments for the then current month under each of the leases; (v) a list of all then delinquent
rental payments; (vi) a list of all tenant deposits and a description of any application thereof; and (vii) a list of all uncured
material defaults under the leases known to Seller;
(e) Except as set forth in Schedule 3.10(e), neither Seller nor any of the Seller Entities nor the Partial
Subsidiary has received during the past three (3) years any written notice from any Governmental Entity of any existing,
proposed or contemplated plans to modify or realign any street or highway, or any existing, proposed or contemplated eminent
domain proceeding that would result in the taking of all or any part of the Owned Real Property or that would materially and
adversely affect the current use of any part of the Owned Real Property; and
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(f) Except as set forth in Schedule 3.10(f), there are no outstanding options, including rights of first offer or
rights of first refusal, granted by the Seller Entities to any party to purchase any Owned Real Property or any interest in any
Owned Real Property.
(g) Seller has delivered to Buyer copies of all title insurance policies and surveys relating to the Owned Real
Property in the possession of any Seller Entity. Buyer acknowledges and agrees that Seller has not made and is not making any
representations or warranties relating to such items, Buyer shall have no right to rely on such items, and Buyer utilizes such items
at its own risk.
3.11 Title to Other Assets. As of the Closing, the Seller Entities shall own and hold good and valid title or leasehold
interests, as the case may be, to all of the tangible Assets other than the Real Property, and at the Closing the Seller Entities will
assign and convey to the Buyer Entities such title or leasehold interests, as the case may be, to all of such Assets, subject only to
the Permitted Encumbrances and the Assumed Liabilities.
3.12 Employee Benefit Plans.
(a) Schedule 3.12 sets forth a true, complete and correct list of all “employee benefit plans,” as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”) (whether or not subject to ERISA), all fringe
benefit plans as defined in Section 6039D of the Internal Revenue Code of 1986, as amended, and the rules and regulations
promulgated thereunder (the “Code”), and all other bonus, incentive compensation, deferred compensation, profit sharing, stock
option, severance, supplemental unemployment, layoff, salary continuation, retirement, pension, health, life insurance, disability,
group insurance, vacation, holiday, sick leave, welfare plan or employment, change in control, confidentiality or non-competition
agreement or any other similar plan, program, agreement, arrangement, policy or understanding (whether oral or written,
qualified or non-qualified) and any trust, escrow or other funding arrangement related thereto (collectively, the “Benefit Plans”),
which is sponsored, maintained or contributed to (or required to be contributed to) for or on behalf of the employees, former
employees, independent contractors or directors (or any of their dependents) of Seller, the Seller Entities or the Partial Subsidiary
or pursuant to which Seller, the Seller Entities or the Partial Subsidiary or reasonably could be expected to have any liability or
obligation (including contingent liability). With respect to each Benefit Plan, the Seller has provided to Buyer (to the extent
applicable) accurate and complete copies of: (i) the summary plan description and all summaries of material modifications thereto
and (ii) the most recent determination letter or pre-approved plan advisory or opinion letter, if any, issued by the Internal Revenue
Service. The Acquired Company and the Partial Subsidiary do not currently and have not at any time in the past sponsored or
maintained any Benefit Plan.
(b)
(i) Each of the Benefit Plans is and has been maintained and administered in all material respects in
compliance with its terms and applicable legal requirements (including ERISA), (ii) there have been no prohibited transactions,
breaches of fiduciary duty or other breaches or violations of any law applicable to the Benefit Plans that could subject Buyer to
any liability, (iii) each Benefit Plan intended to be qualified under Section 401(a) of the Code is so qualified and has a current
favorable determination letter (or, in the case of a master and prototype or regional prototype plan, a favorable opinion or
notification letter, as applicable) or an
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application therefore is pending with the IRS, (iv) no event has occurred that would reasonably be expected to adversely affect
the qualified status of such Benefit Plan under Sections 401(a) of the Code, or that would otherwise cause a distribution
therefrom that is otherwise eligible for rollover treatment under Section 408 of the Code to be ineligible to be rolled into an
individual retirement account or a plan that is qualified under Section 401(a) of the Code.
(c) Except as set forth in Schedule 3.12, for the past six (6) years, neither Seller, the Seller Entities, the Partial
Subsidiary nor any ERISA Affiliate of Seller, the Seller Entities or the Partial Subsidiary sponsors, has maintained, contributed
to, or been required to contribute to an employee benefit plan that is (i) a “multiemployer plan,” as such term is defined in Section
3(37) of ERISA, (ii) any defined benefit pension plan (as defined in Section 3(35) of ERISA) that is or was at any time subject to
Title IV of ERISA, Sections 302 or 303 of ERISA or Sections 412 or 436 of the Code, (iii) a multiple employer plan as defined in
Section 413(c) of the Code, or (iv) a multiple employer welfare arrangement (as defined in Section 3(40) of ERISA). ERISA
Affiliate shall mean any entity that at any relevant time would be treated as a single employer with Seller, the Seller Entities or
any of their subsidiaries (including without limitation the Partial Subsidiary) under Section 414 of the Code.
(d) None of the Benefit Plans listed in Schedule 3.12 that are “welfare benefit plans,” within the meaning of
Section 3(1) of ERISA, provide for continuing benefits or coverage after termination or retirement from employment, except for
COBRA rights under a “group health plan” as defined in Section 4980(B)(g) of the Code and Section 607 of ERISA or any
similar applicable state law.
(e) Neither the execution, delivery or performance of this Agreement nor the consummation of the transactions
contemplated by this Agreement (whether alone or in combination with any other event, including, but not limited to, a
termination of employment) shall (i) entitle any current or former employee, independent contractor, officer, director or other
service provider to any payment or any increase in payment under any Benefit Plan, (ii) accelerate the time of payment, funding
or vesting of any benefit under any Benefit Plan, or (iii) result in any payments or benefits under any agreement with the Seller or
the Seller Entities, the Company that, individually or in combination with any other payment or benefit, could constitute the
payment of an “excess parachute payment” within the meaning of Section 280G of the Code or in the imposition of an excise Tax
under Section 4999 or Section 409A of the Code. Notwithstanding any other provision of this Section 3.12(e), it is expressly
understood that all of the employees of the Facilities will, following their termination of employment with the Seller Entities, (i)
be entitled to elect any distribution available under the terms of any of the Benefit Plans that are available to former employees of
the Seller Entities, (ii) shall have any rights to continuation coverage under any of the Benefit Plans pursuant to the terms of those
plans and applicable law, and (iii) be entitled to receive any other benefits payable to former employees of the Seller Entities; all
of which are Excluded Liabilities.
3.13 Litigation or Proceedings . Schedule 3.13 sets forth an accurate list of all currently pending litigation or legal
proceedings with respect to the Facilities, the Partial Subsidiary and the Assets. Except as set forth in Schedule 3.13, there are no
claims, actions, suits, proceedings, or investigations pending, or to the knowledge of Seller, threatened, against the Seller Entities,
the Partial Subsidiary, the Facilities or the Assets (or against Seller or any of its other Affiliates and relating, in whole or in part,
to the Facilities or the Assets) at law or in equity, or before or by any
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federal, state, municipal, or other governmental department, commission, board, bureau, agency, or instrumentality wherever
located. There are no judgments, orders, decrees, citations, fines or penalties heretofore assessed against the Seller Entities, the
Partial Subsidiary, or their Affiliates affecting the Assets or the Assumed Liabilities under any federal, state or local law.
3.14 Environmental Laws . Except as set forth in Schedule 3.14 hereto, (i) the Owned Real Property is not, to the
knowledge of Seller, subject to any material environmental hazards, risks, or liabilities, (ii) the Seller Entities and the Partial
Subsidiary are not in violation of any federal, state or local statutes, regulations, laws or orders pertaining to the protection of
human health and safety or the environment (collectively, “Environmental Laws”), including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act, as amended (“CERCLA”), and the Resource
Conservation and Recovery Act, as amended (“RCRA”), and (iii) neither Seller, any Seller Entity, nor any Partial Subsidiary has
received any notice alleging or asserting either a violation of any Environmental Law or an obligation to investigate, assess,
remove, or remediate any property, including but not limited to the Owned Real Property, under or pursuant to any Environmental
Law. No Hazardous Substances (which for purposes of this Section 3.14 shall mean and include polychlorinated biphenyls,
asbestos, and any substances, materials, constituents, wastes, or other elements which are included under or regulated by any
Environmental Law, including, without limitation, CERCLA and RCRA) have been disposed of on or released or discharged
from or onto, or threatened to be released from or onto, the Owned Real Property (including groundwater) by the Seller Entities,
or to Seller's knowledge, any third party, in violation of or which could give liability under any applicable Environmental Law.
Neither the Seller Entities, nor to Seller's knowledge, any prior owners, operators or occupants of the Owned Real Property, have
allowed any Hazardous Substances to be discharged, possessed, managed, processed, released, or otherwise handled on the
Owned Real Property in a manner which is in violation of or which could give liability under any Environmental Law, and the
Seller Entities have complied with all Environmental Laws applicable to any part of the Owned Real Property. True, correct and
complete copies of each environmental site assessment, environmental audit, environmental investigation report, soil or
groundwater report, tank closure report, notice of noncompliance, order, citation and other material environmental report
concerning the Owned Real Property in the possession or control of Seller or any of the Seller Entities has been provided to
Buyer. This Section 3.14 contains the exclusive representations and warranties of Seller with respect to environmental matters.
3.15 Taxes . Except as set forth in Schedule 3.15, each Seller Entity and the Partial Subsidiary has timely filed all
federal, state and local Tax Returns required to be filed by it (all of which are true, correct and complete in all material respects)
and has duly paid or made provision for the payment of all Taxes (including any interest or penalties and amounts due state
unemployment authorities) which are owed by it (whether or not shown on any Tax Return) to the appropriate tax authorities.
Except as set forth in Schedule 3.15, neither Seller Entity nor the Partial Subsidiary is the beneficiary of any extension of time
within which to file a Tax Return. Except as set forth in Schedule 3.15, no deficiencies for any of such Taxes have been asserted
or to the knowledge of Seller or any Seller Entity, as applicable, threatened, and no audit or other administrative proceedings or
court proceedings with respect to Taxes is currently pending or under way or to the knowledge of Seller or any Seller Entity, as
applicable, threatened. Except as set forth in Schedule 3.15, there are no outstanding agreements by any Seller Entity or the
Partial
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Subsidiary for the extension of time for the assessment of any Taxes. There are no tax liens on any of the Assets and no basis
exists for the imposition of any such liens. No claim has even been made by an authority in a jurisdiction where any Seller Entity
or the Partial Subsidiary does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There is no dispute
or claim concerning any Tax liability of any Seller Entity or the Partial Subsidiary either (a) claimed or raised by a tax authority
in writing or (b) as to which any of the directors and officers of Seller or any Seller Entity, as applicable, has knowledge. As used
herein, “Tax” or “Taxes” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code § 59A), customs duties,
capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, whether computed on a separate or consolidated, unitary or combined basis or in any other manner, relating to the
Partial Subsidiary, the Assets, the Facilities or the operation of the Facilities, including any interest, penalty or addition thereto,
whether disputed or not and including any obligation to indemnify or otherwise assume or succeed to the Tax liability of any
other person. “Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to
Taxes, including any schedule or attachment thereto, and including any amendment thereof. The Seller Entities and the Partial
Subsidiary have (i) to the extent applicable, properly complied with all applicable laws in order to defer the amount of the
employer’s share of any “applicable employment taxes” under Section 2302 of the CARES Act, (ii) to the extent applicable,
properly complied with all applicable laws and duly accounted for any available Tax credits under Sections 7001 through 7005 of
the Families First Coronavirus Response Act and Section 2301 of the CARES Act and (iii) not deferred any payroll Tax
obligations (including those imposed by Section 3101(a) and 3201 of the Code) (for example, by failure to timely withhold,
deposit or remit such amounts in accordance with the applicable provisions of the Code and the Treasury Regulations
promulgated thereunder) pursuant to or in connection with any U.S. presidential memorandum or executive order.
3.16 Employee Relations.
(a) Neither the Acquired Company nor the Partial Subsidiary have or have ever had any direct employees and
all employees who currently perform or have in the past performed services on behalf of the Partial Subsidiary or the Acquired
Company are or were employed by a Seller Entity. To Seller's knowledge, there is no threatened employee strike, work stoppage,
or labor dispute pertaining to the Facilities. Except as set forth in Schedule 3.16, no union representation question exists
respecting any employees of the Seller Entities. No collective bargaining agreement exists or is currently being negotiated by the
Seller Entities, no written demand has been received for recognition by a labor organization by or with respect to any employees
of the Seller Entities, no union organizing activities by or with respect to any employees of the Seller Entities are, to the
knowledge of Seller, taking place, and none of the employees of the Seller Entities is represented by any labor union or
organization. There is no written unfair practice claim against the Seller Entities before the National Labor Relations Board, nor
any strike, dispute, slowdown, or stoppage pending or threatened against or involving the Facilities, and none has occurred within
the last three (3) years.
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(b) Except as set forth in Schedule 3.16, the Seller Entities have, to the knowledge of Seller, complied in all
material respects with all legal requirements relating to employment, employment practices, terms and conditions of employment,
equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, payment of employment, social security,
and similar taxes, occupational safety and health, and plant closing. No Seller Entity is liable for the payment of any
compensation, damages, taxes, fines, penalties, interest, or other amounts, however designated, for failure to comply with any of
the foregoing legal requirements. Except as set forth in Schedule 3.16, there are no pending or, to the knowledge of Seller,
threatened claims before the Equal Employment Opportunity Commission (or any comparable state civil or human rights
commission or other entity), complaints before the Occupational Safety and Health Administration (or any comparable state
safety or health administration or other entity), wage and hour claims, or the like. Each Seller Entity has correctly classified those
individuals performing services for the applicable Seller Entity as common law employees, leased employees, independent
contractors or agents of the applicable Seller Entity.
(c) Schedule 3.16 states or will state the number of employees terminated by each Seller Entity within six (6)
months prior to the Closing Date, laid off by each Seller Entity within the six (6) months prior to the Closing Date, or whose
hours of work have been reduced by more than fifty percent (50%) by a Seller Entity in the six (6) months prior to the Closing
Date, and contains a complete and accurate list of the following information for such employees: (i) the date of termination,
layoff, or reduction in work hours; (ii) the reason for termination, layoff, or reduction in work hours; and (iii) the location to
which the employee was assigned. In relation to the foregoing, except as set forth in Schedule 3.16, no Seller Entity has violated
the Worker Adjustment and Retraining Notification Act (the “WARN Act”) or any similar state or local legal requirements.
3.17 The Contracts . Seller has made available to Buyer true and correct copies of the Contracts (including the
Immaterial Contracts), and has given, and will give, the agents, employees and representatives of Buyer access to the originals of
the Contracts to the extent originals are available. “Immaterial Contracts” are commitments, contracts, leases and agreements
which individually involve future payments, performance of services or delivery of goods or materials, to or by any Seller Entity
of any amount or value less than Fifty Thousand Dollars ($50,000) on an annual basis, and that are not with physicians or other
referral sources. Seller represents and warrants with respect to the Contracts that:
(a) The Contracts constitute legal, valid and binding obligations of the Seller Entities and, to the knowledge of
Seller, the other parties with respect thereto, and are enforceable against the Seller Entities and, to the knowledge of Seller, the
other parties with respect thereto in accordance with their terms;
the subject matter thereof;
(b) Each Contract constitutes the entire agreement by and between the respective parties thereto with respect to
(c) Assuming the receipt of any consents required in connection with the assignment of the Contracts, all
obligations required to be performed by the Seller Entities and, to the knowledge of Seller, the other parties with respect thereto
prior to the date hereof under the terms of the Contracts have been performed, and no acts or omissions by the Seller Entities and,
to the knowledge of Seller, the other parties with respect thereto have occurred or failed to occur
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which, with the giving of notice, the lapse of time or both would constitute a default by the Seller Entities and, to the knowledge
of Seller, the other parties with respect thereto under the Contracts;
(d) Except as expressly set forth in Schedule 1.1(g), none of the Contracts requires consent to the assignment
and assumption of such Contracts by the Buyer Entities, and Seller will use commercially reasonable efforts to obtain any
required consents prior to the Closing; and
(e) Except as expressly set forth in Schedule 1.1(g), the assignment of the Contracts to and assumption of such
Contracts by the Buyer Entities will not result in any penalty or premium, or variation of the rights, remedies, benefits or
obligations of any party thereunder.
3.18 Supplies . All the inventory and supplies constituting any part of the Assets are substantially of a quality and
quantity usable and salable in the ordinary course of business of the Facilities. Obsolete items have been written off the Financial
Statements. Inventory and supplies are carried at the lower of cost or market, on a first-in, first-out basis and are properly stated
in the Financial Statements. The inventory levels are based on past practices of the Seller Entities at the Facilities and, as of the
Effective Time, each inventory item has not reached its expiration date as established by the manufacturer or vendor from whom
the Seller Entity acquired the item.
3.19 Insurance. Schedule 3.19 includes a true, complete and correct list of the current insurance policies covering the
ownership and operations of the Facilities, the Partial Subsidiary and the Assets, which list reflects the policies' numbers, identity
of insurers, amounts, and coverage. All of such policies are in full force and effect with no premium arrearage. The Seller Entities
and the Partial Subsidiary have given, in a timely manner, to their insurers all notices required to be given under their insurance
policies with respect to all of the claims and actions covered by insurance, and no insurer has denied coverage of any such claims
or actions. The Seller Entities and the Partial Subsidiary have not (a) received any written notice or other communication from
any such insurance company canceling or materially amending any of such insurance policies, and, to Seller's knowledge, no
such cancellation or amendment is threatened or (b) failed to give any written notice or present any claim which is still
outstanding under any of such policies with respect to the Facilities, the Partial Subsidiary or any of the Assets.
3.20 Third-Party Payor Cost Reports. Each Seller Entity has duly filed all required cost reports for all the fiscal years
through and including the fiscal year specified in Schedule 3.20. All of such cost reports accurately reflect in all material respects
the information required to be included thereon and such cost reports do not claim, and neither the Facilities nor the Seller
Entities have received, reimbursement in any amount in excess of the amounts provided by law or any applicable agreement.
Schedule 3.20 indicates which of such cost reports have not been audited and finally settled and a brief description of any notices
of program reimbursement, proposed or pending audit adjustments, disallowances, appeals of disallowances, and any and all
other unresolved inquiries, claims or disputes in respect of such cost reports. The Seller Entities have established adequate
reserves to cover any potential reimbursement liabilities that the Seller Entities may have under such cost reports and such
reserves are set forth in the Seller Entities' Financial Statements.
3.21 Medical Staff Matters. Seller has provided to Buyer true, correct, and complete copies of the bylaws and rules and
regulations of the medical staff of and those holding clinical
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privileges at each Hospital, as well as a list of all current members of the medical staff of each Hospital. Except as set forth in
Schedule 3.21, (i) there are no adverse actions or disciplinary actions with respect to any medical staff member, individual
holding clinical privileges, or any applicant for membership and/or privileges for which the medical staff member, individual
holding clinical privileges, or applicant has requested an appeal which has not been scheduled or has been scheduled but has not
been completed; (ii) there are no pending or, to the knowledge of Seller, threatened disputes with applicants, medical staff
members, or individuals holding clinical privileges; and (iii) all appeal periods in respect of any medical staff member, individual
holding clinical privileges or applicant against whom an adverse action has been taken have expired and there are no pending
investigations of a member of the medical staff or an individual holding clinical privileges..
3.22 Condition of Assets . Other than with respect to the representations and warranties herein provided, the Seller
Entities shall transfer the Assets to the Buyer Entities and the Buyer Entities shall accept the Assets from the Seller Entities AS IS
WITH NO WARRANTY OF A HABITABILITY OR FITNESS FOR HABITATION, WITH RESPECT TO THE LAND,
BUILDINGS AND IMPROVEMENTS, AND WITH NO WARRANTIES, INCLUDING WITHOUT LIMITATION, THE
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE
EQUIPMENT, INVENTORY, AND SUPPLIES, AND ANY AND ALL OF WHICH WARRANTIES SELLER HEREBY
DISCLAIMS. Except as set forth in Schedule 3.22, neither Seller nor the Seller Entities have received during the past three (3)
years written notice indicating or asserting that the Facilities are not in compliance with the Americans with Disabilities Act. All
of the Assets shall be further subject to normal wear and tear on the land, buildings, improvements and equipment and normal
and customary use and disposal of inventory and supplies in the ordinary course of business up to the Closing Date.
3.23 Experimental Procedures . The Seller Entities have not performed or permitted the performance of any
experimental or research procedures or studies involving patients of any Hospital not authorized and conducted in accordance
with the procedures of the Institutional Review Board of the relevant Hospital
3.24 Intellectual Property. Schedule 3.24 lists and briefly describes all trademarks, service marks, trade names, domain
names, copyrights and applications therefor (whether registered or common law) currently owned by the Seller Entities and used
in connection with the Facilities that will be transferred to the Buyer Entities (collectively, the “Intellectual Property”). Except as
set forth in Schedule 3.24, the Seller Entities’ use and ownership (or possession of licenses or other rights to the use) of all
Intellectual Property used in the conduct of their business does not, to the knowledge of Seller, infringe any right of any person
and neither the Seller nor the Seller Entities have received written notice that any proceedings have been instituted or are pending
which challenge the validity of the use or ownership by Seller or the Seller Entities of the Intellectual Property. Neither Seller nor
the Seller Entities have licensed anyone to use the Intellectual Property and Seller has no knowledge of the use or the
infringement of the Intellectual Property by any other person. Seller and/or the Seller Entities own (or possess enforceable
licenses or other rights to use) all the Intellectual Property.
3.25 Compliance Program. Each Seller Entity and the Partial Subsidiary has in place a compliance program that
includes the elements of an effective compliance program set forth in the
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OIG’s compliance program guidance for hospitals, including the related provisions of the Federal Sentencing Guidelines relating
to corporate compliance programs. Seller has provided to Buyer a copy of its current compliance program materials, including
without limitation, all program descriptions, compliance officer and committee descriptions, ethics and risk area policy materials,
training and education materials, auditing and monitoring protocols, reporting mechanisms, and disciplinary policies. Schedule
3.25 includes a description of each audit and investigation conducted by the Seller Entities or the Partial Subsidiary pursuant to
their compliance program during the last three (3) years relating to material healthcare regulatory issues involving the Seller
Entities or the Partial Subsidiary. For purposes of this Agreement, the term “compliance program” refers to provider programs of
the type described in the compliance guidance published by the Office of Inspector General of the Department of Health and
Human Services.
3.26 Certificates of Need . Except as set forth in Schedule 3.26 hereto, no application for any Certificate of Need,
Exemption Certificate (each as defined below) or declaratory ruling has been made by any Seller Entity or the Partial Subsidiary
with the State Health Agency or other applicable agency which is currently pending or open before such agency, and no such
application (collectively, the “Applications”) filed by any Seller Entity or the Partial Subsidiary within the past three (3) years has
been ultimately denied by any commission, board or agency or withdrawn by such Seller Entity or Partial Subsidiary. No Seller
Entity or the Partial Subsidiary has prepared, filed, supported or presented opposition to any Applications filed by another
hospital or health agency within the past three (3) years. Except as set forth in Schedule 3.26 hereto, no Seller Entity or the
Partial Subsidiary has any Applications pending or any approved Applications which relate to projects not yet completed. As
used herein, “Certificate of Need” means a written statement issued by the State Health Agency evidencing community need for a
new, converted, expanded or otherwise significantly modified health care facility, health service or hospice, and “Exemption
Certificate” means a written statement from the State Health Agency stating that a health care project is not subject to the
Certificate of Need requirements under applicable state law.
3.27 Certain Representations with Respect to the Hospitals.
(a) No Seller Entity has made any misrepresentations or false attestations to any Government Entity under or
in connection with Promoting Interoperability reporting under the Merit-based Incentive Payment System or predecessor
meaningful use payments under the HITECH Act.
(b) Except as set forth in Schedule 3.27, at all times since March 23, 2010, Mooresville Hospital Management
Associates, LLC has been in compliance with the requirements of the “whole hospital exception” under the Stark Law, as set
forth in 42 U.S.C. §1395nn(d)(3) and 42 C.F.R., Subpart J, §§411.356(c)(3) and 411.362.
(c) The Seller Entities have repaid in full to the appropriate Government Entity any amounts due, including
any accrued and unpaid interest, under all payments made to the Seller Entities under the Medicare Hospital Accelerated Payment
Program as defined under Section 3719 of the CARES Act. The Seller Entities have utilized any Provider Relief Funds in
accordance with all applicable laws and the applicable terms and conditions. The Seller Entities maintain appropriate accounting
records associated with such funds, including tracking the costs and other expenses for which stimulus funds are used and
quantifying the lost revenue incurred in connection with the operation of the Facilities during the COVID-19 Pandemic.
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3.28 Partial Subsidiary.
(a) For purposes of this Agreement, the term “Partial Subsidiary” means Langtree Endoscopy Center, LLC of
which Statesville HMA, LLC owns 53% of the total outstanding membership interests and which membership interests will be
assigned by Statesville HMA, LLC to the appropriate Buyer Entity as part of the Assets.
(b) Schedule 3.28 sets forth for the Partial Subsidiary: (1) its name and jurisdiction of incorporation or
organization; (2) the number of issued and outstanding shares of each class of its capital stock or other equity or non-equity
interests and percentage ownership held by the appropriate Seller Entity and which will be assigned to the appropriate Buyer
Entity; and (3) its directors and officers, general partners or managers, as the case may be.
(c) The Seller Entities have delivered to the Buyer Entities accurate and complete copies, as applicable of the
articles of incorporation, charter, bylaws, operating agreement, partnership agreement, or shareholders or membership agreement,
as amended to date, of the Partial Subsidiary.
