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Cover and table of contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)


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

For the quarterly period ended September 30, 2021


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

For the transition period from to

Commission file number 1-10765

UNIVERSAL HEALTH SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware		23-2077891
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

UNIVERSAL CORPORATE CENTER

367 SOUTH GULPH ROAD

KING OF PRUSSIA, Pennsylvania 19406

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (610) 768-3300

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class B Common Stock, $0.01 par value	UHS	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer		☐

Non-accelerated filer	☐	Smaller reporting company		☐
			Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common shares outstanding, as of October 31, 2021:

Class A		6,577,100
Class B		73,120,179
Class C		661,688
Class D		17,956

UNIVERSAL HEALTH SERVICES, INC.

INDEX

		PAGE NO.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Condensed Consolidated Statements of Income – Three and Nine Months Ended September 30, 2021 and 2020		3

Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2021 and 2020		4

Condensed Consolidated Balance Sheets – September 30, 2021 and December 31, 2020		5

Condensed Consolidated Statements of Changes in Equity – Three and Nine Months Ended September 30, 2021 and 2020		6

Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2021 and 2020		8

Notes to Condensed Consolidated Financial Statements		9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3. Quantitative and Qualitative Disclosures About Market Risk		60

Item 4. Controls and Procedures		60

PART II. Other Information

Item 1. Legal Proceedings		61

Item 1A. Risk Factors		61

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		61

Item 6. Exhibits		62

Signatures		63

This Quarterly Report on Form 10-Q is for the quarter ended September 30, 2021. This Report modifies and supersedes documents filed prior to this Report. Information that we file with the Securities and Exchange Commission (the “SEC”) in the future will automatically update and supersede information contained in this Report.

In this Quarterly Report, “we,” “us,” “our” “UHS” and the “Company” refer to Universal Health Services, Inc. and its subsidiaries. UHS is a registered trademark of UHS of Delaware, Inc., the management company for, and a wholly-owned subsidiary of Universal Health Services, Inc. Universal Health Services, Inc. is a holding company and operates through its subsidiaries including its management company, UHS of Delaware, Inc. All healthcare and management operations are conducted by subsidiaries of Universal Health Services, Inc. To the extent any reference to “UHS” or “UHS facilities” in this report including letters, narratives or other forms contained herein relates to our healthcare or management operations it is referring to Universal Health Services, Inc.’s subsidiaries including UHS of Delaware, Inc. Further, the terms “we,” “us,” “our” or the “Company” in such context similarly refer to the operations of Universal Health Services Inc.’s subsidiaries including UHS of Delaware, Inc. Any reference to employees or employment contained herein refers to employment with or employees of the subsidiaries of Universal Health Services, Inc. including UHS of Delaware, Inc.

PART I. FINANCIAL INFORMATION

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share amounts)

(unaudited)

	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021			2020
Net revenues	$	3,155,999	$	2,912,541	$	9,366,866		$	8,471,962
Operating charges:
Salaries, wages and benefits		1,556,448		1,406,348		4,542,156			4,147,027
Other operating expenses		754,072		666,665		2,233,590			1,982,202
Supplies expense		367,834		335,409		1,052,977			936,808
Depreciation and amortization		134,462		125,961		399,850			376,563
Lease and rental expense		28,375		28,488		88,848			84,967
		2,841,191		2,562,871		8,317,421			7,527,567
Income from operations		314,808		349,670		1,049,445			944,395
Interest expense, net		21,199		24,575		64,455			86,399
Other (income) expense, net		6,719		1,831		(1,575	)		8,291
Income before income taxes		286,890		323,264		986,565			849,705
Provision for income taxes		67,515		79,172		232,844			204,649
Net income		219,375		244,092		753,721			645,056
Less: Net income attributable to noncontrolling interests		1,024		2,813		1,255			9,811
Net income attributable to UHS	$	218,351	$	241,279	$	752,466		$	635,245

Basic earnings per share attributable to UHS	$	2.65	$	2.84	$	8.96		$	7.44
Diluted earnings per share attributable to UHS	$	2.60	$	2.82	$	8.83		$	7.40

Weighted average number of common shares - basic		82,262		84,672		83,756			85,172
Add: Other share equivalents		1,411		575		1,275			415
Weighted average number of common shares and equivalents - diluted		83,673		85,247		85,031			85,587

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(amounts in thousands, unaudited)

	Three months ended September 30,					Nine months ended September 30,
	2021			2020		2021			2020
Net income	$	219,375		$	244,092	$	753,721		$	645,056
Other comprehensive income (loss):
Foreign currency translation adjustment		(9,121	)		14,245		(23,184	)		(18,280	)
Other comprehensive income (loss) before tax		(9,121	)		14,245		(23,184	)		(18,280	)
Income tax expense (benefit) related to items of other comprehensive income (loss)		109			302		(1,958	)		(908	)
Total other comprehensive income (loss), net of tax		(9,230	)		13,943		(21,226	)		(17,372	)
Comprehensive income		210,145			258,035		732,495			627,684
Less: Comprehensive income attributable to noncontrolling interests		1,024			2,813		1,255			9,811
Comprehensive income attributable to UHS	$	209,121		$	255,222	$	731,240		$	617,873

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, unaudited)

	September 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	189,743		$	1,224,490
Accounts receivable, net		1,764,214			1,728,928
Supplies		202,824			190,417
Other current assets		186,518			138,034
Total current assets		2,343,299			3,281,869

Property and equipment		10,515,812			9,885,888
Less: accumulated depreciation		(4,828,108	)		(4,512,764	)
		5,687,704			5,373,124
Other assets:
Goodwill		3,888,999			3,882,715
Deferred income taxes		48,591			22,689
Right of use assets-operating leases		309,387			336,513
Deferred charges		6,721			4,985
Other		562,152			574,984
Total Assets	$	12,846,853		$	13,476,879

Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	44,961		$	331,998
Accounts payable and other liabilities		1,845,465			1,668,671
Medicare accelerated payments and deferred CARES Act and other grants		1,375			376,151
Operating lease liabilities		60,853			59,796
Federal and state taxes		16,163			44,423
Total current liabilities		1,968,817			2,481,039

Other noncurrent liabilities		545,282			458,549
Operating lease liabilities noncurrent		250,754			278,303
Medicare accelerated payments noncurrent		0			322,617
Long-term debt		3,709,316			3,524,253
Deferred income taxes		0			5,582
Redeemable noncontrolling interests		4,886			4,569

Equity:
UHS common stockholders’ equity		6,274,021			6,317,146
Noncontrolling interest		93,777			84,821
Total equity		6,367,798			6,401,967
Total Liabilities and Stockholders’ Equity	$	12,846,853		$	13,476,879

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three and Nine Months ended September 30, 2021

(amounts in thousands, unaudited)

