e424b3
Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-159511 and 333-159511-01 to 333-159511-184
HCA INC.
SUPPLEMENT
NO. 10 TO
MARKET MAKING PROSPECTUS DATED
JULY 10, 2009
THE
DATE OF THIS SUPPLEMENT IS MARCH 1, 2010
On
March 1, 2010, HCA Inc. filed the
attached Annual Report on Form 10-K
for the fiscal year ended
December 31, 2009
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal year ended December 31,
2009
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OR
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period
from to
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Commission File Number 1-11239
HCA INC.
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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75-2497104
(I.R.S. Employer Identification
No.)
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One Park Plaza
Nashville, Tennessee
(Address of Principal Executive
Offices)
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37203
(Zip Code)
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Registrants telephone number, including area code:
(615) 344-9551
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the Registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of February 28, 2010, there were approximately
94,652,100 shares of Registrants common stock
outstanding. There is not a market for the Registrants
common stock; therefore, the aggregate market value of the
Registrants common stock held by non-affiliates is not
calculable.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive Information
Statement in connection with its action on written consent of
stockholders in lieu of an annual meeting are incorporated by
reference into Part III hereof.
PART I
General
HCA Inc. is one of the leading health care services companies in
the United States. At December 31, 2009, we operated 163
hospitals, comprised of 157 general, acute care hospitals; five
psychiatric hospitals; and one rehabilitation hospital. The 163
hospital total includes eight hospitals (seven general, acute
care hospitals and one rehabilitation hospital) owned by joint
ventures in which an affiliate of HCA is a partner, and these
joint ventures are accounted for using the equity method. In
addition, we operated 105 freestanding surgery centers, eight of
which are owned by joint ventures in which an affiliate of HCA
is a partner, and these joint ventures are accounted for using
the equity method. Our facilities are located in 20 states
and England. The terms Company, HCA,
we, our or us, as used
herein, refer to HCA Inc. and its affiliates unless otherwise
stated or indicated by context. The term affiliates
means direct and indirect subsidiaries of HCA Inc. and
partnerships and joint ventures in which such subsidiaries are
partners. The terms facilities or
hospitals refer to entities owned and operated by
affiliates of HCA and the term employees refers to
employees of affiliates of HCA.
Our primary objective is to provide a comprehensive array of
quality health care services in the most cost-effective manner
possible. Our general, acute care hospitals typically provide a
full range of services to accommodate such medical specialties
as internal medicine, general surgery, cardiology, oncology,
neurosurgery, orthopedics and obstetrics, as well as diagnostic
and emergency services. Outpatient and ancillary health care
services are provided by our general, acute care hospitals,
freestanding surgery centers, diagnostic centers and
rehabilitation facilities. Our psychiatric hospitals provide a
full range of mental health care services through inpatient,
partial hospitalization and outpatient settings.
The Company was incorporated in Nevada in January 1990 and
reincorporated in Delaware in September 1993. Our principal
executive offices are located at One Park Plaza, Nashville,
Tennessee 37203, and our telephone number is
(615) 344-9551.
On November 17, 2006, HCA Inc. completed its merger (the
Merger) with Hercules Acquisition Corporation,
pursuant to which the Company was acquired by Hercules Holding
II, LLC (Hercules Holding), a Delaware limited
liability company owned by a private investor group comprised of
affiliates of Bain Capital Partners, Kohlberg Kravis
Roberts & Co., Merrill Lynch Global Private Equity
(each a Sponsor), affiliates of Citigroup Inc. and
Bank of America Corporation (the Sponsor Assignees)
and affiliates of HCA founder, Dr. Thomas F. Frist Jr.,
(the Frist Entities, and together with the Sponsors
and the Sponsor Assignees, the Investors), and by
members of management and certain other investors. The Merger,
the financing transactions related to the Merger and other
related transactions are collectively referred to in this annual
report as the Recapitalization. The Merger was
accounted for as a recapitalization in our financial statements,
with no adjustments to the historical basis of our assets and
liabilities. As a result of the Recapitalization, our
outstanding capital stock is owned by the Investors, certain
members of management and key employees. On April 29, 2008,
we registered our common stock pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended, thus subjecting
us to the reporting requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended. Our common stock is
not traded on a national securities exchange.
Available
Information
We file certain reports with the Securities and Exchange
Commission (the SEC), including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K.
The public may read and copy any materials we file with the SEC
at the SECs Public Reference Room at
100 F Street, N.E., Washington, DC 20549. The public
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
We are an electronic filer, and the SEC maintains an Internet
site at
http://www.sec.gov
that contains the reports, proxy and information statements and
other information we file electronically. Our website address is
www.hcahealthcare.com. Please note that our website address is
provided as an inactive textual reference only. We make
available free of charge, through our website, our annual report
on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and all amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after such material is electronically
3
filed with or furnished to the SEC. The information provided on
our website is not part of this report, and is therefore not
incorporated by reference unless such information is
specifically referenced elsewhere in this report.
Our Code of Conduct is available free of charge upon request to
our Corporate Secretary, HCA Inc., One Park Plaza, Nashville,
Tennessee 37203.
Business
Strategy
We are committed to providing the communities we serve high
quality, cost-effective health care while complying fully with
our ethics policy, governmental regulations and guidelines and
industry standards. As a part of this strategy, management
focuses on the following principal elements:
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maintain our dedication to the care and improvement of human
life;
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maintain our commitment to ethics and compliance;
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leverage our leading local market positions;
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expand our presence in key markets;
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continue to leverage our scale;
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continue to develop physician relationships; and
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become the health care employer of choice.
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Health
Care Facilities
We currently own, manage or operate hospitals; freestanding
surgery centers; diagnostic and imaging centers; radiation and
oncology therapy centers; comprehensive rehabilitation and
physical therapy centers; and various other facilities.
At December 31, 2009, we owned and operated 150 general,
acute care hospitals with 38,349 licensed beds, and an
additional seven general, acute care hospitals with 2,269
licensed beds are operated through joint ventures, which are
accounted for using the equity method. Most of our general,
acute care hospitals provide medical and surgical services,
including inpatient care, intensive care, cardiac care,
diagnostic services and emergency services. The general, acute
care hospitals also provide outpatient services such as
outpatient surgery, laboratory, radiology, respiratory therapy,
cardiology and physical therapy. Each hospital has an organized
medical staff and a local board of trustees or governing board,
made up of members of the local community.
Our hospitals do not typically engage in extensive medical
research and education programs. However, some of our hospitals
are affiliated with medical schools and may participate in the
clinical rotation of medical interns and residents and other
education programs.
At December 31, 2009, we operated five psychiatric
hospitals with 490 licensed beds. Our psychiatric hospitals
provide therapeutic programs including child, adolescent and
adult psychiatric care, adult and adolescent alcohol and drug
abuse treatment and counseling.
We also operate outpatient health care facilities which include
freestanding surgery centers, diagnostic and imaging centers,
comprehensive outpatient rehabilitation and physical therapy
centers, outpatient radiation and oncology therapy centers and
various other facilities. These outpatient services are an
integral component of our strategy to develop comprehensive
health care networks in select communities. A majority of our
surgery centers are operated through partnerships or limited
liability companies, with majority ownership of each partnership
or limited liability company typically held by a general partner
or subsidiary that is an affiliate of HCA.
Certain of our affiliates provide a variety of management
services to our health care facilities, including patient safety
programs; ethics and compliance programs; national supply
contracts; equipment purchasing and leasing contracts;
accounting, financial and clinical systems; governmental
reimbursement assistance; construction planning and
coordination; information technology systems and solutions;
legal counsel; human resources services; and internal audit
services.
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Sources
of Revenue
Hospital revenues depend upon inpatient occupancy levels, the
medical and ancillary services ordered by physicians and
provided to patients, the volume of outpatient procedures and
the charges or payment rates for such services. Charges and
reimbursement rates for inpatient services vary significantly
depending on the type of payer, the type of service (e.g.,
medical/surgical, intensive care or psychiatric) and the
geographic location of the hospital. Inpatient occupancy levels
fluctuate for various reasons, many of which are beyond our
control.
We receive payment for patient services from the federal
government under the Medicare program, state governments under
their respective Medicaid or similar programs, managed care
plans, private insurers and directly from patients. The
approximate percentages of our revenues from such sources were
as follows:
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Year Ended
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December 31,
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2009
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2008
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2007
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Medicare
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23
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%
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23
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%
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24
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%
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Managed Medicare
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7
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6
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5
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Medicaid
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6
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5
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5
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Managed Medicaid
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4
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3
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3
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Managed care and other insurers
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52
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53
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54
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Uninsured
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8
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10
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9
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Total
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100
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%
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100
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%
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100
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%
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Medicare is a federal program that provides certain hospital and
medical insurance benefits to persons age 65 and over, some
disabled persons, persons with end-stage renal disease and
persons with Lou Gehrigs Disease. Medicaid is a
federal-state program, administered by the states, which
provides hospital and medical benefits to qualifying individuals
who are unable to afford health care. All of our general, acute
care hospitals located in the United States are certified as
health care services providers for persons covered under
Medicare and Medicaid programs. Amounts received under Medicare
and Medicaid programs are generally significantly less than
established hospital gross charges for the services provided.
Our hospitals generally offer discounts from established charges
to certain group purchasers of health care services, including
private insurance companies, employers, HMOs, PPOs and other
managed care plans. These discount programs generally limit our
ability to increase revenues in response to increasing costs.
See Item 1, Business Competition.
Patients are generally not responsible for the total difference
between established hospital gross charges and amounts
reimbursed for such services under Medicare, Medicaid, HMOs or
PPOs and other managed care plans, but are responsible to the
extent of any exclusions, deductibles or coinsurance features of
their coverage. The amount of such exclusions, deductibles and
coinsurance continues to increase. Collection of amounts due
from individuals is typically more difficult than from
governmental or third-party payers. We provide discounts to
uninsured patients who do not qualify for Medicaid or charity
care under our charity care policy. These discounts are similar
to those provided to many local managed care plans. In
implementing the discount policy, we attempt to qualify
uninsured patients for Medicaid, other federal or state
assistance or charity care under our charity care policy. If an
uninsured patient does not qualify for these programs, the
uninsured discount is applied.
Medicare
Inpatient
Acute Care
Under the Medicare program, we receive reimbursement under a
prospective payment system (PPS) for general, acute
care hospital inpatient services. Under the hospital inpatient
PPS, fixed payment amounts per inpatient discharge are
established based on the patients assigned Medicare
severity diagnosis-related group (MS-DRG). The
Centers for Medicare & Medicaid Services (CMS)
recently completed a two-year transition to full implementation
of MS-DRGs to replace the previously used Medicare diagnosis
related groups in an effort to better recognize severity of
illness in Medicare payment rates. MS-DRGs classify treatments
for illnesses according to the estimated intensity of hospital
resources necessary to furnish care for each principal
diagnosis. MS-DRG weights
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represent the average resources for a given MS-DRG relative to
the average resources for all MS-DRGs. MS-DRG payments are
adjusted for area wage differentials. Hospitals, other than
those defined as new, receive PPS reimbursement for
inpatient capital costs based on MS-DRG weights multiplied by a
geographically adjusted federal rate. When the cost to treat
certain patients falls well outside the normal distribution,
providers typically receive additional outlier
payments.
MS-DRG rates are updated and MS-DRG weights are recalibrated
using cost relative weights each federal fiscal year (which
begins October 1). The index used to update the MS-DRG rates
(the market basket) gives consideration to the
inflation experienced by hospitals and entities outside the
health care industry in purchasing goods and services. In
federal fiscal year 2009, the MS-DRG rate was increased by the
full market basket of 3.6%. For the federal fiscal year 2010,
CMS has set the MS-DRG rate increase at the full market basket
of 2.1%. A decrease in payments rates or an increase in rates
that is below the increase in our costs may adversely affect the
results of our operations.
In federal fiscal years 2008 and 2009, CMS reduced payments to
hospitals through a documentation and coding adjustment intended
to account for changes in payments under the MS-DRG system that
are not related to changes in patient case mix. In addition, CMS
has the authority to determine retrospectively whether the
documentation and coding adjustment levels for federal fiscal
years 2008 and 2009 were adequate to account for changes in
payments not related to changes in case mix. CMS has not imposed
an adjustment for federal fiscal year 2010, but has announced
its intent to impose reductions to payments in federal fiscal
years 2011 and 2012 because of what CMS has determined to be an
inadequate adjustment in federal fiscal year 2008. Such payment
adjustments may adversely affect the results of our operations.
Further realignments in the MS-DRG system could also reduce the
payments we receive for certain specialties, including
cardiology and orthopedics. CMS has focused on payment levels
for such specialties in recent years in part because of the
proliferation of specialty hospitals. Changes in the payments
received for specialty services could have an adverse effect on
our results of operations.
The Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (MMA) provides for rate increases at the
full market basket if data for patient care quality indicators
are submitted to the Secretary of the Department of Health and
Human Services (HHS). As required by the Deficit
Reduction Act of 2005 (DRA 2005), CMS has expanded,
through a series of rulemakings, the number of quality measures
that must be reported to receive a full market basket update.
CMS currently requires hospitals to report 46 quality measures
in order to qualify for the full market basket update to the
inpatient prospective payment system in federal fiscal year
2011. Failure to submit the required quality indicators will
result in a two percentage point reduction to the market basket
update. All of our hospitals paid under Medicare inpatient
MS-DRG PPS are participating in the quality initiative by
submitting the requested quality data. While we will endeavor to
comply with all data submission requirements as additional
requirements continue to be added, our submissions may not be
deemed timely or sufficient to entitle us to the full market
basket adjustment for all of our hospitals.
As part of CMSs goal of transforming Medicare from a
passive payer to an active purchaser of quality goods and
services, for discharges occurring after October 1, 2008,
Medicare no longer assigns an inpatient hospital discharge to a
higher paying MS-DRG if a selected hospital-acquired condition
(HAC) was not present on admission. In this
situation, the case is paid as though the secondary diagnosis
was not present. Currently, there are ten categories of
conditions on the list of HACs. Furthermore, on January 15,
2009, CMS announced three National Coverage Determinations
(NCDs) that prohibit Medicare reimbursement for
erroneous surgical procedures performed on an inpatient or
outpatient basis. These three erroneous surgical procedures are
in addition to the HACs designated in CMS regulations. These
changes are not expected to have a material effect on our
revenues or cash flows.
Historically, the Medicare program has set aside 5.10% of
Medicare inpatient payments to pay for outlier cases. CMS
estimates that outlier payments accounted for 4.8% of total
operating DRG payments for federal fiscal year 2008. For federal
fiscal year 2009, CMS established an outlier threshold of
$20,045, and for federal fiscal year 2010, CMS has increased the
outlier threshold to $23,140. We do not anticipate the increase
to the outlier threshold for federal fiscal year 2010 will have
a material impact on our results of operations.
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Outpatient
CMS reimburses hospital outpatient services (and certain
Medicare Part B services furnished to hospital inpatients
who have no Part A coverage) on a PPS basis. CMS continues
to use fee schedules to pay for physical, occupational and
speech therapies, durable medical equipment, clinical diagnostic
laboratory services and nonimplantable orthotics and
prosthetics, freestanding surgery centers services and services
provided by independent diagnostic testing facilities.
Hospital outpatient services paid under PPS are classified into
groups called ambulatory payment classifications
(APCs). Services for each APC are similar clinically
and in terms of the resources they require. A payment rate is
established for each APC. Depending on the services provided, a
hospital may be paid for more than one APC for a patient visit.
The APC payment rates were updated for calendar years 2008 and
2009 by market baskets of 3.30% and 3.60%, respectively. On
November 20, 2009, CMS published a final rule that updated
payment rates for calendar year 2010 by the full market basket
of 2.1%. CMS continues to require hospitals to submit quality
data relating to outpatient care to receive the full market
basket increase under the outpatient PPS in calendar year 2010.
CMS required hospitals to report data on eleven quality measures
in calendar year 2009 for the payment determination in calendar
year 2010 and will continue to require hospitals to report the
existing eleven quality measures in calendar year 2010 for the
2011 payment determination. Hospitals that fail to submit such
data will receive the market basket update minus two percentage
points for the outpatient PPS.
Rehabilitation
CMS reimburses inpatient rehabilitation facilities
(IRFs) on a PPS basis. Under IRF PPS, patients are
classified into case mix groups based upon impairment, age,
comorbidities (additional diseases or disorders from which the
patient suffers) and functional capability. IRFs are paid a
predetermined amount per discharge that reflects the
patients case mix group and is adjusted for area wage
levels, low-income patients, rural areas and high-cost outliers.
The Medicare, Medicaid and State Childrens Health
Insurance Program (SCHIP) Reauthorization Act of
2007 eliminated the market basket update for federal fiscal year
2009. However, CMS issued a final rule setting the market basket
update at 2.5% for fiscal year 2010. As of December 31,
2009, we had one rehabilitation hospital, which is operated
through a joint venture, and 46 hospital rehabilitation units.
On May 7, 2004, CMS published a final rule to change the
criteria for being classified as an IRF. Pursuant to that final
rule, 75% of a facilitys inpatients over a given year had
to have been treated for at least one of 10 specified
conditions, and a subsequent regulation expanded the number of
specified conditions to 13. Since then, several statutory and
regulatory adjustments have been made to the rule, including
adjustments to the percentage of a facilitys patients that
must be treated for one of the 13 specified conditions.
Currently, the compliance threshold is set by statute at 60%.
Implementation of this 60% threshold has reduced our IRF
admissions and can be expected to continue to restrict the
treatment of patients whose medical conditions do not meet any
of the 13 approved conditions. In addition, effective
January 1, 2010, IRFs must meet additional coverage
criteria, including patient selection and care requirements
relating to pre-admission screenings, post-admission
evaluations, ongoing coordination of care and involvement of
rehabilitation physicians. A facility that fails to meet the 60%
threshold or other criteria to be classified as an IRF will be
paid under the acute care hospital inpatient or outpatient PPS,
which generally provide for lower payment amounts.
Psychiatric
Inpatient hospital services furnished in psychiatric hospitals
and psychiatric units of general, acute care hospitals and
critical access hospitals are reimbursed under a prospective
payment system (IPF PPS), a per diem payment, with
adjustments to account for certain patient and facility
characteristics. IPF PPS contains an outlier policy
for extraordinarily costly cases and an adjustment to a
facilitys base payment if it maintains a full-service
emergency department. CMS has established the IPF PPS payment
rate in a manner intended to be budget neutral and has adopted a
July 1 update cycle. The rehabilitation, psychiatric and
long-term care (RPL) market basket update is used to
update the IPF PPS. The annual RPL market basket update for rate
year 2010 is 2.1%. As of December 31, 2009, we had five
psychiatric hospitals and 32 hospital psychiatric units.
7
Ambulatory
Surgery Centers
CMS reimburses ambulatory surgery centers (ASCs)
using a predetermined fee schedule. Reimbursements for ASC
overhead costs are limited to no more than the overhead costs
paid to hospital outpatient departments under the Medicare
hospital outpatient PPS for the same procedure. Effective
January 1, 2008, ASC payment groups increased from nine
clinically disparate payment groups to an extensive list of
covered surgical procedures among the APCs used under the
outpatient PPS for these surgical services. Because the new
payment system has a significant impact on payments for certain
procedures, CMS has established a four-year transition period
for implementing the required payment rates. Moreover, if CMS
determines that a procedure is commonly performed in a
physicians office, the ASC reimbursement for that
procedure is limited to the reimbursement allowable under the
Medicare Part B Physician Fee Schedule, with limited
exceptions. In addition, all surgical procedures, other than
those that pose a significant safety risk or generally require
an overnight stay, are payable as ASC procedures. As a result,
more Medicare procedures now performed in hospitals may be moved
to ASCs, reducing surgical volume in our hospitals. Also, more
Medicare procedures now performed in ASCs may be moved to
physicians offices. Commercial third-party payers may
adopt similar policies.
Other
Under PPS, the payment rates are adjusted for the area
differences in wage levels by a factor (wage index)
reflecting the relative wage level in the geographic area
compared to the national average wage level. Beginning in
federal fiscal year 2007, CMS adjusted 100% of the wage index
factor for occupational mix. The redistributive impact of wage
index changes, while slightly negative in the aggregate, is not
anticipated to have a material financial impact for 2010.
As required by the MMA, CMS is implementing contractor reform
whereby CMS has competitively bid the Medicare fiscal
intermediary and Medicare carrier functions to 15 Medicare
Administrative Contractors (MACs), which are
geographically assigned. CMS has awarded contracts to all 15 MAC
jurisdictions; as a result of filed protests, CMS is taking
corrective action regarding the contracts in several
jurisdictions. While chain providers had the option of having
all hospitals use one home office MAC, HCA chose to use the MACs
assigned to the geographic areas in which our hospitals are
located. The individual MAC jurisdictions are in varying phases
of transition. For the transition periods and for a potentially
unforeseen period thereafter, all of these changes could impact
claims processing functions and the resulting cash flow;
however, we are unable to predict the impact at this time.
The MMA established the Recovery Audit Contractor
(RAC) three-year demonstration program to conduct
post-payment reviews to detect and correct improper payments in
the fee-for-service Medicare program. The Tax Relief and Health
Care Act of 2006 made the RAC program permanent and mandated its
nationwide expansion by 2010. CMS has awarded contracts to four
RACs that are implementing the permanent RAC program on a
nationwide basis.
Managed
Medicare
Managed Medicare plans relate to situations where a private
company contracts with CMS to provide members with Medicare
Part A, Part B and Part D benefits. Managed
Medicare plans can be structured as HMOs, PPOs or private
fee-for-service plans. The Medicare program allows beneficiaries
to choose enrollment in certain managed Medicare plans. In 2003,
MMA increased reimbursement to managed Medicare plans and
expanded Medicare beneficiaries healthcare options. Since
2003, the number of beneficiaries choosing to receive their
Medicare benefits through such plans has increased. However, the
Medicare Improvements for Patients and Providers Act of 2008
imposed new restrictions and implemented focused cuts to certain
managed Medicare plans. In addition, some health care reform
proposals would reduce payments to managed Medicare plans. In
light of the current economic downturn and the political
climate, managed Medicare plans may experience reduced premium
payments, which may lead to decreased enrollment in such plans.
Medicaid
Medicaid programs are funded jointly by the federal government
and the states and are administered by states under approved
plans. Most state Medicaid program payments are made under a PPS
or are based on negotiated
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payment levels with individual hospitals. Medicaid reimbursement
is often less than a hospitals cost of services. The
federal government and many states are currently considering
altering the level of Medicaid funding (including upper payment
limits) or program eligibility that could adversely affect
future levels of Medicaid reimbursement received by our
hospitals. As permitted by law, certain states in which we
operate have adopted broad-based provider taxes to fund their
Medicaid programs.
Since most states must operate with balanced budgets and since
the Medicaid program is often the states largest program,
states can be expected to adopt or consider adopting legislation
designed to reduce their Medicaid expenditures. The current
economic downturn has increased the budgetary pressures on most
states, and these budgetary pressures have resulted and likely
will continue to result in decreased spending for Medicaid
programs in many states. Further, many states have also adopted,
or are considering, legislation designed to reduce coverage and
program eligibility, enroll Medicaid recipients in managed care
programs
and/or
impose additional taxes on hospitals to help finance or expand
the states Medicaid systems.
Through DRA 2005, Congress has expanded the federal
governments involvement in fighting fraud, waste and abuse
in the Medicaid program by creating the Medicaid Integrity
Program. Among other things, this legislation requires CMS to
employ private contractors, referred to as Medicaid Integrity
Contractors (MICs), to perform post-payment audits
of Medicaid claims and identify overpayments. MICs are assigned
to five geographic regions and have commenced audits in several
of the states assigned to those regions. Throughout 2010, MIC
audits will continue to expand to other states. In addition to
MICs, several other contractors, including the state Medicaid
agencies, have increased their review activities. Future
legislation or other changes in the administration or
interpretation of government health programs could have a
material, adverse effect on our financial position and results
of operations.
Managed
Medicaid
Managed Medicaid programs enable states to contract with one or
more entities for patient enrollment, care management and claims
adjudication. The states usually do not relinquish program
responsibilities for financing, eligibility criteria and core
benefit plan design. We generally contract directly with one of
the designated entities, usually a managed care organization.
The provisions of these programs are state-specific.
Enrollment in managed Medicaid plans has increased in recent
years, as state governments seek to control the cost of Medicaid
programs. However, general economic conditions in the states in
which we operate may require reductions in premium payments to
these plans and may reduce enrollment in these plans.
TRICARE
TRICARE is the Department of Defenses health care program
for members of the armed forces. On May 1, 2009, the
Department of Defense implemented a prospective payment system
for hospital outpatient services furnished to TRICARE
beneficiaries similar to that utilized for services furnished to
Medicare beneficiaries. Because the Medicare outpatient
prospective payment system APC rates have historically been
below TRICARE rates, the adoption of this payment methodology
for TRICARE beneficiaries reduces our reimbursement; however,
TRICARE outpatient services do not represent a significant
portion of our patient volumes.
Annual
Cost Reports
All hospitals participating in the Medicare, Medicaid and
TRICARE programs, whether paid on a reasonable cost basis or
under a PPS, are required to meet certain financial reporting
requirements. Federal and, where applicable, state regulations
require the submission of annual cost reports covering the
revenues, costs and expenses associated with the services
provided by each hospital to Medicare beneficiaries and Medicaid
recipients.
Annual cost reports required under the Medicare and Medicaid
programs are subject to routine audits, which may result in
adjustments to the amounts ultimately determined to be due to us
under these reimbursement programs. These audits often require
several years to reach the final determination of amounts due to
or from us under these programs. Providers also have rights of
appeal, and it is common to contest issues raised in audits of
cost reports.
9
Managed
Care and Other Discounted Plans
Most of our hospitals offer discounts from established charges
to certain large group purchasers of health care services,
including managed care plans and private insurance companies.
Admissions reimbursed by commercial managed care and other
insurers were 34%, 35% and 37% of our total admissions for the
years ended December 31, 2009, 2008 and 2007, respectively.
Managed care contracts are typically negotiated for terms
between one and three years. While we generally received annual
average yield increases of 6% to 7% from managed care payers
during 2009, there can be no assurance that we will continue to
receive increases in the future.
Uninsured
and Self-Pay Patients
A high percentage of our uninsured patients are initially
admitted through our emergency rooms. For the year ended
December 31, 2009, approximately 81% of our admissions of
uninsured patients occurred through our emergency rooms. The
Emergency Medical Treatment and Active Labor Act
(EMTALA) requires any hospital that participates in
the Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals
emergency room for treatment and, if the individual is suffering
from an emergency medical condition, to either stabilize that
condition or make an appropriate transfer of the individual to a
facility that can handle the condition. The obligation to screen
and stabilize emergency medical conditions exists regardless of
an individuals ability to pay for treatment.
We are taking proactive measures to reduce our provision for
doubtful accounts by, among other things:
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screening all patients, including the uninsured, through our
emergency screening protocol, to determine the appropriate care
setting in light of their condition, while reducing the
potential for bad debt; and
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increasing up-front collections from patients subject to co-pay
and deductible requirements and uninsured patients.
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Hospital
Utilization
We believe the most important factors relating to the overall
utilization of a hospital are the quality and market position of
the hospital and the number and quality of physicians and other
health care professionals providing patient care within the
facility. Generally, we believe the ability of a hospital to be
a market leader is determined by its breadth of services, level
of technology, emphasis on quality of care and convenience for
patients and physicians. Other factors that impact utilization
include the growth in local population, local economic
conditions and market penetration of managed care programs.
The following table sets forth certain operating statistics for
our health care facilities. Health care facility operations are
subject to certain seasonal fluctuations, including decreases in
patient utilization during holiday
10
periods and increases in the cold weather months. The data set
forth in this table includes only those facilities that are
consolidated for financial reporting purposes.
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Years Ended December 31,
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2009
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2008
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2007
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2006
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2005
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Number of hospitals at end of period(a)
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155
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158
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161
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166
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175
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Number of freestanding outpatient surgery centers at end of
period(b)
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97
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97
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99
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98
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87
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Number of licensed beds at end of period(c)
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38,839
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38,504
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38,405
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39,354
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41,265
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Weighted average licensed beds(d)
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38,825
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38,422
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39,065
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40,653
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41,902
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Admissions(e)
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1,556,500
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1,541,800
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1,552,700
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1,610,100
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1,647,800
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Equivalent admissions(f)
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2,439,000
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2,363,600
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2,352,400
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2,416,700
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2,476,600
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Average length of stay (days)(g)
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4.8
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4.9
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4.9
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4.9
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4.9
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Average daily census(h)
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20,650
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20,795
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21,049
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21,688
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22,225
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Occupancy rate(i)
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53
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%
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54
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%
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54
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%
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53
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%
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53
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%
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Emergency room visits(j)
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5,593,500
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5,246,400
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5,116,100
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5,213,500
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5,415,200
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Outpatient surgeries(k)
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794,600
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797,400
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804,900
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820,900
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836,600
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Inpatient surgeries(l)
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494,500
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493,100
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516,500
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533,100
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541,400
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(a) |
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Excludes eight facilities in 2009, 2008 and 2007 and seven
facilities in 2006 and 2005 that are not consolidated (accounted
for using the equity method) for financial reporting purposes. |
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(b) |
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Excludes eight facilities in 2009 and 2008, nine facilities in
2007 and 2006 and seven facilities in 2005 that are not
consolidated (accounted for using the equity method) for
financial reporting purposes. |
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(c) |
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Licensed beds are those beds for which a facility has been
granted approval to operate from the applicable state licensing
agency. |
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(d) |
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Weighted average licensed beds represents the average number of
licensed beds, weighted based on periods owned. |
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(e) |
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Represents the total number of patients admitted to our
hospitals and is used by management and certain investors as a
general measure of inpatient volume. |
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(f) |
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Equivalent admissions are used by management and certain
investors as a general measure of combined inpatient and
outpatient volume. Equivalent admissions are computed by
multiplying admissions (inpatient volume) by the sum of gross
inpatient revenue and gross outpatient revenue and then dividing
the resulting amount by gross inpatient revenue. The equivalent
admissions computation equates outpatient revenue to
the volume measure (admissions) used to measure inpatient
volume, resulting in a general measure of combined inpatient and
outpatient volume. |
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(g) |
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Represents the average number of days admitted patients stay in
our hospitals. |
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(h) |
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Represents the average number of patients in our hospital beds
each day. |
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(i) |
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Represents the percentage of hospital licensed beds occupied by
patients. Both average daily census and occupancy rate provide
measures of the utilization of inpatient rooms. |
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(j) |
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Represents the number of patients treated in our emergency rooms. |
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(k) |
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Represents the number of surgeries performed on patients who
were not admitted to our hospitals. Pain management and
endoscopy procedures are not included in outpatient surgeries. |
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(l) |
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Represents the number of surgeries performed on patients who
have been admitted to our hospitals. Pain management and
endoscopy procedures are not included in inpatient surgeries. |
Competition
Generally, other hospitals in the local communities served by
most of our hospitals provide services similar to those offered
by our hospitals. Additionally, in recent years the number of
freestanding surgery centers and diagnostic centers (including
facilities owned by physicians) in the geographic areas in which
we operate has
11
increased significantly. As a result, most of our hospitals
operate in a highly competitive environment. In some cases,
competing hospitals are more established than our hospitals.
Some competing hospitals are owned by tax-supported government
agencies and many others are owned by not-for-profit entities
that may be supported by endowments, charitable contributions
and/or tax
revenues and are exempt from sales, property and income taxes.
Such exemptions and support are not available to our hospitals.
In certain localities there are large teaching hospitals that
provide highly specialized facilities, equipment and services
which may not be available at most of our hospitals. We are
facing increasing competition from physician-owned specialty
hospitals and both our own and unaffiliated freestanding surgery
centers for market share in high margin services.
Psychiatric hospitals frequently attract patients from areas
outside their immediate locale and, therefore, our psychiatric
hospitals compete with both local and regional hospitals,
including the psychiatric units of general, acute care hospitals.
Our strategies are designed to ensure our hospitals are
competitive. We believe our hospitals compete within local
communities on the basis of many factors, including the quality
of care, ability to attract and retain quality physicians,
skilled clinical personnel and other health care professionals,
location, breadth of services, technology offered and prices
charged. We have increased our focus on operating outpatient
services with improved accessibility and more convenient service
for patients, and increased predictability and efficiency for
physicians.
