Basis of Presentation and Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

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 June 30, 2021, these affiliates owned and operated 187 hospitals, 122 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 $127 million and $76 million for the quarters ended June 30, 2021 and 2020, respectively, and $214 million and $172 million for the six months ended June 30, 2021 and 2020, respectively. Operating results for the quarter and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020.

COVID-19

Pandemic

On March 11, 2020, the World Health Organization designated

COVID-19

as a global pandemic. Patient volumes and the related revenues for most of our services were significantly impacted during the latter portion of the first quarter and the first half of the second quarter of 2020 and have continued to be impacted in 2021 as various policies were implemented by federal, state and local governments in response to the

COVID-19

pandemic. During the second quarter of 2021, our patient volumes experienced a strong rebound as the effects of the pandemic moderated and certain pandemic-related restrictions and policies were eased. We believe the extent of the

COVID-19

pandemic’s impact on our operating results and financial condition has been and will 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 the pandemic 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. Our revenues for the six months ended June 30, 2021 and 2020 included

$33 million and $55 million, respectively, related to the settlement of Medicare outlier calculations for 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 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 six months ended June 30, 2021 and 2020 are summarized in the following table (dollars in millions):


	Quarter
	2021		Ratio			2020		Ratio
Medicare	$	2,612		18.1	%	$	2,272		20.5	%
Managed Medicare		2,104		14.6			1,488		13.4
Medicaid		503		3.5			564		5.1
Managed Medicaid		831		5.8			531		4.8
Managed care and insurers		7,417		51.3			5,631		50.9
International (managed care and insurers)		338		2.3			239		2.2
Other		630		4.4			343		3.1

Revenues	$	14,435		100.0	%	$	11,068		100.0	%


	Six Months
	2021		Ratio			2020		Ratio
Medicare	$	5,171		18.2	%	$	5,015		21.0	%
Managed Medicare		4,157		14.6			3,314		13.8
Medicaid		1,030		3.6			978		4.1
Managed Medicaid		1,556		5.5			1,197		5.0
Managed care and insurers		14,302		50.4			12,276		51.4
International (managed care and insurers)		671		2.4			531		2.2
Other		1,525		5.3			618		2.5

Revenues	$	28,412		100.0	%	$	23,929		100.0	%

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 six months ended June 30, 2021 and 2020 follows (dollars in millions):


	Quarter						Six Months
	2021			2020			2021			2020
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)	$	11,950		$	9,916		$	23,593		$	21,258
Cost-to-charges ratio (patient care costs as percentage of gross patient charges)		11.1	%		12.6	%		11.2	%		12.2	%
Total uncompensated care	$	7,696		$	6,729		$	14,517		$	14,602
Multiply by the cost-to-charges ratio		11.1	%		12.6	%		11.2	%		12.2	%

Estimated cost of total uncompensated care	$	848		$	844		$	1,626		$	1,781

The total uncompensated care amounts include charity care of $3.684 billion and $3.077 billion, respectively, and the related estimated costs of charity care were $407 million and $387 million, respectively, for the quarters ended June 30, 2021 and 2020. The total uncompensated care amounts include charity care of $6.626 billion and $6.812 billion, respectively, and the related estimated costs of charity care were $742 million and $831 million, respectively, for the six months ended June 30, 2021 and 2020.

Reclassifications

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