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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2019
☐ 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.)
14201 Dallas Parkway
Dallas, TX 75254
(Address of principal executive offices, including zip code)
(469) 893-2200
(Registrant’s telephone number, including area code)
________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common stock, $0.05 par value
6.875% Senior Notes due 2031
THC
THC31
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 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
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No x
As of June 30, 2019, 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 $1.2 billion based on the closing price of the Registrant’s shares on the New York Stock Exchange on
Friday, June 28, 2019. As of January 31, 2020, there were 104,288,796 shares of common stock outstanding.
Portions of the Registrant’s definitive proxy statement for the 2020 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, 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,” the “Company,” “we” or “us”) is a diversified healthcare
services company headquartered in Dallas, Texas. Through our subsidiaries, partnerships and joint ventures, including USPI Holding Company, Inc. (“USPI”), at
December 31, 2019, we operated an expansive care network that included 65 hospitals and over 500 other healthcare facilities, including ambulatory surgery
centers, urgent care centers, imaging centers, surgical hospitals, off-campus emergency departments and micro-hospitals. In addition, we operate Conifer Health
Solutions, LLC through our Conifer Holdings, Inc. (“Conifer”) subsidiary, which provides revenue cycle management and value-based care services to hospitals,
healthcare systems, physician practices, employers and other customers. Following exploration of strategic alternatives for Conifer, in July 2019, we announced our
intention to pursue a tax-free spin-off of Conifer as a separate, independent, publicly traded company. 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.
OPERATIONS
HOSPITAL OPERATIONS AND OTHER SEGMENT
Hospitals, Ancillary Outpatient Facilities and Related Businesses—At December 31, 2019, our subsidiaries operated 65 hospitals, serving primarily urban
and suburban communities in nine states. Our subsidiaries had sole ownership of 54 of the hospitals we operated at December 31, 2019, 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 159 outpatient centers at December 31, 2019, the majority of which are freestanding
urgent care centers, provider-based diagnostic imaging centers, off-campus emergency departments, provider-based ambulatory surgery centers and micro-
hospitals. In addition, at December 31, 2019, our subsidiaries owned or leased and operated: a number of medical office buildings, all of which were located on, or
nearby, our hospital campuses; 730 physician practices; four accountable care organizations and 10 clinically integrated networks; and other ancillary healthcare
businesses.
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; cardiovascular, digestive disease, neurosciences,
musculoskeletal and obstetrics services; and outpatient services, including physical therapy. Many of our hospitals provide tertiary care services, such as
cardiothoracic surgery, complex spinal surgery, neonatal intensive care and neurosurgery, and some also offer quaternary care in areas such as heart and kidney
transplants. 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 one 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 following table 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, 2019:
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
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
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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
595
122
505
252
267
59
217
206
120
200
25
486
400
385
73
461
209
400
179
145
172
162
114
123
162
122
245
536
459
333
366
337
199
368
460
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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(9)
Saint Francis Hospital – Bartlett(9)
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
109
288
479
196
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
623
182
480
283
106
102
161
443
371
128
287
586
240
17,210
(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, 2019, 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 (which, following a 2019 merger with Catholic Health Initiatives, is now a part of
CommonSpirit 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, 2019,
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
(9)
owned a 51% interest in the entity at December 31, 2019, and JMH owned a 49% interest.
In December 2019, we reached a definitive agreement to sell these hospitals to an unaffiliated third party. The transaction is currently expected to be completed in 2020, subject to
regulatory approvals and customary closing conditions.
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Information regarding the utilization of licensed beds and other operating statistics at December 31, 2019 and 2018 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, 2019, our Hospital Operations and other segment also included 48 diagnostic imaging centers, 13 off-campus emergency departments
and 11 ambulatory surgery centers operated as departments of our hospitals and under the same license, as well as 87 separately licensed, freestanding outpatient
centers – typically at locations complementary to our hospitals – consisting of six diagnostic imaging centers, 10 emergency facilities (9 of which are licensed as
micro-hospitals), two ambulatory surgery centers and 69 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, 2019 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 four accountable care organizations (“ACOs”) and 10
clinically integrated networks (“CINs”) – in Alabama, Arizona, California, Florida, Massachusetts, Michigan, Missouri, Tennessee and Texas – and participate in
an additional ACO and an additional CIN with other healthcare providers for select markets in Arizona. 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.
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 certain of these health plans
continue 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, which, at December 31, 2019, had interests in 260 ambulatory surgery centers, 39
urgent care centers (nearly all of which are operated under the CareSpot brand), 23 imaging centers and 24 surgical hospitals in 27 states. At December 31, 2019,
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.
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 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 registration 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.
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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 certain 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, 2019, we owned 76.2% of Conifer Health Solutions, LLC, and Catholic Health Initiatives (“CHI”) had a
23.8% ownership position. (As a result of its 2019 merger with Dignity Health, CHI is now a part of CommonSpirit Health.) Following exploration of strategic
alternatives for Conifer, in July 2019, we announced our intention to pursue a tax-free spin-off of Conifer as a separate, independent, publicly traded company.
Completion of the proposed spin-off is subject to a number of conditions, including, among others, assurance that the separation will be tax-free for U.S. federal
income tax purposes, execution of a restructured services agreement between Conifer and Tenet, finalization of Conifer’s capital structure, the effectiveness of
appropriate filings with the U.S. Securities and Exchange Commission (“SEC”), and final approval from our board of directors. We are targeting to complete the
separation by the end of the second quarter of 2021; however, there can be no assurance regarding the timeframe for completing the spin-off, the allocation of
assets and liabilities between Tenet and Conifer, that the other conditions of the spin-off will be met, or that the spin-off will be completed at all.
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; (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, 2019, Conifer provided one or more of the business process services described above to approximately 660 Tenet and non-
Tenet hospital and other 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. Contractual agreements have been in place for many years 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. While Conifer prepares for the spin-off, these contracts have been renewed on a short-term basis with certain scope of services
modifications; however, execution of restructured long-term services agreements between Conifer and Tenet is a condition to completion of the proposed spin-off.
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, 2019, approximately 42% of Conifer’s net operating revenues were attributable to its relationship with Tenet and approximately 41% were
attributable to its relationship with CHI. As we pursue a tax-free spin-off of Conifer, we are continuing to market Conifer’s revenue cycle management, patient
communications and engagement services, and value-based care solutions businesses. The timing and uncertainty associated with our plans for Conifer may have
an adverse impact on our ability to secure new clients for Conifer. 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.
REAL PROPERTY
The locations of our hospitals and the number of licensed beds at each hospital at December 31, 2019 are set forth in the table beginning on page 2. 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, where we recently consolidated several office locations. In addition, we maintain administrative
offices in markets where we operate hospitals and other businesses. 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 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.
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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, 2019, we owned 730 physician
practices, and we employed (where permitted by state law) or otherwise affiliated with over 1,700 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 and clinical program
development 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, 2019, approximately 28% of the employees in our Hospital Operations and other segment were
represented by labor unions. Less than 1% of the total employees in both 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, 2019, we employed approximately 113,600 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
83,300
19,500
10,800
113,600
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 more specialized medical staffs to admit and refer patients, (3) may have a better reputation for access or
overall services in the community, or (4) 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
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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 diagnostic and specialty services and for quality physicians and personnel. In recent years, the number of freestanding specialty hospitals, surgery centers,
emergency departments 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 reimbursement rates to offset 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 and higher-acuity
clinical service lines (including outpatient lines), focus on patient and physician access, investments in medical technology, improved quality metrics and
contracting strategies that create shared value with payers should help us grow our patient volumes over time. 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 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. In addition, 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, access 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 many 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 or other risk-sharing model. However, we do face competition from other healthcare systems that are implementing
similar
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physician alignment strategies, such as employing physicians, acquiring physician practice groups, and participating in ACOs or other clinical integration models.
REVENUE CYCLE MANAGEMENT SOLUTIONS
Conifer 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 timing and uncertainty regarding our potential spin-off of
Conifer may have an adverse impact on Conifer’s ability to secure new clients.
HEALTHCARE REGULATION AND LICENSING
HEALTHCARE REFORM
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act” or
“ACA”) 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.
In recent years, 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 ACA. Effective
January 2019, Congress eliminated the financial penalty for noncompliance under the ACA’s individual mandate provision, which requires most U.S. citizens and
noncitizens who lawfully reside in the country to have health insurance meeting specified standards. The Congressional Budget Office and
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the Joint Committee on Taxation have estimated that elimination of the individual mandate penalty will result in seven million more uninsured by 2021 and put
upward pressure on health insurance premiums. Members of Congress and other politicians have also proposed measures that would expand government-sponsored
coverage, including single-payer plans, such as Medicare for All. 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, in December 2019, a federal appeals court panel agreed with
a December 2018 ruling by the U.S. District Court for the Northern District of Texas in the matter of Texas v. United States that the ACA’s individual mandate is
unconstitutional now that Congress has eliminated the tax penalty that was intended to enforce it. The appeals court sent the case back to the lower court to
determine how much of the rest of the ACA, if any, can stand in light of its ruling. On January 3, 2020, the U.S. House of Representatives, 20 states and the District
of Columbia filed a petition asking the U.S. Supreme Court to review the case on an expedited basis, but their petition was denied on January 21, 2020. Pending a
final decision on the matter, the current administration has continued to enforce the ACA.
We are unable to predict the impact on our future revenues and operations of (1) the final decision in Texas v. United States and other court challenges, (2)
administrative, regulatory and legislative changes, including expansion of government-sponsored coverage, or (3) market reactions to those changes. However, if
the ultimate impact is that significantly fewer individuals have private or public health coverage, we likely will experience decreased patient 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, 2019, 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, Medicaid or other federal healthcare programs, any of which
could have a material adverse effect on our business, financial
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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 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 five states that require a form of state approval under certificate of need programs applicable to those hospitals. Approximately 31% of our licensed
hospital beds are located in these states (namely, Alabama, 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, 2019.
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.
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.
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 and officers, 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 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 and officer, as well as our board of directors and certain
physicians and contractors. All such persons are required to report incidents that they believe in good faith may be in violation of the Standards of Conduct or our
policies, and all 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 any individual who makes a report has 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 or human resources department. Retaliation against anyone in connection with reporting
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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.
If, during the remaining 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, including
further extensions of the NPA. 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 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.
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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, 2018
through March 31, 2019 and April 1, 2019 through March 31, 2020, 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. For the 2018-2019 policy period, 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. For the 2019-2020 policy
period, deductibles are 5% of insured values up to a maximum of $40 million for California earthquakes, $25 million for floods and named windstorms, and 2% of
insured values for New Madrid fault earthquakes, with a maximum per claim deductible of $25 million. For both policy periods, 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.
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.
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, target, estimate or anticipate (and other similar expressions) will, should or may
occur in the future are forward-looking statements, including (but not limited to) disclosure regarding 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
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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 pursue a tax-free spin-off of Conifer as a separate, independent, publicly traded company;
Potential disruptions to our business or diverted management attention as a result of the Conifer spin-off 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 court 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;
Our success in recruiting and retaining physicians and other healthcare professionals;
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;
The impact of competition on all aspects of our business;
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;
The impact that local, national and worldwide infectious disease outbreaks have on our operations; 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.
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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 and make an investment in our securities risky. 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.
Effective January 2019, Congress eliminated the financial penalty for noncompliance under the ACA’s individual mandate provision. The Congressional
Budget Office and the Joint Committee on Taxation have estimated that elimination of that penalty will result in seven million more uninsured by 2021 and put
upward pressure on health insurance premiums. Members of Congress and other politicians have also proposed measures that would expand government-sponsored
coverage, including single-payer plans, such as Medicare for All. 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, in December 2019, a federal appeals court panel agreed with a December 2018 ruling by the U.S. District Court for the Northern District of
Texas in the matter of Texas v. United States that the ACA’s individual mandate is unconstitutional now that Congress has eliminated the tax penalty that was
intended to enforce it. The appeals court sent the case back to the lower court to determine how much of the rest of the ACA, if any, can stand in light of its ruling.
On January 3, 2020, the U.S. House of Representatives, 20 states and the District of Columbia filed a petition asking the U.S. Supreme Court to review the case on
an expedited basis, but their petition was denied on January 21, 2020. Pending a final decision on the matter, the current administration has continued to enforce the
ACA.
We are unable to predict the impact on our future revenues and operations of (1) the final decision in Texas v. United States and other court challenges, (2)
administrative, regulatory and legislative changes, including expansion of government-sponsored coverage, or (3) market reactions to those changes. However, if
the ultimate impact is that significantly fewer individuals have private or public health coverage, we likely will experience decreased patient 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, 2019, approximately 20% and 8% 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.
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Several states in which we operate continue to 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 supplemental payment programs or have received federal government waivers allowing them to test new approaches
and demonstration projects to improve care. Continuing pressure on state budgets and other factors, including legislative and/or regulatory changes, 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.
Violations of existing regulations or failure to comply with new or changed regulations could harm our business and financial results.
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 affecting healthcare providers could have a material adverse effect on our business, financial condition, results of
operations or cash flows.
Moreover, now that we are outsourcing and offshoring certain functions unrelated to direct patient care to enhance efficiency, we must ensure that those
operations are 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.
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A breach or any other failure to comply with our Non-Prosecution Agreement could subject us 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. The NPA was originally scheduled to expire on February 1, 2020; 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. If, during the
remaining 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, including further extensions of the
NPA. 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 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.
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, 2019 was approximately $9.5 billion, which represented approximately 66% of our total net patient service
revenues. In addition, in the year ended December 31, 2019, 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 101% 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 62% of our managed care net patient service revenues for the year ended December 31, 2019. 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, 2019, 65% 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 reimbursement rates to offset increasing costs. Furthermore, the ongoing trend toward consolidation among private managed care
payers tends to
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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 do not always 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 our efforts to outsource
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, compliance and regulatory challenges, and natural disasters not
typically experienced in the United States, such as volcanic activity and tsunamis. 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 completing the proposed spin-off of Conifer or in divesting assets in non-core markets.
We cannot predict the outcome of the process we have begun to pursue a tax-free spin-off of Conifer. We cannot provide any assurances regarding the
timeframe for completing the spin-off, the allocation of assets and liabilities between Tenet and Conifer, that the other conditions of the spin-off will be met, or that
the spin-off will be completed at all. We also continue to exit service lines, businesses and markets that we believe are no longer strategic to our long-term growth.
To that end, since January 1, 2018, we have divested 11 hospitals in the United States, as well as all of our operations in the United Kingdom. In addition, in
December 2019, we entered into a definitive agreement to divest our two hospitals and other operations in the Memphis, Tennessee area. We cannot provide any
assurances that completed, planned or future divestitures or other strategic transactions will achieve their business goals or the benefits we expect.
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,
including the planned spin-off of Conifer, 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 activity, and (3) the challenges associated with separating personnel and
financial and other systems.
A spin-off 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 begun to pursue a tax-free spin-off of Conifer. 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.
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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 patient 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.
In addition, a significant number of our hospitals and other healthcare facilities are located in California, Florida and Texas. 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.
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, 2019 and 2018, we recorded impairment charges of $42 million and $77 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 we acquire may not be profitable
or may not achieve the profitability that justifies the investments made. Businesses we acquire may also have pre-existing unknown or contingent liabilities,
including liabilities for failure to comply with applicable healthcare regulations. These liabilities could be significant, and, if we are unable to exclude them from
the acquisition transaction or successfully obtain indemnification from a third party, they could harm our business and financial condition. 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.
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.
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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 a total of $1.473 billion to purchase additional shares of USPI to increase our ownership interest in
USPI from 50.1% 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 April 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.
• 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.
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• 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 shareholders. When our joint venture partners seek to exercise their exit rights, we may
be unable to agree on the value of their interests, which could harm our relationship with our joint venture partners or potentially result in litigation.
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 and clinical program development 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 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.
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Our labor costs can be adversely affected by competition for staffing, the shortage of experienced nurses and labor union activity.
The operations of our facilities depend 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 can adversely affect our labor costs. At December 31, 2019, approximately 28% of the employees in
our Hospital Operations and other segment were represented by labor unions. Less than 1% of the total employees in both 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 diagnostic and specialty services and for quality physicians and personnel. In
recent years, the number of freestanding specialty hospitals, surgery centers, emergency departments 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.
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 pursue a spin-off of Conifer, we are continuing to market Conifer’s revenue cycle management, patient communications and engagement services,
and value-based care solutions businesses. The timing and uncertainty associated with 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
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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, 2019, we had approximately $14.8 billion of total long-term debt, as well as $93 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 eligible inventory and patient accounts receivable, including receivables for Medicaid
supplemental payments, 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 2019, our interest expense was
$985 million and represented 65% of our $1.513 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 subject to early prepayment penalties, such as “make-whole premiums”; as a result, it may be costly
to pursue debt repayment as a deleveraging strategy.
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
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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, under certain circumstances, the terms of our Credit Agreement
require us to maintain a financial ratio relating to our ability to satisfy certain fixed expenses, including interest payments. Our ability to meet this financial ratio
and the aforementioned restrictive covenants may be affected by events beyond our 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
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secured or unsecured debt in the future to finance our operations and any judgments or settlements or for other business purposes. Similarly, if we complete the
proposed spin-off of Conifer or continue to sell assets 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 $1.5 billion, with a $200 million subfacility for standby
letters of credit. Based on our eligible receivables, $1.499 billion was available for borrowing under the Credit Agreement at December 31, 2019. 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, 2019, we had no cash borrowings outstanding under the Credit Agreement, and we had $93 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 have experienced disruption due to events such as system implementations, upgrades, and other maintenance and
improvements, and they are subject to disruption in the future for similar events, as well as catastrophic events, including a major earthquake, fire, hurricane,
telecommunications failure, ransomware attack, terrorist attack or the like. 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, loss or alteration 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; 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, 2019, we had federal net operating loss (“NOL”) carryforwards of approximately $600 million pre-tax available to offset future taxable
income. These NOL carryforwards will expire in the years 2032 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
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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, 61 hospitals in our Hospital Operations and other segment and six 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 two
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.
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 operations and financial results could be harmed by a national or localized outbreak of a highly contagious disease, and a pandemic outside of
the United States could also adversely impact our business.
If an epidemic or other public health crisis were to occur nationally or in an area in which we operate, our business and financial results could be
adversely affected. If any of our facilities were involved, or perceived to be involved, in treating patients with a highly contagious disease, such as the 2019 Novel
Coronavirus (COVID-19) or the Ebola virus, our reputation
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may be negatively impacted; as a result, other patients might cancel or defer elective procedures or otherwise avoid medical treatment, resulting in reduced patient
volumes and operating revenues. Furthermore, the treatment of a highly contagious disease at one of our facilities may result in a temporary shutdown, the
diversion of patients or staffing shortages. Moreover, we cannot predict the costs associated with the potential treatment of an infectious disease outbreak by our
hospitals or preparation for such treatment. A pandemic outside of the United States could also adversely impact our business in ways that are difficult to predict.
In the event that the current coronavirus outbreak, or any actions the Chinese government or other governmental authorities take in connection with COVID-19,
disrupts the production or supply of pharmaceuticals and medical supplies from China, for example, our business could be adversely affected.
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 17 to our
Consolidated Financial Statements, which is incorporated by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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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 14, 2020, there were
3,728 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 10 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:
•
•
•
The S&P 500, a stock market index that measures the equity performance of 500 large companies listed on the stock exchanges in the United States
(in which we are not included);
The S&P 500 Health Care, a stock market index comprised of those companies included in the S&P 500 that are classified as part of the healthcare
sector (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”.
Performance data assumes that $100.00 was invested on December 31, 2014 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
12/14
12/15
12/16
12/17
12/18
12/19
$
$
$
$
100.00 $
59.80 $
29.29 $
29.92 $
33.83 $
100.00 $
101.38 $
113.51 $
138.29 $
132.23 $
100.00 $
106.89 $
104.01 $
126.98 $
135.19 $
100.00 $
86.95 $
82.39 $
94.36 $
124.69 $
75.05
173.86
163.34
154.63
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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, 2015 through 2019. Effective January 1, 2019, we adopted the Financial Accounting Standards Board (“FASB”) Accounting
Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) using the modified retrospective transition approach as of the period of adoption. Our
financial statements for periods prior to January 1, 2019 were not modified for the application of the new lease accounting standard. The main difference between
the guidance in ASU 2016-02 and previous accounting principles generally accepted in the United States of America (“GAAP”) is the recognition of lease assets
and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under previous GAAP. Upon adoption of ASU 2016-02, we
recorded $822 million of right-of-use assets, net of deferred rent, associated with operating leases in investments and other assets in our consolidated balance sheet,
$147 million of current liabilities associated with operating leases in other current liabilities in our consolidated balance sheet and $715 million of long-term
liabilities associated with operating leases in other long-term liabilities in our consolidated balance sheet. Effective January 1, 2018, we adopted the FASB 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
uninsured 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.
Our portfolio of hospitals has changed during the periods presented below, primarily due to acquisition and divestiture activity. At December 31, 2019,
2018, 2017, 2016 and 2015, we consolidated the results of 65, 68, 72, 75 and 86 hospitals, respectively. 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, 2019, we owned 95% of USPI. The following tables include USPI for the post-
acquisition period only. Also, in the following tables, electronic health incentives have been reclassified to other operating expenses, net, as they are no longer
significant enough to present separately. The following 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.
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Net operating revenues:
Years Ended December 31,
2019
2018
2017
2016
2015
(In Millions, Except Per-Share Amounts)
Net operating revenues before provision for doubtful accounts
$
20,613 $
21,070 $
20,111
Less: Provision for doubtful accounts
Net operating revenues
$
18,479 $
18,313
19,179
19,621
1,434
1,449
Equity in earnings of unconsolidated affiliates
175
150
144
131
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net losses (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
8,704
3,057
4,189
850
185
141
15
1,513
(985)
(5)
(227)
296
(153)
143
8,634
3,004
4,256
802
209
38
(127)
1,647
(1,004)
(5)
1
639
(176)
463
9,274
3,085
4,561
870
541
23
(144)
1,113
(1,028)
(22)
(164)
(101)
(219)
(320)
9,328
3,124
4,859
850
202
293
(151)
1,247
(979)
(20)
—
248
(67)
181
operations
386
355
384
368
1,477
18,634
99
8,990
2,963
4,483
797
318
291
(186)
1,077
(912)
(20)
(1)
144
(68)
76
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
$
$
$
(243) $
108 $
(704) $
(187) $
(142)
(2.35) $
1.06 $
(7.00) $
(1.88) $
(1.43)
(2.35) $
1.04 $
(7.00) $
(1.88) $
(1.43)
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; 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, satisfaction, retention and attrition; advances in technology and treatments that reduce length of stay; local
healthcare competitors; utilization pressure by managed care organizations, as well as managed care contract negotiations or terminations; hospital performance
data on quality measures and patient satisfaction, as well as standard charges for services; any unfavorable publicity about us, or our joint venture partners, that
impacts our relationships with physicians and patients; and changing consumer behavior, including with respect to the timing of elective procedures.
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BALANCE SHEET DATA
December 31,
2019
2018
2017
2016
2015
(In Millions)
Working capital (current assets minus current liabilities)
$
876 $
779 $
1,241 $
1,223 $
Total assets
Long-term debt, net of current portion
Redeemable noncontrolling interests in equity of consolidated subsidiaries
Noncontrolling interests
Total equity
CASH FLOW DATA
23,351
14,580
1,506
854
483
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
863
23,682
14,383
2,266
267
958
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,
2019
2018
2017
2016
2015
(In Millions)
$
1,233 $
1,049 $
1,200 $
558 $
(619)
(763)
(115)
(1,134)
21
(1,326)
(430)
232
1,026
(1,317)
454
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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, micro-hospitals 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, 2019. Our Ambulatory Care segment is comprised of the operations of 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,
2019, USPI had interests in 260 ambulatory surgery centers, 39 urgent care centers, 23 imaging centers and 24 surgical hospitals in 27 states. Our Conifer segment
provides revenue cycle management and value-based care services to hospitals, healthcare systems, physician practices, employers and other customers, 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, 2019, 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 adjusted patient admission and per adjusted patient day amounts). Continuing operations information includes the results of (i) our same 65
hospitals operated throughout the years ended December 31, 2019 and 2018, (ii) two Philadelphia-area hospitals, which we divested effective January 11, 2018,
(iii) MacNeal Hospital, which we divested effective March 1, 2018, (iv) Des Peres Hospital, which we divested effective May 1, 2018, (v) three Chicago-area
hospitals, which we divested effective January 28, 2019, and (vi) Aspen’s nine facilities, which we divested August 17, 2018. Continuing operations information
excludes the results of our hospitals and other businesses that have been classified as discontinued operations for accounting purposes.
MANAGEMENT OVERVIEW
RECENT DEVELOPMENTS
Termination of USPI Management Equity Plan and Adoption of USPI Restricted Stock Plan—As described in Note 10 to the accompanying Consolidated
Financial Statements, USPI previously maintained a management equity plan whereby it had granted non-qualified options to purchase nonvoting shares of USPI’s
outstanding common stock to eligible plan participants. In February 2020, the plan and all unvested options granted under the plan were terminated in accordance
with the terms of the plan. In the first quarter of 2020, USPI will repurchase all vested options and all shares of USPI stock acquired upon exercise of an option. All
participants in the plan will receive fair market value for any such vested options or shares; all unvested options under the plan were canceled. USPI will pay
approximately $35 million to eligible plan participants in connection with the repurchase of eligible securities.
Also in February 2020, USPI adopted a new restricted stock plan whereby USPI will grant shares of restricted non-voting common stock to eligible plan
participants. Approximately 3% of USPI’s outstanding common stock (after giving effect to the repurchases described above) has been reserved for issuance under
the new USPI restricted stock plan. The restricted stock will vest over a four-year period, with 60% vesting ratably on the first three anniversaries of the grant date
and the remaining 40% vesting on the fourth anniversary. Upon each vesting, the participant 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, as determined by the USPI board of directors. Upon termination of
service with USPI, a participant’s unvested restricted stock is
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forfeited, and vested shares will be repurchased by USPI provided the shares have been held for the requisite holding period. Between August 2024 and February
2025, USPI will be required to purchase from each participant any of their outstanding shares of nonvoting common stock at their estimated fair market value,
provided the shares have been held for the requisite holding period. Payment for USPI’s purchases of any eligible nonvoting common stock may be made in cash or
in shares of Tenet’s common stock.
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 growing aging
population requires greater chronic disease management and higher-acuity treatment; 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 driving performance through operational effectiveness, increasing capital efficiency and margins, investing in
our physician enterprise, particularly our specialist network, enhancing patient and physician satisfaction, growing our higher-demand and higher-acuity clinical
service lines (including outpatient lines), expanding patient and physician access, and optimizing our portfolio of assets. We have undertaken enterprise-wide cost
reduction initiatives, comprised primarily of workforce reductions (including streamlining corporate overhead and centralized support functions), the renegotiation
of contracts with suppliers and vendors, and the consolidation of office locations. Moreover, we have established offshore support operations in the Republic of the
Philippines. In conjunction with these initiatives, we incurred restructuring charges related to employee severance payments of $57 million in the year ended
December 31, 2019, and we expect to incur additional such restructuring charges in 2020. We are continuing in 2020 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.
We also continue to exit service lines, businesses and markets that we believe are no longer a core part of our long-term growth strategy. To that end,
since January 1, 2018, we have divested 11 hospitals in the United States, as well as all of our operations in the United Kingdom. In addition, in December 2019,
we entered into a definitive agreement to divest our two hospitals and other operations in the Memphis, Tennessee area. We intend to continue to further refine our
portfolio of hospitals and other healthcare facilities when we believe such refinements will help us improve profitability, allocate capital more effectively in areas
where we have a stronger presence, deploy proceeds on higher-return investments across our business, enhance cash flow generation, reduce our debt and lower
our ratio of debt-to-Adjusted EBITDA.
Improving the Customer Care Experience—As consumers continue to become more engaged in managing their health, we recognize that understanding
what matters most to them and earning their loyalty is imperative to our success. As such, we have enhanced our focus on treating our patients as traditional
customers by: (1) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (2) expanding service
lines aligned with growing community demand, including a focus on aging and chronic disease patients; (3) offering greater affordability and predictability,
including simplified registration and discharge procedures, particularly in our outpatient centers; (4) improving our culture of service; and (5) creating health and
benefit programs, patient education and health literacy materials that are customized to the needs of the communities we serve. Through these efforts, we intend to
improve the customer care experience in every part of our operations.
Expansion of Our Ambulatory Care Segment—We 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 seven new outpatient centers in the year ended December
31, 2019, and we acquired 10 outpatient businesses. 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. Historically, our outpatient services have generated significantly higher margins for us than inpatient services.
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Driving Conifer’s Growth While Pursuing a Tax-Free Spin-Off—We previously announced a number of actions to support our goals of improving
financial performance and enhancing shareholder value, including the exploration of strategic alternatives for Conifer. In July 2019, we announced our intention to
pursue a tax-free spin-off of Conifer as a separate, independent, publicly traded company. Completion of the proposed spin-off is subject to a number of conditions,
including, among others, assurance that the separation will be tax-free for U.S. federal income tax purposes, execution of a restructured services agreement between
Conifer and Tenet, finalization of Conifer’s capital structure, the effectiveness of appropriate filings with the SEC, and final approval from our board of directors.
We are targeting to complete the separation by the end of the second quarter of 2021; however, there can be no assurance regarding the timeframe for completing
the spin-off, the allocation of assets and liabilities between Tenet and Conifer, that the other conditions of the spin-off will be met, or that the spin-off will be
completed at all.
Conifer serves approximately 660 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. We believe that our success in growing Conifer and increasing its profitability depends in part on our
success in executing the following strategies: (1) attracting hospitals and other healthcare providers that currently handle their revenue cycle management processes
internally as new clients; (2) generating new client relationships through opportunities from USPI and Tenet’s acute care hospital acquisition and divestiture
activities; (3) expanding revenue cycle management and value-based care service offerings through organic development and small acquisitions; and (4) leveraging
data from tens of millions of patient interactions for continued enhancement of the value-based care environment to drive competitive differentiation.
Improving Profitability—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 2020, 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, except for outstanding borrowings under our revolving credit
facility, and the maturity dates of our notes are staggered from 2022 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 reduce our
debt and lower our ratio of debt-to-Adjusted EBITDA, primarily through more efficient capital allocation and Adjusted EBITDA growth, which should lower our
refinancing risk 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 have provided below certain selected operating statistics for the three months ended December 31, 2019 and 2018 on a continuing operations basis,
which includes the results of (i) our same 65 hospitals operated throughout the three months ended December 31, 2019 and 2018, (ii) two Philadelphia-area
hospitals, which we divested effective January 11, 2018, (iii) MacNeal Hospital, which we divested effective March 1, 2018, (iv) Des Peres Hospital, which we
divested effective May 1, 2018, and (v) three Chicago-area hospitals, which we divested effective January 28, 2019. The following tables also show information
about facilities in our Ambulatory Care segment that we control and, therefore, consolidate. We believe this information is useful to investors because it reflects
our current portfolio of operations and the recent trends we are experiencing with respect to volumes, revenues and expenses. We present certain metrics on a per-
adjusted-patient-admission basis to show trends other than volume.
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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,
2019
2018
Increase
(Decrease)
65
170,815
306,384
160,244
10,571
645,791
106,399
796,239
68
170,407
308,113
160,172
10,235
649,544
108,535
779,728
1,394,191
1,383,372
4.66
17,211
4.58
17,935
50.3%
47.3%
1,700,696
1,586,704
113,992
238
549,319
1,734,523
1,617,970
116,553
227
499,803
(3)
(1)
0.2 %
(0.6)%
— %
3.3 %
(0.6)%
(2.0)%
2.1 %
0.8 %
1.7 %
(4.0)%
3.0 % (1)
(2.0)%
(1.9)%
(2.2)%
11
(1)
9.9 %
(1)
(2)
The change is the difference between the 2019 and 2018 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 increased by 408, or 0.2%, in the three months ended December 31, 2019 compared to the three months ended December 31, 2018, and
total surgeries decreased by 2,136, or 2.0%, in the 2019 period compared to the 2018 period. Our emergency department visits decreased 0.6% in the three months
ended December 31, 2019 compared to the same period in the prior year. Our volumes from continuing operations in the three months ended December 31, 2019
compared to the three months ended December 31, 2018 were negatively affected by the sale of three Chicago-area hospitals and affiliated operations effective
January 28, 2019. Our Ambulatory Care total cases increased 9.9% in the three months ended December 31, 2019 compared to the 2018.