(d) Statesville HMA, LLC has good and marketable title to all shares of the stock or other equity or non-equity
interests of the Partial Subsidiary set forth in Schedule 3.28 and except as set forth on Schedule 3.28, have the absolute right to
sell, assign, transfer and deliver the same to the appropriate Buyer Entity, free and clear of all claims, security interests, liens,
pledges, charges, escrows, options, proxies, rights of first refusal, preemptive rights, mortgages, hypothecations prior
assignments, title retention agreements, indentures, security agreements or any other limitation, encumbrance or restriction of any
kind, except those arising under applicable federal or state securities laws.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. As of the date hereof, and, when read in light of any
Schedules which have been updated in accordance with the provisions of Section 12.1 hereof, as of the Closing Date, Buyer
represents and warrants to Seller and the Seller Entities the following:
4.1 Existence and Capacity. Buyer is a non-profit corporation, duly organized and validly existing in good standing
under the laws of the State of North Carolina. Buyer has the requisite power and authority to enter into this Agreement, to
perform its obligations hereunder, and to conduct its business as now being conducted. Each Buyer Entity is a North Carolina
limited liability company, duly organized and validly existing in good standing under the laws of the State of North Carolina.
Each Buyer Entity has the requisite power and authority to conduct its business as now being conducted.
4.2 Powers; Consents; Absence of Conflicts With Other Agreements, Etc. The execution, delivery, and performance
of this Agreement by Buyer and all other agreements referenced herein, or ancillary hereto, to which Buyer is a party, and the
consummation by Buyer and each Buyer Entity of the transactions contemplated by this Agreement and the documents described
herein, as applicable:
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organizational documents, and have been duly authorized by all appropriate corporate action;
(a) are within its corporate powers, are not in contravention of corporate law or of the terms of its
(b) except as provided in Sections 6.1 and 6.2, do not require any approval or consent required to be obtained
by Buyer of, or filing required to be made by Buyer with, any governmental agency or authority bearing on the validity of this
Agreement which is required by law or the regulations of any such agency or authority;
encumbrance under, any indenture, agreement, lease, instrument or understanding to which it is a party or by which it is bound;
(c) will neither conflict with, nor result in any breach or contravention of, or the creation of any lien, charge or
(d) will not violate any statute, law, rule, or regulation of any governmental authority to which it may be
subject; and
may be subject.
(e) will not violate any judgment, decree, writ, or injunction of any court or governmental authority to which it
4.3 Binding Agreement. This Agreement and all agreements to which Buyer or any of the Buyer Entities will become
a party pursuant hereto are and will constitute the valid and legally binding obligations of Buyer and/or such Buyer Entities,
respectively, and are and will be enforceable against it or them in accordance with the respective terms hereof and thereof.
4.4 Availability of Funds . Buyer has the ability to obtain funds in cash in amounts equal to the Purchase Price by
means of credit facilities or otherwise and will at the Closing have immediately available funds which will be sufficient to enable
Buyer to pay the Purchase Price.
5. COVENANTS OF SELLER PRIOR TO CLOSING. Between the date of this Agreement and the Closing:
5.1 Information . Seller shall afford to the officers and authorized representatives and agents (which shall include
accountants, attorneys, bankers, and other consultants) of Buyer full and complete access to and the right to inspect the plants,
properties, books, and records of the Facilities, and will allow Buyer reasonable access to the medical staff and personnel of the
Facilities to confirm and establish relationships, and will furnish Buyer with such additional financial and operating data and
other information as to the business and properties of Seller which pertains to the Facilities or their operations as Buyer may from
time to time reasonably request. Buyer's right of access and inspection shall be exercised in such a manner as not to interfere
unreasonably with the operations of the Facilities. Buyer agrees that no inspections shall take place and no employees or other
personnel of the Facilities shall be contacted by Buyer without Buyer first providing reasonable notice to Seller and coordinating
such inspection or contact with Seller. Seller shall promptly make available to Buyer any surveys, reports, site plans, engineering
plans and drawings or similar material related to the Facilities and/ or the Assets as Seller or the Seller Entities may acquire at
any time prior to the Closing Date.
5.2 Operations. Seller will not, and will cause the Seller Entities, the Acquired Company, and the Partial Subsidiary
not to, engage in any practice, take any action, or enter into
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any transaction outside the ordinary course of business. Without limiting the generality of the foregoing, Seller shall cause the
Seller Entities, the Acquired Company, and the Partial Subsidiary to:
(a) use commercially reasonable efforts to carry on their business pertaining to the Facilities in substantially
the same manner as presently conducted and not make any material change in personnel, operations, finance, accounting policies,
or real or personal property pertaining to the Facilities;
condition, ordinary wear and tear excepted;
(b) use commercially reasonable efforts to maintain the Facilities and all parts thereof in good operating
affecting the Facilities or the Assets;
(c) use commercially reasonable efforts to perform all of their obligations under agreements relating to or
comparable insurance pertaining to the Facilities;
(d) use commercially reasonable efforts to keep in full force and effect present insurance policies or other
(e) continue to pay all Taxes in the ordinary course of business, consistent with past practice; and
(f) use commercially reasonable efforts to maintain and preserve their business organizations intact, retain
their present employees at the Facilities and maintain their relationships with physicians, medical staff members, suppliers,
customers, and others having business relations with the Facilities.
5.3 Negative Covenants. Seller shall cause the Seller Entities, the Acquired Company, and the Partial Subsidiary not
to, with respect to the business or operation of the Acquired Company, the Facilities or the Partial Subsidiary or otherwise
regarding the Assets, without the prior written consent of Buyer:
except as provided herein or in the ordinary course of business;
(a) amend, modify, terminate or cancel any of the Contracts, or enter into any new contract or commitment,
increase compensation payable or to become payable or make any bonus payment to or otherwise enter into
one or more bonus agreements with any employee at the Facilities, except in the ordinary course of business or in accordance
with existing personnel policies;
(b)
(c)
increase severance or termination obligations to any employee of a Seller Entity;
uniformly to all employees and other service providers of the Seller and the Seller Entities;
(d) adopt, amend, modify or terminate any Benefit Plan except as required under applicable law or as applies
property, plant, or equipment except in the normal course of business with comparable replacement thereof when appropriate;
(e) acquire (whether by purchase or lease) or sell, assign, lease, or otherwise transfer or dispose of any
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(f) sell any of the Owned Real Property;
thereon, other than budgeted capital expenditures or routine replacement, maintenance or repairs;
(g) materially alter any Owned Real Property, including the buildings, fixtures and other improvements located
Thousand Dollars ($250,000) in the aggregate;
(h) purchase capital assets or incur costs in respect of construction-in-progress in excess of Two Hundred Fifty
or licensed bed count at the Facilities; or
(i) make any material change in the scope of patient care services offered at the Facilities or reduce the staffed
in order to consummate the transactions contemplated by this Agreement.
(j)
take any material action outside the ordinary course of business of the Facilities, except as may be required
5.4 Governmental Approvals . Seller shall (i) use reasonable efforts to obtain all governmental approvals (or
exemptions therefrom) necessary or required to allow Seller to perform its obligations under this Agreement; and (ii) assist and
cooperate with Buyer and its representatives and counsel in obtaining all governmental consents, approvals, and licenses which
Buyer deems necessary or appropriate and in the preparation of any document or other material which may be required by any
governmental agency as a predicate to or as a result of the transactions contemplated herein.
5.5 Antitrust Matters. Seller shall (a) file and cause its Affiliates to file, within four (4) weeks of the date hereof or
such other date as the Parties agree based on the advice of antitrust counsel, all reports, filings and other documents required or
requested of it or its Affiliates by the Federal Trade Commission (“FTC”), the United States Department of Justice (“Justice
Department”) or any other Government Entity, in connection with the transactions contemplated by this Agreement, under the
Sherman Act, the Clayton Act, the Hart-Scott Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), or the Federal Trade
Commission Act, each as amended, or any other federal, state or other statutes, laws, rules, regulations, orders, decrees,
administrative or judicial doctrines that are designed or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade (collectively, the “Antitrust Laws”), (b) comply at the earliest practicable date with
any request received by Seller or any of its Affiliates from the FTC, the Justice Department or any such other Government Entity
under any applicable Antitrust Laws for additional information concerning the transactions contemplated by this Agreement, (c)
cooperate with Buyer in connection with any filing under applicable Antitrust Laws with respect to the transactions contemplated
by this Agreement and in connection with resolving any investigation or other inquiry concerning such transactions that is
commenced by any of the FTC, the Justice Department or any other Government Entity pursuant to any applicable Antitrust
Laws, (d) promptly inform Buyer of any material communication made to or received by Seller from the FTC, the Justice
Department or any other Government Entity regarding any of the transactions contemplated hereby, (e) use commercially
reasonable efforts to obtain all licenses, permits, consents, approvals, exemptions, authorizations or waivers necessary or
appropriate under the Antitrust Laws from the FTC, the Justice Department and any other Government Entity in order to avoid or
terminate any action or proceeding by any of them with respect to, and to permit the consummation of in the most expeditious
manner practicable, the
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transactions contemplated by this Agreement, and (f) promptly furnish to Buyer such information concerning Seller as Buyer
needs to perform its obligations under Section 6.2 of this Agreement. Without limiting the foregoing, Seller shall not (i)
withdraw and re-file its Premerger Notification and Report Form, (ii) extend any waiting period or comparable period or (iii)
enter into any agreement not to consummate the Contemplated Transactions, except, in each case, with the prior written consent
of Buyer. The foregoing covenants in this Section 5.5 do not require Seller or any of its Affiliates to (A) defend against or
oppose any formal administrative complaint, lawsuit, motion for preliminary or permanent injunction, temporary restraining
order or other actions brought by any Governmental Authority or private party seeking to block the Transaction under the
Antitrust Laws, or (B) propose, negotiate, offer to commit to enter into or effect, by consent decree, hold separate order or
otherwise, sell, offer to sell or otherwise dispose of, any acute care hospital of the Seller Entities or hold separate such acute care
hospital properties pending such sale or other disposition.
5.6 Additional Financial Information . Within thirty (30) days following the end of each calendar month prior to
Closing, Seller shall deliver to Buyer true and complete copies of the unaudited balance sheets and the related unaudited
statements of income of, or relating to, each Seller Entity and the Partial Subsidiary for each month then ended, together with a
year-to-date compilation and the notes, if any, related thereto, which shall have been prepared from and in accordance with the
books and records of the Seller Entity and the Partial Subsidiary, and shall fairly present in all material respects the financial
position and results of operations of the Seller Entity, the Partial Subsidiary, and of the related Facility as of the date and for the
period indicated.
5.7 No-Shop Clause. Seller agrees that, from and after the date of the execution and delivery of this Agreement by
Seller until the termination of this Agreement, Seller will not, and will cause the Seller Entities to not, without the prior written
consent of Buyer or except as otherwise permitted by this Agreement: (i) offer for sale or lease all or any material portion of the
Assets or any ownership interest in the Acquired Company, the Partial Subsidiary, or any entity owning any of the Assets, (ii)
solicit offers to buy all or any material portion of the Assets or any ownership interest in any entity owning any of the Assets, (iii)
initiate, encourage or provide any documents or information to any third party in connection with, discuss or negotiate with any
person regarding any inquires, proposals or offers relating to any disposition of all or any material portion of the Assets or
ownership interests in the Acquired Company or the Partial Subsidiary or a merger or consolidation of the Acquired Company,
the Partial Subsidiary, or any entity owning any of the Assets, or (iv) enter into any agreement or discussions with any party
(other than Buyer) with respect to the sale, assignment, or other disposition of all or any material portion of the Assets or any
ownership interest in the Acquired Company, the Partial Subsidiary or any entity owning any of the Assets or with respect to a
merger or consolidation of any entity owning any of the Assets.
5.8 Efforts to Close. Seller shall use its reasonable commercial efforts to satisfy all of the conditions precedent set forth
in Section 7 to the extent that Seller's action or inaction can control or influence the satisfaction of such conditions, so that the
Closing will occur as promptly as practicable.
5.9 Estoppels and Contract Consents. Seller shall use commercially reasonable efforts to obtain, prior to the Closing
Date, (a) estoppel letters, in a form reasonably acceptable to Buyer, under those leases of the Leased Real Property that are among
the Contracts, and (b) consents from
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third parties under each Contract which, by the terms of such Contract, requires such consent to convey and assign such Contract
to a Buyer Entity.
5.10 Employee List. No later than forty-five (45) days prior to Closing, Seller shall provide to Buyer, to one or more
identified individuals for the sole purpose of preparing for the transition of payroll (and to no other persons or for any other
purposes), a true, complete and correct list of all persons who are employees, independent contractors or consultants of the Seller
Entities, including any employee who is on a leave of absence of any nature, paid or unpaid, authorized or unauthorized, setting
forth for each individual the following: (i) name; (ii) classification as employee, independent contractor or consultant; (iii) if an
employee, the individual’s title or position (including whether full or part time, and exempt or non-exempt status); (iv) hire date;
(v) current base compensation rate on an annual, monthly, bi-weekly or hourly basis as appropriate to the individual’s status; (vi)
commission, bonus or other incentive-based compensation; (vii) the number of such employee’s accrued vacation and holiday
hours; and (viii) a description of the fringe benefits provided to each such individual.
6. COVENANTS OF BUYER PRIOR TO CLOSING. Between the date of this Agreement and the Closing:
6.1 Governmental Approvals . Buyer shall (i) use reasonable efforts to obtain all governmental approvals (or
exemptions therefrom) necessary or required to allow Buyer to perform its obligations under this Agreement; and (ii) assist and
cooperate with Seller and its representatives and counsel in obtaining all governmental consents, approvals, and licenses which
Seller deems necessary or appropriate and in the preparation of any document or other material which may be required by any
governmental agency as a predicate to or as a result of the transactions contemplated herein.
6.2 Antitrust Matters. Buyer shall (a) file and cause its Affiliates to file, within four (4) weeks of the date hereof or
such other date as the Parties agree based on the advice of antitrust counsel, all reports, filings and other documents required or
requested of Buyer or its Affiliates by the FTC, the Justice Department, or any other Government Entity under any applicable
Antitrust Laws in connection with the transactions contemplated by this Agreement, (b) comply at the earliest practicable date
with any request received by Buyer or any of its Affiliates from the FTC, the Justice Department or any such other Government
Entity under any applicable Antitrust Laws for additional information concerning the transactions contemplated by this
Agreement, (c) cooperate with Seller in connection with any filing under applicable Antitrust Laws with respect to the
transactions contemplated by this Agreement and in connection with resolving any investigation or other inquiry concerning such
transactions that is commenced by any of the FTC, the Justice Department or any other Government Entity pursuant to any
applicable Antitrust Laws, (d) promptly inform Seller of any material communication made to or received by Buyer or any of its
Affiliates from the FTC, the Justice Department or any other Government Entity regarding any of the transactions contemplated
hereby, (e) use commercially reasonable efforts to obtain all licenses, permits, consents, approvals, exemptions, authorizations or
waivers necessary or appropriate under the Antitrust Laws from the FTC, the Justice Department and any other Government
Entity in order to avoid or terminate any action or proceeding by any of them with respect to, and to permit the consummation of
in the most expeditious manner practicable, the transactions contemplated by this Agreement, and (f) promptly furnish to Seller
such information concerning Buyer or its Affiliates as Seller needs to perform its obligations under Section 5.5 of
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this Agreement. Without limiting the foregoing, Buyer shall not (i) withdraw and re-file its Premerger Notification and Report
Form, (ii) extend any waiting period or comparable period or (iii) enter into any agreement not to consummate the Contemplated
Transactions, except, in each case, with the prior written consent of Seller. The foregoing covenants in this Section 6.2 do not
require Buyer or any of its Affiliates to (A) defend against or oppose any formal administrative complaint, lawsuit, motion for
preliminary or permanent injunction, temporary restraining order or other actions brought by any Governmental Authority or
private party seeking to block the Transaction under the Antitrust Laws, or (B) propose, negotiate, offer to commit to enter into or
effect, by consent decree, hold separate order or otherwise, sell, offer to sell or otherwise dispose of, any acute care hospital of
Buyer or its Affiliates or hold separate such acute care hospital properties pending such sale or other disposition. Buyer shall be
responsible for paying any required filing fees under the HSR Act.
6.3 Title Commitment and Surveys.
(a) Title Commitment. Within sixty (60) days after the date hereof, Buyer, at its expense, shall obtain a current
title commitment with respect to the Owned Real Property (the “Title Commitment”), issued by Morehead Title Company, as
agent for First American Title Insurance Company (the “Title Company”), together with legible copies of all exceptions to title
referenced therein, sufficient for the issuance of an owner's policy of title insurance for the Owned Real Property (the “Title
Policy”). Buyer shall promptly upon its receipt provide a copy of the Title Commitment and exception documents to Seller.
(b) Surveys. Within sixty (60) days after the date hereof, Buyer may, at its expense, obtain current as-built
ALTA/NSPS surveys of the Owned Real Property (the “Surveys”) or such portions thereof as Buyer elects. Buyer shall promptly
upon its receipt furnish a copy of the Surveys to Seller.
(c) Title Defects and Cure. The Title Commitment and the Surveys (in each case, to the extent obtained by
Buyer pursuant to Sections 6.3(a) and (b)), are collectively referred to as “Title Evidence”. Buyer shall notify Seller within
twenty (20) days after its receipt of the last of the Title Evidence of any liens, claims, encroachments, exceptions or defects
disclosed in the Title Evidence which do not constitute Permitted Encumbrances (collectively, “Defects”). Seller, at its sole cost
and expense, shall cure the objections on or before the Closing or Seller may elect to not cure the objections and shall give
written notice to Buyer within twenty (20) days of its receipt of Buyer's objections of its decision, whereupon Buyer may waive
such objections and close or may terminate this Agreement, which election by Buyer shall be made within ten (10) business days
of its receipt of Seller’s written notice. If Seller fails to timely give such notice, Seller shall be deemed to have elected not to cure
the objections, whereupon Buyer may waive such objections and close or may terminate this Agreement, which election by Buyer
shall be made within twenty (20) days following notice of objection to Seller. Upon termination of this Agreement under the
terms of this Section 6.3(c), no party to this Agreement shall have any further claims under this Agreement against any other
party. Any matters shown by the Title Evidence to which Buyer does not object or which are waived by Buyer as herein provided
shall be deemed to be Permitted Encumbrances. Notwithstanding anything contained in this Section 6.3(c) to the contrary, at the
Closing, Seller shall cause all mortgages, deeds of trust, financing statements and other similar liens encumbering the Seller
Entities’ fee interest in the Owned Real Property, and arising by, through or under the Seller Entities or any of their Affiliates, to
be released (other than
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liens for taxes not yet due and payable and any mechanic's or materialmen's liens relating to the Assumed Liabilities).
Commitment, the Title Policy and the Surveys.
(d) Costs. Section 12.9 shall govern which party or parties hereto shall bear the costs and expenses of the Title
(e) Buyer’s Environmental Assessment. Seller shall permit Buyer and its environmental consultants, at
Buyer’s sole cost and expense, to conduct such investigations (including investigations known as “Phase I” and “Phase II”
environmental assessments) of the environmental conditions of the Owned Real Property or the operation thereat as Buyer, in its
reasonable discretion, shall deem necessary or prudent (“Buyer’s Environmental Assessment”) so long as (x) Buyer provides
Seller with no less than five (5) business days’ advance written notice of any such Buyer’s Environmental Assessment, (y)
Buyer’s Environmental Assessment is conducted by a qualified environmental consulting firm, possessing reasonable levels of
insurance, in compliance with all applicable laws and in a manner that minimizes disruption of the operations of the Facilities,
and (z) with respect to any Phase II environmental assessment, the environmental consulting firm has determined that there is a
recognized environmental condition, and the parties shall have entered into a mutually acceptable right of entry agreement.
6.4 Efforts to Close . Buyer shall use its reasonable commercial efforts to satisfy all of the conditions precedent set
forth in Section 8 to the extent that Buyer's action or inaction can control or influence the satisfaction of such conditions, so that
the Closing will occur as promptly as practicable.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. Notwithstanding anything herein to the contrary, the
obligations of Buyer and the Buyer Entities to consummate the transactions described herein are subject to the fulfillment, on or
prior to the Closing Date, of the following conditions precedent unless (but only to the extent) waived in writing by Buyer at the
Closing:
7.1 Representations/Warranties. The representations and warranties of Seller contained in this Agreement shall be true
and correct when made and, when read in light of any Schedules which have been updated in accordance with the provisions of
Section 12.1 hereof, as of the Closing Date as though such representations and warranties had been made on and as of such
Closing Date (except to the extent such representations and warranties address matters as of particular dates, in which case, such
representations and warranties shall be true and correct in all respects on and as of such dates), except to the extent that the failure
of any such representations and warranties to be true and correct would not, or would not be reasonably likely to, individually or
in the aggregate, have a Material Adverse Effect. Each and all of the terms, covenants, and conditions of this Agreement to be
complied with or performed by Seller on or before the Closing Date pursuant to the terms hereof shall have been duly complied
with and performed in all material respects.
7.2 Governmental Approvals. All material consents, authorizations, orders and approvals of (or filings or registrations
with) any Government Entity or other party required in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made by Buyer when so required, except as for any documents required to be filed, or
consents, authorizations, orders or approvals required to be issued, after the Closing Date.
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7.3 Title Policy. At the Closing, the Title Company shall be ready, willing and able to issue a pro forma of the Title
Policy (or marked Title Commitment containing no additional exceptions to title to the Owned Real Property) to Buyer. The Title
Policy shall be issued, at Buyer's expense, on an ALTA Form 2006 Owner's Title Policy in an amount equal to the portion of the
Purchase Price being allocated to the Owned Real Property and shall insure to the Buyer Entities good and marketable title to the
Owned Real Property subject only to the Permitted Encumbrances and the standard exceptions contained in an owner’s title
policy prescribed for use in the State of North Carolina, (i) with the standard exception as to taxes and assessments limited to
taxes and assessments for the current and subsequent years, not yet due and payable, (ii) with the standard exception as to facts,
rights, interests, or claims which are not shown by the public records deleted, and with the standard exception as to discrepancies,
conflicts in boundary lines, shortages in area, encroachments, or other facts which a correct survey would disclose modified to
except matters shown on the Surveys (in each case, only to the extent that the Surveys are sufficient for the Title Company to
delete and/or modify the same), (iii) with the standard exception as to liens, or any right to liens, for services, labor or materials
furnished to the Owned Real Property deleted (other than any such liens or rights relating to Assumed Liabilities), and (iv) with
the standard exception for unrecorded leases limited to rights of tenants under recorded or unrecorded leases included in the
Contracts.
7.4 Actions/Proceedings. No action or proceeding before a court of competent jurisdiction shall have been instituted
by a Government Entity and be pending that seeks to restrain or prohibit the consummation of the transactions herein
contemplated, and no order issued by a court of competent jurisdiction restraining or prohibiting the consummation of the
transactions herein contemplated shall be in effect.
7.5 No Material Adverse Change. Since the date of this Agreement, there shall not have occurred any event, change
or development that has had, or would be reasonably expected to have, a Material Adverse Effect.
7.6 Insolvency . Neither Seller nor any Seller Entity shall (i) be in receivership or dissolution, (ii) have made any
assignment for the benefit of creditors, (iii) have admitted in writing its inability to pay its debts as they mature, (iv) have been
adjudicated a bankrupt, or (v) have filed a petition in voluntary bankruptcy, a petition or answer seeking reorganization, or an
arrangement with creditors under the federal bankruptcy law or any other similar law or statute of the United States or any state,
nor shall any such petition have been filed against Seller or any Seller Entity.
7.7 Material Consents.
Buyer shall have obtained all consents of third parties (relating to the assignment of Contrac
that are material to the consummation of the transactions contemplated in this Agreement (collectively, the “Material Consents”)
as specified in Schedule 7.7. The Material Consents shall be in form and substance reasonably satisfactory to Buyer. Buyer shall
cooperate in the assumption of the Contracts.
7.8 Vesting/Recordation. Seller shall have furnished to Buyer, in form and substance reasonably satisfactory to Buyer,
assignments or other instruments of transfer necessary or appropriate to transfer to and effectively vest in Buyer all right, title,
and interest in and to the Assets, in proper statutory form for recording if such recording is necessary or appropriate.
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7.9 Closing Deliveries . Seller shall have delivered to Buyer, in accordance with the terms of this Agreement, all
contracts, agreements, instruments, and documents required to be delivered by Seller to Buyer pursuant to Section 2.2.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. Notwithstanding anything herein to the contrary, the
obligations of Seller and the Seller Entities to consummate the transactions described herein are subject to the fulfillment, on or
prior to the Closing Date, of the following conditions precedent unless (but only to the extent) waived in writing by Seller at the
Closing:
8.1 Representations/Warranties . The representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects when made and, when read in light of any Schedules which have been updated in
accordance with the provisions of Section 12.1 hereof, as of the Closing Date as though such representations and warranties had
been made on and as of such Closing Date (except to the extent such representations and warranties address matters as of
particular dates, in which case, such representations and warranties shall be true and correct in all material respects on and as of
such dates). Each and all of the terms, covenants, and conditions of this Agreement to be complied with or performed by Buyer
on or before the Closing Date pursuant to the terms hereof shall have been duly complied with and performed in all material
respects.
8.2 Governmental Approvals. All material consents, authorizations, orders and approvals of (or filings or registrations
with) any Government Entity or other party required in connection with the execution, delivery and performance of this
Agreement shall have been obtained or made by Seller when so required, except for any documents required to be filed, or
consents, authorizations, orders or approvals required to be issued, after the Closing Date.
8.3 Actions/Proceedings. No action or proceeding before a court of competent jurisdiction shall have been instituted
by a Government Entity and be pending that seeks to restrain or prohibit the consummation of the transactions herein
contemplated, and no order issued by a court of competent jurisdiction restraining or prohibiting the consummation of the
transactions herein contemplated shall be in effect.
8.4 Insolvency. Buyer shall not (i) be in receivership or dissolution, (ii) have made any assignment for the benefit of
creditors, (iii) have admitted in writing its inability to pay its debts as they mature, (iv) have been adjudicated a bankrupt, or (v)
have filed a petition in voluntary bankruptcy, a petition or answer seeking reorganization, or an arrangement with creditors under
the federal bankruptcy law or any other similar law or statute of the United States or any state, nor shall any such petition have
been filed against Buyer.
