Cover and table of contents

Cover and table of contents

Cover and table of contents

Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number

1-11239

HCA Healthcare, Inc.

(Exact name of registrant as specified in its charter)


Delaware		27-3865930
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Park Plaza Nashville, Tennessee		37203
(Address of principal executive offices)		(Zip Code)

(615) 344-9551

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Voting common stock, $.01 par value		HCA		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T

during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in

Rule 12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2

of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.


Class of Common Stock		Outstanding at October 25, 2021
Voting common stock, $.01 par value		311,022,800 shares

HCA HEALTHCARE, INC.

Form 10-Q

September 30, 2021


		Page of Form 10-Q
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Income Statements — for the quarters and nine months ended September 30, 2021 and 2020		2

	Condensed Consolidated Comprehensive Income Statements — for the quarters and nine months ended September 30, 2021 and 2020		3

	Condensed Consolidated Balance Sheets — September 30, 2021 and December 31, 2020		4

	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) — for the quarters and nine months ended September 30, 2021 and 2020		5

	Condensed Consolidated Statements of Cash Flows — for the nine months ended September 30, 2021 and 2020		6

	Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37

Item 4.	Controls and Procedures		37

Part II.	Other Information

Item 1.	Legal Proceedings		37

Item 1A.	Risk Factors		37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		37

Item 6.	Exhibits		39

Signatures			40

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Unaudited

(Dollars in millions, except per share amounts)


	Quarter						Nine Months
	2021			2020			2021			2020
Revenues	$	15,276		$	13,311		$	43,688		$	37,240

Salaries and benefits		7,094			6,097			19,780			17,545
Supplies		2,463			2,128			7,067			5,999
Other operating expenses		2,530			2,251			7,424			6,825
Government stimulus income reversal		—			822			—			—
Equity in earnings of affiliates		(35	)		(40	)		(78	)		(48	)
Depreciation and amortization		716			694			2,125			2,059
Interest expense		398			385			1,168			1,201
Losses (gains) on sales of facilities		(1,047	)		(14	)		(1,057	)		6
Losses on retirement of debt		—			—			12			295

		12,119			12,323			36,441			33,882

Income before income taxes		3,157			988			7,247			3,358
Provision for income taxes		685			209			1,531			665

Net income		2,472			779			5,716			2,693
Net income attributable to noncontrolling interests		203			111			574			365

Net income attributable to HCA Healthcare, Inc.	$	2,269		$	668		$	5,142		$	2,328

Per share data:
Basic earnings	$	7.13		$	1.97		$	15.67		$	6.89
Diluted earnings	$	7.00		$	1.95		$	15.43		$	6.79
Shares used in earnings per share calculations (in millions):
Basic		318.072			338.168			328.048			338.057
Diluted		324.029			343.346			333.248			343.014

The accompanying notes are an integral part of the condensed consolidated financial statements.

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Unaudited

(Dollars in millions)


	Quarter					Nine Months
	2021			2020		2021			2020
Net income	$	2,472		$	779	$	5,716		$	2,693
Other comprehensive income (loss) before taxes:
Foreign currency translation		(31	)		42		(20	)		(39	)

Unrealized gains (losses) on available-for-sale securities		(3	)		1		(12	)		13

Defined benefit plans		—			—		—			—
Pension costs included in salaries and benefits		7			4		21			12

		7			4		21			12

Change in fair value of derivative financial instruments		(1	)		—		(1	)		(66	)
Interest costs included in interest expense		10			9		28			15

		9			9		27			(51	)

Other comprehensive income (loss) before taxes		(18	)		56		16			(65	)
Income taxes (benefits) related to other comprehensive income items		(1	)		9		6			(10	)

Other comprehensive income (loss)		(17	)		47		10			(55	)

Comprehensive income		2,455			826		5,726			2,638
Comprehensive income attributable to noncontrolling interests		203			111		574			365

Comprehensive income attributable to HCA Healthcare, Inc.	$	2,252		$	715	$	5,152		$	2,273

The accompanying notes are an integral part of the condensed consolidated financial statements.

