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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, 2022

OR

☐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)

Delaware23-2077891
(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 classTrading Symbol(s)Name of each exchange on which registered
Class B Common Stock, $0.01 par valueUHSNew 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, 2022:

Class A6,577,100
Class B64,157,474
Class C661,688
Class D14,170

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, 2022 and 20213
Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2022 and 20214
Condensed Consolidated Balance Sheets – September 30, 2022 and December 31, 20215
Condensed Consolidated Statements of Changes in Equity – Three and Nine Months Ended September 30, 2022 and 20216
Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2022 and 20218
Notes to Condensed Consolidated Financial Statements9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations26
Item 3. Quantitative and Qualitative Disclosures About Market Risk62
Item 4. Controls and Procedures62
PART II. Other Information
Item 1. Legal Proceedings63
Item 1A. Risk Factors63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds63
Item 6. Exhibits64
Signatures65

This Quarterly Report on Form 10-Q is for the quarter ended September 30, 2022. 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,
2022202120222021
Net revenues$3,336,027$3,155,999$9,952,390$9,366,866
Operating charges:
Salaries, wages and benefits1,677,4311,556,4485,061,1734,542,156
Other operating expenses837,241754,0722,526,0602,233,590
Supplies expense366,337367,8341,092,4031,052,977
Depreciation and amortization145,874134,462433,508399,850
Lease and rental expense33,26428,37597,07588,848
3,060,1472,841,1919,210,2198,317,421
Income from operations275,880314,808742,1711,049,445
Interest expense, net35,65321,19983,00264,455
Other (income) expense, net6,0156,71915,244(1,575)
Income before income taxes234,212286,890643,925986,565
Provision for income taxes57,40167,515157,312232,844
Net income176,811219,375486,613753,721
Less: Net income (loss) attributable to noncontrolling interests(6,003)1,024(14,176)1,255
Net income attributable to UHS$182,814$218,351$500,789$752,466
Basic earnings per share attributable to UHS$2.52$2.65$6.78$8.96
Diluted earnings per share attributable to UHS$2.50$2.60$6.71$8.83
Weighted average number of common shares - basic72,59582,26273,76983,756
Add: Other share equivalents4651,4117431,275
Weighted average number of common shares and equivalents - diluted73,06083,67374,51285,031

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,
2022202120222021
Net income$176,811$219,375$486,613$753,721
Other comprehensive income (loss):
Foreign currency translation adjustment24,242(9,121)(22,460)(23,184)
Other comprehensive income (loss) before tax24,242(9,121)(22,460)(23,184)
Income tax expense (benefit) related to items of other comprehensive income (loss)6,6851095,809(1,958)
Total other comprehensive income (loss), net of tax17,557(9,230)(28,269)(21,226)
Comprehensive income194,368210,145458,344732,495
Less: Comprehensive income (loss) attributable to noncontrolling interests(6,003)1,024(14,176)1,255
Comprehensive income attributable to UHS$200,371$209,121$472,520$731,240

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, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$74,571$115,301
Accounts receivable, net1,902,4721,746,635
Supplies217,818206,839
Other current assets261,698194,781
Total current assets2,456,5592,263,556
Property and equipment11,103,59610,770,702
Less: accumulated depreciation(5,167,198)(4,896,427)
5,936,3985,874,275
Other assets:
Goodwill3,874,0213,962,624
Deferred income taxes55,78945,707
Right of use assets-operating leases457,209367,477
Deferred charges6,3366,525
Other592,588573,379
Total Assets$13,378,900$13,093,543
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt$66,307$48,409
Accounts payable and other liabilities1,795,0041,860,496
Operating lease liabilities70,14664,484
Federal and state taxes7,74310,720
Total current liabilities1,939,2001,984,109
Other noncurrent liabilities500,119464,759
Operating lease liabilities noncurrent392,582304,624
Long-term debt4,638,3564,141,879
Redeemable noncontrolling interests4,5635,119
Equity:
UHS common stockholders’ equity5,855,3536,089,664
Noncontrolling interest48,727103,389
Total equity5,904,0806,193,053
Total Liabilities and Stockholders’ Equity$13,378,900$13,093,543

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, 2022

(amounts in thousands, unaudited)

