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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION TO MANAGEMENT’S DISCUSSION AND ANALYSIS

The purpose of this section, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the context within which our financial information may be analyzed, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows. MD&A, which should be read in conjunction with the accompanying Consolidated Financial Statements, includes the following sections:

•Management Overview

•Sources of Revenue for Our Hospital Operations Segment

•Results of Operations

•Liquidity and Capital Resources

•Off-Balance Sheet Arrangements

•Recently Issued Accounting Standards

•Critical Accounting Estimates

Our Hospital Operations and other (“Hospital Operations”) segment is comprised of our acute care and specialty hospitals, ancillary outpatient facilities, urgent care centers, micro-hospitals and physician practices. As described in Note 5 to the accompanying Consolidated Financial Statements, certain of these facilities were classified as held for sale at December 31, 2020 and 2019. Our Ambulatory Care segment is comprised of the operations of USPI Holding Company, Inc. (“USPI”), in which we own a 95% interest, and included nine European Surgical Partners Limited facilities until their divestiture effective August 17, 2018. At December 31, 2020, USPI had interests in 308 ambulatory surgery centers (“ASCs”), 40 urgent care centers, 24 imaging centers and 24 surgical hospitals in 31 states. As described in Note 5 to the accompanying Consolidated Financial Statements, certain of these facilities were classified as held for sale at December 31, 2020. Our Conifer segment provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients, through our Conifer Holdings, Inc. (“Conifer”) subsidiary. Nearly all of the services comprising the operations of our Conifer segment are provided by Conifer Health Solutions, LLC, in which we owned a 76.2% interest as of December 31, 2020, or by one of its direct or indirect wholly owned subsidiaries.

As described in Note 1 to the accompanying Consolidated Financial Statements, our results for prior periods have been recast to reflect retrospective application of a change in accounting principle. Unless otherwise indicated, all financial and statistical information included in MD&A relates to our continuing operations, with dollar amounts expressed in millions (except per adjusted patient admission and per adjusted patient day amounts). Continuing operations information includes the results of our same 65 hospitals operated throughout the years ended December 31, 2020 and 2019, and the three Chicago‐area hospitals we divested effective January 28, 2019. Continuing operations information excludes the results of our hospitals and other businesses that have been classified as discontinued operations for accounting purposes.

MANAGEMENT OVERVIEW

RECENT DEVELOPMENTS

Acquisition of Ambulatory Surgery Centers—In December 2020, we acquired controlling ownership interests in 45 ASCs (collectively, the “SCD Centers”) from SurgCenter Development and physician owners for an aggregate purchase price of approximately $1.1 billion and the assumption of approximately $18 million of center-level debt. The transaction was fully funded with cash on hand separate from grant funds we have received from COVID-19 relief legislation, as described below. USPI will provide management services to each of the SCD Centers pursuant to the terms of management service agreements. The acquisition of the SCD Centers increased the number of USPI’s ASCs by more than 15%. In addition, it significantly expanded USPI’s presence in the musculoskeletal surgery market, a high-demand clinical service line. The SCD Centers complement our facilities in existing markets in Arizona, Florida and Texas, while also giving USPI a foothold in newer markets, such as Maryland and Wisconsin.

Definitive Agreement to Sell Urgent Care Platform—Also in December 2020, we entered into a definitive agreement to sell the majority of our urgent care centers operated under the MedPost and CareSpot brands to an unaffiliated independent urgent care provider. These facilities, along with related assets, were classified as held for sale in the accompanying

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Consolidated Balance Sheet at December 31, 2020. We expect the transaction to be completed in the three months ending March 31, 2021, subject to regulatory approvals and customary closing conditions.

Redemption of Senior Unsecured Notes—In February 2021, we announced plans to redeem all $478 million aggregate principal amount outstanding of our 7.000% senior unsecured notes due 2025. We expect this redemption to result in annual interest savings of approximately $33 million.