																			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, July 1, 2021	$	4,693		$	66	$	760		$	7	$	0	$	(513,377	)	$	6,956,520		$	36,124		$	6,480,100		$	91,980		$	6,572,080
Common Stock
Issued/(converted)		—			—		—			—		—		—			3,665			—			3,665			—			3,665
Repurchased		—			—		(28	)		—		—		—			(420,431	)		—			(420,459	)		—			(420,459	)
Restricted share-based compensation expense		—			—		—			—		—		—			3,481			—			3,481			—			3,481
Dividends paid and accrued		—			—		—			—		—		(16,469	)		—			—			(16,469	)		—			(16,469	)
Stock option expense		—			—		—			—		—		—			14,582			—			14,582			—			14,582
Distributions to noncontrolling interests		—			—		—			—		—		—			—			—			—			(127	)		(127	)
Purchase of ownership interests by minority members		—			—		—			—		—		—			—			—			—			1,093			1,093
Comprehensive income:
Net income to UHS / noncontrolling interests		193			—		—			—		—		—			218,351			—			218,351			831			219,182
Foreign currency translation adjustments, net of income tax		—			—		—			—		—		—			—			(9,230	)		(9,230	)		—			(9,230	)
Subtotal - comprehensive income		193			—		—			—		—		—			218,351			(9,230	)		209,121			831			209,952
Balance, September 30, 2021	$	4,886		$	66	$	732		$	7	$	0	$	(529,846	)	$	6,776,168		$	26,894		$	6,274,021		$	93,777		$	6,367,798

																			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, 2021	$	4,569		$	66	$	778		$	7	$	0	$	(479,503	)	$	6,747,678		$	48,120		$	6,317,146		$	84,821		$	6,401,967
Common Stock
Issued/(converted)		—			—		5			—		—		—			10,104			—			10,109			—			10,109
Repurchased		—			—		(51	)		—		—		—			(788,488	)		—			(788,539	)		—			(788,539	)
Restricted share-based compensation expense		—			—		—			—		—		—			9,583			—			9,583			—			9,583
Dividends paid and accrued		—			—		—			—		—		(50,343	)		—			—			(50,343	)		—			(50,343	)
Stock option expense		—			—		—			—		—		—			44,825			—			44,825			—			44,825
Distributions to noncontrolling interests		(203	)		—		—			—		—		—			—			—			—			(5,541	)		(5,541	)
Purchase of ownership interests by minority members		—			—		—			—		—		—			—			—			—			13,762			13,762
Comprehensive income:
Net income to UHS / noncontrolling interests		520			—		—			—		—		—			752,466			—			752,466			735			753,201
Foreign currency translation adjustments, net of income tax		—			—		—			—		—		—			—			(21,226	)		(21,226	)		—			(21,226	)
Subtotal - comprehensive income		520			—		—			—		—		—			752,466			(21,226	)		731,240			735			731,975
Balance, September 30, 2021	$	4,886		$	66	$	732		$	7	$	0	$	(529,846	)	$	6,776,168		$	26,894		$	6,274,021		$	93,777		$	6,367,798

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three and Nine Months ended September 30, 2020

(amounts in thousands, unaudited)

																			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, July 1, 2020	$	4,287		$	66	$	777		$	7	$	0	$	(479,503	)	$	6,166,722		$	578		$	5,688,647		$	72,925		$	5,761,572
Common Stock
Issued/(converted)		—			—		—			—		—		—			3,766			—			3,766			—			3,766
Repurchased		—			—		—			—		—		—			(44	)		—			(44	)		—			(44	)
Restricted share-based compensation expense		—			—		—			—		—		—			2,209			—			2,209			—			2,209
Dividends paid		—			—		—			—		—		—			—			—			—			—			—
Stock option expense		—			—		—			—		—		—			12,988			—			12,988			—			12,988
Distributions to noncontrolling interests		—			—		—			—		—		—			—			—			—			(6,290	)		(6,290	)
Purchase of noncontrolling interest		—			—		—			—		—		—			—			—			—			(547	)		(547	)
Other		—			—		—			—		—		—			—			—			—			3,300			3,300
Comprehensive income:
Net income to UHS / noncontrolling interests		(110	)		—		—			—		—		—			241,279			—			241,279			2,922			244,201
Foreign currency translation adjustments		—			—		—			—		—		—			—			13,943			13,943			—			13,943
Subtotal - comprehensive income		(110	)		—		—			—		—		—			241,279			13,943			255,222			2,922			258,144
Balance, September 30, 2020	$	4,177		$	66	$	777		$	7	$	0	$	(479,503	)	$	6,426,920		$	14,521		$	5,962,788		$	72,310		$	6,035,098

																			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, 2020	$	4,333		$	66	$	794		$	7	$	0	$	(462,159	)	$	5,933,504		$	31,893		$	5,504,105		$	74,766		$	5,578,871
Common Stock
Issued/(converted)		—			—		3			—		—		—			9,726			—			9,729			—			9,729
Repurchased		—			—		(20	)		—		—		—			(200,078	)		—			(200,098	)		—			(200,098	)
Restricted share-based compensation expense		—			—		—			—		—		—			6,958			—			6,958			—			6,958
Dividends paid		—			—		—			—		—		(17,344	)		—			—			(17,344	)		—			(17,344	)
Stock option expense		—			—		—			—		—		—			41,565			—			41,565			—			41,565
Distributions to noncontrolling interests		(500	)		—		—			—		—		—			—			—			—			(14,675	)		(14,675	)
Purchase of noncontrolling interest		—			—		—			—		—		—			—			—			—			(547	)		(547	)
Other		—			—		—			—		—		—			—			—			—			3,300			3,300
Comprehensive income:
Net income to UHS / noncontrolling interests		344			—		—			—		—		—			635,245			—			635,245			9,466			644,711
Foreign currency translation adjustments		—			—		—			—		—		—			—			(17,372	)		(17,372	)		—			(17,372	)
Subtotal - comprehensive income		344			—		—			—		—		—			635,245			(17,372	)		617,873			9,466			627,339
Balance, September 30, 2020	$	4,177		$	66	$	777		$	7	$	0	$	(479,503	)	$	6,426,920		$	14,521		$	5,962,788		$	72,310		$	6,035,098

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands, unaudited)

	Nine months ended September 30,
	2021			2020
Cash Flows from Operating Activities:
Net income	$	753,721		$	645,056
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization		399,850			376,563
(Gain) loss on sale of assets and businesses		(4,803	)		2,124
Costs related to extinguishment of debt		16,831			1,365
Stock-based compensation expense		55,548			49,928
Provision for asset impairment		7,195			-
Changes in assets & liabilities, net of effects from acquisitions and dispositions:
Accounts receivable		(29,079	)		45,435
Accrued interest		3,714			(10,526	)
Accrued and deferred income taxes		(52,727	)		(2,095	)
Other working capital accounts		52,616			85,944
Medicare accelerated payments and deferred CARES Act and other grants		(697,393	)		878,480
Other assets and deferred charges		(34,038	)		1,271
Other		9,607			115,431
Accrued insurance expense, net of commercial premiums paid		140,702			113,571
Payments made in settlement of self-insurance claims		(60,069	)		(84,390	)
Net cash provided by operating activities		561,675			2,218,157

Cash Flows from Investing Activities:
Property and equipment additions		(666,025	)		(546,656	)
Proceeds received from sales of assets and businesses		21,143			7,851
Acquisition of businesses and property		(39,391	)		(52,009	)
Inflows from foreign exchange contracts that hedge our net U.K. investment		4,261			22,453
Decrease in capital reserves of commercial insurance subsidiary		100			-
Costs incurred for purchase of information technology applications, net of refunds		20,202			(5,345	)
Investment in, and advances to, joint ventures and other		-			(997	)
Net cash used in investing activities		(659,710	)		(574,703	)