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(Dollars in millions)


	September 30, 2021			December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,027		$	1,793
Accounts receivable		8,433			7,051
Inventories		2,019			2,025
Other		1,769			1,464

		13,248			12,333

Property and equipment, at cost		50,695			49,317
Accumulated depreciation		(27,148	)		(26,118	)

		23,547			23,199

Investments of insurance subsidiaries		418			388
Investments in and advances to affiliates		412			422
Goodwill and other intangible assets		9,153			8,578
Right-of-use operating lease assets		2,099			2,024
Other		685			546

	$	49,562		$	47,490

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,759		$	3,535
Accrued salaries		2,134			1,720
Other accrued expenses		3,481			3,240
Long-term debt due within one year		250			209

		9,624			8,704

Long-term debt, less debt issuance costs and discounts of $253 and $236		32,049			30,795
Professional liability risks		1,522			1,486
Right-of-use operating lease obligations		1,742			1,673
Income taxes and other liabilities		2,800			1,940

Stockholders’ equity:
Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 313,502,400 shares — 2021 and 339,425,600 shares — 2020		3			3
Capital in excess of par value		—			294
Accumulated other comprehensive loss		(492	)		(502	)
Retained (deficit) earnings		(206	)		777

Stockholders’ (deficit) equity attributable to HCA Healthcare, Inc.		(695	)		572
Noncontrolling interests		2,520			2,320

		1,825			2,892

	$	49,562		$	47,490

The accompanying notes are an integral part of the condensed consolidated financial statements.

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Unaudited

(Dollars in millions)


	Equity (Deficit) Attributable to HCA Healthcare, Inc.														Equity Attributable to Noncontrolling Interests			Total
	Common Stock					Capital in Excess of Par Value			Accumulated Other Comprehensive Loss			Retained Earnings (Deficit)
	Shares (in millions)			Par Value
Balances, December 31, 2019		338.446		$	3	$	—		$	(460	)	$	(2,351	)	$	2,243		$	(565	)
Comprehensive income										(111	)		581			117			587
Repurchase of common stock		(3.287	)										(441	)					(441	)
Share-based benefit plans		2.449					2						(35	)					(33	)
Cash dividends declared ($0.43 per share)													(148	)					(148	)
Distributions																(154	)		(154	)
Other							(2	)								53			51

Balances, March 31, 2020		337.608			3		—			(571	)		(2,394	)		2,259			(703	)
Comprehensive income										9			1,079			137			1,225
Share-based benefit plans		0.352					93												93
Distributions																(45	)		(45	)
Other							(5	)								3			(2	)

Balances, June 30, 2020		337.960			3		88			(562	)		(1,315	)		2,354			568
Comprehensive income										47			668			111			826
Share-based benefit plans		0.410					97												97
Distributions																(194	)		(194	)
Other																2			2

Balances, September 30, 2020		338.370			3		185			(515	)		(647	)		2,273			1,299
Comprehensive income										13			1,426			268			1,707
Share-based benefit plans		1.056					108												108
Cash dividends declared ($0.43 per share)													(2	)					(2	)
Distributions																(233	)		(233	)
Other							1									12			13

Balances, December 31, 2020		339.426			3		294			(502	)		777			2,320			2,892
Comprehensive income										11			1,423			157			1,591
Repurchase of common stock		(8.477	)				(225	)					(1,302	)					(1,527	)
Share-based benefit plans		2.765					(75	)											(75	)
Cash dividends declared ($0.48 per share)													(163	)					(163	)
Distributions																(234	)		(234	)
Other							6									(8	)		(2	)

Balances, March 31, 2021		333.714			3		—			(491	)		735			2,235			2,482
Comprehensive income										16			1,450			214			1,680
Repurchase of common stock		(11.261	)				(142	)					(2,145	)					(2,287	)
Share-based benefit plans		0.372					140												140
Cash dividends declared ($0.48 per share)													(161	)					(161	)
Distributions																(123	)		(123	)
Other							2									57			59

Balances, June 30, 2021		322.825			3		—			(475	)		(121	)		2,383			1,790
Comprehensive income										(17	)		2,269			203			2,455
Repurchase of common stock		(9.605	)				(130	)					(2,199	)					(2,329	)
Share-based benefit plans		0.282					127												127
Cash dividends declared ($0.48 per share)													(155	)					(155	)
Distributions																(144	)		(144	)
Other							3									78			81

Balances, September 30, 2021		313.502		$	3	$	—		$	(492	)	$	(206	)	$	2,520		$	1,825

The accompanying notes are an integral part of the condensed consolidated financial statements.

