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 26, 2020

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 26, 2020
/s/ MARC D. MILLER Marc D. Miller				Director and President				February 26, 2020
/s/ LAWRENCE S. GIBBS Lawrence S. Gibbs				Director				February 26, 2020
/s/ ROBERT H.HOTZ Robert H. Hotz				Director				February 26, 2020
/s/ EILEEN C. MCDONNELL Eileen C. McDonnell				Director				February 26, 2020
/s/ WARREN J. NIMETZ Warren J. Nimetz				Director				February 26, 2020
/s/ ELLIOTT J. SUSSMAN M.D. Elliot J. Sussman M.D.				Director				February 26, 2020
/s/ STEVE FILTON Steve Filton				Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)				February 26, 2020

UNIVERSAL HEALTH SERVICES, INC.

INDEX TO FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE

Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	92
Consolidated Statements of Income for December 31, 2019, 2018, and 2017	94
Consolidated Statements of Comprehensive Income for December 31, 2019, 2018, and 2017	95
Consolidated Balance Sheets as of December 31, 2019 and 2018	96
Consolidated Statements of Changes in Equity for December 31, 2019, 2018 and 2017	97
Consolidated Statements of Cash Flows for December 31, 2019, 2018 and 2017	100
Notes to Consolidated Financial Statements	101
Supplemental Financial Statement Schedule II: Valuation and Qualifying Accounts as of and for December 31, 2019, 2018, and 2017	137

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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 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, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 7 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

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.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of accounts receivable

As described in Notes 1 and 10 to the consolidated financial statements, the Company reports net patient service revenue at the estimated net realizable amounts from patients and third-party payers and others for services rendered. The Company has agreements with third-party payers that provide for payments to the Company at amounts different from established rates. Payment arrangements include rates per discharge, reimbursed costs, discounted charges and per diem payments. Estimates of contractual allowances, which represent explicit price concessions, under managed care plans are based upon the payment terms specified in the related contractual agreements. Management estimates 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. Management monitors the 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. In addition to explicit price concessions, management estimates revenue adjustments for implicit price concessions based on general factors such as payer mix, the aging of the receivables and historical collection experience. Management routinely reviews 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 the allowances as warranted. As of December 31, 2019, accounts receivable, net was $1.56 billion.

The principal considerations for our determination that performing procedures relating to the valuation of accounts receivable is a critical audit matter are there was significant judgment by management in estimating net accounts receivable, specifically as it relates to the estimation of implicit price concessions.

This in turn led to significant auditor judgment and effort to assess the audit evidence obtained related to the estimation of implicit price concessions.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of accounts receivable, including controls over management’s valuation approach, assumptions and data used to estimate the explicit and implicit price concessions. These procedures also included, among others, i) evaluating management’s process for developing the estimate for implicit price concessions, as well as the relevance and use of the historical billing and collection data as an input to the valuation approach, ii) testing the accuracy of a sample of revenue transactions and a sample of cash collections from the historical billing data and historical collection data used in management’s estimation of implicit price concessions, and iii) evaluating the historical accuracy of management’s process for developing the estimate of the amount which will ultimately be collected by comparing actual cash collections to the previously recorded accounts receivable.

/s/ PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

February 26, 2020

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

		Year Ended December 31,
		2019				2018				2017
		(in thousands, except per share data)
Net revenues before provision for doubtful accounts										$	11,278,942
Less: Provision for doubtful accounts											869,077
Net revenues			11,378,259				10,772,278				10,409,865
Operating charges:
Salaries, wages and benefits			5,588,893				5,254,536				4,980,637
Other operating expenses			2,723,911				2,614,687				2,493,062
Supplies expense			1,251,346				1,168,654				1,105,096
Depreciation and amortization			490,392				453,045				447,765
Lease and rental expense			107,809				106,094				103,127
			10,162,351				9,597,016				9,129,687
Income from operations			1,215,908				1,175,262				1,280,178
Interest expense, net			162,733				154,956				145,169
Other (income) expense, net			(13,162	)			(14,219	)			0
Income before income taxes			1,066,337				1,034,525				1,135,009
Provision for income taxes			238,794				236,642				363,697
Net income			827,543				797,883				771,312
Less: Net income attributable to noncontrolling interests			12,689				18,178				19,009
Net income attributable to UHS		$	814,854			$	779,705			$	752,303
Basic earnings per share attributable to UHS		$	9.16			$	8.35			$	7.86
Diluted earnings per share attributable to UHS		$	9.13			$	8.31			$	7.81
Weighted average number of common shares—basic			88,762				93,276				95,652
Add: Other share equivalents			278				474				673
Weighted average number of common shares and equivalents—diluted			89,040				93,750				96,325

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,
		2019				2018				2017
		(Dollar amounts in thousands)
Net income		$	827,543			$	797,883			$	771,312
Other comprehensive income (loss):
Unrealized derivative gains on cash flow hedges			(3,925	)			(2,805	)			6,679
Minimum pension liability			8,503				(6,892	)			4,070
Foreign currency translation adjustment			27,886				9,718				(2,169	)
Other			0				4,398				26,678
Other comprehensive income before tax			32,464				4,419				35,258
Income tax expense related to items of other comprehensive income			4,813				8,905				2,664
Total other comprehensive income (loss), net of tax			27,651				(4,486	)			32,594
Comprehensive income			855,194				793,397				803,906
Less: Comprehensive income attributable to noncontrolling interests			12,689				18,178				19,009
Comprehensive income attributable to UHS		$	842,505			$	775,219			$	784,897

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		December 31,
		2019				2018
		(Dollar amounts in thousands)
Assets
Current assets:
Cash and cash equivalents		$	61,268			$	105,220
Accounts receivable, net			1,560,847				1,509,909
Supplies			159,889				148,206
Other current assets			133,930				174,467
Total current assets			1,915,934				1,937,802
Property and Equipment
Land			613,842				565,607
Buildings and improvements			5,646,508				5,387,646
Equipment			2,430,463				2,251,822
Property under capital lease			38,582				44,020
			8,729,395				8,249,095
Accumulated depreciation			(4,089,679	)			(3,715,515	)
			4,639,716				4,533,580
Construction-in-progress			376,982				314,360
			5,016,698				4,847,940
Other assets:
Goodwill			3,869,760				3,844,628
Deferred income taxes			16,189				5,280
Right of use assets-operating leases			326,518				0
Deferred charges			6,373				8,772
Other			516,778				621,058
			4,735,618				4,479,738
Total Assets		$	11,668,250			$	11,265,480
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt		$	87,550			$	63,446
Accounts payable			446,957				445,652
Accrued liabilities
Compensation and related benefits			380,117				343,384
Interest			19,486				19,277
Taxes other than income			71,605				56,218
Legal reserves			144,509				129,150
Operating lease liabilities			56,442				0
Other			354,209				389,183
Current federal and state income taxes			2,515				2,428
Total current liabilities			1,563,390				1,448,738
Other noncurrent liabilities			329,932				361,809
Operating lease liabilities noncurrent			270,076				0
Long-term debt			3,896,577				3,935,187
Deferred income taxes			25,071				49,661
Commitments and contingencies (Note 8)
Redeemable noncontrolling interest			4,333				4,292
Equity:
Class A Common Stock, voting, $.01 par value; authorized 12,000,000 shares: issued and outstanding 6,577,100 shares in 2019 and 6,577,100 shares in 2018			66				66
Class B Common Stock, limited voting, $.01 par value; authorized 150,000,000 shares: issued and outstanding 79,449,349 shares in 2019 and 84,092,304 shares in 2018			794				841
Class C Common Stock, voting, $.01 par value; authorized 1,200,000 shares: issued and outstanding 661,688 shares in 2019 and 661,688 shares in 2018			7				7
Class D Common Stock, limited voting, $.01 par value; authorized 5,000,000 shares: issued and outstanding 18,491 shares in 2019 and 18,653 shares in 2018			0				0
Cumulative dividends			(462,159	)			(409,156	)
Retained earnings			5,933,504				5,793,262
Accumulated other comprehensive income			31,893				4,242
Universal Health Services, Inc. common stockholders’ equity			5,504,105				5,389,262
Noncontrolling interest			74,766				76,531
Total Equity			5,578,871				5,465,793
Total Liabilities and Stockholders’ Equity		$	11,668,250			$	11,265,480