AccumulatedUHS
RedeemableOtherCommon
NoncontrollingClass AClass BClass CClass DCumulativeRetainedComprehensiveStockholders'Noncontrolling
InterestCommonCommonCommonCommonDividendsEarningsIncome (Loss)EquityInterestTotal
Balance, July 1, 2022$4,449$66$660$7$0$(575,198)$6,404,660$(15,535)$5,814,660$89,256$5,903,916
Common Stock
Issued/(converted)——1———3,738—3,739—3,739
Repurchased——(16)———(158,186)—(158,202)—(158,202)
Restricted share-based compensation expense——————4,869—4,869—4,869
Dividends paid and accrued—————(14,607)——(14,607)—(14,607)
Stock option expense——————15,797—15,797—15,797
Acquisition of noncontrolling interest in majority owned business——————(11,274)—(11,274)(37,608)(48,882)
Distributions to noncontrolling interests—————————(103)(103)
Purchase (sale) of ownership interests by (from) minority members—————————3,2993,299
Comprehensive income:
Net income to UHS / noncontrolling interests114—————182,814—182,814(6,117)176,697
Foreign currency translation adjustments, net of income tax———————17,55717,557—17,557
Subtotal - comprehensive income114—————182,81417,557200,371(6,117)194,254
Balance, September 30, 2022$4,563$66$645$7$0$(589,805)$6,442,418$2,022$5,855,353$48,727$5,904,080
AccumulatedUHS
RedeemableOtherCommon
NoncontrollingClass AClass BClass CClass DCumulativeRetainedComprehensiveStockholders'Noncontrolling
InterestCommonCommonCommonCommonDividendsEarningsIncome (Loss)EquityInterestTotal
Balance, January 1, 2022$5,119$66$698$7$0$(545,487)$6,604,089$30,291$6,089,664$103,389$6,193,053
Common Stock
Issued/(converted)——7———10,527—10,534—10,534
Repurchased——(60)———(723,324)—(723,384)—(723,384)
Restricted share-based compensation expense——————12,972—12,972—12,972
Dividends paid and accrued—————(44,318)——(44,318)—(44,318)
Stock option expense——————48,639—48,639—48,639
Acquisition of noncontrolling interest in majority owned business——————(11,274)—(11,274)(37,608)(48,882)
Distributions to noncontrolling interests(650)————————(4,776)(4,776)
Purchase (sale) of ownership interests by (from) minority members—————————1,9921,992
Comprehensive income:
Net income (loss) to UHS / noncontrolling interests94—————500,789—500,789(14,270)486,519
Foreign currency translation adjustments, net of income tax———————(28,269)(28,269)—(28,269)
Subtotal - comprehensive income94—————500,789(28,269)472,520(14,270)458,250
Balance, September 30, 2022$4,563$66$645$7$0$(589,805)$6,442,418$2,022$5,855,353$48,727$5,904,080

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)

AccumulatedUHS
RedeemableOtherCommon
NoncontrollingClass AClass BClass CClass DCumulativeRetainedComprehensiveStockholders'Noncontrolling
InterestCommonCommonCommonCommonDividendsEarningsIncome (Loss)EquityInterestTotal
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—————————1,0931,093
Comprehensive income:
Net income to UHS / noncontrolling interests193—————218,351—218,351831219,182
Foreign currency translation adjustments———————(9,230)(9,230)—(9,230)
Subtotal - comprehensive income193—————218,351(9,230)209,121831209,952
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
AccumulatedUHS
RedeemableOtherCommon
NoncontrollingClass AClass BClass CClass DCumulativeRetainedComprehensiveStockholders'Noncontrolling
InterestCommonCommonCommonCommonDividendsEarningsIncome (Loss)EquityInterestTotal
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—————————13,76213,762
Comprehensive income:
Net income (loss) to UHS / noncontrolling interests520—————752,466—752,466735753,201
Foreign currency translation adjustments———————(21,226)(21,226)—(21,226)
Subtotal - comprehensive income520—————752,466(21,226)731,240735731,975
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 CASH FLOWS

(amounts in thousands, unaudited)

Nine months ended September 30,
20222021
Cash Flows from Operating Activities:
Net income$486,613$753,721
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization433,508399,850
(Gain) loss on sale of assets and businesses584(4,803)
Costs related to extinguishment of debt-16,831
Stock-based compensation expense62,74155,548
Provision for asset impairment-7,195
Changes in assets & liabilities, net of effects from acquisitions and dispositions:
Accounts receivable(155,142)(29,079)
Accrued interest5293,714
Accrued and deferred income taxes(4,900)(52,727)
Other working capital accounts(173,903)52,616
Medicare accelerated payments and deferred CARES Act and other grants2,921(697,393)
Other assets and deferred charges22,219(34,038)
Other(23,358)9,607
Accrued insurance expense, net of commercial premiums paid134,908140,702
Payments made in settlement of self-insurance claims(88,001)(60,069)
Net cash provided by operating activities698,719561,675
Cash Flows from Investing Activities:
Property and equipment additions(569,555)(666,025)
Proceeds received from sales of assets and businesses12,00121,143
Acquisition of businesses and property(18,666)(39,391)
Inflows from foreign exchange contracts that hedge our net U.K. investment177,2144,261
Decrease in capital reserves of commercial insurance subsidiary100100
Costs incurred for purchase of information technology applications, net of refunds-20,202
Net cash used in investing activities(398,906)(659,710)
Cash Flows from Financing Activities:
Repayments of long-term debt(194,115)(3,026,888)
Additional borrowings, net705,3212,912,374
Financing costs(2,541)(17,967)
Repurchase of common shares(723,384)(770,665)
Dividends paid(44,192)(50,284)
Issuance of common stock10,39910,108
Profit distributions to noncontrolling interests(5,426)(5,744)
Purchase (sale) of ownership interests by (from) minority members(49,089)13,046
Net cash used in financing activities(303,027)(936,020)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(10,339)(682)
Decrease in cash, cash equivalents and restricted cash(13,553)(1,034,737)
Cash, cash equivalents and restricted cash, beginning of period178,9341,279,154
Cash, cash equivalents and restricted cash, end of period$165,381$244,417
Supplemental Disclosures of Cash Flow Information:
Interest paid$78,992$58,719
Income taxes paid, net of refunds$182,091$286,376
Noncash purchases of property and equipment$97,264$73,428

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, 2022. 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, 2021.