HCA HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

Unaudited

(Dollars in millions)


	2021			2020
Cash flows from operating activities:
Net income	$	5,716		$	2,693
Adjustments to reconcile net income to net cash provided by operating activities:
Increase (decrease) in cash from operating assets and liabilities:
Accounts receivable		(1,312	)		930
Inventories and other assets		(333	)		(36	)
Accounts payable and accrued expenses		731			542
Contract liabilities-deferred revenues		—			6,123
Depreciation and amortization		2,125			2,059
Income taxes		185			(114	)
Losses (gains) on sales of facilities		(1,057	)		6
Losses on retirement of debt		12			295
Amortization of debt issuance costs and discounts		21			22
Share-based compensation		341			229
Other		87			66

Net cash provided by operating activities		6,516			12,815

Cash flows from investing activities:
Purchase of property and equipment		(2,385	)		(2,087	)
Acquisition of hospitals and health care entities		(488	)		(380	)
Sales of hospitals and health care entities		1,980			68
Change in investments		(38	)		(40	)
Other		2			(44	)

Net cash used in investing activities		(929	)		(2,483	)

Cash flows from financing activities:
Issuances of long-term debt		4,337			2,700
Net change in revolving credit facilities		500			(2,480	)
Repayment of long-term debt		(3,787	)		(3,403	)
Distributions to noncontrolling interests		(501	)		(393	)
Payment of debt issuance costs		(38	)		(35	)
Payment of dividends		(476	)		(153	)
Repurchase of common stock		(6,143	)		(441	)
Other		(241	)		(156	)

Net cash used in financing activities		(6,349	)		(4,361	)

Effect of exchange rate changes on cash and cash equivalents		(4	)		(4	)

Change in cash and cash equivalents		(766	)		5,967
Cash and cash equivalents at beginning of period		1,793			621

Cash and cash equivalents at end of period	$	1,027		$	6,588

Interest payments	$	1,127		$	1,230
Income tax payments, net	$	1,346		$	779

The accompanying notes are an integral part of the condensed consolidated financial statements.

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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, 2021, these affiliates owned and operated 183 hospitals, 123 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 $87 million and $117 million for the quarters ended September 30, 2021 and 2020, respectively, and $301 million and $289 million for the nine months ended September 30, 2021 and 2020, respectively. Operating results for the quarter and nine months ended September 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 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. During the third quarter of 2021, our patient volumes remained strong, with the exception of inpatient surgeries, and included a resurgence of

COVID-19

admissions. Inpatient surgery volumes were constrained during the quarter as capacity was used to treat the surge of COVID-19 patients. 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

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues (continued)

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, 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 nine months ended September 30, 2021 and 2020 are summarized in the following table (dollars in millions):


	Quarter
	2021		Ratio			2020		Ratio
Medicare	$	2,645		17.3	%	$	2,603		19.6	%
Managed Medicare		2,124		13.9			1,760		13.2
Medicaid		692		4.5			445		3.3
Managed Medicaid		813		5.3			707		5.3
Managed care and insurers		7,998		52.4			6,752		50.7
International (managed care and insurers)		324		2.1			307		2.3
Other		680		4.5			737		5.6

Revenues	$	15,276		100.0	%	$	13,311		100.0	%

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1 — BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenues (continued)


	Nine Months
	2021		Ratio			2020		Ratio
Medicare	$	7,816		17.9	%	$	7,618		20.5	%
Managed Medicare		6,281		14.4			5,074		13.6
Medicaid		1,722		3.9			1,423		3.8
Managed Medicaid		2,369		5.4			1,904		5.1
Managed care and insurers		22,300		51.0			19,028		51.0
International (managed care and insurers)		995		2.3			838		2.3
Other		2,205		5.1			1,355		3.7

Revenues	$	43,688		100.0	%	$	37,240		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 nine months ended September 30, 2021 and 2020 follows (dollars in millions):


	Quarter						Nine Months
	2021			2020			2021			2020
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)	$	12,803		$	11,170		$	36,396		$	32,428
Cost-to-charges ratio (patient care costs as percentage of gross patient charges)		11.8	%		12.0	%		11.4	%		12.1	%
Total uncompensated care	$	7,782		$	7,023		$	22,299		$	21,625
Multiply by the cost-to-charges ratio		11.8	%		12.0	%		11.4	%		12.1	%

Estimated cost of total uncompensated care	$	916		$	843		$	2,542		$	2,617

The total uncompensated care amounts include

charity care of $3.509 billion and $3.160 billion, respectively, and the related estimated costs of charity care were $413 million and $376 million, respectively, for the quarters ended September 30, 2021 and 2020. The total uncompensated care amounts include charity care of $10.135 billion and $9.972 billion, respectively, and the related estimated costs of charity care were $1.155 billion and $1.207 billion, respectively, for the nine months ended September 30, 2021 and 2020.

