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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
x
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2018
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to
OR
Commission File Number 1-7293
_______________________________________ _
TENET HEALTHCARE CORPORATION
( Exact name of Registrant as specified in its charter)
Nevada
(State of Incorporation)
95-2557091
(IRS Employer Identification No.)
1445 Ross Avenue, Suite 1400
Dallas, TX 75202
(Address of principal executive offices, including zip code)
(469) 893-2200
(Registrant’s telephone number, including area code)
________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common stock, $0.05 par value
6.875% Senior Notes due 2031
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
________________________________________________________
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x
No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨
No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes x
No ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes x
No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (each as defined in Exchange
Act Rule 12b-2).
Large accelerated filer x
Smaller reporting company ¨
Accelerated filer ¨
Non-accelerated filer ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒
As of June 30, 2018, the aggregate market value of the shares of common stock held by non-affiliates of the Registrant (treating directors, executive officers who were SEC reporting persons, and holders of 10%
or more of the common stock outstanding as of that date, for this purpose, as affiliates) was approximately $2.3 billion based on the closing price of the Registrant’s shares on the New York Stock Exchange on
Friday, June 29, 2018. As of January 31, 2019, there were 102,667,337 shares of common stock outstanding.
Portions of the Registrant’s definitive proxy statement for the 2019 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
TABLE OF CONTENTS
Page
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Supplemental Financial Information
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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ITEM 1. BUSINESS
OVERVIEW
PART I.
Tenet Healthcare Corporation (together with our subsidiaries, referred to herein as “Tenet,” “we” or “us”) is a national, diversified healthcare services
company. We operate regionally focused, integrated healthcare delivery networks, primarily in large urban and suburban markets. Through our subsidiaries,
partnerships and joint ventures, including USPI Holding Company, Inc. (“USPI”), at December 31, 2018 , we operated 68 hospitals (three of which we have since
divested), 23 surgical hospitals and approximately 475 outpatient centers throughout the United States. In addition, our Conifer Holdings, Inc. (“Conifer”)
subsidiary provides healthcare business process services in the areas of hospital and physician revenue cycle management and value-based care solutions to
healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities. For financial reporting purposes,
our business lines are classified into three separate reportable operating segments – Hospital Operations and other, Ambulatory Care and Conifer. Additional
information about our business segments is provided below; statistical data for the segments can be found in Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, of Part II of this report.
The healthcare industry, in general, and the acute care hospital business, in particular, have been experiencing significant regulatory uncertainty based, in
large part, on administrative, legislative and judicial efforts to significantly modify or repeal and potentially replace the Patient Protection and Affordable Care Act,
as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act” or “ACA”). It is difficult to predict the full impact of regulatory
uncertainty on our future revenues and operations. In addition, we believe that several key trends are shaping the demand for healthcare services: (1) consumers,
employers and insurers are actively seeking lower-cost solutions and better value as they focus more on healthcare spending; (2) patient volumes are shifting from
inpatient to outpatient settings due to technological advancements and demand for care that is more convenient, affordable and accessible; (3) the industry is
migrating to value-based payment models with government and private payers shifting risk to providers; and (4) consolidation continues across the entire
healthcare sector. Our ability to execute on our strategies and respond to these trends is subject to a number of risks and uncertainties that may cause actual results
to be materially different from expectations. For information about our strategies, see Item 7, Management’s Discussion and Analysis of Financial Condition and
Results of Operations, of Part II of this report. For information about risks and uncertainties that could affect our results of operations, see the Forward-Looking
Statements and Risk Factors sections in Part I of this report.
We are focused on improving operational effectiveness, increasing capital efficiency and margins, expanding patient access points, enhancing the
customer care experience in every part of our operations, and growing our higher-acuity inpatient service lines, as well as aligning service line growth with
community demand. We believe our inpatient admissions have been constrained in recent years by increased competition, utilization pressure by managed care
organizations, new delivery models that are designed to lower the utilization of acute care hospital services, the effects of higher patient co-pays, co-insurance
amounts and deductibles, changing consumer behavior, and adverse economic conditions and demographic trends in certain of our markets. However, we also
believe that emphasis on higher-demand clinical service lines (including outpatient services), focus on expanding our ambulatory care business, cultivation of our
culture of service, participation in Medicare Advantage health plans that are experiencing higher growth rates than traditional Medicare plans, and contracting
strategies that create shared value with payers should help us grow our patient volumes over time.
We continue to exit service lines, businesses and markets that we believe are no longer a core part of our long-term growth strategy. To that end, in 2018
we divested eight hospitals in the United States, as well as all of our operations in the United Kingdom. In addition, in January 2019, we completed the previously
announced sale of three hospitals in the Chicago area that we owned at December 31, 2018. We intend to continue to further refine our portfolio of hospitals and
other healthcare facilities when we believe such refinements will help us improve profitability, allocate capital more effectively in areas where we have a stronger
presence, deploy proceeds on higher-return investments across our business, enhance cash generation and lower our ratio of debt-to-Adjusted EBITDA.
We also remain focused on opportunities to expand our Ambulatory Care segment through organic growth, building new outpatient centers, corporate
development activities and strategic partnerships. We opened eight new outpatient centers in the year ended December 31, 2018, and we acquired 10 outpatient
businesses, including two surgical hospitals . We believe USPI’s surgery centers and surgical hospitals offer many advantages to patients and physicians, including
greater affordability, predictability, flexibility and convenience. Moreover, due in part to advancements in medical technology, and due to the lower cost structure
and greater efficiencies that are attainable at a specialized outpatient site, we believe the volume and complexity of surgical cases performed in an outpatient setting
will continue to increase. We have also continued to grow our imaging and urgent care businesses through USPI to reflect our broader strategies to (1) offer more
services to patients, (2) broaden the
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capabilities we offer to healthcare systems and physicians, and (3) expand into faster-growing, less capital intensive, higher-margin businesses. Historically, our
outpatient services have generated significantly higher margins for us than inpatient services.
In addition to providing revenue cycle management services to healthcare systems and physicians, Conifer provides support to both providers and self-
insured employers seeking assistance with clinical integration, financial risk management and population health management. At December 31, 2018, Conifer
served approximately 750 Tenet and non-Tenet hospital and other clients nationwide. As previously announced, we are exploring strategic alternatives for Conifer.
There can be no assurance that this process will result in a consummated transaction.
We have also undertaken enterprise-wide cost reduction initiatives, comprised primarily of workforce reductions (including streamlining corporate
overhead and centralized support functions), the renegotiation of contracts with suppliers and vendors, and the consolidation of office locations. In 2019, we are
continuing to explore new opportunities to enhance efficiency, including further integration of enterprise-wide centralized support functions, outsourcing certain
functions unrelated to direct patient care, and reducing clinical and vendor contract variation.
OPERATIONS
HOSPITAL
OPERATIONS
AND
OTHER
SEGMENT
Hospitals, Ancillary Outpatient Facilities and Related Businesses— At December 31, 2018 , our subsidiaries operated 68 hospitals, including one
children’s hospital, two specialty hospitals and one critical access hospital, serving primarily urban and suburban communities in 10 states. (Following the sale of
our Chicago-area hospitals and related operations effective January 28, 2019, our subsidiaries operated 65 hospitals in nine states.) Our subsidiaries had sole
ownership of 57 of the hospitals we operated at December 31, 2018, nine were owned or leased by entities that are, in turn, jointly owned by a Tenet subsidiary and
a healthcare system partner, and two were owned by third parties and leased by our wholly owned subsidiaries. Our Hospital Operations and other segment also
included 165 outpatient centers at December 31, 2018, the majority of which are freestanding urgent care centers, provider-based diagnostic imaging centers, off-
campus emergency departments and provider-based ambulatory surgery centers. In addition, at December 31, 2018, our subsidiaries owned or leased and operated:
a number of medical office buildings, all of which were located on, or nearby, our hospital campuses; over 740 physician practices; accountable care organizations
and clinically integrated networks; and other ancillary healthcare businesses.
Factors that affect service mix, revenue mix, patient volumes and, thereby, the results of operations at our hospitals and related healthcare facilities
include, but are not limited to: (1) changes in federal and state healthcare regulations; (2) the business environment, economic conditions and demographics of
local communities in which we operate; (3) the number of uninsured and underinsured individuals in local communities treated at our hospitals; (4) seasonal cycles
of illness; (5) climate and weather conditions; (6) physician recruitment, retention and attrition; (7) advances in technology and treatments that reduce length of
stay; (8) local healthcare competitors; (9) managed care contract negotiations or terminations; (10) the number of patients with high-deductible health insurance
plans; (11) hospital performance data on quality measures and patient satisfaction, as well as standard charges for our services; (12) any unfavorable publicity
about us, or our joint venture partners, that impacts our relationships with physicians and patients; and (13) the timing of elective procedures.
Each of our general hospitals offers acute care services, operating and recovery rooms, radiology services, respiratory therapy services, clinical
laboratories and pharmacies; in addition, most have intensive care, critical care and/or coronary care units, physical therapy, and orthopedic, oncology and
outpatient services. Many of our hospitals provide tertiary care services, such as cardiothoracic surgery, neonatal intensive care and neurosurgery, and some also
offer quaternary care in areas such as heart, liver, kidney and bone marrow transplants. Our children’s hospital provides tertiary and quaternary pediatric services,
including organ and bone marrow transplants, as well as burn services. Moreover, a number of our hospitals offer advanced treatment options for patients,
including limb-salvaging vascular procedures, acute level 1 trauma services, comprehensive intravascular stroke care, minimally invasive cardiac valve
replacement, cutting edge imaging technology, and telemedicine access for selected medical specialties.
Each of our hospitals (other than our critical access hospital) is accredited by The Joint Commission. With such accreditation, our hospitals are deemed to
meet the Medicare Conditions of Participation and are eligible to participate in government-sponsored provider programs, such as the Medicare and Medicaid
programs. Although our critical access hospital has not sought to be accredited, it also participates in the Medicare and Medicaid programs by otherwise meeting
the Medicare Conditions of Participation.
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The table below lists, by state, the hospitals wholly owned, operated as part of a joint venture, or leased and operated by our wholly owned subsidiaries at
December 31, 2018:
Hospital
Alabama
Brookwood Baptist Medical Center (1)
Citizens Baptist Medical Center (1)(2)
Princeton Baptist Medical Center (1)(2)
Shelby Baptist Medical Center (1)(2)
Walker Baptist Medical Center (1)(2)
Arizona
Abrazo Arizona Heart Hospital (3)
Abrazo Arrowhead Campus
Abrazo Central Campus
Abrazo Scottsdale Campus
Abrazo West Campus
Holy Cross Hospital (4)(5)
St. Joseph’s Hospital ( 4)
St. Mary’s Hospital (4)
California
Desert Regional Medical Center (6)
Doctors Hospital of Manteca
Doctors Medical Center
Emanuel Medical Center
Fountain Valley Regional Hospital and Medical Center
Hi-Desert Medical Center (7)
John F. Kennedy Memorial Hospital
Lakewood Regional Medical Center
Los Alamitos Medical Center
Placentia Linda Hospital
San Ramon Regional Medical Center (8)
Sierra Vista Regional Medical Center
Twin Cities Community Hospital
Florida
Coral Gables Hospital
Delray Medical Center
Florida Medical Center – a campus of North Shore
Good Samaritan Medical Center
Hialeah Hospital
North Shore Medical Center
Palm Beach Gardens Medical Center
Palmetto General Hospital
St. Mary’s Medical Center
West Boca Medical Center
Illinois
Louis A. Weiss Memorial Hospital (9)
Westlake Hospital (9)
West Suburban Medical Center (9)
Location
Licensed
Beds
Homewood
Talladega
Birmingham
Alabaster
Jasper
Phoenix
Glendale
Phoenix
Phoenix
Goodyear
Nogales
Tucson
Tucson
Palm Springs
Manteca
Modesto
Turlock
Fountain Valley
Joshua Tree
Indio
Lakewood
Los Alamitos
Placentia
San Ramon
San Luis Obispo
Templeton
Coral Gables
Delray Beach
Lauderdale Lakes
West Palm Beach
Hialeah
Miami
Palm Beach Gardens
Hialeah
West Palm Beach
Boca Raton
Chicago
Melrose Park
Oak Park
3
Status
JV/Owned
JV/Leased
JV/Leased
JV/Leased
JV/Leased
Owned
Owned
Owned
Owned
Owned
JV/Owned
JV/Owned
JV/Owned
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
JV/Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
595
122
505
252
267
59
217
221
136
188
25
486
400
385
73
461
209
400
179
145
172
163
114
123
162
122
245
536
459
333
378
337
199
368
460
195
236
230
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Hospital
Massachusetts
Location
Licensed
Beds
MetroWest Medical Center – Framingham Union Campus
MetroWest Medical Center – Leonard Morse Campus
Saint Vincent Hospital
Framingham
Natick
Worcester
Michigan
Children’s Hospital of Michigan
Detroit Receiving Hospital
Harper University Hospital
Huron Valley-Sinai Hospital
Hutzel Women’s Hospital
Rehabilitation Institute of Michigan (3)
Sinai-Grace Hospital
South Carolina
Coastal Carolina Hospital
East Cooper Medical Center
Hilton Head Hospital
Piedmont Medical Center
Tennessee
Saint Francis Hospital
Saint Francis Hospital – Bartlett
Texas
Baptist Medical Center
The Hospitals of Providence East Campus
The Hospitals of Providence Memorial Campus
The Hospitals of Providence Sierra Campus
The Hospitals of Providence Transmountain Campus
Mission Trail Baptist Hospital
Nacogdoches Medical Center
North Central Baptist Hospital
Northeast Baptist Hospital
Resolute Health Hospital
St. Luke’s Baptist Hospital
Valley Baptist Medical Center
Valley Baptist Medical Center – Brownsville
Total Licensed Beds
Detroit
Detroit
Detroit
Commerce Township
Detroit
Detroit
Detroit
Hardeeville
Mount Pleasant
Hilton Head
Rock Hill
Memphis
Bartlett
San Antonio
El Paso
El Paso
El Paso
El Paso
San Antonio
Nacogdoches
San Antonio
San Antonio
New Braunfels
San Antonio
Harlingen
Brownsville
Status
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
147
160
283
228
273
470
158
114
69
404
41
140
93
288
479
196
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
623
182
480
297
106
110
161
429
371
128
287
586
243
17,937
(1) Operated by a limited liability company formed as part of a joint venture with Baptist Health System, Inc. (“BHS”), a not-for-profit healthcare system in Alabama; a Tenet subsidiary
(2)
owned a 60% interest in the entity at December 31, 2018, and BHS owned a 40% interest.
In order to receive certain tax benefits for these hospitals, which were operated as nonprofit hospitals prior to our joint venture with BHS, we have entered into arrangements with the City
of Talladega, the City of Birmingham, the City of Alabaster and the City of Jasper such that a Medical Clinic Board owns each of these hospitals, and the hospitals are leased to our joint
venture entity. These capital leases expire between November 2025 and September 2036, but contain two optional renewal terms of 10 years each.
Specialty hospital.
(3)
(4) Owned by a limited liability company formed as part of a joint venture with Dignity Health and Ascension Arizona, each of which is a not-for-profit healthcare system; a Tenet subsidiary
owned a 60% interest in the entity at December 31, 2018, Dignity Health owned a 22.5% interest and Ascension Arizona owned a 17.5% interest.
(5) Designated by the Centers for Medicare and Medicaid Services (“CMS”) as a critical access hospital.
(6)
Lease expires in May 2027.
Lease expires in July 2045.
(7)
(8) Owned by a limited liability company formed as part of a joint venture with John Muir Health (“JMH”), a not-for-profit healthcare system in the San Francisco Bay area; a Tenet subsidiary
owned a 51% interest in the entity at December 31, 2018, and JMH owned a 49% interest.
(9) We sold our Chicago-area hospitals and related operations effective January 28, 2019.
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Information regarding the utilization of licensed beds and other operating statistics at December 31, 2018, 2017 and 2016 can be found in Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, of Part II of this report.
At December 31, 2018, our Hospital Operations and other segment also included 50 diagnostic imaging centers, 12 off-campus emergency departments,
11 ambulatory surgery centers and one urgent care center operated as departments of our hospitals and under the same license, as well as 91 separately licensed,
freestanding outpatient centers – typically at locations complementary to our hospitals – consisting of six diagnostic imaging centers, eight emergency facilities
(seven of which are licensed as microhospitals), two ambulatory surgery centers and 75 urgent care centers. Nearly all of our freestanding urgent care centers are
managed by USPI and operated under our national MedPost brand. Over half of the outpatient centers in our Hospital Operations and other segment at
December 31, 2018 were in California, Florida and Texas, the same states where we had the largest concentrations of licensed hospital beds. Strong concentrations
of hospital beds and outpatient centers within market areas may help us contract more successfully with managed care payers, reduce management, marketing and
other expenses, and more efficiently utilize resources. However, these concentrations increase the risk that, should any adverse economic, regulatory,
environmental or other condition occur in these areas, our overall business, financial condition, results of operations or cash flows could be materially adversely
affected.
Accountable Care Organizations and Clinically Integrated Networks— We own, control or operate five accountable care organizations (“ACOs”) and 10
clinically integrated networks (“CINs”) – in Alabama, Arizona, California, Florida, Massachusetts, Michigan, Missouri, Tennessee and Texas – and participate in
four additional ACOs and CINs with other healthcare providers for select markets in Arizona and Texas. An ACO is a group of providers and suppliers that work
together to redesign delivery processes in an effort to achieve high-quality and efficient provision of services under contract with CMS. ACOs that achieve quality
performance standards established by the U.S. Department of Health and Human Services (“HHS”) are eligible to share in a portion of the amounts saved by the
Medicare program. A CIN coordinates the healthcare needs of the communities served by its network of providers with the purpose of improving the quality and
efficiency of healthcare services through collaborative programs, including contracts with managed care payers that create a high degree of interdependence and
cooperation among the network providers. Because they promote accountability and coordination of care, ACOs and CINs are intended to produce savings as a
result of improved quality and operational efficiencies. Both ACOs and CINs operate using a range of payment and care coordination models.
Health Plans— We previously announced our intention to sell or otherwise dispose of our health plan businesses because they are not a core part of our
long-term growth strategy. To that end, we sold, divested the membership of or discontinued four health plans in 2017 and, in 2018, we divested our Chicago-based
preferred provider network and our Southern California Medicare Advantage plan. Health plans we have not sold outright are being wound-down; however, during
this time, they continue to be subject to numerous federal and state statutes and regulations related to their business operations, and each such health plan continues
to be licensed by one or more agencies in the states in which they conduct business. In addition, insurance regulations in the states in which we currently operate
have required us to maintain cash reserves in connection with certain health plans throughout the wind-down process.
AMBULATORY
CARE
SEGMENT
Our Ambulatory Care segment is comprised of the operations of USPI and included nine facilities in the United Kingdom until their divestiture in August
2018. At December 31, 2018, USPI had interests in 255 ambulatory surgery centers, 36 urgent care centers operated under the CareSpot brand, 23 imaging centers
and 23 surgical hospitals in 27 states. Of these 337 facilities, 208 are jointly owned with healthcare systems. At December 31, 2018, we owned approximately 95%
of USPI, and Baylor University Medical Center (“Baylor”) owned approximately 5%.
Operations of USPI— USPI acquires and develops its facilities primarily through the formation of joint ventures with physicians and healthcare systems.
USPI’s subsidiaries hold ownership interests in the facilities directly or indirectly and operate the facilities on a day-to-day basis through management services
contracts. We believe that this acquisition and development strategy and operating model will enable USPI to continue to grow because of various industry trends
we have seen emerge in recent years, namely that: (1) consumers are increasingly selecting services and providers based on cost and convenience, as well as
quality; (2) more procedures are shifting from inpatient to outpatient settings; and (3) healthcare providers are entering into joint ventures to maximize
effectiveness, reduce costs and build clinically integrated networks.
USPI’s surgical facilities primarily specialize in non-emergency cases. We believe surgery centers and surgical hospitals offer many advantages to
patients and physicians, including greater affordability, predictability and convenience. Medical emergencies at acute care hospitals often demand the unplanned
use of operating rooms and result in the postponement or delay of scheduled surgeries, disrupting physicians’ practices and inconveniencing patients. Outpatient
facilities generally
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provide physicians with greater scheduling flexibility, more consistent nurse staffing and faster turnaround time between cases. In addition, many physicians
choose to perform surgery in outpatient facilities because their patients prefer the comfort of a less institutional atmosphere and the convenience of simplified
admissions and discharge procedures.
New surgical techniques and technology, as well as advances in anesthesia, have significantly expanded the types of surgical procedures that are being
performed in surgery centers and have helped drive the growth in outpatient surgery. Improved anesthesia has shortened recovery time by minimizing post-
operative side effects, such as nausea and drowsiness, thereby avoiding the need for overnight hospitalization in many cases. Furthermore, some states permit
surgery centers to keep a patient for up to 23 hours, which allows for more complex surgeries, previously performed only in an inpatient setting, to be performed in
a surgery center.
In addition to these technological and other clinical advancements, a changing payer environment has contributed to the growth of outpatient surgery
relative to all surgery performed. Government programs, private insurance companies, managed care organizations and self-insured employers have implemented
cost-containment measures to limit increases in healthcare expenditures, including procedure reimbursement. Furthermore, as self-funded employers are looking to
curb annual increases in their employee health benefits costs, they continue to shift additional financial responsibility to patients through higher co-pays,
deductibles and premium contributions. These cost-containment measures have contributed to the shift in the delivery of healthcare services away from traditional
inpatient hospitals to more cost-effective alternate sites, including surgical facilities. We believe that surgeries performed at surgical facilities are generally less
expensive than hospital-based outpatient surgeries because of lower facility development costs, more efficient staffing and space utilization, and a specialized
operating environment focused on quality of care and cost containment.
We operate USPI’s facilities, structure our joint ventures, and adopt staffing, scheduling, and clinical systems and protocols with the goal of
increasing physician productivity. We believe that this focus on physician satisfaction, combined with providing high-quality healthcare in a friendly and
convenient environment for patients, will continue to increase the number of procedures performed at our facilities each year. Our joint ventures also enable
healthcare systems to offer patients, physicians and payers the cost advantages, convenience and other benefits of ambulatory care in a freestanding facility and, in
certain markets, establish networks needed to manage the full continuum of care for a defined population. Further, these relationships allow the healthcare systems
to focus their attention and resources on their core business without the challenge of acquiring, developing and operating these facilities.
CONIFER
SEGMENT
Nearly all of the services comprising the operations of our Conifer segment are provided by Conifer Health Solutions, LLC or one of its direct or indirect
wholly owned subsidiaries. At December 31, 2018, we owned 76.2% of Conifer Health Solutions, LLC, and Catholic Health Initiatives (“CHI”) had a
23.8% ownership position. We have been exploring strategic alternatives for Conifer, including a potential sale or merger, a tax-efficient spin-off or a combination
of alternative transactions. There can be no assurance that this process will result in a consummated transaction, and we may ultimately decide to retain all or part
of Conifer’s business.
Services— Conifer provides healthcare business process services in the areas of hospital and physician revenue cycle management and value-based care
solutions to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities.
Conifer’s revenue cycle management solutions consist of: (1) patient services, including: centralized insurance and benefit verification; financial
clearance, pre-certification, registration and check-in services; and financial counseling services, including reviews of eligibility for government healthcare or
financial assistance programs, for both insured and uninsured patients, as well as qualified health plan coverage under the ACA; (2) clinical revenue integrity
solutions, including: clinical admission reviews; coding; clinical documentation improvement; coding compliance audits; charge description master management;
and health information services; and (3) accounts receivable management solutions, including: third-party billing and collections; denials management; and patient
collections. All of these solutions include ongoing measurement and monitoring of key revenue cycle metrics, as well as productivity and quality improvement
programs. These revenue cycle management solutions assist hospitals, physician practices and other healthcare organizations in improving cash flow, revenue, and
physician and patient satisfaction.
In addition, Conifer offers customized communications and engagement solutions to optimize the relationship between providers and patients. Conifer’s
trained customer service representatives provide direct, 24-hour, multilingual support for (1) physician referral requests, calls regarding maternity services and
other patient inquiries, (2) community education and
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outreach, and (3) scheduling and appointment reminders. Additionally, Conifer coordinates and implements marketing outreach programs to keep patients
informed of screenings, seminars and other events and services.
Conifer also offers value-based care solutions, including clinical integration, financial risk management and population health management, all of which
assist hospitals, physicians, ACOs, health plans, self-insured employers and government agencies in improving the cost and quality of healthcare delivery, as well
as patient outcomes. Conifer helps clients build clinically integrated networks that provide predictive analytics and quality measures across the care continuum. In
addition, Conifer helps clients align and manage financial incentives among healthcare stakeholders through risk modeling and administration of various payment
models. Furthermore, Conifer offers clients tools and analytics to improve quality of care and provide care management services for patients with chronic diseases
by identifying high-risk patients, coordinating with patients and clinicians in managing care, and monitoring clinical outcomes.
Clients— At December 31, 2018, Conifer provided one or more of the business process services described above to approximately 750 clients nationwide.
Tenet and CHI facilities represented over 300 of these clients, and the remainder were unaffiliated healthcare systems, hospitals, physician practices, self-insured
organizations, health plans and other entities. The agreements documenting the terms and conditions of various services Conifer provides to Tenet hospitals, as
well as certain administrative services our Hospital Operations and other segment provides to Conifer, were initially scheduled to expire in December 2018. As we
continue to pursue strategic alternatives for Conifer, these agreements were renewed for an additional year with substantially similar pricing terms; however, the
pricing or other material terms of such agreements may be modified if any such strategic alternative is consummated. Conifer’s agreement with CHI to provide
patient access, revenue integrity and patient financial services to CHI’s facilities expires in 2032. For the year ended December 31, 2018, approximately 38% of
Conifer’s net operating revenues were attributable to its relationship with Tenet and approximately 36% were attributable to its relationship with CHI. Additional
information about our Conifer operating segment can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of
Operations, of Part II of this report.
As we explore a sale or other strategic alternatives for Conifer, we are continuing to market Conifer’s revenue cycle management, patient communications
and engagement services, and value-based care solutions businesses. The uncertainty regarding our plans for Conifer may have an adverse impact on our ability to
secure new clients for Conifer. However, we believe that our success in growing Conifer and increasing its profitability depends in part on our success in executing
the following strategies: (1) attracting hospitals and other healthcare providers that currently handle their revenue cycle management processes internally as new
clients; (2) generating new client relationships through opportunities from USPI and Tenet’s acute care hospital acquisition and divestiture activities; (3) expanding
revenue cycle management and value-based care service offerings through organic development and small acquisitions; (4) leveraging data from tens of millions of
patient interactions for continued enhancement of the value-based care environment to drive competitive differentiation; and (5) developing services for our
Ambulatory Care segment, leveraging USPI’s capabilities. There can be no assurance that Conifer will be successful in generating new client relationships,
particularly with respect to hospitals we or Conifer’s other clients sell, as the respective buyers of such hospitals may not continue to use Conifer’s services or, if
they do, they may not do so under the same contractual terms.
REAL PROPERTY
The locations of our hospitals and the number of licensed beds at each hospital at December 31, 2018 are set forth in the table beginning on page 3. We
lease the majority of our outpatient facilities in both our Hospital Operations and other segment and our Ambulatory Care segment. These leases typically have
initial terms ranging from five to 20 years, and most of the leases contain options to extend the lease periods. Our subsidiaries also operate a number of medical
office buildings, all of which are located on, or nearby, our hospital campuses. We own many of these medical office buildings; the remainder are owned by third
parties and leased by our subsidiaries.
Our corporate headquarters are located in Dallas, Texas. In addition, we maintain administrative offices in markets where we operate hospitals and other
businesses, including USPI and Conifer. We typically lease our office space under operating lease agreements. We believe that all of our properties are suitable for
their respective uses and are, in general, adequate for our present needs.
INTELLECTUAL PROPERTY
We rely on a combination of trademark, copyright and trade secret laws, as well as contractual terms and conditions, to protect our rights in our
intellectual property assets. However, third parties may develop intellectual property that is similar or superior to ours. We also license third-party software, other
technology and certain trademarks through agreements that impose certain restrictions on our ability to use the licensed items. We control access to and use of our
software and other technology
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through a combination of internal and external controls. Although we do not believe the intellectual property we utilize infringes any intellectual property right held
by a third party, we could be prevented from utilizing such property and could be subject to significant damage awards if our use is found to do so.
PHYSICIANS AND EMPLOYEES
Physicians— Our operations depend in significant part on the number, quality, specialties, and admitting and scheduling practices of the licensed
physicians who have been admitted to the medical staffs of our hospitals and other facilities, as well as physicians who affiliate with us and use our facilities as an
extension of their practices. Under state laws and other licensing standards, medical staffs are generally self-governing organizations subject to ultimate oversight
by the facility’s local governing board. Members of the medical staffs of our facilities also often serve on the medical staffs of facilities we do not operate, and they
are free to terminate their association with our facilities or admit their patients to competing facilities at any time. At December 31, 2018, we owned over 740
physician practices, and we employed (where permitted by state law) or otherwise affiliated with nearly 1,600 physicians; however, we have no contractual
relationship with the overwhelming majority of the physicians who practice at our hospitals and outpatient centers. It is essential to our ongoing business that we
attract an appropriate number of quality physicians in the specialties required to support our services and that we maintain good relations with those physicians. In
some of our markets, physician recruitment and retention are affected by a shortage of physicians in certain specialties and the difficulties that physicians can
experience in obtaining affordable malpractice insurance or finding insurers willing to provide such insurance. Moreover, our ability to recruit and employ
physicians is closely regulated.
Employees in Our Healthcare Facilities— In addition to physicians, the operations of our facilities are dependent on the efforts, abilities and experience of
our facilities management and medical support employees, including nurses, therapists, pharmacists and lab technicians. We compete with other healthcare
providers in recruiting and retaining qualified personnel responsible for the day-to-day operations of our facilities. In some markets, there is a limited availability of
experienced medical support personnel, which drives up the local wages and benefits required to recruit and retain employees. In particular, like others in the
healthcare industry, we continue to experience a shortage of critical-care nurses in certain disciplines and geographic areas. Moreover, we hire many newly
licensed nurses in addition to experienced nurses, which requires us to invest in their training.
California is the only state in which we operate that requires minimum nurse-to-patient staffing ratios to be maintained at all times in acute care hospitals.
If other states in which we operate adopt mandatory nurse-staffing ratios, it could have a significant effect on our labor costs and have an adverse impact on our net
operating revenues if we are required to limit patient volumes in order to meet the required ratios.
Union Activity and Labor Relations— At December 31, 2018, approximately 26% of the employees in our Hospital Operations and other segment were
represented by labor unions. Less than 1% of the employees in our Ambulatory Care and Conifer segments belong to a union. Unionized employees – primarily
registered nurses and service, technical and maintenance workers – are located at 35 of our hospitals, the majority of which are in California, Florida and Michigan.
When negotiating collective bargaining agreements with unions, whether such agreements are renewals or first contracts, there is a possibility that strikes could
occur, and our continued operation during any strikes could increase our labor costs and have an adverse effect on our patient volumes and net operating revenues.
Organizing activities by labor unions could increase our level of union representation in future periods, which could result in increases in salaries, wages and
benefits expense.
Headcount— At December 31, 2018, we employed approximately 115,500 people (of which approximately 22% were part-time employees) in our three
business segments, as follows:
Hospital Operations and other
Ambulatory Care
Conifer
Total
COMPETITION
HEALTHCARE
SERVICES
85,010
17,710
12,780
115,500
Generally, other hospitals and outpatient centers in the local communities we serve provide services similar to those we offer, and, in some cases,
competing facilities are more established or newer than ours. Furthermore, our competitors (1) may offer a broader array of services or more desirable facilities to
patients and physicians than ours, (2) may have larger or
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more specialized medical staffs to admit and refer patients, (3) may have a better reputation in the community, (4) may be more centrally located with better
parking or closer proximity to public transportation or (5) may be able to negotiate more favorable reimbursement rates that they may use to strengthen their
competitive position. In the future, we expect to encounter increased competition from system-affiliated hospitals and healthcare companies, as well as health
insurers and private equity companies seeking to acquire providers, in specific geographic markets.
We also face competition from specialty hospitals (some of which are physician-owned) and unaffiliated freestanding outpatient centers for market share
in high-margin services and for quality physicians and personnel. In recent years, the number of freestanding specialty hospitals, surgery centers, emergency
departments, urgent care centers and diagnostic imaging centers in the geographic areas in which we operate has increased significantly. Furthermore, some of the
hospitals that compete with our hospitals are owned by government agencies or not-for-profit organizations. These tax-exempt competitors may have certain
financial advantages not available to our facilities, such as endowments, charitable contributions, tax-exempt financing, and exemptions from sales, property and
income taxes. In addition, in certain markets in which we operate, large teaching hospitals provide highly specialized facilities, equipment and services that may
not be available at our hospitals.
Another major factor in the competitive position of a hospital or outpatient facility is the ability to negotiate contracts with managed care plans. Health
maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), third-party administrators, and other third-party payers use managed care
contracts to encourage patients to use certain hospitals in exchange for discounts from the hospitals’ established charges. These negotiated discounts generally limit
our ability to increase charges in response to increasing costs. Nevertheless, our future success depends, in part, on our ability to retain and renew our managed care
contracts and enter into new managed care contracts on competitive terms. Other healthcare providers may affect our ability to enter into acceptable managed care
contractual arrangements or negotiate increases in our reimbursement. For example, some of our competitors may negotiate exclusivity provisions with managed
care plans or otherwise restrict the ability of managed care companies to contract with us. Furthermore, the ongoing trend toward consolidation among non-
government payers tends to increase their bargaining power over fee structures.
In addition, the competitive positions of hospitals and outpatient facilities depend in significant part on the number, quality, specialties, and admitting and
scheduling practices of the licensed physicians who have been admitted to the medical staffs of those facilities, as well as physicians who affiliate with and use
outpatient centers as an extension of their practices. Members of the medical staffs of our facilities also often serve on the medical staffs of facilities we do not
operate, and they are free to terminate their association with our facilities or admit their patients to competing facilities at any time. State laws that require findings
of need for construction and expansion of healthcare facilities or services (as described in “Healthcare Regulation and Licensing – Certificate of Need
Requirements” below) may also impact competition.
Our strategies are designed to help our hospitals and outpatient facilities remain competitive. We believe emphasis on higher-demand clinical service lines
(including outpatient lines) and improved quality metrics will improve our volumes. Furthermore, we have expanded our ambulatory care business, and we have
significantly increased our focus on operating our outpatient centers with improved accessibility and more convenient service for patients, increased predictability
and efficiency for physicians, and (for most services) lower costs for payers than would be incurred with a hospital visit. We have also sought to include all of our
hospitals and other healthcare businesses in the related geographic area or nationally when negotiating new managed care contracts, which may result in additional
volumes at facilities that were not previously a part of such managed care networks.
We have made significant investments in equipment, technology, education and operational strategies designed to improve clinical quality at all of our
facilities. We believe physicians refer patients to a hospital on the basis of the quality and scope of services it renders to patients and physicians, the quality of other
physicians on the medical staff, the location of the hospital, and the quality of the hospital’s facilities, equipment and employees. In addition, we continually
collaborate with physicians to implement the most current evidence-based medicine techniques to improve the way we provide care, while using labor management
tools and supply chain initiatives to reduce variable costs. We believe the use of these practices will promote the most effective and efficient utilization of resources
and result in more appropriate lengths of stay, as well as reductions in readmissions for hospitalized patients. In general, we believe that quality of care
improvements may have the effects of: (1) reducing costs; (2) increasing payments from Medicare and certain managed care payers for our services as
governmental and private payers move to pay-for-performance models, and the commercial market moves to more narrow networks and other methods designed to
encourage covered individuals to use certain facilities over others; and (3) increasing physician and patient satisfaction, which may improve our volumes.
Moreover, in most of our markets, we have formed clinically integrated networks, which are collaborations with independent physicians and hospitals to
develop ongoing clinical initiatives designed to control costs and improve the quality of care delivered to patients. Arrangements like these provide a foundation for
negotiating with plans under an ACO structure
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or other risk-sharing model. However, we do face competition from other healthcare systems that are implementing similar physician alignment strategies, such as
employing physicians, acquiring physician practice groups, and participating in ACOs or other clinical integration models.
REVENUE
CYCLE
MANAGEMENT
SOLUTIONS
Our Conifer subsidiary faces competition from existing participants and new entrants to the revenue cycle management market, some of which may have
significantly greater capital resources than Conifer. In addition, the internal revenue cycle management staff of hospitals and other healthcare providers, who have
historically performed many of the functions addressed by our services, in effect compete with us. Moreover, providers who have previously made investments in
internally developed solutions may choose to continue to rely on their own resources. We also currently compete with several categories of external participants in
the revenue cycle market, including:
•
•
•
software vendors and other technology-supported revenue cycle management business process outsourcing companies;
traditional consultants, either specialized healthcare consulting firms or healthcare divisions of large accounting firms; and
large, non-healthcare focused business process and information technology outsourcing firms.
We believe that competition for the revenue cycle management and other services Conifer provides is based primarily on: (1) knowledge and
understanding of the complex public and private healthcare payment and reimbursement systems; (2) a track record of delivering revenue improvements and
efficiency gains for hospitals and other healthcare providers; (3) the ability to deliver solutions that are fully integrated along each step of the revenue cycle;
(4) cost-effectiveness, including the breakdown between up-front costs and pay-for-performance incentive compensation; (5) reliability, simplicity and flexibility
of the technology platform; (6) understanding of the healthcare industry’s regulatory environment, as well as laws and regulations relating to consumer protection;
and (7) financial resources to maintain current technology and other infrastructure.
To be successful, Conifer must respond more quickly and effectively than its competitors to new or changing opportunities, technologies, standards,
regulations and client requirements. Existing or new competitors may introduce technologies or services that render Conifer’s technologies or services obsolete or
less marketable. Even if Conifer’s technologies and services are more effective than the offerings of its competitors, current or potential clients might prefer
competitive technologies or services to Conifer’s technologies and services. Furthermore, increased competition has resulted and may continue to result in pricing
pressures, which could negatively impact Conifer’s margins, growth rate or market share. In addition, the uncertainty regarding our plans for Conifer may have an
adverse impact on Conifer’s ability to secure new clients.
HEALTHCARE REGULATION AND LICENSING
HEALTHCARE
REFORM
The Affordable Care Act extended health coverage to millions of uninsured legal U.S. residents through a combination of private sector health insurance
reforms and public program expansion. To fund the expansion of insurance coverage, the ACA includes measures designed to promote quality and cost efficiency
in healthcare delivery and to generate budgetary savings in the Medicare and Medicaid programs. In addition, the ACA contains provisions intended to strengthen
fraud and abuse enforcement.
The initial expansion of health insurance coverage under the ACA resulted in an increase in the number of patients using our facilities with either private
or public program coverage and a decrease in uninsured and charity care admissions. Although a substantial portion of both our patient volumes and, as result, our
revenues has historically been derived from government healthcare programs, reductions to our reimbursement under the Medicare and Medicaid programs as a
result of the ACA have been partially offset by increased revenues from providing care to previously uninsured individuals.
The President issued an executive order in January 2017 declaring that it is the official policy of his administration to seek the prompt repeal of the ACA
and directing the heads of all executive departments and agencies to minimize the economic and regulatory burdens of the ACA to the maximum extent permitted
by law while the ACA remains in effect. The White House also sent a memorandum to federal agencies directing them to freeze any new or pending regulations. In
October 2017, the administration announced that reimbursements to insurance companies for ACA cost-sharing
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reduction (“CSR”) plans offered through the health insurance marketplace would be discontinued. CSR payments compensate insurers for subsidizing out-of-
pocket costs for low-income enrollees. Without the CSR payments, many insurers increased premiums for plans offered on ACA exchanges and a few withdrew
entirely from offering plans on some of the exchanges. In addition, in December 2017, Congress passed and the President signed a tax reform bill into law that,
among other things, eliminates the ACA’s individual mandate penalty for not buying health insurance starting in 2019. The Congressional Budget Office and the
staff of the Joint Committee on Taxation estimated that eliminating the mandate penalty starting in 2019 – and making no other changes to the then-current law –
would cause the number of people with health insurance to decrease by 4 million in 2019 and 13 million in 2027. Members of Congress have also proposed
measures that would expand government-sponsored coverage, including single-payer proposals. We cannot predict if or when further modification of the ACA will
occur or what action, if any, Congress might take with respect to eventually repealing and possibly replacing the law.
There have also been successful judicial challenges to the ACA, including a December 2018 ruling by the U.S. District Court for the Northern District of
Texas that the ACA’s individual mandate is unconstitutional. Because the judge’s order was stayed pending appeal, the decision’s near-term impact on health
insurance coverage under the ACA may be limited; however, uncertainty over the future of the ACA has intensified. The ultimate outcome of this decision and
other judicial challenges is indeterminate. We are also unable to predict the impact of administrative, regulatory and legislative changes, and market reactions to
those changes, on our future revenues and operations. However, if the ultimate impact is that significantly fewer individuals have private or public health coverage,
we likely will experience decreased volumes, reduced revenues and an increase in uncompensated care, which would adversely affect our results of operations and
cash flows. This negative effect will be exacerbated if the ACA’s reductions in Medicare reimbursement and reductions in Medicare disproportionate share hospital
(“DSH”) payments that have already taken effect are not reversed if the law is repealed or if further reductions (including Medicaid DSH reductions scheduled to
take effect in federal fiscal years 2020 through 2025) are made.
ANTI-KICKBACK
AND
SELF-REFERRAL
REGULATIONS
Anti-Kickback Statute— Medicare and Medicaid anti-kickback and anti-fraud and abuse amendments codified under Section 1128B(b) of the Social
Security Act (the “Anti-kickback Statute”) prohibit certain business practices and relationships that might affect the provision and cost of healthcare services
payable under the Medicare and Medicaid programs and other government programs, including the payment or receipt of remuneration for the referral of patients
whose care will be paid for by such programs. Specifically, the law prohibits any person or entity from offering, paying, soliciting or receiving anything of value,
directly or indirectly, for the referral of patients covered by Medicare, Medicaid and other federal healthcare programs or the leasing, purchasing, ordering or
arranging for or recommending the lease, purchase or order of any item, good, facility or service covered by these programs. In addition to addressing other
matters, as discussed below, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) also amended Title XI (42 U.S.C. Section 1301 et seq.) to
broaden the scope of fraud and abuse laws to include all health plans, whether or not payments under such health plans are made pursuant to a federal program.
Moreover, the Affordable Care Act amended the Anti-kickback Statute to provide that intent to violate the Anti-kickback Statute is not required; rather, intent to
violate the law generally is all that is required.
Sanctions for violating the Anti-kickback Statute include criminal and civil penalties, as well as fines and mandatory exclusion from government
programs, such as Medicare and Medicaid. In addition, submission of a claim for services or items generated in violation of the Anti-kickback Statute constitutes a
false or fraudulent claim and may be subject to additional penalties under the federal False Claims Act (“FCA”). Furthermore, it is a violation of the federal Civil
Monetary Penalties Law to offer or transfer anything of value to Medicare or Medicaid beneficiaries that is likely to influence their decision to obtain covered
goods or services from one provider or service over another. Many states have statutes similar to the federal Anti-kickback Statute, except that the state statutes
usually apply to referrals for services reimbursed by all third-party payers, not just federal programs.
The federal government has also issued regulations that describe some of the conduct and business relationships that are permissible under the Anti-
kickback Statute. These regulations are often referred to as the “Safe Harbor” regulations. Currently, there are safe harbors for various activities, including the
following: investment interests; space rental; equipment rental; practitioner recruitment; personal services and management contracts; sales of practices; referral
services; warranties; discounts; employees; group purchasing organizations; waivers of beneficiary coinsurance and deductible amounts; managed care
arrangements; obstetrical malpractice insurance subsidies; investments in group practices; ambulatory surgery centers; referral agreements for specialty services;
cost-sharing waivers for pharmacies and emergency ambulance services; and local transportation. The fact that certain conduct or a given business arrangement
does not meet a Safe Harbor does not necessarily render the conduct or business arrangement illegal under the Anti-kickback Statute. Rather, such conduct and
business arrangements may be subject to increased scrutiny by government enforcement authorities and should be reviewed on a case-by-case basis.
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Stark Law— The Stark law generally restricts referrals by physicians of Medicare or Medicaid patients to entities with which the physician or an
immediate family member has a financial relationship, unless one of several exceptions applies. The referral prohibition applies to a number of statutorily defined
“designated health services,” such as clinical laboratory, physical therapy, radiology, and inpatient and outpatient hospital services; the prohibition does not apply
to health services provided by an ambulatory surgery center if those services are included in the surgery center’s composite Medicare payment rate. However, if the
ambulatory surgery center is separately billing Medicare for designated health services that are not covered under the ambulatory surgery center’s composite
Medicare payment rate, or if either the ambulatory surgery center or an affiliated physician is performing (and billing Medicare) for procedures that involve
designated health services that Medicare has not designated as an ambulatory surgery center service, the Stark law’s self-referral prohibition would apply and such
services could implicate the Stark law. Exceptions to the Stark law’s referral prohibition cover a broad range of common financial relationships. These statutory
and the subsequent regulatory exceptions are available to protect certain permitted employment relationships, relocation arrangements, leases, group practice
arrangements, medical directorships, and other common relationships between physicians and providers of designated health services, such as hospitals. A
violation of the Stark law may result in a denial of payment, required refunds to patients and the Medicare program, civil monetary penalties of up to $15,000 for
each violation, civil monetary penalties of up to $100,000 for “sham” arrangements, civil monetary penalties of up to $10,000 for each day that an entity fails to
report required information, and exclusion from participation in the Medicare and Medicaid programs and other federal programs. In addition, the submission of a
claim for services or items generated in violation of the Stark law may constitute a false or fraudulent claim, and thus be subject to additional penalties under the
FCA. Many states have adopted self-referral statutes similar to the Stark law, some of which extend beyond the related state Medicaid program to prohibit the
payment or receipt of remuneration for the referral of patients and physician self-referrals regardless of the source of the payment for the care. Our participation in
and development of joint ventures and other financial relationships with physicians could be adversely affected by the Stark law and similar state enactments.
The Affordable Care Act also made changes to the “whole hospital” exception in the Stark law, effectively preventing new physician-owned hospitals
after March 23, 2010 and limiting the capacity and amount of physician ownership in then-existing physician-owned hospitals. As revised, the Stark law prohibits
physicians from referring Medicare patients to a hospital in which they have an ownership or investment interest unless the hospital had physician ownership and a
Medicare provider agreement as of March 23, 2010 (or, for those hospitals under development at the time of the ACA’s enactment, as of December 31, 2010). A
physician-owned hospital that meets these requirements is still subject to restrictions that limit the hospital’s aggregate physician ownership percentage and, with
certain narrow exceptions for hospitals with a high percentage of Medicaid patients, prohibit expansion of the number of operating rooms, procedure rooms or
beds. Physician-owned hospitals are also currently subject to reporting requirements and extensive disclosure requirements on the hospital’s website and in any
public advertisements.
Implications of Fraud and Abuse Laws— At December 31, 2018, the majority of the facilities that operate as surgical hospitals in our Ambulatory Care
segment are owned by joint ventures that include some physician owners and are subject to the limitations and requirements in the Affordable Care Act on
physician-owned hospitals. Furthermore, the majority of ambulatory surgery centers in our Ambulatory Care segment, which are owned by joint ventures with
physicians or healthcare systems, are subject to the Anti-kickback Statute and, in certain circumstances, may be subject to the Stark law. In addition, we have
contracts with physicians and non-physician referral services providing for a variety of financial arrangements, including employment contracts, leases and
professional service agreements, such as medical director agreements. We have also provided financial incentives to recruit physicians to relocate to communities
served by our hospitals, including income and collection guarantees and reimbursement of relocation costs, and will continue to provide recruitment packages in
the future. Furthermore, new payment structures, such as ACOs and other arrangements involving combinations of hospitals, physicians and other providers who
share payment savings, could potentially be seen as implicating anti-kickback and self-referral provisions.
Our operations could be adversely affected by the failure of our arrangements to comply with the Anti-kickback Statute, the Stark law, billing
requirements, current state laws, or other legislation or regulations in these areas adopted in the future. 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 impact our
operations. For example, we cannot predict whether physicians may ultimately be restricted from holding ownership interests in hospitals or whether the exception
relating to services provided by ambulatory surgery centers could be eliminated. We are continuing to enter into new financial arrangements with physicians and
other providers in a manner we believe complies with applicable anti-kickback and anti-fraud and abuse laws. However, governmental officials responsible for
enforcing these laws may nevertheless assert that we are in violation of these provisions. In addition, these statutes or regulations may be interpreted and enforced
by the courts in a manner that is not consistent with our interpretation. An adverse determination could subject us to liabilities under the Social Security Act,
including criminal penalties, civil monetary penalties and exclusion from participation in Medicare,
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Medicaid or other federal healthcare programs, any of which could have a material adverse effect on our business, financial condition or results of operations. In
addition, any determination by a federal or state agency or court that USPI or its subsidiaries has violated any of these laws could give certain of our healthcare
system partners a right to terminate their relationships with us; and any similar determination with respect to Conifer or any of its subsidiaries could give Conifer’s
clients the right to terminate their services agreements with us. Moreover, any violations by and resulting penalties or exclusions imposed upon USPI’s healthcare
system partners or Conifer’s clients could adversely affect their financial condition and, in turn, have a material adverse effect on our business and results of
operations.
Retention of Independent Compliance Monitor— In September 2016, the Company and certain of its subsidiaries, including Tenet HealthSystem Medical,
Inc. (“THSMI”), Atlanta Medical Center, Inc. (“AMCI”) and North Fulton Medical Center, Inc. (“NFMCI”), executed agreements with the U.S. Department of
Justice (“DOJ”) and others to resolve a civil qui tam action and criminal investigation. In accordance with the terms of the resolution agreements, THSMI entered
into a Non-Prosecution Agreement (as amended, the “NPA”) with the Criminal Division, Fraud Section, of the DOJ and the U.S. Attorney’s Office for the
Northern District of Georgia (together, the “Offices”). The NPA requires, among other things, (1) THSMI and the Company to fully cooperate with the Offices in
any matters relating to the conduct described in the NPA and other conduct under investigation by the Offices at any time during the term of the NPA, and (2) the
Company to retain an independent compliance monitor to assess, oversee and monitor its compliance with the obligations under the NPA. The powers, duties and
responsibilities of the independent compliance monitor are broadly defined. On February 1, 2017, the Company retained two independent co-monitors (the
“Monitor”), who are partners in a national law firm.
The Monitor’s primary responsibility is to assess, oversee and monitor the Company’s compliance with its obligations under the NPA to specifically
address and reduce the risk of any recurrence of violations of the Anti-kickback Statute and Stark law by any entity the Company owns, in whole or in part. In
doing so, the Monitor reviews and monitors the effectiveness of the Company’s compliance with the Anti-kickback Statute and the Stark law, as well as respective
implementing regulations, advisories and advisory opinions promulgated thereunder, and makes such recommendations as the Monitor believes are necessary to
comply with the NPA. With respect to all entities in which the Company or one of its affiliates owns a direct or indirect equity interest of 50% or less and does not
manage or control the day-to-day operations, the Monitor’s access to such entities is co-extensive with the Company’s access or control and for the purpose of
reviewing the conduct. During its term, the Monitor will review and provide recommendations for improving compliance with the Anti-kickback Statute and Stark
law, as well as the design, implementation and enforcement of the Company’s compliance and ethics programs for the purpose of preventing future criminal and
ethical violations by the Company and its subsidiaries, including, but not limited to, violations related to the conduct giving rise to the NPA and the Criminal
Information filed in connection with the NPA. If we are alleged or found to have violated the terms of the NPA described above or federal healthcare laws, rules or
regulations in the future, our business, financial condition, results of operations or cash flows could be materially adversely affected. For additional information
regarding the duties and authorities of the Monitor, reference is made to our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission
(“SEC”) on October 3, 2016.
HEALTH
INSURANCE
PORTABILITY
AND
ACCOUNTABILITY
ACT
Title II, Subtitle F of the Health Insurance Portability and Accountability Act mandates the adoption of specific standards for electronic transactions and
code sets that are used to transmit certain types of health information. HIPAA’s objective is to encourage efficiency and reduce the cost of operations within the
healthcare industry. To protect the information transmitted using the mandated standards and the patient information used in the daily operations of a covered
entity, HIPAA also sets forth federal rules protecting the privacy and security of protected health information (“PHI”). The privacy and security regulations address
the use and disclosure of individually identifiable health information and the rights of patients to understand and control how their information is used and
disclosed. The law provides both criminal and civil fines and penalties for covered entities that fail to comply with HIPAA.
To receive reimbursement from CMS for electronic claims, healthcare providers and health plans must use HIPAA’s electronic data transmission
(transaction and code set) standards when transmitting certain healthcare information electronically. Our electronic data transmissions are compliant with current
HHS standards for additional electronic transactions and with HHS’ operating rules to promote uniformity in the implementation of each standardized electronic
transaction.
Under HIPAA, covered entities must establish administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of
electronic PHI maintained or transmitted by them or by others on their behalf. The covered entities we operate are in material compliance with the privacy, security
and National Provider Identifier requirements of HIPAA. In addition, most of Conifer’s clients are covered entities, and Conifer is a business associate to many of
those clients under HIPAA as a result of its contractual obligations to perform certain functions on behalf of and provide certain
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services to those clients. As a business associate, Conifer’s use and disclosure of PHI is restricted by HIPAA and the business associate agreements Conifer is
required to enter into with its covered entity clients.
The Health Information Technology for Economic and Clinical Health (“HITECH”) Act imposed certain of the HIPAA privacy and security requirements
directly upon business associates of covered entities and significantly increased the monetary penalties for violations of HIPAA. Regulations also require business
associates such as Conifer to notify covered entities, who in turn must notify affected individuals and government authorities, of data security breaches involving
unsecured PHI. Since the passage of the HITECH Act, enforcement of HIPAA violations has increased. If Conifer knowingly breaches the HIPAA privacy and
security requirements made applicable to business associates by the HITECH Act, it could expose Conifer to criminal liability (as well as contractual liability to the
associated covered entity); a breach of safeguards and processes that is not due to reasonable cause or involves willful neglect could expose Conifer to significant
civil penalties and the possibility of civil litigation under HIPAA and applicable state law.
We have developed a comprehensive set of policies and procedures in our efforts to comply with HIPAA, and similar state privacy laws, under the
guidance of our ethics and compliance department. Our compliance officers and information security officers are responsible for implementing and monitoring
compliance with our HIPAA privacy and security policies and procedures throughout our company. We have also created an internal web-based HIPAA training
program, which is mandatory for all employees. Based on existing regulations and our experience with HIPAA to this point, we continue to believe that the
ongoing costs of complying with HIPAA will not have a material adverse effect on our business, financial condition, results of operations or cash flows.
GOVERNMENT
ENFORCEMENT
EFFORTS
AND
QUI
TAM
LAWSUITS
Both federal and state government agencies continue heightened and coordinated civil and criminal enforcement efforts against the healthcare industry.
The Office of Inspector General (“OIG”) was established as an independent and objective oversight unit of HHS to carry out the mission of preventing fraud and
abuse and promoting economy, efficiency and effectiveness of HHS programs and operations. In furtherance of this mission, the OIG, among other things,
conducts audits, evaluations and investigations relating to HHS programs and operations and, when appropriate, imposes civil monetary penalties, assessments and
administrative sanctions. Although we have extensive policies and procedures in place to facilitate compliance with the laws, rules and regulations affecting the
healthcare industry, these policies and procedures may not be effective.
Healthcare providers are also subject to qui tam or “whistleblower” lawsuits under the FCA, which allows private individuals to bring actions on behalf of
the government, alleging that a hospital or healthcare provider has defrauded a government program, such as Medicare or Medicaid. If the government intervenes
in the action and prevails, the defendant may be required to pay three times the damages sustained by the government, plus mandatory civil penalties for each false
claim submitted to the government. As part of the resolution of a qui tam case, the qui tam plaintiff may share in a portion of any settlement or judgment. If the
government does not intervene in the action, the qui tam plaintiff may continue to pursue the action independently. There are many potential bases for liability
under the FCA. Liability often arises when an entity knowingly submits a false claim for reimbursement to the federal government. The FCA defines the term
“knowingly” broadly. Though simple negligence will not give rise to liability under the FCA, submitting a claim with reckless disregard to its truth or falsity
constitutes a “knowing” submission under the FCA and, therefore, will qualify for liability. The Fraud Enforcement and Recovery Act of 2009 expanded the scope
of the FCA by, among other things, creating liability for knowingly and improperly avoiding repayment of an overpayment received from the government and
broadening protections for whistleblowers. It is a violation of the FCA to knowingly fail to report and return an overpayment within 60 days of identifying the
overpayment or by the date a corresponding cost report is due, whichever is later. Qui tam actions can also be filed under certain state false claims laws if the fraud
involves Medicaid funds or funding from state and local agencies. We have paid significant amounts to resolve qui tam matters brought against us in the past, and
we are unable to predict the impact of future qui tam actions on our business, financial condition, results of operations or cash flows.
HEALTHCARE
FACILITY
LICENSING
REQUIREMENTS
The operation of healthcare facilities is subject to federal, state and local regulations relating to personnel, operating policies and procedures, fire
prevention, rate-setting, the adequacy of medical care, and compliance with building codes and environmental protection laws. Various licenses and permits also
are required in order to dispense narcotics, operate pharmacies, handle radioactive materials and operate certain equipment. Our facilities are subject to periodic
inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditation. We believe
that all of our healthcare facilities hold all required governmental approvals, licenses and permits material to the operation of their business.
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UTILIZATION
REVIEW
COMPLIANCE
AND
HOSPITAL
GOVERNANCE
In addition to certain statutory coverage limits and exclusions, federal regulations, specifically the Medicare Conditions of Participation, generally require
healthcare providers, including hospitals that furnish or order healthcare services that may be paid for under the Medicare program or state healthcare programs, to
ensure that claims for reimbursement are for services or items that are (1) provided economically and only when, and to the extent, they are medically reasonable
and necessary, (2) of a quality that meets professionally recognized standards of healthcare, and (3) supported by appropriate evidence of medical necessity and
quality. The Social Security Act established the Utilization and Quality Control Peer Review Organization program, now known as the Quality Improvement
Organization (“QIO”) program, to promote the effectiveness, efficiency, economy and quality of services delivered to Medicare beneficiaries and to ensure that
those services are reasonable and necessary. CMS administers the program through a network of QIOs that work with consumers, physicians, hospitals and other
caregivers to refine care delivery systems to ensure patients receive the appropriate care at the appropriate time, particularly among underserved populations. The
QIO program also safeguards the integrity of the Medicare trust fund by reviewing Medicare patient admissions, treatments and discharges, and ensuring payment
is made only for medically necessary services, and investigates beneficiary complaints about quality of care. The QIOs have the authority to deny payment for
services provided and recommend to HHS that a provider that is in substantial noncompliance with certain standards be excluded from participating in the
Medicare program.
There has been increased scrutiny from outside auditors, government enforcement agencies and others, as well as an increased risk of government
investigations and qui tam lawsuits, related to hospitals’ Medicare observation rates and inpatient admission decisions. The term “Medicare observation rate” is
defined as total unique observation claims divided by the sum of total unique observation claims and total inpatient short-stay acute care hospital claims. A low rate
may raise suspicions that a hospital is inappropriately admitting patients that could be cared for in an observation setting. In addition, CMS has established a
concept referred to as the “two-midnight rule” to guide practitioners admitting patients and contractors on when it is appropriate to admit individuals as hospital
inpatients. Under the two-midnight rule, a Medicare patient should generally be admitted on an inpatient basis only when there is a reasonable expectation that the
patient’s care will cross two midnights; if not, the patient generally should be treated as an outpatient, unless an exception applies. In our affiliated hospitals, we
conduct reviews of Medicare inpatient stays of less than two midnights to determine whether a patient qualifies for inpatient admission. Enforcement of the two-
midnight rule has not had, and is not expected to have, a material impact on inpatient admission rates at our hospitals.
Medical and surgical services and practices are extensively supervised by committees of staff doctors at each of our healthcare facilities, are overseen by
each facility’s local governing board, the members of which primarily are community members and physicians, and are reviewed by our clinical quality personnel.
The local governing board also helps maintain standards for quality care, develop short-term and long-range plans, and establish, review and enforce practices and
procedures, as well as approves the credentials, disciplining and, if necessary, the termination of privileges of medical staff members.
CERTIFICATE
OF
NEED
REQUIREMENTS
Some states require state approval for construction, acquisition and closure of healthcare facilities, including findings of need for additional or expanded
healthcare facilities or services. Certificates or determinations of need, which are issued by governmental agencies with jurisdiction over healthcare facilities, are at
times required for capital expenditures exceeding a prescribed amount, changes in bed capacity or services, and certain other matters. Our subsidiaries operate
hospitals in six states that require a form of state approval under certificate of need programs applicable to those hospitals. Approximately 71% of our licensed
hospital beds are located in these states (namely, Alabama, Florida, Massachusetts, Michigan, South Carolina and Tennessee). The certificate of need programs in
most of these states, along with several others, also apply to ambulatory surgery centers.
Failure to obtain necessary state approval can result in the inability to expand facilities, add services, acquire a facility or change ownership. Further,
violation of such laws may result in the imposition of civil sanctions or the revocation of a facility’s license. We are unable to predict whether we will be required
or able to obtain any additional certificates of need in any jurisdiction where they are required, or if any jurisdiction will eliminate or alter its certificate of need
requirements in a manner that will increase competition and, thereby, affect our competitive position. In those states that do not have certificate of need
requirements or that do not require review of healthcare capital expenditure amounts below a relatively high threshold, competition in the form of new services,
facilities and capital spending is more prevalent.
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ENVIRONMENTAL
MATTERS
Our healthcare operations are subject to a number of federal, state and local environmental laws, rules and regulations that govern, among other things,
our disposal of solid waste, as well as our use, storage, transportation and disposal of hazardous and toxic materials (including radiological materials). Our
operations also generate medical waste that must be disposed of in compliance with statutes and regulations that vary from state to state. In addition, although we
are not engaged in manufacturing or other activities that produce meaningful levels of greenhouse gas emissions, our operating expenses could be adversely
affected if legal and regulatory developments related to climate change or other initiatives result in increased energy or other costs. We could also be affected by
climate change and other environmental issues to the extent such issues adversely affect the general economy or result in severe weather affecting the communities
in which our facilities are located. At this time, based on current climate conditions and our assessment of existing and pending environmental rules and
regulations, as well as treaties and international accords relating to climate change, we do not believe that the costs of complying with environmental laws,
including regulations relating to climate change issues, will have a material adverse effect on our future capital expenditures, results of operations or cash flows.
There were no material capital expenditures for environmental matters in the year ended December 31, 2018.
ANTITRUST
LAWS
The federal government and most states have enacted antitrust laws that prohibit specific types of anti-competitive conduct, including price fixing, wage
fixing, anticompetitive hiring practices, concerted refusals to deal, price discrimination and tying arrangements, as well as monopolization and acquisitions of
competitors that have, or may have, a substantial adverse effect on competition. 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 U.S. Federal Trade Commission (“FTC”). In recent years, the FTC has filed
multiple administrative complaints and public comments challenging hospital transactions in several states. The FTC has focused its enforcement efforts on
preventing hospital mergers that may, in the government’s view, leave insufficient local options for patient services. In addition to hospital merger enforcement, the
FTC has given increased attention to the effect of combinations involving other healthcare providers, including physician practices. The FTC has also entered into
numerous consent decrees in the past several years settling allegations of price-fixing among providers.
REGULATIONS AFFECTING CONIFER’S OPERATIONS
Conifer and its subsidiaries are subject to civil and criminal statutes and regulations governing consumer finance, medical billing, coding, collections and
other operations. In connection with these laws and regulations, Conifer and its subsidiaries have been and expect to continue to be party to various lawsuits,
claims, and federal and state regulatory investigations from time to time. Some of these actions may involve large demands, as well as substantial defense costs.
We cannot predict the outcome of current or future legal actions against Conifer and its subsidiaries or the effect that judgments, penalties or settlements in such
matters may have on Conifer.
BILLING
AND
COLLECTION
ACTIVITIES
The federal Fair Debt Collection Practices Act (“FDCPA”) regulates persons who regularly collect or attempt to collect, directly or indirectly, consumer
debts owed or asserted to be owed to another person. Certain of the accounts receivable handled by Conifer’s third-party debt collection vendors are subject to the
FDCPA, which establishes specific guidelines and procedures that debt collectors must follow in communicating with consumer debtors, including the time, place
and manner of such communications. Conifer audits and monitors its vendors for compliance, but there can be no assurance that such audits and monitoring will
detect all instances of potential non-compliance.
Many states also regulate the billing and collection practices of creditors who collect their own debt, as well as the companies a creditor engages to bill
and collect from consumers on the creditor’s behalf. These state regulations may be more stringent than the FDCPA. In addition, state regulations may be specific
to medical billing and collections or the same or similar to state regulations applicable to third-party collectors. Certain of the accounts receivable Conifer or its
billing, servicing and collections subsidiary, PSS Patient Solution Services, LLC, manages for its clients are subject to these state regulations.
Conifer and its subsidiaries are also subject to both federal and state regulatory agencies who have the authority to investigate consumer complaints
relating to a variety of consumer protection laws, including but not limited to the Telephone Consumer Protection Act and its state equivalent. These agencies may
initiate enforcement actions, including actions to seek
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restitution and monetary penalties from, or to require changes in business practices of, regulated entities. In addition, affected consumers may bring suits, including
class action suits, to seek monetary remedies (including statutory damages) for violations of the federal and state provisions discussed above.
PAYMENT
ACTIVITY
RISKS
Conifer accepts payments from patients of the facilities for which it provides services using a variety of methods, including credit card, debit card, direct
debit from a patient’s bank account, and physical bank check. For certain payment methods, including credit and debit cards, Conifer pays interchange and other
fees, which may increase over time, thereby raising operating costs. Conifer relies on third parties to provide payment processing services, including the processing
of credit cards, debit cards and electronic checks, and it could disrupt Conifer’s business if these companies become unwilling or unable to provide these services.
Conifer is also subject to payment card association operating rules, including data security rules, certification requirements and rules governing electronic funds
transfers, which could change or be reinterpreted to make it difficult or impossible for Conifer to comply. If Conifer fails to comply with these rules or
requirements, or if its data security systems are breached or compromised, Conifer may be liable for card issuing banks’ costs, be subject to fines and higher
transaction fees, and lose its ability to accept credit and debit card payments from patients, process electronic funds transfers, or facilitate other types of online
payments.
COMPLIANCE AND ETHICS
General— Our ethics and compliance department maintains our values-based ethics and compliance program, which is designed to (1) help staff in our
corporate, USPI and Conifer offices, hospitals, outpatient centers and physician practices meet or exceed applicable standards established by federal and state
statutes and regulations, as well as industry practice, (2) monitor and raise awareness of ethical issues among employees and others, and stress the importance of
understanding and complying with our Standards of Conduct , and (3) provide a channel for employees to make confidential ethics and compliance-related reports
anonymously if they choose. The ethics and compliance department operates independently – it has its own operating budget; it has the authority to hire outside
counsel, access any company document and interview any of our personnel; and our chief compliance officer reports directly to the quality, compliance and ethics
committee of our board of directors.
Program Charter— Our Quality, Compliance and Ethics Program Charter is the governing document for our ethics and compliance program. Our
adherence to the charter is intended to:
•
•
support and maintain our present and future responsibilities with regard to participation in federal healthcare programs; and
further our goals of operating an organization that (1) fosters and maintains the highest ethical standards among all employees, officers and directors,
physicians practicing at our facilities and contractors that furnish healthcare items or services, (2) values compliance with all state and federal statutes
and regulations as a foundation of its corporate philosophy, and (3) aligns its behaviors and decisions with Tenet’s core values of quality, integrity,
service, innovation and transparency.
The primary focus of our quality, compliance and ethics program is compliance with the requirements of Medicare, Medicaid and other federally funded healthcare
programs. Pursuant to the terms of the charter, our ethics and compliance department is responsible for, among other things, the following activities: (1) ensuring,
in collaboration with in-house counsel, facilitation of the Monitor’s activities and compliance with the provisions of the NPA and related company policies;
(2) assessing, critiquing, and (as appropriate) drafting and distributing company policies and procedures; (3) developing, providing, and tracking ethics and
compliance training and other training programs, including job-specific training to those who work in clinical quality, coding, billing, cost reporting and referral
source arrangements, in collaboration with the respective department responsible for oversight of each of these areas; (4) creating and disseminating the
Company’s Standards of Conduct and obtaining certifications of adherence to the Standards of Conduct as a condition of employment; (5) maintaining and
promoting the Company’s Ethics Action Line, a 24-hour, toll-free hotline that allows for confidential reporting of issues on an anonymous basis and emphasizes
the Company’s no-retaliation policy; and (6) responding to and ensuring resolution of all compliance-related issues that arise from the Ethics Action Line and
compliance reports received from facilities and compliance officers (utilizing any compliance reporting software that the Company may employ for this purpose)
or any other source that results in a report to the ethics and compliance department.
Standards of Conduct— All of our employees, including our chief executive officer, chief financial officer and principal accounting officer, are required
to abide by our Standards of Conduct to advance our mission that our business be conducted in a legal and ethical manner. The members of our board of directors
and all of our contractors having functional
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roles similar to our employees are also required to abide by our Standards of Conduct . The standards reflect our basic values and form the foundation of a
comprehensive process that includes compliance with all corporate policies, procedures and practices. Our standards cover such areas as quality patient care,
compliance with all applicable statutes and regulations, appropriate use of our assets, protection of patient information and avoidance of conflicts of interest.
As part of the program, we provide training sessions at least annually to every employee, as well as our board of directors and certain physicians and
contractors. All employees are required to report incidents that they believe in good faith may be in violation of the Standards of Conduct or our policies, and are
encouraged to contact our Ethics Action Line when they have questions about the standards or any ethics concerns. All reports to the Ethics Action Line are kept
confidential to the extent allowed by law, and employees have the option to remain anonymous. Incidents of alleged financial improprieties reported to the Ethics
Action Line or the ethics and compliance department are communicated to the audit committee of our board of directors. Reported cases that involve a possible
violation of the law or regulatory policies and procedures are referred to the ethics and compliance department for investigation, although certain matters may be
referred out to the law department. Retaliation against employees in connection with reporting ethical concerns is considered a serious violation of our Standards of
Conduct , and, if it occurs, it will result in discipline, up to and including termination of employment.
Non-Prosecution Agreement— In September 2016, our THSMI subsidiary entered into a Non-Prosecution Agreement with the DOJ’s Criminal Division,
Fraud Section, and the U.S. Attorney’s Office for the Northern District of Georgia. The NPA requires, among other things, that we and THSMI (1) fully cooperate
with the Offices in any matters relating to the conduct described in the NPA and other conduct under investigation by the Offices at any time during the term of the
NPA, (2) retain an independent compliance monitor to assess, oversee and monitor our compliance with the obligations under the NPA, (3) promptly report any
evidence or allegations of actual or potential violations of the Anti-kickback Statute, (4) maintain our compliance and ethics program throughout our operations,
including those of our subsidiaries, affiliates, agents and joint ventures (to the extent that we manage or control or THSMI manages or controls such joint ventures),
and (5) notify the DOJ and undertake certain other obligations specified in the NPA relative to, among other things, any sale, merger or transfer of all or
substantially all of our and THSMI’s respective business operations or the business operations of our or its subsidiaries or affiliates, including an obligation to
include in any contract for sale, merger, transfer or other change in corporate form a provision binding the purchaser to retain the commitment of us or THSMI, or
any successor-in-interest thereto, to comply with the NPA obligations except as may otherwise be agreed by the parties to the NPA in connection with a particular
transaction. Except as may otherwise be agreed by the parties in connection with a particular transaction, if, during the term of the NPA, THSMI undertakes or we
undertake any change in corporate form that involves business operations that are material to our consolidated operations or to the operations of any subsidiaries or
affiliates involved in the conduct described in the NPA, whether such transaction is structured as a sale, asset sale, merger, transfer or other change in corporate
form, we are required to provide notice to the Offices at least 30 days prior to undertaking any such change in corporate form.
The NPA was originally scheduled to expire on February 1, 2020 (three years from the date on which the Monitor was retained); however, the DOJ
subsequently extended the expiration date of the NPA by nine months to November 1, 2020 following its determination that we had breached certain reporting
obligations under the terms of the NPA. In the event the Offices determine, in their sole discretion, that the Company, or any of its subsidiaries or affiliates, has
knowingly violated any provision of the NPA, the NPA could be further extended by the Offices, in their sole discretion without prejudice to the Offices’ other
rights under the NPA. Conversely, in the event the Offices find, in their sole discretion, that there exists a change in circumstances sufficient to eliminate the need
for a monitor, or that the other provisions of the NPA have been satisfied, the oversight of the Monitor or the NPA itself may be terminated early.
If, during the term of the NPA, THSMI commits any felony under federal law, or if the Company commits any felony related to the Anti-kickback Statute,
or if THSMI or the Company fails to cooperate or otherwise fails to fulfill the obligations set forth in the NPA, then THSMI, the Company and our affiliates could
be subject to prosecution, exclusion from participation in federal healthcare programs, and other substantial costs and penalties. The Offices retain sole discretion
over determining whether there has been a breach of the NPA and whether to pursue prosecution. The NPA provides that, in the event the DOJ determines that the
Company or THSMI has breached the NPA, the DOJ will provide written notice prior to instituting any prosecution of the Company or THSMI resulting from such
breach. Following receipt of such notice, the Company and THSMI have the opportunity to respond to the DOJ to explain the nature and circumstances of the
breach, as well as the actions taken to address and remediate the situation, which the DOJ shall consider in determining whether to pursue prosecution of the
Company, THSMI or its affiliates. Any liability or consequences associated with a failure to comply with the NPA could have a material adverse effect on our
business, financial condition, results of operations or cash flows.
Availability of Documents— The full text of our Quality, Compliance and Ethics Program Charter, our Standards of Conduct , and a number of our ethics
and compliance policies and procedures are published on our website, at www.tenethealth.com, under the “Our Commitment To Compliance” caption in the
“About Us” section. A copy of our
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Standards of Conduct is also available upon written request to our corporate secretary. Information about how to contact our corporate secretary is set forth under
“Company Information” below. Amendments to the Standards of Conduct and any grant of a waiver from a provision of the Standards of Conduct requiring
disclosure under applicable SEC rules will be disclosed at the same location as the Standards of Conduct on our website. A copy of the NPA is attached as an
exhibit to our Current Report on Form 8-K filed with the SEC on October 3, 2016, and the letter agreement amending the term of the NPA, which was finalized on
June 1, 2018, is attached as an exhibit to our Report on Form 10-Q for the quarter ended June 30, 2018.
INSURANCE
Property Insurance— We have property, business interruption and related insurance coverage to mitigate the financial impact of catastrophic events or
perils that is subject to deductible provisions based on the terms of the policies. These policies are on an occurrence basis. For the policy periods April 1, 2017
through March 31, 2018 and April 1, 2018 through March 31, 2019, we have coverage totaling $850 million per occurrence, after deductibles and exclusions, with
annual aggregate sub-limits of $100 million for floods, $200 million for earthquakes and a per-occurrence sub-limit of $200 million for named windstorms with no
annual aggregate. With respect to fires and other perils, excluding floods, earthquakes and named windstorms, the total $850 million limit of coverage per
occurrence applies. Deductibles are 5% of insured values up to a maximum of $25 million for California earthquakes, floods and named windstorms, and 2% of
insured values for New Madrid fault earthquakes, with a maximum per claim deductible of $25 million. Floods and certain other covered losses, including fires and
other perils, have a minimum deductible of $1 million.
Professional and General Liability Insurance— As is typical in the healthcare industry, we are subject to claims and lawsuits in the ordinary course of
business. The healthcare industry has seen significant increases in the cost of professional liability insurance due to increased litigation. In response, we maintain
captive insurance companies to self-insure a substantial portion of our professional and general liability risk. We also own a captive insurance company that writes
professional liability insurance for a small number of physicians, including employed physicians, who are on the medical staffs of certain of our hospitals.
Claims in excess of our self-insurance retentions are insured with commercial insurance companies. 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. Any losses not covered by or in excess of the amounts maintained under insurance policies will be funded from our working capital.
In addition to the reserves recorded by our captive insurance subsidiaries, we maintain reserves, including reserves for incurred but not reported claims,
for our self-insured professional liability retentions and claims in excess of the policies’ aggregate limits, based on modeled estimates of losses and related
expenses. Also, we provide standby letters of credit to certain of our insurers, which can be drawn upon under certain circumstances, to collateralize the deductible
and self-insured retentions under a selected number of our professional and general liability insurance programs.
COMPANY INFORMATION
Tenet Healthcare Corporation was incorporated in the State of Nevada in 1975. We file annual, quarterly and current reports, proxy statements and other
documents with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our reports, proxy statements and other documents filed
electronically with the SEC are available at the website maintained by the SEC at www.sec.gov.
Our website, www.tenethealth.com, also offers, free of charge, access to our annual, quarterly and current reports (and amendments to such reports), and
other filings made with, or furnished to, the SEC as soon as reasonably practicable after such documents are submitted to the SEC. The information found on our
website is not part of this or any other report we file with or furnish to the SEC.
Inquiries directed to our corporate secretary may be sent to Corporate Secretary, Tenet Healthcare Corporation, P.O. Box 139003, Dallas, Texas 75313-
9003 or by e-mail at CorporateSecretary@tenethealth.com.
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EXECUTIVE OFFICERS
Information about our executive officers, as of February 25, 2019, is as follows:
Name
Ronald A. Rittenmeyer
Saumya Sutaria, M.D.
Daniel J. Cancelmi
Keith B. Pitts
Audrey T. Andrews
Position
Executive Chairman and Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Vice Chairman
Senior Vice President and General Counsel
Age
71
46
56
61
52
Mr. Rittenmeyer was named Tenet’s executive chairman in August 2017 and chief executive officer in October 2017. He has served on Tenet’s board of
directors since 2010, most recently as lead director. He previously served as chairman of the board and chief executive officer of Millennium Health, a health
solutions company. He served as the chairman, president and chief executive officer of Expert Global Solutions, Inc., a provider of business process outsourcing
services, from 2011 to 2014. From 2005 to 2008, Mr. Rittenmeyer held a number of senior management positions with Electronic Data Systems Corporation,
including chairman and chief executive officer from 2007 to 2008, president from 2006 to 2008, chief operating officer from 2005 to 2007 and executive vice
president, global service delivery, from 2005 to 2006. Prior to that, he was a managing director of the Cypress Group, a private equity firm, serving from 2004 to
2005. He served as chairman, chief executive officer and president of Safety-Kleen Corp. from 2001 to 2004. Among his other leadership roles, Mr. Rittenmeyer
served as chief executive officer and president of AmeriServe Food Distribution Inc. from 2000 to 2001, chairman, chief executive officer and president of
RailTex, Inc. from 1998 to 2000, president and chief operating officer of Ryder TRS, Inc. from 1997 to 1998, president and chief operating officer of Merisel, Inc.
from 1995 to 1996 and chief operating officer of Burlington Northern Railroad Co. from 1994 to 1995. Mr. Rittenmeyer received his bachelor of science degree in
commerce and economics from Wilkes University and his M.B.A. from Rockhurst University. He is chairman of the Federation of American Hospitals’ board of
directors, and he currently serves on the board of directors of two other public companies: American International Group, Inc. and IQVIA Holdings Inc.
Dr. Sutaria was appointed Tenet’s chief operating officer in January 2019. In this role, he oversees all of Tenet’s acute care hospitals and hospital-
affiliated outpatient facilities and physician practices. He also leads other functions across the enterprise within Tenet, USPI and Conifer. Prior to joining the
Company, Dr. Sutaria worked for McKinsey & Company for 18 years, most recently as a Senior Partner providing advisory support for hospitals, healthcare
systems, physicians groups, ambulatory care models, integrated delivery, and government-led delivery, while also working with institutional investors in
healthcare. He previously held an associate clinical faculty appointment at the University of California at San Francisco, where he also engaged in postgraduate
training with a focus in internal medicine and cardiology. Dr. Sutaria received his bachelor’s degree in molecular and cellular biology and his bachelor’s degree in
economics, both from the University of California, Berkeley, as well as his M.D. from the University of California, San Diego.
Mr. Cancelmi was appointed Tenet’s chief financial officer in September 2012. He previously served as senior vice president from April 2009, principal
accounting officer from April 2007 and controller from September 2004. Mr. Cancelmi was a vice president and assistant controller at Tenet from September 1999
until his promotion to controller. He joined the Company as chief financial officer of Hahnemann University Hospital. Prior to that, he held various positions at
PricewaterhouseCoopers, including in the firm’s National Accounting and SEC office in New York City. Mr. Cancelmi is a certified public accountant who
received his bachelor’s degree in accounting from Duquesne University in Pittsburgh. He is also a member of the American Institute of Certified Public
Accountants and the Florida and Pennsylvania Institutes of Certified Public Accountants.
Mr. Pitts was appointed vice chairman following Tenet’s acquisition of Vanguard Health Systems, Inc. (“Vanguard”) in October 2013. He was
Vanguard’s vice chairman from May 2001 until the acquisition and an executive vice president from August 1999 until May 2001. Mr. Pitts also served as a
director of Vanguard from August 1999 until September 2004. Before joining Vanguard, Mr. Pitts was the chairman and chief executive officer of Mariner Post-
Acute Network and its predecessor, Paragon Health Network, a nursing home management company, from November 1997 until June 1999. He served as the
executive vice president and chief financial officer for OrNda HealthCorp, prior to its acquisition by Tenet, from August 1992 to January 1997, and, before that, as
a consultant to many healthcare organizations, including as a partner in Ernst & Young’s healthcare consulting practice. Mr. Pitts is a certified public accountant
who received his bachelor’s degree in business administration from the University of Florida. He is a member of the American Institute of Certified Public
Accountants and the Florida Institute of Certified Public Accountants.
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Ms. Andrews was appointed senior vice president and general counsel in January 2013. In this capacity, she oversees the law department and government
relations for Tenet, USPI and Conifer. From July 2008 through December 2012, she served as senior vice president and chief compliance officer and, prior to that,
served as vice president and chief compliance officer from November 2006. She joined Tenet in 1998 as hospital operations counsel. Ms. Andrews received her
J.D. and her bachelor’s degree in government, both from the University of Texas at Austin. She is a member of the American and Texas Bar Associations and the
American Health Lawyers Association.
FORWARD-LOOKING STATEMENTS
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act,
each as amended. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters
that we plan, expect, intend, assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should or may occur in
the future are forward-looking statements, including (but not limited to) disclosure regarding our future earnings, financial position, operational and strategic
initiatives, and developments in the healthcare industry. Forward-looking statements represent management’s expectations, based on currently available
information, as to the outcome and timing of future events, but, by their nature, address matters that are indeterminate. They involve known and unknown risks,
uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements to be materially
different from those expressed or implied by forward-looking statements. Such factors include, but are not limited to, the following:
•
•
•
•
•
•
•
•
•
•
•
•
Our ability to achieve operating and financial targets, attain expected levels of patient volumes, and identify and execute on measures designed to
save or control costs or streamline operations, including our ability to realize savings under our cost-reduction initiatives;
The outcome of the process we have undertaken to explore a sale of or other strategic alternatives for Conifer;
Potential disruptions to our business or diverted management attention as a result of the Conifer strategic review process or our cost-reduction efforts,
including our plans to outsource certain functions unrelated to direct patient care;
The impact on our business of recent and future modifications of or judicial challenges to the Affordable Care Act and the enactment of, or changes
in, other statutes and regulations affecting the healthcare industry generally;
Cuts to Medicare and Medicaid payment rates or changes in reimbursement practices or to Medicaid supplemental payment programs;
Adverse regulatory developments, government investigations or litigation;
Adverse developments with respect to our ability to comply with the terms of the Non-Prosecution Agreement, including any breach of the
agreement;
Our ability to enter into or renew managed care provider arrangements on acceptable terms; and changes in service mix, revenue mix and surgical
volumes, including potential declines in the population covered under managed care agreements;
The effect that adverse economic conditions, consumer behavior and other factors have on our volumes and our ability to collect outstanding
receivables on a timely basis, among other things; and increases in the amount of uninsured accounts and deductibles and copays for insured
accounts;
Our success in completing acquisitions, divestitures and other corporate development transactions; and our success in entering into, and managing the
relationships and risks associated with, joint ventures;
Our success in recruiting and retaining physicians and other healthcare professionals;
The impact of competition on all aspects of our business;
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•
•
•
•
The impact of our significant indebtedness; the availability and terms of capital to refinance existing debt, fund our operations and expand our
business; and our ability to comply with our debt covenants and, over time, reduce leverage;
Potential security threats, catastrophic events and other disruptions affecting our information technology and related systems;
The timing and impact of additional changes in federal tax laws, regulations and policies, and the outcome of pending and any future tax audits,
disputes and litigation associated with our tax positions; and
Other factors and risks referenced in this report and our other public filings.
When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report. Should one or more
of the risks and uncertainties described in this report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially
from those expressed in any forward-looking statement. We specifically disclaim any obligation to update any information contained in a forward-looking
statement or any forward-looking statement in its entirety, except as required by law.
All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.
ITEM 1A. RISK FACTORS
Our business is subject to a number of risks and uncertainties, many of which are beyond our control, that may cause our actual operating results or
financial performance to be materially different from our expectations. If one or more of the events discussed in this report were to occur, actual outcomes could
differ materially from those expressed in or implied by any forward-looking statements we make in this report or our other filings with the SEC, and our business,
financial condition, results of operations or liquidity could be materially adversely affected; furthermore, the trading price of our common stock could decline and
our shareholders could lose all or part of their investment. Additional risks and uncertainties not presently known, or currently deemed immaterial, may also
constrain our business and operations.
We
cannot
predict
the
impact
that
modifications
of
the
Affordable
Care
Act
may
have
on
our
business,
financial
condition,
results
of
operations
or
cash
flows.
The initial expansion of health insurance coverage under the Affordable Care Act resulted in an increase in the number of patients using our facilities with
either private or public program coverage and a decrease in uninsured and charity care admissions. Although a substantial portion of both our patient volumes and,
as result, our revenues has historically been derived from government healthcare programs, reductions to our reimbursement under the Medicare and Medicaid
programs as a result of the ACA have been partially offset by increased revenues from providing care to previously uninsured individuals.
The President issued an executive order in January 2017 declaring that it is the official policy of his administration to seek the prompt repeal of the ACA
and directing the heads of all executive departments and agencies to minimize the economic and regulatory burdens of the ACA to the maximum extent permitted
by law while the ACA remains in effect. The White House also sent a memorandum to federal agencies directing them to freeze any new or pending regulations. In
October 2017, the administration announced that reimbursements to insurance companies for ACA cost-sharing reduction plans offered through the health
insurance marketplace would be discontinued. CSR payments compensate insurers for subsidizing out-of-pocket costs for low-income enrollees. Without the CSR
payments, many insurers increased premiums for plans offered on ACA exchanges and a few withdrew entirely from offering plans on some of the exchanges. In
addition, in December 2017, Congress passed and the President signed a tax reform bill into law that, among other things, eliminates the ACA’s individual mandate
penalty for not buying health insurance starting in 2019. The Congressional Budget Office and the staff of the Joint Committee on Taxation estimated that
eliminating the mandate penalty starting in 2019 – and making no other changes to the then-current law – would cause the number of people with health insurance
to decrease by 4 million in 2019 and 13 million in 2027. Members of Congress have also proposed measures that would expand government-sponsored coverage,
including single-payer proposals. We cannot predict if or when further modification of the ACA will occur or what action, if any, Congress might take with respect
to eventually repealing and possibly replacing the law.
Furthermore, there have also been successful judicial challenges to the ACA, including a December 2018 ruling by the U.S. District Court for the
Northern District of Texas that the ACA’s individual mandate is unconstitutional. Because the judge’s order was stayed pending appeal, the decision’s near-term
impact on health insurance coverage under the ACA may be limited; however, uncertainty over the future of the ACA has intensified. The ultimate outcome of this
decision and other
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judicial challenges is indeterminate. We are also unable to predict the impact of administrative, regulatory and legislative changes, and market reactions to those
changes, on our future revenues and operations. However, if the ultimate impact is that significantly fewer individuals have private or public health coverage, we
likely will experience decreased volumes, reduced revenues and an increase in uncompensated care, which would adversely affect our results of operations and
cash flows. This negative effect will be exacerbated if the ACA’s reductions in Medicare reimbursement and reductions in Medicare DSH payments that have
already taken effect are not reversed if the law is repealed or if further reductions (including Medicaid DSH reductions scheduled to take effect in federal fiscal
years 2020 through 2025 ) are made.
Further
changes
in
the
Medicare
and
Medicaid
programs
or
other
government
healthcare
programs,
including
reductions
in
scale
and
scope,
could
have
an
adverse
effect
on
our
business.
For the year ended December 31, 2018, approximately 20% and 9% of our net patient service revenues from our hospitals and related outpatient facilities
were from the Medicare program and various state Medicaid programs, respectively, in each case excluding Medicare and Medicaid managed care programs. The
Medicare and Medicaid programs are subject to: statutory and regulatory changes, administrative rulings, interpretations and determinations concerning patient
eligibility requirements, funding levels and the method of calculating payments or reimbursements, among other things; requirements for utilization review; and
federal and state funding restrictions, all of which could materially increase or decrease payments from these government programs in the future, as well as affect
the cost of providing services to our patients and the timing of payments to our facilities, which could in turn adversely affect our overall business, financial
condition, results of operations or cash flows.
Several states in which we operate face budgetary challenges that have resulted, and likely will continue to result, in reduced Medicaid funding levels to
hospitals and other providers. Because most states must operate with balanced budgets, and the Medicaid program is generally a significant portion of a state’s
budget, states can be expected to adopt or consider adopting future legislation designed to reduce or not increase their Medicaid expenditures. In addition, some
states delay issuing Medicaid payments to providers to manage state expenditures. As an alternative means of funding provider payments, many of the states in
which we operate have adopted provider fee programs or have received federal government waivers allowing them to test new approaches and demonstration
projects to improve care. The timing of federal approval of these state-based Medicaid provider fee revenue programs – particularly the California provider fee
program – may have an impact on our net operating revenues and cash flows in any given period. Continuing pressure on state budgets and other factors could
result in future reductions to Medicaid payments, payment delays, changes to Medicaid supplemental payment programs or additional taxes on hospitals.
In general, we are unable to predict the effect of future government healthcare funding policy changes on our operations. If the rates paid by governmental
payers are reduced, if the scope of services covered by governmental payers is limited, or if we or one or more of our subsidiaries’ hospitals are excluded from
participation in the Medicare or Medicaid program or any other government healthcare program, there could be a material adverse effect on our business, financial
condition, results of operations or cash flows.
Our
business
and
financial
results
could
be
harmed
if
we
are
alleged
to
have
violated
existing
regulations
or
if
we
fail
to
comply
with
new
or
changed
regulations.
Our hospitals, outpatient centers and related healthcare businesses are subject to extensive federal, state and local regulation relating to, among other
things, licensure, contractual arrangements, conduct of operations, privacy of patient information, ownership of facilities, physician relationships, addition of
facilities and services, and reimbursement rates for services. The laws, rules and regulations governing the healthcare industry are extremely complex and, in
certain areas, the industry has little or no regulatory or judicial interpretation for guidance. Moreover, under the ACA, the government and its contractors may
suspend Medicare and Medicaid payments to providers of services “pending an investigation of a credible allegation of fraud.” The potential consequences for
violating such laws, rules or regulations include reimbursement of government program payments, the assessment of civil monetary penalties, including treble
damages, fines, which could be significant, exclusion from participation in federal healthcare programs, or criminal sanctions against current or former employees,
any of which could have a material adverse effect on our business, financial condition or cash flows. Even a public announcement that we are being investigated
for possible violations of law could have a material adverse effect on the value of our common stock and our business reputation could suffer.
Furthermore, healthcare, as one of the largest industries in the United States, continues to attract much legislative interest and public attention. We are
unable to predict the future course of federal, state and local healthcare regulation or legislation, including Medicare and Medicaid statutes and regulations. Further
changes in the regulatory framework negatively
23
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affecting healthcare providers could have a material adverse effect on our business, financial condition, results of operations or cash flows.
As we explore outsourcing and offshoring of certain functions unrelated to direct patient care to enhance efficiency, we must ensure that those operations
will be compliant with U.S. healthcare industry-specific requirements. In addition, we are required to comply with various federal and state labor laws, rules and
regulations governing a variety of workplace wage and hour issues. From time to time, we have been and expect to continue to be subject to regulatory proceedings
and private litigation concerning our application of such laws, rules and regulations.
Conifer and its subsidiaries are subject to numerous federal, state and local consumer protection and other laws governing such topics as privacy, financial
services, and billing and collections activities. Regulations governing Conifer’s operations are subject to changing interpretations that may be inconsistent among
different jurisdictions. In addition, a regulatory determination made by, or a settlement or consent decree entered into with, one regulatory agency may not be
binding upon, or preclude, investigations or regulatory actions by other agencies. Conifer’s failure to comply with applicable consumer protection and other laws
could result in, among other things, the issuance of cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds
of affirmative relief), the imposition of fines or refunds, and other civil and criminal penalties, some of which could be significant in the case of knowing or
reckless violations. In addition, Conifer’s failure to comply with the statutes and regulations applicable to it could result in reduced demand for its services,
invalidate all or portions of some of Conifer’s services agreements with its clients, give clients the right to terminate Conifer’s services agreements with them or
give rise to contractual liabilities, among other things, any of which could have a material adverse effect on Conifer’s business. Furthermore, if Conifer or its
subsidiaries become subject to fines or other penalties, it could harm Conifer’s reputation, thereby making it more difficult for Conifer to retain existing clients or
attract new clients.
If
we
breach
or
otherwise
fail
to
comply
with
our
Non-Prosecution
Agreement,
we
could
be
subject
to
criminal
prosecution,
substantial
penalties
and
exclusion
from
participation
in
federal
healthcare
programs,
any
of
which
could
adversely
impact
our
business,
financial
condition,
results
of
operations
or
cash
flows.
In September 2016, one of our subsidiaries, Tenet HealthSystem Medical, Inc., entered into a Non-Prosecution Agreement with the DOJ’s Criminal
Division, Fraud Section, and the U.S. Attorney’s Office for the Northern District of Georgia, as described in “Compliance and Ethics – Non-Prosecution
Agreement” above. If, during the term of the NPA, THSMI commits any felony under federal law, or if the Company commits any felony related to the Anti-
kickback Statute, or if THSMI or the Company fails to cooperate or otherwise fails to fulfill the obligations set forth in the NPA, then THSMI, the Company and
our affiliates could be subject to prosecution, exclusion from participation in federal healthcare programs, and other substantial costs and penalties. The Offices
retain sole discretion over determining whether there has been a breach of the NPA and whether to pursue prosecution. Any liability or consequences associated
with a failure to comply with the NPA could have a material adverse effect on our business, financial condition, results of operations or cash flows.
We
could
be
subject
to
substantial
uninsured
liabilities
or
increased
insurance
costs
as
a
result
of
significant
legal
actions.
We are subject to medical malpractice lawsuits, antitrust and employment class action lawsuits, and other legal actions in the ordinary course of business.
Some of these actions may involve large demands, as well as substantial defense costs. Even in states that have imposed caps on damages, litigants are seeking
recoveries under new theories of liability that might not be subject to such caps. Our professional and general liability insurance does not cover all claims against
us, and it may not continue to be available at a reasonable cost for us to maintain at adequate levels, as the healthcare industry has seen significant increases in the
cost of such insurance due to increased litigation. 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. Any losses not covered by or in excess of the amounts maintained under insurance
policies will be funded from our working capital. 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 a material adverse effect on our business, financial condition, results of operations or cash flows.
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Table of Contents
If
we
are
unable
to
enter
into,
maintain
and
renew
managed
care
contractual
arrangements
on
acceptable
terms,
if
we
experience
material
reductions
in
the
contracted
rates
we
receive
from
managed
care
payers
or
if
we
have
difficulty
collecting
from
managed
care
payers,
our
results
of
operations
could
be
adversely
affected.
The amount of our managed care net patient service revenues, including Medicare and Medicaid managed care programs, from our hospitals and related
outpatient facilities during the year ended December 31, 2018 was approximately $9.2 billion , which represented approximately 65% of our total net patient
service revenues. In addition, in the year ended December 31, 2018, our commercial managed care net inpatient revenue per admission from the hospitals and
related outpatient facilities in our Hospital Operations and other segment was approximately 89% higher than our aggregate yield on a per admission basis from
government payers, including managed Medicare and Medicaid insurance plans. Our ability to negotiate favorable contracts with HMOs, insurers offering
preferred provider arrangements and other managed care plans, as well as add new facilities to our existing agreements at contracted rates, significantly affects our
revenues and operating results. We currently have thousands of managed care contracts with various HMOs and PPOs; however, our top ten managed care payers
generated 65% of our managed care net patient service revenues for the year ended December 31, 2018. Because of this concentration, we may experience a short
or long-term adverse effect on our net operating revenues if we cannot renew, replace or otherwise mitigate the impact of expired contracts with significant payers.
Furthermore, any disputes between us and significant managed care payers could have a material adverse effect on our financial condition, results of operations or
cash flows. At December 31, 2018, 61% of our net accounts receivable for our Hospital Operations and other segment was due from managed care payers.
Private payers are increasingly attempting to control healthcare costs through direct contracting with hospitals to provide services on a discounted basis,
increased utilization reviews and greater enrollment in managed care programs, such as HMOs and PPOs. Any negotiated discount programs we agree to generally
limit our ability to increase charges in response to increasing costs. Furthermore, the ongoing trend toward consolidation among private managed care payers tends
to increase their bargaining power over prices and fee structures. Our future success will depend, in part, on our ability to renew existing managed care contracts
and enter into new managed care contracts on competitive terms. Other healthcare companies, including some with greater financial resources, greater geographic
coverage or a wider range of services, may compete with us for these opportunities. For example, some of our competitors may negotiate exclusivity provisions
with managed care plans or otherwise restrict the ability of managed care companies to contract with us. Any material reductions in the contracted rates we receive
for our services or any significant difficulties in collecting receivables from managed care payers could have a material adverse effect on our financial condition,
results of operations or cash flows.
Our
cost-reduction
initiatives
may
not
deliver
the
benefits
we
expect,
and
actions
taken
may
adversely
affect
our
business,
financial
condition
and
results
of
operations.
Our future financial performance and level of profitability is dependent, in part, on various cost-reduction initiatives, including a recently announced
strategy to explore outsourcing certain functions unrelated to direct patient care. We may encounter challenges in executing our cost-reduction initiatives and not
achieve the intended cost savings. In addition, we may face wrongful termination, discrimination or other legal claims from employees affected by any workforce
reductions, and we may incur substantial costs defending against such claims, regardless of their merits. Such claims may also significantly increase our severance
costs. Workforce reductions, whether as a result of internal restructuring or in connection with outsourcing efforts, may result in the loss of numerous long-term
employees, the loss of institutional knowledge and expertise, the reallocation of certain job responsibilities and the disruption of business continuity, all of which
could negatively affect operational efficiencies and increase our operating expenses in the short term. Moreover, outsourcing and offshoring may expose us to
additional risks, such as reduced control over operational quality and timing, foreign political and economic instability, and compliance and regulatory challenges.
Our failure to effectively execute our cost-reduction initiatives may lead to significant volatility, and a decline, in the price of our common stock. We cannot
guarantee that our cost-reduction initiatives will be successful, and we may need to take additional steps in the future to achieve our profitability goals.
We
cannot
provide
any
assurances
that
we
will
be
successful
in
divesting
assets
in
non-core
markets
or
that
we
will
complete
the
process
we
have
initiated
for
the
potential
divestiture
of
or
other
transaction
involving
Conifer.
We continue to exit service lines, businesses and markets that we believe are no longer strategic to our long-term growth. To that end, in 2018 we divested
eight hospitals in the United States, as well as all of our operations in the United Kingdom. In addition, in January 2019, we completed the previously announced
sale of three hospitals in the Chicago area that we owned at December 31, 2018. We cannot provide any assurances that completed, planned or future divestitures
will achieve their business goals or the cost and service synergies we expect. We also cannot predict the outcome of the process we have been exploring regarding
strategic alternatives for Conifer, including a potential sale or merger, a tax-efficient spin-off or a combination of alternative transactions.
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Table of Contents
With respect to all proposed divestitures of assets or businesses, we may fail to obtain applicable regulatory approvals for such divestitures, including any
approval that may be required under our NPA. Moreover, we may encounter difficulties in finding acquirers or alternative exit strategies on terms that are favorable
to us, which could delay the receipt of anticipated proceeds necessary for us to complete our planned strategic objectives. In addition, our divestiture activities have
required, and may in the future require, us to retain significant pre-closing liabilities, recognize impairment charges (as discussed below) or agree to contractual
restrictions that limit our ability to reenter the applicable market, which may be material. Furthermore, our divestiture or other corporate development activities
may present financial and operational risks, including (1) the diversion of management attention from existing core businesses, (2) adverse effects (including a
deterioration in the related asset or business and, in Conifer’s case, the loss of existing clients and the difficulties associated with securing new clients) from the
announcement of the planned or potential divestiture, and (3) the challenges associated with separating personnel and financial and other systems.
A
divestiture
or
other
separation
of
Conifer
could
adversely
affect
our
earnings
and
cash
flows.
Conifer contributes a significant portion of the Company’s earnings and cash flows. We have been engaged in a process to consider a divestiture or other
strategic alternatives for Conifer, such as a merger, a tax-efficient spin-off or a combination of alternative transactions. Although there can be no assurance that this
process will result in a consummated transaction, any separation of all or a portion of Conifer’s business could adversely affect our earnings and cash flows.
Economic
factors,
consumer
behavior
and
other
dynamics
have
affected,
and
may
continue
to
impact,
our
business,
financial
condition
and
results
of
operations.
We believe broad economic factors (including high unemployment rates in some of the markets our facilities serve), instability in consumer spending,
uncertainty regarding the future of the Affordable Care Act, and the continued shift of additional financial responsibility to insured patients through higher co-pays,
deductibles and premium contributions, among other dynamics, have affected our service mix, revenue mix and volumes, as well as our ability to collect
outstanding receivables. Any increase in the amount or deterioration in the collectability of patient accounts receivable will adversely affect our cash flows and
results of operations. The U.S. economy remains unpredictable. If industry trends, such as reductions in commercial managed care enrollment and patient decisions
to postpone or cancel elective and non-emergency healthcare procedures, worsen or if general economic conditions deteriorate, we may not be able to sustain future
profitability, and our liquidity and ability to repay our outstanding debt may be harmed.
Trends
affecting
our
actual
or
anticipated
results
may
require
us
to
record
charges
that
may
negatively
impact
our
results
of
operations.
As a result of factors that have negatively affected our industry generally and our business specifically, we have been required to record various charges in
our results of operations. During the years ended December 31, 2018 and 2017, we recorded impairment charges of $77 million and $402 million , respectively.
Our impairment tests presume stable, improving or, in some cases, declining operating results in our hospitals, which are based on programs and initiatives being
implemented that are designed to achieve the hospitals’ most recent projections. If these projections are not met, or negative trends occur that impact our future
outlook, future impairments of long-lived assets and goodwill may occur, and we may incur additional restructuring charges, which could be material. Future
restructuring of our operating structure that changes our goodwill reporting units could also result in future impairments of our goodwill. Any such charges could
negatively impact our results of operations.
When
we
acquire
new
assets
or
businesses,
we
become
subject
to
various
risks
and
uncertainties
that
could
adversely
affect
our
results
of
operations
and
financial
condition.
We have completed a number of acquisitions in recent years, and we expect to pursue similar transactions in the future. A key business strategy for USPI,
in particular, is the acquisition and development of facilities, primarily through the formation of joint ventures with physicians and healthcare systems. With
respect to planned or future transactions, we cannot provide any assurances that we will be able to identify suitable candidates, consummate transactions on terms
that are favorable to us, or achieve synergies or other benefits in a timely manner or at all. Furthermore, companies or operations acquired may not be profitable or
may not achieve the profitability that justifies the investments made. In addition, we may face significant challenges in integrating personnel and financial and
other systems. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of additional debt and contingent liabilities, and
increased operating expenses, any of which could adversely affect our results of operations and financial condition.
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Table of Contents
USPI
and
our
hospital-based
joint
ventures
depend
on
existing
relationships
with
key
healthcare
system
partners.
If
we
are
unable
to
maintain
historical
relationships
with
these
healthcare
systems,
or
enter
into
new
relationships,
we
may
be
unable
to
implement
our
business
strategies
successfully.
USPI and our hospital-based joint ventures depend in part on the efforts, reputations and success of healthcare system partners and the strength of our
relationships with those healthcare systems. Our joint ventures could be adversely affected by any damage to those healthcare systems’ reputations or to our
relationships with them. In addition, damage to our business reputation could negatively impact the willingness of healthcare systems to enter into relationships
with us or USPI. If we are unable to maintain existing arrangements on favorable terms or enter into relationships with additional healthcare system partners, we
may be unable to implement our business strategies for our joint ventures successfully.
The
remaining
put/call
arrangements
associated
with
USPI,
if
settled
in
cash,
will
require
us
to
utilize
our
cash
flow
or
incur
additional
indebtedness
to
satisfy
the
payment
obligations
in
respect
of
such
arrangements.
As part of the formation of USPI in 2015, we entered into a put/call agreement with respect to the equity interests in USPI held by our joint venture
partners at that time. During 2016, 2017 and 2018, we paid $1.473 billion in the aggregate to purchase additional shares of USPI to increase our ownership interest
in USPI to 95%.
We have also entered into a separate put/call agreement (the “Baylor Put/Call Agreement”) with respect to the remaining 5% outside ownership interest in
USPI held by Baylor University Medical Center. Each year starting in 2021, Baylor may require us to purchase, or “put” to us, up to 33.3% of their total shares in
USPI held as of January 1, 2017. In each year that Baylor does not put the full 33.3% of USPI’s shares allowable, we may call the difference between the number
of shares Baylor put and the maximum number of shares they could have put that year. In addition, the Baylor Put/Call Agreement contains a call option pursuant
to which we have the ability to acquire all of Baylor’s ownership interest by 2024. In each case, we have the ability to choose whether to settle the purchase price
for the Baylor put/call in cash or shares of our common stock.
The put and call arrangements described above, to the extent settled in cash, may require us to dedicate a substantial portion of our cash flow to satisfy our
payment obligations in respect of such arrangements, which may reduce the amount of funds available for our operations, capital expenditures and corporate
development activities. Similarly, we may be required to incur additional indebtedness to satisfy our payment obligations in respect of such arrangements, which
could have important consequences to our business and operations, as described more fully below under “ Our level of indebtedness could, among other things,
adversely affect our ability to 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 relating to our indebtedness.”
Our
joint
venture
arrangements
are
subject
to
a
number
of
operational
risks
that
could
have
a
material
adverse
effect
on
our
business,
results
of
operations
and
financial
condition.
We have invested in a number of joint ventures with other entities when circumstances warranted the use of these structures, and we may form additional
joint ventures in the future. These joint ventures may not be profitable or may not achieve the profitability that justifies the investments made. Furthermore, the
nature of a joint venture requires us to consult with and share certain decision-making powers with unaffiliated third parties, some of which may be not-for-profit
healthcare systems. If our joint venture partners do not fulfill their obligations, the affected joint venture may not be able to operate according to its business or
strategic plans. In that case, our results could be adversely affected or we may be required to increase our level of financial commitment to the joint venture.
Moreover, differences in economic or business interests or goals among joint venture participants could result in delayed decisions, failures to agree on major
issues and even litigation. If these differences cause the joint ventures to deviate from their business or strategic plans, or if our joint venture partners take actions
contrary to our policies, objectives or the best interests of the joint venture, our results could be adversely affected. In addition, our relationships with not-for-profit
healthcare systems and the joint venture agreements that govern these relationships are intended to be structured to comply with current revenue rulings published
by the Internal Revenue Service, as well as case law relevant to joint ventures between for-profit and not-for-profit healthcare entities. Material changes in these
authorities could adversely affect our relationships with not-for-profit healthcare systems and related joint venture arrangements.
Our participation in joint ventures is also subject to the risks that:
• We could experience an impasse on certain decisions because we do not have sole decision-making authority, which could require us to expend
additional resources on resolving such impasses or potential disputes.
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• We may not be able to maintain good relationships with our joint venture partners (including healthcare systems), which could limit our future
growth potential and could have an adverse effect on our business strategies.
•
•
Our joint venture partners could have investment or operational goals that are not consistent with our corporate-wide objectives, including the timing,
terms and strategies for investments or future growth opportunities.
Our joint venture partners might become bankrupt, fail to fund their share of required capital contributions or fail to fulfill their other obligations as
joint venture partners, which may require us to infuse our own capital into any such venture on behalf of the related joint venture partner or partners
despite other competing uses for such capital.
• Many of our existing joint ventures require that one of our wholly owned affiliates provide a working capital line of credit to the joint venture, which
could require us to allocate substantial financial resources to the joint venture potentially impacting our ability to fund our other short-term
obligations.
•
•
•
•
•
•
Some of our existing joint ventures require mandatory capital expenditures for the benefit of the applicable joint venture, which could limit our ability
to expend funds on other corporate opportunities.
Our joint venture partners may have exit rights that would require us to purchase their interests upon the occurrence of certain events or the passage
of certain time periods, which could impact our financial condition by requiring us to incur additional indebtedness in order to complete such
transactions or, alternatively, in some cases we may have the option to issue shares of our common stock to our joint venture partners to satisfy such
obligations, which would dilute the ownership of our existing stockholders.
Our joint venture partners may have competing interests in our markets that could create conflict of interest issues.
Any sale or other disposition of our interest in a joint venture or underlying assets of the joint venture may require consents from our joint venture
partners, which we may not be able to obtain.
Certain corporate-wide or strategic transactions may also trigger other contractual rights held by a joint venture partner (including termination or
liquidation rights) depending on how the transaction is structured, which could impact our ability to complete such transactions.
Our joint venture arrangements that involve financial and ownership relationships with physicians and others who either refer or influence the referral
of patients to our hospitals or other healthcare facilities are subject to greater regulatory scrutiny from government enforcement agencies. While we
endeavor to comply with the applicable safe harbors under the Anti-kickback Statute, certain of our current arrangements, including joint venture
arrangements, do not qualify for safe harbor protection.
It
is
essential
to
our
ongoing
business
that
we
attract
an
appropriate
number
of
quality
physicians
in
the
specialties
required
to
support
our
services
and
that
we
maintain
good
relations
with
those
physicians.
The success of our business depends in significant part on the number, quality, specialties, and admitting and scheduling practices of the licensed
physicians who have been admitted to the medical staffs of our hospitals and other facilities, as well as physicians who affiliate with us and use our facilities as an
extension of their practices. Physicians are often not employees of the hospitals or surgery centers at which they practice. Members of the medical staffs of our
facilities also often serve on the medical staffs of facilities we do not operate, and they are free to terminate their association with our facilities or admit their
patients to competing facilities at any time. In addition, although physicians who own interests in our facilities are generally subject to agreements restricting them
from owning an interest in competitive facilities, we may not learn of, or be unsuccessful in preventing, our physician partners from acquiring interests in
competitive facilities.
We expect to encounter increased competition from health insurers and private equity companies seeking to acquire providers in the markets where we
operate physician practices and, where permitted by law, employ physicians. In some of our markets, physician recruitment and retention are affected by a shortage
of physicians in certain specialties and the difficulties that physicians can experience in obtaining affordable malpractice insurance or finding insurers willing to
provide such insurance. Furthermore, our ability to recruit and employ physicians is closely regulated. For example, the types, amount and duration of
compensation and assistance we can provide to recruited physicians are limited by the Stark law, the Anti-kickback Statute, state anti-kickback statutes and related
regulations. All arrangements with physicians must also be fair market value
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and commercially reasonable. If we are unable to attract and retain sufficient numbers of quality physicians by providing adequate support personnel,
technologically advanced equipment, and facilities that meet the needs of those physicians and their patients, physicians may choose not to refer patients to our
facilities, admissions and outpatient visits may decrease and our operating performance may decline.
Our
labor
costs
could
be
adversely
affected
by
competition
for
staffing,
the
shortage
of
experienced
nurses
and
labor
union
activity.
The operations of our facilities are dependent on the efforts, abilities and experience of our management and medical support personnel, including nurses,
therapists, pharmacists and lab technicians, as well as our employed physicians. We compete with other healthcare providers in recruiting and retaining employees,
and, like others in the healthcare industry, we continue to experience a shortage of critical-care nurses in certain disciplines and geographic areas. As a result, from
time to time, we may be required to enhance wages and benefits to recruit and retain experienced employees, make greater investments in education and training
for newly licensed medical support personnel, or hire more expensive temporary or contract employees. Furthermore, state-mandated nurse-staffing ratios in
California affect not only our labor costs, but, if we are unable to hire the necessary number of experienced nurses to meet the required ratios, they may also cause
us to limit volumes, which would have a corresponding adverse effect on our net operating revenues. In general, our failure to recruit and retain qualified
management, experienced nurses and other medical support personnel, or to control labor costs, could have a material adverse effect on our business, financial
condition, results of operations or cash flows.
Increased labor union activity is another factor that could adversely affect our labor costs. At December 31, 2018, approximately 26% of the employees in
our Hospital Operations and other segment were represented by labor unions. Less than 1% of the employees in our Ambulatory Care and Conifer segments belong
to a union. Unionized employees – primarily registered nurses and service, technical and maintenance workers – are located at 35 of our hospitals, the majority of
which are in California, Florida and Michigan. When negotiating collective bargaining agreements with unions, whether such agreements are renewals or first
contracts, there is a possibility that strikes could occur, and our continued operation during any strikes could increase our labor costs and have an adverse effect on
our patient volumes and net operating revenues. Organizing activities by labor unions could increase our level of union representation in future periods, which
could result in increases in salaries, wages and benefits expense.
Our
hospitals,
outpatient
centers
and
other
healthcare
businesses
operate
in
competitive
environments,
and
competition
in
our
markets
can
adversely
affect
patient
volumes.
The healthcare business is highly competitive, and competition among hospitals and other healthcare providers for patients has intensified in recent years.
Generally, other hospitals and outpatient centers in the local communities we serve provide services similar to those we offer, and, in some cases, our competitors
(1) are more established or newer than ours, (2) may offer a broader array of services or more desirable facilities to patients and physicians than ours, and (3) may
have larger or more specialized medical staffs to admit and refer patients, among other things. Furthermore, healthcare consumers are now able to access hospital
performance data on quality measures and patient satisfaction, as well as standard charges for services, to compare competing providers; if any of our hospitals
achieve poor results (or results that are lower than our competitors) on quality measures or patient satisfaction surveys, or if our standard charges are or are
perceived to be higher than our competitors, we may attract fewer patients. Additional quality measures and trends toward clinical or billing transparency may have
an unanticipated impact on our competitive position and patient volumes.
In the future, we expect to encounter increased competition from system-affiliated hospitals and healthcare companies, as well as health insurers and
private equity companies seeking to acquire providers, in specific geographic markets. We also face competition from specialty hospitals (some of which are
physician-owned) and unaffiliated freestanding outpatient centers for market share in high margin services and for quality physicians and personnel. In recent
years, the number of freestanding specialty hospitals, surgery centers, emergency departments, urgent care centers and diagnostic imaging centers in the geographic
areas in which we operate has increased significantly. Furthermore, some of the hospitals that compete with our hospitals are owned by government agencies or
not-for-profit organizations supported by endowments and charitable contributions and can finance capital expenditures and operations on a tax-exempt basis. If
our competitors are better able to attract patients, recruit physicians, expand services or obtain favorable managed care contracts at their facilities than we are, we
may experience an overall decline in patient volumes.
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Conifer
operates
in
a
highly
competitive
industry,
and
its
current
or
future
competitors
may
be
able
to
compete
more
effectively
than
Conifer
does,
which
could
have
a
material
adverse
effect
on
Conifer’s
margins,
growth
rate
and
market
share.
As we explore a sale or other strategic alternatives for Conifer, we are continuing to market Conifer’s revenue cycle management, patient communications
and engagement services, and value-based care solutions businesses. The uncertainty regarding our plans for Conifer may have an adverse impact on Conifer’s
ability to secure new clients. There can be no assurance that Conifer will be successful in generating new client relationships, including with respect to hospitals we
or Conifer’s other clients sell, as the respective buyers of such hospitals may not continue to use Conifer’s services or, if they do, they may not do so under the
same contractual terms. The market for Conifer’s solutions is highly competitive, and we expect competition may intensify in the future. Conifer faces competition
from existing participants and new entrants to the revenue cycle management market, as well as from the staffs of hospitals and other healthcare providers who
handle these processes internally. In addition, electronic medical record software vendors may expand into services offerings that compete with Conifer. To be
successful, Conifer must respond more quickly and effectively than its competitors to new or changing opportunities, technologies, standards, regulations and client
requirements. Moreover, existing or new competitors may introduce technologies or services that render Conifer’s technologies or services obsolete or less
marketable. Even if Conifer’s technologies and services are more effective than the offerings of its competitors, current or potential clients might prefer
competitive technologies or services to Conifer’s technologies and services. Furthermore, increased competition has resulted and may continue to result in pricing
pressures, which could negatively impact Conifer’s margins, growth rate or market share.
Our
level
of
indebtedness
could,
among
other
things,
adversely
affect
our
ability
to
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
relating
to
our
indebtedness.
At December 31, 2018, we had approximately $14.8 billion of total long-term debt, as well as $95 million in standby letters of credit outstanding in the
aggregate, under our senior secured revolving credit facility (as amended, “Credit Agreement”) and our letter of credit facility agreement (as
amended, “LC Facility”). Our Credit Agreement is collateralized by patient accounts receivable of substantially all of our domestic wholly owned acute care and
specialty hospitals, and our LC Facility is guaranteed and secured by a first priority pledge of the capital stock and other ownership interests of certain of our
hospital subsidiaries on an equal ranking basis with our existing senior secured notes. From time to time, we expect to engage in additional capital market, bank
credit and other financing activities, depending on our needs and financing alternatives available at that time.
The interest expense associated with our indebtedness offsets a substantial portion of our operating income. During 2018, our interest expense was
$1.004 billion and represented 61% of our $1.647 billion of operating income. As a result, relatively small percentage changes in our operating income can result in
a relatively large percentage change in our net income and earnings per share, both positively and negatively. In addition:
•
Our substantial indebtedness may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to
our competitors that have less debt.
• We may be more vulnerable in the event of a deterioration in our business, in the healthcare industry or in the economy generally, or if federal or
state governments substantially limit or reduce reimbursement under the Medicare or Medicaid programs.
•
•
•
•
Our debt service obligations reduce the amount of funds available for our operations, capital expenditures and corporate development activities, and
may make it more difficult for us to satisfy our financial obligations.
Our substantial indebtedness could limit our ability to obtain additional financing to fund future capital expenditures, working capital, acquisitions or
other needs.
Our significant indebtedness may result in the market value of our stock being more volatile, potentially resulting in larger investment gains or losses
for our shareholders, than the market value of the common stock of other companies that have a relatively smaller amount of indebtedness.
A significant portion of our outstanding debt is either subject to early prepayment penalties, such as “make-whole premiums,” or is not currently
callable. As a result, it may be costly to pursue debt repayment as a deleveraging strategy.
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Furthermore, our Credit Agreement, our LC Facility and the indentures governing our outstanding notes contain, and any future debt obligations may
contain, covenants that, among other things, restrict our ability to pay dividends, incur additional debt and sell assets. See “ Restrictive covenants in the agreements
governing our indebtedness may adversely affect us .”
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 and other factors that may be 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, our ability to meet our debt service obligations is dependent upon the operating results of our subsidiaries and their ability to pay dividends or
make other payments or advances to us. We hold most of our assets at, and conduct substantially all of our operations through, direct and indirect subsidiaries.
Moreover, we are dependent on dividends or other intercompany transfers of funds from our subsidiaries to meet our debt service and other obligations, including
payment on our outstanding debt. The ability of our subsidiaries to pay dividends or make other payments or advances to us will depend on their operating results
and will be subject to applicable laws and restrictions contained in agreements governing the debt of such subsidiaries. Our less than wholly owned subsidiaries
may also be subject to restrictions on their ability to distribute cash to us in their financing or other agreements and, as a result, we may not be able to access their
cash flows to service their respective debt obligations.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures,
including those required for operating our existing facilities, for integrating our historical acquisitions or for future corporate development activities, and such
reduction or delay could continue for years. We also may be forced to sell assets or operations, seek additional capital, or restructure or refinance our indebtedness.
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 our Credit Agreement, our LC Facility
and the indentures governing our outstanding notes.
Restrictive
covenants
in
the
agreements
governing
our
indebtedness
may
adversely
affect
us.
Our Credit Agreement, our LC Facility and the indentures governing our outstanding notes contain various covenants that, among other things, limit our
ability and the ability of our subsidiaries to:
•
•
incur, assume or guarantee additional indebtedness;
incur liens;
• make certain investments;
•
•
•
•
•
•
provide subsidiary guarantees;
consummate asset sales;
redeem debt that is subordinated in right of payment to outstanding indebtedness;
enter into sale and lease-back transactions;
enter into transactions with affiliates; and
consolidate, merge or sell all or substantially all of our assets.
These restrictions are subject to a number of important exceptions and qualifications.
In addition, so long as any obligation or commitment is outstanding under our Credit Agreement and LC Facility, the terms of such facilities require us to
maintain a financial ratio relating to our ability to satisfy certain fixed expenses, including interest payments. Our ability to meet these restrictive covenants and
financial ratio may be affected by events beyond our
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control, and we cannot assure you that we will meet those tests. These restrictions could limit our ability to obtain future financing, make acquisitions or needed
capital expenditures, withstand economic downturns in our business or the economy in general, conduct operations or otherwise take advantage of business
opportunities that may arise. In addition, a breach of any of these covenants could cause an event of default, which, if not cured or waived, could require us to
repay the indebtedness immediately. Under these conditions, we are not certain whether we would have, or be able to obtain, sufficient funds to make accelerated
payments.
Despite
current
indebtedness
levels,
we
may
be
able
to
incur
substantially
more
debt
or
otherwise
increase
our
leverage.
This
could
further
exacerbate
the
risks
described
above.
We have the ability to incur additional indebtedness in the future, subject to the restrictions contained in our Credit Agreement, our LC Facility and the
indentures governing our outstanding notes. We may decide to incur additional secured or unsecured debt in the future to finance our operations and any judgments
or settlements or for other business purposes. Similarly, if we continue to sell assets, including the potential divestiture of or other strategic alternative involving
Conifer, and do not use the proceeds to repay debt, this could further increase our financial leverage.
Our Credit Agreement provides for revolving loans in an aggregate principal amount of up to $1 billion, with a $300 million subfacility for standby letters
of credit. Based on our eligible receivables, $998 million was available for borrowing under the Credit Agreement at December 31, 2018. Our LC Facility provides
for the issuance of standby and documentary letters of credit in an aggregate principal amount of up to $180 million (subject to increase to up to $200 million). At
December 31, 2018, we had no cash borrowings outstanding under the Credit Agreement, and we had $95 million of standby letters of credit outstanding in the
aggregate under the Credit Agreement and the LC Facility. If new indebtedness is added or our leverage increases, the related risks that we now face could
intensify.
Our
business
could
be
negatively
affected
by
security
threats,
catastrophic
events
and
other
disruptions
affecting
our
information
technology
and
related
systems.
Information technology is a critical component of the day-to-day operation of our business. We rely on our information technology to process, transmit
and store sensitive and confidential data, including protected health information, personally identifiable information, and our proprietary and confidential business
performance data. We utilize electronic health records and other information technology in connection with all of our operations, including our billing and supply
chain and labor management operations. Our systems, in turn, interface with and rely on third-party systems. Although we monitor and routinely test our security
systems and processes and have a diversified data network that provides redundancies as well as other measures designed to protect the integrity, security and
availability of the data we process, transmit and store, the information technology and infrastructure we use have been, and will likely continue to be, subject to
computer viruses, attacks by hackers, or breaches due to employee error or malfeasance. Attacks or breaches could impact the integrity, security or availability of
data we process, transmit or store, or they could disrupt our information technology systems, devices or businesses. While we are not aware of having experienced
a material breach of our systems, the preventive actions we take to reduce the risk of such incidents and protect our information technology may not be sufficient in
the future. As cybersecurity threats continue to evolve, we may not be able to anticipate certain attack methods in order to implement effective protective measures,
and we will be required to expend significant additional resources to continue to modify and strengthen our security measures, investigate and remediate any
vulnerabilities in our information systems and infrastructure, and invest in new technology designed to mitigate security risks. Furthermore, we have an increased
risk of security breaches or compromised intellectual property rights as a result of outsourcing certain functions unrelated to direct patient care. Though we have
insurance against some cyber-risks and attacks, it may not offset the impact of a material loss event.
Third parties to whom we outsource certain of our functions, or with whom our systems interface and who may, in some instances, store our sensitive and
confidential data, are also subject to the risks outlined above and may not have or use controls effective to protect such information. A breach or attack affecting
any of these third parties could similarly harm our business. Further, successful cyber-attacks at other healthcare services companies, whether or not we are
impacted, could lead to a general loss of consumer confidence in our industry that could negatively affect us, including harming the market perception of the
effectiveness of our security measures or of the healthcare industry in general, which could result in reduced use of our services.
Our networks and technology systems are also subject to disruption due to events such as a major earthquake, fire, hurricane, telecommunications failure,
ransomware attack, terrorist attack or other catastrophic event. Any breach or system interruption of our information systems or of third parties with access to our
sensitive and confidential data could result in: the unauthorized disclosure, misuse or loss of such data; interruptions and delays in our normal business operations
(including the collection of revenues); patient harm; potential liability under privacy, security, consumer protection or other applicable laws;
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regulatory penalties; and negative publicity and damage to our reputation. Any of these could have a material adverse effect on our business, financial position,
results of operations or cash flows.
The
utilization
of
our
tax
losses
could
be
substantially
limited
if
we
experience
an
ownership
change
as
defined
in
the
Internal
Revenue
Code.
At December 31, 2018, we had federal net operating loss (“NOL”) carryforwards of approximately $1.0 billion pre-tax available to offset future taxable
income. These NOL carryforwards will expire in the years 2027 to 2034 . Section 382 of the Internal Revenue Code imposes an annual limitation on the amount of
a company’s taxable income that may be offset by the NOL carryforwards if it experiences an “ownership change” as defined in Section 382 of the Code. An
ownership change occurs when a company’s “five-percent shareholders” (as defined in Section 382 of the Code) collectively increase their ownership in the
company by more than 50 percentage points (by value) over a rolling three-year period. (This is different from a change in beneficial ownership under applicable
securities laws.) These ownership changes include purchases of common stock under share repurchase programs, a company’s offering of its stock, the purchase or
sale of company stock by five-percent shareholders, or the issuance or exercise of rights to acquire company stock. While we expect to be able to realize our total
NOL carryforwards prior to their expiration, if an ownership change occurs, our ability to use the NOL carryforwards to offset future taxable income will be
subject to an annual limitation and will depend on the amount of taxable income we generate in future periods. There is no assurance that we will be able to fully
utilize the NOL carryforwards. Furthermore, we could be required to record a valuation allowance related to the amount of the NOL carryforwards that may not be
realized, which could adversely impact our results of operations.