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, 2019, 2018 and 2017

(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, 2017		$	9,319			$	66			$	893			$	7			$	0			$	(333,603	)		$	4,891,274			$	(25,417	)		$	4,533,220			$	64,374			$	4,597,594
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, 2019, 2018 and 2017

(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			$	—			$	(409,156	)		$	5,793,262			$	4,242			$	5,389,262			$	76,531			$	5,465,793

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)

For the Years Ended December 31, 2019, 2018 and 2017

(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			—				—				10				—				—				—				10,930				—				10,940				—				10,940
Repurchased			—				—				(57	)			—				—				—				(753,870	)			—				(753,927	)			—				(753,927	)
Restricted share-based compensation expense			—				—				—				—				—				—				8,222				—				8,222				—				8,222
Dividends paid			—				—				—				—				—				(53,003	)			—				—				(53,003	)			—				(53,003	)
Stock option expense			—				—				—				—				—				—				60,106				—				60,106				—				60,106
Distributions to noncontrolling interests			(500	)			—				—				—				—				—				—				—				—				(15,359	)			(15,359	)
Other			—				—				—				—				—				—				—				—				—				1,446				1,446
Comprehensive income:
Net income to UHS / noncontrolling interests			541				—				—				—				—				—				814,854				—				814,854				12,148				827,002
Foreign currency translation adjustments (net of income tax effect of $3,693)			—				—				—				—				—				—				—				24,193				24,193				—				24,193
Unrealized derivative gains on cash flow hedges (net of income tax effect of $928)			—				—				—				—				—				—				—				(2,997	)			(2,997	)			—				(2,997	)
Minimum pension liability (net of income tax effect of $2,048)			—				—				—				—				—				—				—				6,455				6,455				—				6,455
Subtotal - comprehensive income			541				—				—				—				—				—				814,854				27,651				842,505				12,148				854,653
Balance, December 31, 2019		$	4,333			$	66			$	794			$	7			$	0			$	(462,159	)		$	5,933,504			$	31,893			$	5,504,105			$	74,766			$	5,578,871

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,
		2019				2018				2017
		(Amounts in thousands)
Cash Flows from Operating Activities:
Net income		$	827,543			$	797,883			$	771,312
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization			490,392				453,076				447,883
Gains on sales of assets and businesses, net of losses			(7,540	)			(2,513	)			0
Stock-based compensation expense			69,431				66,581				56,738
Costs related to extinguishment of debt			0				2,727				0
Provision for asset impairment			97,631				49,310				0
Changes in assets & liabilities, net of effects from acquisitions and dispositions:
Accounts receivable			(42,056	)			(42,239	)			(24,719	)
Accrued interest			209				(4,478	)			705
Accrued and deferred income taxes			(25,194	)			(54,052	)			(6,405	)
Other working capital accounts			39,664				24,696				(15,165	)
Other assets and deferred charges			(27,205	)			(31,429	)			(27,936	)
Other			7,703				(1,536	)			21,769
Accrued insurance expense, net of commercial premiums paid			105,672				92,863				102,595
Payments made in settlement of self-insurance claims			(97,781	)			(76,147	)			(79,192	)
Net cash provided by operating activities			1,438,469				1,274,742				1,247,585
Cash Flows from Investing Activities:
Property and equipment additions, net of disposals			(634,095	)			(664,962	)			(557,506	)
Acquisition of property and businesses			(8,005	)			(110,464	)			(22,878	)
(Outflows) Inflows from foreign exchange contracts that hedge our net U.K. investment			(19,763	)			66,151				(64,333	)
Proceeds received from sales of assets and businesses			9,450				13,502				108
Costs incurred for purchase and implementation of information technology applications			(21,418	)			(36,243	)			(29,047	)
Decrease (Increase) in capital reserves of commercial insurance subsidiary			0				100				(3,100	)
Investment in, and advances to, joint venture and other			(14,579	)			(15,331	)			(7,976	)
Net cash used in investing activities			(688,410	)			(747,247	)			(684,732	)
Cash Flows from Financing Activities:
Reduction of long-term debt			(57,142	)			(830,496	)			(143,106	)
Additional borrowings			39,220				791,247				41,100
Financing costs			0				(13,787	)			(76	)
Repurchase of common shares			(770,504	)			(397,425	)			(364,401	)
Dividends paid			(53,003	)			(37,342	)			(38,211	)
Issuance of common stock			10,806				10,196				10,254
Profit distributions to noncontrolling interests			(15,859	)			(14,595	)			(24,713	)
Capital contributions from minority members			1,446				0				0
Net cash used in financing activities			(845,036	)			(492,202	)			(519,153	)
Effect of exchange rate changes on cash and cash equivalents			959				(2,905	)			1,647
(Decrease) Increase in cash and cash equivalents			(94,018	)			32,388				45,347
Cash, cash equivalents and restricted cash, beginning of period			199,685				167,297				121,950
Cash, cash equivalents and restricted cash, end of period		$	105,667			$	199,685			$	167,297
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	157,406			$	150,293			$	135,533
Income taxes paid, net of refunds		$	260,622			$	293,837			$	370,855
Noncash purchases of property and equipment		$	63,514			$	77,674			$	82,496
Right-of-use assets obtained in exchange for lease obligations		$	383,857			$	0			$	0

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 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 2019, 2018 or 2017. 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, 2019, 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 aging 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 of various amounts, dependent upon the state, ranging from 200% to 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 2019, 2018 or 2017 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, 2019, 2018 and 2017:

		(dollar amounts in thousands)
		2019								2018								2017
		Amount				%				Amount				%				Amount				%
Charity care		$	672,326				31	%		$	761,783				40	%		$	887,136				50	%
Uninsured discounts			1,511,738				69	%			1,132,811				60	%			881,265				50	%
Total uncompensated care		$	2,184,064				100	%		$	1,894,594				100	%		$	1,768,401				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)
		2019				2018				2017
Estimated cost of providing charity care		$	77,886			$	94,088			$	120,208
Estimated cost of providing uninsured discounts related care			175,128				139,913				119,412
Estimated cost of providing uncompensated care		$	253,014			$	234,001			$	239,620

Our accounts receivable as of December 31, 2019 and December 31, 2018 include amounts due from Illinois of approximately $36 million and $32 million, respectively. Collection of the outstanding receivables continues to be delayed due to state budgetary and funding pressures. Approximately $18 million as of each of December 31, 2019 and 2018, 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, 16% in 2019, 15% in 2018 and 15% in 2017 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)
		2019				2018				2017
Cash and cash equivalents		$	61,268			$	105,220			$	74,423
Restricted cash (a)			44,399				94,465				92,874
Total cash, cash equivalents and restricted cash		$	105,667			$	199,685			$	167,297

(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.

See Provision for Asset Impairment-Foundations Recovery Network, in I) Other Assets and Intangible Assets below, for additional disclosure related to a provision for asset impairment recorded during 2019 to reduce the carrying value of real property assets of certain Foundations Recovery Network, L.L.C. facilities.

While in progress, we capitalized interest on major construction projects and the development and implementation of information technology applications amounting to $3.4 million during 2019, $2.3 million during 2018 and $1.0 million during 2017.

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 $455.6 million during 2019, $410.0 million during 2018 and $388.4 million during 2017.