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 length and extent of the disruptions caused by the COVID‑19 pandemic are currently unknown.

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.

The nationwide shortage of nurses and other clinical staff and support personnel has been a significant operating issue facing us and other healthcare providers. Like others in the healthcare industry, we continue to experience a shortage of nurses and other clinical staff and support personnel at our acute care and behavioral health care hospitals in many geographic areas. In some areas, the labor scarcity is putting a strain on our resources and staff, which has required us to utilize higher‑cost temporary labor and pay premiums above standard compensation for essential workers. This staffing shortage has required us to hire expensive temporary personnel and/or enhance wages and benefits to recruit and retain nurses and other clinical staff and support personnel. At certain facilities, particularly within our behavioral health care segment, we have been unable to fill all vacant positions and, consequently, have been required to limit patient volumes. These factors had a material unfavorable impact on our results of operations during the first nine months of 2022.

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 Other Related Party Transactions

Relationship with Universal Health Realty Income Trust:

At September 30, 2022, 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 renewed by the Trust for 2022 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 $1.3 million and $1.1 million during the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $3.8 million and $3.3 million during the nine-month periods ended September 30, 2022 and 2021, 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 $275,000 and $276,000 during the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $882,000 and $977,000 during the nine-month periods ended September 30, 2022 and 2021, respectively. Included in our share of the Trust’s income for the nine-month period 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 $559,000 and $552,000 during the three-month periods ended September 30, 2022 and 2021, respectively, and $1.7 million during each of the nine-month periods ended September 30, 2022 and 2021. The carrying value of our investment in the Trust was approximately $8.6 million and $9.4 million at September 30, 2022 and December 31, 2021, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $34.0 million at September 30, 2022 and $46.8 million at December 31, 2021, 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. The base rents are paid monthly and the bonus rents, which as of January 1, 2022 are applicable to only McAllen Medical Center, 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.

On December 31, 2021, we entered into an asset purchase and sale agreement with the Trust. Pursuant to the terms of the asset purchase and sale agreement, which was amended during the first quarter of 2022, a wholly-owned subsidiary of ours purchased from the Trust the real estate assets of the Inland Valley Campus of Southwest Healthcare System (at its fair market value of $79.6 million). Additionally, two wholly-owned subsidiaries of ours transferred to the Trust the real estate assets of Aiken Regional Medical Center (at its fair market value of $57.7 million) and Canyon Creek Behavioral Health (at its fair market value of $26.0 million). In connection with this transaction, since the $83.7 million aggregate fair market value of Aiken Regional Medical Center (“Aiken”) and Canyon Creek Behavioral Health (“Canyon Creek”) exceeded the $79.6 million fair market value of the Inland Valley Campus of Southwest Healthcare System, we received approximately $4.1 million in cash from the Trust.

Pursuant to the leases, as amended, the aggregate annual rental during 2022 for Aiken and Canyon Creek aggregates to approximately $5.7 million ($3.9 million related to Aiken and $1.8 million related to Canyon Creek). There is no bonus rental component applicable to the leases for these two facilities.

The asset purchase and sale transaction was accounted for as a financing arrangement and, since we did not derecognize the real property related to Aiken and Canyon Creek, we will continue to depreciate the assets. Our consolidated balance sheet as of September 30, 2022 reflects a financial liability of $81.7 million, which is included in debt, related to this transaction. Our monthly lease payments payable to the Trust will be recorded to interest expense and as a reduction to the outstanding financial liability.

The aggregate rental for the leases on the four wholly-owned hospital facilities with the Trust was approximately $5 million and $15 million during the three and nine months ended September 30, 2022, respectively. The aggregate rental for the leases on the three wholly-owned hospital facilities with the Trust was approximately $4 million and $13 million during the three and nine months ended September 30, 2021, respectively.

Pursuant to the Master Leases by certain subsidiaries of ours and the Trust as described in the table below, dated 1986 and 2021 (“the Master Leases”) which govern the leases of McAllen Medical Center and Wellington Regional Medical Center (each of which is governed by the Master Lease dated 1986), and Aiken Regional Medical Center and Canyon Creek Behavioral Health (each of which is governed by the Master Lease dated 2021), 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 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.