The
industry
trend
toward
value-based
purchasing
and
alternative
payment
models
may
negatively
impact
our
revenues.
Value-based purchasing and alternative payment model initiatives of both governmental and private payers tying financial incentives to quality and
efficiency of care will increasingly affect the results of operations of our hospitals and other healthcare facilities, and may negatively impact our revenues if we are
unable to meet expected quality standards. Medicare now requires providers to report certain quality measures in order to receive full reimbursement increases for
inpatient and outpatient procedures that were previously awarded automatically. In addition, hospitals that meet or exceed certain quality performance standards
will receive increased reimbursement payments, and hospitals that have “excess readmissions” for specified conditions will receive reduced reimbursement.
Furthermore, Medicare no longer pays hospitals additional amounts for the treatment of certain hospital-acquired conditions (“HACs”), unless the conditions were
present at admission. Hospitals that rank in the worst 25% of all hospitals nationally for HACs in the previous year receive reduced Medicare reimbursements.
Moreover, the ACA prohibits the use of federal funds under the Medicaid program to reimburse providers for treating certain provider-preventable conditions.
The ACA also created the CMS Innovation Center to test innovative payment and service delivery models that have the potential to reduce Medicare,
Medicaid or Children’s Health Insurance Program expenditures while preserving or enhancing the quality of care for beneficiaries. Participation in some of these
models is voluntary; however, participation in certain bundled payment arrangements is mandatory for providers located in randomly selected geographic
locations. Generally, the bundled payment models hold hospitals financially accountable for the quality and costs for an entire episode of care for a specific
diagnosis or procedure from the date of the hospital admission or inpatient procedure through 90 days post-discharge, including services not provided by the
hospital, such as physician, inpatient rehabilitation, skilled nursing and home health services. Under the mandatory models, hospitals are eligible to receive
incentive payments or will be subject to payment reductions within certain corridors based on their performance against quality and spending criteria. In 2015,
CMS finalized a five-year bundled payment model, called the Comprehensive Care for Joint Replacement (“CJR”) model, which includes hip and knee
replacements, as well as other major leg procedures. Seventeen hospitals in our Hospital Operations and other segment and four of USPI’s surgical hospitals
currently participate in the CJR model. In addition, 42 hospitals in our Hospital Operations and other segment and five of USPI’s surgical hospitals participate in
the CMS Bundled Payments for Care Improvement Advanced (“BPCIA”) program that became effective October 1, 2018. USPI also holds the CMS contract for
four physician group practices participating in the BPCIA program. We cannot predict what impact, if any, these demonstration programs will have on our
inpatient volumes, net revenues or cash flows.
There is also a trend among private payers toward value-based purchasing and alternative payment models for healthcare services. Many large
commercial payers expect hospitals to report quality data, and several of these payers will not reimburse hospitals 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.
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We are unable at this time to predict how the industry trend toward value-based purchasing and alternative payment models will affect our results of
operations, but it could negatively impact our revenues, particularly if we are unable to meet the quality and cost standards established by both governmental and
private payers.
Our
business
and
financial
results
could
be
harmed
by
a
national
or
localized
outbreak
of
a
highly
contagious
or
epidemic
disease.
If an outbreak of an infectious disease, such as the Zika virus or the Ebola virus, were to occur nationally or in one of the regions our hospitals serve, our
business and financial results could be adversely affected. The treatment of a highly contagious disease at one of our facilities may result in a temporary shutdown
or diversion of patients. In addition, unaffected individuals may decide to defer elective procedures or otherwise avoid medical treatment, resulting in reduced
patient volumes and operating revenues. Furthermore, we cannot predict the costs associated with the potential treatment of an infectious disease outbreak by our
hospitals or preparation for such treatment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The disclosure required under this Item is included in Item 1, Business, of Part I of this report.
ITEM 3. LEGAL PROCEEDINGS
Because we provide healthcare services in a highly regulated industry, we have been and expect to continue to be party to various lawsuits, claims and
regulatory investigations from time to time. For information regarding material pending legal proceedings in which we are involved, see Note 16 to our
Consolidated Financial Statements, which is incorporated by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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Table of Contents
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Common Stock. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “THC.” As of February 15, 2019, there were
3,839 holders of record of our common stock. Our transfer agent and registrar is Computershare. Shareholders with questions regarding their stock certificates,
including inquiries related to exchanging or replacing certificates or changing an address, should contact the transfer agent at (866) 229-8416.
Equity Compensation. Refer to Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, of Part III
of this report, as well as Note 9 to our Consolidated Financial Statements, for information regarding securities authorized for issuance under our equity
compensation plans.
Stock Performance Graph. The following graph shows the cumulative, five-year total return for our common stock compared to the following indices:
•
•
•
Standard & Poor’s 500 Stock Index (a broad equity market index in which we are not included);
Standard & Poor’s Health Care Composite Index (a published industry index in which we are not included); and
A group made up of us and our hospital company peers (namely, Community Health Systems, Inc. (CYH), HCA Healthcare, Inc. (HCA),
Tenet Healthcare Corporation (THC) and Universal Health Services, Inc. (UHS)), which we refer to as our “Peer Group”. LifePoint Health, Inc.
(LPNT), which was a member of our Peer Group index in prior years, is not included because it ceased having publicly traded equity securities in
November 2018.
Performance data assumes that $100.00 was invested on December 31, 2013 in our common stock and each of the indices. The data assumes the
reinvestment of all cash dividends and the cash value of other distributions. Moreover, in accordance with U.S. Securities and Exchange Commission (“SEC”)
regulations, the returns of each company in our Peer Group have been weighted according to the respective company’s stock market capitalization at the beginning
of each period for which a return is indicated. The stock price performance shown in the graph is not necessarily indicative of future stock price performance. The
performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or
incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by
specific reference in such filing.
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Tenet Healthcare Corporation
S&P 500
S&P Health Care
Peer Group
12/13
12/14
12/15
12/16
12/17
12/18
$
$
$
$
100.00 $
120.30 $
71.94 $
35.23 $
35.99 $
100.00 $
113.69 $
115.26 $
129.05 $
157.22 $
100.00 $
125.34 $
133.97 $
130.37 $
159.15 $
100.00 $
145.00 $
126.07 $
119.47 $
136.82 $
40.69
150.33
169.44
180.80
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ITEM 6. SELECTED FINANCIAL DATA
OPERATING RESULTS
The following tables present selected consolidated financial data for Tenet Healthcare Corporation and its wholly owned and majority-owned subsidiaries for the
years ended December 31, 2014 through 2018. Effective January 1, 2018, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards
Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) using a modified retrospective method of application to all
contracts existing on January 1, 2018. For our Hospital and other and Ambulatory Care segments, the adoption of ASU 2014-09 resulted in changes to our
presentation of revenue primarily related to uninsured or underinsured patients. Prior to the adoption of ASU 2014-09, a significant portion of our provision for
doubtful accounts related to self-pay patients, as well as co-pays, co-insurance amounts and deductibles owed to us by patients with insurance. Under ASU 2014-
09, the estimated uncollectable amounts due from these patients are generally considered implicit price concessions that are a direct reduction to net operating
revenues, with a corresponding material reduction in the amounts presented separately as provision for doubtful accounts. Effective June 16, 2015, we completed a
transaction that combined our freestanding ambulatory surgery and imaging center assets with the surgical facility assets of United Surgical Partners International,
Inc. into a new joint venture called USPI Holding Company, Inc. (“USPI”). At December 31, 2018 , we owned 95.0% of USPI. The tables below include USPI for
the post-acquisition period only. The tables should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations, and our Consolidated Financial Statements and notes thereto included in this report.
Net operating revenues:
Net operating revenues before provision for doubtful accounts
$
20,613 $
21,070 $
20,111 $
17,908
Years Ended December 31,
2018
2017
2016
2015
2014
(In Millions, Except Per-Share Amounts)
Less: Provision for doubtful accounts
Net operating revenues
$
18,313
19,179
19,621
18,634
1,434
1,449
1,477
Equity in earnings of unconsolidated affiliates
150
144
131
99
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Electronic health record incentives
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net gains on sales, consolidation and deconsolidation of facilities
Operating income
Interest expense
Other non-operating expense, net
Gain (loss) from early extinguishment of debt
Income (loss) from continuing operations, before income taxes
Income tax expense
Income (loss) from continuing operations, before discontinued operations
Less: Net income available to noncontrolling interests from continuing
8,634
3,004
4,259
(3)
802
209
38
(127)
1,647
(1,004)
(5)
1
639
(176)
463
9,274
3,085
4,570
(9)
870
541
23
(144)
1,113
(1,028)
(22)
(164)
(101)
(219)
(320)
9,328
3,124
4,891
(32)
850
202
293
(151)
1,247
(979)
(20)
—
248
(67)
181
8,990
2,963
4,555
(72)
797
318
291
(186)
1,077
(912)
(20)
(1)
144
(68)
76
operations
355
384
368
218
Net income available (loss attributable) to Tenet Healthcare Corporation
common shareholders from continuing operations
Basic earnings available (loss attributable) per share to Tenet Healthcare
Corporation common shareholders from continuing operations
Diluted earnings available (loss attributable) per share to Tenet Healthcare
Corporation common shareholders from continuing operations
108 $
(704) $
(187) $
(142) $
1.06 $
(7.00) $
(1.88) $
(1.43) $
1.04 $
(7.00) $
(1.88) $
(1.43) $
$
$
$
37
1,305
16,603
12
8,013
2,630
4,114
(104)
849
153
25
—
935
(754)
(10)
(24)
147
(49)
98
64
34
0.35
0.34
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The operating results data presented above is not necessarily indicative of our future results of operations. Reasons for this include, but are not limited to:
overall revenue and cost trends, particularly the timing and magnitude of price changes; fluctuations in contractual allowances and cost report settlements and
valuation allowances; managed care contract negotiations, settlements or terminations and payer consolidations; changes in Medicare and Medicaid regulations;
Medicaid and other supplemental funding levels set by the states in which we operate; the timing of approval by the Centers for Medicare and Medicaid Services
(“CMS”) of Medicaid provider fee revenue programs; trends in patient accounts receivable collectability and associated implicit price concessions; fluctuations in
interest rates; levels of malpractice insurance expense and settlement trends; impairment of long-lived assets and goodwill; restructuring charges; losses, costs and
insurance recoveries related to natural disasters and other weather-related occurrences; litigation and investigation costs; acquisitions and dispositions of facilities
and other assets; gains (losses) on sales, consolidation and deconsolidation of facilities; income tax rates and deferred tax asset valuation allowance activity;
changes in estimates of accruals for annual incentive compensation; the timing and amounts of stock option and restricted stock unit grants to employees and
directors; gains (losses) from early extinguishment of debt; and changes in occupancy levels and patient volumes. Factors that affect service mix, revenue mix,
patient volumes and, thereby, the results of operations at our hospitals and related healthcare facilities include, but are not limited to: changes in federal and state
healthcare regulations; the business environment, economic conditions and demographics of local communities in which we operate; the number of uninsured and
underinsured individuals in local communities treated at our hospitals; seasonal cycles of illness; climate and weather conditions; physician recruitment, retention
and attrition; advances in technology and treatments that reduce length of stay; local healthcare competitors; managed care contract negotiations or terminations;
the number of patients with high-deductible health insurance plans; hospital performance data on quality measures and patient satisfaction, as well as standard
charges for services; any unfavorable publicity about us, or our joint venture partners, that impacts our relationships with physicians and patients; and the timing of
elective procedures.
BALANCE SHEET DATA
December 31,
2018
2017
2016
2015
2014
(In Millions)
Working capital (current assets minus current liabilities)
$
779 $
1,241 $
1,223 $
863 $
Total assets
Long-term debt, net of current portion
Redeemable noncontrolling interests in equity of consolidated subsidiaries
Noncontrolling interests
Total equity
CASH FLOW DATA
22,409
14,644
1,420
806
687
23,385
14,791
1,866
686
539
24,701
15,064
2,393
665
1,082
23,682
14,383
2,266
267
958
393
17,951
11,505
401
134
785
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Years Ended December 31,
2018
2017
2016
2015
2014
(In Millions)
$
1,049 $
1,200 $
558 $
1,026 $
(115)
(1,134)
21
(1,326)
(430)
232
(1,317)
454
687
(1,322)
715
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION TO MANAGEMENT’S DISCUSSION AND ANALYSIS
The purpose of this section, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), is to provide a
narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the
context within which our financial information may be analyzed, and to provide information about the quality of, and potential variability of, our financial
condition, results of operations and cash flows. Our Hospital Operations and other segment is comprised of our acute care and specialty hospitals, ancillary
outpatient facilities, urgent care centers, microhospitals and physician practices. As described in Note 5 to the accompanying Consolidated Financial Statements ,
certain of our facilities were classified as held for sale at December 31, 2018 . Our Ambulatory Care segment is comprised of the operations of our USPI Holding
Company, Inc. (“USPI”), in which we own a 95% interest, and included nine European Surgical Partners Limited (“Aspen”) facilities until their divestiture
effective August 17, 2018. At December 31, 2018 , USPI had interests in 255 ambulatory surgery centers, 36 urgent care centers, 23 imaging centers and 23
surgical hospitals in 27 states. Our Conifer segment provides healthcare business process services in the areas of hospital and physician revenue cycle management
and value-based care solutions to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities ,
through our Conifer Holdings, Inc. (“Conifer”) subsidiary. Nearly all of the services comprising the operations of our Conifer segment are provided directly by
Conifer Health Solutions, LLC, in which we owned 76.2% as of December 31, 2018, or by one of its direct or indirect wholly owned subsidiaries. MD&A, which
should be read in conjunction with the accompanying Consolidated Financial Statements, includes the following sections:
• Management Overview
•
•
•
•
•
•
Sources of Revenue for Our Hospital Operations and Other Segment
Results of Operations
Liquidity and Capital Resources
Off-Balance Sheet Arrangements
Recently Issued Accounting Standards
Critical Accounting Estimates
Unless otherwise indicated, all financial and statistical information included in MD&A relates to our continuing operations, with dollar amounts expressed
in millions (except per admission, per adjusted patient admission, per patient day, per adjusted patient day, per visit and per case amounts). Continuing operations
information includes the results of (i) our same 68 hospitals operated throughout the years ended December 31, 2018 and 2017 , (ii) three Houston-area hospitals,
which we divested effective August 1, 2017 , (iii) Abrazo Maryvale Campus, which we closed in December 2017 , (iv) two Philadelphia-area hospitals, which we
divested effective January 11, 2018 , (v) MacNeal Hospital, which we divested effective March 1, 2018 and (vi) Des Peres Hospital, which we divested effective
May 1, 2018 . The results of our Aspen facilities are included until August 17, 2018, the date of divestiture. Continuing operations information excludes the results
of our hospitals and other businesses that have been classified as discontinued operations for accounting purposes. In addition, although we operated four
North Texas hospitals throughout the year ended December 31, 2017 and from January 1 through February 28, 2018 as part of a joint venture , we did not
consolidate the results of operations of these hospitals because we divested a controlling interest in them effective January 1, 2016.
MANAGEMENT OVERVIEW
RECENT
DEVELOPMENTS
Sale of Three Hospitals and Related Operations in Chicago Area— Effective January 28, 2019, we completed the sale of three hospitals and hospital-
affiliated operations in the Chicago area. As a result of this transaction, we received net pre-tax cash proceeds of $42 million.
Debt Refinancing Transactions— On February 5, 2019, we sold $1.5 billion aggregate principal amount of 6.250% senior secured second lien notes,
which will mature on February 1, 2027 (the “2027 Senior Secured Second Lien Notes”). We will pay interest on the 2027 Senior Secured Second Lien Notes semi-
annually in arrears on February 1 and August 1 of each year, which payments will commence on August 1, 2019. The proceeds from the sale of the 2027 Senior
Secured Second Lien Notes were used, after payment of fees and expenses, together with cash on hand and borrowings under our senior secured revolving credit
facility, to fund the redemption of all $300 million aggregate principal amount of our outstanding 6.750% senior notes due 2020 and all $750 million aggregate
principal amount of our outstanding 7.500% senior
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secured second lien notes due 2022, and will be used to fund the repayment upon maturity of all $468 million aggregate principal amount of our outstanding
5.500% senior unsecured notes due March 1, 2019. In connection with the redemptions, we expect to record a loss from early extinguishment of debt of
approximately $47 million in the three months ending March 31, 2019 , primarily related to the difference between the redemption prices and the par values of the
notes, as well as the write-off of the associated unamortized issuance costs.
TRENDS
AND
STRATEGIES
The healthcare industry, in general, and the acute care hospital business, in particular, have been experiencing significant regulatory uncertainty based, in
large part, on administrative, legislative and judicial efforts to significantly modify or repeal and potentially replace the Patient Protection and Affordable Care Act,
as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act” or “ACA”). It is difficult to predict the full impact of regulatory
uncertainty on our future revenues and operations. In addition, we believe that several key trends are shaping the demand for healthcare services: (1) consumers,
employers and insurers are actively seeking lower-cost solutions and better value as they focus more on healthcare spending; (2) patient volumes are shifting from
inpatient to outpatient settings due to technological advancements and demand for care that is more convenient, affordable and accessible; (3) the industry is
migrating to value-based payment models with government and private payers shifting risk to providers; and (4) consolidation continues across the entire
healthcare sector.
Driving Growth in Our Hospital Systems— We are committed to better positioning our hospital systems and competing more effectively in the ever-
evolving healthcare environment. We are focused on improving operational effectiveness, increasing capital efficiency and margins, enhancing patient satisfaction,
growing our higher-acuity inpatient service lines, expanding patient access points, and exiting service lines, businesses and markets that we believe are no longer a
core part of our long-term growth strategy. We have undertaken enterprise-wide cost reduction initiatives, comprised primarily of workforce reductions (including
streamlining corporate overhead and centralized support functions), the renegotiation of contracts with suppliers and vendors, and the consolidation of office
locations. We achieved our targeted savings in 2018, but are continuing to look for additional areas for savings. Most of the savings in 2018 were achieved through
actions within both our Hospital Operations and other segment and our Conifer segment. In conjunction with these initiatives, we incurred restructuring charges
related to employee severance payments of $68 million in the year ended December 31, 2018 , and we expect to incur additional such restructuring charges in
2019.
Improving the Customer Care Experience— As consumers continue to become more engaged in managing their health, we recognize that understanding
what matters most to them and earning their loyalty is imperative to our success. As such, we have enhanced our focus on treating our patients as traditional
customers by: (1) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (2) expanding service
lines aligned with growing community demand, including a focus on chronic disease patients; (3) offering greater affordability and predictability, including
simplified admissions and discharge procedures, particularly in our outpatient centers; (4) improving our culture of service; and (5) creating health and benefit
programs, patient education and health literacy materials that are customized to the needs of the communities we serve. Through these efforts, we intend to
improve the customer care experience in every part of our operations.
Expansion of Our Ambulatory Care Segment— We remain focused on opportunities to expand our Ambulatory Care segment through organic growth,
building new outpatient centers, corporate development activities and strategic partnerships. We believe USPI’s surgery centers and surgical hospitals offer many
advantages to patients and physicians, including greater affordability, predictability, flexibility and convenience. Moreover, due in part to advancements in medical
technology, and due to the lower cost structure and greater efficiencies that are attainable at a specialized outpatient site, we believe the volume and complexity of
surgical cases performed in an outpatient setting will continue to increase. In addition, we have continued to grow our imaging and urgent care businesses through
USPI to reflect our broader strategies to (1) offer more services to patients, (2) broaden the capabilities we offer to healthcare systems and physicians, and
(3) expand into faster-growing, less capital intensive, higher-margin businesses. Historically, our outpatient services have generated significantly higher margins
for us than inpatient services.
Exploration of Strategic Alternatives for Conifer While Continuing to Drive Conifer’s Growth— We previously announced a number of actions to support
our goals of improving financial performance and enhancing shareholder value, including the exploration of a potential sale of Conifer. In addition to a potential
sale, we are considering other strategic alternatives for Conifer, such as a merger, a tax efficient spin-off or a combination of alternative transactions. There can be
no assurance that this process will result in any transaction.
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Conifer serves approximately 750 Tenet and non-Tenet hospital and other clients nationwide. In addition to providing revenue cycle management
services to healthcare systems and physicians, Conifer provides support to both providers and self-insured employers seeking assistance with clinical integration,
financial risk management and population health management. Conifer remains focused on driving growth by continuing to market and expand its revenue cycle
management and value-based care solutions businesses.
Improving Profitability— We are focused on growing patient volumes and effective cost management as a means to improve profitability. We believe our
inpatient admissions have been constrained in recent years by increased competition, utilization pressure by managed care organizations, new delivery models that
are designed to lower the utilization of acute care hospital services, the effects of higher patient co-pays, co-insurance amounts and deductibles, changing consumer
behavior, and adverse economic conditions and demographic trends in certain of our markets. However, we also believe that emphasis on higher-demand clinical
service lines (including outpatient services), focus on expanding our ambulatory care business, cultivation of our culture of service, participation in Medicare
Advantage health plans that are experiencing higher growth rates than traditional Medicare plans, and contracting strategies that create shared value with payers
should help us grow our patient volumes over time. In 2019, we are continuing to explore new opportunities to enhance efficiency, including further integration of
enterprise-wide centralized support functions, outsourcing certain functions unrelated to direct patient care, and reducing clinical and vendor contract variation.
Reducing Our Leverage— All of our outstanding long-term debt has a fixed rate of interest, and the maturity dates of our notes are staggered from 2020
through 2031. Although we believe that our capital structure minimizes the near-term impact of increased interest rates, and the staggered maturities of our debt
allow us to refinance our debt over time, it is nonetheless our long-term objective to lower our ratio of debt-to-Adjusted EBITDA, primarily through more efficient
capital allocation and Adjusted EBITDA growth, which should lower our refinancing risk and increase the potential for us to continue to use lower rate secured
debt to refinance portions of our higher rate unsecured debt.
Our ability to execute on our strategies and respond to the aforementioned trends is subject to a number of risks and uncertainties that may cause actual
results to be materially different from expectations. For information about risks and uncertainties that could affect our results of operations, see the Forward-
Looking Statements and Risk Factors sections in Part I of this report.
RECENT
RESULTS
OF
OPERATIONS
We believe our results of operations for our most recent fiscal quarter best reflect recent trends we are experiencing with respect to volumes, revenues and
expenses; therefore, we have provided below information about these metrics for the three months ended December 31, 2018 and 2017 on a continuing operations
basis, which includes the results of (i) our same 68 hospitals operated throughout the three months ended December 31, 2018 and 2017 , (ii) three Houston-area
hospitals, which we divested effective August 1, 2017 , (iii) our Abrazo Maryvale Campus, which we closed in December 2017 , (iv) two Philadelphia-area
hospitals, which we divested effective January 11, 2018 , (v) MacNeal Hospital, which we divested effective March 1, 2018 , and (vi) Des Peres Hospital, which
we divested effective May 1, 2018 . Although we operated four North Texas hospitals throughout the year ended December 31, 2017 and from January 1 through
February 28, 2018 as part of a joint venture , we did not consolidate the results of operations of these hospitals because we divested a controlling interest in them
effective January 1, 2016. The following tables also show information about facilities in our Ambulatory Care segment that we control and, therefore, consolidate.
The results of our Aspen facilities are included until August 17, 2018, the date of divestiture.
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Selected Operating Statistics
Hospital Operations and other – hospitals and related outpatient facilities
Number of hospitals (at end of period)
Total admissions
Adjusted patient admissions (2)
Paying admissions (excludes charity and uninsured)
Charity and uninsured admissions
Emergency department visits
Total surgeries
Patient days — total
Adjusted patient days (2)
Average length of stay (days)
Average licensed beds
Utilization of licensed beds (3)
Total visits
Paying visits (excludes charity and uninsured)
Charity and uninsured visits
Ambulatory Care
Total consolidated facilities (at end of period)
Total cases
Continuing Operations
Three Months Ended December 31,
2018
2017
Increase
(Decrease)
68
170,407
308,113
160,172
10,235
649,544
108,535
779,728
72
186,185
332,642
176,158
10,027
711,268
118,896
857,728
1,383,372
1,505,130
4.58
17,935
4.61
19,320
47.3%
48.3%
1,734,523
1,617,970
116,553
227
499,803
1,901,864
1,777,790
124,074
227
488,046
(4)
(1)
(8.5)%
(7.4)%
(9.1)%
2.1 %
(8.7)%
(8.7)%
(9.1)%
(8.1)%
(0.7)%
(7.2)%
(1.0)% (1)
(8.8)%
(9.0)%
(6.1)%
—
(1)
2.4 %
(1)
(2)
The change is the difference between the 2018 and 2017 amounts shown.
Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations and other segment by
multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
(3)
Utilization of licensed beds represents patient days divided by number of days in the period divided by average licensed beds.
Total admissions decreased by 15,778 , or 8.5% , in the three months ended December 31, 2018 compared to the three months ended December 31, 2017 ,
and total surgeries decreased by 10,361 , or 8.7% , in the 2018 period compared to the 2017 period. Our emergency department visits decreased 8.7% in the three
months ended December 31, 2018 compared to the same period in the prior year. Our volumes from continuing operations in the three months ended
December 31, 2018 compared to the three months ended December 31, 2017 were negatively affected by the closure of our Abrazo Maryvale Campus in December
2017, the sale of our Philadelphia-area facilities effective January 11, 2018, the sale of MacNeal Hospital and affiliated operations effective March 1, 2018, and the
sale of Des Peres Hospital and affiliated operations effective May 1, 2018. Our Ambulatory Care total cases increased 2.4% in the three months ended
December 31, 2018 compared to the 2017 period.
Revenues
Net operating revenues
Continuing Operations
Three Months Ended December 31,
2018
2017
Increase
(Decrease)
Hospital Operations and other prior to inter-segment eliminations
$
3,843 $
Ambulatory Care
Conifer
Inter-segment eliminations
Total
554
372
(150)
$
4,619 $
4,194
545
394
(155)
4,978
(8.4)%
1.7 %
(5.6)%
(3.2)%
(7.2)%
Net operating revenues decreased by $359 million , or 7.2% , in the three months ended December 31, 2018 compared to the same period in 2017 ,
primarily due to the sale and closure of facilities described above, as well as the decrease in net revenues from the California provider fee program. In the 2018
period, we recognized $64 million of net revenues from the California provider fee program compared to $267 million recognized in the 2017 period due to CMS’
approval of the 2017 program in December of that year. For our Hospital Operations and other segment, the impact of lower volumes on net operating revenues
was partially mitigated by improved managed care pricing.
Our accounts receivable days outstanding (“AR Days”) from continuing operations were 56.8 days at December 31, 2018 and 55.8 days at December
31, 2017 , compared to our target of less than 55 days. This calculation includes our Hospital Operations and other contract assets subsequent to the adoption of
ASU 2014-09 effective January 1, 2018 and the
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accounts receivable of our Chicago-area facilities that have been classified in assets held for sale on our Consolidated Balance Sheet at December 31, 2018 , and
excludes (i) three Houston-area hospitals, which we divested effective August 1, 2017 , (ii) Abrazo Maryvale Campus, which we closed in December 2017 , (iii)
two Philadelphia-area hospitals, which we divested effective January 11, 2018 , (iv) MacNeal Hospital, which we divested effective March 1, 2018 , (v) Des Peres
Hospital, which we divested effective May 1, 2018 , (vi) all nine Aspen facilities, which we divested effective August 17, 2018, (vii) health plan revenues, and
(viii) our California provider fee revenues.
Selected Operating Expenses
Hospital Operations and other
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Ambulatory Care
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Conifer
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Total
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Rent/lease expense (1)
Hospital Operations and other
Ambulatory Care
Conifer
Total
(1)
Included in other operating expenses.
Selected Operating Expenses per Adjusted Patient Admission
Hospital Operations and other
Continuing Operations
Three Months Ended December 31,
2018
2017
Increase
(Decrease)
$
1,785 $
1,887
641
921
685
930
3,347 $
3,502
160 $
114
84
358 $
211 $
1
73
285 $
2,156 $
756
1,078
3,990 $
58 $
20
4
82 $
165
113
93
371
232
2
81
315
2,284
800
1,104
4,188
59
20
5
84
$
$
$
$
$
$
$
$
$
(5.4)%
(6.4)%
(1.0)%
(4.4)%
(3.0)%
0.9 %
(9.7)%
(3.5)%
(9.1)%
(50.0)%
(9.9)%
(9.5)%
(5.6)%
(5.5)%
(2.4)%
(4.7)%
(1.7)%
— %
(20.0)%
(2.4)%
Continuing Operations
Three Months Ended December 31,
2018
2017
Increase
(Decrease)
Salaries, wages and benefits per adjusted patient admission (1)
$
5,791 $
Supplies per adjusted patient admission (1)
Other operating expenses per adjusted patient admission (1)
Total per adjusted patient admission
2,079
2,991
5,662
2,058
2,772
$
10,861 $
10,492
2.3%
1.0%
7.9%
3.5%
(1)
Calculation excludes the expenses from our health plan businesses. Adjusted patient admissions represents actual patient admissions adjusted to include outpatient services provided by
facilities in our Hospital Operations and other segment by multiplying actual patient admissions by the sum of gross inpatient revenues and outpatient revenues and dividing the results by
gross inpatient revenues.
Salaries, wages and benefits per adjusted patient admission increased 2.3% in the three months ended December 31, 2018 compared to the same period in
2017 . This change is primarily due to the effect of lower volumes on operating leverage due to certain fixed staffing costs, annual merit increases for certain of our
employees, increased accruals for annual incentive compensation and increased health benefits costs, partially offset by the impact of previously announced
workforce reductions as part of our enterprise-wide cost reduction initiatives in the three months ended December 31, 2018 compared to the three months ended
December 31, 2017 .
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Supplies expense per adjusted patient admission increased 1.0% in the three months ended December 31, 2018 compared to the three months ended
December 31, 2017 . The change in supplies expense was primarily attributable to growth in our higher acuity supply-intensive surgical services, partially offset by
the impact of the group-purchasing strategies and supplies-management services we utilize to reduce costs.
Other operating expenses per adjusted patient admission increased by 7.9% in the three months ended December 31, 2018 compared to the prior-year
period. This increase is primarily due to higher medical fees per adjusted patient admission, the effect of lower volumes on operating leverage due to certain fixed
costs and increased malpractice expense for our Hospital Operations and other segment, which was $44 million higher in the 2018 period compared to the 2017
period. The 2018 period included an unfavorable adjustment of approximately $8 million from a 42 basis point decrease in the interest rate used to estimate the
discounted present value of projected future malpractice liabilities compared to a favorable adjustment of approximately $4 million from a 17 basis point increase
in the interest rate in the 2017 period.
LIQUIDITY
AND
CAPITAL
RESOURCES
OVERVIEW
Cash and cash equivalents were $411 million at December 31, 2018 compared to $500 million at September 30, 2018 .
Significant cash flow items in the three months ended December 31, 2018 included:
•
•
•
•
•
•
•
•
•
•
Net cash provided by operating activities before interest, taxes, discontinued operations and restructuring charges, acquisition-related costs, and
litigation costs and settlements of $626 million ;
Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements of $50 million ;
Capital expenditures of $213 million ;
$16 million of payments for the purchases of businesses or joint venture interests;
$84 million of payments for the purchase of equity investments;
Proceeds from the sales of facilities and other assets of $45 million ;
Proceeds from sale of marketable securities, long-term investments and other assets of $34 million ;
Interest payments of $324 million ;
$32 million of payments to purchase $32 million aggregate principal amount of our 5.500% senior unsecured notes due 2019; and
$71 million of distributions paid to noncontrolling interests.
Net cash provided by operating activities was $1.049 billion in the year ended December 31, 2018 compared to $1.200 billion in the year ended December
31, 2017 . Key factors contributing to the change between the 2018 and 2017 periods include the following:
•
•
•
•
An increase of $38 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements;
Decreased cash receipts of $31 million related to the California provider fee program;
Additional interest payments of $37 million in the 2018 period primarily due to the six-month interest payment in January 2018 related to our 7.500%
senior secured second lien notes due 2022, which were issued in December 2016, and changes in the timing of certain interest payments as a result of
our refinancing transactions in 2017;
Lower income tax payments of $31 million in the 2018 period;
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•
•
Increased cash flows from our health plan businesses of $101 million due to cash outflows in the 2017 period resulting from the sales and wind-down
of these businesses in 2017, compared to negligible cash flows in the 2018 period; and
The timing of other working capital items, including $129 million of additional payments for professional and general liability claims and expenses in
the 2018 period.
SOURCES OF REVENUE FOR OUR HOSPITAL OPERATIONS AND OTHER SEGMENT
We earn revenues for patient services from a variety of sources, primarily managed care payers and the federal Medicare program, as well as state
Medicaid programs, indemnity-based health insurance companies and self-pay patients (that is, patients who do not have health insurance and are not covered by
some other form of third-party arrangement).
The following table shows the sources of net patient service revenues less implicit price concessions and provision for doubtful accounts for our hospitals
and related outpatient facilities, expressed as percentages of net patient service revenues less implicit price concessions and provision for doubtful accounts from
all sources:
Net Patient Service Revenues Less Implicit Price Concessions and
Provision for Doubtful Accounts from:
Medicare
Medicaid
Managed care (1)
Self-pay
Indemnity and other
(1)
Includes Medicare and Medicaid managed care programs.
Years Ended December 31,
2018
2017
2016
20.5%
9.2%
65.4%
0.7%
4.2%
21.9%
8.8%
64.6%
0.6%
4.1%
22.4%
8.9%
64.3%
0.4%
4.0%
Our payer mix on an admissions basis for our hospitals and related outpatient facilities, expressed as a percentage of total admissions from all sources, is
shown below:
Admissions from:
Medicare
Medicaid
Managed care (1)
Self-pay
Indemnity and other
(1)
Includes Medicare and Medicaid managed care programs.
GOVERNMENT
PROGRAMS
Years Ended December 31,
2018
2017
2016
25.4%
6.3%
59.7%
6.0%
2.6%
26.0%
6.5%
59.6%
5.5%
2.4%
26.1%
7.0%
59.2%
5.4%
2.3%
The Centers for Medicare and Medicaid Services, an agency of the U.S. Department of Health and Human Services (“HHS”), is the single largest payer of
healthcare services in the United States. Approximately 58 million individuals rely on healthcare benefits through Medicare, and approximately 73 million
individuals are enrolled in Medicaid and the Children’s Health Insurance Program (“CHIP”). These three programs are authorized by federal law and administered
by CMS. Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, as well as certain younger people with
certain disabilities and conditions, and is provided without regard to income or assets. Medicaid is administered by the states and is jointly funded by the federal
government and state governments. Medicaid is the nation’s main public health insurance program for people with low incomes and is the largest source of health
coverage in the United States. The CHIP, which is also administered by the states and jointly funded, provides health coverage to children in families with incomes
too high to qualify for Medicaid, but too low to afford private coverage. Unlike Medicaid, the CHIP is limited in duration and requires the enactment of
reauthorizing legislation. During the three months ended March 31, 2018, separate pieces of legislation were enacted extending CHIP funding for a total of ten
years from federal fiscal year (“FFY”) 2018 (which began on October 1, 2017) through FFY 2027.
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The Affordable Care Act
The expansion of Medicaid in the 36 states (including four in which we currently operate acute care hospitals) and the District of Columbia that have
taken action to do so is financed through:
•
•
negative adjustments to the annual market basket updates for the Medicare hospital inpatient and outpatient prospective payment systems, which
began in 2010 and under current law expire on September 30, 2019, as well as additional negative “productivity adjustments” to the annual market
basket updates, which began in 2011; and
reductions to Medicare and Medicaid disproportionate share hospital (“DSH”) payments, which began for Medicare payments in FFY 2014 and,
under current law, are scheduled to commence for Medicaid payments on October 1, 2019.
In December 2017, Congress passed and the President signed a tax reform bill into law that, among other things, eliminates the ACA’s individual mandate
penalty for not buying health insurance starting in 2019. The Congressional Budget Office and the staff of the Joint Committee on Taxation estimated that
eliminating the mandate penalty starting in 2019 – and making no other changes to the then-current law – would cause the number of people with health insurance
to decrease by 4 million in 2019 and 13 million in 2027. Members of Congress have also proposed measures that would expand government-sponsored coverage,
including single-payer proposals. We cannot predict if or when further modification of the ACA will occur or what action, if any, Congress might take with respect
to eventually repealing and possibly replacing the law. Furthermore, there have also been successful judicial challenges to the ACA, including a December 2018
ruling by the U.S. District Court for the Northern District of Texas that the ACA’s individual mandate is unconstitutional. Because the judge’s order was stayed
pending appeal, the decision’s near-term impact on health insurance coverage under the ACA may be limited; however, uncertainty over the future of the ACA has
intensified. The ultimate outcome of this decision and other judicial challenges is indeterminate. We are also unable to predict the impact of administrative,
regulatory and legislative changes, and market reactions to those changes, on our future revenues and operations. However, if the ultimate impact is that
significantly fewer individuals have private or public health coverage, we likely will experience decreased volumes, reduced revenues and an increase in
uncompensated care, which would adversely affect our results of operations and cash flows. This negative effect will be exacerbated if the ACA’s reductions in
Medicare reimbursement and reductions in Medicare DSH payments that have already taken effect are not reversed if the law is repealed or if further reductions
(including Medicaid DSH reductions scheduled to take effect in FFYs 2020 through 2025, as described below) are made.
Medicare
Medicare offers its beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan (which includes “Part A” and
“Part B”), is a fee-for-service payment system. The other option, called Medicare Advantage (sometimes called “Part C” or “MA Plans”), includes health
maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), private fee-for-service Medicare special needs plans and Medicare medical
savings account plans. The major components of our net patient service revenues from continuing operations of the hospitals and related outpatient facilities in our
Hospital Operations and other segment for services provided to patients enrolled in the Original Medicare Plan for the years ended December 31, 2018 , 2017 and
2016 are set forth in the following table:
Revenue Descriptions
Medicare severity-adjusted diagnosis-related group — operating
Medicare severity-adjusted diagnosis-related group — capital
Outliers
Outpatient
Disproportionate share
Other (1)
Years Ended December 31,
2018
2017
2016
$
1,526 $
1,659 $
1,705
137
83
748
228
160
162
89
762
265
306
157
77
787
293
367
Total Medicare net patient service revenues
$
2,882 $
3,243 $
3,386
(1)
The other revenue category includes Medicare Direct Graduate Medical Education (“DGME”) and Indirect Medical Education (“IME”) revenues, IME revenues earned by our children’s
hospitals (one of which we divested in 2018) under the Children’s Hospitals Graduate Medical Education Payment Program administered by the Health Resources and Services
Administration of HHS, inpatient psychiatric units, inpatient rehabilitation units, one long-term acute care hospital (which was divested in 2017), other revenue adjustments, and
adjustments to the estimates for current and prior-year cost reports and related valuation allowances.
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A general description of the types of payments we receive for services provided to patients enrolled in the Original Medicare Plan is provided below.
Recent regulatory and legislative updates to the terms of these payment systems and their estimated effect on our revenues can be found under “Regulatory and
Legislative Changes” below.
Acute Care Hospital Inpatient Prospective Payment System
Medicare Severity-Adjusted Diagnosis-Related Group Payments —Sections 1886(d) and 1886(g) of the Social Security Act (the “Act”) set forth a system
of payments for the operating and capital costs of inpatient acute care hospital admissions based on a prospective payment system (“PPS”). Under the inpatient
prospective payment systems (“IPPS”), Medicare payments for hospital inpatient operating services are made at predetermined rates for each hospital discharge.
Discharges are classified according to a system of Medicare severity-adjusted diagnosis-related groups (“MS-DRGs”), which categorize patients with similar
clinical characteristics that are expected to require similar amounts of hospital resources. CMS assigns to each MS-DRG a relative weight that represents the
average resources required to treat cases in that particular MS-DRG, relative to the average resources used to treat cases in all MS-DRGs.
The base payment amount for the operating component of the MS-DRG payment is comprised of an average standardized amount that is divided into a
labor-related share and a nonlabor-related share. Both the labor-related share of operating base payments and the base payment amount for capital costs are
adjusted for geographic variations in labor and capital costs, respectively. Using diagnosis and procedure information submitted by the hospital, CMS assigns to
each discharge an MS-DRG, and the base payments are multiplied by the relative weight of the MS-DRG assigned. The MS-DRG operating and capital base rates,
relative weights and geographic adjustment factors are updated annually, with consideration given to: the increased cost of goods and services purchased by
hospitals; the relative costs associated with each MS-DRG; and changes in labor data by geographic area. Although these payments are adjusted for area labor and
capital cost differentials, the adjustments do not take into consideration an individual hospital’s operating and capital costs.
Outlier Payments —Outlier payments are additional payments made to hospitals on individual claims for treating Medicare patients whose medical
conditions are costlier to treat than those of the average patient in the same MS-DRG. To qualify for a cost outlier payment, a hospital’s billed charges, adjusted to
cost, must exceed the payment rate for the MS-DRG by a fixed threshold established annually by CMS. A Medicare Administrative Contractor (“MAC”) calculates
the cost of a claim by multiplying the billed charges by a cost-to-charge ratio that is typically based on the hospital’s most recently filed cost report. Generally, if
the computed cost exceeds the sum of the MS-DRG payment plus the fixed threshold, the hospital receives 80% of the difference as an outlier payment.
Under the Act, CMS must project aggregate annual outlier payments to all PPS hospitals to be not less than 5% or more than 6% of total MS-DRG
payments (“Outlier Percentage”). The Outlier Percentage is determined by dividing total outlier payments by the sum of MS-DRG and outlier payments. CMS
annually adjusts the fixed threshold to bring projected outlier payments within the mandated limit. A change to the fixed threshold affects total outlier payments by
changing: (1) the number of cases that qualify for outlier payments; and (2) the dollar amount hospitals receive for those cases that qualify for outlier payments.
Disproportionate Share Hospital Payments —In addition to making payments for services provided directly to beneficiaries, Medicare makes additional
payments to hospitals that treat a disproportionately high share of low-income patients. Prior to October 1, 2013, DSH payments were determined annually based
on certain statistical information defined by CMS and calculated as a percentage add-on to the MS-DRG payments. The ACA revised the Medicare DSH
adjustment effective for discharges occurring on or after October 1, 2013. Under the revised methodology, hospitals receive 25% of the amount they previously
would have received under the pre-ACA formula. This amount is referred to as the “Empirically Justified Amount.”
Hospitals qualifying for the Empirically Justified Amount of DSH payments are also eligible to receive an additional payment for uncompensated care
(the “UC DSH Amount”). The UC DSH Amount is a hospital’s share of a pool of funds that the CMS Office of the Actuary estimates would equal 75% of
Medicare DSH that otherwise would have been paid under the pre-ACA formula, adjusted for changes in the percentage of individuals that are uninsured.
Generally, the factors used to calculate and distribute UC DSH Amounts are set forth in the ACA and are not subject to administrative or judicial review. Although
the statute requires that each hospital’s cost of uncompensated care as a percentage of the total uncompensated care cost of all DSH hospitals be used to allocate the
pool, CMS previously determined that the available cost data from cost reports was unreliable and for FFYs 2014 through 2017 used low-income days (i.e.,
Medicaid days) to distribute UC DSH Amounts. Beginning in FFY 2018, CMS commenced a three-year transition to using uncompensated care cost data to
distribute the UC DSH Amounts. As of December 31, 2018, 57 of our acute care hospitals in continuing operations, three of which were divested in January 2019,
qualified for Medicare DSH payments.
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One of the variables used in the pre-ACA DSH formula is the number of Medicare inpatient days attributable to patients receiving Supplemental Security
Income (“SSI”) who are also eligible for Medicare Part A benefits divided by total Medicare inpatient days (the “SSI Ratio”). In an earlier rulemaking, CMS
established a policy of including not only days attributable to Original Medicare Plan patients, but also Medicare Advantage patients in the SSI ratio. The statutes
and regulations that govern Medicare DSH payments have been the subject of various administrative appeals and lawsuits, and our hospitals have been
participating in such appeals, including challenges to the inclusion of the Medicare Advantage days used in the DSH calculation as set forth in the Changes to the
Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates. We are unable to predict what action the Secretary might take with respect to the
DSH calculation for prior periods in this regard or the outcome of the pending litigation; however, a favorable outcome of our DSH appeals could have a material
impact on our future revenues and cash flows.
Direct Graduate and Indirect Medical Education Payments —The Medicare program provides additional reimbursement to approved teaching hospitals
for additional expenses incurred by such institutions. This additional reimbursement, which is subject to certain limits, including intern and resident full-time
equivalent (“FTE”) limits, is made in the form of DGME and IME payments. As of December 31, 2018, 24 of our hospitals in continuing operations, three of
which were divested in January 2019, were affiliated with academic institutions and were eligible to receive such payments.
IPPS Quality Adjustments —The ACA also authorizes the following quality adjustments to Medicare IPPS payments:
•
•
•
Value Based Purchasing (“VBP”) – Under the VBP program, IPPS operating payments to hospitals are reduced by 2% to fund value-based incentive
payments to eligible hospitals based on their overall performance on a set of quality measures;
Hospital Readmission Reduction Program (“HRRP”) – Under the HRRP program, IPPS operating payments to hospitals with excess readmissions are
reduced up to a maximum of 3% of base MS-DRG payments; and
Hospital-Acquired Conditions (“HAC”) Reduction Program (“HACRP”) – Under the HACRP, overall inpatient payments are reduced by 1% for
hospitals in the worst performing quartile of risk-adjusted quality measures for reasonable preventable HACs.
These adjustments are generally based on a hospital’s performance from prior periods and are updated annually by CMS.
Hospital Outpatient Prospective Payment System
Under the outpatient prospective payment system, hospital outpatient services, except for certain services that are reimbursed on a separate fee schedule,
are classified into groups called ambulatory payment classifications (“APCs”). Services in each APC are similar clinically and in terms of the resources they
require, and a payment rate is established for each APC. Depending on the services provided, hospitals may be paid for more than one APC for an encounter. CMS
annually updates the APCs and the rates paid for each APC.
Inpatient Psychiatric Facility Prospective Payment System
The inpatient psychiatric facility (“IPF”) prospective payment system (“IPF-PPS”) applies to psychiatric hospitals and psychiatric units located within
acute care hospitals that have been designated as exempt from the hospital inpatient prospective payment system. The IPF-PPS is based on prospectively
determined per-diem rates and includes an outlier policy that authorizes additional payments for extraordinarily costly cases. As of December 31, 2018, 23 of our
general hospitals in continuing operations, two of which were divested in January 2019, operated IPF units.
Inpatient Rehabilitation Prospective Payment System
Rehabilitation hospitals and rehabilitation units in acute care hospitals meeting certain criteria established by CMS are eligible to be paid as an inpatient
rehabilitation facility (“IRF”) under the IRF prospective payment system (“IRF-PPS”). Payments under the IRF-PPS are made on a per-discharge basis. The IRF-
PPS uses federal prospective payment rates across distinct case-mix groups established by a patient classification system. As of December 31, 2018, we operated
one freestanding IRF, and 18 of our general hospitals in continuing operations, two of which were divested in January 2019, operated IRF units.
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Physician and Other Health Professional Services Payment System
Medicare uses a fee schedule to pay for physician and other health professional services based on a list of services and their payment rates referred to as
the Medicare Physician Fee Schedule (“MPFS”). In determining payment rates for each service, CMS considers the amount of clinician work required to provide a
service, expenses related to maintaining a practice, and professional liability insurance costs. These three factors are adjusted for variation in the input prices in
different markets, and the sum is multiplied by the fee schedule’s conversion factor (average payment amount) to produce a total payment amount. The Medicare
Access and CHIP Reauthorization Act of 2015 (“MACRA”) established a new set of updates for clinicians billing under the MPFS that set the conversion factor.
Cost Reports
The final determination of certain Medicare payments to our hospitals, such as DSH, DGME, IME and bad debt expense, are retrospectively determined
based on our hospitals’ cost reports. The final determination of these payments often takes many years to resolve because of audits by the program representatives,
providers’ rights of appeal, and the application of numerous technical reimbursement provisions.
For filed cost reports, we adjust the accrual for estimated cost report settlements based on those cost reports and subsequent activity, and record a
valuation allowance against those cost reports based on historical settlement trends. The accrual for estimated cost report settlements for periods for which a cost
report is yet to be filed is recorded based on estimates of what we expect to report on the filed cost reports and a corresponding valuation allowance is recorded as
previously described. Cost reports must generally be filed within five months after the end of the annual cost report reporting period. After the cost report is filed,
the accrual and corresponding valuation allowance may need to be adjusted.
Medicare Claims Reviews
HHS estimates that the overall FFY 2018 Medicare fee-for-service (“FFS”) improper payment rate for the program is approximately 8.1%. The FFY 2018
error rate for Hospital IPPS payments is approximately 4.3%. CMS has identified the FFS program as a program at risk for significant erroneous payments. One of
CMS’ stated key goals is to pay claims properly the first time. This means paying the right amount, to legitimate providers, for covered, reasonable and necessary
services provided to eligible beneficiaries. According to CMS, paying correctly the first time saves resources required to recover improper payments and ensures
the proper expenditure of Medicare Trust Fund dollars. CMS has established several initiatives to prevent or identify improper payments before a claim is paid, and
to identify and recover improper payments after paying a claim. The overall goal is to reduce improper payments by identifying and addressing coverage and
coding billing errors for all provider types. Under the authority of the Act, CMS employs a variety of contractors (e.g., MACs, Recovery Audit Contractors and
Unified Program Integrity Contractors) to process and review claims according to Medicare rules and regulations.
Claims selected for prepayment review are not subject to the normal Medicare FFS payment timeframe. Furthermore, prepayment and post-payment
claims denials are subject to administrative and judicial review, and we intend to pursue the reversal of adverse determinations where appropriate. We have
established robust protocols to respond to claims reviews and payment denials. In addition to overpayments that are not reversed on appeal, we will incur additional
costs to respond to requests for records and pursue the reversal of payment denials. The degree to which our Medicare FFS claims are subjected to prepayment
reviews, the extent to which payments are denied, and our success in overturning denials could have a material adverse effect on our cash flows and results of
operations.
Medicaid
Medicaid programs and the corresponding reimbursement methodologies are administered by the states and vary from state to state and from year to year.
Estimated revenues under various state Medicaid programs, including state-funded managed care Medicaid programs, constituted 19.8% , 20.4% and 20.3% of
total net patient service revenues less implicit price concessions and provision for doubtful accounts of our acute care hospitals and related outpatient facilities for
the years ended December 31, 2018 , 2017 and 2016 , respectively. We also receive DSH and other supplemental revenues under various state Medicaid
programs. For the years ended December 31, 2018 , 2017 and 2016 , our total Medicaid revenues attributable to DSH and other supplemental revenues were $847
million , $864 million and $906 million , respectively. The $847 million of total Medicaid revenues attributable to DSH and other supplemental revenues for the
year ended December 31, 2018 was comprised of $262 million related to the California provider fee program described below, $286 million related to the
Michigan provider fee program, $136 million related to Medicaid DSH programs in multiple states, $120 million related to the Texas 1115 waiver program
described below, and $43 million from a number of other state and local programs.
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Several states in which we operate face budgetary challenges that have resulted, and likely will continue to result, in reduced Medicaid funding levels to
hospitals and other providers. Because most states must operate with balanced budgets, and the Medicaid program is generally a significant portion of a state’s
budget, states can be expected to adopt or consider adopting future legislation designed to reduce or not increase their Medicaid expenditures. In addition, some
states delay issuing Medicaid payments to providers to manage state expenditures. As an alternative means of funding provider payments, many of the states in
which we operate have adopted provider fee programs or received waivers under Section 1115 of the Social Security Act. Under a Medicaid waiver, the federal
government waives certain Medicaid requirements, thereby giving states flexibility in the operation of their Medicaid program to allow states to test new
approaches and demonstration projects to improve care. Generally the Section 1115 waivers are for a period of five years with an option to extend the waiver for
three additional years. Continuing pressure on state budgets and other factors could result in future reductions to Medicaid payments, payment delays or additional
taxes on hospitals.
The California Department of Health Care Services implemented its first Hospital Quality Assurance Fee (“HQAF”) program in 2010. The HQAF
program provides funding for supplemental payments to California hospitals that serve Medi-Cal and uninsured patients. CMS approved the fifth and most recent
phase of the program (“HQAF V”) covering the period January 2017 through June 2019 in the three months ended December 31, 2017. Our hospitals recognized
HQAF revenues, net of provider fees and other expenses, of $262 million , $267 million and $232 million in calendar years 2018 , 2017 and 2016 , respectively. In
November 2016, California voters approved a state constitutional amendment measure that extends indefinitely the statute that imposes fees on hospitals to obtain
federal matching funds. Because HQAF funding levels are based in part on Medi-Cal utilization, changes in coverage of individuals under the Medi-Cal program
could affect the net revenues and cash flows of our hospitals under HQAF V and subsequent phases of the HQAF program. Also, because funding of the HQAF
program is dependent on federal funding, we cannot provide assurances that such funding will continue in future periods.
Certain of our Texas hospitals participate in the Texas 1115 waiver program. The previous waiver term expired on December 31, 2017, and the current
waiver extension (“Waiver”), which was approved during the three months ended December 31, 2017, covers the period January 1, 2018 through
September 30, 2022. The Waiver is funded by intergovernmental transfer payments from local government entities, and includes two funding pools –
Uncompensated Care and Delivery System Reform Payment. In 2018 , we recognized $120 million of revenues from the Texas 1115 waiver program. Separately,
during the same period, we incurred $78 million of expenses related to funding indigent care services by certain of our Texas hospitals. Under the terms of the
Waiver, the amount of the funding pool for the period January 1, 2018 through September 30, 2019 is consistent with the latter years of the previous waiver;
however, effective October 1, 2019, CMS requires that the funding pool be resized based on aggregate hospital charity cost. The final funding pool amount for the
period October 1, 2019 through the end of the current Waiver term has not been determined. We are unable to predict the changes to the funding pool amount or
the allocation of the funding pool amount, which could result in an increase or decrease to our net revenues and cash flows. Furthermore, we cannot provide any
assurances as to future extensions of the Texas 1115 waiver program, or the ultimate amount of revenues that our hospitals may receive from this program
following the expiration of the Waiver.
Because we cannot predict what actions the federal government or the states may take under existing legislation and future legislation to address budget
gaps, deficits, Medicaid expansion, provider fee programs or Medicaid Section 1115 waivers, we are unable to assess the effect that any such legislation might
have on our business, but the impact on our future financial position, results of operations or cash flows could be material.
Medicaid and Managed Medicaid net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in
our Hospital Operations and other segment from Medicaid-related programs in the states in which our facilities are (or were, as the case may be) located, as well as
from Medicaid programs in neighboring states, for the years ended December 31, 2018 , 2017 and 2016 are set forth in the following table.
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Hospital Location
Alabama
Arizona
California
Florida
Georgia
Illinois
Massachusetts
Michigan
Missouri
North Carolina
Pennsylvania
South Carolina
Tennessee
Texas
Years Ended December 31,
2018
2017
2016
$
91 $
88 $
165
875
231
—
89
94
749
—
—
8
53
35
$
398
2,788 $
177
862
232
(3)
143
83
710
2
(1)
285
46
36
371
80
199
818
261
19
106
89
663
2
(2)
279
50
39
466
3,031 $
3,069
Medicaid and Managed Medicaid revenues comprised 46% and 54% , respectively, of our Medicaid-related net patient service revenues from continuing
operations recognized by the hospitals and related outpatient facilities in our Hospital Operations and other segment for the year ended December 31, 2018 .
Regulatory and Legislative Changes
The Medicare and Medicaid programs are subject to statutory and regulatory changes, administrative and judicial rulings, interpretations and
determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease payments from
these government programs in the future, as well as affect the cost of providing services to our patients and the timing of payments to our facilities. We are unable
to predict the effect of future government healthcare funding policy changes on our operations. If the rates paid or services covered by governmental payers are
reduced, or if we or one or more of our subsidiaries’ hospitals are excluded from participation in the Medicare or Medicaid program or any other government
healthcare program, there could be a material adverse effect on our business, financial condition, results of operations or cash flows. Recent regulatory and
legislative updates to the Medicare and Medicaid payment systems are provided below.
Payment and Policy Changes to the Medicare Inpatient Prospective Payment Systems
Under Medicare law, CMS is required to annually update certain rules governing the inpatient prospective payment systems. The updates generally
become effective October 1, the beginning of the federal fiscal year. In August 2018, CMS issued Changes to the Hospital Inpatient Prospective Payment Systems
for Acute Care Hospitals and Fiscal Year 2019 Rates (“Final IPPS Rule”). The Final IPPS Rule includes the following payment and policy changes:
•
•
•
A market basket increase of 2.9% for MS-DRG operating payments for hospitals reporting specified quality measure data and that are meaningful
users of electronic health record (“EHR”) technology (hospitals that do not report specified quality measure data and/or are not meaningful users of
EHR technology will receive a reduced market basket increase); CMS also made certain adjustments to the 2.9% market basket increase that result in
a net operating payment update of 1.85% (before budget neutrality adjustments), including:
• Market basket index and multifactor productivity reductions required by the ACA of 0.75% and 0.8%, respectively; and
•
A 0.5% increase required under the 21st Century Cures Act;
Updates to the three factors used to determine the amount and distribution of UC DSH Amounts, including the continuation of the transition from
using low-income days to estimated uncompensated care costs for the distribution of the UC DSH Amounts;
A 1.27% net increase in the capital federal MS-DRG rate;
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•
•
•
A decrease in the cost outlier threshold from $26,537 to $25,769;
The application of the Medicare IPPS post-acute transfer payment policy to “early discharges” from the hospital to hospice care as required by the
Bipartisan Budget Act of 2018; and
Effective January 1, 2019, the requirement that hospitals make available to the public a list of their current standard charges via the Internet in a
machine-readable format and update this information at least annually or more often as appropriate.
According to CMS, the combined impact of the payment and policy changes in the Final IPPS Rule for operating costs will yield an average 2.4%
increase in Medicare operating MS-DRG FFS payments for hospitals in large urban areas (populations over one million), and an average 2.1% increase in
operating MS-DRG FFS payments for proprietary hospitals in FFY 2019. We estimate that all of the payment and policy changes affecting operating MS-DRG
payments, including those affecting Medicare DSH amounts and the hospice transfer payment policy, will result in an estimated 1.9% increase in our annual
Medicare FFS IPPS payments, which yields an estimated increase of approximately $35 million. Because of the uncertainty associated with various factors that
may influence our future IPPS payments by individual hospital, including legislative or legal actions, admission volumes, length of stay and case mix, we cannot
provide any assurances regarding our estimate of the impact of the payment and policy changes.
Payment and Policy Changes to the Medicare Outpatient Prospective Payment and Ambulatory Surgery Center Payment Systems
On November 2, 2018, CMS released Changes to the Hospital Outpatient Prospective Payment System (“OPPS”) and Ambulatory Surgical Center
(“ASC”) Payment System for calendar year (“CY”) 2019 (“Final OPPS/ASC Rule”). The Final OPPS/ASC Rule includes the following payment and policy
changes:
•
•
•
•
An estimated net increase of 1.35% for the OPPS rates based on an estimated market basket increase of 2.9% reduced by market basket index and
multifactor productivity reductions required by the ACA of 0.75% and 0.8%, respectively;
A transition over a two year period to the MPFS rates for the payment of clinic/office visits provided at off-campus, hospital-based departments that
are currently paid under the OPPS (this payment reduction will not be made in a budget-neutral manner and will result in a reduction of
approximately 0.6% to total CY 2019 OPPS payments);
A 2.1% increase to the ASC payment rates; and
A revision to the definition of “surgery” in the ASC payment system to account for certain “surgery-like” procedures, and the addition of 12 cardiac
catheterization procedures and five related procedures to the ASC covered procedures list.
CMS projects that the combined impact of the payment and policy changes in the Final OPPS/ASC Rule will yield an average 0.6% increase in Medicare
FFS OPPS payments for all hospitals, an average 0.7% increase in Medicare FFS OPPS payments for hospitals in large urban areas (populations over one million),
and an average 1.0% increase in Medicare FFS OPPS payments for proprietary hospitals. Based on CMS’ estimates, the projected annual impact of the payment
and policy changes in the Final OPPS/ASC Rule on our hospitals is an increase to Medicare FFS hospital outpatient revenues of approximately $7 million, which
represents an increase of approximately 1.1%. Because of the uncertainty associated with various factors that may influence our future OPPS payments, including
legislative or legal actions, volumes and case mix, we cannot provide any assurances regarding our estimate of the impact of the payment and policy changes.
The 340B program allows certain hospitals (i.e., only nonprofit organizations with specific federal designations and/or funding) to purchase separately-
payable drugs at discounted rates from drug manufacturers. In the CY 2018 OPPS Final Rule, CMS reduced the payment for separately payable drugs purchased
under the 340B program from average sale price (“ASP”) plus 6% to ASP minus 22.5%, and made a corresponding budget-neutral increase to payments to all
hospitals for other drugs and services reimbursed under the OPPS. During the three months ended December 31, 2018, the U.S. District Court for the District of
Columbia held that the adoption of the 340B payment adjustment in the CY 2018 OPPS Final Rule exceeded CMS’ statutory authority. Because of the complexity
involved in determining equitable relief for the plaintiffs, the court requested the
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parties to submit briefs on the appropriate remedy. CMS may appeal the District Court’s decision. The District Court’s remedy and/or an unfavorable outcome of
any appeal could have an adverse effect on the Company’s net revenues and cash flows.
The Medicare Access and CHIP Reauthorization Act of 2015
The MACRA replaced the Medicare Sustainable Growth Rate methodology with a new system for establishing the annual updates to the MPFS that,
beginning in 2019, rewards the delivery of high-quality patient care through one of two avenues:
•
•
The Merit-Based Incentive Payment System (“MIPS”) – MIPS participating providers will be eligible for a payment adjustment of plus or minus 4%
in the first payment adjustment year (2019 based on 2017 performance) with the payment adjustment increasing each year until it reaches plus or
minus 9% in 2022 and beyond; or
The Advanced Alternative Payment Model (“APM”) – Providers that choose to participate in an Advanced APM (defined as certain CMS Innovation
Center models and Shared Savings Program tracks that require participants to use certified EHR technology, base payments for services on quality
measures comparable to those in MIPS, and require participants to bear more than nominal financial risk for losses) will be exempt from MIPS and
from 2019-2024 will be eligible for a 5% upward adjustment to their Medicare payments.
The new system helps to link fee-for-service payments to quality and value with payment incentives and penalties.
Additionally, the MACRA reduced the restoration of the 3.2% coding and document adjustment to hospital inpatient rates that was expected to be
effective in FFY 2018 to 3.0%; as modified by the 21st Century Cures Act, the adjustment will be applied at the rate of 0.4588% for FFY 2018 and 0.5% for FFYs
2019 through 2023.
Less than 1% of the net operating revenue generated by our Hospital Operations and other segment during the year ended December 31, 2018 was related
to the MPFS. We are unable to estimate the potential impact of the MACRA; however, the maximum incentive and penalty adjustments could result in an increase
or decrease in our annual net revenues of approximately $15 million. Additionally, we cannot predict the effect of the MACRA on our future operations, revenues
and cash flows.
Payment and Policy Changes to the Medicare Physician Fee Schedule
On November 23, 2018, the CMS issued a final rule that includes updates to payment policies, payment rates, quality provisions and other policies for
services furnished under the MPFS for CY 2019 (“MPFS Final Rule”). With the budget neutrality adjustment to account for changes in Relative Value Units
required by law, the final MPFS for 2019 will increase by approximately 0.11%. CMS estimates that the impact of the payment and policy changes in the final rule
will result in no change in aggregate payments across all specialties.
The American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009 (“ARRA”) was enacted to stimulate the U.S. economy. One provision of ARRA provides
financial incentives to hospitals and physicians to become “meaningful users” of electronic health records (“EHR”). Hospitals that fail to demonstrate meaningful
use of EHR are subject to payment penalties; EHR payment adjustments to physicians automatically terminated effective January 1, 2019. During the year ended
December 31, 2018 , we recognized $3 million of EHR incentives related to the Medicare and Medicaid EHR incentive programs as a result of certain of our
hospitals, employed physicians and Ambulatory Care segment facilities demonstrating meaningful use of certified EHR technology and meeting the criteria for
revenue recognition. Medicare and Medicaid incentive payment amounts to which a provider is entitled are subject to post-payment audits.
In addition to the expenditures we incur to qualify for these incentive payments, our operating expenses have increased and we anticipate will increase in
the future as a result of these information system investments. Eligible hospitals must continue to demonstrate meaningful use of EHR technology every year to
avoid payment reductions in subsequent years. These reductions, which are based on the market basket update, will continue until a hospital achieves compliance.
Should all of our hospitals fail to become meaningful users or fail to continue to demonstrate meaningful use of EHR technology and fail to submit quality data, the
penalties would result in reductions to our annual Medicare traditional inpatient net revenues of up to approximately $37 million in 2019 and subsequent years.
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The complexity of the changes required to our hospitals’ systems and the time required to complete the changes could result in some or all of our facilities
not being fully compliant and subject to the payment penalties permitted under ARRA. Because of the uncertainties regarding the implementation of HIT,
including CMS’ future EHR implementation regulations, our ability to achieve compliance and the associated costs, we cannot provide any assurances regarding
the aforementioned estimates of incentives or penalties in future periods.
CMS Innovation Models
The CMS Innovation Center develops new payment and service delivery models in accordance with the requirements of Section 1115A of the Social
Security Act. Additionally, Congress has defined – both through the Affordable Care Act and previous legislation – a number of specific demonstrations to be
conducted by CMS. The CMS Innovation Center has a growing portfolio testing various payment and service delivery models that aim to achieve better care for
patients, better health for communities and lower costs through improvement for our healthcare system. Participation in some of these models is voluntary;
however, participation in certain bundled payment arrangements is mandatory for providers located in randomly selected geographic locations. Generally, the
bundled payment models hold hospitals financially accountable for the quality and costs for an entire episode of care for a specific diagnosis or procedure from the
date of the hospital admission or inpatient procedure through 90 days post-discharge, including services not provided by the hospital, such as physician, inpatient
rehabilitation, skilled nursing and home health services. Under the mandatory models, hospitals are eligible to receive incentive payments or will be subject to
payment reductions within certain corridors based on their performance against quality and spending criteria.
Bipartisan Budget Act of 2018
In February 2018, the President signed the Bipartisan Budget Act of 2018 (“2018 BBA”), a two-year spending agreement and six-week continuing
resolution, into law. The 2018 BBA includes the following measures:
•
Four additional years of CHIP funding through FFY 2027, as described above;
• Modifications to the MIPS under the MACRA;
•
A reduction to the MPFS conversion factor for CY 2019 from 0.5% to 0.25%; and
• Modifications to the ACA Medicaid DSH payment reductions as follows:
•
•
•
elimination of the FFY 2018 and 2019 Medicaid DSH payment reductions;
retention of the $4 billion payment reduction in FFY 2020; and
an increase to the payment reductions in FFYs 2021 through 2025 to $8 billion.
The ACA reduced federal funding for Medicaid DSH payments under the assumption that hospital uncompensated care costs would decline as insurance coverage
increased. Although the reductions were delayed several times, federal DSH payment reductions were slated to begin with a $2 billion reduction in FFY 2018, with
additional reductions occurring each year through FFY 2025. The amount of federal DSH funds available to each state, referred to as allotments, will vary based on
historical state DSH allotments and the methodology that CMS uses to distribute DSH allotment reductions among states. In notices dated November 3, 2017 and
July 6, 2018, CMS released the preliminary DSH allotments of approximately $12 billion for FFYs 2017 and 2018, respectively.
PRIVATE
INSURANCE
Managed Care
We currently have thousands of managed care contracts with various HMOs and PPOs. HMOs generally maintain a full-service healthcare delivery
network comprised of physician, hospital, pharmacy and ancillary service providers that HMO members must access through an assigned “primary care” physician.
The member’s care is then managed by his or her primary care physician and other network providers in accordance with the HMO’s quality assurance and
utilization review guidelines so that appropriate healthcare can be efficiently delivered in the most cost-effective manner. HMOs typically provide reduced benefits
or reimbursement (or none at all) to their members who use non-contracted healthcare providers for non-emergency care.
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PPOs generally offer limited benefits to members who use non-contracted healthcare providers. PPO members who use contracted healthcare providers
receive a preferred benefit, typically in the form of lower co-pays, co-insurance or deductibles. As employers and employees have demanded more choice,
managed care plans have developed hybrid products that combine elements of both HMO and PPO plans, including high-deductible healthcare plans that may have
limited benefits, but cost the employee less in premiums.
The amount of our managed care net patient service revenues, including Medicare and Medicaid managed care programs, from our hospitals and related
outpatient facilities during the years ended December 31, 2018 , 2017 and 2016 was $9.213 billion , $9.583 billion and $9.728 billion , respectively. Our top ten
managed care payers generated 65% of our managed care net patient service revenues for the year ended December 31, 2018 . National payers generated 43% of
our managed care net patient service revenues for the year ended December 31, 2018 . The remainder comes from regional or local payers. At December 31, 2018
and 2017 , 61% and 62% , respectively, of our net accounts receivable for our Hospital Operations and other segment were due from managed care payers.
Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted fee-
for-service rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several
years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient’s bill is subject to
adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We
estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on
an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. We believe it is
reasonably likely for there to be an approximately 3% increase or decrease in the estimated contractual allowances related to managed care plans. Based on
reserves at December 31, 2018 , a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $15
million . Some of the factors that can contribute to changes in the contractual allowance estimates include: (1) changes in reimbursement levels for procedures,
supplies and drugs when threshold levels are triggered; (2) changes in reimbursement levels when stop-loss or outlier limits are reached; (3) changes in the
admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (4) final coding of in-house and discharged-not-final-billed patients
that change reimbursement levels; (5) secondary benefits determined after primary insurance payments; and (6) reclassification of patients among insurance plans
with different coverage and payment levels. Contractual allowance estimates are periodically reviewed for accuracy by taking into consideration known contract
terms, as well as payment history. We believe our estimation and review process enables us to identify instances on a timely basis where such estimates need to be
revised. We do not believe there were any adjustments to estimates of patient bills that were material to our revenues. In addition, on a corporate-wide basis, we do
not record any general provision for adjustments to estimated contractual allowances for managed care plans. Managed care accounts, net of contractual allowances
recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for these payers and other factors
that affect the estimation process.
We expect managed care governmental admissions to continue to increase as a percentage of total managed care admissions over the near term. However,
the managed Medicare and Medicaid insurance plans typically generate lower yields than commercial managed care plans, which have been experiencing an
improved pricing trend. Although we have benefited from solid year-over-year aggregate managed care pricing improvements for several years, we have seen these
improvements moderate in recent years, and we believe the moderation could continue in future years. In the year ended December 31, 2018 , our commercial
managed care net inpatient revenue per admission from the hospitals and related outpatient facilities in our Hospital Operations and other segment was
approximately 89% higher than our aggregate yield on a per admission basis from government payers, including managed Medicare and Medicaid insurance plans.
Indemnity
An indemnity-based agreement generally requires the insurer to reimburse an insured patient for healthcare expenses after those expenses have been
incurred by the patient, subject to policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her
utilization of healthcare and selection of healthcare providers.
SELF-PAY
PATIENTS
Self-pay patients are patients who do not qualify for government programs payments, such as Medicare and Medicaid, do not have some form of private
insurance and, therefore, are responsible for their own medical bills. A significant number of
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our self-pay patients are admitted through our hospitals’ emergency departments and often require high-acuity treatment that is more costly to provide and,
therefore, results in higher billings, which are the least collectible of all accounts.
Self-pay accounts pose significant collectability problems. At both December 31, 2018 and 2017 , 6% of our net accounts receivable for our Hospital
Operations and other segment were due from self-pay patients. Further, a significant portion of our implicit price concessions relates to self-pay patients, as well as
co-pays, co-insurance amounts and deductibles owed to us by patients with insurance. We provide revenue cycle management services through Conifer, which is
subject to various statutes and regulations regarding consumer protection in areas including finance, debt collection and credit reporting activities. For additional
information, see Item 1, Business — Regulations Affecting Conifer’s Operations, of Part I of this report.
Conifer has performed systematic analyses to focus our attention on the drivers of bad debt expense for each hospital. While emergency department use is
the primary contributor to our implicit price concessions in the aggregate, this is not the case at all hospitals. As a result, we have increased our focus on targeted
initiatives that concentrate on non-emergency department patients as well. These initiatives are intended to promote process efficiencies in collecting self-pay
accounts, as well as co-pay, co-insurance and deductible amounts owed to us by patients with insurance, that we deem highly collectible. We leverage a statistical-
based collections model that aligns our operational capacity to maximize our collections performance. We are dedicated to modifying and refining our processes as
needed, enhancing our technology and improving staff training throughout the revenue cycle process in an effort to increase collections and reduce accounts
receivable.
Over the longer term, several other initiatives we have previously announced should also help address this challenge. For example, our Compact with
Uninsured Patients (“ Compact ”) is designed to offer managed care-style discounts to certain uninsured patients, which enables us to offer lower rates to those
patients who historically had been charged standard gross charges. A significant portion of those charges had previously been written down in our provision for
doubtful accounts. Under the Compact , the discount offered to uninsured patients is recognized as a contractual allowance, which reduces net operating revenues
at the time the self-pay accounts are recorded. The uninsured patient accounts, net of contractual allowances recorded, are further reduced to their net realizable
value through implicit price concessions based on historical collection trends for self-pay accounts and other factors that affect the estimation process.
We also provide charity care to patients who are financially unable to pay for the healthcare services they receive. Most patients who qualify for charity
care are charged a per-diem amount for services received, subject to a cap. Except for the per-diem amounts, our policy is not to pursue collection of amounts
determined to qualify as charity care; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care
in the determination of a hospital’s eligibility for Medicaid DSH payments. These payments are intended to mitigate our cost of uncompensated care, as well as
reduced Medicaid funding levels. Generally, our method of measuring the estimated costs uses adjusted self-pay/charity patient days multiplied by selected
operating expenses (which include salaries, wages and benefits, supplies and other operating expenses and which exclude the costs of our health plan businesses)
per adjusted patient day. The adjusted self-pay/charity patient days represents actual self-pay/charity patient days adjusted to include self-pay/charity outpatient
services by multiplying actual self-pay/charity patient days by the sum of gross self-pay/charity inpatient revenues and gross self-pay/charity outpatient revenues
and dividing the results by gross self-pay/charity inpatient revenues. The following table shows our estimated costs (based on selected operating expenses) of
caring for self-pay patients and charity care patients, as well as revenues attributable to Medicaid DSH and other supplemental revenues we recognized, in the years
ended December 31, 2018 , 2017 and 2016 .
Estimated costs for:
Self-pay patients
Charity care patients
Total
Medicaid DSH and other supplemental revenues
Years Ended December 31,
2018
2017
2016
$
$
$
640 $
124
764 $
847 $
648 $
121
769 $
864 $
609
138
747
906
The initial expansion of health insurance coverage resulted in an increase in the number of patients using our facilities with either health insurance
exchange or government healthcare insurance program coverage. However, we continue to have to provide uninsured discounts and charity care due to the failure
of states to expand Medicaid coverage and for persons living in the country who are not permitted to enroll in a health insurance exchange or government
healthcare insurance program. In October 2017, the administration announced that reimbursements to insurance companies for ACA cost-sharing reduction
(“CSR”) plans offered through the health insurance marketplace would be discontinued. CSR payments compensate insurers
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for subsidizing out-of-pocket costs for low-income enrollees. Without the CSR payments, many insurers increased premiums for plans offered on ACA exchanges
and a few withdrew entirely from offering plans on some of the exchanges.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2018 COMPARED TO THE YEAR ENDED DECEMBER 31, 2017
The following two tables summarize our consolidated net operating revenues, operating expenses and operating income from continuing operations, both
in dollar amounts and as percentages of net operating revenues, for the years ended December 31, 2018 and 2017 :
Net operating revenues:
Hospital Operations and other
Ambulatory Care
Conifer
Inter-segment eliminations
Net operating revenues before provision for doubtful accounts
Less provision for doubtful accounts
Net operating revenues
Equity in earnings of unconsolidated affiliates
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Electronic health record incentives
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net gains on sales, consolidation and deconsolidation of facilities
Operating income
Net operating revenues
Equity in earnings of unconsolidated affiliates
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Electronic health record incentives
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net gains on sales, consolidation and deconsolidation of facilities
Operating income
Years Ended December 31,
2018
2017
Increase
(Decrease)
$
15,285 $
17,656 $
(2,371)
2,085
1,533
(590)
18,313
—
18,313
150
8,634
3,004
4,259
(3)
802
209
38
(127)
1,978
1,597
(618)
20,613
1,434
19,179
144
9,274
3,085
4,570
(9)
870
541
23
(144)
$
1,647 $
1,113 $
Years Ended December 31,
2018
2017
100.0 %
0.8 %
100.0 %
0.8 %
47.1 %
16.4 %
23.3 %
— %
4.4 %
1.1 %
0.2 %
(0.7)%
9.0 %
48.4 %
16.1 %
23.8 %
— %
4.5 %
2.8 %
0.1 %
(0.7)%
5.8 %
107
(64)
28
(2,300)
(1,434)
(866)
6
(640)
(81)
(311)
6
(68)
(332)
15
17
534
Increase
(Decrease)
— %
— %
(1.3)%
0.3 %
(0.5)%
— %
(0.1)%
(1.7)%
0.1 %
— %
3.2 %
Total net operating revenues decreased by $866 million , or 4.5% , for the year ended December 31, 2018 compared to the year ended December 31, 2017
. Hospital Operations and other and Ambulatory Care net operating revenues and provision for doubtful accounts were impacted by our adoption of ASU 2014-09
effective January 1, 2018. Prior to the adoption of ASU 2014-09, a significant portion of our provision for doubtful accounts related to self-pay patients, as well as
co-pays, co-insurance amounts and deductibles owed to us by patients with insurance. Under ASU 2014-09, the estimated uncollectable amounts due from these
patients are generally considered implicit price concessions that are a direct reduction to net operating revenues, with a corresponding material reduction in the
amounts presented separately as provision for doubtful accounts. Hospital Operations and other net operating revenues net of implicit price concessions and
provision for doubtful accounts decreased by $947 million , or 6.1% , for the year ended December 31, 2018 compared to the same period in 2017 , primarily due
to the divestiture or closure of eight hospitals since the beginning of the 2017 period. Ambulatory Care net operating revenues net of implicit price concessions and
provision for doubtful accounts increased by $145 million , or 7.5% , for the year ended
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December 31, 2018 compared to the prior-year period. This growth was driven by an increase in same-facility net operating revenues of $89 million and an
increase from acquisitions of $113 million, partially offset by a decrease of $57 million due to the sale of Aspen. Conifer net operating revenues decreased by $64
million , or 4.0% , for the year ended December 31, 2018 compared to the same period in 2017 . Conifer revenues from third-party customers, which are not
eliminated in consolidation, decreased $36 million , or 3.7% , for the year ended December 31, 2018 compared to the prior-year period. Conifer revenues from
third-party customers were negatively impacted by contract terminations related to the sales of customer hospitals, partially offset by the impact of the divestiture
of former Tenet facilities that have now become third-party customers.
The following table shows selected operating expenses of our three reportable business segments. Information for our Hospital Operations and other
segment is presented on a same-hospital basis, which includes the results of our same 68 hospitals operated throughout the years ended December 31, 2018 and
2017 . Our same-hospital information excludes the results of three Houston-area hospitals, which we divested effective August 1, 2017 , Abrazo Maryvale Campus,
which we closed in December 2017 , two Philadelphia-area hospitals, which we divested effective January 11, 2018 , MacNeal Hospital, which we divested
effective March 1, 2018 and Des Peres Hospital, which we divested effective May 1, 2018 . In addition, although we operated four North Texas hospitals
throughout the year ended December 31, 2017 and from January 1 through February 28, 2018 as part of a joint venture , we did not consolidate the results of
operations of these hospitals because we divested a controlling interest in them effective January 1, 2016.
Selected Operating Expenses
Hospital Operations and other — Same-Hospital
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Ambulatory Care
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Conifer
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Total
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Rent/lease expense (1)
Hospital Operations and other
Ambulatory Care
Conifer
Total
(1)
Included in other operating expenses.
RESULTS
OF
OPERATIONS
BY
SEGMENT
Our operations are reported in three segments:
Years Ended December 31,
2018
2017
Increase
(Decrease)
7,076 $
2,538
3,477
13,091 $
644 $
430
359
6,952
2,440
3,246
12,638
623
398
360
1,433 $
1,381
863 $
5
308
962
5
347
1,176 $
1,314
8,583 $
2,973
4,144
15,700 $
227 $
80
17
324 $
8,537
2,843
3,953
15,333
221
77
19
317
1.8 %
4.0 %
7.1 %
3.6 %
3.4 %
8.0 %
(0.3)%
3.8 %
(10.3)%
— %
(11.2)%
(10.5)%
0.5 %
4.6 %
4.8 %
2.4 %
2.7 %
3.9 %
(10.5)%
2.2 %
$
$
$
$
$
$
$
$
$
$
•
Hospital Operations and other, which is comprised of our acute care and specialty hospitals, ancillary outpatient facilities, urgent care centers,
microhospitals and physician practices. As described in Note 5 to the accompanying Consolidated Financial Statements , certain of our facilities were
classified as held for sale at December 31, 2018 .
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•
•
Ambulatory Care, which is comprised of USPI’s ambulatory surgery centers, urgent care centers, imaging centers and surgical hospitals (and also
included nine facilities in the United Kingdom until we divested Aspen effective August 17, 2018).
Conifer, which provides healthcare business process services in the areas of hospital and physician revenue cycle management and value-based care
solutions to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities .
Hospital Operations and Other Segment
The following tables show operating statistics of our continuing operations hospitals and related outpatient facilities on a same-hospital basis, unless
otherwise indicated, which includes the results of our same 68 hospitals operated throughout the years ended December 31, 2018 and 2017 . Our same-hospital
information excludes the results of three Houston-area hospitals, which we divested effective August 1, 2017 , Abrazo Maryvale Campus, which we closed in
December 2017 , two Philadelphia-area hospitals, which we divested effective January 11, 2018 , MacNeal Hospital, which we divested effective March 1, 2018 ,
and Des Peres Hospital, which we divested effective May 1, 2018 . In addition, although we operated four North Texas hospitals throughout the year ended
December 31, 2017 and from January 1 through February 28, 2018 as part of a joint venture , we did not consolidate the results of operations of these hospitals
because we divested a controlling interest in them effective January 1, 2016.
Admissions, Patient Days and Surgeries
Number of hospitals (at end of period)
Total admissions
Adjusted patient admissions (2)
Paying admissions (excludes charity and uninsured)
Charity and uninsured admissions
Admissions through emergency department
Paying admissions as a percentage of total admissions
Charity and uninsured admissions as a percentage of total admissions
Emergency department admissions as a percentage of total admissions
Surgeries — inpatient
Surgeries — outpatient
Total surgeries
Patient days — total
Adjusted patient days (2)
Average length of stay (days)
Licensed beds (at end of period)
Average licensed beds
Utilization of licensed beds (3)
Same-Hospital
Continuing Operations
Years Ended December 31,
2018
68
684,933
1,232,150
643,828
41,105
474,606
2017
68
696,590
1,232,200
658,296
38,294
454,364
94.0%
6.0%
69.3%
94.5%
5.5%
65.2%
183,520
248,770
432,290
3,148,094
5,569,440
4.60
17,937
17,940
188,853
250,726
439,579
3,220,528
5,605,146
4.62
17,946
17,980
Increase
(Decrease)
—
(1)
(1.7)%
— %
(2.2)%
7.3 %
4.5 %
(0.5)% (1)
0.5 % (1)
4.1 % (1)
(2.8)%
(0.8)%
(1.7)%
(2.2)%
(0.6)%
(0.4)%
(0.1)%
(0.2)%
48.1%
49.1%
(1.0)% (1)
(1)
(2)
The change is the difference between 2018 and 2017 amounts shown.
Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations and other segment by
multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
(3)
Utilization of licensed beds represents patient days divided by number of days in the period divided by average licensed beds.
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Outpatient Visits
Total visits
Paying visits (excludes charity and uninsured)
Charity and uninsured visits
Emergency department visits
Surgery visits
Paying visits as a percentage of total visits
Charity and uninsured visits as a percentage of total visits
(1)
The change is the difference between the 2018 and 2017 amounts shown.
Revenues
Total segment net operating revenues (1)
Selected revenue data – hospitals and related outpatient facilities
Net patient service revenues (1)(2)
Net patient service revenue per adjusted patient admission (1)(2)
Net patient service revenue per adjusted patient day (1)(2)
Same-Hospital
Continuing Operations
Years Ended December 31,
2018
6,999,028
6,537,366
461,662
2,613,018
248,770
2017
7,064,412
6,605,226
459,186
2,583,612
250,726
93.4%
6.6%
93.5%
6.5%
Increase
(Decrease)
(0.9)%
(1.0)%
0.5 %
1.1 %
(0.8)%
(0.1)%
0.1 %
(1)
(1)
Same-Hospital
Continuing Operations
Years Ended December 31,
2018
2017
14,516 $
14,011
13,995 $
11,358 $
2,513 $
13,514
10,967
2,411
$
$
$
$
Increase
(Decrease)
3.6%
3.6%
3.6%
4.2%
(1)
(2)
Revenues are net of implicit price concessions and provision for doubtful accounts.
Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations and other segment by
multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
Total Segment Selected Operating Expenses
Salaries, wages and benefits as a percentage of net operating revenues
Supplies as a percentage of net operating revenues
Other operating expenses as a percentage of net operating revenues
(1)
The change is the difference between the 2018 and 2017 amounts shown.
Revenues
Same-Hospital
Continuing Operations
Years Ended December 31,
2018
2017
Increase
(Decrease)
48.7%
17.5%
24.0%
49.6%
17.4%
23.2%
(0.9)%
0.1 %
0.8 %
(1)
(1)
(1)
Same-hospital net operating revenues increased $505 million , or 3.6% , during the year ended December 31, 2018 compared to the year ended
December 31, 2017 , primarily due improved terms of our managed care contracts. Same-hospital admissions decreased 1.7% in the year ended December 31, 2018
compared to the prior-year period. Same-hospital outpatient visits decreased 0.9% in the year ended December 31, 2018 compared to the prior-year period.
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The following table shows the consolidated net accounts receivable by payer at December 31, 2018 and the consolidated net accounts receivable and
allowance for doubtful accounts by payer at December 31, 2017:
Medicare
Medicaid
Net cost report settlements receivable and valuation allowances
Managed care
Self-pay uninsured
Self-pay balance after insurance
Estimated future recoveries
Other payers
Total Hospital Operations and other
Ambulatory Care
Total discontinued operations
December 31, 2018
December 31, 2017
Accounts
Receivable
Accounts Receivable
Before Allowance
for Doubtful Accounts
Allowance for Doubtful
Accounts
Net
$
229 $
257 $
— $
74
18
1,467
47
94
148
325
2,402
191
2
95
4
1,709
407
240
132
453
3,297
215
2
—
—
204
351
149
—
151
855
43
—
$
2,595 $
3,514 $
898 $
257
95
4
1,505
56
91
132
302
2,442
172
2
2,616
For patient accounts receivable resulting from revenue recognized prior to January 1, 2018, an allowance for doubtful accounts was established to reduce
the carrying value of such receivables to their estimated net realizable value. Generally, we estimated this allowance based on the aging of our accounts receivable
by hospital, our historical collection experience by hospital and for each type of payer, and other relevant factors. Under the provisions of ASU 2014-09, which we
adopted effective January 1, 2018, when we have an unconditional right to payment, subject only to the passage of time, the right is treated as a receivable. Patient
accounts receivable, including billed accounts and unbilled accounts for which we have the unconditional right to payment, and estimated amounts due from third-
party payers for retroactive adjustments, are receivables if our right to consideration is unconditional and only the passage of time is required before payment of
that consideration is due. For patient accounts receivable subsequent to our adoption of ASU 2014-09 on January 1, 2018, the estimated uncollectable amounts are
generally considered implicit price concessions that are a direct reduction to patient accounts receivable rather than allowance for doubtful accounts. Under the
provisions of ASU 2014-09, amounts related to services provided to patients for which we have not billed and that do not meet the conditions of unconditional right
to payment at the end of the reporting period are contract assets. For our Hospital Operations and other segment, our contract assets consist primarily of services
that we have provided to patients who are still receiving inpatient care in our facilities at the end of the reporting period. Our Hospital Operations and other
segment’s contract assets are included in other current assets in the accompanying Consolidated Balance Sheet at December 31, 2018. Prior to January 1, 2018,
amounts related to services provided to patients for which we had not billed were included in accounts receivable, less allowance for doubtful accounts, in our
consolidated balance sheets.
Collection of accounts receivable has been a key area of focus, particularly over the past several years. At December 31, 2018 , our Hospital Operations
and other segment collection rate on self-pay accounts was approximately 23.1% . Our self-pay collection rate includes payments made by patients, including co-
pays, co-insurance amounts and deductibles paid by patients with insurance. Based on our accounts receivable from self-pay patients and co-pays, co-insurance
amounts and deductibles owed to us by patients with insurance at December 31, 2018 , a 10% decrease or increase in our self-pay collection rate, or approximately
2% , which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to patient accounts receivable of approximately
$11 million . There are various factors that can impact collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and
the number of uninsured and underinsured patients, the volume of patients through our emergency departments, the increased burden of co-pays and deductibles to
be made by patients with insurance, and business practices related to collection efforts. These factors continuously change and can have an impact on collection
trends and our estimation process.
Payment pressure from managed care payers also affects the collectability of our accounts receivable. We typically experience ongoing managed care
payment delays and disputes; however, we continue to work with these payers to obtain adequate and timely reimbursement for our services. Our estimated
Hospital Operations and other segment collection rate from managed care payers was approximately 98.3% at December 31, 2018 .
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We manage our implicit price concessions using hospital-specific goals and benchmarks such as (1) total cash collections, (2) point-of-service cash
collections, (3) AR Days and (4) accounts receivable by aging category. The following tables present the approximate aging by payer of our net accounts
receivable from the continuing operations of our Hospital Operations and other segment of $2.384 billion and $2.438 billion at December 31, 2018 and 2017 ,
respectively, excluding cost report settlements receivable and valuation allowances of $18 million and $4 million , respectively, at December 31, 2018 and 2017 :
0-60 days (1)
61-120 days
121-180 days
Over 180 days
Total
Medicare
Medicaid
89%
6%
2%
3%
100%
51%
24%
10%
15%
100%
December 31, 2018
Managed
Care
Indemnity,
Self-Pay
and Other
Total
60%
14%
8%
18%
100%
29%
18%
11%
42%
100%
56%
15%
8%
21%
100%
(1) The 0-60 days aging category has been impacted by the reclassification of certain unbilled accounts to contract assets due to the adoption of ASU 2014-09 effective January 1, 2018. See
Notes 1 and 4 to our accompanying Consolidated Financial Statements for additional information.
0-60 days
61-120 days
121-180 days
Over 180 days
Total
Medicare
Medicaid
December 31, 2017
Managed
Care
Indemnity,
Self-Pay
and Other
Total
89%
6%
2%
3%
100%
66%
16%
10%
8%
100%
65%
14%
7%
14%
100%
28%
17%
9%
46%
100%
60%
13%
7%
20%
100%
Conifer continues to implement revenue cycle initiatives to improve our cash flow. These initiatives are focused on standardizing and improving patient
access processes, including pre-registration, registration, verification of eligibility and benefits, liability identification and collections at point-of-service, and
financial counseling. These initiatives are intended to reduce denials, improve service levels to patients and increase the quality of accounts that end up in accounts
receivable. Although we continue to focus on improving our methodology for evaluating the collectability of our accounts receivable, we may incur future charges
if there are unfavorable changes in the trends affecting the net realizable value of our accounts receivable.
At December 31, 2018 , we had a cumulative total of patient account assignments to Conifer of $2.546 billion related to our continuing operations. These
accounts have already been written off and are not included in our receivables or in the allowance for doubtful accounts; however, an estimate of future recoveries
from all the accounts assigned to Conifer is determined based on our historical experience and recorded in accounts receivable.
Patient advocates from Conifer’s Medicaid Eligibility Program (“MEP”) screen patients in the hospital to determine whether those patients meet
eligibility requirements for financial assistance programs. They also expedite the process of applying for these government programs. Receivables from patients
who are potentially eligible for Medicaid are classified as Medicaid pending, under the MEP, with appropriate contractual allowances recorded. Based on recent
trends, approximately 97% of all accounts in the MEP are ultimately approved for benefits under a government program, such as Medicaid. The following table
shows the approximate amount of accounts receivable in the MEP still awaiting determination of eligibility under a government program at December 31, 2018 and
2017 by aging category for the hospitals currently in the program:
0-60 days
61-120 days
121-180 days
Over 180 days
Total
December 31,
2018
2017
72 $
16
3
5
96 $
81
12
3
4
100
$
$
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Salaries, Wages and Benefits
Same-hospital salaries, wages and benefits as a percentage of net operating revenues decreased by 90 basis points to 48.7% in the year ended
December 31, 2018 compared to the prior-year period. Same-hospital net operating revenues increased 3.6% in the year ended December 31, 2018 compared to the
year ended December 31, 2017 , and same-hospital salaries, wages and benefits increased by 1.8% in the 2018 period compared to the 2017 period. The change in
same-hospital salaries, wages and benefits as a percentage of net operating revenues was primarily due to an increase in same-hospital net operating revenues and
the impact of previously announced workforce reductions as part of our enterprise-wide cost reduction initiatives, partially offset by increased health benefits costs
and annual merit increases for certain of our employees. Salaries, wages and benefits expense for the years ended December 31, 2018 and 2017 included stock-
based compensation expense of $25 million and $46 million , respectively.
Supplies
Same-hospital supplies expense as a percentage of net operating revenues increased by 10 basis points to 17.5% in the year ended December 31, 2018
compared to the 2017 period. Supplies expense was impacted by increased costs from certain higher acuity supply-intensive surgical services, partially offset by
the benefits of the group-purchasing strategies and supplies-management services we utilize to reduce costs.
We strive to control supplies expense through product standardization, consistent contract terms and end-to-end contract management, improved
utilization, bulk purchases, focused spending with a smaller number of vendors and operational improvements. The items of current cost reduction focus continue
to be cardiac stents and pacemakers, orthopedics, implants, and high-cost pharmaceuticals.
Other Operating Expenses, Net
Same-hospital other operating expenses as a percentage of net operating revenues increased by 80 basis points to 24.0% in the year ended
December 31, 2018 compared to 23.2% in the 2017 period. Same-hospital other operating expenses increased by $231 million , or 7.1% , for the year ended
December 31, 2018 compared to the year ended December 31, 2017 . The changes in other operating expenses included:
•
•
•
increased malpractice expense of $115 million to settle various claims; and
increased medical fees of $89 million , due in part to unfavorable claims experience on risk-based capitated contracts in California, partially offset by
decreased expenses associated with our health plan businesses of $95 million due to the sale and wind-down of those businesses in 2017, which
decreases were offset by decreased health plan revenues.
Same-hospital malpractice expense in the 2018 period included a favorable adjustment of approximately $10 million from a 26 basis point increase in the interest
rate used to estimate the discounted present value of projected future malpractice liabilities compared to approximately $3 million from an eight basis point
increase in the interest rate in the 2017 period.
Ambulatory Care Segment
Our Ambulatory Care segment is comprised of USPI’s ambulatory surgery centers, urgent care centers, imaging centers and surgical hospitals. Our
Ambulatory Care segment also included nine facilities in the United Kingdom until we divested Aspen effective August 17, 2018. USPI operates its surgical
facilities in partnership with local physicians and, in many of these facilities, a healthcare system partner. We hold an ownership interest in each facility, with each
being operated through a separate legal entity in most cases. USPI operates facilities on a day-to-day basis through management services contracts. Our sources of
earnings from each facility consist of:
• management services revenues, computed as a percentage of each facility’s net revenues (often net of implicit price concessions); and
•
our share of each facility’s net income (loss), which is computed by multiplying the facility’s net income (loss) times the percentage of each facility’s
equity interests owned by USPI.
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Our role as an owner and day-to-day manager provides us with significant influence over the operations of each facility. For many of the facilities our
Ambulatory Care segment operates ( 110 of 337 facilities at December 31, 2018 ), this influence does not represent control of the facility, so we account for our
investment in the facility under the equity method for an unconsolidated affiliate. USPI controls 227 of the facilities our Ambulatory Care segment operates, and
we account for these investments as consolidated subsidiaries. Our net earnings from a facility are the same under either method, but the classification of those
earnings differs. For consolidated subsidiaries, our financial statements reflect 100% of the revenues and expenses of the subsidiaries, after the elimination of
intercompany amounts. The net profit attributable to owners other than USPI is classified within “net income available to noncontrolling interests.”
For unconsolidated affiliates, our consolidated statements of operations reflect our earnings in two line items:
•
•
equity in earnings of unconsolidated affiliates —our share of the net income (loss) of each facility, which is based on the facility’s net income (loss)
and the percentage of the facility’s outstanding equity interests owned by USPI; and
management and administrative services revenues, which is included in our net operating revenues —income we earn in exchange for managing the
day-to-day operations of each facility, usually quantified as a percentage of each facility’s net revenues less implicit price concessions.
Our Ambulatory Care segment operating income is driven by the performance of all facilities USPI operates and by USPI’s ownership interests in those
facilities, but our individual revenue and expense line items contain only consolidated businesses, which represent 67% of those facilities. This translates to trends
in consolidated operating income that often do not correspond with changes in consolidated revenues and expenses, which is why we disclose certain statistical and
financial data on a pro forma systemwide basis that includes both consolidated and unconsolidated (equity method) facilities.
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
The following table summarizes certain consolidated statements of operations items for the periods indicated:
Ambulatory Care Results of Operations
Net operating revenues
Equity in earnings of unconsolidated affiliates
Salaries, wages and benefits
Supplies
Other operating expenses, net
Years Ended December 31,
2018
2017
Increase (Decrease)
$
$
$
$
$
2,085 $
1,940
140 $
644 $
430 $
359 $
140
623
398
360
7.5 %
— %
3.4 %
8.0 %
(0.3)%
Our Ambulatory Care net operating revenues increased by $145 million , or 7.5% , for the year ended December 31, 2018 compared to the year ended
December 31, 2017 . This growth was driven by an increase in same-facility net operating revenues of $89 million and an increase from acquisitions of $113
million, partially offset by a decrease of $57 million due to the sale of Aspen.
Salaries, wages and benefits expense increased by $21 million , or 3.4% , for the year ended December 31, 2018 compared to the year ended
December 31, 2017 . The change was driven by an increase in same-facility salaries, wages and benefits expense of $20 million and an increase from acquisitions
of $22 million, partially offset by a decrease of $21 million due to the sale of Aspen.
Supplies expense increased by $32 million , or 8.0% , for the year ended December 31, 2018 compared to the year ended December 31, 2017 . The change
was driven by an increase in same-facility supplies expense of $26 million and an increase from acquisitions of $18 million, partially offset by a decrease of $12
million due to the sale of Aspen.
Other operating expenses decreased by $1 million , or 0.3% , for the year ended December 31, 2018 compared to the year ended December 31, 2017 .
Other operating expenses in 2018 were impacted by an increase in same-facility other operating expenses of $1 million, an increase from acquisitions of
$14 million and a decrease of $16 million due to the sale of Aspen.
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Facility Growth
The following table summarizes the changes in our same-facility revenue year-over-year on a pro forma systemwide basis, which includes both
consolidated and unconsolidated (equity method) facilities. While we do not record the revenues of unconsolidated facilities, we believe this information is
important in understanding the financial performance of our Ambulatory Care segment because these revenues are the basis for calculating our management
services revenues and, together with the expenses of our unconsolidated facilities, are the basis for our equity in earnings of unconsolidated affiliates.
Ambulatory Care Facility Growth
Net revenues
Cases
Net revenue per case
Joint Ventures with Healthcare System Partners
Year Ended December 31, 2018
5.1%
3.4%
1.6%
USPI’s business model is to jointly own its facilities with local physicians and, in many of these facilities, a not-for-profit healthcare system partner.
Accordingly, as of December 31, 2018 , the majority of facilities in our Ambulatory Care segment are operated in this model.
Ambulatory Care Facilities
Facilities:
With a healthcare system partner
Without a healthcare system partner
Total facilities operated
Change from December 31, 2017
Acquisitions
De novo
Dispositions/Mergers
Total increase in number of facilities operated
Year Ended December 31, 2018
208
129
337
10
8
(14)
4
During the year ended December 31, 2018 , we sold our nine Aspen facilities in the United Kingdom, and we acquired controlling interests in an
ophthalmology surgery center in Pennsylvania, a single-specialty spine surgery center in Georgia, two multi-specialty surgery centers in Florida and one in Texas,
and a single specialty gastroenterology center in Florida. We paid cash totaling $97 million for these acquisitions. We also acquired noncontrolling ownership
interests in a multi-specialty surgery center in California and two surgical hospitals in Oklahoma for $88 million . All nine facilities are jointly owned with local
physicians, and four of them have a healthcare system partner.
Also during the year ended December 31, 2018 , we acquired controlling interests in four facilities in which we already had an equity method investment.
These multi-specialty surgery centers are located in New Jersey and Georgia. We paid cash totaling $7 million for the additional ownership interests. All four
facilities are jointly owned with local physicians and a healthcare system partner. Furthermore, during the year ended December 31, 2018 , the Ambulatory Care
segment acquired the non-controlling interest in Baylor Scott & White Medical Center – Sunnyvale, a surgical hospital in Texas, previously held by the Hospital
Operations and other segment. The facility is jointly owned with local physicians and a healthcare system partner.
We also regularly engage in the purchase of equity interests with respect to our investments in unconsolidated affiliates and consolidated facilities that do
not result in a change of control. These transactions are primarily the acquisitions of equity interests in ambulatory care facilities and the investment of additional
cash in facilities that need capital for acquisitions, new construction or other business growth opportunities. During the year ended December 31, 2018, we invested
approximately $36 million in such transactions.
Conifer Segment
Our Conifer segment generated net operating revenues of $1.533 billion and $1.597 billion during the years ended December 31, 2018 and 2017 ,
respectively, a portion of which was eliminated in consolidation as described in Note 22 to the Consolidated Financial Statements. Conifer revenues from third-
party customers, which are not eliminated in consolidation, decreased $36 million , or 3.7% , for the year ended December 31, 2018 compared to the prior-year
period. Conifer revenues
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from third-party customers were negatively impacted by contract terminations related to the sales of customer hospitals, partially offset by the impact of the
divestiture of former Tenet facilities that have now become third-party customers.
Salaries, wages and benefits expense for Conifer decreased $99 million , or 10.3% , in the year ended December 31, 2018 compared to the year ended
December 31, 2017 primarily due to the impact of previously announced workforce reductions as part of our enterprise-wide cost reduction initiatives.
Other operating expenses for Conifer decreased $39 million , or 11.2% , in the year ended December 31, 2018 compared to the year ended
December 31, 2017 primarily due to the impact of our enterprise-wide cost reduction initiatives.
The agreements documenting the terms and conditions of various services Conifer provides to Tenet hospitals, as well as certain administrative services
our Hospital Operations and other segment provides to Conifer, were initially scheduled to expire in December 2018. As we continue to pursue strategic
alternatives for Conifer, these agreements were renewed for an additional year with substantially similar pricing terms; however, the pricing or other material terms
of such agreements may be modified if any such strategic alternative is consummated. Conifer’s contract with Tenet represented 38.5% of the net operating
revenues Conifer recognized in the year ended December 31, 2018 .
Consolidated
Impairment and Restructuring Charges, and Acquisition-Related Costs
During the year ended December 31, 2018 , we recorded impairment and restructuring charges and acquisition-related costs of $209 million , consisting of
$77 million of impairment charges , $115 million of restructuring charges and $17 million of acquisition-related costs. Impairment charges included $40 million for
the write-down of buildings and other long-lived assets to their estimated fair values at two hospitals. Material adverse trends in our most recent estimates of future
undiscounted cash flows of the hospitals indicated the carrying value of the hospitals’ long-lived assets was not recoverable from the estimated future cash flows.
We believe the most significant factors contributing to the adverse financial trends included reductions in volumes of insured patients, shifts in payer mix from
commercial to governmental payers combined with reductions in reimbursement rates from governmental payers, and high levels of uninsured patients. As a result,
we updated the estimate of the fair value of the hospitals’ long-lived assets and compared the fair value estimate to the carrying value of the hospitals’ long-lived
assets. Because the fair value estimates were lower than the carrying value of the long-lived assets, an impairment charge was recorded for the difference in the
amounts. The aggregate carrying value of assets held and used of the hospitals for which impairment charges were recorded was $130 million at
December 31, 2018 after recording the impairment charges. We also recorded $24 million of charges to write-down assets held for sale to their estimated fair value,
less estimated costs to sell, for certain of our Chicago-area facilities , $9 million of charges to write-down assets held for sale to their estimated fair value, less
estimated costs to sell, for Aspen and $4 million of other impairment charges. Restructuring charges consisted of $68 million of employee severance costs ,
$17 million of contract and lease termination fees , and $30 million of other restructuring costs . Acquisition-related costs consisted of $10 million of transaction
costs and $7 million of acquisition integration charges . Our impairment and restructuring charges and acquisition-related costs for the year ended
December 31, 2018 were comprised of $141 million from our Hospital Operations and other segment, $28 million from our Ambulatory Care segment and
$40 million from our Conifer segment.
During the year ended December 31, 2017 , we recorded impairment and restructuring charges and acquisition-related costs of $541 million , consisting of
$402 million of impairment charges, $117 million of restructuring charges and $22 million of acquisition-related costs. Impairment charges consisted of
$364 million of charges to write-down assets held for sale to their estimated fair value, less estimated costs to sell, for Aspen, our Philadelphia-area facilities and
certain of our Chicago-area facilities, $31 million for the impairment of two equity method investments and $7 million to write-down intangible assets.
Restructuring charges consisted of $82 million of employee severance costs, $15 million of contract and lease termination fees, and $20 million of other
restructuring costs. Acquisition-related costs consisted of $6 million of transaction costs and $16 million of acquisition integration charges. Our impairment and
restructuring charges and acquisition-related costs for the year ended December 31, 2017 were comprised of $446 million from our Hospital Operations and other
segment, $74 million from our Ambulatory Care segment and $21 million from our Conifer segment.
Our impairment tests presume stable, improving or, in some cases, declining operating results in our hospitals, which are based on programs and
initiatives being implemented that are designed to achieve the hospital’s most recent projections. If these projections are not met, or if in the future negative trends
occur that impact our future outlook, future impairments of long-lived assets and goodwill may occur, and we may incur additional restructuring charges, which
could be material.
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Litigation and Investigation Costs
Litigation and investigation costs for the years ended December 31, 2018 and 2017 were $38 million and $23 million , respectively. The increased costs in
the 2018 period relate primarily to attorneys’ fees associated with internal investigations performed pursuant to our Non-Prosecution Agreement (the “NPA”), as
well as attorneys’ fees associated with our indemnification obligations with respect to two former employees in connection with criminal charges for conduct
described in the NPA.
Net Gains on Sales, Consolidation and Deconsolidation of Facilities
During the year ended December 31, 2018 , we recorded net gains on sales, consolidation and deconsolidation of facilities of $127 million , primarily
comprised of gains of $36 million from the sale of our health plan in California, $90 million from the sale of MacNeal Hospital and other operations affiliated with
the hospital in the Chicago area, $11 million from the sales of our minority interests in four North Texas hospitals and $12 million from the sale of Des Peres
Hospital, physician practices and other hospital-affiliated operations in St. Louis, Missouri, as well as net gains on sales, consolidation and deconsolidation of $8
million from our Ambulatory Care segment, partially offset by losses of $21 million from the sale of our hospitals, physician practices and related assets in
Philadelphia, Pennsylvania and the surrounding area, and $10 million due to post-closing adjustments related to the sale of our hospitals, physician practices and
related assets in Houston, Texas and the surrounding area.
During the year ended December 31, 2017 , we recorded gains on sales, consolidation and deconsolidation of facilities of $144 million , primarily
comprised of an $111 million gain from the sale of our hospitals, physician practices and related assets in Houston, Texas and the surrounding area, $13 million
from the sale of the membership of one of our health plans in Arizona, $10 million from the sale of our health plan membership in Texas, $3 million from the sale
of our health plan in Michigan, and $9 million of gains related to the consolidation of certain USPI businesses due to ownership changes.
Interest Expense
Interest expense for the year ended December 31, 2018 was $1.004 billion compared to $1.028 billion for the year ended December 31, 2017 .
Income Tax Expense
During the year ended December 31, 2018 , we recorded income tax expense of $176 million in continuing operations on pre-tax income of $639 million
compared to income tax expense of $219 million in continuing operations on a pre-tax loss of $101 million during the year ended December 31, 2017 . The
reconciliation between the amount of recorded income tax expense (benefit) and the amount calculated at the statutory federal tax rate is shown in the following
table:
Tax expense (benefit) at statutory federal rate of 21% in 2018 (35% in 2017)
$
134 $
Years Ended December 31,
2018
2017
State income taxes, net of federal income tax benefit
Expired state net operating losses, net of federal income tax benefit
Tax attributable to noncontrolling interests
Nondeductible goodwill
Impact of decrease in federal tax rate on deferred taxes
Reversal of permanent reinvestment assumption and other adjustments
related to divestiture of foreign subsidiary
Stock-based compensation tax deficiencies
Changes in valuation allowance (including impact of decrease in federal tax rate)
Change in tax contingency reserves, including interest
Prior-year provision to return adjustments and other changes in deferred taxes
Other items
Income tax expense
23
9
(70)
8
(1)
(6)
5
76
(1)
(5)
4
$
176 $
(35)
4
28
(113)
109
246
(30)
15
—
(6)
4
(3)
219
In December 2017, the President signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act amended the Internal Revenue Code to reduce
tax rates and modify policies, credits and deductions for individuals and businesses. For businesses, the Tax Act made broad and complex changes to the U.S. tax
code, including but not limited to (1) reducing the corporate federal tax rate from a maximum of 35% to a flat 21% rate effective January 1, 2018, (2) repealing the
corporate
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alternative minimum tax (“AMT”) and changing how existing AMT credits may be realized, (3) creating a new limitation on the deductibility of interest expense,
(4) allowing full expensing of certain capital expenditures, and (5) denying deductions for performance-based compensation paid to certain key executives.
International provisions in the Tax Act have not had, and are not expected to have, a material impact on the Company’s taxes.
As a result of the reduction in the corporate income tax rate from 35% to 21% under the Tax Act, we revalued our net deferred tax assets at December 31,
2017, resulting in a reduction in the value of our net deferred tax assets by $251 million . For the year ended December 31, 2017, we recorded $252 million as a
provisional estimate of the impact of the Tax Act, including the decrease in the corporate income tax rate from 35% to 21%. Approximately $6 million of the total
$252 million increase in income tax expense is included in the net change in valuation allowance, with the remaining $246 million shown in the table above.
During the year ended December 31, 2018 , we recorded $1 million of tax benefit upon finalizing our accounting for income tax effects of the Tax Act based on
actual 2017 federal and state income tax filings.
Net Income Available to Noncontrolling Interests
Net income available to noncontrolling interests was $355 million for the year ended December 31, 2018 compared to $384 million for the year ended
December 31, 2017 . Net income available (loss attributable) to noncontrolling interests in the 2018 period was comprised of $(17) million related to our Hospital
Operations and other segment, $308 million related to our Ambulatory Care segment and $64 million related to our Conifer segment. Of the portion related to our
Ambulatory Care segment, $20 million was related to the minority interests in USPI.
ADDITIONAL
SUPPLEMENTAL
NON-GAAP
DISCLOSURES
The financial information provided throughout this report, including our Consolidated Financial Statements and the notes thereto, has been prepared in
conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, we use certain non-GAAP financial measures
defined below in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on
our financial statements, some of which are recurring or involve cash payments. We use this information in our analysis of the performance of our business,
excluding items we do not consider relevant to the performance of our continuing operations. In addition, we use these measures to define certain performance
targets under our compensation programs.
“Adjusted EBITDA” is a non-GAAP measure defined by the Company as net income available (loss attributable) to Tenet Healthcare Corporation
common shareholders before (1) the cumulative effect of changes in accounting principle, (2) net loss attributable (income available) to noncontrolling interests,
(3) income (loss) from discontinued operations, (4) income tax benefit (expense), (5) gain (loss) from early extinguishment of debt, (6) other non-operating
expense, net, (7) interest expense, (8) litigation and investigation (costs) benefit, net of insurance recoveries, (9) net gains (losses) on sales, consolidation and
deconsolidation of facilities, (10) impairment and restructuring charges and acquisition-related costs, (11) depreciation and amortization, and (12) income (loss)
from divested operations and closed businesses (i.e., our health plan businesses). Litigation and investigation costs do not include ordinary course of business
malpractice and other litigation and related expense.
The Company believes the foregoing non-GAAP measure is useful to investors and analysts because it presents additional information about the
Company’s financial performance. Investors, analysts, Company management and the Company’s board of directors utilize this non-GAAP measure, in addition to
GAAP measures, to track the Company’s financial and operating performance and compare the Company’s performance to peer companies, which utilize similar
non-GAAP measures in their presentations. The human resources committee of the Company’s board of directors also uses certain non-GAAP measures to
evaluate management’s performance for the purpose of determining incentive compensation. The Company believes that Adjusted EBITDA is a useful measure, in
part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to GAAP and other non-GAAP measures, as factors in
determining the estimated fair value of shares of the Company’s common stock. Company management also regularly reviews the Adjusted EBITDA performance
for each operating segment. The Company does not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance. The non-GAAP
Adjusted EBITDA measure the Company utilizes may not be comparable to similarly titled measures reported by other companies. Because this measure excludes
many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly, investors are
encouraged to use GAAP measures when evaluating the Company’s financial performance.
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The following table shows the reconciliation of Adjusted EBITDA to net income available (loss attributable) to Tenet Healthcare Corporation common
shareholders (the most comparable GAAP term) for the years ended December 31, 2018 and 2017 :
Net income available (loss attributable) to Tenet Healthcare Corporation
common shareholders
Less: Net income available to noncontrolling interests
Income (loss) from discontinued operations, net of tax
Income (loss) from continuing operations
Income tax expense
Gain (loss) from early extinguishment of debt
Other non-operating expense, net
Interest expense
Operating income
Litigation and investigation costs
Net gains on sales, consolidation and deconsolidation of facilities
Impairment and restructuring charges, and acquisition-related costs
Depreciation and amortization
Income (loss) from divested and closed businesses (i.e., the Company ’ s
health plan businesses)
Adjusted EBITDA
Net operating revenues
Less: Net operating revenues from health plans
Adjusted net operating revenues
Net income available (loss attributable) to Tenet Healthcare Corporation
common shareholders as a % of net operating revenues
Adjusted EBITDA as % of adjusted net operating revenues (Adjusted EBITDA margin)
69
Years Ended December 31,
2018
2017
$
111
$
(355)
3
463
(176)
1
(5)
(1,004)
1,647
(38)
127
(209)
(802)
9
2,560
$
18,313
$
14
18,299
$
0.6%
14.0%
$
$
$
(704)
(384)
—
(320)
(219)
(164)
(22)
(1,028)
1,113
(23)
144
(541)
(870)
(41)
2,444
19,179
110
19,069
(3.7)%
12.8 %
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RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2017 COMPARED TO THE YEAR ENDED DECEMBER 31, 2016
The following two tables summarize our consolidated net operating revenues, operating expenses and operating income from continuing operations, both
in dollar amounts and as percentages of net operating revenues, for the years ended December 31, 2017 and 2016 :
Net operating revenues:
General hospitals
Other operations
Net operating revenues before provision for doubtful accounts
Less provision for doubtful accounts
Net operating revenues
Equity in earnings of unconsolidated affiliates
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Electronic health record incentives
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Gains on sales, consolidation and deconsolidation of facilities
Operating income
Net operating revenues
Equity in earnings of unconsolidated affiliates
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Electronic health record incentives
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Gains on sales, consolidation and deconsolidation of facilities
Operating income
Years Ended December 31,
2017
2016
Increase
(Decrease)
$
16,242 $
16,488 $
4,371
20,613
1,434
19,179
144
9,274
3,085
4,570
(9)
870
541
23
(144)
4,582
21,070
1,449
19,621
131
9,328
3,124
4,891
(32)
850
202
293
(151)
$
1,113 $
1,247 $
Years Ended December 31,
2017
2016
100.0 %
0.8 %
100.0 %
0.7 %
48.4 %
16.1 %
23.8 %
— %
4.5 %
2.8 %
0.1 %
(0.7)%
5.8 %
47.5 %
15.9 %
25.0 %
(0.2)%
4.3 %
1.1 %
1.5 %
(0.8)%
6.4 %
(246)
(211)
(457)
(15)
(442)
13
(54)
(39)
(321)
23
20
339
(270)
7
(134)
Increase
(Decrease)
— %
0.1 %
0.9 %
0.2 %
(1.2)%
0.2 %
0.2 %
1.7 %
(1.4)%
0.1 %
(0.6)%
Net operating revenues of our general hospitals include inpatient and outpatient revenues for services provided by facilities in our Hospital Operations and
other segment, as well as nonpatient revenues (e.g., rental income, management fee revenue, and income from services such as cafeterias, gift shops and parking)
and other miscellaneous revenue. Net operating revenues of other operations for the periods presented primarily consist of revenues from (1) physician practices,
(2) our Ambulatory Care segment, (3) services provided by Conifer to third parties and (4) our health plans, most of which were sold in 2017. Revenues from our
general hospitals represented approximately 79% and 78% of our total net operating revenues before provision for doubtful accounts for the years ended December
31, 2017 and 2016 , respectively.
Net operating revenues from our other operations were $4.371 billion and $4.582 billion in the years ended December 31, 2017 and 2016 , respectively.
The decrease in net operating revenues from other operations during 2017 primarily related to the cessation of operations of our health plan businesses in 2017,
partially offset by increased revenues from the revenue cycle services provided by Conifer, as well as revenues from USPI. Equity in earnings of unconsolidated
affiliates were $144 million and $131 million for the years ended December 31, 2017 and 2016 , respectively. The increase in equity in earnings of unconsolidated
affiliates in the 2017 period compared to the 2016 period primarily related to USPI.
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Table of Contents
The following table shows selected operating expenses of our three reportable business segments. Information for our Hospital Operations and other
segment is presented on a same-hospital basis, which includes the results of our same 72 hospitals operated throughout the years ended December 31, 2017 and
2016 . Our same-hospital information excludes the results of five Georgia hospitals, which we divested effective April 1, 2016, our THOP Transmountain Campus
teaching hospital, which we opened in January 2017 in El Paso, and three Houston-area hospitals, which we divested effective August 1, 2017. In addition,
although we operated four North Texas hospitals throughout the years ended December 31, 2017 and 2016, we do not consolidate the results of operations of these
hospitals because we divested a controlling interest in them effective January 1, 2016.
Selected Operating Expenses
Hospital Operations and other — Same-Hospital
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Ambulatory Care
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Conifer
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Total
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Rent/lease expense (1)
Hospital Operations and other
Ambulatory Care
Conifer
Total
(1)
Included in other operating expenses.
Years Ended December 31,
2017
2016
Increase
(Decrease)
7,490 $
2,628
3,682
13,800 $
623 $
398
360
7,423
2,659
3,936
14,018
594
365
346
1,381 $
1,305
962 $
5
347
959
—
335
1,314 $
1,294
9,075 $
3,031
4,389
16,495 $
226 $
77
19
322 $
8,976
3,024
4,617
16,617
223
74
18
315
0.9 %
(1.2)%
(6.5)%
(1.6)%
4.9 %
9.0 %
4.0 %
5.8 %
0.3 %
100.0 %
3.6 %
1.5 %
1.1 %
0.2 %
(4.9)%
(0.7)%
1.3 %
4.1 %
5.6 %
2.2 %
$
$
$
$
$
$
$
$
$
$
RESULTS
OF
OPERATIONS
BY
SEGMENT
At December 31, 2017, our operations were reported in three segments:
•
•
•
Hospital Operations and other, which was comprised of our acute care hospitals, ancillary outpatient facilities, urgent care centers, microhospitals and
physician practices. As described in Note 5 to the accompanying Consolidated Financial Statements, certain of our facilities were classified as held
for sale at December 31, 2017 .
Ambulatory Care, which was comprised of USPI’s ambulatory surgery centers, urgent care centers, imaging centers and surgical hospitals, as well as
Aspen’s hospitals and clinics, which were classified as held for sale at December 31, 2017 as described in Note 5 to the accompanying Consolidated
Financial Statements.
Conifer, which provides healthcare business process services in the areas of hospital and physician revenue cycle management and value-based care
solutions to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities.
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Table of Contents
Hospital Operations and Other Segment
The following tables show operating statistics of our continuing operations hospitals and related outpatient facilities on a same-hospital basis, unless
otherwise indicated, which includes the results of our same 72 hospitals operated throughout the years ended December 31, 2017 and 2016. Our same-hospital
information excludes the results of five Georgia hospitals, which we divested effective April 1, 2016, our THOP Transmountain Campus teaching hospital, which
we opened in January 2017 in El Paso, and three Houston-area hospitals, which we divested effective August 1, 2017. In addition, although we operated four North
Texas hospitals throughout the years ended December 31, 2017 and 2016, we do not consolidate the results of operations of these hospitals because we divested a
controlling interest in them effective January 1, 2016.
Admissions, Patient Days and Surgeries
Number of hospitals (at end of period)
Total admissions
Adjusted patient admissions (2)
Paying admissions (excludes charity and uninsured)
Charity and uninsured admissions
Admissions through emergency department
Paying admissions as a percentage of total admissions
Charity and uninsured admissions as a percentage of total admissions
Emergency department admissions as a percentage of total admissions
Surgeries — inpatient
Surgeries — outpatient
Total surgeries
Patient days — total
Adjusted patient days (2)
Average length of stay (days)
Licensed beds (at end of period)
Average licensed beds
Utilization of licensed beds (3)
Same-Hospital
Continuing Operations
Years Ended December 31,
2017
72
738,528
1,294,913
699,613
38,915
480,180
2016
72
753,673
1,310,962
715,198
38,475
476,068
94.7%
5.3%
65.0%
94.9%
5.1%
63.2%
199,871
271,228
471,099
3,423,934
5,964,002
4.64
19,035
19,277
207,609
286,761
494,370
3,515,087
6,080,456
4.66
19,306
19,315
Increase
(Decrease)
—
(1)
(2.0)%
(1.2)%
(2.2)%
1.1 %
0.9 %
(0.2)% (1)
0.2 % (1)
1.8 % (1)
(3.7)%
(5.4)%
(4.7)%
(2.6)%
(1.9)%
(0.4)%
(1.4)%
(0.2)%
48.7%
49.9%
(1.2)% (1)
(1)
(2)
The change is the difference between 2017 and 2016 amounts shown.
Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations and other segment by
multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
(3)
Utilization of licensed beds represents patient days divided by number of days in the period divided by average licensed beds.
Outpatient Visits
Total visits
Paying visits (excludes charity and uninsured)
Charity and uninsured visits
Emergency department visits
Surgery visits
Paying visits as a percentage of total visits
Charity and uninsured visits as a percentage of total visits
(1)
The change is the difference between the 2017 and 2016 amounts shown.
72
Same-Hospital
Continuing Operations
Years Ended December 31,
2017
7,495,754
7,028,688
467,066
2,664,448
271,228
2016
7,697,302
7,200,453
496,849
2,689,519
286,761
93.8%
6.2%
93.5%
6.5%
Increase
(Decrease)
(2.6)%
(2.4)%
(6.0)%
(0.9)%
(5.4)%
0.3 %
(0.3)%
(1)
(1)
Table of Contents
Revenues
Total segment net operating revenues
Selected acute care hospitals and related outpatient facilities revenue data
Net inpatient revenues
Net outpatient revenues
Net patient revenues
Self-pay net inpatient revenues
Self-pay net outpatient revenues
Total self-pay revenues
Revenues on a Per Admission, Per Patient Day and Per Visit Basis
Net inpatient revenue per admission
Net inpatient revenue per patient day
Net outpatient revenue per visit
Net patient revenue per adjusted patient admission (1)
Net patient revenue per adjusted patient day (1)
Same-Hospital
Continuing Operations
Years Ended December 31,
2017
2016
Increase
(Decrease)
15,191 $
15,472
(1.8)%
10,037 $
5,626
15,663 $
395 $
564
959 $
10,089
5,452
15,541
370
511
881
(0.5)%
3.2 %
0.8 %
6.8 %
10.4 %
8.9 %
Same-Hospital
Continuing Operations
Years Ended December 31,
2017
2016
Increase
(Decrease)
13,591 $
2,931 $
751 $
12,096 $
2,626 $
13,386
2,870
708
11,855
2,556
1.5%
2.1%
6.1%
2.0%
2.7%
$
$
$
$
$
$
$
$
$
$
(1)
Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations and other segment by
multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
Total Segment Provision for Doubtful Accounts
Provision for doubtful accounts
Same-Hospital
Continuing Operations
Years Ended December 31,
2017
2016
Increase
(Decrease)
$
1,300
$
1,220
6.6%
Provision for doubtful accounts as a percentage of net operating revenues before provision
for doubtful accounts
7.9%
7.3%
0.6%
(1)
(1)
The change is the difference between the 2017 and 2016 amounts shown.
Total Segment Selected Operating Expenses
Salaries, wages and benefits as a percentage of net operating revenues
Supplies as a percentage of net operating revenues
Other operating expenses as a percentage of net operating revenues
(1)
The change is the difference between the 2017 and 2016 amounts shown.
Revenues
Same-Hospital
Continuing Operations
Years Ended December 31,
2017
2016
Increase
(Decrease)
49.3%
17.3%
24.2%
48.0%
17.2%
25.4%
1.3 %
0.1 %
(1.2)%
(1)
(1)
(1)
Same-hospital net operating revenues decreased $281 million , or 1.8% , during the year ended December 31, 2017 compared to the year ended
December 31, 2016 . The decrease in same-hospital net operating revenues in the 2017 period is primarily due to lower inpatient and outpatient volumes, as well as
a decrease in our other operations revenues, partially offset by improved terms of our managed care contracts and incremental net revenues from the California
provider fee program of $35 million . Same-hospital net inpatient revenues decreased $52 million , or 0.5% , while same-hospital admissions decreased 2.0% in the
2017 period compared to the 2016 period. Same-hospital net inpatient revenue per admission increased 1.5% , primarily due to the improved terms of our managed
care contracts and volume growth in higher acuity service lines in the year ended December 31, 2017 compared to the prior year. Same-hospital net outpatient
revenues increased $174 million , or 3.2% , and same-hospital outpatient visits decreased 2.6% in the year ended December 31, 2017 compared to the year ended
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Table of Contents
December 31, 2016 . Growth in outpatient revenues was primarily driven by improved terms of our managed care contracts, partially offset by decreased outpatient
volume levels. Same-hospital net outpatient revenue per visit increased 6.1% primarily due to the improved terms of our managed care contracts.