8.5 Closing Deliveries . Buyer shall have delivered to Seller, in accordance with the terms of this Agreement, all
contracts, agreements, instruments and documents required to be delivered by Buyer to Seller pursuant to Section 2.3.
9. SELLER'S COVENANT NOT TO COMPETE. Seller hereby covenants that at all times from the Closing Date until the
second (2nd) anniversary of the Closing Date, Seller and its Affiliates shall not, directly or indirectly, own, operate, lease or
manage an acute care hospital or ambulatory or other type of surgery center or any other business or facility that competes with
the
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Facilities within a forty (40) mile radius of each of the Hospitals without Buyer's prior written consent (which Buyer may
withhold in its sole and absolute discretion). In the event of a breach of this Section 9, Seller recognizes that monetary damages
shall be inadequate to compensate Buyer and Buyer shall be entitled, without the posting of a bond or similar security, to an
injunction restraining such breach, with the costs (including attorneys' fees) of securing such injunction to be borne by Seller.
Nothing contained herein shall be construed as prohibiting Buyer from pursuing any other remedy available to it for such breach
or threatened breach. All parties hereto hereby acknowledge the necessity of protection against the competition of Seller and its
Affiliates and that the nature and scope of such protection has been carefully considered by the parties. Seller further
acknowledges and agrees that the covenants and provisions of this Section 9 form part of the consideration under this Agreement
and are among the inducements for Buyer entering into and consummating the transactions contemplated herein. The period
provided and the area covered are expressly represented and agreed to be fair, reasonable and necessary. The consideration
provided for herein is deemed to be sufficient and adequate to compensate for agreeing to the restrictions contained in this
Section 9. If, however, any court determines that the foregoing restrictions are not reasonable, such restrictions shall be
modified, rewritten or interpreted to include as much of their nature and scope as will render them enforceable.
10. ADDITIONAL AGREEMENTS.
10.1 Allocation of Purchase Price . The Purchase Price shall be allocated among the various classes of Assets in
accordance with and as provided by Section 1060 of the Code. Within ninety (90) days of the Closing, Seller shall provide Buyer
with a preliminary allocation of the Purchase Price for Buyer’s review and approval. If Seller and Buyer cannot agree, initially, on
an allocation, then the matter shall be submitted to the Accounting Firm for final resolution of all allocation matters. The parties
agree that any tax returns or other tax information they may file or cause to be filed with any governmental agency shall be
prepared and filed consistently with such agreed upon allocation. In this regard, the parties agree that, to the extent required, they
will each properly prepare and timely file Form 8594 in accordance with Section 1060 of the Code.
10.2 Termination Prior to Closing. Notwithstanding anything herein to the contrary, this Agreement may be terminated
at any time: (i) on or prior to the Closing Date by mutual, written consent of Seller and Buyer; (ii) by Buyer by written notice to
Seller if any event occurs or condition exists which causes Seller to be unable to satisfy one or more conditions to the obligations
of Buyer to consummate the transactions contemplated by this Agreement as set forth in Section 7; (iii) by Seller by written
notice to Buyer if any event occurs or condition exists which causes Buyer to be unable to satisfy one or more conditions to the
obligation of Seller to consummate the transactions contemplated by this Agreement as set forth in Section 8; (iv) by Seller or
Buyer if the Closing shall not have taken place on or before 5:00 p.m. central time on December 31, 2023 (which date may be
extended by mutual agreement of Seller and Buyer), provided that the right to terminate pursuant to this subsection (iv) shall not
be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur by such date; (v) by either Seller or Buyer pursuant to Section 12.1 hereof; or (vi) by Buyer
pursuant to Section 6.3 hereof.
10.3 Post-Closing Access to Information . Seller and Buyer acknowledge that subsequent to Closing each party may
need access to information or documents in the control or possession of the other party for the purposes of concluding the
transactions herein contemplated,
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the Buyer Entities' operation of the Facilities, audits, compliance with governmental requirements and regulations, and the
prosecution or defense of third party claims. Accordingly, Seller and Buyer agree that for a period of six (6) years after Closing
each will, unless prohibited by law or regulation, make reasonably available to the other's agents, independent auditors, counsel,
and/or governmental agencies upon written request and at the expense of the requesting party such documents and information as
may be available relating to the Assets for periods prior and subsequent to Closing to the extent necessary to facilitate concluding
the transactions herein contemplated, the Buyer Entities' operation of the Facilities, audits, compliance with governmental
requirements and regulations, and the prosecution or defense of claims. Seller and Buyer shall cause their respective Affiliates to
retain their books and records for the periods specified in their respective document retention policies. All reasonable
documented out-of-pocket expenses associated with the delivery of the requested documents shall be promptly paid by a
requesting party to the other party.
10.4 Preservation and Access to Records After the Closing. After the Closing, Buyer shall cause the Buyer Entities to,
in the ordinary course of business and as required by law, keep and preserve in their original form all medical and other records of
the Facilities existing as of the Closing, and which constitute a part of the Assets delivered to the Buyer Entities at the Closing.
For purposes of this Agreement, the term “records” includes all documents, electronic data and other compilations of information
in any form. Buyer acknowledges that as a result of entering into this Agreement and operating the Facilities the Buyer Entities
will gain access to patient and other information which is subject to rules and regulations regarding confidentiality. Buyer agrees
to cause the Buyer Entities to abide by any such rules and regulations relating to the confidential information the Buyer Entities
acquire. Buyer agrees to cause the Buyer Entities to maintain the patient and personnel records delivered to the Buyer Entities at
the Closing at the Facilities after Closing in accordance with applicable law (including, if applicable, Section 1861(v)(i)(I) of the
Social Security Act (42 U.S.C. § 1395(v)(l)(i)), the privacy requirements of HIPAA and applicable state requirements with
respect to medical privacy, and requirements of relevant insurance carriers, all in a manner consistent with the maintenance of
patient and personnel records generated at the Facilities after the Closing. Upon reasonable notice, during normal business hours,
at the sole cost and expense of Seller and upon the applicable Buyer Entity's receipt of any legally required consents and
authorizations, such Buyer Entity will afford to the representatives of Seller, including its counsel and accountants, full and
complete access to, and copies of, the patient records transferred to the Buyer Entities at the Closing (including, without
limitation, access to patient records in respect of patients treated by the Seller Entities at the Facilities). Upon reasonable notice,
during normal business hours and at the sole cost and expense of Seller, the Buyer Entities shall also make their officers and
employees available to Seller at reasonable times and places after the Closing. Any access to the Facilities, their records or the
applicable Buyer Entity's personnel granted to Seller in this Agreement shall be upon the condition that any such access be
consistent with applicable law and not materially interfere with the business operations of any Buyer Entity.
10.5 Tax and Medicare Effect. None of the parties (nor such parties' counsel or accountants) has made or is making any
representations to any other party (nor such party's counsel or accountants) concerning any of the tax or Medicare effects of the
transactions provided for in this Agreement as each party hereto represents that each has obtained, or may obtain, independent tax
and Medicare advice with respect thereto and upon which it, if so obtained, has solely relied.
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10.6 Reproduction of Documents. This Agreement and all documents relating hereto, including, without limitation, (a)
consents, waivers and modifications which may hereafter be executed, (b) the documents delivered at the Closing, and (c)
financial statements, certificates and other information previously or hereafter furnished to Seller or to Buyer may, subject to the
provisions of Section 12.10 hereof, be reproduced by Seller and by Buyer by any photographic, photostatic, microfilm, micro-
card, miniature photographic or other similar process and Seller and Buyer may destroy any original documents so reproduced.
Seller and Buyer agree and stipulate that any such reproduction shall be admissible in evidence as the original itself in any
judicial, arbitral or administrative proceeding (whether or not the original is in existence and whether or not such reproduction
was made by the Seller or Buyer in the regular course of business) and that any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence.
10.7 Cooperation on Tax Matters. Following the Closing, the parties shall cooperate reasonably with each other and
shall make available to the other, as reasonably requested and at the expense of the requesting party, and to any taxing authority,
all information, records or documents relating to tax liabilities or potential tax liabilities of Seller for all periods on or prior to the
Closing and any information which may be relevant to determining the amount payable under this Agreement, and shall preserve
all such information, records and documents (to the extent a part of the Assets delivered to the Buyer Entities at the Closing) until
the later of the seventh (7th) anniversary of the Closing Date or the expiration of any applicable statute of limitations or extensions
thereof.
10.8 Cost Reports. Seller, at its expense, shall prepare and timely file all terminating and other cost reports required or
permitted by law to be filed under the Medicare and Medicaid or other third-party payor programs and the State Health Agency
for periods ending on or prior to the Effective Time, or as a result of the consummation of the transactions described herein
(“Seller Cost Reports”). In addition, Buyer shall assist Seller in providing certain information needed by Seller when preparing
the terminating cost report, including but not limited to completion of Seller’s standard Hospitals data collection template, invoice
and general ledger analysis, and other documentation historically prepared by the Hospitals for cost reporting purposes. If
requested by the Seller Entities, the applicable Buyer Entity shall include the applicable Seller Entity’s Medicare bad debts that
are returned from collection agencies subsequent to the Closing Date on the applicable Buyer Entity’s cost report for the
respective period to which the Medicare bad debt relates. The Seller Entity shall provide detailed supporting information, as
required by Medicare regulations, for the Medicare bad debt account amounts to be included on the Buyer Entity’s Medicare cost
report. The applicable Buyer Entity shall forward to Seller any and all correspondence relating to the Seller Cost Reports within
five (5) business days after receipt by such Buyer Entity. The applicable Buyer Entity shall remit any receipts of funds relating to
the Seller Cost Reports promptly after receipt by such Buyer Entity and shall forward to Seller any demand for payments within
three (3) business days after receipt by such Buyer Entity. Notwithstanding anything to the contrary in this Agreement, Seller
shall retain all rights to the Seller Cost Reports including any amounts receivable or payable in respect of such reports or reserves
relating to such reports and all liabilities relating thereto. Such rights shall include the right to appeal any Medicare or Medicaid
determinations relating to the Seller Cost Reports. Seller shall retain the originals of the Seller Cost Reports, correspondence,
work papers and other
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documents relating to the Seller Cost Reports. Seller will furnish copies of such cost reports to any Buyer Entity upon request.
10.9 Misdirected Payments, Etc. Seller and Buyer covenant and agree to remit, with reasonable promptness (within five
(5) business days after receipt) to the other any payments received, which payments are on or in respect of accounts or notes
receivable owned by (or are otherwise payable to) the other. In addition, and without limitation, in the event of a determination by
any governmental or third-party payor that payments to the Seller or the Facilities resulted in an overpayment or other
determination that funds previously paid by any program or plan to the Seller or the Facilities must be repaid, Seller shall be
responsible for repayment of said monies (or defense of such actions) if such overpayment or other repayment determination was
for services rendered prior to the Effective Time and Buyer shall be responsible for repayment of said monies (or defense of such
actions) if such overpayment or other repayment determination was for services rendered after the Effective Time. In the event
that, following Closing, Buyer or any Buyer Entity suffers any offsets against reimbursement under any third-party payor or
reimbursement programs due to Buyer or any Buyer Entity, relating to amounts owing under any such programs by Seller or any
of its Affiliates, Seller shall within five (5) business days after notice from Buyer or any Buyer Entity pay to Buyer or such Buyer
Entity the amounts so billed or offset.
10.10
Employee Matters.
(a) As of the Effective Time, Seller shall cause the Seller Entities to terminate all of the employees at the
Facilities, and Buyer shall cause the Buyer Entities to offer or cause to be offered employment (subject to standard drug and
related employment screening and background checks) to all active employees (including any employees who are on statutory
family or medical leave, military leave, short-term disability, or other short-term leave of up to 90 days) who are in good standing
in positions and at salary or base wage levels generally consistent with those provided by the Seller Entities. Nothing herein shall
be deemed to affect or limit in any way normal management prerogatives of the Buyer Entities with respect to employees or to
create or grant to any such employees third-party beneficiary rights or claims of any nature. All such employees who accept such
offers and commence employment with a Buyer Entity (together, the “Buyer Employees”) shall be credited with employment
service with the Seller Entities for purposes of eligibility and vesting purposes (but not for purposes of benefit accrual) under
Buyer's or the Buyer Entities' employee benefit plans or programs (the “Buyer Plans”), unless such service credit is not allowed
pursuant to the express terms of any insurance policy (or policies) used to fund the benefits provided under such Buyer Plans, in
which case such service credit will not be allowed just for such insured plan(s). Notwithstanding anything contained herein to the
contrary, this Section 10.10(a) shall not apply to any physician employee of any Seller Entity who has entered into an
employment agreement with any Seller Entity, and such persons shall not be deemed to be Buyer Employees.
Plan that is a group health plan to any Buyer Employee together with the eligible dependents of such Buyer Employee.
(b) Buyer shall cause the Buyer Entities to offer or cause to be offered enrollment in the appropriate Buyer
(c) Within the period of ninety (90) days prior to the Closing, the Seller Entities shall not violate the WARN
Act, 29 U.S.C. §2101 et seq. and/or the regulations thereunder. With respect to terminations of employees prior to the Closing,
the Seller Entities shall be responsible
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for any legally required notifications. With respect to terminations of employees following the Closing, the Buyer Entities shall
be responsible for any legally required notifications.
(d) This Section 10.10 shall be binding upon and inure solely to the benefit of each of the Parties. Nothing
contained in this Section 10.10 or any other provision of this Agreement, express or implied: (i) shall be construed to establish,
amend, or modify any benefit plan, program, agreement or arrangement, including any Benefit Plan or Buyer Plan; (ii) is
intended to confer upon any current or former employee any right to employment or continued employment for any period of
time, or any right to a particular term or condition of employment; or (iii) is intended to confer upon any Person (including, for
the avoidance of doubt, any current or former employee, director, officer or other service provider or any participant in a Benefit
Plan, Buyer Plan or other plan, policy, program, agreement or arrangement providing benefits or compensation) any right as a
third-party beneficiary of this Agreement.
10.11
Indigent Care Policies. The Buyer Entities shall adopt and maintain reasonable policies for the treatment of
indigent patients of the Hospitals. The Buyer Entities shall cause the Hospitals to treat any patient presented to the emergency
room who has a medical emergency or who, in the judgment of a staff physician, has an immediate emergency need. No such
patient will be turned away because of age, race, gender or inability to pay. The Buyer Entities shall cause the Hospitals to
continue to provide services to patients covered by the Medicare and Medicaid programs and those unable to pay for emergent
and medically necessary care. This covenant shall be subject in all respects to changes in governmental policy.
10.12
Use of Controlled Substance Permits. To the extent permitted by applicable law, each applicable Buyer Entity
shall have the right, for a period not to exceed one hundred eighty (180) days following the Closing Date, to operate under the
licenses and registrations of the corresponding Seller Entities (and the Partial Subsidiary, if applicable) relating to controlled
substances and the operations of pharmacies and laboratories, until such Buyer Entity is able to obtain such licenses and
registrations for itself. In furtherance thereof, the Seller Entities (and the Partial Subsidiary, if applicable) shall execute and
deliver to the corresponding Buyer Entities at or prior to the Closing limited powers of attorney substantially in the form of
Exhibit C hereto. Buyer shall cause the Buyer Entities to apply for all such licenses and permits as soon as reasonably possible
before and after the Closing and shall diligently pursue such applications.
10.13 Medical Staff Matters. As a result of the acquisition of the Assets by the Buyer Entities, without the consent
of the medical staff of the Hospitals, there will be no change or modification to the current staff privileges for physicians on the
medical staff of the Hospitals; provided, however, that the consummation of the transactions contemplated hereby will not limit
the ability of the Board of Trustees or medical executive committee of the Hospitals to grant, withhold or suspend medical staff
appointments or clinical privileges in accordance with the terms and provisions of the medical staff bylaws. The applicable
Buyer Entity shall adopt the current medical staff bylaws of the Hospitals as the medical staff bylaws of the Hospitals following
the Closing, except to the extent that any modifications thereof are required to comply with accreditation standards or legal or
regulatory requirements, and except to the extent that modifications thereto may be proposed by the medical staff and agreed to
by such Buyer Entity. Nothing herein shall prohibit the amendment of the Hospitals’ medical staff bylaws following the Closing
Date to meet any minimum Buyer medical staff standards or to synchronize the Hospitals’
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medical staff bylaws with the medical staff bylaws of other Hospitals owned by Buyer or its Affiliates in accordance with the
same process that applies to such other Hospitals.
10.14
Information Services Agreement . At the Closing, an Affiliate of Seller and Buyer will enter into an
Information Technology Transition Services Agreement in a form mutually agreeable to Buyer and Seller.
10.15
Transition Services Agreement. At the Closing, an Affiliate of Seller and Buyer will enter into a Hospitals
Transition Services Agreement in a form mutually agreeable to Buyer and Seller.
10.16
Billing and Collection Agreement. At the Closing, an Affiliate of Seller and Buyer will enter into a Clinic
Billing and Collection Agreement in a form mutually agreeable to Buyer and Seller.
10.17
License Agreement . At the Closing, Seller and Buyer will enter into a License Agreement for Policy and
Procedure Manuals in a form mutually agreeable to Buyer and Seller.
10.18
Access to Records Including as to Recovery and Audit Information. If any entity, governmental agency or
person makes a claim, inquiry or request to any Buyer Entity or Seller Entity relating to the Seller Entities’ operation of the
Hospitals prior to the Effective Time (including but not limited to a notice to any Buyer Entity or Seller Entity from a person
responsible for retroactive payment denials, including recovery audit contractors) of their intent to review the Seller Entities’
claims with respect to the operation of the Hospitals prior to the Effective Time, or otherwise seeks information pertaining to the
Seller Entities, the Buyer Entities shall: (i) comply with all requests from such entity or person in a timely manner; (ii) comply
with all other applicable laws and regulations; (iii) forward to the Seller Entities all communications and/or documents sent to
such person or entity or received from such person or entity within five (5) business days of the Buyer Entities’ delivery or
receipt of such communications and/or documents and (iv) provide the Seller Entities and their agents and attorneys upon
reasonable request with reasonable access to records, information and personnel necessary for any appeal or challenge regarding
any such retroactive payment denials (with the understanding that the Seller Entities shall be solely responsible for handling any
appeals).
10.19
Continuation of Insurance. For a period of at least ten (10) years following the Closing, the Seller Entities
shall maintain in effect insurance on all claims-made professional and general liability insurance policies of the Hospitals for
claims related to the period of the Seller Entities’ ownership and operation of the Hospitals. The insurance shall have coverage
levels equal to the coverage maintained by Seller for other comparable healthcare facilities operated by Seller. If such insurance is
cancelled or terminated during such ten (10) year period, the Seller Entities shall purchase tail insurance with a successor
indemnification endorsement and co-defendant endorsement, each in favor of the Buyer Entities.
10.20
Quality Reporting. The Seller Entities shall submit all quality data required under the HQI Program to CMS
or its agent, and all quality data required under ORYX to The Joint Commission, for any calendar quarter with reporting
deadlines between the date of this Agreement and the Closing Date. If a calendar quarter ends prior to the Closing Date, but the
reporting deadline for such quarter ends after the Closing Date, the Seller Entities shall prepare and submit
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the quality data for the Facilities required under the HQI Program and ORYX in accordance with applicable filing deadlines and
in the form and manner required by CMS and The Joint Commission, respectively, or, at the sole option to Buyer, the Seller
Entities shall transmit such quality data to Buyer in a form mutually agreeable to Buyer and Seller or allow Buyer access to such
data, to enable the Buyer Entities to submit quality data for the Facilities required under the HQI Program and ORYX for such
quarter. If the Closing Date falls between the first and last day of a calendar quarter, the Seller Entities shall cooperate with
Buyer to ensure that all quality data required to be submitted for the Facilities under the HQI Program and ORYX for the portion
of the quarter during which Seller owned the Facilities can be aggregated with the quality data for the portion of the quarter
during which Buyer owned the Facilities, to enable the Buyer Entities and/or the Seller Entities to submit quality data for the
Facilities required under the HQI Program and ORYX in accordance with applicable filing deadlines and in the form and manner
required by CMS and The Joint Commission, respectively.
10.21
Telephone Access. The parties shall take all steps necessary to transition over to Buyer or an Affiliate all local
and long distance telephone services at the Facilities as of the Closing Date.
10.22
Guaranties . To the extent that Seller has guaranteed the obligations of any Seller Entity under any of the
Contracts (a “Seller Guaranty”), at the request of Seller, Buyer shall use commercially reasonable efforts to have Seller released
as guarantor. If required to obtain a release from a Seller Guaranty, Buyer shall execute a guaranty in the form of the existing
Seller Guaranty, or such other form as may be agreed to by Buyer and the beneficiary of such guaranty. If Buyer is unable to
obtain a release for any Seller Guaranty as set forth in this Section 10.22, Buyer (i) shall indemnify and hold harmless Seller
against any liabilities arising from or relating thereto as if the obligations accruing from and after the Effective Time under such
Seller Guaranty were Assumed Liabilities, and (ii) agrees not to amend, modify, supplement, extend or renew (or allow the
applicable Buyer Entity to amend, modify, supplement, extend or renew) the underlying Contract in any manner that would
reasonably be expected to materially increase the obligations of Seller under the Seller Guaranty, without the prior written
consent of Seller.
10.23 Medicare Transition Agreement. The parties have agreed to execute and deliver at the Closing a Medicare
Transition Agreement in a form mutually agreeable to Seller and Buyer.
11. INDEMNIFICATION.
11.1 Indemnification by Buyer . Subject to the limitations set forth in Section 11.3 hereof, Buyer shall defend,
indemnify and hold harmless Seller and its Affiliates, and its and their respective officers, directors, employees, agents or
independent contractors (collectively, “Seller Indemnified Parties”), from and against any and all losses, liabilities, damages,
costs (including, without limitation, court costs and costs of appeal) and expenses (including, without limitation, reasonable
attorneys' fees and fees of expert consultants and witnesses) that such Seller Indemnified Party incurs as a result of, or with
respect to (i) any misrepresentation or breach of warranty by Buyer under this Agreement, (ii) any breach by Buyer of, or any
failure by Buyer to perform, any covenant or agreement of, or required to be performed by, Buyer under this Agreement, (iii) any
of the Assumed Liabilities, or (iv) any claim made by a third party with respect to the operation of the Facilities or acts or
omissions of the Buyer Entities following the Effective Time.
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11.2 Indemnification by Seller. Subject to the limitations set forth in Section 11.3 hereof, Seller shall defend, indemnify
and hold harmless Buyer and its Affiliates, and its and their respective officers, directors, employees, agents, or independent
contractors (collectively, “Buyer Indemnified Parties”), from and against any and all losses, liabilities, damages, costs (including,
without limitation, court costs and costs of appeal) and expenses (including, without limitation, reasonable attorneys' fees and
fees of expert consultants and witnesses) that such Buyer Indemnified Party incurs as a result of, or with respect to (i) any
misrepresentation or breach of warranty by Seller under this Agreement, (ii) any breach by Seller of, or any failure by Seller to
perform, any covenant or agreement of, or required to be performed by, Seller under this Agreement, (iii) any of the Excluded
Liabilities, (iv) any actual or alleged violation of law by the Seller Entities, including but not limited to violations of federal or
state laws regulating fraud such as the federal Anti-Kickback Law, the Stark Law, and the False Claims Act, in connection with
which Buyer or its Affiliates incurs liability as a result of Buyer’s assumption of a Seller Entity provider number or provider
agreement, (v) any claim made by a third party with respect to the operation of the Facilities or acts or omissions of the Seller
Entities prior to the Effective Time, and (vi) any claim made by a third party against Buyer or any of the Buyer Entities with
respect to the operation, acts or omissions of the Partial Subsidiary prior to the Effective Time that is not borne by the Partial
Subsidiary or covered by the Partial Subsidiary’s insurance policies (not including any diminution in the value of the Partial
Subsidiary).
11.3 Limitations. Buyer and Seller shall be liable under Section 11.1(i) or Section 11.2(i) (i.e., for misrepresentations
and breaches of warranties), as applicable, only when total indemnification claims exceed One Million Six Hundred Thousand
Dollars ($1,600,000) (the “Basket Amount”), after which Buyer or Seller, as applicable, shall be liable only for the amount in
excess of the Basket Amount. No party shall be liable for any indemnification pursuant to Section 11.1(i) or Section 11.2(i), as
applicable, for any claims for misrepresentations and breaches of warranty which are the basis upon which any other party shall
have failed to consummate the transactions described herein pursuant to Section 7.1 or Section 8.1, as applicable, or which are
based upon misrepresentations and breaches of warranty which have been waived pursuant to the initial paragraph of Section 7 or
Section 8, as applicable. The liability of Buyer and Seller for indemnification under Section 11.1(i) or Section 11.2(i),
respectively, shall be limited to an amount equal to 25% of the Purchase Price. Notwithstanding the foregoing provisions of this
Section 11.3, the limitation on liability and the Basket Amount shall not apply to claims arising under Section 11.1(i) or Section
11.2(i) and resulting from intentional misrepresentation or fraud by the indemnifying party or from a breach by Seller of the
representations and warranties contained in Section 3.27(b) (the Basket Amount shall apply, the limitation of liability shall be
limited to an amount equal to the Purchase Price).