IMPACT OF THE COVID-19 PANDEMIC

In 2020, the COVID-19 pandemic impacted all three segments of our business, as well as our patients, communities and employees. The spread of COVID-19 and the ensuing response of federal, state and local authorities beginning in March 2020 resulted in a material reduction in our patient volumes and also adversely affected our net operating revenues in the year ended December 31, 2020. In accordance with governmental mandates, from mid‐March through early May 2020, we suspended elective procedures at many of our hospitals and ASCs; we also voluntarily reduced operating hours or temporarily closed some of our outpatient centers during this time. Restrictive measures, including travel bans, social distancing, quarantines and shelter-in-place orders, also reduced the number of procedures performed at our facilities more generally, as well as the volume of emergency room and physician office visits. We began experiencing gradual and continued improvement in patient volumes in May 2020 as various states eased stay-at-home restrictions and our facilities were permitted to resume elective surgeries and other procedures. Broad economic factors resulting from the COVID-19 pandemic, including increased unemployment rates and reduced consumer spending, also impacted our patient volumes, service mix and revenue mix in the year ended December 31, 2020. The pandemic had an adverse effect on our operating expenses in 2020, as well. In some of our markets, we were required to utilize higher-cost temporary labor and pay premiums above standard compensation for essential workers. We also experienced significant price increases in medical supplies, particularly for personal protective equipment. Moreover, we encountered supply chain disruptions, including shortages and delays. We continue to experience many of the aforementioned effects of the COVID-19 pandemic on our business in varying degrees.

As described under “Sources of Revenue for Our Hospital Operations Segment” below, various legislative actions have mitigated some of the economic disruption caused by the COVID-19 pandemic on our business. Additional funding for the Public Health and Social Services Emergency Fund (“Provider Relief Fund” or “PRF”) was among the provisions of the COVID-19 relief legislation. In the year ended December 31, 2020, we received cash payments of $974 million, and we recognized approximately $882 million and $17 million as grant income and in equity in earnings of unconsolidated affiliates, respectively, in our accompanying Consolidated Statements of Operations due to grants from the PRF and other state and local grant programs. In the year ended December 31, 2020, we also received advance payments of approximately $1.5 billion from the Medicare accelerated payment program due to the revisions to that program under COVID-19 relief legislation. We expect to repay these advances within the allocated recoupment period.

Throughout MD&A, we have provided additional information on the impact of the COVID-19 pandemic on our results of operations and the steps we have taken, and are continuing to take, in response. The ultimate extent and scope of the pandemic remains unknown. For information about risks and uncertainties around COVID-19 that could affect our results of operations, financial condition and cash flows, see the Risk Factors section in Part I of this report.

TRENDS AND STRATEGIES

As described above and throughout MD&A, we experienced a significant disruption to our business in 2020 due to the COVID-19 pandemic. Although we have seen gradual and continued improvement in our patient volumes since mid-year, we continue to experience negative impacts of the pandemic on our business in varying degrees, the length and extent of which are currently unknown. While demand for our services is expected to further rebound in the future, we have taken, and continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and operating revenues from the pandemic. In the year ended December 31, 2020, we sold new senior notes and senior secured first lien notes, redeemed existing senior notes with the highest interest rate and nearest maturity date of all of our long-term debt, and amended our revolving credit facility, all as described below. We also reduced our planned capital expenditures for 2020 by approximately 25%. Furthermore, we decreased our employee headcount throughout the organization, and we deferred certain operating expenses that were not expected to impact our response to the COVID-19 pandemic. In addition, we reduced certain variable costs across the enterprise. We believe these actions, together with government relief packages, to the extent available to us, will help us to continue operating during the uncertainty caused by the COVID-19 pandemic. For further information on our liquidity, see “Liquidity and Capital Resources” below.

In recent years, the healthcare industry, in general, and the acute care hospital business, in particular, have also been experiencing significant regulatory uncertainty based, in large part, on administrative, legislative and judicial efforts to

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significantly modify or repeal and potentially replace the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act” or “ACA”). It is difficult to predict the full impact of regulatory uncertainty on our future revenues and operations. In addition, we believe that several key trends have shaped the demand for healthcare services in recent years: (1) consumers, employers and insurers are actively seeking lower-cost solutions and better value as they focus more on healthcare spending; (2) patient volumes are shifting from inpatient to outpatient settings due to technological advancements and demand for care that is more convenient, affordable and accessible; (3) the growing aging population requires greater chronic disease management and higher-acuity treatment; and (4) consolidation continues across the entire healthcare sector.

