Item 16. Form 10-K Summary

| --- | --- |

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

UNIVERSAL HEALTH SERVICES, INC.
By:		/s/ ALAN B. MILLER
		Alan B. Miller Chairman of the Board and Chief Executive Officer

February 27, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

	Signatures				Title				Date
/s/ ALAN B. MILLER Alan B. Miller				Chairman of the Board and Chief Executive Officer (Principal Executive Officer)				February 27, 2019
/s/ MARC D. MILLER Marc D. Miller				Director and President				February 27, 2019
/s/ LAWRENCE S. GIBBS Lawrence S. Gibbs				Director				February 27, 2019
/s/ ROBERT H. HOTZ Robert H. Hotz				Director				February 27, 2019
/s/ EILEEN C. MCDONNELL Eileen C. McDonnell				Director				February 27, 2019
/s/ WARREN J. NIMETZ Warren J. Nimetz				Director				February 27, 2019
/s/ ELLIOTT J. SUSSMAN M.D. Elliot J. Sussman M.D.				Director				February 27, 2019
/s/ STEVE FILTON Steve Filton				Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)				February 27, 2019

UNIVERSAL HEALTH SERVICES, INC.

INDEX TO FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE

Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	90
Consolidated Statements of Income for December 31, 2018, 2017, and 2016	91
Consolidated Statements of Comprehensive Income for December 31, 2018, 2017, and 2016	92
Consolidated Balance Sheets as of December 31, 2018 and 2017	93
Consolidated Statements of Changes in Equity for December 31, 2018, 2017 and 2016	94
Consolidated Statements of Cash Flows for December 31, 2018, 2017 and 2016	97
Notes to Consolidated Financial Statements	98
Supplemental Financial Statement Schedule II: Valuation and Qualifying Accounts as of and for December 31, 2018, 2017, and 2016	134

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Universal Health Services, Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the consolidated financial statements, including the related notes and financial statement schedule, of Universal Health Services, Inc. and its subsidiaries (the “Company”) as listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 27, 2019

We have served as the Company’s auditor since 2007.

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

		Year Ended December 31,
		2018				2017				2016
		(in thousands, except per share data)
Net revenues before provision for doubtful accounts						$	11,278,942			$	10,507,788
Less: Provision for doubtful accounts							869,077				741,578
Net revenues			10,772,278				10,409,865				9,766,210
Operating charges:
Salaries, wages and benefits			5,254,536				4,980,637				4,585,530
Other operating expenses			2,614,687				2,493,062				2,359,339
Supplies expense			1,168,654				1,105,096				1,031,337
Depreciation and amortization			453,045				447,765				416,608
Lease and rental expense			106,094				103,127				97,324
Electronic health records incentive income			0				0				(5,339	)
			9,597,016				9,129,687				8,484,799
Income from operations			1,175,262				1,280,178				1,281,411
Interest expense, net			154,956				145,169				125,053
Other (income) expense, net			(14,219	)			0				0
Income before income taxes			1,034,525				1,135,009				1,156,358
Provision for income taxes			236,642				363,697				409,187
Net income			797,883				771,312				747,171
Less: Net income attributable to noncontrolling interests			18,178				19,009				44,762
Net income attributable to UHS		$	779,705			$	752,303			$	702,409
Basic earnings per share attributable to UHS		$	8.35			$	7.86			$	7.22
Diluted earnings per share attributable to UHS		$	8.31			$	7.81			$	7.14
Weighted average number of common shares—basic			93,276				95,652				97,208
Add: Other share equivalents			474				673				1,172
Weighted average number of common shares and equivalents—diluted			93,750				96,325				98,380

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Year Ended December 31,
		2018				2017				2016
Net income		$	797,883			$	771,312			$	747,171
Other comprehensive income (loss):
Unrealized derivative gains on cash flow hedges			(2,805	)			6,679				1,438
Amortization of terminated hedge			0				0				(167	)
Minimum pension liability			(6,892	)			4,070				13,356
Foreign currency translation adjustment			9,718				(2,169	)			(2,229	)
Other			4,398				26,678				(10,038	)
Other comprehensive income before tax			4,419				35,258				2,360
Income tax expense related to items of other comprehensive income			8,905				2,664				4,648
Total other comprehensive income (loss), net of tax			(4,486	)			32,594				(2,288	)
Comprehensive income			793,397				803,906				744,883
Less: Comprehensive income attributable to noncontrolling interests			18,178				19,009				44,762
Comprehensive income attributable to UHS		$	775,219			$	784,897			$	700,121

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		December 31,
		2018				2017
		(Dollar amounts in thousands)
Assets
Current assets:
Cash and cash equivalents		$	105,220			$	74,423
Accounts receivable, net			1,509,909				1,500,898
Supplies			148,206				136,177
Other current assets			174,467				86,504
Total current assets			1,937,802				1,798,002
Property and Equipment
Land			565,607				520,447
Buildings and improvements			5,387,646				4,952,856
Equipment			2,251,822				2,000,305
Property under capital lease			44,020				44,740
			8,249,095				7,518,348
Accumulated depreciation			(3,715,515	)			(3,349,289	)
			4,533,580				4,169,059
Construction-in-progress			314,360				402,778
			4,847,940				4,571,837
Other assets:
Goodwill			3,844,628				3,825,157
Deferred income taxes			5,280				3,007
Deferred charges			8,772				9,787
Other			621,058				554,038
			4,479,738				4,391,989
Total Assets		$	11,265,480			$	10,761,828
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt		$	63,446			$	545,619
Accounts payable			445,652				441,984
Accrued liabilities
Compensation and related benefits			343,384				304,668
Interest			19,277				23,755
Taxes other than income			56,218				85,800
Legal reserves			129,150				38,555
Other			389,183				389,319
Current federal and state income taxes			2,428				18,334
Total current liabilities			1,448,738				1,848,034
Other noncurrent liabilities			361,809				306,304
Long-term debt			3,935,187				3,494,390
Deferred income taxes			49,661				54,962
Commitments and contingencies (Note 8)
Redeemable noncontrolling interest			4,292				6,702
Equity:
Class A Common Stock, voting, $.01 par value; authorized 12,000,000 shares: issued and outstanding 6,577,100 shares in 2018 and 6,595,308 shares in 2017			66				66
Class B Common Stock, limited voting, $.01 par value; authorized 150,000,000 shares: issued and outstanding 84,092,304 shares in 2018 and 86,947,407 shares in 2017			841				869
Class C Common Stock, voting, $.01 par value; authorized 1,200,000 shares: issued and outstanding 661,688 shares in 2018 and 663,940 shares in 2017			7				7
Class D Common Stock, limited voting, $.01 par value; authorized 5,000,000 shares: issued and outstanding 18,653 shares in 2018 and 20,868 shares in 2017			0				0
Cumulative dividends			(409,156	)			(371,814	)
Retained earnings			5,793,262				5,353,209
Accumulated other comprehensive income			4,242				7,177
Universal Health Services, Inc. common stockholders’ equity			5,389,262				4,989,514
Noncontrolling interest			76,531				61,922
Total Equity			5,465,793				5,051,436
Total Liabilities and Stockholders’ Equity		$	11,265,480			$	10,761,828

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Years Ended December 31, 2018, 2017 and 2016

(in thousands)

																														Accumulated				UHS
		Redeemable																												Other				Common
		Noncontrolling				Class A				Class B				Class C				Class D				Cumulative				Retained				Comprehensive				Stockholders'				Noncontrolling
		Interest				Common				Common				Common				Common				Dividends				Earnings				Income (Loss)				Equity				Interest				Total
Balance, January 1, 2016		$	242,509			$	66			$	910			$	7			$	0			$	(294,728	)		$	4,566,521			$	(23,129	)		$	4,249,647			$	59,514			$	4,309,161
Common Stock
Issued/(converted) including tax benefits from exercise of stock options			—				—				13				—				—				—				54,840				—				54,853				—				54,853
Repurchased			—				—				(30	)			—				—				—				(346,860	)			—				(346,890	)			—				(346,890	)
Restricted share-based compensation expense			—				—				—				—				—				—				1,439				—				1,439				—				1,439
Dividends paid			—				—				—				—				—				(38,875	)			—				—				(38,875	)			—				(38,875	)
Stock option expense			—				—				—				—				—				—				45,777				—				45,777				—				45,777
Distributions to noncontrolling interests			(51,847	)			—				—				—				—				—				—				—				—				(17,735	)			(17,735	)
Acquisition of noncontrolling interests in majority owned businesses			(206,200	)			—				—				—				—				—				(132,852	)			—				(132,852	)			—				(132,852	)
Other			—				—				—				—				—				—				—				—				—				2,690				2,690
Comprehensive income:
Net income to UHS / noncontrolling interests			24,857				—				—				—				—				—				702,409				—				702,409				19,905				722,314
Foreign currency translation adjustments			—				—				—				—				—				—				—				(10,038	)			(10,038	)			—				(10,038	)
Amortization of terminated hedge (net of income tax effect of $60)			—				—				—				—				—				—				—				(107	)			(107	)			—				(107	)
Unrealized loss on marketable security (net of income tax effect of $831)			—				—				—				—				—				—				—				(1,398	)			(1,398	)			—				(1,398	)
Unrealized derivative gains on cash flow hedges (net of income tax effect of $536)			—				—				—				—				—				—				—				902				902				—				902
Minimum pension liability (net of income tax effect of $5,003)			—				—				—				—				—				—				—				8,353				8,353				—				8,353
Subtotal - comprehensive income			24,857				—				—				—				—				—				702,409				(2,288	)			700,121				19,905				720,026
Balance, December 31, 2016		$	9,319			$	66			$	893			$	7			$	—			$	(333,603	)		$	4,891,274			$	(25,417	)		$	4,533,220			$	64,374			$	4,597,594

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)

For the Years Ended December 31, 2018, 2017 and 2016

(in thousands)

																														Accumulated				UHS
		Redeemable																												Other				Common
		Noncontrolling				Class A				Class B				Class C				Class D				Cumulative				Retained				Comprehensive				Stockholders'				Noncontrolling
		Interest				Common				Common				Common				Common				Dividends				Earnings				Income (Loss)				Equity				Interest				Total
Common Stock
Issued/(converted) including tax benefits from exercise of stock options			—				—				9				—				—				—				10,370				—				10,379				—				10,379
Repurchased			—				—				(33	)			—				—				—				(356,380	)			—				(356,413	)			—				(356,413	)
Restricted share-based compensation expense			—				—				—				—				—				—				1,377				—				1,377				—				1,377
Dividends paid			—				—				—				—				—				(38,211	)			—				—				(38,211	)			—				(38,211	)
Stock option expense			—				—				—				—				—				—				54,265				—				54,265				—				54,265
Distributions to noncontrolling interests			(1,781	)			—				—				—				—				—				—				—				—				(22,932	)			(22,932	)
Other			—				—				—				—				—				—				—				—				—				635				635
Comprehensive income:
Net income to UHS / noncontrolling interests			(836	)			—				—				—				—				—				752,303				—				752,303				19,845				772,148
Foreign currency translation adjustments			—				—				—				—				—				—				—				26,678				26,678				—				26,678
Unrealized loss on marketable security (net of income tax effect of $809)			—				—				—				—				—				—				—				(1,360	)			(1,360	)			—				(1,360	)
Unrealized derivative gains on cash flow hedges (net of income tax effect of $2,490)			—				—				—				—				—				—				—				4,189				4,189				—				4,189
Minimum pension liability (net of income tax effect of $983)			—				—				—				—				—				—				—				3,087				3,087				—				3,087
Subtotal - comprehensive income			(836	)			—				—				—				—				—				752,303				32,594				784,897				19,845				804,742
Balance, December 31, 2017		$	6,702			$	66			$	869			$	7			$	—			$	(371,814	)		$	5,353,209			$	7,177			$	4,989,514			$	61,922			$	5,051,436

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)

For the Years Ended December 31, 2018, 2017 and 2016

(in thousands)

																														Accumulated				UHS
		Redeemable																												Other				Common
		Noncontrolling				Class A				Class B				Class C				Class D				Cumulative				Retained				Comprehensive				Stockholders'				Noncontrolling
		Interest				Common				Common				Common				Common				Dividends				Earnings				Income (Loss)				Equity				Interest				Total
Cumulative-effect adjustment due to adoption of ASU 2016-01 (net of income tax effect of $1,045)																											(3,353	)			3,353				—								—
Common Stock
Issued/(converted) including tax benefits from exercise of stock options			—				—				6				—				—				—				11,882				—				11,888				—				11,888
Repurchased			—				—				(34	)			—				—				—				(413,968	)			—				(414,002	)			—				(414,002	)
Restricted share-based compensation expense			—				—				—				—				—				—				2,924				—				2,924				—				2,924
Dividends paid			—				—				—				—				—				(37,342	)			—				—				(37,342	)			—				(37,342	)
Stock option expense			—				—				—				—				—				—				61,061				—				61,061				—				61,061
Distributions to noncontrolling interests			(2,500	)			—				—				—				—				—				—				—				—				(12,095	)			(12,095	)
Other			—				—				—				—				—				—				—				—				—				8,616				8,616
Comprehensive income:
Net income to UHS / noncontrolling interests			90				—				—				—				—				—				779,705				—				779,705				18,088				797,793
Reclassification due to adoption of ASU 2018-02			—				—				—				—				—				—				1,802				(1,802	)			—
Foreign currency translation adjustments (net of income tax effect of $6,824)			—				—				—				—				—				—				—				2,894				2,894				—				2,894
Unrealized derivative gains on cash flow hedges (net of income tax effect of $667)			—				—				—				—				—				—				—				(2,138	)			(2,138	)			—				(2,138	)
Minimum pension liability (net of income tax effect of $1,650)			—				—				—				—				—				—				—				(5,242	)			(5,242	)			—				(5,242	)
Subtotal - comprehensive income			90				—				—				—				—				—				778,154				(2,935	)			775,219				18,088				793,307
Balance, December 31, 2018		$	4,292			$	66			$	841			$	7			$	0			$	(409,156	)		$	5,793,262			$	4,242			$	5,389,262			$	76,531			$	5,465,793

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
		2018				2017				2016
		(Amounts in thousands)
Cash Flows from Operating Activities:
Net income		$	797,883			$	771,312			$	747,171
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization			453,076				447,883				416,608
Gains on sales of assets and businesses, net of losses			(2,513	)			0				0
Stock-based compensation expense			66,581				56,738				48,109
Costs related to extinguishment of debt			2,727				0				0
Provision for intangible asset impairment			49,310				0				0
Changes in assets & liabilities, net of effects from acquisitions and dispositions:
Accounts receivable			(42,239	)			(24,719	)			(87,881	)
Accrued interest			(4,478	)			705				9,766
Accrued and deferred income taxes			(54,052	)			(6,405	)			22,068
Other working capital accounts			24,696				(15,165	)			74,489
Other assets and deferred charges			(31,429	)			(27,936	)			(25,522	)
Other			64,615				(42,564	)			81,139
Excess income tax benefits related to stock-based compensation			0				0				45,219
Accrued insurance expense, net of commercial premiums paid			92,863				102,595				84,638
Payments made in settlement of self-insurance claims			(76,147	)			(79,192	)			(81,962	)
Net cash provided by operating activities			1,340,893				1,183,252				1,333,842
Cash Flows from Investing Activities:
Property and equipment additions, net of disposals			(664,962	)			(557,506	)			(519,939	)
Acquisition of property and businesses			(110,464	)			(22,878	)			(613,803	)
Proceeds received from sales of assets and businesses			13,502				108				0
Costs incurred for purchase and implementation of information technology applications			(36,243	)			(29,047	)			(21,475	)
Decrease (Increase) in capital reserves of commercial insurance subsidiary			100				(3,100	)			0
Investment in and advances to joint venture			(15,331	)			(7,976	)			0
Net cash used in investing activities			(813,398	)			(620,399	)			(1,155,217	)
Cash Flows from Financing Activities:
Reduction of long-term debt			(830,496	)			(143,106	)			(459,183	)
Additional borrowings			791,247				41,100				1,170,800
Acquisition of noncontrolling interests in majority owned businesses			0				0				(418,000	)
Financing costs			(13,787	)			(76	)			(12,449	)
Repurchase of common shares			(397,425	)			(364,401	)			(353,380	)
Dividends paid			(37,342	)			(38,211	)			(38,875	)
Issuance of common stock			10,196				10,254				9,503
Profit distributions to noncontrolling interests			(14,595	)			(24,713	)			(69,583	)
Net cash used in financing activities			(492,202	)			(519,153	)			(171,167	)
Effect of exchange rate changes on cash and cash equivalents			(2,905	)			1,647				(2,790	)
Increase in cash and cash equivalents			32,388				45,347				4,668
Cash, cash equivalents and restricted cash, beginning of period			167,297				121,950				117,282
Cash, cash equivalents and restricted cash, end of period		$	199,685			$	167,297			$	121,950
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	150,293			$	135,533			$	107,079
Income taxes paid, net of refunds		$	293,837			$	370,855			$	344,611
Noncash purchases of property and equipment		$	77,674			$	82,496			$	65,702

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Services provided by our hospitals, all of which are operated by subsidiaries of ours, include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services. We, through our subsidiaries, provide capital resources as well as a variety of management services to our facilities, including central purchasing, information services, finance and control systems, facilities planning, physician recruitment services, administrative personnel management, marketing and public relations.

The more significant accounting policies follow:

A) Principles of Consolidation: The consolidated financial statements include the accounts of our majority-owned subsidiaries and partnerships controlled by us or our subsidiaries as the managing general partner. All intercompany accounts and transactions have been eliminated.