Cash Flows from Financing Activities:
Repayments of long-term debt		(3,026,888	)		(1,173,590	)
Additional borrowings		2,912,374			803,197
Financing costs		(17,967	)		(8,256	)
Repurchase of common shares		(770,665	)		(200,098	)
Dividends paid		(50,284	)		(17,344	)
Issuance of common stock		10,108			9,288
Profit distributions to noncontrolling interests		(5,744	)		(15,175	)
Purchase of ownership interests by (from) minority members		13,046			(548	)
Net cash used in financing activities		(936,020	)		(602,526	)

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(682	)		(706	)

(Decrease) increase in cash, cash equivalents and restricted cash		(1,034,737	)		1,040,222
Cash, cash equivalents and restricted cash, beginning of period		1,279,154			105,667
Cash, cash equivalents and restricted cash, end of period	$	244,417		$	1,145,889

Supplemental Disclosures of Cash Flow Information:
Interest paid	$	58,719		$	93,579
Income taxes paid, net of refunds	$	286,376		$	208,460
Noncash purchases of property and equipment	$	73,428		$	76,402

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

UNIVERSAL HEALTH SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) General

This Quarterly Report on Form 10-Q is for the quarterly period ended September 30, 2021. In this Quarterly Report, “we,” “us,” “our” “UHS” and the “Company” refer to Universal Health Services, Inc. and its subsidiaries.

The condensed consolidated interim financial statements include the accounts of our majority-owned subsidiaries and partnerships and limited liability companies controlled by us, or our subsidiaries, as managing general partner or managing member. The condensed consolidated interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect all adjustments (consisting only of normal recurring adjustments) which, in our opinion, are necessary to fairly state results for the interim periods. Certain information and footnote disclosures normally included in audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although we believe that the accompanying disclosures are adequate to make the information presented not misleading. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements, significant accounting policies and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

The impact of the COVID-19 pandemic, which began during the second half of March, 2020, has had a material effect on our operations and financial results since that time. The COVID-19 vaccination process commenced during the first quarter of 2021. Since that time, through the second quarter of 2021, we had generally experienced a decline in COVID-19 patients as well as a corresponding recovery in non-COVID-19 patient activity. However, during the third quarter of 2021, our facilities generally experienced an increase in COVID-19 patients resulting primarily from the Delta variant. Since the future volumes and severity of COVID-19 patients remain highly uncertain and subject to change, including potential increases in future COVID-19 patient volumes caused by new variants of the virus, as well as related pressures on staffing and wage rates, we are not able to fully quantify the impact that these factors will have on our future financial results. However, developments related to the COVID-19 pandemic could materially affect our financial performance during the remainder of 2021 and into 2022.

We believe that the adverse impact that COVID-19 will have on our future operations and financial results will depend upon many factors, most of which are beyond our capability to control or predict. Our future operations and financial results may be materially impacted by developments related to COVID-19 including, but not limited to, the potential impact on future COVID-19 patient volumes resulting from new variants of the virus, the length of time and severity of the spread of the pandemic; the volume of cancelled or rescheduled elective procedures and the volume of COVID-19 patients treated at our hospitals and other healthcare facilities; measures we are taking to respond to the COVID-19 pandemic; the impact of government and administrative regulation and stimulus on the hospital industry and potential retrospective adjustment in future periods of CARES Act and other grant income revenues recorded as revenues in prior periods; the requirements that federal healthcare program participation is conditional upon facility employees being vaccinated; declining patient volumes and unfavorable changes in payer mix caused by deteriorating macroeconomic conditions (including increases in uninsured and underinsured patients as the result of business closings and layoffs); potential disruptions to our clinical staffing and shortages and disruptions related to supplies required for our employees and patients; and potential increases to expenses related to staffing, supply chain or other expenditures; the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, as well as risks associated with disruptions in the financial markets and the business of financial institutions as the result of the COVID-19 pandemic which could impact us from a financing perspective; and changes in general economic conditions nationally and regionally in our markets resulting from the COVID-19 pandemic. Because of these and other uncertainties, we cannot estimate the length or severity of the impact of COVID-19 on our business. Decreases in cash flows and results of operations may have an impact on the inputs and assumptions used in significant accounting estimates, including estimated implicit price concessions related to uninsured patient accounts, professional and general liability reserves, and potential impairments of goodwill and long-lived assets.

During 2021, we received approximately $189 million of additional funds from the federal government in connection with the CARES Act, substantially all of which was received during the first quarter of 2021. During the second quarter of 2021, we returned the $189 million to the appropriate government agencies utilizing a portion of our cash and cash equivalents held on deposit. Therefore, our results of operations for the three and nine-month periods ended September 30, 2021 include no impact from the receipt of those funds.

Also, in March of 2021, we made an early repayment of $695 million of funds received during 2020 pursuant to the Medicare Accelerated and Advance Payment Program. These funds were returned to the government utilizing a portion of our cash and cash equivalents held on deposit.

(2) Relationship with Universal Health Realty Income Trust and Related Party Transactions

Relationship with Universal Health Realty Income Trust:

At September 30, 2021, 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. The advisory agreement was renewed by the Trust for 2021 at the same rate as the prior three years, providing for an advisory fee 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 $1.1 and $1.0 million during the three-month periods ended September 30, 2021 and 2020, respectively, and approximately $3.3 million and $3.1 million during the nine-month periods ended September 30, 2021 and 2020, respectively.

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, which is included in other income, net, on the accompanying consolidated statements of income for each period was approximately $276,000 and $300,000 during the three-month periods ended September 30, 2021 and 2020, respectively, and approximately $977,000 and $800,000 during the nine-month periods ended September 30, 2021 and 2020, respectively. Included in our share of the Trust’s income for the three and nine-month periods ended September 30, 2021 was a gain realized by the Trust in connection with a divestiture of property that was completed during the second quarter of 2021. We received dividends from the Trust amounting to $552,000 and $543,000 during the three-month periods ended September 30, 2021 and 2020, respectively, and $1.7 million and $1.6 million during the nine-month periods ended September 30, 2021 and 2020, respectively. The carrying value of our investment in the Trust was approximately $4.7 million and $5.4 million at September 30, 2021 and December 31, 2020, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $43.5 million at September 30, 2021 and $50.6 million at December 31, 2020, based on the closing price of the Trust’s stock on the respective dates.

The Trust commenced operations in 1986 by purchasing certain 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 provides for additional or bonus rents 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 wholly-owned hospital facilities with the Trust was approximately $4 million during each of the three months ended September 30, 2021 and 2020 and approximately $13 million and $12 million during the nine-month periods ended September 30, 2021 and 2020, respectively. Pursuant to the terms of the three wholly-owned hospital leases with the Trust, we have the option to renew the leases at the lease terms described above and below 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 their appraised fair market value upon any of the following: (i) at the end of the lease terms or any renewal terms; (ii) upon one month’s notice should a change of control of the Trust occur, or; (iii) within the time period as specified in the lease in the event that we provide notice to the Trust of our intent to offer a substitution property/properties in exchange for one (or more) of the three hospital properties leased from the Trust should we be unable to reach an agreement with the Trust on the properties to be substituted. 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 wholly-owned 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(c)

(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). Since our lease renewal option for Wellington Regional Medical Center is fair market value (effective January 1, 2022), the lease rate valuation process is currently in progress and expected to be completed during the fourth quarter of 2021. Subject to completion of a lease agreement at acceptable rates and terms, we intend to renew the lease on this facility upon the December 31, 2021 scheduled expiration of the current lease term.

