Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Lookin****g Statements

This quarterly report on Form 10-Q includes certain disclosures which contain “forward-looking statements” within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include statements regarding expected share-based compensation expense, expected capital expenditures and expected net claim payments and all other statements that do not relate solely to historical or current facts, and can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control, which could significantly affect current plans and expectations and our future financial position and results of operations. These factors include, but are not limited to, (1) developments related to COVID-19, including, without limitation, the length and severity of its impact and the spread of virus strains with new epidemiological characteristics; the volume of canceled or rescheduled procedures and the volume and acuity of COVID-19 patients cared for across our health systems; measures we are taking to respond to COVID-19; the impact and terms of government and administrative regulation and stimulus and relief measures (including the Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Paycheck Protection Program and Health Care Enhancement Act, the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021 (“ARPA”) and other enacted and potential future legislation) and whether various stimulus and relief programs continue or new similar programs are enacted in the future; changes in revenues due to declining patient volumes, changes in payer mix and deteriorating macroeconomic conditions (including increases in uninsured and underinsured patients); potential increased expenses related to labor, supply chain or other expenditures; workforce disruptions, including the impact of any current or future vaccine mandates; supply shortages and disruptions; and the timing, availability and adoption of effective medical treatments and vaccines (including boosters), (2) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, (3) the impact of current and future federal and state health reform initiatives and possible changes to other federal, state or local laws and regulations affecting the health care industry, including but not limited to, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”), and the effects of additional changes to the Affordable Care Act, its implementation, or interpretation (including through executive orders and court challenges), and proposals to expand coverage of federally-funded insurance programs as an alternative to private insurance or establish a single-payer system (such reforms often referred to as “Medicare for All”), and also including any such laws or governmental regulations which are adopted in response to COVID-19, (4) the effects related to the implementation of sequestration spending reductions required under the Budget Control Act of 2011, related legislation extending these reductions and those required under the Pay-As-You-Go Act of 2010 (“PAYGO Act”) as a result of the federal budget deficit impact of the ARPA, and the potential for future deficit reduction legislation that may alter these spending reductions, which include cuts to Medicare payments, or create additional spending reductions, (5) increases in the amount and risk of collectability of uninsured accounts and deductibles and copayment amounts for insured accounts, (6) the ability to achieve operating and financial targets, and attain expected levels of patient volumes and control the costs of providing services, (7) possible changes in Medicare, Medicaid and other state programs, including Medicaid supplemental payment programs or Medicaid waiver programs, that may impact reimbursements to health care providers and insurers and the size of the uninsured or underinsured population, (8) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical and technical support personnel, (9) the highly competitive nature of the health care business, (10) changes in service mix, revenue mix and surgical volumes, including potential declines in the population covered under third-party payer agreements, the ability to enter into and renew third-party payer provider agreements on acceptable terms and the impact of consumer-driven health plans and physician utilization trends and practices, (11) the efforts of health insurers, health care providers, large employer groups and others to contain health care costs, (12) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (13) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (14) changes in accounting practices, (15) changes in general economic conditions nationally and regionally in our markets, including inflation and economic and business conditions (and the impact thereof on the economy and financial markets) resulting from COVID-19 or other factors, (16) the emergence of and effects related to pandemics, epidemics and infectious diseases, (17) future divestitures which may result in charges and possible impairments of long-lived assets, (18) changes in business strategy or development plans, (19) delays in receiving payments for services provided, (20) the outcome of pending and any future tax audits, disputes and litigation associated with our tax positions, (21) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (22) the impact of potential cybersecurity incidents or security breaches, (23) our ongoing ability to demonstrate meaningful use of certified electronic health record (“EHR”) technology and the impact of interoperability requirements, (24) the impact of natural disasters, such as hurricanes and floods, physical risks from climate change or similar events beyond our control, (25) changes in U.S. federal, state, or foreign tax laws including interpretive guidance that may be issued by taxing authorities or other standard setting bodies, and (26) other risk factors described in our annual report on Form 10-K for the year ended December 31, 2021 and our other filings with the Securities and Exchange Commission. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of HCA. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report, which forward-looking statements reflect management’s views only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

COVID-19

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. We believe the extent of COVID-19’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 COVID-19 will impact our operations.

Second Quarter 2022 Operations Summary

Revenues increased to $14.820 billion in the second quarter of 2022 from $14.435 billion in the second quarter of 2021. Net income attributable to HCA Healthcare, Inc. totaled $1.155 billion, or $3.90 per diluted share, for the quarter ended June 30, 2022, compared to $1.450 billion, or $4.36 per diluted share, for the quarter ended June 30, 2021. Second quarter results for 2022 and 2021 include losses on sales of facilities of $32 million, or $0.11 per diluted share, and gains on sales of facilities of $8 million, or $0.02 per diluted share, respectively. Second quarter results for 2022 and 2021 also include losses on retirement of debt of $78 million, or $0.20 per diluted share, and $12 million, or $0.03 per diluted share, respectively. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 296.061 million shares for the quarter ended June 30, 2022 and 332.613 million shares for the quarter ended June 30, 2021. During 2021 and the first six months of 2022, we repurchased 37.812 million shares and 20.605 million shares, respectively, of our common stock.

