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, 2017, these affiliates owned and operated 177 hospitals, 119 freestanding surgery 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 $94 million for the quarters ended September 30, 2017 and 2016, respectively, and $273 million and $272 million for the nine months ended September 30, 2017 and 2016, respectively. Operating results for the quarter and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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, 2016.

Revenues

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 include federal and state agencies (under the Medicare and Medicaid programs), managed care health plans and commercial insurance companies (including plans offered through the health insurance exchanges), and employers. Estimates of contractual allowances under managed care health 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 a provision for doubtful accounts (based primarily on historical collection experience) related to uninsured accounts to record net self-pay revenues at the estimated amounts we expect to collect. Our revenues from third-party payers, the uninsured and other for the quarters and nine months ended September 30, 2017 and 2016 are summarized in the following table (dollars in millions):


	Quarter
	2017			Ratio			2016			Ratio
Medicare	$	2,354			22.0	%	$	2,158			21.0	%
Managed Medicare		1,156			10.8			1,068			10.4
Medicaid		362			3.4			405			3.9
Managed Medicaid		582			5.4			611			6.0
Managed care and other insurers		6,039			56.4			5,863			57.1
International (managed care and other insurers)		276			2.6			285			2.8

		10,769			100.6			10,390			101.2
Uninsured		849			7.9			336			3.3
Other		349			3.3			384			3.7

Revenues before provision for doubtful accounts		11,967			111.8			11,110			108.2
Provision for doubtful accounts		(1,271	)		(11.8	)		(840	)		(8.2	)

Revenues	$	10,696			100.0	%	$	10,270			100.0	%


	Nine Months
	2017			Ratio			2016			Ratio
Medicare	$	7,080			22.1	%	$	6,641			21.5	%
Managed Medicare		3,546			11.1			3,250			10.5
Medicaid		1,188			3.7			1,248			4.0
Managed Medicaid		1,798			5.6			1,816			5.9
Managed care and other insurers		18,071			56.4			17,324			56.2
International (managed care and other insurers)		814			2.5			926			3.0

		32,497			101.4			31,205			101.1
Uninsured		1,593			5.0			750			2.4
Other		1,066			3.3			1,286			4.2

Revenues before provision for doubtful accounts		35,156			109.7			33,241			107.7
Provision for doubtful accounts		(3,104	)		(9.7	)		(2,392	)		(7.7	)

Revenues	$	32,052			100.0	%	$	30,849			100.0	%

Recent Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board issued a final, converged, principles-based standard on revenue recognition. Companies across all industries will use a five-step model to recognize revenue from customer contracts. The new standard, which replaces nearly all existing revenue recognition guidance, will require significant management judgments and change the way many companies recognize revenue in their financial statements. In July 2015, the FASB decided to defer the effective date of the new revenue standard by one year to annual and interim periods beginning after December 15, 2017 for public entities and permit entities to adopt one year earlier if they choose. The FASB decided, based on its outreach to various stakeholders and continuing amendments to the new revenue standard, that a deferral was necessary to provide adequate time to effectively implement the new standard. We are continuing to evaluate the effects the adoption of this standard will have on our financial statements and financial disclosures. We believe the most significant impact will be to the presentation of our income statement where the provision for doubtful accounts will be recorded as a direct reduction to revenues and will not be presented as a separate line item. We expect to adopt the new standard using the full retrospective application, and we do not currently believe the adoption will have a significant impact on our recognition of net revenues or related disclosures for any period.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (“ASU 2016-02”), which requires lessees to recognize assets and liabilities for most leases. ASU 2016-02 is effective for public business entities for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. ASU 2016-02’s transition provisions will be applied using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the provisions of ASU 2016-02 to determine how our financial statements will be affected, and we believe the primary effect of adopting the new standard will be to record right-of-use assets and obligations for our leases currently classified as operating leases.

Reclassifications

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