(c)

We have two 5-year renewal options at fair market value lease rates (2022 through 2031). As previously disclosed, a wholly-owned subsidiary of ours has notified the Trust that it intends to terminate the existing lease on Southwest Healthcare System, Inland Valley Campus, upon the scheduled expiration of the current lease term on December 31, 2021. As permitted pursuant to the terms of the lease, we have the right to purchase the leased property at its appraised fair market value at the end of the existing lease term. However, we have agreed to exchange, and lease back, substitution properties with an aggregate fair market value substantially equal to that of Southwest Healthcare System, Inland Valley Campus, in return for the real estate assets of the Inland Valley Campus. The substitution properties consist of one acute care hospital (including a behavioral health pavilion) and a newly constructed behavioral health hospital. The independent Trustees (of the Board of Trustees) of the Trust, as well as our Board of Directors, have approved these transactions subject to satisfactory completion of definitive agreements, which are in progress. The effective date of the transactions is expected to coincide with the scheduled lease maturity date of December 31, 2021.

In addition, we are the managing majority member in a joint venture that operates a newly constructed, and recently opened, 100-bed behavioral health care facility located in Clive, Iowa. The real property of this facility is leased from the Trust pursuant to the terms of a triple net lease with an initial term of 20 years with five, 10-year renewals.

Certain of our subsidiaries are tenants in several medical office buildings and two free-standing emergency departments (“FEDs”) owned by the Trust or by limited liability companies in which the Trust holds 95% to 100% of the ownership interest.

Other Related Party Transactions:

In December, 2010, our Board of Directors approved the Company’s entering into supplemental life insurance plans and agreements on the lives of Alan B. Miller (our Executive Chairman of the Board) 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 Executive Chairman of the Board, 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 will pay/we paid approximately $1.0 million and $1.1 million, net, in premium payments during the 2021 and 2020 years, respectively.

In August, 2015, Marc D. Miller, our President and Chief Executive Officer 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 vested ratably over a seven-year period (2014 through 2020), contingent upon our continued participation and minority ownership interest in the GPO. During the third quarter of 2020, we entered into an agreement with Premier pursuant to the terms of which, among other things, our ownership interest in Premier was converted into shares of Class A Common Stock of Premier. 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 was approximately $87 million and $78 million as of September 30, 2021 and December 31, 2020, respectively. Any change in market value of our Premier shares since December 31, 2020 was recorded as an unrealized gain/loss and included in “Other (income) expense, net” in our condensed consolidated statements of income for the three and nine-month periods ended September 30, 2021. Additionally, Premier declared and paid quarterly cash dividends during each of the three months ended September 30, 2021 and 2020. Our share of the cash dividends amounted to approximately $400,000 for each of the three-month periods ended September 30, 2021 and 2020 and approximately $1.3 million and $400,000 during the nine-month periods ended September 30, 2021 and 2020, respectively. The dividends are included in “Other (income) expense, net” in our condensed consolidated statements of income.

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 Executive Chairman and acts as trustee of certain trusts for the benefit of our Executive Chairman and his family.

(3) Other Noncurrent liabilities and Redeemable/Noncontrolling Interests

Other noncurrent liabilities include the long-term portion of our professional and general liability, workers’ compensation reserves, pension and deferred compensation liabilities, payment deferral of the employer’s share of Social Security taxes as provided for by the

Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and liabilities incurred in connection with split-dollar life insurance agreements on the lives of our chief executive officer and his wife.

As of September 30, 2021, outside owners held noncontrolling, minority ownership interests of: (i) 20% in an acute care facility located in Washington, D.C.; (ii) approximately 9% in an acute care facility located in Texas; (iii) 20%, 30%, 20%, 25% and 48% in five behavioral health care facilities located in Pennsylvania, Ohio, Washington, Missouri and Iowa, respectively, and; (iv) approximately 5% in an acute care facility located in Nevada. The noncontrolling interest and redeemable noncontrolling interest balances of $94 million and $5 million, respectively, as of September 30, 2021, 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 Condensed 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.

(4) Treasury

Credit Facilities and Outstanding Debt Securities:

On August 24, 2021, we entered into a seventh amendment to our credit agreement dated as of November 15, 2010, as amended and restated as of September 21, 2012, August 7, 2014 and October 23, 2018, among UHS, as borrower, the several banks and other financial institutions from time to time parties thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent, (the “Credit Agreement”). In September, 2021, we entered into an eight amendment to our Credit Agreement which modified the definition of “Adjusted LIBO Rate”.

The seventh amendment to the Credit Agreement, among other things, provided for the following:

	o	a $1.2 billion aggregate amount revolving credit facility, which is scheduled to mature on August 24, 2026, representing an increase of $200 million over the $1.0 billion previous commitment. As of September 30, 2021, this facility had no borrowings outstanding and $1.196 billion of available borrowing capacity, net of $4 million of outstanding letters of credit;

	o	a $1.7 billion tranche A term loan facility, which is scheduled to mature on August 24, 2026, resulting in a reduction of $150 million from the $1.85 billion of borrowings outstanding under the previous tranche A term loan facility, and;

	o	repayment of approximately $488 million of outstanding borrowings and termination of the previous tranche B term loan facility.

Pursuant to the terms of the seventh amendment, the tranche A term loan, which had $1.70 billion of borrowings outstanding as of September 30, 2021, provides for installment payments of $10.625 million per quarter beginning on December 31, 2021 through September 30, 2023 and $21.25 million per quarter beginning on December 31, 2023 through June 30, 2026. The unpaid principal balance at June 30, 2026 is due on the maturity date.

Borrowings under the 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 0.25% to 0.625% for revolving credit and term loan A borrowings or (2) the one, 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 1.25% to 1.625% for revolving credit and term loan A borrowings. As of September 30, 2021, the applicable margins were 0.25% for ABR-based loans and 1.25% 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 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 Credit Agreement includes a material adverse change clause that must be represented at each draw. The Credit Agreement also 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 September 30, 2021 and December 31, 2020.

On August 24, 2021, we completed the following via private offerings 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:

	o	Issued $700 million of aggregate principal amount of 1.65% senior secured notes due on September 1, 2026, and;

	o	Issued $500 million of aggregate principal amount of 2.65% senior secured notes due on January 15, 2032.

In April, 2021, our accounts receivable securitization program (“Securitization”) was amended (the eighth amendment) to: (i) reduce the aggregate borrowing commitments to $20 million (from $450 million previously); (ii) slightly reduce the borrowing rates and commitment fee, and; (iii) extend the maturity date to April 25, 2022 (from April, 2021 previously). Substantially all other material terms and conditions remained unchanged. There were no borrowings outstanding pursuant to the Securitization as of September 30, 2021.

On September 13, 2021, we redeemed $400 million of aggregate principal amount of 5.00% senior secured notes, that were scheduled to mature on June 1, 2026, at 102.50% of the aggregate principal, or $410 million.

As of September 30, 2021, we had combined aggregate principal of $2.0 billion from the following senior secured notes:

	o	$700 million aggregate principal amount of 1.65% senior secured notes due in September, 2026 (“2026 Notes”) which were issued on September 13, 2021.

	o	$800 million aggregate principal amount of 2.65% senior secured notes due in October, 2030 (“2030 Notes”) which were issued on September 21, 2020.

	o	$500 million of aggregate principal amount of 2.65% senior secured notes due in January, 2032 (“2032 Notes”) which were issued on September 13, 2021.