B) Revenue Recognition: On January 1, 2018, we adopted, using the modified retrospective approach, ASU 2014-09 and ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)” and “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, respectively, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The most significant change from the adoption of the new standard relates to our estimation for the allowance for doubtful accounts. Under the previous standards, our estimate for amounts not expected to be collected based upon our historical experience, were reflected as provision for doubtful accounts, included within net revenue. Under the new standard, our estimate for amounts not expected to be collected based on historical experience will continue to be recognized as a reduction to net revenue, however, not reflected separately as provision for doubtful accounts. Under the new standard, subsequent changes in estimate of collectability due to a change in the financial status of a payer, for example a bankruptcy, will be recognized as bad debt expense in operating charges. The adoption of this ASU in 2018, and amounts recognized as bad debt expense and included in other operating expenses, did not have a material impact on our consolidated financial statements.

See Note 10-Revenue Recognition, for additional disclosure related to our revenues including a disaggregation of our consolidated net revenues by major source for each of the periods presented herein.

We report net patient service revenue at the estimated net realizable amounts from patients and third-party payers and others for services rendered. We have agreements with third-party payers that provide for payments to us at amounts different from our established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges and per diem payments. Estimates of contractual allowances, which represent explicit price concessions under ASC 606, under managed care plans are based upon the payment terms specified in the related contractual agreements. We closely monitor our historical collection rates, as well as changes in applicable laws, rules and regulations and contract terms, to assure that provisions are made using the most accurate information available. However, due to the complexities involved in these estimations, actual payments from payers may be different from the amounts we estimate and record..

We estimate our Medicare and Medicaid revenues using the latest available financial information, patient utilization data, government provided data and in accordance with applicable Medicare and Medicaid payment rules and regulations. The laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation and as a result, there is at least a reasonable possibility that recorded estimates will change by material amounts in the near term. Certain types of payments by the Medicare program and state Medicaid programs (e.g. Medicare Disproportionate Share Hospital, Medicare Allowable Bad Debts and Inpatient Psychiatric Services) are subject to retroactive adjustment in future periods as a result of administrative review and audit and our estimates may vary from the final settlements. Such amounts are included in accounts receivable, net, on our Consolidated Balance Sheets. The funding of both federal Medicare and state Medicaid programs are subject to legislative and regulatory changes. As such, we cannot provide any assurance that future legislation and regulations, if enacted, will not have a material impact on our future Medicare and Medicaid reimbursements. Adjustments related to the final settlement of these retrospectively determined amounts did not materially impact our results in 2018, 2017 or 2016. If it were to occur, each 1% adjustment to our estimated net Medicare revenues that are subject to retrospective review and settlement as of December 31, 2018, would change our after-tax net income by approximately $1 million.

C) Charity Care, Uninsured Discounts and Other Adjustments to Revenue: Collection of receivables from third-party payers and patients is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and the portion of the bill which is the patient’s responsibility, primarily co-payments and deductibles. We estimate

our revenue adjustments for implicit price concessions based on general factors such as payer mix, the agings of the receivables and historical collection experience, consistent with our estimates for provision for doubtful accounts under ASC 605. We routinely review accounts receivable balances in conjunction with these factors and other economic conditions which might ultimately affect the collectability of the patient accounts and make adjustments to our allowances as warranted. At our acute care hospitals, third party liability accounts are pursued until all payment and adjustments are posted to the patient account. For those accounts with a patient balance after third party liability is finalized or accounts for uninsured patients, the patient receives statements and collection letters.

Under ASC 605, our hospitals established a partial reserve for self-pay accounts in the allowance for doubtful accounts for both unbilled balances and those that have been billed and were under 90 days old. All self-pay accounts were fully reserved at 90 days from the date of discharge. Third party liability accounts were fully reserved in the allowance for doubtful accounts when the balance aged past 180 days from the date of discharge. Patients that express an inability to pay were reviewed for potential sources of financial assistance including our charity care policy. If the patient was deemed unwilling to pay, the account was written-off as bad debt and transferred to an outside collection agency for additional collection effort. Under ASC 606, while similar processes and methodologies are considered, these revenue adjustments are considered at the time the services are provided in determination of the transaction price.

Historically, a significant portion of the patients treated throughout our portfolio of acute care hospitals are uninsured patients which, in part, has resulted from patients who are employed but do not have health insurance or who have policies with relatively high deductibles. Patients treated at our hospitals for non-elective services, who have gross income less than 400% of the federal poverty guidelines, are deemed eligible for charity care. The federal poverty guidelines are established by the federal government and are based on income and family size. Because we do not pursue collection of amounts that qualify as charity care, the transaction price is fully adjusted and there is no impact in our net revenues or in our accounts receivable, net.

A portion of the accounts receivable at our acute care facilities are comprised of Medicaid accounts that are pending approval from third-party payers but we also have smaller amounts due from other miscellaneous payers such as county indigent programs in certain states. Our patient registration process includes an interview of the patient or the patient’s responsible party at the time of registration. At that time, an insurance eligibility determination is made and an insurance plan code is assigned. There are various pre-established insurance profiles in our patient accounting system which determine the expected insurance reimbursement for each patient based on the insurance plan code assigned and the services rendered. Certain patients may be classified as Medicaid pending at registration based upon a screening evaluation if we are unable to definitively determine if they are currently Medicaid eligible. When a patient is registered as Medicaid eligible or Medicaid pending, our patient accounting system records net revenues for services provided to that patient based upon the established Medicaid reimbursement rates, subject to the ultimate disposition of the patient’s Medicaid eligibility. When the patient’s ultimate eligibility is determined, reclassifications may occur which impacts net revenues in future periods. Although the patient’s ultimate eligibility determination may result in adjustments to net revenues, these adjustments do not have a material impact on our results of operations in 2018, 2017 or 2016 since our facilities make estimates at each financial reporting period to adjust revenue based on historical collections. Under ASC 605, these estimates were reported in the provision for doubtful accounts.

We also provide discounts to uninsured patients (included in “uninsured discounts” amounts below) who do not qualify for Medicaid or charity care. Because we do not pursue collection of amounts classified as uninsured discounts, the transaction price is fully adjusted and there is no impact in our net revenues or in our net accounts receivable. In implementing the discount policy, we first attempt to qualify uninsured patients for governmental programs, charity care or any other discount program. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.

Uncompensated care (charity care and uninsured discounts):

The following table shows the amounts recorded at our acute care hospitals for charity care and uninsured discounts, based on charges at established rates, for the years ended December 31, 2018, 2017 and 2016:

		(dollar amounts in thousands)
		2018								2017								2016
		Amount				%				Amount				%				Amount				%
Charity care		$	761,783				40	%		$	887,136				50	%		$	733,585				50	%
Uninsured discounts			1,132,811				60	%			881,265				50	%			720,205				50	%
Total uncompensated care		$	1,894,594				100	%		$	1,768,401				100	%		$	1,453,790				100	%

The estimated cost of providing uncompensated care:

The estimated cost of providing uncompensated care, as reflected below, were based on a calculation which multiplied the percentage of operating expenses for our acute care hospitals to gross charges for those hospitals by the above-mentioned total uncompensated care amounts. The percentage of cost to gross charges is calculated based on the total operating expenses for our acute care facilities divided by gross patient service revenue for those facilities. An increase in the level of uninsured patients to our facilities and the resulting adverse trends in the adjustments to net revenues and uncompensated care provided could have a material unfavorable impact on our future operating results.

		(amounts in thousands)
		2018				2017				2016
Estimated cost of providing charity care		$	94,088			$	120,208			$	107,887
Estimated cost of providing uninsured discounts related care			139,913				119,412				105,920
Estimated cost of providing uncompensated care		$	234,001			$	239,620			$	213,807

Our accounts receivable as of December 31, 2018 and December 31, 2017 include amounts due from Illinois of approximately $32 million and $25 million, respectively. Collection of the outstanding receivables continues to be delayed due to state budgetary and funding pressures. Approximately $18 million as of December 31, 2018 and $8 million as of December 31, 2017, of the receivables due from Illinois were outstanding in excess of 60 days, as of each respective date. Although the accounts receivable due from Illinois could remain outstanding for the foreseeable future, since we expect to eventually collect all amounts due to us, no related reserves have been established in our consolidated financial statements. However, we can provide no assurance that we will eventually collect all amounts due to us from Illinois. Failure to ultimately collect all outstanding amounts due to us from Illinois would have an adverse impact on our future consolidated results of operations and cash flows.

D) Concentration of Revenues: Our six acute care hospitals in the Las Vegas, Nevada market contributed, on a combined basis, 15% in 2018, 15% in 2017 and 14% in 2016 of our consolidated net revenues.

E) Cash, Cash Equivalents and Restricted Cash: We consider all highly liquid investments purchased with maturities of three months or less to be cash equivalents.

Cash, cash equivalents, and restricted cash as reported in the consolidated statements of cash flows are presented separately on our consolidated balance sheets as follow:

		(amounts in thousands)
		2018				2017				2016
Cash and cash equivalents		$	105,220			$	74,423			$	33,747
Restricted cash (a)			94,465				92,874				88,203
Total cash, cash equivalents and restricted cash		$	199,685			$	167,297			$	121,950

(a)Restricted cash is included in other assets on the accompanying consolidated balance sheet and consists of statutorily required capital reserves related to our commercial insurance subsidiary. The fair value of our restricted cash was computed based upon quotes received from financial institutions. We consider these to be “level 1” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with financial securities.

F) Property and Equipment: Property and equipment are stated at cost. Expenditures for renewals and improvements are charged to the property accounts. Replacements, maintenance and repairs which do not improve or extend the life of the respective asset are expensed as incurred. We remove the cost and the related accumulated depreciation from the accounts for assets sold or retired and the resulting gains or losses are included in the results of operations. Construction-in-progress includes both construction projects and equipment not yet placed into service.

While in progress, we capitalized interest on major construction projects and the development and implementation of information technology applications amounting to $2.3 million during 2018, $1.0 million during 2017 and $1.9 million during 2016.

Depreciation is provided on the straight-line method over the estimated useful lives of buildings and improvements (twenty to forty years) and equipment (three to fifteen years). Depreciation expense was $410.0 million during 2018, $388.4 million during 2017 and $350.8 million during 2016.

G) Long-Lived Assets: We review our long-lived assets, including intangible assets, for impairment whenever events or circumstances indicate that the carrying value of these assets may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of our asset based on our estimate of its undiscounted future cash flow. If the analysis indicates that the carrying value is not recoverable from future cash flows, the asset is written down to its estimated fair value and an impairment loss is recognized. Fair values are determined based on estimated future cash flows using appropriate discount rates.

H) Goodwill: Goodwill is reviewed for impairment at the reporting unit level on an annual basis or sooner if the indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each reporting unit. We have designated October 1st as our annual impairment assessment date and performed quantitative impairment assessments as of October 1, 2018 which indicated no impairment of goodwill. There were also no goodwill impairments during 2017 or 2016. Future changes in the estimates used to conduct the impairment reviews, including profitability and market value projections, could indicate impairment in future periods potentially resulting in a write-off of a portion or all of our goodwill.

Changes in the carrying amount of goodwill for the two years ended December 31, 2018 were as follows (in thousands):

		Acute Care Services				Behavioral Health Services				Total Consolidated
Balance, January 1, 2017		$	440,294			$	3,343,812			$	3,784,106
Goodwill acquired during the period			80				0				80
Adjustments to goodwill (a)			1,137				39,834				40,971
Balance, December 31, 2017			441,511				3,383,646				3,825,157
Goodwill acquired during the period			917				44,173				45,090
Goodwill divested during the period			0				(2,135	)			(2,135	)
Adjustments to goodwill (a)			34				(23,518	)			(23,484	)
Balance, December 31, 2018		$	442,462			$	3,402,166			$	3,844,628

(a)	The increase/(decrease) in the Behavioral Health Services’ goodwill consists primarily of foreign currency translation adjustments.

I) Other Assets and Intangible Assets: Other assets consist primarily of amounts related to: (i) intangible assets acquired in connection with our acquisitions of Cambian Group, PLC’s adult services’ division, Foundations Recovery Network, L.L.C. (“Foundations”) during 2015, Ascend Health Corporation during 2012 and Psychiatric Solutions, Inc. during 2010; (ii) prepaid fees for various software and other applications used by our hospitals; (iii) costs incurred in connection with the purchase and implementation of an electronic health records application for each of our acute care facilities; (iv) statutorily required capital reserves related to our commercial insurance subsidiary ($112 million as of December 31, 2018); (v) deposits; (vi) investments in various businesses, including Universal Health Realty Income Trust ($8 million as of December 31, 2018) and Premier, Inc. ($56 million as of December 31, 2018); (vii) the invested assets related to a deferred compensation plan that is held by an independent trustee in a rabbi-trust and that has a related payable included in other noncurrent liabilities; (viii) the estimated future payments related to physician-related contractual commitments, as discussed below, and; (ix) other miscellaneous assets.

Intangible assets are reviewed for impairment on an annual basis or sooner if the indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each asset. We have designated October 1st as our annual impairment assessment date and performed impairment assessments as of October 1, 2018 which indicated an impairment to the Foundations tradename intangible asset, as discussed below. There were no impairments during 2017 or 2016.

During 2018, we recorded a pre-tax $49 million provision for asset impairment to reduce the carrying value of a tradename intangible asset to approximately $75 million from approximately $124 million as previously recorded in connection with our 2015 acquisition of Foundations. The intangible asset impairment charge, which is included in other operating expenses in our 2018 consolidated statements of income, was recorded after evaluation of the estimated fair value of the Foundations’ tradename for its existing facilities, consisting of 4 inpatient and 12 outpatient facilities as of December 31, 2018, as well as estimated planned de novos. This asset impairment charge was impacted by the following: (i) the lost future revenue and cash flows resulting from the permanent closure of a Foundations’ inpatient facility located in Malibu, California that was severely damaged in the California wildfires during the fourth quarter of 2018; (ii) reduction in growth rates of projected future patient volumes, revenues and operating cash flows based upon pressures on reimbursement rates experienced from certain payers and competitive pressures experienced in certain markets, and; (iii) revisions made to the number and timing of planned de novo facilities.

The following table shows the amounts recorded as net intangible assets for the years ended December 31, 2018 and 2017:

		(amounts in millions)
		2018				2017
Foundations tradename		$	75			$	124
Medicare licenses			57				57
Certificates of need			21				12
Contract relationships and other (net of $49 and $44 of accumulated amortization for 2018 and 2017, respectively)			20				27
Net Intangible Assets		$	173			$	220

J) Physician Guarantees and Commitments: Our accrued liabilities-other, and our other assets included approximately $2 million of estimated future payments related to physician-related contractual commitments as of each of December 31, 2018 and 2017. Substantially all of the $2 million of potential future financial obligations outstanding as of December 31, 2018 are potential 2019 obligations.

K) Self-Insured/Other Insurance Risks: We provide for self-insured risks, primarily general and professional liability claims and workers’ compensation claims. Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimate of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. All relevant information, including our own historical experience is used in estimating the expected amount of claims. While we continuously monitor these factors, our ultimate liability for professional and general liability claims could change materially from our current estimates due to inherent uncertainties involved in making this estimate. Our estimated self-insured reserves are reviewed and changed, if necessary, at each reporting date and changes are recognized currently as additional expense or as a reduction of expense. See Note 8 - Commitments and Contingencies for discussion of adjustments to our prior year reserves for claims related to our self-insured general and professional liability and workers’ compensation liability.

In addition, we also: (i) own commercial health insurers headquartered in Nevada and Puerto Rico, and; (ii) maintain self-insured employee benefits programs for employee healthcare and dental claims. The ultimate costs related to these programs/operations include expenses for claims incurred and paid in addition to an accrual for the estimated expenses incurred in connection with claims incurred but not yet reported. Given our significant insurance-related exposure, there can be no assurance that a sharp increase in the number and/or severity of claims asserted against us will not have a material adverse effect on our future results of operations.

L) Income Taxes: Deferred tax assets and liabilities are recognized for the amount of taxes payable or deductible in future years as a result of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. We believe that future income will enable us to realize our deferred tax assets net of recorded valuation allowances relating to state net operating loss carry-forwards.

We operate in multiple jurisdictions with varying tax laws. We are subject to audits by any of these taxing authorities. Our tax returns have been examined by the Internal Revenue Service (“IRS”) through the year ended December 31, 2006. We believe that adequate accruals have been provided for federal, foreign and state taxes. See Note 6 - Income Taxes, for additional disclosure.

M) Other Noncurrent Liabilities: Other noncurrent liabilities include the long-term portion of our professional and general liability, workers’ compensation reserves, pension and deferred compensation liabilities, and liabilities incurred in connection with split-dollar life insurance agreements on the lives of our chief executive officer and his wife.

N) Redeemable Noncontrolling Interests and Noncontrolling Interest: As of December 31, 2018, outside owners held noncontrolling, minority ownership interests of: (i) 20% in an acute care facility located in Washington, D.C.; (ii) approximately 11% in an acute care facility located in Texas; (iii) 20% and 30% in two behavioral health care facilities located in Pennsylvania and Ohio, respectively; (iv) approximately 5% in an acute care facility located in Nevada and; (v) approximately 20% in a newly constructed behavioral health care facility located in Spokane, Washington which was completed and opened in October, 2018. The noncontrolling interest and redeemable noncontrolling interest balances of $77 million and $4 million, respectively, as of December 31, 2018, consist primarily of the third-party ownership interests in these hospitals.