Two of the most significant factors to the competitive position
of a hospital are the number and quality of physicians
affiliated with the hospital. Although physicians may at any
time terminate their affiliation with a hospital we operate, our
hospitals seek to retain physicians with varied specialties on
the hospitals medical staffs and to attract other
qualified physicians. We believe physicians refer patients to a
hospital on the basis of the quality and scope of services it
renders to patients and physicians, the quality of physicians on
the medical staff, the location of the hospital and the quality
of the hospitals facilities, equipment and employees.
Accordingly, we strive to maintain and provide quality
facilities, equipment, employees and services for physicians and
patients.
Another major factor in the competitive position of a hospital
is our ability to negotiate service contracts with purchasers of
group health care services. Managed care plans attempt to direct
and control the use of hospital services and obtain discounts
from hospitals established gross charges. In addition,
employers and traditional health insurers continue to attempt to
contain costs through negotiations with hospitals for managed
care programs and discounts from established gross charges.
Generally, hospitals compete for service contracts with group
health care services purchasers on the basis of price, market
reputation, geographic location, quality and range of services,
quality of the medical staff and convenience. Our future success
will depend, in part, on our ability to retain and renew our
managed care contracts and enter into new managed care contracts
on favorable terms. Other health care providers may impact our
ability to enter into managed care contracts or negotiate
increases in our reimbursement and other favorable terms and
conditions. 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. The trend toward consolidation among non-government payers
tends to increase their bargaining power over fee structures.
The importance of obtaining contracts with managed care
organizations varies from community to community, depending on
the market strength of such organizations.
State certificate of need (CON) laws, which place
limitations on a hospitals ability to expand hospital
services and facilities, make capital expenditures and otherwise
make changes in operations, may also have the effect of
restricting competition. We currently operate health care
facilities in a number of states with CON laws. Before issuing a
CON, these states consider the need for additional or expanded
health care facilities or services. In those states which have
no CON laws or which set relatively high levels of expenditures
before they become reviewable by state authorities, competition
in the form of new services, facilities and capital spending is
more prevalent. See Item 1, Business
Regulation and Other Factors.
We and the health care industry as a whole face the challenge of
continuing to provide quality patient care while dealing with
rising costs and strong competition for patients. Changes in
medical technology, existing and future legislation, regulations
and interpretations and managed care contracting for provider
services by private and government payers remain ongoing
challenges.
12
Admissions and average lengths of stay continue to be negatively
affected by payer-required pre-admission authorization,
utilization review and payer pressure to maximize outpatient and
alternative health care delivery services for less acutely ill
patients. Increased competition, admission constraints and payer
pressures are expected to continue. To meet these challenges, we
intend to expand our facilities or acquire or construct new
facilities where appropriate, to better enable the provision of
a comprehensive array of outpatient services, offer market
competitive pricing to private payer groups, upgrade facilities
and equipment, and offer new or expanded programs and services.
Regulation
and Other Factors
Licensure,
Certification and Accreditation
Health care facility construction and operation are subject to
numerous federal, state and local regulations relating to the
adequacy of medical care, equipment, personnel, operating
policies and procedures, maintenance of adequate records, fire
prevention, rate-setting and compliance with building codes and
environmental protection laws. 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 our health care
facilities are properly licensed under applicable state laws.
Each of our acute care hospitals are certified for participation
in the Medicare and Medicaid programs and are accredited by The
Joint Commission. If any facility were to lose its Medicare or
Medicaid certification, the facility would be unable to receive
reimbursement from federal health care programs. If any facility
were to lose accreditation by The Joint Commission, the facility
would be subject to state surveys, potentially be subject to
increased scrutiny by CMS and likely lose payment from
non-government payers. Management believes our facilities are in
substantial compliance with current applicable federal, state,
local and independent review body regulations and standards. The
requirements for licensure, certification and accreditation are
subject to change and, in order to remain qualified, it may
become necessary for us to make changes in our facilities,
equipment, personnel and services. The requirements for
licensure also may include notification or approval in the event
of the transfer or change of ownership. Failure to obtain the
necessary state approval in these circumstances can result in
the inability to complete an acquisition or change of ownership.
Certificates
of Need
In some states where we operate hospitals and other health care
facilities, the construction or expansion of health care
facilities, the acquisition of existing facilities, the transfer
or change of ownership and the addition of new beds or services
may be subject to review by and prior approval of state
regulatory agencies under a CON program. Such laws generally
require the reviewing state agency to determine the public need
for additional or expanded health care facilities and services.
Failure to obtain necessary state approval can result in the
inability to expand facilities, complete an acquisition or
change ownership.
State
Rate Review
Some states have adopted legislation mandating rate or budget
review for hospitals or have adopted taxes on hospital revenues,
assessments or licensure fees to fund indigent health care
within the state. In the aggregate, indigent tax provisions have
not materially, adversely affected our results of operations.
Although we do not currently operate facilities in states that
mandate rate or budget reviews, we cannot predict whether we
will operate in such states in the future, or whether the states
in which we currently operate may adopt legislation mandating
such reviews.
Federal
Health Care Program Regulations
Participation in any federal health care program, including the
Medicare and Medicaid programs, is heavily regulated by statute
and regulation. If a hospital fails to substantially comply with
the numerous conditions of participation in the Medicare and
Medicaid programs or performs certain prohibited acts, the
hospitals participation in the federal health care
programs may be terminated, or civil or criminal penalties may
be imposed under certain provisions of the Social Security Act,
or both.
13
Anti-kickback
Statute
A section of the Social Security Act known as the
Anti-kickback Statute prohibits providers and others
from directly or indirectly soliciting, receiving, offering or
paying any remuneration with the intent of generating referrals
or orders for services or items covered by a federal health care
program. Courts have interpreted this statute broadly and held
that there is a violation of the Anti-kickback Statute if just
one purpose of the remuneration is to generate referrals, even
if there are other lawful purposes. Violations of the
Anti-kickback Statute may be punished by a criminal fine of up
to $25,000 for each violation or imprisonment, civil money
penalties of up to $50,000 per violation and damages of up to
three times the total amount of the remuneration
and/or
exclusion from participation in federal health care programs,
including Medicare and Medicaid.
The Office of Inspector General at HHS (OIG), among
other regulatory agencies, is responsible for identifying and
eliminating fraud, abuse and waste. The OIG carries out this
mission through a nationwide program of audits, investigations
and inspections. As one means of providing guidance to health
care providers, the OIG issues Special Fraud Alerts.
These alerts do not have the force of law, but identify features
of arrangements or transactions that the government believes may
cause the arrangements or transactions to violate the
Anti-kickback Statute or other federal health care laws. The OIG
has identified several incentive arrangements that constitute
suspect practices, including: (a) payment of any incentive
by a hospital each time a physician refers a patient to the
hospital, (b) the use of free or significantly discounted
office space or equipment in facilities usually located close to
the hospital, (c) provision of free or significantly
discounted billing, nursing or other staff services,
(d) free training for a physicians office staff in
areas such as management techniques and laboratory techniques,
(e) guarantees which provide, if the physicians
income fails to reach a predetermined level, the hospital will
pay any portion of the remainder, (f) low-interest or
interest-free loans, or loans which may be forgiven if a
physician refers patients to the hospital, (g) payment of
the costs of a physicians travel and expenses for
conferences, (h) coverage on the hospitals group
health insurance plans at an inappropriately low cost to the
physician, (i) payment for services (which may include
consultations at the hospital) which require few, if any,
substantive duties by the physician, (j) purchasing goods
or services from physicians at prices in excess of their fair
market value, and (k) rental of space in physician offices,
at other than fair market value terms, by persons or entities to
which physicians refer. The OIG has encouraged persons having
information about hospitals who offer the above types of
incentives to physicians to report such information to the OIG.
The OIG also issues Special Advisory Bulletins as a means of
providing guidance to health care providers. These bulletins,
along with the Special Fraud Alerts, have focused on certain
arrangements that could be subject to heightened scrutiny by
government enforcement authorities, including:
(a) contractual joint venture arrangements and other joint
venture arrangements between those in a position to refer
business, such as physicians, and those providing items or
services for which Medicare or Medicaid pays, and
(b) certain gainsharing arrangements, i.e., the
practice of giving physicians a share of any reduction in a
hospitals costs for patient care attributable in part to
the physicians efforts.
In addition to issuing Special Fraud Alerts and Special Advisory
Bulletins, the OIG issues compliance program guidance for
certain types of health care providers. The OIG guidance
identifies a number of risk areas under federal fraud and abuse
statutes and regulations. These areas of risk include
compensation arrangements with physicians, recruitment
arrangements with physicians and joint venture relationships
with physicians.
As authorized by Congress, the OIG has published safe harbor
regulations that outline categories of activities deemed
protected from prosecution under the Anti-kickback Statute.
Currently, there are statutory exceptions and safe harbors for
various activities, including the following: certain investment
interests, space rental, equipment rental, practitioner
recruitment, personnel services and management contracts, sale
of practice, referral services, warranties, discounts,
employees, group purchasing organizations, waiver of beneficiary
coinsurance and deductible amounts, managed care arrangements,
obstetrical malpractice insurance subsidies, investments in
group practices, freestanding surgery centers, ambulance
replenishing, and referral agreements for specialty services.
The fact that conduct or a business arrangement does not fall
within a safe harbor, or it is identified in a Special Fraud
Alert or Advisory Bulletin or as a risk area in the Supplemental
Compliance Guidelines for Hospitals, does
14
not necessarily render the conduct or business arrangement
illegal under the Anti-kickback Statute. However, such conduct
and business arrangements may lead to increased scrutiny by
government enforcement authorities.
We have a variety of financial relationships with physicians and
others who either refer or influence the referral of patients to
our hospitals and other health care facilities, including
employment contracts, leases, medical director agreements and
professional service agreements. We also have similar
relationships with physicians and facilities to which patients
are referred from our facilities. In addition, we provide
financial incentives, including minimum revenue guarantees, to
recruit physicians into the communities served by our hospitals.
While we endeavor to comply with the applicable safe harbors,
certain of our current arrangements, including joint ventures
and financial relationships with physicians and other referral
sources and persons and entities to which we refer patients, do
not qualify for safe harbor protection.
Although we believe our arrangements with physicians and other
referral sources have been structured to comply with current law
and available interpretations, there can be no assurance
regulatory authorities enforcing these laws will determine these
financial arrangements comply with the Anti-kickback Statute or
other applicable laws. 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 health care
programs.
Stark
Law
The Social Security Act also includes a provision commonly known
as the Stark Law. The Stark Law prevents the entity
from billing Medicare and Medicaid programs for any items or
services that result from a prohibited referral and requires the
entity to refund amounts received for items or services provided
pursuant to the prohibited referral. The law, thus, effectively
prohibits physicians from referring Medicare and Medicaid
patients to entities with which they or any of their immediate
family members have a financial relationship, if these entities
provide certain designated health services
reimbursable by Medicare, including inpatient and outpatient
hospital services, clinical laboratory services and radiology
services. Sanctions for violating the Stark Law include denial
of payment, civil monetary penalties of up to $15,000 per claim
submitted and exclusion from the federal health care programs.
The statute also provides for a penalty of up to $100,000 for a
circumvention scheme. There are exceptions to the self-referral
prohibition for many of the customary financial arrangements
between physicians and providers, including employment
contracts, leases and recruitment agreements. There is also an
exception for a physicians ownership interest in an entire
hospital, as opposed to an ownership interest in a hospital
department. Unlike safe harbors under the Anti-kickback Statute
with which compliance is voluntary, an arrangement must comply
with every requirement of a Stark Law exception or the
arrangement is in violation of the Stark Law.
Through a series of rulemakings, CMS has issued final
regulations implementing the Stark Law. Additional changes to
these regulations, which became effective October 1, 2009,
further restrict the types of arrangements facilities and
physicians may enter, including additional restrictions on
certain leases, percentage compensation arrangements, and
agreements under which a hospital purchases services under
arrangements. While these regulations were intended to
clarify the requirements of the exceptions to the Stark Law, it
is unclear how the government will interpret many of these
exceptions for enforcement purposes. CMS has indicated it is
considering additional changes to the Stark Law regulations.
Because many of these laws and their implementing regulations
are relatively new, we do not always have the benefit of
significant regulatory or judicial interpretation of these laws
and regulations. We attempt to structure our relationships to
meet an exception to the Stark Law, but the regulations
implementing the exceptions are detailed and complex, and we
cannot assure that every relationship complies fully with the
Stark Law.
On September 14, 2007, CMS published an information
collection request called the Disclosure of Financial Relations
Report (DFRR). The DFRR and its supporting
documentation are currently under review by the Office of
Management and Budget, and it is unclear when, or if, it will be
finalized. CMS has indicated that responding hospitals will have
a limited amount of time to compile a significant amount of
information relating to their financial relationships with
physicians. A hospital may be subject to substantial penalties
if it is unable to assemble and report this information within
the required time frame or if any applicable government agency
determines that
15
the submission is inaccurate or incomplete. Depending on the
final format of the DFRR, responding hospitals may be subject to
substantial penalties as a result of enforcement actions brought
by government agencies and whistleblowers acting pursuant to the
federal False Claims Act (FCA) and similar state
laws, based on such allegations as failure to respond within
required deadlines, that the response is inaccurate or contains
incomplete information, or that the response indicates a
potential violation of the Stark Law or other requirements.
Similar
State Laws
Many states in which we operate also have laws similar to the
Anti-kickback Statute that prohibit payments to physicians for
patient referrals and laws similar to the Stark Law that
prohibit certain self-referrals. The scope of these state laws
is broad, since they can often apply regardless of the source of
payment for care, and little precedent exists for their
interpretation or enforcement. These statutes typically provide
for criminal and civil penalties, as well as loss of facility
licensure.
Other
Fraud and Abuse Provisions
The Health Insurance Portability and Accountability Act of 1996
(HIPAA) broadened the scope of certain fraud and
abuse laws by adding several criminal provisions for health care
fraud offenses that apply to all health benefit programs. The
Social Security Act also imposes criminal and civil penalties
for making false claims and statements to Medicare and Medicaid.
False claims include, but are not limited to, billing for
services not rendered or for misrepresenting actual services
rendered in order to obtain higher reimbursement, billing for
unnecessary goods and services, and cost report fraud. Federal
enforcement officials have the ability to exclude from Medicare
and Medicaid any investors, officers and managing employees
associated with business entities that have committed health
care fraud, even if the officer or managing employee had no
knowledge of the fraud. Criminal and civil penalties may be
imposed for a number of other prohibited activities, including
failure to return known overpayments, certain gainsharing
arrangements, billing Medicare amounts that are substantially in
excess of a providers usual charges, offering remuneration
to influence a Medicare or Medicaid beneficiarys selection
of a health care provider, contracting with an individual or
entity known to be excluded from a federal health care program,
making or accepting a payment to induce a physician to reduce or
limit services, and soliciting or receiving any remuneration in
return for referring an individual for an item or service
payable by a federal health care program. Like the Anti-kickback
Statute, these provisions are very broad. To avoid liability,
providers must, among other things, carefully and accurately
code claims for reimbursement, as well as accurately prepare
cost reports.
Some of these provisions, including the federal Civil Monetary
Penalty Law, require a lower burden of proof than other fraud
and abuse laws, including the Anti-kickback Statute. Civil
monetary penalties that may be imposed under the federal Civil
Monetary Penalty Law range from $10,000 to $50,000 per act, and
in some cases may result in penalties of up to three times the
remuneration offered, paid, solicited or received. In addition,
a violator may be subject to exclusion from federal and state
health care programs. Federal and state governments increasingly
use the federal Civil Monetary Penalty Law, especially where
they believe they cannot meet the higher burden of proof
requirements under the Anti-kickback Statute. Further,
individuals can receive up to $1,000 for providing information
on Medicare fraud and abuse that leads to the recovery of at
least $100 of Medicare funds under the Medicare Integrity
Program.
The
Federal False Claims Act and Similar State Laws
The qui tam, or whistleblower, provisions of the FCA
allow private individuals to bring actions on behalf of the
government alleging that the defendant has defrauded the federal
government. Further, the government may use the FCA to prosecute
Medicare and other government program fraud in areas such as
coding errors, billing for services not provided and submitting
false cost reports. When a private party brings a qui tam
action under the FCA, the defendant is not made aware of the
lawsuit until the government commences its own investigation or
makes a determination whether it will intervene. When a
defendant is determined by a court of law to be liable under the
FCA, the defendant may be required to pay three times the actual
damages sustained by the government, plus mandatory civil
penalties of between $5,500 and $11,000 for each separate false
claim. There are many potential bases for liability under the
FCA. Liability often arises when an entity knowingly submits a
false claim for
16
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. On May 20, 2009, 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.
In some cases, whistleblowers and the federal government have
taken the position, and some courts have held, that providers
who allegedly have violated other statutes, such as the
Anti-kickback Statute and the Stark Law, have thereby submitted
false claims under the FCA. Every entity that receives at least
$5 million annually in Medicaid payments must have written
policies for all employees, contractors or agents, providing
detailed information about false claims, false statements and
whistleblower protections under certain federal laws, including
the FCA, and similar state laws. In addition, federal law
provides an incentive to states to enact false claims laws
comparable to the FCA. A number of states in which we operate
have adopted their own false claims provisions as well as their
own whistleblower provisions under which a private party may
file a civil lawsuit in state court. We have adopted and
distributed policies pertaining to the FCA and relevant state
laws.
HIPAA
Administrative Simplification and Privacy and Security
Requirements
The Administrative Simplification Provisions of HIPAA require
the use of uniform electronic data transmission standards for
certain health care claims and payment transactions submitted or
received electronically. These provisions are intended to
encourage electronic commerce in the health care industry. HHS
has issued regulations implementing the HIPAA Administrative
Simplification Provisions and compliance with these regulations
is mandatory for our facilities. In addition, HIPAA requires
that each provider use a National Provider Identifier. In
January 2009, CMS published a final rule making changes to the
formats used for certain electronic transactions and requiring
the use of updated standard code sets for certain diagnoses and
procedures known as ICD-10 code sets. While use of the ICD-10
code sets is not mandatory until October 1, 2013, we will
be modifying our payment systems and processes to prepare for
the implementation. Implementing the ICD-10 code sets will
require significant administrative changes, but we believe that
the cost of compliance with these regulations has not had and is
not expected to have a material, adverse effect on our business,
financial position or results of operations.
The privacy and security regulations promulgated pursuant to
HIPAA extensively regulate the use and disclosure of
individually identifiable health information and require covered
entities, including health plans and most health care providers,
to implement administrative, physical and technical safeguards
to protect the security of such information. The American
Recovery and Reinvestment Act of 2009 (ARRA), which
was signed into law on February 17, 2009, broadened the
scope of the HIPAA privacy and security regulations. In
addition, ARRA extends the application of certain provisions of
the security and privacy regulations to business associates
(entities that handle identifiable health information on behalf
of covered entities) and subjects business associates to civil
and criminal penalties for violation of the regulations. We
enforce a HIPAA compliance plan, which we believe complies with
HIPAA privacy and security requirements and under which a HIPAA
compliance group monitors our compliance. The privacy
regulations and security regulations have and will continue to
impose significant costs on our facilities in order to comply
with these standards.
As required by ARRA, HHS published an interim final rule on
August 24, 2009, that requires covered entities to report
breaches of unsecured protected health information to affected
individuals without unreasonable delay but not to exceed
60 days of discovery of the breach by a covered entity or
its agents. Notification must also be made to HHS and, in
certain situations involving large breaches, to the media.
Various state laws and regulations may also require us to notify
affected individuals in the event of a data breach involving
individually identifiable information.
Violations of the HIPAA privacy and security regulations may
result in civil and criminal penalties, and ARRA has
strengthened the enforcement provisions of HIPAA, which may
result in increased enforcement activity. Under ARRA, HHS is
required to conduct periodic compliance audits of covered
entities and their business associates. ARRA broadens the
applicability of the criminal penalty provisions to employees of
covered entities and requires HHS to impose penalties for
violations resulting from willful neglect. ARRA also
significantly increases the amount of the civil penalties, with
penalties of up to $50,000 per violation for a maximum civil
penalty of
17
$1,500,000 in a calendar year for violations of the same
requirement. In addition, ARRA authorizes state attorneys
general to bring civil actions seeking either injunction or
damages in response to violations of HIPAA privacy and security
regulations that threaten the privacy of state residents. Our
facilities also remain subject to any federal or state
privacy-related laws that are more restrictive than the privacy
regulations issued under HIPAA. These laws vary and could impose
additional penalties.
There are numerous other laws and legislative and regulatory
initiatives at the federal and state levels addressing privacy
and security concerns. For example, the Federal Trade Commission
issued a final rule in October 2007 requiring financial
institutions and creditors, which may include health providers
and health plans, to implement written identity theft prevention
programs to detect, prevent, and mitigate identity theft in
connection with certain accounts. The Federal Trade Commission
has delayed enforcement of this rule until June 1, 2010.
EMTALA
All of our hospitals in the United States are subject to EMTALA.
This federal law requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every individual who presents to the
hospitals emergency room for treatment and, if the
individual is suffering from an emergency medical condition, to
either stabilize the condition or make an appropriate transfer
of the individual to a facility able to handle the condition.
The obligation to screen and stabilize emergency medical
conditions exists regardless of an individuals ability to
pay for treatment. There are severe penalties under EMTALA if a
hospital fails to screen or appropriately stabilize or transfer
an individual or if the hospital delays appropriate treatment in
order to first inquire about the individuals ability to
pay. Penalties for violations of EMTALA include civil monetary
penalties and exclusion from participation in the Medicare
program. In addition, an injured individual, the
individuals family or a medical facility that suffers a
financial loss as a direct result of a hospitals violation
of the law can bring a civil suit against the hospital.
The government broadly interprets EMTALA to cover situations in
which individuals do not actually present to a hospitals
emergency room, but present for emergency examination or
treatment to the hospitals campus, generally, or to a
hospital-based clinic that treats emergency medical conditions
or are transported in a hospital-owned ambulance, subject to
certain exceptions. At least one court has interpreted the law
also to apply to a hospital that has been notified of a
patients pending arrival in a non-hospital owned
ambulance. EMTALA does not generally apply to individuals
admitted for inpatient services. The government has expressed
its intent to investigate and enforce EMTALA violations actively
in the future. We believe our hospitals operate in substantial
compliance with EMTALA.
Corporate
Practice of Medicine/Fee Splitting
Some of the states in which we operate have laws prohibiting
corporations and other entities from employing physicians,
practicing medicine for a profit and making certain direct and
indirect payments or fee-splitting arrangements between health
care providers designed to induce or encourage the referral of
patients to, or the recommendation of, particular providers for
medical products and services. Possible sanctions for violation
of these restrictions include loss of license and civil and
criminal penalties. In addition, agreements between the
corporation and the physician may be considered void and
unenforceable. These statutes vary from state to state, are
often vague and have seldom been interpreted by the courts or
regulatory agencies.
Health
Care Industry Investigations
Significant media and public attention has focused in recent
years on the hospital industry. This media and public attention,
changes in government personnel or other factors may lead to
increased scrutiny of the health care industry. While we are
currently not aware of any material investigations of the
Company under federal or state health care laws or regulations,
it is possible that governmental entities could initiate
investigations or litigation in the future at facilities we
operate and that such matters could result in significant
penalties, as well as adverse
18
publicity. It is also possible that our executives and managers
could be included in governmental investigations or litigation
or named as defendants in private litigation.
Our substantial Medicare, Medicaid and other governmental
billings result in heightened scrutiny of our operations. We
continue to monitor all aspects of our business and have
developed a comprehensive ethics and compliance program that is
designed to meet or exceed applicable federal guidelines and
industry standards. Because the law in this area is complex and
constantly evolving, governmental investigations or litigation
may result in interpretations that are inconsistent with our or
industry practices.
In public statements surrounding current investigations,
governmental authorities have taken positions on a number of
issues, including some for which little official interpretation
previously has been available, that appear to be inconsistent
with practices that have been common within the industry and
that previously have not been challenged in this manner. In some
instances, government investigations that have in the past been
conducted under the civil provisions of federal law may now be
conducted as criminal investigations.
Both federal and state government agencies have increased their
focus on and coordination of civil and criminal enforcement
efforts in the health care area. The OIG and the Department of
Justice have, from time to time, established national
enforcement initiatives, targeting all hospital providers that
focus on specific billing practices or other suspected areas of
abuse. In addition, governmental agencies and their agents, such
as the Medicare Administrative Contractors, fiscal
intermediaries and carriers, may conduct audits of our health
care operations. Private payers may conduct similar post-payment
audits, and we also perform internal audits and monitoring.
In addition to national enforcement initiatives, federal and
state investigations have addressed a wide variety of routine
health care operations such as: cost reporting and billing
practices, including for Medicare outliers; financial
arrangements with referral sources; physician recruitment
activities; physician joint ventures; and hospital charges and
collection practices for self-pay patients. We engage in many of
these routine health care operations and other activities that
could be the subject of governmental investigations or
inquiries. For example, we have significant Medicare and
Medicaid billings, numerous financial arrangements with
physicians who are referral sources to our hospitals, and joint
venture arrangements involving physician investors. Certain of
our individual facilities have received, and other facilities
may receive, government inquiries from federal and state
agencies. Any additional investigations of the Company, our
executives or managers could result in significant liabilities
or penalties to us, as well as adverse publicity.
Commencing in 1997, we became aware we were the subject of
governmental investigations and litigation relating to our
business practices. As part of the investigations, the United
States intervened in a number of qui tam actions brought
by private parties. The investigations related to, among other
things, DRG coding, outpatient laboratory billing, home health
issues, physician relations, cost report and wound care issues.
The investigations were concluded through a series of agreements
executed in 2000 and 2003 with the Criminal Division of the
Department of Justice, the Civil Division of the Department of
Justice, various U.S. Attorneys offices, CMS, a
negotiating team representing states with claims against us, and
others. In January 2001, we entered into an eight-year Corporate
Integrity Act (CIA) with the Office of Inspector
General of the Department of Health and Human Services, which
expired January 24, 2009. If the government were to
determine that we violated or breached the CIA or other federal
or state laws relating to Medicare, Medicaid or similar
programs, we could be subject to substantial monetary fines,
civil and criminal penalties
and/or
exclusion from participation in the Medicare and Medicaid
programs and other federal and state health care programs.
Alleged violations may be pursued by the government or through
private qui tam actions. Sanctions imposed against us as
a result of such actions could have a material, adverse effect
on our results of operations and financial position.
Health
Care Reform
Health care is one of the largest industries in the United
States and continues to attract much legislative interest and
public attention. National health care reform is a focus at the
federal level. In the final months of 2009, both houses of the
U.S. Congress passed separate bills intended to reform the
health care system through, among other things, decreasing the
number of uninsured individuals and reducing health care costs.
While neither of these bills has yet become law, such laws or
similar proposals have been, and we anticipate will continue to
be, a focus at the federal level. Several states are also
considering health care reform measures. This focus on health
care
19
reform may increase the likelihood of significant changes
affecting the health care industry. In addition, possible future
changes in the Medicare, Medicaid, and other state programs,
including Medicaid supplemental payments pursuant to upper
payment limit programs, may impact reimbursements to health care
providers and insurers. Many states have enacted, or are
considering enacting, measures designed to reduce their Medicaid
expenditures and change private health care insurance. States
have also adopted, or are considering, legislation designed to
reduce coverage and program eligibility, enroll Medicaid
recipients in managed care programs
and/or
impose additional taxes on hospitals to help finance or expand
states Medicaid systems. Some states, including the states
in which we operate, have applied for and have been granted
federal waivers from current Medicaid regulations to allow them
to serve some or all of their Medicaid participants through
managed care providers. Hospital operating margins have been,
and may continue to be, under significant pressure because of
deterioration in pricing flexibility and payer mix, and growth
in operating expenses in excess of the increase in PPS payments
under the Medicare program.
General
Economic and Demographic Factors
The United States economy has weakened significantly. Depressed
consumer spending and higher unemployment rates continue to
pressure many industries. During economic downturns,
governmental entities often experience budget deficits as a
result of increased costs and lower than expected tax
collections. These budget deficits may force federal, state and
local government entities to decrease spending for health and
human service programs, including Medicare, Medicaid and similar
programs, which represent significant payer sources for our
hospitals. Other risks we face from general economic weakness
include potential declines in the population covered under
managed care agreements, patient decisions to postpone or cancel
elective and non-emergency health care procedures, potential
increases in the uninsured and underinsured populations and
further difficulties in our collecting patient co-payment and
deductible receivables.
The health care industry is impacted by the overall United
States financial pressures. The federal deficit, the growing
magnitude of Medicare expenditures and the aging of the United
States population will continue to place pressure on federal
health care programs.
Compliance
Program and Corporate Integrity Agreement
We maintain a comprehensive ethics and compliance program that
is designed to meet or exceed applicable federal guidelines and
industry standards. The program is intended to monitor and raise
awareness of various regulatory issues among employees and to
emphasize the importance of complying with governmental laws and
regulations. As part of the ethics and compliance program, we
provide annual ethics and compliance training to our employees
and encourage all employees to report any violations to their
supervisor, an ethics and compliance officer or a toll-free
telephone ethics line.
Until January 24, 2009, we operated under a Corporate
Integrity Agreement (CIA), which was structured to
assure the federal government of our overall federal health care
program compliance and specifically covered DRG coding,
outpatient PPS billing and physician relations. We underwent
major training efforts to ensure that our employees learned and
applied the policies and procedures implemented under the CIA
and our ethics and compliance program. The CIA had the effect of
increasing the amount of information we provided to the federal
government regarding our health care practices and our
compliance with federal regulations. Under the CIA, we had
numerous affirmative obligations, including the requirement to
report potential violations of applicable federal health care
laws and regulations. Pursuant to this obligation, we reported a
number of potential violations of the Stark Law, the
Anti-kickback Statute, EMTALA, HIPAA and other laws, most of
which we consider to be nonviolations or technical violations.
We submitted our final report pursuant to the CIA on
April 30, 2009. These reports could result in greater
scrutiny by regulatory authorities. The government could
determine that our reporting
and/or our
resolution of reported issues was inadequate. A determination
that we breached the CIA
and/or a
finding of violations of applicable health care laws or
regulations could subject us to repayment requirements,
substantial monetary penalties, civil penalties, exclusion from
participation in the Medicare and Medicaid and other federal and
state health care programs and, for violations of certain laws
and regulations, criminal penalties. Although the CIA expired on
January 24, 2009, we maintain our ethics and compliance
program in substantially the same form. However, the audit plans
in the CIA have been modified and the reportable events process
has been converted to an internal reporting process.
20
Antitrust
Laws
The federal government and most states have enacted antitrust
laws that prohibit certain types of conduct deemed to be
anti-competitive. These laws prohibit price fixing, concerted
refusal to deal, market monopolization, price discrimination,
tying arrangements, acquisitions of competitors and other
practices that have, or may have, an adverse effect on
competition. Violations of federal or state antitrust laws can
result in various sanctions, including criminal and civil
penalties. Antitrust enforcement in the health care industry is
currently a priority of the Federal Trade Commission. We believe
we are in compliance with such federal and state laws, but
future review of our practices by courts or regulatory
authorities could result in a determination that could adversely
affect our operations.
Environmental
Matters
We are subject to various federal, state and local statutes and
ordinances regulating the discharge of materials into the
environment. We do not believe that we will be required to
expend any material amounts in order to comply with these laws
and regulations.
Insurance
As is typical in the health care industry, we are subject to
claims and legal actions by patients in the ordinary course of
business. Subject to a $5 million per occurrence
self-insured retention, our facilities are insured by our
wholly-owned insurance subsidiary for losses up to
$50 million per occurrence. The insurance subsidiary has
obtained reinsurance for professional liability risks generally
above a retention level of $15 million per occurrence. We
also maintain professional liability insurance with unrelated
commercial carriers for losses in excess of amounts insured by
our insurance subsidiary.
We purchase, from unrelated insurance companies, coverage for
directors and officers liability and property loss in amounts we
believe are adequate. The directors and officers liability
coverage includes a $25 million corporate deductible for
the period prior to the Recapitalization and a $1 million
corporate deductible subsequent to the Recapitalization. In
addition, we will continue to purchase coverage for our
directors and officers on an ongoing basis. The property
coverage includes varying deductibles depending on the cause of
the property damage. These deductibles range from $500,000 per
claim up to 5% of the affected property values for certain flood
and wind and earthquake related incidents.