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, 2019 which indicated no impairment of goodwill. There were also no goodwill impairments during 2018 or 2017. 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, 2019 were as follows (in thousands):

		Acute Care Services				Behavioral Health Services				Total Consolidated
Balance, January 1, 2018		$	441,511			$	3,383,646			$	3,825,157
Goodwill acquired during the period			917				44,173				45,090
Goodwill divested during the period			—				(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
Goodwill acquired during the period			5,926				-				5,926
Goodwill divested during the period			-				-				-
Adjustments to goodwill (a)			27				19,179				19,206
Balance, December 31, 2019		$	448,415			$	3,421,345			$	3,869,760

(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 ($62 million as of December 31, 2019); (v) deposits; (vi) investments in various businesses, including Universal Health Realty Income Trust ($6 million as of December 31, 2019) and Premier, Inc. ($70 million as of December 31, 2019); (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, and; (viii) 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, 2019. During 2019 and 2018, we recorded provisions for asset impairments related to Foundations Recovery Network, L.L.C., as discussed below. There were no impairments recorded during 2017.

Provision for Asset Impairment-Foundations Recovery Network:

Our financial results for the years ended December 31, 2019 and 2018 include pre-tax provisions for asset impairments of approximately $98 million and $49 million, respectively, recorded in connection with Foundations Recovery Network, L.L.C. (“Foundations”), which was acquired by us in 2015.

The pre-tax provision for asset impairment recording during 2019 includes: (i) a $75 million impairment provision to write-off the carrying value of the Foundations’ tradename intangible asset, and; (ii) a $23 million impairment provision to reduce the carrying value of real property assets of certain Foundations’ facilities. The $49 million pre-tax provision for asset impairment recorded during 2018 reduced the carrying value of a tradename intangible asset to approximately $75 million from its original value of approximately $124 million.

The provision for asset impairment recorded during 2019, which is included in other operating expenses in our consolidated statements of income, was recorded after evaluation of the estimated fair value of the Foundations’ tradename as well as certain

related real property assets. The provision for asset impairment was impacted by the following: (i) decisions made by management during 2019 to cancel the opening of future planned de novo facilities; (ii) reductions in projected future patient volumes, revenues and cash flows resulting from continued operating trends and financial results experienced by existing facilities that significantly lagged expectations, and; (iii) competitive pressures experienced in certain markets that were deemed to be permanent.

The provision for asset impairment recorded during 2018, which is also included in other operating expenses, was recorded after an evaluation, at that time, 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. The 2018 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, 2019 and 2018:

		(amounts in thousands)
		2019				2018
Tradenames		$	—			$	74,903
Medicare licenses			57,226				57,226
Certificates of need			8,267				21,101
Contract relationships and other (net of $50,273 and $48,705 of accumulated amortization for 2019 and 2018, respectively)			18,164				19,732
Net Intangible Assets		$	83,657			$	172,962

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

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, 2019, 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%, 30% and 20% in three behavioral health care facilities located in Pennsylvania, Ohio and Washington, respectively, and; (iv) approximately 5% in an acute care facility located in Nevada. The noncontrolling interest and redeemable noncontrolling interest balances of $75 million and $4 million, respectively, as of December 31, 2019, consist primarily of the third-party ownership interests in these hospitals.

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, 2019 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, 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, January 1, 2019, net of income tax			2,980				15,375				-				(14,113	)			4,242
2019 activity:
Pretax amount			(3,925	)			27,886				-				8,503				32,464
Income tax effect			928				(3,693	)			-				(2,048	)			(4,813	)
Change, net of income tax			(2,997	)			24,193				-				6,455				27,651
Balance, December 31, 2019, net of income tax		$	(17	)		$	39,568				-			$	(7,658	)		$	31,893

P) Accounting for Derivative Financial Investments and Hedging Activities and Foreign Currency Forward Exchange Contracts: 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. From time to time, 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 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.

In August 2017, the FASB issued new guidance on hedge accounting (ASU 2017-12) that is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase

transparency as to the scope and results of hedging programs. The new guidance amends the presentation and disclosure requirements, and changes how companies assess effectiveness. We adopted this guidance as of January 1, 2019 and applied to all existing hedges as of the adoption date.

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. In conjunction with the January 1, 2019 adoption of ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities”, we reclassified our presentation of the net cash inflows or outflows, which were received or paid in connection with foreign exchange contracts that hedge our net investment in foreign operations against movements in exchange rates, to investing cash flows on the consolidated statements of cash flows.

Q) Stock-Based Compensation: At December 31, 2019, 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,
		2019				2018				2017
Basic and diluted:
Net Income		$	827,543			$	797,883			$	771,312
Less: Net income attributable to noncontrolling interest			(12,689	)			(18,178	)			(19,009	)
Less: Net income attributable to unvested restricted share grants			(2,028	)			(1,091	)			(362	)
Net income attributable to UHS—basic and diluted		$	812,826			$	778,614			$	751,941
Basic earnings per share attributable to UHS:
Weighted average number of common shares—basic			88,762				93,276				95,652
Total basic earnings per share		$	9.16			$	8.35			$	7.86
Diluted earnings per share attributable to UHS:
Weighted average number of common shares			88,762				93,276				95,652
Net effect of dilutive stock options and grants based on the treasury stock method			278				474				673
Weighted average number of common shares and equivalents—diluted			89,040				93,750				96,325
Total diluted earnings per share		$	9.13			$	8.31			$	7.81

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 5.5 million during 2019, 7.9 million during 2018 and 6.2 million during 2017.

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 $70 million and $56 million as of December 31, 2019 and 2018, respectively. The $14 million increase in market value at December 31, 2019, as compared to December 31, 2018, consists of $10 million of additional vested shares and $4 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 change in market value of these shares are recorded as an unrealized gain and included in “Other (income) expense, net” on our consolidated statements of income. 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 $419 million during 2019, $387 million during 2018 and $357 million during 2017. These revenues were offset by Provider Taxes of approximately $194 million during 2019, $179 million during 2018 and $171 million during 2017, which are recorded in other operating expenses on the Consolidated Statements of Income as included herein. The aggregate net benefit from these programs was $225 million during 2019, $208 million during 2018 and $186 million during 2017. 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 $78 million in 2019, $64 million in 2018 and $55 million in 2017.

X) Recent Accounting Standards: In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses," which introduced new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments. Instruments in scope include loans, held-to-maturity debt securities, and net investments in leases as well as reinsurance and trade receivables. In November 2018, the FASB issued ASU 2018-19, which clarifies that operating lease receivables are outside the scope of the new standard. The standard will be effective for us in fiscal years beginning after December 15, 2019. We are currently evaluating the impact that the adoption of the new standard will have on our consolidated financial statements.

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 No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" and subsequent related updates. The amendments in this update expand and refine hedge accounting for both non-financial and financial risk components and aligns the recognition and presentation of the effects of the

hedging instrument and the hedged item in the financial statements. The ASU amends the presentation and disclosure requirements and changes how entities assess effectiveness. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness and requires all items that affect earnings be presented in the same income statement line as the hedged items. The amendments in this guidance permit the use of the Overnight Index Swap rate based on Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes to facilitate the LIBOR to SOFR transition. This guidance was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and we adopted effective January 1, 2019. The amended presentation and disclosure guidance was required only prospectively. The adoption of this guidance did not have a material impact on our consolidated financial statements.

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.

2. ACQUISITIONS AND DIVESTITURES

Year ended December 31, 2019:

2019 Acquisitions of Assets and Businesses:

During 2019, we spent $8 million to acquire various businesses and properties.

2019 Divestiture of Assets:

During 2019, we received $9 million from the sales of various assets.

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;

	•	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.

3. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENT

Fair Value Hedges:

During 2019, 2018 and 2017, 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 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. From time to time, 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 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 the first nine months of 2019 and the full year of 2018 and determined the hedges to be highly effective. Although we do not anticipate nonperformance by our counterparties to interest rate swap agreements, the counterparties expose us to credit risk in the event of nonperformance. 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 paid a fixed rate on a total notional amount of $1.0 billion and received one-month LIBOR. The average fixed rate payable on these swaps, all of which matured on April 15, 2019, was 1.31%.

When applicable, 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.