In May, 2016, we purchased the minority ownership interests held by a third-party in our six acute care hospitals located in Las Vegas, Nevada, for an aggregate cash payment of $445 million which included both the purchase price ($418 million) and the return of reserve capital ($27 million). The ownership interests purchased ranged from 26.1% to 27.5%.

In connection with the two behavioral health care facilities located in Pennsylvania and Ohio, the minority ownership interests of which are reflected as redeemable noncontrolling interests on our Consolidated Balance Sheet, the outside owners have “put options” to put their entire ownership interest to us at any time. If exercised, the put option requires us to purchase the minority member’s interest at fair market value.

O) Accumulated Other Comprehensive Income: The accumulated other comprehensive income (“AOCI”) component of stockholders’ equity includes: net unrealized gains and losses on effective cash flow hedges, foreign currency translation adjustments and the net minimum pension liability of a non-contributory defined benefit pension plan which covers employees at one of our subsidiaries. See Note 11 - Pension Plan for additional disclosure regarding the defined benefit pension plan.

The amounts recognized in AOCI for the two years ended December 31, 2018 were as follows (in thousands):

		Net Unrealized Gains (Losses) on Effective Cash Flow Hedges				Foreign Currency Translation Adjustment				Unrealized loss on marketable security				Minimum Pension Liability				Total AOCI
Balance, January 1, 2017, net of income tax		$	19			$	(14,197	)		$	(1,398	)		$	(9,841	)		$	(25,417	)
2017 activity:
Pretax amount			6,679				26,678				(2,169	)			4,070				35,258
Income tax effect			(2,490	)			—				809				(983	)			(2,664	)
Change, net of income tax			4,189				26,678				(1,360	)			3,087				32,594
Balance, January 1, 2018, net of income tax			4,208				12,481				(2,758	)			(6,754	)			7,177
2018 activity:
Pretax amount			(2,805	)			9,718				4,398				(6,892	)			4,419
Income tax effect, net of adoption of ASU 2018-02			1,577				(6,824	)			(1,640	)			(467	)			(7,354	)
Change, net of income tax			(1,228	)			2,894				2,758				(7,359	)			(2,935	)
Balance, December 31, 2018, net of income tax		$	2,980			$	15,375			$	—			$	(14,113	)		$	4,242

P) Accounting for Derivative Financial Investments and Hedging Activities and Foreign Currency Forward Exchange Contracts: We manage our ratio of fixed to floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this risk in a cost-effective manner, we, from time to time, enter into interest rate swap agreements in which we agree to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts.

We account for our derivative and hedging activities using the Financial Accounting Standard Board’s (“FASB”) guidance which requires all derivative instruments, including certain derivative instruments embedded in other contracts, to be carried at fair value on the balance sheet. For derivative transactions designated as hedges, we formally document all relationships between the hedging instrument and the related hedged item, as well as its risk-management objective and strategy for undertaking each hedge transaction.

Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in accumulated other comprehensive income (“AOCI”) within stockholders’ equity. Amounts are reclassified from AOCI to the income statement in the period or periods the hedged transaction affects earnings.

We use interest rate derivatives in our cash flow hedge transactions. Such derivatives are designed to be highly effective in offsetting changes in the cash flows related to the hedged liability. For derivative instruments designated as cash flow hedges, the ineffective portion of the change in expected cash flows of the hedged item are recognized currently in the income statement.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Fair value hedges are accounted for by recording the changes in the fair value of both the derivative instrument and the hedged item in the income statement.

For hedge transactions that do not qualify for the short-cut method, at the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future.

We use forward exchange contracts to hedge our net investment in foreign operations against movements in exchange rates. The effective portion of the unrealized gains or losses on these contracts is recorded in foreign currency translation adjustment within accumulated other comprehensive income and remains there until either the sale or liquidation of the subsidiary. The cash flows from these contracts are reported as operating activities in the Consolidated Statements of Cash Flows.

Q) Stock-Based Compensation: At December 31, 2018, we have a number of stock-based employee compensation plans. Pursuant to the FASB’s guidance, we expense the grant-date fair value of stock options and other equity-based compensation pursuant to the straight-line method over the stated vesting period of the award using the Black-Scholes option-pricing model.

The expense associated with share-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, share-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities.

R) Earnings per Share: Basic earnings per share are based on the weighted average number of common shares outstanding during the year. Diluted earnings per share are based on the weighted average number of common shares outstanding during the year adjusted to give effect to common stock equivalents.

The following table sets forth the computation of basic and diluted earnings per share, for the periods indicated:

		Twelve Months Ended December 31,
		2018				2017				2016
Basic and diluted:
Net Income		$	797,883			$	771,312			$	747,171
Less: Net income attributable to noncontrolling interest			(18,178	)			(19,009	)			(44,762	)
Less: Net income attributable to unvested restricted share grants			(1,091	)			(362	)			(314	)
Net income attributable to UHS—basic and diluted		$	778,614			$	751,941			$	702,095
Basic earnings per share attributable to UHS:
Weighted average number of common shares—basic			93,276				95,652				97,208
Total basic earnings per share		$	8.35			$	7.86			$	7.22
Diluted earnings per share attributable to UHS:
Weighted average number of common shares			93,276				95,652				97,208
Net effect of dilutive stock options and grants based on the treasury stock method			474				673				1,172
Weighted average number of common shares and equivalents—diluted			93,750				96,325				98,380
Total diluted earnings per share		$	8.31			$	7.81			$	7.14

The “Net effect of dilutive stock options and grants based on the treasury stock method”, for all years presented above, excludes certain outstanding stock options applicable to each year since the effect would have been anti-dilutive. The excluded weighted-average stock options totaled approximately 7.9 million during 2018, 6.2 million during 2017 and 2.2 million during 2016.

S) Fair Value of Financial Instruments: The fair values of our debt and investments are based on quoted market prices. The fair values of other long-term debt, including capital lease obligations, are estimated by discounting cash flows using period-end interest rates and market conditions for instruments with similar maturities and credit quality. The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable, and short-term borrowings approximates their fair values due to the short-term nature of these instruments. Accordingly, these items have been excluded from the fair value disclosures included elsewhere in these notes to consolidated financial statements.

T) Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

U) Mergers and Acquisitions: The acquisition method of accounting for business combinations requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values with limited exceptions. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The fair value of intangible assets, including

Medicare licenses, certificates of need, tradenames and certain contracts, is based on significant judgments made by our management, and accordingly, for significant items we typically obtain assistance from third party valuation specialists.

V) GPO Agreement/Minority Ownership Interest: During 2013, we entered into a new group purchasing organization agreement (“GPO”) with Premier, Inc. (“Premier), a healthcare performance improvement alliance, and acquired a minority interest in the GPO for a nominal amount. During the fourth quarter of 2013, in connection with the completion of an initial public offering of the stock of Premier, we received cash proceeds for the sale of a portion of our ownership interest in the GPO, which were recorded as deferred income, on a pro rata basis, as a reduction to our supplies expense over the initial expected life of the GPO agreement. Also in connection with this GPO agreement, we received shares of restricted stock in Premier which vest ratably over a seven-year period (2014 through 2020), contingent upon our continued participation and minority ownership interest in the GPO. We recognize the fair value of this restricted stock, as a reduction to our supplies expense, in our consolidated statements of income, on a pro rata basis, over the vesting period. We have elected to retain a portion of the previously vested shares of Premier, the value of which is included in other assets on our consolidated balance sheet. Based upon the closing price of Premier’s stock on each respective date, the market value of our shares of Premier on which the restrictions have lapsed was $56 million and $33 million as of December 31, 2018 and 2017, respectively. The $23 million increase in market value at December 31, 2018, as compared to December 31, 2017, consists of $17 million of additional vested shares and $6 million of increased market value. In connection with our 2018 adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”, since our vested shares of Premier are held for investment and classified as available for sale, the $6 million increase in market value of these shares since December 31,2017 was recorded as an unrealized gain and included in “Other (income) expense, net” on our consolidated statements of income for the twelve-month period ended December 31, 2018. Prior to 2018, changes in the market value of our vested Premier stock were recorded to other comprehensive income/loss on our consolidated balance sheet.

W) Provider Taxes: We incur health-care related taxes (“Provider Taxes”) imposed by states in the form of a licensing fee, assessment or other mandatory payment which are related to: (i) healthcare items or services; (ii) the provision of, or the authority to provide, the health care items or services, or; (iii) the payment for the health care items or services. Such Provider Taxes are subject to various federal regulations that limit the scope and amount of the taxes that can be levied by states in order to secure federal matching funds as part of their respective state Medicaid programs. We derive a related Medicaid reimbursement benefit from assessed Provider Taxes in the form of Medicaid claims based payment increases and/or lump sum Medicaid supplemental payments.

Under these programs, including the impact of the Texas Uncompensated Care and Upper Payment Limit program, the Texas Delivery System Reform Incentive program, and various other state programs, we earned revenues (before Provider Taxes) of approximately $387 million during 2018, $357 million during 2017 and $327 million during 2016. These revenues were offset by Provider Taxes of approximately $179 million during 2018, $171 million during 2017, $166 million during 2016, which are recorded in other operating expenses on the Consolidated Statements of Income as included herein. The aggregate net benefit from these programs was $208 million during 2018, $186 million during 2017 and $161 million during 2016. The aggregate net benefit pursuant to these programs is earned from multiple states and therefore no particular state’s portion is individually material to our consolidated financial statements. In addition, under various disproportionate share hospital payment programs and the Nevada state plan amendment program, we earned revenues of $64 million in 2018, $55 million in 2017 and $53 million in 2016.

X) Recent Accounting Standards: On January 1, 2018, we adopted ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which adds or clarifies guidance of the classification of certain cash receipts and payments in the statement of cash flows, and ASU 2016-18, Restricted Cash, which requires an entity to show the changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. We adopted these ASUs by applying a retrospective transition method, which requires a restatement of our Consolidated Statement of Cash Flows for all periods presented.

In February, 2016, the FASB issued ASU 2016-02, “Leases (Topic 842): Amendments to the FASB Accounting Standards Codification (“Update 2016-02”), which requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key qualitative and quantitative information about the entity’s leasing arrangements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements (“ASU 2018-11”), which provides an additional transition method allowing entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This update is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted.

While we continue to evaluate other practical expedients available under the guidance, we expect to elect the package of practical expedients permitted under the transition guidance within ASU 2016-02 to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and, therefore, do not anticipate a material impact on our consolidated statements of income. While we are continuing to assess the effects of adoption, we currently believe the most significant changes relate to the recognition of significant right-of-use assets and lease liabilities on our consolidated balance sheet as a result of our operating lease obligations, as well as the impact of new disclosure requirements. Operating lease expense will still be recognized on a straight-line basis over the remaining life of the lease within lease and rental expense in the consolidated statements of income. We

plan to adopt ASU 2016-02 on January 1, 2019 and anticipate using the optional transition method in ASU 2018-11. Under this method, we would not adjust our comparative period financial statements for the effects of the new standard or make the new required lease disclosures for periods prior to the effective date.

In January, 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment” (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for the annual and interim periods beginning January 1, 2020 with early adoption permitted, and applied prospectively. We do not expect ASU 2017-04 to have a material impact on our financial statements.

In August, 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities", which amends the accounting and presentation of certain hedging activities outlined in ASC 815 and is intended to more accurately present economic results of hedging activities. This update is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. The adoption is required prospectively with a cumulative-effect adjustment. We are currently evaluating the impact of this ASU on our financial statements.

In February, 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. We early adopted this ASU effective January 1, 2018, which required a cumulative-effect reclass from accumulated other comprehensive income to retained earnings.

From time to time, new accounting guidance is issued by the FASB or other standard setting bodies that is adopted by the Company as of the effective date or, in some cases where early adoption is permitted, in advance of the effective date. The Company has assessed the recently issued guidance that is not yet effective and, unless otherwise indicated above, believes the new guidance will not have a material impact on our results of operations, cash flows or financial position.

Y) Foreign Currency Translation: Assets and liabilities of our U.K. subsidiaries are denominated in pound sterling and translated into U.S. dollars at: (i) the rates of exchange at the balance sheet date, and; (ii) average rates of exchange prevailing during the year for revenues and expenses. The currency translation adjustments are reported as a component of accumulated other comprehensive income. See Note 3 - Financial Instruments, Foreign Currency Forward Exchange Contracts for additional disclosure.

Z) Supplies: Supplies, which consist primarily of medical supplies, are stated at the lower of cost (first-in, first-out basis) or market.

2. ACQUISITIONS AND DIVESTITURES

Year ended December 31, 2018:

2018 Acquisitions of Assets and Businesses:

During 2018 we spent $110 million primarily to:

	•	acquire The Danshell Group, consisting of 25 behavioral health facilities located in the U.K. (acquired during the third quarter of 2018), and;

	•	acquire a 109-bed behavioral health care facility located in Gulfport, Mississippi (acquired during the first quarter of 2018).

The aggregate net purchase price of the facilities, which were acquired to enhance and expand our existing operations in the U.S. and the U.K., was allocated to assets and liabilities based on their preliminary estimated fair values as follows:

		Amount (000s)
Working capital, net		$	(3,988	)
Property & equipment			59,520
Goodwill			45,090
Other assets			8,409
Income tax assets, net of deferred tax liabilities			1,749
Other			(316	)
Cash paid in 2018 for acquisitions		$	110,464

Goodwill of the facilities acquired during each of the last 3 years is computed, pursuant to the residual method, by deducting the fair value of the acquired assets and liabilities from the total purchase price. The factors that contribute to the recognition of goodwill, which may also influence the purchase price, include the following for each of the acquired facilities: (i) the historical cash flows and income levels; (ii) the reputations in their respective markets; (iii) the nature of the respective operations, and; (iv) the future cash flows and income growth projections. The vast majority of the goodwill resulting from these transactions is not deductible for federal income tax purposes (see Note 6 - Income Taxes).

2018 Divestiture of Assets and Businesses:

During 2018, we received $13 million in connection with the sale of a business and property including The Limes, an 18-bed facility located in the UK.

Year ended December 31, 2017:

2017 Acquisitions of Assets and Businesses:

During 2017 we spent $23 million to acquire businesses and property.

2017 Divestiture of Assets and Businesses:

There were no significant divestitures during 2017.

Year ended December 31, 2016:

2016 Acquisitions of Assets and Businesses:

During 2016 we spent $614 million to:

	•	acquire the adult services division of Cambian Group, PLC consisting of 79 inpatient and 2 outpatient behavioral health facilities located in the U.K. (acquired late in the fourth quarter);

	•	acquire Desert View Hospital, a 25-bed acute care facility located in Pahrump, Nevada (acquired during the third quarter), and;

	•	acquire various other businesses and real property assets.

The aggregate net purchase price of the facilities, which were acquired to enhance and expand our existing operations in the U.S. and the U.K., was allocated to assets and liabilities based on their preliminary estimated fair values as follows:

		Amount (000s)
Working capital, net		$	6,680
Property & equipment			343,846
Goodwill			234,658
Other assets (includes $18 million of contract-based relationships intangible assets)			19,910
Income tax assets, net of deferred tax liabilities			11,551
Debt			(152	)
Noncontrolling interest			(2,690	)
Cash paid in 2016 for acquisitions		$	613,803

On December 28, 2016, we completed the acquisition of Cambian Group, PLC’s adult services’ division (the “Cambian Adult Services”) for a total purchase price of approximately $473 million. At the time of acquisition, the Cambian Adult Services consisted of 79 inpatient and 2 outpatient behavioral health facilities located in the U.K. The Competition and Markets Authority (“CMA”) in the U.K. reviewed our acquisition of the Cambian Adult Services. In April, 2017, the CMA notified us that they identified potential competition concerns in certain markets and announced its decision to refer our acquisition of Cambian Group, PLC’s Adult Services division for a Phase 2 investigation. In October, 2017, the CMA provided the final ruling regarding the Phase 2 investigation requiring us to divest a facility which was subsequently designated to be The Limes, an 18-bed facility. The operating results for The Limes are reflected as discontinued operations during 2017. Since the aggregate income from discontinued operations before income tax expense for this facility is not material to our 2017 consolidated financial statements, it is included as a reduction to our operating expenses. For the twelve-month period ended December 31, 2017, The Limes generated approximately $3 million of net revenues, $953,000 of income before income taxes and $770,000 of after-tax income.

Our consolidated statement of income for the year ended December 31, 2016 was not impacted by our acquisition of the Cambian Adult Services business since the acquisition occurred in late December, 2016. Our consolidated net revenues for the year ended December 31, 2016 included approximately $12 million of net revenues generated at the above-mentioned Desert View Hospital representing the facility’s net revenues from the date of acquisition through December 31, 2016. The earnings generated by the hospital since its date of acquisition was not material to our 2016 consolidated net income attributable to UHS and net income attributable to UHS per diluted share.

Assuming the acquisition of the Cambian Adult Services business and Desert View Hospital occurred on January 1, 2016, our 2016 unaudited pro forma net revenues would have been approximately $9.98 billion and our unaudited pro forma net income attributable to UHS would have been approximately $730 million, or $7.25 per diluted share.

2016 Divestiture of Assets and Businesses:

There were no divestitures during 2016.

3. FINANCIAL INSTRUMENTS

Fair Value Hedges:

During 2018, 2017 and 2016, we had no fair value hedges outstanding.