In addition, we are the managing, majority member in a joint venture with an unrelated third-party that operates Clive Behavioral Health, a 100-bed behavioral health care facility located in Clive, Iowa. The real property of this newly constructed facility, which was completed and opened in late 2020, is also leased from the Trust pursuant to the lease terms as provided in the table below. The rental on this facility was approximately $657,000 and $631,000 for the three months ended September 30, 2022 and 2021, respectively, and approximately $2.0 million and $1.8 million for the nine months ended September 30, 2022 and 2021, respectively. In connection with the lease on this facility, the joint venture has the right to purchase the leased facility from the Trust at its appraised fair market value upon either of the following: (i) by providing notice at least 270 days prior to the end of the lease terms or any renewal terms, or; (ii) upon 30 days’ notice anytime within 12 months of a change of control of the Trust. Additionally, the joint venture has rights of first offer to purchase the facility prior to any third-party sale.

The table below provides certain details for each of the hospitals leased from the Trust as of September 30, 2022:

Hospital NameAnnual Minimum RentEnd of Lease TermRenewal Term (years)
McAllen Medical Center$5,485,000December, 20265(a)
Wellington Regional Medical Center$6,319,000December, 20265(b)
Aiken Regional Medical Center/Aurora Pavilion Behavioral Health Services$3,895,000December, 203335(c)
Canyon Creek Behavioral Health$1,670,000December, 203335(c)
Clive Behavioral Health Hospital$2,628,000December, 204050(d)
(a)We have one 5-year renewal option at existing lease rates (through 2031).
(b)We have one 5-year renewal options at fair market value lease rates (through 2031). Upon the December 31, 2021 expiration of the lease on Wellington Regional Medical Center, a wholly-owned subsidiary of ours exercised its fair market value renewal option and renewed the lease for a 5-year term scheduled to expire on December 31, 2026. Effective January 1, 2022, the annual fair market value lease rate for this hospital is $6.3 million (there is no longer a bonus rental component of the lease payment). Beginning on January 1, 2023, and thereafter on each January 1st through 2026, the annual rent will increase by 2.50% on a cumulative and compounded basis.
(c)We have seven 5-year renewal options at fair market value lease rates (2034 through 2068).
(d)This facility is operated by a joint venture in which we are the managing, majority member and an unrelated third-party holds a minority ownership interest. The joint venture has three, 10-year renewal options at computed lease rates as stipulated in the lease (2041 through 2070) and two additional, 10-year renewal options at fair market values lease rates (2071 through 2090). Beginning in January, 2022, and thereafter in each January through 2040 (and potentially through 2070 if three, 10-year renewal options are exercised), the annual rental will increase by 2.75% on a cumulative and compounded basis.

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

In January, 2022, the Trust commenced construction on a new 86,000 rentable square feet multi-tenant MOB that is located on the campus of Northern Nevada Sierra Medical Center in Reno, Nevada. Northern Nevada Sierra Medical Center, a 170-bed newly constructed acute care hospital owned and operated by a wholly-owned subsidiary of ours, was completed and opened in April, 2022. In connection with this MOB, which is expected to be completed and opened during the first quarter of 2023, a ground lease and a master flex lease was executed between a wholly-owned subsidiary of ours and the Trust, pursuant to the terms of which our subsidiary will master lease approximately 68% of the rentable square feet of the MOB at an initial minimum rent of $1.3 million annually. The master flex lease could be reduced during the term if certain conditions are met.

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, net, in premium payments during each of the 2022 and 2021 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 $76 million and $92 million as of September 30, 2022 and December 31, 2021, respectively. Any change in market value of our Premier shares since December 31, 2021 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, 2022. Additionally, Premier declared and paid quarterly cash dividends during each of the first three quarters of 2022 and 2021. Our share of the cash dividends amounted to approximately $470,000 and $400,000 for the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $1.4 million and $1.3 million for the nine-month periods ended September 30, 2022 and 2021, 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 he 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, 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, 2022, outside owners held noncontrolling, minority ownership interests of: (i) approximately 7% in an acute care facility located in Texas; (ii) 49%, 20%, 30%, 20%, 25%, 48% and 26% in seven behavioral health care facilities located in Arizona, Pennsylvania, Ohio, Washington, Missouri, Iowa and Michigan, respectively, and; (iii) approximately 5% in an acute care facility located in Nevada. The noncontrolling interest and redeemable noncontrolling interest balances of $49 million and $5 million, respectively, as of September 30, 2022, consist primarily of the third-party ownership interests in these hospitals.

In August 2022, we purchased the 20% noncontrolling ownership interest in a hospital majority owned by us, located in Washington D.C. for $51 million. We now have 100% ownership interest in the hospital. The noncontrolling interest balance was reclassified to retained earnings as of September 30, 2022 and is included in common stockholders’ equity in the accompanying condensed consolidated balance sheet and in retained earnings in the accompanying condensed consolidated statements of changes in equity.

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. Accordingly, the amounts recorded as redeemable noncontrolling interests on our Condensed Consolidated Balance Sheet reflects the estimated fair market value of these ownership interests.

