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Leases | 12 Months Ended
--- | ---
Dec. 31, 2023
Leases [Abstract] |
Leases | Leases The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the right to use the underlying assets for the lease term and the lease liabilities represent the obligation to make lease payments arising from the leases. Right-of-use assets and liabilities are recognized at commencement date based on the present value of future lease payments over the lease term, which includes only payments that are fixed and determinable at the time of commencement. When readily determinable, the Company uses the interest rate implicit in a lease to determine the present value of future lease payments. For leases where the implicit rate is not readily determinable, the Company's incremental borrowing rate is used. The Company calculates its incremental borrowing rate on a periodic basis using a third-party financial model that estimates the rate of interest the Company would have to pay to borrow an amount equal to the total lease payments on a collateralized basis over a term similar to the lease. The Company applies its incremental borrowing rate using a portfolio approach. The right-of-use asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. The Company's operating leases are primarily for real estate, including medical office buildings, and corporate and other administrative offices. The Company's finance leases are primarily for medical equipment and information technology and telecommunications assets. The Company's finance leases also include certain land, buildings and improvements as discussed in Note 3. "Property and Equipment." Real estate lease agreements typically have initial terms of ten years and may include one or more options to renew. Certain leases also include options to purchase the leased property. The useful life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The majority of the Company's medical equipment leases have a bargain purchase option that is reasonably certain of exercise, so these assets are depreciated over their useful life. The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants. Certain of the Company's lease agreements require the Company to pay common area maintenance, repairs, property taxes and insurance costs, which are variable amounts based on actual costs incurred during each applicable period. Certain lease agreements also include escalating rent payments that are not fixed at commencement but are based on an index that is determined in future periods over the lease term based on changes in the Consumer Price Index or other measure of cost inflation. These variable components of lease payments are expensed as incurred and are not included in the determination of the right-of-use asset or lease liability. The following table presents the components of the Company's right-of-use assets and liabilities related to leases and their classification in the consolidated balance sheets at December 31, 2023 and 2022 (in millions):
|  | Classification in Consolidated Balance Sheets |  | December 31, 2023 |  | December 31, 2022
Assets: |  |  |  |  |  |
Operating lease assets |  | Right-of-use operating lease assets |  | $ | 255.3 |  |  | $ | 279.1 |
Finance lease assets |  | Property and equipment, net of accumulated depreciation |  | 587.0 |  |  | 529.6 |
Total leased assets |  |  |  | $ | 842.3 |  |  | $ | 808.7 |
Liabilities: |  |  |  |  |  |
Operating lease liabilities: |  |  |  |  |  |
Current |  | Other current liabilities |  | $ | 37.6 |  |  | $ | 36.5 |
Long-term |  | Right-of-use operating lease liabilities |  | 248.9 |  |  | 271.4 |
Total operating lease liabilities |  |  |  | 286.5 |  |  | 307.9 |
Finance lease liabilities: |  |  |  |  |  |
Current |  | Current maturities of long-term debt |  | 25.4 |  |  | 20.9 |
Long-term |  | Long-term debt, less current maturities |  | 668.2 |  |  | 564.8 |
Total finance lease liabilities |  |  |  | 693.6 |  |  | 585.7 |
Total lease liabilities |  |  |  | $ | 980.1 |  |  | $ | 893.6 |
During the year ended December 31, 2023, the Company extended certain existing facility real estate leases, resulting in the reclassification of the leases from operating to finance. The modifications resulted in an increase to finance lease liabilities and assets of $97.1 million and $95.7 million, respectively, including the reclassification of existing operating lease liabilities and assets of $38.4 million and $36.9 million, respectively. The following table presents the weighted-average lease terms and discount rates at December 31, 2023 and 2022 (in millions):
|  | December 31, 2023 |  | December 31, 2022
|  | Operating Leases |  | Finance Leases |  | Operating Leases |  | Finance Leases
Weighted-average remaining lease term |  | 9.2 years |  | 20.5 years |  | 9.2 years |  | 20.7 years
Weight average discount rate |  | 8.2 | % |  | 8.2 | % |  | 9.1 | % |  | 8.8 | %