Cash Flow Hedges:

We manage our ratio of fixed and floating rate debt with the objective of achieving a mix that management believes is appropriate. To manage this risk in a cost-effective manner, we, from time to time, enter into interest rate swap agreements in which we agree to exchange various combinations of fixed and/or variable interest rates based on agreed upon notional amounts. We account for our derivative and hedging activities using the Financial Accounting Standard Board’s (“FASB”) guidance which requires all derivative instruments, including certain derivative instruments embedded in other contracts, to be carried at fair value on the balance sheet. For derivative transactions designated as hedges, we formally document all relationships between the hedging instrument and the related hedged item, as well as its risk-management objective and strategy for undertaking each hedge transaction.

Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in accumulated other comprehensive income (“AOCI”) within shareholders’ equity. Amounts are reclassified from AOCI to the income statement in the period or periods the hedged transaction affects earnings. We use interest rate derivatives in our cash flow hedge transactions. Such derivatives are designed to be highly effective in offsetting changes in the cash flows related to the hedged liability. For derivative instruments designated as cash flow hedges, the ineffective portion of the change in expected cash flows of the hedged item are recognized currently in the income statement.

For hedge transactions that do not qualify for the short-cut method, at the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future.

The fair value of interest rate swap agreements approximates the amount at which they could be settled, based on estimates obtained from the counterparties. We assess the effectiveness of our hedge instruments on a quarterly basis. We performed periodic assessments of the cash flow hedge instruments during 2018 and 2017 and determined the hedges to be highly effective. We also determined that any portion of the hedges deemed to be ineffective was de minimis and therefore there was no material effect on our consolidated financial position, operations or cash flows. The counterparties to the interest rate swap agreements expose us to credit risk in the event of nonperformance. We do not anticipate nonperformance by our counterparties. We do not hold or issue derivative financial instruments for trading purposes.

During 2015, we entered into nine forward starting interest rate swaps whereby we pay a fixed rate on a total notional amount of $1.0 billion and receive one-month LIBOR. The average fixed rate payable on these swaps, which are scheduled to mature on April 15, 2019, is 1.31%. These interest rates swaps consist of:

• Four forward starting interest rate swaps, entered into during the second quarter of 2015, whereby we pay a fixed rate on a total notional amount of $500 million and receive one-month LIBOR. Each of the four swaps became

effective on July 15, 2015 and are scheduled to mature on April 15, 2019. The average fixed rate payable on these swaps is 1.40%;

• Four forward starting interest rate swaps, entered into during the third quarter of 2015, whereby we pay a fixed rate on a total notional amount of $400 million and receive one-month LIBOR. One swap on a notional amount of $100 million became effective on July 15, 2015, two swaps on a total notional amount of $200 million became effective on September 15, 2015 and another swap on a notional amount of $100 million became effective on December 15, 2015. All of these swaps are scheduled to mature on April 15, 2019. The average fixed rate payable on these four swaps is 1.23%, and;

• One interest rate swap, entered into during the fourth quarter of 2015, whereby we pay a fixed rate on a total notional amount of $100 million and receive one-month LIBOR. The swap became effective on December 15, 2015 and is scheduled to mature on April 15, 2019. The fixed rate payable on this swap is 1.21%.

We measure our interest rate swaps at fair value on a recurring basis. The fair value of our interest rate swaps is based on quotes from our counterparties. We consider those inputs to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with derivative instruments and hedging activities. At December 31, 2018, the fair value of our interest rate swaps was a net asset of $4 million which is included in net accounts receivable on the accompanying balance sheet. At December 31, 2017, the fair value of our interest rate swaps was a net asset of $7 million, $4 million of which is included in net accounts receivable and $3 million of which is included in other assets on the accompanying balance sheet.

Foreign Currency Forward Exchange Contracts:

We use forward exchange contracts to hedge our net investment in foreign operations against movements in exchange rates. The effective portion of the gains or losses on these contracts is recorded in foreign currency translation adjustment within accumulated other comprehensive income and remains there until either the sale or liquidation of the subsidiary. The cash flows from these contracts are reported as operating activities in the consolidated statements of cash flows. In connection with these forward exchange contracts, we recorded net cash inflows of $66 million during 2018, net cash outflows of $64 million during 2017 and net cash inflows of $79 million during 2016.

Our open foreign exchange forward contracts are recorded at fair value with the corresponding gain or loss recorded in foreign currency translation adjustment within accumulated other comprehensive income. We consider inputs to determine fair value to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with derivative instruments and hedging activities.

4. LONG-TERM DEBT

A summary of long-term debt follows:

		December 31,
		2018				2017
		(amounts in thousands)
Long-term debt:
Notes payable and Mortgages payable (including obligations under capitalized leases of $19,941 in 2018 and $21,780 in 2017) and term loans with varying maturities through 2027; weighted average interest rates of 9.5% in 2018 and 9.1% in 2017 (see Note 7 regarding capitalized leases)		$	20,159			$	22,794
Revolving credit and on-demand credit facility			6,300				438,100
Term Loan A, net of unamortized discount of $708 in 2017			2,000,000				1,774,607
Term Loan B			500,000				—
Accounts receivable securitization program			390,000				419,500
3.75% Senior Secured Notes due 2019, net of unamortized discount of $69 in 2017			—				299,931
4.75% Senior Secured Notes due 2022, including unamortized premium of $3,460 in 2018 and $4,430 in 2017 and net of unamortized discount of $97 in 2018 and $124 in 2017			703,363				704,306
5.00% Senior Secured Notes due 2026			400,000				400,000
Total debt before unamortized financing costs			4,019,822				4,059,238
Less-Unamortized financing costs			(21,189	)			(19,229	)
Total debt after unamortized financing costs			3,998,633				4,040,009
Less-Amounts due within one year (net of unamortized financing costs)			(63,446	)			(545,619	)
Long-term debt		$	3,935,187			$	3,494,390

Credit Facilities and Outstanding Debt Securities

On October 23, 2018, we entered into a Sixth Amendment (the “Sixth Amendment”) to our credit agreement dated as of November 15, 2010, as amended on March 15, 2011, September 21, 2012, May 16, 2013, August 7, 2014 and June 7, 2016, among UHS, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents party thereto (the “Senior Credit Agreement”). The Sixth Amendment became effective on October 23, 2018.

The Sixth Amendment amended the Senior Credit Facility to, among other things: (i) increase the aggregate amount of the revolving credit facility to $1 billion (increase of $200 million over the $800 million previous commitment); (ii) increase the aggregate amount of the tranche A term loan commitments to $2 billion, which represents the outstanding borrowings as of December 31, 2018 (increase of approximately $290 million over the $1.71 billion of outstanding borrowings prior to the amendment), and; (iii) extended the maturity date of the revolving credit and tranche A term loan facilities to October 23, 2023 from August 7, 2019.

On October 31, 2018, we added a seven-year tranche B term loan facility in the aggregate principal amount of $500 pursuant (which represents the outstanding borrowings as of December 31, 2018) to the Senior Credit Agreement. The tranche B term loan matures on October 31, 2025. We used the proceeds to repay borrowings under the revolving credit facility, the Securitization, to redeem our $300 million, 3.75% Senior Notes that were scheduled to mature in 2019 and for general corporate purposes.

As of December 31, 2018, we had no borrowings outstanding pursuant to our $1 billion revolving credit facility and we had $960 million of available borrowing capacity net of $34 million of outstanding letters of credit and $6 million of outstanding borrowings pursuant to a short-term credit facility.

Pursuant to the terms of the Sixth Amendment, the tranche A term loan provides for eight installment payments of $12.5 million per quarter commencing on March 31, 2019 followed by payments of $25 million per quarter until maturity when all outstanding amounts will be due. The tranche B term loan provides for installment payments of $1.25 million per quarter commencing March 31, 2019 through maturity.

Borrowings under the Senior Credit Agreement bear interest at our election at either (1) the ABR rate which is defined as the rate per annum equal to the greatest of (a) the lender’s prime rate, (b) the weighted average of the federal funds rate, plus 0.5% and (c) one month LIBOR rate plus 1%, in each case, plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 0.375% to 0.625% for revolving credit and term loan A borrowings and 0.75% for tranche B borrowings, or (2) the one, two, three or six month LIBOR rate (at our election), plus an applicable margin based upon our consolidated leverage ratio at the end of each quarter ranging from 1.375% to 1.625% for revolving credit and term loan A borrowings and 1.75% for the tranche B term loan. As of December 31, 2018, the applicable margins were 0.375% for ABR-based loans and 1.375% for LIBOR-based loans under the revolving credit and term loan A facilities. The revolving credit facility includes a $125 million sub-limit for letters of credit. The Senior Credit Agreement is secured by certain assets of the Company and our material subsidiaries (which generally excludes asset classes such as substantially all of the patient-related accounts receivable of our acute care hospitals, and certain real estate assets and assets held in joint-ventures with third parties) and is guaranteed by our material subsidiaries.

The Senior Credit Agreement includes a material adverse change clause that must be represented at each draw. The Senior Credit Agreement contains covenants that include a limitation on sales of assets, mergers, change of ownership, liens and indebtedness, transactions with affiliates, dividends and stock repurchases; and requires compliance with financial covenants including maximum leverage. We are compliant with all required covenants as of December 31, 2018 and 2017.

In late April, 2018, we entered into the sixth amendment to our accounts receivable securitization program (“Securitization”) dated as of October 27, 2010 with a group of conduit lenders, liquidity banks, and PNC Bank, National Association, as administrative agent, which provides for borrowings outstanding from time to time by certain of our subsidiaries in exchange for undivided security interests in their respective accounts receivable. The sixth amendment, among other things, extended the term of the Securitization program through April 26, 2021 and increased the borrowing capacity to $450 million (from $440 million previously). Although the program fee and certain other fees were adjusted in connection with the sixth amendment, substantially all other provisions of the Securitization program remained unchanged. Pursuant to the terms of our Securitization program, substantially all of the patient-related accounts receivable of our acute care hospitals (“Receivables”) serve as collateral for the outstanding borrowings. We have accounted for this Securitization as borrowings. We maintain effective control over the Receivables since, pursuant to the terms of the Securitization, the Receivables are sold from certain of our subsidiaries to special purpose entities that are wholly-owned by us. The Receivables, however, are owned by the special purpose entities, can be used only to satisfy the debts of the wholly-owned special purpose entities, and thus are not available to us except through our ownership interest in the special purpose entities. The wholly-owned special purpose entities use the Receivables to collateralize the loans obtained from the group of third-party conduit lenders and liquidity banks. The group of third-party conduit lenders and liquidity banks do not have recourse to us beyond the assets of the wholly-owned special purpose entities that securitize the loans. At December 31, 2018, we had $390 million of outstanding borrowings pursuant to the terms of the Securitization and $60 million of available borrowing capacity.

As of December 31, 2018, we had combined aggregate principal of $1.1 billion from the following senior secured notes:

	•	$700 million aggregate principal amount of 4.75% senior secured notes due in August, 2022 (“2022 Notes”) which were issued as follows:

	o	$300 million aggregate principal amount issued on August 7, 2014 at par.

	o	$400 million aggregate principal amount issued on June 3, 2016 at 101.5% to yield 4.35%.

	•	$400 million aggregate principal amount of 5.00% senior secured notes due in June, 2026 (“2026 Notes”) which were issued on June 3, 2016.

Interest on the 2022 Notes is payable on February 1 and August 1 of each year until the maturity date of August 1, 2022. Interest on the 2026 Notes is payable on June 1 and December 1 until the maturity date of June 1, 2026. The 2022 Notes and 2026 Notes were offered only to qualified institutional buyers under Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The 2022 Notes and 2026 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

On November 26, 2018 we redeemed the $300 million aggregate principal, 3.75% Senior Notes due in 2019. The 2019 Notes were redeemed for an aggregate price equal to 100.485% of the principal amount, resulting in a premium paid of approximately $1 million, plus accrued interest to the redemption date.

At December 31, 2018, the carrying value and fair value of our debt were each approximately $4.0 billion. At December 31, 2017, the carrying value and fair value of our debt were approximately $4.0 billion and $4.1 billion, respectively. The fair value of our debt was computed based upon quotes received from financial institutions. We consider these to be “level 2” in the fair value hierarchy as outlined in the authoritative guidance for disclosures in connection with debt instruments.

The aggregate scheduled maturities of our total debt outstanding as of December 31, 2018 are as follows:

		(000s)
2019		$	63,446
2020			56,650
2021			496,696
2022			810,526
2023			1,707,476
Later			885,028
Total maturities before unamortized financing costs			4,019,822
Less-Unamortized financing costs			(21,189	)
Total		$	3,998,633

5. COMMON STOCK

Dividends

Cash dividends of $0.40 per share ($37.3 million in the aggregate) were declared and paid during 2018, $0.40 per share ($38.2 million in the aggregate) were declared and paid during 2017 and $0.40 per share ($38.9 million in the aggregate) were declared and paid during 2016. All classes of our common stock have similar economic rights.

Stock Repurchase Programs

In December of 2018, our Board of Directors authorized a $500 million increase to our stock repurchase program, which increased the aggregate authorization to $1.7 billion from the previous $1.2 billion authorization approved during 2017, 2016 and 2014. Pursuant to this program, we may purchase shares of our Class B Common Stock, from time to time as conditions allow, on the open market or in negotiated private transactions. There is no expiration date for our stock repurchase programs.

The following schedule provides information related to our stock repurchase program for each of the three years ended December 31, 2018. During 2018, 3,321,968 shares ($401.3 million) were repurchased pursuant to the terms of our stock repurchase program, 102,800 shares ($12.7 million in the aggregate) were repurchased in connection with the income tax withholding obligations

resulting from the exercise of stock options and the vesting of restricted stock grants, and 11,224 shares were repurchased as a result of forfeited restricted shares. During 2017, 2,960,843 shares ($322.2 million) were repurchased pursuant to the terms of our stock repurchase program, 305,278 shares ($34.2 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from the exercise of stock options and the vesting of restricted stock grants and 10,791 shares were repurchased as a result of forfeited restricted shares. During 2016, 2,512,592 shares ($289.9 million) were repurchased pursuant to the terms of our stock repurchase program, 468,228 shares ($57.0 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from the exercise of stock options and the vesting of restricted stock grants and 2,500 shares were repurchased as a result of forfeited restricted shares.

		Additional dollars authorized for repurchase (in thousands)				Total number of shares purchased (a.)				Total number of shares cancelled				Average price paid per share for forfeited restricted shares				Total number of shares purchased as part of publicly announced programs				Average price paid per share for shares purchased as part of publicly announced program				Aggregate purchase price paid (in thousands)				Aggregate purchase price paid for shares purchased as part of publicly announced program				Maximum number of dollars that may yet be purchased under the program (in thousands)
Balance as of January 1, 2016																																		$	175,828
2016		$	400,000				2,983,320				2,500			$	0.01				2,512,592			$	115.39			$	346,890			$	289,937			$	285,891
2017		$	400,000				3,266,121				10,791			$	0.01				2,960,843			$	108.83			$	356,413			$	322,231			$	363,660
2018		$	500,000				3,435,992				11,224			$	0.01				3,321,968			$	120.81			$	414,002			$	401,316			$	462,344
Total for three year period ended December 31, 2018		$	1,300,000				9,685,433				24,515			$	0.01				8,795,403			$	115.23			$	1,117,305			$	1,013,484

	(a.)	Includes 11,224, 10,791 and 2,500 of restricted shares that were forfeited by former employees pursuant to the terms of our restricted stock purchase plan during 2018, 2017 and 2016, respectively.

Stock-based Compensation Plans

At December 31, 2018, we have a number of stock-based employee compensation plans. Pursuant to the FASB’s guidance, we expense the grant-date fair value of stock options and other equity-based compensation pursuant to the straight-line method over the stated vesting period of the award using the Black-Scholes option-pricing model.

Pre-tax compensation costs of $61.1 million during 2018, $54.3 million during 2017 and $45.8 million during 2016 were recognized related to outstanding stock options. In addition, pre-tax compensation costs of $5.5 million during 2018, $2.5 million during 2017 and $2.3 million during 2016 were recognized related to amortization of restricted stock and discounts provided in connection with shares purchased pursuant to our 2005 Employee Stock Purchase Plan. As of December 31, 2018, there was approximately $110.8 million of unrecognized compensation cost related to unvested stock options and restricted stock which is expected to be recognized over the remaining average vesting period of 2.6 years.

The expense associated with stock-based compensation arrangements is a non-cash charge. In the Consolidated Statements of Cash Flows, stock-based compensation expense is an adjustment to reconcile net income to cash provided by operating activities and aggregated to $66.6 million in 2018, $56.7 million in 2017 and $48.1 million in 2016.

Effective January 1, 2017, we adopted ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which amends the accounting for employee share-based payment transactions to require recognition of the tax effects resulting from the settlement of stock-based awards as income tax expense or benefit in the income statement in the reporting period in which they occur. For the year ended December 31, 2018 and 2017, our provision for income taxes and our net income attributable to UHS were each favorably impacted by $1.2 million and $22.1 million, respectively, resulting from our adoption of ASU 2016-09. Additionally, effective with our modified retrospective adoption of ASU 2016-09 on January 1, 2017, excess income tax benefits related to stock based compensation amounting to $45.2 million during 2016 are reflected as cash inflows from operating activities in our Consolidated Statement of Cash Flows. Prior to the adoption of ASU 2016-09, excess income tax benefits related to stock based compensation were reflected as cash inflows from financings activities in our Consolidated Statement of Cash Flows.