Revenues increased 2.7% on a consolidated basis and 4.0% on a same facility basis for the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021. The increase in consolidated revenues can be attributed to the net impact of a 4.2% increase in revenue per equivalent admission and a 1.5% decline in equivalent admissions. The same facility revenues increase resulted from the combined impact of a 3.5% increase in same facility revenue per equivalent admission and a 0.5% increase in same facility equivalent admissions.

During the quarter ended June 30, 2022, consolidated admissions declined 3.2% and same facility admissions declined 1.2% compared to the quarter ended June 30, 2021. Surgeries declined 2.4% on a consolidated basis and 1.7% on a same facility basis during the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021. Emergency department visits increased 4.5% on a consolidated basis and 7.3% on a same facility basis during the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021. Consolidated and same facility uninsured admissions declined 7.4% and 5.1%, respectively, for the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021.

Cash flows from operating activities declined $621 million, from $2.251 billion for the second quarter of 2021 to $1.630 billion for the second quarter of 2022. The decline in cash provided by operating activities was primarily related to negative changes in working capital items of $604 million.

Results of Operations

Revenue/Volume Trends

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. 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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

Revenues increased 2.7% from $14.435 billion in the second quarter of 2021 to $14.820 billion in the second quarter of 2022. 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 self-pay 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, 2022 and 2021 are summarized in the following table (dollars in millions):

		Quarter
		2022				Ratio				2021				Ratio
Medicare		$	2,495				16.8	%		$	2,612				18.1	%
Managed Medicare			2,260				15.2				2,104				14.6
Medicaid			611				4.1				503				3.5
Managed Medicaid			954				6.4				831				5.8
Managed care and insurers			7,144				48.4				7,417				51.3
International (managed care and insurers)			325				2.2				338				2.3
Other			1,031				6.9				630				4.4
Revenues		$	14,820				100.0	%		$	14,435				100.0	%
		Six Months
		2022				Ratio				2021				Ratio
Medicare		$	5,221				17.5	%		$	5,171				18.2	%
Managed Medicare			4,584				15.4				4,157				14.6
Medicaid			1,190				4.0				1,030				3.6
Managed Medicaid			2,064				6.9				1,556				5.5
Managed care and insurers			14,296				48.1				14,302				50.4
International (managed care and insurers)			681				2.3				671				2.4
Other			1,729				5.8				1,525				5.3
Revenues		$	29,765				100.0	%		$	28,412				100.0	%

Consolidated and same facility revenue per equivalent admission increased 4.2% and 3.5%, respectively, in the second quarter of 2022, compared to the second quarter of 2021. Consolidated and same facility equivalent admissions declined 1.5% and increased 0.5%, respectively, in the second quarter of 2022, compared to the second quarter of 2021. Consolidated and same facility outpatient surgeries declined 1.5% and 1.4%, respectively, in the second quarter of 2022, compared to the second quarter of 2021. Consolidated and same facility inpatient surgeries declined 4.0% and 2.3%, respectively, in the second quarter of 2022, compared to the second quarter of 2021. Consolidated and same facility emergency department visits increased 4.5% and 7.3%, respectively, in the second quarter of 2022, compared to the second quarter of 2021.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

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, 2022 and 2021 follows (dollars in millions):

		Quarter								Six Months
		2022				2021				2022				2021
Patient care costs (salaries and benefits, supplies, other operating expense and depreciation and amortization)		$	12,524			$	11,950			$	25,268			$	23,593
Cost-to-charges ratio (patient care costs as percentage of gross patient charges)			11.0	%			11.1	%			11.2	%			11.2	%
Total uncompensated care		$	8,457			$	7,696			$	15,462			$	14,517
Multiply by the cost-to-charges ratio			11.0	%			11.1	%			11.2	%			11.2	%
Estimated cost of total uncompensated care		$	940			$	848			$	1,732			$	1,626

Same facility uninsured admissions declined by 2,044 admissions, or 5.1%, in the second quarter of 2022, compared to the second quarter of 2021. Same facility uninsured admissions declined 3.0% in the first quarter of 2022, compared to the first quarter of 2021. Same facility uninsured admissions in 2021, compared to 2020, declined 6.3% in the fourth quarter, increased 1.2% in the third quarter, increased 6.6% in the second quarter of 2021, and declined 15.7% in the first quarter.

The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and the uninsured for the quarters and six months ended June 30, 2022 and 2021 are set forth in the following table.