Reclassifications

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

NOTE 2 — ACQUISITIONS AND DISPOSITIONS

During the nine months ended September 30, 2021, we paid $67 million to acquire two hospital facilities, one in southern Georgia and one in Tennessee, and $91 million to acquire other nonhospital health care

entities (noncontrolling interests of $111 million were recorded).

We also paid $330 million and assumed certain liabilities to acquire an 80% interest (noncontrolling interests of $101 million were recorded) in a venture providing post-acute care services (home health and hospice). Purchase price amounts have been allocated to the related assets acquired and liabilities assumed based upon their respective fair values. The purchase price paid in excess of the fair value of identifiable net assets of these acquired entities aggregated $601 million for the nine months ended September 30, 2021. During the nine months ended September 30, 2020, we paid $380 million to acquire a hospital in New Hampshire

and other nonhospital health care entities. The consolidated financial statements include the accounts and operations of the acquired entities subsequent to the respective acquisition

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2 — ACQUISITIONS AND DISPOSITIONS (continued)

dates. The pro forma effects of these acquired entities on our results of operations for periods prior to the respective acquisition dates were not significant.

During the nine months ended September 30, 2021, we received proceeds of $860 million and recognized a pretax gain of $655 million related to the sale of four hospital facilities in Georgia (two facilities in northern Georgia and two facilities in southern Georgia). We received proceeds of $647 million on September 30, 2021 related to the sale of a hospital facility in northern Georgia, which sale was effective October 1, 2021. We also received proceeds of $473 million and recognized a pretax gain of $402

million related to sales of other health care entity investments and minor real estate assets. During the nine months ended September 30, 2020, we received proceeds of

million and recognized a net pretax loss of $

million related to the

sale

of a hospital facility in Mississippi and sales of real estate and other investments.

NOTE 3 — INCOME TAXES

Our provisions for income taxes for the quarters ended September 30, 2021 and 2020 were $685 million and $209 million, respectively, and the effective tax rates were 23.2% and 23.8%, respectively. Our provisions for income taxes for the nine months ended September 30, 2021 and 2020 were $1.531 billion and $665 million, respectively, and the effective tax rates were 22.9% and 22.2%, respectively. Our provisions for income taxes included tax benefits related to settlements of employee equity awards of $96 million and $59 million for the nine months ended September 30, 2021 and 2020, respectively.

Our liability for unrecognized tax benefits was $626 million, including accrued interest of $95 million, as of September 30, 2021 ($508 million and $73 million, respectively, as of December 31, 2020). Unrecognized tax benefits of $192 million ($157 million as of December 31, 2020) would affect the effective rate, if recognized.

The Internal Revenue Service was conducting an examination of the Company’s 2016, 2017 and 2018 federal income tax returns at September 30, 2021. We are also subject to examination by state and foreign taxing authorities. Depending on the resolution of any federal, state and foreign tax disputes, the completion of examinations by federal, state or foreign taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible that our liability for unrecognized tax benefits may significantly increase or decrease within the next 12 months. However, we are currently unable to estimate the range of any possible change.

NOTE 4 — EARNINGS PER SHARE

We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding, plus the dilutive effect of outstanding equity awards, computed using the treasury stock method.

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4 — EARNINGS PER SHARE (continued)

The following table sets forth the computation of basic and diluted earnings per share for the quarters and nine months ended September 30, 2021 and 2020 (dollars and shares in millions, except per share amounts):


	Quarter				Nine Months
	2021		2020		2021		2020
Net income attributable to HCA Healthcare, Inc.	$	2,269	$	668	$	5,142	$	2,328

Weighted average common shares outstanding		318.072		338.168		328.048		338.057
Effect of dilutive incremental shares		5.957		5.178		5.200		4.957

Shares used for diluted earnings per share		324.029		343.346		333.248		343.014

Earnings per share:
Basic earnings	$	7.13	$	1.97	$	15.67	$	6.89
Diluted earnings	$	7.00	$	1.95	$	15.43	$	6.79