In connection with the refinancing transaction completed during the third quarter of 2021, our results of operations for the three and nine-months ended September 30, 2021 include a pre-tax charge of approximately $17 million incurred for the costs related to the extinguishment of debt. This charge, which is included in other (income) expense, net, consists of the write-off of deferred charges (approximately $7 million) as well as the make-whole premium paid on the early redemption of the $400 million, 5% senior notes (approximately $10 million).

On September 28, 2020, we redeemed the entire $700 million aggregate principal amount of our previously outstanding 4.75% senior secured notes, which were scheduled to mature in August, 2022, at 100% of the aggregate principal amount.

Interest on the 2026 Notes is payable on March 1st and September 1st until the maturity date of September 1, 2026. Interest on the 2030 Notes payable on April 15th and October 15th, until the maturity date of October 15, 2030. Interest on the 2032 Notes is payable on January 15th and July 15th until the maturity date of January 15, 2032.

The 2026 Notes, 2030 Notes and 2032 Notes (collectively “The 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 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.

The Notes are guaranteed (the “Guarantees”) on a senior secured basis by all of our existing and future direct and indirect subsidiaries (the “Subsidiary Guarantors”) that guarantee our Credit Agreement, or other first lien obligations or any junior lien obligations. The Notes and the Guarantees are secured by first-priority liens, subject to permitted liens, on certain of the Company’s and the Subsidiary Guarantors’ assets now owned or acquired in the future by the Company or the Subsidiary Guarantors (other than real property, accounts receivable sold pursuant to the Company’s Existing Receivables Facility (as defined in the Indenture pursuant to which The Notes were issued (the “Indenture”)), and certain other excluded assets). The Company’s obligations with respect to The Notes, the obligations of the Subsidiary Guarantors under the Guarantees, and the performance of all of the Company’s and the Subsidiary Guarantors’ other obligations under the Indenture, are secured equally and ratably with the Company’s and the Subsidiary Guarantors’ obligations under the Credit Agreement and The Notes by a perfected first-priority security interest, subject to permitted liens, in the collateral owned by the Company and its Subsidiary Guarantors, whether now owned or hereafter acquired. However, the liens on the collateral securing The Notes and the Guarantees will be released if: (i) The Notes have investment grade ratings; (ii) no default has occurred and is continuing, and; (iii) the liens on the collateral securing all first lien obligations (including the Credit Agreement and The Notes) and any junior lien obligations are released or the collateral under the Credit Agreement, any other first lien obligations and any junior lien obligations is released or no longer required to be pledged. The liens on any collateral securing The Notes and the Guarantees will also be released if the liens on that collateral securing the Credit Agreement, other first lien obligations and any junior lien obligations are released.

In connection with the issuance of The Notes, the Company, the Subsidiary Guarantors and the representatives of the several initial purchasers, entered into Registration Rights Agreements (the “Registration Rights Agreements”), whereby the Company and the Subsidiary Guarantors have agreed, at their expense, to use commercially reasonable best efforts to: (i) cause to be filed a registration statement enabling the holders to exchange The Notes and the Guarantees for registered senior secured notes issued by the Company and guaranteed by the then Subsidiary Guarantors under the Indenture (the “Exchange Securities”), containing terms identical to those of The Notes (except that the Exchange Securities will not be subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with the Registration Rights Agreements); (ii) cause the registration statement to become effective; (iii) complete the exchange offer not later than 60 days after such effective date and in any event on or prior to a target registration date of March 21, 2023 in the case of the 2030 Notes and February 24, 2024 in the case of the 2026 and 2032 Notes, and; (iv) file a shelf registration statement for the resale of The Notes if the exchange offers cannot be effected within the time periods listed above. The

interest rate on The Notes will increase and additional interest thereon will be payable if the Company does not comply with its obligations under the Registration Rights Agreements.

At September 30, 2021, the carrying value and fair value of our debt were each approximately $3.75 billion. At December 31, 2020, the carrying value and fair value of our debt were each approximately $3.9 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.

Cash Flow Hedges:

During the nine-month period ended September 30, 2021 and the year ended December 31, 2020, we had no cash flow hedges outstanding.

Foreign Currency Forward Exchange Contracts:

We use forward exchange contracts to hedge our net investment in foreign operations against movements in exchange rates. The effective portion of the 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 connection with these forward exchange contracts, we recorded net cash inflows of $4 million and $22 million during the nine-month periods ended September 30, 2021 and 2020, respectively.

Derivatives Hedging Relationships:

The following table presents the effects of our foreign currency foreign exchange contracts on our results of operations for the three and nine-month periods ended September 30, 2021 and 2020 (in thousands):

	Gain/(Loss) recognized in AOCI
	Three months ended					Nine months ended
	September 30,		September 30,			September 30,			September 30,
	2021		2020			2021			2020
Net Investment Hedge relationships
Foreign currency foreign exchange contracts	$	26,152	$	(28,244	)	$	(4,879	)	$	15,291

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

Cash, Cash Equivalents and Restricted Cash:

Cash, cash equivalents, and restricted cash as reported in the condensed consolidated statements of cash flows are presented separately on our condensed consolidated balance sheets as follows (in thousands):

	September 30,		September 30,		December 31,
	2021		2020		2020
Cash and cash equivalents	$	189,743	$	1,101,230	$	1,224,490
Restricted cash and cash equivalents (a)		54,674		44,659		54,664
Total cash, cash equivalents and restricted cash	$	244,417	$	1,145,889	$	1,279,154

(a) Restricted cash and cash equivalents is included in other assets on the accompanying consolidated balance sheet.

(5) 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)	September 30, 2021		Location	Level 1		Level 2		Level 3
Assets:
Money market mutual funds	$	61,000	Cash and cash equivalents	$	61,000
Money market mutual funds		71,018	Other assets		71,018
Certificates of deposit		2,200	Other assets				2,200
Equity securities		86,539	Other assets		86,539
Deferred compensation assets		46,495	Other assets		46,495
Foreign currency exchange contracts		846	Other current assets				846
	$	268,098		$	265,052	$	3,046		-
Liabilities:
Deferred compensation liability		46,495	Other noncurrent liabilities		46,495
	$	46,495		$	46,495		-		-

	Balance at		Balance Sheet	Basis of Fair Value Measurement
(in thousands)	December 31, 2020		Location	Level 1		Level 2		Level 3
Assets:
Term Deposit	$	540,000	Cash and cash equivalents			$	540,000
Money market mutual funds		37,100	Cash and cash equivalents		37,100
Money market mutual funds		70,995	Other assets		70,995
Certificates of deposit		2,300	Other assets				2,300
Equity securities		78,367	Other assets		78,367
Deferred compensation assets		42,044	Other assets		42,044
Foreign currency exchange contracts		9,987	Other current assets				9,987
	$	780,793		$	228,506	$	552,287		-
Liabilities:
Deferred compensation liability	$	42,044	Other noncurrent liabilities	$	42,044
	$	42,044		$	42,044		-		-

The fair value of our money market mutual funds, certificates of deposit and equity securities with a readily determinable fair value are computed based upon quoted market prices in an 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.

As of September 30, 2021, in addition to the $61 million reflected above in cash and cash equivalents, we had approximately $61 million of other cash accounts that earn interest at variable rates ranging from .20% to .25%.

As of December 31, 2020, in addition to the $577 million reflected above in cash and cash equivalents, we had approximately $581 million of other cash accounts that earn interest at variable rates ranging from .20% to .25%.

