Basis of Presentation and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

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 $88 million and $90 million for the quarters ended September 30, 2019 and 2018, respectively, and $268 million and $254 million for the nine months ended September 30, 2019 and 2018, respectively. Operating results for the quarter and nine months ended September 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 nine months ended September 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 nine months ended September 30, 2019 and 2018 are summarized in the following table (dollars in millions):


	Quarter
	2019		Ratio			2018		Ratio
Medicare	$	2,592		20.4	%	$	2,404		21.0	%
Managed Medicare		1,615		12.7			1,344		11.7
Medicaid		361		2.8			338		3.0
Managed Medicaid		641		5.0			622		5.4
Managed care and insurers		6,554		51.7			6,026		52.6
International (managed care and insurers)		282		2.2			273		2.4
Other		649		5.2			444		3.9

Revenues	$	12,694		100.0	%	$	11,451		100.0	%


	Nine Months
	2019		Ratio			2018		Ratio
Medicare	$	7,997		21.2	%	$	7,353		21.4	%
Managed Medicare		4,799		12.7			4,088		11.9
Medicaid		1,124		3.0			976		2.8
Managed Medicaid		1,808		4.8			1,769		5.1
Managed care and insurers		19,405		51.1			18,081		52.6
International (managed care and insurers)		863		2.3			873		2.5
Other		1,817		4.9			1,263		3.7

Revenues	$	37,813		100.0	%	$	34,403		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 nine months ended September 30, 2019 and 2018 follows (dollars in millions):


	Quarter						Nine Months
	2019			2018			2019			2018
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)	$	11,060		$	9,946		$	32,619		$	29,684
Cost-to-charges ratio (patient care costs as percentage of gross patient charges)		12.3	%		12.7	%		12.1	%		12.6	%
Total uncompensated care	$	7,923		$	6,786		$	22,703		$	19,524
Multiply by the cost-to-charges ratio		12.3	%		12.7	%		12.1	%		12.6	%

Estimated cost of total uncompensated care	$	975		$	862		$	2,747		$	2,460

Total uncompensated care as a percentage of the sum of revenues and total uncompensated care was 38.4% and 37.2% for the quarters ended September 30, 2019 and 2018, respectively, and 37.5% and 36.2% for the nine months ended September 30, 2019 and 2018, respectively. The total uncompensated care amounts include charity care of $3.425 billion and $2.314 billion, and the related estimated costs of charity care were $421 million and $295 million, for the quarters ended September 30, 2019 and 2018, respectively. The total uncompensated care amounts include charity care of $9.641 billion and $6.170 billion, and the related estimated costs of charity care were $1.167 billion and $777 million, for the nine months ended September 30, 2019 and 2018, respectively.

Reclassifications

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