In 2005, we adopted the 2005 Stock Incentive Plan which was amended in 2008, 2010, 2015 and 2017 (the “Stock Incentive Plan”). An aggregate of 35.6 million shares of Class B Common Stock has been reserved under the Stock Incentive Plan. During

2018, 2017 and 2016, stock options, net of cancellations, of approximately 2.4 million, 2.9 million and 2.7 million, respectively, were granted. Stock options to purchase Class B Common Stock have been granted to our officers, key employees and members of our Board of Directors. Commencing in 2018, our key employees and non-executive officers began receiving a portion of their stock-based compensation in the form of restricted stock (as discussed below) in addition to receiving options to purchase Class B Common Stock.

The per option weighted-average grant-date fair value of options granted during 2018, 2017 and 2016 was $28.19, $27.05 and, $23.80, respectively. All stock options were granted with an exercise price equal to the fair market value on the date of the grant. Options are exercisable ratably over a four-year period beginning one year after the date of the grant. All outstanding options expire five years after the date of the grant. As of December 31, 2018, approximately 6.2 million shares of Class B Common Stock remain available for issuance pursuant to the Stock Incentive Plan.

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were derived from averaging the number of options granted during the most recent five-year period. The weighted-average assumptions reflected below were based upon twenty-seven option grants for the five-year period ending December 31, 2018, twenty-seven option grants for the five-year period ending December 31, 2017 and twenty-seven option grants for the five-year period ending December 31, 2016.

Year Ended December 31,		2018				2017				2016
Volatility			27	%			28	%			31	%
Interest rate			1	%			1	%			1	%
Expected life (years)			3.4				3.4				3.4
Forfeiture rate			13	%			10	%			10	%
Dividend yield			0.3	%			0.4	%			0.4	%

The risk-free rate is based on the U.S. Treasury zero coupon four year yield in effect at the time of grant. The expected life of the stock options granted was estimated using the historical behavior of employees. Expected volatility was based on historical volatility for a period equal to the stock option’s expected life. Expected dividend yield is based on our dividend yield at the time of grant. The forfeiture rate is based upon the actual historical forfeitures utilizing the 5-year term of the option.

The table below summarizes our stock option activity during each of the last three years:

Outstanding Options		Number of Shares				Average Option Price				Range (High-Low)
Balance, January 1, 2016			8,400,183			$	80.50			$142.43-$36.95
Granted			2,945,550			$	118.72			$138.00-$107.39
Exercised			(2,162,850	)		$	53.02			$117.29-$36.95
Cancelled			(412,750	)		$	103.01			$130.32-$36.95
Balance, January 1, 2017			8,770,133			$	99.06			$142.43-$36.95
Granted			3,061,725			$	124.38			$124.56-$110.15
Exercised			(1,734,409	)		$	64.41			$118.62-$36.95
Cancelled			(457,500	)		$	118.65			$142.43-$53.38
Balance, January 1, 2018			9,639,949			$	112.40			$138.00-$53.38
Granted			2,567,653			$	119.73			$127.29-$112.68
Exercised			(1,591,859	)		$	100.95			$124.56-$53.38
Cancelled			(940,952	)		$	121.07			$136.00-$78.17
Balance, December 31, 2018			9,674,791			$	115.39			$138.00-$78.17
Outstanding options vested and exercisable as of December 31, 2018			3,724,179			$	106.77			$138.00-$78.17

The following table provides information about unvested options for the year ending December 31, 2018:

		Shares				Weighted Average Grant Date Fair Value
Unvested options as of January 1, 2018			6,770,603			$	24.16
Granted			2,567,653			$	28.19
Vested			(2,568,379	)		$	22.60
Cancelled			(819,265	)		$	25.87
Unvested options as of December 31, 2018			5,950,612			$	26.34

The following table provides information regarding all options outstanding at December 31, 2018:

		Options Outstanding				Options Exercisable
Number of options outstanding			9,674,791				3,724,179
Weighted average exercise price		$	115.39			$	106.77
Aggregate intrinsic value as of December 31, 2018		$	43,806,400			$	43,594,160
Weighted average remaining contractual life			2.6				1.4

The total in-the-money value of all stock options exercised during the years ended December 31, 2018, 2017 and 2016 were $39.9 million, $85.5 million and $149.4 million, respectively.

The weighted average remaining contractual life for options outstanding and weighted average exercise price per share for exercisable options at December 31, 2018 were as follows:

Exercise Price		Options Outstanding				Weighted Average Exercise Price Per Share				Weighted Average Remaining Contractual Life (in Years)				Exercisable Options				Weighted Average Exercise Price Per Share				Expected to Vest Options (a)				Weighted Average Exercise Price Per Share
		Shares												Shares								Shares
$78.17 – $96.98			1,134,475			$	78.17				0.2				1,134,475			$	78.17			N/A				$	78.17
$102.21 – $118.60			1,788,801				117.14				1.3				1,183,150				117.25				572,521				117.14
$118.62 – $124.22			4,288,690				119.19				3.3				854,088				118.64				2,265,877				119.19
$124.44 – $138.00			2,462,825				124.65				3.2				552,466				124.68				1,575,926				124.65
Total			9,674,791			$	115.39				2.6				3,724,179			$	106.77				4,414,324			$	120.82

(a)	Assumes a weighted average forfeiture rate of 13.06%.

Under our Amended and Restated 2010 Employees’ Restricted Stock Purchase Plan (the “Restricted Stock Plan”), which allows eligible participants to purchase shares of Class B Common Stock at par value, subject to certain restrictions, 600,000 shares of Class B Common Stock have been reserved. During 2018, 2017 and 2016, restricted shares, net of cancellations, of approximately 136,571, 23,557, and 13,021, respectively, were granted and issued, with various ratable vesting periods ranging up to five years from the date of grant. The weighted-average grant-date fair value of the restricted shares granted during 2018, 2017 and 2016 was $119.51, $118.14 and $120.26, respectively. The fair value of each restricted stock grant was determined as the closing UHS market price on the date of grant. Restricted shares of Class B Common Stock have been granted to our officers and key employees.

In addition to the Stock Incentive Plan and the Restricted Stock Plan, we have our 2005 Employee Stock Purchase Plan (the “Employee Stock Plan”) which allows eligible employees to purchase shares of Class B Common Stock at a ten percent discount. There were 87,051, 86,693 and 75,792 and shares issued pursuant to the Employee Stock Purchase Plan during 2018, 2017 and 2016, respectively.

In connection with the Restricted Stock Plan and the Employee Stock Plan, we have reserved 2.6 million shares of Class B Common Stock for issuance and have issued approximately 1.6 million shares, net of cancellations, as of December 31, 2018. As of December 31, 2018, approximately 1.0 million shares of Class B Common Stock remain available for issuance pursuant to these plans.

At December 31, 2018, 24,230,875 shares of Class B Common Stock were reserved for issuance upon conversion of shares of Class A, C and D Common Stock outstanding, for issuance upon exercise of options to purchase Class B Common Stock and for

issuance of stock under other incentive plans. Class A, C and D Common Stock are convertible on a share for share basis into Class B Common Stock.

6. INCOME TAXES

Components of income tax expense/(benefit) are as follows (amounts in thousands):

		Year Ended December 31,
		2018				2017				2016
Current
Federal		$	195,862			$	352,433			$	368,957
Foreign			13,699				10,625				8,513
State			37,555				37,421				42,166
			247,116				400,479				419,636
Deferred
Federal			(6,216	)			(36,998	)			(12,092	)
Foreign			(666	)			24				2,463
State			(3,592	)			192				(820	)
			(10,474	)			(36,782	)			(10,449	)
Total		$	236,642			$	363,697			$	409,187

On December 22, 2017, the President of the United States signed into law comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “TCJA-17”). The TCJA-17 made broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations through the implementation of a territorial tax system; (5) creating a new limitation on deductible interest expense; and (6) limiting certain other deductions. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant has not obtained, prepared, or analyzed (including computations) all of the information needed in order to complete the accounting for certain income tax effects of the TCJA-17. To the extent that a company’s accounting for certain income tax effects of the TCJA-17 is incomplete, a reasonable estimate should be recorded as a provisional amount in the financial statements during a measurement period not to extend beyond one year of the enactment date. We previously provided a provisional estimate of the effects of the TCJA-17 in the fourth quarter of 2017 financial statements. In the fourth quarter of 2018, we completed our analysis to determine the effects of the TCJA-17 as follows:

Reduction of U.S. federal corporate tax rate: The TCJA-17 reduces the corporate tax rate to 21 percent, effective January 1, 2018. Deferred income taxes are based on the estimated future tax effects of differences between the financial statement carrying amounts and the tax bases of assets and liabilities under the provisions of the enacted tax laws. For certain of our deferred tax assets and deferred tax liabilities, we have recorded a provisional decrease of $97 million and $127 million, respectively, with a corresponding net adjustment to deferred tax benefit of $30 million for the year ended December 31, 2017. Upon completion of our 2017 U.S. Corporate Income Tax Return in the fourth quarter, an increase of $1 million attributable to certain deferred tax assets and a decrease of $5 million attributable to certain deferred tax liabilities was recorded resulting in an additional net deferred tax benefit of $6 million.

Deemed Repatriation Transition Tax: The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. The one-time Transition Tax is based upon the amount of post-1986 E&P of the relevant subsidiaries, the amount of non-U.S. income tax paid on such earnings, as well as other factors. We originally estimated and recorded a provisional Transition Tax obligation of $11.3 million. Upon completion of our 2017 U.S. Corporate Income Tax Return, the final Transition Tax increased by $100,000 for a total of $11.4 million.

The TCJA-17 contains two new anti-base erosion tax provisions, (1) the global intangible low-taxed income (“GILTI”) provisions and (2) the base erosion and anti-abuse tax (“BEAT”) provisions:

GILTI: The GILTI provisions require the inclusion of the earnings of certain foreign subsidiaries in excess of an acceptable rate of return on certain assets of the respective subsidiaries in our U.S. tax return for tax years beginning after December 31, 2017. An

accounting policy election was made during 2018 to treat taxes related to GILTI as a period cost when the tax is incurred. We recorded a GILTI tax provision of less than $1 million for the year ended December 31, 2018.

BEAT: The BEAT provisions limit the deduction for U.S. tax base erosion related payments made by U.S. operations to related foreign affiliates. We do not have any tax expense related to BEAT included in our consolidated financial statements.

The foreign provision for income taxes is based on foreign pre-tax earnings of $84 million in 2018, $70 million in 2017 and $58 million in 2016. Prior to the TCJA-17, no deferred taxes were provided related to unremitted earnings from foreign subsidiaries. As a result of the mandatory repatriation tax provisions of the Transition Tax included in the TCJA-17, all undistributed earnings from foreign subsidiaries as of December 31, 2017, were subject to tax. Going forward, we anticipate repatriating only previously taxed foreign earnings subjected to the mandatory repatriation tax as well as any future earnings that would qualify for a full dividend received deduction permitted under the TCJA-17 for distributions post-December 31, 2017. As of December 31, 2018, the amount of previously taxed earnings and earnings that would qualify for a full dividend received deduction total $148 million. At this time, there are no material tax effects related to future cash repatriation of undistributed foreign earnings. As such, we have not recognized a deferred tax liability related to existing undistributed earnings.

Our provision for income taxes for the year ended December 31, 2018 and 2017 included tax benefits of $1 million and $22 million, respectively, related to the adoption of ASU 2016-09, which changes how companies account for certain aspects of share-based payments to employees. Under ASU 2016-09, excess tax benefits (when the deductible amount related to the settlement of employee equity awards for tax purposes exceeds the cumulative compensation cost recognized for financial reporting purposes) are no longer recorded in equity. Instead, we recognize these tax benefits (and deficiencies, if applicable) as a component of our tax provision. This reporting change is applied prospectively and prior period amounts are not restated (the excess tax benefit for the year ending December 31, 2016, related to the settlement of employee equity awards, was $45 million, and was recorded in equity). ASU 2016-09 requires companies to present excess tax benefits as an operating activity on the Consolidated Statement of Cash Flows rather than as a financing activity, as previously required. We have elected to apply the change to the Consolidated Statement of Cash Flows on a modified retrospective basis resulting in a reclassification of the excess income tax benefits related to stock-based compensation from financing activities to operating activities.

A reconciliation between the federal statutory rate and the effective tax rate is as follows:

		Year Ended December 31,
		2018				2017				2016
Federal statutory rate			21.0	%			35.0	%			35.0	%
State taxes, net of federal income tax benefit			2.6	%			2.2	%			2.4	%
Tax effects of foreign operations			-0.5	%			-1.2	%			-0.8	%
Tax benefit from settlement of employee equity awards			-0.1	%			-1.9	%			0.0	%
Enactment of the TCJA-17			-0.6	%			-1.7	%			0.0	%
Other items			0.9	%			0.2	%			0.2	%
Impact of income attributable to noncontrolling interests			-0.4	%			-0.6	%			-1.4	%
Effective tax rate			22.9	%			32.0	%			35.4	%

Our effective tax rates were 22.9%, 32.0% and 35.4% for the years ended December 31, 2018, 2017 and 2016, respectively. The decrease in our effective tax rate for the year ended December 31, 2018 as compared to 2017 is due primarily to the net favorable impact of the enactment of the TCJA-17, as discussed above, partially offset by a $21 million unfavorable change in the tax benefit resulting from our January 1, 2017 adoption of ASU 2016-09, as discussed above. The decrease in our effective tax rate for the year ended December 31, 2017, as compared to 2016, is due primarily to the $22 million tax benefit recorded in 2017 resulting from our January 1, 2017 adoption of ASU 2016-09, the $19 million net favorable impact of the enactment of the TCJA-17 ($30 million favorable impact recorded during 2017 resulting from a reduction in our net deferred income tax liability, partially offset by an $11 million unfavorable impact recorded during 2017 resulting from a one-time repatriation tax, as discussed above), and the tax effects of our foreign operations in connection with our acquisition of Cambian Group, PLC’s adult services division (acquired in late December, 2016).

Included in “Other current assets” on our Consolidated Balance Sheet are prepaid federal and state income taxes amounting to approximately $24 million and $5 million as of December 31, 2018 and 2017, respectively.

As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018 under the TCJA-17, the deferred tax assets and liabilities were revalued with a provisional net deferred tax benefit of $30 million recorded in the consolidated statement of income for the year ended December 31, 2017. Upon completion of our 2017 U.S. Corporate Income Tax Return, an increase of $1 million attributable to certain deferred tax assets and a decrease of $5 million attributable to certain deferred tax liabilities was recorded resulting in an additional net deferred tax benefit of $6 million. The components of deferred taxes are as follows (amounts in thousands):

		Year Ended December 31,
		2018										2017
		Assets					Liabilities					Assets					Liabilities
Self-insurance reserves	$		68,402			$					$		64,181			$
Compensation accruals			74,124										63,021
Doubtful accounts and other reserves			27,184										20,809
Other currently non-deductible accrued liabilities			35,253										19,759
Depreciable and amortizable assets								257,896										226,389
State and foreign net operating loss carryforwards and other state and foreign deferred tax assets			86,315										76,439
Net pension liabilities – OCI only			4,475										2,825
Other combined items – OCI only								929										550
Other liabilities								2,045										1,824
	$		295,753			$		260,870			$		247,034			$		228,763
Valuation Allowance			(79,264	)				0					(70,227	)				0
Total deferred income taxes	$		216,489			$		260,870			$		176,807			$		228,763

At December 31, 2018, state net operating loss carryforwards (expiring in years 2019 through 2038), and credit carryforwards available to offset future taxable income approximated $1.12 billion representing approximately $75 million in deferred state tax benefit (net of the federal benefit); and state related interest expense carryforwards approximated $78 million representing approximately $4 million in deferred state tax benefit (net of the federal benefit). At December 31, 2018, there were foreign net operating losses and credit carryforwards of approximately $30 million, most of which are carried forward indefinitely, representing approximately $7 million in deferred foreign tax benefit.

A valuation allowance is required when it is more likely than not that some portion of the deferred tax assets will not be realized. Based on available evidence, it is more likely than not that certain of our state tax benefits will not be realized. Therefore, valuation allowances of approximately $75 million and $66 million have been reflected as of December 31, 2018 and 2017, respectively. During 2018, the valuation allowance on these state tax benefits increased by $9 million due to additional net operating losses incurred and state related interest expense carryforwards. In addition, valuation allowances of approximately $4 million have been reflected as of December 31, 2018 and 2017 related to foreign net operating losses and credit carryforwards.

During 2018 and 2017, the estimated liabilities for uncertain tax positions (including accrued interest and penalties) were increased less than $1 million due to tax positions taken in the current and prior years. The balance at each of December 31, 2018 and 2017, if subsequently recognized, that would favorably affect the effective tax rate and the provision for income taxes is approximately $1 million as of each date.

We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2018 and 2017, we have accrued interest and penalties of less than $1 million as of each date. The U.S. federal statute of limitations remains open for the 2015 and subsequent years. Foreign and U.S. state and local jurisdictions have statutes of limitations generally ranging for 3 to 4 years. The statute of limitations on certain jurisdictions could expire within the next twelve months. It is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months, however, it is anticipated that any such change, if it were to occur, would not have a material impact on our results of operations.

The tabular reconciliation of unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016 is as follows (amounts in thousands):

		As of December 31,
		2018				2017				2016
Balance at January 1,		$	1,096			$	1,259			$	1,982
Additions based on tax positions related to the current year			500				500				50
Additions for tax positions of prior years			62				47				74
Reductions for tax positions of prior years			0				0				(94	)
Settlements			(105	)			(710	)			(753	)
Balance at December 31,		$	1,553			$	1,096			$	1,259

7. LEASE COMMITMENTS

Three of our hospital facilities are held under operating leases with Universal Health Realty Income Trust with two hospital terms expiring in 2021 and the third expiring in 2026 (see Note 9 for additional disclosure). We also lease the real property of certain facilities (see Item 2. Properties for additional disclosure).