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES

A summary of our insurance subsidiaries’ investments at September 30, 2021 and December 31, 2020 follows (dollars in millions):


	September 30, 2021
	Amortized Cost		Unrealized Amounts					Fair Value
	Gains		Losses
Debt securities	$	391	$	21	$	(1	)	$	411
Money market funds and other		119		—		—			119

	$	510	$	21	$	(1	)		530

Amounts classified as current assets									(112	)

Investment carrying value								$	418


	December 31, 2020
	Amortized Cost		Unrealized Amounts				Fair Value
	Gains		Losses
Debt securities	$	384	$	32	$	—	$	416
Money market funds and other		88		—		—		88

	$	472	$	32	$	—		504

Amounts classified as current assets								(116	)

Investment carrying value							$	388

At September 30, 2021 and December 31, 2020, the investments in debt securities of our insurance subsidiaries were classified as

“available-for-sale.”

Changes in unrealized gains and losses that are not credit-related are recorded as adjustments to other comprehensive income (loss).

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 5 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)

Scheduled maturities of investments in debt securities at September 30, 2021 were as follows (dollars in millions):


	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years		134		141
Due after five years through ten years		177		187
Due after ten years		80		83

	$	391	$	411

The average expected maturity of the investments in debt securities at September 30, 2021 was 5.5 years, compared to the average scheduled maturity of 9.3 years. Expected and scheduled maturities may differ because the issuers of certain securities have the right to call, prepay or otherwise redeem such obligations prior to their scheduled maturity date.

NOTE 6 — FINANCIAL INSTRUMENTS

Interest Rate Swap Agreements

We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. These swap agreements involve the exchange of fixed and variable rate interest payments between us and our counterparties based on common notional principal amounts and maturity dates.

Pay-fixed

interest rate swaps effectively convert variable rate obligations to fixed interest rate obligations. The interest payments under these agreements are settled on a net basis. The net interest payments, based on the notional amounts in these agreements, generally match the timing of the related liabilities for the interest rate swap agreements which have been designated as cash flow hedges. The notional amounts of the swap agreements represent amounts used to calculate the exchange of cash flows and are not our assets or liabilities. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions.

The following table sets forth our interest rate swap agreements, which have been designated as cash flow hedges, at September 30, 2021 (dollars in millions):


	Notional Amount		Maturity Date		Fair Value
Pay-fixed interest rate swaps	$	2,000		December 2021	$	(7	)
Pay-fixed interest rate swaps		500		December 2022		(12	)

During the next 12 months, we estimate $17 million will be reclassified from other comprehensive income (“OCI”) and will be included in interest expense.

Derivatives — Results of Operations

The following table presents the effect of our interest rate swaps on our results of operations for the nine months ended September 30, 2021 (dollars in millions):


Derivatives in Cash Flow Hedging Relationships		Amount of Loss Recognized in OCI on Derivatives, Net of Tax				Location of Loss Reclassified from Accumulated OCI into Operations				Amount of Loss Reclassified from Accumulated OCI into Operations
Interest rate swaps		$	1				Interest expense			$	28

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6 — FINANCIAL INSTRUMENTS (continued)

Credit-risk-related Contingent Features

We have agreements with each of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on the indebtedness. As of September 30, 2021, we have not been required to post any collateral related to these agreements. If we had breached these provisions at September 30, 2021, we would have been required to settle our obligations under the agreements at their aggregate, estimated termination value of $19 million.

NOTE 7 — ASSETS AND LIABILITIES MEASURED

AT FAIR

VALUE

Accounting Standards Codification 820,

Fair Value Measurements and Disclosures

(“ASC 820”), emphasizes fair value is a market-based measurement, and fair value measurements should be determined based on the assumptions market participants would use in pricing assets or liabilities. ASC 820 utilizes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment.

Investment Securities

The investments of our insurance subsidiaries are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

Derivative Financial Instruments

We have entered into interest rate swap agreements to manage our exposure to fluctuations in interest rates. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. We incorporate credit valuation adjustments to reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements of these instruments.