(4) Treasury

Credit Facilities and Outstanding Debt Securities:

In June, 2022 we entered into a ninth amendment to our credit agreement dated as of November 15, 2010, as amended and restated as of September, 2012, August, 2014, October, 2018, August, 2021, and September, 2021, 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”). The ninth amendment provided for, among other things, the following: (i) a new incremental tranche A term loan facility in the aggregate principal amount of $700 million which is scheduled to mature on August 24, 2026, and; (ii) replaces the option to make Eurodollar borrowings (which bear interest by reference to the LIBOR Rate) with Term Benchmark Loans, which will bear interest by reference to the Secured Overnight Financing Rate (“SOFR”). The net proceeds generated from the incremental tranche A term loan facility were used to repay a portion of the borrowings that were previously outstanding under our revolving credit facility.

In September, 2021 we entered into an eighth amendment to our Credit Agreement which modified the definition of “Adjusted LIBO Rate”.

In August, 2021 we entered into a seventh amendment to our Credit Agreement which, among other things, provided for the following:

oa $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, 2022, this facility had $189 million of borrowings outstanding and $1.007 billion of available borrowing capacity, net of $4 million of outstanding letters of credit;
oa $1.7 billion initial tranche A term loan facility which was subsequently increased by $700 million in June, 2022 by the above-mentioned ninth amendment. The seventh amendment also provided for repayment of $150 million of borrowings outstanding pursuant to the previous tranche A term loan facility, and;
orepayment of approximately $488 million of outstanding borrowings and termination of the previous tranche B term loan facility.

The terms of the tranche A term loan facility, as amended, which had $2.353 billion of outstanding borrowings as of September 30, 2022, provides for installment payments of $15.0 million per quarter during the period of September, 2022 through September, 2023, and $30.0 million per quarter during the period of December, 2023 through June, 2026. The unpaid principal balance at June 30, 2026 is payable on the August 24, 2026 scheduled maturity date of the Credit Agreement.

Revolving credit and tranche A term loan 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 SOFR 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%, or (2) the one, three or six month SOFR rate plus 0.1% (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%. As of September 30, 2022, the applicable margins were 0.50% for ABR-based loans and 1.50% for SOFR-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, indebtedness, transactions with affiliates, dividends and stock repurchases; and requires compliance with financial covenants including maximum leverage. We were in compliance with all required covenants as of September 30, 2022 and December 31, 2021.

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:

oIssued $700 million of aggregate principal amount of 1.65% senior secured notes due on September 1, 2026, and;
oIssued $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. In April, 2022, the Securitization was amended (the ninth amendment) to extend the maturity date to July 22, 2022. In July, 2022, the Securitization was amended (the tenth amendment) to extend the maturity date to September 20, 2022. In September, 2022, the Securitization was amended (the eleventh amendment) to extend the maturity date to December 20, 2022. Substantially all other material terms and conditions remained unchanged. There were no borrowings outstanding pursuant to the Securitization as of September 30, 2022.

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, 2022, 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 August 24, 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 August 24, 2021.

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.

As discussed in Note 2 to the Consolidated Financial Statements-Relationship with Universal Health Realty Income Trust and Other Related Party Transactions, on December 31, 2021, we (through wholly-owned subsidiaries of ours) entered into an asset purchase and sale agreement with Universal Health Realty Income Trust (the “Trust”). Pursuant to the terms of the agreement, which was amended during the first quarter of 2022, we, among other things, transferred to the Trust, the real estate assets of Aiken Regional Medical Center (“Aiken”) and Canyon Creek Behavioral Health (“Canyon Creek”). In connection with this transaction, Aiken and Canyon Creek (as lessees), entered into a master lease and individual property leases, as amended, (with the Trust as lessor), for initial lease terms on each property of approximately twelve years, ending on December 31, 2033. As a result of our purchase option within the Aiken and Canyon Creek lease agreements, this asset purchase and sale transaction is accounted for as a failed sale leaseback in accordance with U.S. GAAP and we have accounted for the transaction as a financing arrangement. Our lease payments payable to the Trust are recorded to interest expense and as a reduction of the outstanding financial liability, and the amount allocated to interest expense is determined based upon our incremental borrowing rate and the outstanding financial liability. In connection with this transaction, our Consolidated Balance Sheets at September 30, 2022 and December 31, 2021 reflect financial liabilities, which are included in debt, of approximately $82 million as of each date.

At September 30, 2022, the carrying value and fair value of our debt were approximately $4.7 billion and $4.3 billion, respectively. At December 31, 2021, the carrying value and fair value of our debt were each approximately $4.2 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.