Employees
and Medical Staffs
At December 31, 2009, we had approximately
190,000 employees, including approximately
49,000 part-time employees. References herein to
employees refer to employees of our affiliates. We
are subject to various state and federal laws that regulate
wages, hours, benefits and other terms and conditions relating
to employment. At December 31, 2009, employees at 20 of our
hospitals are represented by various labor unions. It is
possible additional hospitals may unionize in the future. We
consider our employee relations to be good and have not
experienced work stoppages that have materially, adversely
affected our business or results of operations. Our hospitals,
like most hospitals, have experienced labor costs rising faster
than the general inflation rate. In some markets, nurse and
medical support personnel availability has become a significant
operating issue to health care providers. To address this
challenge, we have implemented several initiatives to improve
retention, recruiting, compensation programs and productivity.
Our hospitals are staffed by licensed physicians, who generally
are not employees of our hospitals. However, some physicians
provide services in our hospitals under contracts, which
generally describe a term of service, provide and establish the
duties and obligations of such physicians, require the
maintenance of certain performance criteria and fix compensation
for such services. Any licensed physician may apply to be
accepted to the medical staff of any of our hospitals, but the
hospitals medical staff and the appropriate governing
board of the hospital, in accordance with established
credentialing criteria, must approve acceptance to the staff.
Members of the medical staffs of our hospitals often also serve
on the medical staffs of other hospitals and may terminate their
affiliation with one of our hospitals at any time.
21
We may be required to continue to enhance wages and benefits to
recruit and retain nurses and other medical support personnel or
to hire more expensive temporary or contract personnel. As a
result, our labor costs could increase. We also depend on the
available labor pool of semi-skilled and unskilled employees in
each of the markets in which we operate. Certain proposed
changes in federal labor laws, including the Employee Free
Choice Act, could increase the likelihood of employee
unionization attempts. To the extent a significant portion of
our employee base unionizes, our costs could increase
materially. In addition, the states in which we operate could
adopt mandatory nurse-staffing ratios or could reduce mandatory
nurse-staffing ratios already in place. State-mandated
nurse-staffing ratios could significantly affect labor costs,
and have an adverse impact on revenues if we are required to
limit patient admissions in order to meet the required ratios.
Executive
Officers of the Registrant
As of February 28, 2010, our executive officers were as
follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
|
Richard M. Bracken
|
|
|
57
|
|
|
Chairman of the Board and Chief Executive Officer
|
R. Milton Johnson
|
|
|
53
|
|
|
Executive Vice President, Chief Financial Officer and Director
|
David G. Anderson
|
|
|
62
|
|
|
Senior Vice President Finance and Treasurer
|
Victor L. Campbell
|
|
|
63
|
|
|
Senior Vice President
|
Charles J. Hall
|
|
|
56
|
|
|
President Eastern Group
|
Samuel N. Hazen
|
|
|
49
|
|
|
President Western Group
|
A. Bruce Moore, Jr.
|
|
|
50
|
|
|
President Outpatient Services Group
|
Jonathan B. Perlin, M.D.
|
|
|
49
|
|
|
President Clinical Services Group and Chief Medical
Officer
|
W. Paul Rutledge
|
|
|
55
|
|
|
President Central Group
|
Joseph A. Sowell, III
|
|
|
53
|
|
|
Senior Vice President Development
|
Joseph N. Steakley
|
|
|
55
|
|
|
Senior Vice President Internal Audit Services
|
John M. Steele
|
|
|
54
|
|
|
Senior Vice President Human Resources
|
Donald W. Stinnett
|
|
|
53
|
|
|
Senior Vice President and Controller
|
Beverly B. Wallace
|
|
|
59
|
|
|
President Shared Services Group
|
Robert A. Waterman
|
|
|
56
|
|
|
Senior Vice President, General Counsel and Chief Labor Relations
Officer
|
Noel Brown Williams
|
|
|
54
|
|
|
Senior Vice President and Chief Information Officer
|
Alan R. Yuspeh
|
|
|
60
|
|
|
Senior Vice President and Chief Ethics and Compliance Officer
|
Richard M. Bracken has served as Chief Executive Officer
since January 2009 and was appointed as Chairman of the Board in
December 2009. Mr. Bracken served as President and Chief
Executive Officer from January 2009 to December 2009.
Mr. Bracken was appointed Chief Operating Officer in July
2001 and served as President and Chief Operating Officer from
January 2002 to January 2009. Mr. Bracken served as
President Western Group of the Company from August
1997 until July 2001. From January 1995 to August 1997,
Mr. Bracken served as President of the Pacific Division of
the Company. Prior to 1995, Mr. Bracken served in various
hospital Chief Executive Officer and Administrator positions
with HCA-Hospital Corporation of America.
R. Milton Johnson has served as Executive Vice
President and Chief Financial Officer of the Company since July
2004 and was appointed as a director in December 2009.
Mr. Johnson served as Senior Vice President and Controller
of the Company from July 1999 until July 2004. Mr. Johnson
served as Vice President and Controller of the Company from
November 1998 to July 1999. Prior to that time, Mr. Johnson
served as Vice President Tax of the Company from
April 1995 to October 1998. Prior to that time, Mr. Johnson
served as Director of Tax for Healthtrust from September 1987 to
April 1995.
22
David G. Anderson has served as Senior Vice
President Finance and Treasurer of the Company since
July 1999. Mr. Anderson served as Vice President
Finance of the Company from September 1993 to July
1999 and was elected to the additional position of Treasurer in
November 1996. From March 1993 until September 1993,
Mr. Anderson served as Vice President Finance
and Treasurer of Galen Health Care, Inc. From July 1988 to March
1993, Mr. Anderson served as Vice President
Finance and Treasurer of Humana Inc.
Victor L. Campbell has served as Senior Vice President of
the Company since February 1994. Prior to that time,
Mr. Campbell served as HCA-Hospital Corporation of
Americas Vice President for Investor, Corporate and
Government Relations. Mr. Campbell joined HCA-Hospital
Corporation of America in 1972. Mr. Campbell serves on the
Board of the Nashville Health Care Council, as a member of the
American Hospital Associations Presidents Forum, and
on the Board and Executive Committee of the Federation of
American Hospitals.
Charles J. Hall was appointed President
Eastern Group of the Company in October 2006. Prior to that
time, Mr. Hall had served as President North
Florida Division since April 2003. Mr. Hall had previously
served the Company as President of the East Florida Division
from January 1999 until April 2003, as a Market President in the
East Florida Division from January 1998 until December 1998, as
President of the South Florida Division from February 1996 until
December 1997, and as President of the Southwest Florida
Division from October 1994 until February 1996, and in various
other capacities since 1987.
Samuel N. Hazen was appointed President
Western Group of the Company in July 2001. Mr. Hazen served
as Chief Financial Officer Western Group of the
Company from August 1995 to July 2001. Mr. Hazen served as
Chief Financial Officer North Texas Division of the
Company from February 1994 to July 1995. Prior to that time,
Mr. Hazen served in various hospital and regional Chief
Financial Officer positions with Humana Inc. and Galen Health
Care, Inc.
Bruce Moore, Jr. was appointed President
Outpatient Services Group in January 2006. Mr. Moore had
served as Senior Vice President and as Chief Operating
Officer Outpatient Services Group since July 2004
and as Senior Vice President Operations
Administration from July 1999 until July 2004. Mr. Moore
served as Vice President Operations Administration
of the Company from September 1997 to July 1999, as Vice
President Benefits from October 1996 to September
1997, and as Vice President Compensation from March
1995 until October 1996.
Dr. Jonathan B. Perlin was appointed
President Clinical Services Group and Chief Medical
Officer in November 2007. Dr. Perlin had served as Chief
Medical Officer and Senior Vice President Quality of
the Company from August 2006 to November 2007. Prior to joining
the Company, Dr. Perlin served as Under Secretary for
Health in the U.S. Department of Veterans Affairs since
April 2004. Dr. Perlin joined the Veterans Health
Administration in November 1999 where he served in various
capacities, including as Deputy Under Secretary for Health from
July 2002 to April 2004, and as Chief Quality and Performance
Officer from November 1999 to September 2002.
W. Paul Rutledge was appointed as
President Central Group in October 2005.
Mr. Rutledge had served as President of the MidAmerica
Division since January 2001. He served as President of TriStar
Health System from June 1996 to January 2001 and served as
President of Centennial Medical Center from May 1993 to June
1996. He has served in leadership capacities with HCA for more
than 27 years, working with hospitals in the United States
and London, England.
Joseph A. Sowell, III was appointed as Senior Vice
President and Chief Development Officer of the Company in
December 2009. From 1987 to 1996 and again from 1999 to 2009,
Mr. Sowell was a partner at the law firm of Waller Lansden
Dortch & Davis. From 1996 to 1999, Mr. Sowell
served as the head of development, and later as the Chief
Operating Officer of Arcon Healthcare.
Joseph N. Steakley has served as Senior Vice
President Internal Audit Services of the Company
since July 1999. Mr. Steakley served as Vice President
Internal Audit Services from November 1997 to July
1999. From October 1989 until October 1997, Mr. Steakley
was a partner with Ernst & Young LLP.
Mr. Steakley is a member of the board of directors of J.
Alexanders Corporation, where he serves on the
compensation committee and as chairman of the audit committee.
John M. Steele has served as Senior Vice
President Human Resources of the Company since
November 2003. Mr. Steele served as Vice
President Compensation and Recruitment of the
Company from November 1997
23
to October 2003. From March 1995 to November 1997,
Mr. Steele served as Assistant Vice President
Recruitment.
Donald W. Stinnett has served as Senior Vice President
and Controller since December 2008. Mr. Stinnett served as
Chief Financial Officer Eastern Group from October
2005 to December 2008 and Chief Financial Officer of the Far
West Division from July 1999 to October 2005. Mr. Stinnett
served as Chief Financial Officer and Vice President of Finance
of Franciscan Health System of the Ohio Valley from 1995 until
1999, and served in various capacities with Franciscan Health
System of Cincinnati and Providence Hospital in Cincinnati prior
to that time.
Beverly B. Wallace was appointed President
Shared Services Group in March 2006. From January 2003 until
March 2006, Ms. Wallace served as President
Financial Services Group. Ms. Wallace served as
Senior Vice President Revenue Cycle Operations
Management of the Company from July 1999 to January 2003.
Ms. Wallace served as Vice President Managed
Care of the Company from July 1998 to July 1999. From 1997 to
1998, Ms. Wallace served as President Homecare
Division of the Company. From 1996 to 1997, Ms. Wallace
served as Chief Financial Officer Nashville Division
of the Company. From 1994 to 1996, Ms. Wallace served as
Chief Financial Officer
Mid-America
Division of the Company.
Robert A. Waterman has served as Senior Vice President
and General Counsel of the Company since November 1997 and Chief
Labor Relations Officer since March 2009. Mr. Waterman
served as a partner in the law firm of Latham &
Watkins from September 1993 to October 1997; he was Chair of the
firms healthcare group during 1997.
Noel Brown Williams has served as Senior Vice President
and Chief Information Officer of the Company since October 1997.
From October 1996 to September 1997, Ms. Williams served as
Chief Information Officer for American Service Group/Prison
Health Services, Inc. From September 1995 to September 1996,
Ms. Williams worked as an independent consultant. From June
1993 to June 1995, Ms. Williams served as Vice President,
Information Services for HCA Information Services. From February
1979 to June 1993, she held various positions with HCA-Hospital
Corporation of America Information Services.
Alan R. Yuspeh has served as Senior Vice President and
Chief Ethics and Compliance Officer of the Company since May
2007. From October 1997 to May 2007, Mr. Yuspeh served as
Senior Vice President Ethics, Compliance and
Corporate Responsibility of the Company. From September 1991
until October 1997, Mr. Yuspeh was a partner with the law
firm of Howrey & Simon. As a part of his law practice,
Mr. Yuspeh served from 1987 to 1997 as Coordinator of the
Defense Industry Initiative on Business Ethics and Conduct.
If any of the events discussed in the following risk factors
were to occur, our business, financial position, results of
operations, cash flows or prospects could be materially,
adversely affected. Additional risks and uncertainties not
presently known, or currently deemed immaterial, may also
constrain our business and operations.
Our
Substantial Leverage Could 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,
Expose Us To Interest Rate Risk To The Extent Of Our Variable
Rate Debt And Prevent Us From Meeting Our Obligations.
We are highly leveraged. As of December 31, 2009, our total
indebtedness was $25.670 billion. Our high degree of
leverage could have important consequences, including:
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increasing our vulnerability to downturns or adverse changes in
general economic, industry or competitive conditions and adverse
changes in government regulations;
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requiring a substantial portion of cash flow from operations to
be dedicated to the payment of principal and interest on our
indebtedness, therefore reducing our ability to use our cash
flow to fund our operations, capital expenditures and future
business opportunities;
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exposing us to the risk of increased interest rates as certain
of our unhedged borrowings are at variable rates of interest;
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limiting our ability to make strategic acquisitions or causing
us to make nonstrategic divestitures;
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limiting our ability to obtain additional financing for working
capital, capital expenditures, product or service line
development, debt service requirements, acquisitions and general
corporate or other purposes; and
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limiting our ability to adjust to changing market conditions and
placing us at a competitive disadvantage compared to our
competitors who are less highly leveraged.
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We and our subsidiaries have the ability to incur additional
indebtedness in the future, subject to the restrictions
contained in our senior secured credit facilities and the
indentures governing our outstanding notes. If new indebtedness
is added to our current debt levels, the related risks that we
now face could intensify.
We May
Not Be Able To Generate Sufficient Cash To Service All Of Our
Indebtedness And May Not Be Able To Refinance Our Indebtedness
On Favorable Terms. If We Are Unable To Do So, 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
debt obligations depends on our financial condition and
operating performance, which is subject to prevailing economic
and competitive conditions and to certain financial, business
and other factors beyond our control. We cannot assure you 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.
As of December 31, 2009, our substantial indebtedness
included $9.702 billion of indebtedness under our senior
secured credit facilities maturing in 2012 and 2013,
$2.750 billion aggregate principal amount of first lien
notes maturing in 2019 and 2020, $6.088 billion aggregate
principal amount of second lien notes maturing in 2014, 2016 and
2017 and $6.856 billion aggregate principal amount of
unsecured senior notes and debentures that mature on various
dates from 2010 to 2095 (including $5.454 billion maturing
through 2016). Because a significant portion of our indebtedness
matures in the next few years, we may find it necessary or
prudent to refinance that indebtedness with longer-maturity debt
at a higher interest rate. In February, April and August of
2009, for example, we issued $310 million in aggregate
principal amount of
97/8%
second lien notes due 2017, $1.500 billion in aggregate
principal amount of
81/2%
first lien notes due 2019 and $1.250 billion in aggregate
principal amount of
77/8%
first lien notes due 2020, respectively. We used the net
proceeds of those offerings to prepay term loans under our cash
flow credit facility, which currently bears interest at a lower
floating rate. Our ability to refinance our indebtedness on
favorable terms, or at all, is directly affected by the current
global economic and financial conditions. In addition, our
ability to incur secured indebtedness (which would generally
enable us to achieve better pricing than the incurrence of
unsecured indebtedness) depends in part on the value of our
assets, which depends, in turn, on the strength of our cash
flows and results of operations, and on economic and market
conditions and other factors.
If our cash flows and capital resources are insufficient to fund
our debt service obligations or we are unable to refinance our
indebtedness, we may be forced to reduce or delay investments
and capital expenditures, or to sell assets, seek additional
capital or restructure our indebtedness. These alternative
measures may not be successful and may not permit us to meet our
scheduled debt service obligations. If our operating results and
available cash are insufficient to meet our debt service
obligations, we could face substantial liquidity problems and
might be required to dispose of material assets or operations to
meet our debt service and other obligations. We may not be able
to consummate those dispositions, or the proceeds from the
dispositions may not be adequate to meet any debt service
obligations then due.
Our Debt
Agreements Contain Restrictions That Limit Our Flexibility In
Operating Our Business.
Our senior secured credit facilities and the indentures
governing our outstanding notes contain various covenants that
limit our ability to engage in specified types of transactions.
These covenants limit our and certain of our subsidiaries
ability to, among other things:
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incur additional indebtedness or issue certain preferred shares;
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pay dividends on, repurchase or make distributions in respect of
our capital stock or make other restricted payments;
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make certain investments;
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sell or transfer assets;
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create liens;
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consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets; and
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enter into certain transactions with our affiliates.
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Under our asset-based revolving credit facility, when (and for
as long as) the combined availability under our asset-based
revolving credit facility and our senior secured revolving
credit facility is less than a specified amount for a certain
period of time or, if a payment or bankruptcy event of default
has occurred and is continuing, funds deposited into any of our
depository accounts will be transferred on a daily basis into a
blocked account with the administrative agent and applied to
prepay loans under the asset-based revolving credit facility and
to cash collateralize letters of credit issued thereunder.
Under our senior secured credit facilities, we are required to
satisfy and maintain specified financial ratios. Our ability to
meet those financial ratios can be affected by events beyond our
control, and there can be no assurance we will continue to meet
those ratios. A breach of any of these covenants could result in
a default under both our cash flow credit facility and our
asset-based revolving credit facility. Upon the occurrence of an
event of default under our senior secured credit facilities, our
lenders could elect to declare all amounts outstanding under our
senior secured credit facilities to be immediately due and
payable and terminate all commitments to extend further credit.
If we were unable to repay those amounts, the lenders under our
senior secured credit facilities could proceed against the
collateral granted to them to secure such indebtedness. We have
pledged a significant portion of our assets as collateral under
our senior secured credit facilities, and that collateral (other
than certain European collateral securing our senior secured
European term loan facility) is also pledged as collateral under
our outstanding notes. If any of the lenders under our senior
secured credit facilities accelerate the repayment of
borrowings, there can be no assurance we will have sufficient
assets to repay our senior secured credit facilities or our
outstanding notes.
Our
Hospitals Face Competition For Patients From Other Hospitals And
Health Care Providers.
The health care business is highly competitive, and competition
among hospitals and other health care providers for patients has
intensified in recent years. Generally, other hospitals in the
local communities we serve provide services similar to those
offered by our hospitals. In addition, CMS publicizes on a
website performance data related to quality measures and data on
patient satisfaction surveys hospitals submit in connection with
their Medicare reimbursement. Federal law provides for the
future expansion of the number of quality measures that must be
reported. Additional quality measures and future trends toward
clinical transparency may have an unanticipated impact on our
competitive position and patient volumes. If any of our
hospitals achieve poor results (or results that are lower than
our competitors) on these quality measures or on patient
satisfaction surveys, patient volumes could decline.
In addition, the number of freestanding specialty hospitals,
surgery centers and diagnostic and imaging centers in the
geographic areas in which we operate has increased
significantly. As a result, most of our hospitals operate in a
highly competitive environment. Some of the facilities that
compete with our hospitals are owned by governmental agencies or
not-for-profit
corporations supported by endowments, charitable contributions
and/or tax
revenues and can finance capital expenditures and operations on
a tax-exempt basis. Our hospitals are facing increasing
competition from physician-owned specialty hospitals and from
both our own and unaffiliated freestanding surgery centers for
market share in high margin services and for quality physicians
and personnel. If ambulatory surgery centers are better able to
compete in this environment than our hospitals, our hospitals
may experience a decline in patient volume, and we may
experience a decrease in margin, even if those patients use our
ambulatory surgery centers. In states that do not require a CON
for the purchase, construction or expansion of health care
facilities or services, competition in the form of new services,
facilities and capital spending is more prevalent.
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Further, if our competitors are better able to attract patients,
recruit physicians, expand services or obtain favorable managed
care contracts at their facilities than our hospitals and
ambulatory surgery centers, we may experience an overall decline
in patient volume. See Item 1, Business
Competition.
The
Growth Of Uninsured And Patient Due Accounts And A Deterioration
In The Collectibility Of These Accounts Could Adversely Affect
Our Results Of Operations.
The primary collection risks of our accounts receivable relate
to the uninsured patient accounts and patient accounts for which
the primary insurance carrier has paid the amounts covered by
the applicable agreement, but patient responsibility amounts
(deductibles and copayments) remain outstanding. The provision
for doubtful accounts relates primarily to amounts due directly
from patients.
The amount of the provision for doubtful accounts is based upon
managements assessment of historical writeoffs and
expected net collections, business and economic conditions,
trends in federal and state governmental and private employer
health care coverage, the rate of growth in uninsured patient
admissions and other collection indicators. Due to a number of
factors, including the recent economic downturn and increase in
unemployment, we believe our facilities may experience growth in
bad debts, uninsured discounts and charity care. At
December 31, 2009, our allowance for doubtful accounts
represented approximately 94% of the $5.176 billion patient
due accounts receivable balance. The sum of the provision for
doubtful accounts, uninsured discounts and charity care
increased from $6.134 billion for 2007, to
$7.009 billion for 2008 and to $8.362 billion for 2009.
A continuation of the trends that have resulted in an increasing
proportion of accounts receivable being comprised of uninsured
accounts and a deterioration in the collectibility of these
accounts will adversely affect our collection of accounts
receivable, cash flows and results of operations.
Health
Care Reform And Changes In Governmental Programs May Reduce Our
Revenues.
National health care reform remains a focus at the federal
level. In the final months of 2009, both houses of the
U.S. Congress passed separate bills intended to reform the
health care system through, among other things, decreasing the
number of uninsured individuals and reducing health care costs.
While neither of these bills has yet become law, such laws or
similar proposals have been, and we anticipate will continue to
be, a focus at the federal level. Several states are also
considering health care reform measures. Federal or state health
care reform could adversely affect our business and results of
operations.
The focus on health care reform may also increase the likelihood
of significant changes affecting existing government health care
programs. A significant portion of our patient volumes is
derived from government health care programs, principally
Medicare and Medicaid, which are highly regulated and subject to
frequent and substantial changes. We derived approximately 60%
of our admissions from the Medicare and Medicaid programs in
2009. In recent years, legislative and regulatory changes have
resulted in limitations on and, in some cases, reductions in
levels of payments to health care providers for certain services
under these government programs. Possible future changes in the
Medicare, Medicaid, and other state programs may reduce
reimbursements to health care providers and insurers and may
also increase our operating costs, which could reduce our
profitability.
Effective January 1, 2008, CMS increased ASC payment groups
from nine clinically disparate payment groups to an extensive
list of covered surgical procedures among the APCs used under
the outpatient PPS for these surgical services. CMS established
a four-year transition period for implementing the revised
payment rates and significantly expanded the number of
procedures that Medicare reimburses if performed in an ASC. CMS
also limited ASC reimbursement for procedures commonly performed
in physicians offices. More Medicare procedures now
performed in hospitals, such as ours, may be moved to ASCs,
reducing surgical volume in our hospitals. Also, more Medicare
procedures now performed in ASCs, such as ours, may be moved to
physicians offices. Commercial third-party payers may
adopt similar policies.
CMS has recently completed a two-year transition to full
implementation of the MS-DRGs system, which represents a
refinement to the existing MS-DRG system. Realignments in the
DRG system could impact the margins we receive for certain
services. For federal fiscal year 2010, CMS has provided a 2.1%
market basket update for hospitals that submit certain quality
patient care indicators and a 0.1% update for hospitals that do
not
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submit this data. While we will endeavor to comply with all
quality data submission requirements, our submissions may not be
deemed timely or sufficient to entitle us to the full market
basket adjustment for all of our hospitals. Medicare payments to
hospitals in federal fiscal years 2008 and 2009 were reduced to
eliminate what CMS estimated to be the effect of coding or
classifications changes as a result of hospitals implementing
the MS-DRG system. If CMS retrospectively determines the
adjustment levels for federal fiscal years 2008 and 2009 were
inadequate, CMS may impose additional adjustments in future
years. Although CMS has not imposed an adjustment for federal
fiscal year 2010, CMS has announced its intent to impose payment
adjustments in federal fiscal years 2011 and 2012 because of
what CMS has determined to be an inadequate adjustment in
federal fiscal year 2008. Additionally, Medicare payments to
hospitals are subject to a number of other adjustments, and the
actual impact on payments to specific hospitals may vary. In
some cases, commercial third-party payers and other payers such
as some state Medicaid programs rely on all or portions of the
Medicare MS-DRG system to determine payment rates, and
adjustments that negatively impact Medicare payments may also
negatively impact payments from those payers.
Since most states must operate with balanced budgets and since
the Medicaid program is often the states largest program,
states can be expected to adopt or consider adopting legislation
designed to reduce their Medicaid expenditures. The current
economic downturn has increased the budgetary pressures on most
states, and these budgetary pressures have resulted, and likely
will continue to result, in decreased spending for Medicaid
programs in many states. Further, many states have also adopted,
or are considering, legislation designed to reduce coverage and
program eligibility, enroll Medicaid recipients in managed care
programs
and/or
impose additional taxes on hospitals to help finance or expand
the states Medicaid systems.
On May 1, 2009, the Department of Defense implemented a
prospective payment system for hospital outpatient services
furnished to TRICARE beneficiaries similar to that utilized for
services furnished to Medicare beneficiaries. Because the
Medicare outpatient prospective payment system APC rates have
historically been below TRICARE rates, the adoption of this
payment methodology for TRICARE beneficiaries reduces our
reimbursement; however, TRICARE outpatient services do not
represent a significant portion of our patient volumes.
Changes in laws or regulations regarding government health
programs or other changes in the administration of government
health programs could have a material, adverse effect on our
financial position and results of operations.
If We Are
Unable To Retain And Negotiate Favorable Contracts With
Nongovernment Payers, Including Managed Care Plans, Our Revenues
May Be Reduced.
Our ability to obtain favorable contracts with nongovernment
payers, including health maintenance organizations, preferred
provider organizations and other managed care plans
significantly affects the revenues and operating results of our
facilities. Revenues derived from these entities and other
insurers accounted for 52% and 53% of our patient revenues for
the years ended December 31, 2009 and December 31,
2008, respectively. Nongovernment payers, including managed care
payers, continue to demand discounted fee structures, and the
trend toward consolidation among nongovernment payers tends to
increase their bargaining power over fee structures. Our future
success will depend, in part, on our ability to retain and renew
our managed care contracts and enter into new managed care
contracts on terms favorable to us. Other health care providers
may impact our ability to enter into managed care contracts or
negotiate increases in our reimbursement and other favorable
terms and conditions. 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. If we are unable to retain and negotiate
favorable contracts with managed care plans or experience
reductions in payment increases or amounts received from
nongovernment payers, our revenues may be reduced.
Our
Performance Depends On Our Ability To Recruit And Retain Quality
Physicians.
The success of our hospitals depends in part on the number and
quality of the physicians on the medical staffs of our
hospitals, the admitting practices of those physicians and
maintaining good relations with those physicians. Although we
employ some physicians, physicians are often not employees of
the hospitals at which they practice and, in many of the markets
we serve, most physicians have admitting privileges at other
hospitals in addition to our hospitals. Such physicians may
terminate their affiliation with our hospitals at any time. If
we are unable to provide
28
adequate support personnel or technologically advanced equipment
and hospital facilities that meet the needs of those physicians,
they may be discouraged from referring patients to our
facilities, admissions may decrease and our operating
performance may decline.
Our
Hospitals Face Competition For Staffing, Which May Increase
Labor Costs And Reduce Profitability.
Our operations are dependent on the efforts, abilities and
experience of our management and medical support personnel, such
as nurses, pharmacists and lab technicians, as well as our
physicians. We compete with other health care providers in
recruiting and retaining qualified management and support
personnel responsible for the daily operations of each of our
hospitals, including nurses and other nonphysician health care
professionals. In some markets, the availability of nurses and
other medical support personnel has been a significant operating
issue to health care providers. We may be required to continue
to enhance wages and benefits to recruit and retain nurses and
other medical support personnel or to hire more expensive
temporary or contract personnel. As a result, our labor costs
could increase. We also depend on the available labor pool of
semi-skilled and unskilled employees in each of the markets in
which we operate. Certain proposed changes in federal labor
laws, including the Employee Free Choice Act, could increase the
likelihood of employee unionization attempts. To the extent a
significant portion of our employee base unionizes, it is
possible our labor costs could increase materially. In addition,
the states in which we operate could adopt mandatory
nurse-staffing ratios or could reduce mandatory nurse staffing
ratios already in place. State-mandated nurse-staffing ratios
could significantly affect labor costs and have an adverse
impact on revenue if we are required to limit admissions in
order to meet the required ratios. If our labor costs increase,
we may not be able to raise rates to offset these increased
costs. Because a significant percentage of our revenues consists
of fixed, prospective payments, our ability to pass along
increased labor costs is constrained. Our failure to recruit and
retain qualified management, nurses and other medical support
personnel, or to control labor costs, could have a material,
adverse effect on our results of operations.
If We
Fail To Comply With Extensive Laws And Government Regulations,
We Could Suffer Penalties Or Be Required To Make Significant
Changes To Our Operations.
The health care industry is required to comply with extensive
and complex laws and regulations at the federal, state and local
government levels relating to, among other things:
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billing and coding for services;
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relationships with physicians and other referral sources;
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adequacy of medical care;
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quality of medical equipment and services;
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qualifications of medical and support personnel;
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confidentiality, maintenance, data breach, identity theft and
security issues associated with health-related and personal
information and medical records;
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the screening, stabilization and transfer of individuals who
have emergency medical conditions;
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licensure and certification;
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hospital rate or budget review;
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preparing and filing of cost reports;
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operating policies and procedures; and
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addition of facilities and services.
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Among these laws are the federal Anti-kickback Statute, the
federal physician self-referral law (commonly called the Stark
Law), the FCA and similar state laws. We have a variety of
financial relationships with physicians and others who either
refer or influence the referral of patients to our hospitals and
other health care facilities, and these laws govern those
relationships. The OIG has enacted safe harbor regulations that
outline practices deemed
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protected from prosecution under the Anti-kickback Statute.
While we endeavor to comply with the applicable safe harbors,
certain of our current arrangements, including joint ventures
and financial relationships with physicians and other referral
sources and persons and entities to which we refer patients, do
not qualify for safe harbor protection. Failure to qualify for a
safe harbor does not mean the arrangement necessarily violates
the Anti-kickback Statute, but may subject the arrangement to
greater scrutiny. However, we cannot offer assurance that
practices outside of a safe harbor will not be found to violate
the Anti-kickback Statute. Allegations of violations of the
Anti-kickback Statute may be brought under the federal Civil
Monetary Penalty Law, which requires a lower burden of proof
than other fraud and abuse laws, including the Anti-kickback
Statute.
Our financial relationships with referring physicians and their
immediate family members must comply with the Stark Law by
meeting an exception. We attempt to structure our relationships
to meet an exception to the Stark Law, but the regulations
implementing the exceptions are detailed and complex, and we
cannot provide assurance every relationship complies fully with
the Stark Law. Unlike the Anti-kickback Statute, failure to meet
an exception under the Stark Law results in a violation of the
Stark Law, even if such violation is technical in nature.
Additionally, if we violate the Anti-kickback Statute or Stark
Law, or if we improperly bill for our services, we may be found
to violate the FCA, either under a suit brought by the
government or by a private person under a qui tam, or
whistleblower, suit.
If we fail to comply with the Anti-kickback Statute, the Stark
Law, the FCA or other applicable laws and regulations, we could
be subjected to liabilities, including civil penalties
(including the loss of our licenses to operate one or more
facilities), exclusion of one or more facilities from
participation in the Medicare, Medicaid and other federal and
state health care programs and, for violations of certain laws
and regulations, criminal penalties. See Regulation.
CMS published a proposal to collect information from 400
hospitals regarding their ownership, investment and compensation
arrangements with physicians. Called the Disclosure of Financial
Relationships Report (or DFRR), CMS intends to use
this data to monitor compliance with the Stark Law, and CMS may
share this information with other government agencies. Many of
these agencies have not previously analyzed this information and
have the authority to bring enforcement actions against
hospitals filing such reports. The DFRR and its supporting
documentation are currently under review by the Office of
Management and Budget, and it is unclear when, or if, it will be
finalized.