Driving Growth in Our Hospital Systems—We are committed to better positioning our hospital systems and competing more effectively in the ever-evolving healthcare environment by focusing on driving performance through operational effectiveness, increasing capital efficiency and margins, investing in our physician enterprise, particularly our specialist network, enhancing patient and physician satisfaction, growing our higher-demand and higher-acuity clinical service lines (including outpatient lines), expanding patient and physician access, and optimizing our portfolio of assets. Over the past several years, we have undertaken enterprise-wide cost reduction initiatives, comprised primarily of workforce reductions (including streamlining corporate overhead and centralized support functions), the renegotiation of contracts with suppliers and vendors, and the consolidation of office locations. Moreover, we established offshore support operations in the Philippines. In conjunction with these initiatives and our cost-saving efforts in response to the COVID-19 pandemic, we incurred restructuring charges related to employee severance payments of $65 million in the year ended December 31, 2020, and we expect to incur additional such restructuring charges in 2021.

We also continue to exit service lines, businesses and markets that we believe are no longer a core part of our long-term growth strategy. In December 2020, we entered into a definitive agreement to sell the majority of our urgent care centers operated under the MedPost and CareSpot brands from our Hospital Operations and Ambulatory Care segments. We intend to continue to further refine our portfolio of hospitals and other healthcare facilities when we believe such refinements will help us improve profitability, allocate capital more effectively in areas where we have a stronger presence, deploy proceeds on higher-return investments across our business, enhance cash flow generation, reduce our debt and lower our ratio of debt-to-Adjusted EBITDA.

Improving the Customer Care Experience—As consumers continue to become more engaged in managing their health, we recognize that understanding what matters most to them and earning their loyalty is imperative to our success. As such, we have enhanced our focus on treating our patients as traditional customers by: (1) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (2) expanding service lines aligned with growing community demand, including a focus on aging and chronic disease patients; (3) offering greater affordability and predictability, including simplified registration and discharge procedures, particularly in our outpatient centers; (4) improving our culture of service; and (5) creating health and benefit programs, patient education and health literacy materials that are customized to the needs of the communities we serve. Through these efforts, we intend to improve the customer care experience in every part of our operations.

Expansion of Our Ambulatory Care Segment—We continue to focus on opportunities to expand our Ambulatory Care segment through organic growth, building new outpatient centers, corporate development activities and strategic partnerships. In December 2020, we acquired controlling ownership interests in the SCD Centers, which significantly increased USPI’s presence in the musculoskeletal surgery market, a high-demand clinical service line, particularly for an aging population. We also acquired controlling interests in seven additional ASCs and one imaging center, opened two new ASCs and opened one urgent care center during the year ended December 31, 2020. We believe USPI’s ASCs and surgical hospitals offer many advantages to patients and physicians, including greater affordability, predictability, flexibility and convenience. Moreover, due in part to advancements in medical technology, and due to the lower cost structure and greater efficiencies that are attainable at a specialized outpatient site, we believe the volume and complexity of surgical cases performed in an outpatient setting will continue to increase following the containment of the COVID-19 pandemic. Historically, our outpatient services have generated significantly higher margins for us than inpatient services.

Driving Conifer’s Growth While Pursuing a Tax-Free Spin-Off—We previously announced a number of actions to support our goals of improving financial performance and enhancing shareholder value, including the exploration of strategic alternatives for Conifer. In July 2019, we announced our intention to pursue a tax-free spin-off of Conifer as a separate, independent, publicly traded company. Completion of the proposed spin-off is subject to a number of conditions, including, among others, assurance that the separation will be tax-free for U.S. federal income tax purposes, execution of a restructured long-term services agreement between Conifer and Tenet, finalization of Conifer’s capital structure, the effectiveness of appropriate filings with the SEC, and final approval from our board of directors. Although we are continuing to pursue the

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Conifer spin-off, there can be no assurance regarding the timeframe for completion, the allocation of assets and liabilities between Tenet and Conifer, that the other conditions of the spin-off will be met, or that it will be completed at all.

Conifer serves approximately 630 Tenet and non-Tenet hospital and other clients nationwide. In addition to providing revenue cycle management services to health systems and physicians, Conifer provides support to both providers and self-insured employers seeking assistance with clinical integration, financial risk management and population health management. Conifer remains focused on driving growth by continuing to market and expand its revenue cycle management and value-based care solutions businesses. We believe that our success in growing Conifer and increasing its profitability depends in part on our success in executing the following strategies: (1) attracting hospitals and other healthcare providers that currently handle their revenue cycle management processes internally as new clients; (2) generating new client relationships through opportunities from USPI and Tenet’s acute care hospital acquisition and divestiture activities; (3) expanding revenue cycle management and value-based care service offerings through organic development and small acquisitions; and (4) leveraging data from tens of millions of patient interactions for continued enhancement of the value-based care environment to drive competitive differentiation.