Foreign Currency Forward Exchange Contracts:

In August 2017, the FASB issued new guidance on hedge accounting (ASU 2017-12) that is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The new guidance amends the presentation and disclosure requirements, and changes how companies assess effectiveness. We adopted this guidance as of January 1, 2019 and applied to all existing hedges as of the adoption date.

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. In conjunction with the January 1, 2019 adoption of ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities”, we reclassified our presentation of the net cash inflows or outflows, which were received or paid in connection with foreign exchange contracts that hedge our net investment in foreign operations against movements in exchange rates, to investing cash flows on the consolidated statements of cash flows. As previously disclosed within our footnotes, these cash flows were formerly reported as operating activities. Prior period amounts have been reclassified from net cash provided by operating activities to net cash used in investing activities to conform with the current year presentation on the consolidated statements of cash flows. In connection with these forward exchange contracts, we recorded net cash outflows of $20 million during 2019, net cash inflows of $66 million during 2018 and net cash outflows of $64 million during 2017.

Derivatives Hedging Relationships:

The following table presents the effects of our interest rate swap agreements and our foreign currency foreign exchange contracts on our results of operations for the three years ended December 31 (in thousands):

	Gain/(Loss) recognized in AOCI
	December 31,				December 31,				December 31,
	2019				2018				2017
Cash Flow Hedge relationships
Interest rate swap agreements (a)	$	(3,925	)		$	(2,805	)		$	6,679
Net Investment Hedge relationships
Foreign currency foreign exchange contracts	$	(18,328	)		$	75,059			$	(64,333	)

(a)	The amount of gain (loss) reclassified out of AOCI into interest expense, net was $3.4 million, $6.7 million and $(2.4) million during 2019, 2018 and 2017, respectively.

No other gains or losses were recognized in income related to derivatives in Subtopic 815-20.

Fair Value Measurement

Fair value is defined as the price that would be received to sell 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. The following fair value hierarchy classifies the inputs to valuation techniques used to measure fair value into one of three levels:

	•	Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

	•	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These included quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

	•	Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables present the assets and liabilities recorded at fair value on a recurring basis:

	Balance at			Balance Sheet	Basis of Fair Value Measurement
(in thousands)	December 31, 2019			Location	Level 1			Level 2			Level 3
Assets:
Money market mutual funds	$	60,175		Other assets		60,175
Certificates of deposit		2,200		Other assets		2,200
Available for sale securities		70,478		Other assets		70,478
Deferred compensation assets		35,510		Other assets		35,510
Interest rate swap agreements		-		Accounts Receivable, net					-
Foreign currency exchange contracts		10,343		Other current assets					10,343
	$	178,706				168,363			10,343			-
Liabilities:
Deferred compensation liability		35,510		Other noncurrent liabilities		35,510
	$	35,510				35,510			-			-
	Balance at			Balance Sheet	Basis of Fair Value Measurement
(in thousands)	December 31, 2018			Location	Level 1			Level 2			Level 3
Assets:
Money market mutual funds	$	106,530		Other assets		106,530
Certificates of deposit		5,415		Other assets		5,415
Available for sale securities		55,594		Other assets		55,594
Deferred compensation assets		32,998		Other assets		32,998
Interest rate swap agreements		3,925		Accounts Receivable, net					3,925
Foreign currency exchange contracts		8,908		Other current assets					8,908
	$	213,370				200,537			12,833			-
Liabilities:
Deferred compensation liability	$	32,998		Other noncurrent liabilities		32,998
	$	32,998				32,998			-			-

The fair value of our money market mutual funds, certificates of deposit and available for sale securities are computed based upon quoted market prices in active market. The fair value of deferred compensation assets and offsetting liability are computed based on market prices in an active market held in a rabbi trust. The fair value of our interest rate swaps are based on quotes from our counter parties. The fair value of our foreign currency exchange contracts is valued using quoted forward exchange rates and spot rates at the reporting date.

4. LONG-TERM DEBT

A summary of long-term debt follows:

		December 31,
		2019				2018
		(amounts in thousands)
Long-term debt:
Notes payable and Mortgages payable (including obligations under capitalized leases of $17,818 in 2019 and $19,941 in 2018) and term loans with varying maturities through 2044; weighted average interest rates of 8.0% in 2019 and 9.5% in 2018 (see Note 7 regarding capitalized leases)		$	22,634			$	20,159
Revolving credit and on-demand credit facility			30,900				6,300
Term Loan A			1,950,000				2,000,000
Term Loan B			495,000				500,000
Accounts receivable securitization program			400,000				390,000
4.75% Senior Secured Notes due 2022, including unamortized premium of $2,490 in 2019 and $3,460 in 2018 and net of unamortized discount of $70 in 2019 and $97 in 2018			702,420				703,363
5.00% Senior Secured Notes due 2026			400,000				400,000
Total debt before unamortized financing costs			4,000,954				4,019,822
Less-Unamortized financing costs			(16,827	)			(21,189	)
Total debt after unamortized financing costs			3,984,127				3,998,633
Less-Amounts due within one year (net of unamortized financing costs)			(87,550	)			(63,446	)
Long-term debt		$	3,896,577			$	3,935,187

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 Agreement 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 (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 million pursuant 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 (as defined below), 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, 2019, we had no borrowings outstanding pursuant to our $1 billion revolving credit facility and we had $967 million of available borrowing capacity net of $2 million of outstanding letters of credit and $31 million of outstanding borrowings pursuant to a short-term credit facility.

Pursuant to the terms of the Sixth Amendment, the tranche A term loan, which had $1.950 billion of borrowings outstanding as of December 31, 2019, provides for eight installment payments of $12.5 million per quarter which commenced in March of 2019 and are scheduled to continue through December of 2020. Thereafter, payments of $25 million per quarter are scheduled, commencing in March of 2021 until maturity in October of 2023, when all outstanding amounts will be due.

The tranche B term loan, which had $495 million of borrowings outstanding as of December 31, 2019, provides for installment payments of $1.25 million per quarter, which commenced on March 31, 2019 and are scheduled to continue until maturity in October of 2025, when all outstanding amounts will be due.

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, 2019, 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 in compliance with all required covenants as of December 31, 2019 and December 31, 2018.

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, 2019, we had $400 million of outstanding borrowings pursuant to the terms of the Securitization and $50 million of available borrowing capacity.

As of December 31, 2019, 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:

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

	•	$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 each of December 31, 2019 and 2018, the carrying value and fair value of our debt were each approximately $4.0 billion. 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, 2019 are as follows:

		(000s)
2020		$	87,550
2021			456,697
2022			809,583
2023			1,757,475
2024			7,823
Later			881,826
Total maturities before unamortized financing costs			4,000,954
Less-Unamortized financing costs			(16,827	)
Total		$	3,984,127

5. COMMON STOCK

Dividends

In July, 2019, our Board of Directors authorized a $.10 per share increase in our quarterly cash dividend to $.20 per share effective with the dividend for the third quarter of 2019. Cash dividends of $0.60 per share ($53.0 million in the aggregate) were declared and paid during 2019, $0.40 per share ($37.3 million in the aggregate) were declared and paid during 2018 and $0.40 per share ($38.2 million in the aggregate) were declared and paid during 2017. All classes of our common stock have similar economic rights.

Stock Repurchase Programs

In July, 2019, our Board of Directors authorized a $1.0 billion increase to our stock repurchase program, which increased the aggregate authorization to $2.7 billion from the previous $1.7 billion authorization approved in various increments since 2014. Pursuant to this program, which had an aggregate available repurchase authorization of $756.1 million as of December 31, 2019, shares of our Class B Common Stock may be repurchased, 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, 2019. During 2019, 5,397,753 shares ($706.2 million) were repurchased pursuant to the terms of our stock repurchase program and 336,943 shares ($47.7 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from stock-based compensation programs. During 2018, 3,321,968 shares ($401.3 million) were repurchased pursuant to the terms of our stock repurchase program and 102,800 shares ($12.7 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from stock-based compensation programs. During 2017, 2,960,843 shares ($322.2 million) were repurchased pursuant to the terms of our stock repurchase program and 305,278 shares ($34.2 million in the aggregate) were repurchased in connection with the income tax withholding obligations resulting from stock-based compensation programs.