Because many of these laws and their implementing regulations
are relatively new, we do not always have the benefit of
significant regulatory or judicial interpretation of these laws
and regulations. In the future, different interpretations or
enforcement of these laws and regulations could subject our
current or past practices to allegations of impropriety or
illegality or could require us to make changes in our
facilities, equipment, personnel, services, capital expenditure
programs and operating expenses. A determination we have
violated these laws, or the public announcement that we are
being investigated for possible violations of these laws, could
have a material, adverse effect on our business, financial
condition, results of operations or prospects, and our business
reputation could suffer significantly. In addition, other
legislation or regulations at the federal or state level may be
adopted that adversely affect our business.
We Have
Been And Could Be The Subject Of Governmental Investigations,
Claims And Litigation.
Health care companies are subject to numerous investigations by
various governmental agencies. Further, under the federal FCA,
private parties have the right to bring qui tam, or
whistleblower, suits against companies that submit
false claims for payments to, or improperly retain overpayments
from, the government. Some states have adopted similar state
whistleblower and false claims provisions. Certain of our
individual facilities have received, and other facilities may
receive, government inquiries from federal and state agencies.
Depending on whether the underlying conduct in these or future
inquiries or investigations could be considered systemic, their
resolution could have a material, adverse effect on our
financial position, results of operations and liquidity.
Governmental agencies and their agents, such as the Medicare
Administrative Contractors, fiscal intermediaries and carriers,
as well as the OIG, CMS and state Medicaid programs, conduct
audits of our health care operations. Private payers may conduct
similar post-payment audits, and we also perform internal audits
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monitoring. Depending on the nature of the conduct found in such
audits and whether the underlying conduct could be considered
systemic, the resolution of these audits could have a material,
adverse effect on our financial position, results of operations
and liquidity.
The MMA established the RAC three-year demonstration program to
conduct post-payment reviews to detect and correct improper
payments in the
fee-for-service
Medicare program. The Tax Relief and Health Care Act of 2006
made the RAC program permanent and mandated its nationwide
expansion by 2010. CMS has awarded contracts to four RACs that
are implementing the permanent RAC program on a nationwide
basis. In addition, CMS employs MICs to perform post-payment
audits of Medicaid claims and identify overpayments. Throughout
2010, MIC audits will continue to expand. In addition to MICs,
several other contractors, including the state Medicaid
agencies, have increased their review activities.
Should we be found out of compliance with any of these laws,
regulations or programs, depending on the nature of the
findings, our business, our financial position and our results
of operations could be negatively impacted.
Controls
Designed To Reduce Inpatient Services May Reduce Our
Revenues.
Controls imposed by Medicare, managed Medicare, Medicaid,
managed Medicaid and commercial third-party payers designed to
reduce admissions and lengths of stay, commonly referred to as
utilization review, have affected and are expected
to continue to affect our facilities. Utilization review entails
the review of the admission and course of treatment of a patient
by health plans. Inpatient utilization, average lengths of stay
and occupancy rates continue to be negatively affected by
payer-required preadmission authorization and utilization review
and by payer pressure to maximize outpatient and alternative
health care delivery services for less acutely ill patients.
Efforts to impose more stringent cost controls are expected to
continue. Although we are unable to predict the effect these
changes will have on our operations, significant limits on the
scope of services reimbursed and on reimbursement rates and fees
could have a material, adverse effect on our business, financial
position and results of operations.
Our
Overall Business Results May Suffer From The Recent Economic
Downturn.
The United States economy has weakened significantly. Depressed
consumer spending and higher unemployment rates continue to
pressure many industries. During economic downturns,
governmental entities often experience budget deficits as a
result of increased costs and lower than expected tax
collections. These budget deficits may force federal, state and
local government entities to decrease spending for health and
human service programs, including Medicare, Medicaid and similar
programs, which represent significant payer sources for our
hospitals. Other risks we face from general economic weakness
include potential declines in the population covered under
managed care agreements, patient decisions to postpone or cancel
elective and non-emergency health care procedures, potential
increases in the uninsured and underinsured populations and
further difficulties in our collecting patient co-payment and
deductible receivables.
The
Industry Trend Towards Value-Based Purchasing May Negatively
Impact Our Revenues.
There is a trend in the health care industry toward value-based
purchasing of health care services. These value-based purchasing
programs include both public reporting of quality data and
preventable adverse events tied to the quality and efficiency of
care provided by facilities. Governmental programs including
Medicare and Medicaid require hospitals to report certain
quality data to receive full reimbursement updates. In addition,
Medicare does not reimburse for care related to certain
preventable adverse events (also called never
events). Many large commercial payers currently require
hospitals to report quality data, and several commercial payers
do not reimburse hospitals for certain preventable adverse
events. Further, we have implemented a policy pursuant to which
we do not bill patients or third-party payers for fees or
expenses incurred due to 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 this trend
will affect our results of operations, but it could negatively
impact our revenues.
31
Our
Operations Could Be Impaired By A Failure Of Our Information
Systems.
Any system failure that causes an interruption in service or
availability of our systems could adversely affect operations or
delay the collection of revenues. Even though we have
implemented network security measures, our servers are
vulnerable to computer viruses, break-ins and similar
disruptions from unauthorized tampering. The occurrence of any
of these events could result in interruptions, delays, the loss
or corruption of data, or cessations in the availability of
systems, all of which could have a material, adverse effect on
our financial position and results of operations and harm our
business reputation.
The performance of our information technology and systems is
critical to our business operations. In addition to our shared
services initiatives, our information systems are essential to a
number of critical areas of our operations, including:
|
|
|
|
|
accounting and financial reporting;
|
|
|
|
billing and collecting accounts;
|
|
|
|
coding and compliance;
|
|
|
|
clinical systems;
|
|
|
|
medical records and document storage;
|
|
|
|
inventory management;
|
|
|
|
negotiating, pricing and administering managed care contracts
and supply contracts; and
|
|
|
|
monitoring quality of care and collecting data on quality
measures necessary for full Medicare payment updates.
|
If We
Fail To Effectively And Timely Implement Electronic Health
Record Systems, Our Operations Could Be Adversely
Affected.
As required by ARRA, HHS is in the process of developing and
implementing an incentive payment program for eligible hospitals
and health care professionals that adopt and meaningfully use
certified electronic health record (EHR) technology.
If our hospitals and employed professionals are unable to meet
the requirements for participation in the incentive payment
program, we will not be eligible to receive incentive payments
that could offset some of the costs of implementing EHR systems.
Further, beginning in 2015, eligible hospitals and professionals
that fail to demonstrate meaningful use of certified EHR
technology will be subject to reduced payments from Medicare.
Failure to implement EHR systems effectively and in a timely
manner could have a material, adverse effect on our financial
position and results of operations.
State
Efforts To Regulate The Construction Or Expansion Of Health Care
Facilities Could Impair Our Ability To Operate And Expand Our
Operations.
Some states, particularly in the eastern part of the country,
require health care providers to obtain prior approval, known as
a CON, for the purchase, construction or expansion of health
care facilities, to make certain capital expenditures or to make
changes in services or bed capacity. In giving approval, these
states consider the need for additional or expanded health care
facilities or services. We currently operate health care
facilities in a number of states with CON laws. The failure to
obtain any requested CON could impair our ability to operate or
expand operations. Any such failure could, in turn, adversely
affect our ability to attract patients to our facilities and
grow our revenues, which would have an adverse effect on our
results of operations.
Our
Facilities Are Heavily Concentrated In Florida And Texas, Which
Makes Us Sensitive To Regulatory, Economic, Environmental And
Competitive Conditions And Changes In Those States.
We operated 163 hospitals at December 31, 2009, and 73 of
those hospitals are located in Florida and Texas. Our Florida
and Texas facilities combined revenues represented
approximately 51% of our consolidated revenues for the year
ended December 31, 2009. This concentration makes us
particularly sensitive to regulatory, economic,
32
environmental and competitive conditions and changes in those
states. Any material change in the current payment programs or
regulatory, economic, environmental or competitive conditions in
those states could have a disproportionate effect on our overall
business results.
In addition, our hospitals in Florida and Texas and other areas
across the Gulf Coast are located in hurricane-prone areas. In
the recent past, hurricanes have had a disruptive effect on the
operations of our hospitals in Florida, Texas and other coastal
states, and the patient populations in those states. Our
business activities could be harmed by a particularly active
hurricane season or even a single storm, and the property
insurance we obtain may not be adequate to cover losses from
future hurricanes or other natural disasters.
We May Be
Subject To Liabilities From Claims By The Internal Revenue
Service.
At December 31, 2009, we were contesting before the Appeals
Division of the Internal Revenue Service (IRS)
certain claimed deficiencies and adjustments proposed by the IRS
in connection with its examination of the 2003 and 2004 federal
income tax returns for HCA and eight affiliates that are treated
as partnerships for federal income tax purposes
(affiliated partnerships). The disputed items
include the timing of recognition of certain patient service
revenues and our method for calculating the tax allowance for
doubtful accounts.
Six taxable periods of HCA and its predecessors ended in 1997
through 2002 and the 2002 taxable year of four affiliated
partnerships, for which the primary remaining issue is the
computation of the tax allowance for doubtful accounts, are
pending before the IRS Examination Division as of
December 31, 2009.
The IRS began an audit of the 2005 and 2006 federal income tax
returns for HCA and seven affiliated partnerships during 2008.
We anticipate the IRS Examination Division will conclude its
audit in 2010. During 2009, the seven affiliated partnership
audits were resolved with no material impact on our operations
or financial position. We anticipate the IRS will begin an audit
of the 2007 and 2008 federal income tax returns for HCA during
2010.
Management believes HCA, its predecessors and affiliates
properly reported taxable income and paid taxes in accordance
with applicable laws and agreements established with the IRS and
final resolution of these disputes will not have a material,
adverse effect on our results of operations or financial
position. However, if payments due upon final resolution of
these issues exceed our recorded estimates, such resolutions
could have a material, adverse effect on our results of
operations or financial position.
We May Be
Subject To Liabilities From Claims Brought Against Our
Facilities.
We are subject to litigation relating to our business practices,
including claims and legal actions by patients and others in the
ordinary course of business alleging malpractice, product
liability or other legal theories. See Item 3, Legal
Proceedings. Many of these actions involve large claims
and significant defense costs. We insure a portion of our
professional liability risks through a wholly-owned subsidiary.
Management believes our reserves for self-insured retentions and
insurance coverage are sufficient to cover insured claims
arising out of the operation of our facilities. Our wholly-owned
insurance subsidiary has entered into certain reinsurance
contracts, and the obligations covered by the reinsurance
contracts are included in its reserves for professional
liability risks, as the subsidiary remains liable to the extent
that the reinsurers do not meet their obligations under the
reinsurance contracts. If payments for claims exceed actuarially
determined estimates, are not covered by insurance, or
reinsurers, if any, fail to meet their obligations, our results
of operations and financial position could be adversely affected.
We Are
Exposed To Market Risks Related To Changes In The Market Values
Of Securities And Interest Rate Changes.
We are exposed to market risk related to changes in market
values of securities. The investments in debt and equity
securities of our wholly-owned insurance subsidiary were
$1.309 billion and $7 million, respectively, at
December 31, 2009. These investments are carried at fair
value, with changes in unrealized gains and losses being
recorded as adjustments to other comprehensive income. At
December 31, 2009, we had a net unrealized gain of
$20 million on the insurance subsidiarys investment
securities.
We are exposed to market risk related to market illiquidity.
Liquidity of the investments in debt and equity securities of
our wholly-owned insurance subsidiary could be impaired by the
inability to access the capital markets.
33
Should the wholly-owned insurance subsidiary require significant
amounts of cash in excess of normal cash requirements to pay
claims and other expenses on short notice, we may have
difficulty selling these investments in a timely manner or be
forced to sell them at a price less than what we might otherwise
have been able to in a normal market environment. At
December 31, 2009, our wholly-owned insurance subsidiary
had invested $396 million ($401 million par value) in
municipal, tax-exempt student loan auction rate securities
(ARS) that continued to experience market
illiquidity since February 2008 when multiple failed auctions
occurred due to a severe credit and liquidity crisis in the
capital markets. It is uncertain if auction-related market
liquidity will resume for these securities. We may be required
to recognize
other-than-temporary
impairments on these investments in future periods should
issuers default on interest payments or should the fair market
valuations of the securities deteriorate due to ratings
downgrades or other issue specific factors.
We are also exposed to market risk related to changes in
interest rates, and we periodically enter into interest rate
swap agreements to manage our exposure to these fluctuations.
Our interest rate swap agreements involve the exchange of fixed
and variable rate interest payments between two parties, based
on common notional principal amounts and maturity dates. The net
notional amounts of the swap agreements represent balances used
to calculate the exchange of cash flows and are not our assets
or liabilities. See Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations Market Risk.
Since The
Recapitalization, The Investors Control Us And May Have
Conflicts Of Interest With Us In The Future.
As of December 31, 2009, the Investors indirectly owned
approximately 97.1% of our capital stock due to the
Recapitalization. As a result, the Investors have control over
our decisions to enter into any significant corporate
transaction and have the ability to prevent any transaction that
requires the approval of shareholders. For example, the
Investors could cause us to make acquisitions that increase the
amount of our indebtedness or sell assets.
Additionally, the Sponsors are in the business of making
investments in companies and may acquire and hold interests in
businesses that compete directly or indirectly with us. One or
more of the Sponsors may also pursue acquisition opportunities
that may be complementary to our business and, as a result,
those acquisition opportunities may not be available to us. So
long as investment funds associated with or designated by the
Sponsors continue to indirectly own a significant amount of the
outstanding shares of our common stock, even if such amount is
less than 50%, the Sponsors will continue to be able to strongly
influence or effectively control our decisions.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
34
The following table lists, by state, the number of hospitals
(general, acute care, psychiatric and rehabilitation) directly
or indirectly owned and operated by us as of December 31,
2009:
|
|
|
|
|
|
|
|
|
State
|
|
Hospitals
|
|
|
Beds
|
|
|
Alaska
|
|
|
1
|
|
|
|
250
|
|
California
|
|
|
5
|
|
|
|
1,587
|
|
Colorado
|
|
|
7
|
|
|
|
2,259
|
|
Florida
|
|
|
38
|
|
|
|
9,780
|
|
Georgia
|
|
|
11
|
|
|
|
1,946
|
|
Idaho
|
|
|
2
|
|
|
|
481
|
|
Indiana
|
|
|
1
|
|
|
|
278
|
|
Kansas
|
|
|
4
|
|
|
|
1,286
|
|
Kentucky
|
|
|
2
|
|
|
|
384
|
|
Louisiana
|
|
|
7
|
|
|
|
1,428
|
|
Mississippi
|
|
|
1
|
|
|
|
130
|
|
Missouri
|
|
|
6
|
|
|
|
1,055
|
|
Nevada
|
|
|
3
|
|
|
|
1,075
|
|
New Hampshire
|
|
|
2
|
|
|
|
295
|
|
Oklahoma
|
|
|
2
|
|
|
|
793
|
|
South Carolina
|
|
|
3
|
|
|
|
740
|
|
Tennessee
|
|
|
12
|
|
|
|
2,313
|
|
Texas
|
|
|
35
|
|
|
|
10,493
|
|
Utah
|
|
|
6
|
|
|
|
968
|
|
Virginia
|
|
|
9
|
|
|
|
2,963
|
|
International
|
|
|
|
|
|
|
|
|
England
|
|
|
6
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
|
|
41,208
|
|
|
|
|
|
|
|
|
|
|
In addition to the hospitals listed in the above table, we
directly or indirectly operate 105 freestanding surgery centers.
We also operate medical office buildings in conjunction with
some of our hospitals. These office buildings are primarily
occupied by physicians who practice at our hospitals. Fourteen
of our general, acute care hospitals and three of our other
properties have been mortgaged to support our obligations under
our senior secured cash flow credit facility and the first lien
secured notes we issued in 2009. These three other properties
are also subject to second mortgages to support our obligations
under the second lien secured notes we issued in 2006 and 2009.
We maintain our headquarters in approximately
1,200,000 square feet of space in the Nashville, Tennessee
area. In addition to the headquarters in Nashville, we maintain
regional service centers related to our shared services
initiatives. These service centers are located in markets in
which we operate hospitals.
We believe our headquarters, hospitals and other facilities are
suitable for their respective uses and are, in general, adequate
for our present needs. Our properties are subject to various
federal, state and local statutes and ordinances regulating
their operation. Management does not believe that compliance
with such statutes and ordinances will materially affect our
financial position or results of operations.
|
|
Item 3.
|
Legal
Proceedings
|
We operate in a highly regulated and litigious industry. As a
result, various lawsuits, claims and legal and regulatory
proceedings have been and can be expected to be instituted or
asserted against us. The resolution of any such lawsuits, claims
or legal and regulatory proceedings could materially and
adversely affect our results of operations and financial
position in a given period.
35
Government
Investigations, Claims and Litigation
In January 2001, we entered into an eight-year CIA with the OIG,
which expired on January 24, 2009. Under the CIA, we had
numerous affirmative obligations, including the requirement to
report potential violations of applicable federal health care
laws and regulations. Pursuant to these obligations, we reported
a number of potential violations of the Stark Law, the
Anti-kickback Statute, EMTALA and other laws, most of which we
consider to be nonviolations or technical violations. We
submitted our final report pursuant to the CIA on April 30,
2009. The government could determine that our reporting
and/or our
resolution of reported issues was inadequate. Violation or
breach of the CIA, or violation of federal or state laws
relating to Medicare, Medicaid or similar programs, could
subject us to substantial monetary fines, civil and criminal
penalties
and/or
exclusion from participation in the Medicare and Medicaid
programs. Alleged violations may be pursued by the government or
through private qui tam actions. Sanctions imposed
against us as a result of such actions could have a material,
adverse effect on our results of operations or financial
position.
Merger
Litigation in State Court
In 2006, the Foundation for Seacoast Health filed suit against
HCA in state court in New Hampshire. The Foundation alleged that
both the 2006 Recapitalization transaction and a prior 1999
intra-corporate transaction violated a 1983 agreement that
placed certain restrictions on transfers of the Portsmouth
Regional Hospital. In May 2007, the trial court ruled against
the Foundation on all its claims. On appeal, the
New Hampshire Supreme Court affirmed the ruling on the
Recapitalization, but remanded to the trial court the claims
based on the 1999 intra-corporate transaction. The trial court
ruled in December 2009 that the 1999 intra-corporate transaction
breached the transfer restriction provisions of the 1983
agreement. The trial court will now conduct further proceedings
to determine whether any harm has flowed from the alleged
breach, and if so, what the appropriate remedy should be,
including determining whether, pursuant to the Foundations
assertion, that it should have the right to purchase the
hospital.
General
Liability and Other Claims
We are a party to certain proceedings relating to claims for
income taxes and related interest before the IRS Appeals
Division. For a description of those proceedings, see
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations
Pending IRS Disputes and Note 5 to our consolidated
financial statements.
We are also subject to claims and suits arising in the ordinary
course of business, including claims for personal injuries or
for wrongful restriction of, or interference with,
physicians staff privileges. In certain of these actions
the claimants have asked for punitive damages against us, which
may not be covered by insurance. In the opinion of management,
the ultimate resolution of these pending claims and legal
proceedings will not have a material, adverse effect on our
results of operations or financial position.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2009.
36
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our outstanding common stock is privately held, and there is no
established public trading market for our common stock. As of
February 28, 2010, there were 625 holders of our common
stock. See Item 7, Managements Discussion and
Analysis of Financial condition and Results of Operations
Liquidity and Capital Resources
Financing Activities for a description of the restrictions
on our ability to pay dividends. We did not pay any dividends in
2007, 2008 or 2009.
On January 27, 2010, our Board of Directors declared a
distribution to the Companys stockholders and holders of
vested stock options. The distribution was $17.50 per share and
vested stock option, or approximately $1.750 billion in the
aggregate. The distribution was paid on February 5, 2010 to
holders of record on February 1, 2010. The distribution was
funded using funds available under our existing senior secured
credit facilities and approximately $100 million of cash on
hand. Pursuant to the terms of our stock option plans, the
holders of nonvested stock options received a $17.50 per share
reduction to the exercise price of their share-based awards.
During the quarter ended December 31, 2009, HCA issued and
sold 4,284 shares of common stock in connection with the
cashless exercise of stock options for aggregate consideration
of $54,621 resulting in 2,691 net settled shares. HCA also
issued and sold 19,641 shares of common stock in connection
with the cash exercise of stock options for aggregate
consideration of $250,423. The shares were issued without
registration in reliance on the exemptions afforded by
Section 4(2) of the Securities Act of 1933, as amended, and
Rule 701 promulgated thereunder.
On April 29, 2008, we registered our common stock pursuant
to Section 12(g) of the Securities Exchange Act of 1934, as
amended.
The following table provides certain information with respect to
our repurchase of common stock from October 1, 2009 through
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Shares That
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
May Yet Be
|
|
|
|
|
|
|
|
|
|
Part of
|
|
|
Purchased
|
|
|
|
|
|
|
|
|
|
Publicly
|
|
|
Under Publicly
|
|
|
|
Total Number
|
|
|
|
|
|
Announced
|
|
|
Announced
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Plans or
|
|
|
Plans or
|
|
Period
|
|
Purchased
|
|
|
Paid per Share
|
|
|
Programs
|
|
|
Programs
|
|
|
October 1, 2009 through October 31, 2009
|
|
|
206
|
|
|
$
|
71.68
|
|
|
|
|
|
|
$
|
|
|
November 1, 2009 through November 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2009 through December 31, 2009
|
|
|
5,521
|
|
|
|
87.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for Fourth Quarter 2009
|
|
|
5,727
|
|
|
$
|
87.40
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the fourth quarter of 2009, we purchased
5,727 shares pursuant to the terms of the Management
Stockholders Agreement
and/or
separation agreements and stock purchase agreements between
former employees and the Company.
37
|
|
Item 6.
|
Selected
Financial Data
|
HCA
INC.
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Summary of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
30,052
|
|
|
$
|
28,374
|
|
|
$
|
26,858
|
|
|
$
|
25,477
|
|
|
$
|
24,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
11,958
|
|
|
|
11,440
|
|
|
|
10,714
|
|
|
|
10,409
|
|
|
|
9,928
|
|
Supplies
|
|
|
4,868
|
|
|
|
4,620
|
|
|
|
4,395
|
|
|
|
4,322
|
|
|
|
4,126
|
|
Other operating expenses
|
|
|
4,724
|
|
|
|
4,554
|
|
|
|
4,233
|
|
|
|
4,056
|
|
|
|
4,034
|
|
Provision for doubtful accounts
|
|
|
3,276
|
|
|
|
3,409
|
|
|
|
3,130
|
|
|
|
2,660
|
|
|
|
2,358
|
|
Equity in earnings of affiliates
|
|
|
(246
|
)
|
|
|
(223
|
)
|
|
|
(206
|
)
|
|
|
(197
|
)
|
|
|
(221
|
)
|
Gains on sales of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(243
|
)
|
|
|
(53
|
)
|
Depreciation and amortization
|
|
|
1,425
|
|
|
|
1,416
|
|
|
|
1,426
|
|
|
|
1,391
|
|
|
|
1,374
|
|
Interest expense
|
|
|
1,987
|
|
|
|
2,021
|
|
|
|
2,215
|
|
|
|
955
|
|
|
|
655
|
|
Losses (gains) on sales of facilities
|
|
|
15
|
|
|
|
(97
|
)
|
|
|
(471
|
)
|
|
|
(205
|
)
|
|
|
(78
|
)
|
Impairment of long-lived assets
|
|
|
43
|
|
|
|
64
|
|
|
|
24
|
|
|
|
24
|
|
|
|
|
|
Transaction costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,050
|
|
|
|
27,204
|
|
|
|
25,460
|
|
|
|
23,614
|
|
|
|
22,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,002
|
|
|
|
1,170
|
|
|
|
1,398
|
|
|
|
1,863
|
|
|
|
2,332
|
|
Provision for income taxes
|
|
|
627
|
|
|
|
268
|
|
|
|
316
|
|
|
|
626
|
|
|
|
730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,375
|
|
|
|
902
|
|
|
|
1,082
|
|
|
|
1,237
|
|
|
|
1,602
|
|
Net income attributable to noncontrolling interests
|
|
|
321
|
|
|
|
229
|
|
|
|
208
|
|
|
|
201
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
1,054
|
|
|
$
|
673
|
|
|
$
|
874
|
|
|
$
|
1,036
|
|
|
$
|
1,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
24,131
|
|
|
$
|
24,280
|
|
|
$
|
24,025
|
|
|
$
|
23,675
|
|
|
$
|
22,225
|
|
Working capital
|
|
|
2,264
|
|
|
|
2,391
|
|
|
|
2,356
|
|
|
|
2,502
|
|
|
|
1,320
|
|
Long-term debt, including amounts due within one year
|
|
|
25,670
|
|
|
|
26,989
|
|
|
|
27,308
|
|
|
|
28,408
|
|
|
|
10,475
|
|
Equity securities with contingent redemption rights
|
|
|
147
|
|
|
|
155
|
|
|
|
164
|
|
|
|
125
|
|
|
|
|
|
Noncontrolling interests
|
|
|
1,008
|
|
|
|
995
|
|
|
|
938
|
|
|
|
907
|
|
|
|
828
|
|
Stockholders (deficit) equity
|
|
|
(7,978
|
)
|
|
|
(9,260
|
)
|
|
|
(9,600
|
)
|
|
|
(10,467
|
)
|
|
|
5,691
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
2,747
|
|
|
$
|
1,990
|
|
|
$
|
1,564
|
|
|
$
|
1,988
|
|
|
$
|
3,162
|
|
Cash used in investing activities
|
|
|
(1,035
|
)
|
|
|
(1,467
|
)
|
|
|
(479
|
)
|
|
|
(1,307
|
)
|
|
|
(1,681
|
)
|
Cash used in financing activities
|
|
|
(1,865
|
)
|
|
|
(451
|
)
|
|
|
(1,326
|
)
|
|
|
(383
|
)
|
|
|
(1,403
|
)
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hospitals at end of period(a)
|
|
|
155
|
|
|
|
158
|
|
|
|
161
|
|
|
|
166
|
|
|
|
175
|
|
Number of freestanding outpatient surgical centers at end of
period(b)
|
|
|
97
|
|
|
|
97
|
|
|
|
99
|
|
|
|
98
|
|
|
|
87
|
|
Number of licensed beds at end of period(c)
|
|
|
38,839
|
|
|
|
38,504
|
|
|
|
38,405
|
|
|
|
39,354
|
|
|
|
41,265
|
|
Weighted average licensed beds(d)
|
|
|
38,825
|
|
|
|
38,422
|
|
|
|
39,065
|
|
|
|
40,653
|
|
|
|
41,902
|
|
Admissions(e)
|
|
|
1,556,500
|
|
|
|
1,541,800
|
|
|
|
1,552,700
|
|
|
|
1,610,100
|
|
|
|
1,647,800
|
|
Equivalent admissions(f)
|
|
|
2,439,000
|
|
|
|
2,363,600
|
|
|
|
2,352,400
|
|
|
|
2,416,700
|
|
|
|
2,476,600
|
|
Average length of stay (days)(g)
|
|
|
4.8
|
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
4.9
|
|
|
|
4.9
|
|
Average daily census(h)
|
|
|
20,650
|
|
|
|
20,795
|
|
|
|
21,049
|
|
|
|
21,688
|
|
|
|
22,225
|
|
Occupancy(i)
|
|
|
53
|
%
|
|
|
54
|
%
|
|
|
54
|
%
|
|
|
53
|
%
|
|
|
53
|
%
|
Emergency room visits(j)
|
|
|
5,593,500
|
|
|
|
5,246,400
|
|
|
|
5,116,100
|
|
|
|
5,213,500
|
|
|
|
5,415,200
|
|
Outpatient surgeries(k)
|
|
|
794,600
|
|
|
|
797,400
|
|
|
|
804,900
|
|
|
|
820,900
|
|
|
|
836,600
|
|
Inpatient surgeries(l)
|
|
|
494,500
|
|
|
|
493,100
|
|
|
|
516,500
|
|
|
|
533,100
|
|
|
|
541,400
|
|
Days revenues in accounts receivable(m)
|
|
|
45
|
|
|
|
49
|
|
|
|
53
|
|
|
|
53
|
|
|
|
50
|
|
Gross patient revenues(n)
|
|
$
|
115,682
|
|
|
$
|
102,843
|
|
|
$
|
92,429
|
|
|
$
|
84,913
|
|
|
$
|
78,662
|
|
Outpatient revenues as a % of patient revenues(o)
|
|
|
38
|
%
|
|
|
37
|
%
|
|
|
37
|
%
|
|
|
36
|
%
|
|
|
36
|
%
|
|
|
|
(a)
|
|
Excludes eight facilities in 2009,
2008 and 2007 and seven facilities in 2006 and 2005 that are not
consolidated (accounted for using the equity method) for
financial reporting purposes.
|
|
(b)
|
|
Excludes eight facilities in 2009
and 2008, nine facilities in 2007 and 2006 and seven facilities
in 2005 that are not consolidated (accounted for using the
equity method) for financial reporting purposes.
|
|
(c)
|
|
Licensed beds are those beds for
which a facility has been granted approval to operate from the
applicable state licensing agency.
|
|
(d)
|
|
Weighted average licensed beds
represents the average number of licensed beds, weighted based
on periods owned.
|
|
(e)
|
|
Represents the total number of
patients admitted to our hospitals and is used by management and
certain investors as a general measure of inpatient volume.
|
|
(f)
|
|
Equivalent admissions are used by
management and certain investors as a general measure of
combined inpatient and outpatient volume. Equivalent admissions
are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and
then dividing the resulting amount by gross inpatient revenue.
The equivalent admissions computation equates
outpatient revenue to the volume measure (admissions) used to
measure inpatient volume, resulting in a general measure of
combined inpatient and outpatient volume.
|
|
(g)
|
|
Represents the average number of
days admitted patients stay in our hospitals.
|
|
(h)
|
|
Represents the average number of
patients in our hospital beds each day.
|
|
(i)
|
|
Represents the percentage of
hospital licensed beds occupied by patients. Both average daily
census and occupancy rate provide measures of the utilization of
inpatient rooms.
|
|
(j)
|
|
Represents the number of patients
treated in our emergency rooms.
|
|
(k)
|
|
Represents the number of surgeries
performed on patients who were not admitted to our hospitals.
Pain management and endoscopy procedures are not included in
outpatient surgeries.
|
|
(l)
|
|
Represents the number of surgeries
performed on patients who have been admitted to our hospitals.
Pain management and endoscopy procedures are not included in
inpatient surgeries.
|
|
(m)
|
|
Revenues per day is calculated by
dividing the revenues for the period by the days in the period.
Days revenues in accounts receivable is then calculated as
accounts receivable, net of the allowance for doubtful accounts,
at the end of the period divided by revenues per day.
|
|
(n)
|
|
Gross patient revenues are based
upon our standard charge listing. Gross charges/revenues
typically do not reflect what our hospital facilities are paid.
Gross charges/revenues are reduced by contractual adjustments,
discounts and charity care to determine reported revenues.
|
|
(o)
|
|
Represents the percentage of
patient revenues related to patients who are not admitted to our
hospitals.
|
39
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The selected financial data and the accompanying consolidated
financial statements present certain information with respect to
the financial position, results of operations and cash flows of
HCA Inc. which should be read in conjunction with the following
discussion and analysis. The terms HCA,
Company, we, our, or
us, as used herein, refer to HCA Inc. and our
affiliates unless otherwise stated or indicated by context. The
term affiliates means direct and indirect
subsidiaries of HCA Inc. and partnerships and joint ventures in
which such subsidiaries are partners.