A summary of property under capital lease follows (amounts in thousands):

		As of December 31,
		2018				2017
Land, buildings and equipment		$	44,020			$	44,740
Less: accumulated amortization			(30,646	)			(29,628	)
		$	13,374			$	15,112

Future minimum rental payments under lease commitments with a term of more than one year as of December 31, 2018, are as follows (amounts in thousands):

Year		Capital Leases				Operating Leases
2019		$	3,996			$	72,353
2020			3,345				59,492
2021			3,227				48,891
2022			3,508				35,233
2023			3,624				28,839
Later years			12,070				123,039
Total minimum rental		$	29,770			$	367,847
Less: Amount representing interest			(9,829	)
Present value of minimum rental commitments			19,941
Less: Current portion of capital lease obligations			(2,128	)
Long-term portion of capital lease obligations		$	17,813

We assumed no capital lease obligations in 2018 or 2017 and assumed capital lease obligations of approximately $152,000 in 2016 in connection with the leases on certain real estate assets. In the ordinary course of business, our facilities routinely lease equipment pursuant to new lease arrangements that will likely result in future lease and rental expense in excess of amounts indicated above.

8. COMMITMENTS AND CONTINGENCIES

Professional and General Liability, Workers’ Compensation Liability

Effective January, 2017, the vast majority of our subsidiaries are self-insured for professional and general liability exposure up to $5 million and $3 million per occurrence, respectively, subject to certain aggregate limitations. Prior to January, 2017, the vast majority of our subsidiaries were self-insured for professional and general liability exposure up to $10 million and $3 million per occurrence, respectively. These subsidiaries are provided with several excess policies through commercial insurance carriers which provide for coverage in excess of the applicable per occurrence self-insured retention or underlying policy limits up to $250 million per occurrence and in the aggregate for claims incurred after 2013 and up to $200 million per occurrence and in the aggregate for claims incurred from 2011 through 2013. We remain liable for 10%, up to an annual aggregate limitation of $5 million ($8.5 million for facilities located in the U.K.), of the claims paid pursuant to the commercially insured excess coverage. In addition, from time to time based upon marketplace conditions, we may elect to purchase additional commercial coverage for certain of our facilities or businesses. Our behavioral health care facilities located in the U.K. have policies through a commercial insurance carrier located in the U.K. that provides for £10 million of professional liability coverage and £25 million of general liability coverage.

As of December 31, 2018, the total the total accrual for our professional and general liability claims was $243 million, of which $42 million was included in current liabilities. As of December 31, 2017, the total accrual for our professional and general liability claims was $229 million, of which $54 million was included in current liabilities. During 2017, based upon a reserve analysis of our estimated future claims payments, we recorded an increase to our professional and general liability self-insurance reserves (relating to prior years) of $15 million. Our consolidated results of operations during 2018 and 2016 were not materially impacted by adjustments to our prior year reserves for professional and general liability claims.

As of December 31, 2018, the total accrual for our workers’ compensation liability claims was $72 million, of which $40 million was included in current liabilities. As of December 31, 2017, the total accrual for our workers’ compensation liability claims was $70 million, of which $35 million was included in current liabilities. Our consolidated results of operations during 2018, 2017 and 2016 were not materially impacted by adjustments to our prior year reserves for workers’ compensation claims.

Below is a schedule showing the changes in our general and professional liability and workers’ compensation reserves during the three years ended December 31, 2018 (amount in thousands):

		General and
		Professional				Workers’
		Liability				Compensation				Total
Balance at January 1, 2016		$	203,973			$	67,503			$	271,476
Liabilities assumed in acquisition			0				661				661
Plus: Accrued insurance expense, net of commercial premiums paid			54,671				29,967				84,638
Less: Payments made in settlement of self-insured claims			(51,185	)			(30,775	)			(81,960	)
Balance at January 1, 2017			207,459				67,356				274,815
Plus: Accrued insurance expense, net of commercial premiums paid			65,049				37,546				102,595
Less: Payments made in settlement of self-insured claims			(43,817	)			(35,371	)			(79,188	)
Balance at January 1, 2018			228,691				69,531				298,222
Plus: Accrued insurance expense, net of commercial premiums paid			54,387				38,476				92,863
Less: Payments made in settlement of self-insured claims			(40,027	)			(36,117	)			(76,144	)
Balance at December 31, 2018		$	243,051			$	71,890			$	314,941

Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimates of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. While we continuously monitor these factors, our ultimate liability for professional and general liability claims could change materially from our current estimates due to inherent uncertainties involved in making this estimate. Given our significant self-insured exposure for professional and general liability claims, there can be no assurance that a sharp increase in the number and/or severity of claims asserted against us will not have a material adverse effect on our future results of operations. Although we are unable to predict whether or not our future financial statements will include adjustments to our prior year reserves for self-insured general and professional and workers’ compensation claims, given the relatively unpredictable nature of the these potential liabilities and the factors impacting these reserves, as discussed above, it is reasonably likely that our future financial results may include material adjustments to prior period reserves.

Property Insurance:

We have commercial property insurance policies for our properties covering catastrophic losses, including windstorm damage, up to a $1 billion policy limit, subject to a deductible ranging from $50,000 to $250,000 per occurrence. Losses resulting from named windstorms are subject to deductibles between 3% and 5% of the total insurable value of the property. In addition, we have commercial property insurance policies covering catastrophic losses resulting from earthquake and flood damage, each subject to aggregated loss limits (as opposed to per occurrence losses). Commercially insured earthquake coverage for our facilities is subject to various deductibles and limitations including: (i) $500 million limitation for our facilities located in Nevada; (ii) $130 million limitation for our facilities located in California; (iii) $100 million limitation for our facilities located in fault zones within the United States; (iv) $40 million limitation for our facility located in Puerto Rico, and; (v) $250 million limitation for many of our facilities located in other states. Deductibles for flood losses vary in amount, up to a maximum of $500,000, based upon location of the facility. Since certain of our facilities have been designated by our insurer as flood prone, we have elected to purchase policies from The National Flood Insurance Program. Property insurance for our behavioral health facilities located in the U.K. are provided on an all risk basis up to a £1.29 billion policy limit, with coverage caps per location, that includes coverage for real and personal property as well as business interruption losses.

Other Contractual Commitments:

In addition to our long-term debt obligations as discussed in Note 4 - Long-Term Debt and our operating lease obligations as discussed in Note 7 - Lease Commitments, we have various other contractual commitments outstanding as of December 31, 2018 as follows: (i) other combined estimated future purchase obligations of $254 million related to a long-term contract with third-parties consisting primarily of certain revenue cycle data processing services for our acute care facilities ($57 million), expected future costs to be paid to a third-party vendor in connection with the ongoing operation of an electronic health records application and purchase implementation of a revenue cycle and other applications for our acute care facilities ($194 million) and estimated minimum liabilities for physician commitments expected to be paid in the future ($2 million); (ii) estimated construction commitment of $55million representing our share of the construction costs of two newly constructed behavioral health care facilities located in Washington and Arizona that we are required to build pursuant to joint-venture agreements with third-parties; (iii) combined estimated future payments of $201 million related to our non-contributory, defined benefit pension plan ($180 million consisting of estimated payments through 2088) and other retirement plan liabilities ($21 million), and; (iv) accrued and unpaid estimated claims expense incurred in connection with our commercial health insurers and self-insured employee benefit plans ($78 million).

Legal Proceedings

We operate in a highly regulated and litigious industry which subjects us to various claims and lawsuits in the ordinary course of business as well as regulatory proceedings and government investigations. These claims or suits include claims for damages for personal injuries, medical malpractice, commercial/contractual disputes, wrongful restriction of, or interference with, physicians’ staff privileges, and employment related claims. In addition, health care companies are subject to investigations and/or actions by various state and federal governmental agencies or those bringing claims on their behalf. Government action has increased with respect to investigations and/or allegations against healthcare providers concerning possible violations of fraud and abuse and false claims statutes as well as compliance with clinical and operational regulations. Currently, and from time to time, we and some of our facilities are subjected to inquiries in the form of subpoenas, Civil Investigative Demands, audits and other document requests from various federal and state agencies. These inquiries can lead to notices and/or actions including repayment obligations from state and federal government agencies associated with potential non-compliance with laws and regulations. Further, the federal False Claim Act allows private individuals to bring lawsuits (qui tam actions) against healthcare providers that submit claims for payments to the government. Various states have also adopted similar statutes. When such a claim is filed, the government will investigate the matter and decide if they are going to intervene in the pending case. These qui tam lawsuits are placed under seal by the court to comply with the False Claims Act’s requirements. If the government chooses not to intervene, the private individual(s) can proceed independently on behalf of the government. Health care providers that are found to violate the False Claims Act may be subject to substantial monetary fines/penalties as well as face potential exclusion from participating in government health care programs or be required to comply with Corporate Integrity Agreements as a condition of a settlement of a False Claim Act matter. In September 2014, the Criminal Division of the Department of Justice (“DOJ”) announced that all qui tam cases will be shared with their Division to determine if a parallel criminal investigation should be opened. The DOJ has also announced an intention to pursue civil and criminal actions against individuals within a company as well as the corporate entity or entities. In addition, health care facilities are subject to monitoring by state and federal surveyors to ensure compliance with program Conditions of Participation. In the event a facility is found to be out of compliance with a Condition of Participation and unable to remedy the alleged deficiency(s), the facility faces termination from the Medicare and Medicaid programs or compliance with a System Improvement Agreement to remedy deficiencies and ensure compliance.

The laws and regulations governing the healthcare industry are complex covering, among other things, government healthcare participation requirements, licensure, certification and accreditation, privacy of patient information, reimbursement for patient services as well as fraud and abuse compliance. These laws and regulations are constantly evolving and expanding. Further, the Affordable

Care Act has added additional obligations on healthcare providers to report and refund overpayments by government healthcare programs and authorizes the suspension of Medicare and Medicaid payments “pending an investigation of a credible allegation of fraud.” We monitor our business and have developed an ethics and compliance program with respect to these complex laws, rules and regulations. Although we believe our policies, procedures and practices comply with government regulations, there is no assurance that we will not be faced with the sanctions referenced above which include fines, penalties and/or substantial damages, repayment obligations, payment suspensions, licensure revocation, and expulsion from government healthcare programs. Even if we were to ultimately prevail in any action brought against us or our facilities or in responding to any inquiry, such action or inquiry could have a material adverse effect on us.

Certain legal matters are described below:

Government Investigations:

UHS Behavioral Health

In February, 2013, the Office of Inspector General for the United States Department of Health and Human Services (“OIG”) served a subpoena requesting various documents from January, 2008 to the date of the subpoena directed at Universal Health Services, Inc. (“UHS”) concerning it and UHS of Delaware, Inc., and certain UHS owned behavioral health facilities including: Keys of Carolina, Old Vineyard Behavioral Health, The Meadows Psychiatric Center, Streamwood Behavioral Health, Hartgrove Hospital, Rock River Academy and Residential Treatment Center, Roxbury Treatment Center, Harbor Point Behavioral Health Center, f/k/a The Pines Residential Treatment Center, including the Crawford, Brighton and Kempsville campuses, Wekiva Springs Center and River Point Behavioral Health. Prior to receipt of this subpoena, some of these facilities had received independent subpoenas from state or federal agencies. Subsequent to the February 2013 subpoenas, some of the facilities above have received additional, specific subpoenas or other document and information requests. In addition to the OIG, the DOJ and various U.S. Attorneys’ and state Attorneys’ General Offices are also involved in this matter. Since February 2013, additional facilities have also received subpoenas and/or document and information requests or we have been notified are included in the omnibus investigation. Those facilities include: National Deaf Academy, Arbour-HRI Hospital, Behavioral Hospital of Bellaire, St. Simons By the Sea, Turning Point Care Center, Salt Lake Behavioral Health, Central Florida Behavioral Hospital, University Behavioral Center, Arbour Hospital, Arbour-Fuller Hospital, Pembroke Hospital, Westwood Lodge, Coastal Harbor Health System, Shadow Mountain Behavioral Health, Cedar Hills Hospital, Mayhill Hospital, Southern Crescent Behavioral Health (Anchor Hospital and Crescent Pines campuses), Valley Hospital (AZ), Peachford Behavioral Health System of Atlanta, University Behavioral Health of Denton El Paso Behavioral Health System, Newport News Behavioral Health Center and The Hughes Center.

In October, 2013, we were advised that the DOJ’s Criminal Frauds Section had opened an investigation of River Point Behavioral Health and Wekiva Springs Center. Since that time, we have been notified that the Criminal Frauds section has opened investigations of National Deaf Academy, Hartgrove Hospital and UHS as a corporate entity. In April 2017, the DOJ’s Criminal Division issued a subpoena requesting documentation from Shadow Mountain Behavioral Health. In August 2017, Kempsville Center of Behavioral Health (a part of Harbor Point Behavioral Health previously identified above) received a subpoena requesting documentation.

In April, 2014, the Centers for Medicare and Medicaid Services (“CMS”) instituted a Medicare payment suspension at River Point Behavioral Health in accordance with federal regulations regarding suspension of payments during certain investigations. The Florida Agency for Health Care Administration (“AHCA”) subsequently issued a Medicaid payment suspension for the facility. River Point Behavioral Health submitted a rebuttal statement disputing the basis of the suspension and requesting revocation of the suspension. Notwithstanding, CMS continued the payment suspension. River Point Behavioral Health provided additional information to CMS in an effort to obtain relief from the payment suspension but the Medicare suspension remains in effect. In June 2017, AHCA advised that while they were maintaining the suspension for dual eligible and cross-over Medicare beneficiaries, the Medicaid payment suspension was lifted effective June 27, 2017. We cannot predict if and/or when the facility’s remaining suspended payments will resume in total. From inception through December 31, 2018, the aggregate funds withheld from us in connection with the River Point Behavioral Health payment suspension amounted to approximately $9 million. Although the operating results of River Point Behavioral Health did not have a material impact on our consolidated results of operations during 2018, 2017 or 2016, the payment suspension has had a material adverse effect on the facility’s results of operations and financial condition.

The DOJ has advised us that the civil aspect of the coordinated investigation referenced above is a False Claims Act investigation focused on billings submitted to government payers in relation to services provided at those facilities. While there have been various matters raised by DOJ during the pendency of this investigation, DOJ Civil has advised that the focus of their investigation is on medical necessity issues and billing for services not eligible for payment due to non-compliance with regulatory requirements relating to, among other things, admission eligibility, discharge decisions, length of stay and patient care issues. It is our understanding that the DOJ Criminal Fraud Section is investigating issues similar to those focused on by the DOJ Civil Division and the other related agencies involved in this matter. UHS denies any fraudulent billings were submitted to government payers; however, we are involved in settlement discussions with the DOJ Civil Division in an attempt to resolve this matter. During 2018, we recorded pre-tax increases to the reserve established in connection with the civil aspects of these matters amounting to $102 million increasing the aggregate pre-tax reserve to $123 million as of December 31, 2018 from $22 million as of December 31, 2017. Changes in the

reserve may be required in future periods as discussions with the DOJ continue and additional information becomes available. We cannot predict the ultimate resolution of these matters and therefore can provide no assurance that final amounts paid in settlement or otherwise, if any, or associated costs, as well as the income tax deductibility of payments, will not differ materially from our established reserve and assumptions related to income tax deductibility.

DOJ investigation of Turning Point Hospital.

During the fourth quarter of 2018, we were notified that the DOJ Civil Division in conjunction with the U.S. Attorney’s Office for the Northern District of Georgia and the Georgia Attorney General’s Office have opened an investigation of Turning Point Hospital in Moultrie, GA. The DOJ Civil Division has advised us that they are primarily investigating transportation and housing financial assistance provided to patients receiving treatment at the facility. The DOJ issued a civil investigative demand to the facility requesting various documents and other information. At this time, we are unable to assess potential liability or damages, if any.

Litigation:

U.S. ex rel Escobar v. Universal Health Services, Inc. et.al.

This is a False Claims Act case filed against Universal Health Services, Inc., UHS of Delaware, Inc. and HRI Clinics, Inc. d/b/a Arbour Counseling Services in U.S. District Court for the District of Massachusetts. This qui tam action primarily alleges that Arbour Counseling Services failed to appropriately supervise certain clinical providers in contravention of regulatory requirements and the submission of claims to Medicaid were subsequently improper. Relators make other claims of improper billing to Medicaid associated with alleged failures of Arbour Counseling to comply with state regulations. The U.S. Attorney’s Office and the Massachusetts Attorney General’s Office initially declined to intervene. UHS filed a motion to dismiss and the trial court originally granted the motion dismissing the case. The First Circuit Court of Appeals (“First Circuit”) reversed the trial court’s dismissal of the case. The United States Supreme Court subsequently vacated the First Circuit’s opinion and remanded the case for further consideration under the new legal standards established by the Supreme Court for False Claims Act cases. During the 4th quarter of 2016, the First Circuit issued a revised opinion upholding their reversal of the trial court’s dismissal. The case was then remanded to the trial court for further proceedings. In January 2017, the U.S. Attorney’s Office and Massachusetts Attorney General’s Office advised of the potential for intervention in the case. The Massachusetts Attorney General’s Office subsequently filed its motion to intervene which was granted and, in April 2017, filed their Complaint in Intervention. We are defending this case vigorously. At this time, we are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter.