		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, 2017																																		$	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
2019		$	1,000,000				5,762,409				27,713			$	0.01				5,397,753			$	130.84			$	753,928			$	706,221			$	756,123
Total for three year period ended December 31, 2019		$	1,900,000				12,464,522				49,728			$	0.01				11,680,564			$	122.41			$	1,524,343			$	1,429,768

	(a.)	Includes 27,713, 11,224 and 10,791 of restricted shares that were forfeited by former employees pursuant to the terms of our restricted stock purchase plan during 2019, 2018 and 2017, respectively.

Stock-based Compensation Plans

At December 31, 2019, 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 share-based compensation costs of $60.1 million during 2019, $61.1 million during 2018 and $54.3 million during 2017 were recognized related to outstanding stock options. In addition, pre-tax compensation costs of $9.3 million during 2019, $5.5 million during 2018 and $2.5 million during 2017 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, 2019, there was approximately $122.8 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 $69.4 million in 2019, $66.6 million in 2018 and $56.7 million in 2017. In connection with our January 1, 2017 adoption of ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, our provision for income taxes and our net income attributable to UHS were favorably impacted by $12.2 million during 2019, $1.2 million during 2018 and $22.1 million during 2017.

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 2019, 2018 and 2017, stock options, net of cancellations, of approximately 2.3 million, 2.2 million and 2.5 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 2019, 2018 and 2017 was $30.40, $28.19 and $27.05, respectively. All stock options were granted with an exercise price equal to the fair market value on the date of the grant. The majority of 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, 2019, approximately 4.3 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-nine option grants for the five-year period ending

December 31, 2019, twenty-seven option grants for the five-year period ending December 31, 2018 and twenty-seven option grants for the five-year period ending December 31, 2017.

Year Ended December 31,		2019				2018				2017
Expected volatility			27	%			27	%			28	%
Risk free Interest rate			2	%			1	%			1	%
Expected life (years)			3.4				3.4				3.4
Forfeiture rate			9	%			13	%			10	%
Dividend yield			0.3	%			0.3	%			0.4	%

The risk-free rate is based on the U.S. Treasury zero coupon four year yield curve 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 the year ended December 31, 2019:

Outstanding Options		Number of Shares				Weighted Average Exercise Price
Balance, January 1, 2019			9,674,791			$	115.39
Granted			2,460,015			$	134.39
Exercised			(3,474,496	)		$	106.01
Cancelled			(527,134	)		$	125.05
Balance, December 31, 2019			8,133,176			$	124.52
Outstanding options vested and exercisable as of December 31, 2019			2,551,267			$	119.86

The following table provides information about unvested options for the year ended December 31, 2019:

		Shares				Weighted Average Grant Date Fair Value
Unvested options as of January 1, 2019			5,950,612			$	26.34
Granted			2,460,015			$	30.40
Vested			(2,310,396	)		$	25.17
Cancelled			(518,322	)		$	28.07
Unvested options as of December 31, 2019			5,581,909			$	28.45

The following table provides information regarding all options outstanding at December 31, 2019:

		Options Outstanding				Options Exercisable
Number of options outstanding			8,133,176				2,551,267
Weighted average exercise price		$	124.52			$	119.86
Aggregate intrinsic value as of December 31, 2019		$	154,591,751			$	60,222,515
Weighted average remaining contractual life			2.7				1.4

The total in-the-money value of all stock options exercised during the years ended December 31, 2019, 2018 and 2017 were $126.7 million, $39.9 million and $85.5 million, respectively.

The weighted average remaining contractual life for options outstanding and weighted average exercise price per share for exercisable options at December 31, 2017, 2018 and 2019 were as follows:

Year Ended:		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				Weighted Average Exercise Price Per Share
		Shares												Shares								Shares
2017			9,639,949			$	112.40				2.9				2,869,346			$	100.51				5,031,122			$	118.17
2018			9,674,791				115.39				2.6				3,724,179				106.77				4,414,324				120.82
2019			8,133,176				124.52				2.7				2,551,267				119.86				5,073,423				126.62

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 2019, 2018 and 2017, restricted shares, net of cancellations, of approximately 117,467, 136,571, and 23,557, 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 2019, 2018 and 2017 was $133.98, $119.51 and $118.14, 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 82,449, 87,051 and 86,693 shares issued pursuant to the Employee Stock Purchase Plan during 2019, 2018 and 2017, 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 1.8 million shares, net of cancellations, as of December 31, 2019. As of December 31, 2019, approximately 837,000 shares of Class B Common Stock remain available for issuance pursuant to these plans.

At December 31, 2019, 20,552,363 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,
		2019				2018				2017
Current
Federal		$	225,663			$	195,862			$	352,433
Foreign			9,284				13,699				10,625
State			40,152				37,555				37,421
			275,099				247,116				400,479
Deferred
Federal			(27,073	)			(6,216	)			(36,998	)
Foreign			1,874				(666	)			24
State			(11,106	)			(3,592	)			192
			(36,305	)			(10,474	)			(36,782	)
Total		$	238,794			$	236,642			$	363,697

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. We 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 in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”) 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 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 zero and less than $1 million for the year ended December 31, 2019 and 2018, respectively.

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 were not subject to BEAT for the years ended December 31, 2019 and 2018.

The foreign provision for income taxes is based on foreign pre-tax earnings of $69 million in 2019, $84 million in 2018 and $70 million in 2017. 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, 2019, the amount of previously taxed earnings and earnings that would qualify for a full dividend received deduction total $113 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, 2019, 2018 and 2017 included tax benefits of $12 million, $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) and deficiencies, if applicable, are recorded as a component of our tax provision.

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

		Year Ended December 31,
		2019				2018				2017
Federal statutory rate			21.0	%			21.0	%			35.0	%
State taxes, net of federal income tax benefit			2.2	%			2.6	%			2.2	%
Tax effects of foreign operations			-0.3	%			-0.5	%			-1.2	%
Tax benefit from settlement of employee equity awards			-1.0	%			-0.1	%			-1.9	%
Enactment of the TCJA-17			0.0	%			-0.6	%			-1.7	%
Other items			0.8	%			0.9	%			0.2	%
Impact of income attributable to noncontrolling interests			-0.3	%			-0.4	%			-0.6	%
Effective tax rate			22.4	%			22.9	%			32.0	%

Our effective tax rates were 22.4%, 22.9% and 32.0% for the years ended December 31, 2019, 2018 and 2017, respectively. The decrease in our effective tax rate for the year ended December 31, 2019 as compared to 2018 is due primarily to tax benefits from employee share-based payments of $12 million and $1 million during the year ended December 2019 and 2018, 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.

Included in “Other current assets” on our Consolidated Balance Sheet are prepaid federal and state income taxes amounting to approximately $8 million and $24 million as of December 31, 2019 and 2018, respectively.