Forward-Looking
Statements
This annual report on
Form 10-K
includes certain disclosures which contain forward-looking
statements. Forward-looking statements include all
statements that do not relate solely to historical or current
facts, and can be identified by the use of words like
may, believe, will,
expect, project, estimate,
anticipate, plan, initiative
or continue. These forward-looking statements are
based on our current plans and expectations and are subject to a
number of known and unknown uncertainties and risks, many of
which are beyond our control, that could significantly affect
current plans and expectations and our future financial position
and results of operations. These factors include, but are not
limited to, (1) the ability to recognize the benefits of
the Recapitalization, (2) the impact of the substantial
indebtedness incurred to finance the Recapitalization and the
ability to refinance such indebtedness on acceptable terms,
(3) the possible enactment of federal or state health care
reform and changes in federal, state or local laws or
regulations affecting the health care industry,
(4) increases, particularly in the current economic
downturn, in the amount and risk of collectibility of uninsured
accounts, and deductibles and copayment amounts for insured
accounts, (5) the ability to achieve operating and
financial targets, attain expected levels of patient volumes and
control the costs of providing services, (6) possible
changes in the Medicare, Medicaid and other state programs,
including Medicaid supplemental payments pursuant to upper
payment limit (UPL) programs, that may impact
reimbursements to health care providers and insurers,
(7) the highly competitive nature of the health care
business, (8) changes in revenue mix, including potential
declines in the population covered under managed care agreements
due to the current economic downturn, and the ability to enter
into and renew managed care provider agreements on acceptable
terms, (9) the efforts of insurers, health care providers
and others to contain health care costs, (10) the outcome
of our continuing efforts to monitor, maintain and comply with
appropriate laws, regulations, policies and procedures,
(11) increases in wages and the ability to attract and
retain qualified management and personnel, including affiliated
physicians, nurses and medical and technical support personnel,
(12) the availability and terms of capital to fund the
expansion of our business and improvements to our existing
facilities, (13) changes in accounting practices,
(14) changes in general economic conditions nationally and
regionally in our markets, (15) future divestitures which
may result in charges, (16) changes in business strategy or
development plans, (17) delays in receiving payments for
services provided, (18) the outcome of pending and any
future tax audits, appeals and litigation associated with our
tax positions, (19) potential liabilities and other claims
that may be asserted against us, and (20) other risk
factors described in this annual report on
Form 10-K.
As a consequence, current plans, anticipated actions and future
financial position and results of operations may differ from
those expressed in any forward-looking statements made by or on
behalf of HCA. You are cautioned not to unduly rely on such
forward-looking statements when evaluating the information
presented in this report.
2009
Operations Summary
Net income attributable to HCA Inc. totaled $1.054 billion
for 2009, compared to $673 million for 2008. The 2009
results include losses on sales of facilities of
$15 million and impairments of long-lived assets of
$43 million. The 2008 results include gains on sales of
facilities of $97 million and impairments of long-lived
assets of $64 million.
40
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
2009
Operations Summary (Continued)
Revenues increased to $30.052 billion for 2009 from
$28.374 billion for 2008. Revenues increased 5.9% on a
consolidated basis and 6.1% on a same facility basis for 2009,
compared to 2008. The consolidated revenues increase can be
attributed to the combined impact of a 2.6% increase in revenue
per equivalent admission and a 3.2% increase in equivalent
admissions. The same facility revenues increase resulted from a
2.6% increase in same facility revenue per equivalent admission
and a 3.4% increase in same facility equivalent admissions.
During 2009, consolidated admissions increased 1.0% and same
facility admissions increased 1.2%, compared to 2008. Inpatient
surgical volumes increased 0.3% on a consolidated basis and
increased 0.5% on a same facility basis during 2009, compared to
2008. Outpatient surgical volumes declined 0.4% on a
consolidated basis and declined 0.1% on a same facility basis
during 2009, compared to 2008. Emergency department visits
increased 6.6% on a consolidated basis and increased 7.0% on a
same facility basis during 2009, compared to 2008.
For 2009, the provision for doubtful accounts declined to 10.9%
of revenues from 12.0% of revenues for 2008. The combined
self-pay revenue deductions for charity care and uninsured
discounts increased $1.486 billion for 2009, compared to
2008. The sum of the provision for doubtful accounts, uninsured
discounts and charity care, as a percentage of the sum of net
revenues, uninsured discounts and charity care, was 23.8% for
2009, compared to 21.9% for 2008. Same facility uninsured
admissions increased 4.7% and same facility uninsured emergency
room visits increased 6.5% for 2009, compared to 2008.
Interest expense totaled $1.987 billion for 2009, compared
to $2.021 billion for 2008. The $34 million decline in
interest expense for 2009 was due to a reduction in the average
debt balance offsetting an increase in the average interest rate.
Business
Strategy
We are committed to providing the communities we serve high
quality, cost-effective health care while complying fully with
our ethics policy, governmental regulations and guidelines and
industry standards. As a part of this strategy, management
focuses on the following principal elements:
Maintain Our Dedication to the Care and Improvement of Human
Life. Our business is built on putting patients
first and providing high quality health care services in the
communities we serve. Our dedicated professionals oversee our
Quality Review System, which measures clinical outcomes,
satisfaction and regulatory compliance, to improve hospital
quality and performance. We are implementing hospitalist
programs in some facilities, evidence-based medicine programs
and infection reduction initiatives. In addition, we continue to
implement health information technology to improve the quality
and convenience of services to our communities. We are using our
electronic medication administration record, which uses bar
coding technology to ensure that each patient receives the right
medication, to build toward a fully electronic health record
that will provide convenient access, electronic order entry and
decision support for physicians. These technologies improve
patient safety, quality and efficiency.
Maintain Our Commitment to Ethics and
Compliance. We are committed to a corporate
culture highlighted by the following values
compassion, honesty, integrity, fairness, loyalty, respect and
kindness. Our comprehensive ethics and compliance program
reinforces our dedication to these values.
Leverage Our Leading Local Market
Positions. We strive to maintain and enhance the
leading positions we enjoy in the majority of our markets. We
believe the broad geographic presence of our facilities across a
range of markets, in combination with the breadth and quality of
services provided by our facilities, increases our
attractiveness to patients and large employers and positions us
to negotiate more favorable terms from commercial payers and
increase the number of payers with whom we contract. We also
intend to strategically enhance our outpatient presence in our
communities to attract more patients to our facilities.
41
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Business
Strategy (Continued)
Expand Our Presence in Key Markets. We seek to
grow our business in key markets, focusing on large, high growth
urban and suburban communities, primarily in the southern and
western regions of the United States. We seek to strategically
invest in new and expanded services at our existing hospitals
and surgery centers to increase our revenues at those facilities
and provide the benefits of medical technology advances to our
communities. We intend to continue to expand high volume and
high margin specialty services, such as cardiology and
orthopedic services, and increase the capacity, scope and
convenience of our outpatient facilities. To complement this
intrinsic growth, we intend to continue to opportunistically
develop and acquire new hospitals and outpatient facilities.
Continue to Leverage Our Scale. We will
continue to seek price efficiencies through our group purchasing
organization and build on the cost savings and efficiencies in
billing, collection and other processes we have achieved through
our regional service centers. We are increasingly taking
advantage of our national scale by contracting for services on a
multistate basis. We are expanding our successful shared
services model for additional clinical and support functions,
such as physician credentialing, medical transcription,
electronic medical recordkeeping and health information
management, across multiple markets.
Continue to Develop Physician
Relationships. We depend on the quality and
dedication of the physicians who practice at our facilities, and
we encourage, consistent with applicable laws, both primary care
physicians and specialists to join our medical staffs. We
sometimes assist physicians who are recruited under applicable
regulatory provisions with establishing and building a practice
or joining an existing practice. As part of our comprehensive
approach to physician integration in our markets, we will
continue to:
|
|
|
|
|
expand the number of high quality specialty services, such as
cardiology, orthopedics, oncology and neonatology;
|
|
|
|
use joint ventures with physicians to further develop our
outpatient business, particularly through ambulatory surgery
centers;
|
|
|
|
develop medical office buildings to provide convenient
facilities for physicians to locate their practices and serve
their patients;
|
|
|
|
focus on improving the quality, advanced technology,
infrastructure and performance of our facilities; and
|
|
|
|
employ physicians as appropriate.
|
Become the Health Care Employer of Choice. We
will continue to use a number of industry-leading practices to
help ensure our hospitals are a health care employer of choice
in their respective communities. Our staffing initiatives for
both care providers and hospital management provide strategies
for recruitment, compensation and productivity to increase
employee retention and operating efficiency at our hospitals.
For example, we maintain an internal contract nursing agency to
supply our hospitals with high quality staffing at a lower cost
than external agencies. In addition, we have developed several
proprietary training and career development programs for our
physicians and hospital administrators, including an executive
development program designed to train the next generation of
hospital leadership. We believe our continued investment in the
training and retention of employees improves the quality of
care, enhances operational efficiency and fosters our reputation
as an employer of choice.
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities and the reported amounts of
revenues and expenses. Our estimates are based on historical
experience and various other assumptions we believe are
reasonable under the circumstances. We evaluate our estimates on
an ongoing basis and make changes to the estimates and related
disclosures as experience develops or new information becomes
known. Actual results may differ from these estimates.
42
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Revenues
Revenues are recorded during the period the health care services
are provided, based upon the estimated amounts due from payers.
Estimates of contractual allowances under managed care health
plans are based upon the payment terms specified in the related
contractual agreements. Laws and regulations governing the
Medicare and Medicaid programs are complex and subject to
interpretation. The estimated reimbursement amounts are made on
a payer-specific basis and are recorded based on the best
information available regarding managements interpretation
of the applicable laws, regulations and contract terms.
Management continually reviews the contractual estimation
process to consider and incorporate updates to laws and
regulations and the frequent changes in managed care contractual
terms resulting from contract renegotiations and renewals. We
have invested significant resources to refine and improve our
computerized billing systems and the information system data
used to make contractual allowance estimates. We have developed
standardized calculation processes and related training programs
to improve the utility of our patient accounting systems.
The Emergency Medical Treatment and Active Labor Act
(EMTALA) requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals
emergency room for treatment and, if the individual is suffering
from an emergency medical condition, to either stabilize the
condition or make an appropriate transfer of the individual to a
facility able to handle the condition. The obligation to screen
and stabilize emergency medical conditions exists regardless of
an individuals ability to pay for treatment. Federal and
state laws and regulations, including but not limited to EMTALA,
require, and our commitment to providing quality patient care
encourages, the provision of services to patients who are
financially unable to pay for the health care services they
receive.
We do not pursue collection of amounts related to patients who
meet our guidelines to qualify as charity care; therefore, they
are not reported in revenues. Patients treated at our hospitals
for nonelective care, who have income at or below 200% of the
federal poverty level, are eligible for charity care. The
federal poverty level is established by the federal government
and is based on income and family size. We provide discounts
from our gross charges to uninsured patients who do not qualify
for Medicaid or charity care. These discounts are similar to
those provided to many local managed care plans.
Due to the complexities involved in the classification and
documentation of health care services authorized and provided,
the estimation of revenues earned and the related reimbursement
are often subject to interpretations that could result in
payments that are different from our estimates. Adjustments to
estimated Medicare and Medicaid reimbursement amounts and
disproportionate-share funds, which resulted in net increases to
revenues, related primarily to cost reports filed during the
respective year were $40 million, $32 million and
$47 million in 2009, 2008 and 2007, respectively. The
adjustments to estimated reimbursement amounts, which resulted
in net increases to revenues, related primarily to cost reports
filed during previous years were $60 million,
$35 million and $83 million in 2009, 2008 and 2007,
respectively. We expect adjustments during the next
12 months related to Medicare and Medicaid cost report
filings and settlements and disproportionate-share funds will
result in increases to revenues within generally similar ranges.
Provision
for Doubtful Accounts and the Allowance for Doubtful
Accounts
The collection of outstanding receivables from Medicare, managed
care payers, other third-party payers and patients is our
primary source of cash and is critical to our operating
performance. The primary collection risks relate to uninsured
patient accounts, including patient accounts for which the
primary insurance carrier has paid the amounts covered by the
applicable agreement, but patient responsibility amounts
(deductibles and copayments)
43
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Provision
for Doubtful Accounts and the Allowance for Doubtful Accounts
(Continued)
remain outstanding. The provision for doubtful accounts and the
allowance for doubtful accounts relate primarily to amounts due
directly from patients. An estimated allowance for doubtful
accounts is recorded for all uninsured accounts, regardless of
the aging of those accounts. Accounts are written off when all
reasonable internal and external collection efforts have been
performed. Our collection policies include a review of all
accounts against certain standard collection criteria, upon
completion of our internal collection efforts. Accounts
determined to possess positive collectibility attributes are
forwarded to a secondary external collection agency and the
other accounts are written off. The accounts that are not
collected by the secondary external collection agency are
written off when they are returned to us by the collection
agency (usually within 12 months). Writeoffs are based upon
specific identification and the writeoff process requires a
writeoff adjustment entry to the patient accounting system. We
do not pursue collection of amounts related to patients that
meet our guidelines to qualify as charity care.
The amount of the provision for doubtful accounts is based upon
managements assessment of historical writeoffs and
expected net collections, business and economic conditions,
trends in federal, state, and private employer health care
coverage and other collection indicators. Management relies on
the results of detailed reviews of historical writeoffs and
recoveries at facilities that represent a majority of our
revenues and accounts receivable (the hindsight
analysis) as a primary source of information in estimating
the collectibility of our accounts receivable. We perform the
hindsight analysis quarterly, utilizing rolling twelve-months
accounts receivable collection and writeoff data. We believe our
quarterly updates to the estimated allowance for doubtful
accounts at each of our hospital facilities provide reasonable
valuations of our accounts receivable. These routine, quarterly
changes in estimates have not resulted in material adjustments
to our allowance for doubtful accounts, provision for doubtful
accounts or
period-to-period
comparisons of our results of operations. At December 31,
2009 and 2008, the allowance for doubtful accounts represented
approximately 94% and 92%, respectively, of the
$5.176 billion and $5.148 billion, respectively,
patient due accounts receivable balance. The patient due
accounts receivable balance represents the estimated uninsured
portion of our accounts receivable. The estimated uninsured
portion of Medicaid pending and uninsured discount pending
accounts is included in our patient due accounts receivable
balance.
The revenue deductions related to uninsured accounts (charity
care and uninsured discounts) generally have the inverse effect
on the provision for doubtful accounts. To quantify the total
impact of and trends related to uninsured accounts, we believe
it is beneficial to view these revenue deductions and provision
for doubtful accounts in combination, rather than each
separately. A summary of these amounts for the years ended
December 31, follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Provision for doubtful accounts
|
|
$
|
3,276
|
|
|
$
|
3,409
|
|
|
$
|
3,130
|
|
Uninsured discounts
|
|
|
2,935
|
|
|
|
1,853
|
|
|
|
1,474
|
|
Charity care
|
|
|
2,151
|
|
|
|
1,747
|
|
|
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
8,362
|
|
|
$
|
7,009
|
|
|
$
|
6,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for doubtful accounts, as a percentage of
revenues, increased from 11.7% for 2007 to 12.0% for 2008 and
declined to 10.9% for 2009. However, the sum of the provision
for doubtful accounts, uninsured discounts and charity care, as
a percentage of the sum of net revenues, uninsured discounts and
charity care increased from 20.5% for 2007 to 21.9% for 2008 and
to 23.8% for 2009.
Days revenues in accounts receivable were 45 days,
49 days and 53 days at December 31, 2009, 2008
and 2007, respectively. Management expects a continuation of the
challenges related to the collection of the patient due
accounts. Adverse changes in the percentage of our patients
having adequate health care coverage, general
44
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Provision
for Doubtful Accounts and the Allowance for Doubtful Accounts
(Continued)
economic conditions, patient accounting service center
operations, payer mix, or trends in federal, state, and private
employer health care coverage could affect the collection of
accounts receivable, cash flows and results of operations.
The approximate breakdown of accounts receivable by payer
classification as of December 31, 2009 and 2008 is set
forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Accounts Receivable
|
|
|
|
Under 91 Days
|
|
|
91180 Days
|
|
|
Over 180 Days
|
|
|
Accounts receivable aging at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare and Medicaid
|
|
|
12
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Managed care and other insurers
|
|
|
18
|
|
|
|
4
|
|
|
|
4
|
|
Uninsured
|
|
|
13
|
|
|
|
8
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
43
|
%
|
|
|
13
|
%
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable aging at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare and Medicaid
|
|
|
10
|
%
|
|
|
1
|
%
|
|
|
2
|
%
|
Managed care and other insurers
|
|
|
17
|
|
|
|
4
|
|
|
|
3
|
|
Uninsured
|
|
|
21
|
|
|
|
9
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
48
|
%
|
|
|
14
|
%
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
Liability Claims
We, along with virtually all health care providers, operate in
an environment with professional liability risks. Our facilities
are insured by our wholly-owned insurance subsidiary for losses
up to $50 million per occurrence, subject to a
$5 million per occurrence self-insured retention. We
purchase excess insurance on a claims-made basis for losses in
excess of $50 million per occurrence. Our professional
liability reserves, net of receivables under reinsurance
contracts, do not include amounts for any estimated losses
covered by our excess insurance coverage. Provisions for losses
related to professional liability risks were $211 million,
$175 million and $163 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Reserves for professional liability risks represent the
estimated ultimate cost of all reported and unreported losses
incurred through the respective consolidated balance sheet
dates. The estimated ultimate cost includes estimates of direct
expenses and fees paid to outside counsel and experts, but does
not include the general overhead costs of our insurance
subsidiary or corporate office. Individual case reserves are
established based upon the particular circumstances of each
reported claim and represent our estimates of the future costs
that will be paid on reported claims. Case reserves are reduced
as claim payments are made and are adjusted upward or downward
as our estimates regarding the amounts of future losses are
revised. Once the case reserves for known claims are determined,
information is stratified by loss layers and retentions,
accident years, reported years, and geographic location of our
hospitals. Several actuarial methods are employed to utilize
this data to produce estimates of ultimate losses and reserves
for incurred but not reported claims, including: paid and
incurred extrapolation methods utilizing paid and incurred loss
development to estimate ultimate losses; frequency and severity
methods utilizing paid and incurred claims development to
estimate ultimate average frequency (number of claims) and
ultimate average severity (cost per claim); and
Bornhuetter-Ferguson methods which add expected development to
actual paid or incurred experience to estimate ultimate losses.
These methods use our company-specific historical claims data
and other information. Company-specific claim reporting and
settlement data collected over an
45
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Professional
Liability Claims (Continued)
approximate
20-year
period is used in our reserve estimation process. This
company-specific data includes information regarding our
business, including historical paid losses and loss adjustment
expenses, historical and current case loss reserves, actual and
projected hospital statistical data, professional liability
retentions for each policy year, geographic information and
other data.
Reserves and provisions for professional liability risks are
based upon actuarially determined estimates. The estimated
reserve ranges, net of amounts receivable under reinsurance
contracts, were $1.024 billion to $1.270 billion at
December 31, 2009 and $1.102 billion to
$1.332 billion at December 31, 2008. Our estimated
reserves for professional liability claims may change
significantly if future claims differ from expected trends. We
perform sensitivity analyses which model the volatility of key
actuarial assumptions and monitor our reserves for adequacy
relative to all our assumptions in the aggregate. Based on our
analysis, we believe the estimated professional liability
reserve ranges represent the reasonably likely outcomes for
ultimate losses. We consider the number and severity of claims
to be the most significant assumptions in estimating reserves
for professional liabilities. A 2% change in the expected
frequency trend could be reasonable likely and would increase
the reserve estimate by $16 million or reduce the reserve
estimate by $15 million. A 2% change in the expected claim
severity trend could be reasonably likely and would increase the
reserve estimate by $69 million or reduce the reserve
estimate by $63 million. We believe adequate reserves have
been recorded for our professional liability claims; however,
due to 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 liability claims could
change by more than the estimated sensitivity amounts and could
change materially from our current estimates.
The reserves for professional liability risks cover
approximately 2,600 and 2,800 individual claims at
December 31, 2009 and 2008, respectively, and estimates for
unreported potential claims. The time period required to resolve
these claims can vary depending upon the jurisdiction and
whether the claim is settled or litigated. The average time
period between the occurrence and payment of final settlement
for our professional liability claims is approximately five
years, although the facts and circumstances of each individual
claim can result in an
occurrence-to-settlement
timeframe that varies from this average. The estimation of the
timing of payments beyond a year can vary significantly.
Reserves for professional liability risks were
$1.322 billion and $1.387 billion at December 31,
2009 and 2008, respectively. The current portion of these
reserves, $265 million and $279 million at
December 31, 2009 and 2008, respectively, is included in
other accrued expenses. Obligations covered by
reinsurance contracts are included in the reserves for
professional liability risks, as the insurance subsidiary
remains liable to the extent reinsurers do not meet their
obligations. Reserves for professional liability risks (net of
$53 million and $57 million receivable under
reinsurance contracts at December 31, 2009 and 2008,
respectively) were $1.269 billion and $1.330 billion
at December 31, 2009 and 2008, respectively. The estimated
total net reserves for professional liability risks at
December 31, 2009 and 2008 are comprised of
$680 million and $724 million, respectively, of case
reserves for known claims and $589 million and
$606 million, respectively, of reserves for incurred but
not reported claims.
46
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Critical
Accounting Policies and Estimates (Continued)
Professional
Liability Claims (Continued)
Changes in our professional liability reserves, net of
reinsurance recoverable, for the years ended December 31,
are summarized in the following table (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Net reserves for professional liability claims, January 1
|
|
$
|
1,330
|
|
|
$
|
1,469
|
|
|
$
|
1,542
|
|
Provision for current year claims
|
|
|
258
|
|
|
|
239
|
|
|
|
214
|
|
Favorable development related to prior years claims
|
|
|
(47
|
)
|
|
|
(64
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
|
211
|
|
|
|
175
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for current year claims
|
|
|
4
|
|
|
|
7
|
|
|
|
4
|
|
Payments for prior years claims
|
|
|
268
|
|
|
|
307
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total claim payments
|
|
|
272
|
|
|
|
314
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for professional liability claims, December 31
|
|
$
|
1,269
|
|
|
$
|
1,330
|
|
|
$
|
1,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The favorable development related to prior years claims
resulted from declining claim frequency and moderating claim
severity trends. We believe these favorable trends are primarily
attributable to tort reforms enacted in key states, particularly
Texas, and our risk management and patient safety initiatives,
particularly in the area of obstetrics.
Income
Taxes
We calculate our provision for income taxes using the asset and
liability method, under which deferred tax assets and
liabilities are recognized by identifying the temporary
differences that arise from the recognition of items in
different periods for tax and accounting purposes. Deferred tax
assets generally represent the tax effects of amounts expensed
in our income statement for which tax deductions will be claimed
in future periods.
Although we believe we have properly reported taxable income and
paid taxes in accordance with applicable laws, federal, state or
international taxing authorities may challenge our tax positions
upon audit. Significant judgment is required in determining and
assessing the impact of uncertain tax positions. We report a
liability for unrecognized tax benefits from uncertain tax
positions taken or expected to be taken in our income tax
return. During each reporting period, we assess the facts and
circumstances related to uncertain tax positions. If the
realization of unrecognized tax benefits is deemed probable
based upon new facts and circumstances, the estimated liability
and the provision for income taxes are reduced in the current
period. Final audit results may vary from our estimates.
Results
of Operations
Revenue/Volume
Trends
Our revenues depend upon inpatient occupancy levels, the
ancillary services and therapy programs ordered by physicians
and provided to patients, the volume of outpatient procedures
and the charge and negotiated payment rates for such services.
Gross charges typically do not reflect what our facilities are
actually paid. Our facilities have entered into agreements with
third-party payers, including government programs and managed
care health plans, under which the facilities are paid based
upon the cost of providing services, predetermined rates per
diagnosis, fixed per diem rates or discounts from gross charges.
We do not pursue collection of amounts related to patients who
meet our guidelines to qualify for charity care; therefore, they
are not reported in revenues. We provide discounts to
47
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Revenue/Volume
Trends (Continued)
uninsured patients who do not qualify for Medicaid or charity
care that are similar to the discounts provided to many local
managed care plans.
Revenues increased 5.9% to $30.052 billion for 2009 from
$28.374 billion for 2008 and increased 5.6% for 2008 from
$26.858 billion for 2007. The increase in revenues in 2009
can be primarily attributed to the combined impact of a 2.6%
increase in revenue per equivalent admission and a 3.2% increase
in equivalent admissions compared to the prior year. The
increase in revenues in 2008 can be primarily attributed to the
combined impact of a 5.2% increase in revenue per equivalent
admission and a 0.5% increase in equivalent admissions compared
to 2007.
Consolidated admissions increased 1.0% in 2009 compared to 2008
and declined 0.7% in 2008 compared to 2007. Consolidated
inpatient surgeries increased 0.3% and consolidated outpatient
surgeries declined 0.4% during 2009 compared to 2008.
Consolidated inpatient surgeries declined 4.5% and consolidated
outpatient surgeries declined 0.9% during 2008 compared to 2007.
Consolidated emergency department visits increased 6.6% during
2009 compared to 2008 and increased 2.5% during 2008 compared to
2007.
Same facility revenues increased 6.1% for the year ended
December 31, 2009 compared to the year ended
December 31, 2008 and increased 7.0% for the year ended
December 31, 2008 compared to the year ended
December 31, 2007. The 6.1% increase for 2009 can be
primarily attributed to the combined impact of a 2.6% increase
in same facility revenue per equivalent admission and a 3.4%
increase in same facility equivalent admissions. The 7.0%
increase for 2008 can be primarily attributed to the combined
impact of a 5.1% increase in same facility revenue per
equivalent admission and a 1.9% increase in same facility
equivalent admissions.
Same facility admissions increased 1.2% in 2009 compared to 2008
and increased 0.9% in 2008 compared to 2007. Same facility
inpatient surgeries increased 0.5% and same facility outpatient
surgeries declined 0.1% during 2009 compared to 2008. Same
facility inpatient surgeries declined 0.5% and same facility
outpatient surgeries declined 0.2% during 2008 compared to 2007.
Same facility emergency department visits increased 7.0% during
2009 compared to 2008 and increased 3.6% during 2008 compared to
2007.
Same facility uninsured emergency room visits increased 6.5% and
same facility uninsured admissions increased 4.7% during 2009
compared to 2008. Same facility uninsured emergency room visits
increased 4.5% and same facility uninsured admissions increased
1.7% during 2008 compared to 2007. Management believes same
facility uninsured emergency department visits and same facility
uninsured admissions could continue to increase during 2010 if
the adverse general economic and unemployment trends continue.
Admissions related to Medicare, managed Medicare, Medicaid,
managed Medicaid, managed care and other insurers and the
uninsured for the years ended December 31, 2009, 2008 and
2007 are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Medicare
|
|
|
34
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
Managed Medicare
|
|
|
10
|
|
|
|
9
|
|
|
|
7
|
|
Medicaid
|
|
|
9
|
|
|
|
8
|
|
|
|
8
|
|
Managed Medicaid
|
|
|
7
|
|
|
|
7
|
|
|
|
7
|
|
Managed care and other insurers
|
|
|
34
|
|
|
|
35
|
|
|
|
37
|
|
Uninsured
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Revenue/Volume
Trends (Continued)
The approximate percentages of our inpatient revenues related to
Medicare, managed Medicare, Medicaid, managed Medicaid, managed
care plans and other insurers and the uninsured for the years
ended December 31, 2009, 2008 and 2007 are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Medicare
|
|
|
31
|
%
|
|
|
31
|
%
|
|
|
32
|
%
|
Managed Medicare
|
|
|
8
|
|
|
|
8
|
|
|
|
7
|
|
Medicaid
|
|
|
8
|
|
|
|
7
|
|
|
|
7
|
|
Managed Medicaid
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Managed care and other insurers
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
Uninsured
|
|
|
5
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, we owned and operated 38 hospitals
and 33 surgery centers in the state of Florida. Our Florida
facilities revenues totaled $7.343 billion and
$7.099 billion for the years ended December 31, 2009
and 2008, respectively. At December 31, 2009, we owned and
operated 35 hospitals and 23 surgery centers in the state of
Texas. Our Texas facilities revenues totaled
$8.042 billion and $7.351 billion for the years ended
December 31, 2009 and 2008, respectively. During 2009 and
2008, 57% and 55%, respectively, of our admissions and 51% of
our revenues were generated by our Florida and Texas facilities.
Uninsured admissions in Florida and Texas represented 64% and
63% of our uninsured admissions during 2009 and 2008,
respectively.
We provided $2.151 billion, $1.747 billion and
$1.530 billion of charity care (amounts are based upon our
gross charges) during the years ended December 31, 2009,
2008 and 2007, respectively. We provide discounts to uninsured
patients who do not qualify for Medicaid or charity care. These
discounts are similar to those provided to many local managed
care plans and totaled $2.935 billion, $1.853 billion
and $1.474 billion for the years ended December 31,
2009, 2008 and 2007, respectively.
We receive a significant portion of our revenues from government
health programs, principally Medicare and Medicaid, which are
highly regulated and subject to frequent and substantial
changes. We have increased the indigent care services we provide
in several communities in the state of Texas, in affiliation
with other hospitals. The state of Texas has been involved in
the effort to increase the indigent care provided by private
hospitals. As a result of this additional indigent care provided
by private hospitals, public hospital districts or counties in
Texas have available funds that were previously devoted to
indigent care. The public hospital districts or counties are
under no contractual or legal obligation to provide such
indigent care. The public hospital districts or counties have
elected to transfer some portion of these available funds to the
states Medicaid program. Such action is at the sole
discretion of the public hospital districts or counties. It is
anticipated that these contributions to the state will be
matched with federal Medicaid funds. The state then may make
supplemental payments to hospitals in the state for Medicaid
services rendered. Hospitals receiving Medicaid supplemental
payments may include those that are providing additional
indigent care services. Such payments must be within the federal
UPL established by federal regulation. Our Texas Medicaid
revenues included $474 million, $262 million and
$232 million during 2009, 2008 and 2007, respectively, of
Medicaid supplemental payments pursuant to UPL programs.
49
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Operating
Results Summary
The following are comparative summaries of operating results for
the years ended December 31, 2009, 2008 and 2007 (dollars
in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Revenues
|
|
$
|
30,052
|
|
|
|
100.0
|
|
|
$
|
28,374
|
|
|
|
100.0
|
|
|
$
|
26,858
|
|
|
|
100.0
|
|
Salaries and benefits
|
|
|
11,958
|
|
|
|
39.8
|
|
|
|
11,440
|
|
|
|
40.3
|
|
|
|
10,714
|
|
|
|
39.9
|
|
Supplies
|
|
|
4,868
|
|
|
|
16.2
|
|
|
|
4,620
|
|
|
|
16.3
|
|
|
|
4,395
|
|
|
|
16.4
|
|
Other operating expenses
|
|
|
4,724
|
|
|
|
15.7
|
|
|
|
4,554
|
|
|
|
16.1
|
|
|
|
4,233
|
|
|
|
15.7
|
|
Provision for doubtful accounts
|
|
|
3,276
|
|
|
|
10.9
|
|
|
|
3,409
|
|
|
|
12.0
|
|
|
|
3,130
|
|
|
|
11.7
|
|
Equity in earnings of affiliates
|
|
|
(246
|
)
|
|
|
(0.8
|
)
|
|
|
(223
|
)
|
|
|
(0.8
|
)
|
|
|
(206
|
)
|
|
|
(0.8
|
)
|
Depreciation and amortization
|
|
|
1,425
|
|
|
|
4.8
|
|
|
|
1,416
|
|
|
|
5.0
|
|
|
|
1,426
|
|
|
|
5.4
|
|
Interest expense
|
|
|
1,987
|
|
|
|
6.6
|
|
|
|
2,021
|
|
|
|
7.1
|
|
|
|
2,215
|
|
|
|
8.2
|
|
Losses (gains) on sales of facilities
|
|
|
15
|
|
|
|
|
|
|
|
(97
|
)
|
|
|
(0.3
|
)
|
|
|
(471
|
)
|
|
|
(1.8
|
)
|
Impairment of long-lived assets
|
|
|
43
|
|
|
|
0.1
|
|
|
|
64
|
|
|
|
0.2
|
|
|
|
24
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,050
|
|
|
|
93.3
|
|
|
|
27,204
|
|
|
|
95.9
|
|
|
|
25,460
|
|
|
|
94.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,002
|
|
|
|
6.7
|
|
|
|
1,170
|
|
|
|
4.1
|
|
|
|
1,398
|
|
|
|
5.2
|
|
Provision for income taxes
|
|
|
627
|
|
|
|
2.1
|
|
|
|
268
|
|
|
|
0.9
|
|
|
|
316
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,375
|
|
|
|
4.6
|
|
|
|
902
|
|
|
|
3.2
|
|
|
|
1,082
|
|
|
|
4.1
|
|
Net income attributable to noncontrolling interests
|
|
|
321
|
|
|
|
1.1
|
|
|
|
229
|
|
|
|
0.8
|
|
|
|
208
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
1,054
|
|
|
|
3.5
|
|
|
$
|
673
|
|
|
|
2.4
|
|
|
$
|
874
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% changes from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
5.9
|
%
|
|
|
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
5.4
|
%
|
|
|
|
|
Income before income taxes
|
|
|
71.1
|
|
|
|
|
|
|
|
(16.3
|
)
|
|
|
|
|
|
|
(25.0
|
)
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
|
56.7
|
|
|
|
|
|
|
|
(23.0
|
)
|
|
|
|
|
|
|
(15.7
|
)
|
|
|
|
|
Admissions(a)
|
|
|
1.0
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(3.6
|
)
|
|
|
|
|
Equivalent admissions(b)
|
|
|
3.2
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
Revenue per equivalent admission
|
|
|
2.6
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
|
|
8.3
|
|
|
|
|
|
Same facility % changes from prior year(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
6.1
|
|
|
|
|
|
|
|
7.0
|
|
|
|
|
|
|
|
7.4
|
|
|
|
|
|
Admissions(a)
|
|
|
1.2
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
Equivalent admissions(b)
|
|
|
3.4
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
Revenue per equivalent admission
|
|
|
2.6
|
|
|
|
|
|
|
|
5.1
|
|
|
|
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the total number of patients admitted to our
hospitals and is used by management and certain investors as a
general measure of inpatient volume. |
|
(b) |
|
Equivalent admissions are used by management and certain
investors as a general measure of combined inpatient and
outpatient volume. Equivalent admissions are computed by
multiplying admissions (inpatient volume) by the sum of gross
inpatient revenue and gross outpatient revenue and then dividing
the resulting amount by gross inpatient revenue. The equivalent
admissions computation equates outpatient revenue to
the volume measure (admissions) used to measure inpatient
volume, resulting in a general measure of combined inpatient and
outpatient volume. |
|
(c) |
|
Same facility information excludes the operations of hospitals
and their related facilities that were either acquired, divested
or removed from service during the current and prior year. |
50
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2009 and 2008
Net income attributable to HCA Inc. totaled $1.054 billion
for the year ended December 31, 2009 compared to
$673 million for the year ended December 31, 2008.