Improving Profitability—As we return to more normal operations, we will continue to focus on growing patient volumes and effective cost management as a means to improve profitability. We believe our inpatient admissions have been constrained in recent years (prior to the COVID-19 pandemic) by increased competition, utilization pressure by managed care organizations, new delivery models that are designed to lower the utilization of acute care hospital services, the effects of higher patient co-pays, co-insurance amounts and deductibles, changing consumer behavior, and adverse economic conditions and demographic trends in certain of our markets. However, we also believe that emphasis on higher-demand clinical service lines (including outpatient services), focus on expanding our ambulatory care business, cultivation of our culture of service, participation in Medicare Advantage health plans that have been experiencing higher growth rates than traditional Medicare, and contracting strategies that create shared value with payers should help us grow our patient volumes over time. We are also continuing to explore new opportunities to enhance efficiency, including further integration of enterprise-wide centralized support functions, outsourcing additional functions unrelated to direct patient care, and reducing clinical and vendor contract variation.

Reducing Our Leverage Over Time—All of our outstanding long-term debt has a fixed rate of interest, except for outstanding borrowings under our revolving credit facility, and the maturity dates of our notes are staggered from 2023 through 2031. We believe that our capital structure minimizes the near-term impact of increased interest rates, and the staggered maturities of our debt allow us to refinance our debt over time. Although we issued $1.300 billion aggregate principal amount of senior secured first lien notes in 2020 to manage our liquidity during the COVID-19 pandemic, it is nonetheless our long‐term objective to reduce our debt and lower our ratio of debt-to-Adjusted EBITDA, primarily through more efficient capital allocation and Adjusted EBITDA growth, which should lower our refinancing risk. Moreover, in 2020, we sold $2.500 billion aggregate principal amount of senior notes to finance the redemption of senior notes with the highest interest rate and nearest maturity date of all of our long-term debt. These transactions eliminated any significant debt maturities until June 2023, as well as reduced future annual cash interest expense payments by approximately $50 million.

Our ability to execute on our strategies and respond to the aforementioned trends is subject to the extent and scope of the impact on our operations of the COVID-19 pandemic, as well as a number of other risks and uncertainties, all of which may cause actual results to be materially different from expectations. For information about risks and uncertainties that could affect our results of operations, see the Forward-Looking Statements and Risk Factors sections in Part I of this report.

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RECENT RESULTS OF OPERATIONS

We have provided below certain selected operating statistics for the three months ended December 31, 2020 and 2019 on a continuing operations basis, which includes the results of our same 65 hospitals operated throughout the three months ended December 31, 2020 and 2019 and the three Chicago-area hospitals we divested effective January 28, 2019. The following tables also show information about facilities in our Ambulatory Care segment that we control and, therefore, consolidate. We believe this information is useful to investors because it reflects our current portfolio of operations and the recent trends we are experiencing with respect to volumes, revenues and expenses. We present certain metrics on a per adjusted patient admission basis to show trends other than volume.

Continuing Operations

Three Months Ended December 31,

Selected Operating Statistics 2020 2019 Increase(Decrease)

Hospital Operations – hospitals and related outpatient facilities:

Number of hospitals (at end of period) 65 65 — (1)

Average length of stay (days) 5.18 4.66 11.2 %

Utilization of licensed beds(3) 49.9 % 50.3 % (0.4) % (1)

Ambulatory Care:

Total consolidated facilities (at end of period) 290 238 52 (1)

(1) The change is the difference between the 2020 and 2019 amounts shown.

Total admissions decreased by 18,121, or 10.6%, in the three months ended December 31, 2020 compared to the three months ended December 31, 2019, and total surgeries decreased by 10,932, or 10.3%, in the 2020 period compared to the 2019 period. Total emergency department visits decreased 24.4% in the three months ended December 31, 2020 compared to the same period in the prior year. The decrease in our patient volumes from continuing operations in the three months ended December 31, 2020 compared to the three months ended December 31, 2019 reflects the continued adverse impact of the COVID-19 pandemic. Our Ambulatory Care total cases increased 3.1% in the three months ended December 31, 2020 compared to the 2019 period.