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 7 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)

The following tables summarize our assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):


	September 30, 2021
				Fair Value Measurements Using
	Fair Value			Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets:
Investments of insurance subsidiaries:
Debt securities	$	411		$	—		$	411		$	—
Money market funds and other		119			119			—			—

Investments of insurance subsidiaries		530			119			411			—
Less amounts classified as current assets		(112	)		(105	)		(7	)		—

	$	418		$	14		$	404		$	—

Liabilities:
Interest rate swaps (Other accrued expenses)	$	17		$	—		$	17		$	—
Interest rate swaps (Income taxes and other liabilities)		2			—			2			—


	December 31, 2020
				Fair Value Measurements Using
	Fair Value			Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets:
Investments of insurance subsidiaries:
Debt securities	$	416		$	—		$	416		$	—
Money market funds and other		88			88			—			—

Investments of insurance subsidiaries		504			88			416			—
Less amounts classified as current assets		(116	)		(87	)		(29	)		—

	$	388		$	1		$	387		$	—

Liabilities:
Interest rate swaps (Income taxes and other liabilities)	$	46		$	—		$	46		$	—

The estimated fair value of our long-term debt was $36.567 billion and $35.814 billion at September 30, 2021 and December 31, 2020, respectively, compared to carrying amounts, excluding debt issuance costs and discounts, aggregating $32.552 billion and $31.240 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8 — LONG-TERM DEBT

A summary of long-term debt at September 30, 2021 and December 31, 2020, including related interest rates at September 30, 2021, follows (dollars in millions):


	September 30, 2021			December 31, 2020
Senior secured asset-based revolving credit facility (effective interest rate of 2.7%)	$	500		$	—
Senior secured revolving credit facility		—			—
Senior secured term loan facilities (effective interest rate of 3.1%)		1,980			3,671
Senior secured notes (effective interest rate of 4.8%)		16,200			13,850
Other senior secured debt (effective interest rate of 4.2%)		920			767

Senior secured debt		19,600			18,288
Senior unsecured notes (effective interest rate of 5.5%)		12,952			12,952
Debt issuance costs and discounts		(253	)		(236	)

Total debt (average life of 9.5 years, rates averaging 4.9%)		32,299			31,004
Less amounts due within one year		250			209

	$	32,049		$	30,795

During June 2021, we issued $2.350 billion aggregate principal amount of senior secured notes comprised of $850 million aggregate principal amount of 2 3/8% notes due 2031 and $1.500 billion aggregate principal amount of 3 1/2% notes due 2051 (the “June 2021 Notes”). We also amended and restated our senior secured revolving credit facility and our senior secured asset-based revolving credit facility, including increasing availability under the asset-based revolving credit facility to $4.500 billion, extending the maturity date on both facilities to June 30, 2026 and entering into a new $1.500 billion term

loan A-7

facility and a new $500 million term

loan B-14

facility (the “Credit Agreement Transactions”). We used the net proceeds from the June 2021 Notes and the Credit Agreement Transactions to retire the $1.071 billion term

loan A-6

facility, the $1.455 billion term

loan B-12

facility and the $1.131 billion term

loan B-13

facility. The pretax loss on retirement of debt was $12 million.

NOTE 9 — CONTINGENCIES

We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians’ staff privileges. In certain of these actions the claimants may seek punitive damages against us which may not be covered by insurance. We are also subject to claims by various taxing authorities for additional taxes and related interest and penalties. The resolution of any such lawsuits, claims or legal and regulatory proceedings could have a material, adverse effect on our results of operations, financial position or liquidity.

Health care companies are routinely subject to investigations by various governmental agencies. Under the federal False Claims Act (“FCA”), private parties have the right to bring

qui tam

, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received, and from time to time, other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. Depending on whether the underlying conduct in these or future inquiries or investigations could be considered systemic, their resolution could have a material, adverse effect on our results of operations, financial position or liquidity.

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9 — CONTINGENCIES (continued)

Texas operates a state Medicaid program pursuant to a waiver from the Centers for Medicare & Medicaid Services under Section 1115 of the Social Security Act (“Program”). The Program includes uncompensated-care pools; payments from these pools are intended to defray the uncompensated costs of services provided by our and other hospitals to Medicaid eligible or uninsured individuals. Separately, we and other hospitals provide charity care services in several communities in the state. In 2018, the Civil Division of the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Texas requested information about whether the Program, as operated in Harris County, complied with the laws and regulations applicable to provider related donations, and the Company cooperated with that request. On May 21, 2019, a

qui tam

lawsuit asserting violations of the FCA and the Texas Medicaid Fraud Prevention Act related to the Program, as operated in Harris County, was unsealed by the U.S. District Court for the Southern District of Texas. Both the federal and state governments declined to intervene in the

qui tam

lawsuit. The Company believes that our participation is and has been consistent with the requirements of the Program and is vigorously defending against the lawsuit being pursued by the relator. We cannot predict what effect, if any, the

qui tam

lawsuit could have on the Company.