Revenues
Net operating revenues
Continuing Operations
Three Months Ended December 31,
2019
2018
Increase
(Decrease)
Hospital Operations and other prior to inter-segment eliminations
$
3,983 $
Ambulatory Care
Conifer
Inter-segment eliminations
Total
632
332
(141)
$
4,806 $
3,843
554
372
(150)
4,619
3.6 %
14.1 %
(10.8)%
(6.0)%
4.0 %
Net operating revenues increased by $187 million, or 4.0%, in the three months ended December 31, 2019 compared to the same period in 2018, primarily
due to increased acuity and improved managed care pricing.
Our accounts receivable days outstanding (“AR Days”) from continuing operations were 58.4 days at December 31, 2019, 59.6 days at September 30,
2019 and 56.5 days at December 31, 2018, compared to our target of less than 55 days. AR Days are calculated as our accounts receivable from continuing
operations on the last day of the quarter divided by our net operating revenues from continuing operations for the quarter ended on that date divided by the number
of days in the quarter. This calculation includes our Hospital Operations and other contract assets and the accounts receivable of our Memphis-area facilities that
have been classified in assets held for sale on our Consolidated Balance Sheet at December 31, 2019, and excludes (i) two Philadelphia-area hospitals, which we
divested effective January 11, 2018, (ii) MacNeal Hospital, which we divested effective March 1, 2018, (iii) Des Peres Hospital, which we divested effective
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May 1, 2018, (iv) three Chicago-area hospitals, which we divested effective January 28, 2019, and (v) 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,
2019
2018
Increase
(Decrease)
$
1,886 $
1,785
670
882
641
919
3,438 $
3,345
168 $
132
86
386 $
175 $
1
62
238 $
2,229 $
803
1,030
4,062 $
62 $
23
2
87 $
160
114
84
358
211
1
73
285
2,156
756
1,076
3,988
58
20
4
82
$
$
$
$
$
$
$
$
$
5.7 %
4.5 %
(4.0)%
2.8 %
5.0 %
15.8 %
2.4 %
7.8 %
(17.1)%
— %
(15.1)%
(16.5)%
3.4 %
6.2 %
(4.3)%
1.9 %
6.9 %
15.0 %
(50.0)%
6.1 %
Continuing Operations
Three Months Ended December 31,
2019
2018
Increase
(Decrease)
Salaries, wages and benefits per adjusted patient admission(1)
$
6,153 $
Supplies per adjusted patient admission(1)
Other operating expenses per adjusted patient admission(1)
Total per adjusted patient admission
2,190
2,869
5,791
2,079
2,991
$
11,212 $
10,861
6.3 %
5.3 %
(4.1)%
3.2 %
(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 6.3% in the three months ended December 31, 2019 compared to the same period
in 2018. This change was primarily due to annual merit increases for certain of our employees, a greater number of employed physicians and increased incentive
compensation expense, 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, 2019 compared to the three months ended December 31, 2018.
Supplies expense per adjusted patient admission increased 5.3% in the three months ended December 31, 2019 compared to the three months
ended December 31, 2018. 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.
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Other operating expenses per adjusted patient admission decreased by 4.1% in the three months ended December 31, 2019 compared to the prior-year
period. This decrease was primarily due to lower malpractice expense, which was $43 million lower in the 2019 period compared to the 2018 period, and decreased
costs associated with funding indigent care services, which costs were substantially offset by decreased net patient revenues, partially offset by higher medical fees
and the impact of gains on asset sales in the 2018 period primarily related to the sale of an equity method investment. The 2019 period included a favorable
adjustment of approximately $5 million from a 21 basis point increase in the interest rate used to estimate the discounted present value of projected future
malpractice liabilities compared to an unfavorable adjustment of approximately $8 million from a 42 basis point decrease in the interest rate in the 2018 period.
LIQUIDITY AND CAPITAL RESOURCES OVERVIEW
Cash and cash equivalents were $262 million at December 31, 2019 compared to $314 million at September 30, 2019.
Significant cash flow items in the three months ended December 31, 2019 included:
•
•
•
•
•
•
•
•
Net cash provided by operating activities before interest, taxes, discontinued operations and restructuring charges, acquisition-related costs, and
litigation costs and settlements of $812 million;
Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements of $56 million;
Capital expenditures of $178 million;
Proceeds from the sales of facilities and other assets of $19 million;
Proceeds from sale of marketable securities, long-term investments and other assets of $30 million;
Interest payments of $241 million;
$275 million of net repayments of cash borrowings under our credit facility; and
$84 million of distributions paid to noncontrolling interests.
Net cash provided by operating activities was $1.233 billion in the year ended December 31, 2019 compared to $1.049 billion in the year ended
December 31, 2018. Key factors contributing to the change between the 2019 and 2018 periods include the following:
•
•
•
•
•
An increase of $29 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements;
Decreased cash receipts of $13 million related to supplemental Medicaid programs in California and Texas;
Lower interest payment of $30 million in the 2019 period;
Lower income tax payments of $13 million in the 2019 period;
A $146 million increase in income from continuing operations before income taxes, gain (loss) from early extinguishment of debt, other non-
operating expense, net, interest expense, net gains (losses) on sales, consolidation and deconsolidation of facilities, litigation and investigation costs,
impairment and restructuring charges, and acquisition-related costs, depreciation and amortization and income (loss) from divested operations and
closed businesses (i.e., our health plan businesses) in the year ended December 31, 2019 compared to the year ended December 31, 2018; and
•
The timing of other working capital items.
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 uninsured patients (that is, patients who do not have health insurance and are not covered by
some other form of third-party arrangement).
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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 from:
Medicare
Medicaid
Managed care(1)
Uninsured
Indemnity and other
(1)
Includes Medicare and Medicaid managed care programs.
Years Ended December 31,
2019
2018
2017
20.1%
8.3%
66.2%
0.7%
4.7%
20.5%
9.2%
65.4%
0.7%
4.2%
21.9%
8.8%
64.6%
0.6%
4.1%
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)
Charity and uninsured
Indemnity and other
(1)
Includes Medicare and Medicaid managed care programs.
GOVERNMENT PROGRAMS
Years Ended December 31,
2019
2018
2017
24.8%
6.2%
60.3%
6.0%
2.7%
25.4%
6.3%
59.7%
6.0%
2.6%
26.0%
6.5%
59.6%
5.5%
2.4%
The Centers for Medicare and Medicaid Services (“CMS”), an agency of the U.S. Department of Health and Human Services (“HHS”), is the single
largest payer of healthcare services in the United States. Approximately 60 million individuals rely on healthcare benefits through Medicare, and approximately 72
million individuals are enrolled in Medicaid and the Children’s Health Insurance Program (“CHIP”). These three programs are authorized by federal law and
administered by CMS. Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, as well as some younger people
with certain disabilities and conditions, and is provided without regard to income or assets. Medicaid is co-administered by the states and is jointly funded by the
federal government and state governments. Medicaid is the nation’s main public health insurance program for people with low incomes and is the largest source of
health coverage in the United States. The CHIP, which is also co-administered by the states and jointly funded, provides health coverage to children in families
with incomes too high to qualify for Medicaid, but too low to afford private coverage. Unlike Medicaid, the CHIP is limited in duration and requires the enactment
of reauthorizing legislation. During the three months ended March 31, 2018, separate pieces of legislation were enacted extending CHIP funding for a total of 10
years from federal fiscal year (“FFY”) 2018 (which began on October 1, 2017) through FFY 2027.
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 expired on September 30, 2019, as well as additional negative “productivity adjustments” to the annual market basket updates,
which began in 2011 and do not expire under current law; 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 in FFY 2020.
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Effective January 2019, Congress eliminated the financial penalty for noncompliance under the ACA’s individual mandate provision, which requires most
U.S. citizens and noncitizens who lawfully reside in the country to have health insurance meeting specified standards. The Congressional Budget Office and the
Joint Committee on Taxation have estimated that elimination of the individual mandate penalty will result in seven million more uninsured by 2021 and put upward
pressure on health insurance premiums. Members of Congress and other politicians have also proposed measures that would expand government-sponsored
coverage, including single-payer plans, such as Medicare for All. 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, in December 2019, a federal appeals court panel agreed with
a December 2018 ruling by the U.S. District Court for the Northern District of Texas in the matter of Texas v. United States that the ACA’s individual mandate is
unconstitutional now that Congress has eliminated the tax penalty that was intended to enforce it. The appeals court sent the case back to the lower court to
determine how much of the rest of the ACA, if any, can stand in light of its ruling. On January 3, 2020, the U.S. House of Representatives, 20 states and the District
of Columbia filed a petition asking the U.S. Supreme Court to review the case on an expedited basis, but their petition was denied on January 21, 2020. Pending a
final decision on the matter, the current administration has continued to enforce the ACA.
We are unable to predict the impact on our future revenues and operations of (1) the final decision in Texas v. United States and other court challenges, (2)
administrative, regulatory and legislative changes, including expansion of government-sponsored coverage, or (3) market reactions to those changes. However, if
the ultimate impact is that significantly fewer individuals have private or public health coverage, we likely will experience decreased patient 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, 2019, 2018
and 2017 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,
2019
2018
2017
$
1,512 $
1,526 $
1,659
133
82
737
232
192
137
83
748
228
160
162
89
762
265
306
Total Medicare net patient service revenues
$
2,888 $
2,882 $
3,243
(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.
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.
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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, changes in labor data by geographic area, and other policies. 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 an average 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 (i.e., charity and bad debt) as a percentage of the total uncompensated care cost of all DSH
hospitals be used to allocate the pool. As of December 31, 2019, 55 of our acute care hospitals in continuing operations qualified for Medicare DSH payments.
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
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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, 2019, 27 of our hospitals in continuing operations 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, 2019, 20 of our
general hospitals in continuing operations 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, 2019, we operated
one freestanding IRF, and 15 of our general hospitals in continuing operations operated IRF units.
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.
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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 2019 Medicare fee-for-service (“FFS”) improper payment rate for the program is approximately 7.3%. The FFY 2019
error rate for Hospital IPPS payments is approximately 3.6%. 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 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 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 18.4%, 19.8% and 20.4% 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,
2019, 2018 and 2017, respectively. We also receive DSH and other supplemental revenues under various state Medicaid programs. For the years ended
December 31, 2019, 2018 and 2017, our total Medicaid revenues attributable to DSH and other supplemental revenues were $782 million, $847 million and
$864 million, respectively. The $782 million of total Medicaid revenues attributable to DSH and other supplemental revenues for the year ended December 31,
2019 was comprised of $246 million related to the California provider fee program described below, $263 million related to the Michigan provider fee program,
$137 million related to Medicaid DSH programs in multiple states, $118 million related to the Texas 1115 waiver program described below, and $18 million from a
number of other state and local programs.
Several states in which we operate continue to 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 supplemental payment programs authorized under the Act. Continuing pressure on state budgets and other factors
could adversely affect the Medicaid supplemental payments our hospitals receive.
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The California Department of Health Care Services’ Hospital Quality Assurance Fee (“HQAF”) program provides funding for supplemental payments to
California hospitals that serve Medi-Cal and uninsured patients. Our hospitals recognized HQAF revenues, net of provider fees and other expenses, of $246
million, $262 million and $267 million in calendar years 2019, 2018 and 2017, respectively. 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 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 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. In 2019, we recognized $118 million of revenues from the
Waiver program. Separately, during the same period, we incurred $70 million of expenses related to funding indigent care services by certain of our Texas
hospitals. 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 or future legislation and/or regulatory changes to
address budget gaps, deficits, Medicaid expansion, provider fee programs or Medicaid Section 1115 waivers, we are unable to assess the effect that any such
legislation or regulatory action might have on our business; however, the impact on our future financial position, results of operations or cash flows could be
material.
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, 2019, 2018 and 2017 are set forth in the following table. These revenues are
presented net of provider assessments, which are reported as an offset reduction to fee-for-service Medicaid revenue.
Hospital Location
Alabama
Arizona
California
Florida
Georgia
Illinois
Massachusetts
Michigan
Missouri
North Carolina
Pennsylvania
South Carolina
Tennessee
Texas
Years Ended December 31,
2019
2018
2017
$
91 $
91 $
159
855
222
—
5
92
714
—
—
—
55
37
165
875
231
—
89
94
749
—
—
8
53
35
$
409
2,639 $
398
2,788 $
88
177
862
232
(3)
143
83
710
2
(1)
285
46
36
371
3,031
Medicaid and Managed Medicaid revenues comprised 45% and 55%, 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 years ended December 31, 2019.
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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 (“IPPS”). The updates
generally become effective October 1, the beginning of the federal fiscal year. In August 2019, CMS issued the final Changes to the Hospital Inpatient Prospective
Payment Systems for Acute Care Hospitals and Fiscal Year 2020 Rates (“August 2019 Rule”) and, in October 2019, CMS issued a notice (“October 2019
Correction Notice”) correcting minor errors in the August 2019 Rule. The August 2019 Rule and the October 2019 Correction Notice are collectively referred to as
the “Final IPPS Rule”. The Final IPPS Rule includes the following payment and policy changes:
•
•
•
•
•
A market basket increase of 3.0% for Medicare severity-adjusted diagnosis-related group (“MS-DRG”) operating payments for hospitals reporting
specified quality measure data and that are meaningful users of electronic health record technology; CMS also finalized certain adjustments to the
3.0% market basket increase that result in a net operating payment update of 3.1% (before budget neutrality adjustments), including:
•
•
A multifactor productivity reduction required by the ACA of 0.4%; and
A 0.5% increase required under the Medicare Access and CHIP Reauthorization Act of 2015;
Updates to the three factors used to determine the amount and distribution of Medicare uncompensated care disproportionate share (“UC-DSH”)
payments; in addition to adjusting the UC-DSH amounts, CMS will base the distribution of the FFY 2020 UC-DSH amounts on uncompensated care
costs reported by hospitals in the 2015 cost reports, which reflects changes to the calculation of a hospital’s share of the UC-DSH amounts by:
(1) removing low income days; and (2) using a single year of uncompensated care cost in lieu of the three-year averaging methodology used in recent
years;
A 0.64% net increase in the capital federal MS-DRG rate;
An increase in the cost outlier threshold from $25,769 to $26,552; and
Changes in the calculation of the wage index areas that include:
•
•
•
Increasing the wage index for hospitals with a wage index below the 25th percentile and applying a uniform budget neutrality factor to the
IPPS base rates to offset the estimated increase in IPPS payments to hospitals with wage index values below the 25th percentile;
A refinement to the calculation of the “rural floor” wage index; and
A one-year stop-loss transition for a hospital that experiences a decline of greater than 5% in its wage index.
According to CMS, the combined impact of the payment and policy changes in the Final IPPS Rule for operating costs will yield an average 2.8%
increase in Medicare operating MS-DRG fee-for-service (“FFS”) payments for hospitals in large urban areas (populations over one million), and an average 2.8%
increase in operating MS-DRG FFS payments for proprietary hospitals in FFY 2020. We estimate that all of the payment and policy changes affecting operating
MS-DRG payments, including those affecting Medicare UC-DSH amounts, will result in an estimated 1.4% increase in our annual Medicare FFS IPPS payments,
which yields an estimated increase of approximately $28 million. Because of the uncertainty associated with
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various factors that may influence our future IPPS payments by individual hospital, including legislative, regulatory or legal actions, admission volumes, length of
stay and case mix, 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 1, 2019, CMS released policy changes and payment rates for the Hospital Outpatient Prospective Payment System (“OPPS”) and
Ambulatory Surgical Center (“ASC”) Payment System for calendar year (“CY”) 2020 (“Final OPPS/ASC Rule”). The Final OPPS/ASC Rule includes the
following payment and policy changes:
•
•
•
•
•
An estimated net increase of 2.6% for the OPPS rates based on an estimated market basket increase of 3.0% reduced by a multifactor productivity
adjustment required by the ACA of 0.4%;
A continuation of the reduced payment amount for separately payable drugs acquired with a discount under CMS’ 340B program (“340B Drugs”)
equal to a rate of average sales price (“ASP”) minus 22.5%. CMS is also soliciting comments on alternative payment policies for 340B Drugs, as well
as the appropriate remedy for CYs 2018 and 2019. CMS recently announced its intent to conduct a 340B hospital survey to collect drug acquisition
cost data for CY 2018 and 2019. Such data may be used in setting the future Medicare payment amount for drugs acquired by 340B, and may be used
to devise a remedy for prior years in the event that CMS does not prevail on appeal in the pending litigation discussed in greater detail below;
A prior authorization process for five categories of services; and
A 2.6% increase to the ASC payment rates.
In the CY 2020 Proposed OPPS/ASC Rule, CMS proposed a policy that would require hospitals to post negotiated prices for certain services. CMS
subsequently separated the proposal from the CY 2020 OPPS rulemaking, and in November 2019 issued a final rule that requires all hospitals to
display payer-specific negotiated charges, minimum and maximum negotiated charges, and discounted cash prices for at least 300 “shoppable”
services. The final rule is effective on January 1, 2021.
CMS projects that the combined impact of the payment and policy changes in the Final OPPS/ASC Rule will yield an average 1.3% increase in Medicare
FFS OPPS payments for all hospitals, an average 1.2% increase in Medicare FFS OPPS payments for hospitals in large urban areas (populations over one million),
and an average 2.1% 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 $10 million, which
represents an increase of approximately 1.6%. 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 Medicare Access and CHIP Reauthorization Act of 2015
The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) replaced the Medicare Sustainable Growth Rate methodology with a new
system for establishing the annual updates to the MPFS beginning in 2019. The new payment 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 2019 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.
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Payment and Policy Changes to the Medicare Physician Fee Schedule
On November 1, 2019, CMS issued a final rule that includes updates to payment policies, payment rates, quality provisions and other policies for services
reimbursed under the MPFS for CY 2020. With the budget neutrality adjustment to account for changes in the relative value units required by law, the final MPFS
conversion factor for 2020 will increase by approximately 0.14%. CMS estimates that the impact of the payment and policy changes in the final rule will result in
no change in aggregate FFS MPFS payments across all specialties.
Medicaid DSH Reductions
On September 23, 2019, CMS issued a final rule for calculating the $4 billion in reductions to state Medicaid DSH allotments for FFY 2020 and the $8
billion for each subsequent year through 2025 required under current law. During the three months ended December 31, 2019, the President signed the Further
Consolidated Appropriations Act, 2020 which delays through May 22, 2020 the FFY 2020 Medicaid DSH reduction that otherwise would have begun on
October 1, 2019. If no further legislative action is taken, we expect our Medicaid DSH revenues to decrease by $45 million for FFY 2020 and an incremental $45
million for FFY 2021, and remain at that level through FFY 2025. We are unable to predict what legislative action, if any, Congress will ultimately take with
respect to a further delay in the Medicaid DSH reductions and/or DSH allotment policies.
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 provided
temporary financial incentives to hospitals and physicians to become “meaningful users” of electronic health records (“EHR”). 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, continue until a hospital achieves compliance.
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, we cannot provide any assurances regarding the effect of such changes on our hospital’s continued
compliance or on our net revenues.
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.
Significant Litigation
340B Litigation
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 final rule regarding OPPS payment and policy changes for CY 2018, CMS reduced the payment
for 340B Drugs from average sales price (“ASP”) plus 6% to ASP minus 22.5% and made a corresponding budget-neutral increase to payments to all hospitals for
other drugs and services reimbursed under the OPPS (the “340B Payment Adjustment”). In the final rule regarding OPPS payment and policy
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changes for CY 2019 (“CY 2019 OPPS Final Rule”), CMS continued the 340B Payment Adjustment. Certain hospital associations and hospitals commenced
litigation challenging CMS’ authority to impose the 340B Payment Adjustment for CYs 2018 and 2019. During the three months ended June 30, 2019, the U.S.
District Court for the District of Columbia (the “District Court”) held that the adoption of the 340B Payment Adjustment in the CY 2019 OPPS Final Rule
exceeded CMS’ statutory authority. This holding followed the District Court’s December 2018 conclusion that HHS exceeded its statutory authority in reducing the
CY 2018 OPPS for the 340B Payment Adjustment. The District Court did not grant a permanent injunction to the 340B Payment Adjustment, nor did it vacate the
2018 and 2019 rules. Also during the three months ended June 30, 2019, the District Court issued a Memorandum Opinion granting HHS’ motion for entry of final
judgment, thus allowing HHS to proceed with a pending appeal of the District Court’s rulings at the U.S. Court of Appeals for the District of Columbia Circuit (the
“Circuit Court”). During the three months ended December 31, 2019, a nationwide coalition of hospitals sued HHS to block implementation of the 340B rate cuts
contained in the CY 2020 Final OPPS/ASC Rule. We cannot predict the ultimate outcome of the 340B litigation; however, CMS’ remedy and/or an unfavorable
outcome of the litigation could have an adverse effect on the Company’s net revenues and cash flows.
Medicare Disproportionate Share Hospital Litigation
Medicare makes additional payments to hospitals that treat a disproportionately high share of low-income patients, Prior to October 1, 2013, DSH
payments were based on each hospital’s low income utilization for each payment year (the “Pre-ACA DSH Formula”). In the final rule regarding IPPS payment
and policy changes for FFY 2005, CMS revised its policy on the calculation of one of the ratios used in the Pre-ACA DSH Formula. A group of hospitals
challenged the policy change claiming that CMS failed to provide adequate notice and a comment period. The District Court vacated the rule. CMS appealed the
ruling, and the Circuit Court affirmed the District Court’s decision. Since then, CMS has continued to use the vacated policy and was again met with legal
challenges. In 2019, the U.S. Supreme Court (“SCOTUS”) upheld the Circuit Court’s decision that CMS’ continued use of the vacated policy is not legal. Although
the SCOTUS decision applies only to the 2012 ratios for the plaintiff hospitals, it establishes a precedent that we believe will result in a favorable outcome in our
pending Medicare DSH appeals for years 2005-2013; however, we cannot predict the timing or outcome of our appeals or when and how CMS will implement the
SCOTUS decision. A favorable outcome of our DSH appeals could have a material impact on our future revenues and cash flows.
PRIVATE INSURANCE
Managed Care
We currently have thousands of managed care contracts with various HMOs and PPOs. HMOs generally maintain a full-service healthcare delivery
network comprised of physician, hospital, pharmacy and ancillary service providers that HMO members must access through an assigned “primary care” physician.
The member’s care is then managed by his or her primary care physician and other network providers in accordance with the HMO’s quality assurance and
utilization review guidelines so that appropriate healthcare can be efficiently delivered in the most cost-effective manner. HMOs typically provide reduced benefits
or reimbursement (or none at all) to their members who use non-contracted healthcare providers for non-emergency care.
PPOs generally offer limited benefits to members who use non-contracted healthcare providers. PPO members who use contracted healthcare providers
receive a preferred benefit, typically in the form of lower co-pays, co-insurance or deductibles. As employers and employees have demanded more choice,
managed care plans have developed hybrid products that combine elements of both HMO and PPO plans, including high-deductible healthcare plans that may have
limited benefits, but cost the employee less in premiums.
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, 2019, 2018 and 2017 was $9.516 billion, $9.213 billion and $9.583 billion, respectively. Our top ten
managed care payers generated 62% of our managed care net patient service revenues for the year ended December 31, 2019. National payers generated 43% of
our managed care net patient service revenues for the year ended December 31, 2019. The remainder comes from regional or local payers. At December 31, 2019
and 2018, 65% and 61%, 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
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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,
2019, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $16 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, 2019, 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 101% higher than our aggregate yield on a per admission basis from government payers, including managed Medicare and Medicaid insurance
plans.
Indemnity
An indemnity-based agreement generally requires the insurer to reimburse an insured patient for healthcare expenses after those expenses have been
incurred by the patient, subject to policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her
utilization of healthcare and selection of healthcare providers.
UNINSURED PATIENTS
Uninsured patients are patients who do not qualify for government programs payments, such as Medicare and Medicaid, do not have some form of private
insurance and, therefore, are responsible for their own medical bills. A significant number of our uninsured patients are admitted through our hospitals’ emergency
departments and often require high-acuity treatment that is more costly to provide and, therefore, results in higher billings, which are the least collectible of all
accounts.
Self-pay accounts receivable, which include amounts due from uninsured patients, as well as co-pays, co-insurance amounts and deductibles owed to us
by patients with insurance, pose significant collectability problems. At December 31, 2019 and 2018, approximately 4% and 6%, respectively, of our net accounts
receivable for our Hospital Operations and other segment was self-pay. Further, a significant portion of our implicit price concessions relates to self-pay amounts.
We provide revenue cycle management services through Conifer, which is subject to various statutes and regulations regarding consumer protection 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.
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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. Under the Compact, the discount offered to uninsured patients is recognized as a contractual
allowance, which reduces net operating revenues at the time the self-pay accounts are recorded. The uninsured patient accounts, net of contractual allowances
recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for self-pay accounts and other
factors that affect the estimation process.
We also provide financial assistance through our charity and uninsured discount programs to uninsured patients who are unable to pay for the healthcare
services they receive. Our policy is not to pursue collection of amounts determined to qualify for financial assistance; therefore, we do not report these amounts in
net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital’s eligibility for Medicaid DSH payments. These
payments are intended to mitigate our cost of uncompensated care. Some states have also developed provider fee or other supplemental payment programs to
mitigate the shortfall of Medicaid reimbursement compared to the cost of caring for Medicaid patients.
The following table shows our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other
operating expenses and which exclude the costs of our health plan businesses) of caring for our uninsured and charity patients in the years ended December 31,
2019, 2018 and 2017.
Estimated costs for:
Uninsured patients
Charity care patients
Total
Years Ended December 31,
2019
2018
2017
$
$
666 $
156
822 $
640 $
124
764 $
648
121
769
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.
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RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2019 COMPARED TO THE YEAR ENDED DECEMBER 31, 2018
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, 2019 and 2018. We present metrics as a percentage of net
operating revenues because a significant portion of our costs are variable.
Net operating revenues:
Hospital Operations and other
Ambulatory Care
Conifer
Inter-segment eliminations
Net operating revenues
Equity in earnings of unconsolidated affiliates
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
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
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,
2019
2018
Increase
(Decrease)
$
15,522 $
15,285 $
2,158
1,372
(573)
18,479
175
8,704
3,057
4,189
850
185
141
15
2,085
1,533
(590)
18,313
150
8,634
3,004
4,256
802
209
38
(127)
$
1,513 $
1,647 $
Years Ended December 31,
2019
2018
100.0%
0.9%
100.0 %
0.8 %
47.1%
16.5%
22.6%
4.6%
1.0%
0.8%
0.1%
8.2%
47.1 %
16.4 %
23.3 %
4.4 %
1.1 %
0.2 %
(0.7)%
9.0 %
237
73
(161)
17
166
25
70
53
(67)
48
(24)
103
142
(134)
Increase
(Decrease)
— %
0.1 %
— %
0.1 %
(0.7)%
0.2 %
(0.1)%
0.6 %
0.8 %
(0.8)%
Total net operating revenues increased by $166 million, or 0.9%, for the year ended December 31, 2019 compared to the year ended December 31, 2018.
Hospital Operations and other net operating revenues net of inter-segment eliminations increased by $254 million, or 1.7%, for the year ended December 31, 2019
compared to the same period in 2018, primarily due to increased acuity and improved managed care pricing. Ambulatory Care net operating revenues increased by
$73 million, or 3.5%, for the year ended December 31, 2019 compared to the prior-year period. This growth was driven by an increase in same-facility net
operating revenues of $133 million and an increase from acquisitions of $109 million, partially offset by a decrease of $117 million due to the sale of Aspen and a
decrease of $52 million due to the deconsolidation of a facility. Conifer net operating revenues decreased by $161 million, or 10.5%, for the year ended
December 31, 2019 compared to 2018. Conifer revenues from third-party customers, which are not eliminated in consolidation, decreased $144 million, or 15.3%,
for the year ended December 31, 2019 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 65 hospitals operated throughout the years ended December 31, 2019 and
2018. Our same-hospital information excludes the results of two Philadelphia-area hospitals, which we divested effective January 11, 2018, MacNeal Hospital,
which we divested
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effective March 1, 2018, Des Peres Hospital, which we divested effective May 1, 2018, and three Chicago-area hospitals, which we divested effective January 28,
2019. We present same-hospital data because we believe it provides investors with useful information regarding the performance of our hospitals and other
operations that are comparable for the periods presented.
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,
2019
2018
Increase
(Decrease)
7,326 $
2,602
3,578
13,506 $
635 $
448
340
6,888
2,484
3,377
12,749
644
430
359
1,423 $
1,433
727 $
4
255
986 $
8,688 $
3,054
4,173
15,915 $
240 $
86
11
337 $
863
5
308
1,176
8,395
2,919
4,044
15,358
222
80
17
319
6.4 %
4.8 %
6.0 %
5.9 %
(1.4)%
4.2 %
(5.3)%
(0.7)%
(15.8)%
(20.0)%
(17.2)%
(16.2)%
3.5 %
4.6 %
3.2 %
3.6 %
8.1 %
7.5 %
(35.3)%
5.6 %
$
$
$
$
$
$
$
$
$
$
•
•
•
Hospital Operations and other, which is comprised of our acute care and specialty hospitals, ancillary outpatient facilities, urgent care centers, micro-
hospitals 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, 2019.
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 revenue cycle management and value-based care services to hospitals, healthcare systems, physician practices, employers
and other customers.
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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 65 hospitals operated throughout the years ended December 31, 2019 and 2018. Our same-hospital
information excludes the results of two Philadelphia-area hospitals, which we divested effective January 11, 2018, MacNeal Hospital, which we divested effective
March 1, 2018, Des Peres Hospital, which we divested effective May 1, 2018, and three Chicago-area hospitals, which we divested effective January 28, 2019. We
present same-hospital data because we believe it provides investors with useful information regarding the performance of our hospitals and other operations that are
comparable for the periods presented. We present certain metrics on a per-adjusted-patient-admission and per-adjusted-patient day basis to show trends other than
volume. We present certain metrics as a percentage of net operating revenues because a significant portion of our operating expenses are variable.
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,
2019
65
683,641
1,222,856
642,303
41,338
489,570
2018
65
668,120
1,200,388
627,674
40,446
462,921
94.0%
6.0%
71.6%
93.9%
6.1%
69.3%
179,940
240,221
420,161
3,181,793
5,572,035
4.65
17,210
17,215
180,038
243,156
423,194
3,059,671
5,403,457
4.58
17,237
17,240
Increase
(Decrease)
—
(1)
2.3 %
1.9 %
2.3 %
2.2 %
5.8 %
0.1 % (1)
(0.1)% (1)
2.3 % (1)
(0.1)%
(1.2)%
(0.7)%
4.0 %
3.1 %
1.5 %
(0.2)%
(0.1)%
50.6%
48.6%
2.0 % (1)
(1)
(2)
The change is the difference between 2019 and 2018 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 2019 and 2018 amounts shown.
58
Same-Hospital
Continuing Operations
Years Ended December 31,
2019
6,755,166
6,307,907
447,259
2,561,805
240,221
2018
6,695,506
6,251,409
444,097
2,535,102
243,156
93.4%
6.6%
93.4%
6.6%
Increase
(Decrease)
0.9 %
0.9 %
0.7 %
1.1 %
(1.2)%
— %
— %
(1)
(1)
Table of Contents
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,
2019
2018
14,918 $
14,201
14,339 $
11,726 $
2,573 $
13,707
11,419
2,537
$
$
$
$
Increase
(Decrease)
5.0%
4.6%
2.7%
1.4%
(1)
(2)
Revenues are net of implicit price concessions.