Continuing Operations

Three Months Ended December 31,

Net operating revenues

Hospital Operations prior to inter-segment eliminations $ 4,065 $ 3,983 2.1 %

Inter-segment eliminations (143) (141) 1.4 %

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Net operating revenues increased by $109 million, or 2.3%, in the three months ended December 31, 2020 compared to the same period in 2019, primarily due to higher patient acuity, a more favorable payer mix, incremental revenue from new service lines, and improved terms of our managed care contracts, partially offset by the impact of lower patient volumes as a result of the COVID-19 pandemic. During the three months ended December 31, 2020, our Hospital Operations and Ambulatory Care segments were also impacted by the revised grant guidelines included in the Consolidated Appropriations Act, 2021, which was enacted on December 28, 2020, and the receipt of additional grant funds during the period primarily by our Ambulatory Care segment. As a result, our Hospital Operations and Ambulatory Care segments recognized grant income from federal, state and local programs totaling $406 million and $40 million ($9 million of which is included in equity in earnings of unconsolidated affiliates), respectively, in the three months ended December 31, 2020, which amounts are not included in net operating revenues.

Our accounts receivable days outstanding (“AR Days”) from continuing operations were 55.6 days at December 31, 2020 and 58.4 days at December 31, 2019, compared to our target of less than 55 days. AR Days are calculated as our accounts receivable from continuing operations on the last day of the quarter divided by our net operating revenues from continuing operations for the quarter ended on that date divided by the number of days in the quarter. This calculation includes our Hospital Operations contract assets, as well as the accounts receivable of the facilities in our urgent care platform that have been classified in assets held for sale on our Consolidated Balance Sheet at December 31, 2020, and excludes (i) three Chicago-area hospitals we divested effective January 28, 2019, and (ii) our California provider fee revenues.

Continuing Operations

Three Months Ended December 31,

Selected Operating Expenses 2020 2019 Increase(Decrease)

Hospital Operations

Ambulatory Care

Salaries, wages and benefits $ 171 $ 168 1.8 %

Other operating expenses 91 86 5.8 %

Conifer

Salaries, wages and benefits $ 162 $ 175 (7.4) %

Supplies 1 1 — %

Other operating expenses 70 62 12.9 %

Total

Salaries, wages and benefits $ 2,225 $ 2,230 (0.2) %

Rent/lease expense(1)

Hospital Operations $ 74 $ 62 19.4 %

(1) Included in other operating expenses.

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Continuing Operations

Three Months Ended December 31,

Hospital Operations

Supplies per adjusted patient admission(1) 2,583 2,190 17.9 %

Other operating expenses per adjusted patient admission(1) 3,480 2,885 20.6 %

Salaries, wages and benefits for our Hospital Operations segment increased $5 million, or 0.3%, in the three months ended December 31, 2020 compared to the same period in 2019. This change was primarily due to increased health benefits costs, an increased average length of patient stay, and the impact of higher temporary labor and premium pay, as well as annual merit increases for certain of our employees, a greater number of employed physicians and increased incentive compensation expense in the three months ended December 31, 2020 compared to the three months ended December 31, 2019. Our continued focus on strategic cost-reduction and efficiency measures partially mitigated the impact of the COVID-19 surges in our markets in the three months ended December 31, 2020. On a per adjusted patient admission basis, salaries, wages and benefits increased 17.7% in the three months ended December 31, 2020 compared to the three months ended December 31, 2019 primarily due to reduced patient volumes as a result of the COVID-19 pandemic.

Supplies expense for our Hospital Operations segment increased $4 million, or 0.6%, in the three months ended December 31, 2020 compared to the same period in 2019. This change was primarily attributable to increased costs for certain supplies as a result of the COVID-19 pandemic, as well as growth in our higher‐acuity, supply‐intensive surgical services, partially offset by the impact of the group-purchasing strategies and supplies-management services we utilize to reduce costs. On a per adjusted patient admission basis, supplies expense increased 17.9% in the three months ended December 31, 2020 compared to the three months ended December 31, 2019 primarily due to reduced patient volumes as a result of the pandemic.

Other operating expenses for our Hospital Operations segment increased $23 million, or 2.6%, in the three months ended December 31, 2020 compared to the same period in 2019. This increase was primarily due to higher medical fees, increased rent expense and higher information technology costs, partially offset by a gain on asset sales in the 2020 period related to the divestiture of a medical office building. There is proportionally a higher level of fixed costs (e.g., rent expense) in other operating expenses than salaries, wages and benefits or supplies expense. On a per adjusted patient admission basis, other operating expenses increased 20.6% in the three months ended December 31, 2020 compared to the three months ended December 31, 2019 due to reduced patient volumes as a result of the COVID-19 pandemic.