Provision for Doubtful Accounts
Same-hospital provision for doubtful accounts as a percentage of net operating revenues before provision for doubtful accounts was 7.9% and 7.3% for
the years ended December 31, 2017 and 2016, respectively. The increase in the 2017 period compared to the 2016 period was driven by increases in uninsured
revenues and volumes, as well as higher patient co-pays and deductibles. The following table shows the net accounts receivable and allowance for doubtful
accounts by payer at December 31, 2017 and 2016:
December 31, 2017
December 31, 2016
Medicare
Medicaid
Net cost report settlements receivable (payable) and
valuation allowances
Managed care
Self-pay uninsured
Self-pay balance after insurance
Estimated future recoveries
Other payers
Total Hospital Operations and other
Ambulatory Care
Total discontinued operations
Accounts
Receivable Before
Allowance
for Doubtful
Accounts
$
257 $
95
4
1,709
407
240
132
453
3,297
215
2
Allowance
for Doubtful
Accounts
Net
Accounts
Receivable Before
Allowance
for Doubtful
Accounts
Allowance
for Doubtful
Accounts
Net
— $
—
257 $
95
294 $
125
— $
—
—
204
351
149
—
151
855
43
—
4
1,505
56
91
132
302
2,442
172
2
(14)
1,911
479
226
141
537
3,699
227
2
—
190
412
147
—
239
988
43
—
294
125
(14)
1,721
67
79
141
298
2,711
184
2
2,897
$
3,514 $
898 $
2,616 $
3,928 $
1,031 $
A significant portion of our provision for doubtful accounts related to self-pay patients, as well as co-pays and deductibles owed to us by patients with
insurance. Collection of accounts receivable has been a key area of focus, particularly over the past several years. At December 31, 2017 , our Hospital Operations
and other segment collection rate on self-pay accounts was approximately 24.7% . This self-pay collection rate includes payments made by patients, including co-
pays and deductibles paid by patients with insurance. Based on our accounts receivable from self-pay patients and co-pays and deductibles owed to us by patients
with insurance at December 31, 2017 , a 10% decrease or increase in our self-pay collection rate, or approximately 3%, which we believe could be a reasonably
likely change, would result in an unfavorable or favorable adjustment to provision for doubtful accounts of approximately $9 million . Our estimated Hospital
Operations and other segment collection rate from managed care payers was approximately 97.4% at December 31, 2017 .
The following tables present the approximate aging by payer of our net accounts receivable from the continuing operations of our Hospital Operations and
other segment of $2.438 billion and $2.725 billion at December 31, 2017 and 2016 , respectively, excluding cost report settlements receivable (payable) and
valuation allowances of $4 million and $(14) million at December 31, 2017 and 2016 , respectively:
0-60 days
61-120 days
121-180 days
Over 180 days
Total
December 31, 2017
Managed
Care
Indemnity,
Self-Pay
and Other
Total
65%
14%
7%
14%
100%
28%
17%
9%
46%
100%
60%
13%
7%
20%
100%
Medicare
Medicaid
89%
6%
2%
3%
100%
74
66%
16%
10%
8%
100%
Table of Contents
0-60 days
61-120 days
121-180 days
Over 180 days
Total
Medicare
Medicaid
92%
5%
2%
1%
100%
75%
15%
4%
6%
100%
December 31, 2016
Managed
Care
Indemnity,
Self-Pay
and Other
Total
61%
15%
8%
16%
100%
24%
14%
10%
52%
100%
60%
13%
6%
21%
100%
At December 31, 2017 , we had a cumulative total of patient account assignments to Conifer of approximately $2.279 billion related to our continuing
operations. These accounts have already been written off and are not included in our receivables or in the allowance for doubtful accounts; however, an estimate of
future recoveries from all the accounts assigned to Conifer is determined based on our historical experience and recorded in accounts receivable.
The following table shows the approximate amount of accounts receivable in the MEP still awaiting determination of eligibility under a government
program at December 31, 2017 and 2016 by aging category for the hospitals currently in the program:
0-60 days
61-120 days
121-180 days
Over 180 days
Total
Salaries, Wages and Benefits
2017
2016
81 $
12
3
4
100 $
84
13
4
4
105
$
$
Same-hospital salaries, wages and benefits as a percentage of net operating revenues increased by 130 basis points to 49.3% in the year ended December
31, 2017 compared to the same period in 2016 . While same-hospital net operating revenues decreased 1.8% in the year ended December 31, 2017 compared to the
year ended December 31, 2016 , same-hospital salaries, wages and benefits increased by 0.9% in the 2017 period compared to the 2016 period. The increase in
same-hospital salaries, wages and benefits as a percentage of net operating revenues was primarily due to annual merit increases for certain of our employees,
increased employee health benefits costs and the effect of lower volumes on operating leverage due to certain fixed staffing costs. Salaries, wages and benefits
expense for the years ended December 31, 2017 and 2016 included stock-based compensation expense of $46 million and $58 million , respectively.
Supplies
Same-hospital supplies expense as a percentage of net operating revenues increased by 10 basis points to 17.3% in the year ended December 31, 2017
compared to the same period in 2016 . Supplies expense was impacted by growth in our higher acuity supply-intensive surgical services, partially offset by the
benefits of the group-purchasing strategies and supplies-management services we utilize to reduce costs.
Other Operating Expenses, Net
Same-hospital other operating expenses as a percentage of net operating revenues decreased by 120 basis points to 24.2% in the year ended December
31, 2017 compared to 25.4% in the same period in 2016 . Same-hospital other operating expenses decreased by $254 million , or 6.5% , and net operating revenues
decreased by $281 million , or 1.8% , for the year ended December 31, 2017 compared to the year ended December 31, 2016. The changes in other operating
expenses included:
•
•
•
decreased expenses associated with our health plan businesses of $362 million due to the sale and wind-down of those businesses in 2017, which
decreases were offset by decreased health plan revenues; and
increased gains on sales of fixed assets of $24 million primarily due to the sale of our home health and hospice assets, partially offset by
increased costs associated with funding indigent care services by hospitals we operated throughout both periods of $12 million , which costs were
substantially offset by additional net patient revenues;
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•
•
increased medical fees of $54 million ; and
increased malpractice expense of $28 million .
Same-hospital malpractice expense in the 2017 period included a favorable adjustment of approximately $3 million from the eight basis point increase in the
interest rate used to estimate the discounted present value of projected future malpractice liabilities compared to a favorable adjustment of approximately $4
million from the 16 basis point increase in the interest rate in the 2016 period.
Ambulatory Care Segment
Our Ambulatory Care segment is comprised of USPI’s ambulatory surgery centers, urgent care centers, imaging centers and surgical hospitals, as well as
Aspen’s hospitals and clinics.
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
The following table summarizes certain consolidated statements of operations items for the periods indicated:
Ambulatory Care Results of Operations
Net operating revenues
Equity in earnings of unconsolidated affiliates
Salaries, wages and benefits
Supplies
Other operating expenses, net
Years Ended December 31,
2017
2016
1,940 $
1,797
140 $
623 $
398 $
360 $
122
594
365
346
$
$
$
$
$
Our Ambulatory Care net operating revenues increased by $143 million , or 8.0% , for the year ended December 31, 2017 compared to the year ended
December 31, 2016 . The growth in 2017 revenues was primarily driven by increases from acquisitions of $110 million .
Salaries, wages and benefits expense increased by $29 million , or 4.9% , for the year ended December 31, 2017 compared to the year ended
December 31, 2016 . The 2017 increase was primarily driven by salaries, wages and benefits expense from acquisitions of $26 million .
Supplies expense increased by $33 million , or 9.0% , for the year ended December 31, 2017 compared to the year ended December 31, 2016 . The 2017
increase was primarily due to supplies expense from acquisitions of $27 million .
Other operating expenses increased by $14 million , or 4.0% , for the year ended December 31, 2017 compared to the year ended December 31, 2016 .
The 2017 increase in other operating expenses was driven by other operating expenses from acquisitions of $18 million , partially offset by decreases in same-
facility other operating expenses of $4 million .
Facility Growth
The following table summarizes the changes in our same-facility revenue year-over-year on a pro forma systemwide basis, which includes both
consolidated and unconsolidated (equity method) facilities. While we do not record the revenues of unconsolidated facilities, we believe this information is
important in understanding the financial performance of our Ambulatory Care segment because these revenues are the basis for calculating our management
services revenues and, together with the expenses of our unconsolidated facilities, are the basis for our equity in earnings of unconsolidated affiliates.
Ambulatory Care Facility Growth
Net revenues
Cases
Net revenue per case
Joint Ventures with Healthcare System Partners
Year Ended December 31, 2017
4.6%
0.6%
3.9%
USPI’s business model is to jointly own its facilities with local physicians and not-for-profit healthcare systems. Accordingly, as of December 31, 2017 ,
the majority of facilities in our Ambulatory Care segment are operated in this model.
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Table of Contents
Ambulatory Care Facilities
Facilities:
With a healthcare system partner
Without a healthcare system partner
Total facilities operated
Change from December 31, 2016
Acquisitions
De novo
Dispositions/Mergers
Total increase in number of facilities operated
Year Ended December 31, 2017
193
140
333
9
3
(2)
10
During the year ended December 31, 2017 , we acquired controlling interests in a single-specialty gastroenterology surgery center in each of Texas and
Arizona, a single-specialty ophthalmology surgery center in each of Florida and Kansas, a single-specialty orthopedics surgery center in Colorado, a multi-
specialty surgery center in California and an imaging center in California. We paid cash totaling approximately $36 million for these acquisitions. All seven
facilities are jointly owned with local physicians, and a healthcare system partner has an ownership interest in each of the Arizona, Colorado and Florida surgery
centers. During the year ended December 31, 2017 , we acquired non-controlling interests in a surgical hospital in Texas and a multi-specialty surgery center in
California. We paid cash totaling approximately $49 million for these ownership interests. Both facilities are jointly owned with local physicians and a healthcare
system partner.
Conifer Segment
Conifer generated net operating revenues of approximately $1.597 billion and $1.571 billion during the years ended December 31, 2017 and 2016 ,
respectively, a portion of which was eliminated in consolidation as described in Note 22 to the Consolidated Financial Statements. The increase in revenues from
third parties of $59 million , or 6.4% , for the year ended December 31, 2017 , which are not eliminated in consolidation, is primarily due to new clients. Conifer’s
contract with Tenet represented approximately 39% of the net operating revenues Conifer recognized in the year ended December 31, 2017 .
Salaries, wages and benefits expense for Conifer increased $3 million , or 0.3% , in the year ended December 31, 2017 compared to the year ended
December 31, 2016 due to an increase in staffing as a result of the growth in Conifer’s business primarily attributable to new clients.
Other operating expenses for Conifer increased $12 million , or 3.6% , in the year ended December 31, 2017 compared to the year ended December 31,
2016 due to the growth in Conifer’s business primarily attributable to new clients.
Consolidated
Impairment and Restructuring Charges, and Acquisition-Related Costs
During the year ended December 31, 2017 , we recorded impairment and restructuring charges and acquisition-related costs of $541 million , consisting of
$402 million of impairment charges, $117 million of restructuring charges and $22 million of acquisition-related costs. Impairment charges consisted of $364
million of charges to write-down assets held for sale to their estimated fair value, less estimated costs to sell, for our Aspen, Philadelphia-area and certain of our
Chicago-area facilities, $31 million for the impairment of two equity method investments and $7 million to write-down intangible assets. Of the total impairment
charges recognized for the year ended December 31, 2017 , $337 million related to our Hospital Operations and other segment, $63 million related to our
Ambulatory Care segment, and $2 million related to our Conifer segment. Restructuring charges consisted of $82 million of employee severance costs, $15 million
of contract and lease termination fees, and $20 million of other restructuring costs. Acquisition-related costs consisted of $6 million of transaction costs and
$16 million of acquisition integration charges.
During the year ended December 31, 2016 , we recorded impairment and restructuring charges and acquisition-related costs of $202 million . This amount
included impairment charges of approximately $54 million for the write-down of buildings, equipment and other long-lived assets, primarily capitalized software
costs classified as other intangible assets, to their estimated fair values at four hospitals. Material adverse trends in our estimates of future undiscounted cash flows
of the hospitals at that time indicated the carrying value of the hospitals’ long-lived assets was not recoverable from the estimated future cash flows. We believe the
most significant factors contributing to the adverse financial trends included reductions in volumes of insured patients, shifts in payer mix from commercial to
governmental payers combined with reductions in reimbursement rates from governmental payers, and high levels of uninsured patients. As a result, we updated
the estimate of
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the fair value of the hospitals’ long-lived assets and compared the fair value estimate to the carrying value of the hospitals’ long-lived assets. Because the fair value
estimates were lower than the carrying value of the long-lived assets, an impairment charge was recorded for the difference in the amounts. The aggregate carrying
value of assets held and used of the hospitals for which impairment charges were recorded was $163 million at December 31, 2016 after recording the impairment
charges. We also recorded $19 million of impairment charges related to investments and $14 million related to other intangible assets, primarily contract-related
intangibles and capitalized software costs not associated with the hospitals described above. Of the total impairment charges recognized for the year ended
December 31, 2016 , $76 million related to our Hospital Operations and other segment, $8 million related to our Ambulatory Care segment, and $3 million related
to our Conifer segment. We also recorded $35 million of employee severance costs, $14 million of restructuring costs, $14 million of contract and lease
termination fees, and $52 million in acquisition-related costs, which include $20 million of transaction costs and $32 million of acquisition integration costs.
Litigation and Investigation Costs
Litigation and investigation costs for the years ended December 31, 2017 and 2016 were $23 million and $293 million , respectively. For the year ended
December 31, 2016 , $278 million was attributable to accruals for the previously disclosed civil qui tam litigation and parallel criminal investigation of the
Company and certain of its subsidiaries.
Gains on Sales, Consolidation and Deconsolidation of Facilities
During the year ended December 31, 2017 , we recorded gains on sales, consolidation and deconsolidation of facilities of approximately $144 million ,
primarily comprised of an $111 million gain from the sale of our hospitals, physician practices and related assets in Houston, Texas and the surrounding area, $13
million from the sale of the membership of one of our health plans in Arizona, $10 million from the sale of our health plan membership in Texas, $3 million from
the sale of our health plan in Michigan, and $9 million of gains related to the consolidation of certain businesses of USPI due to ownership changes.
During the year ended December 31, 2016 , we recorded gains on sales, consolidation and deconsolidation of facilities of approximately $151 million ,
primarily comprised of a $113 million gain from the sale of our Atlanta-area facilities and $33 million of gains related to the consolidation of certain businesses of
USPI due to ownership changes.
Interest Expense
Interest expense for the year ended December 31, 2017 was $1.028 billion compared to $979 million for the year ended December 31, 2016 . These
increases are attributable to additional senior notes issued in 2017, partially offset by the impact of the redemption of other senior notes since the 2016 period.
Income Tax Expense
During the year ended December 31, 2017 , we recorded income tax expense of $219 million in continuing operations on a pre-tax loss of $101 million ,
compared to income tax expense of $67 million on pre-tax income of $248 million during the year ended December 31, 2016 . The following table shows the
reconciliation between the amount of recorded income tax expense (benefit) and the amount calculated at the statutory federal tax rate.
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Tax expense (benefit) at statutory federal rate of 35%
State income taxes, net of federal income tax benefit
Expired state net operating losses, net of federal income tax benefit
Tax attributable to noncontrolling interests
Nondeductible goodwill
Nontaxable gains
Nondeductible litigation costs
Nondeductible acquisition costs
Nondeductible health insurance provider fee
Impact of decrease in federal tax rate on deferred taxes
Reversal of permanent reinvestment assumption for foreign subsidiary
Stock based compensation tax deficiencies
Changes in valuation allowance (including impact of decrease in federal tax rate)
Change in tax contingency reserves, including interest
Prior-year provision to return adjustments and other changes in deferred taxes
Other items
Years Ended December 31,
2017
2016
$
(35) $
4
28
(113)
109
—
—
1
—
246
(30)
15
—
(6)
4
(4)
$
219 $
87
16
35
(106)
29
(11)
37
1
2
—
—
—
(25)
(9)
12
(1)
67
As a result of the reduction in the corporate income tax rate from 35% to 21% under the Tax Act, we revalued our net deferred tax assets at December
31, 2017 , resulting in a reduction in the value of our net deferred tax assets of approximately $252 million . The reduction was recorded as additional income tax
expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 2017 . In the table above, approximately $6 million of the
total $252 million increase in income tax expense is included in the net change in valuation allowance. Our revaluation of our deferred tax asset was subject to
further revision based on our actual 2017 federal and state income tax filings.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $384 million for the year ended December 31, 2017 compared to $368 million for the year ended
December 31, 2016 . Net income attributable to noncontrolling interests in the 2017 period was comprised of $29 million related to our Hospital Operations and
other segment, $304 million related to our Ambulatory Care segment and $51 million related to our Conifer segment. Of the portion related to our Ambulatory
Care segment, $60 million was related to the minority interests in USPI, including $22 million related to the reduction of USPI’s deferred tax liabilities as a result
of the reduction in the corporate income tax rate from 35% to 21%.
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LIQUIDITY AND CAPITAL RESOURCES
CASH
REQUIREMENTS
Our obligations to make future cash payments under contracts, such as debt and lease agreements, and under contingent commitments, such as standby
letters of credit and minimum revenue guarantees, are summarized in the table below, all as of December 31, 2018 :
Long-term debt (1)
Capital lease obligations (1)
Long-term non-cancelable operating leases
Standby letters of credit
Guarantees (2)
Asset retirement obligations
Academic affiliation agreements (3)
Tax liabilities
Defined benefit plan obligations
Information technology contract services
Purchase orders
Total ( 4)
Years Ended December 31,
Total
2019
2020
2021
2022
2023
Later Years
(In Millions)
$
18,227 $
1,362 $
3,455 $
2,620 $
4,021 $
2,171 $
4,598
559
932
95
232
173
97
18
606
894
300
192
171
95
143
—
48
—
55
235
300
106
151
—
36
—
29
—
23
239
—
64
133
—
6
—
20
—
23
244
—
44
113
—
6
—
—
—
23
140
—
27
92
—
6
—
—
—
23
36
—
126
272
—
35
173
—
18
459
—
—
$
22,133 $
2,601 $
4,039 $
3,110 $
4,347 $
2,355 $
5,681
(1)
(2)
(3)
(4)
Includes interest through maturity date/lease termination. Our 5.500% senior unsecured notes due 2019, which are included as 2019 obligations in this table, are not included in current
portion of long-term debt in our Consolidated Balance Sheet at December 31, 2018 because of our intent and ability to refinance them on a long-term basis. See Note 24 to our
Consolidated Financial Statements for additional information.
Includes minimum revenue guarantees, primarily related to physicians under relocation agreements and physician groups that provide services at our hospitals, and operating lease
guarantees.
These agreements contain various rights and termination provisions.
Professional liability and workers’ compensation reserves, and our obligations under the Baylor Put/Call Agreement, as defined and described in Note 17 to our Consolidated Financial
Statements, have been excluded from the table. At December 31, 2018 , the current and long-term professional and general liability reserves included in our Consolidated Balance Sheet
were $216 million and $666 million , respectively, and the current and long-term workers’ compensation reserves included in our Consolidated Balance Sheet were $42 million and
$145 million , respectively. Redeemable noncontrolling interests in USPI that are subject to the Baylor Put/Call Agreement totaled $186 million at December 31, 2018 .
Standby letters of credit are required principally by our insurers and various states to collateralize our workers’ compensation programs pursuant to
statutory requirements and as security to collateralize the deductible and self-insured retentions under certain of our professional and general liability insurance
programs. The amount of collateral required is primarily dependent upon the level of claims activity and our creditworthiness. The insurers require the collateral in
case we are unable to meet our obligations to claimants within the deductible or self-insured retention layers.
We consummated the following transactions affecting our long-term commitments in the year ended December 31, 2018 :
•
•
•
•
In December 2018 and November 2018, we purchased $22 million and $10 million , respectively, of aggregate principal amount of our 5.500% senior
unsecured notes due 2019 for $22 million and $10 million , respectively.
In August 2018, we purchased $38 million aggregate principal amount of our 6.875% senior unsecured notes due 2031 for $36 million , including
$1 million in accrued and unpaid interest through the dates of purchase.
In May 2018, we purchased $30 million aggregate principal amount of our 6.875% senior unsecured notes due 2031 for $28 million . In connection
with the purchase, we recorded a loss from early extinguishment of debt of $1 million in the three months ended June 30, 2018, primarily related to
the write-off of associated unamortized note discount and issuance costs, partially offset by the difference between the purchase price and the par
value of the notes.
In March 2018, we purchased $28 million aggregate principal amount of our 6.750% senior unsecured notes due 2023 and $22 million aggregate
principal amount of our 7.000% senior unsecured notes due 2025 for $51 million , including $1 million in accrued and unpaid interest through the
dates of purchase. In connection with these
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purchases, we recorded a loss from early extinguishment of debt of $1 million in the three months ended March 31, 2018, primarily related to the
write-off of associated unamortized issuance costs.
As part of our long-term objective to manage our capital structure, we may from time to time seek to retire, purchase, redeem or refinance some of our
outstanding debt or equity securities subject to prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. These actions are
part of our strategy to manage our leverage and capital structure over time, which is dependent on our total amount of debt, our cash and our operating results. We
continue to seek further initiatives to increase the efficiency of our balance sheet by generating incremental cash, including by means of the sale of underutilized or
inefficient assets.
At December 31, 2018 , using the last 12 months of Adjusted EBITDA, our ratio of total long-term debt, net of cash and cash equivalent balances, to
Adjusted EBITDA was 5.63 x. We anticipate this ratio will fluctuate from quarter to quarter based on earnings performance and other factors, including the use of
our revolving credit facility as a source of liquidity and acquisitions that involve the assumption of long-term debt. We intend to manage this ratio by following our
business plan, managing our cost structure, possible asset divestitures and through other changes in our capital structure, including, if appropriate, the issuance
of equity or convertible securities. Our ability to achieve our leverage and capital structure objectives is subject to numerous risks and uncertainties, many of which
are described in the Forward-Looking Statements and Risk Factors sections in Part I of this report.
Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and
regulations), equipment and information systems additions and replacements, introduction of new medical technologies, design and construction of new buildings,
and various other capital improvements, as well as commitments to make capital expenditures in connection with acquisitions of businesses. Capital expenditures
were $617 million , $707 million and $875 million in the years ended December 31, 2018 , 2017 and 2016 , respectively. We anticipate that our capital
expenditures for continuing operations for the year ending December 31, 2019 will total approximately $650 million to $700 million, including $135 million that
was accrued as a liability at December 31, 2018 . We have been engaged in a series of legal challenges over the Certificate of Need (“CON”) that the South
Carolina Department of Health and Environmental Control (“SCDHEC”) initially granted to us in 2005 to construct a new 100-bed acute care hospital in Fort Mill,
South Carolina. Following a decision by the South Carolina Supreme Court in February 2019, the opponent to our CON now has one remaining right of appeal. If
we ultimately prevail, we expect that we will finalize the design of the hospital soon after resolution and submit it to the SCDHEC for approval. Once construction
begins, the hospital is expected to take up to two years to complete at a cost of approximately $170 million over the construction period.
Interest payments, net of capitalized interest, were $976 million , $939 million and $932 million in the years ended December 31, 2018 , 2017 and 2016 ,
respectively. For the year ending December 31, 2019 , we expect annual interest payments to be approximately $980 million to $990 million.
Income tax payments, net of tax refunds, were $25 million , $56 million and $33 million in the years ended December 31, 2018 , 2017 and 2016 ,
respectively. At December 31, 2018 , our carryforwards available to offset future taxable income consisted of (1) federal net operating loss (“NOL”) carryforwards
of approximately $1.0 billion pre-tax expiring in 2027 to 2034 , (2) general business credit carryforwards of approximately $26 million expiring in 2023 through
2038, and (3) state NOL carryforwards of approximately $3.1 billion expiring in 2019 through 2038 for which the associated deferred tax benefit, net of valuation
allowance and federal tax impact, is $22 million . Our ability to utilize NOL carryforwards to reduce future taxable income may be limited under Section 382 of the
Internal Revenue Code if certain ownership changes in our company occur during a rolling three -year period. These ownership changes include purchases of
common stock under share repurchase programs , the offering of stock by us, the purchase or sale of our stock by 5% shareholders, as defined in the Treasury
regulations, or the issuance or exercise of rights to acquire our stock. If such ownership changes by 5% shareholders result in aggregate increases that exceed 50
percentage points during the three -year period, then Section 382 imposes an annual limitation on the amount of our taxable income that may be offset by the
NOL carryforwards or tax credit carryforwards at the time of ownership change.
Periodic examinations of our tax returns by the Internal Revenue Service (“IRS”) or other taxing authorities could result in the payment of additional
taxes. The IRS has completed audits of our tax returns for all tax years ended on or before December 31, 2007. All disputed issues with respect to these audits have
been resolved and all related tax assessments (including interest) have been paid. Our tax returns for years ended after December 31, 2007 and USPI’s tax returns
for years ended after December 31, 2014 remain subject to audit by the IRS.
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SOURCES
AND
USES
OF
CASH
Our liquidity for the year ended December 31, 2018 was primarily derived from net cash provided by operating activities, cash on hand and borrowings
under our revolving credit facility. We had $411 million of cash and cash equivalents on hand at December 31, 2018 to fund our operations and capital
expenditures, and our borrowing availability under our credit facility was $998 million based on our borrowing base calculation as of December 31, 2018 .
Our primary source of operating cash is the collection of accounts receivable. As such, our operating cash flow is impacted by levels of cash collections,
as well as levels of implicit price concessions, due to shifts in payer mix and other factors.
Net cash provided by operating activities was $1.049 billion for the year ended December 31, 2018 compared to $1.200 billion for the year ended
December 31, 2017 . Key factors contributing to the change between the 2018 and 2017 periods include the following:
•
•
•
•
•
•
An increase of $38 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements;
Decreased cash receipts of $31 million related to the California provider fee program;
Additional interest payments of $37 million in the 2018 period primarily due to the six-month interest payment in January 2018 related to our 7.500%
senior secured second lien notes due 2022, which were issued in December 2016, and changes in the timing of certain interest payments as a result of
our refinancing transactions in 2017;
Lower income tax payments of $31 million in the 2018 period;
Increased cash flows from our health plan businesses of $101 million due to cash outflows in the 2017 period resulting from the sales and wind-down
of these businesses in 2017, compared to negligible cash flows in the 2018 period; and
The timing of other working capital items, including $129 million of additional payments for professional and general liability claims and expenses in
the 2018 period.
Net cash used in investing activities was $115 million for the year ended December 31, 2018 compared to $21 million of net cash provided by investing
activities for the year ended December 31, 2017 . The primary reason for the decrease was proceeds from sales of facilities and other assets of $543 million in the
2018 period when we completed the sale of our hospitals, physician practices and related assets in the Philadelphia area, the sale of MacNeal Hospital and other
operations affiliated with the hospital in the Chicago area, the sale of Des Peres Hospital in St. Louis, the sale of nine Aspen facilities in the United Kingdom, and
the sale of certain assets and the related liabilities of our health plan in California compared to proceeds from sales of facilities and other assets of $827 million in
the 2017 period primarily attributable to the sale of our hospitals, physician practices and related assets in Houston, Texas. There was an increase in proceeds from
sales of marketable securities, long-term investments and other assets of $163 million in the 2018 period compared to the 2017 period primarily due to the sales of
our minority interests in four North Texas hospitals. Cash used for acquisitions of businesses and joint venture interests was $113 million in the 2018 period
compared to $50 million in the 2017 period, primarily related to freestanding outpatient facilities acquired. Cash used for purchases of equity investments was $127
million in the 2018 period, compared to $68 million in the 2017 period, both of which were primarily due to acquisition activity from our Ambulatory Care
segment. Capital expenditures were $617 million and $707 million in the years ended December 31, 2018 and 2017 , respectively.
Net cash used in financing activities was $1.134 billion for the year ended December 31, 2018 compared to $1.326 billion for the year ended
December 31, 2017 . The 2018 amount included $647 million related to purchases of noncontrolling interests, primarily our purchase of an additional 15%
ownership interest in USPI and to settle the adjustment to the price we paid in 2017 based on actual 2017 financial results of USPI, compared to $729 million
related to purchases of noncontrolling interests in the 2017 period, when we increased our ownership interest in USPI from approximately 56.3% to 80%. The 2017
amount also included $62 million of cash paid for debt issuance costs due to significant debt refinancing activity in the 2017 period further described in Note 7 to
our Consolidated Financial Statements. Additionally, the 2017 amount included our purchase of the land and improvements associated with our Palm Beach
Gardens Medical Center, which we previously leased under a capital lease, by retiring the lease obligation for $44 million.
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We record our equity securities and our debt securities classified as available-for-sale at fair market value. The majority of our investments are valued
based on quoted market prices or other observable inputs. We have no investments that we expect will be negatively affected by the current economic conditions
such that they will materially impact our financial condition, results of operations or cash flows.
DEBT
INSTRUMENTS,
GUARANTEES
AND
RELATED
COVENANTS
Credit Agreement. We have a senior secured revolving credit facility (as amended, the “Credit Agreement”) that provides, subject to borrowing
availability, for revolving loans in an aggregate principal amount of up to $1 billion , with a $300 million subfacility for standby letters of credit. Obligations under
the Credit Agreement, which has a scheduled maturity date of December 4, 2020, are guaranteed by substantially all of our domestic wholly owned hospital
subsidiaries and are secured by a first-priority lien on the accounts receivable owned by us and the subsidiary guarantors. At December 31, 2018 , we were in
compliance with all covenants and conditions in our Credit Agreement. At December 31, 2018 , we had no cash borrowings outstanding under the Credit
Agreement and we had $2 million of standby letters of credit outstanding. Based on our eligible receivables, $998 million was available for borrowing under the
Credit Agreement at December 31, 2018 .
Letter of Credit Facility. We have a letter of credit facility (as amended, the “LC Facility”) that provides for the issuance of standby and documentary
letters of credit, from time to time, in an aggregate principal amount of up to $180 million (subject to increase to up to $200 million ). The maturity date of the LC
Facility is March 7, 2021. Obligations under the LC Facility are guaranteed and secured by a first-priority pledge of the capital stock and other ownership interests
of certain of our wholly owned domestic hospital subsidiaries on an equal ranking basis with our senior secured first lien notes. At December 31, 2018 , we were in
compliance with all covenants and conditions in our LC Facility. At December 31, 2018 , we had $93 million of standby letters of credit outstanding under the LC
Facility.
Senior Secured and Senior Unsecured Note Refinancing Transactions. On February 5, 2019, we sold $1.5 billion aggregate principal amount of 6.250%
senior secured second lien notes, which will mature on February 1, 2027 (the “2027 Senior Secured Second Lien Notes”). We will pay interest on the 2027 Senior
Secured Second Lien Notes semi-annually in arrears on February 1 and August 1 of each year, which payments will commence on August 1, 2019. The proceeds
from the sale of the 2027 Senior Secured Second Lien Notes were used, after payment of fees and expenses, together with cash on hand and borrowings under our
Credit Agreement, to fund the redemption of all $300 million aggregate principal amount of our outstanding 6.750% senior notes due 2020 and all $750 million
aggregate principal amount of our outstanding 7.500% senior secured second lien notes due 2022, and will be used to fund the repayment upon maturity of all
$468 million aggregate principal amount of our outstanding 5.500% senior unsecured notes due March 1, 2019. In connection with the redemptions, we expect to
record a loss from early extinguishment of debt of approximately $47 million in the three months ending March 31, 2019 , primarily related to the difference
between the redemption prices and the par values of the notes, as well as the write-off of the associated unamortized issuance costs.
In 2018, we purchased $150 million aggregate principal amount of notes outstanding for $147 million, including $2 million in accrued and unpaid interest
through the dates of purchase. For additional information regarding our long-term debt and capital lease obligations, see Note 7 to the accompanying Consolidated
Financial Statements.
LIQUIDITY
From time to time, we expect to engage in additional capital markets, bank credit and other financing activities depending on our needs and financing
alternatives available at that time. We believe our existing debt agreements provide flexibility for future secured or unsecured borrowings.
Our cash on hand fluctuates day-to-day throughout the year based on the timing and levels of routine cash receipts and disbursements, including our book
overdrafts, and required cash disbursements, such as interest and income tax payments. These fluctuations result in material intra-quarter net operating and
investing uses of cash that have caused, and in the future could cause, us to use our Credit Agreement as a source of liquidity. We believe that existing cash and
cash equivalents on hand, availability under our Credit Agreement, anticipated future cash provided by operating activities, and our investments in marketable
securities of our captive insurance companies classified as noncurrent investments on our balance sheet should be adequate to meet our current cash needs. These
sources of liquidity, in combination with any potential future debt incurrence, should also be adequate to finance planned capital expenditures, payments on the
current portion of our long-term debt, payments to joint venture partners, including those related to put and call arrangements, and other presently known operating
needs.
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Long-term liquidity for debt service and other purposes will be dependent on the amount of cash provided by operating activities and, subject to favorable
market and other conditions, the successful completion of future borrowings and potential refinancings. However, our cash requirements could be materially
affected by the use of cash in acquisitions of businesses, repurchases of securities, the exercise of put rights or other exit options by our joint venture partners, and
contractual commitments to fund capital expenditures in, or intercompany borrowings to, businesses we own. In addition, liquidity could be adversely affected by a
deterioration in our results of operations, including our ability to generate sufficient cash from operations, as well as by the various risks and uncertainties
discussed in this section and other sections of this report, including any costs associated with legal proceedings and government investigations.
We do not rely on commercial paper or other short-term financing arrangements nor do we enter into repurchase agreements or other short-term financing
arrangements not otherwise reported in our period-end balance sheets. In addition, we do not have significant exposure to floating interest rates given that all of our
current long-term indebtedness has fixed rates of interest.
OFF-BALANCE SHEET ARRANGEMENTS
Our consolidated operating results for the year ended December 31, 2016 include $2 million of net operating revenues and $7 million of operating loss
generated from a hospital operated by us under an operating lease arrangement, which hospital was sold effective March 31, 2016. In accordance with GAAP, the
applicable buildings and the future lease obligations under this arrangement were not recorded on our consolidated balance sheet.
We have no other off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources, except for $219 million of standby letters of credit outstanding and guarantees at
December 31, 2018 .
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 23 to the accompanying Consolidated Financial Statements for a discussion of recently issued accounting standards.
CRITICAL ACCOUNTING ESTIMATES
In preparing our Consolidated Financial Statements in conformity with GAAP, we must use estimates and assumptions that affect the amounts reported in
our Consolidated Financial Statements and accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the
estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may
vary from those estimates.
We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more
difficult for management to determine, and (3) may produce materially different outcomes under different conditions or when using different assumptions.
Our critical accounting estimates cover the following areas:
•
•
•
•
•
Recognition of net operating revenues, including contractual allowances and implicit price concessions;
Accruals for general and professional liability risks;
Impairment of long-lived assets;
Impairment of goodwill; and
Accounting for income taxes.
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REVENUE
RECOGNITION
We report net patient service revenues at the amounts that reflect the consideration to which we expect to be entitled in exchange for providing patient
care. These amounts are due from patients, third-party payers (including managed care payers and government programs) and others, and they include variable
consideration for retroactive revenue adjustments due to settlement of audits, reviews and investigations. Generally, we bill our patients and third-party payers
several days after the services are performed or shortly after discharge. Revenues are recognized as performance obligations are satisfied.
We determine performance obligations based on the nature of the services we provide. We recognize revenues for performance obligations satisfied over
time based on actual charges incurred in relation to total expected charges. We believe that this method provides a faithful depiction of the transfer of services over
the term of performance obligations based on the inputs needed to satisfy the obligations. Generally, performance obligations satisfied over time relate to patients
in our hospitals receiving inpatient acute care services. We measure performance obligations from admission to the point when there are no further services
required for the patient, which is generally the time of discharge. We recognize revenues for performance obligations satisfied at a point in time, which generally
relate to patients receiving outpatient services, when: (1) services are provided; and (2) we do not believe the patient requires additional services.
We determine the transaction price based on gross charges for services provided, reduced by contractual adjustments provided to third-party payers,
discounts provided to uninsured patients in accordance with our Compact , and implicit price concessions provided primarily to uninsured patients. We determine
our estimates of contractual adjustments and discounts based on contractual agreements, our discount policies and historical experience. We determine our estimate
of implicit price concessions based on our historical collection experience with these classes of patients using a portfolio approach as a practical expedient to
account for patient contracts as collective groups rather than individually. The financial statement effects of using this practical expedient are not materially
different from an individual contract approach.
Revenues under the traditional fee-for-service Medicare and Medicaid programs are based primarily on prospective payment systems. Retrospectively
determined cost-based revenues under these programs, which were more prevalent in earlier periods, and certain other payments, such as Indirect Medical
Education, Direct Graduate Medical Education, disproportionate share hospital and bad debt expense reimbursement, which are based on our hospitals’ cost
reports, are estimated using historical trends and current factors. Cost report settlements under these programs are subject to audit by Medicare and Medicaid
auditors and administrative and judicial review, and it can take several years until final settlement of such matters is determined and completely resolved. Because
the laws, regulations, instructions and rule interpretations governing Medicare and Medicaid reimbursement are complex and change frequently, the estimates we
record could change by material amounts.
We have a system and estimation process for recording Medicare net patient service revenue and estimated cost report settlements. As a result, we record
accruals to reflect the expected final settlements on our cost reports. For filed cost reports, we record the accrual based on those cost reports and subsequent
activity, and record a valuation allowance against those cost reports based on historical settlement trends. The accrual for periods for which a cost report is yet to be
filed is recorded based on estimates of what we expect to report on the filed cost reports, and a corresponding valuation allowance is recorded as previously
described. Cost reports generally must be filed within five months after the end of the annual cost reporting period. After the cost report is filed, the accrual and
corresponding valuation allowance may need to be adjusted.
Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted fee-
for-service rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several
years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient’s bill is subject to
adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We
estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on
an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. We believe it is
reasonably likely for there to be an approximately 3% increase or decrease in the estimated contractual allowances related to managed care plans. Based on
reserves at December 31, 2018 , a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $15
million . Some of the factors that can contribute to changes in the contractual allowance estimates include: (1) changes in reimbursement levels for procedures,
supplies and drugs when threshold levels are triggered; (2) changes in reimbursement levels when stop-loss or outlier limits are reached; (3) changes in the
admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (4) final coding of in-house and discharged-not-final-billed patients
that change reimbursement levels; (5) secondary benefits determined after primary insurance payments; and (6) reclassification of patients among insurance plans
with different coverage and payment levels. Contractual allowance estimates are periodically reviewed for accuracy by taking into consideration known contract
terms, as well as payment history.
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We believe our estimation and review process enables us to identify instances on a timely basis where such estimates need to be revised. We do not believe there
were any adjustments to estimates of patient bills that were material to our revenues. In addition, on a corporate-wide basis, we do not record any general provision
for adjustments to estimated contractual allowances for managed care plans. Managed care accounts, net of contractual allowances recorded, are further reduced to
their net realizable value through implicit price concessions based on historical collection trends for these payers and other factors that affect the estimation
process.
Generally, patients who are covered by third-party payers are responsible for related co-pays, co-insurance and deductibles, which vary in amount. We
also provide services to uninsured patients and offer uninsured patients a discount from standard charges. We estimate the transaction price for patients with co-
pays, co-insurance and deductibles and for those who are uninsured based on historical collection experience and current market conditions. Under our Compact
and other uninsured discount programs, the discount offered to certain uninsured patients is recognized as a contractual allowance, which reduces net operating
revenues at the time the self-pay accounts are recorded. The uninsured patient accounts, net of contractual allowances recorded, are further reduced to their net
realizable value at the time they are recorded through implicit price concessions based on historical collection trends for self-pay accounts and other factors that
affect the estimation process. There are various factors that can impact collection trends, such as changes in the economy, which in turn have an impact on
unemployment rates and the number of uninsured and underinsured patients, the volume of patients through our emergency departments, the increased burden of
co-pays, co-insurance amounts and deductibles to be made by patients with insurance, and business practices related to collection efforts. These factors
continuously change and can have an impact on collection trends and our estimation process. Subsequent changes to the estimate of the transaction price are
generally recorded as adjustments to net patient service revenues in the period of the change.
We have provided implicit price concessions, primarily to uninsured patients and patients with co-pays, co-insurance and deductibles. The implicit price
concessions included in estimating the transaction price represent the difference between amounts billed to patients and the amounts we expect to collect based on
our collection history with similar patients. Although outcomes vary, our policy is to attempt to collect amounts due from patients, including co-pays, co-insurance
and deductibles due from patients with insurance, at the time of service while complying with all federal and state statutes and regulations, including, but not
limited to, the Emergency Medical Treatment and Active Labor Act (“EMTALA”). Generally, as required by EMTALA, patients may not be denied emergency
treatment due to inability to pay. Therefore, services, including the legally required medical screening examination and stabilization of the patient, are performed
without delaying to obtain insurance information. In non-emergency circumstances or for elective procedures and services, it is our policy to verify insurance prior
to a patient being treated; however, there are various exceptions that can occur. Such exceptions can include, for example, instances where (1) we are unable to
obtain verification because the patient’s insurance company was unable to be reached or contacted, (2) a determination is made that a patient may be eligible for
benefits under various government programs, such as Medicaid or Victims of Crime, and it takes several days or weeks before qualification for such benefits is
confirmed or denied, and (3) under physician orders we provide services to patients that require immediate treatment.
Based on our accounts receivable from self-pay patients and co-pays, co-insurance amounts and deductibles owed to us by patients with insurance at
December 31, 2018 , a 10% decrease or increase in our self-pay collection rate, or approximately 2% , which we believe could be a reasonably likely change,
would result in an unfavorable or favorable adjustment to patient accounts receivable of approximately $11 million .
ACCRUALS
FOR
GENERAL
AND
PROFESSIONAL
LIABILITY
RISKS
We accrue for estimated professional and general liability claims, to the extent not covered by insurance, when they are probable and can be reasonably
estimated. We maintain reserves, which are based on modeled estimates for the portion of our professional liability risks, including incurred but not reported
claims, to the extent we do not have insurance coverage. Our liability consists of estimates established based upon discounted calculations using several factors,
including the number of expected claims, estimates of losses for these claims based on recent and historical settlement amounts, estimates of incurred but not
reported claims based on historical experience, the timing of historical payments, and risk free discount rates used to determine the present value of projected
payments. We consider the number of expected claims, average cost per claim and discount rate to be the most significant assumptions in estimating accruals for
general and professional liabilities. Our liabilities are adjusted for new claims information in the period such information becomes known. Malpractice expense is
recorded within other operating expenses in the accompanying Consolidated Statements of Operations.
Our estimated reserves for professional and general liability claims will change significantly if future trends differ from projected trends. We believe it is
reasonably likely for there to be a 500 basis point increase or decrease in our frequency or severity trend. Based on our reserves and other information at
December 31, 2018 , a 500 basis point increase in our frequency trend would increase the estimated reserves by $64 million , and a 500 basis point decrease in our
frequency trend
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would decrease the estimated reserves by $39 million . A 500 basis point increase in our severity trend would increase the estimated reserves by $118 million , and
a 500 basis point decrease in our severity trend would decrease the estimated reserves by $80 million . Because our estimated reserves for future claim payments
are discounted to present value, a change in our discount rate assumption could also have a significant impact on our estimated reserves. Our discount rate was
2.59% , 2.33% and 2.25% at December 31, 2018 , 2017 and 2016 , respectively. A 100 basis point increase or decrease in the discount rate would change the
estimated reserves by $23 million . In addition, because of the complexity of the claims, the extended period of time to settle the claims and the wide range of
potential outcomes, our ultimate liability for professional and general liability claims could change materially from our current estimates.
The table below shows the case reserves and incurred but not reported and loss development reserves as of December 31, 2018 , 2017 and 2016 :
Case reserves
Incurred but not reported and loss development reserves
Total undiscounted reserves
December 31,
2018
2017
2016
$
$
210 $
742
952 $
194 $
720
914 $
189
675
864
Several actuarial methods, including the incurred, paid loss development and Bornhuetter-Ferguson methods, are applied to our historical loss data to
produce estimates of ultimate expected losses and the resulting incurred but not reported and loss development reserves. These methods use our specific historical
claims data related to paid losses and loss adjustment expenses, historical and current case reserves, reported and closed claim counts, and a variety of hospital
census information. These analyses are considered in our determination of our estimate of the professional liability claims, including the incurred but not reported
and loss development reserve estimates. The determination of our estimates involves subjective judgment and could result in material changes to our estimates in
future periods if our actual experience is materially different than our assumptions.
Malpractice claims generally take up to five years to settle from the time of the initial reporting of the occurrence to the settlement payment. Accordingly,
the percentage of undiscounted reserves at December 31, 2018 and 2017 representing unsettled claims was approximately 93% and 98% , respectively.
The following table, which includes both our continuing and discontinued operations, presents the amount of our accruals for professional and general
liability claims and the corresponding activity therein:
Accrual for professional and general liability claims, beginning of the year
$
854 $
794 $
Years Ended December 31,
2018
2017
2016
Expense (income) related to: (1)
Current year
Prior years
Expense (income) from discounting
Total incurred loss and loss expense
Paid claims and expenses related to:
Current year
Prior years
Total paid claims and expenses
226
180
(10)
396
(3)
(365)
(368)
243
61
(5)
299
(2)
(237)
(239)
Accrual for professional and general liability claims, end of year
$
882 $
854 $
755
228
43
(4)
267
—
(228)
(228)
794
(1)
Total malpractice expense for continuing operations, including premiums for insured coverage and recoveries from third parties, was $388 million , $303 million and $281 million in the
years ended December 31, 2018 , 2017 and 2016 , respectively.
IMPAIRMENT
OF
LONG-LIVED
ASSETS
We evaluate our long-lived assets for possible impairment annually or whenever events or changes in circumstances indicate that the carrying amount of
the asset, or related group of assets, may not be recoverable from estimated future undiscounted cash flows. If the estimated future undiscounted cash flows are less
than the carrying value of the assets, we calculate the amount of an impairment charge if the carrying value of the long-lived assets exceeds the fair value of the
assets. The fair value of the assets is estimated based on appraisals, established market values of comparable assets or internal estimates of future net cash flows
expected to result from the use and ultimate disposition of the asset. The estimates of these future cash flows are based on assumptions and projections we believe
to be reasonable and supportable. They require our
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subjective judgments and take into account assumptions about revenue and expense growth rates. These assumptions may vary by type of facility and presume
stable, improving or, in some cases, declining results at our hospitals, depending on their circumstances. If the presumed level of performance does not occur as
expected, impairment may result.
We report long-lived assets to be disposed of at the lower of their carrying amounts or fair values less costs to sell. In such circumstances, our estimates of
fair value are based on appraisals, established market prices for comparable assets or internal estimates of future net cash flows
Fair value estimates can change by material amounts in subsequent periods. Many factors and assumptions can impact the estimates, including the
following risks:
•
•
•
•
future financial results of our hospitals, which can be impacted by volumes of insured patients and declines in commercial managed care patients,
terms of managed care payer arrangements, our ability to collect accounts due from uninsured and managed care payers, loss of volumes as a result of
competition, and our ability to manage costs such as labor costs, which can be adversely impacted by union activity and the shortage of experienced
nurses;
changes in payments from governmental healthcare programs and in government regulations such as reductions to Medicare and Medicaid payment
rates resulting from government legislation or rule-making or from budgetary challenges of states in which we operate;
how the hospitals are operated in the future; and
the nature of the ultimate disposition of the assets.
During the year ended December 31, 2018 , we recorded $77 million of impairment charges, including $40 million for the write-down of buildings and
other long-lived assets to their estimated fair values at two hospitals. Material adverse trends in our most recent estimates of future undiscounted cash flows of the
hospitals indicated the carrying value of the hospitals’ long-lived assets was not recoverable from the estimated future cash flows. We believe the most significant
factors contributing to the adverse financial trends included reductions in volumes of insured patients, shifts in payer mix from commercial to governmental payers
combined with reductions in reimbursement rates from governmental payers, and high levels of uninsured patients. As a result, we updated the estimate of the fair
value of the hospitals’ long-lived assets and compared the fair value estimate to the carrying value of the hospitals’ long-lived assets. Because the fair value
estimates were lower than the carrying value of the long-lived assets, an impairment charge was recorded for the difference in the amounts. The aggregate carrying
value of assets held and used of the hospitals for which impairment charges were recorded was $130 million at December 31, 2018 after recording the impairment
charges. We also recorded $24 million of charges to write-down assets held for sale to their estimated fair value, less estimated costs to sell, for certain of our
Chicago-area facilities , $9 million of charges to write-down assets held for sale to their estimated fair value, less estimated costs to sell, for Aspen and $4 million
of other impairment charges. Of the total impairment charges recognized for the year ended December 31, 2018 , $67 million related to our Hospital Operations
and other segment, $9 million related to our Ambulatory Care segment, and $1 million related to our Conifer segment.
During the year ended December 31, 2017 , we recorded $402 million of impairment charges, consisting of $364 million of charges to write-down assets
held for sale to their estimated fair value, less estimated costs to sell, for Aspen, our Philadelphia-area facilities and certain of our Chicago-area facilities,
$31 million for the impairment of two equity method investments and $7 million to write-down intangible assets. Of the total impairment charges recognized for
the year ended December 31, 2018 , $337 million related to our Hospital Operations and other segment, $63 million related to our Ambulatory Care segment, and
$2 million related to our Conifer segment.
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IMPAIRMENT
OF
GOODWILL
Goodwill represents the excess of costs over the fair value of assets of businesses acquired. Goodwill and other intangible assets acquired in purchase
business combinations and determined to have indefinite useful lives are not amortized, but instead are subject to impairment tests performed at least annually. For
goodwill, we perform the test at the reporting unit level, as defined by applicable accounting standards, when events occur that require an evaluation to be
performed or at least annually. If we determine the carrying value of goodwill is impaired, or if the carrying value of a business that is to be sold or otherwise
disposed of exceeds its fair value, then we reduce the carrying value, including any allocated goodwill, to fair value. Estimates of fair value are based on appraisals,
established market prices for comparable assets or internal estimates of future net cash flows and presume stable, improving or, in some cases, declining results at
our hospitals, depending on their circumstances. If the presumed level of performance does not occur as expected, impairment may result.
At December 31, 2018 , our continuing operations consisted of three reportable segments, Hospital Operations and other, Ambulatory Care and Conifer.
Our segments are reporting units used to perform our goodwill impairment analysis. We completed our annual impairment tests for goodwill as of October 1, 2018.
During the year ended December 31, 2017, we changed our annual quantitative goodwill impairment testing date from December 31 to October 1 of each year. The
change in the goodwill impairment test date better aligns the impairment testing procedures with the timing of our long-term planning process, which is a
significant input to the testing. Also, during January 2017, our Florida, Northeast and Southern regions and our Detroit market were combined to form our then
Eastern region. Subsequent to this change, our Hospital Operations and other segment was comprised of our then Eastern, Texas and Western regions, which were
our reporting units used to perform our goodwill impairment analysis. During October 2017, we further reorganized our business such that our regional
management layer was eliminated. Due to this reorganization, our previous region reporting units for our Hospital Operations and other segment were combined
into one reporting unit. The change in testing date and the change in reporting units did not delay, accelerate or avoid a goodwill impairment charge.
The allocated goodwill balance related to our Hospital Operations and other segment totals $2.980 billion . In our latest impairment analysis for the year
ended December 31, 2018 , the estimated fair value of our Hospital Operations and other segment exceeded the carrying value of long-lived assets, including
goodwill, by approximately 40%.
The allocated goodwill balance related to our Ambulatory Care segment totals $3.696 billion . In our latest impairment analysis for the year ended
December 31, 2018 , the estimated fair value of our Ambulatory Care segment exceeded the carrying value of long-lived assets, including goodwill, by
approximately 30%.
The allocated goodwill balance related to our Conifer segment totals $605 million . For the Conifer segment, we performed a qualitative analysis and
concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying value. Factors considered in the analysis included recent and
estimated future operating trends.
ACCOUNTING
FOR
INCOME
TAXES
We account for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Income tax receivables and
liabilities and deferred tax assets and liabilities are recognized based on the amounts that more likely than not will be sustained upon ultimate settlement with
taxing authorities.
Developing our provision for income taxes and analysis of uncertain tax positions requires significant judgment and knowledge of federal and state
income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be
required for deferred tax assets.
We assess the realization of our deferred tax assets to determine whether an income tax valuation allowance is required. Based on all available evidence,
both positive and negative, and the weight of that evidence to the extent such evidence can be objectively verified, we determine whether it is more likely than not
that all or a portion of the deferred tax assets will be realized. The main factors that we consider include:
•
•
•
Cumulative profits/losses in recent years, adjusted for certain nonrecurring items;
Income/losses expected in future years;
Unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels;
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•
•
The availability, or lack thereof, of taxable income in prior carryback periods that would limit realization of tax benefits; and
The carryforward period associated with the deferred tax assets and liabilities.
During the year ended December 31, 2018 , the valuation allowance increased by $76 million , including an increase of $89 million due to limitations on
deductions of interest expense , a decrease of $9 million due to the expiration or worthlessness of unutilized state net operating loss carryovers, and a decrease of
$4 million due to changes in expected realizability of deferred tax assets. The balance in the valuation allowance as of December 31, 2018 was $148 million .
During the year ended December 31, 2017 , we had no net change in the valuation allowance, but there was a decrease of $28 million due to the expiration or
worthlessness of unutilized state net operating loss carryovers, an increase of $6 million due to the decrease in the federal tax rate, and an increase of $22 million
due to changes in expected realizability of deferred tax assets. The remaining balance in the valuation allowance at December 31, 2017 was $72 million .
We consider many factors when evaluating our uncertain tax positions, and such judgments are subject to periodic review. Tax benefits associated with
uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is
satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the
position has expired. Tax benefits associated with an uncertain tax position are derecognized in the period in which the more likely than not recognition threshold is
no longer satisfied.
While we believe we have adequately provided for our income tax receivables or liabilities and our deferred tax assets or liabilities, adverse
determinations by taxing authorities or changes in tax laws and regulations could have a material adverse effect on our consolidated financial position, results of
operations or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table presents information about certain of our market-sensitive financial instruments at December 31, 2018 . The fair values were
determined based on quoted market prices for the same or similar instruments. The average effective interest rates presented are based on the rate in effect at the
reporting date. The effects of unamortized premiums and discounts are excluded from the table. Our 5.500% senior unsecured notes due 2019, which are included
in the 2019 column in the following table, are not included in current portion of long-term debt in our Consolidated Balance Sheet at December 31, 2018 because
of our intent and ability to refinance them on a long-term basis. See Note 24 to our Consolidated Financial Statements for additional information.
Maturity Date, Years Ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Fair Value
Fixed-rate long-term debt
$
650
$
2,697
$
1,958
$
(Dollars in Millions)
$
3,588
1,894
$
4,223
$
15,010
$
14,598
Average effective interest rates
5.7%
6.2%
4.7%
8.5%
7.3%
5.6%
6.5%
At December 31, 2018 , we had long-term, market-sensitive investments held by our captive insurance subsidiaries. Our market risk associated with our
investments in debt securities classified as non-current assets is substantially mitigated by the long-term nature and type of the investments in the portfolio.
We have no affiliation with partnerships, trusts or other entities (sometimes referred to as “special-purpose” or “variable-interest” entities) whose purpose
is to facilitate off-balance sheet financial transactions or similar arrangements by us. As a result, we have no exposure to the financing, liquidity, market or credit
risks associated with such entities.
We do not hold or issue derivative instruments for trading purposes and are not a party to any instruments with leverage or prepayment features.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To Our Shareholders:
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended. Management assessed the effectiveness of Tenet’s internal control over financial reporting as of
December 31, 2018 . This assessment was performed under the supervision of and with the participation of management, including the chief executive officer and
chief financial officer.
In making this assessment, management used criteria based on the framework in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on the assessment using the COSO framework, management concluded
that Tenet’s internal control over financial reporting was effective as of December 31, 2018 .
Tenet’s internal control over financial reporting as of December 31, 2018 has been audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report, which is included herein. Deloitte & Touche LLP has also audited Tenet’s Consolidated Financial Statements as of and
for the year ended December 31, 2018 , and that firm’s audit report on such Consolidated Financial Statements is also included herein.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations.
Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting
from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However,
these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not
eliminate, this risk.
/s/ RONALD A. RITTENMEYER
Ronald A. Rittenmeyer
Executive Chairman and Chief Executive Officer
February 25, 2019
/s/ DANIEL J. CANCELMI
Daniel J. Cancelmi
Chief Financial Officer
February 25, 2019
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Tenet Healthcare Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Tenet Healthcare Corporation and subsidiaries (the “Company”) as of December 31, 2018 ,
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, 2018 , 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 and financial statement schedule as of and for the year ended December 31, 2018 , of the Company and our report dated February 25,
2019 , 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
Dallas, Texas
February 25, 2019
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Tenet Healthcare Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tenet Healthcare Corporation and subsidiaries (the “Company”) as of December 31, 2018
and 2017 , and the related consolidated statements of operations, other comprehensive income (loss), changes in equity, and cash flows for each of the three
years in the period ended December 31, 2018 , and the related notes and the consolidated financial statement schedule listed in the Index at Item 15
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2018 and 2017 , and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2018 , 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, 2018 , 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 25, 2019 , 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.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
February 25, 2019
We have served as the Company’s auditor since 2007.
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CONSOLIDATED BALANCE SHEETS
Dollars in Millions
Current assets:
Cash and cash equivalents
ASSETS
Accounts receivable (less allowance for doubtful accounts of $898 at December 31, 2017)
Inventories of supplies, at cost
Income tax receivable
Assets held for sale
Other current assets
Total current assets
Investments and other assets
Deferred income taxes
Property and equipment, at cost, less a ccumulated depreciation and amortization
($5,221 at December 31, 2018 and $4,739 at December 31, 2017)
Goodwill
Other intangible assets, at cost, less accumulated amortization
($1,013 at December 31, 2018 and $883 at December 31, 2017)
Total assets
Current liabilities:
LIABILITIES AND EQUITY
Current portion of long-term debt
Accounts payable
Accrued compensation and benefits
Professional and general liability reserves
Accrued interest payable
Liabilities held for sale
Other current liabilities
Total current liabilities
Long-term debt, net of current portion
Professional and general liability reserves
Defined benefit plan obligations
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies
$
$
$
December 31,
December 31,
2018
2017
411 $
2,595
305
21
107
1,197
4,636
1,456
312
6,993
7,281
1,731
22,409 $
182 $
1,207
838
216
240
43
1,131
3,857
14,644
666
521
36
578
611
2,616
289
5
1,017
1,035
5,573
1,543
455
7,030
7,018
1,766
23,385
146
1,175
848
200
256
480
1,227
4,332
14,791
654
536
36
631
20,302
20,980
Redeemable noncontrolling interests in equity of consolidated subsidiaries
1,420
1,866
Equity:
Shareholders’ equity:
Common stock, $0.05 par value; authorized 262,500,000 shares; 150,897,143 shares issued at December 31, 2018
and 149,384,952 shares issued at December 31, 2017
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Common stock in treasury, at cost, 48,359,705 shares at December 31, 2018 and 48,413,169 shares at
December 31, 2017
Total shareholders’ deficit
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
$
22,409 $
7
4,747
(223)
(2,236)
(2,414)
(119)
806
687
7
4,859
(204)
(2,390)
(2,419)
(147)
686
539
23,385
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CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in Millions, Except Per-Share Amounts
Years Ended December 31,
2018
2017
2016
Net operating revenues:
Net operating revenues before provision for doubtful accounts
$
20,613 $
Less: Provision for doubtful accounts
Net operating revenues
Equity in earnings of unconsolidated affiliates
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Electronic health record incentives
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net gains on sales, consolidation and deconsolidation of facilities
Operating income
Interest expense
Other non-operating expense, net
Gain (loss) from early extinguishment of debt
Income (loss) from continuing operations, before income taxes
Income tax expense
Income (loss) from continuing operations, before discontinued operations
Discontinued operations:
Income (loss) from operations
Income tax benefit (expense)
Income (loss) from discontinued operations
Net income (loss)
Less: Net income available to noncontrolling interests
$
18,313
150
8,634
3,004
4,259
(3)
802
209
38
(127)
1,647
(1,004)
(5)
1
639
(176)
463
4
(1)
3
466
355
1,434
19,179
144
9,274
3,085
4,570
(9)
870
541
23
(144)
1,113
(1,028)
(22)
(164)
(101)
(219)
(320)
—
—
—
(320)
384
Net income available (loss attributable) to Tenet Healthcare Corporation common
shareholders
Amounts available (attributable) to Tenet Healthcare Corporation common shareholders
Income (loss) from continuing operations, net of tax
Income (loss) from discontinued operations, net of tax
$
$
Net income available (loss attributable) to Tenet Healthcare Corporation common shareholders $
Earnings (loss) per share available (attributable) to Tenet Healthcare Corporation common
shareholders:
Basic
Continuing operations
Discontinued operations
Diluted
Continuing operations
Discontinued operations
$
$
$
$
111 $
(704) $
108 $
3
111 $
1.06 $
0.03
1.09 $
1.04 $
0.03
1.07 $
(704) $
—
(704) $
(7.00) $
—
(7.00) $
(7.00) $
—
(7.00) $
21,070
1,449
19,621
131
9,328
3,124
4,891
(32)
850
202
293
(151)
1,247
(979)
(20)
—
248
(67)
181
(6)
1
(5)
176
368
(192)
(187)
(5)
(192)
(1.88)
(0.05)
(1.93)
(1.88)
(0.05)
(1.93)
Weighted average shares and dilutive securities outstanding
(in thousands):
Basic
Diluted
102,110
103,881
100,592
100,592
99,321
99,321
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
Dollars in Millions
Net income (loss)
Other comprehensive income (loss):
Adjustments for defined benefit plans
Amortization of net actuarial loss included in other non-operating expense, net
Unrealized gains (losses) on debt securities held as available-for-sale
Sale of foreign subsidiary
Foreign currency translation adjustments
Other comprehensive income (loss) before income taxes
Income tax benefit (expense) related to items of other comprehensive income (loss)
Total other comprehensive income (loss), net of tax
Comprehensive net income (loss)
Less: Comprehensive income attributable to noncontrolling interests
Years Ended December 31,
2018
2017
2016
$
466 $
(320) $
176
(29)
14
—
37
(4)
18
6
24
490
355
42
14
6
—
15
77
(23)
54
(266)
384
(73)
12
2
—
(53)
(112)
18
(94)
82
368
(286)
Comprehensive income available (loss attributable) to Tenet Healthcare Corporation common shareholders $
135 $
(650) $
See accompanying Notes to Consolidated Financial Statements.
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Balances at December 31, 2015
Net income (loss)
Distributions paid to noncontrolling
interests
Other comprehensive loss
Purchases (sales) of businesses and
noncontrolling interests
Purchase accounting adjustments
Stock-based compensation expense,
tax benefit and issuance of
common stock
Balances at December 31, 2016
Net income (loss)
Distributions paid to noncontrolling
interests
Other comprehensive income
Accretion of redeemable
noncontrolling interests
Purchases (sales) of businesses and
noncontrolling interests
Cumulative effect of accounting
change
Stock-based compensation expense,
tax benefit and issuance of
common stock
Balances at December 31, 2017
Net income
Distributions paid to noncontrolling
interests
Other comprehensive income
Accretion of redeemable
noncontrolling interests
Purchases (sales) of businesses and
noncontrolling interests
Cumulative effect of accounting
change
Stock-based compensation expense,
tax benefit and issuance of
common stock
Balances at December 31, 2018
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Dollars in Millions,
Share Amounts in Thousands
Tenet Healthcare Corporation Shareholders’ Equity
Common Stock
Shares
Outstanding
Issued Par
Amount
Additional
Paid-in
Capital
98,495 $
—
7 $
—
4,815 $
—
—
—
—
—
1,191
99,686
—
—
—
—
—
—
1,286
100,972
—
—
—
—
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
—
(40)
—
52
4,827
—
—
—
(33)
4
—
61
4,859
—
—
—
(173)
3
—
Accumulated
Other
Comprehensive
Loss
(164)
$
—
—
(94)
—
—
—
(258)
—
—
54
—
—
—
—
(204)
—
—
24
—
—
(43)
Accumulated
Deficit
(1,550) $
(192)
Treasury
Stock
(2,417) $
—
—
—
—
—
—
—
—
—
—
(1,742)
(704)
—
(2,417)
—
—
—
—
—
56
—
—
—
—
—
—
(2,390)
111
(2)
(2,419)
—
—
—
—
—
43
—
—
—
—
—
Noncontrolling
Interests
Total Equity
$
267
138
(111)
—
146
225
—
665
145
(123)
—
—
(1)
—
—
686
165
(148)
—
—
103
—
958
(54)
(111)
(94)
106
225
52
1,082
(559)
(123)
54
(33)
3
56
59
539
276
(148)
24
(173)
106
—
63
687
1,565
102,537 $
—
7 $
58
4,747 $
—
(223)
$
—
(2,236) $
5
(2,414) $
—
806
$
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
Years Ended December 31,
2018
2017
2016
$
466 $
(320) $
176
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Provision for doubtful accounts
Deferred income tax expense
Stock-based compensation expense
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net gains on sales, consolidation and deconsolidation of facilities
Loss (gain) from early extinguishment of debt
Equity in earnings of unconsolidated affiliates, net of distributions received
Amortization of debt discount and debt issuance costs
Pre-tax loss (income) from discontinued operations
Other items, net
Changes in cash from operating assets and liabilities:
Accounts receivable
Inventories and other current assets
Income taxes
Accounts payable, accrued expenses and other current liabilities
Other long-term liabilities
Payments for restructuring charges, acquisition-related costs, and litigation costs and
settlements
Net cash used in operating activities from discontinued operations, excluding income taxes
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment — continuing operations
Purchases of businesses or joint venture interests, net of cash acquired
Proceeds from sales of facilities and other assets
Proceeds from sales of marketable securities, long-term investments and other assets
Purchases of equity investments
Other long-term assets
Other items, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Repayments of borrowings under credit facility
Proceeds from borrowings under credit facility
Repayments of other borrowings
Proceeds from other borrowings
Debt issuance costs
Distributions paid to noncontrolling interests
Proceeds from sale of noncontrolling interests
Purchases of noncontrolling interests
Proceeds from exercise of stock options and employee stock purchase plan
Other items, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures:
Interest paid, net of capitalized interest
$
$
802
—
150
46
209
38
(127)
(1)
(12)
45
(4)
(21)
(134)
17
(3)
(152)
(102)
(163)
(5)
1,049
(617)
(113)
543
199
(127)
15
(15)
(115)
(950)
950
(312)
23
—
(288)
20
(647)
16
54
(1,134)
(200)
611
870
1,434
200
59
541
23
(144)
164
(18)
44
—
(18)
850
1,449
41
68
202
293
(151)
—
(13)
41
6
(1)
(1,448)
(1,604)
(35)
(38)
(10)
26
(125)
(5)
1,200
(707)
(50)
827
36
(68)
(10)
(7)
21
(970)
970
(4,139)
3,795
(62)
(258)
31
(729)
7
29
(1,326)
(105)
716
(83)
(8)
(51)
40
(691)
(6)
558
(875)
(117)
573
62
(39)
(31)
(3)
(430)
(1,895)
1,895
(154)
760
(12)
(218)
22
(186)
4
16
232
360
356
716
411 $
611 $
(976) $
(939) $
(932)
Income tax payments, net
$
(25) $
(56) $
(33)
See accompanying Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Description
of
Business
Tenet Healthcare Corporation (together with our subsidiaries, referred to herein as “Tenet,” “we” or “us”) is a diversified healthcare services company. At
December 31, 2018 , we operated 68 hospitals ( three of which we have since divested), 23 surgical hospitals and approximately 475 outpatient centers through our
subsidiaries, partnerships and joint ventures, including USPI Holding Company, Inc. (“USPI”). We hold noncontrolling interests in 111 of these facilities, which
are recorded using the equity method of accounting. Our Conifer Holdings, Inc. (“Conifer”) subsidiary provides healthcare business process services in the areas of
hospital and physician revenue cycle management and value-based care solutions to healthcare systems, as well as individual hospitals, physician practices, self-
insured organizations, health plans and other entities .
Effective June 16, 2015, we completed a transaction that combined our freestanding ambulatory surgery and imaging center assets with the surgical
facility assets of United Surgical Partners International, Inc. into our joint venture, USPI. In April 2016, we paid $127 million to purchase additional shares, which
increased our ownership interest in USPI from 50.1% to approximately 56.3% . In July 2017, we paid $716 million for the purchase of additional shares and the
final adjustment to the 2016 purchase price, which increased our ownership interest in USPI to 80.0% . In April 2018, we paid approximately $630 million for the
purchase of an additional 15% ownership interest in USPI and the final adjustment to the 2017 purchase price, which increased our ownership interest in USPI to
95% .
Basis
of
Presentation
Our Consolidated Financial Statements include the accounts of Tenet and its wholly owned and majority-owned subsidiaries. We eliminate intercompany
accounts and transactions in consolidation, and we include the results of operations of businesses that are newly acquired in purchase transactions from their dates
of acquisition. We account for significant investments in other affiliated companies using the equity method. Unless otherwise indicated, all financial and statistical
data included in these notes to our Consolidated Financial Statements relate to our continuing operations, with dollar amounts expressed in millions (except per-
share amounts).
Effective January 1, 2018, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09, “Revenue
from Contracts with Customers (Topic 606)” (“ASU 2014-09”) using a modified retrospective method of application to all contracts existing on January 1, 2018.
The core principle of the guidance in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For our Hospital Operations and other
and Ambulatory Care segments, the adoption of ASU 2014-09 resulted in changes to our presentation and disclosure of revenue primarily related to uninsured or
underinsured patients. Prior to the adoption of ASU 2014-09, a significant portion of our provision for doubtful accounts related to self-pay patients, as well as co-
pays, co-insurance amounts and deductibles owed to us by patients with insurance. Under ASU 2014-09, the estimated uncollectable amounts due from these
patients are generally considered implicit price concessions that are a direct reduction to net operating revenues, with a corresponding material reduction in the
amounts presented separately as provision for doubtful accounts. For the year ended December 31, 2018 , we recorded approximately $1.422 billion of implicit
price concessions as a direct reduction of net operating revenues that would have been recorded as provision for doubtful accounts prior to the adoption of
ASU 2014-09. At January 1, 2018, we reclassified $171 million of revenues related to patients who were still receiving inpatient care in our facilities at that date
from accounts receivable, less allowance for doubtful accounts, to contract assets, which are included in other current assets in the accompanying Consolidated
Balance Sheet at December 31, 2018 . The adoption of ASU 2014-09 also resulted in changes to our presentation and disclosure of customer contract assets and
liabilities and the assessment of variable consideration under customer contracts, which are further discussed in Note 4.
Also effective January 1, 2018, we early adopted ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220)” (“ASU 2018-02”),
which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded income tax effects resulting from the Tax Cuts and
Jobs Act (the “Tax Act”) and requires certain disclosures about stranded income tax effects. We applied the amendments in ASU 2018-02 in the period of adoption,
resulting in a reclassification that decreased accumulated deficit and increased accumulated other comprehensive loss by $36 million of stranded income tax effects
in the year ended December 31, 2018.
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In addition, we adopted ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and
Financial Liabilities” (“ASU 2016-01”) effective January 1, 2018, which supersedes the guidance to classify equity securities with readily determinable fair values
into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships,
unincorporated joint ventures and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income. Upon
adoption of ASU 2016-01 on January 1, 2018, we recorded a cumulative effect adjustment to decrease accumulated deficit by $7 million for unrealized gains on
equity securities.
Effective January 1, 2017, we adopted ASU 2016-09, “Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based
Payment Accounting” (“ASU 2016-09”), which affects all entities that issue share-based payment awards to their employees. The guidance in ASU 2016-09
simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity
or liabilities, and classification on the statement of cash flows. Upon adoption of ASU 2016-09, we recorded previously unrecognized excess tax benefits of
$56 million as a deferred tax asset and a cumulative effect adjustment to accumulated deficit as of January 1, 2017. Prospectively, all excess tax benefits and
deficiencies will be recognized as income tax benefit or expense in our consolidated statement of operations when awards vest.
Also effective January 1, 2017, we early adopted ASU 2017-07, “Compensation – Retirement Benefits (Topic 715) Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”), which the FASB issued in March 2017. The amendments in ASU 2017-07
apply to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under
Topic 715 of the FASB Accounting Standards Codification (“ASC”). The guidance in ASU 2017-07 requires that an employer report the service cost component in
the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net
periodic benefit cost are required to be presented in the statement of operations separately from the service cost component and outside a subtotal of income from
operations. The line item or items used in the statement of operations to present the other components of net periodic benefit cost must be disclosed. The
amendments in ASU 2017-07 must be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension
cost and net periodic postretirement benefit cost in the statement of operations. As a result of the adoption of ASU 2017-07, we reclassified $28 million of net
periodic benefit cost from salaries, wages and benefits expense to other non-operating expense, net, in the accompanying Consolidated Statements of Operations
for the year ended December 31, 2016, and $16 million and $31 million of other components of net periodic benefit cost are included in other non-operating
expense, net, in the accompanying Consolidated Statement of Operations for the years ended December 31, 2018 and 2017 , respectively.
Certain prior-year amounts have also been reclassified to conform to current year presentation, primarily related to the format of disclosures in Note 14
that have been revised due to the adoption of ASU 2014-09 and the reclassification of previously held equity method investment changes due to acquisitions
presented in Note 21.
Use
of
Estimates
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), requires
us to make estimates and assumptions that affect the amounts reported in our Consolidated Financial Statements and these accompanying notes. We regularly
evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be
reasonable given the particular circumstances in which we operate. Although we believe all adjustments considered necessary for a fair presentation have been
included, actual results may vary from those estimates. Financial and statistical information we report to other regulatory agencies may be prepared on a basis other
than GAAP or using different assumptions or reporting periods and, therefore, may vary from amounts presented herein. Although we make every effort to ensure
that the information we report to those agencies is accurate, complete and consistent with applicable reporting guidelines, we cannot be responsible for the
accuracy of the information they make available to the public.
Translation
of
Foreign
Currencies
We divested European Surgical Partners Limited (“Aspen”) in August 2018; prior to that time, Aspen’s accounts were measured in its local currency (the
pound sterling) and then translated into U.S. dollars. All assets and liabilities were translated using the current rate of exchange at the balance sheet date. Results of
operations were translated using the average rates prevailing throughout the period of operations. Translation gains or losses resulting from changes in exchange
rates were accumulated in shareholders’ equity until we divested Aspen.
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Net
Operating
Revenues
ASU 2014-09 was issued to clarify the principles for recognizing revenue, to remove inconsistencies and weaknesses in revenue recognition requirements,
and to provide a more robust framework for addressing revenue issues. Our adoption of ASU 2014-09 was accomplished using a modified retrospective method of
application, and our accounting policies related to revenues were revised accordingly effective January 1, 2018, as discussed below.
We recognize net operating revenues in the period in which we satisfy our performance obligations under contracts by transferring our services to our
customers. Net operating revenues are recognized in the amounts to which we expect to be entitled, which are the transaction prices allocated to the distinct
services. Net operating revenues for our Hospital Operations and other and Ambulatory Care segments primarily consist of net patient service revenues, principally
for patients covered by Medicare, Medicaid, managed care and other health plans, as well as certain uninsured patients under our Compact with Uninsured Patients
(“ Compact ”) and other uninsured discount and charity programs. Net operating revenues for our Conifer segment primarily consist of revenues from providing
revenue cycle management services to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other
entities.
Net Patient Service Revenues— We report net patient service revenues at the amounts that reflect the consideration to which we expect to be entitled in
exchange for providing patient care. These amounts are due from patients, third-party payers (including managed care payers and government programs) and
others, and they include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews and investigations. Generally, we bill our
patients and third-party payers several days after the services are performed or shortly after discharge. Revenues are recognized as performance obligations are
satisfied.
We determine performance obligations based on the nature of the services we provide. We recognize revenues for performance obligations satisfied over
time based on actual charges incurred in relation to total expected charges. We believe that this method provides a faithful depiction of the transfer of services over
the term of performance obligations based on the inputs needed to satisfy the obligations. Generally, performance obligations satisfied over time relate to patients
in our hospitals receiving inpatient acute care services. We measure performance obligations from admission to the point when there are no further services
required for the patient, which is generally the time of discharge. We recognize revenues for performance obligations satisfied at a point in time, which generally
relate to patients receiving outpatient services, when: (1) services are provided; and (2) we do not believe the patient requires additional services.
Because our patient service performance obligations relate to contracts with a duration of less than one year, we have elected to apply the optional
exemption provided in ASC 606-10-50-14(a) and, therefore, we are not required to disclose the aggregate amount of the transaction price allocated to performance
obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The unsatisfied or partially unsatisfied performance obligations referred to
above are primarily related to inpatient acute care services at the end of the reporting period. The performance obligations for these contracts are generally
completed when the patients are discharged, which generally occurs within days or weeks of the end of the reporting period.
We determine the transaction price based on gross charges for services provided, reduced by contractual adjustments provided to third-party payers,
discounts provided to uninsured patients in accordance with our Compact , and implicit price concessions provided primarily to uninsured patients. We determine
our estimates of contractual adjustments and discounts based on contractual agreements, our discount policies and historical experience. We determine our estimate
of implicit price concessions based on our historical collection experience with these classes of patients using a portfolio approach as a practical expedient to
account for patient contracts as collective groups rather than individually. The financial statement effects of using this practical expedient are not materially
different from an individual contract approach.
Gross charges are retail charges. They are not the same as actual pricing, and they generally do not reflect what a hospital is ultimately paid and, therefore,
are not displayed in our consolidated statements of operations. Hospitals are typically paid amounts that are negotiated with insurance companies or are set by the
government. Gross charges are used to calculate Medicare outlier payments and to determine certain elements of payment under managed care contracts (such as
stop-loss payments). Because Medicare requires that a hospital’s gross charges be the same for all patients (regardless of payer category), gross charges are what
hospitals charge all patients prior to the application of discounts and allowances.
Revenues under the traditional fee-for-service Medicare and Medicaid programs are based primarily on prospective payment systems. Retrospectively
determined cost-based revenues under these programs, which were more prevalent in earlier periods, and certain other payments, such as Indirect Medical
Education, Direct Graduate Medical Education, disproportionate share hospital and bad debt expense reimbursement, which are based on our hospitals’ cost
reports, are estimated using
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historical trends and current factors. Cost report settlements under these programs are subject to audit by Medicare and Medicaid auditors and administrative and
judicial review, and it can take several years until final settlement of such matters is determined and completely resolved. Because the laws, regulations,
instructions and rule interpretations governing Medicare and Medicaid reimbursement are complex and change frequently, the estimates we record could change by
material amounts.
We have a system and estimation process for recording Medicare net patient service revenue and estimated cost report settlements. As a result, we record
accruals to reflect the expected final settlements on our cost reports. For filed cost reports, we record the accrual based on those cost reports and subsequent
activity, and record a valuation allowance against those cost reports based on historical settlement trends. The accrual for periods for which a cost report is yet to be
filed is recorded based on estimates of what we expect to report on the filed cost reports, and a corresponding valuation allowance is recorded as previously
described. Cost reports generally must be filed within five months after the end of the annual cost reporting period. After the cost report is filed, the accrual and
corresponding valuation allowance may need to be adjusted.
Settlements with third-party payers for retroactive revenue adjustments due to audits, reviews or investigations are considered variable consideration and
are included in the determination of the estimated transaction price for providing patient care using the most likely outcome method. These settlements are
estimated based on the terms of the payment agreement with the payer, correspondence from the payer and our historical settlement activity, including an
assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated
with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known (that is, new
information becomes available), or as years are settled or are no longer subject to such audits, reviews and investigations.
Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted fee-
for-service rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several
years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient’s bill is subject to
adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We
estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on
an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. Contractual
allowance estimates are periodically reviewed for accuracy by taking into consideration known contract terms, as well as payment history. We believe our
estimation and review process enables us to identify instances on a timely basis where such estimates need to be revised. We do not believe there were any
adjustments to estimates of patient bills that were material to our revenues. In addition, on a corporate-wide basis, we do not record any general provision for
adjustments to estimated contractual allowances for managed care plans. Managed care accounts, net of contractual allowances recorded, are further reduced to
their net realizable value through implicit price concessions based on historical collection trends for these payers and other factors that affect the estimation
process.
We know of no claims, disputes or unsettled matters with any payer that would materially affect our revenues for which we have not adequately provided
in the accompanying Consolidated Financial Statements.
Generally, patients who are covered by third-party payers are responsible for related co-pays, co-insurance and deductibles, which vary in amount. We
also provide services to uninsured patients and offer uninsured patients a discount from standard charges. We estimate the transaction price for patients with co-
pays, co-insurance and deductibles and for those who are uninsured based on historical collection experience and current market conditions. Under our Compact
and other uninsured discount programs, the discount offered to certain uninsured patients is recognized as a contractual allowance, which reduces net operating
revenues at the time the self-pay accounts are recorded. The uninsured patient accounts, net of contractual allowances recorded, are further reduced to their net
realizable value at the time they are recorded through implicit price concessions based on historical collection trends for self-pay accounts and other factors that
affect the estimation process. There are various factors that can impact collection trends, such as changes in the economy, which in turn have an impact on
unemployment rates and the number of uninsured and underinsured patients, the volume of patients through our emergency departments, the increased burden of
co-pays, co-insurance amounts and deductibles to be made by patients with insurance, and business practices related to collection efforts. These factors
continuously change and can have an impact on collection trends and our estimation process. Subsequent changes to the estimate of the transaction price are
generally recorded as adjustments to net patient service revenues in the period of the change.
We have provided implicit price concessions, primarily to uninsured patients and patients with co-pays, co-insurance and deductibles. The implicit price
concessions included in estimating the transaction price represent the difference between amounts billed to patients and the amounts we expect to collect based on
our collection history with similar patients. Although
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outcomes vary, our policy is to attempt to collect amounts due from patients, including co-pays, co-insurance and deductibles due from patients with insurance, at
the time of service while complying with all federal and state statutes and regulations, including, but not limited to, the Emergency Medical Treatment and Active
Labor Act (“EMTALA”). Generally, as required by EMTALA, patients may not be denied emergency treatment due to inability to pay. Therefore, services,
including the legally required medical screening examination and stabilization of the patient, are performed without delaying to obtain insurance information. In
non-emergency circumstances or for elective procedures and services, it is our policy to verify insurance prior to a patient being treated; however, there are various
exceptions that can occur. Such exceptions can include, for example, instances where (1) we are unable to obtain verification because the patient’s insurance
company was unable to be reached or contacted, (2) a determination is made that a patient may be eligible for benefits under various government programs, such as
Medicaid or Victims of Crime, and it takes several days or weeks before qualification for such benefits is confirmed or denied, and (3) under physician orders we
provide services to patients that require immediate treatment.
We also provide charity care to patients who are financially unable to pay for the healthcare services they receive. Most patients who qualify for charity
care are charged a per-diem amount for services received, subject to a cap. Except for the per-diem amounts, our policy is not to pursue collection of amounts
determined to qualify as charity care; therefore, we do not report these amounts in net operating revenues. Patient advocates from Conifer’s Medical Eligibility
Program screen patients in the hospital to determine whether those patients meet eligibility requirements for financial assistance programs. They also expedite the
process of applying for these government programs.
Conifer Revenues— Our Conifer segment recognizes revenue from its contracts when Conifer’s performance obligations are satisfied, which is generally
as services are rendered. Revenue is recognized in an amount that reflects the consideration to which Conifer expects to be entitled.
At contract inception, Conifer assesses the services specified in its contracts with customers and identifies a performance obligation for each distinct
contracted service. Conifer identifies the performance obligations and considers all the services provided under the contract. Conifer generally considers the
following distinct services as separate performance obligations:
•
•
•
•
•
revenue cycle management services;
value-based care services;
patient communication and engagement services;
consulting services; and
other client-defined projects.
Conifer’s contracts generally consist of fixed-price, volume-based or contingency-based fees. Conifer’s long-term contracts typically provide for Conifer
to deliver recurring monthly services over a multi-year period. The contracts are typically priced such that Conifer’s monthly fee to its customer represents the
value obtained by the customer in the month for those services. Such multi-year service contracts may have upfront fees related to transition or integration work
performed by Conifer to set up the delivery for the ongoing services. Such transition or integration work typically does not result in a separately identifiable
obligation; thus, the fees and expenses related to such work are deferred and recognized over the life of the related contractual service period. Revenue for fixed-
priced contracts is typically recognized at the time of billing unless evidence suggests that the revenue is earned or Conifer’s obligations are fulfilled in a different
pattern. Revenue for volume-based contracts is typically recognized as the services are being performed at the contractually billable rate, which is generally a
percentage of collections or a percentage of client net patient revenue.
Electronic
Health
Record
Incentives
Under certain provisions of the American Recovery and Reinvestment Act of 2009 (“ARRA”), federal incentive payments are available to hospitals,
physicians and certain other professionals when they adopt, implement or upgrade (“AIU”) certified electronic health record (“EHR”) technology or become
“meaningful users,” as defined under ARRA, of EHR technology in ways that demonstrate improved quality, safety and effectiveness of care. We recognize
Medicaid EHR incentive payments in our consolidated statements of operations for the first payment year when: (1) CMS approves a state’s EHR incentive plan;
and (2) our hospital or employed physician acquires certified EHR technology (i.e., when AIU criteria are met). Medicaid EHR incentive payments for subsequent
payment years are recognized in the period during which the specified meaningful use criteria are met. We recognize Medicare EHR incentive payments when: (1)
the specified meaningful use
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criteria are met; and (2) contingencies in estimating the amount of the incentive payments to be received are resolved. During the years ended December 31, 2018 ,
2017 and 2016 , certain of our hospitals and physicians satisfied the CMS AIU and/or meaningful use criteria. As a result, we recognized $3 million , $9 million
and $32 million of Medicare and Medicaid EHR incentive payments as a reduction to expense in the accompanying Consolidated Statement of Operations for the
years ended December 31, 2018 , 2017 and 2016 , respectively.
Cash
and
Cash
Equivalents
We treat highly liquid investments with original maturities of three months or less as cash equivalents. Cash and cash equivalents were $411 million and
$611 million at December 31, 2018 and 2017 , respectively. At December 31, 2018 and 2017 , our book overdrafts were $288 million and $311 million ,
respectively, which were classified as accounts payable.
At December 31, 2018 and 2017 , $177 million and $179 million , respectively, of total cash and cash equivalents in the accompanying Consolidated
Balance Sheets were intended for the operations of our captive insurance subsidiaries, and $8 million and $30 million , respectively, of total cash and cash
equivalents in the accompanying Consolidated Balance Sheets were intended for the operations of our health plan-related businesses.
Also at December 31, 2018 and 2017 , we had $135 million and $117 million , respectively, of property and equipment purchases accrued for items
received but not yet paid. Of these amounts, $114 million and $79 million , respectively, were included in accounts payable.
During the years ended December 31, 2018 and 2017 , we recorded non-cancellable capital leases of $149 million and $162 million , respectively,
primarily for equipment.
Investments
in
Debt
and
Equity
Securities
Prior to the adoption of ASU 2016-01 on January 1, 2018, we classified investments in debt and equity securities as either available-for-sale, held-to-
maturity or as part of a trading portfolio. At December 31, 2017, we had no significant investments in securities classified as either held-to-maturity or trading. We
carried securities classified as available-for-sale at fair value. We reported their unrealized gains and losses, net of taxes, as accumulated other comprehensive
income (loss) unless we determined that a loss was other-than-temporary, at which point we would record a loss in our consolidated statements of operations. We
included realized gains or losses in our consolidated statements of operations based on the specific identification method.
Subsequent to the adoption of ASU 2016-01 on January 1, 2018, we classify investments in debt securities as either available-for-sale, held-to-maturity or
as part of a trading portfolio, but these classifications are no longer applicable to equity securities. At December 31, 2018 , we had no significant investments in
debt securities classified as either held-to-maturity or trading. We carry debt securities classified as available-for-sale at fair value. We report their unrealized gains
and losses, net of taxes, as accumulated other comprehensive income (loss) unless we determine that a loss is other-than-temporary, at which point we would
record a loss in our consolidated statements of operations. We carry equity securities at fair value, and we report their unrealized gains and losses in other non-
operating expense, net, in our consolidated statements of operations. We include realized gains or losses in our consolidated statements of operations based on the
specific identification method.
Investments
in
Unconsolidated
Affiliates
We control 227 of the facilities within our Ambulatory Care segment and, therefore, consolidate their results. We account for many of the facilities our
Ambulatory Care segment operates ( 110 of 337 at December 31, 2018 ), as well as additional companies in which our Hospital Operations and other segment
holds ownership interests, under the equity method as investments in unconsolidated affiliates and report only our share of net income as equity in earnings of
unconsolidated affiliates in the accompanying Consolidated Statements of Operations. Summarized financial information for these equity method investees is
included in the following table; among the equity method investees are four North Texas hospitals in which we held minority interests and that were operated by
our Hospital Operations and other segment through the divestiture of these investments effective March 1, 2018. We recorded a gain of $11 million in the year
ended December 31, 2018 due to the sales of our minority interest in these hospitals. For investments acquired during the reported periods, amounts reflect 100%
of the investee’s results beginning on the date of our acquisition of the investment.
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Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Noncontrolling interests
Net operating revenues
Net income
Net income attributable to the investees
December 31, 2018
December 31, 2017
December 31, 2016
842
662
(313)
(430)
(530)
$
$
$
$
$
805
1,223
(354)
(389)
(490)
Years Ended December 31,
2018
2017
2,469
599
372
$
$
$
2,907
558
363
$
$
$
$
$
$
$
$
943
991
(320)
(345)
(494)
2016
2,823
573
343
$
$
$
$
$
$
$
$
Our equity method investment that contributes the most to our equity in earnings of unconsolidated affiliates is Texas Health Ventures Group, LLC (“THVG”),
which is operated by USPI. THVG represented $70 million of the total $150 million equity in earnings of unconsolidated affiliates we recognized for the year
ended December 31, 2018 , $69 million of the total $144 million equity in earnings of unconsolidated affiliates we recognized for the year ended
December 31, 2017 and $61 million of the total $131 million equity in earnings of unconsolidated affiliates we recognized for the year ended December 31, 2016 .
Property
and
Equipment
Additions and improvements to property and equipment exceeding established minimum amounts with a useful life greater than one year are capitalized at
cost. Expenditures for maintenance and repairs are charged to expense as incurred. We use the straight-line method of depreciation for buildings, building
improvements and equipment. The estimated useful life for buildings and improvements is primarily 15 to 40 years, and for equipment three to 15 years. Newly
constructed hospitals are usually depreciated over 50 years. We record capital leases at the beginning of the lease term as assets and liabilities. The value recorded
is the lower of either the present value of the minimum lease payments or the fair value of the asset. Such assets, including improvements, are generally amortized
over the shorter of either the lease term or their estimated useful life. Interest costs related to construction projects are capitalized. In the years ended
December 31, 2018 , 2017 and 2016 , capitalized interest was $7 million , $15 million and $22 million , respectively.
We evaluate our long-lived assets for possible impairment annually or whenever events or changes in circumstances indicate that the carrying amount of
the asset, or related group of assets, may not be recoverable from estimated future undiscounted cash flows. If the estimated future undiscounted cash flows are less
than the carrying value of the assets, we calculate the amount of an impairment if the carrying value of the long-lived assets exceeds the fair value of the assets.
The fair value of the assets is estimated based on appraisals, established market values of comparable assets or internal estimates of future net cash flows expected
to result from the use and ultimate disposition of the asset. The estimates of these future cash flows are based on assumptions and projections we believe to be
reasonable and supportable. They require our subjective judgments and take into account assumptions about revenue and expense growth rates. These assumptions
may vary by type of facility and presume stable, improving or, in some cases, declining results at our hospitals, depending on their circumstances.
We report long-lived assets to be disposed of at the lower of their carrying amounts or fair values less costs to sell. In such circumstances, our estimates of
fair value are based on appraisals, established market prices for comparable assets or internal estimates of future net cash flows.
Goodwill
and
Other
Intangible
Assets
Goodwill represents the excess of costs over the fair value of assets of businesses acquired. Goodwill and other intangible assets acquired in purchase
business combinations and determined to have indefinite useful lives are not amortized, but instead are subject to impairment tests performed at least annually. For
goodwill, we perform the test at the reporting unit level when events occur that require an evaluation to be performed or at least annually. If we determine the
carrying value of goodwill is impaired, or if the carrying value of a business that is to be sold or otherwise disposed of exceeds its fair value, we reduce the carrying
value, including any allocated goodwill, to fair value. Estimates of fair value are based on appraisals, established market prices for comparable assets or internal
estimates of future net cash flows and presume stable, improving or, in some cases, declining results at our hospitals, depending on their circumstances.
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Other intangible assets primarily consist of capitalized software costs, which are amortized on a straight-line basis over the estimated useful life of the
software, which ranges from three to 15 years, costs of acquired management and other contract service rights, most of which have indefinite lives, and
miscellaneous intangible assets.
Accruals
for
General
and
Professional
Liability
Risks
We accrue for estimated professional and general liability claims, when they are probable and can be reasonably estimated. The accrual, which includes
an estimate for incurred but not reported claims, is updated each quarter based on a model of projected payments using case-specific facts and circumstances and
our historical loss reporting, development and settlement patterns and is discounted to its net present value using a risk-free discount rate of 2.59% at
December 31, 2018 and 2.33% at December 31, 2017 . To the extent that subsequent claims information varies from our estimates, the liability is adjusted in the
period such information becomes available. Malpractice expense is presented within other operating expenses in the accompanying Consolidated Statements of
Operations.
Income
Taxes
We account for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Income tax receivables and
liabilities and deferred tax assets and liabilities are recognized based on the amounts that more likely than not will be sustained upon ultimate settlement with
taxing authorities.
Developing our provision for income taxes and analysis of uncertain tax positions requires significant judgment and knowledge of federal and state
income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be
required for deferred tax assets.
We assess the realization of our deferred tax assets to determine whether an income tax valuation allowance is required. Based on all available evidence,
both positive and negative, and the weight of that evidence to the extent such evidence can be objectively verified, we determine whether it is more likely than not
that all or a portion of the deferred tax assets will be realized. The main factors that we consider include:
•
•
•
•
•
Cumulative profits/losses in recent years, adjusted for certain nonrecurring items;
Income/losses expected in future years;
Unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels;
The availability, or lack thereof, of taxable income in prior carryback periods that would limit realization of tax benefits; and
The carryforward period associated with the deferred tax assets and liabilities.
We consider many factors when evaluating our uncertain tax positions, and such judgments are subject to periodic review. Tax benefits associated with
uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is
satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the
position has expired. Tax benefits associated with an uncertain tax position are derecognized in the period in which the more likely than not recognition threshold is
no longer satisfied.
Segment
Reporting
We primarily operate acute care hospitals and related healthcare facilities. Our Hospital Operations and other segment generated 80% , 82% and 83% of
our net operating revenues net of implicit price concessions and provision for doubtful accounts in the years ended December 31, 2018 , 2017 and 2016 ,
respectively. At December 31, 2018 , each of our markets related to our general hospitals reported directly to our president of hospital operations. Major decisions,
including capital resource allocations, are made at the consolidated level, not at the market or hospital level.
Our Hospital Operations and other segment is comprised of our acute care and specialty hospitals, ancillary outpatient facilities, urgent care centers,
microhospitals and physician practices. As described in Note 5 , certain of our facilities were classified as held for sale in the accompanying Consolidated Balance
Sheet at December 31, 2018 . Our Ambulatory Care
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segment is comprised of the operations of USPI and included nine Aspen facilities in the United Kingdom until their divestiture effective August 17, 2018. Our
Conifer segment provides healthcare business process services in the areas of hospital and physician revenue cycle management and value-based care solutions to
healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities . The factors for determining the
reportable segments include the manner in which management evaluates operating performance combined with the nature of the individual business activities.
Costs
Associated
With
Exit
or
Disposal
Activities
We recognize costs associated with exit (including restructuring) or disposal activities when they are incurred and can be measured at fair value, rather
than at the date of a commitment to an exit or disposal plan.
NOTE 2. EQUITY
Noncontrolling
Interests
Our noncontrolling interests balances at December 31, 2018 and 2017 in the accompanying Consolidated Statements of Changes in Equity were
comprised of $112 million and $64 million , respectively, from our Hospital Operations and other segment, and $694 million and $622 million , respectively, from
our Ambulatory Care segment. Our net income attributable to noncontrolling interests for the years ended December 31, 2018 , 2017 and 2016 were comprised of
$8 million , $11 million and $11 million , respectively, from our Hospital Operations and other segment, and $157 million , $134 million and $127 million ,
respectively, from our Ambulatory Care segment.
NOTE 3. ACCOUNTS RECEIVABLE
The principal components of accounts receivable are shown in the table below:
Continuing operations:
Patient accounts receivable
Allowance for doubtful accounts
Estimated future recoveries
Net cost reports and settlements payable and valuation allowances
Discontinued operations
Accounts receivable, net
December 31, 2018
December 31, 2017
$
$
2,427 $
—
148
18
2,593
2
2,595 $
3,376
(898)
132
4
2,614
2
2,616
Accounts that are pursued for collection through Conifer’s business offices are maintained on our hospitals’ books and reflected in patient accounts
receivable. For patient accounts receivable resulting from revenue recognized prior to January 1, 2018, an allowance for doubtful accounts was established to
reduce the carrying value of such receivables to their estimated net realizable value. Generally, we estimated this allowance based on the aging of our accounts
receivable by hospital, our historical collection experience by hospital and for each type of payer, and other relevant factors. At December 31, 2017 , our allowance
for doubtful accounts was 26.6% of our patient accounts receivable. Under the provisions of ASC 2014-09, which we adopted effective January 1, 2018, when we
have an unconditional right to payment, subject only to the passage of time, the right is treated as a receivable. Patient accounts receivable, including billed
accounts and unbilled accounts for which we have the unconditional right to payment, and estimated amounts due from third-party payers for retroactive
adjustments, are receivables if our right to consideration is unconditional and only the passage of time is required before payment of that consideration is due. For
patient accounts receivable subsequent to our adoption of ASU 2014-09 on January 1, 2018, the estimated uncollectable amounts are generally considered implicit
price concessions that are a direct reduction to patient accounts receivable rather than allowance for doubtful accounts.
Accounts assigned to Conifer are written off and excluded from patient accounts receivable; however, an estimate of future recoveries from all accounts at
Conifer is determined based on historical experience and recorded on our hospitals’ books as a component of accounts receivable in the accompanying
Consolidated Balance Sheets.
We also provide charity care to patients who are financially unable to pay for the healthcare services they receive. Most patients who qualify for charity
care are charged a per-diem amount for services received, subject to a cap. Except for the per-diem amounts, our policy is not to pursue collection of amounts
determined to qualify as charity care; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care
in the determination
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of a hospital’s eligibility for Medicaid disproportionate share hospital (“DSH”) payments. These payments are intended to mitigate our cost of uncompensated care,
as well as reduced Medicaid funding levels. Generally, our method of measuring the estimated costs uses adjusted self-pay/charity patient days multiplied by
selected operating expenses (which include salaries, wages and benefits, supplies and other operating expenses and which exclude the costs of our health plan
businesses) per adjusted patient day. The adjusted self-pay/charity patient days represents actual self-pay/charity patient days adjusted to include self-pay/charity
outpatient services by multiplying actual self-pay/charity patient days by the sum of gross self-pay/charity inpatient revenues and gross self-pay/charity outpatient
revenues and dividing the results by gross self-pay/charity inpatient revenues. The table below shows our estimated costs of caring for our self-pay patients and
charity care patients, as well as revenues attributable to Medicaid DSH and other supplemental revenues we recognized in the years ended December 31, 2018 ,
2017 and 2016 .
Estimated costs for:
Self-pay patients
Charity care patients
Total
Medicaid DSH and other supplemental revenues
Years Ended December 31,
2018
2017
2016
$
$
$
640 $
124
764 $
847 $
648 $
121
769 $
864 $
609
138
747
906
We had $278 million and $231 million of receivables recorded in other current assets and investments and other assets, respectively, and $100 million and $42
million of payables recorded in other current liabilities and other long-term liabilities, respectively, in the accompanying Consolidated Balance Sheet at
December 31, 2018 related to California’s provider fee program. We had $312 million and $266 million of receivables recorded in other current assets and
investments and other assets, respectively, and $159 million and $49 million of payables recorded in other current liabilities and other long-term liabilities,
respectively, in the accompanying Consolidated Balance Sheet at December 31, 2017 related to California’s provider fee program.
NOTE 4. CONTRACT BALANCES
Hospital
Operations
and
Other
Segment
Under the provisions of ASU 2014-09, which we adopted effective January 1, 2018, amounts related to services provided to patients for which we have
not billed and that do not meet the conditions of unconditional right to payment at the end of the reporting period are contract assets. For our Hospital Operations
and other segment, our contract assets consist primarily of services that we have provided to patients who are still receiving inpatient care in our facilities at the end
of the reporting period. Our Hospital Operations and other segment’s contract assets are included in other current assets in the accompanying Consolidated Balance
Sheet at December 31, 2018. The opening and closing balances of contract assets for our Hospital Operations and other segment are as follows:
January 1,
December 31,
Increase/(decrease)
2018
2017
$
$
171 $
169
(2) $
—
—
—
The increase in the contract asset balances from the year ended December 31, 2018 compared to the year ended December 31, 2017 is due to the
implementation of ASU 2014-09 effective January 1, 2018 using a modified retrospective method of application. Prior to January 1, 2018, amounts related to
services provided to patients for which we had not billed were included in accounts receivable, less allowance for doubtful accounts, in our consolidated balance
sheets. Approximately 89% of our Hospital Operations and other segment’s contract assets meet the conditions for unconditional right to payment and are
reclassified to patient receivables within 90 days.
Conifer
Segment
Conifer enters into contracts with customers to sell revenue cycle management and other services, such as value-based care, consulting and project
services. The payment terms and conditions in our customer contracts vary. In some cases, customers are invoiced in advance and (for other than fixed-price fee
arrangements) a true-up to the actual fee is included on a subsequent invoice. In other cases, payment is due in arrears. In addition, some contracts contain
performance incentives, penalties and other forms of variable consideration. When the timing of Conifer’s delivery of services is different from the timing of
payments made by the customers, Conifer recognizes either unbilled revenue (performance precedes contractual right
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to invoice the customer) or deferred revenue (customer payment precedes Conifer service performance). In the following table, customers that prepay prior to
obtaining control/benefit of the service are represented by deferred contract revenue until the performance obligations are satisfied. Unbilled revenue represents
arrangements in which Conifer has provided services to and the customer has obtained control/benefit of services prior to the contractual invoice date. Contracts
with payment in arrears are recognized as receivables in the month the service is performed.
The opening and closing balances of Conifer’s receivables, contract asset, and current and long-term contract liabilities are as follows:
January 1, 2018
December 31, 2018
Increase/(decrease)
January 1, 2017
December 31, 2017
Increase/(decrease)
Contract Asset-
Current
Long-Term
Contract Liability-
Contract Liability-
Receivables
Unbilled Revenue
Deferred Revenue
Deferred Revenue
$
$
$
$
$
89
42
(47)
$
67
89
22
$
$
10 $
11
1 $
8 $
10
2 $
$
80
61
(19)
$
76
80
4
$
$
21
20
(1)
26
21
(5)
The difference between the opening and closing balances of Conifer’s contract assets and contract liabilities are primarily related to prepayments for those
customers who are billed in advance, changes in estimates related to metric-based services, and up-front integration services that are typically not distinct and are,
therefore, recognized over the performance obligation period to which they relate. Our Conifer segment’s receivables and contract assets are reported as part of
other current assets in our accompanying Consolidated Balance Sheets, and our Conifer segment’s current and long-term contract liabilities are reported as part of
other current liabilities and other long-term liabilities, respectively, in our accompanying Consolidated Balance Sheets.
The amount of revenue Conifer recognized in the years ended December 31, 2018 and 2017 that was included in the opening current deferred revenue
liability was $72 million and $73 million , respectively. This revenue consists primarily of prepayments for those customers who are billed in advance, changes in
estimates related to metric-based services, and up-front integration services that are recognized over the services period.
Contract
Costs
We have elected to apply the practical expedient provided by ASC 340-40-25-4 and expense as incurred the incremental customer contract acquisition
costs for contracts in which the amortization period of the asset that we otherwise would have recognized is one year or less. However, incremental costs incurred
to obtain and fulfill customer contracts for which the amortization period of the asset that we otherwise would have recognized is longer than one year, which
consist primarily of Conifer deferred contract setup costs, are capitalized and amortized on a straight-line basis over the lesser of their estimated useful lives or the
term of the related contract. During the years ended December 31, 2018 , 2017 and 2016 , we recognized amortization expense of $11 million , $10 million and 7
million , respectively. At December 31, 2018 and 2017 , the unamortized customer contract costs were $28 million and $35 million , respectively, and are presented
as part of investments and other assets in the accompanying Consolidated Balance Sheets.
NOTE 5. ASSETS AND LIABILITIES HELD FOR SALE
In the three months ended December 31, 2017, three of our hospitals in the Chicago area, as well as other operations affiliated with the hospitals, met the
criteria to be classified as held for sale. As a result, we have classified these assets totaling $107 million as “assets held for sale” in current assets and the related
liabilities of $43 million as “liabilities held for sale” in current liabilities in the accompanying Consolidated Balance Sheet at December 31, 2018 . These assets and
liabilities, which were in our Hospital Operations and other segment until their divestiture on January 28, 2019, were recorded at the lower of their carrying amount
or their fair value less estimated costs to sell. We recorded impairment charges of $24 million and $73 million in the years ended December 31, 2018 and
December 31, 2017 , respectively, for the write-down of the assets held for sale to their estimated fair value, less estimated costs to sell, as a result of the planned
divestiture of these assets.
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Assets and liabilities classified as held for sale at December 31, 2018 were comprised of the following:
Accounts receivable
Other current assets
Investments and other long-term assets
Property and equipment
Current liabilities
Long-term liabilities
Net assets held for sale
$
$
54
13
1
39
(36)
(7)
64
In the three months ended December 31, 2018, we completed the sale of certain assets and the related liabilities of our health plan in California; these
assets and the related liabilities were classified as held for sale in the three months ended December 31, 2017. As a result of this transaction, we recorded a gain on
sale of $36 million and received net pre-tax cash proceeds of $53 million in the year ended December 31, 2018 .
In the three months ended September 30, 2018, we completed the sale of our nine Aspen facilities in the United Kingdom for net pre-tax cash proceeds of
approximately $15 million ; these assets met the criteria to be classified as held for sale in the three months ended September 30, 2017. We recorded impairment
charges related to this transaction of $9 million and $59 million in the years ended December 31, 2018 and 2017, respectively, for the write-down of assets held for
sale to their estimated fair value, less estimated costs to sell.
In the three months ended June 30, 2018, we completed the sale of our hospital, physician practices and other hospital-affiliated operations in St. Louis,
Missouri; these assets met the criteria to be classified as held for sale in the three months ended December 31, 2017. As a result of this transaction, we recorded a
gain on sale of $12 million and received net pre-tax cash proceeds of $54 million in the three months ended June 30, 2018.
In the three months ended March 31, 2018, we completed the sale of MacNeal Hospital, which is located in a suburb of Chicago, and other operations
affiliated with the hospital; these assets met the criteria to be classified as held for sale in the three months ended September 30, 2017. As a result of this
transaction, we recorded a gain on sale of $90 million and received net pre-tax cash proceeds of $241 million after post-closing adjustments in the year ended
December 31, 2018 .
Also in the three months ended March 31, 2018, we completed the sale of our hospitals, physician practices and related assets in Philadelphia,
Pennsylvania and the surrounding area; these assets met the criteria to be classified as held for sale in the three months ended September 30, 2017. As a result of
the transaction, we recorded a loss on sale of $21 million and received net pre-tax proceeds of $132 million in cash after post-closing adjustments and a secured
promissory note for $17.5 million in the year ended December 31, 2018. We recorded impairment charges related to this transaction of $232 million in the year
ended December 31, 2017 for the write-down of assets held for sale to their estimated fair value, less estimated costs to sell.
The real estate related to Abrazo Maryvale Hospital in Arizona, which we closed in December 2017, was divested in the three months ended
March 31, 2018, resulting in net pre-tax proceeds of $7 million . The real estate was classified as held for sale in the three months ended December 31, 2017.
In the three months ended September 30, 2017, we completed the sale of our hospitals, physician practices and related assets in Houston, Texas and the
surrounding area for net proceeds of approximately $750 million ; these assets met the criteria to be classified as held for sale in the three months ended June 30,
2017. We recognized a gain on sale related to this transaction of $111 million in the year ended December 31, 2017. We recorded a loss on sale of $10 million for
post-closing adjustments related to this transaction in the year ended December 31, 2018.
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The following table provides information on significant components of our business that have been recently disposed of or are classified as held for sale at
December 31, 2018:
Significant disposals:
Income (loss) from continuing operations, before income taxes
Houston (includes a $111 million gain on sale in the 2017 period)
Philadelphia (includes $232 million of impairment charges in the 2017 period)
MacNeal (includes a $90 million gain on sale in the 2018 period)
Aspen (includes $59 million of impairment charges in the 2017 period)
Total
Total
Significant planned divestitures classified as held for sale:
Loss from continuing operations, before income taxes
Chicago area (includes $24 million of impairment charges in the 2018 period and $73 million
in the 2017 period)
Years Ended December 31,
2018
2017
2016
$
$
$
$
(10) $
(29) $
93
(6) $
48
133 $
(255) $
27
(68) $
(163)
(41)
(41) $
(82)
(82) $
67
(75)
29
(16)
5
(1)
(1)
During the year ended December 31, 2017, we completed the sales of certain of our health plan businesses (or the membership thereof) in Michigan,
Arizona and Texas at transaction prices of $20 million , $13 million and $12 million , respectively, and recognized gains on the sales of $3 million , $13 million
and $10 million , respectively. These assets met the criteria to be classified as held for sale in the three months ended September 30, 2016.
During the year ended December 31, 2016, we completed the sale of our hospitals, physician practices and related assets in Georgia at a transaction price
of approximately $575 million and recognized a gain on sale of $113 million . These assets met the criteria to be classified as held for sale in the three months
ended June 30, 2015.
NOTE 6. IMPAIRMENT AND RESTRUCTURING CHARGES, AND ACQUISITION-RELATED COSTS
We recognized impairment charges on long-lived assets in 2018 , 2017 and 2016 because the fair values of those assets or groups of assets indicated that
the carrying amount was not recoverable. The fair value estimates were derived from appraisals, established market values of comparable assets, or internal
estimates of future net cash flows. These fair value estimates can change by material amounts in subsequent periods. Many factors and assumptions can impact the
estimates, including the future financial results of the hospitals, how the hospitals are operated in the future, changes in healthcare industry trends and regulations,
and the nature of the ultimate disposition of the assets. In certain cases, these fair value estimates assume the highest and best use of hospital assets in the future to
a market place participant is other than as a hospital. In these cases, the estimates are based on the fair value of the real property and equipment if utilized other
than as a hospital. The impairment recognized does not include the costs of closing the hospitals or other future operating costs, which could be substantial.
Accordingly, the ultimate net cash realized from the hospitals, should we choose to sell them, could be significantly less than their impaired value.
Our impairment tests presume stable, improving or, in some cases, declining operating results in our facilities, which are based on programs and
initiatives being implemented that are designed to achieve the facility’s most recent projections. If these projections are not met, or if in the future negative trends
occur that impact our future outlook, impairments of long-lived assets and goodwill may occur, and we may incur additional restructuring charges, which could be
material.
At December 31, 2018 , our continuing operations consisted of three reportable segments, Hospital Operations and other, Ambulatory Care and Conifer.
Our segments are reporting units used to perform our goodwill impairment analysis. We completed our annual impairment tests for goodwill as of October 1, 2018.
During the year ended December 31, 2017, we changed our annual quantitative goodwill impairment testing date from December 31 to October 1 of each year. The
change in the goodwill impairment test date better aligns the impairment testing procedures with the timing of our long-term planning process, which is a
significant input to the testing. Also, during January 2017, our Florida, Northeast and Southern regions and our Detroit market were combined to form our then
Eastern region. Subsequent to this change, our Hospital Operations and other segment was comprised of our then Eastern, Texas and Western regions, which were
our reporting units used to perform our goodwill impairment analysis. During October 2017, we further reorganized our business such that our regional
management layer was eliminated. Due to this reorganization, our previous region reporting units for our Hospital Operations
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and other segment were combined into one reporting unit. The change in testing date and the change in reporting units did not delay, accelerate or avoid a goodwill
impairment charge.
We periodically incur costs to implement restructuring efforts for specific operations, which are recorded in our statement of operations as they are
incurred. Our restructuring plans focus on various aspects of operations, including aligning our operations in the most strategic and cost-effective structure. Certain
restructuring and acquisition-related costs are based on estimates. Changes in estimates are recognized as they occur.
Year
Ended
December
31,
2018
During the year ended December 31, 2018 , we recorded impairment and restructuring charges and acquisition-related costs of $209 million , consisting of
$77 million of impairment charges , $115 million of restructuring charges and $17 million of acquisition-related costs. Impairment charges included $40 million for
the write-down of buildings and other long-lived assets to their estimated fair values at two hospitals. Material adverse trends in our most recent estimates of future
undiscounted cash flows of the hospitals indicated the carrying value of the hospitals’ long-lived assets was not recoverable from the estimated future cash flows.
We believe the most significant factors contributing to the adverse financial trends included reductions in volumes of insured patients, shifts in payer mix from
commercial to governmental payers combined with reductions in reimbursement rates from governmental payers, and high levels of uninsured patients. As a result,
we updated the estimate of the fair value of the hospitals’ long-lived assets and compared the fair value estimate to the carrying value of the hospitals’ long-lived
assets. Because the fair value estimates were lower than the carrying value of the long-lived assets, an impairment charge was recorded for the difference in the
amounts. The aggregate carrying value of assets held and used of the hospitals for which impairment charges were recorded was $130 million at
December 31, 2018 after recording the impairment charges. We also recorded $24 million of charges to write-down assets held for sale to their estimated fair value,
less estimated costs to sell, for certain of our Chicago-area facilities , $9 million of charges to write-down assets held for sale to their estimated fair value, less
estimated costs to sell, for Aspen and $4 million of other impairment charges. Of the total impairment charges recognized for the year ended December 31, 2018 ,
$67 million related to our Hospital Operations and other segment, $9 million related to our Ambulatory Care segment, and $1 million related to our Conifer
segment. Restructuring charges consisted of $68 million of employee severance costs , $17 million of contract and lease termination fees , and $30 million of other
restructuring costs . Acquisition-related costs consisted of $10 million of transaction costs and $7 million of acquisition integration charges .
Year
Ended
December
31,
2017
During the year ended December 31, 2017 , we recorded impairment and restructuring charges and acquisition-related costs of $541 million , consisting of
$402 million of impairment charges, $117 million of restructuring charges and $22 million of acquisition-related costs. Impairment charges consisted of
$364 million of charges to write-down assets held for sale to their estimated fair value, less estimated costs to sell, for Aspen, our Philadelphia-area facilities and
certain of our Chicago-area facilities, $31 million for the impairment of two equity method investments and $7 million to write-down intangible assets. Of the total
impairment charges recognized for the year ended December 31, 2017 , $337 million related to our Hospital Operations and other segment, $63 million related to
our Ambulatory Care segment, and $2 million related to our Conifer segment. Restructuring charges consisted of $82 million of employee severance costs, $15
million of contract and lease termination fees, and $20 million of other restructuring costs. Acquisition-related costs consisted of $6 million of transaction costs and
$16 million of acquisition integration charges.
Year
Ended
December
31,
2016
During the year ended December 31, 2016 , we recorded impairment and restructuring charges and acquisition-related costs of $202 million . This amount
included impairment charges of $54 million for the write-down of buildings, equipment and other long-lived assets, primarily capitalized software costs classified
as other intangible assets, to their estimated fair values at four hospitals. Material adverse trends in our estimates of future undiscounted cash flows of the hospitals
at that time indicated the carrying value of the hospitals’ long-lived assets was not recoverable from the estimated future cash flows. We believe the most
significant factors contributing to the adverse financial trends included reductions in volumes of insured patients, shifts in payer mix from commercial to
governmental payers combined with reductions in reimbursement rates from governmental payers, and high levels of uninsured patients. As a result, we updated
the estimate of the fair value of the hospitals’ long-lived assets and compared the fair value estimate to the carrying value of the hospitals’ long-lived assets.
Because the fair value estimates were lower than the carrying value of the long-lived assets, an impairment charge was recorded for the difference in the amounts.
The aggregate carrying value of assets held and used of the hospitals for which impairment charges were recorded was $163 million at December 31, 2016 after
recording the impairment charges. We also recorded $19 million of impairment charges related to investments and $14 million related to other intangible assets,
primarily contract-related intangibles and
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capitalized software costs not associated with the hospitals described above. Of the total impairment charges recognized for the year ended December 31, 2016 ,
$76 million related to our Hospital Operations and other segment, $8 million related to our Ambulatory Care segment, and $3 million related to our Conifer
segment. We also recorded $35 million of employee severance costs, $14 million of restructuring costs, $14 million of contract and lease termination fees, and $52
million in acquisition-related costs, which include $20 million of transaction costs and $32 million of acquisition integration costs.
NOTE 7. LONG-TERM DEBT AND LEASE OBLIGATIONS
The table below shows our long-term debt as of December 31, 2018 and 2017 :
December 31, 2018
December 31, 2017
Senior unsecured notes:
5.500% due 2019
6.750% due 2020
8.125% due 2022
6.750% due 2023
7.000% due 2025
6.875% due 2031
Senior secured first lien notes:
4.750% due 2020
6.000% due 2020
4.500% due 2021
4.375% due 2021
4.625% due 2024
Senior secured second lien notes:
7.500% due 2022
5.125% due 2025
Capital leases
Mortgage notes
Unamortized issue costs, note discounts and premiums
Total long-term debt
Less current portion
$
$
468
300
2,800
1,872
478
362
500
1,800
850
1,050
1,870
750
1,410
425
75
(184)
14,826
182
Long-term debt, net of current portion
$
14,644
$
500
300
2,800
1,900
500
430
500
1,800
850
1,050
1,870
750
1,410
431
77
(231)
14,937
146
14,791
Credit
Agreement
We have a senior secured revolving credit facility (as amended, the “Credit Agreement”) that provides, subject to borrowing availability, for revolving
loans in an aggregate principal amount of up to $1 billion , with a $300 million subfacility for standby letters of credit. Obligations under the Credit Agreement,
which has a scheduled maturity date of December 4, 2020, are guaranteed by substantially all of our domestic wholly owned hospital subsidiaries and are secured
by a first-priority lien on the accounts receivable owned by us and the subsidiary guarantors. Outstanding revolving loans accrue interest at a base rate plus a
margin ranging from 0.25% to 0.75% per annum or the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.25% to 1.75% per annum, in each
case based on available credit. An unused commitment fee payable on the undrawn portion of the revolving loans ranges from 0.25% to 0.375% per annum based
on available credit. Our borrowing availability is based on a specified percentage of eligible accounts receivable, including self-pay accounts . At
December 31, 2018 , we were in compliance with all covenants and conditions in our Credit Agreement. At December 31, 2018 , we had no cash borrowings
outstanding under the Credit Agreement and we had $2 million of standby letters of credit outstanding. Based on our eligible receivables, $998 million was
available for borrowing under the Credit Agreement at December 31, 2018 . Our Credit Agreement contains provisions that limit the payment of cash dividends on
our common stock if we do not meet certain financial ratios.
Letter
of
Credit
Facility
We have a letter of credit facility (as amended, the “LC Facility”) that provides for the issuance of standby and documentary letters of credit, from time to
time, in an aggregate principal amount of up to $180 million (subject to increase to up to $200 million ). The maturity date of the LC Facility is March 7, 2021.
Obligations under the LC Facility are guaranteed and secured by a first-priority pledge of the capital stock and other ownership interests of certain of our wholly
owned domestic hospital subsidiaries on an equal ranking basis with our senior secured first lien notes.
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Drawings under any letter of credit issued under the LC Facility that we have not reimbursed within three business days after notice thereof accrue interest
at a base rate plus a margin equal to 0.50% per annum. An unused commitment fee is payable at an initial rate of 0.25% per annum with a step up to 0.375% per
annum should our secured debt-to-EBITDA ratio equal or exceed 3.00 to 1.00 at the end of any fiscal quarter. A fee on the aggregate outstanding amount of issued
but undrawn letters of credit accrues at a rate of 1.50% per annum. An issuance fee equal to 0.125% per annum of the aggregate face amount of each outstanding
letter of credit is payable to the account of the issuer of the related letter of credit. At December 31, 2018 , we were in compliance with all covenants and conditions
in our LC Facility. At December 31, 2018 , we had $93 million of standby letters of credit outstanding under the LC Facility.
Senior
Secured
Notes
and
Senior
Unsecured
Notes
In December 2018 and November 2018, we purchased $22 million and $10 million , respectively, of aggregate principal amount of our 5.500% senior
unsecured notes due 2019 for $22 million and $10 million , respectively.
In August 2018, we purchased $38 million aggregate principal amount of our 6.875% senior unsecured notes due 2031 for $36 million , including
$1 million in accrued and unpaid interest through the dates of purchase.
In May 2018, we purchased $30 million aggregate principal amount of our 6.875% senior unsecured notes due 2031 for $28 million . In connection with
the purchase, we recorded a loss from early extinguishment of debt of $1 million in the three months ended June 30, 2018, primarily related to the write-off of
associated unamortized note discount and issuance costs, partially offset by the difference between the purchase price and the par value of the notes.
In March 2018, we purchased $28 million aggregate principal amount of our 6.750% senior unsecured notes due 2023 and $22 million aggregate principal
amount of our 7.000% senior unsecured notes due 2025 for $51 million , including $1 million in accrued and unpaid interest through the dates of purchase. In
connection with these purchases, we recorded a loss from early extinguishment of debt of $1 million in the three months ended March 31, 2018, primarily related to
the write-off of associated unamortized issuance costs.
On June 14, 2017, we sold $830 million aggregate principal amount of our 4.625% senior secured first lien notes, which will mature on July 15, 2024 (the
“2024 Secured First Lien Notes”) . We will pay interest on the 2024 Secured First Lien Notes semi-annually in arrears on January 15 and July 15 of each year,
which payments commenced on January 15, 2018. The proceeds from the sale of the 2024 Secured First Lien Notes were used, after payment of fees and expenses,
together with cash on hand, to deposit with the trustee an amount sufficient to fund the redemption of all $900 million in aggregate principal amount of our
outstanding floating rate senior secured notes due 2020 (the “2020 Floating Rate Notes”) on July 14, 2017, thereby fully discharging the 2020 Floating Rate Notes
as of June 14, 2017. In connection with the redemption, we recorded a loss from early extinguishment of debt of $26 million in the three months ended June 30,
2017, primarily related to the difference between the redemption price and the par value of the notes, as well as the write-off of associated unamortized note
discounts and issuance costs.
Also on June 14, 2017, THC Escrow Corporation III (“ Escrow Corp. ”), a Delaware corporation established for the purpose of issuing the securities
referred to in this paragraph, issued $1.040 billion in aggregate principal amount of 4.625% senior secured first lien notes due 2024 (the “Escrow Secured First
Lien Notes”) , $1.410 billion in aggregate principal amount of 5.125% senior secured second lien notes due 2025 (the “Escrow Secured Second Lien Notes”) and
$500 million in aggregate principal amount of 7.000% senior unsecured notes due 2025 (the “Escrow Unsecured Notes”) .
On July 14, 2017, we (i) assumed Escrow Corp.’s obligations with respect to the Escrow Secured Second Lien Notes and (ii) effected a mandatory
exchange of all outstanding Escrow Secured First Lien Notes for a like principal amount of our newly issued 2024 Secured First Lien Notes. The proceeds from the
sale of the Escrow Secured Second Lien Notes and Escrow Secured First Lien Notes were released from escrow on July 14, 2017 and were used, after payment of
fees and expenses, to finance our redemption on July 14, 2017 of $1.041 billion aggregate principal amount of our outstanding 6.250% senior secured notes due
2018 and $1.100 billion aggregate principal amount of our outstanding 5.000% senior unsecured notes due 2019.
On August 1, 2017, we assumed Escrow Corp.’s obligations with respect to the Escrow Unsecured Notes. The proceeds from the sale of the Escrow
Unsecured Notes were released from escrow on August 1, 2017 and were used, after payment of fees and expenses, to finance our redemption on August 1, 2017 of
$500 million aggregate principal amount of our outstanding 8.000% senior unsecured notes due 2020.
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On September 11, 2017, we redeemed the remaining $250 million aggregate principal amount of our outstanding 8.000% senior unsecured notes due 2020
using cash on hand.
As a result of the redemption activities in the three months ended September 30, 2017 discussed above, we recorded a loss from early extinguishment of
debt of $138 million in the period, primarily related to the difference between the redemption price and the par value of the notes, as well as the write-off of
associated unamortized note discounts and issuance costs.
All of our senior secured notes are guaranteed by certain of our wholly owned domestic hospital company subsidiaries and secured by a pledge of the
capital stock and other ownership interests of those subsidiaries on either a first lien or second lien basis, as indicated in the table above. All of our senior secured
notes and the related subsidiary guarantees are our and the subsidiary guarantors’ senior secured obligations. All of our senior secured notes rank equally in right of
payment with all of our other senior secured indebtedness. Our senior secured notes rank senior to any subordinated indebtedness that we or such subsidiary
guarantors may incur; they are effectively senior to our and such subsidiary guarantors’ existing and future unsecured indebtedness and other liabilities to the
extent of the value of the collateral securing the notes and the subsidiary guarantees; they are effectively subordinated to our and such subsidiary guarantors’
obligations under our Credit Agreement to the extent of the value of the collateral securing borrowings thereunder; and they are structurally subordinated to all
obligations of our non-guarantor subsidiaries.
The indentures setting forth the terms of our senior secured notes contain provisions governing our ability to redeem the notes and the terms by which we
may do so. At our option, we may redeem our senior secured notes, in whole or in part, at any time at a redemption price equal to 100% of the principal amount of
the notes redeemed plus the make-whole premium set forth in the related indenture, together with accrued and unpaid interest thereon, if any, to the redemption
date. Certain series of the senior secured notes may also be redeemed, in whole or in part, at certain redemption prices set forth in the applicable indentures,
together with accrued and unpaid interest. In addition, we may be required to purchase for cash all or any part of each series of our senior secured notes upon the
occurrence of a change of control (as defined in the applicable indentures) for a cash purchase price of 101% of the aggregate principal amount of the notes, plus
accrued and unpaid interest.
All of our senior unsecured notes are general unsecured senior debt obligations that rank equally in right of payment with all of our other unsecured senior
indebtedness, but are effectively subordinated to our senior secured notes described above, the obligations of our subsidiaries and any obligations under our Credit
Agreement to the extent of the value of the collateral. We may redeem any series of our senior unsecured notes, in whole or in part, at any time at a redemption
price equal to 100% of the principal amount of the notes redeemed, plus a make-whole premium specified in the applicable indenture, if any, together with accrued
and unpaid interest to the redemption date.