11.4 Notice and Control of Litigation. If any claim or liability is asserted in writing by a third party against a party
entitled to indemnification under this Section 11 (the “Indemnified Party”) which would give rise to a claim under this Section 11,
the Indemnified Party shall notify the person giving the indemnity (the “Indemnifying Party”) in writing of the same within
fifteen (15) days of receipt of such written assertion of a claim or liability. The Indemnifying Party shall have the right to defend a
claim and control the defense, settlement, and prosecution of any litigation. If the Indemnifying Party, within ten (10) days after
receipt of such written notice of such claim, fails to agree to defend such claim, the Indemnified Party shall (upon further notice
to the Indemnifying Party) have the right to undertake the defense, compromise, or settlement of such
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claim on behalf of and for the account and at the risk of the Indemnifying Party, subject to the right of the Indemnifying Party to
assume the defense of such claim at any time prior to settlement, compromise, or final determination thereof. Anything in this
Section 11.4 notwithstanding, (i) in the event that a proposed settlement requires the Indemnified Party to admit any wrongdoing
or take or refrain from taking any action, then the proposed settlement shall not be entered into unless it is reasonably acceptable
to both the Indemnifying Party and the Indemnified Party, and (ii) the Indemnifying Party shall not, without the written consent of
the Indemnified Party, settle or compromise any claim or consent to the entry of any judgment which does not include as an
unconditional term thereof the giving by the claimant to the Indemnified Party of a release from all liability in respect of such
claim. The foregoing rights and agreements shall be limited to the extent of any requirement of any third-party insurer or
indemnitor. All parties agree to cooperate fully as necessary in the defense of such matters. Should the Indemnified Party fail to
notify the Indemnifying Party in the time required above, the indemnity with respect to the subject matter of the required notice
shall be limited to the damages that would have resulted absent the Indemnified Party's failure to notify the Indemnifying Party in
the time required above after taking into account such actions as could have been taken by the Indemnifying Party had it received
timely notice from the Indemnified Party.
11.5 Notice of Claim. If an Indemnified Party becomes aware of any breach of the representations or warranties of the
Indemnifying Party hereunder or any other basis for indemnification under this Section 11 (except as otherwise provided for
under Section 12.3), the Indemnified Party shall notify the Indemnifying Party in writing of the same within thirty (30) days after
becoming aware of such breach or claim, specifying in detail the circumstances and facts which give rise to a claim under this
Section 11. Should the Indemnified Party fail to notify the Indemnifying Party within the time frame required above, the
indemnity with respect to the subject matter of the required notice shall be limited to the damages that would have nonetheless
resulted absent the Indemnified Party's failure to notify the Indemnifying Party in the time required above after taking into
account such actions as could have been taken by the Indemnifying Party had it received timely notice from the Indemnified
Party.
11.6 Mitigation. The Indemnified Party shall take all reasonable steps to mitigate all liabilities and claims, including
availing itself as reasonably directed by the Indemnifying Party of any defenses, limitations, rights of contribution, claims against
third parties (other than the Indemnified Party's insurance carriers) and other rights at law, and shall provide such evidence and
documentation of the nature and extent of any liability as may be reasonably requested by the Indemnifying Party. Each party
shall act in a commercially reasonable manner in addressing any liabilities that may provide the basis for an indemnifiable claim
(that is, each party shall respond to such liability in the same manner that it would respond to such liability in the absence of the
indemnification provided for in this Agreement). Any request for indemnification of specific costs shall include invoices and
supporting documents containing reasonably detailed information about the costs or damages for which indemnification is being
sought.
11.7 Exclusive Remedy. The representations and warranties contained in or made pursuant to this Agreement shall be
terminated and extinguished upon the earlier of the end of the Survival Period (hereinafter defined) or any termination of this
Agreement. Thereafter, none of Seller, Buyer or any shareholder, partner, officer, director, principal or Affiliate of any of the
preceding shall be subject to any liability of any nature whatsoever with respect to any such
45
representation or warranty. Moreover, the sole and exclusive remedy for any breach or inaccuracy, or alleged breach or
inaccuracy, of any representation and warranty made by Seller or Buyer shall be the remedies provided by this Section 11.
12. MISCELLANEOUS.
12.1 Schedules and Exhibits. Each Schedule and Exhibit to this Agreement shall be considered a part hereof as if set
forth herein in full. From the date hereof until the Closing Date, the Seller Entities or the Buyer Entities may update their
Schedules, subject to the other party’s approval rights described below. If a party, after having a period of ten (10) business days
to review any modification or amendment to a Schedule proposed by another party, determines in its reasonable discretion that it
should not consummate the transactions contemplated by this Agreement because the modification or amendment to such
Schedule discloses facts or circumstances having a Material Adverse Effect not disclosed in the original Schedules, then such
party may terminate this Agreement on or before the Closing by giving a written notice to the other party (a “Termination
Notice”), whereupon the other party shall be entitled, for a period of ten (10) business days after its receipt of the Termination
Notice, to cure the matter that has triggered such Termination Notice. Notwithstanding anything contained herein to the contrary,
the inclusion of new or different information on a Schedule after the date of this Agreement shall not prejudice or otherwise affect
a party’s right to seek relief for the other party’s breach of a representation or warranty or affect the party’s right to
indemnification under Section 11. 1 or Section 11.2 (based upon the Schedule as of the date of this Agreement without taking into
account any modification, update or amendment).
12.2 Additional Assurances . The provisions of this Agreement shall be self-operative and shall not require further
agreement by the parties except as may be herein specifically provided to the contrary; provided, however, at the request of a
party, the other party or parties shall execute such additional instruments and take such additional actions as are consistent with
this Agreement and are necessary or convenient to consummate the transactions contemplated hereby, with each party bearing its
own costs and expenses incurred by such party related thereto. In addition and from time to time after the Closing, Seller and the
Seller Entities shall execute and deliver (and shall cause the Acquired Company and the Partial Subsidiary to execute and deliver)
such other instruments of conveyance and transfer, and take such other actions as Buyer reasonably may request, more effectively
to convey and transfer full right, title, and interest to, vest in, and place the Buyer Entities in legal and actual possession of, any
and all of the Facilities and the Assets, as well as the Acquired Company Ownership Interests and Statesville HMA, LLC’s
ownership interests in the Partial Subsidiary, in a manner consistent with this Agreement with each party bearing its own costs
and expenses associated therewith.
12.3 Consented Assignment . Anything contained herein to the contrary notwithstanding, this Agreement shall not
constitute an agreement to assign any claim, right, contract, license, lease, commitment, sales order, or purchase order if an
attempted assignment thereof without the consent of the other party thereto would constitute a breach thereof or in any material
way affect the rights of Seller thereunder, unless such consent is obtained.
12.4 Consents, Approvals and Discretion . Except as herein expressly provided to the contrary, whenever this
Agreement requires any consent or approval to be given by a party, or
46
whenever a party must or may exercise discretion, the parties agree that such consent or approval shall not be unreasonably
withheld or delayed and such discretion shall be reasonably exercised.
12.5 Legal Fees and Costs. In the event a party elects to incur legal expenses to enforce or interpret any provision of
this Agreement by judicial proceedings, the prevailing party will be entitled to recover such legal expenses, including, without
limitation, reasonable attorneys' fees, costs, and necessary disbursements at all court levels, in addition to any other relief to
which such party shall be entitled.
12.6 Choice of Law. The parties agree that this Agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina, without regard to conflict of laws principles.
12.7 Benefit/Assignment. Subject to provisions herein to the contrary, this Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective legal representatives, successors, and assigns. No party may assign this
Agreement without the prior written consent of the other parties, which consent shall not be unreasonably withheld; provided,
however, that any party may, without the prior written consent of the other parties, assign its rights and delegate its duties
hereunder to one or more Affiliates (as defined in Section 12.18).
12.8 No Brokerage . Buyer and Seller each represent and warrant to the other that it has not engaged a broker in
connection with the transactions described herein. Each party agrees to be solely liable for and obligated to satisfy and discharge
all loss, cost, damage, or expense arising out of claims for fees or commissions of brokers employed or alleged to have been
employed by such party.
12.9 Cost of Transaction. Whether or not the transactions contemplated hereby shall be consummated, the parties agree
as follows: (i) Seller shall pay the fees, expenses, and disbursements of Seller and its agents, representatives, accountants, and
legal counsel incurred in connection with the subject matter hereof and any amendments hereto; (ii) Buyer shall pay the fees,
expenses, and disbursements of Buyer and its agents, representatives, accountants and legal counsel incurred in connection with
the subject matter hereof and any amendments hereto; (iii) Buyer shall pay for the Title Commitment, the Title Policy, the
Surveys, the filing fees required to be paid under the HSR Act, any environmental engineering reports, licensure application fees,
recording fees, and mechanical, structural, electrical and roofing engineering costs; and (iv) Seller and Buyer shall each pay one-
half of any and all real estate transfer or excise taxes in connection with the transfer of the Assets.
12.10
Confidentiality.
(a) It is understood by the parties hereto that the information, documents, and instruments delivered to Buyer
by Seller and its agents and the information, documents, and instruments delivered to Seller by Buyer and its agents are of a
confidential and proprietary nature. Each of the parties hereto agrees that prior to the Closing it will maintain the confidentiality
of all such confidential information, documents, or instruments delivered to it by each of the other parties hereto or their agents in
connection with the negotiation of this Agreement or in compliance with the terms, conditions, and covenants hereof and will
only disclose such information, documents, and instruments to its duly authorized officers, members, directors, representatives,
and agents
47
(including consultants, attorneys, and accountants of each party) and applicable governmental authorities in connection with any
required notification or application for approval or exemption therefrom. Each of the parties hereto further agrees that if the
transactions contemplated hereby are not consummated, it will return all such documents and instruments and all copies thereof
in its possession to the other parties to this Agreement.
(b) Seller acknowledges that the success of transactions contemplated under this Agreement after the Closing
depends upon the continued preservation of the confidentiality of certain information possessed by Seller or its Affiliates, agents
and representatives, that the preservation of the confidentiality of such information by the Seller is an essential premise of the
bargain between Seller and Buyer, and that Buyer would be unwilling to enter into this Agreement in the absence of this Section
12.10. Accordingly, Seller hereby agrees that (i) at the Closing Seller will assign to Buyer all of its rights under confidentiality
agreements with other bidders that relate to the proposed sale of the Assets or to the Facilities or any other related information
and (ii) Seller will not, and Seller will cause its Affiliates, agents and representatives not to, at any time on or after the Closing
Date, directly or indirectly, without the prior written consent of Buyer, disclose or use any confidential or proprietary information
involving or relating to the Assets, the Facilities or the operations thereof; provided, however, that the information subject to the
foregoing provisions of this sentence will not include any information generally available to, or known by, the public (other than
as a result of disclosure in violation hereof); and provided, further, that the provisions of this Section 12.10 will not prohibit any
retention of copies of records or disclosure (a) required by any applicable legal requirement so long as reasonable prior notice is
given of such disclosure and a reasonable opportunity is afforded to contest the same or (b) made in connection with the
enforcement of any right or remedy relating to this Agreement.
(c) Each of the parties hereto recognizes that any breach of this Section 12.10 would result in irreparable harm
to the other party to this Agreement and its Affiliates (as defined in Section 12.18 below) and that therefore either Seller or Buyer
shall be entitled to an injunction to prohibit any such breach or anticipated breach, without the necessity of posting a bond, cash,
or otherwise, in addition to all of its other legal and equitable remedies. Nothing in this Section 12.10, however, shall prohibit the
use of such confidential information, documents, or information for such governmental filings as in the opinion of Seller's
counsel or Buyer's counsel are required by law or governmental regulations or are otherwise required to be disclosed pursuant to
applicable state law.
12.11
Public Announcements . Seller and Buyer mutually agree that no party hereto shall release, publish, or
otherwise make available to the public in any manner whatsoever any information or announcement regarding the transactions
herein contemplated without the prior written consent of Seller and Buyer, except for information and filings reasonably
necessary to be directed to governmental agencies to fully and lawfully effect the transactions herein contemplated or required in
connection with securities and other laws. Nothing contained in this Agreement will limit Seller or its Affiliates from making any
disclosures or filing any agreements that they deem necessary or advisable to be made in any filings with the Securities and
Exchange Commission or in connection with any future securities offerings of Seller or its Affiliates.
12.12 Waiver of Breach. The waiver by any party of a breach or violation of any provision of this Agreement shall
not operate as, or be construed to constitute, a waiver of any subsequent breach of the same or any other provision hereof. Any
waiver of a breach or violation
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of any provision of this Agreement must be in writing and signed by the party waiving such breach or violation to be effective.
12.13
Notice. Any notice, demand, or communication required, permitted, or desired to be given hereunder shall be
deemed effectively given when personally delivered, when received by receipted overnight delivery, or five (5) days after being
deposited in the United States mail, with postage prepaid thereon, certified or registered mail, return receipt requested, addressed
as follows:
Seller: CHS/Community Health Systems, Inc.
4000 Meridian Boulevard
Franklin, TN 37067
Attn: Vice President - Development
With a simultaneous copy to:
CHSPSC, LLC
4000 Meridian Boulevard
Franklin, TN 37067
Attn: General Counsel
Buyer: Chief Executive Officer
Novant Health, Inc.
2085 Frontis Plaza Boulevard
Winston-Salem, NC 27103
With a simultaneous copy (which shall not constitute notice) to:
Chief Legal Officer
Novant Health, Inc.
2085 Frontis Plaza Boulevard
Wintson-Salem, NC 27103
or to such other address, and to the attention of such other person or officer as any party may designate, with copies thereof to the
respective counsel thereof as notified by such party.
12.14
Severability. In the event any provision of this Agreement is held to be invalid, illegal or unenforceable for
any reason and in any respect, such invalidity, illegality, or unenforceability shall in no event affect, prejudice, or disturb the
validity of the remainder of this Agreement, which shall be and remain in full force and effect, enforceable in accordance with its
terms.
12.15
Gender and Number. Whenever the context of this Agreement requires, the gender of all words herein shall
include the masculine, feminine, and neuter, and the number of all words herein shall include the singular and plural.
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12.16
Divisions and Headings . The divisions of this Agreement into sections and subsections and the use of
captions and headings in connection therewith are solely for convenience and shall have no legal effect in construing the
provisions of this Agreement.
12.17
Survival . All of the representations, warranties, covenants, and agreements made by the parties in this
Agreement or pursuant hereto in any certificate, instrument, or document shall survive the consummation of the transactions
described herein, and may be fully and completely relied upon by Seller and Buyer, as the case may be, notwithstanding any
investigation heretofore or hereafter made by any of them or on behalf of any of them, and shall not be deemed merged into any
instruments or agreements delivered at the Closing or thereafter. The representations and warranties contained in or made in
Sections 3.1, 3.2, 3.3, 4.1, 4.2 and 4.3 shall survive the Closing indefinitely and the representations and warranties contained in
Sections 3.7, 3.8, 3.14 and 3.27(a) and (c) shall survive for a period of four (4) years after the Closing; all other representations
and warranties made pursuant to this Agreement shall survive the Closing for a period of two (2) years following the Closing
Date (the “Survival Period”).
12.18
Affiliates. As used in this Agreement, the term “Affiliate” means, as to the entity in question, any person or
entity that directly or indirectly controls, is controlled by or is under common control with, the entity in question and the term
“control” means possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of
an entity whether through ownership of voting securities, by contract or otherwise.
12.19 Material Adverse Effect . As used in this Agreement, the term “Material Adverse Effect” means an event,
change or circumstance which, individually or together with any other event, change or circumstance, would reasonably be
expected to have a material adverse effect on the business (but not the prospects), financial condition, or results of operations of
the Facilities, taken as a whole. Notwithstanding anything to the contrary contained in this Agreement, none of the following
occurring after the date hereof shall constitute a Material Adverse Effect or be taken into account in determining whether a
Material Adverse Effect has occurred: (a) changes or proposed changes to any law, reimbursement rates or policies of
governmental agencies or bodies that are generally applicable to hospitals or health care facilities; (b) changes or proposed
changes in requirements, reimbursement rates, policies or procedures of third-party payors or accreditation commissions or
organizations that are generally applicable to hospitals or health care facilities; (c) any changes or any proposed changes in
GAAP after the date of this Agreement; (d) any hostilities, acts of war, sabotage, terrorism or military actions, or any escalation
or worsening of any such hostilities, acts of war, sabotage, terrorism or military actions; (e) changes resulting from the public
announcement of this Agreement or the pendency of the transactions contemplated hereby (including, without limitation, changes
in private payor agreements or policies and their effects and the departure of employees), or Buyer being the proposed purchaser
of the Assets; (f) the effect of physicians or payors moving proposed medical procedures from the Facilities to facilities not
owned by the Seller Entities (including, without limitation, facilities owned or operated by Buyer or its Affiliates); (g)
compliance with the terms of, or the taking of any action required, by this Agreement or consented to by Buyer; or (h) any failure
in and of itself to meet internal or published projections, estimates or forecasts of revenues, earnings, cash flow, or other measures
of financial or operating performance for any period.
12.20 Waiver of Jury Trial . EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION,
50
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE
RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL
RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY SOURCE INCLUDING, BUT NOT LIMITED TO, THE
CONSTITUTION OF THE UNITED STATES OR ANY STATE THEREIN, COMMON LAW OR ANY APPLICABLE
STATUTE OR REGULATIONS. EACH PARTY HERETO ACKNOWLEDGES THAT IT IS KNOWINGLY AND
VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY.
12.21
Accounting Date. The transactions contemplated hereby shall be effective for accounting purposes as of 12:01
a.m. on the day following the Closing Date, unless otherwise agreed in writing by Seller and Buyer. The parties will use
commercially reasonable efforts to cause the Closing to be effective as of a month end, with equitable adjustments made to the
Purchase Price necessary to give effect to the foregoing.
12.22
No Inferences. Inasmuch as this Agreement is the result of negotiations between sophisticated parties of equal
bargaining power represented by counsel, no inference in favor of, or against, either party shall be drawn from the fact that any
portion of this Agreement has been drafted by or on behalf of such party.
12.23
Limited Third Party Beneficiaries. The terms and provisions of this Agreement are intended solely for the
benefit of Buyer, Seller, their Affiliates and their respective permitted successors or assigns, and it is not the intention of the
parties to confer, and this Agreement shall not confer, third-party beneficiary rights upon any other person other than the Seller
Entities and the Buyer Entities, which the parties agree are express third party beneficiaries of the rights of Seller and Buyer,
respectively.
12.24
Entire Agreement/Amendment . With the exception of the Agreement for Use and Non-Disclosure of
Confidential Information dated as of August 1, 2022, between CHSPSC, LLC and Buyer, this Agreement supersedes all previous
contracts, and constitutes the entire agreement of whatsoever kind or nature existing between or among the parties respecting the
within subject matter, and no party shall be entitled to benefits other than those specified herein. As between or among the parties,
no oral statements or prior written material not specifically incorporated herein shall be of any force and effect. The parties
specifically acknowledge that in entering into and executing this Agreement, the parties rely solely upon the representations and
agreements contained in this Agreement and no others. All prior representations or agreements, whether written or verbal, not
expressly incorporated herein are superseded, and no changes in or additions to this Agreement shall be recognized unless and
until made in writing and signed by all parties hereto. This Agreement may be executed in two or more counterparts, each and all
of which shall be deemed an original and all of which together shall constitute but one and the same instrument.
12.25
Risk of Loss. Notwithstanding any other provision hereof to the contrary, the risk of loss or damage to any of
the Assets, the Hospitals and all other property, transfer of which is contemplated by this Agreement, shall be borne by Seller
until the Effective Time and by Buyer after the Effective Time.
12.26
Other Definitions . “Knowledge of Seller” or “Seller’s knowledge” or any other similar knowledge
qualification with respect to any representation, warranty or other statement in
51
this Agreement means (i) all matters with respect to which Seller or any Seller Entity has received written notice from a
governmental authority, governmental entity, or third party; (ii) the actual knowledge of the following officers of the Hospitals or
any Seller Entity: Chief Executive Officer, Chief Financial Officer, Chief Compliance Officer, Chief Operating Officer, Chief
Medical Officer and/ or Chief Nursing Officer as well as the VP, Senior Acquisitions and Development Officer of Seller, and
President, Region 3 Operations and Chief Compliance Officer of Seller, in each case after reasonable inquiry of such person’s
immediate subordinates. The term “Person” means any individual, partnership, limited liability company, corporation, joint
venture, trust, business trust, cooperative or other association or entity, including any Government Entity.
52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in multiple originals by their
authorized officers, all as of the date first above written.
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By:
/s/ Terry H. Hendon
Title:
Vice President
(“Seller”)
NOVANT HEALTH, INC.
By:
/s/ Carl Armato
Title:
Chief Executive Officer
(“Buyer”)
53
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO THE ASSET PURCHASE AGREEMENT (“Amendment”) is entered into on this
17th day of October, 2023 (the “Effective Date”), by and between CHS/COMMUNITY HEALTH SYSTEMS, INC. (“Seller”)
and NOVANT HEALTH, INC. (the “Buyer”) (each a “Party”, and collectively the “Parties”). Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Agreement (as defined below).
RECITALS
WHEREAS, Buyer and Seller entered into that certain Asset Purchase Agreement dated as of February 28, 2023 (the
“Agreement”); and
WHEREAS, the Parties desire to amend the Agreement in order to extend the period of time set forth in Subsection 10.2
(iv) of the Agreement by one (1) month.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties hereto agree to amend the Agreement, and the Agreement is hereby amended, as follows:
2. Amendment of Subsection 10.2(iv). Subsection 10.2 (iv) of the Agreement is hereby deleted and replaced in its
entirety with the following clause:
“(iv) by Seller or Buyer if the Closing shall not have taken place on or before 5:00 p.m. central time on January
31, 2024 (which date may be extended by mutual agreement of Seller and Buyer), provided that the right to
terminate pursuant to this subsection (iv) shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur by such date;”
3. Effect of Amendment. Except as expressly provided in this Amendment, all terms and conditions of the Agreement
shall remain in full force and effect. In the event of any conflict between the terms of this Amendment and the
terms of the Agreement, the terms of this Amendment shall control.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the day and year first above written.
NOVANT HEALTH, INC.
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ Dean Swindle
Title:
Executive Vice President &
President of Novant Health Enterprises
By: /s/ Terry Hendon
Title:
Vice President
54
Exhibit 4.10
SEVENTH SUPPLEMENTAL INDENTURE, (this “Supplemental Indenture”) dated as of November 13, 2023, by and
among CHS/Community Health Systems, Inc., a Delaware corporation (“Issuer”), the parties that are signatories hereto as
Guarantors (each a “Guaranteeing Subsidiary” and, collectively, the “Guaranteeing Subsidiaries”), Credit Suisse AG, as
Collateral Agent, and Regions Bank, as Trustee under the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, each of the Issuer, the Guarantors, the Trustee and the Collateral Agent have heretofore executed and
delivered an indenture dated as of March 6, 2019 (as amended, supplemented, waived or otherwise modified, the “Indenture”),
providing for the issuance on such date of an aggregate principal amount of $1,600,809,000 of 8.000% Senior Secured Notes due
2026 (the “Notes”) of the Issuer;
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee and the
Collateral Agent a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of
the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture
(the “Note Guarantee”), each on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuer, any Guarantor, the Collateral Agent and the Trustee are
authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the consent of any
Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Issuer, the Guaranteeing Subsidiaries, the Collateral Agent and the Trustee mutually covenant
and agree for the benefit of the Trustee, the Collateral Agent and the Holders of the Notes as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the
preamble or recitals hereto are used herein as therein defined. The words “herein,” “hereof” and “hereby” and other words of
similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular
section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to be Bound. Each of the Guaranteeing Subsidiaries hereby becomes a party to the Indenture
as a “Guarantor” and as such will have all of the rights and be subject to all of the obligations and agreements of a “Guarantor”
under the Indenture.
SECTION 2.2. Guarantee. Each of the Guaranteeing Subsidiaries agrees, on a joint and several basis with all the
existing Guarantors, to fully, unconditionally and irrevocably
Guarantee to each Holder of the Notes, the Trustee and the Collateral Agent the Guaranteed Obligations pursuant to Article X of
the Indenture as and to the extent provided for therein.
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Notices. All notices and other communications to the Guarantors shall be given as provided in the
Indenture.
SECTION 3.2. Merger and Consolidation. Each of the Guaranteeing Subsidiaries shall not sell or otherwise dispose of
all or substantially all of its assets to, or consolidate with or merge with or into, another Person (other than the Issuer or any
Restricted Subsidiary that is a Guarantor or becomes a Guarantor concurrently with the transaction) except in accordance with
Section 4.1(e) of the Indenture.
SECTION 3.3. Release of Guarantee. The Note Guarantees hereunder may be released in accordance with Section 10.2
of the Indenture.
SECTION 3.4. Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm
or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this
Supplemental Indenture or the Indenture or any provision herein or therein contained.
SECTION 3.5. Governing Law. This Supplemental Indenture shall be governed by, and construed in accordance with,
the laws of the State of New York.
SECTION 3.6. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged. Each Guaranteeing Subsidiary’s Note Guarantee is subject to the terms and
conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and
waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended
hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in
full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes
heretofore or hereafter authenticated and delivered shall be bound hereby.
SECTION 3.9. The Trustee and the Collateral Agent. Neither the Trustee nor the Collateral Agent make any
representation or warranty as to the validity or sufficiency of this Supplemental Indenture or with respect to the recitals contained
herein, all of which recitals are made solely by the other parties hereto.
2
SECTION 3.10. Counterparts. The parties hereto may sign any number of copies of this Supplemental Indenture. Each
signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this
Supplemental Indenture and of signature pages by facsimile or other electronic transmission shall constitute effective execution
and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental
Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or other electronic transmission shall be
deemed to be their original signatures for all purposes.
SECTION 3.11. Execution and Delivery. Each Guaranteeing Subsidiary agrees that its Note Guarantee shall remain in
full force and effect notwithstanding any absence on each Note of a notation of any such Note Guarantee.
SECTION 3.12. Headings. The headings of the Articles and the Sections in this Supplemental Indenture are for
convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
[Signature pages follow]
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date
first above written.