		Quarter								Six Months
		2022				2021				2022				2021
Medicare			22	%			23	%			22	%			23	%
Managed Medicare			23				21				23				22
Medicaid			5				5				5				5
Managed Medicaid			13				13				13				13
Managed care and insurers			30				30				30				30
Uninsured			7				8				7				7
			100	%			100	%			100	%			100	%

The approximate percentages of our inpatient revenues related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers for the quarters and six months ended June 30, 2022 and 2021 are set forth in the following table.

		Quarter								Six Months
		2022				2021				2022				2021
Medicare			23	%			24	%			24	%			24	%
Managed Medicare			18				17				18				17
Medicaid			7				5				6				5
Managed Medicaid			7				7				8				6
Managed care and insurers			45				47				44				48
			100	%			100	%			100	%			100	%

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

At June 30, 2022, we had 91 hospitals in the states of Texas and Florida. During the quarter ended June 30, 2022, 57% of our admissions and 50% of our revenues were generated by these hospitals. Uninsured admissions in Texas and Florida represented 73% of our uninsured admissions during the quarter ended June 30, 2022.

We receive a significant portion of our revenues from government health programs, principally Medicare and Medicaid, which are highly regulated and subject to frequent and substantial changes. Some state Medicaid programs use, or have applied to use, waivers granted by the Centers for Medicare & Medicaid Services ("CMS") to implement Medicaid expansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards. For example, the Texas Healthcare Transformation and Quality Improvement Program (“Texas Waiver Program”) currently operates pursuant to a Medicaid waiver that has been extended through September 2030. Our Texas Medicaid revenues included Texas Waiver Program supplemental revenues of $144 million and $148 million during the second quarters of 2022 and 2021, respectively, and $247 million and $286 million during the first six months of 2022 and 2021, respectively. We receive supplemental payments in several other states. We are aware these supplemental payment programs are currently being reviewed by certain state agencies and some states have made requests to CMS to replace their existing supplemental payment programs. It is possible these reviews and requests will result in the restructuring of such supplemental payment programs and could result in the payment programs being reduced or eliminated. Because deliberations about these programs are ongoing, we are unable to estimate the financial impact the program structure modifications, if any, may have on our results of operations.

Key Performance Indicators

We present certain metrics and statistical information that management uses when assessing our results of operations. We believe this information is useful to investors as it provides insight to how management evaluates operational performance and trends between reporting periods. Information on how these metrics and statistical information are defined is provided in the following tables summarizing operating results and operating data.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Operating Results Summary

The following is a comparative summary of results of operations for the quarters and six months ended June 30, 2022 and 2021 (dollars in millions):

		Quarter
		2022								2021
		Amount				Ratio				Amount				Ratio
Revenues		$	14,820				100.0			$	14,435				100.0
Salaries and benefits			6,792				45.8				6,385				44.2
Supplies			2,301				15.5				2,380				16.5
Other operating expenses			2,693				18.3				2,473				17.2
Equity in earnings of affiliates			(8	)			(0.1	)			(22	)			(0.2	)
Depreciation and amortization			738				5.0				712				4.9
Interest expense			434				2.9				386				2.7
Losses (gains) on sales of facilities			32				0.2				(8	)			(0.1	)
Losses on retirement of debt			78				0.5				12				0.1
			13,060				88.1				12,318				85.3
Income before income taxes			1,760				11.9				2,117				14.7
Provision for income taxes			381				2.6				453				3.2
Net income			1,379				9.3				1,664				11.5
Net income attributable to noncontrolling interests			224				1.5				214				1.5
Net income attributable to HCA Healthcare, Inc.		$	1,155				7.8			$	1,450				10.0
% changes from prior year:
Revenues			2.7	%							30.4	%
Income before income taxes			(16.9	)							35.7
Net income attributable to HCA Healthcare, Inc.			(20.3	)							34.3
Admissions(a)			(3.2	)							17.5
Equivalent admissions(b)			(1.5	)							26.7
Revenue per equivalent admission			4.2								2.9
Same facility % changes from prior year(c):
Revenues			4.0								30.1
Admissions(a)			(1.2	)							17.5
Equivalent admissions(b)			0.5								26.8
Revenue per equivalent admission			3.5								2.6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Operating Results Summary (continued)

