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Leases
 12 Months Ended
Dec. 31, 2022
Leases [Abstract]  
Leases Leases
The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the right to use the underlying assets for the lease term and the lease liabilities represent the obligation to make lease payments arising from the leases. Right-of-use assets and liabilities are recognized at commencement date based on the present value of future lease payments over the lease term, which includes only payments that are fixed and determinable at the time of commencement. When readily determinable, the Company uses the interest rate implicit in a lease to determine the present value of future lease payments. For leases where the implicit rate is not readily determinable, the Company's incremental borrowing rate is used. The Company calculates its incremental borrowing rate on a periodic basis using a third-party financial model that estimates the rate of interest the Company would have to pay to borrow an amount equal to the total lease payments on a collateralized basis over a term similar to the lease. The Company applies its incremental borrowing rate using a portfolio approach. The right-of-use asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.
The Company's operating leases are primarily for real estate, including medical office buildings, and corporate and other administrative offices. The Company's finance leases are primarily for medical equipment and information technology and telecommunications assets. The Company's finance leases also include certain land, buildings and improvements as discussed in Note 3. "Property and Equipment." Real estate lease agreements typically have initial terms of ten years and may include one or more options to renew. Certain leases also include options to purchase the leased property. The useful life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The majority of the Company's medical equipment leases have a bargain purchase option that is reasonably certain of exercise, so these assets are depreciated over their useful life. The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants.
Certain of the Company's lease agreements require the Company to pay common area maintenance, repairs, property taxes and insurance costs, which are variable amounts based on actual costs incurred during each applicable period. Certain lease agreements also include escalating rent payments that are not fixed at commencement but are based on an index that is determined in future periods over the lease term based on changes in the Consumer Price Index or other measure of cost inflation. These variable components of lease payments are expensed as incurred and are not included in the determination of the right-of-use asset or lease liability.
The following table presents the components of the Company's right-of-use assets and liabilities related to leases and their classification in the consolidated balance sheets at December 31, 2022 and 2021 (in millions):
Classification in Consolidated Balance SheetsDecember 31, 2022December 31, 2021
Assets:
Operating lease assetsRight-of-use operating lease assets$279.1 $324.1 
Finance lease assetsProperty and equipment, net of accumulated depreciation529.6 329.6 
Total leased assets$808.7 $653.7 
Liabilities:
Operating lease liabilities:
CurrentOther current liabilities$36.5 $40.1 
Long-termRight-of-use operating lease liabilities271.4 315.6 
Total operating lease liabilities307.9 355.7 
Finance lease liabilities:
CurrentCurrent maturities of long-term debt20.9 19.0 
Long-termLong-term debt, less current maturities564.8 345.6 
Total finance lease liabilities585.7 364.6 
Total lease liabilities$893.6 $720.3 
During the year ended December 31, 2022, the Company extended certain existing facility real estate leases, resulting in the reclassification of the leases from operating to finance. The modifications resulted in an increase to finance lease liabilities and assets of $170.6 million and $169.1 million, respectively, including the reclassification of existing operating lease liabilities and assets of $65.7 million and $64.2 million, respectively.
The following table presents the weighted-average lease terms and discount rates at December 31, 2022 and 2021 (in millions):
December 31, 2022December 31, 2021
Operating LeasesFinance LeasesOperating LeasesFinance Leases
Weighted-average remaining lease term9.2 years20.7 years8.8 years16.8 years
Weight average discount rate9.1 %8.8 %9.7 %8.7 %
The following table presents the components of the Company's lease expense and their classification in the consolidated statement of operations for the years ended December 31, 2022 and 2021 (in millions):
December 31, 2022December 31, 2021
Operating lease costs$65.5 $76.4 
Finance lease costs:
Amortization of leased assets38.8 25.1 
Interest on lease liabilities42.7 27.4 
Total finance lease costs81.5 52.5 
Variable and short-term lease costs18.5 17.8 
Total lease costs$165.5 $146.7 
During the years ended December 31, 2022 and 2021, the Company incurred lease costs of $19.6 million and $25.8 million, respectively, under operating lease agreements with physician investors who are related parties. During the years ended December 31, 2022 and 2021, the Company paid rent of $26.3 million and $17.4 million, respectively, under finance lease agreements with physician investors and a lessor who are related parties. One of the Company's surgical facilities has a non-controlling ownership interest in the lessor. Payments are allocated to principal adjustments of the finance lease liability and interest expense. The change from prior year is primarily a result of the modification of certain existing facility real estate leases that were reclassified from operating to finance as discussed above.