(6) 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) $20 million for professional liability and $3 million for general liability per occurrence in 2021; (ii) $10 million and $3 million per occurrence in 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 for 2020); (iii) $5 million and $3 million per occurrence, respectively, during 2019, 2018 and 2017, and; (iv) $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 $155 million per occurrence and in the aggregate in 2021, $250 million per occurrence and in the aggregate for claims incurred from 2014-2020, $200 million per occurrence and in the aggregate for claims incurred from 2010-2013. 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 September 30, 2021, the total accrual for our professional and general liability claims was $340 million, of which $74 million was included in current liabilities. As of December 31, 2020, the total accrual for our professional and general liability claims was $264 million, of which $74 million was included in current liabilities.

As a result of unfavorable trends experienced during 2020 and 2021, included in our results of operations during the first nine months of 2021, was a $41 million increase to our reserves for self-insured professional and general liability claims ($36 million and $5 million recorded during the second and third quarters of 2021, respectively). During the first nine months of 2021, approximately $31 million of the reserves increase is included in our acute care hospitals services’ results and approximately $10 million is included in our behavioral health services’ results. Included in our results of operations during the first nine months of 2020, was a $25 million increase to our reserves for self-insured professional and general liability claims ($20 million and $5 million recorded during the first and third quarters of 2020, respectively). Approximately $19 million of the increase to our reserves was included in our acute care hospitals services’ results during the first nine months of 2020 and approximately $6 million was included in our behavioral health services’ results.

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.

As of September 30, 2021, the total accrual for our workers’ compensation liability claims was $110 million, $55 million of which was included in current liabilities. As of December 31, 2020, the total accrual for our workers’ compensation liability claims was $105 million, $55 million of which was included in current liabilities.

Although we are unable to predict whether or not our future financial statements will require updates to estimates for our prior year reserves for self-insured general and professional and workers’ compensation claims, given the relatively unpredictable nature of 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 per occurrence/per location deductible of $2.5 million as of June 1, 2020. 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) $200 million limitation for our facilities located in Nevada; (ii) $150 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. Property insurance for our behavioral health facilities located in the U.K. are provided on an all risk basis up to a £1.5 billion policy limit, with coverage caps per location, that includes coverage for real and personal property as well as business interruption losses.

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:

Litigation:

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 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 consolidated all of the cases pending in the Eastern District of Pennsylvania and appointed co-lead plaintiffs and co-lead counsel. Lead Plaintiffs filed a consolidated, amended complaint. We 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 allegations relating to admission and discharge 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 subsequently filed a motion with the court seeking leave to file a second amended complaint. In April 2020, the court denied Plaintiffs motion to file a second amended complaint. Plaintiffs filed an appeal with the 3rd Circuit Court of Appeals. The defendants deny liability and intend to defend these cases vigorously. The parties continued settlement negotiations during the pendency of the appeal and a settlement, which would not have a material impact on our financial statements, has been reached. The court has granted preliminary approval of the settlement and set the matter for a final fairness hearing. We are uncertain as to potential liability or financial exposure, if any, which may be associated with these matters in the event the settlement is not finalized and approved.

In July 2021, a shareholder derivative lawsuit was filed by plaintiff, Robin Knight, in the Chancery Court in Delaware against the members of the Board of Directors of the Company as well as certain officers (C.A. No.: 2021-0581-SG). The Company was named as a nominal defendant. The lawsuit alleges that in March 2020 stock options were awarded with exercise prices that did not reflect the Company’s fundamentals and business prospects, and in anticipation of future market rebound resulting in excessive gains. The lawsuit makes claims of breaches of fiduciary duties, waste of corporate assets, and unjust enrichment. The lawsuit seeks monetary damages allegedly incurred by the Company, disgorgement of the March 2020 stock awards as well as any proceeds derived therefrom and unspecified equitable relief. Defendants deny the allegations. We have filed a motion to dismiss the complaint. We are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter.

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. We filed a motion to dismiss the complaint. In June 2020, the Court granted the motion in part dismissing the majority of the claims against UHS. 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 FY 2013, FY 2014 and FY 2015 the initial claimed overpayments and attempted recoupment by the Department were approximately $7 million, $8 million and $7 million, respectively. The Department has agreed to a change in methodology which, upon confirmation of the underlying data being accepted by the Department, could reduce the initial claimed overpayments for FY 2013, FY 2014 and FY 2015 to approximately $2 million, $2 million and $3 million, respectively. 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 for FY 2011 to 2013 until all hospital appeals are resolved but started recoupment of the federal share. For FY 2014 and FY 2015, the Department has initiated the recoupment of the alleged overpayments. Starting in FFY 2016, the first full fiscal year after the January 1, 2015 effective date of Medicaid expansion in Pennsylvania, the Department no longer characterized 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.

Boley, et al. v. UHS, et al.

Former UHS subsidiary facility employees Mary K. Boley, Kandie Sutter, and Phyllis Johnson, individually and on behalf of a putative class of participants in the UHS Retirement Savings Plan (the “Plan”), filed a complaint in the U.S. District Court for the Eastern District of Pennsylvania against UHS, the Board of Directors of UHS, and the “Plan Committee” of UHS (Case No. 2:20-cv-02644). In subsequent amended complaints, Plaintiffs have dropped the Board of Directors and the “Plan Committee” as defendants and added the UHS Retirement Plans Investment Committee as a new defendant. Plaintiffs allege that UHS breached its fiduciary duties under the Employee Retirement Income Security Act (“ERISA”) by offering to participants in the Plan overly expensive investment options when less expensive investment options were available in the marketplace; caused participants to pay excessive recordkeeping fees associated with the Plan; breached its duty to monitor appointed fiduciaries and: in the alternative, engaged in a “knowing breach of trust” separate from the alleged violations under ERISA. UHS disputes Plaintiffs’ allegations and is actively

defending against Plaintiffs’ claims. UHS’ motion for partial dismissal of Plaintiffs’ claims was denied by the Court. In March 2021, the Court granted Plaintiffs’ motion for class certification. The Third Circuit Court of Appeal has agreed to hear an appeal of the trial court’s order granting class certification. The case will be stayed in the trial court pending conclusion of the appellate proceedings. We are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter. We maintain commercial insurance coverage for claims of this nature, subject to specified deductibles and limitations.

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.

(7) 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 and 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 our Annual Report on Form 10-K for the year ended December 31, 2020. 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, and overhead expenses incurred on behalf of both segments are captured and allocated to each segment based upon each segment’s respective percentage of total operating expenses.