		Six Months
		2022								2021
		Amount				Ratio				Amount				Ratio
Revenues		$	29,765				100.0			$	28,412				100.0
Salaries and benefits			13,731				46.1				12,686				44.6
Supplies			4,622				15.5				4,604				16.2
Other operating expenses			5,445				18.4				4,894				17.3
Equity in earnings of affiliates			(19	)			(0.1	)			(43	)			(0.2	)
Depreciation and amortization			1,470				4.9				1,409				5.0
Interest expense			842				2.8				770				2.7
Losses (gains) on sales of facilities			22				0.1				(10	)			—
Losses on retirement of debt			78				0.3				12				—
			26,191				88.0				24,322				85.6
Income before income taxes			3,574				12.0				4,090				14.4
Provision for income taxes			730				2.4				846				3.0
Net income			2,844				9.6				3,244				11.4
Net income attributable to noncontrolling interests			416				1.4				371				1.3
Net income attributable to HCA Healthcare, Inc.		$	2,428				8.2			$	2,873				10.1
% changes from prior year:
Revenues			4.8	%							18.7	%
Income before income taxes			(12.6	)							72.5
Net income attributable to HCA Healthcare, Inc.			(15.5	)							73.0
Admissions(a)			(1.6	)							5.8
Equivalent admissions(b)			0.8								8.5
Revenue per equivalent admission			4.0								9.5
Same facility % changes from prior year(c):
Revenues			5.9								18.8
Admissions(a)			0.4								5.8
Equivalent admissions(b)			2.7								8.5
Revenue per equivalent admission			3.1								9.5

(a)

Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.

(b)

Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenues and gross outpatient revenues and then dividing the resulting amount by gross inpatient revenues. The equivalent admissions computation “equates” outpatient revenues to the volume measure (admissions) used to measure inpatient volume, resulting in a general measure of combined inpatient and outpatient volume.

(c)

Same facility information excludes the operations of hospitals and their related facilities which were either acquired or divested during the current and prior period.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Quarters Ended June 30, 2022 and 2021

Revenues increased to $14.820 billion in the second quarter of 2022 from $14.435 billion in the second quarter of 2021. Net income attributable to HCA Healthcare, Inc. totaled $1.155 billion, or $3.90 per diluted share, for the quarter ended June 30, 2022, compared to $1.450 billion, or $4.36 per diluted share, for the quarter ended June 30, 2021. Second quarter results for 2022 and 2021 include losses on sales of facilities of $32 million, or $0.11 per diluted share, and gains on sales of facilities of $8 million, or $0.02 per diluted share, respectively. Second quarter results for 2022 and 2021 also include losses on retirement of debt of $78 million, or $0.20 per diluted share, and $12 million, or $0.03 per diluted share, respectively. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 296.061 million shares for the quarter ended June 30, 2022 and 332.613 million shares for the quarter ended June 30, 2021. During 2021 and the first six months of 2022, we repurchased 37.812 million shares and 20.605 million shares, respectively, of our common stock.

Revenues increased 2.7% on a consolidated basis and 4.0% on a same facility basis for the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021. The increase in consolidated revenues can be attributed to the net impact of a 4.2% increase in revenue per equivalent admission and a 1.5% decline in equivalent admissions. The same facility revenues increase resulted from the combined impact of a 3.5% increase in same facility revenue per equivalent admission and a 0.5% increase in same facility equivalent admissions.

Salaries and benefits, as a percentage of revenues, were 45.8% in the second quarter of 2022 and 44.2% in the second quarter of 2021. Salaries and benefits per equivalent admission increased 8.0% in the second quarter of 2022, compared to the second quarter of 2021. Same facility salaries and benefits per full time equivalent increased 5.9% for the second quarter of 2022, compared to the second quarter of 2021 as inflation has impacted our labor costs and as we continue to utilize certain contract, overtime and other premium rate labor costs to support our clinical staff and patients. We intend to continue reducing our utilization of and rates paid for premium rate labor, but the pace and amount of any expected future declines may be affected by labor market conditions and other factors.

Supplies, as a percentage of revenues, were 15.5% in the second quarter of 2022 and 16.5% in the second quarter of 2021. Supply costs per equivalent admission declined 1.9% in the second quarter of 2022, compared to the second quarter of 2021. Supply costs per equivalent admission declined 0.5% for medical devices, 11.0% for pharmacy supplies and 0.4% for general medical and surgical items in the second quarter of 2022, compared to the second quarter of 2021. The decline in pharmacy supplies is primarily related to higher utilization of certain COVID-19 therapies during the second quarter of 2021.

Other operating expenses, as a percentage of revenues, were 18.3% in the second quarter of 2022 and 17.2% in the second quarter of 2021. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. We have seen inflation have a negative impact on certain of these expenses and expect inflationary pressures will continue to impact operating expenses in the future. Provisions for losses related to professional liability risks were $142 million and $135 million for the second quarters of 2022 and 2021, respectively.

Equity in earnings of affiliates was $8 million and $22 million in the second quarters of 2022 and 2021, respectively.

Depreciation and amortization increased $26 million, from $712 million in the second quarter of 2021 to $738 million in the second quarter of 2022. The increase in depreciation relates primarily to capital expenditures at our existing facilities.

Interest expense was $434 million in the second quarter of 2022 and $386 million in the second quarter of 2021. Our average debt balance was $38.264 billion for the second quarter of 2022, compared to $31.892 billion for the second quarter of 2021. The average effective interest rate for our debt was 4.5% and 4.9%, respectively, for the quarters ended June 30, 2022 and 2021.