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 2019 and 2018 amounts shown.
Revenues
Same-Hospital
Continuing Operations
Years Ended December 31,
2019
2018
Increase
(Decrease)
49.1%
17.4%
24.0%
48.5%
17.5%
23.8%
0.6 %
(0.1)%
0.2 %
(1)
(1)
(1)
Same-hospital net operating revenues increased $717 million, or 5.0%, during the year ended December 31, 2019 compared to the year ended
December 31, 2018, primarily due to volume growth, increased acuity and improved terms of our managed care contracts. Same-hospital admissions increased
2.3% in the year ended December 31, 2019 compared to the prior-year period. Same-hospital outpatient visits increased 0.9% in the year ended December 31, 2019
compared to the prior-year period.
The following table shows the consolidated net accounts receivable by payer at December 31, 2019 and 2018:
December 31, 2019
December 31, 2018
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
$
189 $
69
12
1,618
25
76
162
337
2,488
253
2
$
2,743 $
229
74
18
1,467
47
94
148
325
2,402
191
2
2,595
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 certain unbilled accounts, as well as 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. Estimated uncollectable amounts are
generally considered implicit price concessions that are a direct reduction to patient accounts receivable rather than allowance for doubtful accounts. 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, 2019.
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Collection of accounts receivable has been a key area of focus, particularly over the past several years. At December 31, 2019, our Hospital Operations
and other segment collection rate on self-pay accounts was approximately 22.5%. Our self-pay collection rate includes payments made by patients, including co-
pays, co-insurance amounts and deductibles paid by patients with insurance. Based on our accounts receivable from uninsured patients and co-pays, co-insurance
amounts and deductibles owed to us by patients with insurance at December 31, 2019, 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
$10 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 98.0% at December 31, 2019.
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 $2.476 billion and $2.384 billion at December 31, 2019 and 2018,
respectively, excluding cost report settlements receivable and valuation allowances of $12 million and $18 million, respectively, at December 31, 2019 and 2018:
0-60 days
61-120 days
121-180 days
Over 180 days
Total
0-60 days
61-120 days
121-180 days
Over 180 days
Total
Medicare
Medicaid
91%
5%
2%
2%
100%
49%
21%
10%
20%
100%
December 31, 2019
Managed
Care
Indemnity,
Self-Pay
and Other
Total
56%
16%
10%
18%
100%
21%
14%
10%
55%
100%
Medicare
Medicaid
December 31, 2018
Managed
Care
Indemnity,
Self-Pay
and Other
Total
89%
6%
2%
3%
100%
51%
24%
10%
15%
100%
60%
14%
8%
18%
100%
24%
15%
10%
51%
100%
51%
15%
9%
25%
100%
54%
14%
8%
24%
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, 2019, we had a cumulative total of patient account assignments to Conifer of $2.824 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
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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 96% 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, 2019 and 2018 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
December 31,
2019
2018
$
$
89 $
11
4
11
115 $
72
16
3
5
96
Same-hospital salaries, wages and benefits as a percentage of net operating revenues increased by 60 basis points to 49.1% in the year ended
December 31, 2019 compared to the prior-year period. Same-hospital net operating revenues increased 5.0% in the year ended December 31, 2019 compared to the
year ended December 31, 2018, and same-hospital salaries, wages and benefits increased by 6.4% in the 2019 period compared to the 2018 period. The change 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, a
greater number of employed physicians and increased incentive compensation expense, partially offset by decreased health benefits costs, improved workers’
compensation experience and the impact of previously announced workforce reductions as part of our enterprise-wide cost reduction initiatives. Salaries, wages
and benefits expense for the years ended December 31, 2019 and 2018 included stock-based compensation expense of $30 million and $25 million, respectively.
Supplies
Same-hospital supplies expense as a percentage of net operating revenues decreased by 10 basis points to 17.4% in the year ended December 31, 2019
compared to the 2018 period. Supplies expense was impacted by the benefits of the group-purchasing strategies and supplies-management services we utilize to
reduce costs, partially offset by increased costs from certain higher acuity supply-intensive surgical services.
Other Operating Expenses, Net
Same-hospital other operating expenses as a percentage of net operating revenues increased by 20 basis points to 24.0% in the year ended December 31,
2019 compared to 23.8% in the 2018 period. Same-hospital other operating expenses increased by $201 million, or 6.0%, for the year ended December 31, 2019
compared to the year ended December 31, 2018. The changes in other operating expenses included:
•
•
•
•
•
increased medical fees of $88 million;
increased software costs of $22 million;
increased consulting and legal fees of $23 million;
decreased malpractice expense of $6 million; and
decreased gains on asset sales of $21 million compared to the 2018 period primarily related to the sale of an equity method investment in 2018.
Same-hospital malpractice expense in the 2019 period included an unfavorable adjustment of approximately $20 million from a 76 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 $10
million from an 26 basis point increase in the interest rate in the 2018 period.
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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.
Our role as an owner and day-to-day manager provides us with significant influence over the operations of each facility. For many of the facilities our
Ambulatory Care segment operates (108 of 346 facilities at December 31, 2019), 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 238 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 69% 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, 2019 Compared to the Year Ended December 31, 2018
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,
2019
2018
Increase (Decrease)
$
$
$
$
$
2,158 $
2,085
160 $
635 $
448 $
340 $
140
644
430
359
3.5 %
14.3 %
(1.4)%
4.2 %
(5.3)%
Our Ambulatory Care net operating revenues increased by $73 million, or 3.5%, for the year ended December 31, 2019 compared to the year ended
December 31, 2018. This growth was driven by an increase in same-facility net operating revenues of $133 million and an increase from acquisitions of $109
million, partially offset by a decrease of $117 million due to the sale of Aspen and a decrease of $52 million due to the deconsolidation of a facility.
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Salaries, wages and benefits expense decreased by $9 million, or 1.4%, for the year ended December 31, 2019 compared to the year ended December 31,
2018. The change was driven by a decrease of $44 million due to the sale of Aspen and a decrease of $13 million due to the deconsolidation of a facility, partially
offset by an increase in same-facility salaries, wages and benefits expense of $19 million and an increase from acquisitions of $29 million.
Supplies expense increased by $18 million, or 4.2%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The change
was driven by an increase in same-facility supplies expense of $29 million and an increase from acquisitions of $28 million, partially offset by a decrease of $25
million due to the sale of Aspen and a decrease of $14 million due to the deconsolidation of a facility.
Other operating expenses decreased by $19 million, or 5.3%, for the year ended December 31, 2019 compared to the year ended December 31, 2018. The
change was driven by a decrease of $32 million due to the sale of Aspen and a decrease of $10 million due to the deconsolidation of a facility, partially offset by an
increase in same-facility other operating expenses of $3 million and an increase from acquisitions of $20 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, 2019
6.1%
3.7%
2.2%
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, 2019, 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, 2018
Acquisitions
De novo
Dispositions/Mergers
Total increase in number of facilities operated
Year Ended December 31, 2019
218
128
346
10
7
(8)
9
During the year ended December 31, 2019, we acquired controlling interests in two multi-specialty surgery centers in Virginia, multi-specialty surgery
centers in Florida, Tennessee and Colorado, a surgical hospital in Texas, and a single-specialty endoscopy center in Florida. We paid cash totaling approximately
$15 million for these acquisitions. We also acquired a controlling interest in three multi-specialty surgery centers located in California and a single-specialty
endoscopy center in Tennessee, as well as a multi-specialty surgery center in Pennsylvania in which we already had an equity method investment, for cash totaling
$4 million. All of these acquired facilities are jointly owned with local physicians, and a healthcare system partner is an owner in all of the facilities except the two
facilities in Florida. Also during the year ended December 31, 2019, we acquired noncontrolling interests in two multi-specialty surgery centers and a single-
specialty endoscopy center, all of which are located in New Jersey. We paid cash totaling approximately $11 million for these ownership interests. All three of
these facilities are 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
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construction or other business growth opportunities. During the year ended December 31, 2019, we invested approximately $14 million in such transactions.
Conifer Segment
Our Conifer segment generated net operating revenues of $1.372 billion and $1.533 billion during the years ended December 31, 2019 and 2018,
respectively, a portion of which was eliminated in consolidation as described in Note 23 to the Consolidated Financial Statements. Conifer revenues from third-
party customers, which are not eliminated in consolidation, decreased $144 million, or 15.3%, for the year ended December 31, 2019 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.
Salaries, wages and benefits expense for Conifer decreased $136 million, or 15.8%, in the year ended December 31, 2019 compared to the year ended
December 31, 2018 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 $53 million, or 17.2%, in the year ended December 31, 2019 compared to the year ended December 31,
2018 primarily due to the impact of our enterprise-wide cost reduction initiatives.
Agreements document the current 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; however, execution of a restructured services agreement between Conifer and Tenet is a condition
to completion of the proposed spin-off. Conifer’s contract with Tenet represented 41.8% of the net operating revenues Conifer recognized in the year ended
December 31, 2019.
Consolidated
Impairment and Restructuring Charges, and Acquisition-Related Costs
During the year ended December 31, 2019, we recorded impairment and restructuring charges and acquisition-related costs of $185 million, consisting of
$42 million of impairment charges, $137 million of restructuring charges and $6 million of acquisition-related costs. Impairment charges consisted of $26 million
of charges to write-down assets held for sale to their estimated fair value, less estimated costs to sell, for certain of our Memphis-area facilities and $16 million of
other impairment charges. Restructuring charges consisted of $57 million of employee severance costs, $28 million related to our Global Business Center in the
Republic of the Philippines, $6 million of contract and lease termination fees, and $46 million of other restructuring costs. Acquisition-related costs consisted of
$6 million of transaction costs. Our impairment and restructuring charges and acquisition-related costs for the year ended December 31, 2019 were comprised of
$111 million from our Hospital Operations and other segment, $18 million from our Ambulatory Care segment and $56 million from our Conifer segment.
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 then 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.
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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.
Litigation and Investigation Costs
Litigation and investigation costs for the years ended December 31, 2019 and 2018 were $141 million and $38 million, respectively, primarily related to
cost associated with significant legal proceedings and governmental investigations.
Net Gains(Losses) on Sales, Consolidation and Deconsolidation of Facilities
During the year ended December 31, 2019, we recorded net losses on sales, consolidation and deconsolidation of facilities of $15 million, primarily
comprised of a loss on sale of $14 million related to the sale of three of our hospitals in the Chicago area, as well as other operations affiliated with the hospitals.
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.
Interest Expense
Interest expense for the year ended December 31, 2019 was $985 million compared to $1.004 billion for the year ended December 31, 2018.
Income Tax Expense
During the year ended December 31, 2019, we recorded income tax expense of $153 million in continuing operations on pre-tax income of $296 million
compared to income tax expense of $176 million in continuing operations on pre-tax income of $639 million during the year ended December 31, 2018. 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%
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
Nondeductible executive compensation
Nondeductible litigation costs
Expired charitable contribution carryforward
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
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,
2019
2018
$
62 $
20
2
(79)
4
6
7
8
—
—
4
133
(14)
(3)
3
134
23
9
(70)
8
4
—
—
(1)
(6)
5
76
(1)
(5)
—
176
$
153 $
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Net Income Available to Noncontrolling Interests
Net income available to noncontrolling interests was $386 million for the year ended December 31, 2019 compared to $355 million for the year ended
December 31, 2018. Net income available (loss attributable) to noncontrolling interests in the 2019 period was comprised of $(21) million related to our Hospital
Operations and other segment, $337 million related to our Ambulatory Care segment and $70 million related to our Conifer segment. Of the portion related to our
Ambulatory Care segment, $10 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 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, 2019 and 2018:
Net income available (loss attributable) to Tenet Healthcare Corporation
common shareholders
Less: Net income available to noncontrolling interests
Income from discontinued operations, net of tax
Income 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 (losses) 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)
$
$
$
$
Years Ended December 31,
2019
2018
$
(232)
(386)
11
143
(153)
(227)
(5)
(985)
1,513
(141)
(15)
(185)
(850)
(2)
2,706
$
18,479
$
1
18,478
$
(1.3)%
14.6 %
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%
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2018 COMPARED TO THE YEAR ENDED DECEMBER 31, 2017
A discussion of the results of operations for the year ended December 31, 2018 compared to the year ended December 31, 2017 can be found in our
Annual Report on Form 10-K for the year ended December 31, 2018.
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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, 2019:
Long-term debt(1)
Capital lease obligations(1)
Long-term non-cancelable operating leases(1)
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
2020
2021
2022
2023
2024
Later Years
(In Millions)
$
19,077 $
895 $
898 $
3,579 $
2,480 $
3,000 $
8,225
387
1,264
93
192
159
73
5
531
1,172
316
143
159
93
87
—
38
—
19
278
316
96
180
—
40
—
18
—
23
291
—
38
160
—
20
—
17
—
23
241
—
10
140
—
10
—
—
—
23
213
—
9
121
—
6
—
—
—
23
139
—
91
504
—
29
159
—
5
420
10
—
$
23,269 $
2,028 $
1,546 $
4,078 $
2,876 $
3,298 $
9,443
(1)
(2)
(3)
(4)
Includes interest through maturity date/lease termination.
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 18 to our Consolidated Financial
Statements, have been excluded from the table. At December 31, 2019, the current and long-term professional and general liability reserves included in our Consolidated Balance Sheet
were $330 million and $585 million, respectively, and the current and long-term workers’ compensation reserves included in our Consolidated Balance Sheet were $40 million and
$124 million, respectively. Redeemable noncontrolling interests in USPI that are subject to the Baylor Put/Call Agreement totaled $214 million at December 31, 2019.
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, 2019:
•
On August 26, 2019, we sold $600 million aggregate principal amount of 4.625% senior secured first lien notes, which will mature on September 1,
2024 (the “2024 Senior Secured First Lien Notes”), $2.1 billion aggregate principal amount of 4.875% senior secured first lien notes, which will
mature on January 1, 2026 (the “2026 Senior Secured First Lien Notes”) and $1.5 billion aggregate principal amount of 5.125% senior secured first
lien notes, which will mature on November 1, 2027 (the “2027 Senior Secured First Lien Notes”). The proceeds from the sales of these 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
redemptions of all $500 million aggregate principal amount of our outstanding 4.750% senior secured first lien notes due 2020, all $1.8 billion
aggregate principal amount of our outstanding 6.000% senior secured first lien notes due 2020, all $850 million aggregate principal amount of our
outstanding 4.500% senior secured first lien notes due 2021 and all $1.05 billion aggregate principal amount of our outstanding 4.375% senior
secured first lien notes due 2021. In connection with the redemptions, we recorded a loss from early extinguishment of debt of approximately
$180 million in the three months ended September 30, 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.
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•
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”). 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 secured second lien notes due 2022, as well as 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 recorded a loss from early
extinguishment of debt of approximately $47 million in the three months ended 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.
At December 31, 2019, 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 5.35x. 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 seek to manage this ratio and increase the
efficiency of our balance sheet by following our business plan and managing our cost structure, including through possible asset divestitures, and through other
changes in our capital structure. As part of our long-term objective to manage our capital structure, we may issue equity or convertible securities, and we may seek
to retire, purchase, redeem or refinance some of our outstanding debt or equity securities, in each case subject to prevailing market conditions, our liquidity
requirements, operating results, contractual restrictions and other factors. Our ability to achieve our leverage and capital structure objectives is subject to numerous
risks and uncertainties, many of which are described in the Forward-Looking Statements and Risk Factors sections in Part I of 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 $670 million, $617 million and $707 million in the years ended December 31, 2019, 2018 and 2017, respectively. We anticipate that our capital expenditures
for continuing operations for the year ending December 31, 2020 will total approximately $700 million to $750 million, including $136 million that was accrued as
a liability at December 31, 2019. We have been granted a certificate of need, which is no longer subject to additional legal challenges or further appeals,
to construct a 100-bed acute care hospital in Fort Mill, South Carolina. We are in the development and design stage for the new hospital, and we expect to submit
our plans for approval to the South Carolina Department of Health and Environment Control this year. Once approved, the construction is expected to take up to
two years and cost approximately $150 million over the construction period.
Interest payments, net of capitalized interest, were $946 million, $976 million and $939 million in the years ended December 31, 2019, 2018 and 2017,
respectively. For the year ending December 31, 2020, we expect annual interest payments to be approximately $935 million to $945 million.
Income tax payments, net of tax refunds, were $12 million, $25 million and $56 million in the years ended December 31, 2019, 2018 and 2017,
respectively. At December 31, 2019, our carryforwards available to offset future taxable income consisted of (1) federal net operating loss (“NOL”) carryforwards
of approximately $600 million pre-tax expiring in 2032 to 2034, (2) general business credit carryforwards of approximately $25 million expiring in 2023 through
2039, and (3) state NOL carryforwards of approximately $3.5 billion expiring in 2020 through 2039 for which the associated deferred tax benefit, net of valuation
allowance and federal tax impact, is $25 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
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(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, 2015
remain subject to audit by the IRS.
SOURCES AND USES OF CASH
Our liquidity for the year ended December 31, 2019 was primarily derived from net cash provided by operating activities, cash on hand and borrowings
under our revolving credit facility. We had $262 million of cash and cash equivalents on hand at December 31, 2019 to fund our operations and capital
expenditures, and our borrowing availability under our credit facility was $1.499 billion based on our borrowing base calculation as of December 31, 2019.
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 $1.233 billion for the year ended December 31, 2019 compared to $1.049 billion for the year ended
December 31, 2018. Key factors contributing to the change between the 2019 and 2018 periods include the following:
•
•
•
•
•
An increase of $29 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements;
Decreased cash receipts of $13 million related to supplemental Medicaid programs in California and Texas;
Lower interest payment of $30 million in the 2019 period;
Lower income tax payments of $13 million in the 2019 period;
A $146 million increase in income from continuing operations before income taxes, gain (loss) from early extinguishment of debt, other non-
operating expense, net, interest expense, net gains (losses) on sales, consolidation and deconsolidation of facilities, litigation and investigation costs,
impairment and restructuring charges, and acquisition-related costs, depreciation and amortization and income (loss) from divested operations and
closed businesses (i.e., our health plan businesses) in the year ended December 31, 2019 compared to the year ended December 31, 2018; and
•
The timing of other working capital items.
Net cash used in investing activities was $619 million for the year ended December 31, 2019 compared to $115 million of net cash used in investing
activities for the year ended December 31, 2018. The primary reason for the change was proceeds from sales of facilities and other assets of $63 million in the 2019
period when we completed the sale of three hospitals and hospital-affiliated operations in the Chicago area compared to 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. There was also a decrease in proceeds from sales of
marketable securities, long-term investments and other assets of $117 million in the 2019 period compared to the 2018 period primarily due to the sales of our
minority interests in four North Texas hospitals in the 2018 period. Capital expenditures were $670 million and $617 million in the years ended December 31, 2019
and 2018, respectively.
Net cash used in financing activities was $763 million for the year ended December 31, 2019 compared to $1.134 billion for the year ended December 31,
2018. In 2019, we sold a total of $5.7 billion aggregate principal amount of notes. The proceeds from the sales of these 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 redemptions of a total of $5.7 billion aggregate
principal amount of notes. In connection with the redemptions, we recorded a loss from early extinguishment of debt of approximately $227 million for the year
end ended December 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. For additional information regarding our long-term debt, see Note 8 to the accompanying Consolidated Financial
Statements. The 2019 amount also included $70 million of cash paid for debt issuance costs related to these debt transactions. 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.
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We have several structured payables arrangements that are a part of our strategy to make our procurement processes more efficient and cost effective. For
the year ended December 31, 2019, we had approximately 2,050 vendors being paid by these programs, with an annual charge volume of approximately $675
million. We do not expect these programs to result in any significant changes to our liquidity.
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 amended our senior secured revolving credit facility in September 2019 (as amended, the “Credit Agreement”) to provide, subject
to borrowing availability, for revolving loans in an aggregate principal amount of up to $1.5 billion, (from a previous limit of $1.0 billion), with a $200 million
subfacility for standby letters of credit. Obligations under the Credit Agreement, which now has a scheduled maturity date of September 12, 2024, are guaranteed
by substantially all of our domestic wholly owned hospital subsidiaries and are secured by a first-priority lien on the eligible inventory and accounts receivable
owned by us and the subsidiary guarantors, including receivables for Medicaid supplemental payments as of the most recent amendment. At December 31, 2019,
we were in compliance with all covenants and conditions in our Credit Agreement. At December 31, 2019, we had no cash borrowings outstanding under the
Credit Agreement, and we had $1 million of standby letters of credit outstanding. Based on our eligible receivables, $1.499 billion was available for borrowing
under the Credit Agreement at December 31, 2019.
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, 2019, we were in
compliance with all covenants and conditions in our LC Facility. At December 31, 2019, we had $92 million of standby letters of credit outstanding under the LC
Facility.
Senior Secured and Senior Unsecured Note Refinancing Transactions. In 2019, we sold a total of $5.7 billion aggregate principal amount of notes. The
proceeds from the sales of these 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 redemptions of a total of $5.7 billion aggregate principal amount of notes. For additional information regarding our long-term
debt, see Note 8 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 will cause, us to use our Credit Agreement as a source of liquidity. We believe that existing cash and cash
equivalents on hand, borrowing availability under our Credit Agreement, anticipated future cash provided by 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.
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
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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 consolidated 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 except for any borrowings under our Credit Agreement.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources, except for $195 million of standby letters of credit outstanding and guarantees at December 31,
2019.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 24 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.
REVENUE RECOGNITION
We report net patient service revenues at the amounts that reflect the consideration we expect to be entitled to 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
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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, 2019, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $16
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.
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
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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 uninsured patients and co-pays, co-insurance amounts and deductibles owed to us by patients with insurance at
December 31, 2019, 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 $10 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, 2019, a 500 basis point increase in our frequency trend would increase the estimated reserves by $42 million, and a 500 basis point decrease in our
frequency trend would decrease the estimated reserves by $35 million. A 500 basis point increase in our severity trend would increase the estimated reserves by
$149 million, and a 500 basis point decrease in our severity trend would decrease the estimated reserves by $118 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 1.83% and 2.59% at December 31, 2019 and 2018, 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.
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The table below shows the case reserves and incurred but not reported and loss development reserves as of December 31, 2019 and 2018:
Case reserves
Incurred but not reported and loss development reserves
Total undiscounted reserves
December 31,
2019
2018
$
$
212 $
753
965 $
210
742
952
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, 2019 and 2018 representing unsettled claims was approximately 97% and 93%, 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
Less losses recoverable from re-insurance and excess insurance carriers
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
Plus losses recoverable from re-insurance and excess insurance carriers
Accrual for professional and general liability claims, end of year
Years Ended December 31,
2019
2018
$
$
882 $
(31)
192
155
20
367
(8)
(381)
(389)
86
915 $
854
(24)
223
176
(10)
389
(3)
(365)
(368)
31
882
(1)
Total malpractice expense for continuing operations, including premiums for insured coverage and recoveries from third parties, was $374 million and $388 million in the years ended
December 31, 2019 and 2018, 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 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.
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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 amounts 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, 2019, we recorded $42 million of impairment charges, consisting of $26 million of charges to write-down assets held
for sale to their estimated fair value, less estimated costs to sell, for certain of our Memphis-area facilities and $16 million of other impairment charges. Of the total
impairment charges recognized for the year ended December 31, 2019, $31 million related to our Hospital Operations and other segment, $6 million related to our
Ambulatory Care segment, and $5 million related to our Conifer segment.
During the year ended December 31, 2018, we recorded $77 million of impairment charges, consisting of $40 million for the write-down of buildings and
other long-lived assets to their estimated fair values at two hospitals, $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.
In our most recent impairment analysis as of December 31, 2019, we had one asset group, including three hospitals and related operations, with an
aggregate carrying value of long-lived assets of $159 million whose estimated undiscounted future cash flows exceeded the carrying value of long-lived assets by
approximately 50%. The estimated undiscounted future cash flows of these long-lived asset groups are not considered to be substantially in excess of cash flows
necessary to recover the carrying values of their long-lived assets. Future adverse trends that necessitate changes in the estimates of undiscounted future cash flows
could result in the estimated undiscounted future cash flows being less than the carrying values of the long-lived assets, which would require a fair value
assessment, and if the fair value amount is less than the carrying value of the long-lived assets, material impairment charges could result.
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 or outpatient facilities, depending on their circumstances. If the presumed level of performance does not occur as expected, impairment may result.
At December 31, 2019, 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, 2019.
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The allocated goodwill balance related to our Hospital Operations and other segment totals $2.908 billion. In our latest impairment analysis for the year
ended December 31, 2019, the estimated fair value of our Hospital Operations and other segment exceeded the carrying value of long-lived assets, including
goodwill, by approximately 35%.
The allocated goodwill balance related to our Ambulatory Care segment totals $3.739 billion. For the Ambulatory Care 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.
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;
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, 2019, the valuation allowance increased by $133 million, including an increase of $130 million due to limitations on
the tax deductibility of interest expense, a decrease of $2 million due to the expiration or worthlessness of unutilized state net operating loss carryovers, and an
increase of $5 million due to changes in expected realizability of deferred tax assets. The balance in the valuation allowance as of December 31, 2019 was $281
million. 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 remaining balance in the valuation allowance at December 31, 2018 was
$148 million. Federal and state deferred tax assets relating to interest expense limitations under Internal Revenue Code Section 163(j) have a full valuation
allowance because the interest expense carryovers are not expected to be utilized in the foreseeable future.
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.
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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, 2019. 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.
Maturity Date, Years Ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total
Fair Value
Fixed-rate long-term debt
$
Average effective interest rates
171
$
5.5%
112
$
2,851
$
(Dollars in Millions)
$
1,903
2,486
$
7,414
$
14,937
$
15,893
5.6%
8.6%
7.3%
4.9%
5.7%
6.3%
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, 2019. 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, 2019.
Tenet’s internal control over financial reporting as of December 31, 2019 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, 2019, 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
/s/ DANIEL J. CANCELMI
Daniel J. Cancelmi
Executive Chairman and Chief Executive Officer
Executive Vice President and Chief Financial Officer
February 24, 2020
February 24, 2020
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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, 2019,
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,
2019, 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, 2019, of the Company and our report dated February 24,
2020, 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 24, 2020
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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, 2019
and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 24, 2020, expressed an unqualified opinion on the
Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
Accounts Receivable and Net Operating Revenues— Refer to Notes 1, 3, and 15 to the financial statements
Critical Audit Matter Description
Management reports net patient service revenues and accounts receivable at the amounts that reflect the consideration to which they expect to be entitled for
providing patient care. This transaction price is based on gross charges for services provided, reduced by contractual adjustments provided to third-party
payers, discounts provided to uninsured patients in accordance with the Company’s Compact with Uninsured Patients, and implicit price concessions provided
primarily to uninsured patients. The implicit price concessions are estimates developed by management based on their historical collection experience with
these classes of patients using a portfolio approach.
Given the judgments necessary to estimate the implicit price concessions to determine the amount of net revenues recognized and the value of patient accounts
receivable as a result of inherent subjectivity in collection trends from changes in the economy, patient volumes, amounts to be paid by patients with insurance
and other factors, auditing such estimates involved especially subjective judgments.
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How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates of the implicit price concessions used to determine the value of net patient service revenues and
accounts receivable included the following, among others:
• We tested the effectiveness of controls over net patient service revenues and the valuation of accounts receivable, including those over the historical
collections data and management’s analysis of their historical collection experience and judgments applied to develop their assumptions for implicit price
concessions.
• We evaluated the methods and assumptions used by management to estimate the implicit price concessions by:
o
o
Testing the underlying data that served as the basis for the implicit price concession rates developed by management, including the historical
collections data within the classes of patients, to evaluate whether the inputs to management’s estimate were reasonable.
Comparing management’s prior-year recorded balance to actual write-offs during the current year, and reviewing trends in implicit price concessions
over time.
• We developed an independent estimate using historical collection data for each class of patients. We then compared the result to the implicit price
concession estimate developed by management to evaluate the reasonableness of accounts receivable and revenues.
Property and Professional and General Liability Insurance – Professional and General Liability Reserves — Refer to Notes 1 and 16 to the financial
statements
Critical Audit Matter Description
Management records an accrual for the portion of their professional and general liability risks, including incurred but not reported claims, for which they do
not have insurance coverage and that are probable and can be reasonably estimated. This accrual is estimated based on internal and third-party modeled
estimates of projected payments using case-specific facts and circumstances and the Company’s historical claim loss reporting, claim development and
settlement patterns, reported and closed claim counts, and a variety of hospital census information.
Given the subjectivity of estimating the projected liability of reported and unreported claims, auditing the professional and general liability reserves involved
especially subjective judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the professional and general liability reserves included the following, among others:
• We tested the effectiveness of controls related to the professional and general liability reserves, including those over the estimation of the projected
liability of reported and unreported claims.
• We evaluated the methods and assumptions used by management to estimate the professional and general liability reserves by:
o
o
Testing the underlying data that served as the basis for the internal and third-party actuarial analyses, including historical claims, to evaluate that the
inputs to the actuarial estimates were reasonable.
Comparing management’s prior-year recorded balance to actual losses incurred during the current year.
With the assistance of our internal actuarial specialists, we developed an independent range of estimates of the professional and general liability reserves, using
loss data, historical and industry claim development factors, among other factors, and compared our estimates to management’s estimates.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
February 24, 2020
We have served as the Company’s auditor since 2007.
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CONSOLIDATED BALANCE SHEETS
Dollars in Millions
ASSETS
December 31,
December 31,
2019
2018
Table of Contents
Current assets:
Cash and cash equivalents
Accounts receivable
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 accumulated depreciation and amortization
($5,498 at December 31, 2019 and $5,221 at December 31, 2018)
Goodwill
Other intangible assets, at cost, less accumulated amortization
($1,092 at December 31, 2019 and $1,013 at December 31, 2018)
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
Redeemable noncontrolling interests in equity of consolidated subsidiaries
1,506
1,420
Equity:
Shareholders’ equity:
Common stock, $0.05 par value; authorized 262,500,000 shares; 152,540,815 shares issued at December 31, 2019
and 150,897,143 shares issued at December 31, 2018
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Common stock in treasury, at cost, 48,344,195 shares at December 31, 2019 and 48,359,705 shares at
December 31, 2018
Total shareholders’ deficit
Noncontrolling interests
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
$
23,351 $
$
$
$
262 $
2,743
310
10
387
1,369
5,081
2,369
169
6,878
7,252
1,602
23,351 $
171 $
1,204
877
330
245
44
1,334
4,205
14,580
585
560
27
1,405
21,362
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
20,302
7
4,760
(257)
(2,467)
(2,414)
(371)
854
483
7
4,747
(223)
(2,236)
(2,414)
(119)
806
687
22,409
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CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in Millions, Except Per-Share Amounts
Years Ended December 31,
2019
2018
2017
Net operating revenues:
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
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net losses (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 from operations
Income tax expense
Income from discontinued operations
Net income (loss)
Less: Net income available to noncontrolling interests
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 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
$
18,479 $
175
8,704
3,057
4,189
850
185
141
15
1,513
(985)
(5)
(227)
296
(153)
143
15
(4)
11
154
386
18,313
150
8,634
3,004
4,256
802
209
38
(127)
1,647
(1,004)
(5)
1
639
(176)
463
4
(1)
3
466
355
$
$
$
$
$
$
$
(232) $
111 $
(243) $
11
108 $
3
(232) $
111 $
(2.35) $
0.11
(2.24) $
(2.35) $
0.11
(2.24) $
1.06 $
0.03
1.09 $
1.04 $
0.03
1.07 $
20,613
1,434
19,179
144
9,274
3,085
4,561
870
541
23
(144)
1,113
(1,028)
(22)
(164)
(101)
(219)
(320)
—
—
—
(320)
384
(704)
(704)
—
(704)
(7.00)
—
(7.00)
(7.00)
—
(7.00)
Weighted average shares and dilutive securities outstanding
(in thousands):
Basic
Diluted
103,398
103,398
102,110
103,881
100,592
100,592
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,
2019
2018
2017
$
154 $
466 $
(320)
(52)
10
—
—
—
(42)
8
(34)
120
386
(29)
14
—
37
(4)
18
6
24
490
355
42
14
6
—
15
77
(23)
54
(266)
384
(650)
Comprehensive income available (loss attributable) to Tenet Healthcare Corporation common shareholders $
(266) $
135 $
See accompanying Notes to Consolidated Financial Statements.