The components of deferred taxes are as follows (amounts in thousands):

		Year Ended December 31,
		2019										2018
		Assets					Liabilities					Assets					Liabilities
Self-insurance reserves	$		69,217			$					$		68,402			$
Compensation accruals			70,680										74,124
Doubtful accounts and other reserves			77,665										27,184
Other currently non-deductible accrued liabilities			36,500										35,253
Depreciable and amortizable assets								275,901										257,896
Operating lease liabilities			76,164
Right of use assets-operating leases								76,164
State and foreign net operating loss carryforwards and other state and foreign deferred tax assets			87,662										86,315
Net pension liabilities – OCI only			2,427										4,475
Other combined items – OCI only								0										929
Other liabilities								1,855										2,045
	$		420,315			$		353,920			$		295,753			$		260,870
Valuation Allowance			(75,277	)				0					(79,264	)				0
Total deferred income taxes	$		345,038			$		353,920			$		216,489			$		260,870

At December 31, 2019, state net operating loss carryforwards (losses originating in tax years beginning prior to January 1, 2018, expiring in years 2020 through 2038), and credit carryforwards available to offset future taxable income approximated $1.06 billion representing approximately $75 million in deferred state tax benefit (net of the federal benefit); and state related interest expense carryforwards approximated $116 million representing approximately $5 million in deferred state tax benefit (net of the federal benefit). At December 31, 2019, there were foreign net operating losses and credit carryforwards of approximately $36 million, most of which are carried forward indefinitely, representing approximately $8 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 $71 million and $75 million have been reflected as of December 31, 2019 and 2018, respectively. During 2019, the valuation allowance on these state tax benefits decreased by $4 million related to a change in state tax law. In addition, valuation allowances of approximately $4 million have been reflected as of December 31, 2019 and 2018 related to foreign net operating losses and credit carryforwards.

During 2019 and 2018, 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, 2019 and 2018, if subsequently recognized, that would favorably affect the effective tax rate and the provision for income taxes is approximately $2 million and $1 million respectively.

We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2019 and 2018, 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 2016 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, 2019, 2018 and 2017 is as follows (amounts in thousands):

		As of December 31,
		2019				2018				2017
Balance at January 1,		$	1,553			$	1,096			$	1,259
Additions based on tax positions related to the current year			500				500				500
Additions for tax positions of prior years			113				62				47
Reductions for tax positions of prior years			0				0				0
Settlements			(2	)			(105	)			(710	)
Balance at December 31,		$	2,164			$	1,553			$	1,096

7. LEASE COMMITMENTS

In February 2016, the FASB issued ASU 2016-02 (Topic 842) "Leases." Topic 842 supersedes the lease requirements in Accounting Standards Codification Topic 840, "Leases." Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will be classified as either finance or operating.

We adopted Topic 842 effective January 1, 2019. We applied Topic 842 to all leases as of January 1, 2019 with comparative periods continuing to be reported under Topic 840. We have elected the practical expedient package to not reassess at adoption (i) expired or existing contracts for whether they are or contain a lease, (ii) the lease classification of any existing leases or (iii) initial indirect costs for existing leases. We have also elected the policy exemption that allows lessees to choose to not separate lease and non-lease components by class of underlying asset and are applying this expedient to all relevant asset classes.

We determine if an arrangement is or contains a lease at inception of the contract. Our right-of-use assets represent our right to use the underlying assets for the lease term and our lease liabilities represent our obligation to make lease payments arising from the leases. Right-of-use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use the implicit rate noted within the contract. If not readily available, we use our estimated incremental borrowing rate, which is derived using a collateralized borrowing rate for the same currency and term as the associated lease. A right-of-use asset and lease liability is not recognized for leases with an initial term of 12 months or less and we recognize lease expense for these leases on a straight-line basis over the lease term within lease and rental expense.

Our operating leases are primarily for real estate, including certain acute care facilities, off-campus outpatient facilities, medical office buildings, and corporate and other administrative offices. Our real estate lease agreements typically have initial terms of five to 10 years. These real estate leases may include one or more options to renew, with renewals that can extend the lease term from five to 10 years. The exercise of lease renewal options is at our sole discretion. When determining the lease term, we included options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

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 are also the lease of the real property of certain facilities (see Item 2. Properties for additional disclosure).

The components of lease expense for the year ended December 31, 2019 are as follows (in thousands):

	Twelve months ended December 31,
	2019
Operating lease cost	$	72,098
Variable and short term lease cost (a)		35,711
Total lease and rental expense	$	107,809
Finance lease cost:
Amortization of property under capital lease	$	1,877
Interest on debt of property under capital lease		1,876
Total finance lease cost	$	3,753

(a) Includes equipment, month-to-month and leases with a maturity of less than 12 months.

Supplemental cash flow information related to leases for the year ended December 31, 2019 are as follows (in thousands):

	Twelve months ended December 31,
	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	107,239
Operating cash flows from finance leases	$	2,078
Financing cash flows from finance leases	$	1,959
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	383,857
Finance leases	0

Included in the $383.9 million of right-of-use assets obtained in exchange for operating lease obligations is $29.3 million of new and modified operating leases entered into during the year ended December 31, 2019.

Supplemental balance sheet information related to leases as of December 31, 2019 are as follows (in thousands):

	December 31,
	2019
Operating Leases
Right of use assets-operating leases	$	326,518
Operating lease liabilities	$	56,442
Operating lease liabilities noncurrent		270,076
Total operating lease liabilities	$	326,518
Finance Leases
Property and equipment	$	38,582
Accumulated depreciation		(26,610	)
Property and equipment, net	$	11,972
Current maturities of long-term debt	$	1,650
Long-term debt		16,359
Total finance lease liabilities	$	18,009
Weighted Average remaining lease term, years
Operating leases		9.7
Finance leases		6.9
Weighted Average discount rate
Operating leases		4.7	%
Finance leases		9.8	%

Future maturities of lease liabilities as of December 31, 2019 are as follows (in thousands):

	Operating Leases				Finance Leases
Year ending December 31,
2020	$	68,703			$	3,375
2021		62,017				3,257
2022		51,178				3,559
2023		46,327				3,654
2024		40,498				3,752
Later years		148,928				8,380
Total lease payments		417,651				25,977
less imputed interest		(91,133	)			(7,968	)
Total	$	326,518			$	18,009

We assumed no finance leases in 2019.

Future minimum rental payments under lease commitments with a term of more than one year as of December 31, 2018, prior to our adoption of ASC 842 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. 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

The vast majority of our subsidiaries are self-insured for professional and general liability exposure up to: (i) $10 million and $3 million per occurrence, respectively, effective January, 2020 (professional liability claims are also subject to an additional annual aggregate self-insured retention of $2.5 million for claims in excess of $10 million); (ii) $5 million and $3 million per occurrence, respectively, during 2019, 2018 and 2017, and; (iii) $10 million and $3 million per occurrence, respectively, prior to 2017. 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, 2019, the total accrual for our professional and general liability claims was $242 million, of which $42 million was included in current liabilities. As of December 31, 2018, 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. Our consolidated results of operations during 2019 and 2018 were not materially impacted by adjustments to our prior year reserves for professional and general liability claims. 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.

As of December 31, 2019, the total accrual for our workers’ compensation liability claims was $81 million, of which $40 million was included in current liabilities. 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 2019, 2018 and 2017 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, 2019 (amount in thousands):

		General and
		Professional				Workers’
		Liability				Compensation				Total
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 January 1, 2019			243,051				71,890				314,941
Plus: Accrued insurance expense, net of commercial premiums paid			56,452				49,220				105,672
Less: Payments made in settlement of self-insured claims			(57,683	)			(40,106	)			(97,789	)
Balance at December 31, 2019		$	241,820			$	81,004			$	322,824

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 facilities located in Puerto Rico, and; (v) $250 million limitation for many of our facilities located in other states. Our commercially insured flood coverage has a limit of $100 million annually. There is also a $10 million sublimit for one of our facilities located in Houston, Texas, and a $1 million sublimit for our facilities located in Puerto Rico. 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, 2019 as follows: (i) other combined estimated future purchase obligations of $293 million related to a long-term contract with third-parties consisting primarily of certain revenue cycle data processing services for our acute care facilities ($37 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 ($219 million), and other software applications ($37 million); (ii) estimated construction commitment of $125 million representing our share of the construction costs of five behavioral health care facilities, that we are required to build pursuant to joint-venture agreements with third-parties, that are under construction and scheduled to be completed at various times in 2020, 2021 and 2022; (iii) combined estimated future payments of $189 million related to our non-contributory, defined benefit pension plan ($169 million consisting of estimated payments through

2079. and other retirement plan liabilities ($20 million), and; (iv) accrued and unpaid estimated claims expense incurred in connection with our commercial health insurers and self-insured employee benefit plans ($87 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 Claims 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 Claims 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 Legislation 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, The Hughes Center, Forest View Hospital and Havenwyck Hospital.