CRESTVIEW HOSPITAL COMPANY, LLC
NORTH OKALOOSA MEDICAL COMPANY, LLC,
as Guarantors
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
Acting on behalf of each of the Guarantors set forth above
Acknowledged by:
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
[Signature Page to 7th Supplemental Indenture (2026 Notes)]
REGIONS BANK,
as Trustee
By: /s/ Kristine Prall
Name: Kristine Prall
Title: Vice President
[Signature Page to 7th Supplemental Indenture (2026 Notes)]
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Collateral
Agent
By: /s/ Vipul Dhadda
Name: Vipul Dhadda
Title: Authorized Signatory
By: /s/ Andrew Senicki
Name: Andrew Senicki
Title: Authorized Signatory
[Signature Page to 7th Supplemental Indenture (2026 Notes)]
Exhibit 4.15
THIRD SUPPLEMENTAL INDENTURE, (this “Supplemental Indenture”) dated as of November 13, 2023, by
and among CHS/Community Health Systems, Inc., a Delaware corporation (“Issuer”), the parties that are signatories hereto as
Guarantors (each, a “Guaranteeing Subsidiary” and, collectively, the “Guaranteeing Subsidiaries”), Credit Suisse AG, as
Collateral Agent, and Regions Bank, as Trustee under the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, each of the Issuer, the Guarantors, the Trustee and the Collateral Agent have heretofore executed
and delivered an indenture dated as of November 19, 2019 (as amended, supplemented, waived or otherwise modified, the
“Indenture”), providing for the issuance on such date of an aggregate principal amount of $700,000,000 of 8.000% Senior
Secured Notes due 2027 (the “Notes”) of the Issuer;
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee
and the Collateral Agent a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally
guarantee all of the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under
the Indenture (the “Note Guarantee”), each on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuer, any Guarantor, the Collateral Agent and the
Trustee are authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the
consent of any Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the Issuer, the Guaranteeing Subsidiaries, the Collateral Agent and the Trustee mutually
covenant and agree for the benefit of the Trustee, the Collateral Agent and the Holders of the Notes as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the
preamble or recitals hereto are used herein as therein defined. The words “herein,” “hereof” and “hereby” and other words of
similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular
section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to be Bound. Each of the Guaranteeing Subsidiaries hereby becomes a party to the
Indenture as a “Guarantor” and as such will have all of the rights and be subject to all of the obligations and agreements of a
“Guarantor” under the Indenture.
SECTION 2.2. Guarantee. Each of the Guaranteeing Subsidiaries agrees, on a joint and several basis with all
the existing Guarantors, to fully, unconditionally and irrevocably Guarantee to each Holder of the Notes, the Trustee and the
Collateral Agent the Guaranteed Obligations pursuant to Article X of the Indenture as and to the extent provided for therein.
ARTICLE III
MISCELLANEOUS
the Indenture.
SECTION 3.1. Notices. All notices and other communications to the Guarantors shall be given as provided in
SECTION 3.2. Merger and Consolidation. Each of the Guaranteeing Subsidiaries shall not sell or otherwise
dispose of all or substantially all of its assets to, or consolidate with or merge with or into, another Person (other than the Issuer or
any Restricted Subsidiary that is a Guarantor or becomes a Guarantor concurrently with the transaction) except in accordance
with Section 4.1(e) of the Indenture.
Section 10.2 of the Indenture.
SECTION 3.3. Release of Guarantee. The Note Guarantees hereunder may be released in accordance with
SECTION 3.4. Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any
Person, firm or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in
respect of this Supplemental Indenture or the Indenture or any provision herein or therein contained.
accordance with, the laws of the State of New York.
SECTION 3.5. Governing Law. This Supplemental Indenture shall be governed by, and construed in
SECTION 3.6. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged. Each Guaranteeing Subsidiary’s Note Guarantee is subject to the terms
and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee
and waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly
amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall
remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder
of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
2
SECTION 3.9. The Trustee and the Collateral Agent. Neither the Trustee nor the Collateral Agent make any
representation or warranty as to the validity or sufficiency of this Supplemental Indenture or with respect to the recitals contained
herein, all of which recitals are made solely by the other parties hereto.
SECTION 3.10. Counterparts. The parties hereto may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies
of this Supplemental Indenture and of signature pages by facsimile or other electronic transmission shall constitute effective
execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original
Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or other electronic transmission
shall be deemed to be their original signatures for all purposes.
remain in full force and effect notwithstanding any absence on each Note of a notation of any such Note Guarantee.
SECTION 3.11. Execution and Delivery. Each Guaranteeing Subsidiary agrees that its Note Guarantee shall
convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
SECTION 3.12. Headings. The headings of the Articles and the Sections in this Supplemental Indenture are for
[Signature pages follow]
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date
first above written.
CRESTVIEW HOSPITAL COMPANY, LLC
NORTH OKALOOSA MEDICAL COMPANY, LLC,
as Guarantors
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
Acting on behalf of each of the Guarantors set forth above
Acknowledged by:
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
[Signature Page to 3rd Supplemental Indenture (2027 Notes)]
REGIONS BANK,
as Trustee
By: /s/ Kristine Prall
Name: Kristine Prall
Title: Vice President
[Signature Page to 3rd Supplemental Indenture (2027 Notes)]
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Collateral
Agent
By: /s/ Vipul Dhadda
Name: Vipul Dhadda
Title: Authorized Signatory
By: /s/ Andrew Senicki
Name: Andrew Senicki
Title: Authorized Signatory
[Signature Page to 3rd Supplemental Indenture (2027 Notes)]
Exhibit 4.20
THIRD SUPPLEMENTAL INDENTURE, (this “Supplemental Indenture”) dated as of November 13, 2023, by
and among CHS/Community Health Systems, Inc., a Delaware corporation (“Issuer”), the parties that are signatories hereto as
Guarantors (each, a “Guaranteeing Subsidiary” and, collectively, the “Guaranteeing Subsidiaries”) and Regions Bank, as Trustee
under the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, each of the Issuer, the Guarantors and the Trustee have heretofore executed and delivered an
indenture dated as of November 19, 2019 (as amended, supplemented, waived or otherwise modified, the “Indenture”), providing
for the issuance on such date of an aggregate principal amount of $1,700,394,000 of 6.875% Senior Unsecured Notes due 2028
(the “Notes”) of the Issuer;
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee a
supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of the Issuer’s
Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the “Note
Guarantee”), each on the terms and conditions set forth herein; and
execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the consent of any Holder;
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuer, any Guarantor and the Trustee are authorized to
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the Issuer, the Guaranteeing Subsidiaries and the Trustee mutually covenant and agree
for the benefit of the Trustee and the Holders of the Notes as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the
preamble or recitals hereto are used herein as therein defined. The words “herein,” “hereof” and “hereby” and other words of
similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular
section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to be Bound. Each of the Guaranteeing Subsidiaries hereby becomes a party to the
Indenture as a “Guarantor” and as such will have all of the rights and be subject to all of the obligations and agreements of a
“Guarantor” under the Indenture.
the existing Guarantors, to fully, unconditionally and
SECTION 2.2. Guarantee. Each of the Guaranteeing Subsidiaries agrees, on a joint and several basis with all
irrevocably Guarantee to each Holder of the Notes and the Trustee the Guaranteed Obligations pursuant to Article X of the
Indenture as and to the extent provided for therein.
ARTICLE III
MISCELLANEOUS
the Indenture.
SECTION 3.1. Notices. All notices and other communications to the Guarantors shall be given as provided in
SECTION 3.2. Merger and Consolidation. Each of the Guaranteeing Subsidiaries shall not sell or otherwise
dispose of all or substantially all of its assets to, or consolidate with or merge with or into, another Person (other than the Issuer or
any Restricted Subsidiary that is a Guarantor or becomes a Guarantor concurrently with the transaction) except in accordance
with Section 4.1(e) of the Indenture.
Section 10.2 of the Indenture.
SECTION 3.3. Release of Guarantee. The Note Guarantees hereunder may be released in accordance with
SECTION 3.4. Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any
Person, firm or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in
respect of this Supplemental Indenture or the Indenture or any provision herein or therein contained.
accordance with, the laws of the State of New York.
SECTION 3.5. Governing Law. This Supplemental Indenture shall be governed by, and construed in
SECTION 3.6. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged. Each Guaranteeing Subsidiary’s Note Guarantee is subject to the terms
and conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee
and waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly
amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall
remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder
of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
SECTION 3.9. The Trustee. The Trustee makes no representation or warranty as to the validity or sufficiency of
this Supplemental Indenture or with respect to the recitals contained herein, all of which recitals are made solely by the other
parties hereto.
2
SECTION 3.10. Counterparts. The parties hereto may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies
of this Supplemental Indenture and of signature pages by facsimile or other electronic transmission shall constitute effective
execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original
Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or other electronic transmission
shall be deemed to be their original signatures for all purposes.
remain in full force and effect notwithstanding any absence on each Note of a notation of any such Note Guarantee.
SECTION 3.11. Execution and Delivery. Each Guaranteeing Subsidiary agrees that its Note Guarantee shall
convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
SECTION 3.12. Headings. The headings of the Articles and the Sections in this Supplemental Indenture are for
[Signature pages follow]
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date
first above written.
CRESTVIEW HOSPITAL COMPANY, LLC
NORTH OKALOOSA MEDICAL COMPANY, LLC,
as Guarantors
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
Acting on behalf of each of the Guarantors set forth above
Acknowledged by:
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
[Signature Page to 3rd Supplemental Indenture (2028 Notes)]
REGIONS BANK,
as Trustee
By: /s/ Kristine Prall
Name: Kristine Prall
Title: Vice President
[Signature Page to 3rd] Supplemental Indenture (2028 Notes)]
Exhibit 4.23
FIRST SUPPLEMENTAL INDENTURE, (this “Supplemental Indenture”) dated as of November 13, 2023, by and
among CHS/Community Health Systems, Inc., a Delaware corporation (“Issuer”), the parties that are signatories hereto as
Guarantors (each a “Guaranteeing Subsidiary” and, collectively, the “Guaranteeing Subsidiaries”), Credit Suisse AG, as
Collateral Agent, and Regions Bank, as Trustee under the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, each of the Issuer, the Guarantors, the Trustee and the Collateral Agent have heretofore executed and
delivered an indenture dated as of December 28, 2020 (as amended, supplemented, waived or otherwise modified, the
“Indenture”), providing for the issuance on such date of an aggregate principal amount of $1,900,000,000 of 5.625% Senior
Secured Notes due 2027 (the “Notes”) of the Issuer;
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee and the
Collateral Agent a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of
the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture
(the “Note Guarantee”), each on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuer, any Guarantor, the Collateral Agent and the Trustee are
authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the consent of any
Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Issuer, the Guaranteeing Subsidiaries, the Collateral Agent and the Trustee mutually covenant
and agree for the benefit of the Trustee, the Collateral Agent and the Holders of the Notes as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the
preamble or recitals hereto are used herein as therein defined. The words “herein,” “hereof” and “hereby” and other words of
similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular
section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to be Bound. Each of the Guaranteeing Subsidiaries hereby becomes a party to the Indenture
as a “Guarantor” and as such will have all of the rights and be subject to all of the obligations and agreements of a “Guarantor”
under the Indenture.
SECTION 2.2. Guarantee. Each of the Guaranteeing Subsidiaries agrees, on a joint and several basis with all the
existing Guarantors, to fully, unconditionally and irrevocably
Guarantee to each Holder of the Notes, the Trustee and the Collateral Agent the Guaranteed Obligations pursuant to Article X of
the Indenture as and to the extent provided for therein.
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Notices. All notices and other communications to the Guarantors shall be given as provided in the
Indenture.
SECTION 3.2. Merger and Consolidation. Each of the Guaranteeing Subsidiaries shall not sell or otherwise dispose of
all or substantially all of its assets to, or consolidate with or merge with or into, another Person (other than the Issuer or any
Restricted Subsidiary that is a Guarantor or becomes a Guarantor concurrently with the transaction) except in accordance with
Section 4.1(e) of the Indenture.
SECTION 3.3. Release of Guarantee. The Note Guarantees hereunder may be released in accordance with Section 10.2
of the Indenture.
SECTION 3.4. Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm
or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this
Supplemental Indenture or the Indenture or any provision herein or therein contained.
SECTION 3.5. Governing Law. This Supplemental Indenture shall be governed by, and construed in accordance with,
the laws of the State of New York.
SECTION 3.6. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged. Each Guaranteeing Subsidiary’s Note Guarantee is subject to the terms and
conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and
waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended
hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in
full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes
heretofore or hereafter authenticated and delivered shall be bound hereby.
SECTION 3.9. The Trustee and the Collateral Agent. Neither the Trustee nor the Collateral Agent make any
representation or warranty as to the validity or sufficiency of this Supplemental Indenture or with respect to the recitals contained
herein, all of which recitals are made solely by the other parties hereto.
2
SECTION 3.10. Counterparts. The parties hereto may sign any number of copies of this Supplemental Indenture. Each
signed copy shall be an original, but all of them together represent the same agreement. Any signature to this Supplemental
Indenture may be delivered by facsimile, electronic mail (including .pdf) or any electronic signature complying with the U.S.
Federal ESIGN Act of 2000 or the New York Electronic Signature and Record Act or other transmission method and any
counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes to the
fullest extent permitted by applicable law; provided that notwithstanding anything herein to the contrary, the Trustee is under no
obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Trustee pursuant
to procedures approved by the Trustee. For the avoidance of doubt, the foregoing also applies to any amendment hereto. Each of
the parties represents and warrants to the other parties that it has the corporate capacity and authority to execute this
Supplemental Indenture through electronic means and there are no restrictions for doing so in that party’s constitutive documents.
SECTION 3.11. Execution and Delivery. Each Guaranteeing Subsidiary agrees that its Note Guarantee shall remain in
full force and effect notwithstanding any absence on each Note of a notation of any such Note Guarantee.
SECTION 3.12. Headings. The headings of the Articles and the Sections in this Supplemental Indenture are for
convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
[Signature pages follow]
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date
first above written.
CRESTVIEW HOSPITAL COMPANY, LLC
NORTH OKALOOSA MEDICAL COMPANY,LLC,
as Guarantors
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
Acting on behalf of each of the Guarantors set forth above
Acknowledged by:
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
[Signature Page to 1st Supplemental Indenture (March 2027 Notes)]
REGIONS BANK,
as Trustee
By: /s/ Kristine Prall
Name: Kristine Prall
Title: Vice President
[Signature Page to 1st Supplemental Indenture (March 2027 Notes)]
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Collateral
Agent
By: /s/ Vipul Dhadda
Name: Vipul Dhadda
Title: Authorized Signatory
By: /s/ Andrew Senicki
Name: Andrew Senicki
Title: Authorized Signatory
[Signature Page to 1st Supplemental Indenture (March 2027 Notes)]
Exhibit 4.26
FIRST SUPPLEMENTAL INDENTURE, (this “Supplemental Indenture”) dated as of November 13, 2023, by and
among CHS/Community Health Systems, Inc., a Delaware corporation (“Issuer”), the parties that are signatories hereto as
Guarantors (each a “Guaranteeing Subsidiary” and, collectively, the “Guaranteeing Subsidiaries”), Credit Suisse AG, as
Collateral Agent, and Regions Bank, as Trustee under the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, each of the Issuer, the Guarantors, the Trustee and the Collateral Agent have heretofore executed and
delivered an indenture dated as of December 28, 2020 (as amended, supplemented, waived or otherwise modified, the
“Indenture”), providing for the issuance on such date of an aggregate principal amount of $900,000,000 of 6.000% Senior
Secured Notes due 2029 (the “Notes”) of the Issuer;
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee and the
Collateral Agent a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of
the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture
(the “Note Guarantee”), each on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuer, any Guarantor, the Collateral Agent and the Trustee are
authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the consent of any
Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Issuer, the Guaranteeing Subsidiaries, the Collateral Agent and the Trustee mutually covenant
and agree for the benefit of the Trustee, the Collateral Agent and the Holders of the Notes as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the
preamble or recitals hereto are used herein as therein defined. The words “herein,” “hereof” and “hereby” and other words of
similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular
section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to be Bound. Each of the Guaranteeing Subsidiaries hereby becomes a party to the Indenture
as a “Guarantor” and as such will have all of the rights and be subject to all of the obligations and agreements of a “Guarantor”
under the Indenture.
SECTION 2.2. Guarantee. Each of the Guaranteeing Subsidiaries agrees, on a joint and several basis with all the
existing Guarantors, to fully, unconditionally and irrevocably
Guarantee to each Holder of the Notes, the Trustee and the Collateral Agent the Guaranteed Obligations pursuant to Article X of
the Indenture as and to the extent provided for therein.
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Notices. All notices and other communications to the Guarantors shall be given as provided in the
Indenture.
SECTION 3.2. Merger and Consolidation. Each of the Guaranteeing Subsidiaries shall not sell or otherwise dispose of
all or substantially all of its assets to, or consolidate with or merge with or into, another Person (other than the Issuer or any
Restricted Subsidiary that is a Guarantor or becomes a Guarantor concurrently with the transaction) except in accordance with
Section 4.1(e) of the Indenture.
SECTION 3.3. Release of Guarantee. The Note Guarantees hereunder may be released in accordance with Section 10.2
of the Indenture.
SECTION 3.4. Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm
or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this
Supplemental Indenture or the Indenture or any provision herein or therein contained.
SECTION 3.5. Governing Law. This Supplemental Indenture shall be governed by, and construed in accordance with,
the laws of the State of New York.
SECTION 3.6. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged. Each Guaranteeing Subsidiary’s Note Guarantee is subject to the terms and
conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and
waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended
hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in
full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes
heretofore or hereafter authenticated and delivered shall be bound hereby.
SECTION 3.9. The Trustee and the Collateral Agent. Neither the Trustee nor the Collateral Agent make any
representation or warranty as to the validity or sufficiency of this Supplemental Indenture or with respect to the recitals contained
herein, all of which recitals are made solely by the other parties hereto.
2
SECTION 3.10. Counterparts. The parties hereto may sign any number of copies of this Supplemental Indenture. Each
signed copy shall be an original, but all of them together represent the same agreement. Any signature to this Supplemental
Indenture may be delivered by facsimile, electronic mail (including .pdf) or any electronic signature complying with the U.S.
Federal ESIGN Act of 2000 or the New York Electronic Signature and Record Act or other transmission method and any
counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes to the
fullest extent permitted by applicable law; provided that notwithstanding anything herein to the contrary, the Trustee is under no
obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Trustee pursuant
to procedures approved by the Trustee. For the avoidance of doubt, the foregoing also applies to any amendment hereto. Each of
the parties represents and warrants to the other parties that it has the corporate capacity and authority to execute this
Supplemental Indenture through electronic means and there are no restrictions for doing so in that party’s constitutive documents.
SECTION 3.11. Execution and Delivery. Each Guaranteeing Subsidiary agrees that its Note Guarantee shall remain in
full force and effect notwithstanding any absence on each Note of a notation of any such Note Guarantee.
SECTION 3.12. Headings. The headings of the Articles and the Sections in this Supplemental Indenture are for
convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
[Signature pages follow]
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date
first above written.
CRESTVIEW HOSPITAL COMPANY, LLC
NORTH OKALOOSA MEDICAL COMPANY, LLC,
as Guarantors
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
Acting on behalf of each of the Guarantors set forth above
Acknowledged by:
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
[Signature Page to 1st Supplemental Indenture (2029 Notes)]
REGIONS BANK,
as Trustee
By: /s/ Kristine Prall
Name: Kristine Prall
Title: Vice President
[Signature Page to 1st Supplemental Indenture (2029 Notes)]
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Collateral
Agent
By: /s/ Vipul Dhadda
Name: Vipul Dhadda
Title: Authorized Signatory
By: /s/ Andrew Senicki
Name: Andrew Senicki
Title: Authorized Signatory
[Signature Page to 1st Supplemental Indenture (2029 Notes)]
Exhibit 4.29
FIRST SUPPLEMENTAL INDENTURE, (this “Supplemental Indenture”) dated as of November 13, 2023, by and
among CHS/Community Health Systems, Inc., a Delaware corporation (“Issuer”), the parties that are signatories hereto as
Guarantors (each a “Guaranteeing Subsidiary” and, collectively, the “Guaranteeing Subsidiaries”), Regions Bank, as Junior-
Priority Collateral Agent, and Regions Bank, as Trustee under the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, each of the Issuer, the Guarantors, the Trustee and the Junior-Priority Collateral Agent have heretofore
executed and delivered an indenture dated as of February 2, 2021 (as amended, supplemented, waived or otherwise modified, the
“Indenture”), providing for the issuance on such date of an aggregate principal amount of $1,775,000,000 of 6.875% Junior-
Priority Secured Notes due 2029 (the “Notes”) of the Issuer;
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee and the
Junior-Priority Collateral Agent a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally
guarantee all of the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under
the Indenture (the “Note Guarantee”), each on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuer, any Guarantor, the Junior-Priority Collateral Agent and
the Trustee are authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the
consent of any Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Issuer, the Guaranteeing Subsidiaries, the Junior-Priority Collateral Agent and the Trustee
mutually covenant and agree for the benefit of the Trustee, the Junior-Priority Collateral Agent and the Holders of the Notes as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the
preamble or recitals hereto are used herein as therein defined. The words “herein,” “hereof” and “hereby” and other words of
similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular
section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to be Bound. Each of the Guaranteeing Subsidiaries hereby becomes a party to the Indenture
as a “Guarantor” and as such will have all of the rights and be subject to all of the obligations and agreements of a “Guarantor”
under the Indenture.
SECTION 2.2. Guarantee. Each of the Guaranteeing Subsidiaries agrees, on a joint and several basis with all the
existing Guarantors, to fully, unconditionally and irrevocably Guarantee to each Holder of the Notes, the Trustee and the Junior-
Priority Collateral Agent the Guaranteed Obligations pursuant to Article X of the Indenture as and to the extent provided for
therein.
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Notices. All notices and other communications to the Guarantors shall be given as provided in the
Indenture.
SECTION 3.2. Merger and Consolidation. Each of the Guaranteeing Subsidiaries shall not sell or otherwise dispose of
all or substantially all of its assets to, or consolidate with or merge with or into, another Person (other than the Issuer or any
Restricted Subsidiary that is a Guarantor or becomes a Guarantor concurrently with the transaction) except in accordance with
Section 4.1(e) of the Indenture.
SECTION 3.3. Release of Guarantee. The Note Guarantees hereunder may be released in accordance with Section 10.2
of the Indenture.
SECTION 3.4. Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm
or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this
Supplemental Indenture or the Indenture or any provision herein or therein contained.
SECTION 3.5. Governing Law. This Supplemental Indenture shall be governed by, and construed in accordance with,
the laws of the State of New York.
SECTION 3.6. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged. Each Guaranteeing Subsidiary’s Note Guarantee is subject to the terms and
conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and
waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended
hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in
full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes
heretofore or hereafter authenticated and delivered shall be bound hereby.
2
SECTION 3.9. The Trustee and the Junior-Priority Collateral Agent. Neither the Trustee nor the Junior-Priority
Collateral Agent make any representation or warranty as to the validity or sufficiency of this Supplemental Indenture or with
respect to the recitals contained herein, all of which recitals are made solely by the other parties hereto.
SECTION 3.10. Counterparts. The parties hereto may sign any number of copies of this Supplemental Indenture. Each
signed copy shall be an original, but all of them together represent the same agreement. Any signature to this Supplemental
Indenture may be delivered by facsimile, electronic mail (including .pdf) or any electronic signature complying with the U.S.
Federal ESIGN Act of 2000 or the New York Electronic Signature and Record Act or other transmission method and any
counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes to the
fullest extent permitted by applicable law; provided that notwithstanding anything herein to the contrary, the Trustee is under no
obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Trustee pursuant
to procedures approved by the Trustee. For the avoidance of doubt, the foregoing also applies to any amendment hereto. Each of
the parties represents and warrants to the other parties that it has the corporate capacity and authority to execute this
Supplemental Indenture through electronic means and there are no restrictions for doing so in that party’s constitutive documents.
SECTION 3.11. Execution and Delivery. Each Guaranteeing Subsidiary agrees that its Note Guarantee shall remain in
full force and effect notwithstanding any absence on each Note of a notation of any such Note Guarantee.
SECTION 3.12. Headings. The headings of the Articles and the Sections in this Supplemental Indenture are for
convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
[Signature pages follow]
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date
first above written.
CRESTVIEW HOSPITAL COMPANY, LLC
NORTH OKALOOSA MEDICAL COMPANY, LLC,
as Guarantors
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
Acting on behalf of each of the Guarantors set forth above
Acknowledged by:
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
[Signature Page to 1st Supplemental Indenture (2029 Junior-Priority Notes)]
REGIONS BANK,
as Trustee
By: /s/ Mary Willis
Name: Mary Willis
Title: Vice President
REGIONS BANK,
as Junior-Priority Collateral Agent
By: /s/ Kristine Prall
Name: Kristine Prall
Title: Vice President
[Signature Page to 1st Supplemental Indenture (2029 Junior-Priority Notes)]
Exhibit 4.32
FIRST SUPPLEMENTAL INDENTURE, (this “Supplemental Indenture”) dated as of November 13, 2023, by and
among CHS/Community Health Systems, Inc., a Delaware corporation (“Issuer”), the parties that are signatories hereto as
Guarantors (each a “Guaranteeing Subsidiary” and, collectively, the “Guaranteeing Subsidiaries”), Credit Suisse AG, as
Collateral Agent, and Regions Bank, as Trustee under the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, each of the Issuer, the Guarantors, the Trustee and the Collateral Agent have heretofore executed and
delivered an indenture dated as of February 9, 2021 (as amended, supplemented, waived or otherwise modified, the “Indenture”),
providing for the issuance on such date of an aggregate principal amount of $1,095,000,000 of 4.750% Senior Secured Notes due
2031 (the “Notes”) of the Issuer;
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee and the
Collateral Agent a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of
the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture
(the “Note Guarantee”), each on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuer, any Guarantor, the Collateral Agent and the Trustee are
authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the consent of any
Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Issuer, the Guaranteeing Subsidiaries, the Collateral Agent and the Trustee mutually covenant
and agree for the benefit of the Trustee, the Collateral Agent and the Holders of the Notes as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the
preamble or recitals hereto are used herein as therein defined. The words “herein,” “hereof” and “hereby” and other words of
similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular
section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to be Bound. Each of the Guaranteeing Subsidiaries hereby becomes a party to the Indenture
as a “Guarantor” and as such will have all of the rights and be subject to all of the obligations and agreements of a “Guarantor”
under the Indenture.