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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 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
Net income (loss)
Distributions paid to noncontrolling
interests
Other comprehensive loss
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, 2019
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
Accumulated
Other
Comprehensive
Loss
99,686 $
—
7 $
—
4,827 $
—
—
—
—
—
—
1,286
100,972
—
—
—
—
—
—
1,565
102,537
—
—
—
—
—
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
7
—
—
—
—
—
—
—
—
(33)
4
—
61
4,859
—
—
—
(173)
3
—
58
4,747
—
—
—
(18)
(7)
—
(258)
$
—
—
54
—
—
—
—
(204)
—
—
24
—
—
(43)
—
(223)
—
—
(34)
—
—
—
Accumulated
Deficit
(1,742) $
(704)
Treasury
Stock
(2,417) $
—
—
—
—
—
56
—
—
—
—
—
—
(2,390)
111
(2)
(2,419)
—
—
—
—
—
43
—
—
—
—
—
—
(2,236)
(232)
5
(2,414)
—
—
—
—
—
1
—
—
—
—
—
Noncontrolling
Interests
Total Equity
$
665
145
(123)
—
—
(1)
—
—
686
165
(148)
—
—
103
—
—
806
194
(162)
—
—
16
—
1,082
(559)
(123)
54
(33)
3
56
59
539
276
(148)
24
(173)
106
—
63
687
(38)
(162)
(34)
(18)
9
1
38
483
1,660
104,197 $
—
7 $
38
4,760 $
—
(257)
$
—
(2,467) $
—
(2,414) $
—
854
$
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
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 losses (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 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 — continuing operations
Proceeds from sales of facilities and other assets — discontinued operations
Proceeds from sales of marketable securities, long-term investments and other assets
Purchases of marketable securities and 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 used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures:
Years Ended December 31,
2019
2018
2017
$
154 $
466 $
(320)
850
—
137
42
185
141
15
227
(32)
35
(15)
(15)
(247)
(94)
8
36
3
(192)
(5)
1,233
(670)
(25)
63
17
82
(62)
(24)
—
(619)
(2,640)
2,640
(6,131)
5,719
(70)
(307)
21
(11)
12
4
(763)
(149)
411
802
—
150
46
209
38
(127)
(1)
(12)
45
(4)
(21)
(134)
17
(3)
(152)
(102)
(163)
(5)
1,049
(617)
(113)
543
—
199
(148)
15
6
(115)
(950)
950
(312)
23
—
(288)
20
(647)
16
54
(1,134)
(200)
611
$
262 $
411 $
870
1,434
200
59
541
23
(144)
164
(18)
44
—
(18)
(1,448)
(35)
(38)
(10)
26
(125)
(5)
1,200
(707)
(50)
827
—
36
(81)
(10)
6
21
(970)
970
(4,139)
3,795
(62)
(258)
31
(729)
7
29
(1,326)
(105)
716
611
Interest paid, net of capitalized interest
Income tax payments, net
$
$
(946) $
(12) $
(976) $
(25) $
(939)
(56)
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
headquartered in Dallas, Texas. Through an expansive care network that includes USPI Holding Company, Inc. (“USPI”), at December 31, 2019, we operated 65
hospitals and over 500 other healthcare facilities, including surgical hospitals, ambulatory surgery centers, urgent care and imaging centers, and other care sites and
clinics. We hold noncontrolling interests in 109 of these facilities, which are recorded using the equity method of accounting. We also operate Conifer Health
Solutions, through our Conifer Holdings, Inc. (“Conifer”) subsidiary, which provides revenue cycle management and value-based care services to hospitals, health
systems, physician practices, employers and other customers.
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, 2019, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, “Leases
(Topic 842)” (“ASU 2016-02”) using the modified retrospective transition approach as of the period of adoption. Our financial statements for periods prior to
January 1, 2019 were not modified for the application of the new lease accounting standard. The main difference between the guidance in ASU 2016-02 and
previous accounting principles generally accepted in the United States of America (“GAAP”) is the recognition of lease assets and lease liabilities on the balance
sheet by lessees for those leases classified as operating leases under previous GAAP. Upon adoption of ASU 2016-02, we recorded $822 million of right-of-use
assets, net of deferred rent, associated with operating leases in investments and other assets in our consolidated balance sheet, $147 million of current liabilities
associated with operating leases in other current liabilities in our consolidated balance sheet and $715 million of long-term liabilities associated with operating
leases in other long-term liabilities in our consolidated balance sheet. We also recognized $1 million of cumulative effect adjustment that decreased accumulated
deficit at January 1, 2019.
Effective January 1, 2018, we adopted the FASB 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 uninsured 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
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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.
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.
Certain prior-year amounts have been reclassified to conform to current year presentation. In our accompanying Consolidated Statements of Operations,
electronic health record incentives have been reclassified to other operating expenses, net, as they are no longer significant enough to present separately. In our
accompanying Consolidated Statements of Cash Flows, purchases of marketable securities have been reclassified from other items, net within cash flows from
investing activities to purchases of marketable securities and equity investments.
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
During the year ended December 31, 2019, we formed our Global Business Center (“GBC”) in the Republic of the Philippines. The GBC’s accounts are
measured in its local currency (the Philippine peso) and then translated into U.S. dollars. 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
denominated in foreign currency are translated using the current rate of exchange at the balance sheet date. Results of operations denominated in foreign currency
are translated using the average rates prevailing throughout the period of operations. Translation gains or losses resulting from changes in exchange rates are
accumulated in shareholders’ equity.
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 services to our
customers. Net operating revenues are recognized in the amounts we expect to be entitled to, which are the transaction prices allocated for 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,
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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 we expect to be entitled to 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 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
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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 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
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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.
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 $262 million and
$411 million at December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, our book overdrafts were $246 million and $288 million,
respectively, which were classified as accounts payable.
At December 31, 2019 and 2018, $176 million and $177 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 $2 million and $8 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.
At December 31, 2019, 2018 and 2017, we had $136 million, $135 million and $117 million, respectively, of property and equipment purchases accrued
for items received but not yet paid. Of these amounts, $119 million, $114 million and $79 million, respectively, were included in accounts payable.
During the years ended December 31, 2019, 2018 and 2017, we recorded non-cancellable capital (finance) leases of $141 million, $149 million and
$162 million, respectively, primarily for equipment.
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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. 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, 2019, 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 238 of the facilities within our Ambulatory Care segment and, therefore, consolidate their results. We account for many of the facilities our
Ambulatory Care segment operates (108 of 346 at December 31, 2019), 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.
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Noncontrolling interests
Net operating revenues
Net income
Net income attributable to the investees
December 31, 2019
December 31, 2018
December 31, 2017
$
$
$
$
$
$
$
$
1,180
1,042
(372)
(739)
(579)
$
$
$
$
$
842
662
(313)
(430)
(530)
$
$
$
$
$
Years Ended December 31,
2019
2018
2017
2,680
765
499
$
$
$
2,469
599
372
$
$
$
805
1,223
(354)
(389)
(490)
2,907
558
363
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 $79 million of the total $175 million equity in earnings of unconsolidated affiliates we recognized for the year
ended December 31, 2019, $70 million of the total $150 million equity in earnings of unconsolidated affiliates we recognized for the year ended December 31,
2018 and $69 million of the total $144 million equity in earnings of unconsolidated affiliates we recognized for the year ended December 31, 2017.
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. Interest costs related to construction projects are capitalized. In the years ended December 31,
2019, 2018 and 2017, capitalized interest was $11 million, $7 million and $15 million, respectively.
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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 or outpatient facilities, 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.
Leases
ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance
sheet and disclosing key information about leasing arrangements. Our adoption of ASU 2016-02 was accomplished using a modified retrospective method of
application, and our accounting policies related to leases were revised accordingly effective January 1, 2019, as discussed below.
We determine if an arrangement is a lease at inception of the contract. Our right-of-use assets represent our right to use the underlying assets for the lease
term and our lease liabilities represent our obligation to make lease payments arising from the leases. Right-of-use assets and lease liabilities are recognized at
commencement date based on the present value of lease payments over the lease term. We use our estimated incremental borrowing rate, which is derived from
information available at the lease commencement date, in determining the present value of lease payments. For our Hospital Operations and other and Conifer
segments, we estimate our incremental borrowing rates for our portfolio of leases using documented rates included in our recent equipment finance leases or, if
applicable, recent secured debt issuances that correspond to various lease terms. We also give consideration to information obtained from our bankers, our secured
debt fair value and publicly available data for instruments with similar characteristics. For our Ambulatory Care segment, we estimate an incremental borrowing
rate for each center by utilizing historical and projected financial data, estimating a hypothetical credit rating using publicly available market data and adjusting the
market data to reflect the effects of collateralization.
Our operating leases are primarily for real estate, including off-campus outpatient facilities, medical office buildings, and corporate and other
administrative offices, as well as medical and office equipment. Our finance leases are primarily for medical equipment and information technology and
telecommunications assets. Our real estate lease agreements typically have initial terms of five to 10 years, and our equipment lease agreements typically have
initial terms of three years. We do not record leases with an initial term of 12 months or less (“short-term leases”) in our consolidated balance sheets.
Our real estate leases may include one or more options to renew, with renewals that can extend the lease term from five to 10 years. The exercise of lease
renewal options is at our sole discretion. In general, we do not consider renewal options to be reasonably likely to be exercised, therefore, renewal options are
generally not recognized as part of our right-of-use assets and lease liabilities. Certain leases also include options to purchase the leased property. The useful life of
assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The
majority of our medical equipment leases have terms of three years with a bargain purchase option that is reasonably certain of exercise, so these assets are
depreciated over their useful life, typically ranging from five to seven years. Similarly, some of our leases of information technology and telecommunications
assets include a transfer of title and, therefore, have useful lives of 15 years.
Certain of our lease agreements for real estate include payments based on actual common area maintenance expenses and others include rental payments
adjusted periodically for inflation. These variable lease payments are recognized in other operating expenses, net, but are not included in the right-of-use asset or
liability balances. Our lease agreements do not contain any material residual value guarantees, restrictions or covenants.
We have elected the practical expedient that allows lessees to choose to not separate lease and non-lease components by class of underlying asset and are
applying this expedient to all relevant asset classes. We have also elected the practical
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expedient package to not reassess at adoption (i) expired or existing contracts for whether they are or contain a lease, (ii) the lease classification of any existing
leases or (iii) initial indirect costs for existing leases.
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.
Other intangible assets 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 1.83% at December 31,
2019 and 2.59% at December 31, 2018. 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
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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 81%, 80% and 82% of
our net operating revenues net of implicit price concessions and provision for doubtful accounts in the years ended December 31, 2019, 2018 and 2017,
respectively. At December 31, 2019, each of our markets related to our general hospitals reported directly to our president and chief operating officer. 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,
micro-hospitals 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, 2019. 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. Our Conifer segment provides revenue cycle management and value-based care services to hospitals, health systems,
physician practices, employers and other customers. 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, 2019 and 2018 in the accompanying Consolidated Statements of Changes in Equity were
comprised of $114 million and $112 million, respectively, from our Hospital Operations and other segment, and $740 million and $694 million, respectively, from
our Ambulatory Care segment. Our net income attributable to noncontrolling interests for the years ended December 31, 2019, 2018 and 2017 were comprised of
$16 million, $8 million and $11 million, respectively, from our Hospital Operations and other segment, and $178 million, $157 million and $134 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
Estimated future recoveries
Net cost reports and settlements receivable and valuation allowances
Discontinued operations
Accounts receivable, net
December 31, 2019
December 31, 2018
$
$
2,567 $
162
12
2,741
2
2,743 $
2,427
148
18
2,593
2
2,595
Accounts that are pursued for collection through Conifer’s business offices are maintained on our hospitals’ books and reflected in patient accounts
receivable. Patient accounts receivable, including billed accounts and certain unbilled accounts, as well as 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. Estimated uncollectable amounts are generally considered implicit price concessions that are a direct reduction to patient accounts receivable rather than
allowance for doubtful accounts.
We had $316 million and $213 million of receivables recorded in other current assets and investments and other assets, respectively, and $115 million and
$57 million of payables recorded in other current liabilities and other long-term liabilities, respectively, in the accompanying Consolidated Balance Sheet at
December 31, 2019 related to California’s provider
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fee program. 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 also provide financial assistance through our charity and uninsured discount programs to uninsured patients who are unable to pay for the healthcare
services they receive. Our policy is not to pursue collection of amounts determined to qualify for financial assistance; therefore, we do not report these amounts in
net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital’s eligibility for Medicaid disproportionate share
hospital (“DSH”) payments. These payments are intended to mitigate our cost of uncompensated care. Some states have also developed provider fee or other
supplemental payment programs to mitigate the shortfall of Medicaid reimbursement compared to the cost of caring for Medicaid patients.
The following table shows our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other
operating expenses and which exclude the costs of our health plan businesses) of caring for our uninsured and charity patients in the years ended December 31,
2019, 2018 and 2017.
Estimated costs for:
Uninsured patients
Charity care patients
Total
NOTE 4. CONTRACT BALANCES
Hospital Operations and Other Segment
Years Ended December 31,
2019
2018
2017
$
$
666 $
156
822 $
640 $
124
764 $
648
121
769
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, 2019. The opening and closing balances of contract
assets for our Hospital Operations and other segment are as follows:
December 31, 2018
December 31, 2019
Increase/(decrease)
January 1, 2018
December 31, 2018
Increase/(decrease)
$
$
$
$
169
170
1
171
169
(2)
Approximately 85% 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 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.
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The opening and closing balances of Conifer’s receivables, contract asset, and current and long-term contract liabilities are as follows:
December 31, 2018
December 31, 2019
Increase/(decrease)
January 1, 2018
December 31, 2018
Increase/(decrease)
Contract Asset-
Current
Long-Term
Contract Liability-
Contract Liability-
Receivables
Unbilled Revenue
Deferred Revenue
Deferred Revenue
$
$
$
$
$
42
26
(16)
$
$
89
42
(47)
$
11 $
11
— $
10 $
11
1 $
$
61
61
— $
$
80
61
(19)
$
20
18
(2)
21
20
(1)
The difference between the opening and closing balances of Conifer’s contract assets and contract liabilities are primarily related to prepayments for those
customers who are billed in advance, changes in estimates related to metric-based services, and up-front integration services that are typically not distinct and are,
therefore, recognized over the performance obligation period to which they relate. Our Conifer segment’s receivables and contract assets 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, 2019 and 2018 that was included in the opening current deferred revenue
liability was $61 million and $72 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 FASB Accounting Standards Codification 340-40-25-4 and expense as incurred the
incremental customer contract acquisition costs for contracts in which the amortization period of the asset is one year or less. However, incremental costs incurred
to obtain and fulfill customer contracts for which the amortization period of the asset 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, 2019, 2018 and 2017, we recognized amortization expense of $5 million, $11 million and 10 million, respectively. At December 31, 2019 and
2018, the unamortized customer contract costs were $25 million and $28 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, 2019, two of our hospitals and other operations in the Memphis area met the criteria to be classified as held for
sale. As a result, we have classified these assets totaling $387 million as “assets held for sale” in current assets and the related liabilities of $44 million as
“liabilities held for sale” in current liabilities in the accompanying Consolidated Balance Sheet at December 31, 2019. We recorded impairment charges of $26
million in the year ended December 31, 2019 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, 2019 were comprised of the following:
Accounts receivable
Other current assets
Investments and other long-term assets
Property and equipment
Other intangible assets
Goodwill
Current liabilities
Long-term liabilities
Net assets held for sale
$
$
108
24
6
184
23
42
(35)
(9)
343
In the three months ended March 31, 2019, we completed the sale of three of our hospitals in the Chicago area, as well as other operations affiliated with
the hospitals; these assets and liabilities were classified as held for sale beginning in the three months ended December 31, 2017. Related to this transaction, we
recorded a loss on sale of $14 million in the year ended December 31, 2019, and 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.
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, 2019:
Significant disposals:
Loss from continuing operations, before income taxes
Chicago area (includes a $14 million loss on sale in the 2019 period, $24 million of impairment
charges in the 2018 period and $73 million of impairment charges in the 2017 period)
Total
Total
Significant planned divestitures classified as held for sale:
Income from continuing operations, before income taxes
Memphis area (includes $26 million of impairment charges in the 2019 period)
Years Ended December 31,
2019
2018
2017
$
$
$
$
(19) $
(19) $
(41) $
(41) $
8 $
8 $
23 $
23 $
(82)
(82)
33
33
NOTE 6. IMPAIRMENT AND RESTRUCTURING CHARGES, AND ACQUISITION-RELATED COSTS
We recognized impairment charges on long-lived assets in 2019, 2018 and 2017 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, 2019, 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, 2019.
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We periodically incur costs to implement restructuring efforts for specific operations, which are recorded in our statement of operations as they are
incurred. Our restructuring plans focus on various aspects of operations, including aligning our operations in the most strategic and cost-effective structure, such as
the establishment of offshore support operations at our GBC in the Republic of the Philippines that we began in the year ended December 31, 2019. Certain
restructuring and acquisition-related costs are based on estimates. Changes in estimates are recognized as they occur.
Year Ended December 31, 2019
During the year ended December 31, 2019, we recorded impairment and restructuring charges and acquisition-related costs of $185 million, consisting of
$42 million of impairment charges, $137 million of restructuring charges and $6 million of acquisition-related costs. Impairment charges consisted of $26 million
of charges to write-down assets held for sale to their estimated fair value, less estimated costs to sell, for certain of our Memphis-area facilities and $16 million of
other impairment charges. Of the total impairment charges recognized for the year ended December 31, 2019, $31 million related to our Hospital Operations and
other segment, $6 million related to our Ambulatory Care segment, and $5 million related to our Conifer segment. Restructuring charges consisted of $57 million
of employee severance costs, $28 million related to our GBC in the Republic of the Philippines, $6 million of contract and lease termination fees, and $46 million
of other restructuring costs. Acquisition-related costs consisted of $6 million of transaction costs.
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 then 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.
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NOTE 7. LEASES
The following table presents the components of our right-of-use assets and liabilities related to leases and their classification in our Consolidated Balance
Sheet at December 31, 2019:
Component of Lease Balances
Classification in Consolidated Balance Sheet
December 31, 2019
Assets:
Operating lease assets
Finance lease assets
Total leased assets
Liabilities:
Operating lease liabilities:
Current
Long-term
Total operating lease liabilities
Finance lease liabilities:
Current
Long-term
Total finance lease liabilities
Total lease liabilities
Investments and other assets
Property and equipment, at cost, less
accumulated depreciation and amortization
Other current liabilities
Other long-term liabilities
Current portion of long-term debt
Long-term debt, net of current portion
$
$
$
$
912
407
1,319
159
858
1,017
143
182
325
1,342
The following table presents the components of our lease expense and their classification in our Consolidated Statement of Operations for the year ended
December 31, 2019:
Component of Lease Expense
Classification on Consolidated Statements of Operations
December 31, 2019
Year Ended
Operating lease expense
Finance lease expense:
Amortization of leased assets
Interest on lease liabilities
Total finance lease expense
Other operating expenses, net
Depreciation and amortization
Interest expense
Variable and short term-lease expense
Other operating expenses, net
Total lease expense
$
$
The weighted-average lease terms and discount rates for operating and finance leases are presented in the following table:
December 31, 2019
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
Cash flow and other information related to leases is included in the following table:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
Operating cash outflows from finance leases
Financing cash outflows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
211
85
15
100
133
444
7.8
5.4
5.6%
5.5%
Year Ended
December 31, 2019
$
$
$
197
18
151
Operating leases
Finance leases
$
$
249
141
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Future maturities of lease liabilities at December 31, 2019 are presented in the following table:
2020
2021
2022
2023
2024
Later years
Total lease payments
Less: Imputed interest
Total lease obligations
Less: Current obligations
Operating Leases
Finance Leases
Total
$
159 $
143 $
180
160
140
121
504
1,264
247
1,017
159
96
38
10
9
91
387
62
325
143
Long-term lease obligations
$
858 $
182 $
302
276
198
150
130
595
1,651
309
1,342
302
1,040
Future maturities of lease liabilities at December 31, 2018, prior to our adoption of ASU 2016-02, are presented in the following table:
Capital lease obligations
Long-term non-cancelable operating leases
Total
2019
2020
2021
2022
$
$
425 $
932 $
140 $
171 $
95 $
151 $
57 $
133 $
37 $
113 $
2023
Later Years
75
21 $
92 $
272
Years Ending December 31,
Rental expense under operating leases, including short-term leases, was $326 million and $340 million in the years ended December 31, 2018 and 2017,
respectively. Included in rental expense for each of these periods was sublease income of $11 million and $14 million, respectively, which was recorded as a
reduction of rental expense.
NOTE 8. LONG-TERM DEBT
The table below shows our long-term debt as of December 31, 2019 and 2018:
December 31, 2019
December 31, 2018
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
4.625% due 2024
4.875% due 2026
5.125% due 2027
Senior secured second lien notes:
7.500% due 2022
5.125% due 2025
6.250% due 2027
Finance leases and mortgage notes
Unamortized issue costs and note discounts
Total long-term debt
Less current portion
$
— $
—
2,800
1,872
478
362
—
—
—
—
1,870
600
2,100
1,500
—
1,410
1,500
445
(186)
14,751
171
468
300
2,800
1,872
478
362
500
1,800
850
1,050
1,870
—
—
—
750
1,410
—
500
(184)
14,826
182
Long-term debt, net of current portion
$
14,580 $
14,644
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Credit Agreement
We amended our senior secured revolving credit facility in September 2019 (as amended, the “Credit Agreement”) to provide, subject to borrowing
availability, for revolving loans in an aggregate principal amount of up to $1.5 billion, (from a previous limit of $1.0 billion), with a $200 million subfacility for
standby letters of credit. Obligations under the Credit Agreement, which now has a scheduled maturity date of September 12, 2024, are guaranteed by substantially
all of our domestic wholly owned hospital subsidiaries and are secured by a first-priority lien on the eligible inventory and accounts receivable owned by us and the
subsidiary guarantors, including receivables for Medicaid supplemental payments as of the most recent amendment. 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 inventory and accounts receivable, including self-pay
accounts. At December 31, 2019, we were in compliance with all covenants and conditions in our Credit Agreement. At December 31, 2019, we had no cash
borrowings outstanding under the Credit Agreement, and we had $1 million of standby letters of credit outstanding. Based on our eligible receivables,
$1.499 billion was available for borrowing under the Credit Agreement at December 31, 2019.
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.
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, 2019, we were in compliance with all covenants and conditions
in our LC Facility. At December 31, 2019, we had $92 million of standby letters of credit outstanding under the LC Facility.
Senior Secured Notes and Senior Unsecured Notes
On August 26, 2019, we sold $600 million aggregate principal amount of 4.625% senior secured first lien notes, which will mature on September 1, 2024
(the “2024 Senior Secured First Lien Notes”), $2.1 billion aggregate principal amount of 4.875% senior secured first lien notes, which will mature on January 1,
2026 (the “2026 Senior Secured First Lien Notes”) and $1.5 billion aggregate principal amount of 5.125% senior secured first lien notes, which will mature on
November 1, 2027 (the “2027 Senior Secured First Lien Notes”). We will pay interest on the 2024 Senior Secured First Lien Notes semi-annually in arrears on
March 1 and September 1 of each year, which payments will commence on March 1, 2020. We will pay interest on the 2026 Senior Secured First Lien Notes semi-
annually in arrears on January 1 and July 1 of each year, which payments will commence on January 1, 2020. We will pay interest on the 2027 Senior Secured First
Lien Notes semi-annually in arrears on May 1 and November 1 of each year, which payments will commence on May 1, 2020. The proceeds from the sales of these
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
redemptions of all $500 million aggregate principal amount of our outstanding 4.750% senior secured first lien notes due 2020, all $1.8 billion aggregate principal
amount of our outstanding 6.000% senior secured first lien notes due 2020, all $850 million aggregate principal amount of our outstanding 4.500% senior secured
first lien notes due 2021 and all $1.05 billion aggregate principal amount of our outstanding 4.375% senior secured first lien notes due 2021. In connection with the
redemptions, we recorded a loss from early extinguishment of debt of approximately $180 million in the three months ended September 30, 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.
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 commenced 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
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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, as well as 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 recorded a loss from early extinguishment of
debt of approximately $47 million in the three months ended 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 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”). 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.
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.
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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 $150 million, as well as limits on debt, asset sales and prepayments of
certain other 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 $150
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 and any outstanding borrowings under our Credit Agreement 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.
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
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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, including finance lease obligations, as of December 31, 2019 are as follows:
Long-term debt, including finance lease obligations
Total
14,937 $
$
NOTE 9. GUARANTEES
Years Ending December 31,
2020
2021
2022
2023
2024
171 $
112 $
2,851 $
1,903 $
2,486 $
Later Years
7,414
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, 2019, 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 $133 million. We had a total liability of $107
million recorded for these guarantees included in other current liabilities at December 31, 2019.
At December 31, 2019, 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 $25 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, 2019.
NOTE 10. EMPLOYEE BENEFIT PLANS
Share-Based Compensation Plans
In recent years, we have granted options and restricted stock units to certain of our employees and directors pursuant to our stock incentive plans. 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, and the fair value of the restricted stock unit is based on our share price on the grant
date. 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 time frame. At December 31, 2019, assuming outstanding performance-based restricted stock
units and options for which performance has not yet been determined will achieve target performance, approximately 8.2 million shares of common stock were
available under our 2019 Stock Incentive Plan for future stock option grants and other equity incentive awards, including restricted stock units.
The accompanying Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017 include $42 million, $46 million and
$59 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, 2019. 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.
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Grant Date
Stock Options:
February 27, 2019
February 28, 2018
March 1, 2017
Restricted Stock Units:
July 9, 2019
May 3, 2019
February 27, 2019
January 31, 2019
June 28, 2018
March 29, 2018
February 28, 2018
March 1, 2017
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, 2019
(In Millions)
210 $
442 $
821 $
94
100
800
318
51
293
204
383
456
28.26 $
20.60 $
18.99 $
12.49 $
8.83
8.52
$
$
$
$
$
$
$
$
$
18.55
16.18
28.26
21.99
34.61
24.25
20.60
18.99
59.90
$
1
1
1
1
2
9
2
1
4
2
2
3
2
11
42
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.
Stock Options
The following table summarizes stock option activity during the years ended December 31, 2019, 2018 and 2017:
Options
Weighted Average
Exercise Price
Per Share
Aggregate
Intrinsic Value
(In Millions)
Weighted Average
Remaining Life
Outstanding at December 31, 2016
Granted
Exercised
Forfeited/Expired
Outstanding at December 31, 2017
Granted
Exercised
Forfeited/Expired
Outstanding at December 31, 2018
Granted
Exercised
Forfeited/Expired
Outstanding at December 31, 2019
Vested and expected to vest at December 31, 2019
Exercisable at December 31, 2019
1,435,921 $
1,396,307
(20,400)
(247,006)
2,564,822 $
635,196
(619,849)
(317,426)
2,262,743 $
230,713
(306,427)
(226,037)
1,960,992 $
1,960,992 $
454,360 $
22.87
18.24
4.56
24.37
20.35
21.33
18.19
35.30
19.12
28.28
18.05
20.21
20.24 $
20.24 $
17.26 $
35
35
9
6.1 years
6.1 years
2.7 years
There were 306,427 stock options exercised during the year ended December 31, 2019 with an aggregated intrinsic value of approximately $3 million, and
619,849 stock options exercised in 2018 with an aggregate intrinsic value of approximately $4 million. There were 230,713 performance-based stock options
granted in the year ended December 31, 2019, and 635,196 performance-based stock options granted in the year ended 2018. On March 29, 2019, we granted an
aggregate of 7,862 performance-based stock options to a senior officer. The options will all vest on the third anniversary of the grant date, subject to the
achievement of a closing stock price of at least $36.05 (a 25% premium above the March 29, 2019 grant-date closing stock price of $28.84) 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 27, 2019, we granted to certain
of our senior officers an aggregate of 222,851
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performance-based stock options. The options will all vest on the third anniversary of the grant date, subject to the achievement of a closing stock price of at least
$35.33 (a 25% premium above the February 27, 2019 grant-date closing stock price of $28.26) 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 May 31, 2018, we granted new senior officers 31,184 performance-based stock options. 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 May 31, 2018 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 to certain
of our senior officers an aggregate of 604,012 performance-based stock options. 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 February 28, 2018 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.
At December 31, 2019, there were $4 million of total unrecognized compensation costs related to stock options. These costs are expected to be recognized
over a weighted average period of 1.6 years.
The weighted average estimated fair value of stock options we granted during the years ended December 31, 2019 and 2018 was $12.50 and $9.16 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 27,
February 28,
2019
48%
0%
6.2 years
0%
2.53%
2018
46%
0%
6.2 years
0%
2.72%
The expected volatility used for the 2019 and 2018 Monte Carlo simulations incorporates historical volatility based on an analysis of historical prices of
our stock. The expected volatility reflects the historical volatility for a duration consistent with the expected life of the options; it does not consider the implied
volatility from open-market exchanged options due to the limited trading activity and the transient nature of factors impacting our stock price volatility. The
historical share-price volatility for 2019 and 2018 excludes the movements in our stock price for the period from August 15, 2017 through November 30, 2017 due
to impact that the announcement of the departure of certain board members and officers, as well as reports that we were exploring a potential sale of the company,
had on our stock price during that time. The risk-free interest rates are based on zero-coupon United States Treasury yields in effect at the date of grant consistent
with the expected exercise time frames.
The following table summarizes information about our outstanding stock options at December 31, 2019:
Range of Exercise Prices
$16.43 to $19.759
$19.76 to $35.430
Number of
Options
1,224,289
736,703
1,960,992
Options Outstanding
Weighted Average
Remaining
Contractual Life
5.2 years $
7.5 years
6.1 years $
Options Exercisable
Weighted Average
Exercise Price
Number of
Options
Weighted Average
Exercise Price
18.14
23.74
20.24
408,526 $
45,834
454,360 $
16.43
24.63
17.26
As of December 31, 2019, 61.2% of all our outstanding options were held by current employees and 38.8% were held by former employees. Of our
outstanding options, 100% were in-the-money, that is, they had exercise price less than the $38.03 market price of our common stock on December 31, 2019. There
were no options out-of-the-money.
Current employees
Former employees
Totals
In-the-Money Options
Out-of-the-Money Options
All Options
Outstanding
1,199,274
761,718
1,960,992
% of Total
Outstanding
% of Total
61.2%
38.8%
100.0%
—
—
—
—%
—%
—%
Outstanding
1,199,274
761,718
1,960,992
% of Total
61.2%
38.8%
100.0%
% of all outstanding options
100.0%
—%
100.0%
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Restricted Stock Units
The following table summarizes restricted stock unit activity during the years ended December 31, 2019, 2018 and 2017:
Restricted Stock Units
Weighted Average Grant
Date Fair Value Per Unit
Unvested at December 31, 2016
Granted
Vested
Forfeited
Unvested at December 31, 2017
Granted
Vested
Forfeited
Unvested at December 31, 2018
Granted
Vested
Forfeited
Unvested at December 31, 2019
3,174,533 $
714,018
(1,397,953)
(236,610)
2,253,988 $
765,184
(995,331)
(139,711)
1,884,130 $
1,481,021
(1,562,191)
(339,461)
1,463,499 $
38.75
18.25
35.50
32.13
35.20
24.74
32.63
36.01
32.25
27.87
36.45
24.74
25.08
In the year ended December 31, 2019, we granted an aggregate of 1,481,021 restricted stock units. Of these, 337,848 will vest and be settled ratably over a
three-year period from the grant date, 566,172 will vest and be settled ratably over 9 quarterly periods from the grant date, and 353,354 will vest and be settled on
the third anniversary of the grant date. In addition, in May 2019, we made an annual grant of 100,444 restricted stock units to our non-employee directors for the
2019-2020 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. The
board of directors appointed two new members, one in August 2019 and one in October 2019. We made initial grants totaling 5,569 restricted stock units to these
directors, as well as prorated annual grants totaling 13,257 restricted stock units. Both the initial grants and the annual grants vested immediately, however, the
initial grants settle upon separation from the board, while the annual grants settle on the third anniversary of the grant date. We also granted 7,427 additional
restricted stock units that vested and settled immediately as a result of our level of achievement with respect to a performance goal on a 2013 grant and 96,950
additional restricted stock units as a result of our level of achievement with respect to a performance goal on 2014 grants.