Shareholder Class Action

In December 2016 a purported shareholder class action lawsuit was filed in U.S. District Court for the Central District of California against UHS and certain UHS officers alleging violations of the federal securities laws. The case was originally filed as Heed v. Universal Health Services, Inc. et. al. (Case No. 2:16-CV-09499-PSG-JC). The court subsequently appointed Teamsters Local 456 Pension Fund and Teamsters Local 456 Annuity Fund to serve as lead plaintiffs. The case has been transferred to the U.S. District Court for the Eastern District of Pennsylvania and the style of the case has been changed to Teamsters Local 456 Pension Fund, et. al. v. Universal Health Services, Inc. et. al. (Case No. 2:17-CV-02817-LS). In September, 2017, Teamsters Local 456 Pension Fund filed an amended complaint. The amended class action complaint alleges violations of federal securities laws relating to disclosures made in public filings associated with alleged practices and operations at our behavioral health facilities. Plaintiffs seek monetary damages for shareholders during the defined class period as a result of the decrease in share price following various public disclosures or reports. In December 2017, we filed a motion to dismiss the amended complaint. We deny liability and intend to defend ourselves vigorously. At this time, we are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter.

Shareholder Derivative Cases

In March 2017, a shareholder derivative suit was filed by plaintiff David Heed in the Court of Common Pleas of Philadelphia County. A notice of removal to the United States District Court for the Eastern District of Pennsylvania was filed (Case No. 2:17-cv-01476-LS). Plaintiff filed a motion to remand. In December 2017, the Court denied plaintiff’s motion to remand and has retained the case in federal court. In May, June and July 2017, additional shareholder derivative suits were filed in the United States District Court for the Eastern District of Pennsylvania. The plaintiffs in those cases are: Central Laborers’ Pension Fund (Case No. 17-cv-02187-LS); Firemen’s Retirement System of St. Louis (Case No. 17—cv-02317-LS); Waterford Township Police & Fire Retirement System (Case No. 17-cv-02595-LS); and Amalgamated Bank Longview Funds (Case No. 17-cv-03404-LS). The Fireman’s Retirement System case has since been voluntarily dismissed. The federal court has consolidated all of the cases pending in the Eastern District of Pennsylvania and has appointed co-lead plaintiffs and co-lead counsel. Lead Plaintiffs have filed a consolidated, amended complaint. We have filed a motion to dismiss the amended complaint. In addition, a shareholder derivative case was filed in Chancery Court in Delaware by the Delaware County Employees’ Retirement Fund (Case No. 2017-0475-JTL). In December 2017, the Chancery Court stayed this case pending resolution of other contemporaneous matters. Each of these cases have named certain current and former

members of the Board of Directors individually and certain officers of Universal Health Services, Inc. as defendants. UHS has also been named as a nominal defendant in these cases. The derivative cases make substantially similar allegations and claims as the shareholder class action relating to practices at our behavioral health facilities and board and corporate oversight of these facilities as well as claims relating to the stock trading by the individual defendants and company repurchase of shares during the relevant time period. The cases make claims of breaches of fiduciary duties by the named board members and officers; alleged violations of federal securities laws; and common law causes of action against the individual defendants including unjust enrichment, corporate waste, abuse of control, constructive fraud and gross mismanagement. The cases seek monetary damages allegedly incurred by the company; restitution and disgorgement of profits, benefits and other compensation from the individual defendants and various forms of equitable relief relating to corporate governance matters. The defendants deny liability and intend to defend these cases vigorously. At this time, we are uncertain as to potential liability or financial exposure, if any, which may be associated with these matters.

Chowdary v. Universal Health Services, Inc., et. al.

This is a lawsuit filed in 1999 in state court in Hidalgo County, Texas by a physician and his professional associations alleging tortious interference with contractual relationships and retaliation against McAllen Medical Center in McAllen, Texas as well as Universal Health Services, Inc. The state court had entered a summary judgment order awarding plaintiff $3.85 million in damages. With prejudgment interest, the total amount of the order amounted to approximately $9 million, for which a corresponding reserve had previously been included in our financial statements. The case was removed to federal court. During the first quarter of 2019, the federal court entered an order vacating the state court’s summary judgment. The parties have reached a preliminary settlement of this matter, pending finalization of settlement documentation, for an amount that did not have a material impact on our consolidated financial statements.

Disproportionate Share Hospital Payment Matter:

In late September, 2015, many hospitals in Pennsylvania, including seven of our behavioral health care hospitals located in the state, received letters from the Pennsylvania Department of Human Services (the “Department”) demanding repayment of allegedly excess Medicaid Disproportionate Share Hospital payments (“DSH”) for the federal fiscal year (“FFY”) 2011 amounting to approximately $4 million in the aggregate. Since that time, we have received similar requests for repayment for alleged DSH overpayments for FFYs 2012, 2013 and 2014. For FFY 2012, the claimed overpayment amounts to approximately $4 million. For FFY 2013, the claimed overpayments were initially approximately $7 million but have since been reduced to approximately $2 million due to a change in the Department’s calculations of the hospital specific DSH upper payment limit. For FFY 2014, the claimed overpayments were approximately $7 million. We filed administrative appeals for all of our facilities contesting the recoupment efforts for FFYs 2011 through 2014 as we believe the Department’s calculation methodology is inaccurate and conflicts with applicable federal and state laws and regulations. The Department has agreed to postpone the recoupment of the state’s share of the DSH payments until all hospital appeals are resolved but started recoupment of the federal share. Due to a change in the Pennsylvania Medicaid State Plan and implementation of a CMS-approved Medicaid Section 1115 Waiver, we do not believe the methodology applied by the Department to FFYs 2011 through 2014 is applicable to reimbursements received for Medicaid services provided after January 1, 2015 by our behavioral health care facilities located in Pennsylvania. We can provide no assurance that we will ultimately be successful in our legal and administrative appeals related to the Department’s repayment demands. If our legal and administrative appeals are unsuccessful, our future consolidated results of operations and financial condition could be adversely impacted by these repayments.

Matters Relating to Psychiatric Solutions, Inc. (“PSI”):

The following matters pertain to PSI or former PSI facilities (owned by subsidiaries of PSI) which were in existence prior to the acquisition of PSI and for which we have assumed the defense as a result of our acquisition which was completed in November, 2010:

Department of Justice Investigation of Riveredge Hospital

In 2008, Riveredge Hospital in Chicago, Illinois received a subpoena from the DOJ requesting certain information from the facility. Additional requests for documents were also received from the DOJ in 2009 and 2010. The requested documents have been provided to the DOJ. All documents requested and produced pertained to the operations of the facility while under PSI’s ownership prior to our acquisition. We have recently been notified by the DOJ that there is no longer an investigation pending against Riveredge Hospital that is separate from the UHS Behavioral Health matter referenced above.

Department of Justice Investigation of Friends Hospital

In October, 2010, Friends Hospital in Philadelphia, Pennsylvania, received a subpoena from the DOJ requesting certain documents from the facility. The requested documents were collected and provided to the DOJ for review and examination. Another subpoena was issued to the facility in July, 2011 requesting additional documents, which have also been delivered to the DOJ. All documents requested and produced pertained to the operations of the facility while under PSI’s ownership prior to our acquisition. We have recently been notified by the DOJ that there is no longer an investigation pending against Friends Hospital that is separate from the UHS Behavioral Health matter referenced above.

Other Matters:

Various other suits, claims and investigations, including government subpoenas, arising against, or issued to, us are pending and additional such matters may arise in the future. Management will consider additional disclosure from time to time to the extent it believes such matters may be or become material. The outcome of any current or future litigation or governmental or internal investigations, including the matters described above, cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters described above or that are otherwise pending because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including, but not limited to: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the matter is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties, or; (vii) there is a wide range of potential outcomes. It is possible that the outcome of these matters could have a material adverse impact on our future results of operations, financial position, cash flows and, potentially, our reputation.

9. RELATIONSHIP WITH UNIVERSAL HEALTH REALTY INCOME TRUST AND OTHER RELATED PARTY TRANSACTIONS

Relationship with Universal Health Realty Income Trust:

At December 31, 2018, we held approximately 5.7% of the outstanding shares of Universal Health Realty Income Trust (the “Trust”). We serve as Advisor to the Trust under an annually renewable advisory agreement, which is scheduled to expire on December 31st of each year, pursuant to the terms of which we conduct the Trust’s day-to-day affairs, provide administrative services and present investment opportunities. The advisory agreement was Amended and Restated effective January 1, 2019. Among other things, the Amended and Restated Advisory Agreement (the “Agreement”) eliminated the 20% annual incentive fee clause which we were previously entitled to under certain conditions (the incentive fee requirements have never been achieved). In addition, certain of our officers and directors are also officers and/or directors of the Trust. Management believes that it has the ability to exercise significant influence over the Trust, therefore we account for our investment in the Trust using the equity method of accounting. The advisory agreement was renewed by the Trust for 2019 at the same rate as the prior three years. During 2018, 2017 and 2016, the advisory fee was computed at 0.70% of the Trust’s average invested real estate assets. We earned an advisory fee from the Trust, which is included in net revenues in the accompanying consolidated statements of income, of approximately $3.8 million during 2018, $3.6 million during 2017 and $3.3 million during 2016.

Our pre-tax share of income from the Trust was $1.4 million during 2018 which is included in other income, net, on the accompanying consolidated statements of income. Our pre-tax share of income from the Trust was $2.6 million during 2017 and $1.0 million during 2016, which are included in net revenues in the accompanying consolidated statements of income for each year. Included in our share of the Trust’s income for 2018, is income realized by the Trust in connection with hurricane-related insurance proceeds received in connection with the damage sustained from Hurricane Harvey in August, 2017. Included in our share of the Trust’s income for 2017 was a gain realized by the Trust in connection with a divestiture of property that was completed during the first quarter of 2017, as well as insurance proceeds in excess of damaged Trust property. We received dividends from the Trust amounting to $2.1 million during each of 2018 and 2017 and $2.0 million during 2016.

The carrying value of our investment in the Trust was $7.5 million and $8.2 million at December 31, 2018 and 2017, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $48.3 million at December 31, 2018 and $59.2 million at December 31, 2017, based on the closing price of the Trust’s stock on the respective dates.

The Trust commenced operations in 1986 by purchasing certain hospital properties from us and immediately leasing the properties back to our respective subsidiaries. Most of the leases were entered into at the time the Trust commenced operations and provided for initial terms of 13 to 15 years with up to six additional 5-year renewal terms. Each hospital lease also provided for additional or bonus rental, as discussed below. The base rents are paid monthly and the bonus rents are computed and paid on a

quarterly basis, based upon a computation that compares current quarter revenue to a corresponding quarter in the base year. The leases with those subsidiaries are unconditionally guaranteed by us and are cross-defaulted with one another.

Total rent expense under the operating leases on the three hospital facilities with the Trust was $16.0 million during each of 2018 and 2017 and $15.9 million in 2016. Pursuant to the terms of the three hospital leases with the Trust, we have the option to renew the leases at the lease terms described above by providing notice to the Trust at least 90 days prior to the termination of the then current term. We also have the right to purchase the respective leased hospitals at the end of the lease terms or any renewal terms at their appraised fair market value as well as purchase any or all of the three leased hospital properties at the appraised fair market value upon one month’s notice should a change of control of the Trust occur. In addition, we have rights of first refusal to: (i) purchase the respective leased facilities during and for 180 days after the lease terms at the same price, terms and conditions of any third-party offer, or; (ii) renew the lease on the respective leased facility at the end of, and for 180 days after, the lease term at the same terms and conditions pursuant to any third-party offer. During the second quarter of 2018, we exercised our 5-year renewal option on McAllen Medical Center which extended the lease term on this facility, at the existing lease rate, through December, 2026.

The table below details the renewal options and terms for each of our three acute care hospital facilities leased from the Trust:

Hospital Name			Annual Minimum Rent				End of Lease Term		Renewal Term (years)
McAllen Medical Center			$	5,485,000			December, 2026			5		(a)
Wellington Regional Medical Center			$	3,030,000			December, 2021			10		(b)
Southwest Healthcare System, Inland Valley Campus			$	2,648,000			December, 2021			10		(b)

(a)	We have one 5-year renewal option at existing lease rates (through 2031).

(b)	We have two 5-year renewal options at fair market value lease rates (2022 through 2031).

In addition, certain of our subsidiaries are tenants in various medical office buildings and two free-standing emergency departments owned by the Trust or by limited liability companies in which the Trust holds 95% to 100% of the ownership interest.

Other Related Party Transactions:

In December, 2010, our Board of Directors approved the Company’s entering into supplemental life insurance plans and agreements on the lives of our chief executive officer (“CEO”) and his wife. As a result of these agreements, as amended in October, 2016, based on actuarial tables and other assumptions, during the life expectancies of the insureds, we would pay approximately $28 million in premiums, and certain trusts owned by our CEO, would pay approximately $9 million in premiums. Based on the projected premiums mentioned above, and assuming the policies remain in effect until the death of the insureds, we will be entitled to receive death benefit proceeds of no less than approximately $37 million representing the $28 million of aggregate premiums paid by us as well as the $9 million of aggregate premiums paid by the trusts. In connection with these policies, we paid approximately $1.1 million, net, and $1.2 million, net, in premium payments during 2018 and 2017, respectively.

In August, 2015, Marc D. Miller, our President and member of our Board of Directors, was appointed to the Board of Directors of Premier, Inc. (“Premier”), a healthcare performance improvement alliance. During 2013, we entered into a new group purchasing organization agreement (“GPO”) with Premier. In conjunction with the GPO agreement, we acquired a minority interest in Premier for a nominal amount. During the fourth quarter of 2013, in connection with the completion of an initial public offering of the stock of Premier, we received cash proceeds for the sale of a portion of our ownership interest in the GPO. Also in connection with this GPO agreement, we received shares of restricted stock of Premier which vest ratably over a seven-year period (2014 through 2020), contingent upon our continued participation and minority ownership interest in the GPO. We have elected to retain a portion of the previously vested shares of Premier, the market value of which is included in other assets on our consolidated balance sheet. Based upon the closing price of Premier’s stock on each respective date, the market value of our shares of Premier on which the restrictions have lapsed was $56 million as of December 31, 2018 and $33 million as of December 31, 2017. The $23 million increase in market value at December 31, 2018, as compared to December 31, 2017, consists of $17 million of additional vested shares and $6 million of increased market value. In connection with our 2018 adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”, since our vested shares of Premier are held for investment and classified as available for sale, the $6 million increase in market value of these shares since December 31, 2017 was recorded as an unrealized gain and included in “Other (income) expense, net” on our condensed consolidated statements of income for the twelve-month period ended December 31, 2018. Prior to 2018, changes in the market value of our vested Premier stock were recorded to other comprehensive income/loss on our consolidated balance sheet.

A member of our Board of Directors and member of the Executive Committee and Finance Committee is a partner in Norton Rose Fulbright US LLP, a law firm engaged by us for a variety of legal services. The Board member and his law firm also provide personal legal services to our CEO and acts as trustee of certain trusts for the benefit of our CEO and his family.

10. REVENUE RECOGNITION

In May 2014 and March 2016, the FASB issued ASU 2014-09 and ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)” and “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, respectively, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Under the new standards, our estimate for amounts not expected to be collected based on historical experience will continue to be recognized as a reduction to net revenue. However, subsequent changes in estimate of collectability due to a change in the financial status of a payer, for example a bankruptcy, will be recognized as bad debt expense in operating charges.

The performance obligation is separately identifiable from other promises in the customer contract. As the performance obligations are met (i.e.: room, board, ancillary services, level of care), revenue is recognized based upon allocated transaction price. The transaction price is allocated to separate performance obligations based upon the relative standalone selling price. In instances where we determine there are multiple performance obligations across multiple months, the transaction price will be allocated by applying an estimated implicit and explicit rate to gross charges based on the separate performance obligations.

In assessing collectability, we have elected the portfolio approach. This portfolio approach is being used as we have large volume of similar contracts with similar classes of customers. We reasonably expect that the effect of applying a portfolio approach to a group of contracts would not differ materially from considering each contract separately. Management’s judgment to group the contracts by portfolio is based on the payment behavior expected in each portfolio category. As a result, aggregating all of the contracts (which are at the patient level) by the particular payer or group of payers, will result in the recognition of the same amount of revenue as applying the analysis at the individual patient level.

On January 1, 2018, we adopted the new accounting standard using the modified retrospective method. The information in comparative periods have not been restated and continues to be reported under the accounting standards in effect for those periods. In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated statements of income was as follows (in thousands):

					Balances Without
	As				Adoption				Effect
	Reported				ASC 606				of Change
For the twelve months ended December 31, 2018:
Net Revenue before provision for doubtful accounts					$	11,846,088
Less: Provision for doubtful accounts						1,088,267
Net Revenues	$	10,772,278			$	10,757,821			$	14,457
Other operating expenses	$	2,614,687			$	2,600,230			$	14,457

We group our revenues into categories based on payment behaviors. Each component has its own reimbursement structure which allows us to disaggregate the revenue into categories that share the nature and timing of payments. The other patient revenue consists primarily of self-pay, government-funded non-Medicaid, and other.