The following table presents the components of the Company's lease expense and their classification in the consolidated statement of operations for the years ended December 31, 2023 and 2022 (in millions):
|  | December 31, 2023 |  | December 31, 2022
Operating lease costs |  | $ | 65.7 |  |  | $ | 65.5 |
Finance lease costs: |  |  |  |
Amortization of leased assets |  | 39.9 |  |  | 38.8 |
Interest on lease liabilities |  | 48.6 |  |  | 42.7 |
Total finance lease costs |  | 88.5 |  |  | 81.5 |
Variable and short-term lease costs |  | 20.1 |  |  | 18.5 |
Total lease costs |  | $ | 174.3 |  |  | $ | 165.5 |
During the years ended December 31, 2023 and 2022, the Company incurred lease costs of $19.5 million and $19.6 million, respectively, under operating lease agreements with physician investors who are related parties. During the years ended December 31, 2023 and 2022, the Company paid rent of $26.4 million and $26.3 million, respectively, under finance lease agreements with physician investors and a lessor who are related parties. One of the Company's surgical facilities has a non-controlling ownership interest in the lessor. Payments are allocated to principal adjustments of the finance lease liability and interest expense. The following table presents supplemental cash flow information for the years ended December 31, 2023 and 2022 (dollars in millions):
|  | December 31, 2023 |  | December 31, 2022
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash outflows from operating leases |  | $ | 63.7 |  |  | $ | 63.2 |
Operating cash outflows from finance leases |  | 45.8 |  |  | 41.7 |
Financing cash outflows from finance leases |  | 26.7 |  |  | 24.6 |
Right-of-use assets obtained in exchange for lease obligations: |  |  |  |
Operating leases |  | 60.1 |  |  | 57.3 |
Finance leases |  | 167.5 |  |  | 180.2 |
Future maturities of lease liabilities at December 31, 2023 are presented in the following table (in millions):
|  | Operating Leases |  | Finance Leases
2023 |  | $ | 59.1 |  |  | $ | 77.2 |
2024 |  | 54.6 |  |  | 75.6 |
2025 |  | 50.6 |  |  | 72.8 |
2026 |  | 42.6 |  |  | 69.1 |
2027 |  | 33.1 |  |  | 65.2 |
Thereafter |  | 169.7 |  |  | 1,220.6 |
Total lease payments |  | 409.7 |  |  | 1,580.5 |
Less: imputed interest |  | (123.2) |  |  | (886.9) |
Total lease obligations |  | $ | 286.5 |  |  | $ | 693.6 |
Leases | Leases The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the right to use the underlying assets for the lease term and the lease liabilities represent the obligation to make lease payments arising from the leases. Right-of-use assets and liabilities are recognized at commencement date based on the present value of future lease payments over the lease term, which includes only payments that are fixed and determinable at the time of commencement. When readily determinable, the Company uses the interest rate implicit in a lease to determine the present value of future lease payments. For leases where the implicit rate is not readily determinable, the Company's incremental borrowing rate is used. The Company calculates its incremental borrowing rate on a periodic basis using a third-party financial model that estimates the rate of interest the Company would have to pay to borrow an amount equal to the total lease payments on a collateralized basis over a term similar to the lease. The Company applies its incremental borrowing rate using a portfolio approach. The right-of-use asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. The Company's operating leases are primarily for real estate, including medical office buildings, and corporate and other administrative offices. The Company's finance leases are primarily for medical equipment and information technology and telecommunications assets. The Company's finance leases also include certain land, buildings and improvements as discussed in Note 3. "Property and Equipment." Real estate lease agreements typically have initial terms of ten years and may include one or more options to renew. Certain leases also include options to purchase the leased property. The useful life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The majority of the Company's medical equipment leases have a bargain purchase option that is reasonably certain of exercise, so these assets are depreciated over their useful life. The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants. Certain of the Company's lease agreements require the Company to pay common area maintenance, repairs, property taxes and insurance costs, which are variable amounts based on actual costs incurred during each applicable period. Certain lease agreements also include escalating rent payments that are not fixed at commencement but are based on an index that is determined in future periods over the lease term based on changes in the Consumer Price Index or other measure of cost inflation. These variable components of lease payments are expensed as incurred and are not included in the determination of the right-of-use asset or lease liability. The following table presents the components of the Company's right-of-use assets and liabilities related to leases and their classification in the consolidated balance sheets at December 31, 2023 and 2022 (in millions):