LIQUIDITY AND CAPITAL RESOURCES OVERVIEW

Cash and cash equivalents were $2.446 billion at December 31, 2020 compared to $3.300 billion at September 30, 2020.

Significant cash flow items in the three months ended December 31, 2020 included:

•Net cash provided by operating activities before interest, taxes, discontinued operations and restructuring charges, acquisition-related costs, and litigation costs and settlements of $734 million, including $52 million of cash received from federal, state and local grants;

•Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements of $81 million;

•Capital expenditures of $166 million;

•$1.116 billion of payments for the purchases of businesses or joint venture interests;

•Proceeds from sales of facilities and other assets of $64 million;

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•Interest payments of $205 million; and

•$103 million of distributions paid to noncontrolling interests.

Net cash provided by operating activities was $3.407 billion in the year ended December 31, 2020 compared to $1.233 billion in the year ended December 31, 2019. Key factors contributing to the change between the 2020 and 2019 periods include the following:

•Approximately $1.4 billion of cash advances received from Medicare pursuant to COVID-19 stimulus legislation;

•$900 million of cash received from federal, state and local grants, including the Provider Relief Fund;

•A $260 million deferral of our payroll tax match in 2020 pursuant to COVID-19 stimulus legislation;

•Decreased cash receipts of $81 million related to supplemental Medicaid programs in California and Texas;

•Higher interest payments of $16 million in the 2020 period;

•An increase of $141 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements; and

•The timing of other working capital items.

SOURCES OF REVENUE FOR OUR HOSPITAL OPERATIONS SEGMENT

We earn revenues for patient services from a variety of sources, primarily managed care payers and the federal Medicare program, as well as state Medicaid programs, indemnity-based health insurance companies and uninsured patients (that is, patients who do not have health insurance and are not covered by some other form of third-party arrangement).

The following table shows the sources of net patient service revenues less implicit price concessions for our hospitals and related outpatient facilities, expressed as percentages of net patient service revenues less implicit price concessions from all sources:

Years Ended December 31,

Indemnity and other 4.8 % 4.7 % 4.2 %

(1) Includes Medicare and Medicaid managed care programs.

Our payer mix on an admissions basis for our hospitals and related outpatient facilities, expressed as a percentage of total admissions from all sources, is shown below:

Years Ended December 31,

Charity and uninsured 6.3 % 6.0 % 6.0 %

Indemnity and other 2.9 % 2.7 % 2.6 %

(1) Includes Medicare and Medicaid managed care programs.

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GOVERNMENT PROGRAMS

The Centers for Medicare and Medicaid Services (“CMS”), an agency of the U.S. Department of Health and Human Services (“HHS”), is the single largest payer of healthcare services in the United States. Approximately 61 million individuals rely on healthcare benefits through Medicare, and approximately 77 million individuals are enrolled in Medicaid and the Children’s Health Insurance Program (“CHIP”). These three programs are authorized by federal law and administered by CMS. Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, as well as some younger people with certain disabilities and conditions, and is provided without regard to income or assets. Medicaid is co-administered by the states and is jointly funded by the federal government and state governments. Medicaid is the nation’s main public health insurance program for people with low incomes and is the largest source of health coverage in the United States. The CHIP, which is also co-administered by the states and jointly funded, provides health coverage to children in families with incomes too high to qualify for Medicaid, but too low to afford private coverage. Unlike Medicaid, the CHIP is limited in duration and requires the enactment of reauthorizing legislation. Funding for the CHIP has been reauthorized through federal fiscal year (“FFY”) 2027.

The Affordable Care Act

The expansion of Medicaid in the 38 states (including four in which we currently operate acute care hospitals) and the District of Columbia that have taken action to do so is financed through:

•negative adjustments to the annual market basket updates for the Medicare hospital inpatient and outpatient prospective payment systems, which began in 2010 and expired on September 30, 2019, as well as additional negative “productivity adjustments” to the annual market basket updates, which began in 2011 and do not expire under current law; and

•reductions to Medicare and Medicaid disproportionate share hospital (“DSH”) payments, which began for Medicare payments in FFY 2014 and, under current law, are scheduled to commence for Medicaid payments in FFY 2024.