	Three months ended September 30, 2021
	Acute Care Hospital Services			Behavioral Health Services (a)			Other			Total Consolidated
	(Amounts in thousands)
Gross inpatient revenues	$	9,497,975		$	2,470,401		$	-		$	11,968,376
Gross outpatient revenues	$	5,343,246		$	242,976		$	-		$	5,586,222
Total net revenues	$	1,822,027		$	1,328,293		$	5,679		$	3,155,999
Income/(loss) before allocation of corporate overhead and income taxes	$	208,638		$	197,779		$	(119,527	)	$	286,890
Allocation of corporate overhead	$	(58,452	)	$	(43,120	)	$	101,572		$	-
Income/(loss) after allocation of corporate overhead and before income taxes	$	150,186		$	154,659		$	(17,955	)	$	286,890
Total assets as of September 30, 2021	$	5,295,533		$	7,106,832		$	444,488		$	12,846,853



	Nine months ended September 30, 2021
	Acute Care Hospital Services			Behavioral Health Services (a)			Other			Total Consolidated
	(Amounts in thousands)
Gross inpatient revenues	$	27,279,494		$	7,471,742		$	-		$	34,751,236
Gross outpatient revenues	$	15,281,854		$	756,068		$	-		$	16,037,922
Total net revenues	$	5,271,000		$	4,075,127		$	20,739		$	9,366,866
Income/(loss) before allocation of corporate overhead and income taxes	$	600,419		$	753,681		$	(367,535	)	$	986,565
Allocation of corporate overhead	$	(174,786	)	$	(129,169	)	$	303,955		$	0
Income/(loss) after allocation of corporate overhead and before income taxes	$	425,633		$	624,512		$	(63,580	)	$	986,565
Total assets as of September 30, 2021	$	5,295,533		$	7,106,832		$	444,488		$	12,846,853

	Three months ended September 30, 2020
	Acute Care Hospital Services			Behavioral Health Services (a)			Other			Total Consolidated
	(Amounts in thousands)
Gross inpatient revenues	$	8,137,264		$	2,487,568		$	0		$	10,624,832
Gross outpatient revenues	$	4,128,549		$	243,600		$	0		$	4,372,149
Total net revenues	$	1,610,003		$	1,299,591		$	2,947		$	2,912,541
Income/(loss) before allocation of corporate overhead and income taxes	$	177,606		$	252,532		$	(106,874	)	$	323,264
Allocation of corporate overhead	$	(55,980	)	$	(42,667	)	$	98,647		$	0
Income/(loss) after allocation of corporate overhead and before income taxes	$	121,626		$	209,865		$	(8,227	)	$	323,264
Total assets as of September 30, 2020	$	4,666,917		$	6,898,757		$	1,410,084		$	12,975,758


	Nine months ended September 30, 2020
	Acute Care Hospital Services			Behavioral Health Services (a)			Other			Total Consolidated
	(Amounts in thousands)
Gross inpatient revenues	$	22,695,513		$	7,298,466		$	0		$	29,993,979
Gross outpatient revenues	$	12,204,970		$	719,513		$	0		$	12,924,483
Total net revenues	$	4,598,558		$	3,864,823		$	8,581		$	8,471,962
Income/(loss) before allocation of corporate overhead and income taxes	$	464,139		$	746,980		$	(361,414	)	$	849,705
Allocation of corporate overhead	$	(167,936	)	$	(128,147	)	$	296,083		$	0
Income/(loss) after allocation of corporate overhead and before income taxes	$	296,203		$	618,833		$	(65,331	)	$	849,705
Total assets as of September 30, 2020	$	4,666,917		$	6,898,757		$	1,410,084		$	12,975,758

	(a)	Includes net revenues generated from our behavioral health care facilities located in the U.K. amounting to approximately $174 million and $155 million for the three-month periods ended September 30, 2021 and 2020, respectively, and approximately $511 million and $429 million for the nine-month periods ended September 30, 2021 and 2020, respectively. Total assets at our U.K. behavioral health care facilities were approximately $1.338 billion and $1.257 billion as of September 30, 2021 and 2020, respectively.

(8) Earnings Per Share Data (“EPS”) and Stock Based Compensation

Basic earnings per share are based on the weighted average number of common shares outstanding during the period. Diluted earnings per share are based on the weighted average number of common shares outstanding during the period 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 (in thousands, except per share data):

	Three months ended September 30,						Nine months ended September 30,
	2021			2020			2021			2020
Basic and Diluted:
Net income attributable to UHS	$	218,351		$	241,279		$	752,466		$	635,245
Less: Net income attributable to unvested restricted share grants		(396	)		(790	)		(1,609	)		(1,987	)
Net income attributable to UHS – basic and diluted	$	217,955		$	240,489		$	750,857		$	633,258

Weighted average number of common shares - basic		82,262			84,672			83,756			85,172
Net effect of dilutive stock options and grants based on the treasury stock method		1,411			575			1,275			415
Weighted average number of common shares and equivalents - diluted		83,673			85,247			85,031			85,587
Earnings per basic share attributable to UHS:	$	2.65		$	2.84		$	8.96		$	7.44
Earnings per diluted share attributable to UHS:	$	2.60		$	2.82		$	8.83		$	7.40

The “Net effect of dilutive stock options and grants based on the treasury stock method”, for all periods presented above, excludes certain outstanding stock options applicable to each period since the effect would have been anti-dilutive. The excluded weighted-average stock options totaled 4.1 million for the three months ended September 30, 2021 and 4.3 million for the nine months ended September 30, 2021. The excluded weighted-average stock options totaled 7.1 million for the three months ended September 30, 2020 and 6.7 million for the nine months ended September 30, 2020. All classes of our common stock have the same dividend rights.

Stock-Based Compensation:

During the three-month periods ended September 30, 2021 and 2020, pre-tax compensation cost of $14.6 million and $13.0 million, respectively, was recognized related to outstanding stock options. During the nine-month periods ended September 30, 2021 and 2020, pre-tax compensation costs of $44.8 million and $41.6 million, respectively, was recognized related to outstanding stock options. In addition, during the three-month periods ended September 30, 2021 and 2020, pre-tax compensation cost of approximately $3.5 million and $2.5 million, respectively, was recognized related to restricted stock awards and units. During the nine-month periods ended September 30, 2021 and 2020, pre-tax compensation costs of approximately $9.6 million and $7.3 million, respectively, was recognized related to restricted stock awards and units. As of September 30, 2021 there was approximately $144.6 million of unrecognized compensation cost related to unvested options and restricted stock awards and units which is expected to be recognized over the remaining weighted average vesting period of 2.8 years. There were 2,396,402 stock options granted during the first nine months of 2021 (including 406,952 stock options granted at a 10% market price premium) with a weighted-average grant date fair value of $39.66 per option. There were 150,860 shares of restricted shares and restricted units granted during the first nine months of 2021 with a weighted-average grant date fair value of $138.80 per share.

The expense associated with stock-based compensation arrangements is a non-cash charge. In the Condensed 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 $55.5 million and $49.9 million during the nine-month periods ended September 30, 2021 and 2020.

(9) Dispositions and acquisitions

Subsequent to September 30, 2021, a binding agreement was finalized whereby we agreed to acquire Riverside Medical Clinic Patient Services, L.L.C. (“RMCPS”), which is a physician practice management company located in California. RMCPS provides management services to Riverside Medical Clinic, which is a large, multi-specialty physician practice with more than 170 clinicians who provide care throughout Riverside County, CA. As part of the transaction, we also plan to acquire two ambulatory surgery centers that are owned and operated by RMCPS. The transaction is subject to California state approval.

Nine-month period ended September 30, 2021:

Acquisitions:

During the first nine months of 2021, we spent $39 million to acquire a 22-bed micro hospital located in Las Vegas, Nevada.

Divestitures:

During the first nine months of 2021, we received $21 million from the sale of our equity interest in a business.

Nine-month period ended September 30, 2020:

Acquisitions:

During the first nine months of 2020, we spent $52 million on the acquisition of businesses and property, consisting primarily of the real estate and other assets of a hospital located in Nevada.

Divestitures:

During the first nine months of 2020, we received $8 million from the sale of assets and businesses.