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 $177 million and $4 million during the nine-month periods ended September 30, 2022 and 2021, 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, 2022 and 2021 (in thousands):

Gain/(Loss) recognized in AOCI
Three months endedNine months ended
September 30,September 30,September 30,September 30,
2022202120222021
Net Investment Hedge relationships
Foreign currency foreign exchange contracts$120,043$26,152$201,619$(4,879)

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,
202220212021
Cash and cash equivalents$74,571$189,743$115,301
Restricted cash (a)90,81054,67463,633
Total cash, cash equivalents and restricted cash$165,381$244,417$178,934
(a) Restricted cash 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 atBalance SheetBasis of Fair Value Measurement
(in thousands)September 30, 2022LocationLevel 1Level 2Level 3
Assets:
Money market mutual funds106,360Other assets106,360
Certificates of deposit2,200Other assets2,200
Equity securities75,777Other assets75,777
Deferred compensation assets36,343Other assets36,343
Foreign currency exchange contracts25,762Other current assets25,762
$246,442$218,480$27,962-
Liabilities:
Deferred compensation liability36,343Other noncurrent liabilities36,343
$36,343$36,343--
Balance atBalance SheetBasis of Fair Value Measurement
(in thousands)December 31, 2021LocationLevel 1Level 2Level 3
Assets:
Money market mutual funds79,900Other assets79,900
Certificates of deposit2,300Other assets2,300
Equity securities91,919Other assets91,919
Deferred compensation assets45,759Other assets45,759
Foreign currency exchange contracts1,357Other current assets1,357
$221,235$217,578$3,657-
Liabilities:
Deferred compensation liability45,759Other noncurrent liabilities$45,759
$45,759$45,759--

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.

(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 2022 and 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 and aggregate self-insured retention or underlying policy limits up to $162.5 million in 2022; $155 million in 2021 and $250 million during each of 2014 through 2020. 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 £16 million of professional liability coverage, and £25 million of general liability coverage.

As of September 30, 2022, the total net accrual for our professional and general liability claims was $388 million, of which $74 million was included in current liabilities. As of December 31, 2021, the total net accrual for our professional and general liability claims was $349 million, of which $74 million was included in current liabilities.

As a result of unfavorable trends experienced during 2022 and 2021, our results of operations included pre-tax increases to our reserves for self-insured professional and general liability claims amounting to approximately $16 million during the nine-month

period ended September 30, 2022 (recorded during the second quarter of 2022) and $41 million during the nine-month period ended September 30, 2021 ($36 million and $5 million recorded during the second and third quarters of 2021, respectively). 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, 2022, the total accrual for our workers’ compensation liability claims was $123 million, $55 million of which was included in current liabilities. As of December 31, 2021, the total accrual for our workers’ compensation liability claims was $115 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) $150 million limitation for our facilities located in California; (ii) $100 million limitation for our facilities located in fault zones within the United States; (iii) $40 million limitation for our facilities located in Puerto Rico, and; (iv) $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.

Although we are unable to predict whether or not our future financial statements will require updates to estimates for our 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.

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:

Knight v. Miller, et. al.

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 filed a motion to dismiss the complaint and the court granted part and denied part of our motion. During the third quarter of 2022, we have reached a preliminary settlement, which will not have a material impact on our consolidated financial statements, pending finalization of certain outstanding items, preparation of settlement documentation and court approval. We are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter in the event the settlement is not finalized and approved by the court.

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 claimed 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 included claims for breach of contract, breach of fiduciary duty, and unjust enrichment. We denied liability and defended 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.

During the second quarter of 2022 the parties reached a settlement which was subject to regulatory approval from the District of Columbia’s State Health Planning and Development Agency. Regulatory approval was granted during the third quarter of 2022 at which time the settlement was finalized and the litigation was dismissed. The settlement, which did not have a material impact on our consolidated financial statements, provided for, among other things: (i) the purchase by us of the University’s 20% minority ownership interest in GW Hospital; (ii) a new ground lease related to GW Hospital, and; (iii) annual payments from us to the University for academic mission support and trademark royalties.

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 FY 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. Although the Third Circuit Court of Appeal agreed to hear an appeal of the trial court’s order granting class certification, the appeal was denied and the class certification was affirmed. As a result, the stay of the case in the trial court pending conclusion of the appellate proceedings has been lifted. We maintain commercial insurance coverage for claims of this nature, subject to specified deductibles and limitations. During the third quarter of 2022, the parties have reached a preliminary settlement, within the policy limitations of our commercial insurance coverage after satisfaction of specified deductibles, pending preparation, execution and finalization of settlement documents as well as court approval of the settlement. We are uncertain as to potential liability or financial exposure, if any, which may be associated with this matter in the event the preliminary settlement is not finalized and approved by the court.