Covenants
Credit Agreement. Our Credit Agreement contains customary covenants for an asset-backed facility, including a minimum fixed charge coverage ratio to
be met if the designated excess availability under the revolving credit facility falls below $100 million , as well as limits on debt, asset sales and prepayments of
senior debt. The Credit Agreement also includes a provision, which we believe is customary in receivables-backed credit facilities, that gives our lenders the right
to require that proceeds of collections of substantially all of our consolidated accounts receivable be applied directly to repay outstanding loans and other amounts
that are due and payable under the Credit Agreement at any time that unused borrowing availability under the revolving credit facility is less than $100 million for
three consecutive business days or if an event of default has occurred and is continuing thereunder. In that event, we would seek to re-borrow under the Credit
Agreement to satisfy our operating cash requirements. Our ability to borrow under the Credit Agreement is subject to conditions that we believe are customary in
revolving credit facilities, including that no events of default then exist.
Senior Secured Notes. The indentures governing our senior secured notes contain covenants that, among other things, restrict our ability and the ability of
our subsidiaries to incur liens, consummate asset sales, enter into sale and lease-back transactions or consolidate, merge or sell all or substantially all of our or their
assets, other than in certain transactions between one or more of our wholly owned subsidiaries. These restrictions, however, are subject to a number of exceptions
and qualifications. In particular, there are no restrictions on our ability or the ability of our subsidiaries to incur additional indebtedness, make restricted payments,
pay dividends or make distributions in respect of capital stock, purchase or redeem capital stock, enter into transactions with affiliates or make advances to, or
invest in, other entities (including unaffiliated entities). In addition, the indentures governing our senior secured notes contain a covenant that neither we nor any of
our subsidiaries will incur secured debt, unless at the time of and after giving effect to the incurrence of such debt, the aggregate amount of all such secured debt
(including the aggregate principal amount of senior secured notes outstanding at such time) does not exceed the amount that would cause the secured debt ratio (as
defined in the indentures) to exceed 4.0 to 1.0; and indentures governing certain of our senior secured first lien notes further provide that the aggregate amount of
all such debt
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secured by a lien on par to the lien securing the senior secured first lien notes may not exceed the amount that would cause the secured debt ratio to exceed 3.0 to
1.0.
Senior Unsecured Notes. The indentures governing our senior unsecured notes contain covenants and conditions that have, among other requirements,
limitations on (1) liens on “principal properties” and (2) sale and lease-back transactions with respect to principal properties. A principal property is defined in the
senior unsecured notes indentures as a hospital that has an asset value on our books in excess of 5% of our consolidated net tangible assets, as defined in such
indentures. The above limitations do not apply, however, to (1) debt that is not secured by principal properties or (2) debt that is secured by principal properties if
the aggregate of such secured debt does not exceed 15% of our consolidated net tangible assets, as further described in the indentures. The senior unsecured notes
indentures also prohibit the consolidation, merger or sale of all or substantially all assets unless no event of default would result after giving effect to such
transaction.
Future
Maturities
Future long-term debt maturities and minimum operating lease payments as of December 31, 2018 are as follows:
Long-term debt, including capital lease obligations
Long-term non-cancelable operating leases
$
$
Total
15,010 $
Years Ending December 31,
2019
2020
2021
2022
2023
182 $
2,697 $
1,958 $
3,588 $
1,894 $
Later Years
4,691
932 $
171 $
151 $
133 $
113 $
92 $
272
Rental expense under operating leases, including short-term leases, was $326 million , $340 million and $335 million in the years ended
December 31, 2018 , 2017 and 2016 , respectively. Included in rental expense for each of these periods was sublease income of $11 million , $14 million and $13
million , respectively, which was recorded as a reduction of rental expense.
NOTE 8. GUARANTEES
Consistent with our policy on physician relocation and recruitment, we provide income guarantee agreements to certain physicians who agree to relocate
to fill a community need in the service area of one of our hospitals and commit to remain in practice in the area for a specified period of time. Under such
agreements, we are required to make payments to the physicians in excess of the amounts they earn in their practices up to the amount of the income guarantee.
The income guarantee periods are typically 12 months. If a physician does not fulfill his or her commitment period to the community, which is typically three years
subsequent to the guarantee period, we seek recovery of the income guarantee payments from the physician on a prorated basis. We also provide revenue collection
guarantees to hospital-based physician groups providing certain services at our hospitals with terms generally ranging from one to three years.
At December 31, 2018 , the maximum potential amount of future payments under our income guarantees to certain physicians who agree to relocate and
revenue collection guarantees to hospital-based physician groups providing certain services at our hospitals was $166 million . We had a total liability of $123
million recorded for these guarantees included in other current liabilities at December 31, 2018 .
At December 31, 2018 , we also had issued guarantees of the indebtedness and other obligations of our investees to third parties, the maximum potential
amount of future payments under which was approximately $24 million . Of the total, $8 million relates to the obligations of consolidated subsidiaries, which
obligations are recorded in the accompanying Consolidated Balance Sheet at December 31, 2018 .
NOTE 9. EMPLOYEE BENEFIT PLANS
Share-Based
Compensation
Plans
In recent years, we have granted both options and restricted stock units to certain of our employees and directors pursuant to our 2008 Stock Incentive
Plan, as amended. Options have an exercise price equal to the fair market value of the shares on the date of grant and generally expire 10 years from the date of
grant. A restricted stock unit is a contractual right to receive one share of our common stock in the future. Typically, options and time-based restricted stock units
vest one-third on each of the first three anniversary dates of the grant; however, certain special retention awards may have different vesting terms. In addition, we
grant performance-based options and performance-based restricted stock units that vest subject to the achievement of specified performance goals within a
specified timeframe. At December 31, 2018 , assuming outstanding
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performance-based restricted stock units and options for which performance has not yet been determined will achieve target performance, approximately 5.3
million shares of common stock were available under our 2008 Stock Incentive Plan for future stock option grants and other equity incentive awards, including
restricted stock units ( 4.1 million shares remain available if we assume maximum performance for outstanding performance restricted stock units and options for
which performance has not yet been determined).
The accompanying Consolidated Statements of Operations for the years ended December 31, 2018 , 2017 and 2016 include $46 million , $59 million and
$60 million , respectively, of pre-tax compensation costs related to our stock-based compensation arrangements. The table below shows certain stock option and
restricted stock unit grants and other awards that comprise the stock-based compensation expense recorded in the year ended December 31, 2018 . Compensation
cost is measured by the fair value of the awards on their grant dates and is recognized over the requisite service period of the awards, whether or not the awards had
any intrinsic value during the period.
Grant Date
Stock Options:
February 28, 2018
September 29, 2017
March 1, 2017
Restricted Stock Units:
June 28, 2018
May 4, 2018
March 29, 2018
February 28, 2018
March 1, 2017
June 30, 2016
May 31, 2016
March 10, 2016
February 25, 2015
August 25, 2014
Other grants
USPI Management Equity Plan
Awards
(In Thousands)
Exercise Price
Per Share
Fair Value
Per Share at
Grant Date
Stock-Based
Compensation Expense
for Year Ended December 31, 2018
(In Millions)
593 $
409 $
877 $
51
54
293
272
404
113
54
566
1,374
460
20.60 $
16.43 $
18.99 $
8.83 $
5.63
8.52
$
$
$
$
$
$
$
$
$
$
34.61
23.53
24.25
20.60
18.99
27.64
28.94
25.50
45.63
59.90
$
2
2
1
1
1
3
2
2
1
1
3
1
4
4
18
46
Pursuant to the terms of our stock-based compensation plans, awards granted under the plan vest and may be exercised as determined by the human
resources committee of our board of directors. In the event of a change in control, the human resources committee of our board of directors may, at its sole
discretion without obtaining shareholder approval, accelerate the vesting or performance periods of the awards.
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Stock
Options
The following table summarizes stock option activity during the years ended December 31, 2018 , 2017 and 2016 :
Options
Weighted Average
Exercise Price
Per Share
Aggregate
Intrinsic Value
(In Millions)
Weighted Average
Remaining Life
Outstanding at December 31, 2015
Granted
Exercised
Forfeited/Expired
Outstanding at December 31, 2016
Granted
Exercised
Forfeited/Expired
Outstanding at December 31, 2017
Granted
Exercised
Forfeited/Expired
Outstanding at December 31, 2018
Vested and expected to vest at December 31, 2018
Exercisable at December 31, 2018
1,606,842 $
—
(111,715)
(59,206)
1,435,921 $
1,396,307
(20,400)
(247,006)
2,564,822 $
635,196
(619,849)
(317,426)
2,262,743 $
2,262,743 $
767,037 $
22.87
—
17.88
18.68
22.87
18.24
4.56
24.37
20.35
21.33
18.19
35.30
19.12 $
19.12 $
17.47 $
1
1
1
6.7 years
6.7 years
3.2 years
There were 619,849 stock options exercised during the year ended December 31, 2018 with an aggregated intrinsic value of approximately $4 million ,
and 20,400 stock options exercised in 2017 with an aggregate intrinsic value less than $1 million . There were 635,196 performance-based stock options granted in
the year ended December 31, 2018 , and 1,396,307 performance-based stock options granted in the year ended December 31, 2017 . On May 31, 2018 , we granted
an aggregate of 31,184 performance-based stock options under our 2008 Stock Incentive Plan to new senior officers. The options will all vest on the third
anniversary of the grant date, subject to achieving a closing stock price of at least $44.29 (a 25% premium above the grant date closing stock price of $35.43 ) for at
least 20 consecutive trading days within three years of the grant date, and will expire on the tenth anniversary of the grant date. On February 28, 2018 , we granted
an aggregate of 604,012 performance-based stock options under our 2008 Stock Incentive Plan to certain of our senior officers. The stock options will all vest on
the third anniversary of the grant date because, in the three months ended June 30, 2018, the requirement that our stock close at a price of at least $25.75 (a 25%
premium above the grant date closing stock price of $20.60 ) for at least 20 consecutive trading days within three years of the grant date was met; these options will
expire on the tenth anniversary of the grant date.
On March 1, 2017 , we granted 987,781 stock options to certain of our senior officers. These stock options will all vest on the third anniversary of the
grant date because, in the three months ended June 30, 2018, the requirement that our stock close at a price of at least $23.74 (a 25% premium above the grant date
closing stock price of $18.99 ) for at least 20 consecutive trading days within three years of the grant date was met; these options will expire on the tenth
anniversary of the grant date. On September 29, 2017 , we granted our executive chairman 408,526 performance-based stock options. The options all vested on the
first anniversary of the grant date because, in the three months ended June 30, 2018, the requirement that our stock close at a price of at least $20.53 (a 25%
premium above the grant date closing stock price of $16.43 ) for at least 30 consecutive trading days within four years of the grant date was met; these options will
expire on the fifth anniversary of the grant date.
The weighted average estimated fair value of stock options we granted during the year ended December 31, 2018 and 2017 was $9.16 and $7.64 per share,
respectively. These fair values were calculated based on each grant date, using a Monte Carlo simulation with the following assumptions:
Expected volatility
Expected dividend yield
Expected life
Expected forfeiture rate
Risk-free interest rate
February 28,
September 29,
March 1,
2018
46%
0%
2017
46%
0%
2017
49%
0%
6.2 years
3.0 years
6.2 years
0%
2.72%
0%
1.92%
0%
2.15%
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The following table summarizes information about our outstanding stock options at December 31, 2018 :
Range of Exercise Prices
$0.00 to $4.569
$4.57 to $19.759
$19.76 to $35.430
Number of
Options
82,409
1,285,795
894,539
2,262,743
Options Outstanding
Weighted Average
Remaining
Contractual Life
0.2 years $
6.7 years $
7.4 years $
6.7 years $
Options Exercisable
Weighted Average
Exercise Price
Number of
Options
Weighted Average
Exercise Price
4.56
18.18
21.83
19.12
82,409 $
413,960 $
270,668 $
767,037 $
4.56
16.46
22.94
17.47
As of December 31, 2018 , 71.5% of all our outstanding options were held by current employees and 28.5% were held by former employees. Of our
outstanding options, 21.7% were in-the-money, that is, they had exercise price less than the $17.14 market price of our common stock on December 31, 2018 , and
78.3% were out-of-the-money, that is, they had an exercise price of more than $17.14 as shown in the table below:
Current employees
Former employees
Totals
In-the-Money Options
Out-of-the-Money Options
All Options
Outstanding
469,849
21,086
490,935
% of Total
95.7%
4.3%
Outstanding
1,147,105
624,703
% of Total
64.7%
35.3%
Outstanding
1,616,954
645,789
100.0%
1,771,808
100.0%
2,262,743
% of Total
71.5%
28.5%
100.0%
% of all outstanding options
21.7%
78.3%
100.0%
Restricted
Stock
Units
The following table summarizes restricted stock unit activity during the years ended December 31, 2018 , 2017 and 2016 :
Restricted Stock Units
Weighted Average Grant
Date Fair Value Per Unit
Unvested at December 31, 2015
Granted
Vested
Forfeited
Unvested at December 31, 2016
Granted
Vested
Forfeited
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 31, 2018
3,627,232 $
1,626,329
(1,644,616)
(434,412)
3,174,533 $
714,018
(1,397,953)
(236,610)
2,253,988 $
765,184
(995,331)
(139,711)
1,884,130 $
44.69
30.05
42.95
38.59
38.75
18.25
35.50
32.13
35.20
24.74
32.63
36.01
32.25
In the year ended December 31, 2018 , we granted 765,184 restricted stock units, of which 288,325 will vest and be settled ratably over a three-year
period from the grant date, 339,806 will vest and be settled ratably over two-year period from the grant date, and 60,963 will vest and be settled on the third
anniversary of the grant date. In addition, in May 2018, we made an annual grant of 54,198 restricted stock units to our non-employee directors for the 2018-2019
board service year, which units vested immediately and will settle in shares of our common stock on the third anniversary of the date of the grant. Because the
Board of Directors appointed two new members in May 2018, we made initial grants totaling 3,670 restricted stock units to these directors, as well as prorated
annual grants totaling 12,154 restricted stock units. Both the initial grants and the annual grants vested immediately; however, the initial grants will not settle until
the directors’ separation from the Board, while the annual grants settle on the third anniversary of the grant date. In addition, we granted 6,068 performance-based
restricted stock units to certain of our senior officers; the vesting of these restricted stock units is contingent on our achievement of specified three-year
performance goals for the years 2018 to 2020. Provided the goals are achieved, the performance-based restricted stock units will vest and settle on the third
anniversary of the grant date. The actual number of performance-based restricted stock units that could vest will range from 0% to 200% of the 6,068 units granted,
depending on our level of achievement with respect to the performance goals.
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In the year ended December 31, 2017 , we granted 714,018 restricted stock units of which 518,229 will vest and be settled ratably over a three -year
period from the grant date. In addition, in May 2017, we made an annual grant of 145,179 restricted stock units to our non-employee directors for the 2017-2018
board service year, which units vested immediately and will settle in shares of our common stock on the third anniversary of the date of the grant. Because the
Board of Directors appointed three new members, one in October 2017 and two in November 2017, we made initial grants totaling 13,772 restricted stock units to
these directors, as well as prorated annual grants totaling 23,935 restricted stock units. Both the initial grants and the annual grants vested immediately; however,
the initial grants will not settle until the directors’ separation from the Board, while the annual grants settle on the third anniversary of the grant date. In addition,
we granted 12,903 performance-based restricted stock units to certain of our senior officers; the vesting of these restricted stock units is contingent on our
achievement of specified three-year performance goals for the years 2017 to 2019. Provided the goals are achieved, the performance-based restricted stock units
will vest and settle on the third anniversary of the grant date. The actual number of performance-based restricted stock units that could vest will range from 0% to
200% of the 12,903 units granted, depending on our level of achievement with respect to the performance goals.
As of December 31, 2018 , there were $18 million of total unrecognized compensation costs related to restricted stock units. These costs are expected to
be recognized over a weighted average period of 1.5 years.
USPI
Management
Equity
Plan
USPI maintains a separate management equity plan whereby it has granted non-qualified options to purchase nonvoting shares of USPI’s outstanding
common stock to eligible plan participants, allowing the recipient to participate in the incremental growth in the value of USPI from the applicable grant date. The
total pool of options consists of approximately 10% of USPI’s fully diluted outstanding common stock. Options have an exercise price equal to the estimated fair
market value of USPI’s common stock on the date of grant, and expire upon the earlier of seven years from the date of grant or July 2022 . The option awards have
been structured such that they have a three or four year vesting period in which half of the award vests in equal pro-rata amounts over the applicable vesting period
and the remaining half vests at the end of the applicable three or four year period. Any unvested awards are forfeited upon the recipient’s termination of service
with USPI and vested options must be exercised within 90 days of termination. Once an award is exercised, the recipient must hold the underlying shares for at
least six months plus one day and then is eligible to sell the underlying shares to USPI at their estimated fair market value. USPI is only required to purchase any of
these eligible nonvoting common shares during a three months window in the third quarter of each calendar year. In addition, at any time after the earlier of (i) July
2022 , or (ii) one year and seven days after all of the options have become exercisable, USPI has the right, but not the obligation, to purchase from each holder of
the outstanding shares of nonvoting common stock all or a portion of such shares at their estimated fair market value, provided the shares have been held for the
requisite holding period. Payment for USPI’s purchase of any eligible nonvoting common shares may be made in cash or in shares of Tenet’s common stock. The
accompanying Consolidated Statement of Operations for the years ended December 31, 2018 , 2017 and 2016 includes $18 million , $13 million and $10 million ,
respectively, of pre-tax compensation costs related to USPI’s management equity plan.
Employee
Stock
Purchase
Plan
We have an employee stock purchase plan under which we are currently authorized to issue up to 5,062,500 shares of common stock to our eligible
employees. As of December 31, 2018 , there were approximately 3.2 million shares available for issuance under our employee stock purchase plan. Under the
terms of the plan, eligible employees may elect to have between 1% and 10% of their base earnings withheld each quarter to purchase shares of our common stock.
Shares are purchased at a price equal to 95% of the closing price on the last day of the quarter. The plan requires a one-year holding period for all shares issued.
The holding period does not apply upon termination of employment. Under the plan, no individual may purchase, in any year, shares with a fair market value in
excess of $25,000 . The plan is currently not considered to be compensatory.
We sold the following numbers of shares under our employee stock purchase plan in the years ended December 31, 2018 , 2017 and 2016 :
Number of shares
Weighted average price
Years Ended December 31,
2018
2017
2016
$
228,045
22.96 $
395,957
17.28 $
217,184
17.21
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Employee
Retirement
Plans
Substantially all of our employees, upon qualification, are eligible to participate in one of our defined contribution 401(k) plans. Under the plans,
employees may contribute a portion of their eligible compensation, and we match such contributions annually up to a maximum percentage for participants actively
employed, as defined by the plan documents. Employer matching contributions will vary by plan. Plan expenses, primarily related to our contributions to the plans,
were $99 million , $128 million and $116 million for the years ended December 31, 2018 , 2017 and 2016 , respectively. Such amounts are reflected in salaries,
wages and benefits in the accompanying Consolidated Statements of Operations.
We maintain three frozen non-qualified defined benefit pension plans (“SERPs”) that provide supplemental retirement benefits to certain of our current
and former executives. These plans are not funded, and plan obligations for these plans are paid from our working capital. Pension benefits are generally based on
years of service and compensation. Upon completing the acquisition of Vanguard Health Systems, Inc. on October 1, 2013, we assumed a frozen qualified defined
benefit plan (“DMC Pension Plan”) covering substantially all of the employees of our Detroit market that were hired prior to June 1, 2003. The benefits paid under
the DMC Pension Plan are primarily based on years of service and final average earnings. During the years ended December 31, 2018 and 2017 , the Society of
Actuaries issued new mortality improvement scales (MP-2018 and MP‑2017, respectively), which we incorporated into the estimates of our defined benefit plan
obligations at December 31, 2018 and 2017 . These changes to our mortality assumptions decreased our projected benefit obligations as of December 31, 2018 and
2017 by approximately $4 million and $10 million , respectively. The following tables summarize the balance sheet impact, as well as the benefit obligations,
funded status and rate assumptions associated with the SERPs and the DMC Pension Plan based on actuarial valuations prepared as of December 31, 2018 and
2017 :
Reconciliation of funded status of plans and the amounts included in the Consolidated Balance
Sheets:
Projected benefit obligations (1)
Beginning obligations
Service cost
Interest cost
Actuarial gain (loss)
Benefits paid
Special termination benefit costs
Ending obligations
Fair value of plans assets
Beginning plan assets
Gain (loss) on plan assets
Employer contribution
Benefits paid
Ending plan assets
Funded status of plans
Amounts recognized in the Consolidated Balance Sheets consist of:
Other current liability
Other long-term liability
Accumulated other comprehensive loss
SERP Assumptions:
Discount rate
Compensation increase rate
Measurement date
DMC Pension Plan Assumptions:
Discount rate
Compensation increase rate
Measurement date
December 31,
2018
2017
$
(1,455)
$
(1,475)
(2)
(56)
90
122
—
(1,301)
850
(65)
47
(101)
731
(570)
$
(49)
(521)
281
$
$
$
4.50%
3.00%
(2)
(62)
(31)
120
(5)
(1,455)
786
122
43
(101)
850
(605)
(69)
(536)
266
3.75%
3.00%
December 31, 2018
December 31, 2017
4.62%
Frozen
4.00%
Frozen
December 31, 2018
December 31, 2017
$
$
$
$
(1) The accumulated benefit obligation at December 31, 2018 and 2017 was approximately $1.299 billion and $1.448 billion , respectively.
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Table of Contents
The components of net periodic benefit costs and related assumptions are as follows:
Service costs
Interest costs
Expected return on plan assets
Amortization of net actuarial loss
Net periodic benefit cost
SERP Assumptions:
Discount rate
Long-term rate of return on assets
Compensation increase rate
Measurement date
Census date
DMC Pension Plan Assumptions:
Discount rate
Long-term rate of return on assets
Compensation increase rate
Measurement date
Census date
$
$
Years Ended December 31,
2018
2017
2016
2
56
(54)
14
18
$
$
3.75%
n/a
3.00%
2
62
(50)
14
28
$
$
4.25%
n/a
3.00%
2
69
(51)
12
32
4.75%
n/a
3.00%
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2016
January 1, 2016
4.00%
6.50%
Frozen
4.42%
6.50%
Frozen
4.67%
6.50%
Frozen
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
January 1, 2016
January 1, 2016
Net periodic benefit costs for the current year are based on assumptions determined at the valuation date of the prior year for the SERPs and the DMC
Pension Plan. As a result of the adoption of ASU 2017-07 discussed in Note 1, we recognized service costs in salaries, wages and benefits expense, and recognized
other components of net periodic benefit cost in other non-operating expense, net, in the accompanying Consolidated Statements of Operations.
We recorded gain (loss) adjustments of $(15) million , $56 million and $(61) million in other comprehensive income (loss) in the years ended
December 31, 2018 , 2017 and 2016 , respectively, to recognize changes in the funded status of our SERPs and the DMC Pension Plan. Changes in the funded
status are recorded as a direct increase or decrease to shareholders’ equity through accumulated other comprehensive loss. Net actuarial gains (losses) of $(29)
million , $42 million and $(73) million were recognized during the years ended December 31, 2018 , 2017 and 2016 , respectively, and the amortization of net
actuarial loss of $14 million , $14 million and $12 million for the years ended December 31, 2018 , 2017 and 2016 , respectively, were recognized in other
comprehensive income (loss). Cumulative net actuarial losses of $281 million , $266 million and $322 million as of December 31, 2018 , 2017 and 2016 ,
respectively, and unrecognized prior service costs of less than $1 million as of each of the years ended December 31, 2018 , 2017 and 2016 have not yet been
recognized as components of net periodic benefit cost.
To develop the expected long-term rate of return on plan assets assumption, the DMC Pension Plan considers the current level of expected returns on risk-free
investments (primarily government bonds), the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the
expectations for future returns on each asset class. The expected return for each asset class is then weighted based on the target asset allocation to develop the
expected long-term rate of return on assets assumption for the portfolio. The weighted-average asset allocations by asset category as of December 31, 2018 , were
as follows:
Asset Category
Cash and cash equivalents
U.S. government obligations
Equity securities
Debt securities
Alternative investments
Target
Actual
2%
—%
64%
34%
1%
2%
2%
65%
31%
1%
The DMC Pension Plan assets are invested in separately managed portfolios using investment management firms. The objective for all asset categories is
to maximize total return without assuming undue risk exposure. The DMC Pension Plan maintains a well-diversified asset allocation that best meets these
objectives. The DMC Pension Plan assets are largely comprised of equity securities, which include companies with various market capitalization sizes in addition
to international and convertible securities. Cash and cash equivalents are comprised of money market funds. Debt securities include domestic and foreign
government obligations, corporate bonds, and mortgage-backed securities. Under the investment policy of the DMC Pension Plan, investments in derivative
securities are not permitted for the sole purpose of speculating on the direction of
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Table of Contents
market interest rates. Included in this prohibition are leveraging, shorting, swaps, futures, options, forwards and similar strategies.
In each investment account, the DMC Pension Plan investment managers are responsible for monitoring and reacting to economic indicators, such as
gross domestic product, consumer price index and U.S. monetary policy that may affect the performance of their account. The performance of all managers and the
aggregate asset allocation are formally reviewed on a quarterly basis, with a rebalancing of the asset allocation occurring at least once per year. The current asset
allocation objective is to maintain a certain percentage with each class allowing for a 10% deviation from the target.
The following tables summarize the DMC Pension Plan assets measured at fair value on a recurring basis as of December 31, 2018 and 2017 , aggregated
by the level in the fair value hierarchy within which those measurements are determined. In general, fair values determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or liabilities. We consider a security that trades at least weekly to have an active market. Fair values determined
by Level 2 inputs utilize data points that are observable, such as quoted prices for similar assets, interest rates and yield curves. Fair values determined by Level 3
inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
Cash and cash equivalents
U.S. government obligations
Equity securities
Fixed income funds
Futures contracts
Cash and cash equivalents
U.S. government obligations
Equity securities
Fixed income funds
December 31, 2018
Level 1
Level 2
Level 3
33 $
9
423
262
4
731 $
33 $
9
423
262
4
731 $
— $
—
—
—
—
— $
December 31, 2017
Level 1
Level 2
Level 3
49 $
5
488
308
850 $
49 $
5
488
308
850 $
— $
—
—
—
— $
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
The following table presents the estimated future benefit payments to be made from the SERPs and the DMC Pension Plan, a portion of which will be
funded from plan assets, for the next five years and in the aggregate for the five years thereafter:
Estimated benefit payments
$
897 $
86 $
89 $
90 $
91 $
91 $
450
Total
2019
2020
2021
2022
2023
Years Ending December 31,
Five Years
Thereafter
The SERP and DMC Pension Plan obligations of $570 million at December 31, 2018 are classified in the accompanying Consolidated Balance Sheet as an
other current liability ( $49 million ) and defined benefit plan obligations ( $521 million ) based on an estimate of the expected payment patterns. We expect to
make total contributions to the plans of approximately $49 million for the year ending December 31, 2019 .
NOTE 10. PROPERTY AND EQUIPMENT
The principal components of property and equipment are shown in the table below:
Land
Buildings and improvements
Construction in progress
Equipment
Accumulated depreciation and amortization
Net property and equipment
123
December 31,
2018
2017
$
$
613 $
6,920
199
4,482
12,214
(5,221)
6,993 $
602
6,837
109
4,221
11,769
(4,739)
7,030
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Property and equipment is stated at cost, less accumulated depreciation and amortization and impairment write-downs related to assets held and used.
NOTE 11. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table provides information on changes in the carrying amount of goodwill, which is included in the accompanying Consolidated Balance
Sheets as of 2018 and 2017 :
Hospital Operations and other
As of January 1:
Goodwill
Accumulated impairment losses
Total
Goodwill acquired during the year and purchase price allocation adjustments
Goodwill related to assets held for sale and disposed or deconsolidated facilities
Total
As of December 31:
Goodwill
Accumulated impairment losses
Total
Ambulatory Care
As of January 1:
Goodwill
Accumulated impairment losses
Total
Goodwill acquired during the year and purchase price allocation adjustments
Goodwill related to assets held for sale and disposed or deconsolidated facilities
Impact of foreign currency translation
Total
As of December 31:
Goodwill
Accumulated impairment losses
Total
Conifer
As of January 1:
Goodwill
Accumulated impairment losses
Total
Goodwill acquired during the year and purchase price allocation adjustments
Total
As of December 31:
Goodwill
Accumulated impairment losses
Total
124
2018
2017
5,406 $
(2,430)
2,976
1
3
2,980 $
5,410 $
(2,430)
2,980 $
2018
2017
3,437 $
—
3,437
219
40
—
3,696 $
3,696 $
—
3,696 $
2018
2017
605 $
—
605
—
605 $
605 $
—
605 $
5,803
(2,430)
3,373
5
(402)
2,976
5,406
(2,430)
2,976
3,447
—
3,447
86
(103)
7
3,437
3,437
—
3,437
605
—
605
—
605
605
—
605
$
$
$
$
$
$
$
$
$
$
$
$
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The following table provides information regarding other intangible assets, which are included in the accompanying Consolidated Balance Sheets as of
2018 and 2017 :
At December 31, 2018:
Capitalized software costs
Trade names
Contracts
Other
Total
At December 31, 2017:
Capitalized software costs
Trade Names
Contracts
Other
Total
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
$
$
$
$
1,667 $
(858) $
102
871
104
—
(76)
(79)
809
102
795
25
2,744 $
(1,013) $
1,731
1,582 $
(754) $
102
859
106
—
(60)
(69)
828
102
799
37
2,649 $
(883) $
1,766
Estimated future amortization of intangibles with finite useful lives as of December 31, 2018 is as follows:
Amortization of intangible assets
$
1,053 $
147 $
131 $
112 $
99 $
Total
2019
2020
2021
2022
Years Ending December 31,
2023
Later Years
479
85 $
We recognized amortization expense of $185 million , $172 million and $152 million in the accompanying Consolidated Statements of Operations for the
years ended December 31, 2018 , 2017 and 2016 , respectively.
NOTE 12. INVESTMENTS AND OTHER ASSETS
The principal components of investments and other assets in the accompanying Consolidated Balance Sheets are as follows:
Marketable securities
Equity investments in unconsolidated healthcare entities
Total investments
Cash surrender value of life insurance policies
Long-term deposits
California provider fee program receivables
Land held for expansion, other long-term receivables and other assets
Investments and other assets
December 31,
2018
2017
$
$
40 $
956
996
30
44
231
155
1,456 $
56
958
1,014
32
37
266
194
1,543
Our policy is to classify investments in debt securities that may be needed for cash requirements as “available-for-sale.” In doing so, the carrying values
of debt instruments are adjusted at the end of each accounting period to their market values through a credit or charge to other comprehensive income (loss), net of
taxes.
NOTE 13. ACCUMULATED OTHER COMPREHENSIVE LOSS
Our accumulated other comprehensive loss is comprised of the following:
Adjustments for defined benefit plans
Foreign currency translation adjustments
Unrealized gains on investments
Accumulated other comprehensive loss
December 31,
2018
2017
(223) $
—
— $
(223) $
(170)
(38)
4
(204)
$
$
$
The tax benefits allocated to the adjustments for our defined benefit plans and foreign currency translation adjustments were approximately $3 million
and $3 million , respectively, for the year ended December 31, 2018 , and the tax expense
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Table of Contents
allocated to the adjustments for our defined benefit plans, foreign currency translation adjustments and unrealized gains on investments were approximately
$15 million , $5 million , and $3 million , respectively, for the year ended December 31, 2017 . As discussed in Note 1, we recorded cumulative effect adjustments
of $36 million and $7 million upon the adoptions of ASU 2018-02 and ASU 2016-01 , respectively, effective January 1, 2018.
NOTE 14. NET OPERATING REVENUES
Net operating revenues for our Hospital Operations and other and Ambulatory Care segments primarily consist of net patient service revenues, principally
for patients covered by Medicare, Medicaid, managed care and other health plans, as well as certain uninsured patients under our Compact and other uninsured
discount and charity programs. Net operating revenues for our Conifer segment primarily consist of revenues from providing revenue cycle management services
to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities.
The table below shows our sources of net operating revenues less provision for doubtful accounts and implicit price concessions from continuing
operations:
Hospital Operations and other:
Net patient service revenues from hospitals and related
outpatient facilities
Medicare
Medicaid
Managed care
Self-pay
Indemnity and other
Total
Physician practices revenues
Health plans
Revenue from other sources
Hospital Operations and other total prior to
inter-segment eliminations
Ambulatory Care
Conifer
Inter-segment eliminations
Net operating revenues
Years Ended December 31,
2018
2017
2016
$
2,882 $
3,243 $
1,294
9,213
96
596
14,081
1,097
14
93
15,285
2,085
1,533
(590)
1,304
9,583
91
608
14,829
1,209
110
112
16,260
1,940
1,597
(618)
$
18,313 $
19,179 $
3,386
1,346
9,728
63
604
15,127
1,201
482
94
16,904
1,797
1,571
(651)
19,621
Adjustments for prior-year cost reports and related valuation allowances, principally related to Medicare and Medicaid, increased revenues in the years
ended December 31, 2018 , 2017 and 2016 by $24 million , $35 million and $54 million , respectively. Estimated cost report settlements and valuation allowances
are included in accounts receivable in the accompanying Consolidated Balance Sheets (see Note 3). We believe that we have made adequate provision for any
adjustments that may result from final determination of amounts earned under all the above arrangements with Medicare and Medicaid.
The table below shows the composition of net operating revenues less provision for doubtful accounts and implicit price concessions for our Ambulatory
Care segment:
Net patient service revenues
Management fees
Revenue from other sources
Net operating revenues
Years Ended December 31,
2018
2017
2016
1,965 $
1,816 $
1,684
92
28
93
31
2,085 $
1,940 $
89
24
1,797
$
$
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The table below shows the composition of net operating revenues for our Conifer segment:
Revenue cycle services – Tenet
Revenue cycle services – other customers
Other services – Tenet
Other services – other customers
Total revenues from client contracts
Years Ended December 31,
2018
2017
2016
$
568 $
583 $
855
22
88
891
35
88
596
839
55
81
$
1,533 $
1,597 $
1,571
Other services represent 7% of Conifer’s revenue and include value-based care, consulting and project services.
Performance
Obligations
The following table includes Conifer’s revenue that is expected to be recognized in the future related to performance obligations that are unsatisfied, or
partially unsatisfied, at the end of the reporting period. The amounts in the table primarily consist of revenue cycle management fixed fees, which are typically
recognized ratably as the performance obligation is satisfied. The estimated revenue does not include volume or contingency based contracts, performance
incentives, penalties or other variable consideration that is considered constrained. Conifer’s contract with Catholic Health Initiatives (“CHI”), a minority interest
owner of Conifer Health Solutions, LLC, represents the majority of the fixed-fee revenue related to remaining performance obligations. Conifer’s contract term
with CHI ends in 2032.
Performance obligations
$
7,736 $
585 $
584 $
581 $
581 $
581 $
Total
2019
2020
2021
2022
2023
Years Ending December 31,
Later Years
4,824
NOTE 15. PROPERTY AND PROFESSIONAL AND GENERAL LIABILITY INSURANCE
Property
Insurance
We have property, business interruption and related insurance coverage to mitigate the financial impact of catastrophic events or perils that is subject to
deductible provisions based on the terms of the policies. These policies are on an occurrence basis. For the policy period April 1, 2018 through March 31, 2019, we
have coverage totaling $850 million per occurrence, after deductibles and exclusions, with annual aggregate sub-limits of $100 million for floods, $200 million for
earthquakes and a per-occurrence sub-limit of $200 million for named windstorms with no annual aggregate. With respect to fires and other perils, excluding
floods, earthquakes and named windstorms, the total $850 million limit of coverage per occurrence applies. Deductibles are 5% of insured values up to a maximum
of $25 million for California earthquakes, floods and named windstorms, and 2% of insured values for New Madrid fault earthquakes, with a maximum per claim
deductible of $25 million . Floods and certain other covered losses, including fires and other perils, have a minimum deductible of $1 million .
Professional
and
General
Liability
Reserves
We are self-insured for the majority of our professional and general liability claims and purchase insurance from third-parties to cover catastrophic claims.
At December 31, 2018 and 2017 , the aggregate current and long-term professional and general liability reserves in the accompanying Consolidated Balance Sheets
were $882 million and $854 million , respectively. These reserves include the reserves recorded by our captive insurance subsidiaries and our self-insured retention
reserves recorded based on modeled estimates for the portion of our professional and general liability risks, including incurred but not reported claims, for which
we do not have insurance coverage. We estimated the reserves for losses and related expenses using expected loss-reporting patterns discounted to their present
value under a risk-free rate approach using a Federal Reserve seven-year maturity rate of 2.59% , 2.33% and 2.25% at December 31, 2018 , 2017 and 2016 ,
respectively.
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.
Included in other operating expenses, net, in the accompanying Consolidated Statements of Operations is malpractice expense of $388 million , $303
million and $281 million for the years ended December 31, 2018 , 2017 and 2016 , respectively.
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NOTE 16. CLAIMS AND LAWSUITS
We operate in a highly regulated and litigious industry. Healthcare companies are subject to numerous investigations by various governmental agencies.
Further, private parties have the right to bring qui tam or “whistleblower” lawsuits against companies that allegedly submit false claims for payments to, or
improperly retain overpayments from, the government and, in some states, private payers. We and our subsidiaries have received inquiries in recent years from
government agencies, and we may receive similar inquiries in future periods. We are also subject to class action lawsuits, employment-related claims and other
legal actions in the ordinary course of business. Some of these actions may involve large demands, as well as substantial defense costs. We cannot predict the
outcome of current or future legal actions against us or the effect that judgments or settlements in such matters may have on us.
We are also subject to a non-prosecution agreement (“NPA”). If we fail to comply with this agreement, we could be subject to criminal prosecution,
substantial penalties and exclusion from participation in federal healthcare programs, any of which could adversely impact our business, financial condition, results
of operations or cash flows.
We record accruals for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable and we can reasonably
estimate the amount of the loss or a range of loss. Significant judgment is required in both the determination of the probability of a loss and the determination as to
whether a loss is reasonably estimable. These determinations are updated at least quarterly and are adjusted to reflect the effects of negotiations, settlements,
rulings, advice of legal counsel and technical experts, and other information and events pertaining to a particular matter, but are subject to significant uncertainty
regarding numerous factors that could affect the ultimate loss levels. If a loss on a material matter is reasonably possible and estimable, we disclose an estimate of
the loss or a range of loss. In cases where we have not disclosed an estimate, we have concluded that the loss is either not reasonably possible or the loss, or a range
of loss, is not reasonably estimable, based on available information. Given the inherent uncertainties involved in these matters, especially those involving
governmental agencies, and the indeterminate damages sought in some of these matters, there is significant uncertainty as to the ultimate liability we may incur
from these matters, and an adverse outcome in one or more of these matters could be material to our results of operations or cash flows for any particular reporting
period.
Shareholder
Derivative
Litigation
In January 2017, the Dallas County District Court consolidated two previously disclosed shareholder derivative lawsuits filed on behalf of the Company
by purported shareholders of the Company’s common stock against current and former officers and directors into a single matter captioned In re Tenet Healthcare
Corporation Shareholder Derivative Litigation . The plaintiffs filed a consolidated shareholder derivative petition in February 2017. The consolidated shareholder
derivative petition alleged that false or misleading statements or omissions concerning the Company’s financial performance and compliance policies, specifically
with respect to the previously disclosed civil qui tam litigation and parallel criminal investigation of the Company and certain of its subsidiaries (together, the
“Clinica de la Mama matters”), caused the price of the Company’s common stock to be artificially inflated. In addition, the plaintiffs alleged that the defendants
violated GAAP by failing to disclose an estimate of the possible loss or a range of loss related to the Clinica de la Mama matters. The plaintiffs claimed that they
did not make demand on the Company’s board of directors to bring the lawsuit because such a demand would have been futile. In May 2018, the judge in the
consolidated shareholder derivative litigation entered an order lifting the previous year-long stay of the matter and, in July 2018, the defendants filed pleadings
seeking dismissal of the lawsuit. In October 2018, the judge granted defendants’ motion to dismiss, but also agreed to give the plaintiffs 30 days to replead their
complaint. On January 30, 2019, the court issued a final judgment and order of dismissal after the plaintiffs elected not to replead. The plaintiffs have indicated that
they will appeal the court’s ruling that dismissal was appropriate because they failed to adequately plead that a pre-suit demand on Tenet’s Board of Directors, a
precondition to their action, should be excused as futile. The plaintiffs have until March 1, 2019 to file an appeal. If necessary, the defendants intend to continue to
vigorously contest the plaintiffs’ allegations in this matter.
Antitrust
Class
Action
Lawsuit
Filed
by
Registered
Nurses
in
San
Antonio
In Maderazo, et al. v. VHS San Antonio Partners, L.P. d/b/a Baptist Health Systems, et al. , filed in June 2006 in the U.S. District Court for the Western
District of Texas, a purported class of registered nurses employed by three unaffiliated San Antonio-area hospital systems allege those hospital systems, including
our Baptist Health System, and other unidentified San Antonio regional hospitals violated Section §1 of the federal Sherman Act by conspiring to depress nurses’
compensation and exchanging compensation-related information among themselves in a manner that reduced competition and suppressed the wages paid to such
nurses. The suit seeks unspecified damages (subject to trebling under federal law), interest, costs and attorneys’ fees. On January 23, 2019, the district court issued
an opinion denying the plaintiffs’ motion for class certification.
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On February 5, 2019, the plaintiffs appealed the district court’s decision to the U.S. Court of Appeals for the Fifth Circuit. We will continue to vigorously defend
ourselves against the plaintiffs’ allegations.
Government
Investigation
of
Detroit
Medical
Center
Detroit Medical Center (“DMC”) is subject to an ongoing investigation by the U.S. Attorney’s Office for the Eastern District of Michigan and the
U.S. Department of Justice (“DOJ”) for potential violations of the Stark law, the Medicare and Medicaid anti-kickback and anti-fraud and abuse amendments
codified under Section 1128B(b) of the Social Security Act (the “Anti-kickback Statute”), and the federal False Claims Act (“FCA”) related to DMC’s employment
of nurse practitioners and physician assistants (“Mid-Level Practitioners”) from 2006 through 2017. As previously disclosed, a media report was published in
August 2017 alleging that 14 Mid-Level Practitioners were terminated by DMC earlier in 2017 due to compliance concerns. We are cooperating with the
investigation and continue to produce documents on a schedule agreed upon with the DOJ. Because the government’s review is in its preliminary stages, we are
unable to determine the potential exposure, if any, at this time.
Oklahoma
Surgical
Hospital
Qui
Tam
Action
In September 2016, a relator filed a qui tam lawsuit under seal in the Western District of Oklahoma against, among other parties, (i) Oklahoma Center for
Orthopaedic & Multispecialty Surgery (“OCOM”), a surgical hospital jointly owned by USPI, a healthcare system partner and physicians, (ii) Southwest
Orthopaedic Specialists (“SOS”), an independent physician practice group, (iii) Tenet, and (iv) other related entities and individuals. The complaint alleges various
violations of the FCA, the Anti-kickback Statute, the Stark law and the Oklahoma Medicaid False Claims Act. In May 2018, Tenet and its affiliates learned that
they were parties to the suit when the court unsealed the complaint and the DOJ declined to intervene with respect to the issues involving Tenet, USPI, OCOM and
individually named employees. In June 2018, the relator filed an amended complaint more fully describing the claims and adding additional defendants. Tenet,
USPI, OCOM and individually named employees filed motions to dismiss the case in October 2018, but the court has not yet ruled on the motions. On
February 11, 2019, the court granted a motion brought by the SOS defendants and the relator for a four-month stay so that those parties could continue conferring
regarding the issues and claims in the case.
Pursuant to the obligations under our NPA, we reported the unsealed qui tam action to the DOJ, and we are investigating the claims contained in the
amended complaint and cooperating fully with the DOJ. Because these proceedings and investigations are in preliminary stages, we are unable to predict with any
certainty the terms, or potential impact on our business or financial condition, of any potential resolution of these matters.
Ordinary
Course
Matters
We are also subject to other claims and lawsuits arising in the ordinary course of business, including potential claims related to, among other things, the
care and treatment provided at our hospitals and outpatient facilities, the application of various federal and state labor laws, tax audits and other matters. Although
the results of these claims and lawsuits cannot be predicted with certainty, we believe that the ultimate resolution of these ordinary course claims and lawsuits will
not have a material effect on our business or financial condition.
New claims or inquiries may be initiated against us from time to time. These matters could (1) require us to pay substantial damages or amounts in
judgments or settlements, which, individually or in the aggregate, could exceed amounts, if any, that may be recovered under our insurance policies where
coverage applies and is available, (2) cause us to incur substantial expenses, (3) require significant time and attention from our management, and (4) cause us to
close or sell hospitals or otherwise modify the way we conduct business.
The following table presents reconciliations of the beginning and ending liability balances in connection with legal settlements and related costs recorded in
continuing operations during the years ended December 31, 2018 , 2017 and 2016 . No amounts were recorded in discontinued operations in the 2018, 2017 and
2016 periods.
Balances at
Beginning
of Period
Litigation and
Investigation
Costs
Cash
Payments
Other
Balances at
End of
Period
Year Ended December 31, 2018
Year Ended December 31, 2017
Year Ended December 31, 2016
$
$
$
12 $
12 $
299 $
38 $
23 $
293 $
(41) $
(23) $
(582) $
(1) $
— $
2 $
8
12
12
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For the years ended December 31, 2018 , 2017 and 2016 , we recorded net costs of $38 million , $23 million and $293 million , respectively, in connection with
significant legal proceedings and governmental investigations. Of these amounts, $278 million for the year ended December 31, 2016 was attributable to accruals
for the Clinica de la Mama matters.
NOTE 17. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES
As part of the acquisition of United Surgical Partners International, Inc., we entered into a put/call agreement (the “Put/Call Agreement”) with respect to
the equity interests in USPI held by our joint venture partners. In April 2016, we paid $127 million to purchase shares put to us according to the
Put/Call Agreement, which increased our ownership interest in USPI to approximately 56.3% . On May 1, 2017, we amended and restated the Put/Call Agreement
to provide for, among other things, the acceleration of our acquisition of certain shares of USPI. Under the terms of the amendment, we paid Welsh Carson, on
July 3, 2017, $716 million for the purchase of these shares, which increased our ownership interest in USPI to 80.0% , as well as the final adjustment to the 2016
purchase price. In April 2018, we paid $630 million for the purchase of an additional 15% ownership interest in USPI and the final adjustment to the 2017 purchase
price, which increased our ownership interest in USPI to 95% .
In addition, we entered into a separate put call agreement (the “Baylor Put/Call Agreement”) with Baylor University Medical Center (“Baylor”) that
contains put and call options with respect to the 5% ownership interest in USPI held by Baylor. Each year starting in 2021, Baylor may put up to one-third of their
total shares in USPI held as of January 1, 2017. In each year that Baylor does not put the full 33.3% of USPI’s shares allowable, we may call the difference
between the number of shares Baylor put and the maximum number of shares they could have put that year. In addition, the Baylor Put/Call Agreement contains a
call option pursuant to which we have the ability to acquire all of Baylor’s ownership interest by 2024. We have the ability to choose whether to settle the purchase
price for the Baylor put/call in cash or shares of our common stock.
Based on the nature of these put/call structures, the minority shareholders’ interests in USPI are classified as redeemable noncontrolling interests in the
accompanying Consolidated Balance Sheets at December 31, 2018 and 2017 .
The following table shows the changes in redeemable noncontrolling interests in equity of consolidated subsidiaries during the years ended 2018 and 2017
:
Balances at beginning of period
Net income
Distributions paid to noncontrolling interests
Accretion of redeemable noncontrolling interests
Purchases and sales of businesses and noncontrolling interests, net
Balances at end of period
December 31,
2018
2017
$
$
1,866 $
190
(142)
173
(667)
1,420 $
2,393
239
(128)
33
(671)
1,866
Our redeemable noncontrolling interests balances at December 31, 2018 and 2017 in the table above were comprised of $431 million and $519 million ,
respectively, from our Hospital Operations and other segment, $713 million and $1.137 billion , respectively, from our Ambulatory Care segment, and $276
million and $210 million , respectively, from our Conifer segment. Our net income (loss) attributable to redeemable noncontrolling interests for the years ended
December 31, 2018 and 2017 respectively, in the accompanying Consolidated Statements of Operations were comprised of $(25) million and $18 million ,
respectively, from our Hospital Operations and other segment, $151 million and $170 million , respectively, from our Ambulatory Care segment, and $64 million
and $51 million , respectively, from our Conifer segment.
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NOTE 18. INCOME TAXES
The provision for income taxes for continuing operations for the years ended December 31, 2018 , 2017 and 2016 consists of the following:
Current tax expense (benefit):
Federal
State
Deferred tax expense (benefit):
Federal
State
Years Ended December 31,
2018
2017
2016
$
$
(6) $
33
27
159
(10)
149
(4) $
23
19
202
(2)
200
176 $
219 $
12
14
26
34
7
41
67
A reconciliation between the amount of reported income tax expense and the amount computed by multiplying income (loss) from continuing operations
before income taxes by the statutory federal income tax rate is shown below. State income tax expense for the year ended December 31, 2018 includes $9 million
of expense related to the write off of expired or worthless unutilized state net operating loss carryforwards and other deferred tax assets for which a full valuation
allowance had been provided in prior years. A corresponding tax benefit of $9 million is included for the year ended December 31, 2018 to reflect the reduction in
the valuation allowance. Foreign pre-tax loss for the years ended December 31, 2018 and 2017 was $6 million and $70 million , respectively.
Tax expense (benefit) at statutory federal rate of 21% in 2018
(35% in 2017 and 2016)
State income taxes, net of federal income tax benefit
Expired state net operating losses, net of federal income tax benefit
Tax attributable to noncontrolling interests
Nondeductible goodwill
Nontaxable gains
Nondeductible litigation costs
Impact of decrease in federal tax rate on deferred taxes
Reversal of permanent reinvestment assumption and other adjustments
related to divestiture of foreign subsidiary
Stock-based compensation tax deficiencies
Changes in valuation allowance (including impact of decrease in federal tax rate)
Change in tax contingency reserves, including interest
Prior-year provision to return adjustments and other changes in deferred taxes
Other items
Income tax expense
Years Ended December 31,
2018
2017
2016
$
134 $
(35) $
23
9
(70)
8
—
—
(1)
(6)
5
76
(1)
(5)
4
4
28
(113)
109
—
—
246
(30)
15
—
(6)
4
(3)
$
176 $
219 $
87
16
35
(106)
29
(11)
37
—
—
—
(25)
(9)
12
2
67
In December 2017, the President signed into law the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act amended the Internal Revenue Code to reduce
tax rates and modify policies, credits and deductions for individuals and businesses. For businesses, the Tax Act made broad and complex changes to the U.S. tax
code, including but not limited to (1) reducing the corporate federal tax rate from a maximum of 35% to a flat 21% rate effective January 1, 2018, (2) repealing the
corporate alternative minimum tax (“AMT”) and changing how existing AMT credits may be realized, (3) creating a new limitation on the deductibility of interest
expense, (4) allowing full expensing of certain capital expenditures, and (5) denying deductions for performance-based compensation paid to certain key
executives. International provisions in the Tax Act have not had, and are not expected to have, a material impact on the Company’s taxes.
The staff of the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided guidance on
accounting for the tax effects of the Tax Act. Pursuant to SAB 118, companies were permitted up to one year from the enactment of the Tax Act to complete the
accounting under ASC 740 (“the measurement period”). We completed the accounting for the tax effects of the Tax Act within the measurement period.
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As a result of the reduction in the corporate income tax rate from 35% to 21% under the Tax Act, we revalued our net deferred tax assets at December 31,
2017, resulting in a reduction in the value of our net deferred tax assets by approximately $251 million . For the year ended December 31, 2017, we recorded
$252 million as a provisional estimate of the impact of the Tax Act, including the decrease in the corporate income tax rate from 35% to 21%. Approximately
$6 million of the total $252 million increase in income tax expense is included in the net change in valuation allowance, with the remaining $246 million shown in
the table above. During the year ended December 31, 2018 , we recorded $1 million of tax benefit upon finalizing our accounting for the income tax effects of the
Tax Act based on actual 2017 federal and state income tax filings.
Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The following table discloses those significant components of our deferred tax assets and liabilities,
including any valuation allowance:
December 31, 2018
December 31, 2017
Assets
Liabilities
Assets
Liabilities
Depreciation and fixed-asset differences
$
— $
297 $
— $
Reserves related to discontinued operations and restructuring charges
Receivables (doubtful accounts and adjustments)
Deferred gain on debt exchanges
Accruals for retained insurance risks
Intangible assets
Other long-term liabilities
Benefit plans
Other accrued liabilities
Investments and other assets
Interest expense limitation
Net operating loss carryforwards
Stock-based compensation
Other items
Valuation allowance
24
155
—
205
—
39
255
32
—
89
266
24
88
1,177
(148)
—
—
—
—
341
—
—
—
83
—
—
—
32
753
—
15
134
—
225
—
97
268
42
—
—
399
27
142
1,349
(72)
$
1,029 $
753 $
1,277 $
411
—
—
6
—
330
—
—
—
79
—
—
—
32
858
—
858
Below is a reconciliation of the deferred tax assets and liabilities and the corresponding amounts reported in the accompanying Consolidated Balance
Sheets.
Deferred income tax assets
Deferred tax liabilities
Net deferred tax asset
December 31,
2018
2017
$
$
312 $
(36)
276 $
455
(36)
419
During the year ended December 31, 2018 , the valuation allowance increased by $76 million , including an increase of $89 million due to limitations on
deductions of interest expense , a decrease of $9 million due to the expiration or worthlessness of unutilized state net operating loss carryovers, and a decrease of
$4 million due to changes in expected realizability of deferred tax assets. The balance in the valuation allowance as of December 31, 2018 was $148 million .
During the year ended December 31, 2017 , we had no net change in the valuation allowance, but there was a decrease of $28 million due to the expiration or
worthlessness of unutilized state net operating loss carryovers, an increase of $6 million due to the decrease in the federal tax rate, and an increase of $22 million
due to changes in expected realizability of deferred tax assets. The remaining balance in the valuation allowance at December 31, 2017 was $72 million . During
the year ended December 31, 2016, the valuation allowance decreased by $24 million primarily due to the expiration or worthlessness of unutilized state net
operating loss carryovers. The balance in the valuation allowance as of December 31, 2016 was $72 million .
We account for uncertain tax positions in accordance with ASC 740-10-25, which prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The following table
summarizes the total changes in unrecognized tax benefits in continuing operations during the years ended December 31, 2018 , 2017 and 2016 . There were no
such changes in discontinued operations. The additions and reductions for tax positions include the impact of items for which the ultimate deductibility is highly
certain, but for which there is uncertainty about the timing of such deductions. Such amounts include unrecognized tax benefits that have impacted deferred tax
assets and liabilities at December 31, 2018 , 2017 and 2016 .
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Balance At December 31, 2015
Additions for prior-year tax positions
Reductions due to a lapse of statute of limitations
Balance At December 31, 2016
Additions for prior-year tax positions
Reductions for tax positions of prior years
Reductions due to a lapse of statute of limitations
Balance At December 31, 2017
Reductions due to a lapse of statute of limitations
Balance At December 31, 2018
Continuing
Operations
40
2
(7)
35
31
(15)
(5)
46
(1)
45
$
$
$
$
The total amount of unrecognized tax benefits as of December 31, 2018 was $45 million , of which $43 million , if recognized, would affect our effective
tax rate and income tax expense (benefit) from continuing operations. Income tax expense in the year ended December 31, 2018 includes a benefit of $1 million in
continuing operations attributable to a decrease in our estimated liabilities for uncertain tax positions, net of related deferred tax effects. The total amount of
unrecognized tax benefits as of December 31, 2017 was $46 million , of which $44 million , if recognized, would affect our effective tax rate and income tax
expense (benefit) from continuing operations. Income tax expense in the year ended December 31, 2017 includes a benefit of $5 million in continuing operations
attributable to a decrease in our estimated liabilities for uncertain tax positions, net of related deferred tax effects. The total amount of unrecognized tax benefits as
of December 31, 2016 was $35 million , of which $32 million , if recognized, would affect our effective tax rate and income tax expense (benefit) from continuing
operations. Income tax expense in the year ended December 31, 2016 includes a benefit of $9 million in continuing operations attributable to a decrease in our
estimated liabilities for uncertain tax positions, net of related deferred tax effects.
Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our consolidated statements of operations.
Approximately $1 million of interest and penalties related to accrued liabilities for uncertain tax positions related to continuing operations are included in the
accompanying Consolidated Statement of Operations for the year ended December 31, 2018 . Total accrued interest and penalties on unrecognized tax benefits as
of December 31, 2018 were $3 million , all of which related to continuing operations.
The Internal Revenue Service (“IRS”) has completed audits of our tax returns for all tax years ended on or before December 31, 2007. All disputed issues
with respect to these audits have been resolved and all related tax assessments (including interest) have been paid. Our tax returns for years ended after
December 31, 2007 and USPI’s tax returns for years ended after December 31, 2014 remain subject to audit by the IRS.
As of December 31, 2018 , approximately $10 million of unrecognized federal and state tax benefits, as well as reserves for interest and penalties, may
decrease in the next 12 months as a result of the settlement of audits, the filing of amended tax returns or the expiration of statutes of limitations.
At December 31, 2018 , our carryforwards available to offset future taxable income consisted of (1) federal net operating loss (“NOL”) carryforwards of
approximately $1.0 billion pre-tax expiring in 2027 to 2034 , (2) general business credit carryforwards of approximately $26 million expiring in 2023 through
2038, and (3) state NOL carryforwards of approximately $3.1 billion expiring in 2019 through 2038 for which the associated deferred tax benefit, net of valuation
allowance and federal tax impact, is $22 million . Our ability to utilize NOL carryforwards to reduce future taxable income may be limited under Section 382 of the
Internal Revenue Code if certain ownership changes in our company occur during a rolling three -year period. These ownership changes include purchases of
common stock under share repurchase programs , the offering of stock by us, the purchase or sale of our stock by 5% shareholders, as defined in the Treasury
regulations, or the issuance or exercise of rights to acquire our stock. If such ownership changes by 5% shareholders result in aggregate increases that exceed 50
percentage points during the three -year period, then Section 382 imposes an annual limitation on the amount of our taxable income that may be offset by the
NOL carryforwards or tax credit carryforwards at the time of ownership change.
NOTE 19. EARNINGS (LOSS) PER COMMON SHARE
The following table is a reconciliation of the numerators and denominators of our basic and diluted earnings (loss) per common share calculations for our
continuing operations for the years ended December 31, 2018 , 2017 and 2016 . Net earnings available (loss attributable) is expressed in millions and weighted
average shares are expressed in thousands.
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Net Income Available (Loss
Attributable)
to Common
Shareholders
(Numerator)
Weighted
Average Shares
(Denominator)
Per-Share
Amount
Year Ended December 31, 2018
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings
per share
Effect of dilutive stock options, restricted stock units and deferred compensation units
Net income available to Tenet Healthcare Corporation common shareholders for diluted
earnings per share
Year Ended December 31, 2017
Net loss attributable to Tenet Healthcare Corporation common
shareholders for basic loss per share
Effect of dilutive stock options, restricted stock units and deferred compensation units
Net loss attributable to Tenet Healthcare Corporation common shareholders for diluted
loss per share
Year Ended December 31, 2016
Net loss attributable to Tenet Healthcare Corporation common
shareholders for basic losss per share
Effect of dilutive stock options, restricted stock units and deferred compensation units
Net loss attributable to Tenet Healthcare Corporation common shareholders for diluted
earnings per share
$
$
$
$
$
$
108
—
102,110 $
1,771
1.06
(0.02)
108
103,881 $
1.04
(704)
—
100,592 $
(7.00)
—
—
(704)
100,592 $
(7.00)
(187)
—
(187)
99,321 $
(1.88)
—
—
99,321 $
(1.88)
All potentially dilutive securities were excluded from the calculation of diluted loss per share for the years ended December 31, 2017 and 2016 because
we did not report income from continuing operations available to common shareholders in those periods. In circumstances where we do not have income from
continuing operations available to common shareholders, the effect of stock options and other potentially dilutive securities is anti-dilutive, that is, a loss from
continuing operations attributable to common shareholders has the effect of making the diluted loss per share less than the basic loss per share. Had we generated
income from continuing operations available to common shareholders in the years ended December 31, 2017 and 2016 , the effect (in thousands) of employee stock
options, restricted stock units and deferred compensation units on the diluted shares calculation would have been an increase in shares of 788 and 1,421 for the
years ended December 31, 2017 and 2016 , respectively.
NOTE 20. FAIR VALUE MEASUREMENTS
Our non-financial assets and liabilities not permitted or required to be measured at fair value on a recurring basis typically relate to long-lived assets held
and used, long-lived assets held for sale and goodwill. We are required to provide additional disclosures about fair value measurements as part of our financial
statements for each major category of assets and liabilities measured at fair value on a non-recurring basis. The following tables present this information and
indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair values. In general, fair values determined by Level 1 inputs utilize
quoted prices (unadjusted) in active markets for identical assets or liabilities, which generally are not applicable to non-financial assets and liabilities. Fair values
determined by Level 2 inputs utilize data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable
assets. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market
activity for the asset or liability, such as internal estimates of future cash flows.
.
Long-lived assets held for sale
Long-lived assets held and used
$
$
December 31, 2018
39 $
130 $
134
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
— $
39 $
130 $
—
—
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Long-lived assets held for sale
Long-lived assets held and used
Other than temporarily impaired equity method
investments
$
$
$
456 $
— $
113 $
December 31, 2017
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
— $
— $
456 $
— $
113 $
—
—
—
As described in Note 6 , in the year ended December 31, 2018 , we recorded impairment charges in continuing operations of $40 million for the write-
down of buildings and other long-lived assets to their estimated fair values at two hospitals. We also recorded $24 million to write-down assets held for sale to their
estimated fair value, less estimated costs to sell, for certain of our Chicago-area facilities, as well as $9 million of impairment charges to write-down assets held for
sale to their estimated fair value, less estimated costs to sell, for Aspen and $4 million related to other impairment charges. In the year ended December 31, 2017 ,
we recorded $364 million for the write-down of assets held for sale to their estimated fair value, less estimated costs to sell, for Aspen, our Philadelphia-area
facilities and certain of our Chicago-area facilities, as well as $31 million of impairment charges related to investments and $7 million related to other intangible
assets, primarily contract-related intangibles and capitalized software costs not associated with the hospitals described above.
The fair value of our long-term debt (except for borrowings under the Credit Agreement) is based on quoted market prices (Level 1). The inputs used to
establish the fair value of the borrowings outstanding under the Credit Agreement are considered to be Level 2 inputs, which include inputs other than quoted
prices included in Level 1 that are observable, either directly or indirectly. At December 31, 2018 and 2017 , the estimated fair value of our long-term debt was
approximately 97.3% and 100.2% , respectively, of the carrying value of the debt.
NOTE 21. ACQUISITIONS
During the year ended December 31, 2018 , we acquired ten outpatient businesses (all of which are owned by USPI), three off-campus emergency
departments and various physician practices. The fair value of the consideration conveyed in the acquisitions (the “purchase price”) was $113 million .
During the year ended December 31, 2017 , we acquired eight outpatient businesses (all of which are owned by USPI) and various physician
practices. The fair value of the consideration conveyed in the acquisitions (the “purchase price”) was $50 million .
During the year ended December 31, 2016 , we completed a transaction that allowed us to consolidate five microhospitals that were previously recorded
as equity method investments. We also acquired majority interests in 28 ambulatory surgery centers (all of which are owned USPI) and various physician
practices. The fair value of the consideration conveyed in the acquisitions (the “purchase price”) was $117 million .
We are required to allocate the purchase prices of acquired businesses to assets acquired or liabilities assumed and, if applicable, noncontrolling interests
based on their fair values. The excess of the purchase price allocated over those fair values is recorded as goodwill. The purchase price allocations for certain
acquisitions completed in 2018 is preliminary. We are in process of finalizing the purchase price allocations, including valuations of the acquired property and
equipment, other intangible assets and noncontrolling interests for some of our 2018 acquisitions; therefore, those purchase price allocations are subject to
adjustment once the valuations are completed.
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Preliminary or final purchase price allocations for all the acquisitions made during the years ended December 31, 2018 , 2017 and 2016 are as follows:
Current assets
Property and equipment
Other intangible assets
Goodwill
Other long-term assets, including previously held equity method investments
Current liabilities
Long-term liabilities
Redeemable noncontrolling interests in equity of consolidated subsidiaries
Noncontrolling interests
Cash paid, net of cash acquired
Gains on consolidations
2018
2017
2016
$
6 $
7 $
19
9
220
(18)
—
(15)
(21)
(85)
$
(113)
2 $
9
8
91
(3)
(8)
(2)
(29)
(18)
(50)
5 $
51
38
7
464
(56)
(30)
(15)
(190)
(119)
(117)
33
The goodwill generated from these transactions, the majority of which will not be deductible for income tax purposes, can be attributed to the benefits that we
expect to realize from operating efficiencies and growth strategies. Of the total $220 million of goodwill recorded for acquisitions completed during the year ended
December 31, 2018 , $1 million was recorded in our Hospital Operations and other segment, and $219 million was recorded in our Ambulatory Care segment.
Approximately $10 million , $6 million and $20 million in transaction costs related to prospective and closed acquisitions were expensed during the years ended
December 31, 2018 , 2017 and 2016 , respectively, and are included in impairment and restructuring charges, and acquisition-related costs in the accompanying
Consolidated Statements of Operations.
During the years ended December 31, 2018 , 2017 and 2016 , we recognized gains totaling $2 million , $5 million and $33 million , respectively,
associated with stepping up our ownership interests in previously held equity investments, which we began consolidating after we acquired controlling interests.
NOTE 22. SEGMENT INFORMATION
Our business consists of our Hospital Operations and other segment, our Ambulatory Care segment and our Conifer segment. The factors for determining
the reportable segments include the manner in which management evaluates operating performance combined with the nature of the individual business activities.
Our Hospital Operations and other segment is comprised of our acute care and specialty hospitals, ancillary outpatient facilities, urgent care centers,
microhospitals and physician practices. As described in Note 5 , certain of our facilities were classified as held for sale in the accompanying Consolidated Balance
Sheet at December 31, 2018 . At December 31, 2018 , our subsidiaries operated 68 hospitals ( three of which have since been divested), primarily serving urban
and suburban communities in 10 states.
Our Ambulatory Care segment is comprised of the operations of USPI and included nine Aspen facilities in the United Kingdom until their divestiture
effective August 17, 2018. At December 31, 2018 , USPI had interests in 255 ambulatory surgery centers, 36 urgent care centers operated under the CareSpot
brand, 23 imaging centers and 23 surgical hospitals in 27 states. At December 31, 2018 , we owned 95.0% of USPI.
Our Conifer segment provides healthcare business process services in the areas of hospital and physician revenue cycle management and value-based care
solutions to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities . At
December 31, 2018 , Conifer provided services to approximately 750 Tenet and non-Tenet hospitals and other clients nationwide. In 2012, we entered into
agreements documenting the terms and conditions of various services Conifer provides to Tenet hospitals, as well as certain administrative services our Hospital
Operations and other segment provides to Conifer. The pricing terms for the services provided by each party to the other under these contracts were based on
estimated third-party pricing terms in effect at the time the agreements were signed. At December 31, 2018 , we owned 76.2% of Conifer Health Solutions, LLC,
which is the principal subsidiary of Conifer Holdings, Inc.
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The following table includes amounts for each of our reportable segments and the reconciling items necessary to agree to amounts reported in the
accompanying Consolidated Balance Sheets and Consolidated Statements of Operations:
Assets:
Hospital Operations and other
Ambulatory Care
Conifer
Total
Capital expenditures:
Hospital Operations and other
Ambulatory Care
Conifer
Total
Net operating revenues:
Hospital Operations and other total prior to inter-segment eliminations
Ambulatory Care
Conifer
Tenet
Other clients
Total Conifer revenues
Inter-segment eliminations
Total
Equity in earnings of unconsolidated affiliates:
Hospital Operations and other
Ambulatory Care
Total
Adjusted EBITDA:
Hospital Operations and other
Ambulatory Care
Conifer
Total
Depreciation and amortization:
Hospital Operations and other
Ambulatory Care
Conifer
Total
Adjusted EBITDA
Income (loss) from divested and closed businesses
(i.e., the Company’s health plan businesses)
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Interest expense
Gain (loss) from early extinguishment of debt
$
$
$
$
$
$
$
$
$
$
$
$
$
December 31,
2018
December 31,
2017
December 31,
2016
15,684 $
16,466 $
5,711
1,014
5,822
1,097
22,409 $
23,385 $
17,871
5,722
1,108
24,701
Years Ended December 31,
2018
2017
2016
527 $
625 $
68
22
60
22
617 $
707 $
15,285 $
16,260 $
2,085
1,940
590
943
1,533
(590)
618
979
1,597
(618)
18,313 $
19,179 $
10 $
140
150 $
4 $
140
144 $
1,411 $
1,462 $
792
357
699
283
2,560 $
2,444 $
685 $
736 $
68
49
84
50
802 $
870 $
799
51
25
875
16,904
1,797
651
920
1,571
(651)
19,621
9
122
131
1,586
615
277
2,478
709
91
50
850
2,560 $
2,444 $
2,478
9
(802)
(209)
(38)
(1,004)
1
(41)
(870)
(541)
(23)
(1,028)
(164)
(37)
(850)
(202)
(293)
(979)
—
Other non-operating expense, net
Net gains on sales, consolidation and deconsolidation of facilities
Income (loss) from continuing operations, before income taxes
$
(5)
127
639 $
(22)
144
(101) $
(20)
151
248
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NOTE 23. RECENT ACCOUNTING STANDARDS
Recently
Issued
Accounting
Standards
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which affects any entity that enters into a lease (as that term is
defined in ASU 2016-02), with some specified scope exceptions. The main difference between the guidance in ASU 2016-02 and current GAAP is the recognition
of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP. Under ASU 2016-02, lessees and lessors are
required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of
optional practical expedients. In July 2018, the FASB issued ASU 2018-11 “Leases (Topic 842) Targeted Improvements,” which allows lessees and lessors to
recognize and measure leases at the beginning of the period of adoption without modifying the comparative period financial statements. This guidance will be
effective for us beginning in 2019, and we intend to use the retrospective method as of the period of adoption rather than the earliest period presented meaning that
our financial statements for periods prior to January 1, 2019 will not be modified for the application of the new lease accounting standard. We will elect the three
packaged transition practical expedients under ASC 842-10-65-1(f) and the practical expedient that allows lessees to choose to not separate lease and non-lease
components by class of underlying asset. We expect that, as of January 1, 2019, our consolidated assets and liabilities will both increase by approximately $750
million to $800 million related to on-balance sheet recognition of right of use assets and liabilities. Right of use assets associated with operating leases will be
included as an intangible asset, and liabilities associated with operating leases will be split between our other current liabilities and other long-term liabilities in our
consolidated balance sheets. We are still finalizing our calculation of the cumulative effect of accounting change we will recognize upon adoption. We are
currently working to complete the implementation of new processes and information technology tools to assist in our ongoing lease data collection and analysis,
and updating our accounting policies and internal controls in connection with the adoption of the new standard.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements
for Fair Value Measurement” (“ASU 2018-13”), which applies to all entities that are required to make disclosures about recurring or nonrecurring fair value
measurements. The amendments in ASU 2018-13, which remove, modify or add certain disclosure requirements as part of the FASB’s disclosure framework
project to improve the effectiveness of the notes to the financial statements, are effective for us beginning in 2020. The adoption of this guidance will not impact
our financial position, results of operations or cash flows.
Also in August 2018, the FASB issued ASU 2018-14, “Compensation – Retirement Benefits – Defined Benefit Plans –General (Subtopic 715-20)
Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”), which applies to all employers that sponsor
defined benefit pension or other postretirement plans. The amendments in ASU 2018-14, which remove, modify or add certain disclosure requirements as part of
the FASB’s disclosure framework project to improve the effectiveness of the notes to the financial statements, are effective for us beginning in 2021. The adoption
of this guidance will not impact our financial position, results of operations or cash flows.
Additionally, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-14”), which applies to all entities that are a customer
in a hosting arrangement that is a service contract. The amendments in ASU 2018-14, which align the requirements for capitalizing implementation costs incurred
in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software,
are effective for us beginning in 2020. We do not expect adoption of this guidance to have a material effect on our financial position, results of operations or cash
flows.
Recently
Adopted
Accounting
Standards
Effective January 1, 2018, as further discussed in Note 1, we adopted ASU 2014-09 and ASU 2016-01, and we early adopted ASU 2018-02. Also
effective January 1, 2018, we adopted ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments” and ASU
2016-18, “Statement of Cash Flows (Topic 230) Restricted Cash,” both of which were applied using a retrospective transition method to each period presented and
did not have any effect on our statements of cash flows.
Effective January 1, 2017, as further discussed in Note 1, we adopted ASU 2016-09 and early adopted ASU 2017-07. We also early adopted ASU 2017-
04, “Intangibles – Goodwill and Other (Topic 350)” (“ASU 2017‑04”) for our annual goodwill impairment tests for the year ended December 31, 2017. The
amendments in ASU 2017-04 modified the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair
value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. An entity no longer determines goodwill
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impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit
had been acquired in a business combination. Because these amendments eliminate Step 2 from the goodwill impairment test, they should reduce the cost and
complexity of evaluating goodwill for impairment. Our adoption of ASU 2017-04 did not affect our financial position, results of operations or cash flows.
NOTE 24. SUBSEQUENT EVENT
On February 5, 2019, we sold $1.5 billion aggregate principal amount of 6.250% senior secured second lien notes, which will mature on February 1, 2027
(the “2027 Senior Secured Second Lien Notes”). We will pay interest on the 2027 Senior Secured Second Lien Notes semi-annually in arrears on February 1 and
August 1 of each year, which payments will commence on August 1, 2019. The proceeds from the sale of the 2027 Senior Secured Second Lien Notes were used,
after payment of fees and expenses, together with cash on hand and borrowings under our Credit Agreement, to fund the redemption of all $300 million aggregate
principal amount of our outstanding 6.750% senior notes due 2020 and all $750 million aggregate principal amount of our outstanding 7.500% senior secured
second lien notes due 2022, and will be used to fund the repayment upon maturity of all $468 million aggregate principal amount of our outstanding 5.500% senior
unsecured notes due March 1, 2019. In connection with the redemptions, we expect to record a loss from early extinguishment of debt of approximately $47
million in the three months ending March 31, 2019 , primarily related to the difference between the redemption prices and the par values of the notes, as well as the
write-off of the associated unamortized issuance costs. As a result of these refinancing transactions, our 5.500% senior unsecured notes due 2019 are not included
in current portion of long-term debt in our Consolidated Balance Sheet at December 31, 2018 .
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SUPPLEMENTAL FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
Net operating revenues
Net income
Net income available (loss attributable) to Tenet Healthcare Corporation common shareholders
Earnings (loss) per share available (attributable) to Tenet Healthcare Corporation common
shareholders:
Basic
Diluted
Net operating revenues
Net income (loss)
Net loss attributable to Tenet Healthcare Corporation common shareholders
Loss per share attributable to Tenet Healthcare Corporation common shareholders:
Basic
Diluted
Year Ended December 31, 2018
First
Second
Third
Fourth
4,699 $
4,506 $
4,489 $
191 $
99 $
108 $
26 $
65 $
(9) $
4,619
102
(5)
0.98 $
0.96 $
0.25 $
0.25 $
(0.09) $
(0.09) $
(0.04)
(0.04)
Year Ended December 31, 2017
First
Second
Third
Fourth
4,813 $
4,802 $
4,586 $
4,978
36 $
(53) $
32 $
(55) $
(289) $
(367) $
(0.53) $
(0.53) $
(0.55) $
(0.55) $
(3.64) $
(3.64) $
(99)
(229)
(2.27)
(2.27)
$
$
$
$
$
$
$
$
$
$
Quarterly operating results are not necessarily indicative of the results that may be expected for the full year. Reasons for this include, but are not limited
to: overall revenue and cost trends, particularly the timing and magnitude of price changes; fluctuations in contractual allowances and cost report settlements and
valuation allowances; managed care contract negotiations, settlements or terminations and payer consolidations; changes in Medicare and Medicaid regulations;
Medicaid and other supplemental funding levels set by the states in which we operate; the timing of approval by the Centers for Medicare and Medicaid Services of
Medicaid provider fee revenue programs; trends in patient accounts receivable collectability and associated implicit price concessions; fluctuations in interest rates;
levels of malpractice insurance expense and settlement trends; impairment of long-lived assets and goodwill; restructuring charges; losses, costs and insurance
recoveries related to natural disasters and other weather-related occurrences; litigation and investigation costs; acquisitions and dispositions of facilities and other
assets; gains (losses) on sales, consolidation and deconsolidation of facilities; income tax rates and deferred tax asset valuation allowance activity; changes in
estimates of accruals for annual incentive compensation; the timing and amounts of stock option and restricted stock unit grants to employees and directors; gains
(losses) from early extinguishment of debt; and changes in occupancy levels and patient volumes. Factors that affect service mix, revenue mix, patient volumes
and, thereby, the results of operations at our hospitals and related healthcare facilities include, but are not limited to: changes in federal and state healthcare
regulations; the business environment, economic conditions and demographics of local communities in which we operate; the number of uninsured and
underinsured individuals in local communities treated at our hospitals; seasonal cycles of illness; climate and weather conditions; physician recruitment, retention
and attrition; advances in technology and treatments that reduce length of stay; local healthcare competitors; managed care contract negotiations or terminations;
the number of patients with high-deductible health insurance plans; hospital performance data on quality measures and patient satisfaction, as well as standard
charges for services; any unfavorable publicity about us, or our joint venture partners, that impacts our relationships with physicians and patients; and the timing of
elective procedures. These considerations apply to year-to-year comparisons as well.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and
15d-15(e) under the Exchange Act, as of the end of the period covered by this report. The
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evaluation was performed under the supervision and with the participation of management, including our chief executive officer and chief financial officer. Based
upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that
material information is recorded, processed, summarized and reported by management on a timely basis in order to comply with our disclosure obligations under
the Exchange Act and the SEC rules thereunder.
Management’s report on internal control over financial reporting is set forth on page 91 and is incorporated herein by reference. The independent
registered public accounting firm that audited the financial statements included in this report has issued an attestation report on our internal control over financial
reporting as set forth on page 92 herein.
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2018 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III.
Certain information required by this Item is hereby incorporated by reference to our definitive proxy statement in accordance with General Instruction
G(3) to Form 10-K. Information concerning our executive officers appears under Item 1, Business – Executive Officers, of Part I of this report, and information
concerning our Standards of Conduct, by which all of our employees, including our chief executive officer, chief financial officer and principal accounting officer,
are required to abide appears under Item 1, Business – Compliance and Ethics, of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is hereby incorporated by reference to our definitive proxy statement in accordance with General Instruction G(3) to
Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this Item is hereby incorporated by reference to our definitive proxy statement in accordance with General Instruction G(3) to
Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is hereby incorporated by reference to our definitive proxy statement in accordance with General Instruction G(3) to
Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this Item is hereby incorporated by reference to our definitive proxy statement in accordance with General Instruction G(3) to
Form 10-K.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
PART IV.
The Consolidated Financial Statements and notes thereto can be found on pages 94 through 139.
FINANCIAL STATEMENT SCHEDULES
Schedule II—Valuation and Qualifying Accounts (included on page 151).
All other schedules and financial statements of the Registrant are omitted because they are not applicable or not required or because the required
information is included in the Consolidated Financial Statements or notes thereto.
FINANCIAL STATEMENTS REQUIRED BY RULE 3-09 OF REGULATION S-X
The consolidated financial statements of Texas Health Ventures Group, L.L.C. and subsidiaries (“THVG”), which are included due to the significance of
the equity in earnings of unconsolidated affiliates we recognized from our investment in THVG for the years ended December 31, 2018 , 2017 and 2016 can be
found on pages F-1 through F-19.
All other schedules and financial statements of THVG are omitted because they are not applicable or not required or because the required information is
included in the Consolidated Financial Statements or notes thereto.
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EXHIBITS
Unless otherwise indicated, the following exhibits are filed with this report:
(3) Articles of Incorporation and Bylaws
(a) Amended and Restated Articles of Incorporation of the Registrant, as amended and restated May 8, 2008 (Incorporated by reference to
Exhibit 3(a) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed August 5, 2008)
(b) Certificate of Change Pursuant to NRS 78.209, filed with the Nevada Secretary of State effective October 10, 2012 (Incorporated by
reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed October 11, 2012)
(c) Certificate of Designation of Series R Preferred Stock, par value $0.15 per share, dated August 31, 2017 (Incorporated by reference to
Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed September 1, 2017)
(d) Certificate of Withdrawal of Certificate of Designation of Series R Preferred Stock, par value $0.15 per share, dated March 5, 2018
(Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed March 5, 2018)
(e) Amended and Restated Bylaws of the Registrant, as amended and restated effective January 3, 2019 (Incorporated by reference to
Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed January 7, 2019)
(4) Instruments Defining the Rights of Security Holders, Including Indentures
(a) Indenture, dated as of November 6, 2001, between the Registrant and The Bank of New York, as trustee (Incorporated by reference to
Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed November 9, 2001)
(b) Third Supplemental Indenture, dated as of November 6, 2001, between the Registrant and The Bank of New York, as trustee, relating to
6.875% Senior Notes due 2031 (Incorporated by reference to Exhibit 4.4 to Registrant’s Current Report on Form 8-K filed
November 9, 2001)
(c) Fifteenth Supplemental Indenture, dated as of October 16, 2012, by and among the Registrant, The Bank of New York Mellon Trust
Company, N.A., as successor trustee to The Bank of New York, and the guarantors party thereto, relating to 4.750% Senior Secured
Notes due 2020 (Incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed October 16, 2012)
(d) Sixteenth Supplemental Indenture, dated as of October 16, 2012, between the Registrant and The Bank of New York Mellon Trust
Company, N.A., as successor trustee to The Bank of New York, relating to 6.750% Senior Notes due 2020 (Incorporated by reference to
Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed October 16, 2012)
(e) Seventeenth Supplemental Indenture, dated as of February 5, 2013, by and among the Registrant, The Bank of New York Mellon Trust
Company, N.A., as successor trustee to The Bank of New York, and the guarantors party thereto, relating to 4.500% Senior Secured
Notes due 2021 (Incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed February 5, 2013)
(f) Twentieth Supplemental Indenture, dated as of May 30, 2013, by and among the Registrant, The Bank of New York Mellon Trust
Company, N.A., as successor trustee to The Bank of New York, and the guarantors party thereto, relating to 4.375% Senior Secured
Notes due 2021 (Incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed May 31, 2013)
(g) Indenture, dated as of September 27, 2013, among THC Escrow Corporation and The Bank of New York Mellon Trust Company, N.A.,
as trustee, relating to 6.000% Senior Secured Notes due 2020 (Incorporated by reference to Exhibit 4.1 to Registrant’s Current Report
on Form 8-K filed October 1, 2013)
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(h) Supplemental Indenture, dated as of October 1, 2013, among the Registrant, certain of its subsidiaries and The Bank of New York
Mellon Trust Company, N.A., as trustee, relating to 6.000% Senior Secured Notes due 2020 (Incorporated by reference to Exhibit 4.2 to
Registrant’s Current Report on Form 8-K filed October 1, 2013)
(i) Indenture, dated as of September 27, 2013, among THC Escrow Corporation and The Bank of New York Mellon Trust Company, N.A.,
as trustee, relating to 8.125% Senior Notes due 2022 (Incorporated by reference to Exhibit 4.3 to Registrant’s Current Report
on Form 8-K filed October 1, 2013)
(j) Supplemental Indenture, dated as of October 1, 2013, among the Registrant, certain of its subsidiaries and The Bank of New York
Mellon Trust Company, N.A., as trustee, relating to 8.125% Senior Notes due 2022 (Incorporated by reference to Exhibit 4.4 to
Registrant’s Current Report on Form 8-K filed October 1, 2013)
(k) Twenty-Fourth Supplemental Indenture, dated as of September 29, 2014, between the Registrant and The Bank of New York Mellon
Trust Company, N.A., as successor trustee to The Bank of New York, relating to 5.500% Senior Notes due 2019 (Incorporated by
reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed September 29, 2014)
(l) Indenture, dated as of June 16, 2015, between THC Escrow Corporation II and The Bank of New York Mellon Trust Company, N.A., as
trustee, relating to 6.750% Senior Notes due 2023 (Incorporated by reference to Exhibit 4.3 to Registrant’s Current Report on Form 8-K
filed June 16, 2015)
(m) Supplemental Indenture, dated as of June 16, 2015, between the Registrant and The Bank of New York Mellon Trust Company, N.A.,
as trustee, relating to 6.750% Senior Notes due 2023 (Incorporated by reference to Exhibit 4.4 to Registrant’s Current Report on Form
8-K filed June 16, 2015)
(n) Twenty-Eighth Supplemental Indenture, dated as of December 1, 2016, among the Registrant, The Bank of New York Mellon Trust
Company, N.A., as successor trustee to The Bank of New York, and the guarantors party thereto, relating to 7.500% Senior Secured
Second Lien Notes due 2022 (Incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed
December 1, 2016)
(o) Twenty-Ninth Supplemental Indenture, dated as of June 14, 2017, among the Registrant, The Bank of New York Mellon Trust
Company, N.A., as successor trustee to The Bank of New York, and the guarantors party thereto, relating to 4.625% Senior Secured
First Lien Notes due 2024 (Incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed June 16, 2017)
(p) Senior Secured First Lien Notes Indenture, dated as of June 14, 2017, between THC Escrow Corporation III and The Bank of New York
Mellon Trust Company, N.A., as trustee, relating to 4.625% Senior Secured First Lien Notes due 2024 (Incorporated by reference to
Exhibit 4.3 to Registrant’s Current Report on Form 8-K filed June 16, 2017)
(q) Senior Secured Second Lien Notes Indenture, dated as of June 14, 2017, between THC Escrow Corporation III and The Bank of New
York Mellon Trust Company, N.A., as trustee, relating to 5.125% Senior Secured Second Lien Notes due 2025 (Incorporated by
reference to Exhibit 4.4 to Registrant’s Current Report on Form 8-K filed June 16, 2017)
(r) Unsecured Notes Indenture, dated as of June 14, 2017, between THC Escrow Corporation III and The Bank of New York Mellon Trust
Company, N.A., as trustee, relating to 7.000% Senior Notes due 2025 (Incorporated by reference to Exhibit 4.5 to Registrant’s Current
Report on Form 8-K filed June 16, 2017)
(s) Supplemental Indenture, dated as of July 14, 2017, among the Registrant, certain of its subsidiaries and The Bank of New York Mellon
Trust Company, N.A. relating to 5.125% Senior Secured Second Lien Notes Due 2025 (Incorporated by reference to Exhibit 4.4 to
Registrant’s Current Report on Form 8-K filed July 17, 2017)
(t) Supplemental Indenture, dated as of August 1, 2017, among the Registrant and The Bank of New York Mellon Trust Company, N.A.
relating to 7.000% Senior Notes Due 2025 (Incorporated by reference to Exhibit 4.5 to Registrant’s Current Report on Form 8-K filed
August 2, 2017)
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(u) Thirtieth Supplemental Indenture, dated as of February 5, 2019, among the Registrant, The Bank of New York Mellon Trust Company,
N.A., as successor trustee to The Bank of New York, and the guarantors party thereto, relating to 6.250% Senior Secured Second Lien
Notes due 2027 (Incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed February 6, 2019)
(10) Material Contracts
(a) Amended and Restated Credit Agreement, dated as of October 19, 2010, among the Registrant, the lenders and issuers party thereto,
Citicorp USA, Inc., as administrative agent, Bank of America, N.A., as syndication agent, Citigroup Global Markets Inc. and Banc of
America Securities LLC, as joint lead arrangers, and the joint bookrunners and co-documentation agents named therein (Incorporated
by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed October 20, 2010)
(b) Amendment No. 1, dated as of November 29, 2011, to that certain Amended and Restated Credit Agreement, dated as of
October 19, 2010, among the Registrant, the lenders and issuers party thereto, Citicorp USA, Inc., as administrative agent, Bank of
America, N.A., as syndication agent, Citigroup Global Markets Inc. and Banc of America Securities LLC, as joint lead arrangers, and
the joint bookrunners and co-documentation agents named therein (Incorporated by reference to Exhibit 10.1 to Registrant’s Current
Report on Form 8-K filed December 1, 2011)
(c) Amendment No. 2, dated as of January 23, 2014, to that certain Amended and Restated Credit Agreement, dated as of October 19, 2010,
among the Registrant, the lenders and issuers party thereto, Citicorp USA, Inc., as administrative agent, Bank of America, N.A., as
syndication agent, Citigroup Global Markets Inc. and Banc of America Securities LLC, as joint lead arrangers, and the
joint bookrunners and co-documentation agents named therein (Incorporated by reference to Exhibit 10(c) to Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2013, filed February 24, 2014)
(d) Amendment No. 3, dated as of December 4, 2015, to that certain Amended and Restated Credit Agreement, dated as of
October 19, 2010, among the Registrant, the lenders and issuers party thereto and Citicorp USA, Inc., as administrative agent
(Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed December 9, 2015)
(e) Letter of Credit Facility Agreement, dated as of March 7, 2014, among the Registrant, certain financial institutions party thereto from
time to time as letter of credit participants and issuers, and Barclays Bank PLC, as administrative agent (Incorporated by reference to
Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed March 10, 2014)
(f) Amendment No. 1, dated as of September 15, 2016, to the Letter of Credit Facility Agreement, dated as of March 7, 2014, among the
Registrant, certain financial institutions party thereto from time to time as letter of credit participants and issuers, and Barclays Bank
PLC, as administrative agent (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated filed
September 16, 2016)
(g) Guaranty, dated as of March 7, 2014, among Barclays Bank PLC, as administrative agent and the guarantors party thereto (Incorporated
by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed March 10, 2014)
(h) Stock Pledge Agreement, dated as of March 3, 2009, by and among the Registrant, as pledgor, The Bank of New York Mellon Trust
Company, N.A., as collateral trustee, and the other pledgers party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s
Current Report on Form 8-K filed March 5, 2009)
(i) First Amendment to Stock Pledge Agreement, dated as of May 8, 2009, by and among the Registrant, as pledgor, The Bank of New
York Mellon Trust Company, N.A., as collateral trustee, and the other pledgors party thereto (Incorporated by reference to
Exhibit 10(h) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, filed February 22, 2016)
(j) Second Amendment to Stock Pledge Agreement, dated as of June 15, 2009, by and among the Registrant, as pledgor, The Bank of New
York Mellon Trust Company, N.A., as collateral trustee, and the other pledgors party thereto (Incorporated by reference to Exhibit 10.1
to Registrant’s Current Report on Form 8-K filed June 16, 2009)
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(k) Third Amendment to Stock Pledge Agreement, dated as of March 7, 2014, by and among the Registrant, as pledgor, The Bank of New
York Mellon Trust Company, N.A., as collateral trustee, and the other pledgors party thereto (Incorporated by reference to Exhibit 10(j)
to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, filed February 22, 2016)
(l) Fourth Amendment to Stock Pledge Agreement, dated as of March 23, 2015, by and among the Registrant, as pledgor, The Bank of
New York Mellon Trust Company, N.A., as collateral trustee, and the other pledgors party thereto (Incorporated by reference to Exhibit
10(k) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015, filed February 22, 2016)
(m) Fifth Amendment to Stock Pledge Agreement, dated as of December 1, 2016, by and among the Registrant, as pledgor, The Bank of
New York Mellon Trust Company, N.A., as collateral trustee, and the other pledgors party thereto
(n) Sixth Amendment to Stock Pledge Agreement, dated as of June 14, 2017, by and among the Registrant, as pledgor, The Bank of New
York Mellon Trust Company, N.A., as collateral trustee, and the other pledgors party thereto
(o) Seventh Amendment to Stock Pledge Agreement, dated as of February 5, 2019, by and among the Registrant, as pledgor, The Bank of
New York Mellon Trust Company, N.A., as collateral trustee, and the other pledgors party thereto
(p) Collateral Trust Agreement, dated as of March 3, 2009, by and among the Registrant, as pledgor, The Bank of New York Mellon Trust
Company, N.A., as collateral trustee, and the other pledgers party thereto (Incorporated by reference to Exhibit 10.2 to Registrant’s
Current Report on Form 8-K filed March 5, 2009)
(q) Exchange and Registration Rights Agreement, dated as of February 5, 2019, among the Registrant, certain of its subsidiaries and
Barclays Capital Inc. as representative of the other initial purchasers of the Notes named therein (Incorporated by reference to Exhibit
10.1 to Registrant’s Current Report on Form 8-K filed February 6, 2019)
(r) Settlement Agreement among the United States of America, acting through the United States Department of Justice and on behalf of the
Office of Inspector General of the Department of Health and Human Services, the State of Georgia, the State of South Carolina, the
Registrant, Tenet HealthSystem Medical, Inc., Tenet HealthSystem GB, Inc. n/k/a Atlanta Medical Center, Inc., North Fulton Medical
Center, Inc., Tenet HealthSystem Spalding, Inc. n/k/a Spalding Regional Medical Center, Inc., and Hilton Head Health System, L.P.,
and Ralph D. Williams (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed October 3, 2016)
(s) Non-Prosecution Agreement among Tenet HealthSystem Medical, Inc., the United States Department of Justice and the United States
Attorney’s Office for the Northern District of Georgia (Incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on
Form 8-K filed October 3, 2016)
(t) First Amendment to Non-Prosecution Agreement between Tenet HealthSystem Medical, Inc. and the United States Department of
Justice (Incorporated by reference to Exhibit 10(a) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018,
filed August 6, 2018)
(u) Support Agreement, dated March 23, 2018, between the Registrant and Glenview Capital Management, LLC, Glenview Capital
Partners, L.P., Glenview Capital Master Fund, Ltd., Glenview Institutional Partners, L.P., Glenview Offshore Opportunity Master Fund,
Ltd. and Glenview Capital Opportunity Fund (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
filed March 26, 2018)
(v) Employment Agreement, dated March 24, 2018, by and between the Registrant and Ronald A. Rittenmeyer (Incorporated by reference
to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed March 26, 2018)*
(w) Employment Agreement, dated November 27, 2018, by and between the Registrant and Saumya Sutaria, M.D. (Incorporated by
reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed November 30, 2018)*
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(x) Letter from the Registrant to Keith B. Pitts dated June 21, 2013 (Incorporated by reference to Exhibit 10(j) to Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2013, filed February 24, 2014)*
(y) Letter from the Registrant to J. Eric Evans, dated March 22, 2016 (Incorporated by reference to Exhibit 10 to Registrant’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2016, filed May 2, 2016)*
(z) Letter from the Registrant to Daniel J. Cancelmi, dated September 6, 2012 (Incorporated by reference to Exhibit 10(c) to Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed November 7, 2012)*
(aa) Letter from the Registrant to Audrey Andrews, dated January 22, 2013 (Incorporated by reference to Exhibit 10(m) to Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2012, filed February 26, 2013)*
(bb) Tenet Fourth Amended and Restated Executive Severance Plan, as amended and restated effective August 8, 2018*
(cc) Tenet Healthcare Corporation Tenth Amended and Restated Supplemental Executive Retirement Plan, as amended and restated effective
April 1, 2018*
(dd) Ninth Amended and Restated Tenet 2001 Deferred Compensation Plan, as amended and restated effective May 9, 2012 (Incorporated by
reference to Exhibit 10(g) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed
November 7, 2012)*
(ee) Fifth Amended and Restated Tenet 2006 Deferred Compensation Plan, as amended and restated effective January 1, 2019*
(ff) Fifth Amended and Restated Tenet Healthcare Corporation 2001 Stock Incentive Plan, as amended and restated effective May 9, 2012
(Incorporated by reference to Exhibit 10(i) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012,
filed November 7, 2012)*
(gg) Form of Stock Award used to evidence grants of stock options and/or restricted units under the Amended and Restated Tenet Healthcare
Corporation 2001 Stock Incentive Plan (Incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed
February 17, 2006)*
(hh) Sixth Amended and Restated Tenet Healthcare 2008 Stock Incentive Plan, as amended and restated effective March 10, 2016
(Incorporated by reference to Exhibit 10(a) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed
August 1, 2016)*
(ii) Forms of Award used to evidence (i) initial grants of restricted stock units to directors, (ii) annual grants of restricted stock units to
directors, (iii) grants of stock options to executives, and (iv) grants of restricted stock units to executives, all under the Amended and
Restated Tenet Healthcare 2008 Stock Incentive Plan (Incorporated by reference to Exhibit 10(aa) to Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2008, filed February 24, 2009)*
(jj) Forms of Award used to evidence (i) grants of cash-based long-term performance awards, (ii) grants of non-qualified stock option
performance awards and (iii) grants of restricted stock unit awards under the Sixth Amended and Restated Tenet Healthcare 2008 Stock
Incentive Plan (Incorporated by reference to Exhibit 10(hh) to Registrant’s Annual Report on Form 10-K for the year ended December
31, 2017, filed February 26, 2018)*
(kk) Terms and Conditions of Non-Qualified Stock Option Performance Awards granted to Ronald A. Rittenmeyer under the Tenet
Healthcare 2008 Stock Incentive Plan (Incorporated by reference to Exhibit 10(c) to Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2017, filed November 7, 2017)*
(ll) Terms and Conditions of Restricted Stock Unit Award granted to Ronald A. Rittenmeyer under the Tenet Healthcare 2008 Stock
Incentive Plan (Incorporated by reference to Exhibit 10(c) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2018, filed April 30, 2018)*
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(mm) Terms and Conditions of Restricted Stock Unit Award granted to Ronald A. Rittenmeyer on June 29, 2018 under the Tenet Healthcare
2008 Stock Incentive Plan (Incorporated by reference to Exhibit 10(b) to Registrant’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2018, filed August 6, 2018)*
(nn) Tenet Special RSU Deferral Plan (Incorporated by reference to Exhibit 10(d) to Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2009, filed May 5, 2009)*
(oo) Third Amended Tenet Healthcare Corporation Annual Incentive Plan, as amended and restated effective March 16, 2017 (Incorporated
by reference to Exhibit 10(ll) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, filed February 26,
2018)*
(pp) Seventh Amended and Restated Tenet Executive Retirement Account, as amended and restated effective as of April 1, 2018*
(qq) Form of Indemnification Agreement entered into with each of the Registrant’s directors (Incorporated by reference to Exhibit 10(a) to
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed November 1, 2005)
(21) Subsidiaries of the Registrant
(23) Consents
(a) Consent of Deloitte & Touche LLP
(b) Consent of PricewaterhouseCoopers LLP
(31) Rule 13a-14(a)/15d-14(a) Certifications
(a) Certification of Ronald A. Rittenmeyer, Executive Chairman and Chief Executive Officer
(b) Certification of Daniel J. Cancelmi, Chief Financial Officer
(32)
Section 1350 Certifications of Ronald A. Rittenmeyer, Executive Chairman and Chief Executive Officer, and Daniel J. Cancelmi, Chief
Financial Officer
(101 SCH)
XBRL Taxonomy Extension Schema Document
(101 CAL)
XBRL Taxonomy Extension Calculation Linkbase Document
(101 DEF)
XBRL Taxonomy Extension Definition Linkbase Document
(101 LAB)
XBRL Taxonomy Extension Label Linkbase Document
(101 PRE)
XBRL Taxonomy Extension Presentation Linkbase Document
(101 INS)
XBRL Taxonomy Extension Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are
embedded within the inline XBRL document.
* Management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
149
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: February 25, 2019
By:
TENET HEALTHCARE CORPORATION
(Registrant)
/s/ R. SCOTT RAMSEY
R. Scott Ramsey
Vice President and Controller
(Principal Accounting Officer)
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.
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
Date: February 25, 2019
/s/ RONALD A. RITTENMEYER
Ronald A. Rittenmeyer
Executive Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ DANIEL J. CANCELMI
Daniel J. Cancelmi
Chief Financial Officer
(Principal Financial Officer)
/s/ R. SCOTT RAMSEY
R. Scott Ramsey
Vice President and Controller
(Principal Accounting Officer)
/s/ LLOYD J. AUSTIN, III
Lloyd J. Austin, III
Director
/s/ JAMES L. BIERMAN
James L. Bierman
Director
/s/ RICHARD FISHER
Richard Fisher
Director
/s/ MEGHAN M. FITZGERALD
Meghan M. FitzGerald, DrPH
Director
/s/ BRENDA J. GAINES
Brenda J. Gaines
Director
/s/ EDWARD A. KANGAS
Edward A. Kangas
Director
/s/ J. ROBERT KERREY
J. Robert Kerrey
Director
/s/ RICHARD MARK
Richard Mark
Director
/s/ TAMMY ROMO
Tammy Romo
Director
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
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Table of Contents
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(In Millions)
Additions Charged To:
Balance at
Beginning
of Period
Costs and
Expenses (1)(2)
Deductions (3)
Other
Items (4)(5)
Balance at
End of
Period
Allowance for doubtful accounts:
Year ended December 31, 2018
Year ended December 31, 2017
Year ended December 31, 2016
Valuation allowance for deferred tax assets:
Year ended December 31, 2018
Year ended December 31, 2017
Year ended December 31, 2016
$
$
$
$
$
$
898 $
1,031 $
887 $
72 $
72 $
96 $
— $
1,434 $
1,451 $
76 $
— $
(24) $
— $
(1,445) $
(1,307) $
— $
— $
— $
(898) $
(122) $
— $
— $
— $
— $
—
898
1,031
148
72
72
Includes amounts recorded in discontinued operations.
Before considering recoveries on accounts or notes previously written off.
(1)
(2)
(3) Accounts written off.
(4) Acquisition and divestiture activity in 2017.
(5) Valuation account eliminated in 2018 upon adoption of new accounting standard ASC 606.
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TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Report of Independent Auditors
Audited Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7
Table of Contents
To the Board of Managers of
Texas Health Ventures Group, L.L.C.
Report of Independent Auditors
We have audited the accompanying consolidated financial statements of Texas Health Ventures Group, L.L.C. and its subsidiaries,
which comprise the consolidated balance sheets as of June 30, 2018 and 2017, and the related consolidated statements of income,
changes in equity and cash flows for each of the three years in the period ended June 30, 2018.
Management’s
Responsibility
for
the
Consolidated
Financial
Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance
of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’
Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control
relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Texas Health Ventures Group, L.L.C. and its subsidiaries as of June 30, 2018 and 2017, and the results of their operations and their
cash flows for each of the three years in the period ended June 30, 2018 in accordance with accounting principles generally accepted
in the United States of America.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
December 20, 2018
F-2
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – JUNE 30, 2018 AND 2017
(in thousands)
Table of Contents
ASSETS
CURRENT ASSETS:
Cash
Funds due from USPI
Patient receivables, net of allowance for doubtful accounts of $60,631 and $44,306 at June 30, 2018 and 2017, respectively
Supplies
Prepaid and other current assets
Total current assets
NON-CURRENT ASSETS:
Property and equipment, net (Note 2)
Restricted cash
Investments in unconsolidated affiliates (Note 3)
Goodwill and intangible assets, net (Note 5)
Other
Total assets
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable, including funds due to USPI of $16,014 and $11,568 at June 30, 2018 and
2017, respectively
Accrued expenses and other
Current portion of long-term obligations (Note 6)
Total current liabilities
NON-CURRENT LIABILITIES:
Long-term obligations, net of current portion (Note 6)
Other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES (Notes 6, 7, 8 and 9)
2018
2017
$
29,041 $
114,408
107,426
26,070
8,533
32,105
93,848
91,455
22,167
5,340
285,478
244,915
238,054
159,680
4,439
6,987
9,960
7,143
431,828
320,048
505
230
$
967,291 $
741,976
$
87,153 $
43,163
19,789
62,941
41,716
20,809
150,105
125,466
174,228
17,159
157,470
14,635
341,492
297,571
NONCONTROLLING INTERESTS - REDEEMABLE
172,416
109,147
EQUITY:
Members’ equity
Noncontrolling interests – nonredeemable
Total equity
Total liabilities and equity
419,870
33,513
453,383
296,074
39,184
335,258
$
967,291 $
741,976
See accompanying notes to consolidated financial statements.
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TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 2018, 2017 AND 2016
(in thousands)
REVENUES:
Net patient service revenue
Less provision for doubtful accounts
Net patient service revenue less provision for doubtful accounts
Other revenue
Total revenues
2018
2017
2016
$
1,204,516 $
1,073,887 $
34,636
27,135
1,169,880
1,046,752
3,653
3,038
1,173,533
1,049,790
941,248
16,909
924,339
7,886
932,225
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES (Note 3)
5,065
3,965
3,861
OPERATING EXPENSES:
Salaries, benefits, and other employee costs
Medical services and supplies
Management and royalty fees (Note 8)
Professional fees
Purchased services
Other operating expenses
Provision for doubtful accounts
Impairment loss
Depreciation and amortization
Total operating expenses
Operating income
NONOPERATING INCOME (EXPENSES):
Interest expense
Interest income (Note 8)
Other income /(expense), net
Net income before income taxes
INCOME TAXES
Net income
277,721
284,386
41,973
8,679
56,829
137,252
25,244
—
31,829
863,913
314,685
(14,091)
711
1,059
302,364
(5,099)
297,265
244,798
249,158
38,530
7,785
47,549
121,832
22,503
—
28,605
760,760
292,995
(15,586)
492
(1,825)
276,076
(5,036)
271,040
216,400
226,905
35,432
7,327
40,091
102,142
21,739
5,667
29,830
685,533
250,553
(15,069)
364
(350)
235,498
(4,103)
231,395
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS –
REDEEMABLE
(143,580)
(134,905)
(117,018)
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS –
NONREDEEMABLE
Net income attributable to THVG
(8,648)
(8,229)
(136)
$
145,037 $
127,906 $
114,241
See accompanying notes to consolidated financial statements.
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TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED JUNE 30, 2018, 2017 AND 2016
(in thousands)
Balance at June 30, 2015
Net income
Distributions to members
Contributions from members
Purchase of noncontrolling interests
Sale of noncontrolling interests
Balance at June 30, 2016
Net income
Distributions to members
Contributions from members
Purchase of noncontrolling interests
Sale of noncontrolling interests
Balance at June 30, 2017
Net income
Distributions to members
Contributions from members
Purchase of noncontrolling interests
Sale of noncontrolling interests
Balance at June 30, 2018
Members’ Equity
Equity
$
253,720 $
USP
115,909 $
BUMC
Total Members’
Equity
116,374 $
232,283 $
114,377
(105,103)
52,039
(811)
(914)
313,308
136,135
(129,002)
13,571
(1,160)
2,406
335,258
153,685
(132,424)
102,545
(5,456)
(225)
57,006
(50,121)
16,904
(400)
(1,113)
138,185
63,825
(60,778)
6,772
(718)
451
57,235
(50,321)
16,975
(401)
(1,116)
138,746
64,081
(61,022)
6,799
(720)
453
147,737
148,337
72,373
(63,076)
51,169
674
633
72,664
(63,329)
51,376
676
636
114,241
(100,442)
33,879
(801)
(2,229)
276,931
127,906
(121,800)
13,571
(1,438)
904
296,074
145,037
(126,405)
102,545
1,350
1,269
$
453,383 $
209,510 $
210,360 $
419,870 $
Noncontrolling
Interests -
Nonredeemable
21,437
136
(4,661)
18,160
(10)
1,315
36,377
8,229
(7,202)
—
278
1,502
39,184
8,648
(6,019)
—
(6,806)
(1,494)
33,513
See accompanying notes to consolidated financial statements.
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TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2018, 2017 AND 2016
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts
Depreciation and amortization
Amortization of debt issue costs
Equity in earnings of unconsolidated affiliates, net of distributions received
Loss on fixed asset impairment
(Gain) loss on sale of assets
Changes in operating assets and liabilities, net of effects from purchases of
new businesses:
Increase in patient receivables
Increase in supplies, prepaids, and other assets
(Decrease) /Increase in accounts payable, accrued expenses, and
other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of new businesses and equity interests, net of cash received of $925, $0 and $394 for 2018, 2017
and 2016, respectively
Purchases of property and equipment
Sale of property and equipment
Change in deposits and notes receivables
Other investing activities
Change in funds due from United Surgical Partners, Inc.
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations
Payments on debt obligations
Distributions to noncontrolling interest owners
Purchases of noncontrolling interests
Sales of noncontrolling interests
Contribution from members
Distributions to members
Net cash used in financing activities
INCREASE IN CASH
CASH, beginning of period
CASH, end of period
SUPPLEMENTAL INFORMATION:
Cash paid for interest
Cash paid for income taxes
NONCASH TRANSACTIONS:
Assets acquired under capital leases
Increase in accounts payable due to property and equipment received but
not paid
Sunnyvale acquisition
2018
2017
2016
$
297,265 $
271,040 $
231,395
59,880
31,829
49,638
28,605
5
156
—
(2)
5
645
—
405
(62,006)
(4,639)
(47,022)
3,362
7,980
11,890
330,468
318,568
925
(42,172)
206
(44)
13
(21,158)
(62,230)
(3,853)
(16,950)
1,233
(5)
751
(10,416)
(29,240)
$
26,078 $
223 $
(49,029)
(19,364)
38,648
29,830
7
(232)
5,667
(67)
(56,096)
(8,503)
20,739
261,388
(8,912)
(17,686)
160
9
—
(12,794)
(39,223)
4,624
(15,975)
(144,265)
(144,576)
(114,429)
(8,215)
9,609
20,925
(5,447)
18,445
—
(126,405)
(121,800)
(271,302)
(272,519)
(3,861)
2,272
8,912
(100,442)
(218,899)
(3,064)
32,105
16,809
15,296
29,041 $
32,105 $
3,266
12,030
15,296
13,991 $
15,642 $
5,076 $
4,525 $
15,113
3,779
32,033 $
4,791 $
3,232
12,322
—
44
—
427
24,967
$
$
$
$
Tyler acquisition
Centennial acquisition
Restricted cash borrowed
Restricted cash used for purchases of equipment
Restricted cash used for payments on debt obligations
81,620
—
—
5,521
—
—
13,571
9,960
—
—
—
—
—
280
2,089
See accompanying notes to consolidated financial statements.
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TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Texas Health Ventures Group, L.L.C. and subsidiaries (THVG or the Company), a Texas limited liability company, was formed on January 21, 1997, for the
primary purpose of developing, acquiring, and operating ambulatory surgery centers and related entities. THVG is a joint venture between Baylor University
Medical Center (BUMC), an affiliate of Baylor Scott & White Holdings (BSW Holdings), who owns 50.1% of THVG and USP North Texas, Inc. (USP), a Texas
corporation and consolidated subsidiary of United Surgical Partners International, Inc. (USPI), who owns 49.9% of THVG. USPI is a subsidiary of Tenet
Healthcare Corporation. BSW Holdings and its “controlled” affiliates are referred collectively herein as “BSWH”. THVG’s fiscal year ends June 30. Fiscal years of
THVG’s subsidiaries end December 31; however, the financial information of these subsidiaries included in these consolidated financial statements is as of June
30, 2018 and 2017, and for the years ended, June 30, 2018, 2017 and 2016.
THVG owns equity interests in and operates ambulatory surgery centers, surgical hospitals, and related businesses in the Dallas/Fort Worth, Texas, metropolitan
area. At June 30, 2018, THVG operated thirty-three facilities (the Facilities) under management contracts, thirty-two of which are consolidated for financial
reporting purposes and one of which is accounted for under the equity method. THVG also has an equity method investment in a facility that does not fall under a
management contract. In addition, THVG holds an equity method investment in one partnership that owns the real estate used by one of the Facilities.
THVG has been funded by capital contributions from its members and by cash distributions from the Facilities. The board of managers, which is controlled by
BSWH, initiates requests for capital contributions. The Facilities’ operating agreements provide that cash flows available for distribution will be distributed, at least
quarterly, to THVG and other owners of the Facilities.
THVG’s operating agreement provides that the board of managers determine, on at least a quarterly basis, if THVG should make a cash distribution based on a
comparison of THVG’s excess cash on hand versus current and anticipated needs, including, without limitation, needs for operating expenses, debt service,
acquisitions, and a reasonable contingency reserve. The terms of THVG’s operating agreement provide that any distributions, whether driven by operating cash
flows or by other sources, such as the distribution of noncash assets or distributions in the event THVG liquidates, are to be shared according to each member’s
overall ownership level in THVG.
Change in Reporting Entity
From January 1, 2016 to March 1, 2018, BUMC had a 60% controlling interest in Texas Regional Medical Center, LLC (Sunnyvale), through a separate joint
venture with Tenet Healthcare Corporation (Tenet). On March 1, 2018, that joint venture was restructured and Sunnyvale was combined with THVG upon
contribution by the Company’s members. On March 1, 2018, USP paid BUMC and Tenet approximately $4,100,000 each for its interest in Sunnyvale resulting in
THVG owning a controlling 62% interest.
The transfer of ownership interests in Sunnyvale qualifies as a common control transaction as defined by ASC 250-10-45-21 as BSWH held a controlling interest
in the hospital before the transaction and continues to hold a controlling interest subsequent to the transaction. As a result, the commonly controlled entities,
inclusive of Sunnyvale, which historically have not been presented together are considered to be a different reporting entity. This change in reporting entity
requires retrospective combination of the entities for all periods presented as if the combination had been in effect since inception of common control. For the
period prior to Sunnyvale’s contribution into THVG, net income attributable to non-controlling interest was calculated at the percentage used for the previous joint
venture, 40%. The Company’s historical consolidated balance sheets and related statements of income, changes in equity, and of cash flows and related disclosures,
include Sunnyvale starting with BUMC’s acquisition of Sunnyvale on January 1, 2016. The effect of the change on Net income attributable to THVG for the years
ended 2018, 2017, and 2016 was approximately $2,900,000, $1,800,000, and $5,500,000, respectively.
Basis of Accounting
THVG maintains its books and records on the accrual basis of accounting, and the consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States.
Principles of Consolidation
The consolidated financial statements include the financial statements of THVG and its wholly owned subsidiaries and other entities that THVG controls. All
intercompany balances and transactions have been eliminated in consolidation.
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Use of Estimates
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management of THVG to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents
THVG considers all highly liquid instruments with original maturities when purchased of three months or less to be cash equivalents. There were no cash
equivalents at June 30, 2018, or 2017. Under the Company’s cash management system, checks issued but not presented to the bank may result in book cash
overdraft balances for accounting purposes. The company reclassifies book overdrafts to accounts payable reflecting the reinstatement of liabilities cleared in the
bookkeeping process. Book overdrafts are non-cash by their nature and as such, changes in accounts payable, including those caused by book overdrafts, are
reflected as an adjustment to reconcile net income to net cash provided by operating activities in the consolidated statements of cash flows. Book overdrafts
included in accounts payable were approximately $24,118,000 and $12,730,000, as of June 30, 2018 and 2017, respectively.
Restricted Cash
THVG holds cash from debt agreements for construction projects that is considered restricted. The funds are restricted for the purpose of completing the
construction project or to pay back the related debt, drawn for the project. Restricted cash balances were approximately $4,439,000 and $9,960,000 as of June 30,
2018 and 2017, respectively, and are classified as non-current, consistent with the nature of their intended use based on the restrictions.
Patient Receivables
Patient receivables are stated at estimated net realizable value. Significant concentrations of patient receivables at June 30, 2018 and 2017 include:
Commercial and managed care providers
Government-related programs
Self-pay patients
2018
2017
48%
32%
20%
100%
51%
35%
14%
100%
Government-related programs (i.e. Medicare and Medicaid) represent the only concentrated groups of payors from which THVG has significant outstanding
receivables, and management does not believe there is any significant or unusual level of credit risk associated with these receivables. Commercial and managed
care receivables consist of receivables from various payors involved in diverse activities and subject to differing economic conditions, and do not represent any
concentrated credit risk to THVG. THVG maintains allowances for uncollectible accounts for estimated losses resulting from the payors’ inability to make
payments on accounts. THVG assesses the reasonableness of the allowance account based on historic write-offs, cash collections, the aging of the accounts and
other current conditions and economic factors. Furthermore, management continually monitors and adjusts the allowances associated with its receivables. Accounts
are written off when collection efforts have been exhausted.
Supplies
Supplies, consisting primarily of pharmaceuticals and medical supplies inventories, are stated at the lower of cost or net realizable value, which approximates
market value, and are expensed as used.
Property and Equipment
Property and equipment are initially recorded at cost or, when acquired as part of a business combination, at fair value at the date of acquisition. Depreciation is
calculated on the straight line method over the estimated useful lives of the assets. Upon retirement or disposal of assets, the asset and accumulated depreciation
accounts are adjusted accordingly, and any gain or loss is reflected in earnings or losses of the respective period. Maintenance costs and repairs are expensed as
incurred; significant renewals and betterments are capitalized.
Assets held under capital leases are classified as property and equipment and amortized using the straight line method over the shorter of the useful lives or the
lease terms, and the related obligations are recorded as debt. Amortization of property and equipment
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TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
held under capital leases and leasehold improvements is included in depreciation and amortization expense in the consolidated statements of income.
THVG records operating lease expense on a straight-line basis unless another systematic and rational allocation is more representative of the time pattern in which
the leased property is physically employed. THVG amortizes leasehold improvements, including amounts funded by landlord incentives or allowances, for which
the related deferred rent is amortized as a reduction of lease expense, over the shorter of their economic lives or the lease term.
Investments in Unconsolidated Affiliates
Investments in unconsolidated affiliates in which THVG exerts significant influence, but has less than a controlling ownership, are accounted for under the equity
method. THVG exerts significant influence in the operations of its unconsolidated affiliates through representation on the governing bodies of the investees and
additionally, with respect to the Facilities, through contracts to manage the operations of the investees.
Equity in earnings of unconsolidated affiliates consists of THVG’s share of the profits and losses generated from its noncontrolling equity investments. Because
these operations are central to THVG’s business strategy, equity in earnings of unconsolidated affiliates is classified as a component of operating income in the
accompanying consolidated statements of income.
Goodwill
Goodwill represents the excess purchase price over the estimated fair value of net identifiable assets acquired and liabilities assumed from purchased businesses.
Goodwill is not amortized but is instead tested for impairment annually, and between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of the reporting unit below its carrying amount. The qualitative assessment includes a determination by management based on
qualitative factors as to whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If management determines that
based on these factors it is more likely than not that the fair value of the reporting unit is less than its carrying value, the Company assesses its goodwill based on
the two-step fair value approach.
To measure the amount of an impairment loss, a two-step method is used. In the first step, THVG compares the fair value of each reporting unit to its carrying
value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and THVG is not required to
perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then THVG must perform
the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, then THVG records an impairment loss equal to the difference. Any impairment would be recognized by a charge to
income from operations and a reduction in the carrying value of goodwill.
We estimate the fair value of the reporting unit using the market and income approaches. Goodwill is required to be reported at the reporting unit level and we have
concluded that THVG represents a single reporting unit. To determine the fair value of the reporting unit, we use the income approach (present value of discounted
cash flows) with further corroboration from the market approach (evaluation of market multiples and/or data from third-party valuation specialists). We apply
judgment in determining the fair value of our reporting unit which is dependent on significant assumptions and estimates regarding expected future cash flows,
terminal value, changes in working capital requirements, and discount rates. The factor most sensitive to change with respect to THVG’s discounted cash flow
analyses is the estimated future cash flows of the reporting unit which is, in turn, sensitive to THVG’s estimates of future revenue growth and margins for these
businesses. If actual revenue growth and/or margins are lower than estimated, the impairment test results could differ. Although we believe that our estimates are
reasonable and consistent with market participant assumptions, actual results could differ from these estimates.
A qualitative analysis of the goodwill balance was performed in March of 2018 and no such impairments were identified. A quantitative analysis was performed in
March 2017 and 2016 and no such impairments were identified.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset, or related groups of
assets, may not be fully recoverable from estimated future cash flows. In the event of impairment, measurement of the amount of impairment may be based on
appraisal, fair values of similar assets, or estimates of future undiscounted cash flows resulting from use and ultimate disposition of the asset. No such impairment
was identified in 2018 or 2017. In June of 2016, THVG determined that Lewisville Surgicare Partners, Ltd. (Lewisville), Baylor Surgicare at Ennis, L.L.C.
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TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
(Ennis), and Arlington Surgicare Partners, Ltd. (Arlington) would be closing due to poor operational results and expected negative cash flows. This represented a
significant adverse change in the manner in which the facilities’ assets were being used, thus triggering the need to test the facilities’ long-lived assets for
impairment. The assets consisted of office and medical equipment, furniture, and building leases. Management determined the fair value of the furniture and
equipment is greater than the total carrying value, using Level 2 inputs, and as such no impairment was recorded for those asset groups. Based on the inability to
locate a sublessee to occupy the properties, which are specialized to perform outpatient surgery, and Level 3 inputs, THVG concluded that the three facility
building leases, which were classified as capital leases, were impaired and an impairment charge was recorded in June 2016 for approximately $5,667,000.
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the
asset or transfer the liability. The Company uses fair value measurements based on quoted prices in active markets for identical assets or liabilities (Level 1),
significant other observable inputs (Level 2) or unobservable inputs (Level 3), depending on the nature of the item being valued. The Company does not have
financial assets or liabilities measured at fair value on a recurring basis at June 30, 2018 and 2017. The carrying amounts of cash, restricted cash, funds due from
United Surgical Partners, Inc., accounts receivable, and accounts payable approximate fair value because of the short maturity of these instruments.
The fair value of the Company’s long-term debt is determined by Level 2 inputs which are an estimation of the discounted future cash flows of the debt at rates
currently quoted or offered to a comparable company for similar debt instruments of comparable maturities by its lenders. At June 30, 2018, the aggregate carrying
amount and estimated fair value of long-term debt is approximately $54,482,000 and $47,865,000, respectively. At June 30, 2017, the aggregate carrying amount
and estimated fair value of long-term debt was approximately $61,864,000 and $58,637,000, respectively.
Revenue Recognition
THVG has agreements with third-party payors that provide for payments to THVG at amounts different from its established rates. Payment arrangements include
prospectively determined rates per discharge, reimbursed costs, discounted charges, and per diem payments. Net patient service revenue is reported at the estimated
net realizable amount from patients, third-party payors, and others for services rendered, including estimated contractual adjustments under reimbursement
agreements with third party payors. Contractual adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future
periods as final settlements are determined. These contractual adjustments are related to the Medicare and Medicaid programs, as well as commercial and managed
care contracts. All subsidiaries of THVG, except for Sunnyvale, assess the ability of each patient to pay prior to the performance of the procedure; therefore the
estimate of uncollectable amounts related to these entities is presented within the provision for doubtful accounts within the operating expenses section of the
income statement. Sunnyvale does not assess ability to pay prior to the performance of the procedure, and as such the related estimate of uncollectable amounts for
this entity is presented within the provision for doubtful accounts as a component of total revenues.
Net patient service revenue from the Medicare and Medicaid programs accounted for approximately 19%, 17%, and 15% of total net patient service revenue in
2018, 2017, and 2016, respectively.
Net patient service revenue from commercial and managed care contracts accounted for approximately 75%, 77%, and 78% of net patient service revenue in 2018,
2017, and 2016, respectively.
Net patient service revenue from private payors accounted for approximately 6%, 6%, and 7% of total net patient service revenue in 2018, 2017, and 2016,
respectively. For facilities licensed as hospitals, federal regulations require the submission of annual cost reports covering medical costs and expenses associated
with services provided to program beneficiaries. Medicare and Medicaid cost report settlements are estimated in the period services are provided to beneficiaries.
Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is a reasonable
possibility that recorded estimates with respect to the ten THVG facilities licensed as hospitals may change as interpretations are clarified. These initial estimates
are revised as needed until final cost reports are settled.
The Company provides charity care to patients who are financially unable to pay for the health care services they receive. The determination of charity care is
generally made at the time of admission, or shortly thereafter. However, events after discharge could change the ability of patients to pay. The discount amount is
generally based on household income compared to the Federal
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TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
Poverty Limit for the year. The Company’s charity policy is intended to satisfy the requirements in Section 501(r) of the Internal Revenue Code of 1986, as
amended, regarding financial assistance and emergency medical care policies, limitations on charges to persons eligible for financials assistance, and reasonable
billing and collection efforts. The Company’s policy is not to pursue collection of amounts determined to qualify as charity care; therefore, the Company does not
report these amounts in net patient care revenues before provision of doubtful accounts or in provision for doubtful accounts.
The Company’s estimated costs (based on the selected operating expenses, which include allocated personnel costs, supplies, other operating expenses, and
management fee) of caring for charity care patients for the years ended June 30, 2018, 2017, and 2016, was approximately $7,800,000, $6,100,000, and
$3,400,000, respectively.
Income Taxes
No amounts for federal income taxes have been reflected in the accompanying consolidated financial statements because the federal tax effects of THVG’s
activities accrue to the individual members.
The Texas franchise tax applies to all THVG entities and is reflected in the accompanying consolidated statements of income. The tax is calculated on a margin
base and is therefore reflected in THVG’s consolidated statements of income for the years ended June 30, 2018, 2017, and 2016 as income tax.
THVG follows the provisions of Accounting Standards Codification (ASC) 740 “Income Taxes” which prescribes a single model to address uncertainty in tax
positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized
in the financial statements.
As of June 30, 2018 and 2017, THVG had no gross unrecognized tax benefits. THVG files a partnership income tax return in the U.S. federal jurisdiction and a
franchise tax return in the state of Texas. THVG is no longer subject to U.S. federal income tax examination for years prior to 2014 and no longer subject to state
and local income tax examination for years prior to 2013. THVG has identified Texas as a “major” state taxing jurisdiction. THVG does not expect or anticipate a
significant change over the next twelve months in the unrecognized tax benefits.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability
has been incurred and the amount can be reasonably estimated.
Reclassifications
Certain amounts related to the prior year have been reclassified to conform to the current year presentation.
Recently Issued Accounting Pronouncements
In February 2016, FASB issued ASU 2016-02, “ Leases (Topic 842)” (“ASU 2016-02”), which affects any entity that enters into a lease (as that term is defined in
ASU 2016-02), with some specified scope exceptions. The main difference between the guidance in ASU 2016-02 and current GAAP is the recognition of lease
assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP. Recognition of these assets and liabilities will have a
material impact to our consolidated balance sheet upon adoption. In transition, lessees and lessors are required to recognize and measure leases at the beginning of
the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients. The Company is currently
evaluating the potential impact of this guidance, which will be effective for fiscal years beginning after December 15, 2018.
In May 2014, August 2015, April 2016, May 2016, December 2016, and February 2017, FASB issued ASU 2014-09, “ Revenue from Contracts with Customers
(Topic 606) ”; ASU 2015-14, “ Revenue from Contracts with Customers ”; ASU 2016-10, “ Identifying Performance Obligations and Licensing ”; ASU 2016-12, “
Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients ”; ASU 2016-20, “ Technical Corrections and Improvements to
Topic 606, Revenue from Contracts with Customers ”; and ASU 2017-05, “ Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales
of Nonfinancial Assets ”, respectively, which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) 605, “ Revenue
Recognition. ” These ASU’s address when an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in
F-11
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
exchange for those goods or services. The Company is currently evaluating the potential impact of this guidance, which is effective July 1, 2018.
In August 2016, FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” This ASU provides cash flow statement classification
guidance. These ASU’s are effective for annual reporting periods beginning after December 15, 2017, and may impact the classification of certain items on the
statement of income but are not expected to have a material impact on total operating income.