During the second quarters of 2022 and 2021, we recorded losses on sales of facilities of $32 million and gains on sales of facilities of $8 million, respectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Quarters Ended June 30, 2022 and 2021 (continued)

During March 2022, we issued $6.000 billion aggregate principal amount of senior secured notes comprised of (i) $1.000 billion aggregate principal amount of 3 1/8% senior secured notes due 2027, (ii) $500 million aggregate principal amount of 3 3/8% senior secured notes due 2029, (iii) $2.000 billion aggregate principal amount of 3 5/8% senior secured notes due 2032, (iv) $500 million aggregate principal amount of 4 3/8% senior secured notes due 2042 and (v) $2.000 billion aggregate principal amount of 4 5/8% senior secured notes due 2052. During March 2022, we used a portion of the net proceeds to pay down our revolving credit facilities. During April 2022, we redeemed all $1.250 billion outstanding aggregate principal amount of our 4.75% senior secured notes due 2023. During May 2022, we redeemed all $1.250 billion outstanding aggregate principal amount of our 5.875% senior notes due 2023. The aggregate pretax loss on retirement of debt for these two redemptions was $78 million. 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 facility and a new $500 million term loan B facility (the “Credit Agreement Transactions”). We used the net proceeds from the June 2021 Notes and the Credit Agreement Transactions to retire $3.657 billion of term loan facilities. The pretax loss on retirement of debt was $12 million.

The effective tax rates were 24.8% and 23.8% for the second quarters of 2022 and 2021, respectively. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships.

Net income attributable to noncontrolling interests increased from $214 million for the second quarter of 2021 to $224 million for the second quarter of 2022. The increase in net income attributable to noncontrolling interests related primarily to the operations of one of our Texas markets.

Six Months Ended June 30, 2022 and 2021

Revenues increased to $29.765 billion in the first six months of 2022 from $28.412 billion in the first six months of 2021. Net income attributable to HCA Healthcare, Inc. totaled $2.428 billion, or $8.05 per diluted share, for the six months ended June 30, 2022, compared to $2.873 billion, or $8.50 per diluted share, for the six months ended June 30, 2021. Results for the first six months of 2022 and 2021 include losses on sales of facilities of $22 million, or $0.08 per diluted share, and gains on sales of facilities of $10 million, or $0.02 per diluted share, respectively. Results for the first six months of 2022 and 2021 also include losses on retirement of debt of $78 million, or $0.20 per diluted share, and $12 million, or $0.03 per diluted share, respectively. Our provision for income taxes for the first six months of 2022 and 2021 included tax benefits of $67 million, or $0.22 per diluted share, and $85 million, or $0.25 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 301.690 million shares for the six months ended June 30, 2022 and 337.940 million shares for the six months ended June 30, 2021. During 2021 and the first six months of 2022, we repurchased 37.812 million shares and 20.605 million shares, respectively, of our common stock.

Revenues increased 4.8% on a consolidated basis and 5.9% on a same facility basis for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase in consolidated revenues can be attributed to the combined impact of a 4.0% increase in revenue per equivalent admission and a 0.8% increase in equivalent admissions. The same facility revenues increase primarily resulted from the combined impact of a 3.1% increase in same facility revenue per equivalent admission and a 2.7% increase in same facility equivalent admissions.

Salaries and benefits, as a percentage of revenues, were 46.1% in the first six months of 2022 and 44.6% in the first six months of 2021. Salaries and benefits per equivalent admission increased 7.4% in the first six months of 2022, compared to the first six months of 2021. Same facility salaries and benefits per full time equivalent increased 6.8% for the first six months of 2022, compared to the first six months of 2021 as inflation has impacted our labor costs and as we continue to utilize certain contract, overtime and other premium rate labor costs to support our clinical staff and patients. We intend to continue reducing our utilization of and rates paid for premium rate labor, but the pace and amount of any expected future declines may be affected by labor market conditions and other factors.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Six Months Ended June 30, 2022 and 2021 (continued)

Supplies, as a percentage of revenues, were 15.5% in the first six months of 2022 and 16.2% in the first six months of 2021. Supply costs per equivalent admission declined 0.4% in the first six months of 2022, compared to the first six months of 2021. Supply costs per equivalent admission increased 2.5% for medical devices and 1.1% for general medical and surgical items and declined 10.8% for pharmacy supplies in the first six months of 2022, compared to the first six months of 2021. The decline in pharmacy supplies is primarily related to higher utilization of certain COVID-19 therapies during the first six months of 2021.