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. We were subsequently notified that the Criminal Frauds section had 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. We have recently been advised that the investigations being conducted by the DOJ’s Criminal Frauds Section and corresponding U.S. Attorneys’ Offices, of UHS and the above referenced facilities, have been closed.

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. From inception through December 31, 2019, the aggregate funds withheld from us in connection with the River Point Behavioral Health payment suspension amounted to approximately $8.6 million. We anticipate a resolution of the payment suspension will be part of the overall settlement agreement(s) to be drafted and finalized. Although the operating results of River Point Behavioral Health did not have a material impact on our consolidated results of operations during 2019, 2018 or 2017, 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 was investigating similar issues prior to the closure of their investigation. UHS denies any fraudulent billings were submitted to government payers.

In July 2019, we reached an agreement in principle with the DOJ’s Civil Division, and on behalf of various states’ attorneys general offices, to resolve the civil aspects of the government’s investigation of our behavioral health care facilities for $127 million subject to requisite approvals and preparation and execution of definitive settlement and related agreements. We are also negotiating a corporate integrity agreement with the Office of Inspector General for the United States Department of Health and Human Services (“OIG”) which we expect will be part of the overall settlement of this matter.

In connection with this agreement in principle, during 2019, we recorded a pre-tax increase of approximately $11 million to the reserve established in connection with the civil aspects of these matters (“DOJ Reserve”), which includes related fees and costs due to or on behalf of third-parties. The aggregate pre-tax DOJ Reserve amounted to $134 million as of December 31, 2019 and $123 million as of December 31, 2018 (including $102 million recorded during 2018).

In late August, 2019, we received the initial draft of the settlement agreement from the DOJ’s Civil Division. Negotiations regarding the terms and conditions of the settlement agreement continue. Based upon the terms and provisions included in the draft settlement agreement, and related subsequent discussions, our 2019 financial statements include an unfavorable provision for income taxes of approximately $6 million resulting from the net estimated federal and state income taxes due on the portion of the pre-tax DOJ Reserve that is estimated to be non-deductible for income tax purposes.

Since the agreement in principle with the DOJ’s Civil Division is subject to certain required approvals and negotiation and execution of definitive settlement agreements, as well as negotiation and execution of a corporate integrity agreement with the OIG, we can provide no assurance that definitive agreements will ultimately be finalized. We therefore can provide no assurance that final amounts paid in settlement or otherwise, or associated costs, or the income tax deductibility of such 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 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. In September, 2019, we reached a settlement in principle of this matter pending

negotiation, finalization and execution of definitive settlement agreements. As of December 31, 2019, our financial statements include an estimated reserve in connection with the potential settlement of this matter, which did not have material impact on our results of operations and financial condition.

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 have defended this case vigorously. This matter is included in the above-mentioned agreement in principle reached with the DOJ’s Civil Division, and on behalf of various states’ attorneys general offices, to resolve the civil aspects of the government’s investigation of our behavioral health care facilities, subject to requisite approvals and preparation and execution of definitive settlement and related agreements.

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. In August, 2019, the court granted our motion to dismiss. Plaintiffs have filed a motion with the court seeking leave to file a second amended complaint. Should the court deny plaintiffs’ motion, we anticipate an appeal of the dismissal of the case. 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. In August, 2019, the court granted our motion to dismiss. Plaintiffs have filed a motion with the court seeking leave to file a second amended complaint. Should the court deny plaintiffs’ motion, we anticipate an appeal of the dismissal of the case. 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.

The George Washington University v. Universal Health Services, Inc., et. al.

In December 2019, The George Washington University (“University”) filed a lawsuit in the Superior Court for the District of Columbia against Universal Health Services, Inc. as well as certain subsidiaries and individuals associated with the ownership and management of The George Washington University Hospital (“GW Hospital”) in Washington, D.C. (case No. 2019 CA 008019 B). The lawsuit claims that UHS failed to provide sufficient financial compensation to the University under the terms of various agreements entered into in 1997 between the University and UHS for the joint venture ownership of GW Hospital. The lawsuit includes claims for breach of contract, breach of fiduciary duty, and unjust enrichment. We deny liability and intend to defend this matter vigorously. At this time, we are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter.

Disproportionate Share Hospital Payment Matter:

In late September, 2015, many hospitals in Pennsylvania, including certain 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”), primarily consisting of managed care payments characterized as DSH payments, for the federal fiscal year (“FFY”) 2011 amounting to approximately $4 million in the aggregate. Since that time, certain of our behavioral health care hospitals in Pennsylvania have received similar requests for repayment for alleged DSH overpayments for FFYs 2012 through 2015. 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 and for FFY 2015, the claimed overpayments were approximately $5 million. We filed administrative appeals for all of our facilities contesting the recoupment efforts for FFYs 2011 through 2015 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. We understand that starting in FFY 2016, the first full fiscal year after the January 1, 2015 effective date of Medicaid expansion in Pennsylvania, the Department will no longer characterize managed care payments received by the hospitals as DSH payments. 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.

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, 2019, 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). The advisory agreement was renewed by the Trust for 2020 at the same rate as the prior three years, providing for an advisory computation 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 $4.0 million during 2019, $3.8 million during 2018 and $3.6 million during 2017.

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.

Our pre-tax share of income from the Trust was $1.1 million and $1.4 million during 2019 and 2018, respectively, which are included in other income, net, on the accompanying consolidated statements of income for each year. Our pre-tax share of income from the Trust was $2.6 million during 2017, which is included in net revenues in the accompanying consolidated statements of income. 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 gain recorded in connection with hurricane-related insurance proceeds. We received dividends from the Trust amounting to $2.1 million during each of 2019, 2018 and 2017.

The carrying value of our investment in the Trust was $6.4 million and $7.5 million at December 31, 2019 and 2018, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $92.4 million at December 31, 2019 and $48.3 million at December 31, 2018, 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 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 $16.4 million during 2019 and $16.0 million during each of 2018 and 2017. 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.

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 several medical office buildings (“MOBs”) 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.

During the third quarter of 2019, the Trust commenced construction on a new 75,000 rentable square feet MOB that will be located on the campus of Texoma Medical Center, a hospital that is owned and operated by one of our subsidiaries. In connection with this MOB, a master flex lease has been executed between a wholly-owned subsidiary of ours and a Trust limited partnership that owns the MOB. Pursuant to the terms of this master flex lease, our subsidiary will master lease approximately 50% of the rentable square feet of the MOB, which could be reduced during the term if certain conditions are met, for a ten-year term at an initial minimum annual rent of $644,000.

During the third quarter of 2019, a joint-venture agreement between us and a non-related third-party was finalized in connection with the development of a newly constructed behavioral health care facility located in Clive, Iowa. Pursuant to the terms of the agreement, we hold a majority ownership interest in the venture and will act as manager of the facility when completed and opened. This joint-venture also entered into an agreement with the Trust whereby a wholly-owned subsidiary of the Trust will construct the 108-bed behavioral health care hospital and, upon completion and issuance of the certificate of occupancy, the joint venture will lease the facility from the Trust pursuant to a 20-year, triple net lease with five, 10-year renewal options. Construction of the approximately 80,000 square foot hospital, for which a wholly-owned subsidiary of ours will act as project manager for an aggregate fee of approximately $750,000, is expected to be completed in late 2020. The approximate cost of the project is estimated at $37.5 million and the initial annual rent is estimated at approximately $2.7 million.

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, in premium payments during each of 2019 and 2018 and $1.2 million during 2017.

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 $70 million as of December 31, 2019 and $56 million as of December 31, 2018. The $14 million increase in market value at December 31, 2019, as compared to December 31, 2018, is the result of $10 million of additional vested shares and $4 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 increase in market value of these shares during 2019 and 2018 was recorded as an unrealized gain and included in “Other (income) expense, net” on our condensed consolidated statements of income. 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.