The following table presents supplemental cash flow information for the years ended December 31, 2022 and 2021 (dollars in millions):
December 31, 2022December 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases$63.2 $74.3 
Operating cash outflows from finance leases41.7 26.5 
Financing cash outflows from finance leases24.6 20.1 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases57.3 68.7 
Finance leases180.2 73.4 
Future maturities of lease liabilities at December 31, 2022 are presented in the following table (in millions):
Operating LeasesFinance Leases
2023$61.9 $68.7 
202458.6 64.3 
202553.1 62.2 
202649.3 60.2 
202741.1 58.5 
Thereafter192.1 1,099.4 
Total lease payments456.1 1,413.3 
Less: imputed interest(148.2)(827.6)
Total lease obligations$307.9 $585.7 
Leases Leases
The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the right to use the underlying assets for the lease term and the lease liabilities represent the obligation to make lease payments arising from the leases. Right-of-use assets and liabilities are recognized at commencement date based on the present value of future lease payments over the lease term, which includes only payments that are fixed and determinable at the time of commencement. When readily determinable, the Company uses the interest rate implicit in a lease to determine the present value of future lease payments. For leases where the implicit rate is not readily determinable, the Company's incremental borrowing rate is used. The Company calculates its incremental borrowing rate on a periodic basis using a third-party financial model that estimates the rate of interest the Company would have to pay to borrow an amount equal to the total lease payments on a collateralized basis over a term similar to the lease. The Company applies its incremental borrowing rate using a portfolio approach. The right-of-use asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.
The Company's operating leases are primarily for real estate, including medical office buildings, and corporate and other administrative offices. The Company's finance leases are primarily for medical equipment and information technology and telecommunications assets. The Company's finance leases also include certain land, buildings and improvements as discussed in Note 3. "Property and Equipment." Real estate lease agreements typically have initial terms of ten years and may include one or more options to renew. Certain leases also include options to purchase the leased property. The useful life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The majority of the Company's medical equipment leases have a bargain purchase option that is reasonably certain of exercise, so these assets are depreciated over their useful life. The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants.
Certain of the Company's lease agreements require the Company to pay common area maintenance, repairs, property taxes and insurance costs, which are variable amounts based on actual costs incurred during each applicable period. Certain lease agreements also include escalating rent payments that are not fixed at commencement but are based on an index that is determined in future periods over the lease term based on changes in the Consumer Price Index or other measure of cost inflation. These variable components of lease payments are expensed as incurred and are not included in the determination of the right-of-use asset or lease liability.
The following table presents the components of the Company's right-of-use assets and liabilities related to leases and their classification in the consolidated balance sheets at December 31, 2022 and 2021 (in millions):
Classification in Consolidated Balance SheetsDecember 31, 2022December 31, 2021
Assets:
Operating lease assetsRight-of-use operating lease assets$279.1 $324.1 
Finance lease assetsProperty and equipment, net of accumulated depreciation529.6 329.6 
Total leased assets$808.7 $653.7 
Liabilities:
Operating lease liabilities:
CurrentOther current liabilities$36.5 $40.1 
Long-termRight-of-use operating lease liabilities271.4 315.6 
Total operating lease liabilities307.9 355.7 
Finance lease liabilities:
CurrentCurrent maturities of long-term debt20.9 19.0 
Long-termLong-term debt, less current maturities564.8 345.6 
Total finance lease liabilities585.7 364.6 
Total lease liabilities$893.6 $720.3 
During the year ended December 31, 2022, the Company extended certain existing facility real estate leases, resulting in the reclassification of the leases from operating to finance. The modifications resulted in an increase to finance lease liabilities and assets of $170.6 million and $169.1 million, respectively, including the reclassification of existing operating lease liabilities and assets of $65.7 million and $64.2 million, respectively.
The following table presents the weighted-average lease terms and discount rates at December 31, 2022 and 2021 (in millions):
December 31, 2022December 31, 2021
Operating LeasesFinance LeasesOperating LeasesFinance Leases
Weighted-average remaining lease term9.2 years20.7 years8.8 years16.8 years
Weight average discount rate9.1 %8.8 %9.7 %8.7 %
The following table presents the components of the Company's lease expense and their classification in the consolidated statement of operations for the years ended December 31, 2022 and 2021 (in millions):
December 31, 2022December 31, 2021
Operating lease costs$65.5 $76.4 
Finance lease costs:
Amortization of leased assets38.8 25.1 
Interest on lease liabilities42.7 27.4 
Total finance lease costs81.5 52.5 
Variable and short-term lease costs18.5 17.8 
Total lease costs$165.5 $146.7 
During the years ended December 31, 2022 and 2021, the Company incurred lease costs of $19.6 million and $25.8 million, respectively, under operating lease agreements with physician investors who are related parties. During the years ended December 31, 2022 and 2021, the Company paid rent of $26.3 million and $17.4 million, respectively, under finance lease agreements with physician investors and a lessor who are related parties. One of the Company's surgical facilities has a non-controlling ownership interest in the lessor. Payments are allocated to principal adjustments of the finance lease liability and interest expense. The change from prior year is primarily a result of the modification of certain existing facility real estate leases that were reclassified from operating to finance as discussed above.
The following table presents supplemental cash flow information for the years ended December 31, 2022 and 2021 (dollars in millions):
December 31, 2022December 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases$63.2 $74.3 
Operating cash outflows from finance leases41.7 26.5 
Financing cash outflows from finance leases24.6 20.1 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases57.3 68.7 
Finance leases180.2 73.4 
Future maturities of lease liabilities at December 31, 2022 are presented in the following table (in millions):
Operating LeasesFinance Leases
2023$61.9 $68.7 
202458.6 64.3 
202553.1 62.2 
202649.3 60.2 
202741.1 58.5 
Thereafter192.1 1,099.4 
Total lease payments456.1 1,413.3 
Less: imputed interest(148.2)(827.6)
Total lease obligations$307.9 $585.7