Financial results for 2009 include losses on sales of facilities
of $15 million and asset impairment charges of
$43 million. Financial results for 2008 include gains on
sales of facilities of $97 million and asset impairment
charges of $64 million.
Revenues increased 5.9% to $30.052 billion for 2009 from
$28.374 billion for 2008. The increase in revenues was due
primarily to the combined impact of a 2.6% increase in revenue
per equivalent admission and a 3.2% increase in equivalent
admissions compared to 2008. Same facility revenues increased
6.1% due primarily to the combined impact of a 2.6% increase in
same facility revenue per equivalent admission and a 3.4%
increase in same facility equivalent admissions compared to 2008.
During 2009, consolidated admissions increased 1.0% and same
facility admissions increased 1.2% for 2009, compared to 2008.
Consolidated inpatient surgical volumes increased 0.3%, and same
facility inpatient surgeries increased 0.5% during 2009 compared
to 2008. Consolidated outpatient surgical volumes declined 0.4%,
and same facility outpatient surgeries declined 0.1% during 2009
compared to 2008. Emergency department visits increased 6.6% on
a consolidated basis and increased 7.0% on a same facility basis
during 2009 compared to 2008.
Salaries and benefits, as a percentage of revenues, were 39.8%
in 2009 and 40.3% in 2008. Salaries and benefits per equivalent
admission increased 1.3% in 2009 compared to 2008. Same facility
labor rate increases averaged 3.7% for 2009 compared to 2008.
Supplies, as a percentage of revenues, were 16.2% in 2009 and
16.3% in 2008. Supply costs per equivalent admission increased
2.1% in 2009 compared to 2008. Same facility supply costs
increased 5.9% for medical devices, 4.0% for pharmacy supplies,
7.1% for blood products and 7.0% for general medical and
surgical items in 2009 compared to 2008.
Other operating expenses, as a percentage of revenues, declined
to 15.7% in 2009 from 16.1% in 2008. Other operating expenses
are primarily comprised of contract services, professional fees,
repairs and maintenance, rents and leases, utilities, insurance
(including professional liability insurance) and nonincome
taxes. The overall decline in other operating expenses, as a
percentage of revenues, is comprised of relatively small
reductions in several areas, including utilities, employee
recruitment and travel and entertainment. Other operating
expenses include $248 million and $144 million of
indigent care costs in certain Texas markets during 2009 and
2008, respectively. Provisions for losses related to
professional liability risks were $211 million and
$175 million for 2009 and 2008, respectively.
Provision for doubtful accounts declined $133 million, from
$3.409 billion in 2008 to $3.276 billion in 2009, and
as a percentage of revenues, declined to 10.9% for 2009 from
12.0% in 2008. The provision for doubtful accounts and the
allowance for doubtful accounts relate primarily to uninsured
amounts due directly from patients. The decline in the provision
for doubtful accounts can be attributed to the
$1.486 billion increase in the combined self-pay revenue
deductions for charity care and uninsured discounts during 2009,
compared to 2008. The sum of the provision for doubtful
accounts, uninsured discounts and charity care, as a percentage
of the sum of net revenues, uninsured discounts and charity
care, was 23.8% for 2009, compared to 21.9% for 2008. At
December 31, 2009, our allowance for doubtful accounts
represented approximately 94% of the $5.176 billion total
patient due accounts receivable balance, including accounts, net
of estimated contractual discounts, related to patients for
which eligibility for Medicaid coverage or uninsured discounts
was being evaluated.
Equity in earnings of affiliates increased from
$223 million for 2008 to $246 million for 2009. Equity
in earnings of affiliates relates primarily to our Denver,
Colorado market joint venture.
51
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2009 and 2008 (Continued)
Depreciation and amortization decreased, as a percentage of
revenues, to 4.8% in 2009 from 5.0% in 2008. Depreciation
expense was $1.419 billion for 2009 and $1.412 billion
for 2008.
Interest expense decreased to $1.987 billion for 2009 from
$2.021 billion for 2008. The decrease in interest expense
was due to reductions in the average debt balance. Our average
debt balance was $26.267 billion for 2009 compared to
$27.211 billion for 2008. The average interest rate for our
long-term debt increased from 7.4% for 2008 to 7.6% for 2009.
Net losses on sales of facilities were $15 million for 2009
and included $8 million of net losses on the sales of three
hospital facilities and $7 million of net losses on sales
of real estate and other health care entity investments. Gains
on sales of facilities were $97 million for 2008 and
included $81 million of gains on the sales of two hospital
facilities and $16 million of net gains on sales of real
estate and other health care entity investments.
Impairments of long-lived assets were $43 million for 2009
and included $19 million related to goodwill and
$24 million related to property and equipment. Impairments
of long-lived assets were $64 million for 2008 and included
$48 million related to goodwill and $16 million
related to property and equipment.
The effective tax rate was 37.3% and 28.5% for 2009 and 2008,
respectively. The effective tax rate computations exclude net
income attributable to noncontrolling interests as it relates to
consolidated partnerships. Primarily as a result of reaching a
settlement with the IRS Appeals Division and the revision of the
amount of a proposed IRS adjustment related to prior taxable
periods, we reduced our provision for income taxes by
$69 million in 2008. Excluding the effect of these
adjustments, the effective tax rate for 2008 would have been
35.8%.
Net income attributable to noncontrolling interests increased
from $229 million for 2008 to $321 million for 2009.
The increase in net income attributable to noncontrolling
interests related primarily to growth in operating results of
hospital joint ventures in two Texas markets.
Years
Ended December 31, 2008 and 2007
Net income attributable to HCA Inc. totaled $673 million
for the year ended December 31, 2008 compared to
$874 million for the year ended December 31, 2007.
Financial results for 2008 include gains on sales of facilities
of $97 million and asset impairment charges of
$64 million. Financial results for 2007 include gains on
sales of facilities of $471 million and an asset impairment
charge of $24 million.
Revenues increased 5.6% to $28.374 billion for 2008 from
$26.858 billion for 2007. The increase in revenues was due
primarily to the combined impact of a 5.2% increase in revenue
per equivalent admission and a 0.5% increase in equivalent
admissions compared to 2007. Same facility revenues increased
7.0% due primarily to the combined impact of a 5.1% increase in
same facility revenue per equivalent admission and a 1.9%
increase in same facility equivalent admissions compared to 2007.
During 2008, consolidated admissions declined 0.7% and same
facility admissions increased 0.9%, compared to 2007. Inpatient
surgical volumes declined 4.5% on a consolidated basis and same
facility inpatient surgeries declined 0.5% during 2008 compared
to 2007. Outpatient surgical volumes declined 0.9% on a
consolidated basis and same facility outpatient surgeries
declined 0.2% during 2008 compared to 2007. Emergency department
visits increased 2.5% on a consolidated basis and increased 3.6%
on a same facility basis during 2008 compared to 2007.
Salaries and benefits, as a percentage of revenues, were 40.3%
in 2008 and 39.9% in 2007. Salaries and benefits per equivalent
admission increased 6.3% in 2008 compared to 2007. Same facility
labor rate increases averaged 5.1% for 2008 compared to 2007.
52
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2008 and 2007 (Continued)
Supplies, as a percentage of revenues, were 16.3% in 2008 and
16.4% in 2007. Supply costs per equivalent admission increased
4.5% in 2008 compared to 2007. Same facility supply costs
increased 8.0% for medical devices, 2.8% for pharmacy supplies,
18.7% for blood products and 6.6% for general medical and
surgical items in 2008 compared to 2007.
Other operating expenses, as a percentage of revenues, increased
to 16.1% in 2008 from 15.7% in 2007. Other operating expenses
are primarily comprised of contract services, professional fees,
repairs and maintenance, rents and leases, utilities, insurance
(including professional liability insurance) and nonincome
taxes. Increases in professional fees paid to hospitalists,
emergency room physicians and anesthesiologists represented
20 basis points of the 2008 increase in other operating
expenses. Other operating expenses include $144 million and
$187 million of indigent care costs in certain Texas
markets during 2008 and 2007, respectively. Provisions for
losses related to professional liability risks were
$175 million and $163 million for 2008 and 2007,
respectively.
Provision for doubtful accounts, as a percentage of revenues,
increased to 12.0% for 2008 from 11.7% in 2007. The provision
for doubtful accounts and the allowance for doubtful accounts
relate primarily to uninsured amounts due directly from
patients. The increase in the provision for doubtful accounts,
as a percentage of revenues, can be attributed to an increasing
amount of patient financial responsibility under certain managed
care plans and same facility increases in uninsured emergency
room visits of 4.5% and uninsured admissions of 1.7% in 2008
compared to 2007. At December 31, 2008, our allowance for
doubtful accounts represented approximately 92% of the
$5.148 billion total patient due accounts receivable
balance, including accounts, net of estimated contractual
discounts, related to patients for which eligibility for
Medicaid coverage or uninsured discounts was being evaluated.
Equity in earnings of affiliates increased from
$206 million for 2007 to $223 million for 2008. Equity
in earnings of affiliates relates primarily to our Denver,
Colorado market joint venture.
Depreciation and amortization declined, as a percentage of
revenues, to 5.0% in 2008 from 5.4% in 2007. Depreciation
expense was $1.412 billion for 2008 and $1.421 billion
for 2007.
Interest expense declined to $2.021 billion for 2008 from
$2.215 billion for 2007. The decline in interest expense
was due to reductions in both the average debt balance and the
average interest rate on long-term debt. Our average debt
balance was $27.211 billion for 2008 compared to
$27.732 billion for 2007. The average interest rate for our
long-term debt declined from 8.0% for 2007 to 7.4% for 2008.
Gains on sales of facilities were $97 million for 2008 and
included $81 million of net gains on the sales of two
hospital facilities and $16 million of net gains on sales
of real estate and other health care entity investments. Gains
on sales of facilities were $471 million for 2007 and
included a $312 million gain on the sale of our two
Switzerland hospitals, a $131 million gain on the sale of a
facility in Florida and $28 million of net gains on sales
of real estate and other health care entity investments.
Impairments of long-lived assets were $64 million for 2008
and included $48 million related to goodwill and
$16 million related to property and equipment. The
$24 million asset impairment for 2007 related to property
and equipment.
The effective tax rate was 28.5% for 2008 and 26.6% for 2007,
respectively. The effective tax rate computations exclude net
income attributable to noncontrolling interests as it relates to
consolidated partnerships. Primarily as a result of reaching a
settlement with the IRS Appeals Division and the revision of the
amount of a proposed IRS adjustment related to prior taxable
periods, we reduced our provision for income taxes by
$69 million in 2008. Our 2007 provision for income taxes
was reduced by $85 million, principally based on receiving
new
53
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Results
of Operations (Continued)
Years
Ended December 31, 2008 and 2007 (Continued)
information related to tax positions taken in a prior taxable
year, and by an additional $39 million to adjust
2006 state tax accruals to the amounts reported on
completed tax returns and based upon an analysis of the
Recapitalization costs. Excluding the effect of these
adjustments, the effective tax rates for 2008 and 2007 would
have been 35.8% and 37.0%, respectively.
Net income attributable to noncontrolling interests increased
from $208 million for 2007 to $229 million for 2008.
The increase relates primarily to our Austin, Texas market
partnership and our group purchasing organization.
Liquidity
and Capital Resources
Our primary cash requirements are paying our operating expenses,
servicing our debt, capital expenditures on our existing
properties, acquisitions of hospitals and other health care
entities and distributions to noncontrolling interests. Our
primary cash sources are cash flow from operating activities,
issuances of debt and equity securities and dispositions of
hospitals and other health care entities.
Cash provided by operating activities totaled
$2.747 billion in 2009 compared to $1.990 billion in
2008 and $1.564 billion in 2007. Working capital totaled
$2.264 billion at December 31, 2009 and
$2.391 billion at December 31, 2008. The
$757 million increase in cash provided by operating
activities for 2009, compared to 2008, related primarily to the
$473 million increase in net income and $143 million
improvement from changes in operating assets and liabilities and
the provision for doubtful accounts. The $426 million
increase in cash provided by operating activities for 2008,
compared to 2007, relates primarily to changes in working
capital items. The changes in accounts receivable (net of the
provision for doubtful accounts), inventories and other assets,
and accounts payable and accrued expenses contributed
$42 million to cash provided by operating activities for
2008 while changes in these items decreased cash provided by
operating activities by $485 million for 2007. The net
impact of the cash payments for interest and income taxes was an
increase in cash payments of $203 million for 2009 compared
to 2008 and an increase of $111 million for 2008 compared
to 2007.
Cash used in investing activities was $1.035 billion,
$1.467 billion and $479 million in 2009, 2008 and
2007, respectively. Excluding acquisitions, capital expenditures
were $1.317 billion in 2009, $1.600 billion in 2008
and $1.444 billion in 2007. We expended $61 million,
$85 million and $32 million for acquisitions of
hospitals and health care entities during 2009, 2008 and 2007,
respectively. Expenditures for acquisitions in all three years
were generally comprised of outpatient and ancillary services
entities and were funded by a combination of cash flows from
operations and the issuance or incurrence of debt. Planned
capital expenditures are expected to approximate
$1.5 billion in 2010. At December 31, 2009, there were
projects under construction which had an estimated additional
cost to complete and equip over the next five years of
$1.2 billion. We expect to finance capital expenditures
with internally generated and borrowed funds.
During 2009, we received cash proceeds of $41 million from
dispositions of three hospitals and sales of other health care
entities and real estate investments. We also received net cash
proceeds of $303 million related to net changes in our
investments. During 2008, we received cash proceeds of
$143 million from dispositions of two hospitals and
$50 million from sales of other health care entities and
real estate investments. During 2007, we sold three hospitals
for cash proceeds of $661 million, and we also received
cash proceeds of $106 million related primarily to the
sales of real estate investments and $207 million related
to net changes in our investments.
Cash used in financing activities totaled $1.865 billion in
2009, $451 million in 2008 and $1.326 billion in 2007.
During 2009, 2008 and 2007, we used cash proceeds from sales of
facilities and available cash provided by operations to make net
debt repayments of $1.459 billion, $260 million and
$1.270 billion, respectively. During 2009, 2008 and 2007,
we made distributions to noncontrolling interests of
$330 million, $178 million and
54
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Liquidity
and Capital Resources (Continued)
$152 million, respectively. We also paid debt issuance
costs of $70 million for 2009. We or our affiliates,
including affiliates of the Sponsors, may in the future
repurchase portions of our debt securities, subject to certain
limitations, from time to time in either the open market or
through privately negotiated transactions, in accordance with
applicable SEC and other legal requirements. The timing, prices,
and sizes of purchases depend upon prevailing trading prices,
general economic and market conditions, and other factors,
including applicable securities laws. Funds for the repurchase
of debt securities have, and are expected to, come primarily
from cash generated from operations and borrowed funds.
In addition to cash flows from operations, available sources of
capital include amounts available under our senior secured
credit facilities ($3.181 billion as of December 31,
2009 and $3.142 billion as of January 31,
2010) and anticipated access to public and private debt
markets.
On January 27, 2010, our Board of Directors declared a
distribution to the Companys stockholders and holders of
vested stock options. The distribution was $17.50 per share and
vested stock option, or approximately $1.750 billion in the
aggregate. The distribution was paid on February 5, 2010 to
holders of record on February 1, 2010. The distribution was
funded using funds available under our existing senior secured
credit facilities and approximately $100 million of cash on
hand.
Investments of our professional liability insurance subsidiary,
to maintain statutory equity and pay claims, totaled
$1.316 billion and $1.622 billion at December 31,
2009 and 2008, respectively. The insurance subsidiary maintained
net reserves for professional liability risks of
$590 million and $782 million at December 31,
2009 and 2008, respectively. Our facilities are insured by our
wholly- owned insurance subsidiary for losses up to
$50 million per occurrence; however, since January 2007,
this coverage is subject to a $5 million per occurrence
self-insured retention. Net reserves for the self-insured
professional liability risks retained were $679 million and
$548 million at December 31, 2009 and 2008,
respectively. Claims payments, net of reinsurance recoveries,
during the next 12 months are expected to approximate
$240 million. We estimate that approximately
$90 million of the expected net claim payments during the
next 12 months will relate to claims subject to the
self-insured retention.
Financing
Activities
Due to the Recapitalization, we are a highly leveraged company
with significant debt service requirements. Our debt totaled
$25.670 billion and $26.989 billion at
December 31, 2009 and 2008, respectively. Our interest
expense was $1.987 billion for 2009 and $2.021 billion
for 2008.
During February 2009, we issued $310 million aggregate
principal amount of
97/8% senior
secured second lien notes due 2017 at a price of 96.673% of
their face value, resulting in $300 million of gross
proceeds. During April 2009, we issued $1.500 billion
aggregate principal amount of
81/2% senior
secured first lien notes due 2019 at a price of 96.755% of their
face value, resulting in $1.451 billion of gross proceeds.
During August 2009, we issued $1.250 billion aggregate
principal amount of
77/8% senior
secured first lien notes due 2020 at a price of 98.254% of their
face value, resulting in $1.228 billion of gross proceeds.
After the payment of related fees and expenses, we used the
proceeds from these debt offerings to repay outstanding
indebtedness under our senior secured term loan facilities.
Management believes that cash flows from operations, amounts
available under our senior secured credit facilities and our
anticipated access to public and private debt markets will be
sufficient to meet expected liquidity needs during the next
twelve months.
55
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Contractual
Obligations and Off-Balance Sheet Arrangements
As of December 31, 2009, maturities of contractual
obligations and other commercial commitments are presented in
the table below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
Contractual Obligations(a)
|
|
Total
|
|
|
Current
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Long-term debt including interest, excluding the senior secured
credit facilities(b)
|
|
$
|
26,739
|
|
|
$
|
2,175
|
|
|
$
|
3,780
|
|
|
$
|
4,915
|
|
|
$
|
15,869
|
|
Loans outstanding under the senior secured credit facilities,
including interest(b)
|
|
|
11,786
|
|
|
|
649
|
|
|
|
3,565
|
|
|
|
7,410
|
|
|
|
162
|
|
Operating leases(c)
|
|
|
1,190
|
|
|
|
226
|
|
|
|
355
|
|
|
|
223
|
|
|
|
386
|
|
Purchase and other obligations(c)
|
|
|
196
|
|
|
|
43
|
|
|
|
33
|
|
|
|
30
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
39,911
|
|
|
$
|
3,093
|
|
|
$
|
7,733
|
|
|
$
|
12,578
|
|
|
$
|
16,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial Commitments Not Recorded on the
|
|
Commitment Expiration by Period
|
|
Consolidated Balance Sheet
|
|
Total
|
|
|
Current
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
After 5 Years
|
|
|
Surety bonds(d)
|
|
$
|
106
|
|
|
$
|
105
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
Letters of credit(e)
|
|
|
100
|
|
|
|
23
|
|
|
|
44
|
|
|
|
33
|
|
|
|
|
|
Physician commitments(f)
|
|
|
40
|
|
|
|
30
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Guarantees(g)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$
|
248
|
|
|
$
|
158
|
|
|
$
|
55
|
|
|
$
|
33
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We have not included obligations to pay estimated professional
liability claims ($1.322 billion at December 31,
2009) in this table. The estimated professional liability
claims, which occurred prior to 2007, are expected to be funded
by the designated investment securities that are restricted for
this purpose ($1.316 billion at December 31, 2009). We
also have not included obligations related to unrecognized tax
benefits of $628 million at December 31, 2009, as we
cannot reasonably estimate the timing or amounts of additional
cash payments, if any, at this time. |
|
(b) |
|
Estimates of interest payments assumes that interest rates,
borrowing spreads and foreign currency exchange rates at
December 31, 2009, remain constant during the period
presented. |
|
(c) |
|
Amounts relate to future operating lease obligations, purchase
obligations and other obligations and are not recorded in our
consolidated balance sheet. Amounts also include physician
commitments that are recorded in our consolidated balance sheet. |
|
(d) |
|
Amounts relate primarily to instances in which we have agreed to
indemnify various commercial insurers who have provided surety
bonds to cover damages for malpractice cases which were awarded
to plaintiffs by the courts. These cases are currently under
appeal and the bonds will not be released by the courts until
the cases are closed. |
|
(e) |
|
Amounts relate primarily to various employee benefit plan
obligations in which we have letters of credit outstanding. |
|
(f) |
|
In consideration for physicians relocating to the communities in
which our hospitals are located and agreeing to engage in
private practice for the benefit of the respective communities,
we make advances to physicians, normally over a period of one
year, to assist in establishing the physicians practices.
The actual amount of these commitments to be advanced often
depends upon the financial results of the physicians
private practices during the recruitment agreement payment
period. The physician commitments reflected were based on our
maximum exposure on effective agreements at December 31,
2009. |
|
(g) |
|
We have entered into guarantee agreements related to certain
leases. |
56
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Market
Risk
We are exposed to market risk related to changes in market
values of securities. The investments in debt and equity
securities of our wholly-owned insurance subsidiary were
$1.309 billion and $7 million, respectively, at
December 31, 2009. These investments are carried at fair
value, with changes in unrealized gains and losses being
recorded as adjustments to other comprehensive income. At
December 31, 2009, we had a net unrealized gain of
$20 million on the insurance subsidiarys investment
securities.
We are exposed to market risk related to market illiquidity.
Liquidity of the investments in debt and equity securities of
our wholly-owned insurance subsidiary could be impaired by the
inability to access the capital markets. Should the wholly-owned
insurance subsidiary require significant amounts of cash in
excess of normal cash requirements to pay claims and other
expenses on short notice, we may have difficulty selling these
investments in a timely manner or be forced to sell them at a
price less than what we might otherwise have been able to in a
normal market environment. At December 31, 2009, our
wholly-owned insurance subsidiary had invested $396 million
($401 million par value) in municipal, tax-exempt student
loan auction rate securities (ARS) that continue to
experience market illiquidity since February 2008 when multiple
failed auctions occurred due to a severe credit and liquidity
crisis in the capital markets. It is uncertain if
auction-related market liquidity will resume for these
securities. We may be required to recognize
other-than-temporary
impairments on these investments in future periods should
issuers default on interest payments or should the fair market
valuations of the securities deteriorate due to ratings
downgrades or other issue specific factors.
We are also exposed to market risk related to changes in
interest rates, and we periodically enter into interest rate
swap agreements to manage our exposure to these fluctuations.
Our interest rate swap agreements involve the exchange of fixed
and variable rate interest payments between two parties, based
on common notional principal amounts and maturity dates. The
notional amounts of the swap agreements represent balances used
to calculate the exchange of cash flows and are not our assets
or liabilities. Our credit risk related to these agreements is
considered low because the swap agreements are with creditworthy
financial institutions. The interest payments under these
agreements are settled on a net basis. These derivatives have
been recognized in the financial statements at their respective
fair values. Changes in the fair value of these derivatives are
included in other comprehensive income.
With respect to our interest-bearing liabilities, approximately
$1.205 billion of long-term debt at December 31, 2009
is subject to variable rates of interest, while the remaining
balance in long-term debt of $24.465 billion at
December 31, 2009 is subject to fixed rates of interest.
Both the general level of interest rates and, for the senior
secured credit facilities, our leverage affect our variable
interest rates. Our variable rate debt is comprised primarily of
amounts outstanding under the senior secured credit facilities.
Borrowings under the senior secured credit facilities bear
interest at a rate equal to an applicable margin plus, at our
option, either (a) a base rate determined by reference to
the higher of (1) the federal funds rate plus 0.50% and
(2) the prime rate of Bank of America or (b) a LIBOR
rate for the currency of such borrowing for the relevant
interest period. The applicable margin for borrowings under the
senior secured credit facilities, with the exception of term
loan B where the margin is static, may be reduced subject to
attaining certain leverage ratios. The average rate for our
long-term debt increased from 6.9% at December 31, 2008 to
7.6% at December 31, 2009.
On March 2, 2009, we amended our $13.550 billion and
1.000 billion senior secured cash flow credit
facility, dated as of November 17, 2006, as amended
February 16, 2007 (the cash flow credit
facility), to allow for one or more future issuances of
additional secured notes, which may include notes that are
secured on a pari passu basis or on a junior basis with
the obligations under the cash flow credit facility, so long as
(1) such notes do not require any scheduled payment or
redemption prior to the scheduled term loan B final maturity
date as currently in effect and (2) the proceeds from any
such issuance are used within three business days of receipt to
prepay term loans under the cash flow credit facility in
accordance with the terms of the cash flow credit facility. The
U.S. security documents related to the cash flow credit
facility were also amended and restated in connection with the
amendment in order to give effect to the security interests
granted to holders of such additional secured notes.
57
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Market
Risk (Continued)
On March 2, 2009, we amended our $2.000 billion senior
secured asset-based revolving credit facility, dated as of
November 17, 2006, as amended and restated as of
June 20, 2007 (the ABL credit facility), to
allow for one or more future issuances of additional secured
notes or loans, which may include notes or loans that are
secured on a pari passu basis or on a junior basis with
the obligations under the cash flow credit facility, so long as
the proceeds from any such issuance are used to prepay term
loans under the cash flow credit facility within three business
days of the receipt thereof. The amendment to the ABL credit
facility also altered the excess facility availability
requirement to include a separate minimum facility availability
requirement applicable to the ABL credit facility, and increased
the applicable LIBOR and ABR margins for all borrowings under
the ABL credit facility by 0.25% each.
The estimated fair value of our total long-term debt was
$25.659 billion at December 31, 2009. The estimates of
fair value are based upon the quoted market prices for the same
or similar issues of long-term debt with the same maturities.
Based on a hypothetical 1% increase in interest rates, the
potential annualized reduction to future pretax earnings would
be approximately $12 million. To mitigate the impact of
fluctuations in interest rates, we generally target a portion of
our debt portfolio to be maintained at fixed rates.
Our international operations and the European term loan expose
us to market risks associated with foreign currencies. In order
to mitigate the currency exposure related to debt service
obligations through December 31, 2011 under the European
term loan, we have entered into cross currency swap agreements.
A cross currency swap is an agreement between two parties to
exchange a stream of principal and interest payments in one
currency for a stream of principal and interest payments in
another currency over a specified period.
Financial
Instruments
Derivative financial instruments are employed to manage risks,
including foreign currency and interest rate exposures, and are
not used for trading or speculative purposes. We recognize
derivative instruments, such as interest rate swap agreements
and foreign exchange contracts, in the consolidated balance
sheets at fair value. Changes in the fair value of derivatives
are recognized periodically either in earnings or in
stockholders equity, as a component of other comprehensive
income, depending on whether the derivative financial instrument
qualifies for hedge accounting, and if so, whether it qualifies
as a fair value hedge or a cash flow hedge. Gains and losses on
derivatives designated as cash flow hedges, to the extent they
are effective, are recorded in other comprehensive income, and
subsequently reclassified to earnings to offset the impact of
the hedged items when they occur. Changes in the fair value of
derivatives not qualifying as hedges, and for any portion of a
hedge that is ineffective, are reported in earnings.
The net interest paid or received on interest rate swaps is
recognized as interest expense. Gains and losses resulting from
the early termination of interest rate swap agreements are
deferred and amortized as adjustments to expense over the
remaining period of the debt originally covered by the
terminated swap.
Effects
of Inflation and Changing Prices
Various federal, state and local laws have been enacted that, in
certain cases, limit our ability to increase prices. Revenues
for general, acute care hospital services rendered to Medicare
patients are established under the federal governments
prospective payment system. Total
fee-for-service
Medicare revenues approximated 23% in 2009, 23% in 2008 and 24%
in 2007 of our total patient revenues.
Management believes hospital industry operating margins have
been, and may continue to be, under significant pressure because
of changes in payer mix and growth in operating expenses in
excess of the increase in prospective payments under the
Medicare program. In addition, as a result of increasing
regulatory and
58
HCA
INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS (Continued)
Effects
of Inflation and Changing Prices (Continued)
competitive pressures, our ability to maintain operating margins
through price increases to non-Medicare patients is limited.
IRS
Disputes
At December 31, 2009, we were contesting before the Appeals
Division of the Internal Revenue Service (the IRS)
certain claimed deficiencies and adjustments proposed by the IRS
in connection with its examinations of the 2003 and 2004 federal
income returns for HCA and eight affiliates that are treated as
partnerships for federal income tax purposes (affiliated
partnerships). The disputed items include the timing of
recognition of certain patient service revenues and our method
for calculating the tax allowance for doubtful accounts.
Six taxable periods of HCA and its predecessors ended in 1997
through 2002 and the 2002 taxable year of four affiliated
partnerships, for which the primary remaining issue is the
computation of the tax allowance for doubtful accounts, are
pending before the IRS Examination Division as of
December 31, 2009. The IRS began an audit of the 2005 and
2006 federal income tax returns for HCA and seven affiliated
partnerships during 2008. We anticipate the IRS Examination
Division will conclude its audit in 2010. During 2009, the seven
affiliated partnership audits were resolved with no material
impact on our operations or financial position. We anticipate
the IRS will begin an audit of the 2007 and 2008 federal income
tax returns for HCA during 2010.
Management believes HCA, its predecessors and affiliates
properly reported taxable income and paid taxes in accordance
with applicable laws and agreements established with the IRS and
final resolution of these disputes will not have a material,
adverse effect on our results of operations or financial
position. However, if payments due upon final resolution of
these issues exceed our recorded estimates, such resolutions
could have a material, adverse effect on our results of
operations or financial position.
59
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Information with respect to this Item is provided under the
caption Market Risk under Item 7,
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Information with respect to this Item is contained in our
consolidated financial statements indicated in the Index to
Consolidated Financial Statements on
Page F-1
of this annual report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
|
|
1.
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
|
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined
under
Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act). Based on this
evaluation, our principal executive officer and our principal
financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by
this annual report.
|
|
2.
|
Internal
Control Over Financial Reporting
|
(a) Managements Report on Internal Control Over
Financial Reporting
Our management is responsible for establishing and maintaining
effective internal control over financial reporting, as such
term is defined in Exchange Act
Rule 13a-15(f).