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.
As of December 31, 2019, there were $25 million of total unrecognized compensation costs related to restricted stock units. These costs are expected to be
recognized over a weighted average period of 1.6 years.
USPI Management Equity Plan
As described in Note 25, USPI’s prior equity compensation plan was terminated in February 2020, and in accordance with the terms of that plan, all
vested options or shares of USPI stock acquired upon exercise of an option will be repurchased by USPI at their estimated fair value. At December 31, 2019, USPI
maintained a separate management equity plan whereby it had granted non-qualified options to purchase nonvoting shares of USPI’s outstanding common stock to
eligible plan participants, allowing the recipient to participate in incremental growth in the value of USPI from the applicable grant date.
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Under this plan, the total pool of options consisted of approximately 10% of USPI’s fully diluted outstanding common stock. Options had an exercise
price equal to the estimated fair market value of USPI’s common stock on the date of grant. The option awards were structured such that they had a three or four
year vesting period in which half of the award vested in equal pro-rata amounts over the applicable vesting period and the remaining half vested at the end of the
applicable three or four year period. Any unvested awards were forfeited upon the participant’s termination of service with USPI, and vested options were required
to have been exercised within 90 days of termination. Once an award was exercised and the requisite holding period met, the participant was eligible to sell the
underlying shares to USPI at their estimated fair market value. Payment for USPI’s purchase of any eligible nonvoting common shares could be made in cash or in
shares of Tenet’s common stock. The accompanying Consolidated Statement of Operations for the years ended December 2019, 2018 and 2017 includes $11
million, $18 million and $13 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, 2019, there were approximately 3.0 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, 2019, 2018 and 2017:
Number of shares
Weighted average price
Employee Retirement Plans
Years Ended December 31,
2019
2018
2017
$
215,422
24.44 $
228,045
22.96 $
395,957
17.28
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 $127 million, $99 million and $128 million for the years ended December 31, 2019, 2018 and 2017, 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 year ended December 31, 2019, the Society of Actuaries
issued a new mortality base table (Pri-2012), which we incorporated into the estimates of our defined benefit plan obligations at December 31, 2019. During the
years ended December 31, 2019 and 2018, the Society of Actuaries issued new mortality improvement scales (MP-2019 and MP‑2018, respectively), which we
incorporated into the estimates of our defined benefit plan obligations at December 31, 2019 and 2018. These changes to our mortality assumptions decreased our
projected benefit obligations as of December 31, 2019 and 2018 by approximately $14 million and $4 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, 2019 and 2018:
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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,
2019
2018
$
(1,301)
$
—
(58)
(132)
123
(1)
(1,369)
731
128
33
(102)
790
(579)
$
(19)
(560)
323
$
$
$
3.50%
3.00%
$
$
$
$
(1,455)
(2)
(56)
90
122
—
(1,301)
850
(65)
47
(101)
731
(570)
(49)
(521)
281
4.50%
3.00%
December 31, 2019
December 31, 2018
3.60%
Frozen
4.62%
Frozen
December 31, 2019
December 31, 2018
(1) The accumulated benefit obligation at December 31, 2019 and 2018 was approximately $1.367 billion and $1.299 billion, respectively.
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
Special termination benefit costs
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
$
$
Years Ended December 31,
2019
2018
2017
— $
58
(46)
10
1
23
$
4.50%
n/a
3.00%
$
2
56
(54)
14
—
18
$
3.75%
n/a
3.00%
2
62
(50)
14
—
28
4.25%
n/a
3.00%
January 1, 2019
January 1, 2019
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
4.62%
6.50%
Frozen
4.00%
6.50%
Frozen
4.42%
6.50%
Frozen
Measurement date
Census date
January 1, 2019
January 1, 2019
January 1, 2018
January 1, 2018
January 1, 2017
January 1, 2017
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
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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 $(42) million, $(15) million and $56 million in other comprehensive income (loss) in the years ended
December 31, 2019, 2018 and 2017, 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 $(52) million,
$(29) million and $42 million were recognized during the years ended December 31, 2019, 2018 and 2017, respectively, and the amortization of net actuarial loss
of $10 million, $14 million and $14 million for the years ended December 31, 2019, 2018 and 2017, respectively, were recognized in other comprehensive income
(loss). Cumulative net actuarial losses of $323 million, $281 million and $266 million as of December 31, 2019, 2018 and 2017, respectively, and unrecognized
prior service costs of less than $1 million as of each of the years ended December 31, 2019, 2018 and 2017 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, 2019, were as
follows:
Asset Category
Cash and cash equivalents
U.S. government obligations
Equity securities
Debt securities
Alternative investments
Target
Actual
2%
—%
65%
33%
—%
2%
2%
64%
32%
—%
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 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, 2019 and 2018, 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.
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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
Futures contracts
December 31, 2019
Level 1
Level 2
Level 3
37 $
9
461
283
—
790 $
37 $
9
461
283
—
790 $
— $
—
—
—
—
— $
December 31, 2018
Level 1
Level 2
Level 3
33 $
9
423
262
4 $
731 $
33 $
9
423
262
4
731 $
— $
—
—
—
— $
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
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
$
876 $
85 $
87 $
89 $
89 $
90 $
436
Total
2020
2021
2022
2023
2024
Years Ending December 31,
Five Years
Thereafter
The SERP and DMC Pension Plan obligations of $579 million at December 31, 2019 are classified in the accompanying Consolidated Balance Sheet as an
other current liability ($19 million) and defined benefit plan obligations ($560 million) based on an estimate of the expected payment patterns. We expect to make
total contributions to the plans of approximately $19 million for the year ending December 31, 2020.
NOTE 11. PROPERTY AND EQUIPMENT
The principal components of property and equipment are shown in the following table. Prior to the adoption of ASU 2016-02 effective January 1, 2019,
assets under capital leases were included with buildings and improvements and with equipment in the following table.
Land
Buildings and improvements
Construction in progress
Equipment
Finance lease assets
Accumulated depreciation and amortization
Net property and equipment
December 31,
2019
2018
$
$
602 $
6,856
184
4,173
561
12,376
(5,498)
6,878 $
613
6,920
199
4,482
—
12,214
(5,221)
6,993
Property and equipment is stated at cost, less accumulated depreciation and amortization and impairment write-downs related to assets held and used.
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NOTE 12. 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 2019 and 2018:
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
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
114
2019
2018
5,410 $
(2,430)
2,980
—
(72)
2,908 $
5,338 $
(2,430)
2,908 $
2019
2018
3,696 $
—
3,696
43
—
3,739 $
3,739 $
—
3,739 $
2019
2018
605 $
—
605
—
605 $
605 $
—
605 $
5,406
(2,430)
2,976
1
3
2,980
5,410
(2,430)
2,980
3,437
—
3,437
219
40
3,696
3,696
—
3,696
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
2019 and 2018:
At December 31, 2019:
Capitalized software costs
Trade names
Contracts
Other
Total
At December 31, 2018:
Capitalized software costs
Trade Names
Contracts
Other
Total
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
$
$
$
$
1,616 $
(912) $
102
869
107
—
(94)
(86)
704
102
775
21
2,694 $
(1,092) $
1,602
1,667 $
(858) $
102
871
104
—
(76)
(79)
809
102
795
25
2,744 $
(1,013) $
1,731
Estimated future amortization of intangibles with finite useful lives as of December 31, 2019 is as follows:
Total
2020
2021
2022
2023
2024
Years Ending December 31,
Amortization of intangible assets
$
1,037 $
156 $
142 $
130 $
122 $
104 $
Later Years
383
We recognized amortization expense of $188 million, $185 million and $172 million in the accompanying Consolidated Statements of Operations for the
years ended December 31, 2019, 2018 and 2017, respectively.
NOTE 13. 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
Operating lease assets
Land held for expansion, other long-term receivables and other assets
Investments and other assets
December 31,
2019
2018
2 $
978
980
36
59
213
912
169
40
956
996
30
44
231
—
155
2,369 $
1,456
$
$
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 14. ACCUMULATED OTHER COMPREHENSIVE LOSS
Our accumulated other comprehensive loss is comprised of the following:
Adjustments for defined benefit plans
Accumulated other comprehensive loss
December 31,
2019
2018
$
$
(257) $
(257) $
(223)
(223)
The tax benefits allocated to the adjustments for our defined benefit plans was approximately $8 million for the year ended December 31, 2019, and 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. As
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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 15. 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
Uninsured
Indemnity and other
Total
Other revenues(1)
Hospital Operations and other total prior to
inter-segment eliminations
Ambulatory Care
Conifer
Inter-segment eliminations
Net operating revenues
(1)
Primarily physician practices revenues.
Years Ended December 31,
2019
2018
2017
$
2,888 $
2,882 $
1,193
9,516
92
679
14,368
1,154
15,522
2,158
1,372
(573)
1,294
9,213
96
596
14,081
1,204
15,285
2,085
1,533
(590)
$
18,479 $
18,313 $
3,243
1,304
9,583
91
608
14,829
1,431
16,260
1,940
1,597
(618)
19,179
Adjustments for prior-year cost reports and related valuation allowances, principally related to Medicare and Medicaid, increased revenues in the years
ended December 31, 2019, 2018 and 2017 by $27 million, $24 million and $35 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 for our Ambulatory Care segment:
Net patient service revenues
Management fees
Revenue from other sources
Net operating revenues
Years Ended December 31,
2019
2018
2017
2,040 $
1,965 $
1,816
95
23
92
28
2,158 $
2,085 $
93
31
1,940
$
$
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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
Net operating revenues
Years Ended December 31,
2019
2018
2017
$
556 $
568 $
713
17
86
855
22
88
583
891
35
88
$
1,372 $
1,533 $
1,597
Other services represent approximately 8% of Conifer’s revenue and include value-based care services, consulting services and other client-defined projects.
Performance Obligations
The following table includes Conifer’s revenue that is expected to be recognized in the future related to performance obligations that are unsatisfied, or
partially unsatisfied, at the end of the reporting period. The amounts in the table primarily consist of revenue cycle management fixed fees, which are typically
recognized ratably as the performance obligation is satisfied. The estimated revenue does not include volume or contingency based contracts, performance
incentives, penalties or other variable consideration that is considered constrained. Conifer’s contract with Catholic Health Initiatives (“CHI”), a minority interest
owner of Conifer Health Solutions, LLC, represents the majority of the fixed-fee revenue related to remaining performance obligations. Conifer’s contract term
with CHI ends December 31, 2032.
Performance obligations
$
7,347 $
601 $
598 $
598 $
597 $
550 $
Total
2020
2021
2022
2023
2024
Years Ending December 31,
Later Years
4,403
NOTE 16. 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, 2019 through March 31, 2020, we
have coverage totaling $850 million per occurrence, after deductibles and exclusions, with annual aggregate sub-limits of $100 million for floods, $200 million for
earthquakes and a per-occurrence sub-limit of $200 million for named windstorms with no annual aggregate. With respect to fires and other perils, excluding
floods, earthquakes and named windstorms, the total $850 million limit of coverage per occurrence applies. Deductibles are 5% of insured values up to a maximum
of $40 million for California earthquakes, $25 million for floods and named windstorms, and 2% of insured values for New Madrid fault earthquakes, with a
maximum per claim deductible of $25 million. Floods and certain other covered losses, including fires and other perils, have a minimum deductible of $1 million.
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, 2019 and 2018, the aggregate current and long-term professional and general liability reserves in the accompanying Consolidated Balance Sheets
were $915 million and $882 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 1.83%, 2.59% and 2.33% at December 31, 2019, 2018 and 2017,
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 $374 million, $388
million and $303 million for the years ended December 31, 2019, 2018 and 2017, respectively, of which $155 million, $176 million and $61 million, respectively,
related to adverse development for prior years.
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NOTE 17. 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. In January 2019, the court issued a final judgment and order of dismissal after the plaintiffs elected not to replead. In February 2019, the plaintiffs filed
an appeal of the court’s ruling that dismissal was appropriate because the plaintiffs failed to adequately plead that a pre-suit demand on the Company’s board of
directors, a precondition to their action, should be excused as futile. The parties’ appellate briefs have been filed, and oral arguments were held on February 5,
2020. The parties are awaiting the court’s ruling. 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 alleged 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 sought unspecified damages (subject to trebling under federal law), interest, costs and attorneys’ fees. In January 2019, the district court issued an
opinion denying the plaintiffs’ motion for class certification. The
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plaintiffs’ subsequent appeal of the district court’s decision to the U.S. Court of Appeals for the Fifth Circuit was denied in March 2019. In April 2019, the
appellate court denied the plaintiffs’ request for additional review of the district court’s ruling, and we learned in August 2019 that the plaintiffs did not request
further review by the U.S. Supreme Court. The plaintiffs advised the court that they were proceeding on behalf of the three named individuals. On November 20,
2019, at court-ordered mediation, the parties entered into a confidential settlement to resolve the three plaintiffs’ individual claims for an immaterial amount. In
January 2020, the parties executed a settlement agreement, which the court approved, and the case was dismissed.
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 May 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, 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. The litigation is
currently stayed while the parties work to finalize the resolution described below.
Pursuant to the obligations under our NPA, we reported the unsealed qui tam action to the DOJ and began investigating the claims contained in the
amended complaint and cooperating fully with the DOJ. We began discussing potential resolution of these matters with the DOJ and the Office of Inspector
General of the U.S. Department of Health and Human Services (“OIG”) during the three months ended September 30, 2019.
In October 2019, we reached an agreement in principle with the DOJ to resolve the qui tam lawsuit and related investigations for approximately
$66 million, subject to further approvals by the DOJ and other government agencies. In the three months ended September 30, 2019, we established a reserve of
$68 million for this matter, which includes an estimate of the relator’s attorney’s fees and certain other costs to be paid by us. In the three months ended
December 31, 2019, we increased the reserve for this matter by an additional $1 million to reflect updated information on the other costs to be paid by us. Any final
resolution remains subject to negotiation and final approval of a settlement agreement with the DOJ and any other definitive documentation required by OIG or
other government agencies. We believe this could be completed as early as the second quarter of 2020, at which time the monetary component of the resolution
would be paid.
Other Matters
On July 1, 2019, certain of the entities that purchased the operations of Hahnemann University Hospital and St. Christopher’s Hospital for Children in
Philadelphia from us commenced Chapter 11 bankruptcy proceedings. As previously disclosed in our Form 8-K filed September 1, 2017, the purchasers assumed
our funding obligations under the Pension Fund for Hospital and Health Care Employees of Philadelphia and Vicinity (the “Fund”), a pension plan related to the
operations at Hahnemann University Hospital and, pursuant to rules under the Employee Retirement Income Security Act of 1974, as amended, under certain
circumstances we could become liable for withdrawal liability in the event a withdrawal is triggered with respect to the Fund. In July 2019, the Fund notified us of
a withdrawal liability assessment of approximately $63 million. We dispute and are contesting this assessment in accordance with applicable law.
We are also subject to claims and lawsuits arising in the ordinary course of business, including potential claims related to, among other things, the care
and treatment provided at our hospitals and outpatient facilities, the application of various
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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, 2019, 2018 and 2017. No amounts were recorded in discontinued operations in the 2019, 2018 and
2017 periods.
Balances at
Beginning
of Period
Litigation and
Investigation
Costs
Cash
Payments
Other
Balances at
End of
Period
Year Ended December 31, 2019
Year Ended December 31, 2018
Year Ended December 31, 2017
$
$
$
8 $
12 $
12 $
141 $
38 $
23 $
(55)
(41)
(23)
$
$
$
(8) $
(1) $
— $
86
8
12
For the years ended December 31, 2019, 2018 and 2017, we recorded net costs of $141 million, $38 million and $23 million, respectively, in connection with
significant legal proceedings and governmental investigations.
NOTE 18. 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 April 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, 2019 and 2018.
The following table shows the changes in redeemable noncontrolling interests in equity of consolidated subsidiaries during the years ended 2019 and
2018:
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
120
December 31,
2019
2018
$
$
1,420 $
192
(145)
18
21
1,506 $
1,866
190
(142)
173
(667)
1,420
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Our redeemable noncontrolling interests balances at December 31, 2019 and 2018 in the table above were comprised of $383 million and $431 million,
respectively, from our Hospital Operations and other segment, $777 million and $713 million, respectively, from our Ambulatory Care segment, and $346 million
and $276 million, respectively, from our Conifer segment. Our net income (loss) attributable to redeemable noncontrolling interests for the years ended
December 31, 2019 and 2018 respectively, in the accompanying Consolidated Statements of Operations were comprised of $(37) million and $(25) million,
respectively, from our Hospital Operations and other segment, $159 million and $151 million, respectively, from our Ambulatory Care segment, and $70 million
and $64 million, respectively, from our Conifer segment.
NOTE 19. INCOME TAXES
The provision for income taxes for continuing operations for the years ended December 31, 2019, 2018 and 2017 consists of the following:
Current tax expense (benefit):
Federal
State
Deferred tax expense (benefit):
Federal
State
Years Ended December 31,
2019
2018
2017
$
$
(6) $
26
20
134
(1)
133
(6) $
33
27
159
(10)
149
153 $
176 $
(4)
23
19
202
(2)
200
219
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, 2019 includes $2 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 $2 million is included for the year ended December 31, 2019 to reflect the reduction in
the valuation allowance. Foreign pre-tax loss for the years ended December 31, 2019 and 2018 was $6 million.
Tax expense (benefit) at statutory federal rate of 21% in 2019 and 2018
(35% in 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
Nondeductible executive compensation
Nondeductible litigation costs
Expired charitable contribution carryforward
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,
2019
2018
2017
$
62 $
134 $
20
2
(79)
4
6
7
8
—
—
4
133
(14)
(3)
3
23
9
(70)
8
4
—
—
(1)
(6)
5
76
(1)
(5)
—
$
153 $
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 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
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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 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, 2019
December 31, 2018
Assets
Liabilities
Assets
Liabilities
Depreciation and fixed-asset differences
$
— $
282 $
— $
Reserves related to discontinued operations and restructuring charges
Receivables (doubtful accounts and adjustments)
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
14
165
195
—
35
274
45
—
219
179
19
45
1,190
(281)
—
—
—
356
—
—
—
95
—
—
—
34
767
—
24
155
205
—
39
255
32
—
89
266
24
88
1,177
(148)
$
909 $
767 $
1,029 $
297
—
—
—
341
—
—
—
83
—
—
—
32
753
—
753
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,
2019
2018
$
$
169 $
(27)
142 $
312
(36)
276
During the year ended December 31, 2019, the valuation allowance increased by $133 million, including an increase of $130 million due to limitations on
the tax deductibility of interest expense, a decrease of $2 million due to the expiration or worthlessness of unutilized state net operating loss carryovers, and an
increase of $5 million due to changes in expected realizability of deferred tax assets. The balance in the valuation allowance as of December 31, 2019 was $281
million. 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 remaining balance in the valuation allowance at 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 as of December 31, 2017 was
$72 million. Federal and state deferred tax assets relating to interest expense limitations under Internal Revenue Code Section 163(j) have a full valuation
allowance because the interest expense carryovers are not expected to be utilized in the foreseeable future.
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
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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, 2019, 2018 and 2017. 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, 2019, 2018 and 2017.
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
Reductions due to a lapse of statute of limitations
Balance At December 31, 2019
Continuing
Operations
35
31
(15)
(5)
46
(1)
45
(14)
31
$
$
$
$
The total amount of unrecognized tax benefits as of December 31, 2019 was $31 million, of which $29 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, 2019 includes a benefit of $11 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, 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.
Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our consolidated statements of operations. Total
accrued interest and penalties on unrecognized tax benefits as of December 31, 2019 were zero.
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, 2015 remain subject to audit by the IRS.
As of December 31, 2019, no significant changes in unrecognized federal and state tax benefits are expected in the next 12 months as a result of the
settlement of audits, the filing of amended tax returns or the expiration of statutes of limitations.
At December 31, 2019, our carryforwards available to offset future taxable income consisted of (1) federal net operating loss (“NOL”) carryforwards of
approximately $600 million pre-tax expiring in 2032 to 2034, (2) general business credit carryforwards of approximately $25 million expiring in 2023 through
2039, and (3) state NOL carryforwards of approximately $3.5 billion expiring in 2020 through 2039 for which the associated deferred tax benefit, net of valuation
allowance and federal tax impact, is $25 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.
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NOTE 20. 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, 2019, 2018 and 2017. Net income available (loss attributable) to our common shareholders is expressed
in millions and weighted average shares are expressed in thousands.
Net Income Available (Loss
Attributable)
to Common
Shareholders
(Numerator)
Weighted
Average Shares
(Denominator)
Per-Share
Amount
Year Ended December 31, 2019
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, 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
$
$
$
$
$
$
(243)
—
103,398 $
—
(243)
103,398 $
108
—
102,110 $
1,771
(2.35)
—
(2.35)
1.06
(0.02)
108
103,881 $
1.04
(704)
—
(704)
100,592 $
—
100,592 $
(7.00)
—
(7.00)
All potentially dilutive securities were excluded from the calculation of diluted loss per share for the years ended December 31, 2019 and 2017 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, 2019 and 2017, 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 1,457 and 788 for the
years ended December 31, 2019 and 2017, respectively.
NOTE 21. 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.
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Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
December 31, 2019
Long-lived assets held for sale
$
387 $
— $
387 $
Long-lived assets held for sale
Long-lived assets held and used
December 31, 2018
$
$
39 $
130 $
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
— $
— $
39 $
130 $
Significant
Unobservable
Inputs
(Level 3)
Significant
Unobservable
Inputs
(Level 3)
—
—
—
As described in Note 6, in the year ended December 31, 2019, we recorded impairment charges in continuing operations of $26 million to write-down
assets held for sale to their estimated fair value, less estimated costs to sell, for certain of our Memphis-area facilities and $16 million of other impairment charges.
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.
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, 2019 and 2018, the estimated fair value of our long-term debt was
approximately 106.4% and 97.3%, respectively, of the carrying value of the debt.
NOTE 22. ACQUISITIONS
During the year ended December 31, 2019, we acquired ten 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 $25 million.
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.
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 2019 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 2019 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, 2019, 2018 and 2017 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
2019
2018
2017
$
16 $
6 $
20
4
43
24
(16)
(35)
(18)
(7)
(25)
$
6 $
19
9
220
(18)
—
(15)
(21)
(85)
(113)
2 $
7
9
8
91
(3)
(8)
(2)
(29)
(18)
(50)
5
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. The goodwill total of $43 million from acquisitions completed during the year ended
December 31, 2019 was recorded in our Ambulatory Care segment. Approximately $6 million, $10 million and $6 million in transaction costs related to
prospective and closed acquisitions were expensed during the years ended December 31, 2019, 2018 and 2017, 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, 2019, 2018 and 2017, we recognized gains totaling $6 million, $2 million and $5 million, respectively, associated
with stepping up our ownership interests in previously held equity investments, which we began consolidating after we acquired controlling interests.
NOTE 23. 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,
micro-hospitals 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, 2019. At December 31, 2019, our subsidiaries operated 65 hospitals serving primarily urban and suburban communities in nine states.
Our Ambulatory Care segment is comprised of the operations of USPI and included nine Aspen facilities in the United Kingdom until their divestiture
effective August 17, 2018. At December 31, 2019, USPI had interests in 260 ambulatory surgery centers, 39 urgent care centers operated under the CareSpot brand,
23 imaging centers and 24 surgical hospitals in 27 states. At December 31, 2019, we owned 95% of USPI.
Our Conifer segment provides revenue cycle management and value-based care services to hospitals, healthcare systems, physician practices, employers
and other customers. At December 31, 2019, Conifer provided services to approximately 660 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, 2019, 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,
2019
December 31,
2018
December 31,
2017
16,182 $
15,684 $
6,195
974
5,711
1,014
23,351 $
22,409 $
16,466
5,822
1,097
23,385
Years Ended December 31,
2019
2018
2017
572 $
527 $
75
23
68
22
670 $
617 $
15,522 $
15,285 $
2,158
2,085
573
799
1,372
(573)
590
943
1,533
(590)
18,479 $
18,313 $
15 $
160
175 $
10 $
140
150 $
1,425 $
1,411 $
895
386
792
357
2,706 $
2,560 $
733 $
685 $
72
45
68
49
850 $
802 $
625
60
22
707
16,260
1,940
618
979
1,597
(618)
19,179
4
140
144
1,462
699
283
2,444
736
84
50
870
2,706 $
2,560 $
2,444
(2)
(850)
(185)
(141)
(985)
(227)
9
(802)
(209)
(38)
(1,004)
1
(41)
(870)
(541)
(23)
(1,028)
(164)
Other non-operating expense, net
Net gains (losses) on sales, consolidation and deconsolidation of facilities
Income (loss) from continuing operations, before income taxes
$
(5)
(15)
296 $
(5)
127
639 $
(22)
144
(101)
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NOTE 24. RECENT ACCOUNTING STANDARDS
Recently Issued Accounting Standards
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.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial
Instruments” (“ASU 2016-13”), which applies to entities holding financial assets and net investment in leases that are not accounted for at fair value through net
income. The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net
amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to
present the net carrying value at the amount expected to be collected on the financial asset. We will adopt ASU 2016-13 effective January 1, 2020 using the
modified retrospective transition approach as of the period of adoption by recording a cumulative effect adjustment to increase accumulated deficit by $15 million
to $20 million. We do not expect the adoption to have a material effect on our financial position, results of operations or cash flow.
Recently Adopted Accounting Standards
Effective January 1, 2019, as further discussed in Note 1, we adopted ASU 2016-02 using the modified retrospective transition approach as of the period
of adoption.
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 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.
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NOTE 25. SUBSEQUENT EVENT
Termination of USPI Management Equity Plan and Adoption of USPI Restricted Stock Plan
As described in Note 10, USPI previously maintained a management equity plan whereby it had granted non-qualified options to purchase nonvoting
shares of USPI’s outstanding common stock to eligible plan participants. In February 2020, the plan and all unvested options granted under the plan were
terminated in accordance with the terms of the plan. In the first quarter of 2020, USPI will repurchase all vested options and all shares of USPI stock acquired upon
exercise of an option. All participants in the plan will receive fair market value for any such vested options or shares; all unvested options under the plan were
canceled. USPI will pay approximately $35 million to eligible plan participants in connection with the repurchase of eligible securities. Also in February 2020,
USPI adopted a new restricted stock plan whereby USPI will grant shares of restricted non-voting common stock to eligible plan participants.
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SUPPLEMENTAL FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
Net operating revenues
Net income (loss)
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
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
Year Ended December 31, 2019
First
Second
Third
Fourth
4,545 $
4,560 $
4,568 $
4,806
65 $
(19) $
112 $
17 $
(152) $
(232) $
(0.18) $
(0.18) $
0.17 $
0.16 $
(2.24) $
(2.24) $
129
2
0.02
0.02
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)
$
$
$
$
$
$
$
$
$
$
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; 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, satisfaction, retention and attrition; advances in technology and treatments that reduce length of stay; local
healthcare competitors; utilization pressure by managed care organizations, as well as managed care contract negotiations or terminations; hospital performance
data on quality measures and patient satisfaction, as well as standard charges for services; any unfavorable publicity about us, or our joint venture partners, that
impacts our relationships with physicians and patients; and changing consumer behavior, including with respect to the timing of elective procedures. These
considerations apply to year-to-year comparisons as well.
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 79 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 80 herein.
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2019 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.
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 Standards of Conduct, by which all of our employees and officers, 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, FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
PART IV.
The Consolidated Financial Statements and notes thereto can be found on pages 83 through 129.
FINANCIAL STATEMENT SCHEDULES
Schedule II—Valuation and Qualifying Accounts (included on page 141).
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, 2019, 2018 and 2017 can be
found on pages F-1 through F-20.