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 President and Chief Executive Officer 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, 2021. 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, 2022
Acute Care Hospital ServicesBehavioral Health Services (a)OtherTotal Consolidated
(Amounts in thousands)
Gross inpatient revenues$9,875,794$2,582,448$-$12,458,242
Gross outpatient revenues$6,379,324$248,167$-$6,627,491
Total net revenues$1,919,678$1,434,828$(18,479)$3,336,027
Income/(loss) before allocation of corporate overhead and income taxes$129,241$237,949$(132,978)$234,212
Allocation of corporate overhead$(63,242)$(44,882)$108,124$0
Income/(loss) after allocation of corporate overhead and before income taxes$65,999$193,067$(24,854)$234,212
Total assets as of September 30, 2022$6,039,787$7,336,437$2,676$13,378,900
Nine months ended September 30, 2022
Acute Care Hospital ServicesBehavioral Health Services (a)OtherTotal Consolidated
(Amounts in thousands)
Gross inpatient revenues$29,821,756$7,580,475$37,402,231
Gross outpatient revenues$18,360,902$773,769$19,134,671
Total net revenues$5,707,510$4,235,215$9,665$9,952,390
Income/(loss) before allocation of corporate overhead and income taxes$372,981$693,694$(422,750)$643,925
Allocation of corporate overhead$(188,739)$(134,946)$323,685$0
Income/(loss) after allocation of corporate overhead and before income taxes$184,242$558,748$(99,065)$643,925
Total assets as of September 30, 2022$6,039,787$7,336,437$2,676$13,378,900
Three months ended September 30, 2021
Acute Care Hospital ServicesBehavioral Health Services (a)OtherTotal Consolidated
(Amounts in thousands)
Gross inpatient revenues$9,497,975$2,470,401$0$11,968,376
Gross outpatient revenues$5,343,246$242,976$0$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$0
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 ServicesBehavioral Health Services (a)OtherTotal Consolidated
(Amounts in thousands)
Gross inpatient revenues$27,279,494$7,471,742$0$34,751,236
Gross outpatient revenues$15,281,854$756,068$0$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
(a)Includes net revenues generated from our behavioral health care facilities located in the U.K. amounting to approximately $167 million and $174 million for the three-month periods ended September 30, 2022 and 2021, respectively, and approximately $516 million and $511 million for the nine-month periods ended September 30, 2022 and 2021, respectively. Total assets at our U.K. behavioral health care facilities were approximately $1.119 billion and $1.338 billion as of September 30, 2022 and 2021, 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,
2022202120222021
Basic and Diluted:
Net income attributable to UHS$182,814$218,351$500,789$752,466
Less: Net income attributable to unvested restricted share grants(179)(396)(592)(1,609)
Net income attributable to UHS – basic and diluted$182,635$217,955$500,197$750,857
Weighted average number of common shares - basic72,59582,26273,76983,756
Net effect of dilutive stock options and grants based on the treasury stock method4651,4117431,275
Weighted average number of common shares and equivalents - diluted73,06083,67374,51285,031
Earnings per basic share attributable to UHS:$2.52$2.65$6.78$8.96
Earnings per diluted share attributable to UHS:$2.50$2.60$6.71$8.83

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 6.7 million for the three months ended September 30, 2022 and 6.0 million for the nine months ended September 30, 2022. 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. All classes of our common stock have the same dividend rights.

Stock-Based Compensation:

During the three-month periods ended September 30, 2022 and 2021, pre-tax compensation costs of $15.8 million and $14.6 million, respectively, was recognized related to outstanding stock options. During the nine-month periods ended September 30, 2022 and 2021, pre-tax compensation costs of $48.6 million and $44.8 million, respectively, was recognized related to outstanding stock options. In addition, during the three-month periods ended September 30, 2022 and 2021, pre-tax compensation cost of approximately $4.9 million and $3.5 million, respectively, was recognized related to restricted stock awards, restricted stock units and performance based restricted stock units. During the nine-month periods ended September 30, 2022 and 2021, pre-tax compensation cost of approximately $13.0 million and $9.6 million, respectively, was recognized related to restricted stock awards, restricted stock units and performance based restricted stock units. As of September 30, 2022 there was approximately $170.0 million of unrecognized compensation cost related to unvested options, restricted stock awards, restricted stock units and performance based restricted stock units which is expected to be recognized over the remaining weighted average vesting period of 2.8 years. There were 1,828,573 stock options granted during the first nine months of 2022 with a weighted-average grant date fair value of $45.63 per option. There were an aggregate of 250,089 restricted units granted during the first nine months of 2022, including 73,782 performance based restricted stock units, with a weighted-average grant date fair value of $142.70 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 $62.7 million and $55.5 million during the nine-month periods ended September 30, 2022 and 2021.

(9) Dispositions and acquisitions

Nine-month period ended September 30, 2022:

Acquisitions:

During the first nine months of 2022, we spent $19 million on the acquisition of businesses and property. In addition, in August, we spent $51 million to acquire the 20% noncontrolling ownership interest in a hospital majority owned by us, located in Washington D.C.

Divestitures:

During the first nine months of 2022, we received $12 million from the sales of assets and businesses.

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.

(10) Dividends

We declared and paid dividends of $14.6 million, or $.20 per share, during the third quarter of 2022 and $16.4 million, or $.20 per share, during the third quarter of 2021. We declared and paid dividends of $44.2 million, or $.60 per share during the nine-month period ended September 30, 2022 and $50.3 million, or $.60 per share, during the nine-month period ended September 30, 2021. Included in the amounts above were dividend equivalents applicable to unvested restricted stock units which were accrued during 2022 and 2021 and will be, or were, paid upon vesting of the restricted stock unit.