Effective January 2019, Congress eliminated the financial penalty for noncompliance under the ACA’s individual mandate provision, which requires most U.S. citizens and noncitizens who lawfully reside in the country to have health insurance meeting specified standards. On November 10, 2020, the U.S. Supreme Court heard oral arguments in the matter of California v. Texas addressing whether the individual mandate itself is unconstitutional now that Congress has eliminated the tax penalty that was intended to enforce it. Conversely, members of Congress and other politicians have proposed measures that would expand government-sponsored coverage, including single-payer plans, such as Medicare for All. We cannot predict whether the U.S. Supreme Court’s decision will invalidate the Affordable Care Act, nor can we predict if or when further modification of the ACA will occur or what action, if any, Congress might take with respect to eventually repealing and possibly replacing the law.

Furthermore, we are unable to predict the impact on our future revenues and operations of (1) the final decision in California v. Texas and other court challenges to the ACA, (2) administrative, regulatory and legislative changes, including expansion of government-sponsored coverage, or (3) market reactions to those changes. However, if the ultimate impact is that significantly fewer individuals have private or public health coverage, we likely will experience decreased patient volumes, reduced revenues and an increase in uncompensated care, which would adversely affect our results of operations and cash flows.

Medicare

Medicare offers its beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan (which includes “Part A” and “Part B”), is a fee-for-service (“FFS”) payment system. The other option, called Medicare Advantage (sometimes called “Part C” or “MA Plans”), includes health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), private FFS Medicare special needs plans and Medicare medical savings account plans. The major components of our net patient service revenues from continuing operations of the hospitals and related outpatient facilities in our Hospital Operations segment for services provided to patients enrolled in the Original Medicare Plan for the years ended December 31, 2020, 2019 and 2018 are set forth in the following table:

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Years Ended December 31,

Medicare severity-adjusted diagnosis-related group — capital 121 133 137

Total Medicare net patient service revenues $ 2,695 $ 2,888 $ 2,882

A general description of the types of payments we receive for services provided to patients enrolled in the Original Medicare Plan is provided below. Recent regulatory and legislative updates to the terms of these payment systems and their estimated effect on our revenues can be found under “Regulatory and Legislative Changes” below.

Acute Care Hospital Inpatient Prospective Payment System

Medicare Severity-Adjusted Diagnosis-Related Group Payments—Sections 1886(d) and 1886(g) of the Social Security Act set forth a system of payments for the operating and capital costs of inpatient acute care hospital admissions based on a prospective payment system (“PPS”). Under the inpatient prospective payment systems (“IPPS”), Medicare payments for hospital inpatient operating services are made at predetermined rates for each hospital discharge. Discharges are classified according to a system of Medicare severity-adjusted diagnosis-related groups (“MS-DRGs”), which categorize patients with similar clinical characteristics that are expected to require similar amounts of hospital resources. CMS assigns to each MS-DRG a relative weight that represents the average resources required to treat cases in that particular MS-DRG, relative to the average resources used to treat cases in all MS-DRGs.

The base payment amount for the operating component of the MS-DRG payment is comprised of an average standardized amount that is divided into a labor-related share and a nonlabor-related share. Both the labor-related share of operating base payments and the base payment amount for capital costs are adjusted for geographic variations in labor and capital costs, respectively. Using diagnosis and procedure information submitted by the hospital, CMS assigns to each discharge an MS-DRG, and the base payments are multiplied by the relative weight of the MS-DRG assigned. The MS-DRG operating and capital base rates, relative weights and geographic adjustment factors are updated annually, with consideration given to: the increased cost of goods and services purchased by hospitals, the relative costs associated with each MS-DRG, changes in labor data by geographic area, and other policies. Although these payments are adjusted for area labor and capital cost differentials, the adjustments do not take into consideration an individual hospital’s operating and capital costs.

Outlier Payments—Outlier payments are additional payments made to hospitals on individual claims for treating Medicare patients whose medical conditions are costlier to treat than those of the average patient in the same MS-DRG. To qualify for a cost outlier payment, a hospital’s billed charges, adjusted to cost, must exceed the payment rate for the MS-DRG by a fixed threshold updated annually by CMS. A Medicare Administrative Contractor (“MAC”) calculates the cost of a claim by multiplying the billed charges by an average cost-to-charge ratio that is typically based on the hospital’s most recently filed cost report. Generally, if the computed cost exceeds the sum of the MS-DRG payment plus the fixed threshold, the hospital receives 80% of the difference as an outlier payment.