Other operating expenses, as a percentage of revenues, were 18.4% in the first six months of 2022 and 17.3% in the first six months of 2021. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. We have seen inflation have a negative impact on certain of these expenses and expect inflationary pressures will continue to impact operating expenses in the future. Provisions for losses related to professional liability risks were $285 million and $269 million for the first six months of 2022 and 2021, respectively.

Equity in earnings of affiliates was $19 million and $43 million in the first six months of 2022 and 2021, respectively.

Depreciation and amortization increased $61 million, from $1.409 billion in the first six months of 2021 to $1.470 billion in the first six months of 2022. The increase in depreciation relates primarily to capital expenditures at our existing facilities.

Interest expense was $842 million in the first six months of 2022 and $770 million in the first six months of 2021. Our average debt balance was $36.936 billion for the first six months of 2022 compared to $31.510 billion for the first six months of 2021. The average effective interest rate for our debt was 4.6% and 4.9%, respectively, for the six months ended June 30, 2022 and 2021.

During the first six months of 2022 and 2021, we recorded losses on sales of facilities of $22 million and gains on sales of facilities $10 million, respectively.

During March 2022, we issued $6.000 billion aggregate principal amount of senior secured notes comprised of (i) $1.000 billion aggregate principal amount of 3 1/8% senior secured notes due 2027, (ii) $500 million aggregate principal amount of 3 3/8% senior secured notes due 2029, (iii) $2.000 billion aggregate principal amount of 3 5/8% senior secured notes due 2032, (iv) $500 million aggregate principal amount of 4 3/8% senior secured notes due 2042 and (v) $2.000 billion aggregate principal amount of 4 5/8% senior secured notes due 2052. During March 2022, we used a portion of the net proceeds to pay down our revolving credit facilities. During April 2022, we redeemed all $1.250 billion outstanding aggregate principal amount of our 4.75% senior secured notes due 2023. During May 2022, we redeemed all $1.250 billion outstanding aggregate principal amount of our 5.875% senior notes due 2023. The aggregate pretax loss on retirement of debt for these two redemptions was $78 million. 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 facility and a new $500 million term loan B facility (the “Credit Agreement Transactions”). We used the net proceeds from the June 2021 Notes and the Credit Agreement Transactions to retire $3.657 billion of term loan facilities. The pretax loss on retirement of debt was $12 million.

The effective tax rates were 23.1% and 22.7% for the first six months of 2022 and 2021, respectively. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships. Our provisions for income taxes for the first six months of 2022 and 2021 included tax benefits of $67 million and $85 million, respectively, related to employee equity award settlements. Excluding the effect of these adjustments, the effective tax rate for the first six months of 2022 and 2021 would have been 25.2% and 25.0%, respectively.

Net income attributable to noncontrolling interests increased from $371 million for the first six months of 2021 to $416 million for the first six months 2022. The increase in net income attributable to noncontrolling interests related primarily to the operations of one of our Texas markets, our group purchasing organization and our surgery centers.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources

Cash provided by operating activities totaled $2.975 billion for the first six months of 2022 compared to $4.239 billion for the first six months of 2021. The $1.264 billion decline in cash provided by operating activities, for the first six months of 2022 compared to the first six months of 2021, related primarily to the net impact of negative changes in working capital items of $1.096 billion, including a payment of $344 million for deferred payroll taxes from 2020. The combination of interest payments and net income tax payments in the first six months of 2022 and 2021 totaled $1.386 billion and $1.599 billion, respectively. Working capital totaled $4.938 billion at June 30, 2022 and $3.960 billion at December 31, 2021.

Cash used in investing activities was $2.050 billion in the first six months of 2022 compared to $1.569 billion in the first six months of 2021. Excluding acquisitions, capital expenditures were $1.941 billion in the first six months of 2022 and $1.496 billion in the first six months of 2021. Planned capital expenditures are expected to approximate $4.2 billion in 2022. At June 30, 2022, there were projects under construction which had estimated additional costs to complete and equip over the next five years of approximately $4.3 billion. We expect to finance capital expenditures with internally generated and borrowed funds.

Cash used in financing activities totaled $1.501 billion in the first six months of 2022, compared to $3.346 billion in the first six months of 2021. During the first six months of 2022, net cash flows used in financing activities included a net increase of $4.206 billion in our indebtedness, payment of dividends of $337 million, repurchase of common stock of $4.783 billion and distributions to noncontrolling interests of $333 million. During the first six months of 2021, net cash flows used in financing activities included a net increase of $1.406 billion in our indebtedness, payment of dividends of $325 million, repurchase of common stock of $3.814 billion and distributions to noncontrolling interests of $357 million.

We are a highly leveraged company with significant debt service requirements. Our debt totaled $38.903 billion at June 30, 2022. Our interest expense was $842 million for the first six months of 2022 and $770 million for the first six months of 2021.

In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($2.725 billion and $3.355 billion available as of June 30, 2022 and July 31, 2022, respectively) and anticipated access to public and private debt markets.

