NET OPERATING REVENUES

3 Months Ended

Mar. 31, 2019

Revenue from Contract with Customer [Abstract]

CONTRACT BALANCES

Hospital Operations and Other Segment

Amounts related to services provided to patients for which we have not billed and that do not meet the conditions of unconditional right to payment at the end of the reporting period are contract assets. For our Hospital Operations and other segment, our contract assets consist primarily of services that we have provided to patients who are still receiving inpatient care in our facilities at the end of the reporting period. Our Hospital Operations and other segment’s contract assets are included in other current assets in the accompanying Condensed Consolidated Balance Sheet at March 31, 2019. The opening and closing balances of contract assets for our Hospital Operations and other segment are as follows:



December 31, 2018	$	169
March 31, 2019	166
Increase/(decrease)	$	(3	)



January 1, 2018	$	171
March 31, 2018	158
Increase/(decrease)	$	(13	)

Approximately 89% of our Hospital Operations and other segment’s contract assets meet the conditions for unconditional right to payment and are reclassified to patient receivables within 90 days.

Conifer Segment

Conifer enters into contracts with customers to sell revenue cycle management and other services, such as value-based care, consulting and project services. The payment terms and conditions in our customer contracts vary. In some cases, customers are invoiced in advance and (for other than fixed-price fee arrangements) a true-up to the actual fee is included on a subsequent invoice. In other cases, payment is due in arrears. In addition, some contracts contain performance incentives, penalties and other forms of variable consideration. When the timing of Conifer’s delivery of services is different from the timing of payments made by the customers, Conifer recognizes either unbilled revenue (performance precedes contractual right to invoice the customer) or deferred revenue (customer payment precedes Conifer service performance). In the following table, customers that prepay prior to obtaining control/benefit of the service are represented by deferred contract revenue until the performance obligations are satisfied. Unbilled revenue represents arrangements in which Conifer has provided services to and the customer has obtained control/benefit of services prior to the contractual invoice date. Contracts with payment in arrears are recognized as receivables in the month the service is performed.

The opening and closing balances of Conifer’s receivables, contract asset, and current and long-term contract liabilities are as follows:



					Contract Liability-			Contract Liability-
			Contract Asset-		Current			Long-Term
	Receivables		Unbilled Revenue		Deferred Revenue			Deferred Revenue
December 31, 2018	$	42	$	11	$	61		$	20
March 31, 2019	90		11		64			20
Increase/(decrease)	$	48	$	—	$	3		$	—

January 1, 2018	$	89	$	10	$	80		$	21
March 31, 2018	99		10		78			29
Increase/(decrease)	$	10	$	—	$	(2	)	$	8

The difference between the opening and closing balances of Conifer’s contract assets and contract liabilities are primarily related to prepayments for those customers who are billed in advance, changes in estimates related to metric-based services, and up-front integration services that are typically not distinct and are, therefore, recognized over the performance obligation period to which they relate. Our Conifer segment’s receivables and contract assets are reported as part of other current assets in our accompanying Condensed Consolidated Balance Sheets, and our Conifer segment’s current and long-term contract liabilities are reported as part of other current liabilities and other long-term liabilities, respectively, in our accompanying Condensed Consolidated Balance Sheets.

The amount of revenue Conifer recognized in the three months ended March 31, 2019 and 2018 that was included in the opening current deferred revenue liability was $49 million and $60 million, respectively. This revenue consists primarily of prepayments for those customers who are billed in advance, changes in estimates related to metric-based services, and up-front integration services that are recognized over the services period.

Contract Costs

We have elected to apply the practical expedient provided by FASB Accounting Standards Codification 340-40-25-4 and expense as incurred the incremental customer contract acquisition costs for contracts in which the amortization period of the asset that we otherwise would have recognized is one year or less. However, incremental costs incurred to obtain and fulfill customer contracts for which the amortization period of the asset that we otherwise would have recognized is longer than one year, which consist primarily of Conifer deferred contract setup costs, are capitalized and amortized on a straight-line basis over the lesser of their estimated useful lives or the term of the related contract. During the three months ended March 31, 2019 and 2018, we recognized amortization expense of $1 million and $3 million, respectively. At both March 31, 2019 and December 31, 2018, the unamortized customer contract costs were $28 million, and are presented as part of investments and other assets in the accompanying Condensed Consolidated Balance Sheets.NET OPERATING REVENUES

Net operating revenues for our Hospital Operations and other and Ambulatory Care segments primarily consist of net patient service revenues, principally for patients covered by Medicare, Medicaid, managed care and other health plans, as well as certain uninsured patients under our Compact and other uninsured discount and charity programs. Net operating revenues for our Conifer segment primarily consist of revenues from providing revenue cycle management services to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities.

The table below shows our sources of net operating revenues from continuing operations:



	Three Months Ended March 31,
	2019			2018
Hospital Operations and other:
Net patient service revenues from hospitals and related outpatient facilities
Medicare	$	758		$	782
Medicaid	314			321
Managed care	2,354			2,368
Uninsured	1			37
Indemnity and other	155			135
Total	3,582			3,643
Physician practices revenues	270			280
Health plans	—			6
Revenue from other sources	10			18
Hospital Operations and other total prior to inter-segment eliminations	3,862			3,947
Ambulatory Care	480			498
Conifer	349			404
Inter-segment eliminations	(146		)	(150		)
Net operating revenues	$	4,545		$	4,699

Adjustments for prior-year cost reports and related valuation allowances, principally related to Medicare and Medicaid, increased revenues in the three months ended March 31, 2019 and 2018 by $10 million and $5 million, respectively. Estimated cost report settlements and valuation allowances are included in accounts receivable in the accompanying Condensed Consolidated Balance Sheets (see Note 2). We believe that we have made adequate provision for any adjustments that may result from final determination of amounts earned under all the above arrangements with Medicare and Medicaid.

The table below shows the composition of net operating revenues for our Ambulatory Care segment:



	Three Months Ended March 31,
	2019		2018
Net patient service revenues	$	451	$	469
Management fees	23		23
Revenue from other sources	6		6
Net operating revenues	$	480	$	498

The table below shows the composition of net operating revenues for our Conifer segment:



	Three Months Ended March 31,
	2019		2018
Revenue cycle services – Tenet	$	142	$	144
Revenue cycle services – other customers	180		232
Other services – Tenet	4		6
Other services – other customers	23		22
Net operating revenues	$	349	$	404

Other services represent 8% of Conifer’s revenue and include value-based care services, consulting services and other client-defined projects.

Performance Obligations

The following table includes Conifer’s revenue that is expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, at the end of the reporting period. The amounts in the table primarily consist of revenue cycle management fixed fees, which are typically recognized ratably as the performance obligation is satisfied. The estimated revenue does not include volume or contingency based contracts, performance incentives, penalties or other variable consideration that is considered constrained. Conifer’s contract with Catholic Health Initiatives (“CHI”), a minority interest owner of Conifer Health Solutions, LLC, represents the majority of the fixed-fee revenue related to remaining performance obligations. Conifer’s contract term with CHI ends in 2032.



			Nine Months Ending		Years Ending								Later Years
			December 31,
	Total		2019		2020		2021		2022		2023
Performance obligations	$	7,748	$	448	$	597	$	595	$	595	$	595	$	4,918