NOTE 10 — SHARE REPURCHASE TRANSACTIONS AND OTHER COMPREHENSIVE LOSS

During January 2020 and 2019, our Board of Directors authorized share repurchase programs for up to $4 billion ($2 billion for each authorization) of our outstanding common stock. During February 2021, our Board of Directors authorized an additional $6 billion for repurchases of our outstanding common stock. During the nine months ended September 30, 2021, we repurchased 29.343 million shares of our common stock at an average price of $209.35 per share through market purchases pursuant to the January 2019 authorization (which was completed during the first quarter of 2021), the January 2020 authorization (which was completed during the second quarter of 2021) and the February 2021 authorization. At September 30, 2021, we had $2.658 billion of repurchase authorization available under the February 2021 authorization.

The components of accumulated other comprehensive loss are as follows (dollars in millions):


	Unrealized Gains on Available- for-Sale Securities			Foreign Currency Translation Adjustments			Defined Benefit Plans			Change in Fair Value of Derivative Instruments			Total
Balances at December 31, 2020	$	25		$	(271	)	$	(220	)	$	(36	)	$	(502	)
Unrealized losses on available-for-sale securities, net of $3 income tax benefit		(9	)											(9	)
Foreign currency translation adjustments, net of $2 income tax benefit					(18	)								(18	)
Change in fair value of derivative instruments											(1	)		(1	)
Expense reclassified into operations from other comprehensive income, net of $5 and $6 income tax benefits, respectively								16			22			38

Balances at September 30, 2021	$	16		$	(289	)	$	(204	)	$	(15	)	$	(492	)

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION

We operate in

one

line of business, which is operating hospitals and related health care entities. We operate in two geographically organized groups: the National and American Groups. The National Group includes 96 hospitals located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, North Carolina, South Carolina, Utah and Virginia, and the American Group includes 80 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Missouri, Tennessee and

HCA HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)

Texas. We also operate seven hospitals in England, and these facilities are included in the Corporate and other group.

Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses and gains on sales of facilities, losses on retirement of debt, income taxes and net income attributable to noncontrolling interests. We use adjusted segment EBITDA as an analytical indicator for purposes of allocating resources to geographic areas and assessing their performance. Adjusted segment EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted segment EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted segment EBITDA are significant components in understanding and assessing financial performance. Because adjusted segment EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, adjusted segment EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The geographic distributions of our revenues, equity in earnings of affiliates, adjusted segment EBITDA and depreciation and amortization for the quarters and nine months ended September 30, 2021 and 2020 are summarized in the following table (dollars in millions):


	Quarter						Nine Months
	2021			2020			2021			2020
Revenues:
National Group	$	7,787		$	6,633		$	22,143		$	18,653
American Group		6,767			6,073			19,562			16,920
Corporate and other		722			605			1,983			1,667

	$	15,276		$	13,311		$	43,688		$	37,240

Equity in earnings of affiliates:
National Group	$	(14	)	$	(23	)	$	(30	)	$	(26	)
American Group		(14	)		(15	)		(38	)		(26	)
Corporate and other		(7	)		(2	)		(10	)		4

	$	(35	)	$	(40	)	$	(78	)	$	(48	)

Adjusted segment EBITDA:
National Group	$	1,780		$	1,128		$	5,330		$	3,828
American Group		1,604			1,130			4,698			3,653
Corporate and other		(160	)		(205	)		(533	)		(562	)

	$	3,224		$	2,053		$	9,495		$	6,919

Depreciation and amortization:
National Group	$	343		$	312		$	1,005		$	930
American Group		295			286			884			868
Corporate and other		78			96			236			261

	$	716		$	694		$	2,125		$	2,059


Adjusted segment EBITDA	$	3,224		$	2,053		$	9,495		$	6,919
Depreciation and amortization		716			694			2,125			2,059
Interest expense		398			385			1,168			1,201
Losses (gains) on sales of facilities		(1,047	)		(14	)		(1,057	)		6
Losses on retirement of debt		—			—			12			295

Income before income taxes	$	3,157		$	988		$	7,247		$	3,358

Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company