In November 2016, FASB issued ASU 2016-18, “ Restricted Cash: a Consensus of the FASB Emerging Issues Task Force. ” This ASU requires a statement of cash
flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash
equivalents. The provisions of ASU 2016-18 are effective for fiscal years beginning after December 15, 2017, and interim periods within those year for public
business entities, and December 15, 2018, and interim periods thereafter for all other entities. The Company is currently evaluating the impact of this ASU and
believes it will have an immaterial impact on presentation and disclosure.
In January 2017, FASB issued ASU 2017-01, “ Clarifying the Definition of a Business .” By clarifying the definition of a business, the amendments of this ASU
affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The provisions of ASU 2017-01 are
effective for fiscal years beginning after December 15, 2017, and interim periods within those years for public business entities, and December 15, 2018, and
interim periods within those years for all other entities. The Company is currently evaluating the impact of this ASU.
In January 2017, FASB issued ASU 2017-04, “ Simplifying the Test for Goodwill Impairment. ” This ASU eliminates Step 2 from the goodwill impairment test.
Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The
provisions of ASU 2017-04 are effective for fiscal years beginning after December 15, 2019, and interim periods within those years for public business entities, and
December 15, 2021, and interim periods within those years for all other entities. The Company is currently evaluating the impact of this ASU.
2.PROPERTY AND EQUIPMENT
At June 30, 2018 and 2017, property and equipment and related accumulated depreciation and amortization consisted of the following (in thousands):
Land
Buildings and leasehold improvements
Equipment
Furniture and fixtures
Construction in progress
Less accumulated depreciation
Net property and equipment
Estimated
Useful Lives
2018
— $
1,719 $
5-25 years
3-15 years
5-15 years
258,161
203,672
10,547
6,397
2017
1,568
193,885
166,194
8,495
1,367
480,496
371,509
(242,442)
(211,829)
$
238,054 $
159,680
At June 30, 2018 and 2017, assets recorded under capital lease arrangements included in property and equipment consisted of the following (in thousands):
Buildings
Equipment and furniture
Less accumulated depreciation
Net property and equipment under capital leases
F-12
2018
143,139 $
2,060
145,199
(56,162)
2017
112,401
218
112,619
(52,629)
89,037 $
59,990
$
$
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
3. INVESTMENTS IN SUBSIDIARIES AND UNCONSOLIDATED AFFILIATES
THVG’s investments in consolidated subsidiaries and unconsolidated affiliates consisted of the following:
Legal Name
Facility
Consolidated subsidiaries (1) :
DeSoto Surgicare, Ltd.
Metroplex Surgicare Partners, Ltd.
North Texas Surgery Center
Baylor Surgicare at Bedford
Baylor Surgicare at North Dallas, LLC
Baylor Surgicare at North Dallas
Desoto
Bedford
Dallas
Fort Worth Surgicare Partners, Ltd.
Baylor Surgical Hospital of Fort Worth
Fort Worth
Denton Surgicare Partners, Ltd.
Garland Surgicare Partners, Ltd.
University Surgical Partners of Dallas, L.L.P. (2)
Dallas Surgical Partners, L.L.C.
MSH Partners, L.L.C.
Baylor Surgicare at Denton
Baylor Surgicare at Garland
N/A
Baylor Surgicare
Baylor Medical Center at Uptown
North Central Surgical Center, L.L.P.
North Central Surgery Center
Denton
Garland
Dallas
Dallas
Dallas
Dallas
Grapevine Surgicare Partners, Ltd.
Baylor Surgicare at Grapevine
Grapevine
Frisco
Fort Worth
Fort Worth
Dallas
Frisco Medical Center, L.L.P.
Baylor Scott & White Medical Center -
Frisco
Physicians Center of Fort Worth, L.L.P.
Baylor Surgicare at Fort Worth I & II
Bellaire Outpatient Surgery Center, L.L.P.
Baylor Surgicare at Oakmont
Park Cities Surgery Center, L.L.C.
Trophy Club Medical Center, L.P.
Park Cities Surgery Center
Baylor Medical Center at Trophy Club
Fort Worth
Rockwall/Heath Surgery Center, L.L.P.
Baylor Surgicare at Heath
North Garland Surgery Center, L.L.P.
Baylor Surgicare at North Garland
Rockwall Ambulatory Surgery Center, L.L.P.
Rockwall Surgery Center
Baylor Surgicare at Plano, L.L.C.
Baylor Surgicare at Plano
Arlington Orthopedic and Spine Hospitals, LLC
Baylor Surgicare at Granbury, LLC
Metrocrest Surgery Center, L.L.C.
Baylor Surgicare at Mansfield, L.L.C.
Baylor Orthopedic and Spine Hospital at
Arlington
Baylor Surgicare at Granbury
Baylor Surgicare at Carrollton
Baylor Surgicare at Mansfield
Heath
Garland
Rockwall
Plano
Arlington
Granbury
Carrollton
Mansfield
Tuscan Surgery Center, L.L.C.
Tuscan Surgery Center at Las Colinas
Las Colinas
Lone Star Endoscopy Center, L.L.C.
Lone Star Endoscopy
Baylor Surgicare at Plano Parkway, L.L.C.
Baylor Surgicare at Plano Parkway
Texas Endoscopy Centers, LLC
Texas Endoscopy
Heritage Park Surgical Hospital, LLC
Centennial ASC, LLC
Baylor Surgicare at Baylor Plano, LLC
Texas Spine and Joint Hospital, LLC
Baylor Scott & White Surgical Hospital -
Sherman
Frisco Centennial Surgery Center
Baylor Plano Campus
Texas Spine and Joint
Baylor Surgicare at Blue Star, LLC
Frisco Star
Texas Regional Medical Center, LLC
Sunnyvale Hospital
Keller
Plano
Plano/Allen
Sherman
Frisco
Plano
Tyler
Frisco
Sunnyvale
F-13
Percentage Owned
City
June 30,
2018
June 30,
2017
June 30,
2016
52.1%
52.1%
52.1%
65.8
56.9
50.7
50.5
50.1
68.1
54.6
34.9
34.4
53.5
50.5
54.0
25.8
50.1
50.7
—
54.3
54.7
50.1
50.1
51.2
53.5
50.1
55.5
51.0
51.0
51.0
52.5
50.2
25.3
54.5
25.8
62.1
65.8
56.6
50.1
50.5
50.1
66.5
58.9
33.5
33.4
55.2
50.4
54.1
26.1
50.1
50.3
61.9
52.1
53.3
50.1
50.1
51.2
53.5
50.1
57.3
51.0
51.0
51.0
52.5
50.4
25.3
—
—
60.3
65.8
56.6
50.9
51.0
50.1
66.2
58.6
33.4
33.8
56.8
50.3
53.9
25.5
50.1
50.1
59.2
52.1
53.3
50.1
50.1
50.6
51.0
50.3
51.0
51.0
51.0
51.0
52.3
—
—
—
—
60.3
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
Legal Name
Facility
Unconsolidated affiliates:
Denton Surgicare Real Estate, Ltd. (3)
Irving-Coppell Surgical Hospital, L.L.P.
MCSH Real Estate Investors, Ltd. (3)
Irving-Coppell Surgical Hospital
Fusionetics, LLC
Fusionetics
Percentage Owned
City
June 30,
2018
June 30,
2017
June 30,
2016
n/a
Irving
n/a
Frisco
49.0
19.3
2.0
15.8
49.0
19.6
2.0
15.8
49.0
18.3
2.0
—
1.
2.
3.
List excludes holding companies, which are wholly-owned by the Company and hold the Company’s investments in the Facilities.
Partnership that has investment in North Central Surgical Center, Baylor Surgicare, and Baylor Medical Center at Uptown.
These entities are not surgical facilities and do not have ownership in any surgical facilities.
On August 2, 2017, Texas Health Venture Texas Spine, LLC, a wholly-owned subsidiary of THVG, completed its acquisition of Texas Spine and Joint Hospital,
LLC (Tyler), resulting in a 50.25% controlling interest. The consideration of $40,900,000 and $40,700,000 was paid to the sellers by BSWH and USP,
respectively. From the date of contribution to June 30, 2018, THVG recognized approximately $98,600,000 of total revenues and approximately $5,800,000 of net
income from Tyler.
On February 1, 2017, BSWH and USP contributed their respective ownership interests in Centennial ASC, LLC (Centennial) to THVG, resulting in THVG owning
a 50.42% controlling interest. The value of the contributions from BSWH and USP was approximately $6,799,000 and $6,772,000, respectively. From the date of
contribution to June 30, 2017, THVG recognized approximately $4,400,000 of total revenues and approximately $1,000,000 of net income from Centennial. For
the twelve months ended June 30, 2018, THVG recognized approximately $10,300,000 of total revenues and approximately $2,300,000 of net income from
Centennial.
F-14
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
The following table summarizes the recorded values of the assets and liabilities as of the respective contribution date (in thousands):
Cash and cash equivalents
Current assets
Long-term assets
Goodwill
Total assets acquired
Current liabilities
Long-term liabilities
Total liabilities assumed
Noncontrolling interests
Net assets acquired
Tyler Hospital
Centennial
$
925 $
15,703
18,276
111,831
146,735
10,127
4,378
14,505
50,610
$
81,620 $
—
3,690
1,079
19,290
24,059
585
—
585
9,903
13,571
The assets and liabilities were accounted for at their respective fair values at the date of acquisition. Noncontrolling interests (NCI) are valued upon acquisition
with a discount to reflect lack of control and marketability by the NCI holders. These fair value measurements are determined by Level 2 inputs. The resulting
goodwill is attributed to expected synergies from combining operations. The results of these contributed facilities are included in THVG’s consolidated financial
statements from the respective dates of contribution.
The following table presents the unaudited pro forma results as if THVG had acquired Tyler and Centennial on July 1, 2016 (in thousands). The pro forma results
are not necessarily indicative of the results of operations that would have occurred if the acquisitions were completed on the dates indicated, nor is indicative of the
future operating results of THVG.
Total revenues
Net income attributable to THVG
4. NONCONTROLLING INTERESTS
Year Ended
June 30, 2018
Year Ended
June 30, 2017
Year Ended
June 30, 2016
$
$
1,178,160 $
1,158,708 $
1,002,041
143,420 $
133,111 $
122,178
The Company controls and therefore consolidates the results of 32 of its 34 facilities at June 30, 2018. Similar to its investments in unconsolidated affiliates, the
Company regularly engages in the purchase and sale of equity interests with respect to its consolidated subsidiaries that do not result in a change of control. These
transactions are accounted for as equity transactions, as they are undertaken among the Company, its consolidated subsidiaries, and noncontrolling interests, and
their cash flow effects are classified within financing activities.
During the fiscal year ended June 30, 2018, the Company purchased and sold equity interests in various consolidated subsidiaries in the amounts of approximately
$8,215,000 and $9,609,000, respectively. During the fiscal year ended June 30, 2017, the Company purchased and sold equity interests in various consolidated
subsidiaries in the amounts of approximately $5,447,000 and $18,445,000, respectively. During the fiscal year ended June 30, 2016, the Company purchased and
sold equity interests in various consolidated subsidiaries in the amounts of approximately $3,861,000 and $2,272,000, respectively. The basis difference between
the Company’s carrying amount and the proceeds received or paid in each transaction is recorded as an adjustment to the Company’s equity. The impact of these
transactions is summarized as follows (in thousands):
F-15
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
Net income attributable to the Company
Net transfers to the noncontrolling interests:
Year Ended
June 30, 2018
Year Ended
June 30, 2017
Year Ended
June 30, 2016
$
145,037 $
127,906 $
114,241
Increase/(Decrease) in the Company’s equity for gains/losses related to purchases of subsidiaries’ equity
interests
Increase/(Decrease) in the Company’s equity for gains/(losses) related to sales of subsidiaries’ equity
interests
Net transfers to noncontrolling interests
1,350
(1,438)
(801)
1,269
2,619
904
(534)
(2,229)
(3,030)
Change in equity from net income attributable to the Company and net transfers to noncontrolling
interests
$
147,656 $
127,372 $
111,211
As further described in Note 1, upon the occurrence of various fundamental regulatory changes, the Company could be obligated, under the terms of its investees’
partnership and operating agreements, to purchase some or all of the noncontrolling interests related to the Company’s consolidated subsidiaries. As a result, these
noncontrolling interests are not included as part of the Company’s equity and are carried as noncontrolling interests-redeemable on the Company’s consolidated
balance sheets. The activity in noncontrolling interests-redeemable for the years ended June 30, 2018, 2017 and 2016 is summarized below (in thousands):
Balance, June 30, 2015
Net income attributable to noncontrolling interests
Distributions to noncontrolling interests
Purchases of noncontrolling interests
Sales of noncontrolling interests
Noncontrolling interests attributable to business acquisition
Balance, June 30, 2016
Net income attributable to noncontrolling interests
Distributions to noncontrolling interests
Purchases of noncontrolling interests
Sales of noncontrolling interests
Noncontrolling interests attributable to business acquisition
Balance, June 30, 2017
Net income attributable to noncontrolling interests
Distributions to noncontrolling interests
Purchases of noncontrolling interests
Sales of noncontrolling interests
Noncontrolling interests attributable to business acquisition
Balance, June 30, 2018
F-16
$
$
79,590
117,018
(109,768)
(3,961)
3,186
3,862
89,927
134,905
(137,373)
(3,631)
15,415
9,904
109,147
143,580
(138,245)
(2,512)
9,836
50,610
$
172,416
Table of Contents
5. GOODWILL
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
The following is a summary of changes in the carrying amount of goodwill for the years ended June 30, 2018 and 2017 (in thousands):
Balance, June 30, 2016
Additions:
Centennial ASC
Adjustments:
Acquisition of Precision Surgery Center
Balance, June 30, 2017
Additions:
Tyler Spine and Joint
Balance, June 30, 2018
Goodwill additions resulting from business combinations are recorded and assigned to the parent and noncontrolling interests.
6. LONG-TERM OBLIGATIONS
At June 30, 2018 and 2017, long-term obligations consisted of the following (in thousands):
Capital lease obligations (Note 7)
Notes payable to financial institutions
Total long-term obligations
Less current portion
Long-term obligations, less current portion
$
301,019
19,290
(532)
319,777
111,831
431,608
$
2018
139,535 $
$
54,482
194,017
(19,789)
2017
116,415
61,864
178,279
(20,809)
$
174,228 $
157,470
The aggregate maturities of notes payable for each of the five years subsequent to June 30, 2018 and thereafter are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total long-term obligations
$
12,032
13,893
9,586
8,823
6,291
3,857
$
54,482
The Facilities have notes payable to financial institutions which mature at various dates through 2025 and accrue interest at fixed and variable rates ranging from
2% to 8%. Each note is collateralized by certain assets of the respective facility.
Capital lease obligations are collateralized by underlying real estate or equipment and have interest rates ranging from 2% to 13%.
7. LEASES
The Facilities lease various office equipment, medical equipment, and office space under a number of operating lease agreements, which expire at various times
through the year 2033. Such leases do not involve contingent rentals, nor do they contain significant renewal or escalation clauses. Office leases generally require
the Facilities to pay all executory costs (such as property taxes, maintenance, and insurance).
F-17
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
Minimum future payments under noncancelable leases with remaining terms in excess of one year as of June 30, 2018 are as follows (in thousands):
Year ending June 30:
Thereafter
Total minimum lease payments
Amount representing interest
Total principal payments
Capital
Leases
Operating
Leases
2019 $
20,648 $
2020
2021
2022
2023
$
20,298
20,443
19,800
19,321
126,938
227,448 $
(87,913)
139,535
39,858
38,123
35,855
35,043
32,901
193,486
375,266
Total rent expense under operating leases was approximately $48,190,000, $39,445,000, and $34,522,000 for the years ended June 30, 2018, 2017, and 2016,
respectively, and is included in other operating expenses in the accompanying consolidated statements of income.
8. RELATED-PARTY TRANSACTIONS
THVG operates the Facilities under management and royalty contracts, and THVG in turn is managed by BSWH and USP, resulting in THVG incurring
management and royalty fee expense payable to BSWH and USP in amounts equal to the management and royalty fee income THVG receives from the Facilities.
THVG’s management and royalty fee income from the facilities it consolidates for financial reporting purposes eliminates in consolidation with the facilities’
expense and therefore is not included in THVG’s consolidated revenues. THVG’s management and royalty fee income from facilities which are not consolidated
was $600,000 for years ended June 30, 2018, 2017, and 2016, and is included in other income in the accompanying consolidated statements of income.
The management and royalty fee expense to BSWH and USP was approximately $41,973,000, $38,530,000, and $35,432,000 for the years ended June 30, 2018,
2017, and 2016, respectively, and is reflected in operating expenses in THVG’s consolidated statements of income. Of the total, 64.3% and 1.7% represent
management fees payable to USP and BSWH, respectively, and 34% represents royalty fees payable to BSWH.
Under the management and royalty agreements, the Facilities pay THVG an amount ranging from 5.0% to 7.0% of their net patient service revenue less provision
for doubtful accounts annually, subject, in some cases, to an annual cap.
In addition, a subsidiary of USPI frequently pays bills on behalf of THVG and has custody of substantially all of THVG’s excess cash, paying THVG and the
Facilities interest income on the net balance at prevailing market rates. Amounts held by USPI on behalf of THVG and the Facilities, shown in Funds due from
United Surgical Partners, Inc. on the accompanying consolidated balance sheets, totaled approximately $114,408,000 and $93,848,000 at June 30, 2018 and 2017,
respectively. Accrued expenses that USPI paid on behalf of THVG, shown in Accounts payable on the accompanying consolidated balance sheets, totaled
approximately $16,014,000 and $11,568,000 at June 30, 2018 and 2017, respectively. The interest income amounted to approximately $334,000, $233,000, and
$150,000 for the years ended June 30, 2018, 2017, and 2016, respectively.
9. COMMITMENTS AND CONTINGENCIES
Financial Guarantees
THVG guarantees portions of the indebtedness of its investees to third-parties, which could potentially require THVG to make maximum aggregate payments
totaling approximately $3,192,000. Of the total, approximately $1,800,000 relates to the obligations of a consolidated subsidiary whose capital lease obligation is
included in THVG’s consolidated balance sheets and related disclosures, and approximately $1,392,000 relates to obligations of two consolidated subsidiaries
whose operating lease obligations are not included in THVG’s consolidated balance sheets.
F-18
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
These arrangements (a) consist of guarantees of real estate and equipment financing, (b) are collateralized by all, or a portion of, the investees’ assets, (c) require
payments by THVG in the event of a default by the investee primarily obligated under the financing, (d) expire as the underlying debt matures at various dates
through 2021, or earlier if certain performance targets are met, and (e) provide no recourse for THVG to recover any amounts from third-parties. The fair value of
the guarantee liability was not material to the consolidated financial statements and, therefore, no amounts were recorded at June 30, 2018 related to these
guarantees. When THVG incurs guarantee obligations that are disproportionately greater than the guarantees provided by the investee’s other owners, THVG
charges the investee a fair market value fee based on the value of the contingent liability THVG is assuming.
Litigation and Professional Liability Claims
In their normal course of business, the Facilities are subject to claims and lawsuits relating to patient treatment. THVG believes that its liability for damages
resulting from such claims and lawsuits is adequately covered by insurance or is adequately provided for in its consolidated financial statements. USPI, on behalf
of THVG and each of the Facilities, maintains professional liability insurance that provides coverage on a claims-made basis of $1,000,000 per incident and
$15,000,000 in annual aggregate amount with retroactive provisions upon policy renewal. Certain of THVG’s insurance policies have deductibles and contingent
premium arrangements. THVG believes that the expense recorded through June 30, 2018, which was estimated based on historical claims, adequately provides for
its exposure under these arrangements. Additionally, from time to time, THVG may be named as a party to other legal claims and proceedings in the ordinary
course of business. THVG is not aware of any such claims or proceedings that have more than a remote chance of having a material adverse impact on THVG.
10. SUBSEQUENT EVENTS
THVG regularly engages in exploratory discussions or enters into letters of intent with various entities regarding possible joint ventures, development, or other
transactions. These possible joint ventures, developments of new facilities, or other transactions are in various stages of negotiation.
THVG has performed an evaluation of subsequent events through December 20, 2018, which is the date the consolidated financial statements were available to be
issued.
F-19
Exhibit 10(bb)
TENET
FOURTH AMENDED AND RESTATED
EXECUTIVE SEVERANCE PLAN
As Amended and Restated Effective August 8, 2018
FOURTH AMENDED AND RESTATED
EXECUTIVE SEVERANCE PLAN
TABLE OF CONTENTS
ARTICLE I PREAMBLE AND PURPOSE
1.1 Preamble
1.2 Purpose
ARTICLE II DEFINITIONS AND CONSTRUCTION
2.1 Definitions
2.2 Construction
2.3 409A Compliance
ARTICLE III SEVERANCE BENEFITS
3.1 Severance Benefits Not Related to a Change of Control
3.2 Severance Benefits on and after a Change of Control
3.3 Termination Distributions to Key Employees
3.4 Distributions on Account of Death of the Covered Executive During the Severance Period
3.5 Section 409A Gross-Up Payment
3.6 Alternate Plan Terms
3.7 Conditions to Payment of Severance Benefits
3.8 Impact of Reemployment on Benefits
ARTICLE IV ADMINISTRATION
4.1 The RPAC
4.2 Powers of RPAC
4.3 Appointment of Plan Administrator
4.4 Duties of Plan Administrator
4.5 Indemnification of RPAC and Plan Administrator
4.6 Claims for Benefits
4.7 Arbitration
4.8 Receipt and Release of Necessary Information
4.9 Overpayment and Underpayment of Benefits
ARTICLE V OTHER BENEFIT PLANS OF THE COMPANY
5.1 Other Plans
5.2 Controlling Document
ARTICLE VI AMENDMENT AND TERMINATION OF THE ESP
6.1 Continuation
6.2 Amendment of ESP
6.3 Termination of ESP
6.4 Termination of Affiliate's Participation
ARTICLE VII MISCELLANEOUS
7.1 No Reduction of Employer Rights
7.2 Successor to the Company
7.3 Provisions Binding
APPENDIX AESP AGREEMENTS
(i)
Page
1
1
2
3
3
16
16
17
17
20
24
25
25
26
26
28
29
29
29
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33
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34
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36
A-1
FOURTH AMENDED AND RESTATED
EXECUTIVE SEVERANCE PLAN
ARTICLE I
PREAMBLE AND PURPOSE
1.1 Preamble. In January 2003, Tenet Healthcare Corporation (the " Company ") adopted the Tenet Executive Severance
Protection Plan (the " TESPP ") to provide Covered Executives of the Company and its affiliates with certain cash severance
payments and/or other benefits in the event of a termination of the executive's employment as a result of a "qualifying
termination," as defined in the TESPP, or under certain other circumstances following a "change of control," as defined in the
TESPP. Effective May 11, 2006, the Company amended and restated the TESPP to:
(a)
(b)
(c)
(d)
(e)
(f)
expand the classification of employees eligible to participate in such plan;
modify (and in the case of a change of control expand) the severance payments and other benefits payable under
such plan on account of a qualifying termination;
amend, restate and replace the associated individual TESPP agreements, the change of control agreements, and
the severance provisions of any employment agreements that cover eligible executives with a severance plan
agreement, a copy of which was attached to as such amended and restated plan as Appendix B,
revise the definition of change of control;
modify the administration and claims review procedures under the plan;
comply with the requirements of section 409A of the Internal Revenue Code of 1986, as amended (the " Code ");
and
(g)
change the name of the plan to the "Tenet Executive Severance Plan" (the " ESP ").
The Company intended that the ESP and Tenet Executive Severance Plan Agreement attached thereto as Appendix A
serve as an amendment and restatement of the TESPP, the associated individual TESPP agreements, the change of
control agreements and the severance provisions of any employment agreement that covers an eligible executive, as
applicable, to comply with the requirements of section 409A of the Code, effective as of January 1, 2005, or, in the case
of an individual TESPP agreement, change of control agreement or employment agreement, the effective date of such
agreement, if later. To the extent that an executive did not elect to participate in this ESP, such executive's TESPP
agreement, change of control agreement or employment agreement, as applicable, remained in effect and was amended
to comply with the provisions of section 409A of the Code.
Effective December 31, 2008, the Company amended and restated the ESP effective to comply with final regulations
issued under section 409A of the Code. The Company again amended and restated the ESP effective May 9, 2012 to,
among other things, revise certain definitions and modify the benefits provided.
Tenet Executive Severance Plan
The Company subsequently amended and restated the ESP effective November 6, 2013 to delegate to the Senior Vice
President, Human Resources and the Plan Administrator the authority to determine the employees eligible to participate
in the ESP and the level of severance benefits each employee will receive. This amended and restated ESP was known
as the Tenet Third Amended and Restated Executive Severance Plan.
By this instrument, the Company amends and restates the ESP effective August 8, 2018 (the “ Effective Date ”), to clarify
the manner in which severance pay will be determined for employees who become eligible (or re-eligible) to participate in
the ESP on and after the execution date of this amended and restated ESP and make certain administrative clarifications.
This amended and restated ESP will be known as the Tenet Fourth Amended and Restated Executive Severance Plan.
The Company may adopt one or more domestic trusts to serve as a possible source of funds for the payment of benefits
under the ESP.
1.2 Purpose. Through the ESP, the Company intends to permit the deferral of compensation and to provide additional
benefits to a select group of management or highly compensated employees of the Company and its affiliates. Accordingly, it is
intended that the ESP will not constitute a "qualified plan" subject to the limitations of section 401(a) of the Code, nor will it
constitute a "funded plan," for purposes of such requirements. It also is intended that the ESP will qualify as a "pension plan"
within the meaning of section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (" ERISA ") that is
exempt from the participation and vesting requirements of Part 2 of Title I of ERISA, the funding requirements of Part 3 of Title I
of ERISA, and the fiduciary requirements of Part 4 of Title I of ERISA by reason of the exclusions afforded plans that are
unfunded and maintained by an employer primarily for the purpose of providing deferred compensation for a select group of
management or highly compensated employees.
End of Article I
Tenet Executive Severance Plan
2
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1
Definitions. When a word or phrase appears in this ESP with the initial letter capitalized, and the word or phrase does
not commence a sentence, the word or phrase will generally be a term defined in this Section 2.1. The following words
and phrases with the initial letter capitalized will have the meaning set forth in this Section 2.1, unless a different meaning
is required by the context in which the word or phrase is used.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
" Affiliate " means a corporation that is a member of a controlled group of corporations (as defined in section
414(b) of the Code) that includes the Company, any trade or business (whether or not incorporated) that is in
common control (as defined in section 414(c) of the Code) with the Company, or any entity that is a member of the
same affiliated service group (as defined in section 414(m) of the Code) as the Company.
" AIP " means the Company's Annual Incentive Plan, as the same may be amended, restated, modified, renewed
or replaced from time to time.
" Average Bonus " means the average bonus percent applicable to the Covered Executive under the AIP for
three years (or actual period of employment, if less) preceding the year of his Qualifying Termination (subject to a
fifty percent (50%) minimum) multiplied by his Base Salary at the time of a Qualifying Termination.
" Base Salary " means the Covered Executive's annual gross rate of pay including amounts reduced from the
Employee's compensation and contributed on the Employee's behalf as deferrals under any qualified or non-
qualified employee benefit plans sponsored by the Employer in effect immediately before a Qualifying
Termination. Base Salary excludes bonuses, hardship withdrawal allowances, Annual Incentive Plan Awards,
housing allowances, relocation payments, deemed income, income payable under the SIP or other stock incentive
plans, Christmas gifts, insurance premiums and other imputed income, pensions, and retirement benefits.
" Board " means the Board of Directors of the Company.
" Bonus " means the amount payable to a Covered Executive, if any, under the AIP.
" Cause " means
(i)
when used in connection with a Qualifying Termination triggering benefits pursuant to Section 3.1, a
Covered Executive's:
(A)
(B)
dishonesty,
fraud,
(C)
willful misconduct,
Tenet Executive Severance Plan
3
(D)
breach of fiduciary duty,
(E)
(F)
conflict of interest,
commission of a felony,
(G)
material failure or refusal to perform his job duties in accordance with Company policies,
(H)
a material violation of Company policy that causes harm to the Company or an Affiliate, or
(I)
other wrongful conduct of a similar nature and degree.
A failure to meet or achieve business objectives, as defined by the Company, will not be considered Cause
so long as the Covered Executive has devoted his best efforts and attention to the achievement of those
objectives.
(ii)
when used in connection with a Qualifying Termination triggering benefits pursuant to Section 3.2:
(A)
(B)
(C)
any intentional act or misconduct materially injurious to the Company or any Affiliate, financial or
otherwise, but not limited to, misappropriation or fraud, embezzlement or conversion by the
Covered Executive of the Company’s or any Affiliate’s property in connection with the Covered
Executive’s employment with the Company or an Affiliate,
Any willful act or omission constituting a material breach by the Covered Executive of a fiduciary
duty,
A final, non-appealable order in a proceeding before a court of competent jurisdiction or a final
order in an administrative proceeding finding that the Covered Executive committed any willful
misconduct or criminal activity (excluding minor traffic violations or other minor offenses), which
commission is materially inimical to the interests of the Company or any Affiliate, whether for his
personal benefit or in connection with his duties for the Company or an Affiliate,
(D)
The conviction (or plea of no contest) of the Covered Executive for any felony,
(E)
Material failure or refusal to perform his job duties in accordance with Company policies (other than
resulting from the Covered Executive’s disability as defined by Company policies), or
(F)
A material violation of Company policy that causes material harm to the Company or an Affiliate.
Tenet Executive Severance Plan
4
A failure to meet or achieve business objectives, as defined by the Company, will not be considered Cause
so long as the Covered Executive has devoted his reasonable efforts and attention to the achievement of
those objectives. For purposes of this Section, no act or failure to act on the part of the Covered Executive
shall be deemed "willful", "intentional" or "knowing" if it was undertaken in reasonable reliance on the
advice of counsel or at the instruction of the Company, including but not limited to the Board, a committee
of the Board or the Chief Executive Officer (" CEO ") of the Company, or was due primarily to an error in
judgment or negligence, but shall be deemed "willful", "intentional" or "knowing" only if done or omitted to
be done by the Covered Executive not in good faith and without reasonable belief that the Covered
Executive’s action or omission was in the best interest of the Company.
(iii)
A Covered Executive will not be deemed to have been terminated for Cause, under either this Section
2.1(g)(i) or 2.1(g)(ii) above, as applicable, unless and until there has been delivered to the Covered
Executive written notice that the Covered Executive has engaged in conduct constituting Cause. The
determination of Cause will be made by the Human Resources Committee with respect to any Covered
Executive who is employed as the CEO, by the CEO (or an individual acting in such capacity or
possessing such authority on an interim basis) with respect to any other Covered Executive except a
Hospital Chief Executive Officer (" Hospital CEO ") and by the Chief Operating Officer of the Company
(the " COO ") with respect to any Covered Executive who is employed as a Hospital CEO. A Covered
Executive who receives written notice that he has engaged in conduct constituting Cause, will be given the
opportunity to be heard (either in person or in writing as mutually agreed to by the Covered Executive and
the Human Resources Committee, CEO or COO, as applicable) for the purpose of considering whether
Cause exists. If it is determined either at or following such hearing that Cause exists, the Covered
Executive will be notified in writing of such determination within five (5) business days. If the Covered
Executive disagrees with such determination, the Covered Executive may file a claim contesting such
determination pursuant to Article IV within thirty (30) days after his receipt of such written determination
finding that Cause exists.
(h)
" Change of Control " means the occurrence of one of the following:
(i)
A "change in the ownership of the Company" which will occur on the date that any one person, or more
than one person acting as a group within the meaning of Section 409A of the Code, acquires, directly or
indirectly, whether in a single transaction or series of related transactions, ownership of stock in the
Company that, together with stock held by such person or group, constitutes more than fifty percent (50%)
of the total fair market value or total voting power of the stock of the Company (" Ownership Control ").
However, if any one person or more than one person acting as a group, has previously acquired ownership
of more than fifty percent (50%) of the total fair market value or total voting power of the stock of the
Company, the acquisition of additional stock by the same person or persons will not be
Tenet Executive Severance Plan
5
considered a "change in the ownership of the Company" (or to cause a "change in the effective control of
the Company" within the meaning of Section 2.1(h)(ii) below). Further, an increase in the effective
percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in
which the Company acquires its stock in exchange for cash or property will be treated as an acquisition of
stock for purposes of this paragraph; provided, that for purposes of this Section 2.1(h)(i), the following
acquisitions of Company stock will not constitute a Change of Control:
(A)
(B)
(C)
any acquisition, whether in a single transaction or series of related transactions, by any employee
benefit plan (or related trust) sponsored or maintained by the Company or an Affiliate which results
in such employee benefit plan obtaining "Ownership Control" of the Company or
any acquisition, whether in a single transaction or series of related transactions, by the Company
which results in the Company acquiring stock of the Company representing "Ownership Control" or
any acquisition, whether in a single transaction or series of related transactions, after which those
persons who were owners of the Company’s stock immediately before such transaction(s) own
more than fifty percent (50%) of the total fair market value or total voting power of the stock of the
Company (or if after the consummation of such transaction(s) the Company (or another entity into
which the Company is merged into or otherwise combined, such the Company does not survive
such transaction(s)) is a direct or indirect subsidiary of another entity which itself is not a subsidiary
of an entity, then the more than fifty percent (50%) ownership test shall be applied to the voting
securities of such other entity) in substantially the same percentages as their respective ownership
of the Company immediately before such transaction(s).
This Section 2.1(h)(i) applies either when there is a transfer of the stock of the Company (or issuance of
stock) and stock in the Company remains outstanding after the transaction or when there is a transfer of
the stock of the Company (including a merger or similar transaction) and stock in the Company does not
remain outstanding after the transaction.
(ii)
A "change in the effective control of the Company" which will occur on the date that either (A) or (B)
occurs:
(A)
any one person, or more than one person acting as a group within the meaning of Section 409A of
the Code, acquires (taking into consideration any prior acquisitions during the twelve (12) month
period ending on the date of the most recent acquisition by such person or persons), directly or
indirectly, ownership of stock of the
Tenet Executive Severance Plan
6
Company possessing thirty-five percent (35%) or more of the total voting power of the stock of the
Company (not considering stock owned by such person or group before such twelve (12) month
period) ( i.e.
, such person or group must acquire within a twelve (12) month period stock
possessing at least thirty-five percent (35%) of the total voting power of the stock of the Company)
(" Effective Control "), except for (i) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or an Affiliate which results in such employee benefit
plan obtaining "Effective Control" of the Company or (ii) any acquisition by the Company. The
occurrence of "Effective Control" under this Section 2.1(h)(ii)(A) may be nullified by a vote of that
number of the members of the Board of Directors of the Company (" Board "), that exceeds two-
thirds (2/3) of the independent members of the Board, which vote must occur before the time, if any,
that a "change in the effective control of the Company" has occurred under Section 2.1(h)(ii)(B)
below. In the event of such a supermajority vote, such transaction or series of related transactions
shall not be treated as an event constituting "Effective Control". For avoidance of doubt, the ESP
provides that in the event of the occurrence of the acquisition of ownership of stock of the Company
that reaches or exceeds the thirty-five percent (35%) ownership threshold described above, if more
than two-thirds (2/3) of the independent members of the Board take action to resolve that such an
acquisition is not a "change in the effective control of the Company" and a majority of the members
of the Board have not been replaced as provided under Section 2.1(h)(ii)(B) below, then such Board
action shall be final and no "Effective Control" shall be deemed to have occurred for any purpose
under the ESP.
(B)
a majority of the members of the Board are replaced during any twelve (12) month period by
directors whose appointment or election is not endorsed by a majority of the members of the Board
before the date of the appointment or election.
For purposes of a "change in the effective control of the Company," if any one person, or more than one
person acting as a group, is considered to effectively control the Company within the meaning of this
Section 2.1(h)(ii), the acquisition of additional control of the Company by the same person or persons is not
considered a "change in the effective control of the Company," or to cause a "change in the ownership of
the Company" within the meaning of Section 2.1(h)(i) above.
(iii)
A sale, exchange, lease, disposition or other transfer of all or substantially all of the assets of the
Company.
(iv)
A liquidation or dissolution of the Company that is approved by a majority of the Company's stockholders.
Tenet Executive Severance Plan
7
(i)
(j)
(k)
(l)
(m)
(n)
(o)
(p)
For purposes of this Section 2.1(h), the provisions of section 318(a) of the Code regarding the constructive
ownership of stock will apply to determine stock ownership; provided, that, stock underlying unvested options
(including options exercisable for stock that is not substantially vested) will not be treated as owned by the
individual who holds the option.
" COBRA " means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
" Code " means the Internal Revenue Code of 1986, as amended from time to time and the regulations and
rulings issued thereunder.
" Company " means Tenet Healthcare Corporation.
" Covered Executive " means any Employee who is designated as a Covered Executive by the Senior Vice
President, Human Resources or the Plan Administrator who enters into an ESP Agreement or an Employee who
satisfied the definition of Covered Executive under the terms of a prior ESP document. To the extent permitted by
applicable law, an individual will cease to be a Covered Executive as of the date he attains age sixty-five (65).
" DCP " means the Tenet 2001 Deferred Compensation Plan, the Tenet 2006 Deferred Compensation Plan and
any other deferred compensation plan maintained by the Employer that covers Covered Executives.
" Effective Date " means August 8, 2018.
" Employee " means each select member of management or highly compensated employee receiving
remuneration, or who is entitled to remuneration, for services rendered to the Employer, in the legal relationship of
employer and employee. The term "Employee" does not include a consultant, independent contractor or leased
employee even if such consultant, leased employee or independent contractor is subsequently determined by the
Employer, the Internal Revenue Service, the Department of Labor or a court of competent jurisdiction to be a
common law employee of the Employer. Further, the term "Employee" does not include a person who is receiving
severance pay from the Employer.
" Employer " means the Company and each Affiliate that has adopted the ESP as a participating employer.
Unless provided otherwise by the Human Resources Committee or the Board, all Affiliates will be participating
employers in the ESP. Each such Affiliate may evidence its adoption of the ESP either by a formal action of its
governing body or taking administrative actions with respect to the ESP on behalf of its Covered Executives ( e.g.
, communicating the terms of the ESP, etc.). An entity will automatically cease to be a participating employer as of
the date such entity ceases to be an Affiliate.
(q)
" ERISA " means the Employee Retirement Income Security Act of 1974, as amended from time to time.
Tenet Executive Severance Plan
8
(r)
(s)
(t)
(u)
(v)
(w)
" ESP " means the Tenet Executive Severance Plan as set forth herein and as the same may be amended from
time to time. The ESP was formerly known as the TESPP.
" ESP Agreement " means the written agreement between a Covered Executive and the Plan Administrator, on
behalf of the Employer substantially in the form attached hereto in Appendix A. This form ESP Agreement may
differ with respect to a Covered Executive who was covered by the TESPP before May 11, 2006 or as determined
by the Senior Vice President, Human Resources and/or Plan Administrator (or Human Resources Committee
before the Effective Date), each in its sole and absolute discretion as provided in Section 3.6. Each ESP
Agreement will form a part of the ESP with respect to the affected Covered Executive.
" Equity Plan " means any equity plan, agreement or arrangement maintained or sponsored by the Employer
other than the SIP ( e.g.
, the 1999 broad-based stock option plan and the 1995 stock incentive plan).
" Five Percent Owner " means any person who owns (or is considered as owning within the meaning of section
318 of the Code as modified by section 416(i)(1)(B)(iii) of the Code) more than five percent (5%) of the
outstanding stock of the Company or an Affiliate or stock possessing more than five percent (5%) of the total
combined voting power of all stock of the Company or an Affiliate. The rules of sections 414(b), (c) and (m) of the
Code will not apply for purposes of applying these ownership rules. Thus, this ownership test will be applied
separately with respect to the Company and each Affiliate.
" 401(k) Plan " means the Tenet Healthcare Corporation 401(k) Retirement Savings Plan or any other qualified
retirement plan with a cash or deferred arrangement that is maintained or sponsored by the Employer.
" 409A Exempt Amount " means that portion of the distributions under the ESP to a Covered Executive that does
not exceed two (2) times the lesser of:
(i)
(ii)
the sum of the Covered Executive's annualized compensation based upon the annual rate of pay for
services provided to the Employer for the taxable year of the Covered Executive preceding the taxable
year of the Covered Executive in which he has a Qualifying Termination, provided that such termination
constitutes a "separation from service" with such Employer within the meaning of section 409A of the Code
(adjusted for any increase during that year that was expected to continue indefinitely if the Covered
Executive had not separated from service); or
the maximum amount that may be taken into account under a qualified plan pursuant to section 401(a)(17)
of the Code for the year in which the Covered Executive has a Qualifying Termination, provided that such
termination constitutes a "separation from service" within the meaning of section 409A of the Code.
Tenet Executive Severance Plan
9
In the event that a Covered Executive is a Key Employee, no distributions in excess of the 409A Exempt Amount
will be made during the six (6) month period following the date of the Covered Executive's Qualifying Termination.
(x)
" Good Reason " means:
(i)
In the case of a voluntary termination of employment by a Covered Executive preceding or more than two
(2) years following a Change of Control:
(A)
(B)
(C)
(D)
a material diminution in the Covered Executive's job authority, responsibilities or duties;
a material diminution of the Covered Executive's Base Salary;
an involuntary and material change in the geographic location of the workplace at which the
Covered Executive must perform services; or
any other action or inaction that constitutes a material breach by the Employer or a successor of the
agreement under which the Covered Executive provides services.
In the case of (B) above, such reduction will not constitute good reason if it results from a general across-
the-board reduction for executives at a similar job level within the Employer.
(ii)
In the case of a voluntary termination of employment by a Covered Executive upon or within two (2) years
following a Change of Control:
(A)
(B)
(C)
a material downward change in job functions, duties, or responsibilities which reduces the rank or
position of the Covered Executive;
a reduction in the Covered Executive’s annual base salary;
a reduction in the aggregate value of the Covered Executive’s annual base salary and annual
incentive plan target bonus opportunity;
(D)
a material reduction in the Covered Executive’s retirement or supplemental retirement benefits;
(E)
(F)
an involuntary and material change in the geographic location of the workplace at which the
Covered Executive must perform services; or
any other action or inaction that constitutes a material breach by the Employer or a successor of the
agreement under which the Covered Executive provides services.
Tenet Executive Severance Plan
10
During this period, no adverse change may be made to a Covered Executive’s (1) Base Salary, (2) Base
Salary and annual incentive plan target bonus opportunity in the aggregate, or (3) retirement or
supplemental retirement benefits.
For avoidance of doubt, if the Covered Executive holds the title of Chief Executive Officer immediately
before the occurrence of a Change of Control, in the event of the occurrence of a Change of Control in
which the Covered Executive retains the same position with the Company, and any of the following events
occur on or within two (2) years after the date of the Change of Control, such new role shall be treated as a
"material downward change in job functions, duties or responsibilities" within the meaning of Section 2.1(x)
(ii)(A) above:
(1)
(2)
(3)
Covered Executive ceases to be a member of the Board (or if the Company becomes
directly or indirectly controlled by Parent, Covered Executive does not become a member of
the Board of Directors of Parent);
the Company either (A) ceases to have a class of equity securities that is actively traded on
a national securities exchange or comparable public securities market or (B) becomes
directly or indirectly controlled by Parent and the Covered Executive does not serve as the
Chief Executive Officer of Parent; or
Covered Executive is directed by the Board (or by Parent, if the Company becomes directly
or indirectly controlled by Parent) to engage in an act or omission, which if performed would
provide the Company with a basis for terminating Covered Executive for Cause.
(iii)
If the Covered Executive believes that an event constituting Good Reason has occurred, in accordance
with this Section 2.1(x)(i) or Section 2.1(x)(ii) above, as applicable, the Covered Executive must notify the
Plan Administrator of that belief within ninety (90) days of the occurrence of the Good Reason event, which
notice will set forth the basis for that belief. The Plan Administrator will have thirty (30) days after receipt of
such notice (the " Determination Period ") in which to either rectify such event, determine that an event
constituting Good Reason does not exist, or determine that an event constituting Good Reason exists. If
the Plan Administrator does not take any of such actions within the Determination Period, the Covered
Executive may terminate his employment with the Employer for Good Reason immediately at the end of
the Determination Period by giving written notice to the Employer within ninety (90) days after the end of
the Determination Period, which termination will be a Qualifying Termination effective on the date that such
notice is received by the Employer, provided that such date constitutes the Covered Executive's
"separation from service" within the meaning of section 409A of the Code. If the Plan Administrator
Tenet Executive Severance Plan
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determines that Good Reason does not exist, then (A) the Covered Executive will not be entitled to rely on
or assert such event as constituting Good Reason, and (B) the Covered Executive may file a claim
pursuant to Article IV within thirty (30) days after the Covered Executive's receipt or written notice of the
Plan Administrator's determination. A termination of employment for Good Reason will be treated as an
involuntary termination for purposes of the ESP.
(y)
(z)
" Human Resources Committee " means the Human Resources Committee of the Board, which has the
authority to amend and terminate the ESP as provided in Article VI.
" Key Employee " means any employee or former employee of the Employer (including any deceased employee)
who at any time during the Plan Year was:
(i)
(ii)
(iii)
an officer of the Company or an Affiliate having compensation of greater than one hundred thirty thousand
dollars ($130,000) (as adjusted under section 416(i)(1) of the Code for Plan Years beginning after
December 31, 2002) (such limit is one hundred seventy five thousand dollars ($175,000) for 2018);
a Five Percent Owner; or
a One Percent Owner having compensation within the meaning of section 415(c) of the Code of more than
one hundred fifty thousand dollars ($150,000).
For purposes of the preceding paragraphs, the Company has elected to determine the compensation of an officer
or One Percent Owner in accordance with section 1.415(c)-2(d)(4) of the Treasury Regulations ( i.e.
, W-2 wages
plus amounts that would be includible in wages except for an election under section 125(a) of the Code (regarding
cafeteria plan elections) under section 132(f) of the Code (regarding qualified transportation fringe benefits) or
section 402(e)(3) of the Code (regarding section 401(k) plan deferrals)) without regard to the special timing rules
and special rules set forth, respectively, in sections 1.415(c)-2(e) and 2(g) of the Treasury Regulations.
The determination of Key Employees will be based upon a twelve (12) month period ending on December 31 of
each year ( i.e.
, the identification date). Employees that are Key Employees during such twelve (12) month period
will be treated as Key Employees for the twelve (12) month period beginning on the first day of the fourth month
following the end of the twelve (12) month period ( i.e.
, since the identification date is December 31, then the
twelve (12) month period to which it applies begins on the next following April 1).
The determination of who is a Key Employee will be made in accordance with section 416(i)(1) of the Code and
other guidance of general applicability issued thereunder. For purposes of determining whether an employee or
former employee is an officer, a Five Percent Owner or a One Percent Owner, the Company and each Affiliate will
be treated as a separate employer ( i.e.
, the controlled group rules of sections 414(b),
Tenet Executive Severance Plan
12
(c), (m) and (o) of the Code will not apply). Conversely, for purposes of determining whether the one hundred
thirty thousand dollar ($130,000) adjusted limit on compensation is met under the officer test described in Section
2.1(z)(i), compensation from the Company and all Affiliates will be taken into account ( i.e.
, the controlled group
rules of sections 414(b), (c), (m) and (o) of the Code will apply). Further, in determining who is an officer under the
officer test described in Section 2.1(z)(i), no more than fifty (50) employees of the Company or its Affiliates ( i.e.
,
the controlled group rules of sections 414(b), (c), (m) and (o) of the Code will apply) will be treated as officers. If
the number of officers exceeds fifty (50), the determination of which employees or former Employees are officers
will be determined based on who had the largest annual compensation from the Company and Affiliates for the
Plan Year.
(aa)
(bb)
(cc)
" One Percent Owner " means any person who would be described as a Five Percent Owner in Section 2.1(u) if
"one percent (1%)" were substituted for "five percent (5%)" each place where it appears therein.
" Parent " means an entity that controls another entity directly, or indirectly through one or more intermediaries,
and that itself is not a Subsidiary.
" Plan Administrator " means the individual or committee appointed by the RPAC to handle the day-to-day
administration of the ESP. If the RPAC does not appoint an individual or committee to serve as the Plan
Administrator, the RPAC will be the Plan Administrator.
(dd)
" Plan Year " means the fiscal year of the ESP, which will commence on January 1 each year and end on
December 31 of such year.
(ee)
" Potential Change of Control " means the earliest to occur of:
(i)
(ii)
(iii)
(iv)
the Company enters into an agreement the consummation of which, or the approval by the stockholders of
which, would constitute a Change of Control;
proxies for the election of members of the Board are solicited by any person other than the Company;
any person publicly announces an intention to take or to consider taking actions which, if consummated
would constitute a Change of Control; or
any other event occurs which is deemed to be a potential change of control by the Board and the Board
adopts a resolution to the effect that a Potential Change of Control has occurred.
" Protection Period " means the period beginning on the date that is six (6) months before the occurrence of a
Change of Control and ending twenty-four (24) months after the occurrence of a Change of Control.
" Qualifying Termination " means the Covered Executive's "separation from service" (within the meaning of
section 409A of the Code) by reason of:
(ff)
(gg)
Tenet Executive Severance Plan
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(i)
(ii)
the involuntary termination of a Covered Executive's employment by the Employer without Cause, or
the Covered Executive's resignation from the employment of the Employer for Good Reason;
provided, however, that a Qualifying Termination will not occur by reason of the divestiture of an Affiliate with
respect to a Covered Executive employed by such Affiliate who is offered a comparable position with the
purchaser and either declines or accepts such position as provided in Section 6.4.
(hh)
" Reimbursement Period " means the period of time commencing as of the date of the Covered Executive’s
Qualifying Termination and ending as of the close of the second taxable year of the Covered Executive that
follows the taxable year in which such Qualifying Termination occurred.
(ii)
(jj)
" RPAC " means the Retirement Plans Administration Committee of the Company established by the Human
Resources Committee and whose members have been appointed by the Human Resources Committee or a
delegate thereof. The RPAC will have the responsibility to administer the ESP and make final determinations
regarding claims for benefits, as described in Article IV.
" SERP " means the Tenet Healthcare Corporation Supplemental Executive Retirement Plan or any other
supplemental executive retirement plan maintained by the Employer in which Covered Executives participate.
(kk)
" Severance Pay " means, except as provided otherwise in the Covered Executive’s ESP Agreement, as follows:
(i)
(ii)
For Covered Executives who entered into an ESP Agreement prior to the execution date for the Tenet
Fourth Amended and Restated Executive Severance Plan, the sum of the Covered Executive's Base
Salary and Target Bonus as of the date of a Qualifying Termination, and
For Covered Executives who entered into an ESP Agreement on or after the execution date for the Tenet
Fourth Amended and Restated Executive Severance Plan, the sum of the Covered Executive's Base
Salary and Average Bonus as of the date of a Qualifying Termination.
(ll)
" Severance Period " means
(i)
Pre-November 6, 2013 Covered Executives. For a Covered Executive who entered into an ESP
Agreement before the execution date of the Tenet Third Amended and Restated Executive Severance
Plan and except as provided otherwise in the Covered Executive's ESP Agreement or offer letter:
(A)
the period specified in Section 3.1(a) of the Tenet Second Amended and Restated Executive
Severance Plan with respect to Severance Pay payable on account of a Qualifying Termination not
related to a Change of Control as set forth below, and
Tenet Executive Severance Plan
14
Covered Executive
Severance Period
Tenet CEO
COO and CFO
SVPs and EVPs
Three (3) years
Two and one-half (2.5) years
One and one-half (1.5) years
VPs and Hospital CEOs
One (1) year
(B)
the period specified in Section 3.2(a) of the Tenet Second Amended and Restated Executive
Severance Plan on account of a Qualifying Termination in connection with a Change of Control as
set forth below:
Covered Executive
Severance Period
Tenet CEO
COO and CFO
SVPs and EVPs
Three (3) years
Three (3) years
Two (2) years
VPs and Hospital CEOs
One and one-half (1.5) years
(ii)
Post-November 6, 2013 and Vanguard Covered Executives. For a Covered Executive who entered into
an ESP Agreement on and after the execution date for the Tenet Third Amended and Restated Executive
Severance Plan, and for a Covered Executive employed by Vanguard Health System Inc. or its Controlled
Group Members regardless of when first employed, the periods specified in the Covered Executive’s ESP
Agreement or if no such periods are specified the periods specified in Section 2.1(ll)(i)(A) and Section
2.1(ll)(B) above, as applicable, based on the position of the Covered Executive as determined by the Plan
Administrator or Senior Vice President, Human Resources. As required by section 409A of the Code, any
Severance Period specified in the Covered Executive’s ESP Agreement will be the same for a Qualifying
Termination occurring outside of the Protection Period and a Qualifying Termination occurring during that
portion of the Protection Period that precedes a Change of Control described in Section 2.1(h)(iv). A
different Severance Period may apply for a Qualifying Termination that occurs at any time during the
Protection Period with respect a Change of Control described in Section 2.1(h)(i), Section 2.1(h)(ii) or
Section 2.1(h)(iii) or during that portion of the Protection Period that occurs on or after a Change of Control
described in Section 2.1(h)(iv).
(mm)
" SIP " means the Third Amended and Restated Tenet Healthcare Corporation 2001 Stock Incentive Plan or the
Tenet Healthcare 2008 Stock Incentive Plan or any successor to such plans.
(nn)
(oo)
" Subsidiary " means an entity controlled by another entity directly, or indirectly through one or more
intermediaries.
" Target Bonus " means the target bonus percent applicable to the Covered Executive under the AIP multiplied
by his Base Salary at the time of a Qualifying Termination. For example, if the Covered Executive earns one
hundred and fifty
Tenet Executive Severance Plan
15
thousand dollars ($150,000) and has a target bonus percent of fifty percent (50%), his Target Bonus equals
seventy-five thousand dollars ($75,000).
(pp)
" TESPP " means the ESP in effect immediately before May 11, 2006.
2.2 Construction. If any provision of the ESP is determined to be for any reason invalid or unenforceable, the remaining
provisions of the ESP will continue in full force and effect. All of the provisions of the ESP will be construed and enforced in
accordance with the laws of the State of Texas and will be administered according to the laws of such state, except as otherwise
required by ERISA, the Code or other applicable federal law. When delivery to the RPAC, Plan Administrator or the Covered
Executive is required under this ESP, such delivery requirement will be satisfied by delivery to a person or persons designated
by the RPAC, Plan Administrator or the Covered Executive, as applicable. Delivery will be deemed to have occurred only when
the form or other communication is actually received. Headings and subheadings are for the purpose of reference only and are
not to be considered in the construction of the ESP. The pronouns "he," "him" and "his" used in the ESP will also refer to similar
pronouns of the female gender unless otherwise qualified by the context.
2.3 409A Compliance. The ESP is intended to comply with the requirements of section 409A of the Code. The provisions of
the ESP will be construed and administered in a manner that enables the ESP to comply with the provisions of section 409A of
the Code.
End of Article II
Tenet Executive Severance Plan
16
ARTICLE III
SEVERANCE BENEFITS
3.1 Severance Benefits Not Related to a Change of Control. Except as provided otherwise in a Covered Executive's ESP
Agreement, a Covered Executive who incurs a Qualifying Termination occurring outside of the Protection Period, subject to the
limitations contained in the ESP, will receive the following severance benefits.
(a)
Severance Period . The Covered Executive will be entitled to the payment of Severance Pay over the Severance
Period as specified in Section 2.1(ll)(i)(A) or (ii), as applicable.
Such Severance Pay will be paid on a bi-weekly basis commencing as of the date of the Qualifying Termination
pursuant to the Employer's ordinary payroll schedule for the duration of the Severance Period, subject to the six
(6) month delay applicable to Key Employees described in Section 3.3 (i.e., the payment of Severance Pay in
excess of the 409A Exempt Amount that would otherwise be payable to a Key Employee during the six (6) month
period following the Qualifying Termination will be delayed). All distributions from the ESP will be taxable as
ordinary income when received and subject to appropriate withholding of income taxes and reported on Form W-
2. Except as otherwise provided herein, a Covered Executive who incurs a Qualifying Termination will have
formally terminated his employment relationship with the Employer as of the date of such Qualifying Termination
and will not be deemed to be an Employee at any time during the Severance Period or thereafter.
(b)
(c)
(d)
Other Accrued Obligations . The Covered Executive will be entitled to payment of all accrued Base Salary,
accrued time off and any other accrued and unpaid obligations as of the date of the Qualifying Termination. Such
accrued obligations will be included and paid as part of the Covered Executive's final paycheck from the
Employer.
Bonus . The Covered Executive will be entitled to payment of the Bonus earned in accordance with the terms of
the AIP as acted on by the Human Resources Committee during the calendar year of the Qualifying Termination.
Such Bonus will be prorated as a fraction of twelve (12) for full months worked by the Covered Executive for the
Employer or an Affiliate during such calendar year and will be paid to the Covered Executive, at the time and in
the same manner specified in the AIP.
Continued Welfare Benefits . During the Severance Period, the Covered Executive and his dependents will be
entitled to continue to participate in any medical, dental, vision, life and long-term care benefit programs
maintained by the Employer in which such persons were participating immediately before the date of the
Qualifying Termination; provided, that the continued participation of such persons is possible under the general
terms and provisions of such benefit programs. If such continued participation is barred, then the Employer will
arrange to provide such persons with substantially similar coverage to that which such persons would have
otherwise been entitled to receive under such benefit programs from which such continued participation is barred.
In either case, however, the Covered Executive will be
Tenet Executive Severance Plan
17
required to continue to pay, on a pre-tax or after-tax basis, as applicable, his portion of the cost of such coverages
as in effect at the time of the Qualifying Termination, and the Employer will continue to pay its portion of such
costs, as in effect at the time of the Qualifying Termination. Any coverage provided pursuant to this Section 3.1(d)
will be limited and reduced to the extent equivalent coverage is otherwise provided by (or available from or under)
any other employer of the Covered Executive. The Covered Executive must advise the Plan Administrator of the
attainment of any such subsequent employer benefit coverages within thirty (30) days following such attainment.
The pre-tax or after-tax payroll deductions for the continued medical, dental, vision life and long-term care benefits
described above will be taken from the Covered Executive's Severance Pay pursuant to the Employer's normal
payroll practices; provided, however, that if any of such coverages are provided on a self-insured basis, the
Covered Executive will be required to pay his portion of the cost of such coverages on an after-tax basis and the
remainder of such cost will be included in the Covered Executive's income and reported as wages on Form W-2.
Any continued medical, dental or vision benefits provided to the Covered Executive and his dependents pursuant
to this Section 3.1(d) is in addition to any rights the Covered Executive and such dependents may have to
continue such coverages under COBRA. The provisions of this Section 3.1(d) will not prohibit the Company from
changing the terms of such medical, dental, life vision or long-term care benefit programs provided that any such
changes apply to all executives of the Company and its Affiliates (e.g., the Company may switch insurance
carriers or preferred provider organizations).
Outplacement Services . The Covered Executive will be entitled to reimbursement of any expenses reasonably
incurred by him for outplacement services in an amount equal to the lesser of ten percent (10%) of his Base
Salary or twenty-five thousand dollars ($25,000). In order to comply with the exemption applicable to post-
separation reimbursement plans under section 409A of the Code: (i) the reimbursement of such expenses for
outplacement services only will be permitted with respect to expenses that are incurred during the shorter of the
Severance Period or the Reimbursement Period and (ii) any reimbursement of such expenses that are incurred
during a particular taxable year of the Covered Executive must be made by the last day of the Covered
Executive’s immediately following taxable year.
Payment of Legal Expenses . The Covered Executive will be entitled to reimbursement of any legal expenses
reasonably incurred by him in order to obtain benefits under the ESP; provided, that, the payment of such
expenses is subject to an arms-length, bona fide dispute as to the Covered Executive's right to such benefits. In
order to comply with the exemption applicable to post-separation reimbursement plans under section 409A of the
Code, in the event such legal expenses are otherwise deductible under section 162 or 167 of the Code (without
regard to any limitation on the Covered Executive’s adjusted gross income): (i) the reimbursement of such legal
expenses only will be permitted with respect to expenses that are incurred during the shorter of the Severance
Period or the Reimbursement Period; and (ii) any reimbursement of such legal expenses that are incurred during
a particular taxable year of the Covered Executive must be made
(e)
(f)
Tenet Executive Severance Plan
18
(g)
(h)
by the last day of the Covered Executive’s immediately following taxable year. In the event that the legal expenses
are not otherwise deductible under section 162 or 167 or the Code (without regard to any limitation on the
Covered Executive’s adjusted gross income), then in order to comply with the expense reimbursement provisions
of section 409A of the Code, the reimbursement of such expenses will be made pursuant to the terms of Section
3.1(f)(i) and Section 3.1(f)(ii) above; provided, that the amount of legal expenses reimbursed or eligible for
reimbursement during a taxable year of the Covered Executive that occurs during the Severance Period or
Reimbursement Period will not affect the legal expenses that are eligible for reimbursement in any other taxable
year of the Covered Executive that occurs during the Severance Period or Reimbursement Period and that such
legal expense reimbursement amounts will be subject to the six (6) month delay (when applicable) for distributions
in excess of the 409A Exempt Amount as set forth in Section 3.3.
Equity Compensation Adjustments . Except as provided otherwise in the Covered Executive's ESP Agreement,
upon a Qualifying Termination, any equity-based compensation awards granted to the Covered Executive by the
Employer under the SIP or an Equity Plan before such termination that are outstanding and vested as of the date
of the Qualifying Termination will be exercisable or settled pursuant to the terms of the SIP or the Equity Plan, as
applicable. All unvested equity-based compensation awards held by the Covered Executive as of the date of the
Qualifying Termination will expire and be of no effect, except to the extent that the terms of such awards provide
for continued vesting and/or acceleration. With respect to performance cash awards, upon a Qualifying
Termination, a Covered Executive will be entitled to "banked" amounts for past plan years and a pro-rated amount
for performance in the year in which the Qualifying Termination occurs, in accordance with the terms of such
awards. No Covered Executive will be entitled to any new equity-based compensation awards following the date
of his Qualifying Termination or during the Severance Period.
SERP . A Covered Executive who is also a participant in the SERP and became such a participant before August
3, 2011 will be entitled to age and service credit for the duration of the Severance Period under the SERP. A
Covered Executive who is also a participant in the SERP but became such a participant on or after August 3, 2011
will not be entitled to age and service credit for the duration of the Severance Period under the SERP. Benefits
under the SERP will be payable to the Covered Executive pursuant to the terms of the SERP; provided, however,
that if the Covered Executive is entitled to commence SERP benefits during the Severance Period pursuant to the
terms of the SERP; the amount of Severance Pay payable to Executive pursuant to the ESP will be offset (i.e.,
reduced) by the amount of the SERP benefits payable during the Severance Period. With respect to a Covered
Executive who became a SERP participant before August 3, 2011, for purposes of determining the amount of the
Covered Executive's SERP benefits, any actuarial reduction that would otherwise apply under the SERP due to
the commencement of SERP benefits during the Severance Period will be disregarded (i.e., the SERP benefits
will only be actuarially reduced for early commencement beginning with the last day of the Severance Period).
Further, while the age credit will accrue throughout the course of the Severance Period, at the end of the
Tenet Executive Severance Plan
19
Severance Period, the Covered Executive’s SERP benefits will be recalculated to take into account the additional
service credit provided under the ESP during the Severance Period. With respect to a Covered Executive who
became a SERP participant on or after August 3, 2011, for purposes of determining the amount of the Covered
Executive’s SERP benefits, the actuarial reduction will be determined under the terms of the SERP as of the date
of the Covered Executive’s Qualifying Termination. A Covered Executive's Severance Pay will not be considered
in calculating the Covered Executive's "Final Average Earnings" under the SERP. Notwithstanding the foregoing,
in no event will any provision in this Section 3.1(h) be construed to permit the distribution of any SERP benefits
during the six (6) month restriction period, as described in the SERP, which follows a Key Employee's Qualifying
Termination.
DCP . The Covered Executive will incur a termination of employment for purposes of the DCP at the time of a
Qualifying Termination and accordingly will not be entitled to defer any portion of his Severance Pay to the DCP
during the Severance Period. The Covered Executive's DCP benefits will be paid to him pursuant to the terms of
the DCP and the Covered Executive's distribution election under the DCP in a manner that complies with section
409A of the Code.
401(k) . The Covered Executive will incur a severance from employment for purposes of the 401(k) Plan on the
date of the Qualifying Termination and accordingly will not be entitled to defer any portion of his Severance Pay to
the 401(k) Plan during the Severance Period. The Covered Executive's 401(k) Plan benefits will be payable to him
under the 401(k) Plan pursuant to the terms of the 401(k) Plan.
(i)
(j)
3.2 Severance Benefits on and after a Change of Control. Except as provided otherwise in a Covered Executive's ESP
Agreement, a Covered Executive who incurs a Qualifying Termination during the Protection Period with respect to a Change of
Control will, subject to the limitations contained in the ESP, receive the severance benefits described in Section 3.1, (provided,
however, that a Covered Executive will only receive the additional age and service credit as set forth in Section 3.1(h) herein in
accordance with the terms and provisions of the SERP), plus the additional severance benefits, if any, provided in this Section
3.2. Further, within five (5) business days following the occurrence of a Change of Control, the Company must contribute to a
domestic rabbi trust an amount sufficient to fully fund the severance benefits accrued as of the date of the Change of Control
pursuant to this Section 3.2. Such funding obligation will continue for each calendar quarter during the twenty-four (24) month
period following such Change of Control, with such funding to be made within five (5) business days following the end of each
such calendar quarter.
(a)
(b)
Severance Period . The Covered Executive will be entitled to the payment of Severance Pay for the Severance
Period as specified in Section 2.1(ll)(i)(B) or (ii), as applicable.
Payment of Severance Pay . In the event that a Covered Executive's Qualifying Termination occurs during the
portion of the Protection Period that precedes any Change of Control described in Section 2.1(h)(i), Section 2.1(h)
(ii) or Section 2.1(h)(iii), the Covered Executive will receive Severance Pay that will be paid on a bi-weekly basis
commencing on the date of the Qualifying Termination pursuant to the Employer's ordinary payroll schedule for
the duration of the Severance Period
Tenet Executive Severance Plan
20
subject to the six (6) month delay applicable to Key Employees described in Section 3.3 ( i.e.
, the payment of
Severance Pay in excess of the 409A Exempt Amount that would otherwise be payable to a Key Employee during
the six (6) month period following the Qualifying Termination will be delayed). To the extent that such Change of
Control is described in Section 2.1(h)(iv), such Severance Pay in excess of the 409A Exempt Amount will be paid
on a bi-weekly basis commencing on the date of the Qualifying Termination pursuant to the Employer's ordinary
payroll schedule for the duration of the Severance Period specified in Section 3.1(a) subject to the six (6) month
delay applicable to Key Employees described in Section 3.3 ( i.e.
, the payment of Severance Pay in excess of the
409A Exempt Amount that would otherwise be payable to a Key Employee during the six (6) month period
following the Qualifying Termination will be delayed).
In the event that a Covered Executive’s Qualifying Termination occurs during the portion of the Protection Period
that occurs on or after a Change of Control described in Section 2.1(h)(i), Section 2.1(h)(ii) or Section 2.1(h)(iii),
the Covered Executive will receive, subject to the six (6) month delay for distributions in excess of the 409A
Exempt Amount as set forth in Section 3.3, a lump sum payment of Severance Pay, in the amount determined
pursuant to Section 3.2(a), within ninety (90) days following such Qualifying Termination. To the extent that such
Change of Control is described in Section 2.1(h)(iv), such Severance Pay in excess of the 409A Exempt Amount
will be paid on a bi-weekly basis commencing on the date of the Qualifying Termination pursuant to the
Employer's ordinary payroll schedule for the duration of the Severance Period subject to the six (6) month delay
applicable to Key Employees described in Section 3.3 ( i.e.
, the payment of Severance Pay in excess of the 409A
Exempt Amount that would otherwise be payable to a Key Employee during the six (6) month period following the
Qualifying Termination will be delayed).
Tenet Executive Severance Plan
21
The payment provisions of this Section 3.2(b) are summarized below.
Change of Control Event
Qualifying Termination During
Protection Period Occurring Before
Change of Control
Qualifying Termination During
Protection Period Occurring on and After
a Change Of Control
Section 2.1(h)(i) - change
in stock ownership
● Bi-weekly payment of Severance Pay
● Lump sum payment of 409A Exempt
over Severance Period
Amount
Section 2.1(h)(ii) -
change in effective
control
● Amounts in excess of 409A Exempt
Amount subject to six (6) month
delay
● Remainder of Severance Pay) paid in
Lump sum subject to six (6) month
delay
● Bi-weekly payment of Severance over
● Lump sum payment of 409A Exempt
Severance Period
Amount
● Amounts in excess of 409A Exempt
Amount subject to six (6) month
delay
● Remainder of Severance Pay paid in
Lump sum subject to six (6) month
delay
Section 2.1(h)(iii) - sale
of assets
● Bi-weekly payment of Severance Pay
● Lump sum payment of 409A Exempt
over Severance Period
Amount
● Amounts in excess of 409A Exempt
Amount subject to six (6) month
delay
● Remainder of Severance Pay paid in
Lump sum subject to six (6) month
delay
Section 2.1(h)(iv) -
liquidation or dissolution
● Bi-weekly payment of Severance Pay
● Lump sum payment of 409A Exempt
over Severance Period
Amount
● Amounts in excess of 409A Exempt
Amount subject to six (6) month
delay
● Remainder of Severance Pay paid bi-
weekly over Severance Period
subject to six (6) month delay
(c)
Equity Compensation Adjustments .
(i)
Except as provided otherwise in the Covered Executive's ESP Agreement, in the event of a Change of
Control, if the successor to the Company does not assume the SIP or the applicable Equity Plan or grant
comparable awards in substitution of the outstanding awards under the SIP or applicable Equity Plan as of
the date of the Change of Control, then any equity-based compensation awards granted to the Covered
Executive by the Employer under the SIP or Equity Plan and outstanding as of the date of the Change of
Control will become immediately fully vested and/or exercisable and will no longer be subject to a
substantial risk of forfeiture or restrictions on transferability, other than those imposed by applicable
legislative or regulatory requirements. With respect to performance cash awards, however, in the event the
successor to the Company does not assume the awards, the awards will become payable at earned levels
for completed plan years and at target performance levels for the year in which the Change of Control
occurs and future plan years, as applicable, payable in accordance with the terms of such awards, and if
not addressed in an award agreement, then payable on the date of the Change of Control.
(ii)
Except as provided otherwise in the Covered Executive's ESP Agreement, if the successor to the
Company assumes the SIP or the applicable Equity
Tenet Executive Severance Plan
22
Plan or substitutes the awards under the SIP or applicable Equity Plan with comparable awards; then any
equity-based compensation awards granted to the Covered Executive by the Employer under the SIP or
Equity Plan before such termination and outstanding as of the date of the Change of Control or any
substituted awards given with respect to such outstanding awards will continue to be maintained pursuant
to their terms; provided, however, that upon a Covered Executive's Qualifying Termination during the
Protection Period in connection with such Change of Control, any such equity compensation awards
outstanding as of the date of the Qualifying Termination will become immediately vested and/or
exercisable, in accordance with the terms of such awards, except as set forth below in this paragraph, on
the date of the Qualifying Termination or, if the Qualifying Termination occurs during the portion of the
Protection Period that precedes the Change of Control, then on the date of the Change of Control, and will
no longer be subject to a substantial risk of forfeiture or restrictions on transferability, other than those
imposed by applicable legislative or regulatory requirements. With respect to performance cash awards,
however, upon a Qualifying Termination during the Protection Period in connection with such Change of
Control, a Covered Executive will be paid earned amounts for completed plan years and target amounts for
the year in which the Qualifying Termination occurs and future plan years, as applicable, payable on the
scheduled payment date. Furthermore, with respect to performance-based restricted stock units and
performance options, upon a Qualifying Termination during the Protection Period in connection with such
Change of Control, accelerated vesting is only provided to the extent that the applicable performance
criteria are achieved (with pro rata vesting based on service during the performance period if the
termination occurs during the performance period). No Covered Executive will be entitled to any new
equity-based compensation awards following the date of his Qualifying Termination or during the
Severance Period.
(d)
Parachute Limitation .
(i)
If at any time or from time to time, it shall be determined by an independent nationally known financial
accounting or law firm experienced in such matters selected by the Company (" Tax Professional ") that
any payment or other benefit to the Covered Executive pursuant to the ESP or otherwise (" Potential
Parachute Payment ") is or will, but for the provisions of this Section 3.2(d), become subject to the excise
tax imposed by section 4999 of the Code or any similar tax payable under any state, local, foreign or other
law, but expressly excluding any income taxes and penalties or interest imposed pursuant to section 409A
of the Code (" Excise Taxes "), then the Covered Executive’s Potential Parachute Payment will be either
(A) provided to the Covered Executive in full, or (B) provided to the Covered Executive as to such lesser
extent which would result in no portion of such benefits being subject to the Excise Taxes, whichever of the
foregoing amounts, when taking into account applicable federal, state, local and foreign income and
employment taxes, the Excise Tax, and any other applicable taxes, results in the receipt by the Covered
Executive, on an after-tax basis, of the greatest
Tenet Executive Severance Plan
23
(ii)
(iii)
(iv)
amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the
Excise Taxes (" Payments ").
In the event of a reduction of benefits pursuant to Section 3.2(d)(i), the Tax Professional will determine
which benefits will be reduced so as to achieve the principle set forth in Section 3.2(d)(i). For purposes of
making the calculations required by Section 3.2(d)(i), the Tax Professional may make reasonable
assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of the Code and other applicable legal authority. The Company
and the Covered Executive will furnish to the Tax Professional such information and documents as the Tax
Professional may reasonably request in order to make a determination under Section 3.2(d)(i). The
Company will bear all costs the Tax Professional may reasonably incur in connection with any calculations
contemplated by Section 3.2(d)(i).
If, notwithstanding any calculations performed or reduction in benefits imposed as described in Section
3.2(d)(i), the IRS determines that the Covered Executive is liable for Excise Taxes as a result of the receipt
of any payments made pursuant to this ESP or otherwise, then the Covered Executive will be obligated to
pay back to the Company, within thirty (30) days after a final IRS determination or in the event that the
Covered Executive challenges the final IRS determination, a final judicial determination, a portion of the
Payments equal to the "Repayment Amount." The Repayment Amount will be the smallest such amount, if
any, as will be required to be paid to the Company so that the Covered Executive’s net after-tax proceeds
with respect to the Payments (after taking into account the payment of the Excise Taxes and all other
applicable taxes imposed on such benefits) are maximized. The Repayment Amount will be zero if a
Repayment Amount of more than zero would not result in the Covered Executive’s net after-tax proceeds
with respect to the Payments being maximized. If the Excise Taxes are not eliminated pursuant to this
Section 3.2(d)(iii), the Covered Executive will pay the Excise Taxes.
Notwithstanding any other provision of this Section 3.2(d), if (A) there is a reduction in the payments to a
Covered Executive as described above in this Section 3.2(d), (B) the IRS later determines that the
Covered Executive is liable for Excise Taxes, the payment of which would result in the maximization of the
Covered Executive’s net after-tax proceeds (calculated based on the full amount of the Potential Parachute
Payment and as if the Covered Executive’s benefits had not previously been reduced), and (C) the
Covered Executive pays the Excise Tax, then the Company will pay to the Covered Executive those
payments which were reduced pursuant to Section 3.2(d)(i) or 3.2(d)(iii) as soon as administratively
possible after the Covered Executive pays the Excise Taxes to the extent that the Covered Executive’s net
after-tax proceeds with respect to the payment of the Payments are maximized.
Tenet Executive Severance Plan
24
(e)
Non-Compete . At the discretion of the Employer, a Covered Executive will be entitled to enter into a non-
compete agreement whereby the Covered Executive will be precluded from competing with the Employer
following a Qualifying Termination that occurs during the Severance Period or such other period as may be set
forth in a written agreement in consideration for a cash payment in an amount as determined at the discretion of
the Employer. Such non-compete will be evidenced by a written agreement signed by the Employer and the
Covered Executive. In the event that a Covered Executive enters into a non-compete agreement as described in
this Section 3.2(e) and any provisions therein conflict with any of the provisions as set forth in this ESP, the
provisions of the non-compete agreement will control.
3.3 Termination Distributions to Key Employees. A portion of the distributions under the ESP that are payable to a
Covered Executive who is a Key Employee on account of a Qualifying Termination will be delayed for a period of six (6) months
following such Covered Executive's Qualifying Termination to the extent such distributions under the ESP exceed the 409A
Exempt Amount. Upon the expiration of such six (6) month period, amounts that would have been paid to the Covered Executive
during such six (6) month period, will be paid to him on the first business day following the close of such period in the form of a
lump sum payment and the remaining amounts payable to the Covered Executive under the ESP will be paid with respect to the
remainder of the Severance Period pursuant to the terms of this Article III ( e.g.
, Severance Pay will be paid on a bi-weekly
basis for the remainder of the Severance Period in the case of (i) Severance Pay that is not payable on account of a Change in
Control, (ii) Severance Pay that is payable on account of a Qualifying Termination during the portion of the Protection Period that
precedes a Change in Control described in Section 2(g), and (iii) Severance Pay that is payable on account of a Qualifying
Termination during the portion of the Protection Period that occurs on and after a Change of Control described in Section 2.1(h)
(iv)). This six (6) month restriction will not apply, or will cease to apply, with respect to distributions by reason of the death of the
Covered Executive pursuant to Section 3.4.
3.4
Distributions on Account of Death of the Covered Executive During the Severance Period. Except as provided
otherwise in the Covered Executive's ESP Agreement, if a Covered Executive dies during the Severance Period the
following benefits will be payable:
(a)
(b)
(c)
(d)
Severance Pay . Any remaining Severance Pay payable to the Covered Executive as of the date of his death will
continue to be paid to the Covered Executive's estate pursuant to Section 3.1(a) or 3.2(a), as applicable.
Other Accrued Obligations . Any unpaid Base Salary, time off and any other accrued and unpaid obligations that
remain outstanding as of the date of the Covered Executive's death will be paid to the Covered Executive's estate
pursuant to Section 3.1(b).
Bonus . Any unpaid Bonus described under Section 3.1(c) that remains outstanding as of the date of the Covered
Executive's death will be paid to the Covered Executive’s estate pursuant to Section 3.1(c).
Continued Welfare Benefits . The Covered Executive's dependents will be entitled to continue to participate in
any medical, dental, vision, life and long-term care benefit programs maintained by the Employer in which such
persons were
Tenet Executive Severance Plan
25
participating immediately before the date of the Covered Executive's death for the remainder of the Severance
Period, subject to the provisions of Section 3.1(d). At the end of the Severance Period such dependents will be
eligible to elect to continue their medical, dental or vision coverage pursuant to COBRA.
Outplacement Services . Any outplacement service benefits payable to the Covered Executive pursuant to
Section 3.1(e) will cease as of the date of the Covered Executive's death; provided, that any eligible outplacement
expenses incurred before the Covered Executive's death will be reimbursable to the Covered Executive's estate
pursuant to Section 3.1(e).
Payment of Legal Expenses . The obligation to reimburse the Covered Executive for any legal fees will continue
pursuant to the terms of the ESP following his death, except that such legal fees or excise tax reimbursement will
be payable to the Covered Executive's estate.
Equity Compensation Adjustments . Any outstanding equity-based compensation awards granted to the
Covered Executive that are outstanding as of the date of the Covered Executive’s death will be exercisable or
settled pursuant to the terms of the SIP or the Equity Plan, as applicable.
(e)
(f)
(g)
3.5 Section 409A Gross-Up Payment. In the event that a Covered Executive (or his estate) pays the excise taxes and any
other interest and penalty payments (as applicable) pursuant to section 409A of the Code (" 409A Excise Tax ") with respect to
the benefits payable under the ESP, the Covered Executive (or his estate) will be entitled to a reimbursement equal to the
amount of any 409A Excise Tax paid by the Covered Executive (or his estate) pursuant to section 409A of the Code. The
Company will provide a reimbursement to the Covered Executive with respect to any payment of the 409A Excise Tax (or portion
thereof) no later than the close of the Covered Executive's taxable year that immediately follows the taxable year in which such
payment is made. If the Covered Executive is a Key Employee, payment of the amounts described in this Section 3.5 will be
subject to a six (6) month delay (when applicable) for distributions in excess of the 409A Exempt Amount as provided in Section
3.3.
3.6 Alternate Plan Terms. Subject to the requirements of section 409A of the Code, the Senior Vice President, Human
Resources and/or Plan Administrator (or before the Effective Date the Human Resources Committee) reserve the right to modify
the terms of this ESP with respect to any Covered Executive ( e.g.
, to provide different benefits than those set forth herein).
Such modified terms will be set forth in the Covered Executive's ESP Agreement or in such other form as may be determined by
the Senior Vice President, Human Resources and/or Plan Administrator (or before the Effective Date the Human Resources
Committee), each in its sole and absolute discretion.
3.7 Conditions to Payment of Severance Benefits. As a condition of obtaining benefits under the ESP, the Covered
Executive will be required to execute a Severance Agreement and General Release. Such Severance Agreement and General
Release will contain the restrictive covenants set forth below regarding non-competition, confidentiality, non-disparagement and
non-solicitation as well as a general release of claims against the Company and its Affiliates.
(a)
Non-Competition . Payment of any and all severance benefits provided under the ESP will cease if, at any time
during the Severance Period described in Section
Tenet Executive Severance Plan
26
3.1(a), the Covered Executive directly or indirectly, carries on or conducts, in competition with the Company and
its Affiliates, any business of the nature in which the Company or its Affiliates are then engaged in any
geographical area in which the Company or its Affiliates engage in business at the time of the Covered
Executive's Qualifying Termination or in which any of them, before such Qualifying Termination, evidenced in
writing, at any time during the six (6) month period before such termination, an intention to engage in such
business. This prohibition extends to the Covered Executive's conducting or engaging in any such business either
as an individual on his own account or as a partner or joint venturer or as an executive, agent, consultant or
salesman for any other person or entity, or as an officer or director of a corporation or as a shareholder in a
corporation of which he will then own ten percent (10%) or more of any class of stock. The provisions of this
Section 3.7(a) will not apply with respect to severance benefits payable pursuant to Section 3.2(a).
(b)
Confidential Information . Payment of any and all severance benefits will cease if, at any time during the
Severance Period described in either Section 3.1(a) of 3.2(a), the Covered Executive directly or indirectly reveals,
divulges or makes known to any person or entity, or uses for the Covered Executive's personal benefit (including
without limitation for the purpose of soliciting business, whether or not competitive with any business of the
Company or any of its Affiliates), any information acquired during the Covered Executive's employment with the
Company or its Affiliates with regard to the financial, business or other affairs of the Company or any of its
Affiliates (including without limitation any list or record of persons or entities with which the Company or any of its
Affiliates has any dealings), other than:
(i)
(ii)
information already in the public domain,
information of a type not considered confidential by persons engaged in the same business or a business
similar to that conducted by the Company or its Affiliates, or
(iii)
information that the Covered Executive is required to disclose under the following circumstances:
(A)
(B)
(C)
(D)
at the express direction of any authorized governmental entity;
pursuant to a subpoena or other court process;
as otherwise required by law or the rules, regulations, or orders of any applicable regulatory body;
or
as otherwise necessary, in the opinion of counsel for the Covered Executive, to be disclosed by the
Covered Executive in connection with any legal action or proceeding involving the Covered
Executive and the Company or any Affiliate in his capacity as an employee, officer, director, or
stockholder of the Company or any Affiliate.
The Covered Executive will, at any time requested by the Company (either during his employment with the
Company and its Affiliates or during the Severance Period), promptly deliver to the Company all memoranda,
notes, reports, lists and other documents (and all copies thereof) relating to the business of the Company or any
of its Affiliates which he may then possess or have under his control.
Tenet Executive Severance Plan
27
(c)
(d)
(e)
Agreement Not To Solicit Employees . Payment of any and all severance benefits will cease if, at any time
during the Severance Period the Covered Executive directly or indirectly solicits or induces, or in any manner
attempts to solicit or induce, any person employed by, or any agent of, the Company or any of its Affiliates to
terminate such employee's employment or agency, as the case may be, with the Company or any Affiliate.
Nondisparagement . Payment of any and all severance benefits will cease if, at any time during the Severance
Period the Covered Executive disparages the Company or its Affiliates and their respective boards of directors or
other governing body, executives, employees and products or services. The Company will not disparage the
Covered Executive during the Covered Executive's period of employment with the Company and its Affiliates or
thereafter. For purposes of this Section 3.7(d), disparagement does not include:
(i)
(ii)
(iii)
compliance with legal process or subpoenas to the extent only truthful statements are rendered in such
compliance attempt,
statements in response to an inquiry from a court or regulatory body, or
statements or comments in rebuttal of media stories or alleged media stories.
409A Compliance . If any payment made under the ESP (i) is subject to the execution of an effective release of
claims, (ii) "provides for the deferral of compensation" within the meaning of section 409A of the Code and is not
otherwise exempt from the application of section 409A of the Code, and (iii) could be made in either one of two
consecutive taxable years on account of the requirement of the execution of an effective release of claims, then
such payment will be made in the later taxable year.
The violation of this Section 3.7 by Covered Executive will entitle the Company to complete relief from such violation
including, but not limited to, injunctive relief and damages as determined by an arbitrator, the cessation of severance
benefits and a return of all severance benefits paid to the Covered Executive pursuant to the terms of the ESP. Such
relief will apply regardless of whether such violation is discovered after the expiration of the Severance Period. The
violation of Section 3.7(d) by the Company will entitle the Covered Executive to complete relief from such violation
including, but not limited to, injunctive relief and damages as determined by an arbitrator.
3.8 Impact of Reemployment on Benefits
If a Participant incurs a Qualifying Termination and begins receiving Severance Pay from the ESP and such Participant is
reemployed by the Employer or an Affiliate, then such Participant's Severance Pay will continue as scheduled during the
period of his reemployment.
End of Article III
Tenet Executive Severance Plan
28
ARTICLE IV
ADMINISTRATION
4.1 The RPAC. The overall administration of the ESP will be the responsibility of the RPAC.
4.2 Powers of RPAC. The RPAC will have sole and absolute discretion regarding the exercise of its powers and duties under
the ESP. In order to effectuate the purposes of the ESP, the RPAC will have the following powers and duties:
(a)
(b)
(c)
(d)
To appoint the Plan Administrator;
To review and render decisions respecting a denial of a claim for benefits under the ESP;
To construe the ESP and to make equitable adjustments for any mistakes or errors made in the administration of
the ESP; and
To determine and resolve, in its sole and absolute discretion, all questions relating to the administration of the
ESP and any trust established to secure the assets of the ESP:
(i)
(ii)
when differences of opinion arise between the Company, an Affiliate, the Plan Administrator, the trustee, a
Covered Executive, or any of them, and
whenever it is deemed advisable to determine such questions in order to promote the uniform and
nondiscriminatory administration of the ESP for the greatest benefit of all parties concerned.
The foregoing list of express powers is not intended to be either complete or conclusive, and the RPAC will, in addition,
have such powers as it may reasonably determine to be necessary or appropriate in the performance of its powers and
duties under the ESP.
4.3 Appointment of Plan Administrator. The RPAC will appoint the Plan Administrator, who will have the responsibility and
duty to administer the ESP on a daily basis. The RPAC may remove the Plan Administrator with or without cause at any time.
The Plan Administrator may resign upon written notice to the RPAC.
4.4 Duties of Plan Administrator. The Plan Administrator will have sole and absolute discretion regarding the exercise of its
powers and duties under the ESP. The Plan Administrator will have the following powers and duties:
(a)
(b)
(c)
To enter into, on behalf of the Employer, an ESP Agreement with an Employee who is deemed a Covered
Executive pursuant to Section 2.1(l);
To direct the administration of the ESP in accordance with the provisions herein set forth;
To adopt rules of procedure and regulations necessary for the administration of the ESP, provided such rules are
not in consistent with the terms of the ESP;
Tenet Executive Severance Plan
29
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
To determine all questions with regard to rights of Covered Executives and beneficiaries under the ESP including,
but not limited to, questions involving eligibility of an Employee to participate in the ESP and the level of a
Covered Executive's benefits;
to make all final determinations and computations concerning the benefits to which the Covered Executive or his
estate is entitled under the ESP;
To enforce the terms of the ESP and any rules and regulations adopted by the RPAC;
To review and render decisions respecting a claim for a benefit under the ESP;
To furnish the Employer with information that the Employer may require for tax or other purposes;
To engage the service of counsel (who may, if appropriate, be counsel for the Employer), actuaries, and agents
whom it may deem advisable to assist it with the performance of its duties;
To prescribe procedures to be followed by Covered Executives in obtaining benefits;
To receive from the Employer and from Covered Executives such information as is necessary for the proper
administration of the ESP;
(l)
To create and maintain such records and forms as are required for the efficient administration of the ESP;
(m)
(n)
(o)
(p)
(q)
To make all initial determinations and computations concerning the benefits to which any Covered Executive is
entitled under the ESP;
To give the trustee of any trust established to serve as a source of funds under the ESP specific directions in
writing with respect to:
(i)
(ii)
making distribution payments, giving the names of the payees, specifying the amounts to be paid and the
time or times when payments will be made; and
making any other payments which the trustee is not by the terms of the trust agreement authorized to
make without a direction in writing by the Plan Administrator;
To comply with all applicable lawful reporting and disclosure requirements of ERISA;
To comply (or transfer responsibility for compliance to the trustee) with all applicable federal income tax
withholding requirements for benefit distributions; and
To construe the ESP, in its sole and absolute discretion, and make equitable adjustments for any errors made in
the administration of the ESP.
The foregoing list of express duties is not intended to be either complete or conclusive, and the Plan Administrator will, in
addition, exercise such other powers and perform such other
Tenet Executive Severance Plan
30
duties as it may deem necessary, desirable, advisable or proper for the supervision and administration of the ESP.
4.5 Indemnification of RPAC and Plan Administrator. To the extent not covered by insurance, or if there is a failure to
provide full insurance coverage for any reason, and to the extent permissible under corporate by-laws and other applicable laws
and regulations, the Employer agrees to hold harmless and indemnify the RPAC and Plan Administrator against any and all
claims and causes of action by or on behalf of any and all parties whomsoever, and all losses therefrom, including, without
limitation, costs of defense and reasonable attorneys' fees, based upon or arising out of any act or omission relating to or in
connection with the ESP other than losses resulting from the RPAC's, or any such person's commission of fraud or willful
misconduct.
4.6 Claims for Benefits.
(a)
(b)
Initial Claim . In the event that a Covered Executive or his estate claims (a " claimant ") to be eligible for benefits,
or claims any rights under the ESP or seeks to challenge the validity or terms of the Severance Agreement and
General Release described in Section 3.5, such claimant must complete and submit such claim forms and
supporting documentation as will be required by the Plan Administrator, in its sole and absolute discretion.
Likewise, any claimant who feels unfairly treated as a result of the administration of the ESP must file a written
claim, setting forth the basis of the claim, with the Plan Administrator. In connection with the determination of a
claim, or in connection with review of a denied claim, the claimant may examine the ESP, and any other pertinent
documents generally available to Covered Executives that are specifically related to the claim.
A written notice of the disposition of any such claim will be furnished to the claimant within ninety (90) days after
the claim is filed with the Plan Administrator. Such notice will refer, if appropriate, to pertinent provisions of the
ESP, will set forth in writing the reasons for denial of the claim if a claim is denied (including references to any
pertinent provisions of the ESP) and, where appropriate, will describe any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such material or information is
necessary. If the claim is denied, in whole or in part, the claimant will also be notified of the ESP's claim review
procedure and the time limits applicable to such procedure, including the claimant's right to arbitration following an
adverse benefit determination on review as provided below. All benefits provided in the ESP as a result of the
disposition of a claim will be paid as soon as practicable following receipt of proof of entitlement, if requested.
Request for Review . Within ninety (90) days after receiving written notice of the Plan Administrator's disposition
of the claim, the claimant may file with the RPAC a written request for review of his claim. In connection with the
request for review, the claimant will be entitled to be represented by counsel and will be given, upon request and
free of charge, reasonable access to all pertinent documents for the preparation of his claim. If the claimant does
not file a written request for review within ninety (90) days after receiving written notice of the Plan Administrator's
disposition of the claim, the claimant will be deemed to have accepted the Plan Administrator's written disposition,
unless the claimant was physically or mentally incapacitated so as to be unable to request review within the ninety
(90) day period.
Tenet Executive Severance Plan
31
(c)
Decision on Review . After receipt by the RPAC of a written application for review of his claim, the RPAC will
review the claim taking into account all comments, documents, records and other information submitted by the
claimant regarding the claim without regard to whether such information was considered in the initial benefit
determination. The RPAC will notify the claimant of its decision by delivery or by certified or registered mail to his
last known address.
A decision on review of the claim will be made by the RPAC at its next meeting following receipt of the written
request for review. If no meeting of the RPAC is scheduled within forty-five (45) days of receipt of the written
request for review, then the RPAC will hold a special meeting to review such written request for review within such
forty-five (45) day period. If special circumstances require an extension of the forty-five (45) day period, the RPAC
will so notify the claimant and a decision will be rendered within ninety (90) days of receipt of the request for
review. In any event, if a claim is not determined by the RPAC within ninety (90) days of receipt of written
submission for review, it will be deemed to be denied.
The decision of the RPAC will be provided to the claimant as soon as possible but no later than five (5) days after
the benefit determination is made. The decision will be in writing and will include the specific reasons for the
decision presented in a manner calculated to be understood by the claimant and will contain references to all
relevant ESP provisions on which the decision was based. Such decision will also advise the claimant that he may
receive upon request, and free of charge, reasonable access to and copies of all documents, records and other
information relevant to his claim and will inform the claimant of his right to arbitration in the case of an adverse
decision regarding his appeal. The decision of the RPAC will be final and conclusive.
4.7 Arbitration. In the event the claims review procedure described in Section 4.6 of the ESP does not result in an outcome
thought by the claimant to be in accordance with the ESP document, he may appeal to a third party neutral arbitrator. The
claimant must appeal to an arbitrator within sixty (60) days after receiving the RPAC's denial or deemed denial of his request for
review and before bringing suit in court. The arbitration will be conducted pursuant to the American Arbitration Association ("
AAA ") Rules on Employee Benefit Claims.
The arbitrator will be mutually selected by the claimant and the RPAC from a list of arbitrators who are experienced in
nonqualified deferred compensation plan benefit matters that is provided by the AAA. If the parties are unable to agree on
the selection of an arbitrator within ten (10) days of receiving the list from the AAA, the AAA will appoint an arbitrator. The
arbitrator's review will be limited to interpretation of the ESP document in the context of the particular facts involved. The
claimant, the RPAC and the Employer agree to accept the award of the arbitrator as binding, and all exercises of power
by the arbitrator hereunder will be final, conclusive and binding on all interested parties, unless found by a court of
competent jurisdiction, in a final judgment that is no longer subject to review or appeal, to be arbitrary and capricious. The
claimant, RPAC and the Employer agree that the venue for the arbitration will be in Dallas, Texas. The costs of arbitration
will be paid by the Employer; the costs of legal representation for the claimant or witness costs for the claimant will be
borne by the claimant; provided, that, as part of his award, the arbitrator may require the Employer to reimburse the
claimant for all or a portion of such amounts.
Tenet Executive Severance Plan
32
The following discovery may be conducted by the parties: interrogatories, demands to produce documents, requests for
admissions and oral depositions. The arbitrator will resolve any discovery disputes by such pre hearing conferences as
may be needed. The Employer, RPAC and claimant agree that the arbitrator will have the power of subpoena process as
provided by law. Disagreements concerning the scope of depositions or document production, its reasonableness and
enforcement of discovery requests will be subject to agreement by the Employer and the claimant or will be resolved by
the arbitrator. All discovery requests will be subject to the proprietary rights and rights of privilege and other protections
granted by applicable law to the Employer and the claimant and the arbitrator will adopt procedures to protect such rights.
With respect to any dispute, the Employer, RPAC and the claimant agree that all discovery activities will be expressly
limited to matters directly relevant to the dispute and the arbitrator will be required to fully enforce this requirement.
The arbitrator will have no power to add to, subtract from, or modify any of the terms of the ESP, or to change or add to
any benefits provided by the ESP, or to waive or fail to apply any requirements of eligibility for a benefit under the ESP.
Nonetheless, the arbitrator will have absolute discretion in the exercise of its powers in the ESP. Arbitration decisions will
not establish binding precedent with respect to the administration or operation of the ESP.
4.8 Receipt and Release of Necessary Information. In implementing the terms of the ESP, the RPAC and Plan
Administrator, as applicable, may, without the consent of or notice to any person, release to or obtain from any other insuring
entity or other organization or person any information, with respect to any person, which the RPAC or Plan Administrator deems
to be necessary for such purposes. Any Covered Executive or estate claiming benefits under the ESP will furnish to the RPAC or
Plan Administrator, as applicable, such information as may be necessary to determine eligibility for and amount of benefit, as a
condition of claiming and receiving such benefit.
4.9 Overpayment and Underpayment of Benefits. The Plan Administrator may adopt, in its sole and absolute discretion,
whatever rules, procedures and accounting practices are appropriate in providing for the collection of any overpayment of
benefits. If a Covered Executive or his estate receives an underpayment of benefits, the Plan Administrator will direct that
payment be made as soon as practicable to make up for the underpayment. If an overpayment is made to a Covered Executive
or his estate, for whatever reason, the Plan Administrator may, in its sole and absolute discretion, withhold payment of any
further benefits under the ESP until the overpayment has been collected or may require repayment of benefits paid under the
ESP without regard to further benefits to which the Covered Executive or his estate may be entitled.
End of Article IV
Tenet Executive Severance Plan
33
ARTICLE V
OTHER BENEFIT PLANS OF THE COMPANY
5.1 Other Plans. Nothing contained in the ESP will prevent a Covered Executive before his death, or a Covered Executive's
spouse or other beneficiary after such Covered Executive's death, from receiving, in addition to any payments provided for under
the ESP, any payments provided for under any other plan or benefit program of the Employer, or which would otherwise be
payable or distributable to him, his surviving spouse or beneficiary under any plan or policy of the Employer or otherwise.
Nothing in the ESP will be construed as preventing the Company or any of its Affiliates from establishing any other or different
plans providing for current or deferred compensation for employees and/or members of the Board.
5.2 Controlling Document. In the event that the provisions of any other plan or benefit program of the Employer conflict with
any of the provisions contained in the ESP, the provisions of the ESP will control; provided, however, that in the event that a
Covered Executive enters into a non-compete agreement as described in Section 3.2(e) and any provisions therein conflict with
any of the provisions as set forth in this ESP, the provisions of the non-compete agreement will control.
End of Article V
Tenet Executive Severance Plan
34
ARTICLE VI
AMENDMENT AND TERMINATION OF THE ESP
6.1 Continuation. The Company intends to continue the ESP indefinitely, but nevertheless assumes no contractual obligation
beyond the promise to pay the benefits described in the ESP.
6.2 Amendment of ESP. The Company, through an action of the Human Resources Committee may amend the ESP in its
sole and absolute discretion, in any respect and at any time; provided, that no amendment may be made that reduces or
diminishes the rights of any Covered Executive to the benefits described herein unless the affected Covered Executive receives
at least one (1) year's advance notice of such amendment. Further, such advance notice to the Covered Executive will not be
effective to enable the amendment of the ESP in either of the following two scenarios (a) if a Potential Change of Control occurs
during the one (1) year notice period, or (b) within twenty four (24) months following a Change of Control.
6.3 Termination of ESP. The Company, through an action of the Human Resources Committee, may terminate or suspend
the ESP in whole or in part at any time subject to the rules regarding the amendment of the ESP in Section 6.2 ( i.e.
, that one
(1) year's advance notice is required and no such notice will be effective to enable the termination of the ESP if a Potential
Change of Control occurs during the one (1) year notice period or within twenty four (24) months following a Change of Control).
Notwithstanding any provision of the ESP to the contrary, upon the complete termination of the ESP pursuant to the provisions of
this Section 6.3, the Human Resources Committee, in its sole and absolute discretion, may direct that the Plan Administrator
treat each Eligible Executive as having incurred a Qualifying Termination and to commence the distribution of the benefits
described in Article III to each such Eligible Executive or his estate, as applicable, to the extent that the commencement of such
distribution comports with the requirements of section 409A of the Code.
6.4 Termination of Affiliate's Participation. Subject to the period relating to a Change of Control or Potential Change of
Control described in Section 6.2, the Company may terminate an Affiliate's participation in the ESP at any time by an action of
the Human Resources Committee and providing written notice to the Affiliate. The effective date of any such termination will be
the later of the date specified in the notice of the termination of participation or the date on which the Plan Administrator can
administratively implement such termination. If an Affiliate is disposed of by the Company pursuant to a stock or asset sale and a
Covered Executive employed by such Affiliate is offered a comparable position with the purchaser of such stock or assets and
refuses such position, the Covered Executive will not have incurred a Qualifying Termination for purposes of the ESP. Similarly,
if an Affiliate is disposed of by the Company pursuant to a stock or asset sale and a Covered Executive employed by such
Affiliate is offered a comparable position with the purchaser of such stock or assets and accepts such position, the Covered
Executive will not have incurred a Qualifying Termination for purposes of the ESP.
End of Article VI
Tenet Executive Severance Plan
35
ARTICLE VII
MISCELLANEOUS
7.1 No Reduction of Employer Rights. Nothing contained in the ESP will be construed as a contract of employment between
the Employer and a Covered Executive, or as a right of any Covered Executive to continue in the employment of the Employer,
or as a limitation of the right of the Employer to discharge any of its Covered Executives, with or without cause.
7.2 Successor to the Company. The Company will require any successor or assign (whether direct or indirect, by purchase,
exchange, lease, merger, consolidation, or otherwise) to all or substantially all of the property and assets of the Company and its
Affiliates taken as a whole, to expressly assume the ESP and to agree to perform under this ESP in the same manner and to the
same extent that the Company and its Affiliates would be required to perform it if no such succession had taken place. This
Section 7.2 will not require any successor or assign of an Affiliate (whether direct or indirect, by purchase, exchange, lease,
merger, consolidation or otherwise) to all or substantially all of the property and assets of such Affiliate to continue the ESP.
7.3 Provisions Binding. All of the provisions of the ESP will be binding upon the Company and its Affiliates and any
successor to the Company or any such Affiliate. Likewise, the provisions of the ESP will be binding upon all persons who will be
entitled to any benefit hereunder, their heirs and personal representatives.
End of Article VII
Tenet Executive Severance Plan
36
IN WITNESS WHEREOF , this Tenet Fourth Amended and Restated Executive Severance Plan has been executed this 9 th day
of August , 2018 effective as of August 8, 2018, except as specifically provided otherwise herein.
TENET HEALTHCARE CORPORATION
By: /s/ Paul Slavin
Paul Slavin, Vice President, Total
Rewards and Workforce Analytics
Tenet Executive Severance Plan
APPENDIX A
ESP AGREEMENTS
Section 2.1(s) of the Tenet Executive Severance Plan (the " ESP ") provides that each Covered Executive will enter into an ESP
Agreement which sets forth the terms and conditions of his benefits under the ESP and a form copy of such agreement will be
attached to the ESP as Appendix A.
Tenet Executive Severance Plan
A-1
TENET EXECUTIVE SEVERANCE PLAN AGREEMENT*
the
THIS EXECUTIVE SEVERANCE PLAN AGREEMENT is made as of _________, 20__ by and between the Plan Administrator
of
of
______________________________________________________________
and
___________________________________________________________ (the " Covered Executive "). Capitalized terms used
in this Agreement that are not defined herein will have the meaning set forth in the ESP.
on
Employer
behalf
"),
Severance
Executive
Tenet
ESP
Plan
(the
(the
"
"
")
1.
2.
3.
4.
5.
Severance Pay with respect to the Covered Executive means _______________. [Note
to
Drafter:
either
state
it
means
the
same
thing
as
in
the
ESP
or
spell
out
definition
that
will
apply.]
The Severance Period for the Covered Executive will be __________ with respect to a Qualifying Termination that occurs
outside the Protection Period and ___________ with respect to a Qualifying Termination that occurs during the Protection
Period. [Note
to
Drafter
if
periods
selected
vary
from
existing
tables
check
to
make
sure
new
periods
comply
with
section
409A.]
As a condition of obtaining benefits under the ESP the Covered Executive agrees to comply with the restrictive covenants
set forth in Section 3.7 of the ESP.
Any dispute or claim for benefits under the ESP must be resolved through the claims procedure set forth in Article IV of
the ESP which procedure culminates in binding arbitration. By accepting the benefits provided under the ESP, the
Covered Executive hereby agrees to binding arbitration as the final means of dispute resolution with respect to the ESP.
The ESP is hereby incorporated into and made a part of this Agreement as though set forth in full herein. The parties will
be bound by and have the benefit of each and every provision of the ESP, as amended from time to time.
IN WITNESS WHEREOF , the parties hereto have entered into this Agreement on ____________________, 20___.
COVERED EXECUTIVE
EMPLOYER
Title:
Paul Slavin, Plan Administrator
By:
*Used for Participants who entered the ESP before the execution date of the Tenet Fourth Amended and Restated Executive
Severance Plan and whose participation has continued uninterrupted (i.e., are grandfathered)
Tenet Executive Severance Plan
A-2
TENET EXECUTIVE SEVERANCE PLAN AGREEMENT*
THIS EXECUTIVE SEVERANCE PLAN AGREEMENT is made as of DATE by and between the Plan Administrator of the Tenet
Executive Severance Plan (the " ESP ") on behalf of Tenet Business Services Corporation/Tenet Employment, Inc. (the "
Employer "), and NAME (the " Covered Executive "). Capitalized terms used in this Agreement that are not defined herein will
have the meaning set forth in the ESP.
1.
2.
3.
4.
5.
Severance Pay with respect to the Covered Executive base salary and average bonus as defined in Section 2.1(kk)(ii) of
the ESP.
The Severance Period for the Covered Executive will be one (1) year with respect to a Qualifying Termination that occurs
outside the Protection Period and one and one-half (1.5) years with respect to a Qualifying Termination that occurs during
the Protection Period. [ Note
to
Drafter:
alternatively
may
insert
periods
in
Section
2.1(ll)(i)(A)
and
Section
2.1(ll)(B)
of
the
ESP
based
on
the
position
of
the
Covered
Executive
as
determined
by
the
Plan
Administrator
or
Senior
Vice
President,
Human
Resources
.]
As a condition of obtaining benefits under the ESP the Covered Executive agrees to comply with the restrictive covenants
set forth in Section 3.7 of the ESP.
Any dispute or claim for benefits under the ESP must be resolved through the claims procedure set forth in Article IV of
the ESP which procedure culminates in binding arbitration. By accepting the benefits provided under the ESP, the
Covered Executive hereby agrees to binding arbitration as the final means of dispute resolution with respect to the ESP.
The ESP is hereby incorporated into and made a part of this Agreement as though set forth in full herein. The parties will
be bound by and have the benefit of each and every provision of the ESP, as amended from time to time.
IN WITNESS WHEREOF , the parties hereto have entered into this Agreement on ____________________, 2018.
COVERED EXECUTIVE
EMPLOYER
COVERED EMPLOYEE NAME
Paul Slavin, Plan Administrator
*Used for Participants who enter ESP on and after the execution date of the Tenet Fourth Amended and Restated Executive
Severance Plan
By:
Tenet Executive Severance Plan
A-3
Exhibit 10(cc)
TENET HEALTHCARE CORPORATION
TENTH AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
As Amended and Restated Effective as of April 1, 2018
TENET HEALTHCARE CORPORATION
TENTH AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
ARTICLE I PREAMBLE AND PURPOSE
1.1 Preamble
1.2 Purpose
ARTICLE II DEFINITIONS
2.1 Actuarial Equivalent or Actuarial Equivalence
2.2 Acquisition
2.3 Affiliate
2.4 Agreement
2.5 Alternate Payee
2.6 AMI SERP
2.7 Board
2.8 Bonus
2.9 Cause
2.10 Change of Control
2.11 Code
2.12 Company
2.13 Date of Employment
2.14 Date of Enrollment
2.15 Deferred Vested Retirement Benefit
2.16 Disability
2.17 Disability Retirement Benefit
2.18 DRO
2.19 Early Retirement
2.20 Early Retirement Age
2.21 Early Retirement Benefit
2.22 Earnings
2.23 Effective Date
2.24 Eligible Children
2.25 Eligible Employee
2.26 Employee
2.27 Employer
2.28 Employment
2.29 ERA
2.30 ERISA
2.31 Executive Severance Plan
2.32 Final Average Earnings
(i)
Page
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6
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2.33 Five Percent Owner
2.34 Good Reason
2.35 Human Resources Committee
2.36 Initial Election Period
2.37 Key Employee
2.38 Normal Retirement
2.39 Normal Retirement Age
2.40 Normal Retirement Benefit
2.41 Normal Retirement Date
2.42 One Percent Owner
2.43 Participant
2.44 Plan Administrator
2.45 Plan Year
2.46 Prior Service Credit Percentage
2.47 Retirement Benefit
2.48 Retirement Plans
2.49 Retirement Benefit Plans Adjustment Factor
2.50 RPAC
2.51 SERP
2.52 Severance Plan
2.53 Surviving Spouse
2.54 Termination of Employment
2.55 Termination Without Cause
2.56 Trust
2.57 Trustee
2.58 Year
2.59 Year of Service
ARTICLE III ELIGIBILITY AND PARTICIPATION
3.1 Determination of Eligibility
3.2 Early Retirement Election
3.3 Loss of Eligibility Status
3.4 Initial ERA Participation
3.5 Subsequent ERA Participation
3.6 Initial AMI SERP Participation
ARTICLE IV RETIREMENT BENEFITS
4.1 Normal Retirement Benefit
4.2 Early Retirement Benefit
4.3 Vesting of Retirement Benefit
4.4 Deferred Vested Retirement Benefit
4.5 Deferral of Distributions
4.6 Duration of Benefit Payment
4.7 Recipients of Benefit Payments
4.8 Disability
(ii)
9
9
10
10
10
11
11
11
11
11
11
11
11
11
12
12
12
13
13
13
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14
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15
15
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15
15
15
16
17
17
18
19
19
21
21
21
22
4.9 Change of Control
4.10 Golden Parachute Limitation
4.11 Executive Severance Plan
4.12 Impact of Reemployment on Benefits
ARTICLE V PAYMENT
5.1 Commencement of Payments
5.2 Withholding; Unemployment Taxes
5.3 Recipients of Payments
5.4 No Other Benefits
5.5 No Lump Sum Form of Payment
ARTICLE VI PAYMENT LIMITATIONS
6.1 Spousal Claims
6.2 Legal Disability
6.3 Assignment.
ARTICLE VII ADMINISTRATION OF THE PLAN
7.1 The RPAC
7.2 Powers of the RPAC
7.3 Appointment of Plan Administrator
7.4 Duties of Plan Administrator
7.5 Indemnification of the RPAC and Plan Administrator
7.6 Claims for Benefits
7.7 Arbitration
7.8 Receipt and Release of Necessary Information.
7.9 Overpayment and Underpayment of Benefits
7.10 Change of Control
ARTICLE VIII AMENDMENT AND TERMINATION OF THE PLAN
8.1 Continuation
8.2 Amendment of SERP
8.3 Termination of SERP
8.4 Termination of Affiliate’s Participation
ARTICLE IX CONDITIONS RELATED TO BENEFITS
9.1 No Right to Assets
9.2 No Employment Rights
9.3 Indebtedness
9.4 Conditions Precedent
ARTICLE X MISCELLANEOUS
10.1 Gender and Number
10.2 Notice
10.3 Validity
10.4 Applicable Law
10.5 Successors in Interest
10.6 No Representation on Tax Matters
10.7 Provisions Binding
(iii)
23
24
24
25
26
26
26
26
26
26
27
27
27
27
29
29
29
29
29
30
31
37
38
38
38
40
40
40
40
41
42
42
42
42
43
44
44
44
44
44
44
44
44
EXHIBIT A1 TENET HEALTHCARE CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN AGREEMENT FOR PARTICIPANTS NAMED ON AND AFTER AUGUST 3, 2011- AMI
SERP BENEFITS
EXHIBIT A2 TENET HEALTHCARE CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT
PLAN AGREEMENT FOR PARTICIPANTS NAMED ON AND
AFTER AUGUST 3, 2011
EXHIBIT B UPDATE TO TENET HEALTHCARE CORPORATION SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN AGREEMENT WITH PARTICIPANT
A1-1
A2-1
B-1
(iv)
TENET HEALTHCARE CORPORATION
TENTH AMENDED AND RESTATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I
PREAMBLE AND PURPOSE
1.1 Preamble. Tenet Healthcare Corporation (the " Company ") adopted the Supplemental Executive Retirement Plan (the "
SERP ") effective November 1, 1984 to attract, retain, motivate and provide financial security to highly compensated or
management employees (the " Participants ") who render valuable services to the Company and its " Subsidiaries ," as
defined in Article II. The SERP was amended on various occasions and most recently amended and restated effective as of May
9, 2012, to make certain changes relating to a Change of Control and other termination event provisions
Effective November 6, 2013 the SERP was amended and restated to delegate authority to determine the employees
eligible to participate in the SERP and clarify that the modifications made to the Retirement Benefit Plans Adjustment
Factor apply in calculating a Participant’s benefit irrespective of a Change of Control.
Effective May 7, 2014, the Compensation Committee froze participation in the SERP, meaning no new employees may
become participants in the SERP on and after such date.
Effective August 28, 2014 the Retirement Plans Administrative Committee (“ RPAC ”) issued an administrative
clarification regarding the determination of Final Average Earnings under the SERP when a participant continues
employment past age sixty-five (65).
Effective March 2, 2015 the RPAC amended the SERP to delegate to the Senior Vice President, Human Resources and
the Plan Administrator the authority to determine if and when earnings paid by an Affiliate who has not adopted the SERP
as an Employer will be treated as Earnings for purposes of calculating Final Average Earnings under the SERP;
The RPAC amended and restated the SERP generally effective November 30, 2015, to (i) reflect that the SERP is closed
to new Participants effective May 7, 2014, (ii) document the RPAC’s prior administrative clarification that Final Average
Earnings continue to accrue in accordance with the terms of the SERP in the event a participant continues working past
age sixty-five (65), (iii) incorporate the March 2, 2015 amendment providing that the Senior Vice President, Human
Resources and Plan Administrator have the authority to determine if and when earnings paid by an Affiliate who has not
adopted the SERP as an Employer will be treated as Earnings for purposes of calculating Final Average Earnings under
the SERP, (iv) delegate to the Senior Vice President, Human Resources and the Plan Administrator the authority to
provide continued age and service credit for any Participant who transfers to an Affiliate who has not adopted the SERP
as an Employer without the need for adoption of the SERP by such Affiliate, and (v) reflect that the name of the
Compensation Committee has changed to the “ Human Resources Committee. ” This amended and restated SERP
was known as the Tenet Healthcare Corporation Ninth Amended and Restated Supplemental Executive Retirement Plan.
4
By this instrument the RPAC desires to amend and restate the SERP effective April 1, 2018 to comply with the new
ERISA regulations regarding Disability claims and make certain other administrative clarifications. This amended and
restated SERP will be known as the Tenet Healthcare Corporation Tenth Amended and Restated Supplemental
Executive Retirement Plan.
The Company or its Subsidiaries may adopt one or more domestic trusts to serve as a possible source of funds for the
payment of benefit under this SERP.
1.2 Purpose. It is intended that this SERP will not constitute a "qualified plan" subject to the limitations of section 401(a) of the
Code, nor will it constitute a "funded plan," for purposes of such requirements. It also is intended that this SERP will be exempt
from the participation and vesting requirements of Part 2 of Title I of the Employee Retirement Income Security Act of 1974, as
amended (" ERISA "), the funding requirements of Part 3 of Title I of ERISA, and the fiduciary requirements of Part 4 of Title I of
ERISA by reason of the exclusions afforded plans that are unfunded and maintained by an employer primarily for the purpose of
providing deferred compensation for a select group of management or highly compensated employees.
End of Article I
5
ARTICLE II
DEFINITIONS
When a word or phrase appears in this SERP with the initial letter capitalized, and the word or phrase does not commence a
sentence, the word or phrase will generally be a term defined in this Article II. The following words and phrases with the initial
letter capitalized will have the meaning set forth in this Article II, unless a different meaning is required by the context in which
the word or phrase is used.
2.1 Actuarial Equivalent or Actuarial Equivalence means an amount equal in value to the aggregate amounts to be
received under different forms of and/or times of payment, as determined by the SERP actuary, calculated using factors based
on six percent (6%) interest and a fifty/fifty (50/50) blend of the RP-2000 sex distinct mortality tables. Actuarial Equivalent factors
will be used for calculating Retirement Benefit amounts to be received under different times and/or forms of payment, for
converting different forms and times of payment of Retirement Benefits and for determining the present value of Retirement
Benefits.
2.2 Acquisition refers to a company of which substantially all of its assets or a majority of its capital stock are acquired by, or
which is merged with or into, the Company or an Affiliate.
2.3 Affiliate means a corporation that is a member of a controlled group of corporations (as defined in section 414(b) of the
Code) that includes the Company, any trade or business (whether or not incorporated) that is in common control (as defined in
section 414(c) of the Code) with the Company, or any entity that is a member of the same affiliated service group (as defined in
section 414(m) of the Code) as the Company; provided, however, that for purposes of determining if an entity is an Affiliate
under sections 414(b) or (c) of the Code ownership will be determined based on an ownership percentage of greater than fifty
percent (50%):
2.4 Agreement means a written agreement substantially in the form of Exhibit A between the Company and a Participant.
Each Agreement will form a part of the SERP with respect to the affected Participant. Once a Participant enters into an
Agreement, such Agreement may be updated by the Company to reflect changes in the SERP made by the Company. Any such
update will be attached to and form a part of the Participant’s Agreement. In addition, any section references in such Agreement
that change due to future amendments of the SERP will be deemed to be updated to reflect the revised Section number.
2.5 Alternate Payee means any spouse, former spouse, child, or other dependent of a Participant who is recognized by a
DRO as having a right to receive all, or a portion of, the benefits payable under the SERP with respect to such Participant.
2.6 AMI SERP means the American Medical International Inc. Supplemental Executive Retirement Plan or any successor or
substitute for such plan.
2.7 Board means the Board of Directors of the Company.
2.8 Bonus means any annual cash award paid under the Company's annual incentive plan.
2.9 Cause has the meaning set forth in the Executive Severance Plan.
2.10 Change of Control has the meaning set forth in the Executive Severance Plan.
6
2.11 Code means the Internal Revenue Code of 1986, as amended, and the regulations and rulings issued thereunder.
2.12 Company means Tenet Healthcare Corporation.
2.13 Date of Employment means the date on which a person began to perform services directly for the Employer as a result
of an Acquisition or becoming an employee. In the event of an Acquisition, the Date of Employment may mean the date on which
a person began to perform services directly for the acquired entity as provided in the Participant’s offer letter or other
communication.
2.14 Date of Enrollment means the date on or after June 1, 1984 on which an Eligible Employee first became a Participant in
the SERP, provided that any Eligible Employee who becomes a Participant before June 1, 1984 will be deemed to have a Date
of Enrollment of the later of the Participant’s Date of Employment or June 1, 1984.
2.15 Deferred Vested Retirement Benefit means the benefit payable pursuant to Section 4.4.
2.16 Disability means the inability of a Participant to engage in any substantial gainful activity by reason of a mental or
physical impairment expected to result in death or last for at least twelve (12) months, or the Participant, because of such a
condition, is receiving income replacement benefits for at least three (3) months under an accident or health plan covering the
Employer’s employees.
2.17 Disability Retirement Benefit means the benefit payable pursuant to Section 4.8.
2.18 DRO means a domestic relations order that is a judgment, decree, or order (including one that approves a property
settlement agreement) that relates to the provision of child support, alimony payments or marital property rights to a spouse,
former spouse, child or other dependent of a Participant and is rendered under a state (within the meaning of section 7701(a)
(10) of the Code) domestic relations law (including a community property law) and that:
(a)
(b)
(c)
(d)
(e)
Creates or recognizes the existence of an Alternate Payee’s right to, or assigns to an Alternate Payee the right to
receive all or a portion of the benefits payable with respect to a Participant under the SERP;
Does not require the SERP to provide any type or form of benefit, or any option, not otherwise provided under the
SERP;
Does not require the SERP to provide increased benefits (determined on the basis of actuarial value);
Does not require the payment of benefits to an Alternate Payee that are required to be paid to another Alternate
Payee under another order previously determined to be a DRO; and
Clearly specifies: (i) the name and last known mailing address of the Participant and of each Alternate Payee
covered by the DRO; (ii) the amount or percentage of the Participant’s benefits to be paid by the SERP to each
such Alternate Payee, or the manner in which such amount or percentage is to be determined; (iii) the number
7
of payments or payment periods to which such order applies; and (iv) that it is applicable with respect to this
SERP.
2.19 Early Retirement means any Termination of Employment during the life of a Participant before the attainment of Normal
Retirement Age and after attaining Early Retirement Age.
2.20 Early Retirement Age means the date the Participant attains age fifty-five (55) and has completed ten (10) Years of
Service or attains age sixty-two (62) with no minimum Years of Service. To the extent provided by the Senior Vice President,
Human Resources or Plan Administrator, a Participant will continue to be credited with age and Years of Service for employment
with an Affiliate who has not adopted the SERP as an Employer.
For Eligible Employees who become Participants before August 3, 2011, a Participant will be credited with age and Years
of Service during his severance period under the Severance Plan in effect as of the date in which the Participant
commences participation in this SERP for purposes of determining if he satisfies the age and service conditions for Early
Retirement Age as of the date of his Termination of Employment; provided, however, that, except as provided in Section
4.9(b), payment of Early Retirement Benefits under this SERP will not commence until the Participant has actually
attained the requisite age and service conditions ( e.g.
, if the Participant who timely elected an Early Retirement Age of
age fifty-five (55) and ten (10) Years of Service will satisfy such conditions during the Severance Period, he will be
deemed to have satisfied such conditions as of his Termination of Employment but his Early Retirement Benefits will not
commence until he actually attains age fifty-five (55) and completed ten (10) Years of Service). Furthermore, if after the
date the Participant commences participation in this SERP, the applicable Severance Plan is amended to modify the
severance period, such modification will not apply to the Participant for purposes of determining his Early Retirement Age
under this SERP. As provided in Sections 3.2 and 4.2(b), a Participant will elect during the Initial Election Period which
definition of Early Retirement Age will apply to him under the SERP. If the Participant fails to make such election, the
Participant will be deemed to have elected age sixty-two (62) as his Early Retirement Age under the SERP. The
additional age and service crediting for this severance period under the Severance Plan will not apply to any Eligible
Employee who becomes a Participant on or after August 3, 2011.
2.21 Early Retirement Benefit means the benefit payable pursuant to Section 4.2.
2.22 Earnings means the base salary and any Bonus paid by the Employer or, to the extent determined by the Senior Vice
President, Human Resources or the Plan Administrator, an Affiliate, to such Participant, but will exclude car and other
allowances and other cash and non-cash compensation. The determination of Earnings will continue past Normal Retirement
Age for a Participant who works beyond such date until the Participant’s Termination of Employment as provided in the definition
of Final Average Earnings.
2.23 Effective Date means April 1, 2018, except as specifically provided otherwise herein.
2.24 Eligible Children means all natural or adopted children of a Participant under the age of twenty-one (21), including any
child conceived before the death of a Participant.
2.25 Eligible Employee means an Employee who is employed in a position designated as eligible to participate in this SERP
by the Senior Vice President, Human Resources or the Plan
8
Administrator and approved by the Board or who satisfied the definition of Eligible Employee under the terms of a prior SERP
document and who is not a Participant in the ERA. Effective on and after May 7, 2014 no additional Eligible Employees may
become Participants in the SERP.
2.26 Employee means each select member of management or highly compensated employee receiving remuneration, or who
is entitled to remuneration, for services rendered to the Employer, in the legal relationship of employer and employee. The term
"Employee" will not include any person who is employed by the Employer in the capacity of an independent contractor, an agent
or a leased employee even if such person is determined by the Internal Revenue Service, the Department of Labor or a court of
competent jurisdiction to be a common law employee of the Employer.
2.27 Employer means the Company and each Affiliate who with the consent of the Senior Vice President, Human Resources
or Plan Administrator has adopted the SERP as a participating employer. An Affiliate may evidence its adoption of the SERP
either by a formal action of its governing body or by taking other administrative actions with respect to this SERP on behalf of its
Eligible Employees. An entity will cease to be an Employer as of the date such entity ceases to be an Affiliate or the date
specified by the Company.
2.28 Employment means any continuous period during which an Eligible Employee is actively engaged in performing
services for the Employer or, to the extent determined by the Senior Vice President, Human Resources or the Plan
Administrator, an Affiliate, plus the term of any leave of absence approved by the Employer or such Affiliate.
2.29 ERA means the Tenet Executive Retirement Account as amended from time to time.
2.30 ERISA means the Employee Retirement Income Security Act of 1974, as amended, and the regulations and rulings
thereunder.
2.31 Executive Severance Plan or ESP means the Tenet Executive Severance Plan, as amended from time to time.
2.32 Final Average Earnings means the Participant’s highest average monthly Earnings for any sixty (60) consecutive
months during the ten (10) years, or actual Employment period if less, preceding Termination of Employment. The determination
of Final Average Earnings will continue past Normal Retirement Age for a Participant who works beyond such date until the
Participant’s Termination of Employment; provided, however, that with respect to those Participants who joined the Tenet SERP
before August 3, 2011, the determination of Final Average Earnings will continue after their Termination of Employment and
during their severance period, if any, under the Executive Severance Plan. Effective on and after March 2, 2015, the Senior Vice
President, Human Resources and the Plan Administrator have the authority to determine if and when earnings paid by an
Affiliate who has not adopted the SERP will be treated as Earnings for purposes of calculating Final Average Earnings under the
SERP.
2.33 Five Percent Owner means any person who own (or is considered as owning within the meaning of section 318 of the
Code (as modified by section 416(i)(1)(B)(iii) of the Code)) more than five percent (5%) of the outstanding stock of the Company,
or an Affiliate or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Company or
an Affiliate. The rules of sections 414(b), (c) and (m) of the Code will not apply for purposes of applying
9
these ownership rules. Thus, this ownership test will be applied separately with respect to the Company and each Affiliate.
2.34 Good Reason has the meaning set forth in the Executive Severance Plan.
2.35 Human Resources Committee means the Human Resources Committee of the Board (including any predecessor or
successor to such committee in name or form) which has the authority to amend and terminate the SERP as provided in Article
VIII.
2.36 Initial Election Period the thirty (30) day period immediately following the Participant’s Date of Enrollment during which
a Participant may elect the time at which to receive a distribution of Early Retirement Benefits pursuant to Section 4.2(b).
2.37 Key Employee means any employee or former employee including any deceased employee who at any time during the
Plan Year was:
(a)
(b)
(c)
an officer of the Company or an Affiliate having compensation of greater than one hundred thirty thousand dollars
($130,000) (as adjusted under section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002)
(such limit is one hundred seventy thousand dollars ($170,000) for 2015);
a Five Percent Owner; or
One Percent Owner having compensation of more than one hundred fifty thousand dollars ($150,000).
For purposes of the preceding paragraphs, the Company has elected to determine the compensation of an officer or One
Percent Owner in accordance with section 1.415(c)-. 2(d)(4) of the Treasury Regulations ( i.e.