SECTION 2.2. Guarantee. Each of the Guaranteeing Subsidiaries agrees, on a joint and several basis with all the
existing Guarantors, to fully, unconditionally and irrevocably
Guarantee to each Holder of the Notes, the Trustee and the Collateral Agent the Guaranteed Obligations pursuant to Article X of
the Indenture as and to the extent provided for therein.
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Notices. All notices and other communications to the Guarantors shall be given as provided in the
Indenture.
SECTION 3.2. Merger and Consolidation. Each of the Guaranteeing Subsidiaries shall not sell or otherwise dispose of
all or substantially all of its assets to, or consolidate with or merge with or into, another Person (other than the Issuer or any
Restricted Subsidiary that is a Guarantor or becomes a Guarantor concurrently with the transaction) except in accordance with
Section 4.1(e) of the Indenture.
SECTION 3.3. Release of Guarantee. The Note Guarantees hereunder may be released in accordance with Section 10.2
of the Indenture.
SECTION 3.4. Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm
or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this
Supplemental Indenture or the Indenture or any provision herein or therein contained.
SECTION 3.5. Governing Law. This Supplemental Indenture shall be governed by, and construed in accordance with,
the laws of the State of New York.
SECTION 3.6. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged. Each Guaranteeing Subsidiary’s Note Guarantee is subject to the terms and
conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and
waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended
hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in
full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes
heretofore or hereafter authenticated and delivered shall be bound hereby.
SECTION 3.9. The Trustee and the Collateral Agent. Neither the Trustee nor the Collateral Agent make any
representation or warranty as to the validity or sufficiency of this Supplemental Indenture or with respect to the recitals contained
herein, all of which recitals are made solely by the other parties hereto.
2
SECTION 3.10. Counterparts. The parties hereto may sign any number of copies of this Supplemental Indenture. Each
signed copy shall be an original, but all of them together represent the same agreement. Any signature to this Supplemental
Indenture may be delivered by facsimile, electronic mail (including .pdf) or any electronic signature complying with the U.S.
Federal ESIGN Act of 2000 or the New York Electronic Signature and Record Act or other transmission method and any
counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes to the
fullest extent permitted by applicable law; provided that notwithstanding anything herein to the contrary, the Trustee is under no
obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Trustee pursuant
to procedures approved by the Trustee. For the avoidance of doubt, the foregoing also applies to any amendment hereto. Each of
the parties represents and warrants to the other parties that it has the corporate capacity and authority to execute this
Supplemental Indenture through electronic means and there are no restrictions for doing so in that party’s constitutive documents.
SECTION 3.11. Execution and Delivery. Each Guaranteeing Subsidiary agrees that its Note Guarantee shall remain in
full force and effect notwithstanding any absence on each Note of a notation of any such Note Guarantee.
SECTION 3.12. Headings. The headings of the Articles and the Sections in this Supplemental Indenture are for
convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
[Signature pages follow]
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date
first above written.
CRESTVIEW HOSPITAL COMPANY, LLC
NORTH OKALOOSA MEDICAL COMPANY, LLC,
as Guarantors
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
Acting on behalf of each of the Guarantors set forth above.
Acknowledged by:
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
[Signature Page to 1st Supplemental Indenture (2031 Notes)]
REGIONS BANK,
as Trustee
By: /s/ Kristine Prall
Name: Kristine Prall
Title: Vice President
[Signature Page to 1st Supplemental Indenture (2031 Notes)]
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Collateral
Agent
By: /s/ Vipul Dhadda
Name: Vipul Dhadda
Title: Authorized Signatory
By: /s/ Andrew Senicki
Name: Andrew Senicki
Title: Authorized Signatory
[Signature Page to 1st Supplemental Indenture (2031 Notes)]
Exhibit 4.35
FIRST SUPPLEMENTAL INDENTURE, (this “Supplemental Indenture”) dated as of November 13, 2023, by and
among CHS/Community Health Systems, Inc., a Delaware corporation (“Issuer”), the parties that are signatories hereto as
Guarantors (each a “Guaranteeing Subsidiary” and, collectively, the “Guaranteeing Subsidiaries”), Regions Bank, as Junior-
Priority Collateral Agent, and Regions Bank, as Trustee under the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, each of the Issuer, the Guarantors, the Trustee and the Junior-Priority Collateral Agent have heretofore
executed and delivered an indenture dated as of May 19, 2021 (as amended, supplemented, waived or otherwise modified, the
“Indenture”), providing for the issuance on such date of an aggregate principal amount of $1,440,000,000 of 6.125% Junior-
Priority Secured Notes due 2030 (the “Notes”) of the Issuer;
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee and the
Junior-Priority Collateral Agent a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally
guarantee all of the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under
the Indenture (the “Note Guarantee”), each on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuer, any Guarantor, the Junior-Priority Collateral Agent and
the Trustee are authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the
consent of any Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Issuer, the Guaranteeing Subsidiaries, the Junior-Priority Collateral Agent and the Trustee
mutually covenant and agree for the benefit of the Trustee, the Junior-Priority Collateral Agent and the Holders of the Notes as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the
preamble or recitals hereto are used herein as therein defined. The words “herein,” “hereof” and “hereby” and other words of
similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular
section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to be Bound. Each of the Guaranteeing Subsidiaries hereby becomes a party to the Indenture
as a “Guarantor” and as such will have all of the rights and be subject to all of the obligations and agreements of a “Guarantor”
under the Indenture.
SECTION 2.2. Guarantee. Each of the Guaranteeing Subsidiaries agrees, on a joint and several basis with all the
existing Guarantors, to fully, unconditionally and irrevocably Guarantee to each Holder of the Notes, the Trustee and the Junior-
Priority Collateral Agent the Guaranteed Obligations pursuant to Article X of the Indenture as and to the extent provided for
therein.
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Notices. All notices and other communications to the Guarantors shall be given as provided in the
Indenture.
SECTION 3.2. Merger and Consolidation. Each of the Guaranteeing Subsidiaries shall not sell or otherwise dispose of
all or substantially all of its assets to, or consolidate with or merge with or into, another Person (other than the Issuer or any
Restricted Subsidiary that is a Guarantor or becomes a Guarantor concurrently with the transaction) except in accordance with
Section 4.1(e) of the Indenture.
SECTION 3.3. Release of Guarantee. The Note Guarantees hereunder may be released in accordance with Section 10.2
of the Indenture.
SECTION 3.4. Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm
or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this
Supplemental Indenture or the Indenture or any provision herein or therein contained.
SECTION 3.5. Governing Law. This Supplemental Indenture shall be governed by, and construed in accordance with,
the laws of the State of New York.
SECTION 3.6. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged. Each Guaranteeing Subsidiary’s Note Guarantee is subject to the terms and
conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and
waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended
hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in
full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes
heretofore or hereafter authenticated and delivered shall be bound hereby.
2
SECTION 3.9. The Trustee and the Junior-Priority Collateral Agent. Neither the Trustee nor the Junior-Priority
Collateral Agent make any representation or warranty as to the validity or sufficiency of this Supplemental Indenture or with
respect to the recitals contained herein, all of which recitals are made solely by the other parties hereto.
SECTION 3.10. Counterparts. The parties hereto may sign any number of copies of this Supplemental Indenture. Each
signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this
Supplemental Indenture and of signature pages by facsimile or other electronic transmission shall constitute effective execution
and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental
Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or other electronic transmission shall be
deemed to be their original signatures for all purposes.
SECTION 3.11. Execution and Delivery. Each Guaranteeing Subsidiary agrees that its Note Guarantee shall remain in
full force and effect notwithstanding any absence on each Note of a notation of any such Note Guarantee.
SECTION 3.12. Headings. The headings of the Articles and the Sections in this Supplemental Indenture are for
convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
[Signature pages follow]
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date
first above written.
CRESTVIEW HOSPITAL COMPANY, LLC
NORTH OKALOOSA MEDICAL COMPANY, LLC,
as Guarantors
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
Acting on behalf of each of the Guarantors set forth above
Acknowledged by:
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
[Signature Page to 1st Supplemental Indenture (2030 Junior-Priority Notes)]
REGIONS BANK,
as Trustee
By: /s/ Kristine Prall
Name: Kristine Prall
Title: Vice President
[Signature Page to 1st Supplemental Indenture (2030 Junior-Priority Notes)]
REGIONS BANK,
as Junior-Priority Collateral Agent
By: /s/ Mary Willis
Name: Mary Willis
Title: Vice President
By: /s/ Kristine Prall
Name: Kristine Prall
Title: Vice President
[Signature Page to 1st Supplemental Indenture (2030 Junior-Priority Notes)]
Exhibit 4.38
FIRST SUPPLEMENTAL INDENTURE, (this “Supplemental Indenture”) dated as of November 13, 2023, by and
among CHS/Community Health Systems, Inc., a Delaware corporation (“Issuer”), the parties that are signatories hereto as
Guarantors (each a “Guaranteeing Subsidiary” and, collectively, the “Guaranteeing Subsidiaries”), Credit Suisse AG, as
Collateral Agent, and Regions Bank, as Trustee under the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, each of the Issuer, the Guarantors, the Trustee and the Collateral Agent have heretofore executed and
delivered an indenture dated as of February 4, 2022 (as amended, supplemented, waived or otherwise modified, the “Indenture”),
providing for the issuance on such date of an aggregate principal amount of $1,535,000,000 of 5.250% Senior Secured Notes due
2030 (the “Notes”) of the Issuer;
WHEREAS, the Indenture provides that the Guaranteeing Subsidiaries shall execute and deliver to the Trustee and the
Collateral Agent a supplemental indenture pursuant to which the Guaranteeing Subsidiaries shall unconditionally guarantee all of
the Issuer’s Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture
(the “Note Guarantee”), each on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Issuer, any Guarantor, the Collateral Agent and the Trustee are
authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the consent of any
Holder;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Issuer, the Guaranteeing Subsidiaries, the Collateral Agent and the Trustee mutually covenant
and agree for the benefit of the Trustee, the Collateral Agent and the Holders of the Notes as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the
preamble or recitals hereto are used herein as therein defined. The words “herein,” “hereof” and “hereby” and other words of
similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular
section hereof.
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
SECTION 2.1. Agreement to be Bound. Each of the Guaranteeing Subsidiaries hereby becomes a party to the Indenture
as a “Guarantor” and as such will have all of the rights and be subject to all of the obligations and agreements of a “Guarantor”
under the Indenture.
SECTION 2.2. Guarantee. Each of the Guaranteeing Subsidiaries agrees, on a joint and several basis with all the
existing Guarantors, to fully, unconditionally and irrevocably
Guarantee to each Holder of the Notes, the Trustee and the Collateral Agent the Guaranteed Obligations pursuant to Article X of
the Indenture as and to the extent provided for therein.
ARTICLE III
MISCELLANEOUS
SECTION 3.1. Notices. All notices and other communications to the Guarantors shall be given as provided in the
Indenture.
SECTION 3.2. Merger and Consolidation. Each of the Guaranteeing Subsidiaries shall not sell or otherwise dispose of
all or substantially all of its assets to, or consolidate with or merge with or into, another Person (other than the Issuer or any
Restricted Subsidiary that is a Guarantor or becomes a Guarantor concurrently with the transaction) except in accordance with
Section 4.1(e) of the Indenture.
SECTION 3.3. Release of Guarantee. The Note Guarantees hereunder may be released in accordance with Section 10.2
of the Indenture.
SECTION 3.4. Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm
or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this
Supplemental Indenture or the Indenture or any provision herein or therein contained.
SECTION 3.5. Governing Law. This Supplemental Indenture shall be governed by, and construed in accordance with,
the laws of the State of New York.
SECTION 3.6. Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired
thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
SECTION 3.7. Benefits Acknowledged. Each Guaranteeing Subsidiary’s Note Guarantee is subject to the terms and
conditions set forth in the Indenture. Each Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and
waivers made by it pursuant to its Note Guarantee are knowingly made in contemplation of such benefits.
SECTION 3.8. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended
hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in
full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes
heretofore or hereafter authenticated and delivered shall be bound hereby.
SECTION 3.9. The Trustee and the Collateral Agent. Neither the Trustee nor the Collateral Agent make any
representation or warranty as to the validity or sufficiency of this Supplemental Indenture or with respect to the recitals contained
herein, all of which recitals are made solely by the other parties hereto.
2
SECTION 3.10. Counterparts. The parties hereto may sign any number of copies of this Supplemental Indenture. Each
signed copy shall be an original, but all of them together represent the same agreement. The exchange of copies of this
Supplemental Indenture and of signature pages by facsimile or other electronic transmission shall constitute effective execution
and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental
Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or other electronic transmission shall be
deemed to be their original signatures for all purposes.
SECTION 3.11. Execution and Delivery. Each Guaranteeing Subsidiary agrees that its Note Guarantee shall remain in
full force and effect notwithstanding any absence on each Note of a notation of any such Note Guarantee.
SECTION 3.12. Headings. The headings of the Articles and the Sections in this Supplemental Indenture are for
convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
[Signature pages follow]
3
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date
first above written.
CRESTVIEW HOSPITAL COMPANY, LLC
NORTH OKALOOSA MEDICAL COMPANY, LLC,
as Guarantors
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
Acting on behalf of each of the Guarantors set forth above
Acknowledged by:
CHS/COMMUNITY HEALTH SYSTEMS, INC.
By: /s/ R. Gabriel Ottinger
R. Gabriel Ottinger
Senior Vice President and Treasurer
[Signature Page to 1st Supplemental Indenture (2030 Notes)]
REGIONS BANK,
as Trustee
By: /s/ Kristine Prall
Name: Kristine Prall
Title: Vice President
[Signature Page to 1st Supplemental Indenture (2030 Notes)]
CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Collateral
Agent
By: /s/ Vipul Dhadda
Name: Vipul Dhadda
Title: Authorized Signatory
By: /s/ Andrew Senicki
Name: Andrew Senicki
Title: Authorized Signatory
[Signature Page to 1st Supplemental Indenture (2030 Notes)]
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
d/b/a Grandview Medical Center
Abilene Clinic Asset Holding Company, LLC (DE)
Abilene Hospital, LLC (DE)
Abilene Merger, LLC (DE)
Access Center Services, LLC (DE)
AF-CH-HH, LLC# (DE)
Affinity Cardio-Thoracic Specialists, LLC (DE)
Affinity Cardiovascular Specialists, LLC (DE)
Affinity Gastroenterology ASC, LLC* (DE)
Affinity Health Systems, LLC (DE)
Affinity Hospital, LLC (DE)
Affinity Orthopaedic ASC, LLC* (DE)
Affinity Orthopedic Specialists, LLC (DE)
Affinity Physician Services, LLC (DE)
Affinity Radiation Therapy Services, LLC (DE)
Affinity Skilled Nursing, LLC (DE)
Affinity Urology ASC, LLC* (DE)
Alabama HMA Physician Management, LLC (AL)
Alliance Health Partners, LLC (MS)
Ambulance Services of Dyersburg, Inc. (TN)
Ambulance Services of McNairy, Inc. (TN)
Amory HMA Physician Management, LLC (MS)
Amory HMA, LLC (MS)
Angelo Community Healthcare Services, Inc. (TX)
Anniston HMA, LLC (AL)
Arizona ASC Management, Inc. (AZ)
Arizona Medco, LLC (DE)
Arkansas HMA Regional Service Center, LLC (AR)
Arkansas Medical Imaging JV, LLC (DE)
ARMC, L.P. (DE)
Bartow HMA, LLC (FL)
Batesville HMA Development, LLC (MS)
Batesville HMA Medical Group, LLC (MS)
Bayfront Ambulatory Surgical Center, LLC (DE)
Bayfront Health Imaging Center, LLC (DE)
Bayfront HMA Convenient Care, LLC (FL)
Bayfront HMA Healthcare Holdings, LLC (FL)
Bayfront HMA Medical Center, LLC (FL)
Bayfront HMA Physician Management, LLC (FL)
Bayfront HMA Real Estate Holdings, LLC (FL)
Page 1 of 23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
Bayfront HMA Wellness Center, LLC (FL)
BH Trans Company, LLC (DE)
BH Trans Company, LLC (DE)
Biloxi Health System, LLC# (DE)
Biloxi H.M.A., LLC# (MS)
Biloxi HMA Physician Management, LLC# (MS)
Birmingham Holdings II, LLC (DE)
Birmingham Holdings, LLC (DE)
Birmingham Home Care Services, LLC# (DE)
Blackwell HMA, LLC (OK)
Blackwell HMPN, LLC (OK)
Bluefield Holdings, LLC (DE)
Bluffton Health System LLC (DE)
Bluffton Physician Services, LLC (DE)
Brandon HB Medical Services, LLC (DE)
Brandon HMA, LLC (MS)
Brandon Physician Management, LLC (DE)
Brandywine Hospital Malpractice Assistance Fund, Inc. (PA)
Bravera Urgent Care, LLC (DE)
Brevard HMA Holdings, LLC (FL)
Brooksville HMA Physician Management, LLC (FL)
Brownsville Clinic Corp. (TN)
Brownsville Hospital Corporation (TN)
Brownwood Asset Holding Company, LLC (DE)
Brownwood Hospital, L.P. (DE)
Brownwood Medical Center, LLC (DE)
Bullhead City Clinic Corp. (AZ)
Bullhead City Hospital Corporation (AZ)
Bullhead City Hospital Investment Corporation (DE)
Bullhead City Imaging Corporation (AZ)
Bullhead Medical Plaza II, LLC# (AZ)
Bullhead Medical Plaza, Ltd.# (NV)
Cadence Solutions, Inc.# (DE)
Cahaba Orthopedics, LLC (DE)
Campbell County HMA, LLC (TN)
Carlisle HMA Physician Management, LLC (PA)
d/b/a Merit Health Biloxi
d/b/a Bluffton Regional Medical Center
d/b/a Merit Health Rankin
d/b/a Western Arizona Regional Medical
Center
d/b/a LaFollette Medical Center
Page 2 of 23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
d/b/a Carlsbad Medical Center
d/b/a Cedar Park Regional Medical
Center
Carlisle HMA Surgery Center, LLC (PA)
Carlisle HMA, LLC (PA)
Carlisle Medical Group, LLC (PA)
Carlsbad Medical Center, LLC (DE)
Carolinas Holdings, LLC (DE)
Carolinas JV Holdings General, LLC (DE)
Carolinas JV Holdings II, LLC (DE)
Carolinas JV Holdings, L.P. (DE)
Carolinas Medical Alliance, Inc. (SC)
Cedar Park Clinic Asset Holding Company, LLC (DE)
Cedar Park Health System, L.P.* (DE)
Cedar Park Surgery Center, LLC# (TX)
Cedar Park Surgery Center, L.L.P.# (TX)
Center for Adult Healthcare, LLC (DE)
Center for Pain Management, LLC# (DE)
Central Florida HMA Holdings, LLC (DE)
Central Polk, LLC (FL)
Central States HMA Holdings, LLC (DE)
Champion Sports Medicine Birmingham, LLC# (DE)
Chester HMA Physician Management, LLC (SC)
Chester HMA, LLC (SC)
Chester Medical Group, LLC (SC)
Chesterton Surgery Center, LLC* (DE)
CHHS Development Company, LLC (DE)
CHHS Hospital Company, LLC (DE)
CHS Kentucky Holdings, LLC (DE)
CHS PSO, LLC (DE)
CHS Realty Holdings I, LLC (TN)
CHS Realty Holdings II, LLC (TN)
CHS Realty Holdings III, LLC (DE)
CHS Realty Holdings Joint Venture (TN)
CHS Receivables Funding, LLC (DE)
CHS Shared Business Operations, LLC (DE)
CHS Tennessee Holdings, LLC (DE)
CHS Virginia Holdings, LLC (DE)
CHS Washington Holdings, LLC (DE)
Page 3 of 23
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
CHS/Community Health Systems, Inc. (DE)
CHS/Community Health Systems, Inc. Political Action Committee
CHS-ASC, LLC (DE)
CHSPSC ACO 1, LLC (DE)
CHSPSC ACO 10, LLC (DE)
CHSPSC ACO 11, LLC (DE)
CHSPSC ACO 12, LLC (DE)
CHSPSC ACO 13, LLC (DE)
CHSPSC ACO 14, LLC (DE)
CHSPSC ACO 15, LLC (DE)
CHSPSC ACO 16, LLC (DE)
CHSPSC ACO 17, LLC (DE)
CHSPSC ACO 18, LLC (DE)
CHSPSC ACO 19, LLC (DE)
CHSPSC ACO 2, LLC (DE)
CHSPSC ACO 20, LLC (DE)
CHSPSC ACO 21, LLC (DE)
CHSPSC ACO 22, LLC (DE)
CHSPSC ACO 23, LLC (DE)
CHSPSC ACO 24, LLC (DE)
CHSPSC ACO 25, LLC (DE)
CHSPSC ACO 26, LLC (DE)
CHSPSC ACO 27, LLC (DE)
CHSPSC ACO 28, LLC (DE)
CHSPSC ACO 29, LLC (DE)
CHSPSC ACO 3, LLC (DE)
CHSPSC ACO 30, LLC (DE)
CHSPSC ACO 4, LLC (DE)
CHSPSC ACO 5, LLC (DE)
CHSPSC ACO 6, LLC (DE)
CHSPSC ACO 7, LLC (DE)
CHSPSC ACO 8, LLC (DE)
CHSPSC ACO 9, LLC (DE)
CHSPSC ACO Holdings, LLC (DE)
CHSPSC Leasing, Inc. (DE)
CHSPSC, LLC (DE)
Citrus HMA, LLC (FL)
Clarksdale HMA Physician Management, LLC (MS)
Clarksdale HMA, LLC (MS)
Clarksville Endoscopy Center, LLC* (DE)
Page 4 of 23
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Clarksville Health System, G.P.* (DE)
d/b/a Tennova Healthcare - Clarksville
Clarksville Holdings, LLC (DE)
Clarksville Home Care Services, LLC# (DE)
Clarksville Imaging Center, LLC# (TN)
Clarksville Physician Services, G.P.* (DE)
Clarksville Surgicenter, LLC# (TN)
Cleveland ASC Holdings, LLC* (DE)
Cleveland Home Care Services, LLC# (DE)
Cleveland Hospital Company, LLC (TN)
Cleveland Medical Clinic, Inc. (TN)
Cleveland PHO, Inc. (TN)
Cleveland Tennessee Hospital Company, LLC (DE)
d/b/a Tennova Healthcare – Cleveland
d/b/a Newport Medical Center
Clinical Provider Resources, LLC (DE)
Clinton HMA, LLC (OK)
Clinton HMPN, LLC (OK)
Coast Imaging, LLC# (MS)
Coatesville Hospital Corporation (PA)
Cocke County HMA, LLC (TN)
Coffee Hospital Management Associates, Inc. (TN)
College Station Clinic Asset Holding Company, LLC (DE)
College Station Diagnostic Clinic (TX)
College Station Hospital, L.P. (DE)
College Station Medical Center, LLC (DE)
College Station Merger, LLC (DE)
College Station RHC Company, LLC (DE)
Collier Boulevard HMA Physician Management, LLC (FL)
Collier HMA Facility Based Physician Management, LLC (FL)
Collier HMA Neurological Vascular Medical Group, LLC (FL)
Collier HMA Physician Management, LLC (FL)
Commonwealth Health Cancer Network, LLC* (DE)
Commonwealth Health Clinically Integrated Network, LLC (DE)
Commonwealth Health IDTF, LLC (DE)
Commonwealth Physician Network, LLC (DE)
Page 5 of 23
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community GP Corp. (DE)
Community Health Investment Company, LLC (DE)
Community Health Physicians Operations Holding Company, LLC (DE)
Community Health Systems Foundation (TN)
Community Health Systems, Inc. (DE)
Community Insurance Group SPC, LTD. (Cayman Islands)
Compass Imaging, LLC# (MS)
CP Hospital GP, LLC (DE)
CP Premier Urgent Care JV, LLC# (DE)
CPLP, LLC (DE)
Credentialing Verification Services, LLC (DE)
Crestview Hospital Company, LLC (FL)
Crestview Professional Condominiums Association, Inc.* (FL)
Crestview Surgery Center, L.P. (TN)
Crestwood HB Medical Services, LLC (DE)
Crestwood Healthcare, L.P. (DE)
Crestwood Hospital LP, LLC (DE)
Crestwood Hospital, LLC (DE)
Crestwood Occupational Medicine/Convenient Care, LLC (DE)
Crestwood Physician Services, LLC (DE)
Crestwood Surgery Center, LLC (DE)
Crossgates HMA Medical Group, LLC (MS)
Crystal River HMA Physician Management, LLC (FL)
CSMC, LLC (DE)
Dallas Phy Service, LLC (DE)
Dallas Physician Practice, L.P. (DE)