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) 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) Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
(b) 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)
(c) 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)
(d) 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
(e) 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)
(f) 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)
(g) 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)
(h) 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)
(i) 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)
(j) 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)
(k) 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)
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(l) 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)
(m) 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)
(n) 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)
(o) Thirty-First Supplemental Indenture, dated as of August 26, 2019, among the Registrant, the guarantors party thereto and The Bank of
New York Mellon Trust Company, N.A. 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 August 26, 2019)
(p) Thirty-Second Supplemental Indenture, dated as of August 26, 2019, among the Registrant, the guarantors party thereto and The Bank
of New York Mellon Trust Company, N.A. relating to 4.875% Senior Secured First Lien Notes due 2026 (Incorporated by reference to
Exhibit 4.3 to Registrant’s Current Report on Form 8-K filed August 26, 2019)
(q) Thirty-Third Supplemental Indenture, dated as of August 26, 2019, among the Registrant, the guarantors party thereto and The Bank
of New York Mellon Trust Company, N.A. relating to 5.125% Senior Secured First Lien Notes due 2027 (Incorporated by reference to
Exhibit 4.4 to Registrant’s Current Report on Form 8-K filed August 26, 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) Amendment No. 4, dated as of September 12, 2019, 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 September 13, 2019)
(f) 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)
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(g) 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)
(h) Amendment No. 3, dated as of September 12, 2019, to the Letter of Credit Facility Agreement, dated as of March 7, 2014, by and
among the Registrant, the LC participants and issuers party thereto and Barclays Bank PLC, as administrative agent (Incorporated by
reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed September 13, 2019)
(i) 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)
(j) 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 pledgors party thereto (Incorporated by reference to Exhibit 10.1 to Registrant’s
Current Report on Form 8-K filed March 5, 2009)
(k) 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)
(l) 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)
(m) 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)
(n) 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)
(o) 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 (Incorporated by reference to
Exhibit 10(m) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, filed February 25, 2019)
(p) 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 (Incorporated by reference to Exhibit
10(n) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, filed February 25, 2019)
(q) 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 (Incorporated by reference to
Exhibit 10(o) to Registrant’s Annual Report on Form 10-K for the year December 31, 2018, filed February 25, 2019)
(r) 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 pledgors party thereto (Incorporated by reference to Exhibit 10.2 to Registrant’s
Current Report on Form 8-K filed March 5, 2009)
(s) Exchange and Registration Rights Agreement, dated as of August 26, 2019, among the Registrant, the guarantors party thereto and
Barclays Capital Inc. as representative of the other initial purchasers of the 2024 First Lien Notes named therein (Incorporated by
reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed August 26, 2019)
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(t) Exchange and Registration Rights Agreement, dated as of August 26, 2019, among the Registrant, the guarantors party thereto and
Barclays Capital Inc. as representative of the other initial purchasers of the 2026 First Lien Notes named therein (Incorporated by
reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed August 26, 2019)
(u) Exchange and Registration Rights Agreement, dated as of August 26, 2019, among the Registrant, the guarantors party thereto and
Barclays Capital Inc. as representative of the other initial purchasers of the 2027 First Lien Notes named therein (Incorporated by
reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed August 26, 2019)
(v) 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)
(w) 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)
(x) 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)
(y) 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)
(z) 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)*
(aa) Amendment No. 1 to Employment Agreement, dated February 27, 2019 (Incorporated by reference to Exhibit 10.1 to Registrant’s
Current Report on Form 8-K filed March 1, 2019)*
(bb) 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)*
(cc) 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)*
(dd) 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)*
(ee) Retirement, General Release, and Consulting Agreement, dated as of June 19, 2019, by and between Tenet Business Services
Corporation and Keith B. Pitts (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed June
21, 2019)*
(ff) Tenet Fourth Amended and Restated Executive Severance Plan, as amended and restated effective August 8, 2018 (Incorporated by
reference to Exhibit 10(bb) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 25,
2019)*
(gg) Tenet Healthcare Corporation Tenth Amended and Restated Supplemental Executive Retirement Plan, as amended and restated
effective April 1, 2018 (Incorporated by reference to Exhibit 10(cc) Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2018, filed on February 25, 2019)*
(hh) 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)*
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(ii) Sixth Amended and Restated Tenet 2006 Deferred Compensation Plan, as amended and restated effective January 1, 2020*
(jj) 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)*
(kk) 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)*
(ll) 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)*
(mm) 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)*
(nn) 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)*
(oo) 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)*
(pp) Terms and Conditions of Restricted Stock Unit Award granted to Ronald A. Rittenmeyer on February 27, 2019 under the Tenet
Healthcare 2008 Stock Incentive Plan*
(qq) Terms and Conditions of Restricted Stock Unit Award granted to Saumya Sutaria, M.D. on January 31, 2019 under the Tenet
Healthcare 2008 Stock Incentive Plan*
(rr) Terms and Conditions of Restricted Stock Unit Award granted to Saumya Sutaria, M.D. on February 27, 2019 under the Tenet
Healthcare 2008 Stock Incentive Plan*
(ss) Tenet Healthcare 2019 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K
filed May 3, 2019)*
(tt) Forms of Award used to evidence (i) initial grants of restricted stock units to directors and (ii) annual grants of restricted stock units to
directors, each under the Tenet Healthcare 2019 Stock Incentive Plan*
(uu) 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)*
(vv) Fourth Amended Tenet Healthcare Corporation Annual Incentive Plan, amended and restated effective as of February 27, 2019
(Incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed March 1, 2019)*
(ww) Eighth Amended and Restated Tenet Executive Retirement Account, as amended and restated effective as of April 26, 2019
(Incorporated by reference to Exhibit 10(c) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed
August 5, 2019)*
(xx) 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
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(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, Executive Vice President and Chief Financial Officer
(32)
Section 1350 Certifications of Ronald A. Rittenmeyer, Executive Chairman and Chief Executive Officer, and Daniel J. Cancelmi, Executive
Vice President and Chief Financial Officer
(101 SCH)
Inline XBRL Taxonomy Extension Schema Document
(101 CAL)
Inline XBRL Taxonomy Extension Calculation Linkbase Document
(101 DEF)
Inline XBRL Taxonomy Extension Definition Linkbase Document
(101 LAB)
Inline XBRL Taxonomy Extension Label Linkbase Document
(101 PRE)
Inline XBRL Taxonomy Extension Presentation Linkbase Document
(101 INS)
Inline XBRL Taxonomy Extension Instance Document
(104) Cover Page Interactive Data File - formatted in Inline XBRL (included in Exhibit 101)
* Management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
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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 24, 2020
By:
TENET HEALTHCARE CORPORATION
(Registrant)
/s/ R. SCOTT RAMSEY
R. Scott Ramsey
Senior Vice President, 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 24, 2020
Date: February 24, 2020
Date: February 24, 2020
Date: February 24, 2020
Date: February 24, 2020
Date: February 24, 2020
Date: February 24, 2020
Date: February 24, 2020
Date: February 24, 2020
Date: February 24, 2020
Date: February 24, 2020
Date: February 24, 2020
/s/ RONALD A. RITTENMEYER
Ronald A. Rittenmeyer
Executive Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ DANIEL J. CANCELMI
Daniel J. Cancelmi
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ R. SCOTT RAMSEY
R. Scott Ramsey
Senior Vice President, 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/ J. ROBERT KERREY
J. Robert Kerrey
Director
/s/ CHRIS LYNCH
Chris Lynch
Director
/s/ RICHARD MARK
Richard Mark
Director
/s/ TAMMY ROMO
Tammy Romo
Director
/s/ NADJA WEST, M.D.
Nadja West, M.D.
Director
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
By:
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SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(In Millions)
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, 2019
Year ended December 31, 2018
Year ended December 31, 2017
Valuation allowance for deferred tax assets:
Year ended December 31, 2019
Year ended December 31, 2018
Year ended December 31, 2017
$
$
$
$
$
$
— $
898 $
1,031 $
148 $
72 $
72 $
— $
— $
— $
— $
1,434 $
(1,445) $
133 $
76 $
— $
— $
— $
— $
— $
(898) $
(122) $
— $
— $
— $
—
—
898
281
148
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) Allowance for doubtful accounts 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
Audited Financial Statements
Report of Independent Auditors
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
Report of Independent Auditors
To the Board of Trustees of Baylor Scott & White Holdings
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, 2019 and 2018, 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, 2019.
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, 2019 and 2018, and the results of their operations and their cash flows for each of the three years in the period
ended June 30, 2019 in accordance with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
November 1, 2019
F-2
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS – AS OF JUNE 30, 2019 AND 2018
(in thousands)
Table of Contents
ASSETS
CURRENT ASSETS:
Cash
Funds due from USPI
Patient receivables, net of allowance for doubtful accounts of $60,631 at June 30, 2018
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 $10,747 and $16,014 at June 30, 2019 and
2018, 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)
2019
2018
$
23,703 $
29,041
101,282
111,579
27,017
13,951
114,408
107,426
26,070
8,533
277,532
285,478
234,423
238,054
1,300
6,837
4,439
6,987
432,000
431,828
279
505
$
952,371 $
967,291
$
78,658 $
47,092
23,249
87,153
43,163
19,789
148,999
150,105
161,930
18,080
174,228
17,159
329,009
341,492
NONCONTROLLING INTERESTS - REDEEMABLE
170,640
172,416
EQUITY:
Members’ equity
Noncontrolling interests – nonredeemable
Total equity
Total liabilities and equity
419,847
32,875
452,722
419,870
33,513
453,383
$
952,371 $
967,291
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 2019, 2018 AND 2017
(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
2019
2018
2017
$
1,216,601 $
1,204,516 $
1,073,887
—
34,636
27,135
1,216,601
1,169,880
1,046,752
3,268
3,653
3,038
1,219,869
1,173,533
1,049,790
Equity in earnings of unconsolidated affiliates (Note 3)
4,458
5,065
3,965
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
Depreciation and amortization
Total operating expenses
Operating income
NONOPERATING INCOME (EXPENSES):
Interest expense
Interest income (Note 8)
Other (expenses)/income, net
Net income before income taxes
Income taxes
Net income
302,202
307,784
46,362
7,700
64,169
277,721
284,386
41,973
8,679
56,829
146,303
137,252
—
39,962
914,482
309,845
25,244
31,829
863,913
314,685
(15,698)
(14,091)
1,032
(32)
711
1,059
295,147
302,364
(5,698)
289,449
(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
Net income attributable to noncontrolling interests - redeemable
(141,348)
(143,580)
(134,905)
Net income attributable to noncontrolling interests - nonredeemable
Net income attributable to THVG
(5,280)
(8,648)
(8,229)
$
142,821 $
145,037 $
127,906
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED JUNE 30, 2019, 2018 AND 2017
(in thousands)
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
Net income
Distributions to members
Purchase of noncontrolling interests
Sale of noncontrolling interests
Balance at June 30, 2019
Members’ Equity
Total Equity
$
313,308 $
USP
138,185 $
BUMC
Total Members’
Equity
138,746 $
276,931 $
136,135
(129,002)
13,571
(1,160)
2,406
335,258
153,685
(132,424)
102,545
(5,456)
(225)
453,383
148,101
(145,615)
(5,526)
2,379
63,825
(60,778)
6,772
(718)
451
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
209,510
210,360
71,268
(69,990)
(2,270)
981
71,553
(70,270)
(2,280)
985
127,906
(121,800)
13,571
(1,438)
904
296,074
145,037
(126,405)
102,545
1,350
1,269
419,870
142,821
(140,260)
(4,550)
1,966
$
452,722 $
209,499 $
210,348 $
419,847 $
Noncontrolling
Interests -
Nonredeemable
36,377
8,229
(7,202)
—
278
1,502
39,184
8,648
(6,019)
—
(6,806)
(1,494)
33,513
5,280
(5,355)
(976)
413
32,875
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2019, 2018 AND 2017
(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/(gain) on sale of assets
Changes in operating assets and liabilities, net of effects from purchases of
new businesses:
Increase in patient receivables
(Increase)/Decrease in supplies, prepaid, and other assets
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 $0, $925, and $0 for 2019, 2018 and 2017,
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
(Decrease)/increase in cash and restricted cash
Cash and restricted cash, beginning of period
Cash and restricted cash, end of period
SUPPLEMENTAL INFORMATION:
Cash paid for interest
Cash paid for income taxes
NONCASH TRANSACTIONS:
Assets acquired under capital leases
(Decrease)/Increase in accounts payable due to property and equipment received but not paid
Tyler acquisition
Centennial acquisition
2019
2018
2017
$
289,449 $
297,265 $
271,040
—
39,962
12
150
251
(4,153)
(6,363)
7,657
59,880
31,829
5
156
(2)
(62,006)
(4,639)
7,980
326,965
330,468
—
925
(46,465)
(47,693)
170
35
(284)
13,126
(33,418)
206
(44)
13
(21,158)
(67,751)
$
11,500 $
26,078 $
(21,829)
(145,796)
(12,792)
7,153
—
(140,260)
(302,024)
(49,029)
(144,265)
(8,215)
9,609
20,925
(126,405)
(271,302)
49,638
28,605
5
645
405
(47,022)
3,362
11,890
318,568
(3,853)
(16,950)
1,233
(5)
751
(10,416)
(29,240)
10,183
(19,364)
(144,576)
(5,447)
18,445
—
(121,800)
(262,559)
$
$
$
$
(8,477)
33,480
(8,585)
42,065
25,003 $
33,480 $
26,769
15,296
42,065
15,776 $
13,991 $
5,222 $
5,076 $
15,642
4,525
1,472 $
32,033 $
4,791
(10,764)
—
—
12,322
81,620
—
44
—
13,571
RECONCILIATION OF CASH AND RESTRICTED CASH:
2019
2018
2017
Cash at beginning of period
Restricted cash at beginning of period
Cash and restricted cash at beginning of period
Cash at end of period
Restricted cash at end of period
Cash and restricted cash at end of period
$
$
$
$
29,041 $
32,105 $
15,296
4,439
9,960
—
33,480 $
42,065 $
15,296
23,703 $
29,041 $
1,300
4,439
25,003 $
33,480 $
32,105
9,960
42,065
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
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 (Tenet). 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, 2019 and 2018, and for the years ended, June 30, 2019, 2018, and 2017.
THVG owns equity interests in and operates ambulatory surgery centers, surgical hospitals, and related businesses in Texas. At June 30, 2019, 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 one consolidated facility and one 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, a consolidated BUMC subsidiary, BT East Dallas JV, LLP, a separate partnership with Tenet, had a 60% controlling
interest in Texas Regional Medical Center, LLC (Sunnyvale). On March 1, 2018, that partnership 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 qualified as a common control transaction as defined by Accounting Standards Codification (ASC) 250-10-45-21
as BSWH held a controlling interest in the hospital before the transaction and continued to hold a controlling interest subsequent to the transaction. As a result, the
commonly controlled entities, inclusive of Sunnyvale, which historically were not presented together were considered to be a different reporting entity. This change
in reporting entity, which took place in prior year financial statements, required 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, included Sunnyvale starting with BUMC’s acquisition of Sunnyvale on January
1, 2016. The effect of the change to Net income attributable to THVG for the years ended 2018 and 2017 was approximately $2,900,000 and $1,800,000,
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.
F-7
Table of Contents
Principles of Consolidation
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
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.
Use of Estimates
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, 2019 or 2018. 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. 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 $22,212,000 and
$24,118,000, as of June 30, 2019 and 2018, respectively.
Restricted Cash
THVG holds cash that is restricted as collateral for use in servicing certain of its outstanding debt agreements and ongoing construction projects. Restricted cash
balances were approximately $1,300,000 and $4,439,000 as of June 30, 2019 and 2018, respectively, and are classified as non-current, consistent with the nature of
their intended use based on the restrictions.
Concentration of Credit Risk
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 a
significant concentrated credit risk to THVG.
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 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.
F-8
Table of Contents
Investments in Unconsolidated Affiliates
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
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 as 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 2019 and 2018 and no such impairments were identified. A quantitative analysis was
performed in March 2017 and no such impairment was 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 2019, 2018, or 2017.
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, 2019 and 2018. The carrying amounts of cash, restricted cash, funds due from
United
F-9
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
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, 2019, the aggregate carrying
amount and estimated fair value of notes payable to financial institutions are approximately $52,438,000 and $46,424,000, respectively. At June 30, 2018, the
aggregate carrying amount and estimated fair value of long-term debt were approximately $54,482,000 and $47,865,000, respectively.
Revenue Recognition
Effective July 1, 2018, THVG adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts
with Customers (Topic 606)” and related clarifying standards (“ASC 606”) using a modified retrospective method of application to all contracts which were not
completed as of July 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. The
adoption of ASU 2014-09 resulted in changes to the presentation and disclosure of amounts the Company previously classified as a provision for doubtful accounts
in line with the guidance set forth by ASC 605, “Revenue Recognition”. A significant portion of amounts previously recorded within the provision for doubtful
accounts relate to self-pay patients, co-pays, co-insurance amounts, and deductibles owed to it by patients with insurance. Under ASU 2014-09, the estimated
uncollectible amounts due from these patients are generally considered implicit price concessions that are a direct reduction to net patient service revenues. For the
year ended June 30, 2019, THVG recorded $66,277,000 of implicit price concessions as a direct reduction of net patient service revenues that would have been
recorded within the Company’s provision for doubtful accounts prior to the adoption of ASU 2014-09. THVG’s accounting policies related to revenues were
revised to reflect the adoption of ASC 2014-09 effective July 1, 2018. There was no impact to net accounts receivable on the balance sheet for the year ended June
30, 2019 related to the adoptions of ASC 2014-09.
All subsidiaries of THVG, except for Sunnyvale, assessed the ability of each patient to pay prior to providing service; therefore the estimate of uncollectible
amounts related to these entities was presented within the provision for doubtful accounts in the operating expenses section of the consolidated statements of
income prior to the adoption of ASU 2014-09. Sunnyvale does not assess the ability to pay prior to providing service, and as such, the related estimate of
uncollectible amounts for this entity was presented within the provision for doubtful accounts as a component of total revenues prior to the adoption of ASU 2014-
09. Under ASU 2014-09, all estimated uncollectible amounts whether ability to pay is assessed prior to providing service or not, are accounted for as a direct
reduction to net patient service revenues.
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 and third-party payors (including managed care payors and government programs) for services rendered. Amounts recorded as
net patient service revenue include estimated contractual adjustments under reimbursement agreements with third party payors, discounts provided to uninsured
patients in accordance with the Company’s policy, and implicit price concessions. The Company determines its estimates of contractual adjustments and discounts
based on contractual agreements, its discount policies, and historical experience. The Company bases its estimate of implicit price concessions on historical
collection experience using a portfolio approach, as a practical expedient, rather than arriving at an individualized estimate for each patient service encounter. The
financial statement effects of using this practical expedient are not material as compared to estimating implicit price concessions on an individual basis. 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.
Net patient service revenue is reported at the amount that reflects consideration to which THVG expects to be entitled in exchange for providing patient care. These
amounts are due from patients, third party payors (including managed care payors and government programs) and others. Generally, THVG collects co-payments
from patients at the time of service. After the service is complete, THVG prepares a final bill for the patient and third-party payor. Revenue is recognized as
performance obligations are satisfied.
Performance obligations are determined based on the nature of the services provided by the Company. Revenue for performance obligations satisfied over time
generally relates to inpatient acute care services and is recognized based on actual charges incurred in relation to total expected (or actual) charges. Revenue for
performance obligations satisfied at a point in time generally relate to patients receiving outpatient services, when: (1) services are provided; and (2) we do not
believe the patient requires additional services.
F-10
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TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
Any unsatisfied or partially unsatisfied performance obligations primarily relate to in-house patients receiving inpatient acute care services as of the end of the
reporting period. Based on the average length of stays, the performance obligations for these contracts have a duration of less than one year and are completed
when patients are discharged, which generally occurs within days or weeks of the end of the reporting period. Because all of its performance obligations relate to
contracts with a duration of less than one year, THVG has elected to apply the optional exemption provided in FASB ASC 606-10-50-14(a) and, therefore, is 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 composition of net patient service revenue by primary payor for the year ended June 30, 2019 is as follows:
Managed care
Medicare
Medicaid
Indemnity, self-pay, and other
$
$
896,828
230,274
14,342
75,157
1,216,601
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 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 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 financial 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.
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, 2019, 2018, and 2017, was approximately $15,000,000, $7,800,000, and
$6,100,000, 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, 2019, 2018, and 2017 as income tax.
THVG follows the provisions of 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, 2019 and 2018, 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 2015 and no longer subject to state
and local income tax examination for years prior to 2014. 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.
THVG’s policy for recording interest and penalties associated with income tax matters is to record such items to income tax expense in the consolidated statements
of income. There are no interest and penalties for the years ended June 30, 2019, 2018, and 2017.
F-11
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Commitments and Contingencies
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
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.
Other Comprehensive Income
THVG does not have any items that qualify for treatment as other comprehensive income, therefore THVG’s net income equals other comprehensive income.
Recently Adopted Accounting Pronouncements
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230), Restricted Cash,” to clarify how entities should present restricted cash
and restricted cash equivalents in the statement of cash flows. The new guidance requires amounts generally described as restricted cash and restricted cash
equivalents be included with Cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash
flows. The new guidance requires retrospective application and is effective for THVG’s annual reporting period beginning July 1, 2018. The adoption of this
guidance resulted in an increase of approximately $5,500,000 in 2018 to previously reported net cash used in investing activities and a decrease of approximately
$10,000,000 in 2017 to previously reported net cash used in financing activities and a corresponding decrease and increase, respectively, to previously reported
Increase in cash (which is now captioned Increase in cash and restricted cash, pursuant to the adoption of this guidance). In addition, as noted above, we added a
reconciliation of cash, cash equivalents, and restricted cash to the consolidated statements of cash flows.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments,” to reduce
diversity in practice in how certain transactions are classified in the statement of cash flows. In addition, the standard clarifies when cash receipts and cash
payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. The new
guidance requires retrospective application and was effective for our annual reporting period beginning July 1, 2018. The adoption of this accounting standard did
not have a material impact on the cash flow statements.
As further described within the “Revenue Recognition” section above, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and
related clarifying standards (“ASC 606”), on revenue recognition using the modified retrospective method.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Topic 220)”. The ASU is intended to improve the
recognition and measurement of financial instruments. The new guidance aligns 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 (and hosting
arrangements that include an internal-use software license). This ASU is effective for public entities for fiscal years beginning after December 15, 2019, with early
adoption permitted. The Company is currently evaluating the impact of this ASU.
In June 2016, November 2018, April 2019, and May 2019, FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326)”; ASU 2018-19,
“Codification Improvements to Topic 326, Financial Instruments - Credit Losses”; ASU 2019-04, “Codification Improvements to Topic 326, Financial
Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”; and ASU 2019-05, “Financial Instruments-Credit Losses
(Topic 326)”, respectively. The current standard delays the recognition of a credit loss on a financial asset until the loss is probable of occurring. These ASU’s
remove the requirement that a credit loss be probable of occurring for it to be recognized. Instead these ASU’s require entities to use historical experience, current
conditions, and reasonable and supportable forecasts to estimate their future expected credit losses. The provisions of these ASU’s are effective for fiscal years
beginning after December 15, 2020. The Company is currently evaluating the impact of these ASU’s.
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.
The adoption of ASU 2017-01 is not expected to have a material impact on the Company.
F-12
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TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
In February 2016, FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), and has subsequently issued supplemental and/or clarifying ASU’s
(collectively “ASC 842”), which affects any entity that enters into a lease (as that term is defined in ASC 842), with some specified scope exceptions. The main
difference between the guidance in ASC 842 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, the lease standard is required to be applied to leases in existence as of the date of initial application using a modified retrospective transition approach,
which includes a number of optional practical expedients. This guidance is effective for the Company on July 1, 2019, and the Company will elect to use the
modified retrospective method as of the period of adoption rather than the earliest period presented meaning that its consolidated financial statements for periods
prior to July 1, 2019 will not be modified for the application of the new lease accounting standard. The Company will elect the three packaged transitional 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. At July 1, 2019, the Company is expecting to increase its consolidated assets by approximately $260,000,000 to $275,000,000 and the liabilities
by approximately $275,000,000 to $290,000,000 related to on-balance sheet recognition of operating lease assets and liabilities.
2. PROPERTY AND EQUIPMENT
At June 30, 2019 and 2018, 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
2019
2018
— $
1,697 $
5-25 years
3-15 years
5-15 years
272,270
226,032
10,455
1,250
1,719
258,161
203,672
10,547
6,397
511,704
480,496
(277,281)
(242,442)
$
234,423 $
238,054
At June 30, 2019 and 2018, 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
2019
142,519 $
3,367
145,886
(65,786)
2018
143,139
2,060
145,199
(56,162)
80,100 $
89,037
$
$
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
F-13
Percentage Owned
City
June 30,
2019
June 30,
2018
June 30,
2017
Desoto
Bedford
Dallas
55.2%
52.1%
52.1%
65.8
56.9
65.8
56.9
65.8
56.6
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
Legal Name
Facility
Percentage Owned
City
June 30,
2019
June 30,
2018
June 30,
2017
Denton
Garland
Dallas
Dallas
Dallas
Dallas
Fort Worth
Fort Worth
Dallas
Heath
Garland
Rockwall
Plano
Arlington
Granbury
Carrollton
Mansfield
Fort Worth Surgicare Partners, Ltd.
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
Baylor Surgical Hospital of Fort Worth
Fort Worth
North Central Surgical Center, L.L.P.
North Central Surgery Center
Grapevine Surgicare Partners, Ltd.
Frisco Medical Center, L.L.P.
Baylor Surgicare at Grapevine
Grapevine
Baylor Scott & White Medical Center - Frisco 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.
Tuscan Surgery Center, L.L.C.
Baylor Orthopedic and Spine Hospital at
Arlington
Baylor Surgicare at Granbury
Baylor Surgicare at Carrollton
Baylor Surgicare at Mansfield
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
Heritage Park Surgical Hospital, LLC
Centennial ASC, LLC
Baylor Surgicare at Baylor Plano, LLC
Texas Spine and Joint Hospital, LLC
Baylor Surgicare at Blue Star, LLC
Texas Regional Medical Center, LLC
SPC at the Star, LLC
Texas Endoscopy
Baylor Scott & White Surgical Hospital -
Sherman
Frisco Centennial Surgery Center
Baylor Plano Campus
Texas Spine and Joint
Frisco Star
Sunnyvale Hospital
SPC at the Star
F-14
Keller
Plano
Plano/Allen
Sherman
Frisco
Plano
Tyler
Frisco
Sunnyvale
Frisco
51.7
50.5
50.1
68.6
50.4
34.9
35.2
53.9
51.9
53.3
26.4
50.1
50.8
—
54.5
54.7
50.1
50.1
51.2
51.0
50.4
53.7
51.0
51.0
51.0
52.6
50.2
26.5
54.6
26.5
62.8
51.9
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
50.5
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
50.4
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,
2019
June 30,
2018
June 30,
2017
n/a
Irving
n/a
Frisco
49.0
19.4
2.0
15.0
49.0
19.3
2.0
15.8
49.0
19.6
2.0
15.8
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. For the twelve months ended June 30, 2019, THVG recognized approximately $117,600,000 of total revenues and approximately $12,000,000
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. For the twelve months ended June 30, 2019, THVG recognized approximately $11,600,000 of total revenues and approximately $2,900,000 of net
income from Centennial.
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
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 date indicated, nor is indicative of the
future operating results of THVG.
F-15
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
Total revenues
Net income attributable to THVG
4. NONCONTROLLING INTERESTS
Year Ended June 30,
2019
1,219,869 $
2018
1,178,160 $
2017
1,158,708
142,821 $
143,420 $
133,111
$
$
The Company controls and therefore consolidates the results of 33 of its 35 facilities at June 30, 2019. 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, 2019, the Company purchased and sold equity interests in various consolidated subsidiaries in the amounts of approximately
$12,792,000 and $7,153,000, respectively. 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. 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):
Net income attributable to the Company
Net transfers to the noncontrolling interests:
Year Ended June 30,
2019
2018
2017
$
142,821 $
145,037 $
127,906
(Decrease)/increase in the Company’s equity for (losses)/gains related to purchase of subsidiaries’ equity
interests
Increase in the Company’s equity for gains related to sales of subsidiaries’ equity interests
Net transfers to noncontrolling interests
(4,550)
1,966
(2,584)
1,350
1,269
2,619
(1,438)
904
(534)
Change in equity from net income attributable to the Company and net transfers to noncontrolling
interests
$
140,237 $
147,656 $
127,372
F-16
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
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, 2019, 2018, and 2017 is summarized below (in thousands):
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
Net income attributable to noncontrolling interests
Distributions to noncontrolling interests
Purchases of noncontrolling interests
Sales of noncontrolling interests
Balance, June 30, 2019
5. GOODWILL AND INTANGIBLES
The following is a summary of changes in the carrying amount of goodwill for the years ended June 30, 2019 and 2018 (in thousands):
Balance, June 30, 2017
Additions:
Tyler Spine and Joint
Balance, June 30, 2018
Additions:
Balance, June 30, 2019
$
$
$
$
$
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
141,348
(140,441)
(7,457)
4,774
170,640
319,777
111,831
431,608
—
431,608
Goodwill additions resulting from business combinations are recorded and assigned to the parent and noncontrolling interests. There were no transactions in 2019
resulting in a change in goodwill.
6. LONG-TERM OBLIGATIONS
At June 30, 2019 and 2018, 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
F-17
2019
132,741 $
$
52,438
185,179
(23,249)
2018
139,535
54,482
194,017
(19,789)
$
161,930 $
174,228
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
The aggregate maturities of notes payable for each of the five years subsequent to June 30, 2019 and thereafter are as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total long-term obligations
$
$
14,822
11,200
10,443
7,994
4,561
3,418
52,438
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%. The weighted average interest rate of the notes as of June 30, 2019 was 4%. The payment terms of the notes payable generally require monthly
payments, with some agreements having quarterly payments. Each note is collateralized by certain assets of the respective facility. Many of the notes contain
various restrictive covenants, including financial covenants that limit THVG’s ability and the ability of the Facilities to borrow money or guarantee other
indebtedness, grant liens, make investments, sell assets, and pay dividends. The Company believes it is in accordance with all of the covenants as of June 30, 2019.
Capital lease obligations are collateralized by underlying real estate or equipment and have interest rates ranging from 1% 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 2032. 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).
Minimum future payments under noncancelable leases with remaining terms in excess of one year as of June 30, 2019 are as follows (in thousands):
Year ending June 30:
Thereafter
Total minimum lease payments
Amount representing interest
Total principal payments
Capital
Leases
Operating
Leases
2020 $
20,565 $
2021
2022
2023
2024
$
20,858
19,994
19,432
20,073
106,914
207,836 $
(75,095)
132,741
39,576
37,875
36,542
34,991
33,399
163,108
345,491
Total rent expense under operating leases was approximately $51,417,000, $48,190,000, and $39,445,000 for the years ended June 30, 2019, 2018, and 2017,
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
F-18
Table of Contents
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
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,
2019, 2018, and 2017, and is included in other revenue in the accompanying consolidated statements of income.
The management and royalty fee expense to BSWH and USP was approximately $46,362,000, $41,973,000, and $38,530,000 for the years ended June 30, 2019,
2018, and 2017, 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 paid to USP and BSWH, respectively, and 34% represents royalty fees paid 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 annually,
subject, in some cases, to an annual cap.
In addition, a subsidiary of USPI pays certain expenses, primarily related to insurance premiums, data warehousing, and accounts payables processing, on behalf of
THVG which are recorded within the operating expenses section of the accompanying consolidated statements of income. These expenses amounted to
$45,940,000, $57,553,000, and $44,004,000 for the years ended June 30, 2019, 2018, and 2017, respectively.
USPI holds funds through an arrangement with THVG by which cash on hand at certain of THVG’s bank accounts is swept to USPI on a daily basis. USPI pays
THVG interest income at the Federal Reserve Prime rate less 2.5% of the average daily balance and the Facilities 0.25% of the average daily balance. 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 $101,282,000 and $114,408,000 at June 30, 2019 and 2018, respectively. Accrued expenses that USPI paid on behalf of THVG, shown in
Accounts payable on the accompanying consolidated balance sheets, totaled approximately $10,747,000 and $16,014,000 at June 30, 2019 and 2018, respectively.
The interest income associated with this arrangement amounted to approximately $1,032,000, $711,000, and $492,000 for the years ended June 30, 2019, 2018, and
2017, 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 $3,482,000. Of the total, approximately $2,168,000 relates to the obligations of two consolidated subsidiaries whose capital lease
obligations are included in THVG’s consolidated balance sheets and related disclosures, and approximately $1,312,000 relates to obligations of two consolidated
subsidiaries whose operating lease obligations are not included in THVG’s consolidated balance sheets.
These arrangements (a) consist of guarantees of real estate and equipment financing and lease obligations, (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 2025, or earlier if certain performance targets are met, and (e) provide no recourse for THVG to recover any amounts from third-
parties. The aggregate fair value of the guarantee liabilities was not material to the consolidated financial statements and, therefore, no amounts were recorded at
June 30, 2019 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. Based on historical claims activity associated with litigation and professional liability matters, the Company believes its insurance
coverage is appropriate and existing exposure related to known and incurred but not reported claims is negligible. 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.
F-19
Table of Contents
10. SUBSEQUENT EVENTS
TEXAS HEALTH VENTURES GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- continued
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 November 1, 2019, which is the date the consolidated financial statements were available to be
issued. There have been no material subsequent events requiring financial statement disclosure after the balance sheet date.
F-20
DESCRIPTION OF SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF
THE SECURITIES EXCHANGE ACT OF 1934
Exhibit 4(a)
As of December 31, 2019, Tenet Healthcare Corporation (the “Company,” “we,” “our” or “us”) has two classes of securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”): (1) common stock; and (2) 6.875% Senior Notes due 2031 (“Senior Notes”).
Description of Common Stock
The following description of our common stock is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to our
Amended and Restated Articles of Incorporation (the “Articles of Incorporation”) and our Amended and Restated Bylaws (the “Bylaws”), each of which is
incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4(a) is a part. We encourage you to read our Articles of
Incorporation, our Bylaws and the applicable provisions of Chapter 78 of the Nevada Revised Statutes, for additional information.
Authorized Capital Shares
Our authorized capital shares consist of 1,050,000,000 shares of common stock, $0.05 par value, and 2,500,000 shares of preferred stock, $0.15 par value.
Outstanding shares of our common stock are not subject to redemption and are non-assessable.
Voting Rights
Holders of our common stock are entitled to one vote per share on all matters voted on by the stockholders, including the election of directors. Our common stock
does not have cumulative voting rights. The affirmative vote of a majority of the holders of all outstanding shares, voting together and not by class, is required to
approve any merger or consolidation or the sale of substantially all of our assets.
Special Meetings
Special meetings of the stockholders, for any purpose or purposes whatsoever, (a) may be called at any time by the Chairman of the board, the Chief Executive
Officer, or the board of directors, and (b) shall be called by the Secretary of the Company upon the written request of one or more stockholders having Net Long
Beneficial Ownership (as defined in the Bylaws) of at least 25% of all outstanding shares of our common stock.
Dividend Rights
From time to time, our board of directors may declare, and we may pay, dividends or other distributions on our outstanding shares in the manner and on the terms
and conditions provided by the laws of the State of Nevada and the Articles of Incorporation, subject to any contractual restrictions to which we are then subject.
Liquidation Rights
In the event of a liquidation, dissolution or winding-up of our company, holders of common stock are entitled to share equally and ratably in the assets of our
company, if any, remaining after the payment of all debts and liabilities of our company and the liquidation preference of any outstanding preferred stock.