|  | Classification in Consolidated Balance Sheets |  | December 31, 2023 |  | December 31, 2022
Assets: |  |  |  |  |  |
Operating lease assets |  | Right-of-use operating lease assets |  | $ | 255.3 |  |  | $ | 279.1 |
Finance lease assets |  | Property and equipment, net of accumulated depreciation |  | 587.0 |  |  | 529.6 |
Total leased assets |  |  |  | $ | 842.3 |  |  | $ | 808.7 |
Liabilities: |  |  |  |  |  |
Operating lease liabilities: |  |  |  |  |  |
Current |  | Other current liabilities |  | $ | 37.6 |  |  | $ | 36.5 |
Long-term |  | Right-of-use operating lease liabilities |  | 248.9 |  |  | 271.4 |
Total operating lease liabilities |  |  |  | 286.5 |  |  | 307.9 |
Finance lease liabilities: |  |  |  |  |  |
Current |  | Current maturities of long-term debt |  | 25.4 |  |  | 20.9 |
Long-term |  | Long-term debt, less current maturities |  | 668.2 |  |  | 564.8 |
Total finance lease liabilities |  |  |  | 693.6 |  |  | 585.7 |
Total lease liabilities |  |  |  | $ | 980.1 |  |  | $ | 893.6 |
During the year ended December 31, 2023, the Company extended certain existing facility real estate leases, resulting in the reclassification of the leases from operating to finance. The modifications resulted in an increase to finance lease liabilities and assets of $97.1 million and $95.7 million, respectively, including the reclassification of existing operating lease liabilities and assets of $38.4 million and $36.9 million, respectively. The following table presents the weighted-average lease terms and discount rates at December 31, 2023 and 2022 (in millions):
|  | December 31, 2023 |  | December 31, 2022
|  | Operating Leases |  | Finance Leases |  | Operating Leases |  | Finance Leases
Weighted-average remaining lease term |  | 9.2 years |  | 20.5 years |  | 9.2 years |  | 20.7 years
Weight average discount rate |  | 8.2 | % |  | 8.2 | % |  | 9.1 | % |  | 8.8 | %
The following table presents the components of the Company's lease expense and their classification in the consolidated statement of operations for the years ended December 31, 2023 and 2022 (in millions):
|  | December 31, 2023 |  | December 31, 2022
Operating lease costs |  | $ | 65.7 |  |  | $ | 65.5 |
Finance lease costs: |  |  |  |
Amortization of leased assets |  | 39.9 |  |  | 38.8 |
Interest on lease liabilities |  | 48.6 |  |  | 42.7 |
Total finance lease costs |  | 88.5 |  |  | 81.5 |
Variable and short-term lease costs |  | 20.1 |  |  | 18.5 |
Total lease costs |  | $ | 174.3 |  |  | $ | 165.5 |
During the years ended December 31, 2023 and 2022, the Company incurred lease costs of $19.5 million and $19.6 million, respectively, under operating lease agreements with physician investors who are related parties. During the years ended December 31, 2023 and 2022, the Company paid rent of $26.4 million and $26.3 million, respectively, under finance lease agreements with physician investors and a lessor who are related parties. One of the Company's surgical facilities has a non-controlling ownership interest in the lessor. Payments are allocated to principal adjustments of the finance lease liability and interest expense. The following table presents supplemental cash flow information for the years ended December 31, 2023 and 2022 (dollars in millions):
|  | December 31, 2023 |  | December 31, 2022
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash outflows from operating leases |  | $ | 63.7 |  |  | $ | 63.2 |
Operating cash outflows from finance leases |  | 45.8 |  |  | 41.7 |
Financing cash outflows from finance leases |  | 26.7 |  |  | 24.6 |
Right-of-use assets obtained in exchange for lease obligations: |  |  |  |
Operating leases |  | 60.1 |  |  | 57.3 |
Finance leases |  | 167.5 |  |  | 180.2 |
Future maturities of lease liabilities at December 31, 2023 are presented in the following table (in millions):
|  | Operating Leases |  | Finance Leases
2023 |  | $ | 59.1 |  |  | $ | 77.2 |
2024 |  | 54.6 |  |  | 75.6 |
2025 |  | 50.6 |  |  | 72.8 |
2026 |  | 42.6 |  |  | 69.1 |
2027 |  | 33.1 |  |  | 65.2 |
Thereafter |  | 169.7 |  |  | 1,220.6 |
Total lease payments |  | 409.7 |  |  | 1,580.5 |
Less: imputed interest |  | (123.2) |  |  | (886.9) |
Total lease obligations |  | $ | 286.5 |  |  | $ | 693.6 |

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- Definition The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 842 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//842-20/tableOfContent + Details
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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 842 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//842-20/tableOfContent + Details
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