, W-2 wages plus amounts
that would be includible in wages except for an election under section 125(a) of the Code (regarding cafeteria plan
elections) under section 132(f) of the Code (regarding qualified transportation fringe benefits) or section 402(e)(3) of the
Code (regarding section 401(k) plan deferrals)) without regard to the special timing rules and special rules set forth,
respectively, in sections 1.415(c)-2(e) and 2(g) of the Treasury Regulations.
The determination of Key Employees will be based upon a twelve (12) month period ending on December 31 of each
year ( i.e.
, the identification date). Employees that are Key Employees during such twelve (12) month period will be
treated as Key Employees for the twelve (12) month period beginning on the first day of the fourth month following the
end of the twelve (12) month period ( i.e.
, since the identification date is December 31, then the twelve (12) month period
to which it applies begins on the next following April 1).
The determination of who is a Key Employee will be made in accordance with section 416(i)(1) of the Code and other
guidance of general applicability issued thereunder. For purposes of determining whether an employee or former
employee is an officer, a Five Percent Owner or a One Percent Owner, the Company and each Affiliate will be treated as
a separate employer ( i.e.
, the controlled group rules of sections 414(b), (c), (m) and (o) of the Code will not apply).
Conversely, for purposes of determining whether the one hundred thirty thousand dollar ($130,000) adjusted limit on
compensation is met under the officer test described in Section 2.37(a), compensation from the Company and all
Affiliates will be
10
taken into account (i.e., the controlled group rules of sections 414(b), (c), (m) and (o) of the Code will apply). Further, in
determining who is an officer under the officer test described in Section 2.37(a), no more than fifty (50) employees of the
Company or its Affiliates ( i.e.
, the controlled group rules of sections 414(b), (c), (m) and (o) of the Code will apply) will
be treated as officers. If the number of officers exceeds fifty (50), the determination of which employees or former
employees are officers will be determined based on who had the largest annual compensation from the Company and its
Affiliates for the Plan Year. For the avoidance of doubt, for purposes of this Section 2.37 the controlled group rules under
sections 414(b) and (c) of the Code will be applied based on the normal ownership percentage of greater than eighty
percent (80%) rather than the fifty percent (50%) standard used in the definition of Affiliate.
2.38 Normal Retirement means any Termination of Employment during the life of a Participant on or after attaining Normal
Retirement Age. To the extent a Participant continues Employment beyond Normal Retirement Age, he will continue to be
credited with Earnings pursuant to the terms of the SERP.
2.39 Normal Retirement Age means the date on which the Participant attains age sixty-five (65) while employed by the
Employer, or to the extent provided by the Senior Vice President, Human Resources or Plan Administrator, an Affiliate who has
not adopted the SERP as an Employer.
2.40 Normal Retirement Benefit means the benefit payable pursuant to Section 4.1.
2.41 Normal Retirement Date means the first day of the calendar month following the Participant’s attainment of Normal
Retirement Age.
2.42 One Percent Owner means any person who would be described in Section 2.37 if "one percent (1%)" were substituted
for "five percent (5%)" each place where it appears therein.
2.43 Participant means any Eligible Employee selected to participate in this SERP by the Senior Vice President, Human
Resources or the Plan Administrator, each in its sole and absolute discretion, or an Eligible Employee who satisfied the definition
of Participant under the terms of a prior SERP document and who, in each case, has entered into an Agreement and whose
participation has not terminated.
2.44 Plan Administrator means the individual or entity appointed by the RPAC to handle the day-to-day administration of the
SERP, including but not limited to, determining the eligibility of an Eligible Employee to be a Participant, the amount of a
Participant’s benefits and complying with all applicable reporting and disclosure obligations imposed on the SERP. If the RPAC
does not appoint an individual or entity as Plan Administrator, the RPAC will serve as the Plan Administrator.
2.45 Plan Year means the fiscal year of this SERP, which will begin on January 1 each year and end on December 31 of such
year.
2.46 Prior Service Credit Percentage means the percentage to be applied to a Participant’s Years of Service with the
Employer before his Date of Enrollment in the SERP, in accordance with the following formula:
11
Years of Service
After Date of Enrollment
Prior Service Credit Percentage
During 1st year
During 2nd year
During 3rd year
During 4th year
During 5th year
After 5th year
25
35
45
55
75
100
In the event of the death or Disability of a Participant while an employee at any age or the Normal Retirement or Early
Retirement of a Participant after age sixty (60), the Participant’s Prior Service Credit Percentage will be one hundred
(100).
2.47 Retirement Benefit means an Early Retirement Benefit, Normal Retirement Benefit, Disability Retirement Benefit, or
Deferred Vested Retirement Benefit payable pursuant to Article IV.
2.48 Retirement Plans means a qualified or nonqualified defined contribution plan, other than the ERA which is addressed in
Article III, maintained by the Employer, including, if applicable, any such plan maintained by an Employer before an Acquisition.
In the event a Participant has an accrued benefit under a qualified or nonqualified defined benefit plan, the treatment of that
benefit will be set forth in his Agreement.
2.49 Retirement Benefit Plans Adjustment Factor means the percentage calculated each year pursuant to administrative
procedures adopted with respect to the SERP that is derived from the assumed benefit the Participant would be eligible for
under Social Security and the Employer contribution portion of all Retirement Plans measured from the Participant’s date of hire
until the Participant’s projected retirement regardless of whether the Participant participates in such plans; provided, however,
that the Retirement Benefit Plans Adjustment Factor for a Participant who was covered by the SERP immediately before the
Effective Date, will not be greater than the factor calculated with respect to such Participant as of December 31, 2013. The
Retirement Benefits Plan Adjustment Factor will be applied only to the base salary component of Final Average Earnings and is
a projection of the benefits payable under the Social Security regulations and Retirement Plans in effect at the time the benefit
calculation is performed.
For any Participant actively employed by the Employer upon a Change of Control who subsequently has a Termination of
Employment, the Retirement Benefit Plans Adjustment Factor for each such Participant will be adjusted to reflect the impact of
the occurrence of the Termination of Employment at an age earlier than assumed under the initial calculation of the assumed
benefit described above and will (i) be eliminated if the Participant is younger than age forty-five (45) upon such Termination of
Employment, and (ii) if the Participant is age forty-five (45) or above, will be reduced by multiplying it by the following fraction:
1- [(65- Participant’s age at Termination of Employment) /20].
For purpose of determining a Participant’s age for calculating the above adjustments to the Retirement Benefit Plans Adjustment
Factor, such age will be expressed in whole months and a
12
Participant will receive credit for any fractional months rounded up to the next whole month. In addition, a Participant may be
credited with age for periods of employment with an Affiliate who has not adopted the SERP as an Employer, to the extent
provided by the Senior Vice President, Human Resources or Plan Administrator.
2.50 RPAC means the Retirement Plans Administration Committee of the Company established by the Human Resources
Committee, and whose members have been appointed by the Human Resources Committee. The RPAC will have the
responsibility to administer the SERP and make final determinations regarding claims for benefits, as described in Article VI. In
addition, the RPAC has limited amendment authority over the SERP as provided in Section 8.2.
2.51 SERP means the Tenth Amended and Restated Tenet Supplemental Executive Retirement Plan as set forth herein and
as the same may be amended from time to time.
2.52 Severance Plan means the Tenet Executive Severance Plan, the Tenet Executive Severance Protection Plan or any or
any similar, successor or replacement plan to such plans.
2.53 Surviving Spouse means the person legally married to a Participant (including effective August 3, 2011 a Participant's
Domestic Partner as defined under the Criteria for Domestic Partnership Status under the Tenet Employee Benefit Plan and
September 16, 2013 a same sex spouse) for at least one (1) year prior to the earlier of the Participant’s death or Termination of
Employment. If the Participant is not married at the time he incurs a Termination of Employment and marries (or enters into a
domestic partnership) after that date, such spouse or domestic partner will not qualify as a Surviving Spouse for purposes of the
SERP. Likewise, if the Participant is married (or in domestic partnership) at the time he incurs a Termination of Employment,
divorces (or terminates such domestic partnership) after that date and remarries, his subsequent spouse (or domestic partner)
will not qualify as a Surviving Spouse for purposes of the SERP.
2.54 Termination of Employment means the ceasing of the Participant’s Employment or reduction in employment or other
provision of services for any reason whatsoever, whether voluntarily or involuntarily, including by reason of Normal Retirement or
Early Retirement, that qualifies as a separation from service under section 409A of the Code. For this purpose a Participant who
is on a leave of absence that exceeds six (6) months and who does not have statutory or contractual reemployment rights with
respect to such leave, will be deemed to have incurred a Termination of Employment on the first day of the seventh (7th) month
of such leave. A Participant who transfers employment from an Employer to an Affiliate, regardless of whether such Affiliate has
adopted the SERP as an Employer, will not incur a Termination of Employment; however, the extent to which such Participant
will continue to accrue age and/or service for employment with such non-participating Affiliate will be determined by the Senior
Vice President, Human Resources or Plan Administrator. A Participant who experiences a Qualifying Termination under the
Severance Plan will incur a Termination of Employment under the SERP, subject to the special provisions regarding Early
Retirement Age under Section 2.20.
2.55 Termination Without Cause means, for purposes of Section 4.9, the termination of a Participant by the Employer or an
Affiliate without Cause or a voluntary Termination of Employment by the Participant for Good Reason within two (2) years of a
Change of Control.
2.56 Trust means the rabbi trust established with respect to the SERP the assets of which are to be used for the payment of
Retirement Benefits under this SERP.
13
2.57 Trustee means the individual or entity appointed as trustee under the Trust. After the occurrence of a Change of Control,
the Trustee must be independent of any successor to the Company or any affiliate of such successor.
2.58 Year means a period of twelve (12) consecutive calendar months.
2.59 Year of Service means each complete year (up to a maximum of twenty (20)) of continuous service (up to age sixty-five
(65)) as an employee of the Employer beginning with the Date of Employment with the Employer. The Senior Vice President,
Human Resources or the Plan Administrator may also credit a Participant who transfers to an Affiliate that is not an Employer
with age and/or service for his period of employment with such entity without the need for such Affiliate to adopt the SERP as an
Employer. Years of Service will be deemed to have begun as of the first day of the calendar month of Employment and to have
ceased on the last day of the calendar month of Employment. In the event a Participant incurs a Termination of Employment and
is reemployed by the Employer, Service completed before such reemployment will be treated as Years of Service under the
SERP to the extent provided in the Company’s Rehire and Reinstatement Policy or any successor thereto, the provisions of
which are incorporated herein by this reference. Years of Service before an employee’s Date of Enrollment in the SERP will be
credited for benefit accrual purposes on a pro-rated basis pursuant to Section 2.46.
End of Article II
14
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Determination of Eligibility. Effective May 7, 2014 no new Eligible Employees may become Participants in the SERP.
Each Eligible Employee who became a Participant in the SERP before May 7, 2014 will continue to participate in the SERP
pursuant to the terms of this document.
3.2 Early Retirement Election. Before May 7, 2014, each Eligible Employee was required to elect during the Initial Election
Period to commence the distribution of his Retirement Benefits on the first day of the calendar month following his Early
Retirement as provided pursuant to Section 4.2. In making this election the Participant was required to specify the Early
Retirement Age that will apply to him under the SERP ( i.e.
, age fifty-five (55) and ten (10) Years of Service or age sixty-two
(62)). If the Eligible Employee failed to make this election during the Initial Election Period, he will be deemed to have
affirmatively elected to commence the distribution of his Retirement Benefits on the first day of the calendar month following the
date of his Retirement on or after attaining age sixty-two (62). Once made (or deemed made), this election cannot be revoked;
however, the Participant may elect to defer payment of his Retirement Benefits pursuant to Section 4.5. Payment of such Early
Retirement Benefit will be subject to the six (6) month restriction applicable to Key Employees, described in Section 5.1 of this
SERP.
3.3 Loss of Eligibility Status. A Participant under this SERP who incurs a Termination of Employment, who ceases to be an
Eligible Employee, or whose participation is terminated by the Senior Vice President, Human Resources or the Plan
Administrator will continue as an inactive Participant under this SERP until the Participant has received the complete payment of
his Retirement Benefits under this SERP. The Senior Vice President, Human Resources and the Plan Administrator have the
authority to determine if and when earnings paid by an Affiliate who has not adopted the SERP as an Employer will be treated as
Earnings for purposes of calculating Final Average Earnings under the SERP. Likewise, the Senior Vice President, Human
Resources and the Plan Administrator have the authority to determine if age and service earned while working for an Affiliate
who has not adopted the SERP as an Employer will be counted under this SERP as provided in Section 2.54.
3.4 Initial ERA Participation. A Participant who participated in the ERA before becoming a Participant in the SERP will be
given credit for his Years of Service while a participant in the ERA for purposes of determining the amount of his Retirement
Benefit under this SERP, but such Retirement Benefit will be reduced on an Actuarial Basis by his benefit under the ERA. The
Participant’s benefit under the ERA will be paid pursuant to the terms of the ERA and his Retirement Benefit under this SERP, if
any, will be paid pursuant to the terms hereof.
3.5 Subsequent ERA Participation. A Participant’s participation in this SERP will be frozen upon being named to the ERA.
The Participant’s Retirement Benefit under the SERP accrued as of the date his participation was frozen will commence
pursuant to the terms hereof. Distribution of the Participant’s ERA benefit will be made pursuant to the terms of the ERA. In the
event such Participant subsequently resumes participation in the SERP, subject to the provisions of Section 3.1, he will be given
credit for his Years of Service while a participant in the ERA for purposes of determining the amount of his Retirement Benefit
under this SERP, but such Retirement Benefit will be reduced on an Actuarial Equivalent basis by his benefit under the ERA.
15
3.6 Initial AMI SERP Participation. A Participant who participated in the AMI SERP before becoming a Participant in the
SERP will be entitled to a benefit under this SERP, if any, equal to the amount of his accrued benefit (as determined using the
Actuarial Equivalent factors set forth in Section 2.1 of this SERP) less his prior accrued benefit under the AMI SERP (as
determined using the actuarial equivalent factors set forth in the AMI SERP). The Participant’s accrued benefit under the AMI
SERP will be paid pursuant to the terms of the AMI SERP and his benefit under this SERP, if any, will be paid pursuant to the
terms hereof.
End of Article III
16
ARTICLE IV
RETIREMENT BENEFITS
4.1 Normal Retirement Benefit.
(a)
Calculation of Normal Retirement Benefit . Upon a Participant’s Normal Retirement, the Participant will be
entitled to receive a monthly Normal Retirement Benefit for the Participant’s lifetime which is determined in
accordance with the benefit formula set forth below, adjusted by the vesting percentage in Section 4.3. Payment
of such Normal Retirement Benefit will commence as of the Participant’s Normal Retirement Date, subject to the
six (6) month restriction applicable to Key Employees, described in Section 5.1 of the SERP. Except as provided
below, the amount of such monthly Normal Retirement Benefit will be determined by using the following formula:
X = [Al x [B1 + [B2 x C]] x [2.7% - D] x E] + [A2 x [B1 +[B2 x C] x 2.7% x E]
X = Normal Retirement Benefit
Al = Final Average Earnings (From Base Salary)
A2 = Final Average Earnings (From Bonus)
B1 = Years of Service After Date of Enrollment
B2 = Years of Service Prior to Date of Enrollment
C = Prior Service Credit Percentage
D = Retirement Benefit Plans Adjustment Factor
E = Vesting Percentage
Note: B1 and B2 Years of Service combined cannot exceed twenty (20) years.
To the extent that a Participant incurred a Termination of Employment before the Effective Date, such Participant’s
Normal Retirement Benefit, Early Retirement Benefit, Disability Retirement Benefit or Deferred Vested Retirement
Benefit, as applicable, will be determined under the benefit formula as in effect at the time the Participant’s
Termination of Employment. However, the remaining provisions of this SERP, including but not limited to, the
distribution provisions of Article IV and the claims procedures set forth in Section 7.6, will apply to such
Participant.
(b)
(c)
Death After Commencement of Normal Retirement Benefits . If a Participant who is receiving a Normal
Retirement Benefit dies, his Surviving Spouse or Eligible Children will be entitled to receive (in accordance with
Sections 4.6 and 4.7) a benefit equal to fifty percent (50%) of the Participant’s Normal Retirement Benefit.
Death After Normal Retirement Age But Before Normal Retirement . If a Participant who is eligible for Normal
Retirement dies while an employee after attaining age sixty-five (65), his Surviving Spouse or Eligible Children will
be entitled to receive (in accordance with Sections 4.6 and 4.7) the installments of the Normal Retirement Benefit
which would have been payable to the Surviving Spouse or Eligible Children in accordance with Section 4.1(b) as
if the Participant had retired
17
from the Employer on the day before he died. Distribution of such benefits will not be subject to the six (6) month
restriction applicable to Key Employees.
4.2 Early Retirement Benefit.
(a)
Calculation of Early Retirement Benefit . Upon a Participant’s Early Retirement, the Participant will be entitled
to receive a monthly Early Retirement Benefit for the Participant’s lifetime commencing on the Participant’s
Normal Retirement Date, calculated in accordance with Section 4.1 and Section 4.3 with the following
adjustments:
(i)
(ii)
(iii)
Only the Participant’s actual Years of Service, adjusted appropriately for the Prior Service Credit
Percentage, as of the date of Early Retirement will be used.
For purposes of determining Final Average Earnings, only the Participant’s Earnings as of the date of Early
Retirement will be used.
To arrive at the payments to commence at Normal Retirement, the amount calculated under Section 4.2(a)
(i) and Section 4.2(a)(ii) will be reduced by 0.25% for each month Early Retirement occurs before age
sixty-two (62).
Early Payment of Benefits . A Participant may elect during the Initial Election Period to receive a distribution of
his Early Retirement Benefit on the first day of the calendar month following the date of his Early Retirement rather
than on his Normal Retirement Date as specified in Section 4.2(a). Payment of such Early Retirement Benefit will
be subject to the six (6) month restriction applicable to Key Employees, described in Section 5.1 of the SERP. A
Participant who makes this election, will have the amount calculated under Section 4.2(a) further reduced by
0.25% for each month that the date of commencement of payment precedes the date on which the Participant will
attain age sixty-two (62).
Death After Early Retirement Benefits Commence . If a Participant dies after commencement of the payment of
his Early Retirement Benefit, his Surviving Spouse or Eligible Children will be entitled to receive (in accordance
with Sections 4.6 and 4.7) a benefit equal to fifty percent (50%) of the Participant’s Early Retirement Benefit.
Death After Early Retirement But Before Benefit Commencement . If a Participant dies after his Early
Retirement but before benefits have commenced his Surviving Spouse or Eligible Children will be entitled to
receive (in accordance with Sections 4.6 and 4.7) a benefit equal to fifty percent (50%) of the benefit that would
have been payable on the date of the Participant’s death had he elected to have benefits commence on that date.
Distribution of such benefits will not be subject to the six (6) month restriction applicable to Key Employees.
Death of Employee After Attainment of Early Retirement Age but Before Early Retirement . If a Participant
dies after attaining Early Retirement Age but before taking Early Retirement, his Surviving Spouse or Eligible
Children will be entitled to receive (in accordance with Sections 4.6 and 4.7) a benefit equal to fifty percent
(b)
(c)
(d)
(e)
18
(50%) of the Participant’s Early Retirement Benefit determined as if the Participant had retired on the day before
his death with payments commencing on the first of the month following the Participant’s death. The benefits
payable to a Surviving Spouse or Eligible Children under this Section 4.2(e) will be no less than the benefits
payable to a Surviving Spouse or Eligible Children under Section 4.4 (regarding the Deferred Vested Retirement
Benefit) as if the Participant had died immediately before age fifty-five (55).
4.3 Vesting of Retirement Benefit. A Participant’s interest in his Retirement Benefit will, subject to Section 9.4 (regarding
Conditions Precedent), vest in accordance with the following schedule:
Years of Service
Vesting Percentage
Less than 5
5 but less than 6
6 but less than 7
7 but less than 8
8 but less than 9
9 but less than 10
10 but less than 11
11 but less than 12
12 but less than 13
13 but less than 14
14 but less than 15
15 but less than 16
16 but less than 17
17 but less than 18
18 but less than 19
19 but less than 20
20 or more
0
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
Notwithstanding the foregoing, a Participant who is at least sixty (60)years old and who has completed at least five (5) Years of
Service will be fully vested, subject to Section 9.4 (regarding Conditions Precedent), in his Retirement Benefit. Except as
required otherwise by applicable law, no Years of Service will be credited for Service after age sixty-five (65) or for more than
twenty (20) years.
4.4 Deferred Vested Retirement Benefit. Upon any Termination of Employment of the Participant before Normal Retirement
or Early Retirement for reasons other than death or Disability, such Participant will be entitled to a Deferred Vested Retirement
Benefit, commencing on the Participant’s Normal Retirement Date, calculated under Section 4.1 and 4.3 but with the following
adjustments:
(a)
Calculation of Years of Service . Only the Participant’s actual Years of Service, adjusted appropriately for the
Prior Service Credit Percentage, as of the date of his Termination of Employment will be used.
19
(b)
(c)
(d)
(e)
(f)
(g)
Calculation of Earnings . For purposes of determining Final Average Earnings, as used in Section 4.1, only the
Participant’s Earnings before the date of his Termination of Employment will be used.
Early Termination Reduction . Subject to the maximum reduction under Section 4.4(g), to arrive at the payments
to commence at the Participant’s Normal Retirement Date, the amount calculated under Section 4.1(a) will be
reduced by 0.25% for each month the Participant’s Termination of Employment occurs before age sixty-two (62).
Death After Commencement of Payments . If a Participant dies after commencement of the payment of his
Deferred Vested Retirement Benefit under this Section 4.4, his Surviving Spouse or Eligible Children will be
entitled at Participant’s death to receive (in accordance with Sections 4.6 and 4.7) a benefit equal to fifty percent
(50%) of the Participant’s Deferred Vested Retirement Benefit.
Death after Termination of Employment . If a Participant, who has a vested interest under Section 4.3, dies
after Termination of Employment but at death is not receiving any Deferred Vested Retirement Benefits under this
SERP and was not eligible for an Early Retirement Benefit pursuant to Section 4.2, his Surviving Spouse or
Eligible Children will be entitled to receive (in accordance with Sections 4.6 and 4.7) commencing on the date that
would have been the Participant’s Normal Retirement Date, a benefit equal to fifty percent (50%) of the Deferred
Vested Retirement Benefit which would have been payable to the Participant at his Normal Retirement Date.
Death While an Employee . If a Participant, who has a vested interest under Section 4.3, dies while still actively
employed by the Employer or, to the extent provided by the Senior Vice President, Human Resources or Plan
Administrator, an Affiliate, before he was eligible for Early Retirement, his Surviving Spouse or Eligible Children
will be entitled at the Participant’s death to receive a benefit equal to fifty percent (50%) of the Participant’s
Retirement Benefit (in accordance with Sections 4.6 and 4.7) calculated as if the Participant was age fifty-five (55)
and eligible for Early Retirement on the day before the Participant’s death; provided, however, that the combined
reductions for Early Retirement and early payment will not exceed twenty-one percent (21%) of the amount
calculated under Sections 4.2(a)(i) and (ii). Distribution of such benefits will not be subject to the six (6) month
restriction applicable to Key Employees.
Early Termination Reduction Limit . To arrive at the amount of the Deferred Vested Retirement Benefit
payments to commence at the Participant’s Normal Retirement Date, the Early Termination reduction calculated
under Section 4.4(c) (and indirectly under Section 4.4(d), and Section 4.4(e)) will be limited to the maximum
percentage reduction for Early Retirement at age fifty-five (55) ( i.e.
, twenty-one percent (21%)).
4.5 Deferral of Distributions. A Participant may elect to defer payment of his Normal Retirement Benefit payable pursuant to
Section 4.1, his Early Retirement Benefit payable pursuant to Section 4.2 or his Deferred Vested Retirement Benefit payable
pursuant to Section 4.4 for a period of at least five (5) years by making an election to defer such distribution at least twelve (12)
months before the date that the Normal Retirement Benefit, Early Retirement Benefit or Deferred
20
Vested Retirement Benefit would otherwise be paid ( i.e.
, at least twelve (12) months before a Termination of Employment). In
the event that the Participant becomes entitled to a distribution pursuant to Section 4.1, Section 4.2 or Section 4.4 during this
twelve (12) month period, the deferral election will be of no effect and payment of the Participant’s benefits will commence at the
time specified in Section 4.1, Section 4.2 or Section 4.4, as applicable. A Participant who becomes entitled to distribution of a
Disability Retirement Benefit pursuant to Section 4.9 may not elect to defer payment of such distribution pursuant to this Section
4.5 and any deferral election made by such Participant will be null and of no effect.
4.6 Duration of Benefit Payment.
(a)
(b)
Participant Benefit Payments . The Normal Retirement Benefit, Early Retirement Benefit, Disability Retirement
Benefit or Deferred Vested Retirement Benefit under the SERP will be payable to the Participant in the form of a
monthly benefit payable for life.
Surviving Spouse Benefit Payments . The benefit payable to a Surviving Spouse under the SERP will be paid in
the form of a monthly benefit payable for life; provided, that all benefits payable to the Surviving Spouse are
subject to actuarial reduction based on the factors in Section 2.1 if the Surviving Spouse is more than three (3)
years younger than the Participant.
(c)
Eligible Children Benefit Payments . The benefit payable to a Participant’s Eligible Children under the SERP will
be paid in the form of a monthly benefit payable until each such child reaches age twenty-one (21).
4.7 Recipients of Benefit Payments.
(a)
(b)
Death without Surviving Spouse . If a Participant dies without a Surviving Spouse but is survived by any Eligible
Children, then the Participant’s Retirement Benefit will be paid to his Eligible Children. The total monthly benefit
payable will be equal to the monthly benefit that a Surviving Spouse would have received without actuarial
reduction. This benefit will be paid in equal shares to all Eligible Children until the youngest of the Eligible Children
attains age twenty-one (21). When any of the Eligible Children reaches twenty-one (21), his share of the total
monthly benefit will be reallocated equally to the remaining Eligible Children.
Death of Surviving Spouse . If the Surviving Spouse dies after the death of the Participant but is survived by
Eligible Children then the total monthly benefit previously paid to the Surviving Spouse will be paid in equal shares
to all Eligible Children until the youngest of the Eligible Children attains age twenty-one (21). When any of the
Eligible Children reaches twenty-one (21), his share of the total monthly benefit will be reallocated equally to the
remaining Eligible Children.
(c)
Death Without Surviving Spouse or Eligible Children . If the Participant dies without a Surviving Spouse or
Eligible Children, no additional benefits will be paid under this SERP with respect to that Participant.
4.8 Disability.
21
(a)
(b)
(c)
(d)
(e)
(f)
Disability Retirement Benefit . Any Participant who incurs a Disability will upon reaching Normal Retirement Age
be paid, as a Disability Retirement Benefit, the Normal Retirement Benefit in accordance with Section 4.1 based
on his vested interest as determined under Section 4.3 and Section 4.8(b). Payment of the Disability Retirement
Benefit will begin as of the Participant’s Normal Retirement Date. A Participant who is entitled to a Disability
Retirement Benefit may not elect to defer payment of such distribution pursuant to Section 4.5. Unless otherwise
required under Code Section 409A, amounts payable pursuant to this Section 4.8(a) will not be subject to the six
(6) month restriction applicable to Key Employees.
Continued Accrual of Vesting Service . Upon a Participant’s Disability while an employee of the Employer, or to
the extent provided by the Senior Vice President, Human Resources or the Plan Administrator, an Affiliate, the
Participant will continue to accrue Years of Service for purposes of vesting under Section 4.3 of this SERP during
his Disability until the earliest of his:
(i)
(ii)
Recovery from Disability;
Attainment of Normal Retirement Age; or
(iii)
Death.
Not Eligible for Early Retirement Benefit . A Participant who is Disabled will not be entitled to receive an Early
Retirement Benefit under this SERP.
Calculation of Earnings . For purposes of calculating the amount of the Disability Retirement Benefit, the
Participant’s Final Average Earnings will be determined using his Earnings up to the date of Disability.
Death Before Attainment of Early Retirement Age . If a Participant, who has a vested interest as determined
under this Section 4.8 and Section 4.3, dies while on Disability before he attained Early Retirement Age, his
Surviving Spouse or Eligible Children will be entitled at the Participant’s death to receive a benefit equal to fifty
percent (50%) of the Participant’s Retirement Benefit (in accordance with Sections 4.6 and 4.7) calculated under
Section 4.2 as if the Participant was age fifty-five (55) and eligible for Early Retirement on the day before the
Participant’s death; provided, however, that the combined reductions for Early Retirement and early payment will
not exceed twenty-one percent (21%) of the amount calculated under Sections 4.2(a)(i) and (ii). Distribution of
such benefits will not be subject to the six (6) month restriction applicable to Key Employees.
Death After Attainment of Early Retirement Age . If a Participant dies after attaining Early Retirement Age while
on Disability, his Surviving Spouse or Eligible Children will be entitled to receive (in accordance with Sections 4.6
and 4.7) a benefit equal to fifty percent (50%) of the Participant’s Early Retirement Benefit determined as if the
Participant had retired on the day before his death with payments commencing on the first of the month following
the Participant’s death. The benefits payable to a Surviving Spouse or Eligible Children under this Section 4.8(f)
will be no less than the benefits payable to a Surviving Spouse or Eligible Children under Section 4.4 (regarding
the Deferred Vested Retirement Benefit) as if the Participant
22
had died immediately prior to age fifty-five (55). Distribution of such benefits will not be subject to the six (6) month
restriction applicable to Key Employees.
(g)
Death after Commencement of Payments . If a Participant dies after his commencement of Disability
Retirement Benefits under this Section 4.8, his Surviving Spouse or Eligible Children will be entitled at the
Participant’s death to receive (in accordance with Sections 4.6 and 4.7) a benefit equal to fifty percent (50%) of
the Participant’s Disability Retirement Benefit.
4.9 Change of Control.
(a)
Calculation of Benefits .
(i)
(ii)
Post-April 1994 Employees . In the event of a Change of Control while this SERP remains in effect, each
Participant will be fully vested in his Retirement Benefit, without regard to the Participant’s Years of Service
and the amount of such benefit will be calculated by granting the Participant Prior Service Credit under
Sections 4.1, 4.2 and 4.4 for all Years of Service prior to his Date of Enrollment, plus, for Eligible
Employees who become Participants before August 3, 2011, crediting of additional Years of Service at the
end of the Severance Period and crediting of age during the Severance Period as determined under
Section 3.1(h) of the ESP. Moreover, the Retirement Benefit Plans Adjustment Factor will be adjusted as
set forth in Section 2.49. In addition, with respect to a Participant who (A) is an active employee, (B) has
not yet begun to receive benefit payments under the SERP, and (C) incurs a Termination without Cause
within two (2) years following a Change of Control, the provisions of Section 9.4(b) (Regarding Conditions
Precedent) will not apply.
Employees as of April 1, 1994 . With respect to a Participant who is an employee actively at work on April
1, 1994, with the corporate office or a division of the Employer which has not been declared to be a
discontinued operation, who has not yet begun to receive benefit payments under the SERP and who
incurs a Termination without Cause within two (2) years following a Change of Control, the provisions of
Section 4.9(a)(i) above will not apply and instead a Participant’s Retirement Benefit under this SERP will
be determined by:
(A)
(B)
granting the Participant full Prior Service Credit under Sections 4.1, 4.2 and 4.4 for all Years of
Service prior to his Date of Enrollment; plus, for Eligible Employees who become Participants
before August 3, 2011, crediting of additional Years of Service at the end of the Severance Period
and crediting of age during the Severance Period as determined under Section 3.1(h) of the ESP.
with respect to a covered Participant who incurs a Termination without Cause within two (2) years
following a Change of Control, crediting the Participant with three (3) additional Years of Service
(with total Years of Service not to exceed twenty (20) years), which
23
will be in lieu of any additional Years of Service and age provided under Section 3.1 of the ESP;
(C)
The benefit formula in Section 4.1(a) will be applied by defining A1 as "the greater of current
monthly Earnings (from Base Salary) or Final Average Earnings (from Base Salary)," and A2 as
"the greater of current monthly Earnings (from Bonus) or Final Average Earnings (from Bonus)";
(D)
The Retirement Benefits Plan Adjustment Factor will be adjusted as set forth in Section 2.49;
(E)
(F)
The provisions of Section 9.4(b) (regarding Conditions Precedent) will not apply; and
Further, the Participant will be fully vested in such Retirement Benefit without regard to his Years of
Service.
(b)
Payment of Benefits . Upon the Participant's Termination of Employment within two (2) years following the
occurrence of a Change of Control (except on account of a liquidation or dissolution of the Company), the
Participant will begin to receive such Retirement Benefit (notwithstanding the payout timing rules in Sections 2.21,
3.2, 4.2(a), 4.2(b), and 4.4) commencing on the first day of the calendar month following the date of such
Termination of Employment without reduction by virtue of Sections 4.2(a), 4.2(b) or 4.4(c), taking into account the
crediting of the additional severance period under ESP Section 3.1(h) and SERP Section 4.9(a). In the event that
the Participant does not incur a Termination of Employment within such two (2) year period or in the event of a
Change of Control on account of the liquidation or dissolution of the Company, the Participant will begin to receive
the Retirement Benefit described in Section 4.9(a) as of his Normal Retirement Date or Early Retirement Date, as
the case may be, with no reduction by virtue of Section 4.2(a), Section 4.2(b) or Section 4.4(c), subject to the six
(6) month restriction applicable to Key Employees described in Section 5.1.
4.10 Golden Parachute Limitation. The calculation and administration of any liability that may arise out of the "golden
parachute" provisions of sections 280G and 4999 of the Code will be addressed as set forth in the Executive Severance Plan.
4.11 Executive Severance Plan. A Participant who is entitled to receive benefits under this SERP following a Termination of
Employment, will to the extent applicable have such benefits calculated under the provisions of this SERP and Section 3.1(h) of
the ESP. In the event of any direct conflict between the terms of this SERP and the ESP with respect to the calculation of
benefits, the ESP will control.
4.12 Impact of Reemployment on Benefits. If a Participant incurs a Termination of Employment and begins receiving
Retirement Benefit payments from the SERP and such Participant is reemployed by the Employer or an Affiliate, then such
Participant's Retirement Benefit payments will continue as scheduled during the period of his reemployment.
24
End of Article IV
25
ARTICLE V
PAYMENT
5.1 Commencement of Payments. Benefit payments under this SERP generally will begin on the Participant’s Normal
Retirement Date; provided, that in the case of a benefit payable on account of Early Retirement, a Termination of Employment
within two (2) years following a Change of Control or death, benefit payments will begin not later than the first day of the
calendar month following the occurrence of the event which entitles the Participant (or a Surviving Spouse or Eligible Children) to
benefits under this SERP. Benefit payments under this SERP that are payable to a Key Employee on account of a Termination
of Employment will be delayed for a period of six (6) months following such Participant’s Termination of Employment. On the day
following the expiration of such six (6) month period, the Participant will receive a catch-up payment equal to the amount of
benefits that would have been paid during such six (6) month period but for the provisions of this Section 5.1 and the remainder
of such payments will be paid according to the terms of the SERP.
5.2 Withholding; Unemployment Taxes. Any taxes required to be withheld from a Participant’s benefit by the Federal or any
state or local government will be withheld from payments under this SERP to the extent required by the law in effect at the time
payments are made.
5.3 Recipients of Payments. All Retirement Benefit payments to be made by the Employer under the SERP will be made to
the Participant during his lifetime. All subsequent payments under the SERP will be made by the SERP to the Participant’s
Surviving Spouse or Eligible Children.
5.4 No Other Benefits. No other benefits will be payable under this SERP to the Participant or his Surviving Spouse or
Eligible Children by reason of the Participant’s Termination of Employment or otherwise, except as specifically provided herein.
5.5 No Lump Sum Form of Payment. Except with respect to permitted SERP terminations under Section 8.3, no lump sum
form of payment will be payable from the SERP with respect to any Participant regardless of when such Participant incurs a
Termination of Employment.
End of Article V
26
ARTICLE VI
PAYMENT LIMITATIONS
6.1 Spousal Claims.
(a)
(b)
(c)
(d)
An Alternate Payee may be awarded all or a portion of the Participant’s Retirement Benefits pursuant to the terms
of a DRO, in which case such benefits will be payable to the Alternate Payee at the same time and in the same
form of payment as the Participant’s.
The Alternate Payee will be responsible for payment of any federal, state and local taxes.
The Plan Administrator has sole and absolute discretion to determine whether a judgment, decree or order is a
DRO, to determine whether a DRO will be accepted for purposes of this Section 6.1 and to make interpretations
under this Section 6.1, including determining who is to receive benefits, all calculations of benefits and
determinations of the form of such benefits, and the amount of taxes to be withheld. The decisions of the Plan
Administrator will be binding on all parties with an interest.
Any benefits payable to an Alternate Payee pursuant to the terms of a DRO will be subject to all provisions and
restrictions of the SERP and any dispute regarding such benefits will be resolved pursuant to the SERP claims
procedure in Article VII.
6.2 Legal Disability. If a person entitled to any payment under this SERP will, in the sole judgment of the Plan Administrator,
be under a legal disability, or otherwise will be unable to apply such payment to his own interest and advantage, the Plan
Administrator, in the exercise of its discretion, may direct the Company or payor of the benefit to make any such payment in any
one or more of the following ways:
(a)
(b)
(c)
Directly to such person;
To his legal guardian or conservator; or
To his spouse or to any person charged with the duty of his support, to be expended for his benefit and/or that of
his dependents.
The decision of the Plan Administrator will in each case be final and binding upon all persons in interest, unless the Plan
Administrator will reverse its decision due to changed circumstances.
6.3 Assignment. Except as provided in Section 6.1, no Participant, Surviving Spouse or Eligible Child will have any right to
assign, pledge, transfer, convey, hypothecate, anticipate or in any way create a lien on any amounts payable hereunder. No
amounts payable hereunder will be subject to assignment or transfer or otherwise be alienable, either by voluntary or involuntary
act, or by operation of law, or subject to attachment, execution, garnishment, sequestration or other seizure under any legal,
equitable or other process, or be liable in any way for the debts or defaults of Participants or their Surviving Spouses or Eligible
Children. The Company may assign all or a portion of this SERP to any Affiliate which employs any Participant.
End of Article VI
27
28
ARTICLE VII
ADMINISTRATION OF THE PLAN
7.1 The RPAC. The overall administration of the SERP will be the responsibility of the RPAC.
7.2 Powers of the RPAC. The RPAC will have the sole and absolute discretion regarding the exercise of its powers and
duties under this SERP. In order to effectuate the purposes of the SERP, the RPAC will have the following powers and duties:
(a)
(b)
(c)
(d)
(e)
To appoint the Plan Administrator;
To review and render decisions respecting a denial of a claim for benefits under the SERP;
To construe the SERP and to make equitable adjustments for any mistakes or errors made in the administration of
the SERP;
To carry out the duties expressly reserved to it under the SERP; and
To determine and resolve, in its sole and absolute discretion, all questions relating to the administration of the
SERP and the Trust (i) when differences of opinion arise between the Company, an Affiliate, the Plan
Administrator, the Trustee, a Participant, or any of them, and (ii) whenever it is deemed advisable to determine
such questions in order to promote the uniform and nondiscriminatory administration of the SERP for the greatest
benefit of all parties concerned.
The foregoing list of express powers is not intended to be either complete or conclusive, and the RPAC will, in addition, have
such powers as it may reasonably determine to be necessary or appropriate in the performance of its powers and duties under
the SERP.
7.3 Appointment of Plan Administrator. The RPAC will appoint the Plan Administrator, who will have the responsibility and
duty to administer the SERP on a daily basis. The RPAC may remove the Plan Administrator with or without cause at any time.
The Plan Administrator may resign upon written notice to the RPAC.
7.4 Duties of Plan Administrator. The Plan Administrator will have sole and absolute discretion regarding the exercise of its
powers and duties under this SERP. The Plan Administrator will have the following powers and duties:
(a)
(b)
(c)
To direct the administration of the SERP in accordance with the provisions herein set forth;
To adopt rules of procedure and regulations necessary for the administration of the SERP, provided such rules
are not inconsistent with the terms of the SERP;
To determine all questions with regard to rights of Participants under the SERP including, but not limited to,
questions involving who is an Eligible Employee and the amount of a Participant’s benefits;
29
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
To enforce the terms of the SERP and any rules and regulations adopted by the RPAC;
To review and render decisions respecting a claim for a benefit under the SERP;
To furnish the Employer with information required for tax or other purposes;
To engage the service of counsel (who may, if appropriate, be counsel for the Employer), actuaries, and agents
whom it may deem advisable to assist it with the performance of its duties;
To prescribe procedures to be followed by distributees in obtaining benefits;
To receive from the Employer and from Participants such information as is necessary for the proper administration
of the SERP;
To create and maintain such records and forms as are required for the efficient administration of the SERP;
To make all determinations and computations concerning the benefits to which any Participant is entitled under
the SERP;
(l)
To give the Trustee specific directions in writing with respect to:
(i)
(ii)
the making of distribution payments, giving the names of the payees, the amounts to be paid and the time
or times when payments will be made; and
the making of any other payments which the Trustee is not by the terms of the trust agreement authorized
to make without a direction in writing by the Plan Administrator or the Company;
(m)
To comply with all applicable lawful reporting and disclosure requirements of ERISA;
(n)
(o)
To comply (or transfer responsibility for compliance to the Trustee) with all applicable federal income tax
withholding requirements for benefit distributions; and
To construe the SERP, in its sole and absolute discretion, and make equitable adjustments for any mistakes and
errors made in the administration of the SERP.
The foregoing list of express duties is not intended to be either complete or conclusive, and the Plan Administrator will, in
addition, exercise such other powers and perform such other duties as it may deem necessary, desirable, advisable or proper for
the supervision and administration of the SERP.
7.5 Indemnification of the RPAC and Plan Administrator. To the extent not covered by insurance, or if there is a failure to
provide full insurance coverage for any reason, and to the extent permissible under corporate by-laws and other applicable laws
and regulations, the Company agrees to hold harmless and indemnify the RPAC and Plan Administrator against any and all
claims and causes of action by or on behalf of any and all parties whomsoever, and all losses therefrom, including, without
limitation, costs of defense and reasonable attorneys’ fees, based upon or arising
30
out of any act or omission relating to or in connection with the SERP other than losses resulting from the RPAC’s, or any such
person’s fraud or willful misconduct.
7.6 Claims for Benefits.
(a)
Initial Claim . In the event that an Employee, Eligible Employee, Participant, Surviving Spouse, or Eligible Child (a
“claimant”) claims to be eligible for benefits, or claims any rights under this SERP, such claimant must complete
and submit such claim forms and supporting documentation as will be required by the Plan Administrator, in its
sole and absolute discretion. Likewise, any claimant who feels unfairly treated as a result of the administration of
the SERP must file a written claim, setting forth the basis of the claim, with the Plan Administrator. In connection
with the determination of a claim, or in connection with review of a denied claim, the claimant may use
representation and may examine this SERP, and any other pertinent documents generally available to
Participants that are specifically related to the claim and may appoint an authorized representative to pursue the
claim on his behalf. References to the claimant include his authorized representative, when applicable.
Different claims procedures apply to claims for benefits on account of Disability, referred to as "Disability claims,"
and all other claims for benefits, referred to as "non-Disability claims."
(b)
Non-Disability Claims .
(i)
Initial Decision . If a claimant files a non-Disability claim, written notice of the disposition of such claim will
be furnished to the claimant within ninety (90) days after the claim is filed with the Plan Administrator
unless special circumstances require an extension of time for processing the claim. Such extension will not
exceed ninety (90) days and no extension will be allowed unless, within the initial ninety (90)-day period,
the claimant is sent an extension notice indicating the special circumstances requiring the extension and
specifying a date by which the Plan Administrator expects to issue its final decision. If the claim is denied,
the Plan Administrator's notice will set forth:
(A)
(B)
(C)
The specific reason or reasons for the denial
Specific references to pertinent SERP provisions on which the Plan Administrator based its denial;
A description of any additional material and information needed for the claimant to perfect his claim
and an explanation of why the material or information is needed;
(D)
A statement that the claimant may:
(1)
Appeal the claim in writing to the RPAC, including a description of such appeal procedures
and the time limits applicable to such procedures;
31
(2)
(3)
(4)
Review pertinent SERP documents;
Submit issues and comments in writing; and
Pursue arbitration following the denial of the claim on appeal;
(ii)
(iii)
(E)
(F)
A statement that any appeal that the claimant wishes to make of the adverse determination must be
made in writing to the RPAC within ninety (90) days after receipt of the Plan Administrator's notice
of denial of benefits; and
A statement that his failure to appeal the action to the RPAC in writing within the ninety (90)-day
period will render the Plan Administrator's determination final, binding, and conclusive.
All benefits provided in this SERP as a result of the disposition of a claim will be paid as soon as
practicable following receipt of proof of entitlement, if requested.
Appeal of Denied Non-Disability Claim . Within ninety (90) days after receiving written notice of the Plan
Administrator's denial of his initial non-Disability claim, the claimant may file with the RPAC a written
appeal of his claim. If the claimant does not file an appeal within ninety (90) days after receiving written
notice of the Plan Administrator's disposition of the claim, the claimant will be deemed to have accepted
the Plan Administrator's written disposition, unless the claimant was physically or mentally incapacitated so
as to be unable to file an appeal within the ninety (90) day period.
Decision on Appeal of Non-Disability Claim . After receipt by the RPAC of a written appeal of a non-
Disability claim, the RPAC will review the claim taking into account all comments, documents, records and
other information submitted by the claimant regarding the claim without regard to whether such information
was considered in the initial benefit determination. The RPAC will notify the claimant of its decision by
delivery or by certified or registered mail to his last known address. A decision on appeal of the claim will
be made by the RPAC at its next meeting following receipt of the appeal. If no meeting of the RPAC is
scheduled within forty-five (45) days of receipt of the appeal, then the RPAC will hold a special meeting to
review such appeal within such forty-five (45) day period. If special circumstances require an extension of
the forty-five (45) day period, the RPAC will so notify the claimant and a decision will be made within ninety
(90) days of receipt of the appeal. In any event, if a claim is not determined by the RPAC within ninety (90)
days of receipt of the appeal, it will be deemed to be denied.
The decision of the RPAC will be provided to the claimant as soon as possible but no later than five (5)
days after the determination on appeal is made. The decision will be in writing and will include the specific
reasons for the decision presented in a manner calculated to be understood by the claimant and will
contain references to all relevant SERP provisions on which the decision was based. Such decision will
also advise the claimant that he may
32
receive upon request, and free of charge, reasonable access to and copies of all documents, records and
other information relevant to his claim and will inform the claimant of his right to arbitration in the case of an
adverse decision regarding his appeal. The decision of the RPAC will be final and conclusive.
(c)
Disability Claims . The SERP will ensure that all Disability claims and appeals are adjudicated in a manner
designed to ensure the independence and impartiality of the persons involved in making the decision by ensuring
that decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any
individual, such as a medical or vocational expert, must not be based upon the likelihood that the individual will
support the denial of benefit
(i)
Initial Decision on Disability Claim . The Plan Administrator will notify the claimant the initial decision on
a Disability claim no later than forty-five (45)-days after receipt of the claim by the SERP. This period may
be extended by the Plan Administrator for up to thirty (30) days provided that the Plan Administrator
determines that such an extension is necessary due to matters beyond the control of the SERP and the
claimant is notified before the expiration of the initial forty-five (45)-day period of the circumstances
requiring the extension of time and the date by which the Plan Administrator expects to make a decision. If,
before the first thirty (30)-day extension period, the Plan Administrator determines that, due to matters
beyond the control of the SERP, a decision can not be made within that extension period, the period for
making the initial benefit determination may be extended for up to an additional thirty (30) days provided
that the claimant is notified before the expiration of the first thirty (30)-day extension period of the
circumstances requiring the extension and the date as of which the Plan Administrator expects to issue a
decision. In the case of any extension, the notice of extension will specifically explain the standards on
which entitlement to a benefit by reason of Disability is based, the unresolved issues that prevent a
decision on the claim, and the additional information needed to resolve those issues and the claimant will
be given at least forty-five (45) days within which to provide the specified information.
The claimant will be provided with written or electronic notification of any adverse benefit determination
(i.e., denial) of a Disability claim, in a culturally and linguistically appropriate manner by providing oral
language services (such as a telephone customer assistance hotline) that includes answering questions in
any “applicable non-English language,” as defined below, and providing assistance with filing claims and
appeals in any applicable non-English language, providing, upon request, a notice in any applicable non-
English language and including in the English version of all notices, a statement prominently displayed in
any applicable non-English language clearly indicating how to access the language services provided by
the SERP. For this purpose a non-English language is an applicable non-English language if ten percent
(10%) or more of the population residing in the county to which a notice is sent is literate only in the same
non-English language, as determined in guidance issued by the Secretary of the Department of
33
Labor. The notification will set forth, in a manner calculated to be understood by the claimant:
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
the specific reason or reasons for the denial;
reference to the specific SERP provisions on which the denial is based;
a description of any additional material or information necessary for the claimant to perfect the claim
and an explanation of why such material or information is necessary;
a description of the SERP's review procedures and the time limits applicable to such procedures,
including a statement of the claimant's right to bring a civil action under section 502 of ERISA
following the denial of an appeal;
a discussion of the decision, including an explanation of the basis for disagreeing with or not
following (i) the views presented by the claimant to the SERP of health care professionals treating
the claimant and the vocational professionals who evaluated the claimant, (ii) the views of medical
or vocational experts whose advice was obtained on behalf of the SERP in connection with the
denial, without regard to whether the advice was relied on in making the benefit determination, and
(iii) a disability determination regarding the claimant presented by the claimant to the SERP made
by the Social Security Administration;
if the denial is based on a medical necessity or experimental treatment or similar exclusion or limit,
either an explanation of the scientific or clinical judgement for the determination, applying the terms
of the SERP to the claimant’s medical circumstances, or a statement that such explanation will be
provided free of charge upon request;
either the specific internal rules, guidelines, protocols, standards or other similar criteria of the
SERP relied upon in denying the claim or, alternatively, a statement that such rules, guidelines,
protocols, standards or other similar criteria do not exist; and
a statement that the claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of, all documents, records, and other information relevant to the claim for
benefits.
(ii)
Appeal of Denial of Disability Claim
(A)
Opportunity for Full and Fair Review . A claimant will be provided a reasonable opportunity to
appeal the denial of his Disability claim under which there will be a full and fair review of the claim
and the denial. Accordingly:
34
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
a claimant will be provided one hundred and eighty (180) days following receipt of notice of
the denial of the Disability claim to appeal such determination;
a claimant will be provided the opportunity to submit written comments, documents, records
or other information relating to the Disability claim on appeal;
a claimant will be provided, upon request and free of charge, reasonable access to and
copies of all documents, records and other information relevant to the Disability claim;
appellant review will take into account all comments, documents, records and other
information submitted by the claimant relating to the Disability claim without regard to other
such information once submitted or considered in the initial benefit determination;
such appeal will not afford deference to the initial denial and will be conducted by the RPAC,
which is an appropriate Named Fiduciary of the SERP and which will neither be the
individual who denied the Disability claim that is subject to the appeal nor the subordinate of
such individual;
in the case of any appeal of a denied Disability claim that is based in whole or in part on a
medical judgment, the claimant will be entitled to a review by the RPAC based on the
RPAC's consultation with a health care professional who has appropriate training and
experience in the field of medicine involved in the medical judgment whereby such
professional is neither an individual who was consulted in connection with the denial that is
the subject of the appeal nor the subordinate of any such individual;
the claimant will be provided with the identity of the medical or vocational experts whose
advice was obtained on behalf of the SERP in connection with the denial of the Disability
claim, without regard to whether the advice was relied upon in making the benefit
determination; and
as soon as possible and sufficiently in advance of the date on which the notice on the
appeal is required to be provided, the RPAC or its delegate will provide the claimant, free of
charge, with any new or additional evidence and/or rationale considered, relied upon, or
generated by the SERP in connection with the Disability claim.
(B)
Timing of Decision on Appeal of Disability Claim . The decision on appeal of the claim will be
made by the RPAC at its next meeting following receipt of the appeal. If no meeting of the RPAC is
35
(C)
scheduled within forty-five (45) days of receipt of the appeal, then the RPAC will hold a special
meeting to review such appeal within such forty-five (45) day period. If special circumstances
require an extension of the forty-five (45) day period, the RPAC will so notify the claimant and a
decision will be made within ninety (90) days of receipt of the appeal. In any event, if the appeal is
not determined by the RPAC within ninety (90) days after its receipt of the appeal, it will be deemed
to be denied. .
Decision on Appeal of Disability Claim . The decision of the RPAC will be provided to the
claimant as soon as possible but no later than five (5) days after the determination on appeal is
made. The claimant will be provided with written or electronic notification of the SERP’s benefit
determination on appeal in a culturally and linguistically appropriate manner by providing oral
language services (such as a telephone customer assistance hotline) that includes answering
questions in any “applicable non-English language,” as defined below, and providing assistance
with filing claims and appeals in any applicable non-English language, providing, upon request, a
notice in any applicable non-English language and including in the English version of all notices, a
statement prominently displayed in any applicable non-English language clearly indicating how to
access the language services provided by the SERP. For this purpose a non-English language is
an applicable non-English language if ten percent (10%) or more of the population residing in the
county to which a notice is sent is literate only in the same non-English language, as determined in
guidance issued by the Secretary of the Department of Labor. If the appeal is denied, the
notification will set forth, in a manner calculated to be understood by the claimant:
(1)
(2)
(3)
(4)
the specific reason or reasons for the appeal decision;
reference to the specific SERP provisions on which the appeal decision is based;
a statement that the claimant is entitled to receive, upon request and free of charge,
reasonable access to and copies of all documents, records and other information relevant to
the Disability claim for benefits;
a statement describing the SERP's appeals procedures, the right to obtain information about
such procedures, a statement of the claimant’s right to file a civil action under section 502 of
ERISA including a description of any applicable contractual limitations period that applies to
the claimant’s right to bring such action, including the date on which the contractual
limitations period expires for the claim;
36
(5)
(6)
(7)
a discussion of the appeal decision, including an explanation of the basis for disagreeing
with or not following (i) the views presented by the claimant to the SERP of health care
professionals treating the claimant and the vocational professionals who evaluated the
claimant, (ii) the views of medical or vocational experts whose advice was obtained on
behalf of the SERP in connection with the claimant’s appeal, without regard to whether the
advice was relied on in denying the appeal, and (iii) a disability determination regarding the
claimant presented by the claimant to the SERP made by the Social Security Administration;
if the denial on appeal is based on a medical necessity or experimental treatment or similar
exclusion or limit, either an explanation of the scientific or clinical judgement for the denial
on appeal, applying the terms of the SERP to the claimant’s medical circumstances, or a
statement that such explanation will be provided free of charge upon request; and
either the specific internal rules, guidelines, protocols, standards or other similar criteria of
the SERP relied upon in denying the appeal or, alternatively, a statement that such rules,
guidelines, protocols, standards or other similar criteria do not exist.
7.7 Arbitration. In the event the claims review procedure described in Section 7.6 of the SERP regarding non-Disability
claims does not result in an outcome thought by the claimant to be in accordance with the SERP document, he may appeal to a
third party neutral arbitrator. The claimant must appeal to an arbitrator within sixty (60) days after receiving the RPAC’s denial or
deemed denial of his request for review and before bringing suit in court. The arbitration will be conducted pursuant to the
American Arbitration Association (" AAA ") Rules on Employee Benefit Claims.
The arbitrator will be mutually selected by the claimant and the RPAC from a list of arbitrators who are experienced in
nonqualified deferred compensation plan benefit matters that is provided by the AAA. If the parties are unable to agree on the
selection of an arbitrator within ten (10) days of receiving the list from the AAA, the AAA will appoint an arbitrator. The arbitrator’s
review will be limited to interpretation of the SERP document in the context of the particular facts involved. The claimant, the
RPAC and the Company agree to accept the award of the arbitrator as binding, and all exercises of power by the arbitrator
hereunder will be final, conclusive and binding on all interested parties, unless found by a court of competent jurisdiction, in a
final judgment that is no longer subject to review or appeal, to be arbitrary and capricious. The claimant, RPAC and the
Company agree that the venue for the arbitration will be in Dallas, Texas. The costs of arbitration will be paid by the Company;
the costs of legal representation for the claimant or witness costs for the claimant will be borne by the claimant; provided, that, (i)
if the claimant prevails in such arbitration, the Company will reimburse the claimant for his reasonable legal fees and expenses
incurred in bringing the arbitration, and (ii) in all other cases, as part of his award, the Arbitrator may require the Company to
reimburse the claimant for all or a portion of such amounts.
37
The following discovery may be conducted by the parties: interrogatories, demands to produce documents, requests for
admissions and oral depositions. The arbitrator will resolve any discovery disputes by such pre hearing conferences as may be
needed. The Company, RPAC and claimant agree that the arbitrator will have the power of subpoena process as provided by
law. Disagreements concerning the scope of depositions or document production, its reasonableness and enforcement of
discovery requests will be subject to agreement by the Company and the claimant or will be resolved by the arbitrator. All
discovery requests will be subject to the proprietary rights and rights of privilege and other protections granted by applicable law
to the Company and the claimant and the arbitrator will adopt procedures to protect such rights. With respect to any dispute, the
Company, RPAC and the claimant agree that all discovery activities will be expressly limited to matters directly relevant to the
dispute and the arbitrator will be required to fully enforce this requirement.
The arbitrator will have no power to add to, subtract from, or modify any of the terms of the SERP, or to change or add to any
benefits provided by the SERP, or to waive or fail to apply any requirements of eligibility for a benefit under the SERP.
Nonetheless, the arbitrator will have absolute discretion in the exercise of its powers in this SERP. Arbitration decisions will not
establish binding precedent with respect to the administration or operation of the SERP.
7.8 Receipt and Release of Necessary Information. In implementing the terms of this SERP, the RPAC and Plan
Administrator, as applicable, may, without the consent of or notice to any person, release to or obtain from any other insuring
entity or other organization or person any information, with respect to any person, which the RPAC or Plan Administrator deems
to be necessary for such purposes. Any person claiming benefits under this SERP will furnish to the RPAC or Plan
Administrator, as applicable, such information as may be necessary to determine eligibility for and amount of benefit, as a
condition of claiming and receiving such benefit.
7.9 Overpayment and Underpayment of Benefits. The Plan Administrator may adopt, in its sole and absolute discretion,
whatever rules, procedures and accounting practices are appropriate in providing for the collection of any overpayment of
benefits. If a Participant, Surviving Spouse or Eligible Child receives an underpayment of benefits, the Plan Administrator will
direct that payment be made as soon as practicable to make up for the underpayment. If an overpayment is made to a
Participant, Surviving Spouse or Eligible Child, for whatever reason, the Plan Administrator may, in its sole and absolute
discretion, (a) withhold payment of any further benefits under the SERP until the overpayment has been collected provided that
the entire amount of reduction in any calendar year does not exceed five thousand dollars ($5,000), and the reduction is made at
the same time and in the same amount as the debt otherwise would have been due and collected from the Participant or (b) may
require repayment of benefits paid under this SERP without regard to further benefits to which the Participant, Surviving Spouse
or Eligible Child may be entitled.
7.10 Change of Control. Upon a Change of Control and for the following three (3) years thereafter, if any arbitration arises
relating to an event occurring or a claim made within three (3) years of a Change of Control, (i) the arbitrator will not decide the
claim based on an abuse of discretion principle or give the previous RPAC decision any special deference, but rather will
determine the claim de novo based on its own independent reading of the SERP; and (ii) the Company will pay the Participant's
reasonable legal and other related fees and expenses by applying Section 3.1(f) of the ESP (except that if the Participant is not
entitled to severance benefits under the ESP on account of the Termination of Employment that entitles the Participant to receive
38
benefits under this SERP, the reference to the "shorter of the Severance Period or the Reimbursement Period" in the ESP will be
changed to the "Reimbursement Period" only).
End of Article VII
39
ARTICLE VIII
AMENDMENT AND TERMINATION OF THE PLAN
8.1 Continuation. The Company intends to continue this SERP indefinitely, but nevertheless assumes no contractual
obligation beyond the promise to pay the benefits described in this SERP.
8.2 Amendment of SERP. Except as provided below, the Company, through an action of the Human Resources Committee,
reserves the right in its sole and absolute discretion to amend this SERP in any respect at any time, except that upon or during
the two (2) year period after any Change of Control of the Company, (a) SERP benefits cannot be reduced, (b) Articles VII, VIII
and Section 9.1(b) of the SERP cannot be changed and (c) no prospective amendment that adversely affects the rights or
obligations of a Participant may be made unless the affected Participant receives at least one (1) year's advance written notice
of such amendment.
Moreover, no amendment may ever be made that retroactively reduces or diminishes the rights of a Participant to the benefits
described herein that have been accrued or earned through the date of such amendment, even if a Termination of Employment
has not yet occurred with respect to such Participant.
In addition to the Human Resources Committee, the RPAC has the right to make non-material amendments to the SERP to
comply with changes in the law or to facilitate SERP administration; provided, however, that each such proposed nonmaterial
amendment must be discussed with the Chairperson of the Human Resources Committee in order to determine whether such
change would constitute a material amendment to the SERP.
The provisions of this Section 8.2 will not restrict the right of the Company to terminate this SERP under Section 8.3 below or the
termination of an Affiliate’s participation under Section 8.4 below.
8.3 Termination of SERP. Except upon or during the two (2) year period after any Change of Control of the Company, the
Company, through an action of the Human Resources Committee, may terminate or suspend this SERP in whole or in part at
any time or may terminate an Agreement with any Participant at any time. In the event of termination of the SERP or of a
Participant’s Agreement, a Participant will be entitled to only the vested portion of his accrued benefits under Article IV of the
SERP as of the time of the termination of the SERP or his Agreement. All further vesting and benefit accrual will cease on the
date of SERP or Agreement termination. Benefit payments would be in the amounts specified and would commence at the time
specified in Article IV as appropriate.
Notwithstanding the foregoing, the Human Resources Committee may decide to terminate and liquidate the SERP under the
following circumstances:
(a)
Corporate Dissolution or Bankruptcy . The Human Resources Committee may terminate and liquidate the
SERP within twelve (12) months of a corporate dissolution taxed under section 331 of the Code or with the
approval of a bankruptcy court pursuant to 11 U.S.C. § 503(b)(1)(A), provided that the amounts deferred under the
SERP are included in Participants’ gross income in the latest of the following years (or if earlier, the taxable year
in which the amount is actually or constructively received):
(i)
The calendar year in which the SERP termination and liquidation occurs.
40
(ii)
The first calendar year in which the amount is no longer subject to a substantial risk of forfeiture.
(iii)
The first calendar year in which the payment is administratively practicable.
(b)
(c)
Change of Control . The Human Resources Committee may terminate and liquidate the SERP within the thirty
(30) days preceding a Change of Control (except on account of a liquidation or dissolution of the Company)
provided that all plans or arrangements that would be aggregated with the SERP under section 409A of the Code
are also terminated and liquidated with respect to each Participant that experienced the Change of Control event
so that under the terms of the SERP and all such arrangements the Participant is required to receive all amounts
of compensation deferred under such arrangements within twelve (12) months of the termination of the SERP or
arrangement, as applicable. In the case of a Change of Control event which constitutes a sale of assets, the
termination of the SERP pursuant to this Section 8.3(b) may be made with respect to the Employer that is
primarily liable immediately after the Change of Control transaction for the payment of benefits under the SERP.
Termination of SERP . Except upon or during the two (2) year period after any Change of Control of the
Company, the Human Resources Committee may terminate and liquidate the SERP provided that (i) the
termination and liquidation does not occur by reason of a downturn of the financial health of the Company or an
Employer, (ii) all plans or arrangements that would be aggregated with the SERP under section 409A of the Code
are also terminated and liquidated, (iii) no payments in liquidation of the SERP are made within twelve (12)
months of the date of termination of the SERP other than payments that would be made in the ordinary course
operation of the SERP, (iv) all payments are made within twenty-four (24) months of the date the SERP is
terminated and (v) the Company or the Employer, as applicable depending on whether the SERP is terminated
with respect to such entity, do not adopt a new plan that would be aggregated with the SERP within three (3)
years of the date of the termination of the SERP.
8.4 Termination of Affiliate’s Participation. An Affiliate may terminate its participation in the SERP at any time by an action
of its governing body and providing written notice to the Company. Likewise, the Company may terminate an Affiliate’s
participation in the SERP at any time by an action of the Human Resources Committee and providing written notice to the
Affiliate. The effective date of any such termination will be the later of the date specified in the notice of the termination of
participation or the date on which the RPAC can administratively implement such termination. In the event that an Affiliate’s
participation in the SERP is terminated, each Participant employed by such Affiliate will continue to participate in the SERP as an
inactive Participant and will be entitled to a distribution of his vested Retirement Benefit pursuant to Article IV. An Affiliate’s
participation in the SERP may not be terminated upon the occurrence of or during the two (2) year period after any Change of
Control.
End of Article VIII
41
9.1 No Right to Assets.
ARTICLE IX
CONDITIONS RELATED TO BENEFITS
(a)
SERP Unfunded . A Participant will have only an unsecured contractual right to the amounts, if any, payable
under this SERP. Neither a Participant nor any other person will acquire by reason of the SERP any right in or title
to any assets, funds or property of the Employer whatsoever including, without limiting the generality of the
foregoing, any specific funds or assets which the Employer, in its sole discretion, may set aside in anticipation of a
liability under this SERP. Any rights created under the SERP and this Agreement will be mere unsecured
contractual rights of SERP participants and their beneficiaries against Employer. The fact that the Trust has been
established, to assist in the payment of benefits under this SERP will not create any preferred claim by
Participants or their beneficiaries on, or any beneficial ownership interest in, any assets of the Trust. The assets of
the Trust and the Employer will be subject to the claims of the Employer’s general creditors under federal and
state law.
(b)
Rabbi Trust . Upon a Change of Control, the following will occur:
(i)
(ii)
(iii)
(iv)
(v)
the Trust will become (or continue to be) irrevocable;
for ten (10) years following a Change of Control, the Trustee can only be removed as set forth in the Trust;
if the Trustee is removed or resigns within ten (10) years following a Change of Control, the Trustee will
select a successor Trustee as set forth in the Trust;
for three (3) years following a Change of Control, the Company will be responsible for directly paying all
Trustee fees and expenses, together with all fees and expenses incurred under Article VII relating to the
RPAC, Plan Administrator, and SERP administrative expenses; and
any amendments to the Trust Agreement will be subject to the following restrictions: (i) certain Trust
Agreement provisions may not be amended for ten (10) years following a Change of Control, as set forth in
the Trust; and (ii) no such amendment will (A) change the irrevocable nature of the Trust; (B) adversely
affect a Participant's rights to Retirement Benefits without the consent of the Participant; (C) impair the
rights of the Company's creditors under the Trust; or (D) cause the Trust to fail to be a "grantor trust"
pursuant to Code sections 671 through 679.
9.2 No Employment Rights. Nothing in this SERP will constitute a contract of continuing Employment or in any manner
obligate the Employer or an Affiliate to continue the service of a Participant, or obligate a Participant to continue in the service of
the Employer, and nothing in this SERP will be construed as fixing or regulating the compensation paid to a Participant.
9.3 Indebtedness. If at the time payments or installments of payments are to be made hereunder, any Participant or his
Surviving Spouse or both are indebted to the Employer or an
42
Affiliate, then the payments remaining to be made to the Participant or his Surviving Spouse or both may, at the discretion of the
RPAC, be reduced by the amount of such indebtedness; provided, that the entire amount of reduction in any calendar year does
not exceed five thousand dollars ($5,000), and the reduction is made at the same time and in the same amount as the debt
otherwise would have been due and collected from the Participant. An election by the RPAC not to reduce any such payment or
payments will not constitute a waiver of any claim for such indebtedness.
9.4 Conditions Precedent. No Retirement Benefits will be payable hereunder to any Participant:
(a)
(b)
whose Employment with the Employer or an Affiliate, is terminated for Cause; or
except as provided in Sections 4.9(a)(i) and 4.9(a)(ii), who within three (3) years after Termination of Employment
becomes an employee with or consultant to any third party engaged in any line of business in competition with the
Employer or, to the extent determined by the Senior Vice President, Human Resources or Plan Administrator, an
Affiliate (i) in a line of business in which Participant has performed services for the Employer or such Affiliate, or
(ii) that accounts for more than ten percent (10%) of the gross revenues of the Employer or such Affiliate taken as
a whole.
End of Article IX
43
ARTICLE X
MISCELLANEOUS
10.1 Gender and Number. Wherever appropriate herein, the masculine may mean the feminine and the singular may mean
the plural or vice versa.
10.2 Notice. Any notice or filing required to be given or delivered to the RPAC or Plan Administrator will include delivery to or
filing with a person or persons designated by the RPAC or Plan Administrator, as applicable, for the disbursement and the
receipt of administrative forms. Delivery will be deemed to have occurred only when the form or other communication is actually
received. Headings and subheadings are for the purpose of reference only and are not to be considered in the construction of
this SERP.
10.3 Validity. In the event any provision of this SERP is held invalid, void or unenforceable, the same will not affect, in any
respect whatsoever, the validity of any other provision of this SERP.
10.4 Applicable Law. This SERP will be governed and construed in accordance with the laws of the State of Texas.
10.5 Successors in Interest. This SERP will inure to the benefit of, be binding upon, and be enforceable by, any corporate
successor to the Company or successor to substantially all of the assets of the Company.
10.6 No Representation on Tax Matters. The Company makes no representation to Participants regarding current or future
income tax ramifications of the SERP.
10.7 Provisions Binding. All of the provisions of this SERP will be binding upon all persons who will be entitled to any benefit
hereunder, their heirs and personal representatives.
End of Article X
44
IN WITNESS WHEREOF , this Tenth Amended and Restated Tenet Healthcare Corporation Supplemental Executive Retirement
Plan has been executed this 5th day of March , 2018, effective as of April 1, 2018, except as specifically provided otherwise
herein.
TENET HEALTHCARE CORPORATION
By: /s/ Paul Slavin
Paul Slavin, Vice President, Total Rewards and
Workforce Analytics
EXHIBIT A1
TENET HEALTHCARE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT
FOR PARTICIPANTS NAMED ON AND AFTER AUGUST 3, 2011- AMI SERP BENEFITS
THIS AGREEMENT is made as of __________________, _____ and supersedes [any previous agreement] [the previous
agreement dated ___________, _________,] by and between TENET HEALTHCARE CORPORATION , a Nevada corporation
(" Tenet "), and _____________ (" Participant ").
WHEREAS , Tenet has adopted the Tenet Healthcare Corporation Supplemental Executive Retirement Plan (the " Tenet SERP
") for a select group of highly compensated or management employees of Tenet and its Subsidiaries (as defined in the Tenet
SERP); and
WHEREAS , Tenet has determined that Participant is currently eligible to participate in the Tenet SERP;
WHEREAS , the Tenet SERP requires that an agreement be entered into between Tenet and Participant setting out certain
terms and benefits of the SERP as they apply to the Participant;
WHEREAS , Participant has also been a participant in the American Medical International, Inc. Supplemental Executive
Retirement Plan (the " AMI SERP ") and the American Medical International, Inc. Pension Plan (the " AMI Pension Plan ") and
has a frozen benefit under both plans as of December 31, 1995; and
WHEREAS , the amount of the benefits payable to Participant under the Tenet SERP will be reduced or offset by the benefits
payable to Participant under the AMI SERP and the AMI Pension Plan.
NOW, THEREFORE , Tenet and Participant hereby agree as follows:
1.
Calculation of Benefits . The Tenet SERP is hereby incorporated into and made a part of this Agreement as though set
forth in full herein. The parties will be bound by and have the benefit of each and every provision of the Tenet SERP, as
amended from time to time, EXCEPT that when benefits become payable under the Tenet SERP, the amount of benefits
calculated under the Tenet SERP will include an offset of the benefits earned under the AMI SERP and AMI Pension
Plan as of December 31, 1995, in addition to offset provided by the Retirement Benefits Adjustment Factor shown in item
3 below. For purposes of determining the offset attributable to the AMI SERP and the AMI Pension Plan, the amount of
Participant’s benefits under the Tenet SERP, the AMI SERP and the AMI Pension Plan will be calculated as of
Participant’s normal retirement date, as defined in such plans, and the offset will be determined accordingly using the
actuarial factors and assumptions specified in the applicable plans.
In addition, the provisions of Section 2.20 regarding the crediting of age and Years of Service during the severance
period under the Severance Plan will not apply ( i.e.
, the Participant will not be credited with age and Years of Service
during the severance period and instead his eligibility for an Early Retirement Benefit will be determined as of the date of
his Termination of Employment). The parties will be bound by and have the benefit of each and every applicable
provision of the Tenet SERP. Participant’s benefits under the AMI SERP and AMI Pension Plan will be paid to Participant
pursuant to the terms of such plans.
A1 - 1
Participant’s benefits under the Tenet SERP, as calculated pursuant to this item 1, will be paid in accordance with the
terms of the Tenet SERP and this Agreement.
2.
Participant Data for Benefit Calculation Purposes . Participant was born on____________________, and his or her
present employment with Tenet or an Employer, (i) for purposes of determining "Years of Service," under the Tenet
SERP began on _________________, (ii) for purposes of determining vesting under Section 4.3 of the Tenet SERP
began on ______________. [In addition, Participant will be credited with [earnings for Final Average Earnings purposes]
[age and service for vesting purposes] for his employment with _______________________ who is an Affiliate who has
not adopted the SERP as an Employer.]
A " Domestic Partner ," as defined under the Criteria for Domestic Partnership Status under the Tenet Employee Benefit
Plan, will be treated as the Participant’s spouse for purposes of the Tenet SERP.
Participant's spouse/Domestic Partner (please circle which applies):
______________________________________ was born on _____________.
Participant's Eligible Children under the age of 21 and their dates of birth are as follows:
Name
Birth Date
Participant agrees to notify the Vice President, Compensation, Benefits and Corporate HR of Tenet promptly from time to
time of any change in his or her spouse, Domestic Partner or Eligible Children.
Retirement Benefit Plans Adjustment Factor . Participant's "Retirement Benefit Plans Adjustment Factor" under Article
II of the Tenet SERP as of the date of this Agreement is _________ percent. The Retirement Benefit Plans Adjustment
Factor will be recalculated each year and may differ from the percent set forth in this item 3.
Payment of Tenet SERP Benefits . Except as provided in the SERP, payments under the Tenet SERP will begin not
later than the first day of the calendar month following the occurrence of an event which entitles Participant (or his or her
Surviving Spouse (including a Domestic Partner pursuant to item 2 herein) or Eligible Children) to payments under the
Tenet SERP. Any benefits payable to a Participant by reason of a Termination of Employment will be subject to the six
(6) month delay applicable to Key Employees.
Dispute Resolution . Any dispute or claim for benefits under the Tenet SERP must be resolved through the claims
procedure set forth in Article VII of the Tenet SERP which procedure culminates in binding arbitration. By accepting the
benefits provided under the
3.
4.
5.
A1 - 2
Tenet SERP, Participant hereby agrees to binding arbitration as the final means of dispute resolution with respect to the
Tenet SERP.
6.
Successors and Assigns . This Agreement will inure to the benefit of and be binding upon Tenet and its successors and
assigns and Participant and his or her beneficiaries.
IN WITNESS WHEREOF , the parties hereto have entered into this Agreement on ___________________, 20__.
PARTICIPANT
TENET HEALTHCARE CORPORATION
Senior Vice President, Human Resources
By:
A1 - 3
EXHIBIT A2
TENET HEALTHCARE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT
FOR PARTICIPANTS NAMED ON AND AFTER AUGUST 3, 2011
THIS AGREEMENT is made as of __________________, _____ [and supersedes] [any previous agreement] [the previous
agreement dated ___________, _________,] by and between TENET HEALTHCARE CORPORATION , a Nevada corporation
(" Tenet "), and _____________ (" Participant ").
WHEREAS , Tenet has adopted the Tenet Healthcare Corporation Supplemental Executive Retirement Plan (the " Tenet SERP
") for a select group of highly compensated or management employees of Tenet and its Subsidiaries (as defined in the Tenet
SERP); and
WHEREAS , Tenet has determined that Participant is currently eligible to participate in the Tenet SERP; and
WHEREAS , the Tenet SERP requires that an agreement be entered into between Tenet and Participant setting out certain
terms and benefits of the SERP as they apply to the Participant.
NOW, THEREFORE , Tenet and Participant hereby agree as follows:
1.
2.
Incorporation of Tenet SERP Terms . The Tenet SERP is hereby incorporated into and made a part of this Agreement
as though set forth in full herein; provided, however, that the provisions of Section 2.20 regarding the crediting of age
and Years of Service during the severance period under the Severance Plan will not apply ( i.e.
, the Participant will not
be credited with age and Years of Service during the severance period and instead his eligibility for an Early Retirement
Benefit will be determined as of the date of his Termination of Employment). The parties will be bound by and have the
benefit of each and every applicable provision of the Tenet SERP. Participant’s benefits under the Tenet SERP will be
calculated and paid pursuant to the terms of the Tenet SERP and this Agreement.
Participant Data for Benefit Calculation Purposes . Participant was born on____________________, and his or her
present employment with Tenet or an Employer, (i) for purposes of determining "Years of Service," under the Tenet
SERP began on _________________, (ii) for purposes of determining vesting under Section 4.3 of the Tenet SERP
began on ______________. [In addition, Participant will be credited with [earnings for Final Average Earnings purposes]
[age and service for vesting purposes] for his employment with _______________________ who is an Affiliate who has
not adopted the SERP as an Employer.]
A " Domestic Partner ," as defined under the Criteria for Domestic Partnership Status under the Tenet Employee Benefit
Plan, will be treated as the Participant’s spouse for purposes of the Tenet SERP.
Participant's spouse/Domestic Partner (please circle which applies):
______________________________________ was born on _____________.
A2-1
Participant's Eligible Children under the age of 21 and their dates of birth are as follows:
Name
Birth Date
Participant agrees to notify the Vice President, Compensation, Benefits and Corporate HR of Tenet promptly from time to
time of any change in his or her spouse, Domestic Partner or Eligible Children.
Retirement Benefit Plans Adjustment Factor . Participant's "Retirement Benefit Plans Adjustment Factor" under Article
II of the Tenet SERP as of the date of this Agreement is _________ percent. The Retirement Benefit Plans Adjustment
Factor will be recalculated each year and may differ from the percent set forth in this item 3.
Payment of Tenet SERP Benefits . Except as provided in the SERP, payments under the Tenet SERP will begin not
later than the first day of the calendar month following the occurrence of an event which entitles Participant (or his or her
Surviving Spouse (including a Domestic Partner pursuant to item 2 herein) or Eligible Children) to payments under the
Tenet SERP. Any benefits payable to a Participant by reason of a Termination of Employment will be subject to the six
(6) month delay applicable to Key Employees.
Dispute Resolution . Any dispute or claim for benefits under the Tenet SERP must be resolved through the claims
procedure set forth in Article VII of the Tenet SERP which procedure culminates in binding arbitration. By accepting the
benefits provided under the Tenet SERP, Participant hereby agrees to binding arbitration as the final means of dispute
resolution with respect to the Tenet SERP.
Successors and Assigns . This Agreement will inure to the benefit of and be binding upon Tenet and its successors and
assigns and Participant and his or her beneficiaries.
3.
4.
5.
6.
IN WITNESS WHEREOF , the parties hereto have entered into this Agreement on ___________________, 20__.
PARTICIPANT
TENET HEALTHCARE CORPORATION
Senior Vice President, Human Resources
By:
A2-2
EXHIBIT B
UPDATE TO TENET HEALTHCARE CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AGREEMENT WITH PARTICIPANT
[This
Update
is
to
be
provided
and
apply
to
each
Active
Participant
who
has
an
existing
Agreement
on
December
31,
2013]
(" Update
THIS UPDATE
previously entered into between
_______________________ (" Participant ") and Tenet Healthcare Corporation (" Tenet ") with respect to Participant's benefits
under the Tenet Healthcare Corporation Supplemental Executive Retirement Plan (the " SERP "). Capitalized terms used in this
Update that are not defined herein or in Participant's Agreement will have the meaning set forth in the SERP.
amends the Agreement
(" Agreement
")
")
1.
2.
3.
Tenet recently updated the SERP provisions regarding calculation of the Existing Retirement Benefit Plans Adjustment
Factor to provide for the annual calculation of such factor using a projection of the benefits payable to participants under
the Social Security regulations and Retirement Plans in effect at the time the benefit calculation is performed. Further, for
purposes of determining a participant's benefits under the Retirement Plans, the projected benefit will be measured from
the participant's date of hire. In connection with this update, the name of such factor was changed to the "Retirement
Benefit Plans Adjustment Factor."
In order to avoid any reduction in Participant’s benefits accrued under the SERP as of December 31, 2013 application of
the updated calculation will be done on a grandfathered basis so that the factor will never be greater (but could be less)
than the Existing Retirement Benefit Plans Adjustment Factor set forth in Participant’s Agreement.
The provisions of this Update are effective December 31, 2013. In all other respects the terms of Participant’s Agreement
remain in effect.
B - 1
Exhibit 10(ee)
TENET
FIFTH AMENDED AND RESTATED
TENET 2006 DEFERRED
COMPENSATION
PLAN
As Amended and Restated Effective as of January 1, 2019
FIFTH AMENDED AND RESTATED
TENET 2006 DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
ARTICLE I PREAMBLE AND PURPOSE
1.1 Preamble
1.2 Purpose
ARTICLE II DEFINITIONS AND CONSTRUCTION
2.1 Definitions
2.2 Construction
ARTICLE III PARTICIPATION AND FORFEITABILITY OF BENEFITS
3.1 Eligibility and Participation
3.2 Forfeitability of Benefits
ARTICLE IV DEFERRAL, COMPANY CONTRIBUTIONS, ACCOUNTING AND INVESTMENT CREDITING RATES
4.1 General Rules Regarding Deferral Elections
4.2 Compensation and Bonus Deferrals
4.3 RSU Deferrals
4.4 Company Contributions
4.5 Accounting for Deferred Compensation
4.6
Investment Crediting Rates
ARTICLE V DISTRIBUTION OF BENEFITS
5.1 Distribution Election
5.2 Termination Distributions to Key Employees
5.3 Scheduled In-Service Withdrawals
5.4 Unforeseeable Emergency
5.5 Death of a Participant
5.6 Withholding
5.7
Impact of Reemployment on Benefits
ARTICLE VI PAYMENT LIMITATIONS
6.1 Spousal Claims
6.2
Legal Disability
6.3 Assignment
ARTICLE VII FUNDING
7.1 Funding
7.2 Creditor Status
ARTICLE VIII ADMINISTRATION
8.1 The RPAC
8.2 Powers of RPAC
8.3 Appointment of Plan Administrator
8.4 Duties of Plan Administrator
8.5
Indemnification of RPAC and Plan Administrator
1
1
2
3
3
14
15
15
16
17
17
17
19
20
20
22
24
24
25
25
25
26
26
26
27
27
28
28
29
29
29
30
30
30
30
30
32
8.6 Claims for Benefits
8.7 Receipt and Release of Necessary Information
8.8 Overpayment and Underpayment of Benefits
8.9 Change of Control
ARTICLE IX OTHER BENEFIT PLANS OF THE COMPANY
9.1 Other Plans
ARTICLE X AMENDMENT AND TERMINATION OF THE PLAN
10.1 Continuation
10.2 Amendment of Plan
10.3 Termination of Plan
10.4 Termination of Affiliate's Participation
ARTICLE XI MISCELLANEOUS
11.1 No Reduction of Employer Rights
11.2 Provisions Binding
EXHIBIT A LIMITS ON ELIGIBILITY AND PARTICIPATION
( ii )
32
34
34
35
36
36
37
37
37
37
38
39
39
39
A-1
FIFTH AMENDED AND RESTATED
TENET 2006 DEFERRED COMPENSATION PLAN
ARTICLE I
PREAMBLE AND PURPOSE
1.1
Preamble. Tenet Healthcare Corporation (the " Company ") previously adopted the Tenet 2006 Deferred Compensation
Plan (the " Plan ") to permit the Company and its participating Affiliates, as defined herein (collectively, the " Employer "),
to attract and retain a select group of management or highly compensated employees and Directors, as defined herein.
The Plan replaced the Tenet 2001 Deferred Compensation Plan (the " 2001 DCP ") and compensation and bonus
deferrals and employer contributions made to the 2001 DCP during the 2005 Plan Year ( i.e.
, January 1, through
December 31) were transferred to the Plan and will be administered pursuant to its terms.
Pursuant to the First Amended and Restated Plan, the Company amended and restated the Plan effective December 31,
2008 to (a) reflect that compensation and bonus deferrals and employer contributions made to the 2001 DCP have been
transferred to the Plan and will be administered pursuant to its terms, (b) permit participants to elect before December 31,
2008 pursuant to transition relief issued under section 409A of the Internal Revenue Code of 1986, as amended (the "
Code ") to receive an in-service withdrawal of amounts deemed invested in stock units in 2009 or a subsequent year,
(c) modify the fixed return investment option to provide that interest will be credited based on one hundred and twenty
percent (120%) of the long-term applicable federal rate as opposed to the current provision which credits interest based
on the prime rate of interest less one percent (1%), (d) reduce the employer matching contribution effective January 1,
2009, (e) comply with final regulations issued under section 409A of the Code and (f) make certain other design changes.
This amended and restated Plan was known as the First Amended and Restated Tenet 2006 Deferred Compensation
Plan.
The Company further amended the Plan, through the adoption of the Second Amended and Restated Plan, effective as
of May 9, 2012, to add certain Change of Control provisions and revise certain termination event definitions.
The Company amended and restated the Plan to increase the employer matching contribution under the Plan to conform
with the matching contribution provided under the Company’s tax-qualified section 401(k) plan and to incorporate certain
administrative changes adopted with respect to the Plan since its prior restatement. That amended and restated Plan was
known as the Third Amended and Restated Tenet 2006 Deferred Compensation Plan.
The Retirement Plans Administration Committee (“ RPAC ”) subsequently amended the Plan effective January 1, 2015 to
provide that an “Affiliate” will be determined based on an ownership percentage of greater than fifty percent (50%).
The RPAC again amended and restated the Plan effective November 30, 2015 to incorporate the terms of its prior
amendment, clarify that only physicians and A-Team members that provide services to Baptist Health Centers LLC (“
BHC ”) and are paid from a Tenet payroll will be eligible to participate in the Plan and reflect that the name of the
Compensation Committee has changed to the “ Human Resources Committee .” Such
amended and restated Plan was known as the Fourth Amended and Restated Tenet 2006 Deferred Compensation Plan.
By this instrument, the RPAC desires to amend and restate the Plan effective January 1, 2019, to remove reaching the
compensation limit on elective deferrals under the Company’s tax-qualified section 401(k) plan as a trigger that allows
participation in the Plan and to authorize BHC to be a participating employer in the Plan with respect to its physician
employees. This amended and restated Plan will be known as the Fifth Amended and Restated Tenet 2006 Deferred
Compensation Plan.
The Employer may adopt one or more domestic trusts to serve as a possible source of funds for the payment of benefits
under this Plan.
1.2
Purpose. Through this Plan, the Employer intends to permit the deferral of compensation and to provide additional
benefits to Directors and a select group of management or highly compensated employees of the Employer. Accordingly,
it is intended that this Plan will not constitute a "qualified plan" subject to the limitations of section 401(a) of the Code, nor
will it constitute a "funded plan," for purposes of such requirements. It also is intended that this Plan will be exempt from
the participation and vesting requirements of Part 2 of Title I of the Employee Retirement Income Security Act of 1974, as
amended (the " Act "), the funding requirements of Part 3 of Title I of the Act, and the fiduciary requirements of Part 4 of
Title I of the Act by reason of the exclusions afforded plans that are unfunded and maintained by an employer primarily
for the purpose of providing deferred compensation for a select group of management or highly compensated employees.
End of Article I
Fifth Amended and Restated Tenet 2006 DCP
2
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1
Definitions. When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does
not commence a sentence, the word or phrase will generally be a term defined in this Section 2.1. The following words
and phrases with the initial letter capitalized will have the meaning set forth in this Section 2.1, unless a different meaning
is required by the context in which the word or phrase is used.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
" Account " means one or more of the bookkeeping accounts maintained by the Company or its agent on behalf
of a Participant, as described in more detail in Section 4.5. A Participant's Account may be divided into one or
more " Cash Accounts " or " Stock Unit Accounts " as defined in Section 4.5.
" Act " means the Employee Retirement Income Security Act of 1974, as amended from time to time.
" Affiliate " means a corporation that is a member of a controlled group of corporations (as defined in section
414(b) of the Code) that includes the Company, any trade or business (whether or not incorporated) that is in
common control (as defined in section 414(c) of the Code) with the Company, or any entity that is a member of the
same affiliated service group (as defined in section 414(m) of the Code) as the Company; provided, however that
for purposes of determining if an entity is an Affiliate under sections 414(b) or (c) of the Code ownership will be
determined based on an ownership percentage of greater than fifty percent (50%).
" Alternate Payee " means any spouse, former spouse, child, or other dependent of a Participant who is
recognized by a DRO as having a right to receive all, or a portion of, the benefits payable under the Plan with
respect to such Participant.
" Annual Incentive Plan Award " means the amount payable to an employee each year, if any, under the
Company's Annual Incentive Plan, as the same may be amended, restated, modified, renewed or replaced from
time to time.
" Base Deferral " means the Compensation deferral made by a Participant pursuant to Section 4.2(a).
" Base with Match Deferral " means the Base with Match Deferral made pursuant to Section 4.2(c).
" Beneficiary " means the person designated by the Participant to receive a distribution of his benefits under the
Plan upon the death of the Participant. If the Participant is married, his spouse will be his Beneficiary, unless his
spouse consents in writing to the designation of an alternate Beneficiary. In the event that a Participant fails to
designate a Beneficiary, or if the Participant's Beneficiary does not survive the Participant, the Participant's
Beneficiary will be his surviving spouse, if any, or if the Participant does not have a surviving spouse, his estate.
The term "Beneficiary" also will mean a Participant's spouse or former spouse who is entitled to all or a
Fifth Amended and Restated Tenet 2006 DCP
3
(i)
(j)
portion of a Participant's benefit pursuant to Section 6.1. For this purpose a spouse means a legal spouse,
including a same sex spouse.
" Board " means the Board of Directors of the Company.
" Bonus " means (i) a bonus paid to a Participant in the form of an Annual Incentive Plan award, (ii) a
performance-based bonus payment to a Participant pursuant to an employment or similar agreement, or (iii) any
other bonus payment designated by the RPAC as an eligible bonus under the Plan. As of the Effective Date, the
quarterly bonuses paid to physician Employees of BHC will be an eligible bonus under the Plan.
(k)
" Bonus Deferral " means the Bonus deferral made by a Participant pursuant to Section 4.2(b). A Participant may
also defer a portion of his Bonus as a Bonus with Match Deferral pursuant to Section 4.2(c).
(l)
" Bonus with Match Deferral " means the Bonus with Match Deferral made pursuant to Section 4.2(d).
(m)
" Cause " means
(i)
with respect to any event not occurring on or within two (2) years after a Change of Control, except as
provided otherwise in a separate severance agreement or plan in which the Participant participates:
(A)
(B)
(C)
(D)
(E)
(F)
dishonesty,
fraud,
willful misconduct,
breach of fiduciary duty,
conflict of interest,
commission of a felony,
(G)
material failure or refusal to perform his job duties in accordance with Company policies,
(H)
a material violation of Company policy that causes harm to the Company or an Affiliate, or
(I)
other wrongful conduct of a similar nature and degree.
A failure to meet or achieve business objectives, as defined by the Company, will not be considered Cause
so long as the Participant has devoted his best efforts and attention to the achievement of those
objectives.
Fifth Amended and Restated Tenet 2006 DCP
4
(ii)
With respect to any event occurring on or within two (2) years after a Change of Control, except as
provided otherwise in a separate severance agreement or plan in which the Participant participates:
(A)
(B)
(C)
any intentional act or misconduct materially injurious to the Company or any Affiliate, financial or
otherwise, but not limited to, misappropriation or fraud, embezzlement or conversion by the
Participant of the Company’s or any Affiliate’s property in connection with the Participant’s
employment with the Company or an Affiliate,
Any willful act or omission constituting a material breach by the Participant of a fiduciary duty,
A final, non-appealable order in a proceeding before a court of competent jurisdiction or a final
order in an administrative proceeding finding that the Participant committed any willful misconduct
or criminal activity (excluding minor traffic violations or other minor offenses), which commission is
materially inimical to the interests of the Company or any Affiliate, whether for his personal benefit
or in connection with his duties for the Company or an Affiliate,
(D)
The conviction (or plea of no contest) of the Participant for any felony,
(E)
Material failure or refusal to perform his job duties in accordance with Company policies (other than
resulting from the Participant’s disability as defined by Company policies), or
(F)
A material violation of Company policy that causes material harm to the Company or an Affiliate.
A failure to meet or achieve business objectives, as defined by the Company, will not be considered Cause
so long as the Participant has devoted his reasonable efforts and attention to the achievement of those
objectives. For purposes of this Section, no act or failure to act on the part of the Participant will be
deemed "willful", "intentional" or "knowing" if it was undertaken in reasonable reliance on the advice of
counsel or at the instruction of the Company, including but not limited to the Board, a committee of the
Board or the Chief Executive Officer (" CEO ") of the Company, or was due primarily to an error in
judgment or negligence, but will be deemed "willful", "intentional" or "knowing" only if done or omitted to be
done by the Participant not in good faith and without reasonable belief that the Participant’s action or
omission was in the best interest of the Company.
(iii)
A Participant will not be deemed to have been terminated for Cause, under either this Section 2.1(m)(i) or
2.1(m)(ii) above, as applicable, unless and until there has been delivered to the Participant written notice
that the Participant has engaged in conduct constituting Cause. The determination of Cause will be made
by the Human Resources Committee with respect to any Participant who is employed as the CEO, by the
CEO (or an individual acting in such capacity or possessing such authority on an interim basis)
Fifth Amended and Restated Tenet 2006 DCP
5
with respect to any other Participant except a Hospital Chief Executive Officer (" Hospital CEO ") and by
the Chief Operating Officer of the Company (the " COO ") with respect to any Participant who is employed
as a Hospital CEO. A Participant who receives written notice that he has engaged in conduct constituting
Cause, will be given the opportunity to be heard (either in person or in writing as mutually agreed to by the
Participant and the Human Resources Committee, CEO or COO, as applicable) for the purpose of
considering whether Cause exists. If it is determined either at or following such hearing that Cause exists,
the Participant will be notified in writing of such determination within five (5) business days. If the
Participant disagrees with such determination, the Participant may file a claim contesting such
determination pursuant to Article VIII within thirty (30) days after his receipt of such written determination
finding that Cause exists.
(n)
" Change of Control " means the occurrence of one of the following:
(i)
A "change in the ownership of the Company" which will occur on the date that any one person, or more
than one person acting as a group within the meaning of section 409A of the Code, acquires, directly or
indirectly, whether in a single transaction or series of related transactions, ownership of stock in the
Company that, together with stock held by such person or group, constitutes more than fifty percent (50%)
of the total fair market value or total voting power of the stock of the Company (" Ownership Control ").
However, if any one person or more than one person acting as a group, has previously acquired ownership
of more than fifty percent (50%) of the total fair market value or total voting power of the stock of the
Company, the acquisition of additional stock by the same person or persons will not be considered a
"change in the ownership of the Company" (or to cause a "change in the effective control of the Company"
within the meaning of Section 2.1(n)(ii) below). Further, an increase in the effective percentage of stock
owned by any one person, or persons acting as a group, as a result of a transaction in which the Company
acquires its stock in exchange for cash or property will be treated as an acquisition of stock for purposes of
this paragraph; provided, that for purposes of this Section 2.1(n)(i), the following acquisitions of Company
stock will not constitute a Change of Control:
(A)
(B)
any acquisition, whether in a single transaction or series of related transactions, by any employee
benefit plan (or related trust) sponsored or maintained by the Company or an Affiliate which results
in such employee benefit plan obtaining "Ownership Control" of the Company or
any acquisition, whether in a single transaction or series of related transactions, by the Company
which results in the Company acquiring stock of the Company representing "Ownership Control" or
Fifth Amended and Restated Tenet 2006 DCP
6
(C)
any acquisition, whether in a single transaction or series of related transactions, after which those
persons who were owners of the Company’s stock immediately before such transaction(s) own
more than fifty percent (50%) of the total fair market value or total voting power of the stock of the
Company (or if after the consummation of such transaction(s) the Company (or another entity into
which the Company is merged into or otherwise combined, such the Company does not survive
such transaction(s)) is a direct or indirect subsidiary of another entity which itself is not a subsidiary
of an entity, then the more than fifty percent (50%) ownership test will be applied to the voting
securities of such other entity) in substantially the same percentages as their respective ownership
of the Company immediately before such transaction(s).
This Section 2.1(n)(i) applies either when there is a transfer of the stock of the Company (or issuance of
stock) and stock in the Company remains outstanding after the transaction or when there is a transfer of
the stock of the Company (including a merger or similar transaction) and stock in the Company does not
remain outstanding after the transaction .
(ii)
A "change in the effective control of the Company" which will occur on the date that either (A) or (B)
occurs:
(A)
any one person, or more than one person acting as a group within the meaning of section 409A of
the Code, acquires (taking into consideration any prior acquisitions during the twelve (12) month
period ending on the date of the most recent acquisition by such person or persons), directly or
indirectly, ownership of stock of the Company possessing thirty-five percent (35%) or more of the
total voting power of the stock of the Company (not considering stock owned by such person or
group before such twelve (12) month period) ( i.e.
, such person or group must acquire within a
twelve (12) month period stock possessing at least thirty-five percent (35%) of the total voting
power of the stock of the Company) (" Effective Control "), except for (i) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company or an Affiliate
which results in such employee benefit plan obtaining "Effective Control" of the Company or (ii) any
acquisition by the Company. The occurrence of "Effective Control" under this Section 2.1(n)(ii)(A)
may be nullified by a vote of that number of the members of the Board of Directors of the Company
("Board"), that exceeds two-thirds (2/3) of the independent members of the Board, which vote must
occur before the time, if any, that a "change in the effective control of the Company" has occurred
under Section 2.1(n)(ii)(B) below. In the event of such a supermajority vote, such transaction or
series of related transactions will not be treated as an event constituting "Effective Control". For
avoidance of doubt, the Plan provides that in the event of the occurrence of the acquisition of
ownership of stock of the Company that reaches or exceeds the thirty-five percent (35%) ownership
threshold described above, if
Fifth Amended and Restated Tenet 2006 DCP
7
more than two-thirds (2/3) of the independent members of the Board take action to resolve that
such an acquisition is not a "change in the effective control of the Company" and a majority of the
members of the Board have not been replaced as provided under Section 2.1(n)(ii)(B) below, then
such Board action will be final and no "Effective Control" will be deemed to have occurred for any
purpose under the Plan.
(B)
a majority of the members of the Board are replaced during any twelve (12) month period by
directors whose appointment or election is not endorsed by a majority of the members of the Board
before the date of the appointment or election.
For purposes of a "change in the effective control of the Company," if any one person, or more than one
person acting as a group, is considered to effectively control the Company within the meaning of this
Section 2.1(n)(ii), the acquisition of additional control of the Company by the same person or persons is not
considered a "change in the effective control of the Company," or to cause a "change in the ownership of
the Company" within the meaning of Section 2.1(n)(i) above.
(iii)
A sale, exchange, lease, disposition or other transfer of all or substantially all of the assets of the
Company.
(iv)
A liquidation or dissolution of the Company that is approved by a majority of the Company's stockholders.
For purposes of this Section 2.1(n), the provisions of section 318(a) of the Code regarding the constructive
ownership of stock will apply to determine stock ownership; provided, that, stock underlying unvested options
(including options exercisable for stock that is not substantially vested) will not be treated as owned by the
individual who holds the option.
" Code " means the Internal Revenue Code of 1986, as amended from time to time.
" Company " means Tenet Healthcare Corporation.
" Compensation " means base salaries, commissions, and certain other amounts of cash compensation payable
to the Participant during the Plan Year, including draws paid to physician Employees of BHC. Compensation will
exclude cash bonuses, foreign service pay, hardship withdrawal allowances and any other pay intended to
reimburse the employee for the higher cost of living outside the United States, Annual Incentive Plan Awards,
automobile allowances, housing allowances, relocation payments, deemed income, income payable under stock
incentive plans, insurance premiums, and other imputed income, pensions, retirement benefits, and contributions
to and payments from the 401(k) Plan and this Plan or any other nonqualified retirement plan maintained by the
Employer. The term "Compensation" for Directors will mean any cash compensation from retainers, meeting fees
and committee fees paid during the Plan Year.
(o)
(p)
(q)
Fifth Amended and Restated Tenet 2006 DCP
8
(r)
(s)
(t)
(u)
(v)
" Compensation and Bonus Deferrals " means the Base Deferrals, Bonus Deferrals, Base with Match Deferrals,
Bonus with Match Deferrals, and/or Discretionary Deferrals made pursuant to Section 4.2 of the Plan.
" Director " means a member of the Board who is not an employee.
" Discretionary Contribution " means the contribution made by the Employer on behalf of a Participant as
described in Section 4.4(b).
" Discretionary Deferral " means the Compensation deferral described in Section 4.2(d) made by a Participant.
" DRO " means a domestic relations order that is a judgment, decree, or order (including one that approves a
property settlement agreement) that relates to the provision of child support, alimony payments or marital property
rights to a spouse, former spouse, child or other dependent of a Participant and is rendered under a state (within
the meaning of section 7701(a)(10) of the Code) domestic relations law (including a community property law) and
that:
(i)
(ii)
(iii)
(iv)
(v)
Creates or recognizes the existence of an Alternate Payee's right to, or assigns to an Alternate Payee the
right to receive all or a portion of the benefits payable with respect to a Participant under the Plan;
Does not require the Plan to provide any type or form of benefit, or any option, not otherwise provided
under the Plan;
Does not require the Plan to provide increased benefits (determined on the basis of actuarial value);
Does not require the payment of benefits to an Alternate Payee that are required to be paid to another
Alternate Payee under another order previously determined to be a DRO; and
Clearly specifies: the name and last known mailing address of the Participant and of each Alternate Payee
covered by the DRO; the amount or percentage of the Participant's benefits to be paid by the Plan to each
such Alternate Payee, or the manner in which such amount or percentage is to be determined; the number
of payments or payment periods to which such order applies; and that it is applicable with respect to this
Plan.
(w)
" Effective Date " means January 1, 2019, except as provided otherwise herein.
(x)
(y)
" Election " means the Participant’s written, on-line or telephonic elections with respect to deferrals, requested
investment crediting rates and distributions under this Plan.
" Eligible Person " means (i) each Employee who is paid from a Tenet payroll and eligible for a Bonus as defined
in Section 2.1(j) for the applicable Plan Year, and (ii) each Director. In addition, the term "Eligible Person" will
include any Employee designated as an Eligible Person by the RPAC. As provided in Section 3.1, the
Fifth Amended and Restated Tenet 2006 DCP
9
(z)
(aa)
RPAC or Plan Administrator may at any time, in its sole and absolute discretion, limit the classification of
Employees who are eligible to participate in the Plan for a Plan Year, limit the enrollment period during which an
Eligible Person may enroll in the Plan to the Open Enrollment Period and/or modify or terminate an Eligible
Person's participation in the Plan through Exhibit A without the need for an amendment to the Plan.
" Employee " means each select member of management or highly compensated employee receiving
remuneration, or who is entitled to remuneration, for services rendered to the Employer, in the legal relationship of
employer and employee.
" Employer " means the Company and each Affiliate who with the consent of the Senior Vice President, Human
Resources or Plan Administrator has adopted the Plan as a participating employer. An Affiliate may evidence its
adoption of the Plan either by a formal action of its governing body or by commencing deferrals and taking other
administrative actions with respect to this Plan on behalf of its employees. An entity will cease to be a participating
employer as of the date such entity ceases to be an Affiliate or the date specified by the Company.
(bb)
" Employer Contribution " means a Matching Contribution and/or Discretionary Contribution.
(cc)
(dd)
(ee)
(ff)
" Fair Market Value " means the closing price of a share of Stock on the New York Stock Exchange on the date
as of which fair market value is to be determined.
" Five Percent Owner " means any person who owns (or is considered as owning within the meaning of section
318 of the Code (as modified by section 416(i)(1)(B)(iii) of the Code)) more than five percent (5%) of the
outstanding stock of the Company or an Affiliate or stock possessing more than five percent (5%) of the total
combined voting power of all stock of the Company or an Affiliate. The rules of sections 414(b), (c) and (m) of the
Code will not apply for purposes of applying these ownership rules. Thus, this ownership test will be applied
separately with respect to the Company and each Affiliate.
" 401(k) Plan " means the Company’s 401(k) Retirement Savings Plan, as such plan may be amended, restated,
modified, renewed or replaced from time to time.
" Human Resources Committee " means the Human Resources Committee of the Board (or any predecessor or
successor to such committee in name or form), which has the authority to amend and terminate the Plan as
provided in Article X. The Human Resources Committee also will be responsible for determining the amount of the
Discretionary Contribution, if any, to be made by the Employer
(gg)
" Key Employee " means any employee or former employee (including any deceased employee) who at any time
during the Plan Year was:
(i)
an officer of the Company or an Affiliate having compensation of greater than one hundred thirty thousand
dollars ($130,000) (as adjusted under section 416(i)(1) of the Code for Plan Years beginning after
December 31, 2002);
Fifth Amended and Restated Tenet 2006 DCP
10
(ii)
a Five Percent Owner; or
(iii)
a One Percent Owner having compensation of more than one hundred fifty thousand dollars ($150,000).
For purposes of the preceding paragraphs, the Company has elected to determine the compensation of an officer
or One Percent Owner in accordance with section 1.415(c)-2(d)(4) of the Treasury Regulations ( i.e.
, W-2 wages
plus amounts that would be includible in wages except for an election under section 125(a) of the Code (regarding
cafeteria plan elections) under section 132(f) of the Code (regarding qualified transportation fringe benefits) or
section 402(e)(3) of the Code (regarding section 401(k) plan deferrals)) without regard to the special timing rules
and special rules set forth, respectively, in sections 1.415(c)-2(e) and 2(g) of the Treasury Regulations.
The determination of Key Employees will be based upon a twelve (12) month period ending on December 31 of
each year ( i.e.
, the identification date). Employees that are Key Employees during such twelve (12) month period
will be treated as Key Employees for the twelve (12) month period beginning on the first day of the fourth month
following the end of the twelve (12) month period ( i.e.
, since the identification date is December 31, then the
twelve (12) month period to which it applies begins on the next following April 1).
The determination of who is a Key Employee will be made in accordance with section 416(i)(1) of the Code and
other guidance of general applicability issued thereunder. For purposes of determining whether an employee or
former employee is an officer, a Five Percent Owner or a One Percent Owner, the Company and each Affiliate will
be treated as a separate employer ( i.e.
, the controlled group rules of sections 414(b), (c), (m) and (o) of the Code
will not apply). Conversely, for purposes of determining whether the one hundred thirty thousand dollar ($130,000)
adjusted limit on compensation is met under the officer test described in Section 2.1(gg)(i), compensation from the
Company and all Affiliates will be taken into account ( i.e.
, the controlled group rules of sections 414(b), (c), (m)
and (o) of the Code will apply). Further, in determining who is an officer under the officer test described in Section
2.1(gg)(i), no more than fifty (50) employees of the Company or its Affiliates ( i.e.
, the controlled group rules of
sections 414(b), (c), (m) and (o) of the Code will apply) will be treated as officers. If the number of officers exceeds
fifty (50), the determination of which employees or former employees are officers will be determined based on who
had the largest annual compensation from the Company and Affiliates for the Plan Year. For the avoidance of
doubt, for purposes of this Section 2.1(gg) the controlled group rules under sections 414(b) and (c) of the Code
will be applied based on the normal ownership percentage of greater than eighty percent (80%) rather than the
fifty percent (50%) standard used in the definition of Affiliate.
(hh)
" Matching Contribution " means the contribution made by the Employer pursuant to Section 4.4(a) on behalf of
a Participant who makes Base with Match Deferrals and/or Bonus with Match Deferrals to the Plan as described in
Section 4.2(c).
Fifth Amended and Restated Tenet 2006 DCP
11
(ii)
(jj)
" One Percent Owner " means any person who would be described as a Five Percent Owner if "one percent
(1%)" were substituted for "five percent (5%)" each place where it appears therein.
" Open Enrollment Period " means the period occurring each year during which an Eligible Person may make his
elections to defer his Compensation, Bonus and RSUs for a subsequent Plan Year pursuant to Article IV. Open
Enrollment Periods will occur in accordance with section 409A of the Code ( i.e.
, no later than December 31st of
each year with respect to Compensation, no later than June 30 of each year with respect to Bonus and either
before or within thirty (30) days after the date of grant with respect to RSUs). Different Open Enrollment Periods
may apply with respect to different groups of Eligible Persons. An Employee who is not an Eligible Person at the
time of the Open Enrollment Period, but who is expected to become an Eligible Person during the next Plan Year,
may be permitted to enroll in the Plan during the Open Enrollment Period with his Election becoming effective at
the time he becomes an Eligible Person with respect to Compensation, Bonus and RSUs earned after such date.
(kk)
" Participant " means each Eligible Person who has been designated for participation in this Plan and has made
an Election and each Employee or former Employee (or Director or former Director) whose participation in this
Plan has not terminated (i.e., the individual still has amounts credited to his Account).
(ll)
" Participant Deferral " means a Base Deferral, Base with Match Deferral, Bonus Deferral, Bonus with Match
Deferral, RSU Deferral and/or Discretionary Deferral.
(mm)
" Plan " means the Fifth Amended and Restated Tenet 2006 Deferred Compensation Plan as set forth in this
document and as the same may be amended from time to time.
(nn)
(oo)
(pp)
" Plan Administrator " means the individual or entity appointed by the RPAC to handle the day-to-day
administration of the Plan, including but not limited to determining a Participant's eligibility for benefits and the
amount of such benefits and complying with all applicable reporting and disclosure obligations imposed on the
Plan. If the RPAC does not appoint an individual or entity as Plan Administrator, the RPAC will serve as the Plan
Administrator.
" Plan Year " means the fiscal year of this Plan, which will commence on January 1 each year and end on
December 31 of such year.
" RPAC " means the Retirement Plans Administration Committee of the Company established by the Human
Resources Committee of the Board, and whose members have been appointed by such Human Resources
Committee. The RPAC will have the responsibility to administer the Plan and make final determinations regarding
claims for benefits, as described in Article VIII. In addition, the RPAC has limited amendment authority over the
Plan as provided in Section 10.2.
(qq)
" RSU Deferral " means the RSU deferral made by a Participant pursuant to Section 4.3.
Fifth Amended and Restated Tenet 2006 DCP
12
(rr)
" RSU " means the restricted stock units awarded under the SIP.
(ss)
" Scheduled In-Service Withdrawal " means a distribution elected by the Participant pursuant to Section 4.2 or
Section 4.3 for an in-service withdrawal of amounts of Base Deferrals, Bonus Deferrals and/or RSU Deferrals
made in a given Plan Year, and earnings or losses attributable to such amounts, as reflected in the Participant’s
Election for such Plan Year.
(tt)
" Scheduled Withdrawal Date " means the distribution date elected by the Participant for a Scheduled In-Service
Withdrawal.
(uu)
" SIP " means the Company’s Stock Incentive Plan.
(vv)
" Special Enrollment Period " means, subject to Section 3.1(b) and Section 3.1(c), a period of no more than
thirty (30) days after an Employee is employed by the Employer (or a Director is elected to the Board) or an
Employee is transferred to the status of an Eligible Person provided that such Employee does not already
participate in another plan of the Employer that would be aggregated with the Plan and advised of his eligibility to
participate in the Plan during which the Eligible Person may make an Election to defer Compensation and RSUs
earned after such Election pursuant to Article IV. If the Employee becomes an Eligible Person before June 30, he
may make an Election to defer Bonus earned after such Election to the extent permitted by the Plan Administrator.
For purposes of determining an Eligible Person's initial eligibility, an Eligible Person, who incurs a Termination of
Employment and is reemployed and eligible to participate in the Plan at a date which is more than twenty-four (24)
months after such Termination of Employment, will be treated as being initially eligible to participate in the Plan on
such reemployment. The Plan Administrator may also designate certain periods as Special Enrollment Periods to
the extent permitted under section 409A of the Code.
(ww)
" Stock " means the common stock, par value $0.05 per share, of the Company.
(xx)
(yy)
" Stock Unit " means a non-voting, non-transferable unit of measurement that is deemed for bookkeeping and
distribution purposes only to represent one outstanding share of Stock.
" Termination of Employment " means (i) with respect to an Employee, the date that such Employee ceases
performing services for the Employer and its Affiliates in the capacity of an employee or a reduction in
employment or other provision of services that qualifies as a separation from service under Code section 409A
and (ii) with respect to a Director, the date that such Director ceases to provide services to the Company as a
member of the Board or otherwise or a reduction in employment or other provision of services that qualifies as a
separation from service under Code section 409A. For this purpose an Employee who is on a leave of absence
that exceeds six (6) months and who does not have statutory or contractual reemployment rights with respect to
such leave, will be deemed to have incurred a Termination of Employment on the first day of the seventh (7th)
month of such leave. An Employee who transfers employment from an Employer to an Affiliate, regardless
Fifth Amended and Restated Tenet 2006 DCP
13
of whether such Affiliate has adopted the Plan as a participating employer, will not incur a Termination of
Employment.
(zz)
" Trust " means the rabbi trust established with respect to the Plan, the assets of which are to be used for the
payment of benefits under the Plan.
(aaa)
(bbb)
" Trustee " means the individual or entity appointed to serve as trustee of any trust established as a possible
source of funds for the payment of benefits under this Plan as provided in Section 7.1. After the occurrence of a
Change of Control, the Trustee must be independent of any successor to the Company or any affiliate of such
successor.
" 2001 DCP " means the Tenet 2001 Deferred Compensation Plan which was in effect before the enactment of
section 409A of the Code. All pre-2005 employee deferrals and employer contributions under the 2001 DCP were
fully vested as of January 31, 2004 and as such are not subject to the provisions of section 409A of the Code. All
2005 employee deferrals and employer contributions under the 2001 DCP are subject to, and were made in
accordance with, the requirements of section 409A of the Code and such employee deferrals and employer
contributions were transferred to and will be administered under this Plan. No employee deferrals or employer
contributions will be made to the 2001 DCP after 2005.
(ccc)
" Unforeseeable Emergency " means (i) a severe financial hardship to the Participant resulting from an illness or
accident of the Participant, his spouse or his dependent (as defined under section 152(a) of the Code), (ii) a loss
of the Participant's property due to casualty, or (iii) other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant, as determined by the Plan Administrator in its
sole and absolute discretion in accordance with the requirements of section 409A of the Code.
2.2
Construction. If any provision of this Plan is determined to be for any reason invalid or unenforceable, the remaining
provisions of this Plan will continue in full force and effect. All of the provisions of this Plan will be construed and enforced
in accordance with the laws of the State of Texas and will be administered according to the laws of such state, except as
otherwise required by the Act, the Code or other applicable federal law.
The term "delivered to the RPAC or Plan Administrator," as used in this Plan, will include delivery to a person or persons
designated by the RPAC or Plan Administrator, as applicable, for the disbursement and the receipt of administrative
forms. Delivery will be deemed to have occurred only when the form or other communication is actually received.
Headings and subheadings are for the purpose of reference only and are not to be considered in the construction of this
Plan. The pronouns "he," "him" and "his" used in the Plan will also refer to similar pronouns of the female gender unless
otherwise qualified by the context.
End of Article II
Fifth Amended and Restated Tenet 2006 DCP
14
ARTICLE III
PARTICIPATION AND FORFEITABILITY OF BENEFITS
3.1
Eligibility and Participation.
(a)
(b)
Determination of Eligibility . It is intended that eligibility to participate in the Plan will be limited to Eligible
Persons, as determined by the RPAC, in its sole and absolute discretion. During the Open Enrollment Period,
each Eligible Person will be contacted and informed that he may elect to defer portions of his Compensation,
Bonus and/or RSUs by making an Election. An Eligible Person will become a Participant by completing an
Election during an Open Enrollment Period pursuant to Section 4.1. Eligibility to become a Participant for any Plan
Year will not entitle an Eligible Person to continue as an active Participant for any subsequent Plan Year.
Limits on Eligibility . The RPAC or Plan Administrator may at any time, in its sole and absolute discretion, limit
the classification of Employees eligible to participate in the Plan and/or limit the period of such Employee’s
enrollment to an Open Enrollment Period and to not permit such Employee to enroll during a Special Enrollment
Period. In addition, the RPAC may limit or terminate an Eligible Person's participation in the Plan; provided, that
no such termination will result in a cancellation of Compensation and Bonus Deferrals or RSU Deferrals for the
remainder of a Plan Year in which an Election to make such deferrals is in effect. Any action taken by the RPAC
or Plan Administrator that limits the classification of Employees eligible to participate in the Plan, limits the time of
an Employee’s enrollment in the Plan or modifies or terminates an Eligible Person’s participation in the Plan will
be set forth in Exhibit A attached hereto. Exhibit A may be modified from time to time without a formal amendment
to the Plan, in which case a revised Exhibit A will be attached hereto.
An Employee who takes an Unforeseeable Emergency distribution pursuant to Section 5.4 of this Plan will have
his Compensation and Bonus Deferrals and RSU Deferrals under this Plan suspended for the remainder of the
Plan Year in which such distribution occurs. This mid-year suspension provision will also apply with respect to an
Unforeseeable Emergency distribution made pursuant to 5.4 of the 2001 DCP. In addition, an Employee who
takes an Unforeseeable Emergency distribution under either the 2001 DCP or this Plan will be ineligible to
participate in the Plan for purposes of making Compensation and Bonus Deferrals and RSU Deferrals and
receiving a Matching Contribution for the Plan Year following the year in which such distribution occurs.
(c)
Initial Eligibility . If an Eligible Person is employed or elected to the Board during the Plan Year or promoted or
transferred into an eligible position and designated by the RPAC to be a Participant for such year, such Eligible
Person will be eligible to elect to participate in the Plan during a Special Enrollment Period, unless determined
otherwise by the Plan Administrator pursuant to Section 3.1(b), in which case, such Eligible Person will be
permitted to enroll in the Plan during the next Open Enrollment Period. For purposes of determining an Eligible
Person's initial
Fifth Amended and Restated Tenet 2006 DCP
15
eligibility, an Eligible Person, who incurs a Termination of Employment and is reemployed and eligible to
participate in the Plan at a date which is more than twenty-four (24) months after such Termination of
Employment, will be treated as being initially eligible to participate in the Plan on such reemployment. Designation
as a Participant for the Plan Year in which he is employed or elected to the Board or promoted will not entitle the
Eligible Person to continue as an active Participant for any subsequent Plan Year.
(d)
Loss of Eligibility Status . A Participant under this Plan who separates from employment with the Employer, or
who ceases to be a Director, or who transfers to an ineligible employment position will continue as an inactive
Participant under this Plan until the Participant has received payment of all amounts payable to him under this
Plan. In the event that a Participant ceases to be an Eligible Person during the Plan Year, such Participant's
Compensation and Bonus Deferrals and RSU Deferrals will continue through the remainder of the Plan Year, but
the Participant will not be permitted to make such deferrals for the following Plan Year unless he again becomes
an Eligible Person and makes a deferral Election pursuant to Section 3.1(a). An Eligible Person who ceases active
participation in the Plan because the Eligible Person is no longer described as a Participant pursuant to this
Section 3.1, or because he ceases making deferrals of Compensation, Bonuses or RSUs, will continue as an
inactive Participant under this Plan until he has received payment of all amounts payable to him under this Plan.
An inactive Participant will continue to have his Accounts adjusted pursuant to Section 4.6 based on his
investment crediting rate elections until such Accounts have been paid in full.
3.2
Forfeitability of Benefits. Except as provided in Section 6.1, a Participant will at all times have a nonforfeitable right to
amounts credited to his Account pursuant to Section 4.5. As provided in Section 7.2, however, each Participant will be
only a general creditor of the Company and/or his Employer with respect to the payment of any benefit under this Plan.
End or Article III
Fifth Amended and Restated Tenet 2006 DCP
16
ARTICLE IV
DEFERRAL, COMPANY CONTRIBUTIONS, ACCOUNTING
AND INVESTMENT CREDITING RATES
4.1
General Rules Regarding Deferral Elections. An Eligible Person may become a Participant in the Plan for the
applicable Plan Year by making an Election during the Open Enrollment Period to defer his Compensation, Bonus and/or
RSUs pursuant to the terms of this Section 4.1. Such Election will be made by the date specified by the Plan
Administrator and will be effective with respect to:
(a)
(b)
Compensation and/or Bonus paid for services performed on or after the following January 1; and
RSUs that are awarded under the SIP, either before or within thirty (30) days after the grant date as required by
section 409A of the Code.
An Eligible Person who is employed by the Employer or elected to the Board during the Plan Year may make an Election
during the Special Enrollment Period with respect to Compensation, Bonus and/or RSUs earned after the date of such
Election to the extent permitted under Section 2.1(vv).
A Participant's Election will only be effective with respect to a single Plan Year and will be irrevocable for the duration of
such Plan Year. Deferral elections for each applicable Plan Year of participation will be made during the Open Enrollment
Period pursuant to a new Election. Deferrals will not be required to be taken from each paycheck during the applicable
Plan Year so long as the total Compensation and Bonus elected to be deferred for the Plan Year has been captured by
December 31 of such Plan Year.
4.2
Compensation and Bonus Deferrals. Five types of Compensation and Bonus Deferrals may be made under the Plan:
(a)
Base Deferral . Each Eligible Person may elect to defer a stated dollar amount, or designated full percentage, of
Compensation to the Plan up to a maximum percentage of seventy five percent (75%) (one hundred percent
(100%) for Directors) of the Eligible Person's Compensation for the applicable Plan Year until either (i) the
Participant's Termination of Employment or (ii) a future year in which the Participant is still employed by the
Employer (or providing services as a member of the Board) and that is at least two (2) calendar years after the
end of the Plan Year in which the Compensation would have otherwise been paid ( i.e.
, as a Scheduled In-
Service Withdrawal subject to the provisions of Section 5.3).
Base Deferrals will be made pursuant to administrative procedures established by the Plan Administrator. Such
procedures will provide that Base Deferrals will be subject to a "withholding hierarchy" for purposes of determining
the amount of such contributions that may be contributed on behalf of a Participant. The Plan Administrator (or its
delegatee) will determine the order of withholdings taken from a Participant's Compensation ( e.g.
, for federal,
state and local taxes, social security, wage garnishments, welfare plan contributions, 401(k) deferrals, and similar
withholdings) and Base Deferrals will be subject to such withholding hierarchy. As
Fifth Amended and Restated Tenet 2006 DCP
17
a result, Base Deferrals may be effectively limited to Compensation available after the application of such
withholding hierarchy.
The Employer will not make any Matching Contributions with respect to any Base Deferrals made to the Plan.
(b)
Bonus Deferral . Each Eligible Person may elect to defer a stated dollar amount, or designated full percentage, of
his Bonus to the Plan up to a maximum percentage of one hundred percent (100%) (ninety four percent (94%) if a
Bonus with Match Deferral is elected pursuant to Section 4.2(d)) of the Employee's Bonus for the applicable Plan
Year until either (i) the Eligible Person's Termination of Employment or (ii) a future year in which the Eligible
Person is still employed by the Employer (or providing services as a member of the Board) and that is at least two
(2) calendar years after the end of the Plan Year in which the Bonus would have otherwise been paid ( i.e.
, as a
Scheduled In-Service Withdrawal subject to the provisions of Section 5.3).
Bonus Deferrals will be made pursuant to administrative procedures established by the Plan Administrator. Such
procedures will provide that Bonus Deferrals will be subject to a "withholding hierarchy" for purposes of
determining the amount of such contributions that may be contributed on behalf of a Participant. The Plan
Administrator (or its delegatee) will determine the order of withholdings taken from a Participant's Bonus ( e.g.
, for
federal, state and local taxes, social security, wage garnishments, welfare plan contributions, and similar
withholdings) and Bonus Deferrals will be subject to such withholding hierarchy. As a result, Bonus Deferrals may
be effectively limited to Bonus available after the application of such withholding hierarchy.
Bonus Deferrals generally will be made in the form of cash; provided, however, that if the Company modifies the
Annual Incentive Plan to provide for the payment of awards in Stock, Bonus Deferrals may be made in the form of
Stock. Any Bonus Deferrals made in the form of Stock will be converted to Stock Units, based on the number of
shares so deferred, credited to the Stock Unit Account and distributed to the Participant at the time specified
herein in an equivalent number of whole shares of Stock as provided in Section 4.5(b).
The Employer will not make any Matching Contributions with respect to any Bonus Deferrals made to the Plan.
(c)
Base with Match Deferral . Each Eligible Person who is a participant in the 401(k) Plan may elect to have one
percent (1%) to six percent (6%) of his Compensation deferred under the Plan as a Base with Match Deferral with
respect to the pay period in which his deferrals to the 401(k) Plan reach the limit imposed on elective deferrals
under section 402(g) of the Code, including the limit applicable to catch-up contributions to the extent the Eligible
Person is eligible to make such contributions, as such limit is adjusted for cost of living increases.
All Base with Match Deferrals will be payable upon Termination of Employment ( i.e.
, Scheduled In-Service
Withdrawals are not available with respect to Base with Match
Fifth Amended and Restated Tenet 2006 DCP
18
Deferrals). A Participant who earns more than Four Hundred Thousand Dollars ($400,000) in Compensation
(excluding Bonus), or such other amount as the Plan Administrator deems necessary to satisfy the requirements
of section 409A of the Code, and elects to make Base with Match Deferrals under this Section 4.2(c) will not be
permitted to modify his 401(k) Plan deferral elections during the Plan Year in which such Base with Match Deferral
Election is in effect.
The Employer will make Matching Contributions with respect to Base with Match Deferrals made to the Plan as
provided in Section 4.4.
(d)
(e)
Bonus with Match Deferral . Each Eligible Person may elect to automatically have six percent (6%) of his Bonus
deferred under the Plan as a Bonus with Match Deferral whether or not the Eligible Person is a participant in the
401(k) Plan or his deferrals under the 401(k) Plan have reached limit imposed on elective deferrals under section
402(g) of the Code, including the limit applicable to catch-up contributions to the extent the Eligible Person is
eligible to make such contributions. This Bonus with Match Deferral will be applied to that portion of the Eligible
Person's Bonus in excess of that deferred as a Bonus Deferral under Section 4.2(b). For example, if the Eligible
Person elects to defer fifty percent (50%) of his Bonus under Section 4.2(b) and also elects to make a Bonus with
Match Deferral under this Section 4.2(d), fifty percent (50%) of the Eligible Person's Bonus will be deferred under
Section 4.2(b) and six percent (6%) of the Eligible Person's Bonus will be deferred under this Section 4.2(d). All
Bonus with Match Deferrals will be payable upon Termination of Employment ( i.e.
, Scheduled In-Service
Withdrawals are not available with respect to Bonus with Match Deferrals).
The Employer will make Matching Contributions with respect to Base with Match Deferrals and Bonus with Match
Deferrals made to the Plan as provided in Section 4.4.