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an assessment of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
assessment under the framework in Internal Control
Integrated Framework, our management concluded that our internal
control over financial reporting was effective as of
December 31, 2009.
Ernst & Young, LLP, the independent registered public
accounting firm that audited our consolidated financial
statements included in this
Form 10-K,
has issued a report on our internal control over financial
reporting, which is included herein.
60
(b) Attestation Report of the Independent Registered Public
Accounting Firm
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
HCA Inc.
We have audited HCA Inc.s internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). HCA Inc.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 Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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.
A companys 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 companys
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
companys 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.
In our opinion, HCA Inc. maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of HCA Inc. as of December 31,
2009 and 2008, and the related consolidated statements of
income, stockholders deficit, and cash flows for each of
the three years in the period ended December 31, 2009 and
our report dated March 1, 2010 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Nashville, Tennessee
March 1, 2010
61
(c) Changes in Internal Control Over Financial
Reporting
During the fourth quarter of 2009, there have been no changes in
our internal control over financial reporting that have
materially affected or are reasonably likely to materially
affect our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
See the information incorporated by reference in Item 13,
Certain Relationships and Related Transactions, and
Director Independence for a description of certain
relationships between the Administrative Agent under the cash
flow credit facility and the ABL credit facility, and our
company.
62
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item regarding the identity and
business experience of our directors and executive officers is
set forth under the heading Action 1 Election
of Directors in the definitive information statement to be
filed in connection with our written consent of stockholders in
lieu of an annual meeting with respect to our directors and is
set forth in Item 1 of Part I of this annual report on
Form 10-K
with respect to our executive officers. The information required
by this Item contained in the definitive information statement
is incorporated herein by reference.
Information on the beneficial ownership reporting for our
directors and executive officers required by this Item is
contained under the caption Section 16(a) Beneficial
Ownership Reporting Compliance in the definitive
information statement to be filed in connection with our written
consent of stockholders in lieu of an annual meeting and is
incorporated herein by reference.
Information on our Audit and Compliance Committee and Audit
Committee Financial Experts required by this Item is contained
under the caption Corporate Governance in the
definitive information statement to be filed in connection with
our written consent of stockholders in lieu of an annual meeting
and is incorporated herein by reference.
We have a Code of Conduct which is applicable to all our
directors, officers and employees (the Code of
Conduct). The Code of Conduct is available on the Ethics
and Compliance and Corporate Governance pages of our website at
www.hcahealthcare.com. To the extent required pursuant to
applicable SEC regulations, we intend to post amendments to or
waivers from our Code of Conduct (to the extent applicable to
our chief executive officer, principal financial officer or
principal accounting officer) at this location on our website or
report the same on a Current Report on
Form 8-K.
Our Code of Conduct is available free of charge upon request to
our Corporate Secretary, HCA Inc., One Park Plaza, Nashville, TN
37203.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is set forth under the
headings Executive Compensation and
Compensation Committee Interlocks and Insider
Participation in the definitive information statement to
be filed in connection with our written consent of stockholders
in lieu of an annual meeting, which information is incorporated
herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information about security ownership of certain beneficial
owners required by this Item is set forth under the heading
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters in the
definitive information statement to be filed in connection with
our written consent of stockholders in lieu of an annual
meeting, which information is incorporated herein by reference.
Information about our equity compensation plans required by this
Item is set forth under the heading Equity Compensation
Plan Information in the definitive information statement
to be filed in connection with our written consent of
stockholders in lieu of an annual meeting, which information is
incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item is set forth under the
headings Certain Relationships and Related
Transactions and Corporate Governance in the
definitive information statement to be filed in connection with
our written consent of stockholders in lieu of an annual
meeting, which information is incorporated herein by reference.
63
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item is set forth under the
heading Principal Accountant Fees and Services in
the definitive information statement to be filed in connection
with our written consent of stockholders in lieu of an annual
meeting, which information is incorporated herein by reference.
PART IV
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Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) Documents filed as part of the report:
1. Financial Statements. The accompanying Index to
Consolidated Financial Statements on
page F-1
of this annual report on
Form 10-K
is provided in response to this item.
2. List of Financial Statement Schedules. All
schedules are omitted because the required information is either
not present, not present in material amounts or presented within
the consolidated financial statements.
3. List of Exhibits
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|
|
|
|
|
|
2
|
.1
|
|
|
|
Agreement and Plan of Merger, dated July 24, 2006, by and
among HCA Inc., Hercules Holding II, LLC and Hercules
Acquisition Corporation (filed as Exhibit 2.1 to the
Companys Current Report on
Form 8-K
filed July 25, 2006, and incorporated herein by reference).
|
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3
|
.1
|
|
|
|
Amended and Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Companys Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference).
|
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3
|
.2
|
|
|
|
Amended and Restated Bylaws of the Company (filed as
Exhibit 3.2 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference).
|
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4
|
.1
|
|
|
|
Specimen Certificate for shares of Common Stock, par value $0.01
per share, of the Company (filed as Exhibit 3 to the
Companys
Form 8-A/A,
Amendment No. 2, filed March 11, 2004 (File
No. 001-11239),
and incorporated herein by reference).
|
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4
|
.2
|
|
|
|
Indenture, dated November 17, 2006, among HCA Inc., the
guarantors party thereto and The Bank of New York, as trustee
(filed as Exhibit 4.1 to the Companys Current Report
on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
|
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4
|
.3
|
|
|
|
Security Agreement, dated as of November 17, 2006, among
HCA Inc., the subsidiary grantors party thereto and The Bank of
New York, as collateral agent (filed as Exhibit 4.2 to the
Companys Current Report on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
|
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4
|
.4
|
|
|
|
Pledge Agreement, dated as of November 17, 2006, among HCA
Inc., the subsidiary pledgors party thereto and The Bank of New
York, as collateral agent (filed as Exhibit 4.3 to the
Companys Current Report of
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
|
|
4
|
.5(a)
|
|
|
|
Form of
91/8% Senior
Secured Notes due 2014 (included in Exhibit 4.2).
|
|
4
|
.5(b)
|
|
|
|
Form of
91/4% Senior
Secured Notes due 2016 (included in Exhibit 4.2).
|
|
4
|
.5(c)
|
|
|
|
Form of
95/8%/103/8% Senior
Secured Toggle Notes due 1016 (included in Exhibit 4.2).
|
|
4
|
.6
|
|
|
|
Indenture, dated February 19, 2009, among HCA Inc, the
guarantors party thereto, The Bank of New York Mellon, as
collateral agent and The Bank of New York Mellon
Trust Company, N.A., as trustee. (filed as Exhibit 4.1
to the Companys Current Report on
Form 8-K
filed February 25, 2009, and incorporated herein by
reference).
|
|
4
|
.7
|
|
|
|
Form of
97/8% Senior
Secured Notes due 2017 (included in Exhibit 4.6).
|
|
4
|
.8
|
|
|
|
Indenture, dated as of April 22, 2009, among HCA Inc., the
guarantors party thereto, Deutsche Bank Trust Company
Americas, as paying agent, registrar and transfer agent, and Law
Debenture Trust Company of New York, as trustee (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed April 28, 2009, and incorporated herein by reference).
|
|
4
|
.9
|
|
|
|
Form of
81/2% Senior
Secured Notes due 2019 (included in Exhibit 4.8).
|
64
|
|
|
|
|
|
|
|
4
|
.10
|
|
|
|
Indenture, dated as of August 11, 2009, among HCA Inc., the
guarantors party thereto, Deutsche Bank Trust Company
Americas, as paying agent, registrar and transfer agent, and Law
Debenture Trust Company of New York, as trustee (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed August 17, 2009, and incorporated herein by
reference).
|
|
4
|
.11
|
|
|
|
Form of
77/8% Senior
Secured Notes due 2020 (included in Exhibit 4.10).
|
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4
|
.12(a)
|
|
|
|
$13,550,000,000 1,000,000,000 Credit
Agreement, dated as of November 17, 2006, among HCA Inc.,
HCA UK Capital Limited, the lending institutions from time to
time parties thereto, Banc of America Securities LLC,
J.P. Morgan Securities Inc., Citigroup Global Markets Inc.
and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as joint lead arrangers and joint bookrunners,
Bank of America, N.A., as administrative agent, JPMorgan Chase
Bank, N.A. and Citicorp North America, Inc., as co-syndication
agents and Merrill Lynch Capital Corporation, as documentation
agent (filed as Exhibit 4.8 to the Companys Current
Report on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
|
|
4
|
.12(b)
|
|
|
|
Amendment No. 1 to the Credit Agreement, dated as of
February 16, 2007, among HCA Inc., HCA UK Capital Limited,
the lending institutions from time to time parties thereto, Bank
of America, N.A., as administrative agent, JPMorgan Chase Bank,
N.A., and Citicorp North America, Inc., as Co-Syndication
Agents, Banc of America Securities, LLC, J.P. Morgan
Securities Inc., Citigroup Global Markets Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as joint
lead arrangers and bookrunners, Deutsche Bank Securities and
Wachovia Capital Markets LLC, as joint bookrunners and Merrill
Lynch Capital Corporation, as documentation agent (filed as
Exhibit 4.7(b) to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).
|
|
4
|
.12(c)
|
|
|
|
Amendment No. 2 to the Credit Agreement, dated as of
March 2, 2009, among HCA Inc., HCA UK Capital Limited, the
lending institutions from time to time parties thereto, Bank of
America, N.A., as administrative agent, JPMorgan Chase Bank,
N.A., and Citicorp North America, Inc., as Co-Syndication
Agents, Banc of America Securities, LLC, J.P. Morgan
Securities Inc., Citigroup Global Markets Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as joint
lead arrangers and bookrunners, Deutsche Bank Securities and
Wachovia Capital Markets LLC, as joint bookrunners and Merrill
Lynch Capital Corporation, as documentation agent. (filed as
Exhibit 4.8(c) to the Companys Annual Report on
Form 10-K
filed for the fiscal year ended December 31, 2008 and
incorporated herein by reference).
|
|
4
|
.12(d)
|
|
|
|
Amendment No. 3 to the Credit Agreement, dated as of
June 18, 2009, among HCA Inc., HCA UK Capital Limited, the
lending institutions from time to time parties thereto, Bank of
America, N.A., as administrative agent, JPMorgan Chase Bank,
N.A., and Citicorp North America, Inc., as Co-Syndication
Agents, Banc of America Securities, LLC, J.P. Morgan
Securities Inc., Citigroup Global Markets Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as joint
lead arrangers and bookrunners, Deutsche Bank Securities and
Wachovia Capital Markets LLC, as joint bookrunners and Merrill
Lynch Capital Corporation, as documentation agent (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed June 22, 2009, and incorporated herein by reference).
|
|
4
|
.13
|
|
|
|
U.S. Guarantee, dated November 17, 2006, among HCA Inc.,
the subsidiary guarantors party thereto and Bank of America,
N.A., as administrative agent (filed as Exhibit 4.9 to the
Companys Current Report on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
|
|
4
|
.14
|
|
|
|
Security Agreement, dated as of November 17, 2006, and
amended and restated as of March 2, 2009, among the
Company, the Subsidiary Grantors named therein and Bank of
America, N.A., as Collateral Agent (filed as exhibit 4.10
to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).
|
|
4
|
.15
|
|
|
|
Pledge Agreement, dated as of November 17, 2006, and
amended and restated as of March 2, 2009, among the
Company, the Subsidiary Pledgors named therein and Bank of
America, N.A., as Collateral Agent (filed as exhibit 4.11
to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).
|
65
|
|
|
|
|
|
|
|
4
|
.16(a)
|
|
|
|
$2,000,000,000 Amended and Restated Credit Agreement, dated as
of June 20, 2007, among HCA Inc., the subsidiary borrowers
parties thereto, the lending institutions from time to time
parties thereto, Banc of America Securities LLC,
J.P. Morgan Securities Inc., Citigroup Global Markets Inc.
and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as joint lead arrangers and joint bookrunners,
Bank of America, N.A., as administrative agent, JPMorgan Chase
Bank, N.A. and Citicorp North America, Inc., as co-syndication
agents, and Merrill Lynch Capital Corporation, as documentation
agent (filed as Exhibit 4.1 to the Companys Current
Report on
Form 8-K
filed June 26, 2007, and incorporated herein by reference).
|
|
4
|
.16(b)
|
|
|
|
Amendment No. 1 to the $2,000,000,000 Amended and Restated
Credit Agreement, dated as of March 2, 2009, among HCA
Inc., the subsidiary borrowers parties thereto, the lending
institutions from time to time parties thereto, Banc of America
Securities LLC, J.P. Morgan Securities Inc., Citigroup
Global Markets Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as joint lead arrangers
and joint bookrunners, Bank of America, N.A., as administrative
agent, JPMorgan Chase Bank, N.A. and Citicorp North America,
Inc., as co-syndication agents, and Merrill Lynch Capital
Corporation, as documentation agent (filed as
exhibit 4.12(b) to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).
|
|
4
|
.17
|
|
|
|
Security Agreement, dated as of November 17, 2006, among
HCA Inc., the subsidiary borrowers party thereto and Bank of
America, N.A., as collateral agent (filed as Exhibit 4.13
to the Companys Current Report on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
|
|
4
|
.18(a)
|
|
|
|
General Intercreditor Agreement, dated as of November 17,
2006, between Bank of America, N.A., as First Lien Collateral
Agent, and The Bank of New York, as Junior Lien Collateral Agent
(filed as Exhibit 4.13(a) to the Companys
Registration Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
|
|
4
|
.18(b)
|
|
|
|
Additional General Intercreditor Agreement, dated as of
April 22, 2009, by and among Bank of America, N.A., in its
capacity as First Lien Collateral Agent, The Bank of New York
Mellon, in its capacity as Junior Lien Collateral Agent and in
its capacity as 2006 Second Lien Trustee and The Bank of New
York Mellon Trust Company, N.A., in its capacity as 2009
Second Lien Trustee (filed as Exhibit 4.6 to the
Companys Current Report on
Form 8-K
filed April 28, 2009, and incorporated herein by reference).
|
|
4
|
.18(c)
|
|
|
|
Additional General Intercreditor Agreement, dated as of
August 11, 2009, by and among Bank of America, N.A., in its
capacity as First Lien Collateral Agent, The Bank of New York
Mellon, in its capacity as Junior Lien Collateral Agent and in
its capacity as trustee for the Second Lien Notes issued on
November 17, 2006, and The Bank of New York Mellon
Trust Company, N.A., in its capacity as trustee for the
Second Lien Notes issued on February 19, 2009 (filed as
Exhibit 4.6 to the Companys Current Report on
Form 8-K
filed August 17, 2009, and incorporated herein by
reference).
|
|
4
|
.18(d)
|
|
|
|
Receivables Intercreditor Agreement, dated as of
November 17, 2006, among Bank of America, N.A., as ABL
Collateral Agent, Bank of America, N.A., as CF Collateral Agent
and The Bank of New York, as Bonds Collateral Agent (filed as
Exhibit 4.13(b) to the Companys Registration
Statement on
Form S-4
(File
No. 333-145054),
and incorporated herein by reference).
|
|
4
|
.18(e)
|
|
|
|
Additional Receivables Intercreditor Agreement, dated as of
April 22, 2009, by and between Bank of America, N.A. as ABL
Collateral Agent, and Bank of America, N.A. as New First Lien
Collateral Agent (filed as Exhibit 4.7 to the
Companys Current Report on
Form 8-K
filed April 28, 2009, and incorporated herein by reference).
|
|
4
|
.18(f)
|
|
|
|
Additional Receivables Intercreditor Agreement, dated as of
August 11, 2009, by and between Bank of America, N.A., as
ABL Collateral Agent, and Bank of America, N.A., as New First
Lien Collateral Agent (filed as Exhibit 4.7 to the
Companys Current Report on
Form 8-K
filed August 17, 2009, and incorporated herein by
reference).
|
|
4
|
.18(g)
|
|
|
|
First Lien Intercreditor Agreement, dated as of April 22,
2009, among Bank of America, N.A. as Collateral Agent, Bank of
America, N.A. as Authorized Representative under the Credit
Agreement and Law Debenture Trust Company of New York as
the Initial Additional Authorized Representative (filed as
Exhibit 4.5 to the Companys Current Report on
Form 8-K
filed April 28, 2009, and incorporated herein by reference).
|
|
4
|
.19
|
|
|
|
Registration Rights Agreement, dated as of November 17,
2006, among HCA Inc., Hercules Holding II, LLC and certain other
parties thereto (filed as Exhibit 4.4 to the Companys
Current Report on
Form 8-K
filed November 24, 2006, and incorporated herein by
reference).
|
66
|
|
|
|
|
|
|
|
4
|
.20
|
|
|
|
Registration Rights Agreement, dated as of March 16, 1989,
by and among HCA-Hospital Corporation of America and the persons
listed on the signature pages thereto (filed as Exhibit(g)(24)
to Amendment No. 3 to the
Schedule 13E-3
filed by HCA-Hospital Corporation of America, Hospital
Corporation of America and The HCA Profit Sharing Plan on
March 22, 1989, and incorporated herein by reference).
|
|
4
|
.21
|
|
|
|
Assignment and Assumption Agreement, dated as of
February 10, 1994, between HCA-Hospital Corporation of
America and the Company relating to the Registration Rights
Agreement, as amended (filed as Exhibit 4.7 to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 1993 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.22(a)
|
|
|
|
Indenture, dated as of December 16, 1993 between the
Company and The First National Bank of Chicago, as Trustee
(filed as Exhibit 4.11 to the Companys Annual Report
on
Form 10-K
for the fiscal year ended December 31, 1993 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.22(b)
|
|
|
|
First Supplemental Indenture, dated as of May 25, 2000
between the Company and Bank One Trust Company, N.A., as
Trustee (filed as Exhibit 4.4 to the Companys
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2000 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.22(c)
|
|
|
|
Second Supplemental Indenture, dated as of July 1, 2001
between the Company and Bank One Trust Company, N.A., as
Trustee (filed as Exhibit 4.1 to the Companys
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2001 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.22(d)
|
|
|
|
Third Supplemental Indenture, dated as of December 5, 2001
between the Company and The Bank of New York, as Trustee (filed
as Exhibit 4.5(d) to the Companys Annual Report of
Form 10-K
for the fiscal year ended December 31, 2001(File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.22(e)
|
|
|
|
Fourth Supplemental Indenture, dated as of November 14,
2006, between the Company and The Bank of New York, as Trustee
(filed as Exhibit 4.1 to the Companys Current Report
on
Form 8-K
filed November 16, 2006, and incorporated herein by
reference).
|
|
4
|
.23
|
|
|
|
Form of 7.5% Debentures due 2023 (filed as Exhibit 4.2
to the Companys Current Report on
Form 8-K
dated December 15, 1993, and incorporated herein by
reference).
|
|
4
|
.24
|
|
|
|
Form of 8.36% Debenture due 2024 (filed as Exhibit 4.1
to the Companys Current Report on
Form 8-K
filed April 25, 1994 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.25
|
|
|
|
Form of Fixed Rate Global Medium Term Note (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed July 11, 1994 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.26
|
|
|
|
Form of Floating Rate Global Medium Term Note (filed as
Exhibit 4.2 to the Companys Current Report on
Form 8-K
filed July 11, 1994 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.27
|
|
|
|
Form of 7.69% Note due 2025 (filed as Exhibit 4.10 to
the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2004 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.28
|
|
|
|
Form of 7.19% Debenture due 2015 (filed as Exhibit 4.1
to the Companys Current Report on
Form 8-K
filed November 24, 1995 (File
No. 033-58919),
and incorporated herein by reference).
|
|
4
|
.29
|
|
|
|
Form of 7.50% Debenture due 2095 (filed as Exhibit 4.2
to the Companys Current Report on
Form 8-K
filed November 24, 1995 (File
No. 033-58919),
and incorporated herein by reference).
|
|
4
|
.30
|
|
|
|
Form of 7.05% Debenture due 2027 (filed as Exhibit 4.1
to the Companys Current Report on
Form 8-K
filed December 8, 1995 (File
No. 033-58919),
and incorporated herein by reference).
|
|
4
|
.31(a)
|
|
|
|
8.750% Note in the principal amount of $400,000,000 due
2010 (filed as Exhibit 4.1 to the Companys Current
Report on
Form 8-K
filed August 24, 2000 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.31(b)
|
|
|
|
8.750% Note in the principal amount of $350,000,000 due
2010 (filed as Exhibit 4.2 to the Companys Current
Report on
Form 8-K
filed August 24, 2000 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.32
|
|
|
|
8.75% Note due 2010 in the principal amount of
£150,000,000 (filed as Exhibit 4.1 to the
Companys Current Report on
Form 8-K
filed November 11, 2000 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.33(a)
|
|
|
|
71/8% Note
in the principal amount of $100,000,000 due 2011 (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed January 31, 2001 (File
No. 001-11239),
and incorporated herein by reference).
|
67
|
|
|
|
|
|
|
|
4
|
.33(b)
|
|
|
|
71/8% Note
in the principal amount of $400,000,000 due 2011 (filed as
Exhibit 4.2 to the Companys Current Report on
Form 8-K
filed January 31, 2001 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.34(a)
|
|
|
|
6.95% Note due 2012 in the principal amount of
$400,000,000. (filed as Exhibit 4.5 to the Companys
Current Report on
Form 8-K
filed April 30, 2002 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.34(b)
|
|
|
|
6.95% Note due 2012 in the principal amount of
$100,000,000. (filed as Exhibit 4.6 to the Companys
Current Report on
Form 8-K
filed April 30, 2002 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.35(a)
|
|
|
|
6.30% Note due 2012 in the principal amount of
$400,000,000. (filed as Exhibit 4.1 to the Companys
Current Report on
Form 8-K
filed September 25, 2002 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.35(b)
|
|
|
|
6.30% Note due 2012 in the principal amount of
$100,000,000. (filed as Exhibit 4.2 to the Companys
Current Report on
Form 8-K
filed September 25, 2002 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.36(a)
|
|
|
|
6.25% Note due 2013 in the principal amount of $400,000,000
(filed as Exhibit 4.1 to the Companys Current Report
on
Form 8-K
filed February 5, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.36(b)
|
|
|
|
6.25% Note due 2013 in the principal amount of $100,000,000
(filed as Exhibit 4.2 to the Companys Current Report
on
Form 8-K
filed February 5, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.37(a)
|
|
|
|
63/4% Note
due 2013 in the principal amount of $400,000,000 (filed as
Exhibit 4.1 to the Companys Current Report on
Form 8-K
filed July 29, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.37(b)
|
|
|
|
63/4% Note
due 2013 in the principal amount of $100,000,000 (filed as
Exhibit 4.2 to the Companys Current Report on
Form 8-K
filed July 29, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.38
|
|
|
|
7.50% Note due 2033 in the principal amount of $250,000,000
(filed as Exhibit 4.2 to the Companys Current Report
on
Form 8-K
filed November 6, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.39
|
|
|
|
5.75% Note due 2014 in the principal amount of $500,000,000
(filed as Exhibit 4.1 to the Companys Current Report
on
Form 8-K
filed March 11, 2004 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.40(a)
|
|
|
|
6.375% Note due 2015 in the principal amount of
$500,000,000 (filed as Exhibit 4.2 to the Companys
Current Report on
Form 8-K
filed November 19, 2004 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.40(b)
|
|
|
|
6.375% Note due 2015 in the principal amount of
$250,000,000 (filed as Exhibit 4.3 to the Companys
Current Report on
Form 8-K
filed November 19, 2004 (File
No. 001-11239),
and incorporated herein by reference).
|
|
4
|
.41(a)
|
|
|
|
6.500% Note due 2016 in the principal amount of
$500,000,000 (filed as Exhibit 4.1 to the Companys
Current Report on
Form 8-K
filed on February 8, 2006, and incorporated herein by
reference).
|
|
4
|
.41(b)
|
|
|
|
6.500% Note due 2016 in the principal amount of
$500,000,000 (filed as Exhibit 4.2 to the Companys
Current Report on
Form 8-K
filed on February 8, 2006, and incorporated herein by
reference).
|
|
10
|
.1(a)
|
|
|
|
Amended and Restated Columbia/HCA Healthcare Corporation 1992
Stock and Incentive Plan (filed as Exhibit 10.7(b) to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 1998 (File
No. 001-11239),
and incorporated herein by reference).*
|
|
10
|
.1(b)
|
|
|
|
First Amendment to Amended and Restated Columbia/HCA Healthcare
Corporation 1992 Stock and Incentive Plan (filed as
Exhibit 10.2 to the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 1999 (File
No. 001-11239),
and incorporated herein by reference).*
|
|
10
|
.2
|
|
|
|
HCA-Hospital Corporation of America Nonqualified Initial Option
Plan (filed as Exhibit 4.6 to the Companys
Registration Statement on
Form S-3
(File
No. 33-52379),
and incorporated herein by reference).*
|
68
|
|
|
|
|
|
|
|
10
|
.3
|
|
|
|
Form of Indemnity Agreement with certain officers and directors
(filed as Exhibit 10(kk) to Galen Health Care, Inc.s
Registration Statement on Form 10, as amended, and
incorporated herein by reference) (filed as Exhibit 10.3 to
the Companys Registration Statement on
Form S-4
(File
No. 333-145054)
and incorporated herein by reference).
|
|
10
|
.4
|
|
|
|
Form of Galen Health Care, Inc. 1993 Adjustment Plan (filed as
Exhibit 4.15 to the Companys Registration Statement
on
Form S-8
(File
No. 33-50147),
and incorporated herein by reference).*
|
|
10
|
.5
|
|
|
|
HCA-Hospital Corporation of America 1992 Stock Compensation Plan
(filed as Exhibit 10(t) to HCA-Hospital Corporation of
Americas Registration Statement on
Form S-1
(File
No. 33-44906),
and incorporated herein by reference).*
|
|
10
|
.6
|
|
|
|
Columbia/HCA Healthcare Corporation 2000 Equity Incentive Plan
(filed as Exhibit A to the Companys Proxy Statement
for the Annual Meeting of Stockholders on May 25, 2000
(File
No. 001-11239),
and incorporated herein by reference).*
|
|
10
|
.7
|
|
|
|
Form of Non-Qualified Stock Option Award Agreement (Officers)
(filed as Exhibit 99.2 to the Companys Current Report
on
Form 8-K
filed February 2, 2005 (File
No. 001-11239),
and incorporated herein by reference).*
|
|
10
|
.8
|
|
|
|
HCA 2005 Equity Incentive Plan (filed as Exhibit B to the
Companys Proxy Statement for the Annual Meeting of
Shareholders on May 26, 2005, and incorporated herein by
reference).*
|
|
10
|
.9
|
|
|
|
Form of 2005 Non-Qualified Stock Option Agreement (Officers)
(filed as Exhibit 99.2 to the Companys Current Report
on
Form 8-K
dated October 6, 2005, and incorporated herein by
reference).*
|
|
10
|
.10
|
|
|
|
Form of 2006 Non-Qualified Stock Option Award Agreement
(Officers) (filed as Exhibit 10.2 to the Companys
Current Report on
Form 8-K
dated February 1, 2006, and incorporated herein by
reference).*
|
|
10
|
.11
|
|
|
|
2006 Stock Incentive Plan for Key Employees of HCA Inc. and its
Affiliates (filed as Exhibit 10.11 to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.12
|
|
|
|
Management Stockholders Agreement dated November 17,
2006 (filed as Exhibit 10.12 to the Companys Annual
Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).
|
|
10
|
.13
|
|
|
|
Sale Participation Agreement dated November 17, 2006 (filed
as Exhibit 10.13 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).
|
|
10
|
.14
|
|
|
|
Form of Option Rollover Agreement (filed as Exhibit 10.14
to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.15
|
|
|
|
Form of Option Agreement (2007) (filed as Exhibit 10.15 to
the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.16
|
|
|
|
Form of Option Agreement (2008) (filed as Exhibit 10.16 to
the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference).*
|
|
10
|
.17
|
|
|
|
Form of Option Agreement (2009) (filed as Exhibit 10.17 to
the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).*
|
|
10
|
.18
|
|
|
|
Form of Option Agreement (filed as Exhibit 10.1 to the
Companys Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2009, and
incorporated herein by reference).*
|
|
10
|
.19
|
|
|
|
Form of 2x Time Option Agreement (filed as Exhibit 10.1 to
the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2009, and
incorporated herein by reference).*
|
|
10
|
.20
|
|
|
|
Form of Option Agreement (2010).*
|
|
10
|
.21
|
|
|
|
Exchange and Purchase Agreement (filed as Exhibit 10.16 to
the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).
|
|
10
|
.22
|
|
|
|
Civil and Administrative Settlement Agreement, dated
December 14, 2000 between the Company, the United States
Department of Justice and others (filed as Exhibit 99.2 to
the Companys Current Report on
Form 8-K
filed December 20, 2000 (File
No. 001-11239),
and incorporated herein by reference).
|
69
|
|
|
|
|
|
|
|
10
|
.23
|
|
|
|
Plea Agreement, dated December 14, 2000 between the
Company, Columbia Homecare Group, Inc., Columbia Management
Companies, Inc. and the United States Department of Justice
(filed as Exhibit 99.3 to the Companys Current Report
on
Form 8-K
filed December 20, 2000 (File
No. 001-11239),
and incorporated herein by reference).
|
|
10
|
.24
|
|
|
|
Corporate Integrity Agreement, dated December 14, 2000
between the Company and the Office of Inspector General of the
United States Department of Health and Human Services (filed as
Exhibit 99.4 to the Companys Current Report on
Form 8-K
filed December 20, 2000 (File
No. 001-11239),
and incorporated herein by reference).
|
|
10
|
.25
|
|
|
|
Management Agreement, dated November 17, 2006, among HCA
Inc., Bain Capital Partners, LLC, Kohlberg Kravis
Roberts & Co. L.P., Dr. Thomas F. Frist Jr.,
Patricia F. Elcan, William R. Frist and Thomas F.
Frist, III, and Merrill Lynch Global Partners, Inc. (filed
as Exhibit 10.20 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).
|
|
10
|
.26
|
|
|
|
Retirement Agreement between the Company and Thomas F. Frist,
Jr., M.D. dated as of January 1, 2002 (filed as
Exhibit 10.30 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2001 (File
No. 001-11239),
and incorporated herein by reference).*
|
|
10
|
.27
|
|
|
|
Amended and Restated HCA Supplemental Executive Retirement Plan,
effective January 1, 2007, except as provided therein
(filed as Exhibit 10.24 to the Companys Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).*
|
|
10
|
.28(a)
|
|
|
|
Amended and Restated HCA Restoration Plan, effective
January 1, 2008 (filed as Exhibit 10.25 to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).*
|
|
10
|
.28(b)
|
|
|
|
First Amendment to the January 1, 2008 Restatement of the
HCA Restoration Plan, dated December 17, 2008.*
|
|
10
|
.28(c)
|
|
|
|
Second Amendment to the January 1, 2008 Restatement of the
HCA Restoration Plan, dated December 23, 2009.*
|
|
10
|
.29
|
|
|
|
HCA Inc. 2007 Senior Officer Performance Excellence Program
(filed as Exhibit 10.26 to the Companys Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.30(a)
|
|
|
|
HCA Inc.
2008-2009
Senior Officer Performance Excellence Program (filed as
Exhibit 10.27 to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference).*
|
|
10
|
.30(b)
|
|
|
|
HCA Inc. Amendment No. 1 to the
2008-2009
Senior Officer Performance Excellence Program (filed as
Exhibit 10.28(b) to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).*
|
|
10
|
.31(a)
|
|
|
|
Amended and Restated Employment Agreement dated October 27,
2008 (Jack O. Bovender, Jr.) (filed as Exhibit 10.29(f) to
the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).*
|
|
10
|
.31(b)
|
|
|
|
Employment Agreement dated November 16, 2006 (Richard M.
Bracken) (filed as Exhibit 10.27(b) to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.31(c)
|
|
|
|
Amendment to Employment Agreement effective January 1, 2009
(Richard M. Bracken) (filed as Exhibit 10.29(g) to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, and
incorporated herein by reference).*
|
|
10
|
.31(d)
|
|
|
|
Employment Agreement dated November 16, 2006 (R. Milton
Johnson) (filed as Exhibit 10.27(c) to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.31(e)
|
|
|
|
Employment Agreement dated November 16, 2006 (Samuel N.