DCF (TX)
Deaconess Health System, LLC* (OK)
Deaconess Holdings, LLC (DE)
Deaconess Hospital Holdings, LLC (DE)
Deaconess Metropolitan Physicians, LLC (DE)
Deaconess Physician Services, LLC (DE)
Dedicated Surgery Center, LLC (DE)
Deming Home Care Services, LLC# (DE)
Desert Hospital Holdings, LLC (DE)
Detar Hospital, LLC (DE)
Detar/USP Surgery Center, LLC# (TX)
DFW Physerv, LLC (DE)
Page 6 of 23
d/b/a North Okaloosa Medical Center
d/b/a Crestwood Medical Center
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
DH Cardiology, LLC (DE)
DHFW Holdings, LLC (DE)
Diagnostic Imaging Management of Brandywine Valley, LLC (PA)
Diagnostic Imaging of Brandywine Valley, LP (PA)
Dukes Health System, LLC (DE)
Dukes Physician Services, LLC (DE)
Dupont Business and Medical Park Association, Inc.# (IN)
Dupont Hospital, LLC* (DE)
Durant H.M.A., LLC* (OK)
Durant HMA Physician Management, LLC (OK)
Dyersburg Clinic Corp. (TN)
Dyersburg HBP Medical Group, LLC (DE)
Dyersburg Hospital Company, LLC (TN)
East Georgia HMA Physician Management, LLC (GA)
d/b/a Dukes Memorial Hospital
d/b/a Dupont Hospital
d/b/a AllianceHealth Durant
East Georgia Regional Medical Center, LLC* (GA)
d/b/a East Georgia Regional Medical Center
East Tennessee Clinic Corp. (TN)
East Tennessee Physical Rehabilitation JV, LLC# (DE)
Easton Hospital Malpractice Assistance Fund, Inc. (PA)
EGF, LLC (DE)
El Dorado Surgery Center, L.P.* (DE)
EL MED, LLC (DE)
Eligibility Screening Services, LLC (DE)
Emporia Clinic Corp. (VA)
Emporia Hospital Corporation (VA)
Enterprise Clinic, LLC (DE)
Fallbrook Hospital Corporation (DE)
First Choice Health Plan of Mississippi, LLC# (MS)
Florida HMA Holdings, LLC (DE)
Florida HMA Regional Service Center, LLC (FL)
Florida West Coast Health Alliance, LLC (DE)
Flowers HB Medical Services, LLC (DE)
Flowood HB Medical Services, LLC (DE)
Flowood Mississippi Imaging, LLC (DE)
Flowood River Oaks HMA Medical Group, LLC (MS)
FMG PrimeCare, LLC (DE)
Page 7 of 23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
Foley ASC, LLC* (DE)
Foley Clinic Corp. (AL)
Foley Hospital Company, LLC (AL)
Fort Smith HMA PBC Management, LLC (AR)
Fort Smith HMA Physician Management, LLC (AR)
Fort Smith HMA, LLC (AR)
Frankfort Health Partner, Inc. (IN)
Franklin Clinic Corp. (VA)
Franklin Hospital Corporation (VA)
FSED Management of Northwest Arkansas, LLC (DE)
FSED Management of West Florida, LLC* (DE)
FWBH, LLC# (DE)
Gadsden HB Medical Services, LLC (DE)
Gadsden Home Care Services, LLC# (DE)
Gadsden Regional Medical Center, LLC (DE)
Gadsden Regional Physician Group Practice, LLC (DE)
Gadsden Surgery Center, Ltd.* (AL)
Gadsden Regional Primary Care, LLC (AL)
Gaffney Clinic Company, LLC (DE)
Gaffney H.M.A., LLC (SC)
Gaffney HMA Physician Management, LLC (SC)
Granbury Clinic Asset Holding Company, LLC (DE)
d/b/a South Baldwin Regional Medical
Center
d/b/a Gadsden Regional Medical Center
Granbury Hospital Corporation (TX)
d/b/a Lake Granbury Medical Center
Granbury Mammography JV, LLC# (DE)
Grandview Medical Group Research, LLC (DE)
Granger Surgery Center, LLC* (IN)
GRB Real Estate, LLC (DE)
Greenbrier Valley Anesthesia, LLC (DE)
Greenbrier Valley Emergency Physicians, LLC (DE)
Greenbrier VMC, LLC (DE)
GRMC Holdings, LLC (DE)
Gulf Coast HMA Physician Management, LLC (FL)
Gulf South Surgery Center, LLC# (MS)
Haines City HMA Physician Management, LLC (FL)
Haines City HMA Urgent Care, LLC (FL)
Haines City HMA, LLC (FL)
Hallmark Healthcare Company, LLC (DE)
Page 8 of 23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
Harrison HMA, LLC (MS)
Harton Clinic Company, LLC (DE)
Hattiesburg HB Medical Services, LLC (DE)
Hattiesburg Home Care Services, LLC# (DE)
Health Education Services, LLC (DE)
Health Management Associates, LLC (DE)
Health Management Associates, LP (DE)
Health Management General Partner I, LLC (DE)
Health Management General Partner, LLC (DE)
Health Management Information Technology, LLC (DE)
Health Management Intellectual Properties, LLC (TX)
Health Management Physician Associates, LLC (DE)
HealthTrust Purchasing Group, L.P.# (DE)
Healthwest Holdings, Inc. (AZ)
Heritage Healthcare Innovation Fund II, LP# (DE)
Heritage Healthcare Innovation Fund III, LP# (DE)
Hernando HMA, LLC (FL)
Highland Health Systems, Inc. (TX)
Highway 90 Development, LLC (FL)
Hill Country ASC Partners, L.L.C.# (TX)
Hill Regional Clinic Corp. (TX)
HIM Central Services, LLC (DE)
HMA Bayflite Services, LLC (FL)
HMA CAT, LLC (TX)
HMA Fentress County General Hospital, LLC (TN)
HMA Hospital Holdings, LP (DE)
HMA Lake Shore, Inc.* (FL)
HMA MRI, LLC (TX)
HMA Professional Services Group, LP (DE)
HMA Santa Rosa Medical Center, LLC (FL)
HMA Services GP, LLC (DE)
HMA/Solantic Joint Venture, LLC# (DE)
HMA-TRI Holdings, LLC (DE)
Hobbs Medco, LLC (DE)
HOF ASC Holdings, LLC (DE)
Hood Medical Group (TX)
d/b/a Santa Rosa Medical Center
Page 9 of 23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
Hood Medical Services, Inc. (TX)
Hospital Laundry Services, Inc.# (IN)
Hospital Management Associates, LLC (FL)
Hospital Management Services of Florida, LP (FL)
Hospital of Fulton, Inc. (KY)
Hospital of Morristown, LLC (TN)
Hot Springs Outpatient Surgery Center, G.P. (AR)
HP LRHS Land, LLC# (IN)
HTI Tucson Rehabilitation, Inc. (AZ)
Imaging JV Holdings, LLC (DE)
INACTCO, Inc. (DE)
Intermountain Medical Group, Inc. (PA)
IOM Health System, L.P.* (IN)
Jackson County Heart ASC#, LLC (DE)
Jackson HB Medical Services, LLC (DE)
Jackson HMA North Medical Office Building, LLC (MS)
Jackson HMA, LLC (MS)
Jackson Home Care Services, LLC# (DE)
Jackson Hospital Corporation (TN)
Jackson, Tennessee Hospital Company, LLC (TN)
Jamestown HMA Physician Management, LLC (TN)
Jefferson ASC, LLC* (DE)
Jefferson ASC Holdings, LLC* (DE)
Jefferson County HMA, LLC (TN)
Jennersville Regional Hospital Malpractice Assistance Fund, Inc. (PA)
Jourdanton Hospital Corporation (TX)
Kay County Clinic Company, LLC (OK)
Kay County Hospital Corporation (OK)
Kay County Oklahoma Hospital Company, LLC (OK)
Kennett HMA Physician Management, LLC (MO)
Kennett HMA, LLC (MO)
Key West HMA Physician Management, LLC (FL)
Key West HMA, LLC (FL)
Key West Home Health, LLC# (FL)
Page 10 of 23
d/b/a Lutheran Hospital of Indiana
d/b/a Merit Health Central
d/b/a Jefferson Memorial Hospital
d/b/a Lower Keys Medical Center
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
Key West Private Care, LLC# (FL)
Keystone HMA Property Management, LLC (PA)
Kirksville Clinic Corp. (MO)
Kirksville Home Care Services, LLC# (MO)
Kirksville Hospital Company, LLC (DE)
Kirksville Missouri Hospital Company, LLC* (MO)
Kirksville Physical Therapy Services, LLC (DE)
Knox Hospital Company, LLC (DE)
Knoxville Center for Behavioral Medicine, LLC# (DE)
Knoxville HB Medical Services, LLC (DE)
Knoxville HMA Cardiology PPM, LLC (TN)
Knoxville HMA Development, LLC (TN)
Knoxville HMA Holdings, LLC (TN)
Knoxville HMA Homecare DME & Hospice, LLC (TN)
Knoxville HMA JV Holdings, LLC (TN)
Knoxville HMA Mission Services, LLC (TN)
Knoxville HMA Physician Management, LLC (TN)
Knoxville HMA Wellness Center, LLC (TN)
Knoxville Home Care Services, LLC# (DE)
Knoxville Rehabilitation Hospital, LLC# (DE)
Knoxville, Tennessee Turkey Creek MOB, LLC (DE)
Kosciusko Ambulance Services, LLC (DE)
Kosciusko Medical Group, LLC (DE)
La Porte and Starke EMS, LLC (DE)
La Porte Clinic Company, LLC (DE)
La Porte Health System, LLC (DE)
La Porte Home Care Services, LLC# (DE)
La Porte Hospital Company, LLC (DE)
La Porte Occupational Health Services, LLC (DE)
Lake Granbury HB Medical Services, LLC (DE)
Lake Granbury Hospital-Based Professional Services (TX)
Lake Shore HMA Medical Group, LLC* (FL)
Lake Shore HMA, LLC* (FL)
Lake Wales Clinic Corp. (FL)
Lake Wales Hospital Corporation (FL)
Lake Wales Hospital Investment Corporation (FL)
Page 11 of 23
d/b/a Northeast Regional Medical
Center
d/b/a Northwest Health – Starke
d/b/a Northwest Health – La Porte
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
Lakeway Hospital Company, LLC (TN)
Lancaster Clinic Corp. (SC)
Lancaster HMA Physician Management, LLC (PA)
Lancaster HMA, LLC (PA)
Lancaster Hospital Corporation (DE)
Lancaster Imaging Center, LLC (SC)
Lancaster Medical Group HMA, LLC (PA)
Lancaster Medical Group, LLC (PA)
Lancaster Outpatient Imaging, LLC (PA)
Langtree Endoscopy Center, LLC* (DE)
Laredo Clinic Asset Holding Company, LLC (DE)
Laredo Texas Hospital Company, L.P. (TX)
Las Cruces ASC-GP, LLC (DE)
Las Cruces HB Medical Services, LLC (DE)
Las Cruces Home Care Services, LLC# (DE)
Las Cruces Medical Center, LLC (DE)
Las Cruces Physician Services, LLC (DE)
Las Cruces Surgery Center – Telshor, LLC (DE)
Las Cruces Surgery Center, L.P.* (DE)
Lea Regional Hospital, LLC (DE)
Lebanon HMA Physician Management, LLC (TN)
Lebanon HMA Surgery Center, LLC (TN)
Lebanon HMA, LLC (TN)
Lehigh HMA, LLC (FL)
LHT Knoxville Properties, LLC# (DE)
Little Rock HMA, Inc. (AR)
Live Oak HMA Medical Group, LLC* (FL)
Live Oak HMA, LLC* (FL)
Lone Star HMA, L.P. (DE)
Longview Clinic Operations Company, LLC (DE)
Longview Medical Center, L.P. (DE)
Longview Merger, LLC (DE)
Longview Regional Hospital-Based Professional Services (TX)
Louisburg HMA Physician Management, LLC (NC)
Lower Florida Keys Physician/Hospital Organization, Inc.# (FL)
LRH, LLC (DE)
Lufkin Clinic Asset Holding Company, LLC (DE)
Lutheran HBP Services, LLC (DE)
Page 12 of 23
d/b/a Laredo Medical Center
d/b/a Mountain View Regional Medical
Center
d/b/a Longview Regional Medical
Center
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Lutheran Health Imaging, LLC (DE)
Lutheran Health Network Investors, LLC* (DE)
Lutheran Health Network of Indiana, LLC (DE)
Lutheran Health Quality Alliance, LLC (DE)
Lutheran Medical Group, LLC (DE)
Lutheran Medical Office Park Phase II Property Owners Association, Inc. # (IN)
Lutheran Medical Office Park Property Owners Association, Inc.# (IN)
Lutheran Musculoskeletal Center, LLC* (DE)
Lutheran/TRMA Network, LLC# (IN)
Madison Clinic Corp. (TN)
Madison Health System, LLC# (DE)
Madison HMA Physician Management, LLC# (MS)
Madison HMA, LLC# (MS)
Marion Physician Services, LLC (DE)
Marshall County HMA, LLC (OK)
Marshall County HMPN, LLC (OK)
Martin Clinic Corp. (TN)
Martin Hospital Company, LLC (TN)
Mary Black HealthNetwork, Inc.# (SC)
Mary Black Health System LLC (DE)
Mary Black Medical Office Building Limited Partnership (SC)
Mary Black MOB II Limited Partnership (SC)
Mary Black Physician Services, LLC (DE)
Mary Black Physicians Group, LLC (DE)
Mat-Su Valley III, LLC* (AK)
Mat-Su Valley Medical Center, LLC* (AK)
Mayes County HMA, LLC (OK)
Mayes County HMPN, LLC (OK)
MBBG, LLC (AL)
MBDD, LLC (DE)
McKenna Court Homes, LLC (DE)
McNairy Clinic Corp. (TN)
McNairy Hospital Corporation (TN)
MCSA, L.L.C. (AR)
Medical Center of Brownwood, LLC (DE)
MEDSTAT, LLC (IN)
Melbourne HMA, LLC (FL)
Mercy Cardiovascular Cath Lab, LLC# (PA)
Page 13 of 23
d/b/a The Orthopaedic Hospital of Lutheran
Health Network
d/b/a Merit Health Madison
d/b/a AllianceHealth Madill
d/b/a Mat-Su Regional Medical Center
Community Health Systems, Inc.
SUBSIDIARY LISTING
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Mesquite HMA General, LLC (DE)
Metro Knoxville HMA, LLC (TN)
Michigan City MOB, LLC# (IN)
Middlebrook ASC, LLC* (DE)
Middlebrook Property Partners, LLC# (DE)
Midwest City HMA Physician Management, LLC* (OK)
Midwest Regional Medical Center, LLC* (OK)
Mississippi HMA Holdings I, LLC (DE)
Mississippi HMA Holdings II, LLC (DE)
Mississippi HMA Hospitalists, LLC (MS)
Missouri HB Medical Services, LLC (DE)
Moberly Hospital Company, LLC (DE)
Moberly Medical Clinics, Inc. (MO)
Mooresville HMA Investors, LLC* (NC)
Mooresville HMA Physician Management, LLC (NC)
Mooresville Home Care Services, LLC# (DE)
Exhibit 21
as of 12/31/23
d/b/a Turkey Creek Medical Center; North Knoxville
Medical Center
d/b/a Moberly Regional Medical Center
Mooresville Hospital Management Associates, LLC (NC)
d/b/a Lake Norman Regional Medical Center
Mooresville PPM, LLC (NC)
Morristown Clinic Corp. (TN)
Morristown Surgery Center, LLC (TN)
Munroe HMA HMPN, LLC (FL)
Munroe HMA Holdings, LLC (FL)
Munroe HMA Hospital, LLC (FL)
Naples HB Anesthesia Services, LLC (DE)
Naples HMA, LLC (FL)
Natchez Clinic Company, LLC (DE)
Natchez HB Medical Services, LLC (DE)
Natchez HBP Services, LLC (DE)
Natchez Hospital Company, LLC (DE)
National Healthcare of Leesville, Inc. (DE)
National Healthcare of Newport, Inc. (DE)
Navarro Clinic Asset Holding Company, LLC (DE)
Navarro Hospital, L.P. (DE)
Navarro Regional, LLC (DE)
d/b/a Physicians Regional Medical Center – Pine
Ridge; Physicians Regional Medical Center –
Collier
d/b/a Merit Health Natchez
d/b/a Navarro Regional Hospital
Page 14 of 23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
NC-DSH, LLC (DE)
New Cedar Lake Surgery Center, LLC# (MS)
Newport Physician Clinics, Inc. (AR)
North Okaloosa Clinic Corp. (FL)
North Okaloosa Home Health, LLC# (FL)
North Okaloosa Medical Company, LLC (FL)
North Okaloosa Surgery Venture Corp. (FL)
Northampton Cardiology Clinic, LLC (DE)
Northampton Clinic Company, LLC (DE)
Northampton Hospital Company, LLC (DE)
Northampton Physician Services Corp. (PA)
Northampton Urgent Care, LLC (DE)
Northern Indiana Oncology Center of Porter Memorial Hospital, LLC* (IN)
Northwest Allied Physicians, LLC (DE)
Northwest Arkansas Employees, LLC (DE)
Northwest Arkansas HBP Services, LLC (DE)
Northwest Arkansas Hospitals, LLC (DE)
Northwest Arkansas Paramed Transfer, LLC (DE)
Northwest Benton County Physician Services, LLC (DE)
Northwest Cardiology, LLC (DE)
Northwest HBP Medical Services, LLC (DE)
Northwest Hospital Cardiac Diagnostics, L.P. (TN)
Northwest Hospital, LLC (DE)
Northwest Imaging Associates, LLC (DE)
Northwest Indiana Health System, LLC* (DE)
Northwest Physicians, LLC (AR)
Northwest Sahuarita Hospital, LLC (DE)
Northwest Therapy Holdings, LLC (DE)
Northwest Urgent Care, LLC (DE)
Northwest Women’s Health, LLC (DE)
Northwest-Sparks Quality Alliance, LLC (DE)
NOV Holdings, LLC (DE)
Novamed Surgery Center of Cleveland ASC, LLC# (DE)
NRH, LLC (DE)
Oak Hill Clinic Corp. (WV)
Oak Hill Hospital Corporation (WV)
Oklahoma City ASC-GP, LLC (DE)
Page 15 of 23
d/b/a Northwest Medical Center – Bentonville; Northwest
Medical Center – Springdale; Willow Creek Women’s
Hospital
d/b/a Northwest Medical Center
d/b/a Northwest Medical Center Sahuarita; Northwest
Medical Center Houghton
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
Olive Branch Clinic Corp. (MS)
Olive Branch Hospital, Inc. (MS)
One Boyertown Properties, L.P.# (PA)
Open Air of MSLOU, L.L.C. (LA)
OPS Dupont, LLC (DE)
Oro Valley Hospital, LLC (DE)
Pacific Group ASC Division, Inc. (AZ)
Pacific Physicians Services, LLC (DE)
Palmer-Wasilla Health System, LLC (DE)
Palmetto Tri-County Medical Specialists, LLC (DE)
Parkway Regional Medical Clinic, Inc. (KY)
Pasco Hernando HMA Physician Management, LLC* (FL)
Pasco Regional Medical Center, LLC (FL)
Payson Healthcare Management, Inc. (AZ)
Payson Hospital Corporation (AZ)
Peckville Hospital Company, LLC (DE)
Pecos Valley of New Mexico, LLC (DE)
Petersburg Hospital Company, LLC (VA)
Pflugerville Surgery Center, LLC# (TX)
Phoenixville Hospital Company, LLC (DE)
Phoenixville Hospital Malpractice Assistance Fund, Inc. (PA)
Physician Practice Support, LLC (TN)
Piedmont Surgical Center of Excellence, LLC (DE)
Piney Woods Healthcare System, L.P.* (DE)
Ponca City Home Care Services, LLC# (OK)
Poplar Bluff HMA Physician Management, LLC (MO)
Poplar Bluff Regional Medical Center, LLC (MO)
Port Charlotte HBP Services, LLC (DE)
Port Charlotte HMA Physician Management, LLC (FL)
Port Charlotte HMA, LLC (FL)
Porter Health Services, LLC (DE)
Porter Hospital, LLC* (DE)
Porter Physician Services, LLC (DE)
Pottstown Hospital Company, LLC (DE)
d/b/a Oro Valley Hospital
d/b/a Woodland Heights Medical Center
d/b/a Poplar Bluff Regional Medical
Center
d/b/a ShorePoint Health Port Charlotte
d/b/a Northwest Health - Porter
Page 16 of 23
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Pottstown Hospital Corporation (PA)
Pottstown Memorial Malpractice Assistance Fund, Inc. (PA)
Preferential Health Network, Inc.# (SC)
Premier Care Super PHO, LLC (DE)
PremierCare of Northwest Arkansas, LLC (AR)
Professional Account Services Inc. (TN)
Punta Gorda HB Medical Services, LLC (DE)
Punta Gorda HMA Physician Management, LLC (FL)
Punta Gorda HMA, LLC (FL)
d/b/a ShorePoint Health Punta Gorda
Punta Gorda Medical Arts Center Association, Inc. (FL)
QHG Georgia Holdings II, LLC (DE)
QHG Georgia Holdings, Inc. (DE)
QHG Georgia, LP (GA)
QHG of Barberton, Inc. (OH)
QHG of Bluffton Company, LLC (DE)
QHG of Clinton County, Inc. (IN)
QHG of Enterprise, Inc. (AL)
QHG of Forrest County, Inc. (MS)
QHG of Fort Wayne Company, LLC (DE)
QHG of Hattiesburg, Inc. (MS)
QHG of Ohio, Inc. (OH)
QHG of South Carolina, Inc. (SC)
QHG of Spartanburg, Inc. (SC)
QHG of Springdale, Inc. (AR)
QHG of Texas, Inc. (TX)
QHG of Warsaw Company, LLC (DE)
Regional Cardiology Group, LLC (DE)
Regional Clinics of Longview (TX)
Regional Employee Assistance Program (TX)
Regional Hospital of Longview, LLC (DE)
Rehab Hospital of Fort Wayne, LLC# (DE)
Revenue Cycle Service Center, LLC (DE)
RHFW Holdings, LLC (DE)
River Oaks Hospital, LLC (MS)
River Oaks Management Company, LLC (MS)
River Oaks Medical Office Building, LLC (MS)
River Region Medical Corporation (MS)
Riverpark ASC, LLC# (LA)
Rockledge HMA Convenient Care, LLC (FL)
d/b/a Medical Center Enterprise
d/b/a Merit Health River Oaks
Page 17 of 23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
Rockledge HMA Medical Group, LLC (FL)
Rockledge HMA Urgent Care, LLC (FL)
Rockledge HMA, LLC (FL)
ROH, LLC (MS)
Ronceverte Physician Group, LLC (DE)
Rose City HMA Medical Group, LLC (PA)
Rose City HMA, LLC (PA)
Roswell Clinic Corp. (NM)
Roswell Hospital Corporation (NM)
Ruston Hospital Corporation (DE)
Ruston Louisiana Hospital Company, LLC (DE)
SACMC, LLC (DE)
Salem Clinic Corp. (NJ)
Salem Home Care Holdings, LLC (DE)
Salem Home Care Services, LLC (DE)
Salem Hospital Corporation (NJ)
Salem Medical Professionals, Inc. (NJ)
Samaritan Surgicenters of Arizona II, LLC (AZ)
San Angelo Community Medical Center, LLC (DE)
San Angelo Hospital, L.P. (DE)
San Angelo Medical, LLC (DE)
Santa Rosa HB Medical Services, LLC (DE)
Santa Rosa HMA Physician Management, LLC (FL)
Scott County HMA, LLC (TN)
Scranton Cardiovascular Physician Services, LLC (DE)
Scranton Clinic Company, LLC (DE)
Scranton Emergency Physician Services, LLC (DE)
Scranton GP Holdings, LLC (DE)
Scranton Holdings, LLC (DE)
Scranton Hospital Company, LLC (DE)
Scranton Hospitalist Physician Services, LLC (DE)
Scranton Quincy Ambulance, LLC (DE)
Scranton Quincy Clinic Company, LLC (DE)
Scranton Quincy Home Care Services, LLC# (DE)
Scranton Quincy QRFS, LLC (DE)
Sebastian HMA Physician Management, LLC (FL)
Sebastian Home Care Services, LLC# (DE)
d/b/a Merit Health Woman’s Hospital
d/b/a Eastern New Mexico Medical
Center
d/b/a Regional Hospital of Scranton; Moses
Taylor Hospital
Page 18 of 23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
Sebastian Hospital, LLC (FL)
Sebastopol, LLC (DE)
Sebring HMA Physician Management, LLC (FL)
Sebring Hospital Management Associates, LLC (FL)
Select Specialty Hospital - Tucson, LLC# (DE)
Select Tucson Holdings, LLC# (DE)
Seminole HMA, LLC (OK)
Seminole HMPN, LLC (OK)
Sharon Clinic Company, LLC (DE)
Sharon Pennsylvania Hospital Company, LLC (DE)
Sharon Regional HBP Medical Group, LLC (DE)
Shelby Alabama Real Estate, LLC (DE)
Shelbyville Clinic Corp. (TN)
Shelbyville Home Care Services, LLC# (DE)
Shelbyville Hospital Company, LLC (TN)
Siloam Springs Arkansas Hospital Company, LLC (DE)
Siloam Springs Clinic Company, LLC (DE)
Siloam Springs Holdings, LLC (DE)
Silver Creek MRI, LLC (AZ)
SJ Home Care, LLC# (DE)
SkyRidge Clinical Associates, LLC (DE)
Solis Mammography at Navarro Regional Hospital, LLC# (DE)
South Abilene Radiology, LLC (DE)
South Arkansas Physician Services, LLC (DE)
SouthCrest, L.L.C. (OK)
Southeast Alabama Maternity Center, LLC (AL)
Southeast HMA Holdings, LLC (DE)
Southern Health Network, Inc.# (DE)
Southern Texas Medical Center, LLC (DE)
Southside Physician Network, LLC (DE)
Southwest Florida HMA Holdings, LLC (DE)
Southwest Physicians Risk Retention Group, Inc. (SC)
Sparks PremierCare, L.L.C. (AR)
Spokane Valley Washington Hospital Company, LLC (DE)
Page 19 of 23
d/b/a Siloam Springs Regional Hospital;
Northwest Health Physicians’ Specialty
Hospital, a campus of Siloam Springs
Regional Hospital
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
d/b/a Lutheran Downtown Hospital
d/b/a Davis Regional Medical Center
Spokane Washington Hospital Company, LLC (DE)
Spring Hill HMA Medical Group, LLC (FL)
Springdale-Bentonville HBP Services, LLC (DE)
Springdale Home Care Services, LLC# (DE)
Sprocket Medical Management, LLC (TX)
SS ParentCo., LLC (DE)
St. Joseph Health System, LLC* (DE)
Starke HMA Medical Group, LLC* (FL)
Starke HMA, LLC* (FL)
Statesboro HMA Medical Group, LLC (GA)
Statesboro HMA Physician Management, LLC (GA)
Statesville HMA Medical Group, LLC (NC)
Statesville HMA, LLC (NC)
Summit Surgical Suites, LLC* (IN)
Supply Chain Shared Service Center, LLC (DE)
Surgery Center of Key West, LLC* (FL)
Surgical Center of Carlsbad, LLC (DE)
Surgicare of Clarksville, LLC# (TN)
Surgicare of San Leandro, Inc. (CA)
Surgicare of Sherman, Inc. (TX)
Surgicare Outpatient Center of Lake Charles, Inc. (LA)
Surgicenters of America, Inc. (AZ)
Susitna ASC Holdings, LLC* (DE)
Susitna Surgery Center, LLC* (DE)
Tendo Systems, Inc.# (DE)
Tennessee HMA Holdings, LP (DE)
Tennova Medical Park Property Owner’s Association, Inc.* (TN)
Tennyson Holdings, LLC (DE)
Texas Bay Area Clinical Services, Inc.# (TX)
The Sleep Disorder Center of Wyoming Valley, LLC (PA)
The Surgeon’s Point Surgery Center, LLC# (TX)
The Surgery Center, LLC# (MS)
The Vicksburg Clinic, LLC (DE)
Timberland Medical Group (TX)
Tomball Ambulatory Surgery Center, L.P. (TX)
Tomball Clinic Asset Holding Company, LLC (DE)
Tomball Texas Hospital Company, LLC (DE)
Page 20 of 23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
Tomball Texas Ventures, LLC (DE)
Triad Healthcare, LLC (DE)
Triad Holdings III, LLC (DE)
Triad Holdings IV, LLC (DE)
Triad Holdings V, LLC (DE)
Triad Indiana Holdings, LLC* (DE)
Triad Nevada Holdings, LLC (DE)
Triad of Alabama, LLC (DE)
Triad of Arizona (L.P.), Inc. (AZ)
Triad of Phoenix, Inc. (AZ)
Triad-Arizona I, Inc. (AZ)
Triad-ARMC, LLC (DE)
Triad-El Dorado, Inc. (AR)
Triad-Navarro Regional Hospital Subsidiary, LLC (DE)
Triad-South Tulsa Hospital Company, Inc. (OK)
Tucson ASC Holdings, LLC# (DE)
Tucson Home Care Services, LLC# (DE)
Tug Valley Healthcare Alliance, Inc. (WV)
Tullahoma HMA Physician Management, LLC (TN)
Tullahoma HMA, LLC (TN)
United Vascular of Huntsville*, LLC (DE)
Utilization Review Services, LLC (DE)
Valparaiso Home Care Services, LLC# (DE)
Van Buren H.M.A., LLC (AR)
Van Buren HMA Central Business Office, LLC (AR)
Vanderbilt-Ingram Cancer Center at Tennova Healthcare-Clarksville# (DE)
Venice HMA, LLC (FL)
Venice Home Care Services, LLC# (DE)
Vero Beach Florida ASC, LLC* (DE)
VHC Medical, LLC (DE)
Vicksburg HB Medical Services, LLC (DE)
Vicksburg Healthcare, LLC (DE)
Victoria Ambulatory Surgery Center, L.P.# (DE)
Victoria Clinic Asset Holding Company, LLC (DE)
Victoria Hospital, LLC (DE)
Victoria of Texas, L.P. (DE)
Victoria Texas Home Care Services, LLC# (DE)
Virginia Hospital Company, LLC (VA)
Virtual Nursing Services, LLC (DE)
Page 21 of 23
d/b/a Flowers Hospital
d/b/a Merit Health River Region
d/b/a DeTar Hospital Navarro; DeTar Hospital
North
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
d/b/a Lutheran Kosciusko Hospital
d/b/a Merit Health Wesley
d/b/a Wilkes-Barre General Hospital
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
VirtualHealthConnect, LLC (DE)
Warren Ohio Hospital Company, LLC (DE)
Warren Ohio Rehab Hospital Company, LLC (DE)
Warsaw Health System, LLC (DE)
Washington Clinic Corp. (MS)
Washington Hospital Corporation (MS)
Washington Physician Corp. (MS)
Weatherford Hospital Corporation (TX)
Weatherford Texas Hospital Company, LLC (TX)
Webb County Texas Home Care Services, LLC# (DE)
Webb Hospital Corporation (DE)
Webb Hospital Holdings, LLC (DE)
Wesley Health System LLC (DE)
Wesley Physician Services, LLC (DE)
West Grove Hospital Company, LLC (DE)
Western Arizona Regional Home Health and Hospice, LLC# (AZ)
Whitestone Holdco, LLC (DE)
WHMC, LLC (DE)
Wilkes-Barre Academic Medicine, LLC (DE)
Wilkes-Barre Behavioral Hospital Company, LLC (DE)
Wilkes-Barre Clinic Company, LLC (DE)
Wilkes-Barre Community Residential Unit, LLC (DE)
Wilkes-Barre Holdings, LLC (DE)
Wilkes-Barre Home Care Services, LLC# (DE)
Wilkes-Barre Hospital Company, LLC (DE)
Wilkes-Barre Intermountain Clinic, LLC (DE)
Wilkes-Barre Personal Care Services, LLC (DE)
Wilkes-Barre Radiation Oncology, LLC# (DE)
Wiregrass Clinic, LLC (DE)
Women & Children’s Hospital, LLC (DE)
Women’s Health Partners, LLC (DE)
Women’s Health Specialists of Birmingham, Inc. (AL)
Women’s Health Specialists of Carlisle, LLC (PA)
Woodland Heights Medical Center, LLC (DE)
Woodward Clinic Company, LLC (DE)
Woodward Health System, LLC (DE)
Yakima HMA Physician Management, LLC (WA)
Yakima HMA, LLC (WA)
York Anesthesiology Physician Services, LLC (DE)
Page 22 of 23
Community Health Systems, Inc.