Discretionary Deferral . The RPAC may authorize an Eligible Person to defer a stated dollar amount, or
designated full percentage, of Compensation to the Plan as a Discretionary Deferral. The RPAC, in its sole and
absolute discretion, may limit the amount or percentage of Compensation an Eligible Person may defer to the Plan
as a Discretionary Deferral and may prohibit Scheduled In-Service Withdrawals with respect to such Discretionary
Deferral. The Employer will not make any Matching Contributions pursuant to Section 4.4(a) with respect to any
Discretionary Deferrals, but may elect to make a Discretionary Contribution to the Plan with respect to such
Discretionary Deferrals in the form of a discretionary matching contribution as described in Section 4.4(b).
4.3
RSU Deferrals. To the extent authorized by the RPAC, an Eligible Person may make an Election to defer a designated
full percentage, up to one hundred percent (100%) of his RSUs until either (a) the Eligible Person's Termination of
Employment or (b) a future year while the Eligible Person is still employed by the Employer and that is at least two (2)
calendar years after the end of the Plan Year in which the RSU is granted ( i.e.
, as a Scheduled In-Service Withdrawal
subject to the provisions of 5.3. A deferral Election made pursuant to this Section 4.3 will apply to the entire RSU grant (
i.e.
, a Participant may not elect to make a separate Election with respect to each portion of the RSU award based on
Fifth Amended and Restated Tenet 2006 DCP
19
the award's vesting schedule). Such RSU Deferrals will be converted to Stock Units, based on the number of shares so
deferred, credited to the Stock Unit Account and distributed to the Participant at the time specified in his Election in an
equivalent number of whole shares of Stock as provided in Section 4.5(b).
The Employer will not make any Matching Contributions with respect to any RSU Deferrals made to the Plan.
4.4
Company Contributions.
(a)
(b)
Matching Contribution . The Employer will make a Matching Contribution to the Plan each Plan Year on behalf
of each Participant who makes Base with Match Deferrals and Bonus with Match Deferrals to the Plan for such
Plan Year. Such Matching Contribution will equal fifty percent (50%) of the first six percent (6%) of the
Participant's Base with Match and/or six percent (6%) of the Participant’s Bonus with Match Deferrals for such
Plan Year. Matching Contributions and earnings and losses thereon will be distributed upon the Participant's
Termination of Employment in the manner elected by the Participant (or deemed elected by the Participant) for the
Plan Year to which the Matching Contribution relates as provided in Section 5.1.
Discretionary Contribution . The Employer may elect to make a Discretionary Contribution to a Participant's
Account in such amount, and at such time, as will be determined by the Human Resources Committee. Any
Discretionary Contribution made by the Employer, plus earnings and losses thereon, will be paid to the Participant
upon his Termination of Employment with the Employer in the manner elected by the Participant (or deemed
elected by the Participant) for the Plan Year to which the Discretionary Contribution relates as provided in Section
5.1.
4.5
Accounting for Deferred Compensation.
(a)
Cash Account . If a Participant has made an Election to defer his Compensation and/or Bonus and has made a
request for amounts deferred to be deemed invested pursuant to Section 4.5(a), the Company may, in its sole and
absolute discretion, establish and maintain a Cash Account for the Participant under this Plan. Each Cash
Account will be adjusted at least quarterly to reflect the Base Deferrals, Bonus Deferrals, Base with Match
Deferrals, Bonus with Match Deferrals, Discretionary Deferrals, Matching Contributions and Discretionary
Contributions credited thereto, earnings or losses credited thereon, and any payment of such Base Deferrals,
Bonus Deferrals, Base with Match Deferrals, Bonus with Match Deferrals, Discretionary Deferrals, Matching
Contributions and Discretionary Contributions pursuant to Article V. The amounts of Base Deferrals, Bonus
Deferrals, Base with Match Deferrals, Bonus with Match Deferrals, Discretionary Deferrals and Matching
Contributions will be credited to the Participant's Cash Account within five (5) business days of the date on which
such Compensation and/or Bonus would have been paid to the Participant had the Participant not elected to defer
such amount pursuant to the terms and provisions of the Plan. Any Discretionary Contributions will be credited to
each Participant's Cash Account at such times as determined by the Human Resources Committee. In the sole
and absolute discretion of the Plan Administrator, more than one Cash Account may be established for each
Participant
Fifth Amended and Restated Tenet 2006 DCP
20
to facilitate record-keeping convenience and accuracy. Each such Cash Account will be credited and adjusted as
provided in this Plan.
(b)
Stock Unit Account . If a Participant has made an Election to defer his Compensation and/or Bonus and has
made a request for such deferrals to be deemed invested in Stock Units pursuant to Section 4.5(b), the Plan
Administrator may, in its sole and absolute discretion, establish and maintain a Stock Unit Account and credit the
Participant's Stock Unit Account with a number of Stock Units determined by dividing an amount equal to the Base
Deferrals, Bonus Deferrals, Base with Match Deferrals, Bonus with Match Deferrals, and associated Matching
Contributions, and Discretionary Deferrals made as of such date by the Fair Market Value of a share of Stock on
the date such Compensation and/or Bonus otherwise would have been payable. Such Stock Units will be credited
to the Participant's Stock Unit Account as soon as administratively practicable after the determination of the
number of Stock Units is made pursuant to the preceding sentence.
If the Participant is entitled to a Discretionary Contribution and has elected to have amounts credited to his
Account to be deemed invested in Stock Units pursuant to Section 4.6(b), the Plan Administrator may, in its sole
discretion, establish and maintain a Stock Unit Account and credit the Participant's Stock Unit Account with a
number of Stock Units determined by dividing an amount equal to the Discretionary Contribution made as of such
date by the Fair Market Value of a share of Stock on the date such Discretionary Contribution would have
otherwise been made. Such Stock Units will be credited to the Participant's Stock Unit Account as soon as
administratively practicable after the determination of the number of Stock Units has been made pursuant to the
preceding sentence.
Bonus Deferrals made in Stock and RSU Deferrals will be credited to the Stock Unit Account as provided in
Section 4.2(b).
In the sole and absolute discretion of the Plan Administrator, more than one Stock Unit Account may be
established for each Participant to facilitate record keeping convenience and accuracy.
(i)
(ii)
The Stock Units credited to a Participant's Stock Unit Account will be used solely as a device for
determining the number of shares of Stock eventually to be distributed to the Participant in accordance
with this Plan. The Stock Units will not be treated as property of the Participant or as a trust fund of any
kind. No Participant will be entitled to any voting or other stockholder rights with respect to Stock Units
credited under this Plan.
If the outstanding shares of Stock are increased, decreased, or exchanged for a different number or kind of
shares or other securities, or if additional shares or new or different shares or other securities are
distributed with respect to such shares of Stock or other securities, through merger, consolidation, spin-off,
sale of all or substantially all the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other distribution with respect to such shares of Stock or
other securities, an appropriate and proportionate adjustment in
Fifth Amended and Restated Tenet 2006 DCP
21
a manner consistent with section 409A of the Code will be made by the Human Resources Committee in
the number and kind of Stock Units credited to a Participant's Stock Unit Account.
(c)
Accounts Held in Trust . Amounts credited to Participants' Accounts may be secured by one or more trusts, as
provided in Section 7.1, but will be subject to the claims of the general creditors of each such Participant's
Employer. Although the principal of such trust and any earnings or losses thereon will be separate and apart from
other funds of the Employer and will be used for the purposes set forth therein, neither the Participants nor their
Beneficiaries will have any preferred claim on, or any beneficial ownership in, any assets of the trust before the
time such assets are paid to the Participant or Beneficiaries as benefits and all rights created under this Plan will
be unsecured contractual rights of Plan Participants and Beneficiaries against the Employer. Any assets held in
the trust with respect to a Participant will be subject to the claims of the general creditors of that Participant's
Employer under federal and state law in the event of insolvency. The assets of any trust established pursuant to
this Plan will never inure to the benefit of the Employer and the same will be held for the exclusive purpose of
providing benefits to that Employer's Participants and their beneficiaries.
4.6
Investment Crediting Rates. At the time the Participant makes an Election under Section 4.1, he must specify the type
of investment crediting rate option with which he would like the Company, in its sole and absolute discretion, to credit his
Account as described in this Section 4.6. Such investment crediting rate Election will apply to all deferrals and
contributions under the Plan, except for Bonus Deferrals made in Stock and RSU Deferrals which will automatically be
credited to the Stock Unit Account as provided in Section 4.2(b) and Section 4.3.
(a)
Cash Investment Crediting Rate Options . A Participant may make an Election as to the type of investment in
which the Participant would like Compensation and Bonus Deferrals to be deemed invested for purposes of
determining the amount of earnings to be credited or losses to be debited to his Cash Account. The Participant will
specify his preference from among the following possible investment crediting rate options:
(i)
An annual rate of interest equal to one hundred and twenty percent (120%) of the long-term applicable
federal rate, compounded daily; or
(ii)
One or more benchmark mutual funds.
A Participant may make elect, on a daily basis, to modify the investment crediting rate preference under this
Section 4.6(a) by making a new Election with respect to such investment crediting rate. Notwithstanding any
request made by a Participant, the Company, in its sole and absolute discretion, will determine the investment rate
with which to credit amounts deferred by Participants under this Plan, provided, however, that if the Company
chooses an investment crediting rate other than the investment crediting rate requested by the Participant, such
investment crediting rate cannot be less than (i) above.
Fifth Amended and Restated Tenet 2006 DCP
22
(b)
(c)
(d)
(e)
Stock Units . A Participant may make an Election to have all or a portion of his Compensation and Bonus
Deferrals to be deemed invested in Stock Units. Any request to have Compensation and Bonus Deferrals to be
deemed invested in Stock Units is irrevocable with respect to such Compensation and Bonus Deferrals and such
amounts will be distributed in an equivalent whole number of shares of Stock pursuant to the provisions of Article
V. Any fractional share interests will be paid in cash with the last distribution.
Deemed Election . In his request(s) pursuant to this Section 4.6, the Participant may request that all or any
portion of his Account (in whole percentage increments) be deemed invested in one or more of the investment
crediting rate preferences provided under the Plan as communicated from time to time by the RPAC. Although a
Participant may express an investment crediting rate preference, the Company will not be bound by such request.
If a Participant fails to set forth his investment crediting rate preference under this Section 4.6, he will be deemed
to have elected an annual rate of interest equal to the rate of interest set forth in Section 4.6(a)(i) ( i.e.
, one
hundred and twenty percent (120%) of the long-term applicable federal rate, compounded daily). The RPAC will
select from time to time, in its sole and absolute discretion, the possible investment crediting rate options to be
offered under the Plan.
Employer Contributions . Matching Contributions to the Plan made by the Employer and allocated to a
Participant's Account pursuant to Section 4.3 will be credited with the same investment crediting rate as the
Participant's associated Base with Match Deferrals and/or Bonus with Match Deferrals for the relevant Plan Year.
Discretionary Contributions, if any, made by the Employer and allocated to a Participant's Account pursuant to
Section 4.4 will be credited with the investment crediting rate specified (or deemed specified) by such Participant
in his Election for the relevant Plan Year with respect to the Participant's Base Deferrals and Bonus Deferrals.
A Participant will retain the right to change the investment crediting rate applicable to Matching Contributions and
Discretionary Contributions as provided in this Section 4.6.
Prior Plan Contributions . The Company transferred Participant 2005 employee deferrals and employer
contributions under the 2001 DCP to this Plan and permitted Participants to express an investment crediting rate
preference with respect to such transferred amounts. Such transferred amounts will be administered pursuant to
the terms of this Plan.
End of Article IV
Fifth Amended and Restated Tenet 2006 DCP
23
ARTICLE V
DISTRIBUTION OF BENEFITS
5.1
Distribution Election. During each Open Enrollment Period, the Eligible Person must make an Election as to the time
and manner in which his Base Deferrals, Bonus Deferrals, Base with Match Deferrals, Bonus with Match Deferrals, RSU
Deferrals and/or Discretionary Deferrals and any associated Matching Contributions or Discretionary Contributions will be
paid. A Participant may make a separate distribution Election for each type of Participant Deferral or Employer
Contribution for each Plan Year beginning on or after January 1, 2010 in which he elects to make Participant Deferrals to
the Plan. The Participant may not modify his Election as to the manner in which such Participant Deferrals or Employer
Contributions will be paid.
For Plan Years beginning before January 1, 2010, the Participant had to specify upon his initial enrollment in the Plan the
time and form in which distributions of Base Deferrals, Bonus Deferrals, Base with Match Deferrals, Bonus with Match
Deferrals, RSU Deferrals and/or Discretionary Deferrals and any associated Matching Contributions or Discretionary
Contributions would be made upon a Termination of Employment and such termination distribution election governed all
deferrals or Employer Contributions made to the Plan before January 1, 2010 ( i.e.
, deferrals and Employer Contributions
made during the 2005, 2006, 2007, 2008 and 2009 Plan Years). Alternatively, the Participant could have elected to
receive a Scheduled In-Service Withdrawal of his Base Deferrals, Bonus Deferrals, RSU Deferrals and/or Discretionary
Deferrals (if allowed by the RPAC).
(a)
Time of Distribution. A Participant who elects to receive a Scheduled In-Service Withdrawal with respect to Base
Deferrals, Bonus Deferrals, RSU Deferrals or Discretionary Deferrals will receive the deferred amount, as adjusted
for earnings and losses, in a lump sum at the time specified in his Election. In the event that the Participant incurs
a Termination of Employment before his Scheduled In-Service Withdrawal date, his Scheduled In-Service
Withdrawal election will be cancelled and of no effect and such amounts will be paid according to the Participant's
Termination of Employment distribution Election with respect to the Plan Year for which the Scheduled In-Service
Withdrawal amounts relate ( i.e.
, the Plan Year such amounts were deferred) or if no Termination of Employment
distribution Election is on file, in a lump sum upon such Termination of Employment based on the Plan's default
form of payment.
A Participant who elects to receive his Base Deferrals, Bonus Deferrals, Base with Match Deferrals, Bonus with
Match Deferrals, RSU Deferrals and/or Discretionary Deferrals and any associated Matching Contributions or
Discretionary Contributions made for a Plan Year upon his Termination of Employment, may receive such
amounts at any of the following times:
(i)
Subject to the six (6) month delay applicable to Key Employees described in Section 5.2, as soon as
practicable after the Participant's Termination of Employment;
(ii)
In the twelfth (12th) month following the Participant's Termination of Employment; or
Fifth Amended and Restated Tenet 2006 DCP
24
(iii)
In the twenty-fourth (24th) month following the Participant's Termination of Employment.
Such amounts may be paid in the form of a lump sum or in the form of annual installments over a period of one (1)
to fifteen (15) years. Such lump sum or installments will be made in cash or in Stock, or in a combination thereof,
depending on the Participant's investment crediting rates as provided in Section 4.6. If the Participant's Account is
paid in installments, such Account will be revalued during the term of such installments based on procedures
established by the Plan Administrator.
A Participant who dies while an Employee or a Director, as applicable, will be deemed to have incurred a
Termination of Employment on the date of his death; provided, however, that amounts payable pursuant to the
Plan on account of death will not be subject to the six (6) month delay applicable to Key Employees.
(b)
(c)
Failure to Elect Distribution. In the event that a Participant fails to elect the manner in which his Account
balance will be paid upon his Termination of Employment, such Account balance will be paid in the form of a lump
sum as soon as practicable following the Participant's Termination of Employment, subject to the six (6) month
delay applicable to Key Employees described in Section 5.2.
Taxation of Distributions. All distributions from the Plan will be taxable as ordinary income when received and
subject to appropriate withholding of income taxes. In the case of distributions in Stock, the appropriate number of
shares of Stock may be sold to satisfy such withholding obligations pursuant to administrative procedures adopted
by the Plan Administrator.
Termination Distributions to Key Employees. Distributions under this Plan that are payable to a Key Employee on
account of a Termination of Employment will be delayed for a period of six (6) months following such Participant's
Termination of Employment. This six (6) month restriction will not apply, or will cease to apply, with respect to a
distribution to a Participant's Beneficiary by reason of the death of the Participant.
Scheduled In-Service Withdrawals. A Participant who elects a Scheduled In-Service Withdrawal pursuant to Section
4.2 (regarding Compensation and Bonus Deferrals), Section 4.3 (regarding RSU Deferrals) may subsequently elect to
delay such distribution for a period of at least five (5) additional calendar years; provided, that such Election is made at
least (12) twelve months before the date that such distribution would otherwise be made. Further, in the event that a
Participant elects a Scheduled In-Service Withdrawal and incurs a Termination of Employment before the Scheduled
Withdrawal Date, the Participant's Scheduled In-Service Withdrawal Election and Compensation and Bonus Deferral
and/or RSU Deferral Election under Section 4.2 or Section 4.3 will be cancelled and the Participant's entire Account
balance will be paid according to the Participant's termination distribution Election as provided in Section 5.1.
5.2
5.3
5.4
Unforeseeable Emergency. Upon application by the Participant, the Plan Administrator, in its sole and absolute
discretion, may direct payment of all or a portion of the Participant's Account balance before his Termination of
Employment and any Scheduled Withdrawal
Fifth Amended and Restated Tenet 2006 DCP
25
Date in the event of an Unforeseeable Emergency. Any such application will set forth the circumstances constituting such
Unforeseeable Emergency. The Plan Administrator will determine whether to grant an application for a distribution on
account of an Unforeseeable Emergency in accordance with guidance issued pursuant to section 409A of the Code.
A Participant who takes an Unforeseeable Emergency distribution pursuant to this Section 5.4 (including amounts
attributable to 2005 employee deferrals and employer contributions made under the 2001 DCP which are transferred to
and administered under this Plan) will have his Participant Deferrals under this Plan suspended for the remainder of the
Plan Year in which such Unforeseeable Emergency distribution occurs. In addition, such Participant will be ineligible to
participate in the Plan for purposes of making Participant Deferrals and receiving an Employer Contribution for the Plan
Year following the year in which such distribution occurs.
5.5
Death of a Participant. If a Participant dies while employed by the Employer, the Participant's Account balance will be
paid to the Participant's Beneficiary in the manner elected (or deemed elected) by the Participant pursuant to Section 5.1;
provided, that the six (6) month restriction on distributions to Key Employees under Section 5.2 will not apply.
In the event a terminated Participant dies while receiving installment payments, the remaining installments will be paid to
the Participant's Beneficiary as such payments become due in accordance with Section 5.1.
In the event a terminated Participant dies before receiving his lump sum payment or before he begins receiving
installment payments, the lump sum payment or installment payments will be paid to the Participant's Beneficiary as such
payments become due in accordance with Section 5.1; provided, that the six (6) month restriction on distributions to Key
Employees under Section 5.2 will not apply.
5.6 Withholding. Any taxes or other legally required withholdings from Compensation and Bonus Deferrals, RSU Deferrals,
termination distributions, Scheduled In-Service Withdrawal payments and Unforeseeable Emergency distributions to
Participants or Beneficiaries under the Plan will be deducted and withheld by the Employer, benefit provider or funding
agent as required pursuant to applicable law. To the extent amounts are payable under this Plan in Stock, the appropriate
number of shares of Stock may be withheld to satisfy such withholding obligation. A Participant or Beneficiary will be
permitted to make a withholding election with respect to any federal and state tax withholding applicable to such
distribution.
5.7
Impact of Reemployment on Benefits. If a Participant incurs a Termination of Employment and begins receiving
installment payments from the Plan and such Participant is reemployed by the Employer, then such Participant's
installment payments will continue as scheduled during the period of his reemployment.
End of Article V
Fifth Amended and Restated Tenet 2006 DCP
26
ARTICLE VI
PAYMENT LIMITATIONS
6.1
Spousal Claims.
(a)
In the event that an Alternate Payee is entitled to all or a portion of a Participant's Accounts pursuant to the terms
of a DRO, such Alternate Payee will have the following distribution rights with respect to such Participant's
Account to the extent set forth pursuant to the terms of the DRO:
(i)
(ii)
(iii)
(iv)
payment of benefits in a lump sum, in cash or Stock, based on the Participant's investment crediting rates
under the Plan as provided in Section 4.6 and the terms of the DRO, as soon as practicable following the
acceptance of the DRO by the Plan Administrator;
payment of benefits in a lump sum in cash or Stock, based on the Participant's investment crediting rates
under the Plan as provided in Section 4.6 and the terms of the DRO, twelve (12) months following, or
twenty four (24) months following, the acceptance of the DRO by the Plan Administrator;
payment of benefits in substantially equal annual installments, in cash and/or Stock, based on the
Participant's investment crediting rates under the Plan as provided in Section 4.6 and the terms of the
DRO, over a period of not less than one (1) nor more than fifteen (15) years from the date the DRO is
accepted by the Plan Administrator; and
payment of benefits in substantially equal annual installments, in cash and/or Stock, based on the
Participant's investment crediting rates under the Plan as provided in Section 4.6 and the terms of the
DRO, over a period of not less than one (1) nor more than fifteen (15) years beginning twelve (12) months
following, or twenty four (24) months following, the date the DRO is accepted by the Plan Administrator.
An Alternate Payee with respect to a DRO that provides for any of the distributions described in subsections (ii),
(iii), or (iv) above, must complete and deliver to the Plan Administrator all required forms within thirty (30) days
from the date the Alternate Payee is notified by the Plan Administrator that the DRO has been accepted. Any
Alternate Payee who does not complete and deliver to the Plan Administrator all required forms and/or whose
DRO does not provide for any of the distributions described in subsections (ii), (iii), or (iv) above will receive his
benefits in a lump sum according to subsection (i) above. Unvested RSUs may not be transferred pursuant to a
DRO.
(b)
Any taxes or other legally required withholdings from payments to such Alternate Payee will be deducted and
withheld by the Employer, benefit provider or funding agent. To the extent amounts are payable under this Plan in
Stock, the appropriate number of shares of Stock may be sold to satisfy such withholding obligation. The Alternate
Payee will be permitted to make a withholding election with respect to any federal and state tax withholding
applicable to such payments.
Fifth Amended and Restated Tenet 2006 DCP
27
(c)
(d)
The Plan Administrator will have sole and absolute discretion to determine whether a judgment, decree or order is
a DRO, to determine whether a DRO will be accepted for purposes of this Section 6.1 and to make interpretations
under this Section 6.1, including determining who is to receive benefits, all calculations of benefits and
determinations of the form of such benefits, and the amount of taxes to be withheld. The decisions of the Plan
Administrator will be binding on all parties with an interest.
Any benefits payable to an Alternate Payee pursuant to the terms of a DRO will be subject to all provisions and
restrictions of the Plan and any dispute regarding such benefits will be resolved pursuant to the Plan claims
procedure in Article VIII.
6.2
Legal Disability. If a person entitled to any payment under this Plan is, in the sole judgment of the Plan Administrator,
under a legal disability, or otherwise is unable to apply such payment to his own interest and advantage, the Plan
Administrator, in the exercise of its discretion, may direct the Employer or payer of the benefit to make any such payment
in any one or more of the following ways:
(a)
(b)
(c)
Directly to such person;
To his legal guardian or conservator; or
To his spouse or to any person charged with the duty of his support, to be expended for his benefit and/or that of
his dependents.
The decision of the Plan Administrator will in each case be final and binding upon all persons in interest, unless the Plan
Administrator reverses its decision due to changed circumstances.
6.3
Assignment. Except as provided in Section 6.1, no Participant or Beneficiary will have any right to assign, pledge,
transfer, convey, hypothecate, anticipate or in any way create a lien on any amounts payable under this Plan. No
amounts payable under this Plan will be subject to assignment or transfer or otherwise be alienable, either by voluntary or
involuntary act, or by operation of law, or subject to attachment, execution, garnishment, sequestration or other seizure
under any legal, equitable or other process, or be liable in any way for the debts or defaults of Participants and their
Beneficiaries.
End of Article VI
Fifth Amended and Restated Tenet 2006 DCP
28
7.1
Funding.
ARTICLE VII
FUNDING
(a)
Funding . Benefits under this Plan will be funded solely by the Employer. Benefits under this Plan will constitute
an unfunded general obligation of the Employer, but the Employer may create reserves, funds and/or provide for
amounts to be held in trust to fund such benefits on its behalf. Payment of benefits may be made by the Employer,
any trust established by the Employer or through a service or benefit provider to the Employer or such trust.
(b)
Rabbi Trust . Upon a Change of Control, the following will occur:
(i)
(ii)
(iii)
(iv)
(v)
the Trust will become (or continue to be) irrevocable;
for three (3) years following a Change of Control, the Trustee can only be removed as set forth in the Trust;
if the Trustee is removed or resigns within three (3) years of a Change of Control, the Trustee will select a
successor Trustee, as set forth in the Trust;
for three (3) years following a Change of Control, the Company will be responsible for directly paying all
Trustee fees and expenses, together with all fees and expenses incurred under Article VIII relating to the
RPAC, Plan Administrator, and Plan administrative expenses; and
the Trust Agreement may be amended only as set forth in the Trust (with the Trustee's consent); provided,
however, that no such amendment will (A) change the irrevocable nature of the Trust; (B) adversely affect
a Participant's rights to benefits without the consent of the Participant; (C) impair the rights of the
Company's creditors under the Trust; or (0) cause the Trust to fail to be a "grantor trust" pursuant to Code
sections 671 -- 679.
7.2
Creditor Status. Participants and their Beneficiaries will be general unsecured creditors of their respective Employer with
respect to the payment of any benefit under this Plan, unless such benefits are provided under a contract of insurance or
an annuity contract that has been delivered to Participants, in which case Participants and their Beneficiaries will look to
the insurance carrier or annuity provider for payment, and not to the Employer. The Employer's obligation for such benefit
will be discharged by the purchase and delivery of such annuity or insurance contract.
End of Article VII
Fifth Amended and Restated Tenet 2006 DCP
29
ARTICLE VIII
ADMINISTRATION
8.1
8.2
8.3
8.4
The RPAC. The overall administration of the Plan will be the responsibility of the RPAC.
Powers of RPAC. The RPAC will have sole and absolute discretion regarding the exercise of its powers and duties
under this Plan. In order to effectuate the purposes of the Plan, the RPAC will have the following powers and duties:
(a)
(b)
(c)
(d)
To appoint the Plan Administrator;
To review and render decisions respecting a denial of a claim for benefits under the Plan;
To construe the Plan and to make equitable adjustments for any mistakes or errors made in the administration of
the Plan; and
To determine and resolve, in its sole and absolute discretion, all questions relating to the administration of the
Plan and the trust established to secure the assets of the Plan (i) when differences of opinion arise between the
Company, an Affiliate, the Plan Administrator, the Trustee, a Participant, or any of them, and (ii)whenever it is
deemed advisable to determine such questions in order to promote the uniform and nondiscriminatory
administration of the Plan for the greatest benefit of all parties concerned.
The foregoing list of express powers is not intended to be either complete or conclusive, and the RPAC will, in addition,
have such powers as it may reasonably determine to be necessary or appropriate in the performance of its powers and
duties under the Plan.
Appointment of Plan Administrator. The RPAC will appoint the Plan Administrator, who will have the responsibility and
duty to administer the Plan on a daily basis. The RPAC may remove the Plan Administrator with or without cause at any
time. The Plan Administrator may resign upon written notice to the RPAC.
Duties of Plan Administrator. The Plan Administrator will have sole and absolute discretion regarding the exercise of its
powers and duties under this Plan. The Plan Administrator will have the following powers and duties:
(a)
(b)
(c)
To direct the administration of the Plan in accordance with the provisions herein set forth;
To adopt rules of procedure and regulations necessary for the administration of the Plan, provided such rules are
not inconsistent with the terms of the Plan;
To determine all questions with regard to rights of Employees, Directors, Participants, and Beneficiaries under the
Plan including, but not limited to, questions involving eligibility of an Employee or Director to participate in the Plan
and the value of a Participant's Accounts;
Fifth Amended and Restated Tenet 2006 DCP
30
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
To enforce the terms of the Plan and any rules and regulations adopted by the RPAC;
To review and render decisions respecting a claim for a benefit under the Plan;
To furnish the Employer with information that the Employer may require for tax or other purposes;
To engage the service of counsel (who may, if appropriate, be counsel for the Employer), actuaries, and agents
whom it may deem advisable to assist it with the performance of its duties;
To prescribe procedures to be followed by Participants in obtaining benefits;
To receive from the Employer and from Participants such information as is necessary for the proper administration
of the Plan;
To establish and maintain, or cause to be maintained, the individual Accounts described in Section 4.4;
To create and maintain such records and forms as are required for the efficient administration of the Plan;
To make all determinations and computations concerning the benefits, credits and debits to which any Participant,
or other Beneficiary, is entitled under the Plan;
(m)
To give the Trustee of the trust established to serve as a source of funds under the Plan specific directions in
writing with respect to:
(i)
(ii)
making distribution payments, giving the names of the payees, specifying the amounts to be paid and the
time or times when payments will be made; and
making any other payments which the Trustee is not by the terms of the trust agreement authorized to
make without a direction in writing by the Plan Administrator;
To comply with all applicable lawful reporting and disclosure requirements of the Act;
To comply (or transfer responsibility for compliance to the Trustee) with all applicable federal income tax
withholding requirements for benefit distributions; and
To construe the Plan, in its sole and absolute discretion, and make equitable adjustments for any errors made in
the administration of the Plan.
(n)
(o)
(p)
The foregoing list of express duties is not intended to be either complete or conclusive, and the Plan Administrator will, in
addition, exercise such other powers and perform such other duties as it may deem necessary, desirable, advisable or
proper for the supervision and administration of the Plan.
Fifth Amended and Restated Tenet 2006 DCP
31
8.5
Indemnification of RPAC and Plan Administrator. To the extent not covered by insurance, or if there is a failure to
provide full insurance coverage for any reason, and to the extent permissible under corporate by-laws and other
applicable laws and regulations, the Employer agrees to hold harmless and indemnify the RPAC and Plan Administrator
against any and all claims and causes of action by or on behalf of any and all parties whomsoever, and all losses
therefrom, including, without limitation, costs of defense and reasonable attorneys' fees, based upon or arising out of any
act or omission relating to or in connection with the Plan other than losses resulting from the RPAC's, or any such
person's commission of fraud or willful misconduct.
8.6
Claims for Benefits.
(a)
(b)
Initial Claim . In the event that an Employee, Director, Eligible Person, Participant or his Beneficiary claims to be
eligible for benefits, or claims any rights under this Plan, such claimant must complete and submit such claim
forms and supporting documentation as will be required by the Plan Administrator, in its sole and absolute
discretion. Likewise, any Participant or Beneficiary who feels unfairly treated as a result of the administration of
the Plan, must file a written claim, setting forth the basis of the claim, with the Plan Administrator. In connect ion
with the determination of a claim, or in connection with review of a denied claim, the claimant may examine this
Plan, and any other pertinent documents generally available to Participants that are specifically related to the
claim.
A written notice of the disposition of any such claim will be furnished to the claimant within ninety (90) days after
the claim is filed with the Plan Administrator. Such notice will refer, if appropriate, to pertinent provisions of this
Plan, will set forth in writing the reasons for denial of the claim if a claim is denied (including references to any
pertinent provisions of this Plan) and, where appropriate, will describe any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such material or information is
necessary. If the claim is denied, in whole or in part, the claimant will also be notified of the Plan's claim review
procedure and the time limits applicable to such procedure, including the claimant's right to arbitration following an
adverse benefit determination on review as provided below. All benefits provided in this Plan as a result of the
disposition of a claim will be paid as soon as practicable following receipt of proof of entitlement, if requested.
Request for Review . Within ninety (90) days after receiving written notice of the Plan Administrator's disposition
of the claim, the claimant may file with the RPAC a written request for review of his claim. In connection with the
request for review, the claimant will be entitled to be represented by counsel and will be given, upon request and
free of charge, reasonable access to all pertinent documents for the preparation of his claim. If the claimant does
not file a written request for review within ninety (90) days after receiving written notice of the Plan Administrator's
disposition of the claim, the claimant will be deemed to have accepted the Plan Administrator's written disposition,
unless the claimant was physically or mentally incapacitated so as to be unable to request review within the ninety
(90) day period.
Fifth Amended and Restated Tenet 2006 DCP
32
(c)
Decision on Review . After receipt by the RPAC of a written application for review of his claim, the RPAC will
review the claim taking into account all comments, documents, records and other information submitted by the
claimant regarding the claim without regard to whether such information was considered in the initial benefit
determination. The RPAC will notify the claimant of its decision by delivery or by certified or registered mail to his
last known address. A decision on review of the claim will be made by the RPAC at its next meeting following
receipt of the written request for review. If no meeting of the RPAC is scheduled within forty-five (45) days of
receipt of the written request for review, then the RPAC will hold a special meeting to review such written request
for review within such forty-five (45) day period. If special circumstances require an extension of the forty-five (45)
day period, the RPAC will so notify the claimant and a decision will be rendered within ninety (90) days of receipt
of the request for review. In any event, if a claim is not determined by the RPAC within ninety (90) days of receipt
of written submission for review, it will be deemed to be denied.
The decision of the RPAC will be provided to the claimant as soon as possible but no later than five (5) days after
the benefit determination is made. The decision will be in writing and will include the specific reasons for the
decision presented in a manner calculated to be understood by the claimant and will contain references to all
relevant Plan provisions on which the decision was based. Such decision will also advise the claimant that he may
receive upon request, and free of charge, reasonable access to and copies of all documents, records and other
information relevant to his claim and will inform the claimant of his right to arbitration in the case of an adverse
decision regarding his appeal. The decision of the RPAC will be final and conclusive.
(d)
Arbitration . In the event the claims review procedure described in this Section 8.6 does not result in an outcome
thought by the claimant to be in accordance with the Plan document, he may appeal to a third party neutral
arbitrator. The claimant must appeal to an arbitrator within sixty (60) days after receiving the RPAC's denial or
deemed denial of his request for review and before bringing suit in court. The arbitration will be conducted
pursuant to the American Arbitration Association (" AAA ") Rules on Employee Benefit Claims.
The arbitrator will be mutually selected by the Participant and the RPAC from a list of arbitrators who are
experienced in nonqualified deferred compensation plan benefit matters that is provided by the AAA. If the parties
are unable to agree on the selection of an arbitrator within ten (10) days of receiving the list from the AAA, the
AAA will appoint an arbitrator. The arbitrator's review will be limited to interpretation of the Plan document in the
context of the particular facts involved. The claimant, the RPAC and the Employer agree to accept the award of
the arbitrator as binding, and all exercises of power by the arbitrator hereunder will be final, conclusive and
binding on all interested parties, unless found by a court of competent jurisdiction, in a final judgment that is no
longer subject to review or appeal, to be arbitrary and capricious. The claimant, RPAC and the Company agree
that the venue for the arbitration will be in Dallas, Texas. The costs of arbitration will be paid by the Employer; the
costs of legal representation for the claimant or witness costs for the claimant will be borne by the claimant;
provided, that, as part of his award,
Fifth Amended and Restated Tenet 2006 DCP
33
the Arbitrator may require the Employer to reimburse the claimant for all or a portion of such amounts.
The following discovery may be conducted by the parties: interrogatories, demands to produce documents,
requests for admissions and oral depositions. The arbitrator will resolve any discovery disputes by such pre
hearing conferences as may be needed. The Company, RPAC and claimant agree that the arbitrator will have the
power of subpoena process as provided by law. Disagreements concerning the scope of depositions or document
production, its reasonableness and enforcement of discovery requests will be subject to agreement by the
Company and the claimant or will be resolved by the arbitrator. All discovery requests will be subject to the
proprietary rights and rights of privilege and other protections granted by applicable law to the Company and the
claimant and the arbitrator will adopt procedures to protect such rights. With respect to any dispute, the Company,
RPAC and the claimant agree that all discovery activities will be expressly limited to matters relevant to the
dispute and the arbitrator will be required to fully enforce this requirement.
The arbitrator will have no power to add to, subtract from, or modify any of the terms of the Plan, or to change or
add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for a benefit
under the Plan. Nonetheless, the arbitrator will have absolute discretion in the exercise of its powers in this Plan.
Arbitration decisions will not establish binding precedent with respect to the administration or operation of the
Plan.
8.7
8.8
Receipt and Release of Necessary Information. In implementing the terms of this Plan, the RPAC and Plan
Administrator, as applicable, may, without the consent of or notice to any person, release to or obtain from any other
insuring entity or other organization or person any information, with respect to any person, which the RPAC or Plan
Administrator deems to be necessary for such purposes. Any Participant or Beneficiary claiming benefits under this Plan
will furnish to the RPAC or Plan Administrator, as applicable, such information as may be necessary to determine
eligibility for and amount of benefit, as a condition of claiming and receiving such benefit.
Overpayment and Underpayment of Benefits. The Plan Administrator may adopt, in its sole and absolute discretion,
whatever rules, procedures and accounting practices are appropriate in providing for the collection of any overpayment of
benefits. If a Participant or Beneficiary receives an underpayment of benefits, the Plan Administrator will direct that
payment be made as soon as practicable to make up for the underpayment. If an overpayment is made to a Participant or
Beneficiary, for whatever reason, the Plan Administrator may, in its sole and absolute discretion, (a) withhold payment of
any further benefits under the Plan until the overpayment has been collected; provided, that the entire amount of
reduction in any calendar year does not exceed five thousand dollars ($5,000), and the reduction is made at the same
time and in the same amount as the debt otherwise would have been due and collected from the Participant, or (b) may
require repayment of benefits paid under this Plan without regard to further benefits to which the Participant or
Beneficiary may be entitled.
Fifth Amended and Restated Tenet 2006 DCP
34
8.9
Change of Control. Upon a Change of Control and for the following three (3) years thereafter, if any arbitration arises
relating to an event occurring or a claim made with in three (3) years of a Change of Control, (i) the arbitrator will not
decide the claim based on an abuse of discretion principle or give the previous RPAC decision any special deference, but
rather will determine the claim de novo based on its own independent reading of the Plan; and (ii) the Company will pay
the Participant's reasonable legal and other related fees and expenses upon the Participant’s provision of satisfactory
documentation of such expenses with such reimbursement being made no later than the close of the second taxable year
following the year in which such expenses were incurred.
End of Article VIII
Fifth Amended and Restated Tenet 2006 DCP
35
ARTICLE IX
OTHER BENEFIT PLANS OF THE COMPANY
9.1
Other Plans. Nothing contained in this Plan will prevent a Participant before his death, or a Participant's spouse or other
Beneficiary after such Participant's death, from receiving, in addition to any payments provided for under this Plan, any
payments provided for under any other plan or benefit program of the Employer, or which would otherwise be payable or
distributable to him, his surviving spouse or Beneficiary under any plan or policy of the Employer or otherwise. Nothing in
this Plan will be construed as preventing the Company or any of its Affiliates from establishing any other or different plans
providing for current or deferred compensation for employees and/or Directors. Unless otherwise specifically provided in
any plan of the Company intended to "qualify" under section 401 of the Code, Compensation and Bonus Deferrals made
under this Plan will constitute earnings or compensation for purposes of determining contributions or benefits under such
qualified plan.
End of Article IX
Fifth Amended and Restated Tenet 2006 DCP
36
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
10.1 Continuation. The Company intends to continue this Plan indefinitely, but nevertheless assumes no contractual
obligation beyond the promise to pay the benefits described in this Plan.
10.2 Amendment of Plan. The Company, through an action of the Human Resources Committee, reserves the right in its sole
and absolute discretion to amend this Plan in any respect at any time, except that upon or during the two (2) year period
after any Change of Control of the Company, (a) Plan benefits cannot be reduced, (b) Articles VIII and X and Plan
Section 7.1(b) cannot be changed, and (c) (except as provided in Section 10.3) no prospective amendment that
adversely affects the rights or obligations of a Participant may be made unless the affected Participant receives at least
one (1) year's advance written notice of such amendment.
Moreover, no amendment may ever be made that retroactively reduces or diminishes the rights of any Participant to the
benefits described herein that have been accrued or earned through the date of such amendment, even if a Termination
of Employment has not yet occurred with respect to such Participant.
In addition to the Human Resources Committee, the RPAC has the right to make non-material amendments to the Plan
to comply with changes in the law or to facilitate Plan administration; provided, however, that each such proposed non-
material amendment must be discussed with the Chairperson of the Human Resources Committee in order to determine
whether such change would constitute a material amendment to the Plan.
The provisions of this Section 10.2 will not restrict the right of the Company to terminate this Plan under Section 10.3
below or the termination of an Affiliate's participation under Section 10.4 below.
10.3
Termination of Plan. The Company, through an action of the Human Resources Committee, may terminate or suspend
this Plan in whole or in part at any time, provided that no such termination or suspension will deprive a Participant, or
person claiming benefits under this Plan through a Participant, of any amount credited to his Accounts under this Plan up
to the date of suspension or termination, except as required by applicable law and pursuant to the valuation of such
Accounts pursuant to Section 4.6.
The Human Resources Committee may decide to liquidate the Plan upon termination under the following circumstances:
(a)
Corporate Dissolution or Bankruptcy . The Human Resources Committee may terminate and liquidate the Plan
within twelve (12) months of a corporate dissolution taxed under section 331 of the Code or with the approval of a
bankruptcy court pursuant to 11 U.S.C. § 503(b)(1)(A), provided that the amounts deferred under the Plan are
included in Participants' gross income in the latest of the following years (or if earlier, the taxable year in which the
amount is actually or constructively received):
(i)
The calendar year in which the Plan termination and liquidation occurs.
Fifth Amended and Restated Tenet 2006 DCP
37
(b)
(c)
(ii)
(iii)
The first calendar year in which the amount is no longer subject to a substantial risk of forfeiture.
The first calendar year in which the payment is administratively practicable.
Change in Control . The Human Resources Committee may terminate and liquidate the Plan within the thirty (30)
days preceding or the twelve (12) months following a "change in control" as defined in Treasury Regulation
1.409A-3(i)(5) provided that all plans or arrangements that would be aggregated with the Plan under section 409A
of the Code are also terminated and liquidated with respect to each Participant that experienced the change in
control event so that under the terms of the Plan and all such arrangements the Participant is required to receive
all amounts of compensation deferred under such arrangements within twelve (12) months of the termination of
the Plan or arrangement, as applicable. In the case of a Change of Control event which constitutes a sale of
assets, the termination of the Plan pursuant to this Section 10.3(b) may be made with respect to the Employer that
is primarily liable immediately after the change of control transaction for the payment of benefits under the Plan.
Termination of Plan . The Human Resources Committee may terminate and liquidate the Plan provided that (i)
the termination and liquidation does not occur by reason of a downturn of the financial health of the Company or
an Employer, (ii) all plans all plans or arrangements that would be aggregated with the Plan under section 409A of
the Code are also terminated and liquidated, (iii) no payments in liquidation of the Plan are made within twelve
(12) months of the date of termination of the Plan other than payments that would be made in the ordinary course
operation of the Plan, (iv) all payments are made within twenty four (24) months of the date the Plan is terminated
and (v) the Company or the Employer, as applicable depending on whether the Plan is terminated with respect to
such entity, do not adopt a new plan that would be aggregated with the Plan within three (3) years of the date of
the termination of the Plan.
10.4
Termination of Affiliate's Participation. An Affiliate may terminate its participation in the Plan at any time by an action
of its governing body and providing written notice to the Company. Likewise, the Company may terminate an Affiliate's
participation in the Plan at any time by an action of the Human Resources Committee and providing written notice to the
Affiliate. The effective date of any such termination will be the later of the date specified in the notice of the termination of
participation or the date on which the RPAC can administratively implement such termination. In the event that an
Affiliate's participation in the Plan is terminated, each Participant employed by such Affiliate will continue to make
Compensation and Bonus Deferrals, RSU Deferrals or Discretionary Deferrals, as applicable, in effect at the time of such
termination for the remainder of the Plan Year in which the termination occurs. Thereafter, each Participant employed by
such Affiliate will continue to participate in the Plan as an inactive Participant and will be entitled to a distribution of his
entire Account or a portion thereof upon the earlier of his Scheduled Withdrawal Date, if any, or his Termination of
Employment, in the form elected (or deemed elected) by such Participant pursuant to Section 5.1.
End of Article X
Fifth Amended and Restated Tenet 2006 DCP
38
ARTICLE XI
MISCELLANEOUS
11.1 No Reduction of Employer Rights. Nothing contained in this Plan will be construed as a contract of employment
between the Employer and an Employee, or as a right of any Employee to continue in the employment of the Employer,
or as a limitation of the right of the Employer to discharge any of its Employees, with or without cause or as a right of any
Director to be renominated to serve as a Director.
11.2 Provisions Binding. All of the provisions of this Plan will be binding upon all persons who will be entitled to any benefit
hereunder, their heirs and personal representatives.
End of Article IX
Fifth Amended and Restated Tenet 2006 DCP
39
IN WITNESS WHEREOF , this Fifth Amended and Restated Tenet 2006 Deferred Compensation Plan has been executed on
this 30 th of November , 2018, effective as of January 1, 2019, except as specifically provided otherwise here
TENET HEALTHCARE CORPORATION
By:
/s/ Paul Slavin
Paul Slavin, Vice President,
Executive and Corp. HR Services
Fifth Amended and Restated Tenet 2006 DCP
40
EXHIBIT A 1
LIMITS ON ELIGIBILITY AND PARTICIPATION
Section 3.1 of the Tenet 2006 Deferred Compensation Plan (the " Plan ") provides the Retirement Plans Administration
Committee (" RPAC ") and Plan Administrator with the authority to limit the classification of Employees eligible to participate in
the Plan, limit the time of an Employee’s enrollment in the Plan to an Open Enrollment Period and/or modify or terminate an
Eligible Person’s participation in the Plan and states that any such limitation will be set forth in this Exhibit A. Capitalized terms
used in this Exhibit that are not defined herein will have the meaning set forth in Section 2.1.
•
The classification of Employees eligible to participate in the Plan will be limited to those employees who are paid from a
Tenet payroll (i.e., eligible employees who were previously employed by Vanguard Health System will not be eligible to
participate in the Plan until they transition to a Tenet payroll).
1 This Exhibit A may be updated from time to time without the need for a formal amendment to the Plan.
A-1
Exhibit 10(m)
FIFTH AMENDMENT TO STOCK PLEDGE AGREEMENT
This Fifth Amendment to Stock Pledge Agreement (this “ Amendment ”) is entered into as of December 1, 2016, among
Tenet Healthcare Corporation, a Nevada corporation (the “ Company ”), each of the other entities listed on the signature pages
hereof as Pledgors, and The Bank of New York Mellon Trust Company, N.A., as collateral trustee for the Secured Parties (in such
capacity, the “ Collateral Trustee ”).
RECITALS
WHEREAS, reference is made to that certain Stock Pledge Agreement, dated as of March 3, 2009, by the Company and the
other Pledgors in favor of the Collateral Trustee, as amended by that certain First Amendment to Stock Pledge Agreement, dated as
of May 8, 2009, among the Company, the other Pledgors and the Collateral Trustee, as amended by that certain Second Amendment
to Stock Pledge Agreement, dated as of June 15, 2009, among the Company, the other Pledgors and the Collateral Trustee, as
amended by that certain Joinder Agreement to the Stock Pledge Agreement, dated as of May 15, 2013 and executed by the pledgors
party thereto, as amended by that certain Pledge Amendment to the Stock Pledge Agreement, dated as of May 15, 2013, between the
Company and the Collateral Trustee, as amended by that certain Joinder Agreement to the Stock Pledge Agreement, dated as of
October 1, 2013 and executed by the pledgors party thereto, as amended by that certain Pledge Amendment to the Stock Pledge
Agreement, dated as of October 1, 2013, by the Company and the Collateral Trustee, as amended by that certain Third Amendment
to Stock Pledge Agreement, dated as of March 7, 2014, among the Company, the other Pledgors and the Collateral Trustee, as
amended by that certain Fourth Amendment to Stock Pledge Agreement, dated as of March 23, 2015, among the Company, the other
Pledgors and the Collateral Trustee, as amended by that certain Joinder Agreement to the Stock Pledge Agreement, dated as of
March 23, 2015 and executed by the pledgors party thereto, as amended by that certain Pledge Amendment to the Stock Pledge
Agreement, dated as of March 23, 2015, by the Company and the Collateral Trustee, as amended by that certain Joinder Agreement
to the Stock Pledge Agreement, dated as of October 2, 2015 and executed by the pledgors party thereto, and as amended by that
certain Pledge Amendment to the Stock Pledge Agreement, dated as of October 5, 2015, between the Company and the Collateral
Trustee (as so amended, the “ Stock Pledge Agreement ”);
WHEREAS, pursuant to that certain Indenture, dated as of November 6, 2001 (the “ Base Indenture ”), between the
Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee to The Bank of New York, as trustee (the “
Trustee ”), as supplemented by the Twenty-Eighth Supplemental Indenture thereto, dated as of December 1, 2016 (and, as
supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the Company, the Trustee and the
guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the Company, the
Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23, 2015, among the
Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto, dated as of October
2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Twenty-Eighth Supplemental Indenture ”), the
Company
1
has issued $750,000,000 principal amount of its senior secured second lien notes due 2022 (the “ Second Lien 2022 Notes ”; the
Second Lien 2022 Notes, collectively with any other Securities (as such term is defined in the Base Indenture or the 2013 Base
Indenture) of the Company issued and authenticated under the Junior Priority Indentures (as defined below) that are designated by
the Company as, and are entitled the benefits of, being Junior Stock Secured Debt under the Collateral Trust Agreement in
accordance with the requirements set forth in Section 3.8 thereof, the “ Junior Lien Secured Notes ”);
WHEREAS, the Secured Obligations in respect of which a security interest in the Collateral was created by the Stock Pledge
Agreement include the obligations in respect of the:
(a)
Fourteenth Supplemental Indenture to the Base Indenture, dated as of November 21, 2011, by and among the
Company, the Trustee and the guarantors party thereto and relating to the Company’s 6.250% Senior Secured Notes due 2018 (the “
2018 Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the Company, the
Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23,
2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto,
dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Fourteenth Supplemental
Indenture ”);
(b) Fifteenth Supplemental Indenture to the Base Indenture, dated as of October 16, 2012, by and among the Company, the
Trustee and the guarantors party thereto and relating to the Company’s 4.750% Senior Secured Notes due 2020 (the “ 4.75% 2020
Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the Company, the
Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23,
2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto,
dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Fifteenth Supplemental
Indenture ”);
(c) Seventeenth Supplemental Indenture to the Base Indenture, dated as of February 5, 2013, by and among the Company,
the Trustee and the guarantors party thereto and relating to the Company’s 4.500% Senior Secured Notes due 2021 (the “ 4.5% 2021
Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the Company, the
Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23,
2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto,
dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Seventeenth Supplemental
Indenture ”);
(d) Twentieth Supplemental Indenture to the Base Indenture, dated as of May 30, 2013, by and among the Company, the
Trustee and the guarantors party thereto and relating to
2
the Company’s 4.375% Senior Secured Notes due 2021 (the “ 4.375% 2021 Notes ” and, as supplemented by the Nineteenth
Supplemental Indenture, dated as of May 15, 2013, between the Company, the Trustee and the guarantors party thereto, the Twenty-
Second Supplemental Indenture, dated as of October 1, 2013, between the Company, the Trustee and the guarantors party thereto,
the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23, 2015, among the Company, the Trustee and the guarantors
party thereto, and the Twenty-Seventh Supplemental Indenture thereto, dated as of October 2, 2015, among the Company, the
Trustee and the guarantors party thereto, the “ Twentieth Supplemental Indenture ”);
(e) Twenty-Sixth Supplemental Indenture to the Base Indenture, dated as of June 16, 2015, by and among the Company,
the Trustee and the guarantors party thereto and relating to the Company’s Floating Rate Senior Secured Notes Due 2020 (the “
Floating Rate 2020 Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013,
between the Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of
March 23, 2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture
thereto, dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Twenty-Sixth
Supplemental Indenture ”);
(f) Indenture dated as of September 27, 2013 (the “ 2013 Base Indenture ”), between THC Escrow Corporation and the
Trustee (as supplemented by the First Supplemental Indenture thereto, dated as of October 1, 2013, among the Company, the Trustee
and the guarantors party thereto, the Second Supplemental Indenture thereto, dated as of March 23, 2015, among the Company, the
Trustee and the guarantors party thereto, and the Third Supplemental Indenture thereto, dated as of October 2, 2015, among the
Company, the Trustee and the guarantors party thereto, the “ 2013 Indenture ”)), pursuant to which the 6.00% Senior Secured Notes
due 2020 were issued (the “ 6.000% 2020 Notes ”; the 6.000% 2020 Notes, collectively with the 4.375% 2021 Notes, the 4.5% 2021
Notes, the 4.75% 2020 Notes, the Floating Rate 2020 Notes, the 2018 Notes, and any other Securities (as such term is defined in the
Base Indenture or the 2013 Base Indenture) of the Company issued and authenticated under the Indentures or the 2013 Indenture that
are designated as, and are entitled to the benefits of, being First Priority Stock Secured Debt under the Collateral Trust Agreement in
accordance with the requirements set forth in Section 3.8 thereof, are referred to herein as the “ First Lien Secured Notes ”; the First
Lien Secured Notes, together with the Junior Lien Secured Notes, are referred to herein as the “ Secured Notes ”);
(g) the Guarantees in respect of the Secured Notes; and
(h) the obligations under that certain Letter of Credit Facility Agreement, dated as of March 7, 2014 (as amended or
otherwise modified, the “ LC Facility Agreement ”), among the Company, certain financial institutions party thereto from time to
time as letter of credit participants and issuers and Barclays Bank PLC, as administrative agent, and the guarantees in respect thereof;
3
WHEREAS, subject to the terms and conditions hereof, the parties hereto desire to and have agreed to amend the Stock
Pledge Agreement to secure the obligations in respect of the Junior Lien Secured Notes, in each case to be designated as and entitled
to the benefits of being Junior Stock Secured Debt (as defined in the Collateral Trust Agreement) under the Collateral Trust
Agreement in accordance with the requirements set forth in Section 3.8 thereof.
WHEREAS, the sole effect of this Amendment is to secure additional debt of the Company that is permitted by the terms of
the Collateral Trust Agreement to be secured by the Collateral and to add references to such debt and the documents governing such
debt, and that as such, pursuant to:
(a) Section 7.1 of the Stock Pledge Agreement;
(b) Section 7.1 of the Collateral Trust Agreement;
(c) Article VII of each of the Fourteenth Supplemental Indenture, Fifteenth Supplemental Indenture, Seventeenth
Supplemental Indenture, Twentieth Supplemental Indenture and Twenty-Sixth Supplemental Indenture, and Section 902 of the 2013
Indenture; and
(d) Section 10.8 and 11.1 of the LC Facility Agreement, this Amendment may be entered into by the Company, the other
pledgors party hereto and the Collateral Trustee without (i) the consent of the holders of the Notes or the holders of LC Obligations
(as defined below) or (ii) direction to the Collateral Trustee by an Act of Required Stock Secured Debtholders (as defined in the
Collateral Trust Agreement); and
WHEREAS, unless otherwise indicated, capitalized terms used herein without definition have the meanings ascribed to such
terms in the Stock Pledge Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and each
other Pledgor signatory hereto hereby agrees with the Collateral Trustee as follows:
1.
of the Stock Pledge Agreement.
Section References . Unless otherwise expressly stated herein, all Section references herein shall refer to Sections
2. Amendments to Section 1.1 . Section 1.1 of the Stock Pledge Agreement is hereby amended by: (a) amending and
restating the defined terms “2013 Indenture,” “Event of Default,” “First Lien Secured Obligations,” “First Lien Secured
Parties,” “Junior Lien Secured Obligations,” “Junior Lien Secured Parties,” “Notes,” “Related Document,” “Secured
Obligations,” “Secured Parties” and “Supplemental Indentures” in their entirety, and by adding the defined terms “Fifth
Amendment,” “First Lien Secured Notes,” “First Priority Indentures,” “First Priority Supplemental Indentures,” “Holder,”
“Junior Lien Secured Notes,” “Junior Priority Indentures,” “Junior Priority Supplemental Indentures” and “Note Guarantees,”
in each case as set forth below, and (b) deleting the defined terms “Interim Loan Agreement,” “Interim Loan Agreement
Guaranty Agreement,” “Interim Loan Agreement Obligations” and “Loan Guarantees” (all other
4
defined terms contained therein remain unchanged and to the extent that definitions contained in this Section 2 conflict with
definitions contained in the Stock Pledge Agreement, the definitions contained in this Section 2 shall control):
“ 2013 Indenture ” has the meaning specified in the Fifth Amendment.
“ Event of Default ” means an Event of Default, as such term is defined in any Indenture, any 2013 Indenture, the LC Facility
Agreement or any other First-Priority Stock Lien Document or Junior Stock Lien Document (as such terms are defined in the
Collateral Trust Agreement).
“ Fifth Amendment ” means the Fifth Amendment to Stock Pledge Agreement, dated as of December 1, 2016.
“ First Lien Secured Notes ” has the meaning specified in the Fifth Amendment.
“ First Lien Secured Obligations ” means (i) Obligations in respect of the First Lien Secured Notes and the related Note
Guarantees and (ii) LC Obligations and obligations under the LC guarantees.
“ First Lien Secured Parties ” means (i) the Holders of First Lien Secured Notes, (ii) the LC Participants, LC Issuers and
Administrative Agent under the LC Facility Agreement and any other holders of LC Obligations, (iii) the Trustee under each
Indenture and each 2013 Indenture with respect to First Lien Secured Notes issued thereunder and (iv) the Collateral Trustee
with respect to First Lien Secured Notes.
“ First Priority Indentures ” means, collectively, (i) the 2013 Indenture and (ii) the Base Indenture as severally supplemented
by each First Priority Supplemental Indenture.
“ First Priority Supplemental Indentures ” means the Fourteenth Supplemental Indenture, the Fifteenth Supplemental
Indenture, the Seventeenth Supplemental Indenture, the Nineteenth Supplemental Indenture, the Twentieth Supplemental
Indenture, the Twenty-Second Supplemental Indenture, the Twenty-Fifth Supplemental Indenture, the Twenty-Sixth
Supplemental Indenture, the Twenty-Seventh Supplemental Indenture and all other indentures supplemental to the Base
Indenture in respect of which Securities are issued and authenticated that are designated as and entitled to the benefits of
being First-Priority Stock Secured Debt under the Collateral Trust Agreement in accordance with the requirements set forth
in Section 3.8 thereof.
“ Holder ” shall have the meaning given to such term in any Indenture or 2013 Indenture.
“ Indentures ” means, collectively, the First Priority Indentures and the Junior Priority Indentures.
“ Junior Lien Secured Notes ” has the meaning specified in the Fifth Amendment.
5
“ Junior Lien Secured Obligations ” means Obligations in respect of the Junior Lien Secured Notes and the related Note
Guarantees.
“ Junior Lien Secured Parties ” means (i) the Holders of Junior Lien Secured Notes and (ii) the Collateral Trustee with
respect to Junior Lien Secured Notes.
“ Junior Priority Indentures ” means, collectively, the Base Indenture as severally supplemented by each Junior Priority
Supplemental Indenture.
“ Junior Priority Supplemental Indentures ” means the Twenty-Eighth Supplemental Indenture and all other indentures
supplemental to the Base Indenture in respect of which Securities are issued and authenticated that are designated as, and
entitled to the benefits of, being Junior Stock Secured Debt under the Collateral Trust Agreement in accordance with the
requirements set forth in Section 3.8 thereof.
“ Notes ” means (i) the First Lien Secured Notes and (ii) the Junior Lien Secured Notes.
“ Note Guarantees ” means the Guarantees of the Company’s obligations under the Indentures, the 2013 Indenture and the
Notes.
“ Related Document ” means the Indentures, the 2013 Indenture, the Notes, the Note Guarantees, the Collateral Trust
Agreement, the LC Facility Agreement and Guarantee Agreement.
“ Secured Obligations ” means (i) the First Lien Secured Obligations and (ii) the Junior Lien Secured Obligations.
“ Secured Parties ” means (i) the First Lien Secured Parties and (ii) the Junior Lien Secured Parties.
“ Supplemental Indentures ” means, collectively, the First Priority Supplemental Indentures and the Junior Priority
Supplemental Indentures.
3. Amendments to Section 7.1 . Section 7.1 of the Stock Pledge Agreement is hereby amended to delete the words “,
Section 11.1 of the Interim Loan Agreement”.
4. Conditions Precedent . The effectiveness of this Amendment is subject to the Collateral Trustee’s receipt of each of the
following:
(a) this Amendment, duly executed and delivered by the Company, each other Pledgor party hereto and the
Collateral Trustee;
(b) an Officers’ Certificate (as defined in the Collateral Trust Agreement) to the effect that this Amendment will
not result in a breach of any provision or covenant contained in any of the Secured Debt Documents (as defined in the
Collateral Trust Agreement); and
6
(c) an opinion of counsel of the Company to the effect that the Collateral Trustee’s execution of this Amendment is
authorized and permitted by the Collateral Trust Agreement.
5. Reference to Stock Pledge Agreement . The Stock Pledge Agreement and the Related Documents, and any and all other
agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to
the terms of the Stock Pledge Agreement or the Related Documents, are hereby amended so that any reference therein to the
Stock Pledge Agreement, whether direct or indirect, shall mean a reference to the Stock Pledge Agreement as amended
hereby.
6. Counterparts . This Amendment may be executed by one or more of the parties to this Amendment on any number of
separate counterparts (including by telecopy), each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple
counterparts and attached to a single counterpart so that all signature pages are attached to the same document. Delivery of an
executed counterpart by telecopy shall be effective as delivery of a manually executed counterpart.
7. Severability . Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibitions or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
8. Governing Law . THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS AMENDMENT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
9. Limited Effect . Except to the extent specifically amended or modified hereby, the provisions of the Stock Pledge
Agreement shall not be amended, modified, impaired or otherwise affected hereby.
10. Responsibility of the Collateral Trustee . The Collateral Trustee is not responsible for the validity or sufficiency of this
Amendment or the recitals contained herein. In no event shall the Collateral Trustee or Registrar (as defined in the
Appointment of Registrar Letter dated March 23, 2015 between The Bank of New York Mellon Trust Company, N.A., as
registrar (the “ Registrar ”) be charged with knowledge of the terms of, be subject to, or be required to comply with the
Twenty-Eighth Supplemental Indenture. All such responsibilities of the Collateral Trustee shall be as set forth in the
Collateral Trust Agreement.
[ Signature Pages Follow ]
7
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to be duly executed and delivered as of the
date first above written.
TENET HEALTHCARE CORPORATION, as a Pledgor
By:
/s/ James E. Snyder III
Name: James E. Snyder III
Title: Vice President and Assistant Treasurer
AMERICAN MEDICAL (CENTRAL), INC.
AMI INFORMATION SYSTEMS GROUP, INC.
AMISUB (HEIGHTS), INC.
AMISUB (HILTON HEAD), INC.
AMISUB (TWELVE OAKS), INC.
AMISUB OF TEXAS, INC.
BROOKWOOD HEALTH SERVICES, INC.
CORAL GABLES HOSPITAL, INC.
CYPRESS FAIRBANKS MEDICAL CENTER, INC.
FMC MEDICAL, INC.
HEALTHCARE NETWORK CFMC, INC.
HEALTHCARE NETWORK HOLDINGS, INC.
HEALTHCARE NETWORK LOUISIANA, INC.
HEALTHCARE NETWORK MISSOURI, INC.
HEALTHCARE NETWORK TEXAS, INC.
HEALTHCORP NETWORK, INC.
HEALTH SERVICES NETWORK HOSPITALS, INC.
HEALTH SERVICES NETWORK TEXAS, INC.
LIFEMARK HOSPITALS, INC.
ORNDA HOSPITAL CORPORATION
SRRMC MANAGEMENT, INC.
TENET CALIFORNIA, INC.
TENET FLORIDA, INC.
TENET HEALTHSYSTEM MEDICAL, INC.
TENET HEALTHSYSTEM PHILADELPHIA, INC.
TENET PHYSICIAN SERVICES - HILTON HEAD, INC.
VANGUARD HEALTH FINANCIAL COMPANY, LLC
VANGUARD HEALTH HOLDING COMPANY I, LLC
VANGUARD HEALTH HOLDING COMPANY II, LLC
VANGUARD HEALTH MANAGEMENT, INC.
VANGUARD HEALTH SYSTEMS, INC.
VHS OF PHOENIX, INC.
VHS OF MICHIGAN, INC.
VHS VALLEY MANAGEMENT COMPANY, INC.,
each as a Pledgor
[ Signature
Page
to
Fifth
Amendment
to
Stock
Pledge
Agreement
]
By:
/s/ James E. Snyder III
Name: James E. Snyder III
Title: Treasurer
BROOKWOOD BAPTIST HEALTH 1, LLC
VHS VALLEY HEALTH SYSTEM, LLC,
each as a Pledgor
By:
/s/ James E. Snyder III
Name: James E. Snyder III
Title: Assistant Treasurer
ACCEPTED AND AGREED
as of the date first above written:
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
as Collateral Trustee
By: /s/ Teresa Petta
Name: Teresa Petta
Title: Vice President
[ Signature
Page
to
Fifth
Amendment
to
Stock
Pledge
Agreement
]
Exhibit 10(n)
SIXTH AMENDMENT TO STOCK PLEDGE AGREEMENT
This Sixth Amendment to Stock Pledge Agreement (this “ Amendment ”) is entered into as of July 14, 2017, among Tenet
Healthcare Corporation, a Nevada corporation (the “ Company ”), each of the other entities listed on the signature pages hereof as
Pledgors, and The Bank of New York Mellon Trust Company, N.A., as collateral trustee for the Secured Parties (in such capacity,
the “ Collateral Trustee ”).
RECITALS
WHEREAS, reference is made to that certain Stock Pledge Agreement, dated as of March 3, 2009, among the Company, the
other Pledgors and the Collateral Trustee (as amended by that certain First Amendment to the Stock Pledge Agreement, dated as of
May 8, 2009, among the Company, the other Pledgors and the Collateral Trustee, as amended by that certain Second Amendment to
the Stock Pledge Agreement, dated as of June 15, 2009, among the Company, the other Pledgors and the Collateral Trustee, as
amended by that certain Third Amendment to the Stock Pledge Agreement, dated as of March 7, 2014, among the Company, the
other Pledgors and the Collateral Trustee, as amended by that certain Fourth Amendment to the Stock Pledge Agreement, dated as of
March 23, 2015, among the Company, the other Pledgors and the Collateral Trustee, as amended by that certain Fifth Amendment to
the Stock Pledge Agreement, dated as of December 1, 2016, among the Company, the other Pledgors and the Collateral Trustee, as
amended by that certain Joinder Agreement to the Stock Pledge Agreement executed on May 15, 2013 by the other Pledgors and by
that certain Pledge Amendment to the Stock Pledge Agreement executed on May 15, 2013 by the Company and the Collateral
Trustee, as amended by that certain Joinder Agreement to the Stock Pledge Agreement executed on October 1, 2013 by the other
Pledgors and by that certain Pledge Amendment to the Stock Pledge Agreement executed on October 1, 2013 by the Company and
the Collateral Trustee, as amended by that certain Joinder Agreement to the Stock Pledge Agreement executed on March 23, 2015 by
the other Pledgors and by that certain Pledge Amendment to the Stock Pledge Agreement executed on March 23, 2015 by the
Company and the Collateral Trustee, and as further amended by that certain Joinder Agreement to the Stock Pledge Agreement
executed on October 2, 2015 by the other Pledgors and by that certain Pledge Amendment to the Stock Pledge Agreement executed
on October 5, 2015 by the Company and the Collateral Trustee (as so amended and as otherwise amended from time to time prior to
the date hereof, the “ Stock Pledge Agreement ”));
WHEREAS, pursuant to that certain senior secured second lien notes indenture, dated as of June 14, 2017, between THC
Escrow Corporation III, a Delaware corporation (“ Escrow Corp .”) and The Bank of New York Mellon Trust Company, N.A., as
trustee (the “ Second Lien Trustee ”) (the “ Second Lien Base Indenture ”), Escrow Corp. issued $1,410,000,000 principal amount of
its 5.125% senior secured second lien notes due 2025 (the “ Second Lien Notes ”; the Second Lien Notes, collectively with any
Securities of the Company issued and authenticated under the Junior Priority Indentures that are designated by the Company as, and
are entitled the benefits of, being Junior Stock Secured Debt under the Collateral Trust Agreement in accordance with the
requirements set forth in Section 3.8 thereof, the “ Junior Lien Secured Notes ”);
1
WHEREAS, pursuant to a supplemental indenture, dated as of July 14, 2017, to the Second Lien Base Indenture (the “
Second Lien Supplemental Indenture ” and, together with the Second Lien Base Indenture, the “ Second Lien Indenture ”), the
Company assumed all obligations of the Escrow Corp. under the Second Lien Notes and the Second Lien Base Indenture;
WHEREAS, the Secured Obligations in respect of which a security interest in the Collateral was created by the Stock Pledge
Agreement include the obligations in respect of the:
(a)
Indenture, dated as of November 6, 2001 (the “ Base Indenture ”), between the Company and The Bank of New
York Mellon Trust Company, N.A., as successor trustee to The Bank of New York, as trustee (in such capacity, the “ Trustee ”);
(b) Fourteenth Supplemental Indenture to the Base Indenture, dated as of November 21, 2011, by and among the
Company, the Trustee and the guarantors party thereto and relating to the Company’s 6.250% Senior Secured Notes due 2018 (the “
2018 Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the Company, the
Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23,
2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto,
dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Fourteenth Supplemental
Indenture ”);
(c) Fifteenth Supplemental Indenture to the Base Indenture, dated as of October 16, 2012, by and among the Company, the
Trustee and the guarantors party thereto and relating to the Company’s 4.750% Senior Secured Notes due 2020 (the “ 4.75% 2020
Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the Company, the
Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23,
2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto,
dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Fifteenth Supplemental
Indenture ”);
(d) Seventeenth Supplemental Indenture to the Base Indenture, dated as of February 5, 2013, by and among the Company,
the Trustee and the guarantors party thereto and relating to the Company’s 4.500% Senior Secured Notes due 2021 (the “ 4.5% 2021
Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the Company, the
Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23,
2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto,
dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Seventeenth Supplemental
Indenture ”);
2
(e) Twentieth Supplemental Indenture to the Base Indenture, dated as of May 30, 2013, by and among the Company, the
Trustee and the guarantors party thereto and relating to the Company’s 4.375% Senior Secured Notes due 2021 (the “ 4.375% 2021
Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the Company, the
Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23,
2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto,
dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Twentieth Supplemental
Indenture ”);
(f) Twenty-Eighth Supplemental Indenture to the Base Indenture, dated as of December 1, 2016, by and among the
Company, the Trustee and the guarantors party thereto and relating to the Company’s 7.50% Senior Secured Second Lien Notes due
2022 (the “ 7.50% 2022 Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between
the Company, the Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013,
between the Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of
March 23, 2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture
thereto, dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Twenty-Eighth
Supplemental Indenture ”);
(g) Twenty-Ninth Supplemental Indenture to the Base Indenture, dated as of June 14, 2017, by and among the Company,
the Trustee and the guarantors party thereto and relating to the Company’s 4.625% Senior Secured First Lien Notes due 2024 (the “
4.625% 2024 Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013,
between the Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of
March 23, 2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture
thereto, dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Twenty-Ninth
Supplemental Indenture ”);
(h) Indenture dated as of September 27, 2013 (the “ 2013 Base Indenture ”), between THC Escrow Corporation and the
Trustee (as supplemented by the First Supplemental Indenture thereto, dated as of October 1, 2013, among the Company, the Trustee
and the guarantors party thereto, the Second Supplemental Indenture thereto, dated as of March 23, 2015, among the Company, the
Trustee and the guarantors party thereto, and the Third Supplemental Indenture thereto, dated as of October 2, 2015, among the
Company, the Trustee and the guarantors party thereto, the “ 2013 Indenture ”)), pursuant to which the 6.00% Senior Secured Notes
due 2020 were issued (the “ 6.000% 2020 Notes ”; the 6.000% 2020 Notes, collectively with the 4.375% 2021 Notes, the 4.5% 2021
Notes, the 4.75% 2020 Notes and any other Securities (as such term is defined in the Base Indenture or the 2013 Base Indenture) of
the Company issued and authenticated under the Indentures or the 2013 Indenture that are designated as, and are entitled to the
benefits of, being First Priority Stock Secured Debt under the Collateral Trust Agreement
3
in accordance with the requirements set forth in Section 3.8 thereof, are referred to herein as the “ First Lien Secured Notes ”; the
First Lien Secured Notes, together with the Junior Lien Secured Notes, are referred to herein as the “ Secured Notes ”);
(i) the Guarantees in respect of the Secured Notes; and
(j) the obligations under that certain Letter of Credit Facility Agreement, dated as of March 7, 2014 (as amended or
otherwise modified, the “ LC Facility Agreement ”), among the Company, certain financial institutions party thereto from time to
time as letter of credit participants and issuers and Barclays Bank PLC, as administrative agent, and the guarantees in respect thereof;
WHEREAS, subject to the terms and conditions hereof, the parties hereto desire to and have agreed to amend the Stock
Pledge Agreement to secure the obligations in respect of the Junior Lien Secured Notes, in each case to be designated as and entitled
to the benefits of being Junior Stock Secured Debt (as defined in the Collateral Trust Agreement) under the Collateral Trust
Agreement in accordance with the requirements set forth in Section 3.8 thereof.
WHEREAS, the sole effect of this Amendment is to secure additional debt of the Company that is permitted by the terms of
the Collateral Trust Agreement to be secured by the Collateral and to add references to such debt and the documents governing such
debt, and that as such, pursuant to:
(a) Section 7.1 of the Stock Pledge Agreement;
(b) Section 7.1 of the Collateral Trust Agreement;
(c) Article VII of each of the Fourteenth Supplemental Indenture, the Fifteenth Supplemental Indenture, Seventeenth
Supplemental Indenture, Twentieth Supplemental Indenture, Twenty-Eighth Supplemental Indenture and Twenty-Ninth
Supplemental Indenture and Section 902 of the 2013 Indenture; and
(d) Section 10.8 and 11.1 of the LC Facility Agreement, this Amendment may be entered into by the Company, the other
pledgors party hereto and the Collateral Trustee without (i) the consent of the holders of the Notes or the holders of LC Obligations
or (ii) direction to the Collateral Trustee by an Act of Required Stock Secured Debtholders (as defined in the Collateral Trust
Agreement); and
WHEREAS, unless otherwise indicated, capitalized terms used herein without definition have the meanings ascribed to such
terms in the Stock Pledge Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and each
other Pledgor signatory hereto hereby agrees with the Collateral Trustee as follows:
1.
of the Stock Pledge Agreement.
Section References . Unless otherwise expressly stated herein, all Section references herein shall refer to Sections
4
2. Amendments to Section 1.1 . Section 1.1 of the Stock Pledge Agreement is hereby amended by: (a) amending and
restating the defined terms “2013 Indenture,” “First Priority Supplemental Indentures,” “Junior Lien Secured Notes,” and
“Junior Priority Indentures,” in their entirety, and by adding the defined term “Sixth Amendment” in each case as set forth
below (all other defined terms contained therein remain unchanged and to the extent that definitions contained in this Section
2 conflict with definitions contained in the Stock Pledge Agreement, the definitions contained in this Section 2 shall control):
“ 2013 Indenture ” has the meaning specified in the Sixth Amendment.
“ First Priority Supplemental Indentures ” means the Fourteenth Supplemental Indenture, the Fifteenth Supplemental
Indenture, the Seventeenth Supplemental Indenture, the Nineteenth Supplemental Indenture, the Twentieth Supplemental
Indenture, the Twenty-Second Supplemental Indenture, the Twenty-Fifth Supplemental Indenture, the Twenty-Seventh
Supplemental Indenture, and Twenty-Ninth Supplemental Indenture and all other indentures supplemental to the Base
Indenture in respect of which Securities are issued and authenticated that are designated as and entitled to the benefits of
being First-Priority Stock Secured Debt under the Collateral Trust Agreement in accordance with the requirements set forth
in Section 3.8 thereof.
“ Junior Lien Secured Notes ” has the meaning specified in the Sixth Amendment.
“ Junior Priority Indentures ” means, collectively, the Base Indenture as severally supplemented by each Junior Priority
Supplemental Indenture and the Second Lien Notes Indenture (as defined in the Sixth Amendment).
“ Sixth Amendment ” means the Sixth Amendment to Stock Pledge Agreement, dated as of July 14, 2017.
3. Conditions Precedent . The effectiveness of this Amendment is subject to the Collateral Trustee’s receipt of each of the
following: this Amendment, duly executed and delivered by the Company, each other Pledgor party hereto and the Collateral
Trustee;
(a) an Officers’ Certificate (as defined in the Collateral Trust Agreement) to the effect that this Amendment will
not result in a breach of any provision or covenant contained in any of the Secured Debt Documents (as defined in the
Collateral Trust Agreement); and
(b) an opinion of counsel of the Company to the effect that the Collateral Trustee’s execution of this Amendment is
authorized and permitted by the Collateral Trust Agreement.
4. Reference to Stock Pledge Agreement . The Stock Pledge Agreement and the Related Documents, and any and all other
agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to
the terms
5
of the Stock Pledge Agreement or the Related Documents, are hereby amended so that any reference therein to the Stock
Pledge Agreement, whether direct or indirect, shall mean a reference to the Stock Pledge Agreement as amended hereby.
5. Counterparts . This Amendment may be executed by one or more of the parties to this Amendment on any number of
separate counterparts (including by telecopy), each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple
counterparts and attached to a single counterpart so that all signature pages are attached to the same document. Delivery of an
executed counterpart by telecopy shall be effective as delivery of a manually executed counterpart.
6. Severability . Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibitions or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
7. Governing Law . THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS AMENDMENT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
8. Limited Effect . Except to the extent specifically amended or modified hereby, the provisions of the Stock Pledge
Agreement shall not be amended, modified, impaired or otherwise affected hereby.
9. Responsibility of the Collateral Trustee . The Collateral Trustee is not responsible for the validity or sufficiency of this
Amendment or the recitals contained herein. In no event shall the Collateral Trustee or Registrar (as defined in the
Appointment of Registrar Letter dated March 23, 2015 between The Bank of New York Mellon Trust Company, N.A., as
registrar (the “ Registrar ”) be charged with knowledge of the terms of, be subject to, or be required to comply with the LC
Facility Agreement, or the Interim Loan Agreement, dated as of March 23, 2015, among the Company, the lenders thereto
and Barclays Bank PLC, as administrative agent. All such responsibilities of the Collateral Trustee shall be as set forth in the
Collateral Trust Agreement.
[ Signature Pages Follow ]
6
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to be duly executed and delivered as of the
date first above written.
TENET HEALTHCARE CORPORATION, as a Pledgor
By: /s/ James E. Snyder III
Name: James E. Snyder III
Title: Vice President and Assistant Treasurer
AMERICAN MEDICAL (CENTRAL), INC.
AMI INFORMATION SYSTEMS GROUP, INC.
AMISUB (HEIGHTS), INC.
AMISUB (HILTON HEAD), INC.
AMISUB (SFH), INC.
AMISUB (TWELVE OAKS), INC.
AMISUB OF NORTH CAROLINA, INC.
AMISUB OF SOUTH CAROLINA, INC.
AMISUB OF TEXAS, INC.
ANAHEIM MRI HOLDING, INC.
BROOKWOOD HEALTH SERVICES, INC.
CGH HOSPITAL, LTD., by: CORAL GABLES HOSPITAL, INC.,
as general partner COASTAL CAROLINA
MEDICAL CENTER, INC.
COMMUNITY HOSPITAL OF LOS GATOS, INC.
CORAL GABLES HOSPITAL, INC.
CYPRESS FAIRBANKS MEDICAL CENTER, INC.
DELRAY MEDICAL CENTER, INC.
DES PERES HOSPITAL, INC.
EAST COOPER COMMUNITY HOSPITAL, INC.
FMC MEDICAL, INC.
FOUNTAIN VALLEY REGIONAL HOSPITAL AND
MEDICAL CENTER
FRYE REGIONAL MEDICAL CENTER, INC.
GOOD SAMARITAN MEDICAL CENTER, INC.
HEALTHCARE NETWORK CFMC, INC.
HEALTHCARE NETWORK HOLDINGS, INC.
HEALTHCORP NETWORK, INC.
HEALTHCARE NETWORK LOUISIANA, INC.
HEALTHCARE NETWORK MISSOURI, INC.
HEALTHCARE NETWORK TEXAS, INC.
HEALTH SERVICES NETWORK HOSPITALS, INC.
HEALTH SERVICES NETWORK TEXAS, INC.
HIALEAH HOSPITAL, INC.
HILTON HEAD HEALTH SYSTEM, L.P., by:
TENET PHYSICIAN SERVICES — HILTON HEAD, INC., as general partner
[ Signature
Page
to
Sixth
Amendment
to
Stock
Pledge
Agreement
]
HOSPITAL DEVELOPMENT OF WEST PHOENIX INC.
LIFEMARK HOSPITALS, INC.
LIFEMARK HOSPITALS OF FLORIDA, INC.
NEW MEDICAL HORIZONS II, LTD., by: CYPRESS FAIRBANKS
MEDICAL CENTER INC., as general partner
NORTH SHORE MEDICAL CENTER, INC.
ORNDA HOSPITAL CORPORATION
PALM BEACH GARDENS COMMUNITY HOSPITAL, INC.
SAINT FRANCIS HOSPITAL— BARTLETT, INC.
SLH VISTA, INC.
SPALDING REGIONAL MEDICAL CENTER, INC.
SRRMC MANAGEMENT, INC.
ST. MARY’S MEDICAL CENTER INC.
SYLVAN GROVE HOSPITAL, INC.
TENET CALIFORNIA, INC.
TENET FLORIDA, INC.
TENET HEALTHSYSTEM HAHNEMANN, L.L.C., by:
TENET HEALTHSYSTEM PHILADELPHIA, INC.,
as managing member
TENET HEALTHSYSTEM MEDICAL, INC.
TENET HEALTHSYSTEM PHILADELPHIA, INC.
TENET HEALTHSYSTEM ST. CHRISTOPHER’S HOSPITAL FOR
CHILDREN, L.L.C., by: TENET HEALTHSYSTEM
TENET HOSPITALS LIMITED, by: HEALTHCARE NETWORK
TEXAS, INC., as general partner
TENET PHYSICIAN SERVICES — HILTON HEAD, INC.
TH HEALTHCARE, LTD., by: LIFEMARK HOSPITALS, INC.,
as general partner
VHS ACQUISITION CORPORATION
VHS ACQUISITION SUBSIDIARY NUMBER 1, INC.
VHS ACQUISITION SUBSIDIARY NUMBER 3, INC.
VHS ACQUISITION SUBSIDIARY NUMBER 7, INC.
VHS ACQUISITION SUBSIDIARY NUMBER 9, INC.
VHS BROWNSVILLE HOSPITAL COMPANY, LLC
WEST BOCA MEDICAL CENTER, INC.
VHS CHILDREN’S HOSPITAL OF MICHIGAN, INC.
VHS DETROIT RECEIVING HOSPITAL, INC.
VHS HARLINGEN HOSPITAL COMPANY, LLC
VHS HARPER-HUTZEL HOSPITAL, INC.
VHS HURON VALLEY-SINAI HOSPITAL, INC.
VHS OF ARROWHEAD, INC.
VHS OF ILLINOIS, INC.
VHS REHABILITATION INSTITUTE OF MICHIGAN, INC.
VHS SAN ANTONIO PARTNERS, LLC, by: VHS ACQUISITION
SUBSIDIARY NUMBER 5, INC., its managing member,
and VHS HOLDING COMPANY, INC.
[ Signature
Page
to
Sixth
Amendment
to
Stock
Pledge
Agreement
]
PHILADELPHIA, INC., as
managing member
VHS SINAI-GRACE HOSPITAL, INC.
VHS VALLEY MANAGEMENT COMPANY, INC.
VHS WEST SUBURBAN MEDICAL CENTER, INC.
VHS WESTLAKE HOSPITAL INC.
VHS OF PHOENIX, INC.
VANGUARD HEALTH FINANCIAL COMPANY, LLC
VANGUARD HEALTH HOLDING COMPANY I, LLC
VANGUARD HEALTH HOLDING COMPANY II, LLC
VANGUARD HEALTH MANAGEMENT, INC.
VANGUARD HEALTH SYSTEMS, INC.
VHS OF MICHIGAN, INC.
By: /s/ James E. Snyder III
Name: James E. Snyder III
Title: Treasurer
BBH BMC, LLC
BROOKWOOD BAPTIST HEALTH 1, LLC
DESERT REGIONAL MEDICAL CENTER, INC.
DOCTORS HOSPITAL OF MANTECA, INC.
DOCTORS MEDICAL CENTER OF MODESTO, INC.
JFK MEMORIAL HOSPITAL, INC.
LAKEWOOD REGIONAL MEDICAL CENTER, INC.
LOS ALAMITOS MEDICAL CENTER, INC.
PLACENTIA-LINDA HOSPITAL, INC.
SAN RAMON REGIONAL MEDICAL CENTER, LLC
SIERRA VISTA HOSPITAL, INC.
TWIN CITIES COMMUNITY HOSPITAL, INC.
VHS VALLEY HEALTH SYSTEM, LLC
By: /s/ James E. Snyder III
Name: James E. Snyder III
Title: Assistant Treasurer
ATLANTA MEDICAL CENTER, INC.
NORTH FULTON MEDICAL CENTER, INC.
By: /s/ William G. Morrison
Name: William G. Morrison
Title: Treasurer
[ Signature
Page
to
Sixth
Amendment
to
Stock
Pledge
Agreement
]
ACCEPTED AND AGREED
as of the date first above written:
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
as Collateral Trustee
By: /s/ R. Tarnas
Name: R. Tarnas
Title: Vice President
[ Signature
Page
to
Sixth
Amendment
to
Stock
Pledge
Agreement
]
Exhibit 10(o)
SEVENTH AMENDMENT TO STOCK PLEDGE AGREEMENT
This Seventh Amendment to Stock Pledge Agreement (this “ Amendment ”) is entered into as of February 5, 2019, among
Tenet Healthcare Corporation, a Nevada corporation (the “ Company ”), each of the other entities listed on the signature pages
hereof as Pledgors, and The Bank of New York Mellon Trust Company, N.A., as collateral trustee for the Secured Parties (in such
capacity, the “ Collateral Trustee ”).
RECITALS
WHEREAS, reference is made to that certain Stock Pledge Agreement, dated as of March 3, 2009, among the Company, the
other Pledgors and the Collateral Trustee (as amended by that certain First Amendment to Stock Pledge Agreement, dated as of May
8, 2009, among the Company, the other Pledgors and the Collateral Trustee, as amended by that certain Second Amendment to Stock
Pledge Agreement, dated as of June 15, 2009, among the Company, the other Pledgors and the Collateral Trustee, that certain Third
Amendment to Stock Pledge Agreement, dated as of March 7, 2014, among the Company, the other Pledgors and the Collateral
Trustee, that certain Fourth Amendment to Stock Pledge Agreement, dated as of March 23, 2015, among the Company, the other
Pledgors and the Collateral Trustee, that certain Fifth Amendment to Stock Pledge Agreement, dated as of December 1, 2016, among
the Company, the other Pledgors and the Collateral Trustee, and that certain Sixth Amendment to Stock Pledge Agreement, dated as
of July 14, 2017, among the Company, the other Pledgors and the Collateral Trustee, as amended by that certain Joinder Agreement
to the Stock Pledge Agreement executed on May 15, 2013 by the other Pledgors and by that certain Pledge Amendment to the Stock
Pledge Agreement executed on May 15, 2013 by the Company and the Collateral Trustee, as amended by that certain Joinder
Agreement to the Stock Pledge Agreement executed on October 1, 2013 by the other Pledgors and by that certain Pledge
Amendment to the Stock Pledge Agreement executed on October 1, 2013 by the Company and the Collateral Trustee, as amended by
that certain Joinder Agreement to the Stock Pledge Agreement executed on March 23, 2015 by the other Pledgors and by that certain
Pledge Amendment to the Stock Pledge Agreement executed on March 23, 2015 by the Company and the Collateral Trustee, and as
further amended by that certain Joinder Agreement to the Stock Pledge Agreement executed on October 2, 2015 by the other
Pledgors and by that certain Pledge Amendment to the Stock Pledge Agreement executed on October 5, 2015 by the Company and
the Collateral Trustee (as so amended and as otherwise amended from time to time prior to the date hereof, the “ Stock Pledge
Agreement ”));
WHEREAS, pursuant to that certain Indenture, dated as of November 6, 2001 (the “ Base Indenture ”), between the
Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee to The Bank of New York, as trustee (in
such capacity, the “ Trustee ”), as supplemented by the Thirtieth Supplemental Indenture thereto (the “ Thirtieth Supplemental
Indenture ”), the Company has issued $1,500,000,000 principal amount of its 6.250% senior secured second lien notes due 2027 (the
“ 2027 Notes ”; the 2027 Notes, collectively with the 2025 Notes (as defined below) and any other Securities of the Company issued
and authenticated under the Junior Priority Indentures that are designated by the Company as, and are entitled the
benefits of, being Junior Stock Secured Debt under the Collateral Trust Agreement in accordance with the requirements set forth in
Section 3.8 thereof, the “ Junior Lien Secured Notes ”);
WHEREAS, the Secured Obligations in respect of which a security interest in the Collateral was created by the Stock Pledge
Agreement include the obligations in respect of the:
(a) Fifteenth Supplemental Indenture to the Base Indenture, dated as of October 16, 2012, by and among the Company, the
Trustee and the guarantors party thereto and relating to the Company’s 4.750% Senior Secured Notes due 2020 (the “ 4.75% 2020
Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the Company, the
Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23,
2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto,
dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Fifteenth Supplemental
Indenture ”);
(b) Seventeenth Supplemental Indenture to the Base Indenture, dated as of February 5, 2013, by and among the Company, the
Trustee and the guarantors party thereto and relating to the Company’s 4.500% Senior Secured Notes due 2021 (the “ 4.5% 2021
Notes ” and, as supplemented by the Nineteenth Supplemental Indenture, dated as of May 15, 2013, between the Company, the
Trustee and the guarantors party thereto, the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the
Company, the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23,
2015, among the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto,
dated as of October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Seventeenth Supplemental
Indenture ”);
(c) Twentieth Supplemental Indenture to the Base Indenture, dated as of May 30, 2013, by and among the Company, the
Trustee and the guarantors party thereto and relating to the Company’s 4.375% Senior Secured Notes due 2021 (the “ 4.375% 2021
Notes ” and, as supplemented by the Twenty-Second Supplemental Indenture, dated as of October 1, 2013, between the Company,
the Trustee and the guarantors party thereto, the Twenty-Fifth Supplemental Indenture thereto, dated as of March 23, 2015, among
the Company, the Trustee and the guarantors party thereto, and the Twenty-Seventh Supplemental Indenture thereto, dated as of
October 2, 2015, among the Company, the Trustee and the guarantors party thereto, the “ Twentieth Supplemental Indenture ”);
(d) Twenty-Eighth Supplemental Indenture to the Base Indenture, dated as of December 1, 2016, by and among the
Company, the Trustee and the guarantors party thereto and relating to the Company’s 7.50% Senior Secured Second Lien Notes due
2022 (the “ 7.50% 2022 Notes ”) (the “ Twenty-Eighth Supplemental Indenture ”);
(e)Twenty-Ninth Supplemental Indenture to the Base Indenture, dated as of June 14, 2017, by and among the Company, the
Trustee and the guarantors party thereto and
2
relating to the Company’s 4.625% Senior Secured First Lien Notes due 2024 (the “ 4.625% 2024 Notes ”) (the “ Twenty-Ninth
Supplemental Indenture ”);
(f) Indenture dated as of September 27, 2013 (the “ 2013 Base Indenture ”), between THC Escrow Corporation and the
Trustee (as supplemented by the First Supplemental Indenture thereto, dated as of October 1, 2013, among the Company, the Trustee
and the guarantors party thereto, the Second Supplemental Indenture thereto, dated as of March 23, 2015, among the Company, the
Trustee and the guarantors party thereto, and the Third Supplemental Indenture thereto, dated as of October 2, 2015, among the
Company, the Trustee and the guarantors party thereto, the “ 2013 Indenture ”), pursuant to which the 6.00% Senior Secured Notes
due 2020 were issued (the “ 6.000% 2020 Notes ”; the 6.000% 2020 Notes, collectively with the 4.375% 2021 Notes, the 4.5% 2021
Notes, the 4.75% 2020 Notes, the 4.625% 2024 Notes and any other Securities (as such term is defined in the Base Indenture or the
2013 Base Indenture) of the Company issued and authenticated under the Indentures or the 2013 Indenture that are designated as,
and are entitled to the benefits of, being First Priority Stock Secured Debt under the Collateral Trust Agreement in accordance with
the requirements set forth in Section 3.8 thereof, are referred to herein as the “ First Lien Secured Notes ”; the First Lien Secured
Notes, together with the Junior Lien Secured Notes, are referred to herein as the “ Secured Notes ”);
(g) Indenture dated as of June 14, 2017 (the “ Second Lien Base Indenture ”), between THC Escrow Corporation III and the
Trustee (as supplemented by the Supplemental Indenture thereto, dated as of July 14, 2017, among the Company, the Trustee and the
guarantors party thereto, the “ Second Lien Indenture ”), pursuant to which the 5.125% Senior Secured Second Lien Notes due 2025
were issued (the “ 2025 Notes ”);
(h) the Guarantees in respect of the Secured Notes; and
(i) the obligations under that certain Letter of Credit Facility Agreement, dated as of March 7, 2014 (as amended or otherwise
modified, the “ LC Facility Agreement ”), among the Company, certain financial institutions party thereto from time to time as letter
of credit participants and issuers and Barclays Bank PLC, as administrative agent, and the guarantees in respect thereof;
WHEREAS, subject to the terms and conditions hereof, the parties hereto desire to and have agreed to amend the Stock
Pledge Agreement to secure the obligations in respect of the Junior Lien Secured Notes, in each case to be designated as and entitled
to the benefits of being Junior Stock Secured Debt (as defined in the Collateral Trust Agreement) under the Collateral Trust
Agreement in accordance with the requirements set forth in Section 3.8 thereof.
WHEREAS, the sole effect of this Amendment is to secure additional debt of the Company that is permitted by the terms of
the Collateral Trust Agreement to be secured by the Collateral and to add references to such debt and the documents governing such
debt, and that as such, pursuant to:
(a) Section 7.1 of the Stock Pledge Agreement;
3
(b) Section 7.1 of the Collateral Trust Agreement;
(c) Article VII of each of the Fifteenth Supplemental Indenture, the Seventeenth Supplemental Indenture, the Twentieth
Supplemental Indenture, the Twenty-Eighth Supplemental Indenture, the Twenty-Ninth Supplemental Indenture and the Thirtieth
Supplemental Indenture, and Section 902 of each of the 2013 Indenture and the Second Lien Indenture; and
(d) Section 10.8 and 11.1 of the LC Facility Agreement, this Amendment may be entered into by the Company, the other
pledgors party hereto and the Collateral Trustee without (i) the consent of the holders of the Notes or the holders of LC Obligations
or (ii) direction to the Collateral Trustee by an Act of Required Stock Secured Debtholders (as defined in the Collateral Trust
Agreement); and
WHEREAS, unless otherwise indicated, capitalized terms used herein without definition have the meanings ascribed to such
terms in the Stock Pledge Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and each
other Pledgor signatory hereto hereby agrees with the Collateral Trustee as follows:
1.
of the Stock Pledge Agreement.
Section References . Unless otherwise expressly stated herein, all Section references herein shall refer to Sections
2. Amendments to Section 1.1 . Section 1.1 of the Stock Pledge Agreement is hereby amended by: (a) amending and
restating the defined terms “Junior Lien Secured Notes,” “Junior Priority Indentures” and “Junior Priority Supplemental
Indentures” in their entirety, and by adding the defined term “Seventh Amendment” in each case as set forth below (all other
defined terms contained therein remain unchanged and to the extent that definitions contained in this Section 2 conflict with
definitions contained in the Stock Pledge Agreement, the definitions contained in this Section 2 shall control):
“Junior Lien Secured Notes” has the meaning specified in the Seventh Amendment.
“Junior Priority Indentures” means, collectively, the Base Indenture as severally supplemented by each Junior Priority
Supplemental Indenture and the Second Lien Indenture (as defined in the Seventh Amendment).
“Junior Priority Supplemental Indentures” means the Twenty-Eighth Supplemental Indenture, the Thirtieth Supplemental
Indenture and all other indentures supplemental to the Base Indenture in respect of which Securities are issued and
authenticated that are designated as, and entitled to the benefits of, being Junior Stock Secured Debt under the Collateral
Trust Agreement in accordance with the requirements set forth in Section 3.8 thereof.
4
“Seventh Amendment” means the Seventh Amendment to Stock Pledge Agreement, dated as of February 5, 2019.
3. Conditions Precedent . The effectiveness of this Amendment is subject to the Collateral Trustee’s receipt of each of the
following:
(a) this Amendment, duly executed and delivered by the Company, each other Pledgor party hereto and the
Collateral Trustee;
(b) an Officers’ Certificate (as defined in the Collateral Trust Agreement) to the effect that this Amendment will
not result in a breach of any provision or covenant contained in any of the Secured Debt Documents (as defined in the
Collateral Trust Agreement); and
(c) an opinion of counsel of the Company to the effect that the Collateral Trustee’s execution of this Amendment is
authorized and permitted by the Collateral Trust Agreement.
4. Reference to Stock Pledge Agreement . The Stock Pledge Agreement and the Related Documents, and any and all other
agreements, documents or instruments now or hereafter executed and/or delivered pursuant to the terms hereof or pursuant to
the terms of the Stock Pledge Agreement or the Related Documents, are hereby amended so that any reference therein to the
Stock Pledge Agreement, whether direct or indirect, shall mean a reference to the Stock Pledge Agreement as amended
hereby.
5. Counterparts . This Amendment may be executed by one or more of the parties to this Amendment on any number of
separate counterparts (including by telecopy), each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple
counterparts and attached to a single counterpart so that all signature pages are attached to the same document. Delivery of an
executed counterpart by telecopy shall be effective as delivery of a manually executed counterpart.
6. Severability . Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibitions or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
7. Governing Law . THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS AMENDMENT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
5
8. Limited Effect . Except to the extent specifically amended or modified hereby, the provisions of the Stock Pledge
Agreement shall not be amended, modified, impaired or otherwise affected hereby.
9. Responsibility of the Collateral Trustee . The Collateral Trustee is not responsible for the validity or sufficiency of this
Amendment or the recitals contained herein. In no event shall the Collateral Trustee or Registrar (as defined in the
Appointment of Registrar Letter dated March 23, 2015 between The Bank of New York Mellon Trust Company, N.A., as
registrar (the “ Registrar ”)) be charged with knowledge of the terms of, be subject to, or be required to comply with the LC
Facility Agreement, or the Interim Loan Agreement, dated as of March 23, 2015, among the Company, the lenders thereto
and Barclays Bank PLC, as administrative agent. All such responsibilities of the Collateral Trustee shall be as set forth in the
Collateral Trust Agreement.
[Signature Pages Follow]
6
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to be duly executed and delivered as of the
date first above written.
TENET HEALTHCARE CORPORATION, as a Pledgor
By: /s/ James E. Snyder III
Name: James E. Snyder III
Title: Vice President and Treasurer
AMERICAN MEDICAL (CENTRAL), INC.
AMI INFORMATION SYSTEMS GROUP, INC.
AMISUB (HEIGHTS), INC.
AMISUB (HILTON HEAD), INC.
AMISUB (TWELVE OAKS), INC.
AMISUB OF TEXAS, INC.
BROOKWOOD HEALTH SERVICES, INC.
CORAL GABLES HOSPITAL, INC.
FMC MEDICAL, INC.
HEALTHCARE NETWORK CFMC, INC.
HEALTHCARE NETWORK HOLDINGS, INC.
HEALTHCARE NETWORK LOUISIANA, INC.
HEALTHCARE NETWORK MISSOURI, INC.
HEALTHCARE NETWORK TEXAS, INC.
HEALTHCORP NETWORK, INC.
HEALTH SERVICES CFMC, INC.
HEALTH SERVICES NETWORK HOSPITALS, INC.
HEALTH SERVICES NETWORK TEXAS, INC.
LIFEMARK HOSPITALS, INC.
ORNDA HOSPITAL CORPORATION
SRRMC MANAGEMENT, INC.
TENET CALIFORNIA, INC.
TENET FLORIDA, INC.
TENET HEALTHSYSTEM MEDICAL, INC.
TENET HEALTHSYSTEM PHILADELPHIA, INC.
TENET PHYSICIAN SERVICES – HILTON HEAD, INC.
VANGUARD HEALTH FINANCIAL COMPANY, LLC
VANGUARD HEALTH HOLDING COMPANY I, LLC
VANGUARD HEALTH HOLDING COMPANY II, LLC
VANGUARD HEALTH MANAGEMENT, INC.
VANGUARD HEALTH SYSTEMS, INC.
VHS OF PHOENIX, INC.
VHS OF MICHIGAN, INC.
VHS VALLEY MANAGEMENT COMPANY, INC.,
each as a Pledgor
[ Signature Page to Seventh Amendment to Stock Pledge Agreement ]
By: /s/ James E. Snyder III
Name: James E. Snyder III
Title: Vice President and Treasurer
BROOKWOOD BAPTIST HEALTH 1, LLC
VHS VALLEY HEALTH SYSTEM, LLC,
each as a Pledgor
By: /s/ James E. Snyder III
Name: James E. Snyder III
Title: Vice President and Treasurer
ACCEPTED AND AGREED
as of the date first above written:
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
as Collateral Trustee
By: /s/ R. Tarnas
Name: R. Tarnas
Title: Vice President
[ Signature Page to Seventh Amendment to Stock Pledge Agreement ]
Exhibit 10(pp)
TENET
SEVENTH AMENDED AND RESTATED
EXECUTIVE RETIREMENT ACCOUNT
As Amended and Restated Effective as of April 1, 2018
SEVENTH AMENDED AND RESTATED
TENET EXECUTIVE RETIREMENT ACCOUNT
TABLE OF CONTENTS
ARTICLE I PREAMBLE AND PURPOSE
1.1
1.2
Preamble
Purpose
ARTICLE II DEFINITIONS AND CONSTRUCTION
2.1
2.2
2.3
Definitions
Construction
409A Compliance
ARTICLE III PARTICIPATION AND FORFEITABILITY OF BENEFITS
3.1
3.2
Eligibility and Participation
Forfeitability of Benefits
ARTICLE IV COMPANY CONTRIBUTIONS, VESTING, ACCOUNTING AND INVESTMENT CREDITING
RATES
4.1
4.2
4.3
4.4
Company Contributions
Vesting in ERA Account
Accounting for Deferred Compensation
Computation of Earnings Credited
ARTICLE V DISTRIBUTION OF BENEFITS
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
Normal Retirement Distribution
Early Retirement Distribution
Termination of Employment Distribution
Termination Distributions to Key Employees
Death Distribution
Disability Distribution
Deferral of Distributions
Withholding
Impact of Reemployment on Benefits
ARTICLE VI PAYMENT LIMITATIONS
6.1
6.2
6.3
Spousal Claims
Legal Disability
Assignment
ARTICLE VII FUNDING
7.1
7.2
No Right to Assets
Creditor Status
ARTICLE VIII ADMINISTRATION
8.1
The RPAC
(i)
Page
1
1
2
4
4
11
12
13
13
14
15
15
15
17
18
20
20
20
20
21
21
22
22
22
22
23
23
23
23
25
25
25
26
26
8.2
8.3
8.4
8.5
8.6
8.7
8.8
8.9
8.10
Powers of RPAC
Appointment of Plan Administrator
Duties of Plan Administrator
Indemnification of RPAC and Plan Administrator
Claims for Benefits
Arbitration
Receipt and Release of Necessary Information
Overpayment and Underpayment of Benefits
Change of Control
ARTICLE IX OTHER BENEFIT PLANS OF THE COMPANY
9.1
Other Plans
ARTICLE X AMENDMENT AND TERMINATION OF THE PLAN
10.1
10.2
10.3
10.4
Continuation
Amendment of ERA
Termination of ERA
Termination of Affiliate's Participation
ARTICLE XI MISCELLANEOUS
11.1
11.2
No Reduction of Employer Rights
Provisions Binding
EXHIBIT A GRANDFATHERED CONIFER EMPLOYEES
EXHIBIT B LIMITS ON ELIGIBILITY AND PARTICIPATION
(ii)
26
26
26
28
28
34
35
35
36
37
37
38
38
38
38
39
40
40
40
A-1
B-1
SEVENTH AMENDED AND RESTATED
TENET EXECUTIVE RETIREMENT ACCOUNT
ARTICLE I
PREAMBLE AND PURPOSE
1.1
Preamble. Tenet Healthcare Corporation (the " Company '') established the Tenet Executive Retirement Account (the "
ERA ") effective July 1, 2007, to permit the Company and its participating Affiliates, as defined herein (collectively, the "
Employer "), to attract and retain a select group of management or highly compensated employees, as defined herein.
Through an instrument adopted in December 2008, the Company previously amended and restated the ERA, effective
December 31, 2008, to (a) modify the fixed return investment option to provide that interest will be credited based on one
hundred and twenty percent (120%) of the long-term applicable federal rate as opposed to the current provision which
credited interest based on the prime rate of interest less one percent (1%), (b) revise the manner for determining vesting
to years of plan participation. (c) reflect the right of the Pension Administration Committee to make non-material
amendments to the ERA to comply with changes in the law or facilitate administration and (d) comply with final
regulations issued under section 409A of the Internal Revenue Code of 1986, as amended (the " Code "). The amended
and restated ERA was known as the First Amended and Restated Tenet Executive Retirement Account.
Through an instrument, adopted on December 11, 2009, the Company further amended and restated the ERA, also
effective December 31, 2008, to clarify the ERA's intent to comply with section 409A of the Code; namely, to clarify that
(a) ERA participants who incur a separation from service and are reemployed such that they do not have a break in
employment under the Company's Rehire and Reinstatement Policy (or any successor thereto) will have any prior
forfeited ERA account balance restored at the time of such reemployment (i.e., for consistency purposes, both the
participant's prior years of service and account balance will be restored and administered on a going forward basis under
the ERA) and (b) any subsequent deferral election made in accordance with the terms of the ERA will apply to an ERA
participant's " Normal Retirement Benefit " (as defined herein). The amended and restated ERA was known as the
Second Amended and Restated Tenet Executive Retirement Account,
Through an instrument adopted on July 21, 2011, the Company further amended and restated the ERA, effective May 3,
2011, to (a) provide that in the event of a Change of Control before July 1 of any year, the full Annual Contribution will be
made to the ERA within ten (10) days following the occurrence of such Change of Control and (b) make other clarifying
amendments to the ERA. The amended and restated ERA was known as the Third Amended and Restated Tenet
Executive Retirement Account.
The Company subsequently amended and restated the ERA, effective as of May 9, 2012, to clarify certain Change of
Control provisions; substitute a prorated payout for post Change of Control terminations, in place of the prior automatic
post-Change of Control contributions;
and revise the definitions for certain termination events. The amended and restated ERA was known as the Fourth
Amended and Restated Tenet Executive Retirement Account.
The Company further amended and restated the ERA, effective November 6, 2013 to (i) delegate to the Senior Vice
President, Human Resources and the Plan Administrator the authority to determine the employees eligible to participate
in the ERA and the amount of contribution each employee will receive, (ii) modify the definition of “ Year of Vesting
Service ” to include service performed for an entity acquired by the Company through a stock, asset or other business
transaction to the extent provided in the transaction documents or as determined by to the Senior Vice President, Human
Resources or the Plan Administrator and (iii) clarify that a participant who is terminated for “ Cause ” will forfeit his ERA
benefit in its entirety. By this restatement, the Company also desires to remove Conifer Health Solutions, LLC (“ Conifer
”) as a participating employer in the ERA effective as of December 31, 2013 except for prior Company employees who
now work for Conifer and will be grandfathered. The amended and restated ERA was known as the Fifth Amended and
Restated Tenet Executive Retirement Account.
Effective January 1, 2015, the Retirement Plans Administrative Committee (“ RPAC ”) amended the ERA to provide that
an “Affiliate ” as defined in the ERA will be determined based on an ownership percentage of greater than fifty percent
(50%).
The RPAC further amended and restated the ERA effective November 30, 2015 to (i) incorporate the prior amendment to
the ERA, (ii) delegate to the Senior Vice President, Human Resources and the Plan Administrator the authority to provide
annual contributions and/or continued age and service credit for vesting purposes for any participant who transfers to an
Affiliate who has not adopted the ERA as an Employer without the need for adoption of the ERA by such Affiliate, (iii)
permit participants who are not participants in the “ SERP ,” as defined in Article II, who are ineligible or who become
ineligible to participate in the ERA to receive earnings credit until they terminate employment with the Company and all
Affiliates, and (iv) reflect that the name of the Compensation Committee has changed to the “ Human Resources
Committee .” The amended and restated ERA was known as the Sixth Amended and Restated ERA.
By this instrument the RPAC desires to further amend and restate the ERA effective April 1, 2018 to comply with the new
ERISA regulations regarding Disability claims and make certain other administrative clarifications. This amended and
restated ERA will be known as the Seventh Amended and Restated Tenet Executive Retirement Account.
The Employer may adopt one (1) or more domestic trusts to serve as a possible source of funds for the payment of
benefits under this ERA.
1.2
Purpose. Through this ERA, the Employer intends to permit the deferral of compensation and to provide additional
benefits to a select group of management or highly compensated employees of the Employer. Accordingly, it is intended
that this ERA will not constitute a "qualified plan" subject to the limitations of section 401(a) of the Code, nor will it
constitute a "funded plan," for purposes of such requirements.
It also is intended that this ERA will be exempt from the participation and vesting requirements of Part 2 of Title I of the
Employee Retirement Income Security Act of 1974,
2
as amended (" ERISA "). The funding requirements of Part 3 of Title I of ERISA, and the fiduciary requirements of Part 4
of Title I of ERISA by reason of the exclusions afforded plans that are unfunded and maintained by an employer primarily
for the purpose of providing deferred compensation for a select group of management or highly compensated employees.
End of Article I
3
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1
Definitions. When a word or phrase appears in this ERA with the initial letter capitalized, and the word or phrase does
not commence a sentence, the word or phrase will generally be a term defined in this Section 2.1. The following words
and phrases with the initial letter capitalized will have the meaning set forth in this Section 2.1, unless a different meaning
is required by the context in which the word or phrase is used.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
" Account " means one (1) or more of the bookkeeping accounts maintained by the Company or its agent on
behalf of a Participant, as described in more detail in Section 4.3. A Participant's Account may be divided into one
or more " Cash Accounts " or " Stock Unit Accounts " as defined in Section 4.3.
" Affiliate " means a corporation that is a member of a controlled group of corporations (as defined in section
414(b) of the Code) that includes the Company, any trade or business (whether or not incorporated) that is in
common control (as defined in section 414(c) of the Code) with the Company, or any entity that is a member of the
same affiliated service group (as defined in section 414(m) of the Code) as the Company; provided, however that
effective January 1, 2015, for purposes of determining if an entity is an Affiliate under sections 414(b) or (c) of the
Code ownership will be determined based on an ownership percentage of greater than fifty percent (50%).
" Alternate Payee " means any spouse, former spouse, child, or other dependent of a Participant who is
recognized by a DRO as having a right to receive all, or a portion of the benefits payable under the ERA with
respect to such Participant.
" Annual Contribution " means the contribution made by the Employer on behalf of a Participant as described in
Section 4.1(a).
" Beneficiary " means the person designated by the Participant to receive a distribution of his benefits under the
ERA upon the death of the Participant. If the Participant is married, his spouse will be his Beneficiary, unless his
spouse consents in writing to the designation of an alternate Beneficiary. For this purpose, the term “spouse”
means a Participant’s spouse under applicable state law, including effective August 3, 2011, a Participant's
Domestic Partner as defined under the Criteria for Domestic Partnership Status under the Tenet Employee Benefit
Plan, and effective September 16, 2013, a same sex spouse recognized as such in the state where the marriage
is performed. In the event that a Participant fails to designate a Beneficiary, or if the Participant's Beneficiary does
not survive the Participant, the Participant's Beneficiary will be his surviving spouse, if any, or if the Participant
does not have a surviving spouse, his estate. The term " Beneficiary " also will mean a Participant's spouse or
former spouse who is entitled to all or a portion of a Participant's benefit pursuant to Section 6.1.
" Board " means the Board of Directors of the Company.
" Cause " means
4
(i)
(ii)
(iii)
For any event occurring on or within two (2) years after a Change of Control, the same meaning as set
forth in Section 2.1(f)(ii) of the ESP.
For any Participant who is a Covered Executive under the Company’s Executive Severance Plan, with
respect to any event not occurring on or within two (2) years after a Change of Control, the same meaning
as set forth in Section 2.1(f)(i) of the ESP.
for any Participant who is not a Covered Executive under the Company’s Executive Severance Plan, with
respect to any event not occurring on or within two (2) years after a Change of Control, the same meaning
as set forth in Section 2.5(b)(ii) of the Stock Incentive Plan.
“ Change of Control ” will have the meaning set forth in the ESP.
" Code " means the Internal Revenue Code of 1986, as amended from time to time and any regulations and
rulings issued thereunder.
" Compensation " means the Participant's annual gross base salary including amounts reduced from the
Participant's salary and contributed on the Participant's behalf as deferrals under any qualified or non-qualified
employee benefit plans sponsored by the Employer or, to the extent provided in Section 4.1(a), an Affiliate.
Compensation excludes bonuses, hardship withdrawal allowances, annual cash and/or stock bonuses, automobile
allowances, housing allowances, relocation payments, deemed income, income payable under stock incentive
plans, Christmas gifts, insurance premiums and other imputed income, pensions, and retirement benefits.
" Disability " means the inability of a Participant to engage in any substantial gainful activity by reason of a mental
or physical impairment expected to result in death or last for at least twelve (12) months, or the Participant,
because of such a condition. is receiving income replacement benefits for at least three (3) months under an
accident or health plan covering the Employer's employees.
" Discretionary Contribution " means the contribution made by the Employer on behalf of a Participant as
described in Section 4.1(b).
" DRO " means a domestic relations order that is a judgment, decree, or order (including one that approves a
property settlement agreement) that relates to the provision of child support, alimony payments or marital property
rights to a spouse, former spouse, child or other dependent of a Participant and is made under a state (within the
meaning of section 7701(a)(10) of the Code) domestic relations law (including a community property law) and that:
(i)
(ii)
Creates or recognizes the existence of an Alternate Payee's right to, or assigns to an Alternate Payee the
right to receive all or a portion of the benefits payable with respect to a Participant under the ERA;
Does not require the ERA to provide any type or form of benefit, or any option, not otherwise provided
under the ERA;
(h)
(i)
(j)
(k)
(l)
(m)
5
(iii)
(iv)
(v)
Does not require the ERA to provide increased benefits (determined on the basis of actuarial value);
Does not require the payment of benefits to an Alternate Payee that are required to be paid to another
Alternate Payee under another order previously determined to be a DRO; and
Clearly specifies: the name and last known mailing address of the Participant and of each Alternate Payee
covered by the DRO; the amount or percentage of the Participant's benefits to be paid by the ERA to each
such Alternate Payee, or the manner in which such amount or percentage is to be determined; the number
of payments or payment periods to which such order applies; and that it is applicable with respect to this
ERA.
For the avoidance of doubt, a DRO may be entered into with respect to a Participant who is not yet vested and
may provide for the division of the Participant’s benefits in the event the Participant becomes vested. For example,
a DRO could provide that an Alternate Payee is entitled to 50% of the Participant’s vested benefit as of the date
the Participant attains age sixty-two (62). In this example, if the Participant does not vest by reason of attaining
age sixty-two (62), the Alternate Payee would not be entitled to any portion of this benefit.
" Early Retirement Age " means the date the Participant attains age fifty-five (55) and has completed ten (10)
Years of Vesting Service.
" Early Retirement Benefit " means the benefit payable to a Participant who has attained Early Retirement Age
as provided in Section 5.2.
" Effective Date " means April 1, 2018, except as provided otherwise herein.
" Eligible Person " means an Employee who is designated as eligible to participate in the ERA by the Senior Vice
President, Human Resources or the Plan Administrator or an Employee who satisfied the definition of Eligible
Person in a prior ERA document and, in each case, who is not a participant in the SERP. As provided in Section
3.1 the RPAC may at any time, in its sole and absolute discretion, limit the classification of Employees who are
eligible to participate in the ERA for a Plan Year and/or may modify or terminate an Eligible Person's participation
in the ERA without the need for an amendment to the ERA.
" Employee " means each select member of management or highly compensated employee receiving
remuneration, or who is entitled to remuneration, for services provided to the Employer or an Affiliate, in the legal
relationship of employer and employee.
" Employer " means the Company and each Affiliate who with the consent of the Senior Vice President, Human
Resources or Plan Administrator has adopted the ERA as a participating employer. An Affiliate may evidence its
adoption of the ERA either by a formal action of its governing body or by commencing deferrals and taking other
administrative actions with respect to this ERA on behalf of its employees. An entity will cease to be a participating
employer as of the date such
(n)
(o)
(p)
(q)
(r)
(s)
6
entity ceases to be an Affiliate or the date specified by the Company. Effective December 31, 2013, Conifer Health
Solutions, LLC ceased to be an Employer under the ERA with respect to all of its Employees except those
specified in Exhibit A.
(t)
" Employment " means any continuous period during which an employee is actively engaged in performing
services for the Employer or, to the extent provided in Section 2.1(tt), an Affiliate, plus the term of any leave of
absence approved by the Employer; provided, however, that if an employee takes an approved leave of absence
and does not return to the employ of the Employer, such leave of absence will not count as Employment except as
required by law.
(u)
" ERA " means the Seventh Amended and Restated Tenet Executive Retirement Account as set forth herein and
as the same may be amended from time to time.
(v)
" ERISA " means the Employee Retirement Income Security Act of 1974, as amended from time to time.
(w)
" ESP " means the Tenet Executive Severance Plan, as amended from time to time.
(x)
(y)
“ Fair Market Value ” means the closing price of a share of Stock on the New York Stock Exchange on the date
as of which fair market value is to be determined.
" Five Percent Owner " means any person who owns (or is considered as owning within the meaning of section
318 of the Code (as modified by section 416(i)(1)(B)(iii) of the Code)) more than five percent (5%) of the
outstanding stock of the Company or an Affiliate or stock possessing more than five percent (5%) of the total
combined voting power of all stock of the Company or an Affiliate. The rules of sections 414(b), (c) and (m) of the
Code will not apply for purposes of applying these ownership rules. Thus, this ownership test will be applied
separately with respect to the Company and each Affiliate.
(z)
" Good Reason " means
(i)
(ii)
For an event occurring on or within two (2) years of a Change of Control, the same meaning as set forth in
Section 2.1(x)(ii) of the ESP.
For any event not occurring on or within two (2) years after a Change of Control, the same meaning as set
forth in Section 2.1(x)(i) of the ESP.
(aa)
(bb)
" Human Resources Committee " means the Human Resources Committee of the Board (including any
predecessor or successor to such committee in name or form), which has the authority to amend and terminate
the ERA as provided in Article X.
“ Inactive Participant ” means a Participant under this ERA who separates from Employment with the Employer
or who is no longer or ceases to be an Eligible Person. Generally, no future contributions or earnings will be
credited to an Inactive Participant’s Account; provided, however, an Inactive Participant who is not a participant in
the SERP will continue to have earnings credited to his Account on and after the Effective Date until he ceases
employment with the Employer and all Affiliates.
7
(cc)
" Initial Enrollment Period " means the thirty (30) day period immediately following the date the Eligible Person
first becomes eligible to participate in the ERA during which the Eligible Person may elect the time at which to
receive a distribution of Early Retirement Benefits pursuant to Section 3.1(b).
(dd)
" Involuntary Termination " means:
(i)
(ii)
the Participant's Termination of Employment by the Employer without Cause, or
the Participant's resignation from Employment of the Employer for Good Reason;
provided, however, that an Involuntary Termination will not occur by reason of the divestiture of an Affiliate with
respect to a Participant employed by such Affiliate who is offered a comparable position with the purchaser and
either declines or accepts such position.
(ee)
" Key Employee " means any employee or former employee (including any deceased employee) who at any time
during the Plan Year was:
(i)
an officer of the Company or an Affiliate having greater than one hundred thirty thousand dollars
($130,000) (as adjusted under section 416(i)(1) of the Code for Plan Years beginning after December 31,
2002);
(ii)
a Five Percent Owner; or
(iii)
a One Percent Owner having compensation of more than one hundred fifty thousand dollars ($150,000).
For purposes of the preceding paragraphs, the Company has elected to determine the compensation of an officer
or One Percent Owner in accordance with section 1.415(c)-2(d)(4) of the Treasury Regulations (i.e., W-2 wages
plus amounts that would be includible in wages except for an election under section 125(a) of the Code (regarding
cafeteria plan elections) under section 132(f) of the Code (regarding qualified transportation fringe benefits) or
section 402(e)(3) of the Code (regarding section 401(k) plan deferrals)) without regard to the special timing rules
and special rules set forth, respectively, in sections 1.415(c)-2(e) and 2(g) of the Treasury Regulations.
The determination of Key Employees will be based upon a twelve (12) month period ending on December 31 of
each year (i.e., the identification date). Employees that are Key Employees during such twelve (12) month period
will be treated as Key Employees for the twelve (12) month period beginning on the first day of the fourth month
following the end of the twelve (12) month period (i.e., since the identification date is December 31, then the
twelve (12) month period to which it applies begins on the next following April 1).
The determination of who is a Key Employee will be made in accordance with section 416(i)(1) of the Code and
other guidance of general applicability issued thereunder.
8
For purposes of determining whether an employee or former employee is an officer, a Five Percent Owner or a
One Percent Owner, the Company and each Affiliate will be treated as a separate employer (i.e., the controlled
group rules of sections 414(b), (c), (m) and (o) of the Code will not apply). Conversely, for purposes of determining
whether the one hundred thirty thousand dollar ($130,000) adjusted limit on compensation is met under the officer
test described in Section 2.1(ee)(i), compensation from the Company and all Affiliates will be taken into account
(i.e., the controlled group rules of sections 414(b). (c), (m) and (o) of the Code will apply). Further, in determining
who is an officer under the officer test described in Section 2.1(ee)(i), no more than fifty (50) employees of the
Company or its Affiliates (i.e., the controlled group rules of sections 414(b), (c), (m) and (o) of the Code will apply)
will be treated as officers. If the number of officers exceeds fifty (50). the determination of which employees or
former employees are officers will be determined based on who had the largest annual compensation from the
Company and its Affiliates for the Plan Year. For the avoidance of doubt, for purposes of this Section 2.1(ee) the
controlled group rules under sections 414(b) and (c) of the Code will be applied based on the normal ownership
percentage of greater than eighty percent (80%) rather than the fifty percent (50%) standard used in the definition
of Affiliate.
(ff)
" Normal Retirement Age " means the date the Participant attains age sixty-two (62).
(gg)
(hh)
(ii)
(jj)
(kk)
" Normal Retirement Benefit " means the benefit payable to a Participant at Normal Retirement Age pursuant to
Section 5.1.
" One Percent Owner " means any person who would be described as a Five Percent Owner if "one percent
(1%)" were substituted for "five percent (5%)" each place where it appears therein.
" Other Termination " means a Termination of Employment that is not an Involuntary Termination, including a
Termination of Employment for Cause.
" Participant " means each Eligible Person who participates in this ERA and each Eligible Person or former
Eligible Person whose participation in this ERA has not terminated.
" Plan Administrator " means the individual or entity appointed by the RPAC to handle the day-to-day
administration of the ERA, including but not limited to determining an Employee's status as an Eligible Person, the
Employee’s Annual Contribution amount, a Participant's eligibility for benefits and the amount of a Participant's
benefits and complying with all applicable reporting and disclosure obligations imposed on the ERA. If the RPAC
does not appoint an individual or entity as Plan Administrator, the RPAC will serve as the Plan Administrator.
(ll)
" Plan Year " means the fiscal year of this ERA, which will commence on January 1 each year and end on
December 31 of such year. The initial Plan Year was a short Plan Year beginning July 1, 2007 and ending
December 31. 2007.
9
(mm)
" Retirement " means a Termination of Employment on or after a Participant has attained Early Retirement Age or
Normal Retirement Age.
(nn)
" RPAC " means the Retirement Plans Administration Committee of the Company established by the Human
Resources Committee, and whose members have been appointed by such Human Resources Committee or a
delegate thereof. The RPAC will have the responsibility to administer the ERA and make final determinations
regarding claims for benefits, as described in Article VIII.
(oo)
" SERP " means the Tenet Healthcare Corporation Supplemental Executive Retirement Plan.
(pp)
" Stock " means the common stock, par value $0.05 per share, of the Company.
(qq)
" Stock Unit " means a non-voting, non-transferable unit of measurement that is deemed for bookkeeping and
distribution purposes only to represent one outstanding share of Stock.
(rr)
" Stock Incentive Plan " means the Tenet Healthcare 2008 Stock Incentive Plan, as amended from time to time.
(ss)
(tt)
(uu)
(vv)
" Target Bonus " means the target bonus percent applicable to the Participant under the Company's Annual
Incentive Plan multiplied by his Compensation at the time of a Termination of Employment with the Employer. For
example, if the Covered Executive earns one hundred and fifty thousand dollars ($150,000) and has a Target
Bonus of fifty percent (50%), his Target Bonus equals seventy five thousand dollars ($75,000).
" Termination of Employment " means the date that a Participant ceases performing services for the Employer
and its Affiliates in the capacity of an employee, or a reduction in Employment or other provision of services that
qualifies as a separation from service under Section 409A of the Code. For this purpose a Participant who is on a
leave of absence that exceeds six (6) months and who does not have statutory or contractual reemployment rights
with respect to such leave, will be deemed to have incurred a Termination of Employment on the first day of the
seventh (7th) month of such leave. A Participant who transfers Employment from an Employer to an Affiliate,
regardless of whether such Affiliate has adopted the ERA as a participating employer, will not incur a Termination
of Employment and such Participant may continue to be credited with Annual Contributions pursuant to Section
4.1(a) and/or accrue age and/or Years of Vesting Service pursuant to Section 2.1(ww). A Termination of
Employment will either be an Involuntary Termination or an Other Termination.
“ Trust ” means the rabbi trust established with respect to the ERA the assets of which are to be used for the
payment of benefits under the ERA.
" Trustee " means the individual or entity appointed to serve as trustee of any Trust established as a possible
source of funds for the payment of benefits under this ERA as provided in Section 7.1. After the occurrence of a
Change of Control, the
10
Trustee must be independent of any successor to the Company or any affiliate of such successor.
(ww)
" Year of Vesting Service " means each complete Plan Year in which an Eligible Person is employed as an
Employee of the Employer, beginning with the Plan Year in which the Participant commences participation in the
ERA, and has an Account balance under the ERA. Such Plan Years will be referred to as "Years of Plan
Participation" for purposes of this Section 2.1(ww). At the time an Eligible Person first becomes eligible to
participate in the ERA, his prior complete years of continuous Employment with the Employer, commencing on the
Eligible Person's date of Employment with the Employer in any capacity, will be converted to an equivalent
number of complete Years of Plan Participation and count as Years of Vesting Service under the ERA.
In addition, service performed for an entity that is acquired by the Company through a stock, asset or other
business transaction will be counted as Years of Vesting Service under the ERA to the extent provided in the
transaction documents or as determined by the Senior Vice President, Human Resources or the Plan
Administrator.