Amendments to Bylaws
Subject to the right of the stockholders to adopt, amend or restate, or repeal the Bylaws, our board of directors may adopt, amend or repeal any of the Bylaws,
except as otherwise provided in the Bylaws, by the affirmative vote of a majority of directors.
Advance Notice Requirements
The Bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or other
business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals of these kinds must be timely given in
writing to the Secretary of the Company before the meeting at which the action is to be taken. Generally, to be timely, a stockholder’s notice to the Secretary must
be delivered to or mailed and received at the Company’s corporate headquarters by the close of business not less than 90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that
is not within 30 days before or after such anniversary date, or if no annual meeting was held in the preceding year, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth day following the day on which the Company makes a public announcement of the date of the
annual meeting. The notice must contain certain information specified in the Bylaws.
Written Consent by Stockholders
Any action that may be taken at any meeting of the stockholders, except election or removal of directors, may be taken without a meeting only if authorized by a
writing signed by stockholders owning all of the shares of common stock entitled to vote on the action.
Other Rights and Preferences
The holders of our common stock do not have any conversion or subscription rights, and their preemptive rights are limited as provided under Nevada law. The
rights, preferences and privileges of holders of our common stock are subject to any series of preferred stock that we may issue in the future.
Listing; Transfer Agent
Our common stock is listed on New York Stock Exchange (“NYSE”) under the trading symbol “THC”. Our transfer agent and registrar is Computershare.
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Description of the Senior Notes
General
The Senior Notes were issued pursuant to an Indenture, dated as of November 6, 2001 (the “Base Indenture”), as supplemented with respect to the Senior Notes by
the Third Supplemental Indenture, dated as of November 6, 2001 (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”), between
us and The Bank of New York Mellon Trust Company, N.A., as successor to The Bank of New York, as trustee. Each of the Base Indenture and the Supplemental
Indenture is incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4(a) is a part. The terms of the Senior Notes include
those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended. The Senior Notes are subject to all
such terms, and you should refer to the Indenture and the Trust Indenture Act for a statement thereof. The following description of the Senior Notes is a summary
and does not purport to be complete. It is subject to and qualified in its entirety by reference to the Indenture, including the definitions therein of terms used below.
As used in this “Description of the Senior Notes,” the terms the “Company,” “we,” “our” and “us” refer to Tenet Healthcare Corporation and not to any of our
subsidiaries.
The Senior Notes have been issued in fully registered form, in denominations of $1,000 and integral multiples thereof, registered in the name of Cede & Co., a
nominee of The Depository Trust Company, or DTC. See “—Global Notes” below. The paying agent, registrar and transfer agent for the Senior Notes will be the
corporate trust department of the trustee in New York, New York. Payment of principal will be made at maturity in immediately payable funds against surrender to
the trustee.
We may from time to time, without giving notice to or seeking the consent of the holders of the Senior Notes, issue notes having the same ranking and the same
interest rate, maturity and other terms as the Senior Notes. Any additional notes having such similar terms, together with the Senior Notes previously outstanding,
will constitute a single series of notes under the Indenture.
Principal Amount; Maturity
The Senior Notes were offered in the aggregate principal amount of $450 million and have a maturity date of November 15, 2031. At December 31, 2019, $362
million aggregate principal amount of the Senior Notes remains outstanding.
Interest
Interest on the Senior Notes accrues at a rate of 6.875% per annum and is payable semi-annually in arrears on May 15 and November 15 of each year to holders of
record on the immediately preceding May 1 and November 1. Payments commenced on May 15, 2002. Interest on the Senior Notes accrues from the most recent
date to which interest has been paid.
Interest on the Senior Notes is computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest on the Senior
Notes is payable at our office or agency maintained for such purpose within the City and State of New York or, at our option, payment of interest may be made by
check mailed to the holders of the Senior Notes at their respective addresses set forth in the register of holders of the Senior Notes; provided that all payments with
respect to Senior Notes as to which the holders have given wire transfer instructions to the paying agent on or prior to the relevant record date will be required to be
made by wire transfer of immediately available funds to the accounts specified by such holders. Until otherwise designated by us, our office or agency in New
York will be the office of the trustee maintained for such purpose.
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Optional Redemption
The Senior Notes are redeemable, in whole or in part, at any time, at our option, at a redemption price equal to the greater of:
•
•
100% of the principal amount of the Senior Notes being redeemed, or
the sum of the present values of the remaining scheduled payments of principal and interest thereon, excluding accrued and unpaid interest to the date of
redemption, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months), at the Adjusted
Treasury Rate, plus 35 basis points,
plus, in either of the above cases, accrued and unpaid interest thereon to, but not including, the redemption date. The Senior Notes will not be subject to any
mandatory sinking fund.
“Adjusted Treasury Rate” means, with respect to any redemption date:
•
•
the yield, under the heading that represents the average for the immediately preceding week, appearing in the most recently published statistical release
designated “H.15(519)” or any successor publication that is published weekly by the Board of Governors of the Federal Reserve System and that
establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption “Treasury Constant Maturities,” for
the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Remaining Life, yields for the two
published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Adjusted Treasury Rate shall be
interpolated or extrapolated from such yields on a straight line basis, rounded to the nearest month); or
if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
The Adjusted Treasury Rate shall be calculated on the third business day preceding the redemption date.
“Comparable Treasury Issue” means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the
remaining term of the Senior Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing
new issues of corporate debt securities of comparable maturity to the remaining term of those Senior Notes (“Remaining Life”).
“Comparable Treasury Price” means, with respect to any redemption date, (1) the average of five Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest Reference Treasury Dealer Quotations, or (2) if the Independent Investment Banker obtains fewer than five such Reference
Treasury Dealer Quotations, the average of all such quotations.
“Independent Investment Banker” means one of the Reference Treasury Dealers appointed by us.
“Reference Treasury Dealer” means:
•
•
each of Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC and their respective successors; provided
that, if any of the foregoing ceases to be a primary U.S. Government securities dealer in New York City (a “Primary Treasury Dealer”), we will substitute
another Primary Treasury Dealer; and
any other Primary Treasury Dealer selected by us.
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“Reference Treasury Dealer Quotation” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the
Independent Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Independent Investment Banker by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding
such redemption date.
If less than all of the Senior Notes are to be redeemed at any time, selection of notes for redemption will be made by the trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the notes to be redeemed are then listed, or, if the Senior Notes are not so listed, on a
pro rata basis, by lot or by such method as the trustee deems fair and appropriate; provided that notes with a principal amount of $1,000 will not be redeemed in
part.
We will mail a notice of redemption at least 30 but not more than 60 days before the redemption date to each holder of the Senior Notes to be redeemed. If the
Senior Notes are to be redeemed in part only, the notice of redemption that relates to such notes will state the portion of the principal amount thereof to be
redeemed. A new note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the
original note.
Unless we default in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the Senior Notes or portions thereof called
for redemption.
Priority
The Base Indenture does not limit the aggregate principal amount of debt securities that may be issued thereunder. As permitted under the terms of the Base
Indenture, we have issued, and may in the future issue, other debt securities under the Base Indenture constituting one or more separate series. The Senior Notes are
general unsecured senior debt obligations that rank equally in right of payment with all of our other existing and future unsecured senior indebtedness, but are
effectively subordinated to our senior secured notes, the obligations of our subsidiaries and any obligations under our credit facilities to the extent of the value of
the collateral.
Limitations on Us and Our Subsidiaries
Limitations on Liens. The Indenture provides that, except as described under “—Exception to Limitations” below, neither we nor any of our subsidiaries will issue,
incur, create, assume or guarantee any debt secured by liens, mortgages, pledges, charges, security interests or other encumbrances upon any principal property
(which means each of our hospitals that has a book value in excess of 5% of our consolidated net tangible assets), unless the Senior Notes will be secured equally
and ratably with, or prior to, such debt. This restriction will not apply to:
•
•
•
•
•
liens securing the purchase price or cost of construction of property or additions, substantial repairs, alterations or improvements, if the debt and the liens
are incurred within 12 months of the acquisition, the completion of construction and full operation or the completion of such additions, repairs, alterations
or improvement;
liens existing on property at the time of its acquisition by us or our subsidiaries or on the property of an entity at the time of the acquisition of such entity
by us or our subsidiaries, provided that the liens were in existence prior to the closing of, and not incurred in contemplation of, such acquisition and, in the
case of the acquisition of an entity, the liens do not extend to any assets other than those of the entity acquired;
liens in favor of us or a consolidated subsidiary;
liens existing on the date of the Supplemental Indenture;
certain liens to governmental entities;
5
•
•
•
liens incurred within 90 days (or any longer period, not in excess of one year, as permitted by law), after acquisition of the related property arising solely
in connection with the transfer of tax benefits in accordance with Section 168(f)(8) of the Internal Revenue Code;
any substitution or replacement of any lien referred to above, provided that the property encumbered by any substitute or replacement lien is substantially
similar in nature to and no greater in value than the property encumbered by the lien that is being replaced; and
any extension, renewal or replacement of any lien referred to above, provided the amount secured is not increased and it relates to the same property.
Limitations on Sale and Lease-Back Transactions. The Indenture provides that, except as described under “—Exception to Limitations” below, neither we nor any
of our subsidiaries will enter into any sale and lease-back transaction with respect to any principal property with another person, other than us or one of our
consolidated subsidiaries, unless:
•
•
•
we or any of our subsidiaries could incur debt secured by a lien on the property to be leased without securing the Senior Notes;
the lease is for three years or less; or
within 120 days, we apply the greater of the net proceeds of the sale of the leased property or the fair value of the leased property to the acquisition,
construction, addition, repair, alteration or improvement of a principal property or the voluntary retirement of our long-term debt.
Exception to Limitations. Notwithstanding the two covenants described above, we and any of our subsidiaries may issue, incur, create, assume or guarantee debt
secured by liens or enter into any sale and lease-back transaction that would otherwise be subject to the restrictions on liens and sale and lease-back transactions
described above, provided that (i) the aggregate amount of all our debt subject to the restriction on liens described above plus (ii) the aggregate attributable debt in
respect of sale and lease-back transactions that is subject to the restriction on sale and lease-back transactions above, does not exceed 15% of our consolidated net
tangible assets.
Consolidation, Merger and Sale of Assets. The Indenture provides that we may not consolidate with, or sell, convey or lease all or substantially all of our properties
and assets to, or merge with or into, any other person, unless:
•
•
we are the surviving corporation or the successor is a corporation organized and validly existing under the laws of any U.S. domestic jurisdiction and
expressly assumes the due and punctual payment of the principal of and interest on all the Senior Notes and the due and punctual performance and
observation of our covenants and obligations under the Indenture; and
immediately after giving effect to the transaction, no event of default, and no event which, after notice or lapse of time or both would become an event of
default has occurred and is continuing under the Indenture.
Events of Default
Under the Indenture, each of the following constitutes an event of default with respect to the Senior Notes:
•
•
•
•
failure to pay the principal of or premium, if any, on the Senior Notes, at maturity or otherwise;
failure to pay any interest on the Senior Notes when due, continued for 30 days;
failure to perform, or the breach of, any of our covenants or warranties in the Indenture or the Senior Notes, continued for 90 days after written notice; or
events of bankruptcy, insolvency or reorganization with respect to us.
6
In addition to the events of default set forth above, an event of default will be deemed to have occurred with respect to the Senior Notes the event of a failure to pay
at maturity or the acceleration of our indebtedness having an aggregate principal amount in excess of the greater of $25 million or 5% of our consolidated net
tangible assets under the terms of the instrument under which that indebtedness is issued or secured if that indebtedness is not discharged or the acceleration is not
annulled within 10 days after written notice.
If any event of default with respect to the Senior Notes occurs and is continuing, either the trustee or the holders of at least 25% in principal amount of the Senior
Notes then outstanding, by written notice to us and to the trustee, may declare the principal amount of the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an event of default arising from certain events of bankruptcy, insolvency or reorganization, all outstanding Senior
Notes will automatically and without any action by the trustee or any holder, become immediately due and payable. After any such acceleration, but before a
judgment or decree based on such acceleration, the holders of a majority in aggregate principal amount of the Senior Notes then outstanding may, under certain
circumstances, rescind and annul such acceleration if all events of default, other than the non-payment of accelerated principal of or interest on the Senior Notes,
have been cured or waived as provided in the Indenture.
Subject to the provisions of the Indenture relating to the duties of the trustee in case an event of default occurs and is continuing, the trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders, unless such holders have offered to the trustee
reasonable indemnity. Subject to such provisions for the indemnification of the trustee, the holders of a majority in aggregate principal amount of Senior Notes then
outstanding will have the right to direct the time, method and place of conducting any proceedings for any remedy available to the trustee or exercising any trust or
power conferred on the trustee with respect to the Senior Notes.
No holder of a Senior Note will have any right to institute any proceeding with respect to the Indenture, or for the appointment of a receiver or a trustee, or for any
other remedy thereunder, unless:
•
•
•
such holder has previously given the trustee written notice of a continuing event of default with respect to the Senior Notes;
the holders of at least 25% in the aggregate principal amount of the Senior Notes then outstanding have made written request, and such holder or holders
have offered reasonable indemnity, to the trustee to institute such proceedings as trustee; and
the trustee has failed to institute such proceeding and the trustee has not received from the holders of a majority in aggregate principal amount of the
Senior Notes then outstanding a direction inconsistent with such request within 60 days after such notice, request and offer.
Such limitations, however, do not apply to a suit instituted by a holder of a Senior Note for the enforcement of payment of the principal of or interest on such
Senior Note on or after its due date.
Defeasance and Covenant Defeasance
We may elect, at our option at any time, to have the provisions of the Indenture relating to defeasance and discharge of indebtedness and to defeasance of certain
restrictive covenants applied to the Senior Notes.
Defeasance and Discharge. The Indenture provides that, upon the exercise of our option, we will be discharged from all our obligations with respect to Senior
Notes (except for certain obligations to exchange or register the transfer of notes, to replace stolen, lost or mutilated notes, to maintain paying agencies and to hold
moneys for payment in trust), subject to the conditions precedent below.
Defeasance of Certain Covenants. The Indenture provides that, upon the exercise of our option with respect to the Senior Notes, we may omit to comply with
certain restrictive covenants, including those described under
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“—Limitations on Us and Our Subsidiaries” above, and the occurrence of certain events of default will be deemed not to be or result in an event of default, in each
case with respect to the Senior Notes, subject to the conditions precedent below.
In each case, the defeasance provision will be subject to our depositing in trust for the benefit of the holders of the Senior Notes to be defeased money or U.S.
government obligations, or both, which, through the payment of principal and interest in respect thereof in accordance with their terms, will provide money in an
amount sufficient to pay the principal of and any premium and interest on such notes on the stated maturity in accordance with the terms of the Indenture and the
Senior Notes. We will also be required, among other things, to deliver to the trustee an opinion of counsel to the effect that holders of such notes will not recognize
gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such deposit, defeasance and discharge were not to occur.
In the event we exercised this option with respect to any Senior Notes and such notes were declared due and payable because of the occurrence of any event of
default, the amount of money and U.S. government obligations so deposited in trust would be sufficient to pay amounts due on such notes at the time of their
respective stated maturities but may not be sufficient to pay amounts due on such notes upon any acceleration resulting from such event of default. In such case, we
would remain liable for such payments.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or the Senior Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Senior Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for such
notes), and any existing default or compliance with certain restrictive provisions of the Indenture may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Senior Notes (including consents obtained in connection with a tender offer or exchange offer for such notes).
Without the consent of each holder affected, an amendment or waiver may not (with respect to any Senior Notes held by a non-consenting holder):
•
•
•
•
•
reduce the principal of or change the fixed maturity of any Senior Note;
reduce the rate of or change the time for payment of interest on any Senior Note;
waive a default or event of default in the payment of principal of or premium, if any, or interest on the Senior Notes (except a rescission of acceleration of
the applicable notes by the holders of at least a majority in aggregate principal amount thereof and a waiver of the payment default that resulted from such
acceleration);
change the place of payment of any Senior Note or make any Senior Note payable in money other than that stated in such note;
impair the right to institute suit for the enforcement of any payment on or with respect to any Senior Note;
• make any change in the provisions of the Indenture relating to waivers of past defaults or the rights of holders of Senior Notes to receive payments of
principal of or premium, if any, or interest on such notes;
•
reduce the principal amount of Senior Notes whose holders must consent to an amendment, supplement or waiver; or
• make any change in the foregoing amendment and waiver provisions, except to increase the required percentage or to provide that other provisions of the
Indenture cannot be modified or waived without the consent of the holder of each outstanding Senior Note.
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Notwithstanding the foregoing, without the consent of any holder of Senior Notes, we, together with the trustee, may amend or supplement the Indenture to:
•
•
•
•
cure any ambiguity, defect or inconsistency, provided that such action does not adversely affect the holders in any material respect;
provide for uncertificated notes in addition to or in place of certificated notes;
evidence the assumption of our obligations to holders of Senior Notes in the case of a merger, consolidation or sale of assets pursuant to the covenant
described under the caption “—Limitations on Us and Our Subsidiaries—Consolidation, Merger and Sale of Assets”;
add covenants for the benefit of the holders of the Senior Notes or to surrender any right or power conferred upon us;
• make any change that does not adversely affect the legal rights under the Indenture of any such holder in any material respect;
•
•
•
•
•
add any additional events of default for the benefit of the holders of the Senior Notes;
secure the Senior Notes;
establish the form or terms of other series of debt securities as permitted under the Indenture;
comply with requirements of the Securities and Exchange Commission in order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act; or
appoint a successor trustee.
Except in certain limited circumstances, we will be entitled to set any day as a record date for the purpose of determining the holders of Senior Notes entitled to
give or take any direction, notice, consent, waiver or other action or to vote on any action under the Indenture, in the manner and subject to the limitations provided
in the Indenture. In certain limited circumstances, the trustee will be entitled to set a record date for action by holders. If a record date is set for any action to be
taken by holders, such action may be taken only by persons who are holders of outstanding Senior Notes on the record date. To be effective, the action must be
taken by holders of the requisite principal amount of the Senior Notes within a specified period following the record date. For any particular record date, this period
will be 180 days or such shorter period as may be specified by us (or the trustee, if it set the record date), and may be shortened or lengthened from time to time,
but not beyond 180 days.
The Trustee
The Bank of New York Mellon Trust Company, N.A., as successor trustee to The Bank of New York, is the trustee under the Indenture. The corporate trust office
of the trustee is located in New York, New York.
We maintain banking relations with affiliates of The Bank of New York Mellon Trust Company, N.A. The Bank of New York Mellon Trust Company, N.A. has
also served from time to time as escrow agent under escrow agreements to which we are party. In addition, The Bank of New York Mellon Trust Company, N.A. is
the trustee under other indentures pursuant to which we have issued debt. Pursuant to the Trust Indenture Act of 1939, as amended, should a default occur with
respect to the Senior Notes, the trustee would be required to eliminate any conflicting interest as defined in the Trust Indenture Act of 1939, as amended, or resign
as trustee with respect to the Senior Notes within 90 days of such default unless such default were cured, duly waived or otherwise eliminated.
The trustee may resign at any time or may be removed by us. If the trustee resigns, is removed or becomes incapable of acting as trustee or if a vacancy occurs in
the office of the trustee for any cause, a successor trustee shall be
9
appointed in accordance with the provisions of the Indenture. The Indenture provides that in case an event of default occurs (and is not cured), the trustee will be
required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be
under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Senior Notes, unless such holder has offered to the
trustee security and indemnity satisfactory to it against any loss, liability or expense.
Global Notes
The Senior Notes have been issued in the form of one or more registered notes in book-entry form, referred to as global notes. Each such global note is registered in
the name of a nominee of DTC, as depositary, and has been deposited with The Bank of New York Mellon Trust Company, N.A., as custodian therefor. Interest in
each such global note is not exchangeable for certificated notes in definitive, fully registered form, except in the limited circumstances described below. We will be
entitled, along with the trustee and any other agent, to treat DTC or its nominee, as the case may be, as the sole owner and holder of the global notes for all
purposes.
So long as DTC or its nominee or a common depositary is the registered holder of a global note, DTC or such nominee or common depositary, as the case may be,
will be considered the sole owner and holder of such global note, and of the Senior Notes represented thereby, for all purposes under the Indenture and the Senior
Notes and the beneficial owners of Senior Notes will be entitled only to those rights and benefits afforded to them in accordance with DTC's regular operating
procedures. Upon specified written instructions of a DTC participant, DTC will have its nominee assist its participants in the exercise of certain holders' rights,
such as a demand for acceleration or an instruction to the trustee. Except as provided below, owners of beneficial interests in a global note will not be entitled to
have Senior Notes represented by a global note registered in their names, will not receive or be entitled to receive physical delivery of Senior Notes in certificated
form and will not be considered the registered holders thereof under the Indenture.
Ownership of beneficial interests in a global note will be limited to DTC participants or persons who hold interests through DTC participants. Ownership of
beneficial interests in a global note is shown on, and the transfer of those ownership interests are effected through, records maintained by DTC or its nominee (with
respect to interests of participants) or by any such participant (with respect to interests of persons held by such participants on their behalf). Payments, transfers,
exchanges and other matters relating to beneficial interests in a global note may be subject to various policies and procedures adopted by DTC from time to time.
None of the Company, the trustee or any of their agents will have any responsibility or liability for any aspect of DTC's or any DTC participant's records relating
to, or for payments made on account of, beneficial interest in any global note, or for maintaining, supervising or reviewing any records relating to such beneficial
interests.
Interests in a global note will be exchanged for Senior Notes in certificated form if:
•
•
•
DTC notifies us that it is unwilling or unable to continue as a depositary for such global note or has ceased to be qualified to act as such or if at any time
such depositary ceases to be a clearing agency registered under the Exchange Act, and we have not appointed a successor depositary within 90 days;
an event of default under the Indenture with respect to the Senior Notes has occurred and is continuing; or
we, in our sole discretion, determine at any time that the Senior Notes will no longer be represented by a global note.
Upon the occurrence of such an event, owners of beneficial interests in such global note will receive physical delivery of Senior Notes in certificated form. All
certificated notes issued in exchange for an interest in a global note
10
or any portion thereof will be registered in such names as DTC directs. Such notes will be issued in minimum denominations of $1,000 and integral multiples
thereof and will be in registered form only, without coupons.
No beneficial owner of an interest in a global note will be able to transfer that interest except in accordance with DTC's applicable procedures, in addition to those
under the Indenture and the Senior Notes.
Investors may hold their interest in a global note directly through DTC if they are participants or indirectly through organizations that are DTC participants.
Accordingly, although owners who hold Senior Notes through DTC participants will not possess notes in definitive form, the participants provide a mechanism by
which holders of Senior Notes will receive payments and will be able to transfer their interests.
The holder of a certificated note may transfer such note, subject to compliance with the provisions of such legend, by surrendering it at (i) the office or agency
maintained by us for such purpose in the Borough of Manhattan, The City of New York, which initially will be the office of the trustee maintained for such purpose
or (ii) the office of any transfer agent we appoint.
We will make all payments of principal and interest on the Senior Notes in immediately available funds so long as the Senior Notes are maintained in the form of
global notes.
Governing Law
The Indenture and the Senior Notes provide that they are governed by, and interpreted in accordance with, the internal laws of the State of New York.
Listing
The Senior Notes are listed on the NYSE under the trading symbol “THC31”.
11
Exhibit 10(ii)
TENET
SIXTH AMENDED AND RESTATED
TENET 2006 DEFERRED
COMPENSATION
PLAN
As Amended and Restated Effective as of January 1, 2020
SIXTH 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
1
1
2
3
3
14
15
15
16
17
17
17
19
20
20
22
24
24
25
25
26
26
26
27
28
28
29
29
30
30
30
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
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)
31
31
31
31
31
33
33
35
35
36
37
37
38
38
38
38
39
40
40
40
A-1
SIXTH 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.
Effective January 1, 2019, the RPAC amended and restated the Plan 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. Such amended
and restated Plan was known as the Fifth Amended and Restated Tenet 2006 Deferred Compensation Plan.
By this instrument, the RPAC desires to amend and restate the Plan effective January 1, 2020 to (i) allow Participants to
elect to receive an in-service withdrawal of Base Deferrals and Bonus Deferrals in the form of installments over two (2) to
five (5) years, (ii) permit participants to elect to defer the payment of in-service withdrawals and termination distributions
and/or change the form of payment for in-service withdrawals of Base Deferrals and Bonus Deferrals and termination
distributions (but not the medium of distribution (i.e., cash or stock)); provided, payment is postponed for at least five (5)
calendar years; and (iii) provide that all distributions to a Beneficiary are paid as a lump sum. This amended and restated
Plan will be known as the Sixth 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
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
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.
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)
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
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
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)
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, 2020, 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
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);
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).
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 Sixth 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.
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
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
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
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
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
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
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
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
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
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.
(b)
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
22
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.
(c)
(d)
(e)
End of Article IV
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, at the time specified in his Election. Base Deferrals and Bonus Deferrals may be paid in
the form of a lump sum or in the form of annual installments over a period of two (2) to five (5) years. RSU
Deferrals and Discretionary Deferrals will be paid in the form of a lump sum. 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;
24
(ii)
In the twelfth (12th) month following the Participant's Termination of Employment; or
(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 may subsequently elect to delay such distribution for a period
of at least five (5) additional calendar years, and/or change the form of payment (but not the medium of payment
(i.e., stock or cash)); provided, that such Election is made at least (12) twelve months before the date that such
distribution would otherwise be made. In the event the Participant becomes entitled to a distribution during this
twelve (12) month period, the deferral and/or change in form of payment will be of no effect and payment of the
Participant’s Account will be commence at the time and in the form specified in the Participant’s initial Election.
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 Base Deferrals and Bonus Deferrals) or Section 4.3 (regarding RSU Deferrals) may subsequently elect to
delay such distribution for a period of at least five (5) additional calendar years, and/or with respect to Base Deferrals and
Bonus Deferrals change the form of payment (but not the medium of payment (i.e.,
5.2
5.3
25
stock or cash)); provided, that such Election is made at least (12) twelve months before the date that such distribution
would otherwise be made. In the event the Participant becomes entitled to a distribution during this twelve (12) month
period, the deferral and/or change in form of payment will be of no effect and payment of the Participant’s Account will be
commence at the time and in the form specified in the Participant’s termination distribution Election as provided in the
next sentence. 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.
5.4
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 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 form of a lump sum and 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 in the form of a lump sum.
In the event a terminated Participant dies before receiving his lump sum payment, the lump sum payment will be paid to
the Participant's Beneficiary and 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
26
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
27
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.
28
(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
29
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
30
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;
31
(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.
32
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.
33
(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,
34
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.
35
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
36
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
37
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.
38
(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
39
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
40
IN WITNESS WHEREOF, this Sixth Amended and Restated Tenet 2006 Deferred Compensation Plan has been executed on
this 16 of December, 2019, effective as of January 1, 2020, except as specifically provided otherwise here
TENET HEALTHCARE CORPORATION
By:
/s/ Sandra Karrmann
Executive Vice President,
Chief Human Resources Officer
41
EXHIBIT A1
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(pp)
[COMPANY LETTERHEAD]
TENET HEALTHCARE 2008 STOCK INCENTIVE PLAN
TERMS AND CONDITIONS OF
RESTRICTED STOCK UNIT AWARD
The Human Resources Committee (the “Committee”) of the Board of Directors of Tenet Healthcare Corporation (the “Company”) is authorized under the
Company’s 2008 Stock Incentive Plan, as amended (the “Plan”) to make awards of restricted stock units (“RSUs”) and to determine the terms of such RSUs.
On February 27, 2019 (the “Grant Date”), the Committee granted Ronald A. Rittenmeyer (“You”) RSUs. The RSUs were granted by the Committee subject to
the terms and conditions set forth below in this certificate (the “Certificate”). The RSUs are also subject to the terms and conditions of the Plan, which is
incorporated herein by this reference. Each capitalized term not otherwise defined herein will have the meaning given to such term in the Plan.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Grant. The Committee has granted You RSUs representing 566,172 Shares in consideration for services to be performed by You for the Company or a
Subsidiary of the Company.
Vesting. Except as otherwise provided in Section 3 below, the RSUs will vest in equal installments according to the following schedule; provided You
remain an employee of the Company on each applicable vesting date: June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June
30, 2020, September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021.
Termination of Employment. All unvested RSUs will vest in the event Your employment is terminated for any of the following reasons:
•
•
Death;
Disability (as defined in the Employment Agreement by and between You and the Company, effective as of March 1, 2018, as amended February
27, 2019 (the “Employment Agreement”)); and
A termination of Your employment by the Company other than for Cause or by you for Good Reason (as such terms are defined in the Employment
Agreement).
•
Tax Withholding. Except as otherwise provided in the Employment Agreement, upon the vesting of Your RSUs, Your RSUs will be settled in Shares
within 30 days and You will recognize ordinary income. The Company is required to withhold payroll taxes due with respect to that ordinary income.
Pursuant to the Plan, at its option the Committee either may (a) have the Company withhold Shares having a Fair Market Value equal to the amount of
the minimum tax withholding or (b) require You to pay to the Company the amount of the tax withholding.
Rights as Shareholder. You will not have any rights of a shareholder prior to the vesting of the RSUs, at which time You will have all of the rights of a
shareholder with respect to the Shares received upon the vesting of those RSUs, including the right to vote those Shares and receive all dividends and
other distributions, if any, paid or made with respect thereto. Any Shares distributed as dividends with respect to the Shares subject to the RSUs will be
subject to the same vesting schedule as the underlying RSUs.
Transferability. The RSUs generally may not be transferred, assigned or made subject to any encumbrance, pledge, or charge. Limited exceptions to
this rule apply in the case of death, divorce, or gift as provided in Section 12.3 of the Plan.
Effect on Other Employee Benefit Plans. The value of the RSUs evidenced by this Certificate will not be included as compensation, earnings, salaries,
or other similar terms used when calculating Your benefits under any employee benefit plan sponsored by the Company or a Subsidiary, except as
such plan otherwise expressly provides.
No Employment Rights. Nothing in this Certificate will confer upon You any right to continue in the employ or service of the Company or any Subsidiary
or affect the right of the Company or a Subsidiary to terminate Your employment at any time with or without cause.
Amendment. By written notice to You, the Committee reserves the right to amend the Plan or the provisions of this Certificate provided that no such
amendment will impair in any material respect Your rights under this Certificate without Your consent except as required to comply with applicable
securities laws or Section 409A of the Internal Revenue Code.
10.
11.
12.
13.
14.
Severability. If any term or provision of this Certificate is declared by any court or government authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any term or provision of this Certificate not declared to be unlawful or invalid. Any term or provision of this Certificate so
declared to be unlawful or invalid shall, if possible, be construed in a manner that will give effect to such term or provision to the fullest extent possible
while remaining lawful and valid.
Construction. A copy of the Plan has been made available to You and additional copies of the Plan are available upon request to the Company’s
Corporate Secretary at the Company’s principal executive office during normal business hours. To the extent that any term or provision of this
Certificate violates or is inconsistent with an express term or provision of the Plan, the Plan term or provision shall govern and any inconsistent term or
provision in this Certificate shall be of no force or effect.
Binding Effect and Benefit. This Certificate shall be binding upon and, subject to the terms and conditions hereof, inure to the benefit of the Company,
its successors and assigns, and You and Your successors and assigns.
Entire Understanding. This Certificate embodies the entire understanding and agreement of the Company and You in relation to the subject matter
hereof, and no promise, condition, representation or warranty, expressed or implied, not herein stated, shall bind the Company or You.
Governing Law. This Certificate shall be governed by, and construed in accordance with, the laws of the State of Nevada.
2
Exhibit 10(qq)
[COMPANY LETTERHEAD]
TENET HEALTHCARE 2008 STOCK INCENTIVE PLAN
TERMS AND CONDITIONS OF
RESTRICTED STOCK UNIT AWARDS
The Human Resources Committee (the “Committee”) of the Board of Directors of Tenet Healthcare Corporation (the “Company”) is authorized under the
Company’s 2008 Stock Incentive Plan, as amended (the “Plan”), to make awards of restricted stock units (“RSUs”) and to determine the terms of such RSUs.