Investments of our insurance subsidiaries, held to maintain statutory equity levels and to provide liquidity to pay claims, totaled $493 million and $541 million at June 30, 2022 and December 31, 2021, respectively. An insurance subsidiary maintained net reserves for professional liability risks of $139 million and $154 million at June 30, 2022 and December 31, 2021, respectively. Our facilities are insured by our insurance subsidiary for losses up to $75 million per occurrence; however, this coverage is generally subject, in most cases, to a $15 million per occurrence self-insured retention. Additionally, the insurance subsidiary has entered into reinsurance contracts providing reimbursement for a certain portion of losses in excess of self-insured retentions. Net reserves for the self-insured professional liability risks retained were $1.835 billion and $1.813 billion at June 30, 2022 and December 31, 2021, respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate $488 million. We estimate that approximately $445 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention.

During March 2022, we issued $6.000 billion aggregate principal amount of senior secured notes comprised of (i) $1.000 billion aggregate principal amount of 3 1/8% senior secured notes due 2027, (ii) $500 million aggregate principal amount of 3 3/8% senior secured notes due 2029, (iii) $2.000 billion aggregate principal amount of 3 5/8% senior secured notes due 2032, (iv) $500 million aggregate principal amount of 4 3/8% senior secured notes due 2042 and (v) $2.000 billion aggregate principal amount of 4 5/8% senior secured notes due 2052. During March 2022, we used a portion of the net proceeds to pay down our revolving credit facilities. During April 2022, we redeemed all $1.250 billion outstanding aggregate principal amount of our 4.75% senior secured notes due 2023. During May 2022, we redeemed all $1.250 billion outstanding aggregate principal amount of our 5.875% senior notes due 2023.

Management believes that cash flows from operations, amounts available under our senior secured credit facilities and our anticipated access to public and private debt markets will be sufficient to meet expected liquidity needs during the next 12 months.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

HCA Inc., a direct wholly-owned subsidiary of HCA Healthcare, Inc., is the primary obligor under a substantial portion of our indebtedness, including our senior secured credit facilities and senior notes. The senior secured credit facilities are fully and unconditionally guaranteed on a senior secured basis by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are "Unrestricted Subsidiaries" under our Indenture dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our senior secured asset-based revolving credit facility). For further information regarding the senior secured credit facilities and the related subsidiary guarantees, refer to the discussion under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 31, 2021. On May 25, 2022, Standard & Poor’s Rating Services (“S&P”) announced it had issued an investment grade rating with respect to the issuer credit rating of HCA Healthcare, Inc. and its subsidiaries. S&P’s announcement, in conjunction with previously disclosed events, constituted an “Investment Grade Rating Event” or a “Ratings Event,” as applicable, under the terms of the indentures governing HCA Inc.’s outstanding senior secured notes and, as a result, the conditions in the senior secured indentures to permit the permanent release of the subsidiary guarantees and all collateral securing the senior secured notes were met. The subsidiary guarantees and collateral securing our senior secured credit facilities are not affected. Following this release of the subsidiary guarantees and collateral securing the senior secured notes, the subsidiary guarantors deregistered with the Securities and Exchange Commission. As a result, summarized financial information for HCA Healthcare, Inc., HCA Inc. and the subsidiary guarantors, and information about the subsidiary guarantees and affiliates whose securities were pledged as collateral will no longer be presented.

All of the senior notes issued by HCA Inc. in 2014 or later continue to be fully and unconditionally guaranteed on an unsecured basis by HCA Healthcare, Inc. The combined assets, liabilities, and results of operations of HCA Healthcare, Inc. and HCA Inc. are not materially different than the corresponding amounts presented in the consolidated financial statements of HCA Healthcare, Inc. As a result, summarized financial information of HCA Healthcare, Inc. and HCA Inc. is not required to be presented under Rule 13-01 of Regulation S-X.

Market Risk

We are exposed to market risk related to changes in market values of securities. The investment securities held by our insurance subsidiaries were recorded at $493 million at June 30, 2022. These investments are carried at fair value, with changes in unrealized gains and losses that are not credit-related being recorded as adjustments to other comprehensive income. At June 30, 2022, we had net unrealized losses of $26 million on the insurance subsidiaries’ investments.

We are exposed to market risk related to market illiquidity. Investment securities held by our insurance subsidiaries could be impaired by the inability to access the capital markets. Should the insurance subsidiaries require significant amounts of cash in excess of normal cash requirements to pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less than what we might otherwise have been able to in a normal market environment. We may be required to recognize credit-related impairments on our investment securities in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to ratings downgrades or other issue-specific factors.

