Basis of Presentation and Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

Basis of Presentation and Significant Accounting Policies

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

HCA Healthcare, 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 Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At September 30, 2022, these affiliates owned and operated 182 hospitals, 125 freestanding surgery centers, 21 freestanding endoscopy centers and provided extensive outpatient and ancillary services. HCA Healthcare, Inc.’s facilities are located in 20 states and England. The terms “Company,” “HCA,” “we,” “our” or “us,” as used herein and unless otherwise stated or indicated by context, refer to HCA Healthcare, Inc. and its affiliates. 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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring nature.

The majority of our expenses are “costs of revenues” items. Costs that could be classified as general and administrative would include our corporate office costs, which were $91 million and $87 million for the quarters ended September 30, 2022 and 2021, respectively, and $281 million and $301 million for the nine months ended September 30, 2022 and 2021, respectively. Operating results for the quarter and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, refer to the consolidated financial statements and footnotes thereto included in our annual report on Form 10-K for the year ended December 31, 2021.

COVID-19

We believe the extent of COVID-19’s impact on our operating results and financial condition has been and could continue to be driven by many factors, most of which are beyond our control and ability to forecast. Because of these uncertainties, we cannot estimate how long or to what extent COVID-19 will impact our operations.

Revenues

Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively determined rates per discharge, per identified service or per covered member. Agreements with commercial insurance carriers, managed care and preferred provider organizations generally provide for payments based upon predetermined rates per diagnosis, per diem rates or discounted fee-for-service rates. 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.

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues (continued)

Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual adjustments under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record these revenues at the estimated amounts we expect to collect. Patients treated at our hospitals for non-elective care, who have income at or below 400% of the federal poverty level, are eligible for charity care. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. Our revenues by primary third-party payer classification and other (including uninsured patients) for the quarters and nine months ended September 30, 2022 and 2021 are summarized in the following table (dollars in millions):


	Quarter
	2022		Ratio			2021		Ratio
Medicare	$	2,569		17.2	%	$	2,645		17.3	%
Managed Medicare		2,229		14.9			2,124		13.9
Medicaid		797		5.3			692		4.5
Managed Medicaid		939		6.3			813		5.3
Managed care and insurers		7,184		47.9			7,998		52.4
International (managed care and insurers)		311		2.1			324		2.1
Other		942		6.3			680		4.5
Revenues	$	14,971		100.0	%	$	15,276		100.0	%

	Nine Months
	2022		Ratio			2021		Ratio
Medicare	$	7,790		17.4	%	$	7,816		17.9	%
Managed Medicare		6,813		15.2			6,281		14.4
Medicaid		1,987		4.4			1,722		3.9
Managed Medicaid		3,003		6.7			2,369		5.4
Managed care and insurers		21,480		48.1			22,300		51.0
International (managed care and insurers)		992		2.2			995		2.3
Other		2,671		6.0			2,205		5.1
Revenues	$	44,736		100.0	%	$	43,688		100.0	%

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues (continued)

To quantify the total impact of the trends related to uninsured patient accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the quarters and nine months ended September 30, 2022 and 2021 follows (dollars in millions):


	Quarter						Nine Months
	2022			2021			2022			2021
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)	$	12,828		$	12,803		$	38,096		$	36,396
Cost-to-charges ratio (patient care costs as percentage of gross patient charges)		11.2	%		11.8	%		11.2	%		11.4	%
Total uncompensated care	$	8,050		$	7,782		$	23,512		$	22,299
Multiply by the cost-to-charges ratio		11.2	%		11.8	%		11.2	%		11.4	%
Estimated cost of total uncompensated care	$	901		$	916		$	2,633		$	2,542

The total uncompensated care amounts include charity care of $3.206 billion and $3.509 billion, respectively, and the related estimated costs of charity care were $359 million and $413 million, respectively, for the quarters ended September 30, 2022 and 2021. The total uncompensated care amounts include charity care of $10.281 billion and $10.135 billion, respectively, and the related estimated costs of charity care were $1.151 billion and $1.155 billion, respectively, for the nine months ended September 30, 2022 and 2021.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.