SUBSIDIARY LISTING
Exhibit 21
as of 12/31/23
(*) Majority position held in an entity with physicians, non-profit entities or both
(#) Minority position held in a non-consolidating entity
York Clinic Company, LLC (DE)
York Pathology Physician Services, LLC (DE)
York Pennsylvania Hospital Company, LLC (DE)
Youngstown Ohio Hospital Company, LLC (DE)
Page 23 of 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in Registration Statement No. 333-262858 on Form S-3 and Registration Statement Nos. 333-121282, 333-
163689, 333-163691, 333-176893, 333-188343, 333-190260, 333-197813, 333-207772, 333-212874, 333-214389, 333-226455, 333-240174, 333-258268,
333-258269, and 333-273663 on Form S-8 of our reports dated February 21, 2024, relating to the consolidated financial statements of Community Health
Systems, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual
Report on Form 10-K of the Company for the year ended December 31, 2023.
/s/ Deloitte & Touche LLP
Nashville, Tennessee
February 21, 2024
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Tim L. Hingtgen, certify that:
1. I have reviewed this annual report on Form 10-K of Community Health Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 21, 2024
/s/ Tim L. Hingtgen
Tim L. Hingtgen
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Kevin J. Hammons, certify that:
1. I have reviewed this annual report on Form 10-K of Community Health Systems, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 21, 2024
/s/ Kevin J. Hammons
Kevin J. Hammons
President and Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Community Health Systems, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2023, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tim L. Hingtgen, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.1
February 21, 2024
/s/ Tim L. Hingtgen
Tim L. Hingtgen
Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Community Health Systems, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2023, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin J. Hammons, President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.2
February 21, 2024
/s/ Kevin J. Hammons
Kevin J. Hammons
President and Chief Financial Officer
Exhibit 97
Community Health Systems, Inc.
Amended and Restated Clawback Policy
Section 1.
Overview. The purpose of this Amended and Restated Clawback Policy of the Company (as amended from time to
time, the “Policy”), dated as of September 13, 2023 (the “Adoption Date”) is to set forth (i) recoupment terms applicable to current and
former Executive Officers (as defined below) pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010, as codified by Section 10D of the Exchange Act, and the rules and requirements of the NYSE (including Section 303A.14 of the NYSE
Listed Company Manual) (such legal requirements, and rules and requirements of the NYSE, collectively, the “SEC/NYSE Clawback
Rules”), as provided in Section 3 of this Policy and the other applicable provisions set forth herein (such recoupment terms, the “NYSE
Clawback Provisions”), and (ii) recoupment terms applicable to Discretionary Clawback Participants as provided in Section 4 of this Policy
and the other applicable provisions set forth herein (such recoupment terms, the “Discretionary Clawback Provisions”).
Section 2.
Definitions. For purposes of this Policy, the following capitalized terms shall have the meanings set forth below:
(a) “Accounting Restatement” shall mean an accounting restatement due to the material noncompliance of the Company with any
financial reporting requirement under the securities laws, including any required accounting restatement (i) to correct an error in previously
issued consolidated financial statements that is material to the previously issued consolidated financial statements (a “Big R” restatement), or
(ii) that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (a
“little r” restatement).
(b) “Board” shall mean the Board of Directors of the Company.
(c) “Clawback Policy Individual” means, as applicable, any (i) current or former Executive Officer, and (ii) any Discretionary
Clawback Participant (whether or not still employed by the Company Group).
(d) “Clawback Period” shall mean, with respect to any Accounting Restatement, the three completed fiscal years of the Company
immediately preceding the Restatement Date and any transition period (that results from a change in the Company’s fiscal year) of less than
nine months within or immediately following those three completed fiscal years.
(e) “Committee” shall mean the Compensation Committee of the Board.
(f) “Common Stock” shall mean the common stock, par value $.01 per share, of the Company.
(g) “Company” shall mean Community Health Systems, Inc., a Delaware corporation.
(h) “Company Group” shall mean the Company, together with each of its direct and indirect subsidiaries.
(i) “Discretionary Clawback Eligible Incentive Compensation” shall mean all Incentive-Based Compensation Received by any
current or former Discretionary Clawback Participant on or after the Effective Date, provided that:
(i)
such individual served as an employee of the Company Group at any time during the performance period for such
Incentive-Based Compensation; and
(ii)
such Incentive-Based Compensation is received during the applicable Clawback Period.
(j) “Discretionary Clawback Participant” means (i) any employee of the Company Group receiving equity awards from the
Company pursuant to (x) the Community Health Systems, Inc. 2009 Stock Option and Award Plan, as amended and restated or otherwise
amended from time to time, or (y) any other equity incentive plan of the Company adopted following the Adoption Date, (ii) any employee of
the Company Group receiving any short-term cash incentive award from the Company pursuant to (a) the Community Health Systems, Inc.
2019 Employee Performance Incentive Plan, as amended from time to time (the “2019 Plan”), or (b) any other short-term cash incentive plan
of the Company adopted following the Adoption Date, and (iii) any other employee of the Company Group hereafter designated as a
“Discretionary Clawback Participant” by the Committee.
(k) “Effective Date” shall mean October 2, 2023 (which is the effective date of the final NYSE listing standards).
(l) “Erroneously Awarded Compensation” shall mean:
(i)
with respect to any current or former Executive Officer in connection with any Accounting Restatement, the
amount of NYSE Clawback Eligible Incentive Compensation Received by such current or former Executive Officer that exceeds the amount
of NYSE Clawback Eligible Incentive Compensation that otherwise would have been Received by such current or former Executive Officer
had such NYSE Clawback Eligible Incentive Compensation been determined based on the restated amounts as reflected in such Accounting
Restatements, computed without regard to any taxes paid; and
(ii)
in connection with any Bad Act Accounting Restatement with respect to which any Discretionary Clawback
Participant is a Bad Actor Discretionary Clawback Participant, the amount of Discretionary Clawback Eligible Incentive Compensation
Received by such Bad Actor Discretionary Clawback Participant that exceeds the amount of Discretionary Clawback Eligible Incentive
Compensation that otherwise would have been Received by such Bad Actor Discretionary Clawback Participant had such Discretionary
Clawback Eligible Incentive Compensation been determined based on the restated amounts as reflected in connection with such Bad Act
Accounting Restatement, computed without regard to any taxes paid.
(m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(n) “Executive Officer” shall mean any officer of the Company as defined in Rule 10D-1(d) (or any successor provision thereof)
under the Exchange Act.
(o) “Financial Reporting Measures” shall mean measures that are determined and presented in accordance with the accounting
principles used in preparing the Company’s consolidated financial statements, and any other measures that are derived wholly or in part from
such measures. For purposes of this Policy, stock price and total shareholder return (and any measures that are derived wholly or in part from
stock price or total shareholder return) shall be considered Financial Reporting Measures. For the avoidance of doubt, a Financial Reporting
Measure need not be presented within the Company’s consolidated financial statements or included in a filing with the SEC.
2
(p) “Incentive-Based Compensation” shall mean any compensation that is granted, earned or vested based wholly or in part upon
the attainment of a Financial Reporting Measure.
(q) “NYSE” shall mean the New York Stock Exchange.
(r) “NYSE Clawback Eligible Incentive Compensation” shall mean all Incentive-Based Compensation Received by any current or
former Executive Officer on or after the Effective Date, provided that:
(i)
(ii)
(iii)
such Incentive-Based Compensation is Received after such individual began serving as an Executive Officer;
such individual served as an Executive Officer at any time during the performance period for such Incentive-
Based Compensation;
such Incentive-Based Compensation is Received while the Company has a class of securities listed on the NYSE;
and
(iv)
such Incentive-Based Compensation is Received during the applicable Clawback Period.
(s) “Received” shall mean when Incentive-Based Compensation is received, and Incentive-Based Compensation shall be deemed
received in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-Based Compensation award
is attained, even if payment or grant of the Incentive-Based Compensation occurs after the end of that period.
(t) “Restatement Date” shall mean the earlier to occur of (i) the date the Board, a committee of the Board or the officers of the
Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is
required to prepare an Accounting Restatement, or (ii) the date a court, regulator or other legally authorized body directs the Company to
prepare an Accounting Restatement.
(u) “SEC” shall mean the U.S. Securities and Exchange Commission.
Section 3.
NYSE Clawback Provisions.
3.1. Recoupment of Erroneously Awarded Compensation from Executive Officers. In the event that the Company is required
to prepare an Accounting Restatement, (i) the Committee shall determine the amount of any Erroneously Awarded Compensation for each
applicable current or former Executive Officer (whether or not such individual is serving as an Executive Officer at such time) (the
“Applicable Executives”) in connection with such Accounting Restatement, and (ii) the Company will reasonably promptly require the
recoupment of the amount of such Erroneously Awarded Compensation from any such Applicable Executive, and any such Applicable
Executive shall surrender such Erroneously Awarded Compensation to the Company, at such time(s), and via such method(s), as determined
by the Committee in accordance with the terms of this Policy.
3.2 Impracticability Exceptions. Notwithstanding anything herein to the contrary, the Company shall not be required to recover
Erroneously Awarded Compensation from any Applicable Executive pursuant to the terms of this Policy if (1) the Committee determines that
such recovery would be impracticable, and (2) any of the following conditions is met:
3
(a)
the direct expenses paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered, provided
that, before concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on expense of
enforcement pursuant to this clause (a), the Company has (x) made a reasonable attempt to recover such Erroneously Awarded
Compensation, (y) documented such reasonable attempt(s) to recover, and (z) provided such documentation to the NYSE;
(b) recovery would violate home country law where that law was adopted prior to November 28, 2022, provided that, before
determining that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on violation of home country
law, the Company has obtained an opinion of home country counsel, acceptable to the NYSE, that recovery would result in such a violation,
has provided copy of the opinion is provided to the NYSE; or
(c) recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to
employees of the Company Group, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
3.3 Acknowledgment. Each Executive Officer shall be required to sign and return to the Company the form of acknowledgment
to this Policy in the form attached hereto as Exhibit A pursuant to which such Executive Officer will agree to be bound by the terms and
comply with this Policy.
Section 4.
Discretionary Clawback Provisions.
4.1 Recoupment of Erroneously Awarded Compensation from Bad Actor Discretionary Clawback Participants. In the
event that the Company is required to prepare an Accounting Restatement (the “Bad Act Accounting Restatement”) as a result of the fraud
and/or willful misconduct of any Discretionary Clawback Participant(s) (any such Discretionary Clawback Participant(s) committing such
fraud and/or willful misconduct, the “Bad Actor Discretionary Clawback Participant”), the Committee may, in its discretion, elect to cause
the Company to require the recoupment of any Erroneously Awarded Compensation from any such Bad Actor Discretionary Clawback
Participant (whether or not such individual is still employed by the Company Group at the time of such recovery). In the event that the
Committee makes such determination, the Committee may, in its discretion, elect to cause the Company to recover some or all of the
Erroneously Awarded Compensation from such Bad Actor Discretionary Clawback Participant (the amount that the Committee elects to
cause the Company to recover, the “Discretionary Recoupment Amount”), and any such Bad Actor Discretionary Clawback Participant shall
surrender such Discretionary Recoupment Amount to the Company, at such time(s), and via such method(s), as determined by the Committee
in accordance with the terms of this Policy.
4.2 Interaction with NYSE Clawback Provisions. Notwithstanding the foregoing or anything contained herein to the contrary,
in order to prevent duplicative recovery, the Discretionary Clawback Provisions will not apply to any Bad Actor Discretionary Clawback
Participant to the extent that any such Bad Actor Discretionary Clawback Participant is required to surrender Erroneously Awarded
Compensation pursuant to the NYSE Clawback Provisions.
Section 5.
General Terms.
5.1. Administration. This Policy shall be administered by the Committee. The Committee is authorized to interpret and construe
this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy, and any such
determinations made by the Committee shall be in the Committee’s sole discretion, and shall be final and binding on all affected individuals.
Except as otherwise required by applicable legal requirements or the rules and regulations of the NYSE, any determinations of the Committee
hereunder need not be uniform with respect to one or more Clawback
4
Policy Individuals. Subject to the SEC/NYSE Clawback Rules and any other applicable legal requirements, the Committee may authorize
and empower any officer or employee of the Company to take any and all actions necessary or appropriate to carry out the purpose and intent
of this Policy.
5.2 Stock Price/TSR. Notwithstanding anything contained herein to the contrary, for Incentive-Based Compensation based on (or
derived from) stock price or total shareholder return where the amount of Erroneously Awarded Compensation is not subject to mathematical
recalculation directly from the information in the applicable Accounting Restatement, (i) such amount shall be determined by the Committee
based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or total shareholder return upon which the
Incentive-Based Compensation was Received, and (ii) in the case of any Erroneously Awarded Compensation subject to the NYSE Clawback
Provisions, the Company will maintain documentation of the determination of that reasonable estimate and provide such documentation to
the NYSE.
5.3 Method of Recovery. In the event that (i) recoupment is required pursuant to the NYSE Clawback Provisions, and/or (ii) the
Committee has elected to require recoupment pursuant to the Discretionary Clawback Provisions, the Committee shall determine, in its sole
discretion, the method(s) for recouping any Erroneously Awarded Compensation from any Clawback Policy Individual subject to such
recoupment, which may include:
(i)
requiring one or more cash payments to the Company Group from such Clawback Policy Individual, including, but
not limited to, the repayment of cash Incentive-Based Compensation previously paid by the Company Group to such Clawback
Policy Individual;
(ii) seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer or other disposition of any
equity-based awards previously made by the Company to such Clawback Policy Individual and/or otherwise requiring the delivery
to the Company of shares of Common Stock held by such Clawback Policy Individual;
(iii) reducing or eliminating, or offsetting against, future cash compensation (including cash incentive payments), future
equity awards or other future compensation or payments otherwise to be made by the Company Group to such Clawback Policy
Individual;
(iv) cancelling, adjusting or offsetting against some or all outstanding vested or unvested equity awards of the Company
held by such Clawback Policy Individual; and/or
(v)
taking any other remedial and recovery actions with respect to such Clawback Policy Individual permitted by
applicable legal requirements and the rules and regulations of the NYSE, as determined by the Committee.
5.4. Supersedure. This Policy will supersede any provisions in (x) any agreement, plan or other arrangement applicable to any
Clawback Policy Individual, and (y) any organizational documents of any entity that is part of the Company Group, in any such case that (a)
exempt any Incentive-Based Compensation from the application of this Policy, (b) prohibit or restrict the Company Group’s right to recover
any Erroneously Awarded Compensation from any Clawback Policy Individual, including, without limitation, in connection with exercising
any right of setoff of the Company Group as provided in Section 5.3 above, and/or (c) require or provide for indemnification to the extent that
such indemnification is prohibited under Section 5.7 below.
5.5. Amendment; Termination; Interpretation. The Committee may amend or terminate this Policy at any time, subject to
compliance with all applicable legal requirements, and the rules and
5
requirements of the NYSE. It is intended that the NYSE Clawback Provisions be interpreted in a manner that is consistent with the
SEC/NYSE Clawback Rules. This Policy (i) amends and restates in its entirety, and supersedes, the clawback policy of the Company
originally adopted on February 25, 2009, as previously amended and in effect prior to the adoption of this Policy (the “Prior Policy”), and (ii)
supersedes the clawback provisions set forth in Section 6.14(b) of the 2019 Plan in effect prior to the adoption of this Policy (the “2019 Plan
Clawback Provisons”; the Prior Policy and 2019 Plan Clawback Provisions, collectively, the “Preexisting Clawback Provisons”), each of
which Preexisting Clawback Provisions will be of no further force and effect except as set forth in the proviso in this Section 5.5 below;
provided, however, that to the extent that (i) there is any recoupment event arising from a restatement (as referenced in Section (1) of the
Prior Policy) within the scope of Section (1) of the Prior Policy that (x) is not within the scope of this Policy, and (y) relates to compensation
associated with a performance period of the Company ending prior to the Effective Date (or, if such compensation is not associated with a
performance period, relates to compensation received prior to the Effective Date), the terms of Section (1) of the Prior Policy will continue in
effect in accordance with the terms thereof in connection therewith, and (ii) there is a recoupment event subject to the discretionary clawback
provisions set forth in Section (2) of the Prior Policy and/or in the 2019 Clawback Plan Provisions that (x) is not within the scope of this
Policy, and (y) relates to compensation associated with a performance period of the Company ending prior to the Effective Date (or, if such
compensation is not associated with a performance period, relates to compensation received prior to the Effective Date), the discretionary
recoupment terms of Section (2) of the Prior Policy and/or the 2019 Clawback Plan Provisions will continue in effect in accordance with the
terms thereof in connection therewith (provided that, in any such case pursuant to this clause (ii), the terms of Section (2) of the Prior Policy
and/or the 2019 Clawback Plan Provisions will only continue in effect with respect to compensation received in relation to the three
completed fiscal years of the Company immediately preceding the Restatement Date (as defined herein, but in reference to any Preexisting
Clawback Provision Restatement (as defined below)) with respect to any restatement within the scope of Section (2) of the Prior Policy
and/or the 2019 Clawback Plan Provisions, as applicable (a “Preexisting Clawback Provision Restatement”).
5.6. Other Recoupment Rights; No Additional Payments.
(a) Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that
may be available to the Company Group pursuant to (i) the terms of any recoupment provisions in any cash incentive or equity compensation
plan or award agreement, or any other agreement or plan, (ii) any other legal requirements, including, but not limited to, Section 304 of
Sarbanes-Oxley Act of 2002 (subject to Section 5.6(b) below), and (iii) any other legal rights or remedies available to the Company.
(b) Notwithstanding anything herein to the contrary, to the extent that any Erroneously Awarded Compensation includes any amounts
that have been actually reimbursed to the Company Group from any Clawback Policy Individual pursuant to Section 304 of the Sarbanes-
Oxley Act (any such amounts that have been reimbursed to the Company Group, the “Applicable SOX Recoupment Amount”), in order to
prevent duplicative recovery, the amount of any Erroneously Awarded Compensation to be recovered from any such Clawback Policy
Individual shall be reduced by the Applicable SOX Recoupment Amount.
5.7 No Indemnification, Etc. No entity that is part of the Company Group shall (x) indemnify any Clawback Policy Individual
against (i) the loss of any Erroneously Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or (ii)
any claims by any such Clawback Policy Individual relating to the Company Group’s enforcement of its rights under this Policy (and any
Clawback Policy Individual waives any right to such indemnification pursuant to this
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clause (x)) or (y) pay or reimburse any Clawback Policy Individual for insurance premiums to recover losses incurred under this Policy.
5.8. Cost of Recovery. To the extent so determined by the Committee, the Company shall be entitled to recover from any
Applicable Executive and/or Bad Actor Discretionary Clawback Participant all fees and expenses incurred by the Company Group in
connection with enforcing its rights under this Policy against any Applicable Executive and/or Bad Actor Discretionary Clawback
Participant, as applicable.
5.9 Successors. This Policy shall be binding and enforceable against all Clawback Policy Individuals and (and, if so determined by
the Committee or in any event (in the case of Applicable Executives) to the extent required by the SEC/NYSE Clawback Rules) their
beneficiaries, heirs, executors, administrators or other legal representatives.
5.10 Severability. If any provision of this Policy or the application of any such provision to any Clawback Policy Individual shall
be adjudicated to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other
provisions of this Policy, and the invalid, illegal or unenforceable provisions shall be deemed amended to the minimum extent necessary to
render any such provision (or the application of such provision) valid, legal or enforceable.
Adopted by the Compensation Committee of the Board of Directors of Community Health Systems, Inc. on September 12, 2023, and
ratified by the Board of Directors on September 13, 2023.
FILENAME \p \* MERGEFORMAT S:\CHS, Inc. Corporate Secretary\Policies\Clawback Policy\CHS A&R Clawback Policy (2023.0913).docx
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Exhibit A
Form of Acknowledgment
By signing below, the undersigned acknowledges and confirms that the undersigned has received and reviewed a copy of the
Community Health Systems, Inc. Amended and Restated Clawback Policy (as amended from time to time, the “Policy”). Capitalized terms
used but not otherwise defined in this acknowledgment shall have the meanings ascribed to such terms in the Policy.
By signing this acknowledgment, the undersigned acknowledges and agrees that the undersigned is and will continue to be subject
to the Policy and that the Policy will apply both during and after the undersigned’s employment with the Company Group. Further, by signing
below, the undersigned agrees to abide by the terms of the Policy, including, without limitation, by returning the amount of any Erroneously
Awarded Compensation to the Company Group to the extent required by the Policy.
______________________________
Signature
Print Name
______________________________
______________________________
Date