We are also exposed to market risk related to changes in interest rates. With respect to our interest-bearing liabilities, approximately $5.130 billion of our debt at June 30, 2022 was subject to variable rates of interest, while the remaining debt balance of $33.773 billion at June 30, 2022 was subject to fixed rates of interest. Both the general level of interest rates and our leverage affect our variable interest rates. Our variable debt is comprised primarily of amounts outstanding under the senior secured credit facilities. Borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, at our option, either (a) a base rate determined by reference to the higher of (1) the federal funds rate plus 0.50% or (2) the prime rate of Bank of America or (b) a LIBOR rate for the currency of such borrowing for the relevant interest period. The applicable margin for borrowings under the senior secured credit facilities may fluctuate according to a leverage ratio. The average effective interest rate for our debt was 4.6% and 4.9% for the six months ended June 30, 2022 and 2021, respectively.

The estimated fair value of our debt was $36.652 billion at June 30, 2022. The estimates of fair value are based upon the quoted market prices for the same or similar issues of debt with the same maturities. Based on a hypothetical 1% increase in interest rates, the potential annualized reduction to future pretax earnings would be approximately $51 million. To mitigate the impact of fluctuations in interest rates, we generally target a portion of our debt portfolio to be maintained at fixed rates.

We are exposed to currency translation risk related to our foreign operations. We currently do not consider the market risk related to foreign currency translation to be material to our consolidated financial statements or our liquidity.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Tax Examinations

At June 30, 2022, the Internal Revenue Service was conducting examinations of the Company’s 2016, 2017 and 2018 federal income tax returns and the 2019 return for one affiliated partnership. We are also subject to examination by state and foreign taxing authorities. Management believes HCA Healthcare, Inc. and its predecessors, subsidiaries and affiliates properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with IRS, state and foreign taxing authorities and final resolution of any disputes will not have a material, adverse effect on our results of operations or financial position. However, if payments due upon final resolution of any issues exceed our recorded estimates, such resolutions could have a material, adverse effect on our results of operations or financial position.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating Data

		2022				2021
Number of hospitals in operation at:
March 31			182				186
June 30			182				187
September 30							183
December 31							182
Number of freestanding outpatient surgical centers in operation at:
March 31			124				121
June 30			126				122
September 30							123
December 31							125
Licensed hospital beds at(a):
March 31			48,892				49,561
June 30			48,979				49,693
September 30							48,950
December 31							48,803
Weighted average beds in service(b):
Quarter:
First			41,818				42,363
Second			41,930				42,464
Third							42,088
Fourth							41,685
Year							42,148
Average daily census(c):
Quarter:
First			29,797				29,678
Second			28,256				28,901
Third							31,144
Fourth							29,273
Year							29,752
Admissions(d):
Quarter:
First			506,956				506,380
Second			515,113				532,041
Third							536,848
Fourth							514,706
Year							2,089,975
Equivalent admissions(e):
Quarter:
First			859,290				832,489
Second			902,757				916,212
Third							905,627
Fourth							881,910
Year							3,536,238
Average length of stay (days)(f):
Quarter:
First			5.3				5.3
Second			5.0				4.9
Third							5.3
Fourth							5.2
Year							5.2

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

		2022				2021
Emergency room visits(g):
Quarter:
First			2,056,389				1,841,778
Second			2,223,999				2,128,428
Third							2,338,180
Fourth							2,166,959
Year							8,475,345
Outpatient surgeries(h):
Quarter:
First			247,421				231,228
Second			258,182				262,107
Third							249,192
Fourth							265,709
Year							1,008,236
Inpatient surgeries(i):
Quarter:
First			126,880				127,590
Second			130,961				136,460
Third							126,436
Fourth							131,583
Year							522,069
Days revenues in accounts receivable(j):
Quarter:
First			51				48
Second			53				48
Third							51
Fourth							49
Outpatient revenues as a % of patient revenues(k):
Quarter:
First			37	%			36	%
Second			39	%			38	%
Third							34	%
Fourth							38	%
Year							37	%

(a)

Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency.

(b)

Represents the average number of beds in service, weighted based on periods owned.

(c)

Represents the average number of patients in our hospital beds each day.

(d)

Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.

(e)

Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenues and gross outpatient revenues and then dividing the resulting amount by gross inpatient revenues. The equivalent admissions computation “equates” outpatient revenues to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume.

(f)

Represents the average number of days admitted patients stay in our hospitals.

(g)

Represents the number of patients treated in our emergency rooms.

(h)

Represents the number of surgeries performed on patients who were not admitted to our hospitals. Pain management and endoscopy procedures are not included in outpatient surgeries.

(i)

Represents the number of surgeries performed on patients who have been admitted to our hospitals. Pain management and endoscopy procedures are not included in inpatient surgeries.

(j)

Revenues per day is calculated by dividing revenues for the quarter by the days in the quarter. Days revenues in accounts receivable is then calculated as accounts receivable at the end of the quarter divided by revenues per day.

(k)

Represents the percentage of patient revenues related to patients who are not admitted to our hospitals.