The Senior Vice President, Human Resources or the Plan Administrator may also credit a Participant who
transfers to an Affiliate that is not an Employer with age and/or vesting service for employment with such Affiliate
without the need for such Affiliate to adopt the ERA as an Employer.
An Eligible Person will not be given credit for partial Years of Plan Participation or partial years of Employment as
Years of Vesting Service under the ERA. Further, to be counted as a Year of Vesting Service such Years of Plan
Participation or years of Employment must be continuous.
In the event an Eligible Person incurs a Termination of Employment and is reemployed by the Employer within the
time period required to prevent a break in Employment under the Company's Rehire and Reinstatement Policy (or
any successor thereto), the provisions of which are incorporated herein by this reference:
(i)
(ii)
such Eligible Person's previously forfeited ERA Account balance will be restored at the time of such
reemployment, and
his Years of Plan Participation or years of Employment completed before such reemployment will be
treated as Years of Vesting Service under the ERA to the extent provided in such Rehire and
Reinstatement Policy (or any successor thereto).
2.2
Construction. If any provision of this ERA is determined to be for any reason invalid or unenforceable, the remaining
provisions of this ERA will continue in full force and effect.
All of the provisions of this ERA will be construed and enforced in accordance with the laws of the State of Texas and will
be administered according to the laws of such state, except as otherwise required by ERISA, the Code or other
applicable federal law.
11
The term "delivered to the RPAC or Plan Administrator," as used in this ERA, will include delivery to a person or persons
designated by the RPAC or Plan Administrator, as applicable, for the disbursement and the receipt of administrative
forms. Delivery will be deemed to have occurred only when the form or other communication is actually received.
Headings and subheadings are for the purpose of reference only and are not to be considered in the construction of this
ERA.
The pronouns "he," "him" and "his" used in the ERA will also refer to similar pronouns of the female gender unless
otherwise qualified by the context.
2.3
409A Compliance. The ERA is intended to comply with the requirements of section 409A of the Code. The provisions of
the ERA will be construed and administered in a manner that enables the ERA to comply with the provisions of section
409A of the Code.
End of Article II
12
ARTICLE III
PARTICIPATION AND FORFEITABILITY OF BENEFITS
3.1 Eligibility and Participation.
(a)
(b)
(c)
(d)
(e)
Determination of Eligibility . An Employee who is designated as an Eligible Person by the Senior Vice
President, Human Resources, or Plan Administrator will automatically become a Participant in the ERA as of the
effective date of such designation. An Employee who was a Participant under the terms of a prior ERA document
will continue participation on and after the Effective Date in accordance with the terms of this document.
Early Retirement Election . An Eligible Person must elect during the Initial Enrollment Period whether he desires
or does not desire to commence the distribution of the vested balance of his Account on the first day of the second
calendar month following the date of his Retirement on or after attaining Early Retirement Age as provided
pursuant to Section 5.2. If the Eligible Person fails to make this election during the Initial Enrollment Period, he will
be deemed to have affirmatively elected to commence the distribution of the vested balance of his Account on the
first day of the second calendar month following the date of his Retirement on or after attaining Early Retirement
Age. Once made (or deemed made), this election cannot be revoked; however, the Participant may elect to defer
payment of his vested Account balance pursuant to Section 5.7. Payment of such Early Retirement Benefit will be
subject to the six (6) month restriction applicable to Key Employees, described in Section 5.4 of this ERA. The
provisions of this Section 3.1(b) will apply to all Eligible Persons who are Employees on or after the Effective Date.
Limits on Eligibility . The RPAC may at any time, in its sole and absolute discretion, limit the classification of
Employees eligible to participate in the ERA and/or may limit or terminate an Eligible Person's participation in the
ERA. Any action taken by the RPAC that limits the classification of Employees eligible to participate in the ERA or
that modifies or terminates an Eligible Person's participation in the ERA will be set forth in Exhibit B attached
hereto. Exhibit B may be modified from time to time without a formal amendment to the ERA. in which case a
revised Exhibit B will be attached hereto.
Loss of Eligibility Status . A Participant who becomes an Inactive Participant, under this ERA will retain such
status until the Participant has received payment of any and all amounts payable to him under this ERA. An
Inactive Participant who continues employment with an Affiliate who is not an Employer may continue to be
credited with annual contributions pursuant to Section 4.1(a) and/or with age and/or Years of Vesting Service
pursuant to Section 2.1(ww).
Subsequent SERP Participation . A Participant's participation and Account balances will be frozen upon being
named to the SERP (i.e., he will become an Inactive Participant and no additional contributions or earnings credits
will be made); however, the Participant will continue to earn age and Years of Vesting Service for purposes of this
ERA. Upon termination or retirement, the Participant will receive
13
his Account balance under the ERA pursuant to the terms hereof. In addition, the Participant will be entitled to
receive a benefit from the SERP equal to the benefit accrued under the SERP as reduced by his benefit under the
ERA. Distribution of the Participant's SERP benefit will be made pursuant to the terms of the SERP.
(f)
Initial SERP Participation . A Participant who participated in the SERP before becoming a Participant in the ERA
will be entitled to a benefit under this ERA, if any, equal to the amount of his Account. The Participant's accrued
benefit under the SERP will be paid pursuant to the terms of the SERP and his benefit under this ERA, if any, will
be paid pursuant to the terms hereof.
3.2 Forfeitability of Benefits. A Participant will forfeit any amounts credited to his Account as follows:
(a)
(b)
Other Termination . Except as provided in section 4.2(a), if a Participant incurs an Other Termination before
attaining age fifty-five (55), he will forfeit the entire balance of his Account. If a Participant incurs an Other
Termination on or after attaining age fifty-five (55), he will forfeit the non-vested balance of his Account, as
determined in accordance with Section 4.2(b) below.
Involuntary Termination. If a Participant incurs an Involuntary Termination either before or on or after attaining
age fifty-five (55), he will forfeit the non-vested balance of his Account. The vested balance of a Participant's
Account in the event of an Involuntary Termination is determined in accordance with Section 4.2(c) (or, if
applicable, Section 4.2(a)) below.
(c)
Cause . If a Participant incurs a Termination of Employment for Cause, he will forfeit the entire balance, whether
vested or not, of his Account.
End of Article III
14
ARTICLE IV
COMPANY CONTRIBUTIONS, VESTING, ACCOUNTING
AND INVESTMENT CREDITING RATES
4.1 Company Contributions.
(a)
Annual Contribution . The Company will make an Annual Contribution to the ERA each Plan Year on behalf of
each Participant in an amount equal to ten percent (10%) of the Participant’s Compensation unless the Senior
Vice President, Human Resources or the Plan Administrator determine a different amount will apply and
communicate that to the Participant in an offer letter or other communication. Unless declared otherwise by the
Senior Vice President, Human Resources or the Plan Administrator, such Annual Contribution will be based on
the Participant's Compensation on the date on which the Annual Contribution is made. In addition, in the case of
Retirement on or after Normal Retirement Age, death, Disability, or an Involuntary Termination or change in
position that results in the termination of active participation in the ERA without establishment of a successor plan
within two (2) years after a Change of Control, a Participant will receive a prorated Annual Contribution based on
the number of months during which he was employed from July 1 immediately preceding the applicable event.
The Senior Vice President, Human Resources or the Plan Administrator may credit a Participant who transfers to
an Affiliate that is not an Employer with an Annual Contribution based on his Compensation with such Affiliate
without the need for such Affiliate to adopt the ERA as an Employer.
(b)
Discretionary Contribution . The Chief Executive Officer (or any successor title to such position) of the
Company may declare that a Discretionary Contribution be made by the Employer to a Participant's Account in
such amount, and at such time, as he may determine in his sole and absolute discretion.
4.2 Vesting in ERA Account.
(a)
Full Vesting Events . A Participant will become one hundred percent (100%) vested in the balance of his Account
upon the occurrence of any of the following events while an Employee:
(i)
(ii)
the Participant's attainment of age sixty (60) and completion of five (5) Years of Vesting Service;
the Participant's attainment of sixty-two (62) regardless of Years of Vesting Service;
(iii)
the Participant's death;
(iv)
the Participant's Disability; or
(v)
the occurrence of a Change of Control.
(b)
Other Termination of Employment . Except in the case of a Termination of Employment for Cause, a Participant
who incurs an Other Termination before the
15
occurrence of a full vesting event described in Section 4.2(a) will vest in the balance of his Account pursuant to
the following schedule:
58
59
60
61
62
Vesting (as a % of
Account Balance)
4 or less
Vesting Schedule for Other Termination
54 and Below
55
56
Whole Years of
Service
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
0%
Age
57
0%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
The non-vested portion of the Participant's Account will be forfeited as of the date of his Termination of
Employment (subject to the rules set forth in Section 2.1(ww) (regarding an individual who is reemployed before
experiencing a break in employment under the Company's Rehire and Reinstatement Policy (or any successor
thereto))).
In the case of a Termination of Employment for Cause, the Participant will forfeit the entire balance of his Account
regardless if vested or not.
(c)
Involuntary Termination of Employment . A Participant who incurs an Involuntary Termination before the
occurrence of a full vesting event described in Section 4.2(a) will vest in the balance of his Account as follows:
16
Vesting Schedule for Involuntary Termination
Years of Vesting Service
Vested Percent
4 or less
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
0%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
The non-vested portion of the Participant's Account will be forfeited as of the date of his Termination of
Employment.
4.3
Accounting for Deferred Compensation. The Plan Administrator will establish and maintain an individual Account or
Accounts under the name of each Participant under the ERA. Depending on the Participant's selection of an investment
crediting rate option pursuant to Section 4.4, the Plan Administrator may set up a Cash Account and/or a Stock Unit
Account.
(a)
(b)
Cash Account . If a Participant has made an election to have the balance of his Account to be deemed invested
in a fixed rate of return or benchmark mutual funds pursuant to Section 4.4(a) or Section 4.4(b), the Company
may, in its sole and absolute discretion, establish and maintain a Cash Account for the Participant under this ERA.
Each Cash Account will be adjusted at least monthly to reflect the Annual Contributions and Discretionary
Contributions credited thereto, earnings credited on such Annual Contributions and Discretionary Contributions
pursuant to Section 4.4, and any payment of such Annual Contributions or Discretionary Contributions under this
ERA. Such Annual Contributions and any Discretionary Contributions made on behalf of the Participant will be
credited to each Participant's Cash Account at such times as determined by the Human Resources Committee. In
the sole discretion of the Plan Administrator. more than one (1) Cash Account may be established for each
Participant to facilitate record keeping convenience and accuracy.
Stock Unit Account . If a Participant has made an election to have the balance of his Account to be deemed
invested in Stock Units pursuant to Section 4.4(c), the Plan Administrator may, in its sole and absolute discretion.
establish and maintain a Stock Unit Account and credit the Participant's Stock Unit Account with a number of
Stock Units determined by dividing an amount equal to the Annual Contributions and Discretionary Contributions
made on behalf of the Participant for a Plan Year
17
by the Fair Market Value of a share of Stock on the date such Contributions are made. Such Stock Units will be
credited to the Participant's Stock Unit Account as soon as administratively practicable after the determination of
the number of Stock Units is made pursuant to the preceding sentence. In the sole and absolute discretion of the
Plan Administrator, more than one Stock Unit Account may be established for each Participant to facilitate record-
keeping convenience and accuracy. Each such Stock Unit Account will be credited and adjusted as provided in
this ERA.
The Stock Units credited to a Participant's Stock Unit Account will be used solely as a device for determining the
number of shares of Stock eventually to be distributed to the Participant in accordance with this ERA. The Stock
Units will not be treated as property of the Participant or as a trust fund of any kind. No Participant will be entitled
to any voting or other stockholder rights with respect to Stock Units credited under this ERA.
If the outstanding shares of Stock are increased, decreased, or exchanged for a different number or kind of shares
or other securities, or if additional shares or new or different shares or other securities are distributed with respect
to such shares of Stock or other securities, through merger, consolidation, spin-off, sale of all or substantially all
the assets of the Company, reorganization. recapitalization, reclassification, stock dividend, stock split, reverse
stock split or other distribution with respect to such shares of Stock or other securities, an appropriate and
proportionate adjustment will be made by the Human Resources Committee in the number and kind of Stock Units
credited to a Participant's Stock Unit Account.
(c)
Unfunded Nature of Accounts . Amounts credited to the Participant's Cash and Stock Unit Accounts will be held
with the general assets of the Employer and, as provided in Section 7.2, will be subject to the claims of the
Employer's general creditors. Establishment and maintenance of a separate Account or Accounts for each
Participant will not be construed as giving any person any interest in assets of the Employer, or a right to payment
other than as provided under this ERA. Such Accounts will be maintained until all amounts credited as to such
Account have been distributed in accordance with the terms and provisions of this ERA.
4.4
Computation of Earnings Credited. The Participant may, pursuant to administrative procedures established by the
RPAC, request the type of investment crediting rate option with which the Participant would like the Employer, in its sole
and absolute discretion, to credit to the Participant's Account during the Participant's Employment. Such investment
crediting rate election will apply to all contributions under the ERA; provided that no investment crediting will be made
after the Participant incurs a Termination of Employment or transfers to an ineligible position, except as provided in
Section 2,1(aa) (i.e., the Participant qualifies as an Inactive Participant who is not a participant in the SERP). To the
extent the Participant has invested in Stock Units, upon his Termination of Employment or transfer to another position,
the number of shares of Stock to which he is entitled will be determined and distributable to him pursuant to the terms of
the ERA. For purposes of determining when a Participant incurs a Termination of Employment for investment crediting
purposes, Employment will be deemed to have ceased on the last day of the calendar month of Employment.
The Participant will specify his preference from among the following possible investment crediting rate options:
18
(a)
(b)
(c)
The annual rate of interest based on the benchmark money market mutual fund, compounded daily, such
benchmark money market mutual fund will be for periods before October 1, 2008, the Fidelity Money Market Fund
and from October 1, 2008, through December 31, 2008, an annual rate of interest equal to one percent (1%)
below the prime rate of interest as quoted by Bloomberg, compounded daily, and effective on and after January 1,
2009, an annual rate of interest equal to one hundred and twenty percent (120%) of the long-term applicable
federal rate. compounded daily;
One (1) or more benchmark mutual funds; or
Stock Units; provided that any request to have the Participant's Account to be deemed invested in Stock Units is
irrevocable (i.e., a Participant may only change such investment election on a prospective basis) and such
amounts will be distributed in an equivalent whole number of shares of Stock pursuant to the provisions of Article
V. Any fractional share interests will be paid in cash with the last distribution.
During his Employment, the Participant may change, on a monthly basis, the investment crediting rate preference under
this Section 4.4 by filing an election in such manner as will be determined by the RPAC. Notwithstanding any request
made by a Participant, the Company will not be bound by such request and the Company, in its sole and absolute
discretion, will determine the investment rate with which to credit amounts contributed on behalf of Participants under this
ERA, provided, however, that if the Company chooses an investment crediting rate other than the investment crediting
rate requested by the Participant, such investment crediting rate cannot be less than (a) above. If a Participant fails to set
forth his investment crediting rate preference under this Section 4.4, he will be deemed to have elected the investment
crediting rate in (a) above. The RPAC will select from time to time, in its sole and absolute discretion, the possible
investment crediting rate options to be offered under the ERA.
End of Article IV
19
ARTICLE V
DISTRIBUTION OF BENEFITS
5.1
5.2
Normal Retirement Distribution. A Participant who remains in the employ of the Employer until his Normal Retirement
Age will receive a Normal Retirement Benefit equal to the vested balance of his Account as of the date of his Retirement.
Except as provided in Section 10.3, payment of the Normal Retirement Benefit will begin on the first day of the second
calendar month following the date of the Participant's Retirement in the form of equal annual installments through the
date the Participant attains age eighty (80). Distributions will be made in the form of cash or Stock, depending on the
Participant's investment crediting rates as provided in Section 4.4. The commencement of payment of the Normal
Retirement Benefit will be subject to the six (6) month delay applicable to Key Employees under Section 5.4. A
Participant who is entitled to a Normal Retirement Benefit distribution may elect to defer payment of such distribution
pursuant to Section 5.7.
Early Retirement Distribution. A Participant who remains in the employ of the Employer until his Early Retirement Age
(and is not entitled to a distribution by reason of an Involuntary Termination pursuant to Section 5.3(a)) will receive an
Early Retirement Benefit equal to the vested balance of his Account as of the date of his Retirement. Payment of the
Early Retirement Benefit will begin on the first day of the second calendar month following the date of the Participant's
Retirement; provided, that the Participant timely elected (or was deemed to have timely elected) to receive an Early
Retirement Benefit pursuant to Section 3.1(b) and did not subsequently elect to defer such payment pursuant to Section
5.7. Except as provided in Section 10.3, distribution of the Early Retirement Benefit will be made in the form of equal
annual installments through the date the Participant attains age eighty (80). Distributions will be made in the form of cash
or Stock, depending on the Participant's investment crediting rates as provided in Section 4.4. The commencement of the
payment of the Early Retirement benefit will be subject to the six (6) month delay applicable to Key Employees under
Section 5.4.
5.3
Termination of Employment Distribution. A Participant who incurs a Termination of Employment for a reason other
than Retirement, Disability or death, will receive a distribution of the vested balance of his Account, if any, pursuant to this
Section 5.3. The commencement of the payment of the vested balance of the Participant's Account will be subject to the
six (6) month delay applicable to Key Employees under Section 5.4.
(a)
Involuntary Termination Distribution . If a Participant incurs an Involuntary Termination, he will receive payment
of his vested Account balance, as determined in accordance with Section 4.2(c), commencing on the first day of
the second calendar month following his attainment of age sixty-two (62) (regardless if the Participant has attained
age fifty-five (55) and completed ten (10) Years of Vesting Service and has elected (or was deemed to have
elected) an Early Retirement Benefit pursuant to Section 3.1(b)), unless he elected to defer payment pursuant to
Section 5.7. Except as provided in Section 10.3, distribution of the Participant's vested Account balance will be
made in equal annual installments through the date the Participant attains age eighty (80). Distributions will be
made in the form of cash or Stock, depending on the Participant's investment crediting rates as provided in
Section 4.4.
20
(b)
Other Termination Distribution . Except in the case of a Termination of Employment for Cause, if a Participant
incurs an Other Termination after attaining age fifty-five (55) and completing ten (10) Years of Vesting Service and
the Participant elected (or was deemed to have elected) an Early Retirement Benefit pursuant to Section 3.1(b),
distribution of the Participant's vested Account balance will be made pursuant to Section 5.2. If the Participant has
not completed ten (10) Years of Vesting Service or did not elect (or was not deemed to have elected) an Early
Retirement Benefit, distribution of the Participant's vested Account balance will commence on the first day of the
second calendar month following the date he attains age sixty-two (62) unless he elected to defer payment
pursuant to Section 5.7. Except as provided in Section 10.3, distribution of the Participant's vested Account
balance will be made in the form of equal annual installments through the date the Participant attains age eighty
(80). Distributions will be made in the form of cash or Stock, depending on the Participant's investment crediting
rates as provided in Section 4.4.
A Participant who incurs a Termination of Employment for Cause will forfeit the entire balance of his Account
regardless if vested.
5.4
Termination Distributions to Key Employees. Distributions under this ERA that are payable to a Key Employee on
account of a Termination of Employment, including Retirement, will be delayed for a period of six (6) months following
such Participant's Termination of Employment. This six (6) month restriction will not apply, or will cease to apply, with
respect to a distribution to a Participant's Beneficiary by reason of the death of the Participant.
5.5
Death Distribution. In the event of the Participant's death, his vested Account balance will be distributed as follows:
(a)
(b)
Death While an Employee . If the Participant dies while employed by the Employer, the Participant's vested
Account balance, as determined pursuant to Section 4.2(a), will be paid to the Participant's Beneficiary in a lump
sum, in cash and/or Stock depending on the Participant's investment crediting rates, by the later of the end of the
Plan Year in which the Participant dies or ninety (90) days following the date of the Participant's death.
Death Following Termination . If the Participant dies after his Termination of Employment while receiving
installment payments from the ERA, the remaining amount of such installment payments will be paid to the
Participant's Beneficiary in a lump sum, in cash and/or Stock depending on the Participant's investment crediting
rates, by the later of the end of the Plan Year in which the Participant dies or ninety (90) days following the date of
the Participant's death. If the Participant dies after his Termination of Employment before he begins receiving
installment payments from the ERA, his vested Account balance will be paid in a to his Beneficiary in a lump sum,
in cash and/or Stock depending on the Participant's investment crediting rates, by the later of the end of the Plan
Year in which the Participant dies or ninety (90) days following the date of the Participant's death.
21
5.6
5.7
Amounts distributed pursuant to this Section 5.5 will not be subject to or, in the event installment payments to the
Participant had already commenced at the time of the Participant's death, will cease to be subject to the six (6) month
delay applicable to Key Employees under Section 5.4.
Disability Distribution. If a Participant incurs a Disability while employed by the Employer, distribution of his vested
Account balance will begin on the first day of the second calendar month following the Participant's attainment of age
sixty-five (65). Except as provided in Section 10.3, distribution of the Participant's vested Account will be made in the form
of equal annual installments through the date the Participant attains age eighty (80). Distributions will be made in the form
of cash or Stock, depending on the Participant's investment crediting rates as provided in Section 4.4. A Participant who
is entitled to a Disability distribution may not elect to defer payment of such distribution pursuant to Section 5.7. Amounts
distributed pursuant to this Section 5.6, will not be subject to the six (6) month delay applicable to Key Employees.
Deferral of Distributions. A Participant may elect to defer payment of his Normal Retirement Benefit payable pursuant
to Section 5.1, his Early Retirement Benefit payable pursuant to Section 5.2 or a Termination of Employment distribution
pursuant to Section 5.3 for a period of five (5) years from the date such payment would otherwise be made by making a
deferral election at least twelve (12) months before the date payment would otherwise be made. In the event that the
Participant becomes entitled to a distribution pursuant to Section 5.1, Section 5.2 or Section 5.3 during this twelve (12)
month period, the deferral election will be of no effect and payment of the Participant's benefits will commence at the time
specified in Section 5.1, Section 5.2 or Section 5.3, as applicable. A Participant who becomes entitled to distribution of a
Disability benefit pursuant to Section 5.6 may not elect to defer payment of such distribution pursuant to this Section 5.7
and any deferral election made by such Participant will be null and of no effect.
5.8 Withholding. Any taxes or other legally required withholdings from distributions to Participants under the ERA will be
deducted and withheld from the Participant's vested Accounts by the Employer, benefit provider or funding agent as
required pursuant to applicable law. A Participant will be provided with a tax withholding election form for purposes of
federal and state tax withholding, if applicable. A Beneficiary will be responsible for payment of his own federal, state and
local taxes.
5.9
Impact of Reemployment on Benefits. If a Participant incurs a Termination of Employment and begins receiving,
installment payments from the ERA and such Participant is reemployed by the Employer or an Affiliate, then such
Participant's installment payments will continue as scheduled during the period of his reemployment.
End of Article V
22
ARTICLE VI
PAYMENT LIMITATIONS
6.1 Spousal Claims
(a)
(b)
(c)
Distribution of Benefit . In the event that an Alternate Payee is entitled to all or a portion of a Participant's vested
Account balance pursuant to the terms of a DRO, such amount will be paid to the Alternate Payee in a lump sum,
in cash or Stock, based on the Participant's investment crediting rates under the ERA as provided in Section 4.4
and the terms of the DRO, within ninety (90) days after the Plan Administrator approves the DRO.
An Alternate Payee must complete and deliver to the Plan Administrator all required forms within thirty (30) days
from the date the Alternate Payee is notified by the Plan Administrator that the DRO has been accepted. The
Alternate Payee will be responsible for payment of any federal, state or local taxes.
Determination of Qualification of DRO . The Plan Administrator will have sole and absolute discretion to
determine whether a judgment, decree or order is a DRO, to determine whether a DRO will be accepted for
purposes of this Section 6.1 and to make interpretations under this Section 6.1, including determining who is to
receive benefits, the amount of such benefits, and the amount of taxes to be withheld. The decisions of the Plan
Administrator will be binding on all parties with an interest.
Subject to ERA Provisions . Any benefits payable to an Alternate Payee pursuant to the terms of a DRO will be
subject to all provisions and restrictions of the ERA and any dispute regarding such benefits will be resolved
pursuant to the ERA claims procedure in Article VIII.
6.2
Legal Disability. If a person entitled to any payment under this ERA is, in the sole judgment of the Plan Administrator,
under a legal disability, or otherwise is unable to apply such payment to his own interest and advantage, the Plan
Administrator, in the exercise of its discretion, may direct the Employer or payor of the benefit to make any such payment
in any one (1) or more of the following ways:
(a)
(b)
(c)
Directly to such person;
To his legal guardian or conservator; or
To his spouse or to any person charged with the duty of his support, to be expended for his benefit and/or that of
his dependents.
The decision of the Plan Administrator will in each case be final and binding upon all persons in interest, unless the Plan
Administrator reverses its decision due to changed circumstances.
6.3
Assignment. Except as provided in Section 6,1, no Participant or Beneficiary will have any right to assign, pledge,
transfer, convey, hypothecate, anticipate or in any way create a lien on any amounts payable under this ERA. No
amounts payable under this ERA will
23
be subject to assignment or transfer or otherwise be alienable, either by voluntary or involuntary act, or by operation of
law, or subject to attachment, execution, garnishment, sequestration or other seizure under any legal, equitable or other
process, or be liable in any way for the debts or defaults of Participants and their Beneficiaries.
End of Article VI
24
7.1 No Right to Assets.
ARTICLE VII
FUNDING
(a)
Employer Obligation . Benefits under this ERA will be funded solely by the Employer. Benefits under this ERA
will constitute an unfunded general obligation of the Employer, but the Employer may create reserves, funds
and/or provide for amounts to be held in trust to fund such benefits on its behalf. Payment of benefits may be
made by the Employer, any trust established by the Employer or through a service or benefit provider to the
Employer or such trust. Upon the occurrence of a Change of Control, the Company will establish a rabbi trust to
fund the benefits accrued under the ERA as of the date of the Change of Control.
(b)
Rabbi Trust . Upon a Change of Control, the following will occur:
(i)
(ii)
(iii)
(iv)
(v)
the Trust will become (or continue to be) irrevocable;
for three (3) years following a Change of Control, the Trustee can only be removed as set forth in the Trust;
if the Trustee is removed or resigns within three (3) years following a Change of Control, the Trustee will
select a successor Trustee, as set forth in the Trust;
for three (3) years following a Change of Control, the Company will be responsible for directly paying all
Trustee fees and expenses, together with all fees and expenses incurred under Article VIII relating to the
RPAC, Plan Administrator, and ERA administrative expenses (unless otherwise paid by the Trust from the
Trust’s expense reserve); and
the Trust Agreement may be amended only as set forth in the Trust (with the Trustee's consent); provided,
however, that no such amendment will (A) change the irrevocable nature of the Trust; (B) adversely affect
a Participant's rights to benefits under the ERA without the consent of the Participant; (C) impair the rights
of the Company's creditors under the Trust; or (D) cause the Trust to fail to be a "grantor trust" pursuant to
Code sections 671 through 679.
7.2
Creditor Status. Participants and their Beneficiaries will be general unsecured creditors of their respective Employer with
respect to the payment of any benefit under this ERA, unless such benefits are provided under a contract of insurance or
an annuity contract that has been delivered to Participants, in which case Participants and their Beneficiaries will look to
the insurance carrier or annuity provider for payment, and not to the Employer. The Employer's obligation for such benefit
will be discharged by the purchase and delivery of such annuity or insurance contract.
25
End of Article VII
26
ARTICLE VIII
ADMINISTRATION
8.1 The RPAC. The overall administration of the ERA will be the responsibility of the RPAC.
8.2
Powers of RPAC. The RPAC will have sole and absolute discretion regarding the exercise of its powers and duties
under this ERA. In order to effectuate the purposes of the ERA, the RPAC will have the following powers and duties:
(a)
(b)
(c)
(d)
To appoint the Plan Administrator;
To review and render decisions respecting a denial of a claim for benefits under the ERA;
To construe the ERA and to make equitable adjustments for any mistakes or errors made in the administration of
the ERA; and
To determine and resolve, in its sole and absolute discretion, all questions relating to the administration of the
ERA and the trust established to secure the assets of the ERA when differences of opinion arise between the
Company, an Affiliate, the Plan Administrator, the Trustee, a Participant, or any of them, and whenever it is
deemed advisable to determine such questions in order to promote the uniform and nondiscriminatory
administration of the ERA for the greatest benefit of all parties concerned.
The foregoing list of express powers is not intended to be either complete or conclusive, and the RPAC will, in addition,
have such powers as it may reasonably determine to be necessary or appropriate in the performance of its powers and
duties under the ERA.
Appointment of Plan Administrator. The RPAC will appoint the Plan Administrator, who will have the responsibility and
duty to administer the ERA on a daily basis. The RPAC may remove the Plan Administrator with or without cause at any
time. The Plan Administrator may resign upon written notice to the RPAC.
Duties of Plan Administrator. The Plan Administrator will have sole and absolute discretion regarding the exercise of its
powers and duties under this ERA. The Plan Administrator will have the following powers and duties:
8.3
8.4
(a)
(b)
(c)
To direct the administration of the ERA in accordance with the provisions herein set forth;
To adopt rules of procedure and regulations necessary for the administration of the ERA, provided such rules are
not inconsistent with the terms of the ERA:
To determine all questions with regard to rights of Employees. Participants, and Beneficiaries under the ERA
including, but not limited to, questions involving eligibility of an Employee to participate in the ERA, the amount of
a Participant’s Annual Contribution and the value of a Participant's vested Account:
27
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
To enforce the terms of the ERA and any rules and regulations adopted by the RPAC;
To review and render decisions respecting a claim for a benefit under the ERA;
To furnish the Employer with information that the Employer may require for tax or other purposes;
To engage the service of counsel (who may, if appropriate, be counsel for the Employer), actuaries, and agents
whom it may deem advisable to assist it with the performance of its duties;
To prescribe procedures to be followed by Participants in obtaining benefits;
To receive from the Employer and from Participants such information as is necessary for the proper administration
of the ERA;
To establish and maintain, or cause to be maintained, the individual Accounts described in Section 4.3;
To create and maintain such records and forms as are required for the efficient administration of the ERA;
To make all determinations and computations concerning the benefits, credits and debits to which any Participant,
or other Beneficiary, is entitled under the ERA;
(m)
To give the Trustee of the trust established to serve as a source of funds under the ERA specific directions in
writing with respect to:
(i)
(ii)
making distribution payments, giving the names of the payees, specifying the amounts to be paid and the
time or times when payments will be made; and
making any other payments which the Trustee is not by the terms of the trust agreement authorized to
make without a direction in writing by the Plan Administrator;
To comply with all applicable lawful reporting and disclosure requirements of ERISA;
To comply (or transfer responsibility for compliance to the Trustee) with all applicable federal income tax
withholding requirements for benefit distributions; and
To construe the ERA, in its sole and absolute discretion, and make equitable adjustments for any errors made in
the administration of the ERA.
(n)
(o)
(p)
The foregoing list of express duties is not intended to be either complete or conclusive, and the Plan Administrator will, in
addition, exercise such other powers and perform such other duties as it may deem necessary, desirable, advisable or
proper for the supervision and administration of the ERA.
28
8.5
Indemnification of RPAC and Plan Administrator. To the extent not covered by insurance, or if there is a failure to
provide full insurance coverage for any reason, and to the extent permissible under corporate by-laws and other
applicable laws and regulations. the Employer agrees to hold harmless and indemnify the RPAC and Plan Administrator
against any and all claims and causes of action by or on behalf of any and all parties whomsoever, and all losses
therefrom, including, without limitation, costs of defense and reasonable attorneys' fees, based upon or arising out of any
act or omission relating to or in connection with the ERA other than losses resulting from the RPAC's, or any such
person's commission of fraud or willful misconduct.
8.6 Claims for Benefits.
(a)
Initial Claim . In the event that an Employee, Eligible Person, Participant or his Beneficiary (a “ claimant ”) claims
to be eligible for benefits, or claims any rights under this ERA, such claimant must complete and submit such
claim forms and supporting documentation as will be required by the Plan Administrator, in its sole and absolute
discretion. Likewise, any claimant who feels unfairly treated as a result of the administration of the ERA must file a
written claim. setting forth the basis of the claim, with the Plan Administrator. In connection with the determination
of a claim, or in connection with appeal of a denied claim. the claimant may examine this ERA, and any other
pertinent documents generally available to Participants that are specifically related to the claim and may appoint
an authorized representative to pursue the claim on his behalf. References to the claimant include his authorized
representative, when applicable.
Different claims procedures apply to claims for benefits on account of Disability, referred to as "Disability claims,"
and all other claims for benefits, referred to as "non-Disability claims "
(b)
Non-Disability Claims.
(i)
Initial Decision on Non-Disability Claim . If a claimant files a non-Disability claim, written notice of the
disposition of such claim will be furnished to the claimant within ninety (90) days after the claim is filed with
the Plan Administrator unless special circumstances require an extension of time for processing the claim.
Such extension will not exceed ninety (90) days and no extension will be allowed unless, within the initial
ninety (90)-day period, the claimant is sent an extension notice indicating the special circumstances
requiring the extension and specifying a date by which the Plan Administrator expects to issue its final
decision. If the claim is denied, the Plan Administrator's notice will set forth:
(A)
(B)
(C)
The specific reason or reasons for the denial;
Specific references to pertinent ERA provisions on which the Plan Administrator based its denial;
A description of any additional material and information needed for the claimant to perfect his claim
and an explanation of why the material or information is needed;
29
(D)
A statement that the claimant may:
(1)
(2)
(3)
(4)
Appeal the claim in writing to the RPAC, including a description of such appeal procedures
and the time limits applicable to such procedures;
Review pertinent ERA documents;
Submit issues and comments in writing; and
Pursue arbitration following the denial of the claim on appeal;
(ii)
(iii)
(E)
(F)
A statement that any appeal that the claimant wishes to make of the adverse determination must be
made in writing to the RPAC within ninety (90) days after receipt of the Plan Administrator's notice
of denial of benefits; and
A statement that his failure to appeal the action to the RPAC in writing within the ninety (90)-day
period will render the Plan Administrator's determination final, binding, and conclusive.
All benefits provided in this ERA as a result of the disposition of a claim will be paid as soon as practicable
following receipt of proof of entitlement, if requested.
Appeal of Denied Non-Disability Claim . Within ninety (90) days after receiving written notice of the Plan
Administrator's denial of his initial non-Disability claim, the claimant may file with the RPAC a written
appeal of his claim. If the claimant does not file an appeal within ninety (90) days after receiving written
notice of the Plan Administrator's disposition of the claim, the claimant will be deemed to have accepted
the Plan Administrator's written disposition, unless the claimant was physically or mentally incapacitated so
as to be unable to file an appeal within the ninety (90) day period.
Decision on Appeal of Non-Disability Claim . After receipt by the RPAC of a written appeal of a non-
Disability claim, the RPAC will review the claim taking into account all comments, documents, records and
other information submitted by the claimant regarding the claim without regard to whether such information
was considered in the initial benefit determination. The RPAC will notify the claimant of its decision by
delivery or by certified or registered mail to his last known address. A decision on appeal of the claim will
be made by the RPAC at its next meeting following receipt of the appeal. If no meeting of the RPAC is
scheduled within forty-five (45) days of receipt of the appeal, then the RPAC will hold a special meeting to
review such appeal within such forty-five (45) day period. If special circumstances require an extension of
the forty-five (45) day period, the RPAC will so notify the claimant and a decision will be made within ninety
(90) days of receipt of the appeal. In any event, if a claim is not determined by the RPAC within ninety (90)
days of receipt of the appeal, it will be deemed to be denied.
30
The decision of the RPAC will be provided to the claimant as soon as possible but no later than five (5)
days after the determination on appeal is made. The decision will be in writing and will include the specific
reasons for the decision presented in a manner calculated to be understood by the claimant and will
contain references to all relevant ERA provisions on which the decision was based. Such decision will also
advise the claimant that he may receive upon request, and free of charge, reasonable access to and
copies of all documents, records and other information relevant to his claim and will inform the claimant of
his right to arbitration in the case of an adverse decision regarding his appeal. The decision of the RPAC
will be final and conclusive.
(c)
Disability Claims. The ERA will ensure that all Disability claims and appeals are adjudicated in a manner
designed to ensure the independence and impartiality of the persons involved in making the decision by ensuring
that decisions regarding hiring, compensation, termination, promotion, or other similar matters with respect to any
individual, such as a medical or vocational expert, must not be based upon the likelihood that the individual will
support the denial of benefits.
(i)
Initial Decision on Disability Claim . The Plan Administrator will notify the claimant the initial decision on
a Disability claim no later than forty-five (45)-days after receipt of the claim by the Plan. This period may be
extended by the Plan Administrator for up to thirty (30) days provided that the Plan Administrator
determines that such an extension is necessary due to matters beyond the control of the ERA and the
claimant is notified before the expiration of the initial forty-five (45)-day period of the circumstances
requiring the extension of time and the date by which the Plan Administrator expects to make a decision. If,
before the first thirty (30)-day extension period, the Plan Administrator determines that, due to matters
beyond the control of the ERA, a decision can not be made within that extension period, the period for
making the initial benefit determination may be extended for up to an additional thirty (30) days provided
that the claimant is notified before the expiration of the first thirty (30)-day extension period of the
circumstances requiring the extension and the date as of which the Plan Administrator expects to issue a
decision. In the case of any extension, the notice of extension will specifically explain the standards on
which entitlement to a benefit by reason of Disability is based, the unresolved issues that prevent a
decision on the claim, and the additional information needed to resolve those issues and the claimant will
be given at least forty-five (45) days within which to provide the specified information.
The claimant will be provided with written or electronic notification of any adverse benefit determination
(i.e., denial) of a disability claim, in a culturally and linguistically appropriate manner by providing oral
language services (such as a telephone customer assistance hotline) that includes answering questions in
any “applicable non-English language,” as defined below, and providing assistance with filing claims and
appeals in any applicable non-English language, providing, upon request, a notice in any applicable non-
English language and including in the English version of all notices, a
31
statement prominently displayed in any applicable non-English language clearly indicating how to access
the language services provided by the ERA. For this purpose a non-English language is an applicable non-
English language if ten percent (10%) or more of the population residing in the county to which a notice is
sent is literate only in the same non-English language, as determined in guidance issued by the Secretary
of the Department of Labor. The notification will set forth, in a manner calculated to be understood by the
claimant:
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
the specific reason or reasons for the denial;
reference to the specific ERA provisions on which the denial is based;
a description of any additional material or information necessary for the claimant to perfect the claim
and an explanation of why such material or information is necessary;
a description of the ERA's review procedures and the time limits applicable to such procedures,
including a statement of the claimant's right to bring a civil action under section 502 of ERISA
following the denial of an appeal;
a discussion of the decision, including an explanation of the basis for disagreeing with or not
following (i) the views presented by the claimant to the ERA of health care professionals treating the
claimant and the vocational professionals who evaluated the claimant, (ii) the views of medical or
vocational experts whose advice was obtained on behalf of the ERA in connection with the denial,
without regard to whether the advice was relied on in making the benefit determination, and (iii) a
disability determination regarding the claimant presented by the claimant to the ERA made by the
Social Security Administration;
if the denial is based on a medical necessity or experimental treatment or similar exclusion or limit,
either an explanation of the scientific or clinical judgement for the determination, applying the terms
of the ERA to the claimant’s medical circumstances, or a statement that such explanation will be
provided free of charge upon request;
either the specific internal rules, guidelines, protocols, standards or other similar criteria of the ERA
relied upon in denying the claim or, alternatively, a statement that such rules, guidelines, protocols,
standards or other similar criteria do not exist; and
a statement that the claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of, all documents, records, and other information relevant to the claim for
benefits.
(ii)
Appeal of Denial of Disability Claim
32
(A)
Opportunity for Full and Fair Review . A claimant will be provided a reasonable opportunity to
appeal the denial of his Disability claim under which there will be a full and fair review of the claim
and the denial. Accordingly:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
a claimant will be provided one hundred and eighty (180) days following receipt of notice of
the denial of the Disability claim to appeal such determination;
a claimant will be provided the opportunity to submit written comments, documents, records
or other information relating to the Disability claim on appeal;
a claimant will be provided, upon request and free of charge, reasonable access to and
copies of all documents, records and other information relevant to the Disability claim;
appellant review will take into account all comments, documents, records and other
information submitted by the claimant relating to the Disability claim without regard to other
such information once submitted or considered in the initial benefit determination;
such appeal will not afford deference to the initial denial and will be conducted by the RPAC,
which is an appropriate Named Fiduciary of the ERA and which will neither be the individual
who denied the Disability claim that is subject to the appeal nor the subordinate of such
individual;
in the case of any appeal of a denied Disability claim that is based in whole or in part on a
medical judgment, the claimant will be entitled to a review by the RPAC based on the
RPAC's consultation with a health care professional who has appropriate training and
experience in the field of medicine involved in the medical judgment whereby such
professional is neither an individual who was consulted in connection with the denial that is
the subject of the appeal nor the subordinate of any such individual;
the claimant will be provided with the identity of the medical or vocational experts whose
advice was obtained on behalf of the ERA in connection with the denial of the Disability
claim, without regard to whether the advice was relied upon in making the benefit
determination; and
as soon as possible and sufficiently in advance of the date on which the notice on the
appeal is required to be provided, the RPAC or its delegate will provide the claimant, free of
charge, with any new or additional evidence and/or rationale
33
(B)
(C)
considered, relied upon, or generated by the ERA in connection with the Disability claim.
Timing of Decision on Appeal of Disability Claim . The decision on appeal of the claim will be
made by the RPAC at its next meeting following receipt of the appeal. If no meeting of the RPAC is
scheduled within forty-five (45) days of receipt of the appeal, then the RPAC will hold a special
meeting to review such appeal within such forty-five (45) day period. If special circumstances
require an extension of the forty-five (45) day period, the RPAC will so notify the claimant and a
decision will be made within ninety (90) days of receipt of the appeal. In any event, if the appeal is
not determined by the RPAC within ninety (90) days after its receipt of the appeal, it will be deemed
to be denied.
Decision on Appeal of Disability Claim . The decision of the RPAC will be provided to the
claimant as soon as possible but no later than five (5) days after the determination on appeal is
made. The claimant will be provided with written or electronic notification of the ERA’s benefit
determination on appeal in a culturally and linguistically appropriate manner by providing oral
language services (such as a telephone customer assistance hotline) that includes answering
questions in any “applicable non-English language,” as defined below, and providing assistance
with filing claims and appeals in any applicable non-English language, providing, upon request, a
notice in any applicable non-English language and including in the English version of all notices, a
statement prominently displayed in any applicable non-English language clearly indicating how to
access the language services provided by the ERA. For this purpose a non-English language is an
applicable non-English language if ten percent (10%) or more of the population residing in the
county to which a notice is sent is literate only in the same non-English language, as determined in
guidance issued by the Secretary of the Department of Labor. If the appeal is denied, the
notification will set forth, in a manner calculated to be understood by the claimant:
(1)
(2)
(3)
(4)
the specific reason or reasons for the appeal decision;
reference to the specific ERA provisions on which the appeal decision is based;
a statement that the claimant is entitled to receive, upon request and free of charge,
reasonable access to and copies of all documents, records and other information relevant to
the Disability claim for benefits;
a statement describing the ERA's appeals procedures, the right to obtain information about
such procedures, a statement of the claimant’s right to file a civil action under
34
section 502 of ERISA including a description of any applicable contractual limitations period
that applies to the claimant’s right to bring such action, including the date on which the
contractual limitations period expires for the claim;
a discussion of the appeal decision, including an explanation of the basis for disagreeing
with or not following (i) the views presented by the claimant to the ERA of health care
professionals treating the claimant and the vocational professionals who evaluated the
claimant, (ii) the views of medical or vocational experts whose advice was obtained on
behalf of the ERA in connection with the claimant’s appeal, without regard to whether the
advice was relied on in denying the appeal, and (iii) a disability determination regarding the
claimant presented by the claimant to the ERA made by the Social Security Administration;
if the denial on appeal is based on a medical necessity or experimental treatment or similar
exclusion or limit, either an explanation of the scientific or clinical judgement for the denial
on appeal, applying the terms of the ERA to the claimant’s medical circumstances, or a
statement that such explanation will be provided free of charge upon request; and
either the specific internal rules, guidelines, protocols, standards or other similar criteria of
the ERA relied upon in denying the appeal or, alternatively, a statement that such rules,
guidelines, protocols, standards or other similar criteria do not exist.
(5)
(6)
(7)
8.7
Arbitration. In the event the claims review procedure described in Section 8.6 of the ERA with respect to non-Disability
claims does not result in an outcome thought by the claimant to be in accordance with the ERA document, he may appeal
to a third party neutral arbitrator. The claimant must appeal to an arbitrator within sixty (60) days after receiving the
RPAC’s denial or deemed denial of his request for review and before bringing suit in court. The arbitration will be
conducted pursuant to the American Arbitration Association (“ AAA ”) Rules on Employee Benefit Claims.
The arbitrator will be mutually selected by the claimant and the RPAC from a list of arbitrators who are experienced in
nonqualified deferred compensation plan benefit matters that is provided by the AAA. If the parties are unable to agree on
the selection of an arbitrator within ten (10) days of receiving the list from the AAA, the AAA will appoint an arbitrator. The
arbitrator’s review will be limited to interpretation of the ERA document in the context of the particular facts involved. The
claimant, the RPAC and the Company agree to accept the award of the arbitrator as binding, and all exercises of power
by the arbitrator hereunder will be final, conclusive and binding on all interested parties, unless found by a court of
competent jurisdiction, in a final judgment that is no longer subject to review or appeal, to be arbitrary and capricious. The
claimant, RPAC and the Company agree that the venue for the arbitration will be in Dallas, Texas. The costs of arbitration
will be paid by the
35
Company; the costs of legal representation for the claimant or witness costs for the claimant will be borne by the
claimant; provided, that, as part of his award, the Arbitrator may require the Company to reimburse the claimant for all or
a portion of such amounts.
The following discovery may be conducted by the parties: interrogatories, demands to produce documents, requests for
admissions and oral depositions. The arbitrator will resolve any discovery disputes by such pre hearing conferences as
may be needed. The Company, RPAC and claimant agree that the arbitrator will have the power of subpoena process as
provided by law. Disagreements concerning the scope of depositions or document production, its reasonableness and
enforcement of discovery requests will be subject to agreement by the Company and the claimant or will be resolved by
the arbitrator. All discovery requests will be subject to the proprietary rights and rights of privilege and other protections
granted by applicable law to the Company and the claimant and the arbitrator will adopt procedures to protect such rights.
With respect to any dispute, the Company, RPAC and the claimant agree that all discovery activities will be expressly
limited to matters directly relevant to the dispute and the arbitrator will be required to fully enforce this requirement.
The arbitrator will have no power to add to, subtract from, or modify any of the terms of the ERA, or to change or add to
any benefits provided by the ERA, or to waive or fail to apply any requirements of eligibility for a benefit under the ERA.
Nonetheless, the arbitrator will have absolute discretion in the exercise of its powers in this ERA. Arbitration decisions will
not establish binding precedent with respect to the administration or operation of the ERA.
8.8
8.9
Receipt and Release of Necessary Information. In implementing the terms of this ERA, the RPAC and Plan
Administrator, as applicable, may, without the consent of or notice to any person, release to or obtain from any other
insuring entity or other organization or person any information, with respect to any person, which the RPAC or Plan
Administrator deems to be necessary for such purposes. Any Participant or Beneficiary claiming benefits under this ERA
will furnish to the RPAC or Plan Administrator, as applicable, such information as may be necessary to determine
eligibility for and amount of benefit, as a condition of claiming and receiving such benefit.
Overpayment and Underpayment of Benefits. The Plan Administrator may adopt, in its sole and absolute discretion,
whatever rules, procedures and accounting practices are appropriate in providing for the collection of any overpayment of
benefits. If a Participant or Beneficiary receives an underpayment of benefits. the Plan Administrator will direct that
payment be made as soon as practicable to make up for the underpayment. If an overpayment is made to a Participant or
Beneficiary. for whatever reason, the Plan Administrator may, in its sole and absolute discretion, (a) withhold payment of
any further benefits under the ERA until the overpayment has been collected; provided, that the entire amount of
reduction in any calendar year does not exceed five thousand dollars ($5,000), and the reduction is made at the same
time and in the same amount as the debt otherwise would have been due and collected from the Participant, or (b) may
require repayment of benefits paid under this ERA without regard to further benefits to which the Participant or
Beneficiary may be entitled.
8.10 Change of Control. Upon a Change of Control and for the following three (3) years thereafter, if any arbitration arises
relating to an event occurring or a claim made within
36
three (3) years of a Change of Control, (i) the arbitrator will not decide the claim based on an abuse of discretion principle
or give the previous RPAC decision any special deference, but rather will determine the claim de novo based on its own
independent reading of the ERA; and (ii) the Company will pay the Participant's reasonable legal and other related fees
and expenses, by applying Section 3.1(f) of the ESP (except that if the Participant is not entitled to severance benefits
under the ESP on account of the Termination of Employment that entitles the Participant to receive benefits under this
ERA, the reference to the “shorter of the Severance Period or the Reimbursement Period” in the ESP will be changed to
the “Reimbursement Period” only).
End of Article VIII
37
ARTICLE IX
OTHER BENEFIT PLANS OF THE COMPANY
9.1
Other Plans. Nothing contained in this ERA will prevent a Participant before his death, or a Participant's spouse or other
Beneficiary after such Participant's death, from receiving, in addition to any payments provided for under this ERA, any
payments provided for under any other plan or benefit program of the Employer or an Affiliate, or which would otherwise
be payable or distributable to him, his surviving spouse or Beneficiary under any plan or policy of the Employer, an
Affiliate or otherwise. Nothing in this ERA will be construed as preventing the Company or any of its Affiliates from
establishing any other or different plans providing for current or deferred compensation for employees. Unless otherwise
specifically provided in any plan of the Company intended to "qualify” under section 401 of the Code, Compensation
made under this ERA will constitute earnings or compensation for purposes of determining contributions or benefits under
such qualified plan.
End of Article IX
38
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
10.1 Continuation. The Company intends to continue this ERA indefinitely, but nevertheless assumes no contractual
obligation beyond the promise to pay the benefits described in this ERA.
10.2 Amendment of ERA. The Company, through an action of the Human Resources Committee, reserves the right in its sole
and absolute discretion to amend this ERA in any respect at any time, except that upon or during the two (2) year period
after any Change of Control of the Company, (a) ERA benefits cannot be reduced, (b) Articles VIII and X and Section
7.1(b) cannot be changed, and (c) (except as provided in Section 10.3) no prospective amendment that adversely affects
the rights or obligations of a Participant may be made unless the affected Participant receives at least one (1) year's
advance written notice of such amendment.
Moreover, no amendment may ever be made that retroactively reduces or diminishes the rights of any Participant to the
benefits described herein that have been accrued or earned through the date of such amendment, even if a Termination
of Employment has not yet occurred with respect to such Participant.
In addition to the Human Resources Committee, the RPAC has the right to make non-material amendments to the ERA
to comply with changes in the law or to facilitate ERA administration; provided, however, that each such proposed non¬-
material amendment must be discussed with the Chairperson of the Human Resources Committee in order to determine
whether such change would constitute a material amendment to the ERA.
The provisions of this Section 10.2 will not restrict the right of the Company to terminate this ERA under Section 10.3
below or the termination of an Affiliate’s participation under Section 10.4 below.
10.3
Termination of ERA. The Company, through an action of the Human Resources Committee, may terminate or suspend
this ERA in whole or in part at any time, provided that no such termination or suspension will deprive a Participant, or
person claiming benefits under this ERA through a Participant, of any amount credited to his Account under this ERA up
to the date of suspension or termination. Except as required by applicable law and pursuant to the valuation of such
Account pursuant to Section 4.4, the Human Resources Committee may decide to liquidate the ERA upon termination
under the following circumstances:
(a)
Corporate Dissolution or Bankruptcy . The Human Resources Committee may terminate and liquidate the ERA
within twelve (12) months of a corporate dissolution taxed under section 331 of the Code or with the approval of a
bankruptcy court pursuant to 11 U.S.C. § 503(b)(1)(A); provided, that the amounts deferred under the ERA are
included in Participants' gross income in the latest of the following years (or if earlier, the taxable year in which the
amount is actually or constructively received):
(i)
The calendar year in which the ERA termination and liquidation occurs.
39
(ii)
The first calendar year in which the amount is no longer subject to a substantial risk of forfeiture.
(iii)
The first calendar year in which the payment is administratively practicable.
(b)
(c)
Change in Control . The Human Resources Committee may terminate and liquidate the ERA within the thirty (30)
days preceding or the twelve (12) months following a Change in Control (except on account of a liquidation or
dissolution of the Company), provided that all plans or arrangements that would be aggregated with the ERA
under section 409A of the Code are also terminated and liquidated with respect to each Participant that
experienced the Change in Control event so that under the terms of the ERA and all such arrangements the
Participant is required to receive all amounts of compensation deferred under such arrangements within twelve
(12) months of the termination of the ERA or arrangement, as applicable. In the case of a Change of Control event
which constitutes a sale of assets, the termination of the ERA pursuant to this Section 10.3(b) may be made with
respect to the Employer that is primarily liable immediately after the Change of Control transaction for the payment
of benefits under the ERA.
Termination of ERA . The Human Resources Committee may terminate and liquidate the ERA provided that (i)
the termination and liquidation does not occur by reason of a downturn of the financial health of the Company or
an Employer, (ii) all plans all plans or arrangements that would be aggregated with the ERA under section 409A of
the Code are also terminated and liquidated, (iii) no payments in liquidation of the ERA are made within twelve
(12) months of the date of termination of the ERA other than payments that would be made in the ordinary course
operation of the ERA, (iv) all payments are made within twenty-four (24) months of the date the ERA is terminated
and (v) the Company or the Employer, as applicable depending on whether the ERA is terminated with respect to
such entity, do not adopt a new plan that would be aggregated with the ERA within three (3) years of the date of
the termination of the ERA.
10.4
Termination of Affiliate's Participation. An Affiliate may terminate its participation in the ERA at any time by an action
of its governing body and providing written notice to the Company. Likewise, the Company may terminate an Affiliate's
participation in the ERA at any time by an action of the Human Resources Committee and providing written notice to the
Affiliate. The effective date of any such termination will be the later of the date specified in the notice of the termination of
participation or the date on which the RPAC can administratively implement such termination. In the event that an
Affiliate's participation in the ERA is terminated, unless declared otherwise by the Company and specified in Exhibit A
each Participant employed by such Affiliate will continue to participate in the ERA as an inactive Participant and will be
entitled to a distribution of his entire Account or a portion thereof upon his Termination of Employment pursuant to
Section 5.3.
End of Article X
40
ARTICLE XI
MISCELLANEOUS
11.1 No Reduction of Employer Rights. Nothing contained in this ERA will be construed as a contract of employment
between the Employer and an Employee, or as a right of any Employee to continue in the Employment of the Employer,
or as a limitation of the right of the Employer to discharge any of its Employees, with or without cause.
11.2 Provisions Binding. All of the provisions of this ERA will be binding upon all persons who will be entitled to any benefit
hereunder, their heirs and personal representatives.
End of Article XI
41
IN WITNESS WHEREOF , this Seventh Amended and Restated Tenet Executive Retirement Account has been executed on this
5th day of March , 2018, effective as of April 1, 2018, except as specifically provided otherwise herein.
TENET HEALTHCARE CORPORATION
By:
/s/ Paul Slavin
Paul Slavin, Vice President, Total Rewards and Workforce
Analytics
EXHIBIT A
GRANDFATHERED CONIFER EMPLOYEES
Section 2.1(t) of the Sixth Amended and Restated Tenet Executive Retirement Account (the " ERA ") provides that certain
Employees of Conifer Health Solutions, LLC will continue to participate in the ERA after December 31, 2013, the date that
Conifer Health Solutions, LLC ceased to be an Employer.
Name
Daniel M. Karnuta
Matthew C. Michaels
Megan H. North
Janie Patterson
James M. Thatcher
Norma A. Zeringue
TITLE
(INCLUDES ANY SUCCESSOR TITLE)
Senior Vice President, Chief Financial Officer
Senior Vice President, CHI Revenue Cycle
President, VBC
Senior Vice President, Revenue Cycle Management
Senior Vice President, Business Development
Senior Vice President, Chief HR Officer
A-1
EXHIBIT B
LIMITS ON ELIGIBILITY AND PARTICIPATION
Section 3.1 of the Tenet Executive Retirement Account (the '' Prior ERA '') provided the Retirement Plans Administration
Committee, formerly the Pension Administration Committee (the “ RPAC ”), with the authority to limit the classification of
employees of Tenet Healthcare Corporation or its participating affiliates (collectively the " Employer ") eligible to participate in
the ERA and/or to limit or terminate an Eligible Person's participation in the ERA at any time and states that any such limitation
will be set forth in this Exhibit B. This provision has been continued in this Sixth Amended and Restated Tenet Executive
Retirement Account. This Exhibit B identifies the employees excluded from ERA participation pursuant to this provision.
Name
TITLE
Effective Date And
Applicable Modification
B-1
Subsidiaries
of
Tenet Healthcare Corporation
as of December 31, 2018
Exhibit 21
State or Other Jurisdiction of
Formation
Name of Entity
601 N 30th Street I, L.L.C.
601 N 30th Street II, L.L.C.
601 N 30th Street III, Inc.
The 6300 West Roosevelt Partnership
Abrazo Health Network EP Clinical Services, LLC
Advantage Health Care Management Company, LLC
Advantage Health Network, Inc.
AHM Acquisition Co., Inc.
Alabama Cardiovascular Associates, L.L.C.
Alabama Hand and Sports Medicine, L.L.C.
Allegian Insurance Company
Alvarado Hospital Medical Center, Inc.
AMC/North Fulton Urgent Care #1, L.L.C.
AMC/North Fulton Urgent Care #2, L.L.C.
AMC/North Fulton Urgent Care #3, L.L.C.
AMC/North Fulton Urgent Care #4, L.L.C.
AMC/North Fulton Urgent Care #5, L.L.C.
American Medical (Central), Inc.
AMI/HTI Tarzana Encino Joint Venture
AMI Information Systems Group, Inc.
Amisub (Heights), Inc.
Amisub (Hilton Head), Inc.
Amisub (North Ridge Hospital), Inc.
Amisub of California, Inc.
Amisub of North Carolina, Inc.
Amisub of South Carolina, Inc.
Amisub of Texas, Inc.
Amisub (SFH), Inc.
Amisub (Twelve Oaks), Inc.
Anaheim MRI Holding, Inc.
Arizona Care Network – Next, L.L.C.
Arizona Health Partners, LLC
Asia Outsourcing US, Inc.
Atlanta Medical Center, Inc.
Atlanta Medical Center Interventional Neurology Associates, L.L.C.
Atlanta Medical Center Neurosurgical & Spine Specialists, L.L.C.
Atlanta Medical Center Physician Group, L.L.C.
Baptist Accountable Care, LLC
Baptist Diagnostics, LLC
Delaware
Nebraska
Nebraska
Illinois
Arizona
Delaware
Florida
Delaware
Alabama
Alabama
Texas
California
Georgia
Georgia
Georgia
Georgia
Georgia
California
Delaware
California
Delaware
South Carolina
Florida
California
North Carolina
South Carolina
Delaware
Tennessee
Delaware
California
Arizona
Arizona
Delaware
Georgia
Georgia
Georgia
Georgia
Texas
Delaware
Baptist Health Centers, LLC
Baptist Memorial Hospital System Physician Hospital Organization
Baptist Physician Alliance ACO, LLC
Baptist Physician Alliance, LLC
BBH BMC, LLC
BBH CBMC, LLC
BBH DevelopmentCo, LLC
BBH NP Clinicians, Inc.
BBH PBMC, LLC
BBH SBMC, LLC
BBH WBMC, LLC
BCDC EmployeeCO, LLC
BHC-Talladega Pediatrics, LLC
BHS Accountable Care, LLC
BHS Affinity, LLC
BHS Integrated Physician Partners, LLC
BHS Physician Performance Network, LLC
BHS Physicians Alliance for ACE, LLC
BHS Physicians Network, Inc.
BHS Specialty Network, Inc.
Bluffton Okatie Primary Care, L.L.C.
Broad River Primary Care, L.L.C.
Brookwood Ancillary Holdings, Inc.
Brookwood Baptist Health 1, LLC
Brookwood Baptist Health 2, LLC
Brookwood Baptist Imaging, LLC
Brookwood Center Development Corporation
Brookwood Development, Inc.
Brookwood Garages, L.L.C.
Brookwood Health Services, Inc.
Brookwood Home Health, LLC
Brookwood - Maternal Fetal Medicine, L.L.C.
Brookwood Occupational Health Clinic, L.L.C.
Brookwood Parking Associates, Ltd.
Brookwood Primary Care Cahaba Heights, L.L.C.
Brookwood Primary Care - Homewood, L.L.C.
Brookwood Primary Care Hoover, L.L.C.
Brookwood Primary Care - Inverness, L.L.C.
Brookwood Primary Care - Mountain Brook, L.L.C.
Brookwood Primary Care - Oak Mountain, L.L.C.
Brookwood Primary Care The Narrows, L.L.C.
Brookwood Primary Care - Vestavia, L.L.C.
Brookwood Primary Network Care, Inc.
Brookwood Specialty Care - Endocrinology, L.L.C.
Brookwood Sports and Orthopedics, L.L.C.
Brookwood Women’s Care, L.L.C.
2
Delaware
Texas
Alabama
Alabama
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Alabama
Delaware
Delaware
Delaware
Delaware
Delaware
Texas
Texas
South Carolina
South Carolina
Delaware
Delaware
Delaware
Delaware
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
Alabama
BT East Dallas JV, LLP
BW Cardiology, LLC
BW Cyberknife, LLC
BW Hand Practice, LLC
BW Office Buildings, LLC
BW Parking Decks, LLC
BW Physician Practices, LLC
BW Retail Pharmacy, LLC
BW Sports Practice, LLC
C7 Technologies, LLC
Camp Creek Urgent Care, L.L.C.
Captive Insurance Services, Inc.
Cardiology Physicians Associates, L.L.C.
Cardiology Physicians Corporation, L.L.C.
Cardiovascular & Thoracic Surgery Associates, L.L.C.
Cardiovascular Clinical Excellence at Desert Regional, LLC
Cardiovascular Clinical Excellence at Sierra Providence, LLC
Catawba-Piedmont Cardiothoracic Surgery, L.L.C.
Cedar Hill Primary Care, L.L.C.
Center for Advanced Research Excellence, L.L.C.
Center for the Urban Child, Inc.
Central Carolina-IMA, L.L.C.
Central Carolina Physicians - Sandhills, L.L.C.
Central Valley Quality Alliance, LLC
Central Texas Corridor Hospital Company, LLC
CGH Hospital, Ltd.
Chalon Living, Inc.
Children’s Hospital of Michigan Premier Network, Inc.
CHN Holdings, LLC
CHVI Tucson Holdings, LLC
CML-Chicago Market Labs, Inc.
Coast Healthcare Management, LLC
Coastal Carolina Medical Center, Inc.
Coastal Carolina Physician Practices, LLC
Coastal Carolina Pro Fee Billing, L.L.C.
Commonwealth Continental Health Care, Inc.
Community Connection Health Plan, Inc.
Community Hospital of Los Gatos, Inc.
Conifer Care Continuum Solutions, LLC
Conifer Ethics and Compliance, Inc.
Conifer Health Solutions, LLC
Conifer Holdings, Inc.
Conifer Patient Communications, LLC
Conifer Physician Services Holdings, Inc.
Conifer Physician Services, Inc.
Conifer Revenue Cycle Solutions, LLC
3
Texas
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Georgia
Delaware
North Carolina
North Carolina
South Carolina
California
Texas
South Carolina
Missouri
Florida
Pennsylvania
North Carolina
North Carolina
Delaware
Delaware
Florida
Arizona
Michigan
Delaware
Delaware
Delaware
California
South Carolina
Delaware
South Carolina
Florida
Arizona
California
Maryland
Delaware
Delaware
Delaware
Florida
Delaware
Illinois
California
Conifer Value-Based Care, LLC
Coral Gables Hospital, Inc.
CRNAs of Michigan
Delray Medical Center, Inc.
Delray Medical Physician Services, L.L.C.
Desert Regional Medical Center, Inc.
Des Peres Hospital, Inc.
Des Peres Physician Network, LLC
Detroit Education & Research
DigitalMed, Inc.
Dignity/Abrazo Health Network, LLC
DMC Detroit Receiving Hospital Premier Clinical Co-Management Services, LLC
DMC Education & Research
DMC Harper University Hospital Premier Clinical Co-Management Services, LLC
DMC Huron Valley-Sinai Hospital Premier Clinical Management Services, LLC
DMC Imaging, L.L.C.
Doctors Hospital of Manteca, Inc.
Doctors Medical Center Neurosciences Clinical Co-Management, LLC
Doctors Medical Center of Modesto, Inc.
Doctors Medical Center Orthopedics Clinical Co-Management, LLC
East Cobb Urgent Care, LLC
East Cooper Coastal Family Physicians, L.L.C.
East Cooper Community Hospital, Inc.
East Cooper Hyperbarics, L.L.C.
East Cooper OB/GYN, L.L.C.
East Cooper Physician Network, LLC
East Cooper Primary Care Physicians, L.L.C.
EPHC, Inc.
First Choice Physician Partners
FMCC Network Contracting, L.L.C.
FMC Medical, Inc.
Fort Bend Clinical Services, Inc.
Fountain Valley Regional Hospital and Medical Center
Fountain Valley Surgery Center, LLC
FREH Real Estate, L.L.C.
FRS Imaging Services, L.L.C.
FryeCare Boone, L.L.C.
FryeCare Morganton, L.L.C.
FryeCare Physicians, L.L.C.
FryeCare Valdese, L.L.C.
FryeCare Watauga, L.L.C.
FryeCare Women’s Services, L.L.C.
Frye Regional Medical Center, Inc.
Gardendale Surgical Associates, LLC
Gastric Health Institute, L.L.C.
Georgia Gifts From Grace, L.L.C.
4
Maryland
Florida
Michigan
Florida
Florida
California
Missouri
Missouri
Michigan
Delaware
Arizona
Michigan
Michigan
Michigan
Michigan
Florida
California
California
California
California
Georgia
South Carolina
South Carolina
Delaware
South Carolina
South Carolina
South Carolina
Texas
California
Florida
Florida
Texas
California
California
Florida
Florida
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
North Carolina
Alabama
Georgia
Georgia
Georgia North Fulton Healthcare Associates, L.L.C.
Georgia Northside Ear, Nose and Throat, L.L.C.
Georgia Physicians of Cardiology, L.L.C.
Georgia Spectrum Neurosurgical Specialists, L.L.C.
Good Samaritan Cardiac & Vascular Management, LLC
Good Samaritan Medical Center, Inc.
Good Samaritan Surgery, L.L.C.
Graystone Family Healthcare - Tenet North Carolina, L.L.C.
Greater Dallas Healthcare Enterprises
Greater Northwest Houston Enterprises
Greystone Internal Medicine - Brookwood, L.L.C.
Gulf Coast Community Hospital, Inc.
Hardeeville Medical Group, L.L.C.
Hardeeville Primary Care, L.L.C.
Harlingen Physician Network, Inc.
Harper-Hutzel AHP Services, Inc.
HCH Tucson Holdings, LLC
HCN Emerus Management Sub, LLC
HCN Emerus Texas, LLC
HCN Laboratories, Inc.
HCN Physicians, Inc.
HCN Surgery Center Holdings, Inc.
HDMC Holdings, L.L.C.
Health & Wellness Surgery Center, L.P.
Healthcare Compliance, LLC
The Healthcare Insurance Corporation
Healthcare Network Alabama, Inc.
Healthcare Network CFMC, Inc.
Healthcare Network Georgia, Inc.
Healthcare Network Holdings, Inc.
Healthcare Network Hospitals (Dallas), Inc.
Healthcare Network Hospitals, Inc.
Healthcare Network Louisiana, Inc.
Healthcare Network Missouri, Inc.
Healthcare Network North Carolina, Inc.
Healthcare Network South Carolina, Inc.
Healthcare Network Tennessee, Inc.
Healthcare Network Texas, Inc.
The Healthcare Underwriting Company, a Risk Retention Group
HealthCorp Network, Inc.
Healthpoint of North Carolina, L.L.C.
Health Services CFMC, Inc.
Health Services HNMC, Inc.
Health Services Network Care, Inc.
Health Services Network Hospitals, Inc.
Health Services Network Texas, Inc.
5
Georgia
Georgia
Georgia
Georgia
Florida
Florida
Florida
North Carolina
Texas
Texas
Alabama
Mississippi
South Carolina
South Carolina
Texas
Michigan
Delaware
Texas
Texas
Texas
Texas
Delaware
Delaware
California
District of Columbia
Cayman Islands
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Vermont
Delaware
North Carolina
Texas
Delaware
Delaware
Delaware
Delaware
Heart and Vascular Institute of Michigan
Hialeah Hospital, Inc.
Hialeah Real Properties, Inc.
Hickory Family Practice Associates - Tenet North Carolina, L.L.C.
Hilton Head Health System, L.P.
Hilton Head Regional Healthcare, L.L.C.
Hilton Head Regional OB/GYN Partners, L.L.C.
Hilton Head Regional Physician Network – Georgia, L.L.C.
Hilton Head Regional Physician Network, LLC
Hitchcock State Street Real Estate, Inc.
HNMC, Inc.
HNW GP, Inc.
HNW LP, Inc.
Holy Cross Hospital, Inc.
Home Health Partners of San Antonio, LLC
Hoover Doctors Group, Inc.
Hoover Land, LLC
Hospital Development of West Phoenix, Inc.
Hospital RCM Services, LLC
Hospital Underwriting Group, Inc.
Houston Northwest Partners, Ltd.
Houston Specialty Hospital, Inc.
Houston Sunrise Investors, Inc.
HSRM International, Inc.
HUG Services, Inc.
The Huron Corporation
Imaging Center at Baxter Village, L.L.C.
InforMed Insurance Services, LLC
International Health and Wellness, Inc.
JFK Memorial Hospital, Inc.
Journey Home Healthcare of San Antonio, LLC
Laguna Medical Systems, Inc.
Lake Health Care Facilities Inc.
LakeFront Medical Associates, LLC
Lakewood Regional Medical Center, Inc.
Lifemark Hospitals, Inc.
Lifemark Hospitals of Florida, Inc.
Lifemark Hospitals of Louisiana, Inc.
Los Alamitos Medical Center, Inc.
MacNeal Management Services, Inc.
MacNeal Medical Records, Inc.
MacNeal Physicians Group, LLC
Meadowcrest Hospital, LLC
Medplex Outpatient Medical Centers, Inc.
Memphis Urgent Care #1, L.L.C.
Memphis Urgent Care #2, L.L.C.
6
Michigan
Florida
Florida
North Carolina
South Carolina
South Carolina
South Carolina
Georgia
South Carolina
California
Delaware
Delaware
Delaware
Arizona
Texas
Alabama
Delaware
Delaware
Texas
Tennessee
Texas
Texas
Delaware
California
Delaware
District of Columbia
South Carolina
Maryland
Florida
California
Texas
California
Delaware
Delaware
California
Delaware
Florida
Louisiana
California
Illinois
Delaware
Delaware
Louisiana
Alabama
Tennessee
Tennessee
MetroWest Accountable Health Care Organization, LLC
MetroWest HomeCare & Hospice, LLC
Michigan Pioneer ACO, LLC
Michigan Regional Imaging, LLC
Midwest Pharmacies, Inc.
Mobile Imaging Management, LLC
Mobile Technology Management, LLC
Nacogdoches ASC-LP, Inc.
National Ancillary, Inc.
National ASC, Inc.
National Diagnostic Imaging Centers, Inc.
National HHC, Inc.
National Home Health Holdings, Inc.
National ICN, Inc.
National Medical Services II, Inc.
National Outpatient Services Holdings, Inc.
National Urgent Care Holdings, Inc.
National Urgent Care, Inc.
Network Management Associates, Inc.
New Dimensions, LLC
New England Physician Performance Network, LLC
New H Acute, Inc.
New Medical Horizons II, Ltd.
NMC Lessor, L.P.
NME Headquarters, Inc.
N.M.E. International (Cayman) Limited
NME Properties Corp.
NME Properties, Inc.
NME Property Holding Co., Inc.
NME Psychiatric Hospitals, Inc.
NME Rehabilitation Properties, Inc.
North Carolina Community Family Medicine, L.L.C.
North Fulton Cardiovascular Medicine, L.L.C.
North Fulton Hospitalist Group, L.L.C.
North Fulton Medical Center, Inc.
North Fulton Primary Care Associates, L.L.C.
North Fulton Primary Care - Willeo Rd., L.L.C.
North Fulton Primary Care - Windward Parkway, L.L.C.
North Fulton Primary Care - Wylie Bridge, L.L.C.
North Fulton Pulmonary Specialists, L.L.C.
North Fulton Women’s Consultants, L.L.C.
North Miami Medical Center, Ltd.
North Shore Medical Billing Center, L.L.C.
North Shore Medical Center, Inc.
North Shore Physician Practices, L.L.C.
NUCH of Connecticut, LLC
7
Massachusetts
Massachusetts
Delaware
Michigan
Illinois
Michigan
Michigan
Delaware
Texas
Delaware
Texas
Texas
Delaware
Texas
Florida
Delaware
Delaware
Florida
California
Illinois
Delaware
Delaware
Texas
Texas
California
Cayman Islands
Tennessee
Delaware
Delaware
Delaware
Delaware
North Carolina
Georgia
Georgia
Georgia
Georgia
Delaware
Georgia
Georgia
Georgia
Georgia
Florida
Florida
Florida
Florida
Connecticut
NUCH of Georgia, L.L.C.
NUCH of Massachusetts, LLC
NUCH of Michigan, Inc.
NUCH of Texas
Okatie Surgical Partners, L.L.C.
Olive Branch Urgent Care #1, LLC
OrNda Hospital Corporation
Orthopedic Associates of the Lowcountry, L.L.C.
Palm Beach Gardens Cardiac and Vascular Partners, LLC
Palm Beach Gardens Community Hospital, Inc.
Palm Valley Medical Center Campus Association
Park Plaza Hospital Billing Center, L.L.C.
PDN, L.L.C.
Phoenix Health Plans, Inc.
PHPS-CHM Acquisition, Inc.
Physician Performance Network, L.L.C.
Physician Performance Network of Arizona, LLC
Physician Performance Network of Detroit
Physician Performance Network of South Carolina, LLC
Physician Performance Network of Tucson, LLC
Physicians Performance Network of Houston
Physicians Performance Network of North Texas
Piedmont Behavioral Medicine Associates, LLC
Piedmont Cardiovascular Physicians, L.L.C.
Piedmont Carolina OB/GYN of York County, L.L.C.
Piedmont Carolina Vascular Surgery, L.L.C.
Piedmont/Carolinas Radiation Therapy, LLC
Piedmont East Urgent Care Center, L.L.C.
Piedmont Express Care at Sutton Road, L.L.C.
Piedmont Family Practice at Baxter Village, L.L.C.
Piedmont Family Practice at Rock Hill, L.L.C.
Piedmont Family Practice at Tega Cay, L.L.C.
Piedmont General Surgery Associates, L.L.C.
Piedmont Internal Medicine at Baxter Village, L.L.C.
Piedmont Medical Center Cardiovascular Clinical Co-Management, L.L.C
Piedmont Physician Network, LLC
Piedmont Pulmonology, L.L.C.
Piedmont Surgical Specialists, L.L.C.
Piedmont Urgent Care and Industrial Health Centers, Inc.
Piedmont Urgent Care Center at Baxter Village, L.L.C.
Placentia-Linda Hospital, Inc.
PMC Physician Network, L.L.C.
PM CyFair Land Partners, LLC
Practice Partners Management, L.P.
Premier ACO Physicians Network, LLC
Premier Health Plan Services, Inc.
8
Georgia
Massachusetts
Michigan
Texas
South Carolina
Mississippi
California
South Carolina
Florida
Florida
Arizona
Texas
Texas
Arizona
Delaware
Delaware
Delaware
Michigan
Delaware
Arizona
Texas
Texas
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
California
South Carolina
Delaware
Texas
California
California
Premier Medical Specialists, L.L.C.
Professional Liability Insurance Company
Pros Temporary Staffing, Inc.
PSS Patient Solution Services, LLC
Republic Health Corporation of Rockwall County
Resolute Health Physicians Network, Inc.
Resolute Hospital Company, LLC
RHC Parkway, Inc.
Rheumatology Associates of Atlanta Medical Center, L.L.C.
R.H.S.C. El Paso, Inc.
Rio Grande Valley Indigent Health Care Corporation
RLC, LLC
Rock Bridge Surgical Institute, L.L.C.
Saint Francis-Arkansas Physician Network, LLC
Saint Francis-Bartlett Physician Network, LLC
Saint Francis Behavioral Health Associates, L.L.C.
Saint Francis Cardiology Associates, L.L.C.
Saint Francis Cardiovascular Surgery, L.L.C.
Saint Francis Center for Surgical Weight Loss, L.L.C.
Saint Francis Hospital-Bartlett, Inc.
Saint Francis Hospital Billing Center, L.L.C.
Saint Francis Hospital Inpatient Physicians, L.L.C.
Saint Francis Hospital Medicare ACO, LLC
Saint Francis Hospital Pro Fee Billing, L.L.C.
Saint Francis Medical Partners, East, L.L.C.
Saint Francis Medical Partners, General Surgery, L.L.C.
Saint Francis Medical Specialists, L.L.C.
Saint Francis Physician Network, LLC
Saint Francis Quality Alliance, LLC
Saint Francis Surgical Associates, L.L.C.
Saint Vincent Physician Services, Inc.
San Ramon Ambulatory Care, LLC
San Ramon ASC, L. P.
San Ramon Regional Medical Center, LLC
San Ramon Surgery Center, L.L.C.
SFMP, Inc.
SFMPE - Crittenden, L.L.C.
Shelby Baptist Affinity, LLC
Shelby Baptist Ambulatory Surgery Center, LLC
Sierra Providence Healthcare Enterprises
Sierra Providence Health Network, Inc.
Sierra Vista Hospital, Inc.
Sinai-Grace Premier Clinical Management Services LLC
SL-HLC, Inc.
SLH Physicians, L.L.C.
SLH Vista, Inc.
9
Missouri
Tennessee
Illinois
Texas
Nevada
Texas
Delaware
Delaware
Georgia
Texas
Texas
Arizona
Georgia
Arkansas
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Delaware
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Delaware
Tennessee
Massachusetts
Delaware
California
Delaware
California
Tennessee
Arkansas
Alabama
Alabama
Texas
Texas
California
Michigan
Missouri
Missouri
Missouri
SLUH Anesthesia Physicians, L.L.C.
SMSJ Tucson Holdings, LLC
South Carolina East Cooper Surgical Specialists, L.L.C.
South Carolina Health Services, Inc.
South Carolina SeWee Family Medicine, L.L.C.
South Fulton Health Care Centers, Inc.
SouthCare Physicians Group Neurology, L.L.C.
SouthCare Physicians Group Obstetrics & Gynecology, L.L.C.
Southeast Michigan Physicians’ Insurance Company
Southern Orthopedics and Sports Medicine, L.L.C.
Southern States Physician Operations, Inc.
Southwest Children’s Hospital, LLC
Spalding Regional Medical Center, Inc.
Spalding Regional OB/GYN, L.L.C.
Spalding Regional Physician Services, L.L.C.
Springfield Service Holding Corporation
SRRMC Management, Inc.
St. Chris Onsite Pediatric Partners, L.L.C
St. Christopher’s Pediatric Urgent Care Center - Allentown, L.L.C
St. Joseph’s Hospital Surgical Co-Management, LLC
St. Mary’s Hospital Cardiovascular Co-Management LLC
St. Mary’s Hospital Surgical Co-Management LLC
St. Mary’s Levee Company, LLC
St. Mary’s Medical Center, Inc.
Sunrise Medical Group I, L.L.C.
Sunrise Medical Group II, L.L.C.
Sunrise Medical Group IV, L.L.C.
Surgical & Bariatric Associates of Atlanta Medical Center, L.L.C.
Surgical Clinical Excellence at Desert Regional, LLC
Sutton Road Pediatrics, L.L.C.
Sylvan Grove Hospital, Inc.
Syndicated Office Systems, LLC
Tenet Business Services Corporation
Tenet California, Inc.
TenetCare Frisco, Inc.
Tenet Central Carolina Physicians, Inc.
Tenet EKG, Inc.
Tenet El Paso, Ltd.
Tenet Employment, Inc.
Tenet Finance Corp.
Tenet Florida, Inc.
Tenet Florida Physician Services II, L.L.C.
Tenet Florida Physician Services III, L.L.C.
Tenet Florida Physician Services, L.L.C.
Tenet Fort Mill, Inc.
Tenet HealthSystem Bucks County, L.L.C.
10
Missouri
Delaware
South Carolina
South Carolina
South Carolina
Delaware
Georgia
Georgia
Michigan
South Carolina
North Carolina
Delaware
Georgia
Georgia
Georgia
Delaware
Delaware
Pennsylvania
Pennsylvania
Arizona
Arizona
Arizona
Arizona
Florida
Florida
Florida
Florida
Georgia
California
South Carolina
Georgia
California
Texas
Delaware
Texas
North Carolina
Texas
Texas
Texas
Delaware
Delaware
Florida
Florida
Florida
South Carolina
Pennsylvania
Tenet HealthSystem Graduate, L.L.C.
Tenet HealthSystem Hahnemann, L.L.C.
Tenet HealthSystem Medical, Inc.
Tenet HealthSystem Nacogdoches ASC GP, Inc.
Tenet HealthSystem Philadelphia, Inc.
Tenet HealthSystem Roxborough, LLC
Tenet HealthSystem St. Christopher’s Hospital for Children, L.L.C.
Tenet Hilton Head Heart, L.L.C.
Tenet Hospitals Limited
Tenet Network Management, Inc.
Tenet Patient Safety Organization, LLC
Tenet Physician Resources, LLC
Tenet Physician Services - Hilton Head, Inc.
Tenet Rehab Piedmont, Inc.
Tenet Relocation Services, L.L.C.
Tenet SC East Cooper Hospitalists, L.L.C.
Tenet South Carolina Gastrointestinal Surgical Specialists, L.L.C.
Tenet South Carolina Island Medical, L.L.C.
Tenet South Carolina Lowcountry OB/GYN, L.L.C.
Tenet South Carolina Mt. Pleasant OB/GYN, L.L.C.
Tenet Unifour Urgent Care Center, L.L.C.
Tenet Ventures, Inc.
TFPS IV, L.L.C.
TH Healthcare, Ltd.
TPR Practice Management, LLC
TPS VI of PA, L.L.C.
Tucson Hospital Holdings, Inc.
Tucson Physician Group Holdings, LLC
Turlock Land Company, LLC
Twin Cities Community Hospital, Inc.
Universal Medical Care Center, L.L.C.
Urgent Care Centers of Arizona, LLC
USPI Holding Company, Inc.
USVI Health and Wellness, Inc.
Valley Baptist Lab Services, LLC
Valley Baptist Physician Performance Network
Valley Baptist Realty Company, LLC
Valley Baptist Wellness Center, LLC
Valley Health Care Network
Vanguard Health Financial Company, LLC
Vanguard Health Holding Company I, LLC
Vanguard Health Holding Company II, LLC
Vanguard Health Management, Inc.
Vanguard Health Systems, Inc.
Vanguard Holding Company I, Inc.
Vanguard Holding Company II, Inc.
11
Pennsylvania
Pennsylvania
Delaware
Texas
Pennsylvania
Pennsylvania
Pennsylvania
South Carolina
Texas
Florida
Texas
Delaware
South Carolina
South Carolina
Texas
South Carolina
South Carolina
South Carolina
South Carolina
South Carolina
North Carolina
Delaware
Florida
Texas
Delaware
Pennsylvania
Delaware
Delaware
California
California
Florida
Arizona
Delaware
St. Croix
Texas
Texas
Delaware
Texas
Texas
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Vanguard Medical Specialists, LLC
Vanguard Physician Services, LLC
VB Brownsville IMP ASC, LLC
VB Brownsville LTACH, LLC
VBOA ASC GP, LLC
VBOA ASC Partners, L.L.C.
VHM Services, Inc.
VHS Acquisition Corporation
VHS Acquisition Partnership Number 1, L.P
VHS Acquisition Subsidiary Number 1, Inc.
VHS Acquisition Subsidiary Number 2, Inc.
VHS Acquisition Subsidiary Number 3, Inc.
VHS Acquisition Subsidiary Number 4, Inc.
VHS Acquisition Subsidiary Number 5, Inc.
VHS Acquisition Subsidiary Number 6, Inc.
VHS Acquisition Subsidiary Number 7, Inc.
VHS Acquisition Subsidiary Number 8, Inc.
VHS Acquisition Subsidiary Number 9, Inc.
VHS Acquisition Subsidiary Number 10, Inc.
VHS Acquisition Subsidiary Number 11, Inc.
VHS Acquisition Subsidiary Number 12, Inc.
VHS Arizona Heart Institute, Inc.
VHS Brownsville Hospital Company, LLC
VHS Chicago Market Procurement, LLC
VHS Children’s Hospital of Michigan, Inc.
VHS Detroit Businesses, Inc.
VHS Detroit Receiving Hospital, Inc.
VHS Detroit Ventures, Inc.
VHS Harlingen Hospital Company, LLC
VHS Harper-Hutzel Hospital, Inc.
VHS Holding Company, Inc.
VHS Huron Valley-Sinai Hospital, Inc.
VHS Imaging Centers, Inc.
VHS New England Holding Company I, Inc.
VHS of Anaheim, Inc.
VHS of Arrowhead, Inc.
VHS of Huntington Beach, Inc.
VHS of Illinois, Inc.
VHS of Michigan, Inc.
VHS of Michigan Staffing, Inc.
VHS of Orange County, Inc.
VHS of Phoenix, Inc.
VHS of South Phoenix, Inc.
VHS Outpatient Clinics, Inc.
VHS Phoenix Health Plan, Inc.
VHS Physicians of Michigan
12
Delaware
Delaware
Texas
Texas
Texas
Texas
Massachusetts
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Michigan
VHS Rehabilitation Institute of Michigan, Inc.
VHS San Antonio Partners, LLC
VHS Sinai-Grace Hospital, Inc.
VHS University Laboratories, Inc.
VHS Valley Health System, LLC
VHS Valley Holdings, LLC
VHS Valley Management Company, Inc.
VHS West Suburban Medical Center, Inc.
VHS Westlake Hospital, Inc.
V-II Acquisition Co., Inc.
Walker Baptist Affinity, LLC
Watermark Physician Services, Inc.
West Boca Health Services, L.L.C.
West Boca Medical Center, Inc.
West Boynton Urgent Care, L.L.C.
West Palm Healthcare Real Estate, Inc.
West Suburban Radiation Therapy Center, LLC
Wilshire Rental Corp.
Name of Entity
25 East Same Day Surgery, L.L.C.
300 PBL Development, LLC
45th Street MOB, LLC
Advanced Ambulatory Surgical Care, L.P.
Advanced Surgical Concepts, LLC
AdventHealth Surgery Center Celebration, LLC
AdventHealth Surgery Centers Central Florida, LLC
AdventHealth Surgery Center Mills Park, LLC
AdventHealth Surgery Center Winter Garden, LLC
Adventist Midwest Health/USP Surgery Centers, L.L.C.
AIG Holdings, LLC
AIGB Global, LLC
AIGB Group, Inc.
AIGB Holdings, Inc.
AIGB Management Services, LLC
Alabama Digestive Health Endoscopy Center, L.L.C.
Alamo Heights Surgicare, L.P.
Alliance Surgery Birmingham, LLC
Alliance Surgery, Inc.
All Star MOB, LLC
Ambulatory Surgical Associates, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Pennsylvania
Alabama
Illinois
Florida
Florida
Florida
Florida
Delaware
Delaware
Subsidiaries of USPI Holding Company, Inc.
State or Other Jurisdiction of
Formation
Illinois
Delaware
Florida
Missouri
Louisiana
Florida
Florida
Florida
Florida
Illinois
Texas
Texas
Delaware
Delaware
Texas
Alabama
Texas
Delaware
Delaware
Texas
Tennessee
13
Ambulatory Surgical Center of Somerville, LLC
The Ambulatory Surgical Center of St. Louis, L.P.
American Institute of Gastric Banding Phoenix, Limited Partnership
American Institute of Gastric Banding, Ltd.
Anaheim Hills Medical Imaging, L.L.C.
Anesthesia Partners of Gallatin, LLC
APN
ARC Worcester Center L.P.
Arlington Orthopedic and Spine Hospital, LLC
Arrowhead Endoscopy and Pain Management Center, LLC
ASC Coalition, Inc.
ASJH Joint Venture, LLC
Atlantic Health-USP Surgery Centers, L.L.C.
Avita/USP Surgery Centers, L.L.C.
Bagley Holdings, LLC
Baptist Plaza Surgicare, L.P.
Baptist Surgery Center, L.P.
Baptist Women’s Health Center, LLC
Baptist/USP Surgery Centers, L.L.C.
Bartlett ASC, LLC
Baylor Surgicare at Baylor Plano, LLC
Baylor Surgicare at Blue Star, LLC
Baylor Surgicare at Ennis, LLC
Baylor Surgicare at Granbury, LLC
Baylor Surgicare at Mansfield, LLC
Baylor Surgicare at North Dallas, LLC
Baylor Surgicare at Plano Parkway, LLC
Baylor Surgicare at Plano, LLC
Beaumont Surgical Affiliates, Ltd.
Bellaire Outpatient Surgery Center, L.L.P.
Berkshire Eye, LLC
Bloomington ASC, LLC
Blue Ridge/USP Surgery Centers, LLC
Bluffton Okatie Surgery Center, L.L.C.
Bon Secours Surgery Center at Harbour View, LLC
Bon Secours Surgery Center at Virginia Beach, LLC
Bozeman Health/USP Surgery Centers, L.L.C.
Briarcliff Ambulatory Surgery Center, L.P.
Brookwood Baptist Health 3, LLC
Brookwood Diagnostic Imaging Center, LLC
Brookwood Women’s Diagnostic Center, LLC
California Joint & Spine, LLC
Camp Lowell Surgery Center, L.L.C.
CareSpot of Austin, LLC
CareSpot of Memphis, LLC
CareSpot of Orlando/HSI Urgent Care, LLC
14
New Jersey
Missouri
Arizona
Texas
California
Tennessee
Texas
Tennessee
Texas
Delaware
Delaware
Arizona
New Jersey
Ohio
Ohio
Tennessee
Tennessee
Tennessee
Texas
Tennessee
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Pennsylvania
Indiana
Tennessee
South Carolina
Virginia
Virginia
Montana
Missouri
Delaware
Delaware
Delaware
California
Arizona
Delaware
Delaware
Delaware
Carondelet St. Mary’s-Northwest, L.L.C.
Cascade Spine Center, LLC
Castle Rock Surgery Center, LLC
Cedar Park Surgery Center, L.L.P.
Centennial ASC, LLC
The Center for Ambulatory Surgical Treatment, L.P.
Central Jersey Surgery Center, LLC
Central Virginia Surgi-Center, L.P.
Centura Ventures Surgery Centers, LLC
Chandler Endoscopy Ambulatory Surgery Center, LLC
Charlotte Endoscopic Surgery Center, LLC
Chattanooga Pain Management Center, LLC
Chesterfield Ambulatory Surgery Center, L.P.
Chesterfield Anesthesia Associates of Missouri, LLC
CHIC/USP Surgery Centers, LLC
Chico Surgery Center, L.P.
CHRISTUS Cabrini Surgery Center, L.L.C.
Clarkston ASC Partners, LLC
Clarksville Surgery Center, LLC
Coastal Endo LLC
Coast Surgery Center, L.P.
Colorado GI Centers, LLC
Community Hospital, LLC
Conroe Surgery Center 2, LLC
Coral Ridge Outpatient Center, LLC
Corpus Christi Surgicare, Ltd.
Covenant/USP Surgery Centers, LLC
Creekwood Investors, LLC
Creekwood Surgery Center, L.P.
Crown Point Surgery Center, LLC
CS/USP General Partner, LLC
CS/USP Surgery Centers, LP
Dallas Surgical Partners, LLC
Denton Surgicare Partners, Ltd.
Denton Surgicare Real Estate, Ltd.
Denville Surgery Center, LLC
Desert Cove MOB, LLC
Desert Ridge Outpatient Surgery, LLC
Desoto Surgicare Partners, Ltd.
Destin Surgery Center, LLC
DH/USP Sacramento Pain GP, LLC
DH/USP SJOSC Investment Company, L.L.C.
Dignity/USP Folsom GP, LLC
Dignity/USP Grass Valley GP, LLC
Dignity/USP Las Vegas Surgery Centers, LLC
Dignity/USP Metro Surgery Center, LLC
15
Arizona
Delaware
Colorado
Texas
Texas
California
Georgia
Virginia
Colorado
Arizona
Florida
Delaware
Missouri
Missouri
Colorado
California
Louisiana
Michigan
Tennessee
New Jersey
California
Colorado
Oklahoma
Texas
Florida
Texas
Tennessee
Missouri
Missouri
Colorado
Texas
Texas
Texas
Texas
Texas
New Jersey
Arizona
Arizona
Texas
Florida
California
Arizona
California
California
Nevada
Arizona
Dignity/USP/John Muir East Bay Surgery Centers, LLC
Dignity/USP NorCal Surgery Centers, LLC
Dignity/USP Phoenix Surgery Centers II, LLC
Dignity/USP Phoenix Surgery Centers, LLC
Dignity/USP Redding GP, LLC
Dignity/USP Roseville GP, LLC
Doctors Outpatient Surgery Center of Jupiter, L.L.C.
East Atlanta Endoscopy Centers, LLC
East Portland Surgery Center, LLC
East West Surgery Center, L.P.
Eastgate Building Center, L.L.C.
Effingham Surgical Partners, LLC
Einstein Montgomery Surgery Center, LLC
Einstein/USP Surgery Centers, L.L.C.
El Mirador Surgery Center, L.L.C.
El Paso Center for Gastrointestinal Endoscopy, LLC
El Paso Day Surgery, LLC
Emerson Surgery Center, LLC
Encinitas Endoscopy Center, LLC
Endoscopy Center of Hackensack, LLC
Endoscopy Center of South Sacramento, LLC
Endoscopy Consultants, LLC
EPIC ASC, LLC
Eye Center of Nashville UAP, LLC
Eye Surgery Center of Nashville, LLC
Flatirons Surgery Center, LLC
Folsom Outpatient Surgery Center, L.P.
Fort Worth Hospital Real Estate, LP
Fort Worth Surgicare Partners, Ltd.
FPN – Frisco Physicians Network
Franklin Endo UAP, LLC
Franklin Endoscopy Center, LLC
Frisco Medical Center, L.L.P.
Frontenac Ambulatory Surgery & Spine Care Center, L.P.
Gamma Surgery Center, LLC
Garland Surgicare Partners, Ltd.
GCSA Ambulatory Surgery Center, LLC
Genesis ASC Partners, LLC
Georgia Endoscopy Center, LLC
Georgia Musculoskeletal Network, Inc.
Georgia Spine Surgery Center, LLC
Golden Ridge ASC, LLC
Grapevine Surgicare Partners, Ltd.
Grass Valley Outpatient Surgery Center, L.P.
Greenville Physicians Surgery Center, LLP
Greenwood ASC, LLC
16
California
California
Arizona
Arizona
California
California
Florida
Georgia
Oregon
Georgia
Ohio
Illinois
Pennsylvania
Pennsylvania
California
Texas
Texas
Missouri
California
New Jersey
California
Georgia
Kansas
Tennessee
Tennessee
Colorado
California
Texas
Texas
Texas
Tennessee
Tennessee
Texas
Missouri
Delaware
Texas
Texas
Michigan
Georgia
Georgia
Delaware
Colorado
Texas
California
Texas
Delaware
Hacienda Outpatient Surgery Center, LLC
Harvard Park Surgery Center, LLC
Hazelwood Endoscopy Center, LLC
HCN Sunnyvale Holdings LLC
HCN Surgery Center Holdings, Inc.
Healthcare Partners Investments, LLC
Health Horizons of Kansas City, Inc.
Health Horizons of Murfreesboro, Inc.
Health Horizons/Piedmont Joint Venture, LLC
Healthmark Partners, Inc.
Heritage Park Surgical Hospital, LLC
Hershey Outpatient Surgery Center, L.P.
Hill Country ASC Partners, LLC
Hill Country Surgery Center, LLC
Hinsdale Surgical Center, LLC
HMA/Solantic Joint Venture, LLC
HMHP/USP Surgery Centers, LLC
HMH-USP Surgery Centers, LLC
Houston PSC, L.P.
HPI Holdings, LLC
HPI North, LLC
HPI Physicians, LLC
HSS Palm Beach Ambulatory Surgery Center, LLC
HSS/USP Surgery Center, LLC
HUMC/USP Surgery Centers, LLC
Hyde Park Surgery Center, LLC
ICNU Rockford, LLC
Integris/USP Health Ventures, LLC
Irving-Coppell Surgical Hospital, L.L.P.
Jackson Surgical Center, LLC
Jacksonville Endoscopy Centers, LLC
JFP UAP Sugarland, LLC
KHS Ambulatory Surgery Center LLC
KHS/USP Surgery Centers, LLC
Lake Endoscopy Center, LLC
Lake Lansing ASC Partners, LLC
Lake Surgical Hospital Slidell, LLC
Lakewood Surgery Center, LLC
Lansing ASC Partners, LLC
Lawrenceville Surgery Center, L.L.C.
Lebanon Endoscopy Center, LLC
Legacy Warren Partners, L.P.
Legacy/USP Surgery Centers, L.L.C.
Lewisville Surgicare Partners, Ltd.
Liberty Ambulatory Surgery Center, L.P.
Lone Star Endoscopy Center, LLC
17
California
Colorado
Missouri
Delaware
Delaware
Delaware
Tennessee
Tennessee
Tennessee
Delaware
Texas
Pennsylvania
Texas
Texas
Illinois
Delaware
Ohio
New Jersey
Texas
Oklahoma
Oklahoma
Oklahoma
Florida
Florida
New Jersey
Texas
Illinois
Oklahoma
Texas
New Jersey
Florida
Texas
New Jersey
New Jersey
Florida
Michigan
Louisiana
Delaware
Michigan
Georgia
Tennessee
Texas
Oregon
Texas
Missouri
Texas
Lubbock ASC Holding Co, LLC
Magnetic Resonance Imaging of San Luis Obispo, Inc.
Magnolia Surgery Center Limited Partnership
Manchester Ambulatory Surgery Center, LP
Mary Immaculate Ambulatory Surgery Center, LLC
MASC Partners, LLC
Mason Ridge Ambulatory Surgery Center, L.P.
Mayfield Spine Surgery Center, LLC
McLaren ASC of Flint, LLC
MCSH Real Estate Investors, Ltd.
Medical House Staffing, LLC
Medical Park Tower Surgery Center, LLC
Medplex Outpatient Surgery Center, Ltd.
Memorial Hermann Bay Area Endoscopy Center, LLC
Memorial Hermann Endoscopy & Surgery Center North Houston, L.L.C.
Memorial Hermann Endoscopy Center North Freeway, LLC
Memorial Hermann Specialty Hospital Kingwood, L.L.C.
Memorial Hermann Sugar Land Surgical Hospital, L.L.P.
Memorial Hermann Surgery Center Brazoria, LLC
Memorial Hermann Surgery Center Katy, LLP
Memorial Hermann Surgery Center Kingsland, L.L.C.
Memorial Hermann Surgery Center Kirby, LLC
Memorial Hermann Surgery Center Memorial City, L.L.C.
Memorial Hermann Surgery Center Northwest LLP
Memorial Hermann Surgery Center Pinecroft, LLC
Memorial Hermann Surgery Center Preston Road, Ltd.
Memorial Hermann Surgery Center Richmond, LLC
Memorial Hermann Surgery Center Southwest, L.L.P.
Memorial Hermann Surgery Center Sugar Land, LLP
Memorial Hermann Surgery Center Texas Medical Center, LLP
Memorial Hermann Surgery Center – The Woodlands, LLP
Memorial Hermann Surgery Center Woodlands Parkway, LLC
Memorial Hermann Texas International Endoscopy Center, LLC
Memorial Hermann/USP Surgery Centers II, L.P.
Memorial Hermann/USP Surgery Centers III, LLP
Memorial Hermann/USP Surgery Centers IV, LLP
Memorial Hermann West Houston Surgery Center, LLC
Memorial Surgery Center, LLC
Merced Ambulatory Surgery Center, LLC
Mercy/USP Health Ventures, L.L.C.
Metro Surgery Center, LLC
Metrocrest Surgery Center, L.P.
Metroplex Surgicare Partners, Ltd.
Metropolitan New Jersey, LLC
MH Memorial City Surgery, LLC
MH/USP Bay Area, LLC
18
Texas
California
Delaware
Missouri
Virginia
Missouri
Missouri
Ohio
Michigan
Texas
Texas
Texas
Alabama
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Oklahoma
California
Iowa
Delaware
Texas
Texas
New Jersey
Texas
Texas
MH/USP Brazoria, LLC
MH/USP Kingsland, LLC
MH/USP Kingwood, LLC
MH/USP Kirby, LLC
MH/USP North Freeway, LLC
MH/USP North Houston, LLC
MH/USP Richmond, LLC
MH/USP Sugar Land, LLC
MH/USP TMC Endoscopy, LLC
MH/USP West Houston, L.L.C.
MH/USP Woodlands Parkway, LLC
Michigan ASC Partners, L.L.C.
Mid Rivers Ambulatory Surgery Center, L.P.
Mid State Endo UAP, LLC
Middle Tennessee Ambulatory Surgery Center, L.P.
Midland Memorial/USP Surgery Centers, LLC
Midland Texas Surgical Center, LLC
Mid-State Endoscopy Center, LLC
Mid-TSC Development, LP
Midwest Digestive Health Center, LLC
Millennium Surgical Center, LLC
Modesto Radiology Imaging, Inc.
Mountain Empire Surgery Center, L.P.
MSH Partners, LLC
MSV Health/USP Surgery Centers, LLC
Murdock Ambulatory Surgery Center, LLC
National Imaging Center Holdings, Inc.
National Surgery Center Holdings, Inc.
New Horizons Surgery Center, LLC
New Mexico Orthopaedic Surgery Center, L.P.
Newhope Imaging Center, Inc.
NHSC Holdings, LLC
NICH GP Holdings, LLC
NKCH/USP Briarcliff GP, LLC
NKCH/USP Liberty GP, LLC
NKCH/USP Surgery Centers II, L.L.C.
NKCH/USP Surgery Centers, LLC
NMC Surgery Center, L.P.
North Anaheim Surgery Center, LLC
North Campus Surgery Center, LLC
North Central Surgical Center, L.L.P.
North Garland Surgery Center, L.L.P.
North Haven Surgery Center, LLC
North Shore Same Day Surgery, L.L.C.
North State Surgery Centers, L.P.
Northern Monmouth Regional Surgery Center, L.L.C.
19
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Michigan
Missouri
Tennessee
Delaware
Texas
Texas
Tennessee
Texas
Missouri
New Jersey
California
Georgia
Texas
South Carolina
Florida
Delaware
Delaware
Ohio
Georgia
California
Ohio
Delaware
Missouri
Missouri
Missouri
Missouri
Texas
California
Missouri
Texas
Texas
Connecticut
Illinois
California
New Jersey
Northridge Surgery Center, L.P.
NorthShore/USP Surgery Centers II, L.L.C.
Northwest Ambulatory Surgery Center, LLC
Northwest Georgia Orthopaedic Surgery Center, LLC
Northwest Regional ASC, LLC
Northwest Surgery Center, LLP
Northwest Surgery Center, Ltd.
Novant Health/USP Surgery Centers, LLC
Novant/UVA/USP Surgery Centers, LLC
NSCH GP Holdings, LLC
NSCH/USP Desert Surgery Centers, L.L.C.
OCOMS Imaging, LLC
OCOMS Professional Services, LLC
Oklahoma Center for Orthopedic and Multi-Specialty Surgery, LLC
Old Tesson Surgery Center, L.P.
Olive Ambulatory Surgery Center, LLC
OLOL Pontchartrain Surgery Center, LLC
OLOL/USP Surgery Centers, L.L.C.
Ophthalmology Anesthesia Services, LLC
Ophthalmology Surgery Center of Orlando, LLC
Optimum Spine Center, LLC
Orlando Health/USP Surgery Centers, L.L.C.
OrthoArizona Surgery Center Gilbert, LLC
OrthoLink ASC Corporation
OrthoLink Physicians Corporation
OrthoLink Radiology Services Corporation
OrthoLink/ Georgia ASC, Inc.
OrthoLink/Baptist ASC, LLC
OrthoLink/New Mexico ASC, Inc.
Orthopedic and Surgical Specialty Company, LLC
Orthopedic South Surgical Partners, LLC
The Outpatient Center, LLC
Pacific Endoscopy and Surgery Center, LLC
Pacific Endo-Surgical Center, L.P.
PAHS/USP Surgery Centers, LLC
Pain Diagnostic and Treatment Center, L.P.
Palm Beach International Surgery Center, LLC
Paramus Endoscopy, LLC
Park Cities Surgery Center, LLC
Parkway Recovery Care Center, LLC
Parkway Surgery Center, LLC
Parkwest Surgery Center, L.P.
Patient Partners, LLC
Pediatric Surgery Center – Odessa, LLC
Pediatric Surgery Centers, LLC
Physicians Surgery Center at Good Samaritan, LLC
20
Tennessee
Illinois
Oregon
Georgia
Delaware
Texas
Texas
North Carolina
Virginia
Delaware
Delaware
Oklahoma
Oklahoma
Oklahoma
Missouri
Missouri
Louisiana
Texas
Florida
Florida
Georgia
Florida
Arizona
Tennessee
Delaware
Tennessee
Georgia
Tennessee
Georgia
Arizona
Georgia
Florida
California
California
Colorado
California
Florida
New Jersey
Texas
Nevada
Nevada
Tennessee
Tennessee
Florida
Florida
Illinois
Physician’s Surgery Center of Chattanooga, L.L.C.
Physician’s Surgery Center of Knoxville, LLC
Physicians Surgery Center of Tempe, LLC
Physicians Surgical Center of Ft. Worth, LLP
Pleasanton Diagnostic Imaging, Inc.
PPRE, LLC
Premier ASC LLC
Premier Endoscopy ASC, LLC
PRES/USP Health Ventures, LLC
Professional Anesthesia Services LLC
Providence/UCLA/USP Surgery Centers, LLC
Providence/USP Santa Clarita GP, LLC
Providence/USP South Bay Surgery Centers, L.L.C.
Providence/USP Surgery Centers, L.L.C.
RE Plano Med, Inc.
Reading Ambulatory Surgery Center, L.P.
Reading Endoscopy Center, LLC
Reagan Street Surgery Center, LLC
Redmond Surgery Center, LLC
Renaissance Surgery Center, LLC
Resurgens East Surgery Center, LLC
Resurgens Fayette Surgery Center, LLC
Resurgens Surgery Center, LLC
Richmond ASC Leasing Company, LLC
River North Same Day Surgery, L.L.C.
Riverside Ambulatory Surgery Center, LLC
Rock Hill Surgery Center, LLC
Rockwall Ambulatory Surgery Center, L.L.P.
Roseville Surgery Center, L.P.
Roswell Surgery Center, L.L.C.
Sacramento Midtown Endoscopy Center, LLC
Safety Harbor ASC Company, LLC
Saint Agnes/USP Surgery Centers, LLC
Saint Francis Surgery Center, L.L.C.
Saint Thomas Campus Surgicare, L.P.
Saint Thomas Surgery Center New Salem, LLC
Saint Thomas/USP – Baptist Plaza, L.L.C.
Saint Thomas/USP Surgery Centers II, LLC
Saint Thomas/USP Surgery Centers, L.L.C.
Same Day Management, L.L.C.
Same Day SC of Central NJ, LLC
Same Day Surgery, L.L.C.
San Antonio Endoscopy, L.P.
San Fernando Valley Surgery Center, L.P.
San Gabriel Valley Surgical Center, L.P.
San Martin Surgery Center, LLC
21
Tennessee
Tennessee
Oklahoma
Texas
California
Texas
New Jersey
Arizona
New Mexico
Arizona
California
California
California
California
Texas
Pennsylvania
Delaware
California
Tennessee
California
Georgia
Georgia
Georgia
Virginia
Illinois
Missouri
South Carolina
Texas
California
Georgia
California
Florida
California
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Illinois
New Jersey
Illinois
Texas
California
California
Nevada
San Ramon Network Joint Venture, LLC
Santa Barbara Outpatient Surgery Center, LLC
Santa Clarita Surgery Center, L.P.
Savannah Endoscopy Ambulatory Surgery Center, LLC
Scripps Encinitas Surgery Center, LLC
Scripps/USP Surgery Centers, L.L.C.
SCNRE, LLC
Shands/Solantic Joint Venture, LLC
Shore Outpatient Surgicenter, L.L.C.
Shoreline Real Estate Partnership, LLP
Shoreline Surgery Center, LLP
Shrewsbury Surgery Center, LLC
Silicon Valley Outpatient Surgery Centers, LLC
Silver Cross Ambulatory Surgery Center, LLC
Silver Cross/USP Surgery Centers, LLC
Siouxland Surgery Center Limited Liability Partnership
SLPA ACO, LLC
Solantic Corporation
Solantic Development, LLC
Solantic Holdings Corporation
Solantic of Jacksonville, LLC
Solantic of Orlando, LLC
Solantic/South Florida, LLC
South County Outpatient Endoscopy Services, L.P.
South Denver Musculoskeletal Surgical Partners, LLC
The Southeastern Spine Institute Ambulatory Surgery Center, L.L.C.
South Florida Ambulatory Surgical Center, LLC
Southwest Ambulatory Surgery Center, L.L.C.
Southwest Orthopedic and Spine Hospital Real Estate, LLC
Southwest Orthopedic and Spine Hospital, LLC
Southwestern Ambulatory Surgery Center, LLC
SPC at the Star, LLC
Specialty Surgery Center of Fort Worth, L.P.
Specialty Surgicenters, Inc.
Spinal Diagnostics and Treatment Centers, L.L.C.
Spine & Joint Physician Associates
SSI Holdings, Inc.
St. Joseph’s Outpatient Surgery Center, LLC
St. Joseph’s Surgery Center, L.P.
St. Louis Physician Alliance, LLC
St. Louis Surgical Center, LLC
St. Louis Urology Center, LLC
St. Luke’s/USP Surgery Centers, LLC
St. Mary’s Ambulatory Surgery Center, LLC
St. Vincent Health/USP, LLC
St. Vincent/USP Surgery Centers, LLC
22
Delaware
California
California
Georgia
California
California
Texas
Delaware
Georgia
Texas
Texas
New Jersey
California
Illinois
Illinois
Iowa
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Colorado
South Carolina
Florida
Oklahoma
Delaware
Arizona
Pennsylvania
Texas
Texas
Georgia
California
Texas
Georgia
Arizona
California
Missouri
Missouri
Missouri
Missouri
Virginia
Indiana
Arkansas
Stockton Outpatient Surgery Center, LLC
Suburban Endoscopy Center, LLC
Summit View Surgery Center, LLC
Sun View Imaging, L.L.C.
Surgery Affiliate of El Paso, LLC
Surgery Center at Mount Pleasant, LLC
Surgery Center at University Park, LLC
Surgery Center of Atlanta, LLC
Surgery Center of Canfield, LLC
Surgery Center of Columbia, L.P.
The Surgery Center at Jensen Beach, LLC
The Surgery Center at Williamson, LLC
Surgery Center of Okeechobee, LLC
Surgery Center of Pembroke Pines, L.L.C.
Surgery Center of Peoria, L.L.C.
Surgery Center of Richardson Physician Partnership, L.P.
Surgery Center of Santa Barbara, LLC
Surgery Center of Scottsdale, LLC
Surgery Center of Tempe Real Estate, L.L.C.
Surgery Center of Tempe Real Estate II, L.L.C.
Surgery Centers of America II, L.L.C.
Surgery Centre of SW Florida, LLC
Surgical Elite of Avondale, L.L.C.
Surgical Health Partners, LLC
Surgical Institute Management, LLC
Surgical Institute of Reading, LLC
Surgical Specialists at Princeton, LLC
Surgicare of Miramar, L.L.C.
Surginet, Inc.
Surgis Management Services, Inc.
Surgis of Chico, Inc.
Surgis of Phoenix, Inc.
Surgis of Redding, Inc.
Surgis of Victoria, Inc.
Surgis, Inc.
Tamarac Surgery Center, LLC
Tempe New Day Surgery Center, L.P.
Templeton Imaging, Inc.
TENN SM, LLC
Terre Haute Surgical Center, LLC
Teton Outpatient Services, LLC
Texan Ambulatory Surgery Center, L.P.
Texas Endoscopy Centers, LLC
Texas Health Venture Arlington Hospital, LLC
Texas Health Venture Baylor Plano, LLC
Texas Health Venture Carrollton, LLC
23
California
New Jersey
Colorado
New Mexico
Texas
South Carolina
Florida
Georgia
Ohio
Missouri
Florida
Texas
Florida
Florida
Oklahoma
Texas
California
Oklahoma
Arizona
Arizona
Oklahoma
Florida
Arizona
Tennessee
Pennsylvania
Pennsylvania
New Jersey
Florida
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Delaware
Florida
Texas
California
Tennessee
Indiana
Wyoming
Texas
Texas
Texas
Texas
Texas
Texas Health Venture Centennial, LLC
Texas Health Venture Ennis, LLC
Texas Health Venture Fort Worth, L.L.C.
Texas Health Venture Granbury, LLC
Texas Health Venture Heritage Park, LLC
Texas Health Venture Keller, LLC
Texas Health Venture Las Colinas, LLC
Texas Health Venture Mansfield, LLC
Texas Health Venture Plano Endo, LLC
Texas Health Venture Plano Parkway, LLC
Texas Health Venture Plano, LLC
Texas Health Venture Texas Spine, LLC
Texas Health Ventures Group L.L.C.
Texas Orthopedics Surgery Center, LLC
Texas Regional Medical Center, LLC
Texas Spine and Joint Hospital, LLC
Theda Oaks Gastroenterology & Endoscopy Center, LLC
THV Park Cities, LLC
THVG Arlington GP, LLC
THVG Bariatric GP, LLC
THVG Bariatric, L.L.C.
THVG Bedford GP, LLC
THVG Bellaire GP, LLC
THVG Denton GP, LLC
THVG DeSoto GP, LLC
THVG DSP GP, LLC
THVG Fort Worth GP, LLC
THVG Frisco GP, LLC
THVG Garland GP, LLC
THVG Grapevine GP, LLC
THVG Irving-Coppell GP, LLC
THVG Lewisville GP, LLC
THVG North Garland GP, LLC
THVG Park Cities/Trophy Club GP, LLC
THVG Rockwall 2 GP, LLC
THVG Valley View GP, LLC
Titan Health Corporation
Titan Health of Chattanooga, Inc.
Titan Health of Hershey, Inc.
Titan Health of Mount Laurel, LLC
Titan Health of North Haven, Inc.
Titan Health of Pittsburgh, Inc.
Titan Health of Pleasant Hills, Inc.
Titan Health of Princeton, Inc.
Titan Health of Sacramento, Inc.
Titan Health of Saginaw, Inc.
24
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Delaware
Texas
Texas
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Texas
Delaware
Delaware
California
California
California
California
California
California
California
California
California
Titan Health of Titusville, Inc.
Titan Health of West Penn, Inc.
Titan Health of Westminster, Inc.
Titan Management Corporation
Titusville Center for Surgical Excellence, LLC
TLC ASC, LLC
TMC Holding Company, LLC
Toms River Surgery Center, L.L.C.
TOPS Specialty Hospital, Ltd.
Total Joint Center of St. Louis, LP
Total Joint Center of the Northland, LLC
Tower Road Real Estate, LLC
Tower/USP Surgery Centers, LLC
TPG Hospital, LLC
TP Specialty Surgery Center, L.P.
Treasure Coast ASC, LLC
The Tresanti Surgical Center, LLC
TRMC Holdings, LLC
Trophy Club Medical Center, L.P.
True Medical Weight Loss, L.P.
True Medical Wellness, LP
True Results Georgia, Inc.
True Results HoldCo, LLC
True Results Missouri, LLC
Tucson Digestive Institute, LLC
Turlock Imaging Services, LLC
Tuscan Surgery Center at Las Colinas, LLC
Twin Cities Ambulatory Surgery Center, L.P.
UAP Las Colinas Endo, LLC
UAP Lebanon Endo, LLC
UAP Nashville Endoscopy, LLC
UAP of Arizona, Inc.
UAP of California, Inc.
UAP of Missouri, Inc.
UAP of New Jersey, Inc.
UAP of Oklahoma, Inc.
UAP of Tennessee, Inc.
UAP of Texas, Inc.
UAP Scopes, LLC
Ulysses True Results NewCo, LLC
UMC Surgery Center Lubbock, LLC
UMC-USP Surgery Centers, LLC
United Anesthesia Partners, Inc.
United Real Estate Development, Inc.
United Real Estate Holdings, Inc.
United Surgical Partners Holdings, Inc.
25
California
California
California
California
Delaware
Florida
Texas
New Jersey
Texas
Missouri
Missouri
Texas
Pennsylvania
Oklahoma
Texas
Florida
California
Texas
Texas
Texas
Texas
Georgia
Delaware
Missouri
Arizona
California
Texas
Missouri
Texas
Tennessee
Tennessee
Arizona
California
Missouri
New Jersey
Oklahoma
Tennessee
Texas
Missouri
Delaware
Texas
Texas
Delaware
Texas
Texas
Delaware
United Surgical Partners International, Inc.
University Surgery Center, Ltd.
University Surgical Partners of Dallas, L.L.P.
Upper Cumberland Physicians’ Surgery Center, LLC
USP 12 th Ave Real Estate, Inc.
USP Acquisition Corporation
USP Alexandria, Inc.
USP Assurance Company
USP Athens, Inc.
USP Atlanta, Inc.
USP Austin, Inc.
USP Bariatric, LLC
USP Beaumont, Inc.
USP Bergen, Inc.
USP Bloomington, Inc.
USP Bridgeton, Inc.
USP/Carondelet Tucson Surgery Centers, LLC
USP Cedar Park, Inc.
USP Chesterfield, Inc.
USP Chicago, Inc.
USP Cincinnati, Inc.
USP Coast, Inc.
USP Columbia, Inc.
USP Connecticut, Inc.
USP Corpus Christi, Inc.
USP Creve Coeur, Inc.
USP Denver, Inc.
USP Des Peres, Inc.
USP Destin, Inc.
USP Domestic Holdings, Inc.
USP Effingham, Inc.
USP Encinitas Endoscopy, Inc.
USP Fenton, Inc.
USP Festus, Inc.
USP Florissant, Inc.
USP Fort Lauderdale, Inc.
USP Fort Worth Hospital Real Estate, Inc.
USP Fredericksburg, Inc.
USP Fresno, Inc.
USP Frontenac, Inc.
USP Gateway, Inc.
USP Harbour View, Inc.
USP-HMH Surgery Center at Central Jersey, LLC
USP HMH Surgery Center at Shore, LLC
USP Houston, Inc.
USP Indiana, Inc.
26
Delaware
Florida
Texas
Tennessee
Texas
Delaware
Louisiana
Vermont
Georgia
Georgia
Texas
Delaware
Texas
New Jersey
Indiana
Missouri
Arizona
Texas
Missouri
Illinois
Ohio
California
Missouri
Connecticut
Texas
Missouri
Colorado
Missouri
Florida
Delaware
Illinois
California
Missouri
Missouri
Missouri
Florida
Texas
Virginia
California
Missouri
Missouri
Virginia
New Jersey
New Jersey
Texas
Indiana
USP International Holdings, Inc.
USP Jersey City, Inc.
USP Kansas City, Inc.
USP Knoxville, Inc.
USP Little Rock, Inc.
USP Long Island, Inc.
USP Louisiana, Inc.
USP Lubbock, Inc.
USP Maryland, Inc.
USP Mason Ridge, Inc.
USP Mattis, Inc.
USP Michigan, Inc.
USP Midland Real Estate, Inc.
USP Midland, Inc.
USP Midwest, Inc.
USP Mission Hills, Inc.
USP Montana, Inc.
USP Morris, Inc.
USP Mt. Vernon, Inc.
USP Nevada Holdings, LLC
USP Nevada, Inc.
USP New Jersey, Inc.
USP Newport News, Inc.
USP North Carolina, Inc.
USP North Kansas City, Inc.
USP North Texas, Inc.
USP Northwest Arkansas, Inc.
USP Office Parkway, Inc.
USP Ohio RE, Inc.
USP OKC, Inc.
USP OKC Manager, Inc.
USP Oklahoma, Inc.
USP Olive, Inc.
USP Orlando, Inc.
USP Philadelphia, Inc.
USP Phoenix, Inc.
USP Portland, Inc.
USP Reading, Inc.
USP Richmond II, Inc.
USP Richmond, Inc.
USP Sacramento, Inc.
USP San Antonio, Inc.
USP Santa Barbara Surgery Centers, Inc.
USP Securities Corporation
USP Silver Cross, Inc.
USP Siouxland, Inc.
27
Delaware
New Jersey
Missouri
Tennessee
Arkansas
Delaware
Louisiana
Texas
Maryland
Missouri
Missouri
Michigan
Texas
Texas
Illinois
California
Montana
New Jersey
Illinois
Nevada
Nevada
New Jersey
Virginia
North Carolina
Missouri
Delaware
Arkansas
Missouri
Ohio
Oklahoma
Oklahoma
Oklahoma
Missouri
Florida
Pennsylvania
Arizona
Oregon
Pennsylvania
Virginia
Virginia
California
Texas
California
Tennessee
Illinois
Iowa
USP Somerset, Inc.
USP South Carolina, Inc.
USP Southlake RE, Inc.
USP/SOS Joint Venture, LLC
USP St. Louis, Inc.
USP St. Louis Urology, Inc.
USP St. Peters, Inc.
USP Sunset Hills, Inc.
USP Tennessee, Inc.
USP Texas Air, L.L.C.
USP Texas, L.P.
USP TJ STL, Inc.
USP Torrance, Inc.
USP Tucson, Inc.
USP Turnersville, Inc.
USP Virginia Beach, Inc.
USP Waxahachie Management, L.L.C.
USP Webster Groves, Inc.
USP West Covina, Inc.
USP Westwood, Inc.
USP Winter Park, Inc.
USPI Group Holdings, Inc.
USPI Holdings, Inc.
USPI Physician Strategy Group, LLC
USPI San Diego, Inc.
USPI Stockton, Inc.
USPI Surgical Services, Inc.
Utica ASC Partners, LLC
Utica/USP Tulsa, L.L.C.
Ventana Surgical Center, LLC
Veroscan, Inc.
VHS San Antonio Imaging Partners, L.P.
Vestavia Surgical Services, LLC
Victoria Ambulatory Surgery Center, L.P.
Virtua-USP Princeton, LLC
Walker Street Imaging Care, Inc.
Warner Park Surgery Center, LLC
Webster Ambulatory Surgery Center, L.P.
Wellstar/USP Joint Venture I, LLC
Wellstar/USP Joint Venture II, LLC
West Bozeman Surgery Center, LLC
Westlake Hospital, LLC
WHASA, L.C.
Willamette Spine Center Ambulatory Surgery, LLC
Wilmington Endoscopy Center, LLC
Winter Haven Ambulatory Surgical Center, L.L.C.
28
New Jersey
Delaware
Texas
Oklahoma
Missouri
Missouri
Missouri
Missouri
Tennessee
Texas
Texas
Missouri
California
Arizona
New Jersey
Virginia
Texas
Missouri
California
California
Florida
Delaware
Delaware
Texas
California
California
Delaware
Michigan
Oklahoma
California
Delaware
Delaware
Alabama
Delaware
New Jersey
California
Arizona
Missouri
Georgia
Georgia
Montana
Texas
Texas
Delaware
North Carolina
Florida
YNHHSC/USP Surgery Centers, LLC
Connecticut
29
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23(a)
We consent to the incorporation by reference in Registration Statement Nos. 033-57375, 333-00709, 333-01183, 333-38299, 333-41903, 333-41476, 333-41478,
333-48482, 333-74216, 333-151884, 333-151887, 333-166767, 333-166768, 333-191614, 333-196262, 333-212844 and 333-212846 on Form S-8 of our reports
dated February 25, 2019, relating to the consolidated financial statements and financial statement schedule of Tenet Healthcare Corporation and subsidiaries, and
the effectiveness of Tenet Healthcare Corporation and subsidiaries’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of
Tenet Healthcare Corporation for the year ended December 31, 2018.
/s/ Deloitte & Touche LLP
Dallas, Texas
February 25, 2019
CONSENT OF INDEPENDENT ACCOUNTANTS
Exhibit 23(b)
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 033-57375, 333-00709, 333-01183, 333-38299, 333-41903,
333-41476, 333-41478, 333-48482, 333-74216, 333-151884, 333-151887, 333-166767, 333-166768, 333-191614, 333-196262, 333-212844 and 333-212846) of
Tenet Healthcare Corporation of our report dated December 20, 2018 relating to the financial statements of Texas Health Ventures Group L.L.C., and its
subsidiaries, which appears in this Annual Report on Form 10-K of Tenet Healthcare Corporation.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
February 25, 2019
I, Ronald A. Rittenmeyer, certify that:
1.
I have reviewed this annual report on Form 10-K of Tenet Healthcare Corporation (the “Registrant”);
Rule 13a-14(a)/15d-14(a) Certification
Exhibit 31(a)
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 control 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 (or persons performing the equivalent functions):
(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 25, 2019
/s/ RONALD A. RITTENMEYER
Ronald A. Rittenmeyer
Executive Chairman and Chief Executive Officer
Exhibit 31(b)
I, Daniel J. Cancelmi, certify that:
1.
I have reviewed this annual report on Form 10-K of Tenet Healthcare Corporation (the “Registrant”);
Rule 13a-14(a)/15d-14(a) Certification
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 control 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 (or persons performing the equivalent functions):
(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 25, 2019
/s/ DANIEL J. CANCELMI
Daniel J. Cancelmi
Chief Financial Officer
Certifications Pursuant to Section 1350 of Chapter 63
of Title 18 of the United States Code
Exhibit 32
We, the undersigned Ronald A. Rittenmeyer and Daniel J. Cancelmi, being, respectively, the Executive Chairman and Chief Executive Officer and the Chief
Financial Officer of Tenet Healthcare Corporation (the “Registrant”), do each hereby certify that (i) the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2018 (the “Form 10-K”), to be filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K fairly presents, in all material respects, the
financial condition and results of operations of the Registrant and its subsidiaries.
Date: February 25, 2019
/s/ RONALD A. RITTENMEYER
Date: February 25, 2019
Ronald A. Rittenmeyer
Executive Chairman and Chief Executive Officer
/s/ DANIEL J. CANCELMI
Daniel J. Cancelmi
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350; it is not being filed for purposes of Section 18 of the Securities Exchange Act,
and is not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation
language in such filing.