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 June 30, 2019, these affiliates owned and operated 184 hospitals, 125 freestanding surgery centers and provided extensive outpatient and ancillary services. HCA Healthcare, Inc.’s facilities are located in 21 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 $94 million and $83 million for the quarters ended June 30, 2019 and 2018, respectively, and $180 million and $164 million for the six months ended June 30, 2019 and 2018, respectively. Operating results for the quarter and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018.

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. Our revenues for the six months ended June 30, 2019 include $86 million related to the resolution of transaction price differences regarding certain

out-of-network

services performed in prior periods. 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.

Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual allowances 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

self-pay

revenues at the estimated amounts we expect to collect. Our revenues from third-party payers and others (including uninsured patients) for the quarters and six months ended June 30, 2019 and 2018 are summarized in the following table (dollars in millions):


	Quarter
	2019		Ratio			2018		Ratio
Medicare	$	2,635		20.9	%	$	2,425		21.0	%
Managed Medicare		1,595		12.7			1,345		11.7
Medicaid		416		3.3			357		3.1
Managed Medicaid		554		4.4			586		5.1
Managed care and insurers		6,425		50.9			5,993		51.9
International (managed care and insurers)		284		2.3			295		2.6
Other		693		5.5			528		4.6

Revenues	$	12,602		100.0	%	$	11,529		100.0	%


	Six Months
	2019		Ratio			2018		Ratio
Medicare	$	5,405		21.5	%	$	4,949		21.6	%
Managed Medicare		3,184		12.7			2,744		12.0
Medicaid		763		3.0			638		2.8
Managed Medicaid		1,167		4.6			1,147		5.0
Managed care and insurers		12,851		51.1			12,055		52.5
International (managed care and insurers)		581		2.3			600		2.6
Other		1,168		4.8			819		3.5

Revenues	$	25,119		100.0	%	$	22,952		100.0	%

To quantify the total impact of the trends related to uninsured 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 six months ended June 30, 2019 and 2018 follows (dollars in millions):


	Quarter						Six Months
	2019			2018			2019			2018
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)	$	10,953		$	9,871		$	21,559		$	19,738
Cost-to-charges ratio (patient care costs as percentage of gross patient charges)		12.2	%		12.6	%		12.0	%		12.5	%
Total uncompensated care	$	7,695		$	6,486		$	14,780		$	12,738
Multiply by the cost-to-charges ratio		12.2	%		12.6	%		12.0	%		12.5	%

Estimated cost of total uncompensated care	$	938		$	817		$	1,774		$	1,592

Total uncompensated care as a percentage of the sum of revenues and total uncompensated care was 37.9% and 36.0% for the quarters ended June 30, 2019 and 2018, respectively, and 37.0% and 35.7% for the six months ended June 30, 2019 and 2018, respectively. The total uncompensated care amounts include charity care of $3.311 billion and $1.977 billion, and the related estimated costs of charity care were $403 million and $249 million, for the quarters ended June 30, 2019 and 2018, respectively, and $6.216 billion and $3.856 billion, and the related estimated costs of charity care were $746 million and $482 million, for the six months ended June 30, 2019 and 2018, respectively.

Reclassifications

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