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, 2019, 2018 and 2017 (in thousands):

	For the year ended December 31, 2019
	Acute Care							Behavioral Health							Other				Total
Medicare	$	1,336,200			22	%		$	553,045			11	%						$	1,889,245			17	%
Managed Medicare		827,216			13	%			220,543			4	%							1,047,759			9	%
Medicaid		519,508			8	%			688,141			13	%							1,207,649			11	%
Managed Medicaid		560,029			9	%			1,118,612			21	%							1,678,641			15	%
Managed Care (HMO and PPOs)		2,271,002			37	%			1,363,815			26	%							3,634,817			32	%
UK Revenue		0			0	%			553,831			11	%							553,831			5	%
Other patient revenue and adjustments, net		191,422			3	%			505,144			10	%							696,566			6	%
Other non-patient revenue		459,183			7	%			206,932			4	%			3,636				669,751			6	%
Total Net Revenue	$	6,164,560			100	%		$	5,210,063			100	%		$	3,636				11,378,259			100	%
	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	%

11. PENSION PLAN

We maintain contributory and non-contributory retirement plans for eligible employees. Our contributions to the contributory plan amounted to $56.3 million, $56.6 million and $50.1 million in 2019, 2018 and 2017, 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, 2019 and 2018:

		2019				2018
		(000s)
Change in plan assets:
Fair value of plan assets at beginning of year		$	104,591			$	118,667
Actual return (loss) on plan assets			22,331				(7,522	)
Benefits paid			(6,168)				(6,031	)
Administrative expenses			(467	)			(523	)
Fair value of plan assets at end of year		$	120,287			$	104,591
Change in benefit obligation:
Benefit obligation at beginning of year		$	108,428			$	116,056
Service cost		$	725				689
Interest cost		$	4,237				4,063
Benefits paid		$	(6,168)				(6,031	)
Actuarial (gain) loss		$	10,334				(6,349	)
Benefit obligation at end of year		$	117,556			$	108,428
Amounts recognized in the Consolidated Balance Sheet:
Other non-current assets			2,731				—
Other non-current liabilities			—				3,836
Total amounts recognized at end of year		$	2,731			$	3,836

		2019				2018				2017
		(000s)
Components of net periodic cost (benefit)
Service cost		$	725			$	689			$	721
Interest cost			4,237				4,063				4,465
Expected return on plan assets			(4,558)				(5,197	)			(5,862	)
Amortization of actuarial loss			1,533				—				863
Net periodic cost		$	1,937			$	(445	)		$	187

		2019		2018
Measurement Dates
Benefit obligations		12/31/2019		12/31/2018
Fair value of plan assets		12/31/2019		12/31/2018

		2019				2018
Weighted average assumptions as of December 31
Discount rate			2.94	%			4.03	%
Rate of compensation increase			4.00	%			4.00	%

		2019				2018				2017
Weighted-average assumptions for net periodic benefit cost calculations
Discount rate			4.03	%			3.60	%			4.14	%
Expected long-term rate of return on plan assets			4.50	%			4.50	%			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 $117.5 million and $108.3 million as of December 31, 2019 and 2018, respectively. As of December 31, 2019, the fair value of plan assets exceeded the accumulated benefit obligation by $2.7 million. As of December 31, 2018, the accumulated benefit obligation exceeded the a fair value of plan assets by $3.7 million.

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

The market values of our pension plan assets at December 31, 2019 and December 31, 2018, reported using net asset value as a practical expedient, by asset category are as follows:

		2019				2018
Equities:
U.S. Large Cap		$	9,867			$	7,711
U.S. Mid Cap		$	3,054				2,309
U.S. Small Cap		$	3,160				2,094
International Developed		$	7,317				5,710
Emerging Markets		$	4,957				4,137
Fixed income:
Core Fixed Income		$	25,390				24,617
Long Duration Fixed Income		$	63,515				55,318
Real Estate:
REIT Fund		$	2,372				2,037
Cash/Currency:
Cash Equivalents		$	655				658
Total market value		$	120,287			$	104,591

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 2020 through 2029 for our defined pension plan. There will be benefit payments under this plan beyond 2029.

Estimated Future Benefit Payments (000s)
2020		$	6,752
2021			6,868
2022			6,926
2023			6,945
2024			6,939
2025-2029			33,889
Total		$	68,319

		2019				2018
Plan Assets
Asset Category
Equity securities			24	%			21	%
Fixed income securities			74	%			76	%
Other			2	%			3	%
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 12/31/2019				Permitted Range
Total Equity			24	%		10-30%
Total Fixed Income			74	%		70-90%
Other			2	%		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, 2019. 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.

2019		Acute Care Hospital Services				Behavioral Health Services (a.)				Other				Total Consolidated
		(Dollar amounts in thousands)
Gross inpatient revenues		$	28,430,922			$	10,100,903			$	—			$	38,531,825
Gross outpatient revenues		$	17,666,629			$	1,066,704			$	—			$	18,733,333
Total net revenues		$	6,164,560			$	5,210,063			$	3,636			$	11,378,259
Income (loss) before allocation of corporate overhead and income taxes		$	713,410			$	900,965			$	(548,038	)		$	1,066,337
Allocation of corporate overhead		$	(230,166	)		$	(166,571	)		$	396,737			$	0
Income (loss) after allocation of corporate overhead and before income taxes		$	483,244			$	734,394			$	(151,301	)		$	1,066,337
Total assets		$	4,405,643			$	6,910,790			$	351,817			$	11,668,250

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

	(a.)	Includes net revenues generated from our behavioral health care facilities located in the U.K. amounting to approximately $554 million in 2019, $505 million in 2018 and $429 million in 2017. Total assets at our U.K. behavioral health care facilities were approximately $1.270 billion as of December 31, 2019, $1.224 billion as of December 31, 2018 and $1.098 billion as of December 31, 2017. In addition, included in our 2019 Behavioral Health Services operating segment Income (loss) before allocation of corporate overhead and income taxes is a pre-tax $98 million provision for asset impairment to reduce the carrying value of a tradename intangible asset and real property assets. 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, 2019 and 2018:

2019		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total
		(amounts in thousands, except per share amounts)
Net revenues		$	2,804,391			$	2,855,168			$	2,822,453			$	2,896,247			$	11,378,259
Net income		$	237,398			$	241,265			$	100,870			$	248,010			$	827,543
Less: Net income attributable to noncontrolling interests		$	3,230			$	2,945			$	3,680			$	2,834			$	12,689
Net income attributable to UHS		$	234,168			$	238,320			$	97,190			$	245,176			$	814,854
Earnings per share attributable to UHS-Basic:
Total basic earnings per share		$	2.57			$	2.67			$	1.10			$	2.81			$	9.16
Earnings per share attributable to UHS-Diluted:
Total diluted earnings per share		$	2.57			$	2.66			$	1.10			$	2.79			$	9.13

The 2019 quarterly financial data presented above includes the following:

First Quarter:

	•	a favorable after-tax impact of $10.9 million, or $.12 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 $11.0 million pre-tax impact ($8.4 million, or $.09 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 $509,000, or $.01 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09.

Third Quarter:

	•	an unfavorable $6.2 million after-tax impact, or $.07 per diluted share recorded to provide income taxes on the portion of the DOJ reserve that is deemed non-deductible;

	•	an unfavorable $97.6 million pre-tax impact ($74.6 million, or $.84 per diluted share, net of taxes) recorded in connection with provision for asset impairment.

	•	a favorable after-tax impact of $1.7 million, or $.02 per diluted share, resulting from our January 1, 2017 adoption of ASU 2016-09.

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 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.

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.

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, 2019		$	79,264			$	(3,987	)		$	-			$	-			$	75,277
Year ended December 31, 2018		$	70,227			$	9,037			$	-			$	-			$	79,264
Year ended December 31, 2017		$	56,333			$	13,894			$	-			$	-			$	70,227

		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

(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.