(11) Income Taxes

Our effective income tax rates were 24.5% and 23.5% during the three-month periods ended September 30, 2022, and 2021, respectively, and 24.4% and 23.6% during the nine-month periods ended September 30, 2022, and 2021, respectively. The increase in the effective tax rates during the three and nine-month periods ended September 30, 2022, as compared to the comparable periods of 2021, was primarily due to the decreases in net income attributable to noncontrolling interests during the three and nine-month periods ended September 30, 2022, as compared to the comparable periods of 2021.

The global intangible low-taxed income (“GILTI”) provisions from 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, 2022 and 2021.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act of 2022 (“the Act”). The Act includes tax provisions, among other things, which implements (i) a 15 percent minimum tax on book income of certain large corporations; (ii) a one percent excise tax on net stock repurchases, and; (iii) several tax incentives to promote clean energy. We do not expect the Act to have a material impact on our income tax provision.

As of January 1, 2022, 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, 2022, 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, 2022, we have less than $1 million of accrued interest and penalties. The U.S. federal statute of limitations remains open for 2018 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

We recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which we expect 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, 2022 and 2021 (in thousands):

For the three months ended September 30, 2022
Acute CareBehavioral HealthOtherTotal
Medicare$314,78516%$86,1256%$400,91012%
Managed Medicare305,23916%78,5545%383,79312%
Medicaid200,65610%195,65614%396,31212%
Managed Medicaid213,72311%373,45626%587,17918%
Managed Care (HMO and PPOs)631,67033%363,44225%995,11230%
UK Revenue00%166,84312%166,8435%
Other patient revenue and adjustments, net38,4272%115,9698%154,3965%
Other non-patient revenue215,17811%54,7834%(18,479)251,4828%
Total Net Revenue$1,919,678100%$1,434,828100%$(18,479)3,336,027100%
For the nine months ended September 30, 2022
Acute CareBehavioral HealthOtherTotal
Medicare$970,06017%$248,9876%$1,219,04712%
Managed Medicare944,07217%213,2815%1,157,35312%
Medicaid540,5909%554,97013%1,095,56011%
Managed Medicaid547,45210%1,071,79225%1,619,24416%
Managed Care (HMO and PPOs)1,898,04033%1,104,65826%3,002,69830%
UK Revenue00%516,16612%516,1665%
Other patient revenue and adjustments, net204,6604%362,6979%567,3576%
Other non-patient revenue602,63611%162,6644%9,665774,9658%
Total Net Revenue$5,707,510100%$4,235,215100%$9,665$9,952,390100%
For the three months ended September 30, 2021
Acute CareBehavioral HealthOtherTotal
Medicare$310,48317%$96,2197%$406,70213%
Managed Medicare280,67415%66,2495%346,92311%
Medicaid136,9898%146,28111%283,2709%
Managed Medicaid176,49710%326,78925%503,28616%
Managed Care (HMO and PPOs)674,39637%349,27526%1,023,67132%
UK Revenue00%173,72813%173,7286%
Other patient revenue and adjustments, net69,9354%117,4429%187,3776%
Other non-patient revenue173,0539%52,3104%5,679231,0427%
Total Net Revenue$1,822,027100%$1,328,293100%$5,679$3,155,999100%
For the nine months ended September 30, 2021
Acute CareBehavioral HealthOtherTotal
Medicare$954,20718%$277,4387%$1,231,64513%
Managed Medicare830,62716%185,3235%1,015,95011%
Medicaid418,3358%526,94513%945,28010%
Managed Medicaid473,2569%995,74924%1,469,00516%
Managed Care (HMO and PPOs)1,862,01235%1,070,16526%2,932,17731%
UK Revenue00%510,61413%510,6145%
Other patient revenue and adjustments, net248,3425%366,6699%615,0117%
Other non-patient revenue484,2219%142,2243%20,739647,1847%
Total Net Revenue$5,271,000100%$4,075,127100%$20,739$9,366,866100%

(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 ten years. These real estate leases may include one or more options to renew, with renewals that can extend the lease term from five to ten 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.

Five of our hospital facilities are held under operating leases with Universal Health Realty Income Trust with two leases expiring in 2026, two expiring in 2033 and one expiring in 2040 (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, 2022 and 2021 are as follows (in thousands):

Nine months ended September 30,
20222021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$93,153$88,113
Operating cash flows from finance leases$2,986$3,507
Financing cash flows from finance leases$2,621$2,315
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$145,446$20,292
Finance leases$1,066$7,690

(14) Recent Accounting Standards

In November 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832)” (“ASU 2021-10”). ASU 2021-10 provides guidance to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. ASU 2021-10 applies to all business entities that account for a transaction with a government by applying a grant or contribution accounting model by analogy to other accounting guidance (for example, a grant model within IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, or Subtopic 958-605, Not-For-Profit Entities—Revenue Recognition). ASU 2021-10 is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on our results of operations, cash flows or financial position.

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. The pronouncement is effective immediately and can be applied to contract modifications through December 31, 2022. To the extent that, prior to December 31, 2022, the Company enters into any contract modifications for which the optional expedients are applied, the adoption of this standard is not expected to have a material impact on our results of operations, cash flows or financial position.

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