The following table disaggregates our revenue by major source for the years ended December 31, 2018, 2017 and 2016 (in thousands):

	For the year ended December 31, 2018
	Acute Care							Behavioral Health							Other				Total
Medicare	$	1,296,152			23	%		$	579,723			12	%						$	1,875,875			17	%
Managed Medicare		730,387			13	%			199,003			4	%							929,390			9	%
Medicaid		487,197			9	%			696,421			14	%							1,183,618			11	%
Managed Medicaid		554,438			10	%			975,567			19	%							1,530,005			14	%
Managed Care (HMO and PPOs)		2,093,890			37	%			1,395,980			28	%							3,489,870			32	%
UK Revenue		0			0	%			504,721			10	%							504,721			5	%
Other patient revenue and adjustments, net		167,570			3	%			483,417			10	%							650,987			6	%
Other non-patient revenue		390,271			7	%			204,042			4	%			13,499				607,812			6	%
Total Net Revenue	$	5,719,905			100	%		$	5,038,874			100	%		$	13,499				10,772,278			100	%
	For the year ended December 31, 2017
	Acute Care							Behavioral Health							Other				Total
Medicare	$	1,223,150			22	%		$	593,690			12	%						$	1,816,840			17	%
Managed Medicare		630,083			11	%			161,320			3	%							791,403			8	%
Medicaid		482,820			9	%			723,544			15	%							1,206,364			12	%
Managed Medicaid		511,844			9	%			876,907			18	%							1,388,751			13	%
Managed Care (HMO and PPOs)		1,949,435			36	%			1,412,086			29	%							3,361,521			32	%
UK Revenue		0			0	%			426,575			9	%							426,575			4	%
Other patient revenue and adjustments, net		219,056			4	%			498,915			10	%							717,971			7	%
Other non-patient revenue		468,295			9	%			213,682			4	%			18,463				700,440			7	%
Total Net Revenue	$	5,484,683			100	%		$	4,906,719			100	%		$	18,463				10,409,865			100	%
	For the year ended December 31, 2016
	Acute Care							Behavioral Health							Other				Total
Medicare	$	1,114,911			22	%		$	614,182			13	%						$	1,729,093			18	%
Managed Medicare		536,224			10	%			143,554			3	%							679,778			7	%
Medicaid		424,934			8	%			755,226			16	%							1,180,160			12	%
Managed Medicaid		444,164			9	%			793,234			17	%							1,237,398			13	%
Managed Care (HMO and PPOs)		1,845,571			36	%			1,407,458			30	%							3,253,029			33	%
UK Revenue		0			0	%			241,098			5	%							241,098			2	%
Other patient revenue and adjustments, net		284,872			6	%			456,350			10	%							741,222			8	%
Other non-patient revenue		462,274			9	%			233,905			5	%			8,253				704,432			7	%
Total Net Revenue	$	5,112,950			100	%		$	4,645,007			100	%		$	8,253				9,766,210			100	%

11. PENSION PLAN

We maintain contributory and non-contributory retirement plans for eligible employees. Our contributions to the contributory plan amounted to $56.6 million, $50.1 million and $45.7 million in 2018, 2017 and 2016, respectively. The non-contributory plan is a defined benefit pension plan which covers employees of one of our subsidiaries. The benefits are based on years of service and the employee’s highest compensation for any five years of employment. Our funding policy is to contribute annually at least the minimum amount that should be funded in accordance with the provisions of ERISA.

For defined benefit pension plans, the benefit obligation is the “projected benefit obligation”, the actuarial present value, as of December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered. It is measured based on assumptions concerning future interest rates and future compensation levels. The following table shows the reconciliation of the defined benefit pension plan as of December 31, 2018 and 2017:

		2018				2017
		(000s)
Change in plan assets:
Fair value of plan assets at beginning of year		$	118,667			$	109,677
Actual return (loss) on plan assets			(7,522	)			15,533
Benefits paid			(6,031	)			(5,846	)
Administrative expenses			(523	)			(697	)
Fair value of plan assets at end of year		$	104,591			$	118,667
Change in benefit obligation:
Benefit obligation at beginning of year		$	116,056			$	110,949
Service cost			689				721
Interest cost			4,063				4,465
Benefits paid			(6,031	)			(5,846	)
Actuarial (gain) loss			(6,350	)			5,767
Benefit obligation at end of year		$	108,427			$	116,056
Amounts recognized in the Consolidated Balance Sheet:
Other non-current assets							2,611
Other non-current liabilities			3,836
Total amounts recognized at end of year		$	3,836			$	2,611

		2018				2017				2016
		(000s)
Components of net periodic cost (benefit)
Service cost		$	689			$	721			$	926
Interest cost			4,063				4,465				4,997
Expected return on plan assets			(5,197	)			(5,862	)			(5,708	)
Amortization of actuarial loss			—				863				3,072
Net periodic cost		$	(445	)		$	187			$	3,287

		2018		2017
Measurement Dates
Benefit obligations		12/31/2018		12/31/2017
Fair value of plan assets		12/31/2018		12/31/2017

		2018				2017
Weighted average assumptions as of December 31
Discount rate			4.03	%			3.60	%
Rate of compensation increase			4.00	%			4.00	%

		2018				2017				2016
Weighted-average assumptions for net periodic benefit cost calculations
Discount rate			3.60	%			4.14	%			4.34	%
Expected long-term rate of return on plan assets			4.50	%			5.50	%			5.50	%
Rate of compensation increase			4.00	%			4.00	%			4.00	%

The accumulated benefit obligation for our pension plan represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. The accumulated benefit obligation for our plan was $108.3 million and $115.9 million as of December 31, 2018 and 2017, respectively. As of December 31, 2018, the accumulated benefit obligation exceeded the fair value of plan assets by $3.7 million. As of December 31, 2017, the fair value of plan assets exceeded the accumulated benefit obligation by $2.7 million.

We estimate that there will be no net loss or prior service cost amortized from accumulated other comprehensive income during 2019.

In May, 2015, the FASB issued ASU No. 2015-07, "Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent)," which is effective for annual reporting periods beginning after December 15, 2015. The standard removes the requirement to categorize investments for which fair value is measured using the net asset value (NAV) per share practical expedient within the fair value hierarchy. We have adopted this standard effective January 1, 2016, and applied the guidance retrospectively. This standard impacts financial statement disclosure only. In previous reporting periods, we disclosed the full fair value hierarchy and disclosed our pension assets as level 2 within the hierarchy. Going forward, we will disclose our pension assets by asset category reported using NAV as a practical expedient for comparative years.

The market values of our pension plan assets at December 31, 2018 and December 31, 2017, reported using net asset value as a practical expedient, by asset category are as follows:

		2018				2017
Equities:
U.S. Large Cap		$	7,711			$	9,393
U.S. Mid Cap			2,309				2,937
U.S. Small Cap			2,094				3,005
International Developed			5,710				7,213
Emerging Markets			4,137				4,792
Fixed income:
Core Fixed Income			24,617				25,915
Long Duration Fixed Income			55,318				62,522
Real Estate:
REIT Fund			2,037				2,370
Cash/Currency:
Cash Equivalents			658				520
Total market value		$	104,591			$	118,667

To develop the expected long-term rate of return on plan assets assumption, we considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio.

The following table shows expected benefit payments for the years ended December 31, 2019 through 2028 for our defined pension plan. There will be benefit payments under this plan beyond 2028.

Estimated Future Benefit Payments (000s)
2019		$	6,595
2020			6,744
2021			6,834
2022			6,891
2023			6,921
2024-2028			34,270
Total		$	68,255

		2018				2017
Plan Assets
Asset Category
Equity securities			21	%			23	%
Fixed income securities			76	%			75	%
Other			3	%			2	%
Total			100	%			100	%

Investment Policy, Guidelines and Objectives have been established for the defined benefit pension plan. The investment policy is in keeping with the fiduciary requirements under existing federal laws and managed in accordance with the Prudent Investor Rule. Total portfolio risk is regularly evaluated and compared to that of the plan’s policy target allocation and judged on a relative basis over

a market cycle. The following asset allocation policy and ranges have been established in accordance with the overall risk and return objectives of the portfolio:

		As of 12/31/2018				Permitted Range
Total Equity			21	%		10-30%
Total Fixed Income			76	%		70-90%
Other			3	%		0-10%

In accordance with the investment policy, the portfolio will invest in high quality, large and small capitalization companies traded on national exchanges, and investment grade securities. The investment managers will not write or buy options for speculative purposes; securities may not be margined or sold short. The manager may employ futures or options for the purpose of hedging exposure, and will not purchase unregistered sectors, private placements, partnerships or commodities.

12. SEGMENT REPORTING

Our reportable operating segments consist of acute care hospital services and behavioral health care services. The “Other” segment column below includes centralized services including, but not limited to, information technology, purchasing, reimbursement, accounting and finance, taxation, legal, advertising and design and construction. The chief operating decision making group for our acute care services and behavioral health care services is comprised of our Chief Executive Officer, the President and the Presidents of each operating segment. The Presidents for each operating segment also manage the profitability of each respective segment’s various facilities. The operating segments are managed separately because each operating segment represents a business unit that offers different types of healthcare services or operates in different healthcare environments. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies included in this Annual Report on Form 10-K for the year ended December 31, 2018. The corporate overhead allocations, as reflected below, are utilized for internal reporting purposes and are comprised of each period’s projected corporate-level operating expenses (excluding interest expense). The overhead expenses are captured and allocated directly to each segment, to the extent possible, based upon each segment’s respective percentage of total operating expenses.

2018		Acute Care Hospital Services				Behavioral Health Services (a.)				Other				Total Consolidated
		(Dollar amounts in thousands)
Gross inpatient revenues		$	24,814,959			$	9,735,521			$	—			$	34,550,480
Gross outpatient revenues		$	14,967,313			$	1,025,721			$	—			$	15,993,034
Total net revenues		$	5,719,905			$	5,038,874			$	13,499			$	10,772,278
Income (loss) before allocation of corporate overhead and income taxes		$	708,680			$	915,517			$	(589,672	)		$	1,034,525
Allocation of corporate overhead		$	(199,823	)		$	(161,282	)		$	361,105			$	0
Income (loss) after allocation of corporate overhead and before income taxes		$	508,857			$	754,235			$	(228,567	)		$	1,034,525
Total assets		$	4,094,537			$	6,786,369			$	384,574			$	11,265,480

2017		Acute Care Hospital Services				Behavioral Health Services (a.)				Other				Total Consolidated
		(Dollar amounts in thousands)
Gross inpatient revenues		$	21,888,207			$	8,949,984			$	—			$	30,838,191
Gross outpatient revenues		$	13,115,881			$	993,409			$	—			$	14,109,290
Total net revenues		$	5,484,683			$	4,906,719			$	18,463			$	10,409,865
Income (loss) before allocation of corporate overhead and income taxes		$	641,857			$	968,974			$	(475,822	)		$	1,135,009
Allocation of corporate overhead		$	(182,713	)		$	(158,735	)		$	341,448			$	0
Income (loss) after allocation of corporate overhead and before income taxes		$	459,144			$	810,239			$	(134,374	)		$	1,135,009
Total assets		$	3,849,214			$	6,648,818			$	263,796			$	10,761,828

2016		Acute Care Hospital Services				Behavioral Health Services (a.)				Other				Total Consolidated
		(Dollar amounts in thousands)
Gross inpatient revenues		$	19,042,627			$	8,017,585			$	—			$	27,060,212
Gross outpatient revenues		$	11,374,098			$	902,102			$	—			$	12,276,200
Total net revenues		$	5,112,950			$	4,645,007			$	8,253			$	9,766,210
Income (loss) before allocation of corporate overhead and income taxes		$	557,472			$	1,030,734			$	(431,848	)		$	1,156,358
Allocation of corporate overhead		$	(170,767	)		$	(154,843	)		$	325,610			$	0
Income (loss) after allocation of corporate overhead and before income taxes		$	386,705			$	875,891			$	(106,238	)		$	1,156,358
Total assets		$	3,723,075			$	6,440,195			$	154,532			$	10,317,802

	(a.)	Includes net revenues generated from our behavioral health care facilities located in the U.K. amounting to approximately $505 million in 2018, $429 million in 2017 and $241 million in 2016. Total assets at our U.K. behavioral health care facilities were approximately $1.224 billion as of December 31, 2018, $1.098 billion as of December 31, 2017 and $965 million as of December 31, 2016. In addition, included in our 2018 Behavioral Health Services operating segment Income (loss) before allocation of corporate overhead and income taxes is a pre-tax $49 million provision for asset impairment to reduce the carrying value of a tradename intangible asset.

13. QUARTERLY RESULTS (unaudited)

The quarterly financial data is prepared on the same basis as the audited annual financial statements, and include all adjustments, which include only normal recurring adjustments, necessary for the fair statement of our results of operations for these periods. The following tables summarize the quarterly financial data for the two years ended December 31, 2018 and 2017:

2018		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total
		(amounts in thousands, except per share amounts)
Net revenues		$	2,687,516			$	2,681,353			$	2,648,913			$	2,754,496			$	10,772,278
Net income		$	228,669			$	230,711			$	174,881			$	163,622			$	797,883
Less: Net income attributable to noncontrolling interests		$	4,837			$	4,659			$	3,135			$	5,547			$	18,178
Net income attributable to UHS		$	223,832			$	226,052			$	171,746			$	158,075			$	779,705
Earnings per share attributable to UHS-Basic:
Total basic earnings per share		$	2.37			$	2.40			$	1.85			$	1.71			$	8.35
Earnings per share attributable to UHS-Diluted:
Total diluted earnings per share		$	2.36			$	2.39			$	1.84			$	1.70			$	8.31

The 2018 quarterly financial data presented above includes the following:

First Quarter:

	•	an unfavorable $13.0 million pre-tax impact ($9.9 million, or $.11 per diluted share, net of taxes) increase in the reserve established in connection with the discussions with the Department of Justice related to the civil aspects of the government’s investigation of certain of our behavioral health care facilities (“ DOJ Reserve”);

	•	a favorable after-tax impact of $1.6 million, or $.02 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”).

Second Quarter:

	•	an unfavorable $9.5 million pre-tax impact ($7.2 million, or $.08 per diluted share, net of taxes) increase in the DOJ Reserve.

Third Quarter:

	•	an unfavorable $48.0 million pre-tax impact ($36.6 million, or $.39 per diluted share, net of taxes) increase in the DOJ Reserve.

Fourth Quarter:

	•	an unfavorable $31.9 million pre-tax impact ($24.5 million, or $.26 per diluted share, net of taxes) increase in the DOJ Reserve;

	•	an unfavorable $49.3 million pre-tax impact ($37.7 million, or $.41 per diluted share, net of taxes) recorded in connection with provision for intangible asset impairment .

2017		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total
		(amounts in thousands, except per share amounts)
Net revenues		$	2,612,858			$	2,612,356			$	2,541,864			$	2,642,787			$	10,409,865
Net income		$	210,527			$	190,388			$	145,362			$	225,035			$	771,312
Less: Net income attributable to noncontrolling interests		$	4,472			$	4,994			$	4,117			$	5,426			$	19,009
Net income attributable to UHS		$	206,055			$	185,394			$	141,245			$	219,609			$	752,303
Earnings per share attributable to UHS-Basic:
Total basic earnings per share		$	2.13			$	1.93			$	1.48			$	2.32			$	7.86
Earnings per share attributable to UHS-Diluted:
Total diluted earnings per share		$	2.12			$	1.91			$	1.47			$	2.31			$	7.81

The 2017 quarterly financial data presented above includes the following:

First Quarter:

	•	an unfavorable $8.1 million pre-tax impact ($5.1 million, or $.05 per diluted share, net of taxes) recorded in connection with the implementation of electronic health records (“EHR”) applications;

	•	a favorable after-tax impact of $6.8 million, or $.07 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09.

Second Quarter:

	•	an unfavorable $6.4 million pre-tax impact ($4.0 million, or $.04 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications;

	•	a favorable after-tax impact of $1.4 million, or $.01 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09.

Third Quarter:

	•	an unfavorable $4.2 million pre-tax impact ($2.6 million, or $.03 per diluted share, net of taxes) recorded in connection with the implementation of EHR application;

	•	a favorable after-tax impact of $487,000, or $.01 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09.

Fourth Quarter:

	•	an unfavorable $3.6 million pre-tax impact ($2.3 million, or $.03 per diluted share, net of taxes) recorded in connection with the implementation of EHR applications;

	•	a favorable after-tax impact of $13.5 million, or $.14 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09;

	•	a favorable after-tax impact of $30.0 million, or $.32 per diluted share, resulting from a reduction in our net deferred income tax liability resulting from lower federal income tax rates beginning January 1, 2018 pursuant to the Tax Cuts and Jobs Act of 2017 (“TCJA-17”);

	•	an unfavorable after-tax impact of $11.3 million, or $.12 per diluted share, resulting from the one-time repatriation tax incurred pursuant to the TCJA-17 (in connection with our behavioral health care facilities located in the U.K. and Puerto Rico).

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

(amounts in thousands)

		Balance at				Charges to								Write-off of				Balance
		beginning				costs and				Acquisitions				uncollectible				at end
Valuation Allowance for Deferred Tax Assets:		of period				expenses				of business				accounts				of period
Year ended December 31, 2018		$	70,227			$	9,037			$	-			$	-			$	79,264
Year ended December 31, 2017		$	56,333			$	13,894			$	-			$	-			$	70,227
Year ended December 31, 2016		$	52,567			$	3,766			$	-			$	-			$	56,333

		Balance at				Charges to												Balance
		beginning				costs and				Acquisitions								at end
Allowance for Doubtful Accounts Receivable:		of period				expenses				of business				Write-offs				of period
Year ended December 31, 2017 (a)		$	410,374			$	869,077			$	-			$	(799,162	)		$	480,289
Year ended December 31, 2016		$	398,797			$	741,578			$	-			$	(730,001	)		$	410,374

(a) Effective January 1, 2018, the Company adopted ASC 606 using a modified retrospective approach. This schedule discloses allowance for doubtful accounts receivable for periods reported under ASC 605 only.