Hazen) (filed as Exhibit 10.27(d) to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and
incorporated herein by reference).*
|
|
10
|
.31(f)
|
|
|
|
Employment Agreement dated November 16, 2006 (Beverly B.
Wallace) (filed as Exhibit 10.28(e) to the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference).*
|
70
|
|
|
|
|
|
|
|
10
|
.32
|
|
|
|
Administrative Settlement Agreement dated June 25, 2003 by
and between the United States Department of Health and Human
Services, acting through the Centers for Medicare and Medicaid
Services, and the Company (filed as Exhibit 10.1 to the
Companys Quarterly Report of
Form 10-Q
for the quarter ended June 30, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
|
10
|
.33
|
|
|
|
Civil Settlement Agreement by and 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 TRICARE Management
Activity (filed as Exhibit 10.2 to the Companys
Quarterly Report of
Form 10-Q
for the quarter ended June 30, 2003 (File
No. 001-11239),
and incorporated herein by reference).
|
|
10
|
.34
|
|
|
|
Form of Amended and Restated Limited Liability Company Agreement
of Hercules Holding II, LLC dated as of November 17, 2006,
among Hercules Holding II, LLC and certain other parties thereto
(filed as Exhibit 10.3 to the Companys Registration
Statement on
Form 8-A
(File
No. 000-18406)
and incorporated herein by reference).
|
|
10
|
.35
|
|
|
|
Indemnification Priority and Information Sharing Agreement,
dated as of November 1, 2009, between HCA Inc. and certain
other parties thereto.
|
|
21
|
|
|
|
|
List of Subsidiaries.
|
|
23
|
|
|
|
|
Consent of Ernst & Young LLP.
|
|
31
|
.1
|
|
|
|
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
|
|
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
|
|
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
* |
|
Management compensatory plan or arrangement. |
71
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.
HCA INC.
|
|
|
|
By:
|
/s/ Richard
M. Bracken
|
Richard M. Bracken
Chairman of the Board and
Chief Executive Officer
Dated: March 1, 2010
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.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Richard
M. Bracken
Richard
M. Bracken
|
|
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
|
|
March 1, 2010
|
|
|
|
|
|
/s/ R.
Milton Johnson
R.
Milton Johnson
|
|
Executive Vice President, Chief Financial Officer and Director
(Principal Financial Officer and Principal Accounting Officer)
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Christopher
J. Birosak
Christopher
J. Birosak
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ John
P. Connaughton
John
P. Connaughton
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ James
D. Forbes
James
D. Forbes
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Kenneth
W. Freeman
Kenneth
W. Freeman
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Thomas
F. Frist, III
Thomas
F. Frist, III
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ William
R. Frist
William
R. Frist
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Christopher
R. Gordon
Christopher
R. Gordon
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Michael
W. Michelson
Michael
W. Michelson
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ James
C. Momtazee
James
C. Momtazee
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Stephen
G. Pagliuca
Stephen
G. Pagliuca
|
|
Director
|
|
March 1, 2010
|
|
|
|
|
|
/s/ Nathan
C. Thorne
Nathan
C. Thorne
|
|
Director
|
|
March 1, 2010
|
72
HCA
INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-40
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
HCA Inc.
We have audited the accompanying consolidated balance sheets of
HCA Inc. as of December 31, 2009 and 2008, and the related
consolidated statements of income, stockholders deficit,
and cash flows for each of the three years in the period ended
December 31, 2009. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of HCA Inc. at December 31, 2009 and
2008, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), HCA
Inc.s internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 1, 2010 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Nashville, Tennessee
March 1, 2010
F-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues
|
|
$
|
30,052
|
|
|
$
|
28,374
|
|
|
$
|
26,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
11,958
|
|
|
|
11,440
|
|
|
|
10,714
|
|
Supplies
|
|
|
4,868
|
|
|
|
4,620
|
|
|
|
4,395
|
|
Other operating expenses
|
|
|
4,724
|
|
|
|
4,554
|
|
|
|
4,233
|
|
Provision for doubtful accounts
|
|
|
3,276
|
|
|
|
3,409
|
|
|
|
3,130
|
|
Equity in earnings of affiliates
|
|
|
(246
|
)
|
|
|
(223
|
)
|
|
|
(206
|
)
|
Depreciation and amortization
|
|
|
1,425
|
|
|
|
1,416
|
|
|
|
1,426
|
|
Interest expense
|
|
|
1,987
|
|
|
|
2,021
|
|
|
|
2,215
|
|
Losses (gains) on sales of facilities
|
|
|
15
|
|
|
|
(97
|
)
|
|
|
(471
|
)
|
Impairment of long-lived assets
|
|
|
43
|
|
|
|
64
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,050
|
|
|
|
27,204
|
|
|
|
25,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,002
|
|
|
|
1,170
|
|
|
|
1,398
|
|
Provision for income taxes
|
|
|
627
|
|
|
|
268
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,375
|
|
|
|
902
|
|
|
|
1,082
|
|
Net income attributable to noncontrolling interests
|
|
|
321
|
|
|
|
229
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to HCA Inc.
|
|
$
|
1,054
|
|
|
$
|
673
|
|
|
$
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
HCA
INC.
DECEMBER 31, 2009 AND 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
312
|
|
|
$
|
465
|
|
Accounts receivable, less allowance for doubtful accounts of
$4,860 and $4,741
|
|
|
3,692
|
|
|
|
3,780
|
|
Inventories
|
|
|
802
|
|
|
|
737
|
|
Deferred income taxes
|
|
|
1,192
|
|
|
|
914
|
|
Other
|
|
|
579
|
|
|
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,577
|
|
|
|
6,301
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,202
|
|
|
|
1,189
|
|
Buildings
|
|
|
9,108
|
|
|
|
8,670
|
|
Equipment
|
|
|
13,575
|
|
|
|
12,833
|
|
Construction in progress
|
|
|
784
|
|
|
|
1,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,669
|
|
|
|
23,714
|
|
Accumulated depreciation
|
|
|
(13,242
|
)
|
|
|
(12,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
11,427
|
|
|
|
11,529
|
|
|
|
|
|
|
|
|
|
|
Investments of insurance subsidiary
|
|
|
1,166
|
|
|
|
1,422
|
|
Investments in and advances to affiliates
|
|
|
853
|
|
|
|
842
|
|
Goodwill
|
|
|
2,577
|
|
|
|
2,580
|
|
Deferred loan costs
|
|
|
418
|
|
|
|
458
|
|
Other
|
|
|
1,113
|
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,131
|
|
|
$
|
24,280
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,460
|
|
|
$
|
1,370
|
|
Accrued salaries
|
|
|
849
|
|
|
|
854
|
|
Other accrued expenses
|
|
|
1,158
|
|
|
|
1,282
|
|
Long-term debt due within one year
|
|
|
846
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,313
|
|
|
|
3,910
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
24,824
|
|
|
|
26,585
|
|
Professional liability risks
|
|
|
1,057
|
|
|
|
1,108
|
|
Income taxes and other liabilities
|
|
|
1,768
|
|
|
|
1,782
|
|
|
|
|
|
|
|
|
|
|
Equity securities with contingent redemption rights
|
|
|
147
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Common stock $0.01 par; authorized
125,000,000 shares 2009 and 2008; outstanding
94,637,400 shares 2009 and
94,367,500 shares 2008
|
|
|
1
|
|
|
|
1
|
|
Capital in excess of par value
|
|
|
226
|
|
|
|
165
|
|
Accumulated other comprehensive loss
|
|
|
(450
|
)
|
|
|
(604
|
)
|
Retained deficit
|
|
|
(8,763
|
)
|
|
|
(9,817
|
)
|
|
|
|
|
|
|
|
|
|
Stockholders deficit attributable to HCA Inc.
|
|
|
(8,986
|
)
|
|
|
(10,255
|
)
|
Noncontrolling interests
|
|
|
1,008
|
|
|
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,978
|
)
|
|
|
(9,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,131
|
|
|
$
|
24,280
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (Deficit) Attributable to HCA Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Common Stock
|
|
|
Capital in
|
|
|
Other
|
|
|
|
|
|
Attributable to
|
|
|
|
|
|
|
Shares
|
|
|
Par
|
|
|
Excess of
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Noncontrolling
|
|
|
|
|
|
|
(000)
|
|
|
Value
|
|
|
Par Value
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Interests
|
|
|
Total
|
|
|
Balances, December 31, 2006
|
|
|
92,218
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
16
|
|
|
$
|
(11,391
|
)
|
|
$
|
907
|
|
|
$
|
(10,467
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
874
|
|
|
|
208
|
|
|
|
1,082
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
(15
|
)
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194
|
)
|
|
|
|
|
|
|
|
|
|
|
(194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188
|
)
|
|
|
874
|
|
|
|
208
|
|
|
|
894
|
|
Equity contributions
|
|
|
1,961
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Share-based benefit plans
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
|
|
(152
|
)
|
Other
|
|
|
3
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
38
|
|
|
|
(25
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
94,182
|
|
|
|
1
|
|
|
|
112
|
|
|
|
(172
|
)
|
|
|
(10,479
|
)
|
|
|
938
|
|
|
|
(9,600
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
673
|
|
|
|
229
|
|
|
|
902
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(432
|
)
|
|
|
673
|
|
|
|
229
|
|
|
|
470
|
|
Share-based benefit plans
|
|
|
185
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(178
|
)
|
|
|
(178
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
6
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
94,367
|
|
|
|
1
|
|
|
|
165
|
|
|
|
(604
|
)
|
|
|
(9,817
|
)
|
|
|
995
|
|
|
|
(9,260
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,054
|
|
|
|
321
|
|
|
|
1,375
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Change in fair value of derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
1,054
|
|
|
|
321
|
|
|
|
1,529
|
|
Share-based benefit plans
|
|
|
270
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330
|
)
|
|
|
(330
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
|
94,637
|
|
|
$
|
1
|
|
|
$
|
226
|
|
|
$
|
(450
|
)
|
|
$
|
(8,763
|
)
|
|
$
|
1,008
|
|
|
$
|
(7,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,375
|
|
|
$
|
902
|
|
|
$
|
1,082
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash from operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,180
|
)
|
|
|
(3,328
|
)
|
|
|
(3,345
|
)
|
Inventories and other assets
|
|
|
(191
|
)
|
|
|
159
|
|
|
|
(241
|
)
|
Accounts payable and accrued expenses
|
|
|
280
|
|
|
|
(198
|
)
|
|
|
(29
|
)
|
Provision for doubtful accounts
|
|
|
3,276
|
|
|
|
3,409
|
|
|
|
3,130
|
|
Depreciation and amortization
|
|
|
1,425
|
|
|
|
1,416
|
|
|
|
1,426
|
|
Income taxes
|
|
|
(520
|
)
|
|
|
(448
|
)
|
|
|
(105
|
)
|
Losses (gains) on sales of facilities
|
|
|
15
|
|
|
|
(97
|
)
|
|
|
(471
|
)
|
Impairment of long-lived assets
|
|
|
43
|
|
|
|
64
|
|
|
|
24
|
|
Amortization of deferred loan costs
|
|
|
80
|
|
|
|
79
|
|
|
|
78
|
|
Share-based compensation
|
|
|
40
|
|
|
|
32
|
|
|
|
24
|
|
Pay-in-kind
interest
|
|
|
58
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
46
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,747
|
|
|
|
1,990
|
|
|
|
1,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,317
|
)
|
|
|
(1,600
|
)
|
|
|
(1,444
|
)
|
Acquisition of hospitals and health care entities
|
|
|
(61
|
)
|
|
|
(85
|
)
|
|
|
(32
|
)
|
Disposal of hospitals and health care entities
|
|
|
41
|
|
|
|
193
|
|
|
|
767
|
|
Change in investments
|
|
|
303
|
|
|
|
21
|
|
|
|
207
|
|
Other
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,035
|
)
|
|
|
(1,467
|
)
|
|
|
(479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of long-term debt
|
|
|
2,979
|
|
|
|
|
|
|
|
|
|
Net change in revolving bank credit facilities
|
|
|
(1,335
|
)
|
|
|
700
|
|
|
|
(520
|
)
|
Repayment of long-term debt
|
|
|
(3,103
|
)
|
|
|
(960
|
)
|
|
|
(750
|
)
|
Distributions to noncontrolling interests
|
|
|
(330
|
)
|
|
|
(178
|
)
|
|
|
(152
|
)
|
Payment of debt issuance costs
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
Issuances of common stock
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Other
|
|
|
(6
|
)
|
|
|
(13
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,865
|
)
|
|
|
(451
|
)
|
|
|
(1,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(153
|
)
|
|
|
72
|
|
|
|
(241
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
465
|
|
|
|
393
|
|
|
|
634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
312
|
|
|
$
|
465
|
|
|
$
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments
|
|
$
|
1,751
|
|
|
$
|
1,979
|
|
|
$
|
2,163
|
|
Income tax payments, net of refunds
|
|
$
|
1,147
|
|
|
$
|
716
|
|
|
$
|
421
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
HCA
INC.
|
|
NOTE 1
|
ACCOUNTING
POLICIES
|
Merger,
Recapitalization and Reporting Entity
On November 17, 2006, HCA Inc. completed its merger (the
Merger) with Hercules Acquisition Corporation,
pursuant to which the Company was acquired by Hercules Holding
II, LLC (Hercules Holding), a Delaware limited
liability company owned by a private investor group comprised of
affiliates of Bain Capital Partners, Kohlberg Kravis
Roberts & Co., Merrill Lynch Global Private Equity
(each a Sponsor), affiliates of Citigroup Inc. and
Bank of America Corporation (the Sponsor Assignees)
and affiliates of HCA founder, Dr. Thomas F. Frist Jr.,
(the Frist Entities, and together with the Sponsors
and the Sponsor Assignees, the Investors), and by
members of management and certain other investors. The Merger,
the financing transactions related to the Merger and other
related transactions are collectively referred to in this annual
report as the Recapitalization. The Merger was
accounted for as a recapitalization in our financial statements,
with no adjustments to the historical basis of our assets and
liabilities. As a result of the Recapitalization, our
outstanding capital stock is owned by the Investors, certain
members of management and key employees. On April 29, 2008,
we registered our common stock pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended, thus subjecting
us to the reporting requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended. Our common stock is
not traded on a national securities exchange.
HCA Inc. is a holding company whose affiliates own and operate
hospitals and related health care entities. The term
affiliates includes direct and indirect subsidiaries
of HCA Inc. and partnerships and joint ventures in which such
subsidiaries are partners. At December 31, 2009, these
affiliates owned and operated 155 hospitals, 97 freestanding
surgery centers and provided extensive outpatient and ancillary
services. Affiliates of HCA are also partners in joint ventures
that own and operate eight hospitals and eight freestanding
surgery centers, which are accounted for using the equity
method. The Companys facilities are located in
20 states and England. The terms HCA,
Company, we, our or
us, as used in this annual report on
Form 10-K,
refer to HCA Inc. and its affiliates unless otherwise stated or
indicated by context.
Basis of
Presentation
The preparation of financial statements in conformity with
generally accepted accounting principles requires management 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.
The consolidated financial statements include all subsidiaries
and entities controlled by HCA. We generally define
control as ownership of a majority of the voting
interest of an entity. The consolidated financial statements
include entities in which we absorb a majority of the
entitys expected losses, receive a majority of the
entitys expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the
entity. Significant intercompany transactions have been
eliminated. Investments in entities we do not control, but in
which we have a substantial ownership interest and can exercise
significant influence, are accounted for using the equity method.
We have completed various acquisitions and joint venture
transactions. The accounts of these entities have been included
in our consolidated financial statements for periods subsequent
to our acquisition of controlling interests. The majority of our
expenses are cost of revenue items. Costs that could
be classified as general and administrative include our
corporate office costs, which were $164 million,
$174 million and $169 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Revenues
Revenues consist primarily of net patient service revenues that
are recorded based upon established billing rates less
allowances for contractual adjustments. Revenues are recorded
during the period the health care services are provided, based
upon the estimated amounts due from the patients and third-party
payers. Third-party payers
F-7
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Revenues
(Continued)
include federal and state agencies (under the Medicare and
Medicaid programs), managed care health plans, commercial
insurance companies and employers. Estimates of contractual
allowances under managed care health plans are based upon the
payment terms specified in the related contractual agreements.
Contractual payment terms in managed care agreements are
generally based upon predetermined rates per diagnosis, per diem
rates or discounted
fee-for-service
rates.
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. As a result,
there is at least a reasonable possibility recorded estimates
will change by a material amount. Estimated reimbursement
amounts are adjusted in subsequent periods as cost reports are
prepared and filed and as final settlements are determined (in
relation to certain government programs, primarily Medicare,
this is generally referred to as the cost report
filing and settlement process). The adjustments to estimated
Medicare and Medicaid reimbursement amounts and
disproportionate-share funds, which resulted in net increases to
revenues, related primarily to cost reports filed during the
respective year were $40 million, $32 million and
$47 million in 2009, 2008 and 2007, respectively. The
adjustments to estimated reimbursement amounts, which resulted
in net increases to revenues, related primarily to cost reports
filed during previous years were $60 million,
$35 million and $83 million in 2009, 2008 and 2007,
respectively.
The Emergency Medical Treatment and Active Labor Act
(EMTALA) requires any hospital participating in the
Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals
emergency room for treatment and, if the individual is suffering
from an emergency medical condition, to either stabilize the
condition or make an appropriate transfer of the individual to a
facility able to handle the condition. The obligation to screen
and stabilize emergency medical conditions exists regardless of
an individuals ability to pay for treatment. Federal and
state laws and regulations, including but not limited to EMTALA,
require, and our commitment to providing quality patient care
encourages, us to provide services to patients who are
financially unable to pay for the health care services they
receive. Because we do not pursue collection of amounts
determined to qualify as charity care, they are not reported in
revenues. Patients treated at hospitals for nonelective care,
who have income at or below 200% of the federal poverty level,
are eligible for charity care. Charity care (amounts are based
on our gross charges) totaled $2.151 billion,
$1.747 billion and $1.530 billion in 2009, 2008 and
2007, respectively. The federal poverty level is established by
the federal government and is based on income and family size.
We provide discounts to uninsured patients who do not qualify
for Medicaid or charity care. These discounts are similar to
those provided to many local managed care plans and totaled
$2.935 billion, $1.853 billion and $1.474 billion
in 2009, 2008 and 2007, respectively. In implementing the
discount policy, we first attempt to qualify uninsured patients
for Medicaid, other federal or state assistance or charity care.
If an uninsured patient does not qualify for these programs, the
uninsured discount is applied.
Cash and
Cash Equivalents
Cash and cash equivalents include highly liquid investments with
a maturity of three months or less when purchased. Our insurance
subsidiarys cash equivalent investments in excess of the
amounts required to pay estimated professional liability claims
during the next twelve months are not included in cash and cash
equivalents as these funds are not available for general
corporate purposes. Carrying values of cash and cash equivalents
approximate fair value due to the short-term nature of these
instruments.
Our cash management system provides for daily investment of
available balances and the funding of outstanding checks when
presented for payment. Outstanding, but unpresented, checks
totaling $392 million and $382 million at
December 31, 2009 and 2008, respectively, have been
included in accounts payable in the consolidated
balance sheets. Upon presentation for payment, these checks are
funded through available cash balances or our credit facility.
F-8
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Accounts
Receivable
We receive payments for services rendered from federal and state
agencies (under the Medicare and Medicaid programs), managed
care health plans, commercial insurance companies, employers and
patients. During the years ended December 31, 2009, 2008
and 2007, 23%, 23% and 24%, respectively, of our revenues
related to patients participating in the
fee-for-service
Medicare program and 7%, 6% and 5%, respectively, of our
revenues related to patients participating in managed Medicare
programs. We recognize that revenues and receivables from
government agencies are significant to our operations, but do
not believe there are significant credit risks associated with
these government agencies. We do not believe there are any other
significant concentrations of revenues from any particular payer
that would subject us to any significant credit risks in the
collection of our accounts receivable.
Additions to the allowance for doubtful accounts are made by
means of the provision for doubtful accounts. Accounts written
off as uncollectible are deducted from the allowance for
doubtful accounts and subsequent recoveries are added. The
amount of the provision for doubtful accounts is based upon
managements assessment of historical and expected net
collections, business and economic conditions, trends in
federal, state and private employer health care coverage and
other collection indicators. The provision for doubtful accounts
and the allowance for doubtful accounts relate primarily to
uninsured amounts (including copayment and
deductible amounts from patients who have health care coverage)
due directly from patients. Accounts are written off when all
reasonable internal and external collection efforts have been
performed. We consider the return of an account from the
secondary external collection agency to be the culmination of
our reasonable collection efforts and the timing basis for
writing off the account balance. Writeoffs are based upon
specific identification and the writeoff process requires a
writeoff adjustment entry to the patient accounting system.
Management relies on the results of detailed reviews of
historical writeoffs and recoveries at facilities that represent
a majority of our revenues and accounts receivable (the
hindsight analysis) as a primary source of
information to utilize in estimating the collectibility of our
accounts receivable. We perform the hindsight analysis
quarterly, utilizing rolling twelve-months accounts receivable
collection and writeoff data. At December 31, 2009 and
2008, the allowance for doubtful accounts represented
approximately 94% and 92%, respectively, of the
$5.176 billion and $5.148 billion, respectively,
patient due accounts receivable balance. The patient due
accounts receivable balance represents the estimated uninsured
portion of our accounts receivable. The estimated uninsured
portion of Medicaid pending and uninsured discount pending
accounts is included in our patient due accounts receivable
balance. Days revenues in accounts receivable were 45 days,
49 days and 53 days at December 31, 2009, 2008
and 2007, respectively. Adverse changes in general economic
conditions, patient accounting service center operations, payer
mix or trends in federal or state governmental health care
coverage could affect our collection of accounts receivable,
cash flows and results of operations.
Inventories
Inventories are stated at the lower of cost
(first-in,
first-out) or market.
Property
and Equipment and Amortizable Intangibles
Depreciation expense, computed using the straight-line method,
was $1.419 billion in 2009, $1.412 billion in 2008 and
$1.421 billion in 2007. Buildings and improvements are
depreciated over estimated useful lives ranging generally from
10 to 40 years. Estimated useful lives of equipment vary
generally from four to 10 years.
Debt issuance costs are amortized based upon the terms of the
respective debt obligations. The gross carrying amount of
deferred loan costs at December 31, 2009 and 2008 was
$689 million and $650 million, respectively, and
accumulated amortization was $271 million and
$192 million, respectively. Amortization of deferred loan
costs is included in interest expense and was $80 million,
$79 million and $78 million for 2009, 2008 and 2007,
respectively.
F-9
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Property
and Equipment and Amortizable Intangibles (Continued)
When events, circumstances or operating results indicate the
carrying values of certain long-lived assets and related
identifiable intangible assets (excluding goodwill) expected to
be held and used, might be impaired, we prepare projections of
the undiscounted future cash flows expected to result from the
use of the assets and their eventual disposition. If the
projections indicate the recorded amounts are not expected to be
recoverable, such amounts are reduced to estimated fair value.
Fair value may be estimated based upon internal evaluations that
include quantitative analyses of revenues and cash flows,
reviews of recent sales of similar facilities and independent
appraisals.
Long-lived assets to be disposed of are reported at the lower of
their carrying amounts or fair value less costs to sell or
close. The estimates of fair value are usually based upon recent
sales of similar assets and market responses based upon
discussions with and offers received from potential buyers.
Investments
of Insurance Subsidiary
At December 31, 2009 and 2008, the investments of our
wholly-owned insurance subsidiary were classified as
available-for-sale
as defined in Accounting Standards Codification No. 320,
Investments Debt and Equity Securities and
are recorded at fair value. The investment securities are held
for the purpose of providing the funding source to pay
professional liability claims covered by the insurance
subsidiary. We perform a quarterly assessment of individual
investment securities to determine whether declines in market
value are temporary or
other-than-temporary.
Our investment securities evaluation process involves multiple
subjective judgments, often involves estimating the outcome of
future events, and requires a significant level of professional
judgment in determining whether an impairment has occurred. We
evaluate, among other things, the financial position and near
term prospects of the issuer, conditions in the issuers
industry, liquidity of the investment, changes in the amount or
timing of expected future cash flows from the investment, and
recent downgrades of the issuer by a rating agency, to determine
if, and when, a decline in the fair value of an investment below
amortized cost is considered
other-than-temporary.
The length of time and extent to which the fair value of the
investment is less than amortized cost and our ability and
intent to retain the investment, to allow for any anticipated
recovery of the investments fair value, are important
components of our investment securities evaluation process.
Goodwill
Goodwill is not amortized, but is subject to annual impairment
tests. In addition to the annual impairment review, impairment
reviews are performed whenever circumstances indicate a possible
impairment may exist. Impairment testing for goodwill is done at
the reporting unit level. Reporting units are one level below
the business segment level, and our impairment testing is
performed at the operating division or market level. We compare
the fair value of the reporting unit assets to the carrying
amount, on at least an annual basis, to determine if there is
potential impairment. If the fair value of the reporting unit
assets is less than their carrying value, we compare the fair
value of the goodwill to its carrying value. If the fair value
of the goodwill is less than its carrying value, an impairment
loss is recognized. Fair value of goodwill is estimated based
upon internal evaluations of the related long-lived assets for
each reporting unit that include quantitative analyses of
revenues and cash flows and reviews of recent sales of similar
facilities. We recognized goodwill impairments of
$19 million and $48 million during 2009 and 2008,
respectively. No goodwill impairments were recognized during
2007.
During 2009, goodwill increased by $5 million related to
acquisitions, decreased by $19 million related to
impairments and increased by $11 million related to foreign
currency translation and other adjustments. During 2008,
goodwill increased by $43 million related to acquisitions,
decreased by $14 million related to facility sales,
decreased by $48 million related to impairments and
decreased by $30 million related to foreign currency
translation and other adjustments.
F-10
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Goodwill
(Continued)
Since January 1, 2000, we have recognized total goodwill
impairments of $88 million in the aggregate. None of the
goodwill impairments related to evaluations of goodwill at the
reporting unit level, as all recognized goodwill impairments
during this period related to goodwill allocated to asset
disposal groups.
Physician
Recruiting Agreements
In order to recruit physicians to meet the needs of our
hospitals and the communities they serve, we enter into minimum
revenue guarantee arrangements to assist the recruited
physicians during the period they are relocating and
establishing their practices. A guarantor is required to
recognize, at the inception of a guarantee, a liability for the
fair value of the stand-ready obligation undertaken in issuing
the guarantee. We expense the total estimated guarantee
liability amount at the time the physician recruiting agreement
becomes effective as we are not able to justify recording a
contract-based asset based upon our analysis of the related
control, regulatory and legal considerations.
The physician recruiting liability amounts of $24 million
and $27 million at December 31, 2009 and 2008,
respectively, represent the amount of expense recognized in
excess of payments made through December 31, 2009 and 2008,
respectively. At December 31, 2009 the maximum amount we
could have to pay under all effective minimum revenue guarantees
was $64 million.
Professional
Liability Claims
Reserves for professional liability risks were
$1.322 billion and $1.387 billion at December 31,
2009 and 2008, respectively. The current portion of the
reserves, $265 million and $279 million at
December 31, 2009 and 2008, respectively, is included in
other accrued expenses in the consolidated balance
sheets. Provisions for losses related to professional liability
risks were $211 million, $175 million and
$163 million for 2009, 2008 and 2007, respectively, and are
included in other operating expenses in our
consolidated income statements. Provisions for losses related to
professional liability risks are based upon actuarially
determined estimates. Loss and loss expense reserves represent
the estimated ultimate net cost of all reported and unreported
losses incurred through the respective consolidated balance
sheet dates. The reserves for unpaid losses and loss expenses
are estimated using individual case-basis valuations and
actuarial analyses. Those estimates are subject to the effects
of trends in loss severity and frequency. The estimates are
continually reviewed and adjustments are recorded as experience
develops or new information becomes known. Adjustments to the
estimated reserve amounts are included in current operating
results. The reserves for professional liability risks cover
approximately 2,600 and 2,800 individual claims at
December 31, 2009 and 2008, respectively, and estimates for
unreported potential claims. The time period required to resolve
these claims can vary depending upon the jurisdiction and
whether the claim is settled or litigated. During 2009 and 2008,
$272 million and $314 million, respectively, of net
payments were made for professional and general liability
claims. The estimation of the timing of payments beyond a year
can vary significantly. Although considerable variability is
inherent in professional liability reserve estimates, we believe
the reserves for losses and loss expenses are adequate; however,
there can be no assurance the ultimate liability will not exceed
our estimates.
A portion of our professional liability risks is insured through
a wholly-owned insurance subsidiary. Subject to a
$5 million per occurrence self-insured retention, our
facilities are insured by our wholly-owned insurance subsidiary
for losses up to $50 million per occurrence. The insurance
subsidiary has obtained reinsurance for professional liability
risks generally above a retention level of $15 million per
occurrence. We also maintain professional liability insurance
with unrelated commercial carriers for losses in excess of
amounts insured by our insurance subsidiary.
F-11
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 1
|
ACCOUNTING
POLICIES (Continued)
|
Professional
Liability Claims (Continued)
The obligations covered by reinsurance contracts are included in
the reserves for professional liability risks, as the insurance
subsidiary remains liable to the extent the reinsurers do not
meet their obligations under the reinsurance contracts. The
amounts receivable under the reinsurance contracts include
$28 million at December 31, 2009 and 2008 recorded in
other assets and $25 million and
$29 million at December 31, 2009 and 2008,
respectively, recorded in other current assets.
Financial
Instruments
Derivative financial instruments are employed to manage risks,
including interest rate and foreign currency exposures, and are
not used for trading or speculative purposes. We recognize
derivative instruments, such as interest rate swap agreements
and foreign exchange contracts, in the consolidated balance
sheets at fair value. Changes in the fair value of derivatives
are recognized periodically either in earnings or in
stockholders equity, as a component of other comprehensive
income (loss), depending on whether the derivative financial
instrument qualifies for hedge accounting, and if so, whether it
qualifies as a fair value hedge or a cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair
value hedges are recorded in earnings, along with the changes in
the fair value of the hedged items related to the hedged risk.
Gains and losses on derivatives designated as cash flow hedges,
to the extent they are effective, are recorded in other
comprehensive income (loss), and subsequently reclassified to
earnings to offset the impact of the forecasted transactions
when they occur. In the event the forecasted transaction to
which a cash flow hedge relates is no longer likely, the amount
in other comprehensive income (loss) is recognized in earnings
and generally the derivative is terminated. Changes in the fair
value of derivatives not qualifying as hedges, and for any
portion of a hedge that is ineffective, are reported in earnings.
The net interest paid or received on interest rate swaps is
recognized as interest expense. Gains and losses resulting from
the early termination of interest rate swap agreements are
deferred and amortized as adjustments to interest expense over
the remaining term of the debt originally covered by the
terminated swap.
Noncontrolling
Interests in Consolidated Entities
The consolidated financial statements include all assets,
liabilities, revenues and expenses of less than 100% owned
entities that we control. Accordingly, we have recorded
noncontrolling interests in the earnings and equity of such
entities.
Related
Party Transactions Management Agreement
Affiliates of the Investors entered into a management agreement
with us pursuant to which such affiliates will provide us with
management services. Under the management agreement, the
affiliates of the Investors are entitled to receive an aggregate
annual management fee of $15 million, which amount
increases annually, beginning in 2008, at a rate equal to the
percentage increase in Adjusted EBITDA (as defined in the
Management Agreement) in the applicable year compared to the
preceding year, and reimbursement of
out-of-pocket
expenses incurred in connection with the provision of services
pursuant to the agreement. The annual management fee was
$15 million for each of 2009, 2008 and 2007. The management
agreement has an initial term expiring on December 31,
2016, provided that the term will be extended annually for one
additional year unless we or the Investors provide notice to the
other of their desire not to automatically extend the term. In
addition, the management agreement provides that the affiliates
of the Investors are entitled to receive a fee equal to 1% of
the gross transaction value in connection with certain
financing, acquisition, disposition, and change of control
transactions, as well as a termination fee based on the net
present value of future payment obligations under the management
agreement in the event of an initial public offering or under
certain other circumstances. The agreement also contains
customary exculpation and indemnification provisions in favor of
the Investors and their affiliates.
F-12
HCA
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)