(10) Dividends

We declared and paid dividends of $16.4 million, or $.20 per share, during the third quarter of 2021 and declared and paid dividends of $50.3 million during the nine-month period ended September 30, 2021. Dividend equivalents, which were applicable to unvested restricted stock units, were accrued during 2021 and will be paid upon vesting of the restricted stock unit. As part of our COVID-19 initiatives, we suspended quarterly dividend payments in the second quarter of 2020 and resumed them in the first quarter of 2021. Dividends of $17.3 million, or $.20 per share were declared and paid during the first nine months of 2020 (declared and paid during the first three months of 2020).

(11) Income Taxes

Our effective income tax rates were 23.5% and 24.5% during the three-month periods ended September 30, 2021, and 2020, respectively, and 23.6% and 24.1% during the nine-month periods ended September 30, 2021, and 2020, respectively. The decrease in the effective tax rate during the three-month period ended September 30, 2021, as compared to the comparable quarter of 2020, was primarily due to the $3 million favorable change in the tax benefit from employee share-based payments as compared to the third quarter of 2020. The decrease in the effective tax rate during the nine-month period ended September 30, 2021, as compared with the same period in 2020, was primarily due to a $6 million favorable change in the tax benefit from employee share-based payments offset by a $1 million increase to the foreign provision as compared to the prior year.

The global intangible low-taxed income (“GILTI”) provisions from the Tax Cuts and Jobs Act of 2017 (“the TCJA-17”) 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 for the nine months ended September 30, 2021 and 2020.

As of January 1, 2021, our unrecognized tax benefits were approximately $2 million. The amount, if recognized, that would favorably affect the effective tax rate is approximately $2 million. During the nine months ended September 30, 2021, changes to the estimated liabilities for uncertain tax positions (including accrued interest) relating to tax positions taken during prior and current periods did not have a material impact on our financial statements.

We recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of September 30, 2021, we have less than $1 million of accrued interest and penalties. The U.S. federal statute of limitations remains open for 2017 and subsequent years. Foreign and U.S. state and local jurisdictions have statutes of limitations generally ranging from 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 uncertain 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.

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.

(12) Revenue

The company recognizes 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. 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 three and nine-month periods ended September 30, 2021 and 2020 (in thousands):

	For the three months ended September 30, 2021
	Acute Care				Behavioral Health				Other		Total
Medicare	$	310,483	17	%	$	96,219	7	%			$	406,702	13	%
Managed Medicare		280,674	15	%		66,249	5	%				346,923	11	%
Medicaid		136,989	8	%		146,281	11	%				283,270	9	%
Managed Medicaid		176,497	10	%		326,789	25	%				503,286	16	%
Managed Care (HMO and PPOs)		674,396	37	%		349,275	26	%				1,023,671	32	%
UK Revenue		0	0	%		173,728	13	%				173,728	6	%
Other patient revenue and adjustments, net		69,935	4	%		117,442	9	%				187,377	6	%
Other non-patient revenue (a)		173,053	9	%		52,310	4	%		5,679		231,042	7	%
Total Net Revenue	$	1,822,027	100	%	$	1,328,293	100	%	$	5,679		3,155,999	100	%

	For the nine months ended September 30, 2021
	Acute Care				Behavioral Health				Other		Total
Medicare	$	954,207	18	%	$	277,438	7	%			$	1,231,645	13	%
Managed Medicare		830,627	16	%		185,323	5	%				1,015,950	11	%
Medicaid		418,335	8	%		526,945	13	%				945,280	10	%
Managed Medicaid		473,256	9	%		995,749	24	%				1,469,005	16	%
Managed Care (HMO and PPOs)		1,862,012	35	%		1,070,165	26	%				2,932,177	31	%
UK Revenue		0	0	%		510,614	13	%				510,614	5	%
Other patient revenue and adjustments, net		248,342	5	%		366,669	9	%				615,011	7	%
Other non-patient revenue (a)		484,221	9	%		142,224	3	%		20,739		647,184	7	%
Total Net Revenue	$	5,271,000	100	%	$	4,075,127	100	%	$	20,739	$	9,366,866	100	%


	For the three months ended September 30, 2020
	Acute Care				Behavioral Health				Other		Total
Medicare	$	319,259	20	%	$	120,691	9	%			$	439,950	15	%
Managed Medicare		234,169	15	%		62,618	5	%				296,787	10	%
Medicaid		160,671	10	%		159,756	12	%				320,427	11	%
Managed Medicaid		126,979	8	%		316,683	24	%				443,662	15	%
Managed Care (HMO and PPOs)		585,333	36	%		321,719	25	%				907,052	31	%
UK Revenue		0	0	%		155,323	12	%				155,323	5	%
Other patient revenue and adjustments, net		56,188	3	%		127,322	10	%				183,510	6	%
Other non-patient revenue (b)		127,404	8	%		35,479	3	%		2,947		165,830	6	%
Total Net Revenue	$	1,610,003	100	%	$	1,299,591	100	%	$	2,947	$	2,912,541	100	%


	For the nine months ended September 30, 2020
	Acute Care				Behavioral Health				Other		Total
Medicare	$	909,594	20	%	$	346,879	9	%			$	1,256,473	15	%
Managed Medicare		638,931	14	%		181,835	5	%				820,766	10	%
Medicaid		420,082	9	%		488,864	13	%				908,946	11	%
Managed Medicaid		358,770	8	%		900,105	23	%				1,258,875	15	%
Managed Care (HMO and PPOs)		1,558,765	34	%		955,530	25	%				2,514,295	30	%
UK Revenue		0	0	%		428,795	11	%				428,795	5	%
Other patient revenue and adjustments, net		198,983	4	%		371,517	10	%				570,500	7	%
Other non-patient revenue (b)		513,433	11	%		191,298	5	%		8,581		713,312	8	%
Total Net Revenue	$	4,598,558	100	%	$	3,864,823	100	%	$	8,581	$	8,471,962	100	%

(a) Acute Care includes CARES Act and other grant revenue of $2 million and $13 million recorded in the three and nine-months periods ended September 30, 2021, respectively. Behavioral Health includes CARES Act and other grant revenue of $114,000 and $2 million recorded in the three and nine-months periods ended September 30, 2021, respectively.

(b) Acute Care includes CARES Act and other grant income of $4 million and $161 million recorded in the three and nine-months periods ended September 30, 2020, respectively. Behavioral Health includes the reversal of CARES Act and other grant income of $9 million and CARES Act and other grant income of $52 million recorded in the three and nine-months periods ended September 30, 2020, respectively

As an accounting policy election, we have utilized ASC 958 by analogy to recognize funds received under the CARES Act from the Provider Relief Fund as revenue, given no direct authoritative guidance available to for-profit organizations to recognize revenue for government contributions and grants. CARES Act revenues may be subject to future adjustments based on future changes to statutes.

(13) Lease Accounting

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 terms of the leases with respect to two hospital properties expiring in 2021 and the third expiring in 2026 (see Note 2 for additional disclosure). We are also the lessee of the real property of certain facilities from unrelated third parties.

Supplemental cash flow information related to leases for the nine-month periods ended September 30, 2021 and 2020 are as follows (in thousands):

	Nine months ended September 30,
	2021		2020

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	88,113	$	84,351
Operating cash flows from finance leases	$	3,507	$	1,431
Financing cash flows from finance leases	$	2,315	$	1,918

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	20,292	$	47,679
Finance leases	$	7,690	$	-

(14) Recent Accounting Standards

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU is intended to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. This guidance was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have 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.

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