On January 31, 2019 (the “Grant Date”), the Committee granted Saumya Sutaria (“You”) RSUs. The RSUs were granted by the Committee subject to the terms
and conditions set forth below in this certificate (the “Certificate”). The RSUs are also subject to the terms and conditions of the Plan, which is incorporated
herein by this reference. Each capitalized term not otherwise defined herein will have the meaning given to such term in the Plan.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Grant. The Committee has granted You RSUs representing 318,327 Shares in consideration for services to be performed by You for the Company or a
Subsidiary of the Company.
Vesting. Except as otherwise provided in Section 3 below, the RSUs will vest in full on January 6, 2022; provided You remain an employee of the
Company on such date.
Termination of Employment. All unvested RSUs will vest in the event Your employment is terminated for any of the following reasons:
•
•
•
Death;
Disability (as defined in the Employment Agreement by and between You and the Company, effective as of November 27, 2018 (the “Employment
Agreement”); or
A termination of Your employment by the Company other than for Cause or by you for Good Reason (each, as defined in the Employment
Agreement).
Tax Withholding. Except as otherwise provided in the Employment Agreement, upon the vesting of Your RSUs, Your RSUs will be settled in Shares
within 30 days and You will recognize ordinary income. The Company is required to withhold payroll taxes due with respect to that ordinary income.
Pursuant to the Plan, at its option the Committee either may (a) have the Company withhold Shares having a Fair Market Value equal to the amount of
the minimum tax withholding or (b) require You to pay to the Company the amount of the tax withholding.
Rights as Shareholder. You will not have any rights of a shareholder prior to the vesting of the RSUs, at which time You will have all of the rights of a
shareholder with respect to the Shares received upon the vesting of those RSUs, including the right to vote those Shares and receive all dividends and
other distributions, if any, paid or made with respect thereto. Any Shares distributed as dividends with respect to the Shares subject to the RSUs will be
subject to the same vesting schedule as the underlying RSUs.
Transferability. The RSUs generally may not be transferred, assigned or made subject to any encumbrance, pledge, or charge. Limited exceptions to
this rule apply in the case of death, divorce, or gift as provided in Section 12.3 of the Plan.
Effect on Other Employee Benefit Plans. The value of the RSUs evidenced by this Certificate will not be included as compensation, earnings, salaries,
or other similar terms used when calculating Your benefits under any employee benefit plan sponsored by the Company or a Subsidiary, except as
such plan otherwise expressly provides.
No Employment Rights. Nothing in this Certificate will confer upon You any right to continue in the employ or service of the Company or any Subsidiary
or affect the right of the Company or a Subsidiary to terminate Your employment at any time with or without cause.
Amendment. By written notice to You, the Committee reserves the right to amend the Plan or the provisions of this Certificate provided that no such
amendment will impair in any material respect Your rights under this Certificate without Your consent except as required to comply with applicable
securities laws or Section 409A of the Internal Revenue Code.
10.
11.
12.
13.
14.
Severability. If any term or provision of this Certificate is declared by any court or government authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any term or provision of this Certificate not declared to be unlawful or invalid. Any term or provision of this Certificate so
declared to be unlawful or invalid shall, if possible, be construed in a manner that will give effect to such term or provision to the fullest extent possible
while remaining lawful and valid.
Construction. A copy of the Plan has been made available to You and additional copies of the Plan are available upon request to the Company’s
Corporate Secretary at the Company’s principal executive office during normal business hours. To the extent that any term or provision of this
Certificate violates or is inconsistent with an express term or provision of the Plan, the Plan term or provision shall govern and any inconsistent term or
provision in this Certificate shall be of no force or effect.
Binding Effect and Benefit. This Certificate shall be binding upon and, subject to the terms and conditions hereof, inure to the benefit of the Company,
its successors and assigns, and You and Your successors and assigns.
Entire Understanding. This Certificate embodies the entire understanding and agreement of the Company and You in relation to the subject matter
hereof, and no promise, condition, representation or warranty, expressed or implied, not herein stated, shall bind the Company or You.
Governing Law. This Grant shall be governed by, and construed in accordance with, the laws of the State of Nevada.
2
Exhibit 10(rr)
[COMPANY LETTERHEAD]
TENET HEALTHCARE 2008 STOCK INCENTIVE PLAN
TERMS AND CONDITIONS OF
RESTRICTED STOCK UNIT AWARDS
The Human Resources Committee (the “Committee”) of the Board of Directors of Tenet Healthcare Corporation (the “Company”) is authorized under the
Company’s 2008 Stock Incentive Plan, as amended (the “Plan”), to make awards of restricted stock units (“RSUs”) and to determine the terms of such RSUs.
On February 27, 2019 (the “Grant Date”), the Committee granted Saumya Sutaria (“You”) RSUs. The RSUs were granted by the Committee subject to the
terms and conditions set forth below in this certificate (the “Certificate”). The RSUs are also subject to the terms and conditions of the Plan, which is
incorporated herein by this reference. Each capitalized term not otherwise defined herein will have the meaning given to such term in the Plan.
1.
2.
3.
4.
5.
6.
7.
Grant. The Committee has granted You RSUs representing 141,543 Shares in consideration for services to be performed by You for the Company or a
Subsidiary of the Company.
Vesting. In accordance with Sections 3 and 4 below, the RSUs will vest as follows: (a) one-third will vest on the first anniversary of the Grant Date, (b)
one-third will vest on the second anniversary of the Grant Date, and (c) one-third will vest on the third anniversary of the Grant Date (each one-year
period, a “Vesting Period”).
Your RSUs will vest to the extent provided in, and in accordance with, the terms of this Certificate. If Your employment terminates or if You cease
providing services to the Company for any reason other than as set forth in Sections 3 or 4 below, Your unvested RSUs will automatically be cancelled
in exchange for no consideration.
Termination of Employment. All unvested RSUs will vest in the event Your employment is terminated for any of the following reasons:
•
•
•
•
Death;
Disability (as defined in the Employment Agreement by and between You and the Company, effective as of November 27, 2018 (the “Employment
Agreement”);
A termination of Your employment by the Company without Cause or by You for Good Reason (each, as defined in the Employment Agreement);
and
Upon the Company’s election not to renew the Term (as defined in the Employment Agreement) of the Employment Agreement.
Tax Withholding. Except as otherwise provided in the Employment Agreement, upon the vesting of Your RSUs, Your RSUs will be settled in Shares
within 30 days and You will recognize ordinary income. The Company is required to withhold payroll taxes due with respect to that ordinary income.
Pursuant to the Plan, at its option the Committee either may (a) have the Company withhold Shares having a Fair Market Value equal to the amount of
the minimum tax withholding or (b) require You to pay to the Company the amount of the tax withholding.
Rights as Shareholder. You will not have any rights of a shareholder prior to the vesting of the RSUs, at which time You will have all of the rights of a
shareholder with respect to the Shares received upon the vesting of those RSUs, including the right to vote those Shares and receive all dividends and
other distributions, if any, paid or made with respect thereto. Any Shares distributed as dividends with respect to the Shares subject to the RSUs will be
subject to the same vesting schedule as the underlying RSUs.
Transferability. The RSUs generally may not be transferred, assigned or made subject to any encumbrance, pledge, or charge. Limited exceptions to
this rule apply in the case of death, divorce, or gift as provided in Section 12.3 of the Plan.
Effect on Other Employee Benefit Plans. The value of the RSUs evidenced by this Certificate will not be included as compensation, earnings, salaries,
or other similar terms used when calculating Your benefits
under any employee benefit plan sponsored by the Company or a Subsidiary, except as such plan otherwise expressly provides.
No Employment Rights. Nothing in this Certificate will confer upon You any right to continue in the employ or service of the Company or any Subsidiary
or affect the right of the Company or a Subsidiary to terminate Your employment at any time with or without cause.
Amendment. By written notice to You, the Committee reserves the right to amend the Plan or the provisions of this Certificate provided that no such
amendment will impair in any material respect Your rights under this Certificate without Your consent except as required to comply with applicable
securities laws or Section 409A of the Internal Revenue Code.
Severability. If any term or provision of this Certificate is declared by any court or government authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any term or provision of this Certificate not declared to be unlawful or invalid. Any term or provision of this Certificate so
declared to be unlawful or invalid shall, if possible, be construed in a manner that will give effect to such term or provision to the fullest extent possible
while remaining lawful and valid.
Construction. A copy of the Plan has been made available to You and additional copies of the Plan are available upon request to the Company’s
Corporate Secretary at the Company’s principal executive office during normal business hours. To the extent that any term or provision of this
Certificate violates or is inconsistent with an express term or provision of the Plan, the Plan term or provision shall govern and any inconsistent term or
provision in this Certificate shall be of no force or effect.
Binding Effect and Benefit. This Certificate shall be binding upon and, subject to the terms and conditions hereof, inure to the benefit of the Company,
its successors and assigns, and You and Your successors and assigns.
Entire Understanding. This Certificate, the Plan and the Employment Agreement embody the entire understanding and agreement of the Company and
You in relation to the subject matter hereof, and no promise, condition, representation or warranty, expressed or implied, not herein stated, shall bind
the Company or You.
Governing Law. This Grant shall be governed by, and construed in accordance with, the laws of the State of Nevada.
8.
9.
10.
11.
12.
13.
14.
2
[COMPANY LETTERHEAD]
Exhibit 10(tt)
TENET HEALTHCARE 2019 STOCK INCENTIVE PLAN
TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT AWARDS
FOR INITIAL GRANT TO DIRECTORS
The Compensation Committee (the ”Committee”) of the Board of Directors (the “Board”) of Tenet Healthcare Corporation (the “Company”) is authorized under
the Company’s 2019 Stock Incentive Plan, as such may be amended from time to time (the “Plan”) to make awards of restricted stock units ("RSUs") and to
determine the terms of such RSUs.
Effective on [Grant Date] (the “Grant Date”), the Committee granted you, [Participant Name] (“ You”), RSUs subject to the terms and conditions in this
certificate (the “Certificate”) and the Plan, which terms are incorporated herein by this reference. Each capitalized term not otherwise defined herein will have
the meaning given to such term in the Plan.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Grant. The Committee has granted You RSUs representing [Number of Shares Granted] Shares in consideration for Your initial election or
appointment to the Board.
Vesting and Settlement. The RSUs are 100 percent vested as of the Grant Date and will be settled in Shares upon Your termination of service on the
Board. Settlement will occur within 60 days of Your termination of service. Upon settlement, You will recognize ordinary income and taxes will be due.
Change in Control. In the event of a Change in Control the following provisions will apply:
●
●
In the event of a Change in Control (other than the liquidation or dissolution of the Company which is approved by a majority of its shareholders)
(i.e., a 409A compliant change in control) the RSUs will be settled within 60 days of the Change in Control.
In the event of a Change in Control in which a liquidation or dissolution of the Company is approved by a majority of its shareholders (i.e., a non-
409A compliant change in control), the RSUs will be converted to cash equal to the value of the RSUs immediately prior to the Change in Control
and paid within 60 days of Your termination of service on the Board.
Rights as Shareholder. You will not have any rights of a shareholder prior to the settlement of the RSUs, at which time You will have all of the rights of a
shareholder with respect to the Shares received, including the right to vote those Shares and receive all dividends and other distributions, if any, paid or
made with respect thereto. Any Shares or cash distributed as dividends with respect to the Shares subject to the RSUs will be subject to the same
vesting and settlement schedule as the underlying RSUs.
Transferability. Unless otherwise permitted pursuant to Section 12.3 of the Plan, the RSUs may not be transferred, assigned or made subject to any
encumbrance, pledge, or charge.
Effect on Other Employee Benefit Plans. The value of the RSUs evidenced by this Certificate will not be included as compensation, earnings, salaries,
or other similar terms used when calculating Your benefits under any employee benefit plan sponsored by the Company or a Subsidiary, except as
such plan otherwise expressly provides.
No Continued Service. Nothing in this Certificate will confer upon You any right to continue in the service of the Company as a member of the Board.
Amendment. By written notice to You, the Committee reserves the right to amend the Plan or the provisions of this Certificate provided that no such
amendment will impair in any material respect Your rights under this Certificate without Your consent except as required to comply with applicable
securities laws or Section 409A of the Internal Revenue Code.
Severability. If any term or provision of this Certificate is declared by any court or government authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any term or provision of this Certificate not declared to be unlawful or invalid. Any term or provision of this Certificate so
declared to be unlawful or invalid shall, if possible, be construed in a manner that will give effect to such term or provision to the fullest extent possible
while remaining lawful and valid.
Construction. A copy of the Plan has been made available to You and additional copies of the Plan are available upon request to the Company's
Corporate Secretary at the Company's principal executive office during normal business hours. To the extent that any term or provision of this
Certificate violates or is inconsistent with an express term or provision of the Plan, the Plan term or provision shall govern and any inconsistent term or
provision in this Certificate shall be of no force or effect.
Binding Effect and Benefit. This Certificate shall be binding upon and, subject to the terms and conditions hereof, inure to the benefit of the Company,
its successors and assigns, and You and Your successors and assigns.
12.
Entire Understanding. This Certificate and the Plan embody the entire understanding and agreement of the Company and You in relation to the subject
matter hereof, and no promise, condition, representation or warranty, expressed or implied, not herein stated, shall bind the Company or You.
13.
Governing Law. This Certificate shall be governed by, and construed in accordance with, the laws of the State of Nevada.
[COMPANY LETTERHEAD]
TENET HEALTHCARE 2019 STOCK INCENTIVE PLAN
TERMS AND CONDITIONS OF RESTRICTED STOCK UNIT AWARDS
FOR ANNUAL GRANT TO DIRECTORS
The Human Resources Committee (the ”Committee”) of the Board of Directors (the “Board”) of Tenet Healthcare Corporation (the “Company”) is authorized
under the Company’s 2019 Stock Incentive Plan, as such may be amended from time to time (the “Plan”) to make awards of restricted stock units ("RSUs") and
to determine the terms of such RSUs.
Effective on [Grant Date] (the “ Grant Date”), the Committee granted you, [Participant Name] (“ You”), RSUs subject to the terms and conditions in this
certificate (the “Certificate”) and the Plan, which terms are incorporated herein by this reference. Each capitalized term not otherwise defined herein will have
the meaning given to such term in the Plan.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Grant. The Committee has granted You RSUs representing [Number of Shares Granted] Shares in consideration for your service on the Board.
Vesting and Settlement. The RSUs are 100 percent vested as of the Grant Date and, unless You elect to defer settlement pursuant to Section 4 below,
will be settled in Shares upon the third anniversary of the Grant Date, or upon your death or disability (as defined under section 409A(a)(2)(C)(ii) of the
Internal Revenue Code), if earlier. Upon settlement, You will recognize ordinary income and taxes will be due.
Change in Control. In the event of a Change in Control the following provisions will apply:
●
●
In the event of a Change in Control (other than the liquidation or dissolution of the Company which is approved by a majority of its shareholders)
(i.e., a 409A compliant change in control) the RSUs will be settled within 60 days of the Change in Control.
In the event of a Change in Control in which a liquidation or dissolution of the Company is approved by a majority of its shareholders (i.e., a non-
409A compliant change in control), the RSUs will be converted to cash equal to the value of the RSUs immediately prior to the Change in Control
and paid on the third anniversary of the Grant Date.
Deferral of RSUs. You may elect to defer the settlement of Your RSUs for a period of five years from the date such RSUs would otherwise be settled;
provided, that Your deferral election is made and has been in effect for at least 12 months before the date on which such RSUs would otherwise be
settled. Any such deferral will be made pursuant to the terms of a separate deferred compensation plan adopted by the Company for this purpose.
Settlement of the deferred RSUs will be made in accordance with the terms of such deferred compensation plan.
Rights as Shareholder. You will not have any rights of a shareholder prior to the settlement of the RSUs, at which time You will have all of the rights of a
shareholder with respect to the Shares received, including the right to vote those Shares and receive all dividends and other distributions, if any, paid or
made with respect thereto. Any Shares or cash distributed as dividends with respect to the Shares subject to the RSUs will be subject to the same
vesting, settlement and deferral schedule as the underlying RSUs.
Transferability. Unless otherwise permitted pursuant to Section 12.3 of the Plan, the RSUs may not be transferred, assigned or made subject to any
encumbrance, pledge, or charge.
Effect on Other Employee Benefit Plans. The value of the RSUs evidenced by this Certificate will not be included as compensation, earnings, salaries,
or other similar terms used when calculating Your benefits under any employee benefit plan sponsored by the Company or a Subsidiary, except as
such plan otherwise expressly provides.
No Continued Service. Nothing in this Certificate will confer upon You any right to continue in the service of the Company as a member of the Board.
Amendment. By written notice to You, the Committee reserves the right to amend the Plan or the provisions of this Certificate provided that no such
amendment will impair in any material respect Your rights under this Certificate without Your consent except as required to comply with applicable
securities laws or Section 409A of the Internal Revenue Code.
10.
Severability. If any term or provision of this Certificate is declared by any court or government authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any term or provision of this Certificate not declared to be unlawful or invalid. Any term or provision of this Certificate so
declared to be unlawful or invalid shall, if possible, be construed in a manner that will give effect to such term or provision to the fullest extent possible
while remaining lawful and valid.
11.
12.
13.
Construction. A copy of the Plan has been made available to You and additional copies of the Plan are available upon request to the Company's
Corporate Secretary at the Company's principal executive office during normal business hours. To the extent that any term or provision of this
Certificate violates or is inconsistent with an express term or provision of the Plan, the Plan term or provision shall govern and any inconsistent term or
provision in this Certificate shall be of no force or effect.
Binding Effect and Benefit. This Certificate shall be binding upon and, subject to the terms and conditions hereof, inure to the benefit of the Company,
its successors and assigns, and You and Your successors and assigns.
Entire Understanding. This Certificate and the Plan embody the entire understanding and agreement of the Company and You in relation to the subject
matter hereof, and no promise, condition, representation or warranty, expressed or implied, not herein stated, shall bind the Company or You.
14.
Governing Law. This Certificate shall be governed by, and construed in accordance with, the laws of the State of Nevada.
Subsidiaries
of
Tenet Healthcare Corporation
as of December 31, 2019
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
Baptist Health Centers, LLC
Baptist Memorial Hospital System Physician Hospital Organization
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
Delaware
Texas
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.
BT East Dallas JV, LLP
BW Cardiology, LLC
BW Cyberknife, LLC
BW Hand Practice, LLC
2
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
Texas
Delaware
Delaware
Delaware
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 Global Business Center, Inc.
Conifer Global Holdings, 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
Conifer Value-Based Care, LLC
Coral Gables Hospital, Inc.
CRNAs of Michigan
Delray Medical Center, Inc.
3
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
Republic of the Philippines
Delaware
Delaware
Delaware
Florida
Delaware
Illinois
California
Maryland
Florida
Michigan
Florida
Delray Medical Physician Services, L.L.C.
Desert Regional Medical Center, 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.
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
4
Florida
California
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
Georgia
Georgia
Georgia
Florida
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 DPH, 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.
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.
5
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
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Vermont
Delaware
North Carolina
Texas
Delaware
Delaware
Delaware
Delaware
Michigan
Florida
Florida
North Carolina
South Carolina
South Carolina
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.
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.
6
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
Massachusetts
Delaware
Michigan
Illinois
Michigan
Michigan
Delaware
Texas
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.
NUCH of Connecticut, LLC
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.
7
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
Connecticut
Georgia
Massachusetts
Michigan
Texas
South Carolina
Mississippi
California
South Carolina
Florida
Florida
Arizona
Texas
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 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.
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
8
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
California
South Carolina
Delaware
Texas
California
California
Missouri
Tennessee
Illinois
Texas
Nevada
Texas
Delaware
Delaware
Georgia
Texas
Texas
Arizona
Georgia
Arkansas
Tennessee
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 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 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.
SLUH Anesthesia Physicians, L.L.C.
SMSJ Imaging Company, LLC
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.
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. 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
9
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Delaware
Tennessee
Tennessee
Tennessee
Tennessee
Delaware
Tennessee
Massachusetts
Delaware
California
Delaware
California
Tennessee
Arkansas
Alabama
Alabama
Texas
Texas
California
Michigan
Missouri
Missouri
Missouri
Missouri
Delaware
Delaware
South Carolina
South Carolina
South Carolina
Delaware
Georgia
Georgia
South Carolina
North Carolina
Delaware
Georgia
Georgia
Georgia
Delaware
Delaware
Pennsylvania
Arizona
Arizona
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 Global Business Center, Inc.
Tenet HealthSystem Bucks County, L.L.C.
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.
10
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
Republic of the Philippines
Pennsylvania
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
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.
UCC Tucson Holdings, LLC
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.
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
11
Florida
Texas
Delaware
Pennsylvania
Delaware
Delaware
California
California
Delaware
Florida
Arizona
Delaware
St. Croix
Texas
Texas
Delaware
Texas
Texas
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Texas
Texas
Texas
Texas
Massachusetts
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
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
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.
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.
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Michigan
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Alabama
Illinois
Florida
Florida
Florida
Florida
Delaware
Delaware
12
Subsidiaries of USPI Holding Company, Inc.
State or Other Jurisdiction of
Formation
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 Center for Surgery – Vero Beach, LLC
Advanced Surgical Concepts, LLC
AdventHealth Surgery Center Celebration, LLC
AdventHealth Surgery Centers Central Florida, LLC
AdventHealth Surgery Center Mills Park, LLC
AdventHealth Surgery Centers West Florida, 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
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 of New Jersey LLC
ASC Old Co., LP
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
13
Illinois
Delaware
Florida
Missouri
Florida
Louisiana
Florida
Florida
Florida
Florida
Florida
Illinois
Texas
Texas
Delaware
Delaware
Texas
Alabama
Texas
Delaware
Delaware
Texas
Tennessee
New Jersey
Missouri
Arizona
Texas
California
Tennessee
Texas
Tennessee
Texas
Delaware
New Jersey
Delaware
Arizona
New Jersey
Ohio
Ohio
Tennessee
Tennessee
Tennessee
Texas
Tennessee
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.
Bozeman MOB, LLC
Briarcliff Ambulatory Surgery Center, L.P.
Bristol Ambulatory Surgery Center, LLC
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
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
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.
Citrus Heights ASC RE, LLC
Clarkston ASC Partners, LLC
Clarksville Surgery Center, LLC
Coastal Endo LLC
14
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Pennsylvania
Indiana
Tennessee
South Carolina
Virginia
Virginia
Montana
Montana
Missouri
Tennessee
Delaware
Delaware
Delaware
California
Arizona
Delaware
Delaware
Delaware
Arizona
Delaware
Colorado
Texas
Texas
Georgia
Virginia
Colorado
Arizona
Florida
Delaware
Missouri
Missouri
Colorado
California
Louisiana
California
Michigan
Tennessee
New Jersey
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
Delray Beach ASC, 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 ASC RE, LLC
Destin Surgery Center, LLC
DeTar/USP 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
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 Center for Surgery, 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
El Paso Urology Surgery Center Curie, LLC
15
California
Colorado
Oklahoma
Texas
Florida
Texas
Tennessee
Missouri
Missouri
Colorado
Texas
Texas
Texas
Florida
Texas
Texas
New Jersey
Arizona
Arizona
Texas
Florida
Florida
Texas
California
Arizona
California
California
Nevada
Arizona
California
California
Arizona
Arizona
California
California
California
Florida
Georgia
Oregon
Georgia
Ohio
Illinois
Pennsylvania
Pennsylvania
California
Texas
Texas
Texas
Emanate/USP Surgery Centers, 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.
Foundation Bariatric Hospital of San Antonio, LLC
Foundation San Antonio Borrower Sub, LLC
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
Hacienda Outpatient Surgery Center, LLC
Harvard Park Surgery Center, LLC
Haymarket 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
16
California
Missouri
California
New Jersey
California
Georgia
Kansas
Tennessee
Tennessee
Colorado
California
Texas
Texas
Texas
Texas
Texas
Tennessee
Tennessee
Texas
Missouri
Delaware
Texas
Texas
Michigan
Georgia
Georgia
Delaware
Colorado
Texas
California
Texas
Delaware
California
Colorado
Virginia
Missouri
Delaware
Delaware
Delaware
Tennessee
Tennessee
Tennessee
Delaware
Texas
Pennsylvania
Texas
Texas
Illinois
HMA/Solantic Joint Venture, LLC
HMHP/USP Surgery Centers, LLC
HMH-USP Surgery Centers, LLC
Holston Valley Ambulatory Surgery Center, 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
Kingsport Ambulatory Surgery Center, 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
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.
17
Delaware
Ohio
New Jersey
Tennessee
Texas
Oklahoma
Oklahoma
Oklahoma
Florida
Florida
New Jersey
Texas
Illinois
Oklahoma
Texas
New Jersey
Florida
Texas
New Jersey
New Jersey
Tennessee
Florida
Michigan
Louisiana
Delaware
Michigan
Georgia
Tennessee
Texas
Oregon
Texas
Missouri
Texas
Texas
California
Delaware
Missouri
Virginia
Missouri
Missouri
Ohio
Michigan
Texas
Texas
Texas
Alabama
Texas
Texas
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 Cypress, 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 Main Street, 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
MH/USP Brazoria, LLC
MH/USP Kingsland, LLC
MH/USP Kingwood, LLC
MH/USP Kirby, LLC
MH/USP Main Street, 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
18
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
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Michigan
Missouri
Tennessee
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
MVH/USP Surgery Centers, LLC
National Imaging Center Holdings, Inc.
National Surgery Center Holdings, Inc.
Newhope Imaging Center, Inc.
New Horizons Surgery Center, LLC
New Mexico Orthopaedic Surgery Center, LLC
New Salem ASC RE, LLC
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 Denver Musculoskeletal Surgical Partners, LLC
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.
Northridge ASC RE, LLC
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
19
Delaware
Texas
Texas
Tennessee
Texas
Missouri
New Jersey
California
Georgia
Texas
South Carolina
Florida
Pennsylvania
Delaware
Delaware
California
Ohio
Georgia
Tennessee
Ohio
Delaware
Missouri
Missouri
Missouri
Missouri
Texas
California
Missouri
Texas
Colorado
Texas
Connecticut
Illinois
California
New Jersey
Tennessee
Tennessee
Illinois
Oregon
Georgia
Delaware
Texas
Texas
North Carolina
Virginia
Delaware
Delaware
Oklahoma
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
Palos Health Surgery Center, LLC
Paramus Endoscopy, LLC
Park Cities Surgery Center, LLC
ParkCreek ASC, LLC
Parkway Recovery Care Center, LLC
Parkway Surgery Center, LLC
Parkwest Surgery Center, L.P.
Patient Partners, LLC
Peak Gastroenterology ASC, LLC
Pediatric Surgery Center – Odessa, LLC
Pediatric Surgery Centers, LLC
PHS/USP Health Ventures, LLC
Physicians Surgery Center at Good Samaritan, LLC
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 Adult and Children’s Surgery Center, LLC
Premier ASC LLC
Premier Endoscopy ASC, LLC
Prince William Ambulatory Surgery Center, LLC
20
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
Illinois
New Jersey
Texas
Florida
Nevada
Nevada
Tennessee
Tennessee
Colorado
Florida
Florida
New Mexico
Illinois
Tennessee
Tennessee
Oklahoma
Texas
California
Texas
Florida
New Jersey
Arizona
Virginia
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.
Pueblo Ambulatory Surgery Center, LLC
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.
Rocky Mountain Endoscopy Centers, LLC
Roseville Surgery Center, L.P.
Roswell Surgery Center, L.L.C.
Sacramento Midtown Endoscopy Center, LLC
Safety Harbor ASC Company, LLC
Saint Agnes/Dignity/USP Surgery Centers, 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, L.L.C.
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
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
21
Arizona
California
California
California
California
Colorado
Texas
Pennsylvania
Delaware
California
Tennessee
California
Georgia
Georgia
Georgia
Virginia
Illinois
Missouri
South Carolina
Texas
Colorado
California
Georgia
California
Florida
California
California
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Illinois
New Jersey
Illinois
Texas
California
California
Nevada
Delaware
California
California
Georgia
California
California
Texas
Delaware
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 Endoscopy, LLC
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. Augustine Endoscopy Center, LLC
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
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
22
Georgia
Texas
Texas
New Jersey
California
Illinois
Illinois
Iowa
Missouri
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Missouri
Colorado
South Carolina
Florida
Oklahoma
Arizona
Delaware
Arizona
Pennsylvania
Texas
Texas
Georgia
California
Texas
Georgia
Florida
Arizona
California
Missouri
Missouri
Missouri
Missouri
Virginia
Indiana
Arkansas
California
New Jersey
Colorado
New Mexico
Texas
South Carolina
Florida
Georgia
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
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
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
23
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
California
Tennessee
Indiana
Wyoming
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
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.
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 the Northland, LLC
Tower Road Real Estate, LLC
Tower/USP Surgery Centers, LLC
TPG Hospital, LLC
24
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
California
California
California
California
Delaware
Florida
Texas
New Jersey
Texas
Missouri
Texas
Pennsylvania
Oklahoma
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.
United Surgical Partners International, Inc.
University Surgery Center, Ltd.
University Surgical Partners of Dallas, L.L.P.
Upper Cumberland Physicians’ Surgery Center, LLC
USP 12th 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
25
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
Delaware
Florida
Texas
Tennessee
Texas
Delaware
Louisiana
Vermont
Georgia
Georgia
Texas
Delaware
Texas
New Jersey
Indiana
Missouri
Arizona
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.
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.
26
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
Delaware
New Jersey
Missouri
Tennessee
Arkansas
Delaware
Louisiana
Texas
Maryland
Missouri
Missouri
Michigan
Texas
Texas
Illinois
California
Montana
New Jersey
Illinois
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.
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.
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
New Jersey
Delaware
Texas
Oklahoma
Missouri
Missouri
Missouri
Missouri
Tennessee
Texas
Texas
Missouri
California
Arizona
New Jersey
Virginia
Texas
Missouri
California
California
Florida
27
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.
Vanguard ASC LLC
Ventana Surgical Center, LLC
Veroscan, Inc.
VHS San Antonio Imaging Partners, L.P.
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.
Wellington Endo, LLC
Wellstar/USP Joint Venture I, LLC
Wellstar/USP Joint Venture II, LLC
West Bozeman Surgery Center, LLC
Westgate Surgery Center, LLC
Westlake Hospital, LLC
Westlawn Surgery Center, LLC
Westminster Surgery Centers, LLC
WHASA, L.C.
Willamette Spine Center Ambulatory Surgery, LLC
Wilmington Endoscopy Center, LLC
Winter Haven Ambulatory Surgical Center, L.L.C.
Wymark Surgery Center, LLC
YNHHSC/USP Surgery Centers, LLC
28
Delaware
Delaware
Texas
California
California
Delaware
Michigan
Oklahoma
New Jersey
California
Delaware
Delaware
Delaware
New Jersey
California
Arizona
Missouri
Florida
Georgia
Georgia
Montana
Arizona
Texas
Tennessee
Colorado
Texas
Delaware
North Carolina
Florida
California
Connecticut
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, 333-212846, and 333-231515 on Form S-8 of
our reports dated February 24, 2020, 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, 2019.
/s/ Deloitte & Touche LLP
Dallas, Texas
February 24, 2020
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, 333-212846 and 333-
231515) of Tenet Healthcare Corporation of our report dated November 1, 2019 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 24, 2020
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 24, 2020
/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 24, 2020
/s/ DANIEL J. CANCELMI
Daniel J. Cancelmi
Executive Vice President and 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 Executive
Vice President and 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, 2019 (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 24, 2020
/s/ RONALD A. RITTENMEYER
Date: February 24, 2020
Ronald A. Rittenmeyer
Executive Chairman and Chief Executive Officer
/s/ DANIEL J. CANCELMI
Daniel J. Cancelmi
Executive Vice President and 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.