Under the Social Security Act, CMS must project aggregate annual outlier payments to all PPS hospitals to be not less than 5% or more than 6% of total MS-DRG payments (“Outlier Percentage”). The Outlier Percentage is determined by dividing total outlier payments by the sum of MS-DRG and outlier payments. CMS annually adjusts the fixed threshold to bring projected outlier payments within the mandated limit. A change to the fixed threshold affects total outlier payments by changing: (1) the number of cases that qualify for outlier payments; and (2) the dollar amount hospitals receive for those cases that qualify for outlier payments. Under certain conditions, outlier payments are subject to reconciliation based on more recent data.

Disproportionate Share Hospital Payments—In addition to making payments for services provided directly to beneficiaries, Medicare makes additional payments to hospitals that treat a disproportionately high share of low-income patients. Prior to October 1, 2013, DSH payments were based on each hospital’s low income utilization for each payment year (the “Pre-ACA DSH Formula”). The ACA revised the Medicare DSH adjustment effective for discharges occurring on or after

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October 1, 2013. Under the revised methodology, hospitals receive 25% of the amount they previously would have received under the Pre-ACA DSH Formula. This amount is referred to as the “Empirically Justified Amount.”

Hospitals qualifying for the Empirically Justified Amount of DSH payments are also eligible to receive an additional payment for uncompensated care (the “UC-DSH Amount”). The UC-DSH Amount is a hospital’s share of a pool of funds that the CMS Office of the Actuary estimates would equal 75% of Medicare DSH that otherwise would have been paid under the Pre-ACA DSH Formula, adjusted for changes in the percentage of individuals that are uninsured. Generally, the factors used to calculate and distribute UC-DSH Amounts are set forth in the ACA and are not subject to administrative or judicial review. The statute requires that each hospital’s cost of uncompensated care (i.e., charity and bad debt) as a percentage of the total uncompensated care cost of all DSH hospitals be used to allocate the pool. As of December 31, 2020, 57 of our acute care hospitals in continuing operations qualified for Medicare DSH payments.

One of the variables used in the Pre-ACA DSH Formula is the number of Medicare inpatient days attributable to patients receiving Supplemental Security Income (“SSI”) who are also eligible for Medicare Part A benefits divided by total Medicare inpatient days (the “SSI Ratio”). In an earlier rulemaking, CMS established a policy of including not only days attributable to Original Medicare Plan patients, but also Medicare Advantage patients in the SSI ratio. The statutes and regulations that govern Medicare DSH payments have been the subject of various administrative appeals and lawsuits, and our hospitals have been participating in such appeals, including challenges to the inclusion of the Medicare Advantage days used in the DSH calculation as set forth in the Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates. We are unable to predict what action the Secretary might take with respect to the DSH calculation for prior periods in this regard or the outcome of the pending litigation; however, a favorable outcome of our DSH appeals could have a material impact on our future revenues and cash flows.

Direct Graduate and Indirect Medical Education Payments—The Medicare program provides additional reimbursement to approved teaching hospitals for the increased expenses incurred by such institutions. This additional reimbursement, which is subject to certain limits, including intern and resident full-time equivalent (“FTE”) limits, is made in the form of DGME and IME payments. As of December 31, 2020, 29 of our hospitals in continuing operations were affiliated with academic institutions and were eligible to receive such payments.

IPPS Quality Adjustments—The ACA also authorizes the following quality adjustments to Medicare IPPS payments:

•Value Based Purchasing (“VBP”) – Under the VBP program, IPPS operating payments to hospitals are reduced by 2% to fund value-based incentive payments to eligible hospitals based on their overall performance on a set of quality measures;

•Hospital Readmission Reduction Program – Under this program, IPPS operating payments to hospitals with excess readmissions are reduced up to a maximum of 3% of base MS-DRG payments; and

•Hospital-Acquired Conditions Reduction Program – Under this program, overall inpatient payments are reduced by 1% for hospitals in the worst performing quartile of risk-adjusted quality measures for reasonable preventable hospital‐acquired conditions.

These adjustments are generally based on a hospital’s performance from prior periods and are updated annually by CMS.

Hospital Outpatient Prospective Payment System

Under the outpatient prospective payment system, hospital outpatient services, except for certain services that are reimbursed on a separate fee schedule, are classified into groups called ambulatory payment classifications (“APCs”). Services in each APC are similar clinically and in terms of the resources they require, and a payment rate is established for each APC. Depending on the services provided, hospitals may be paid for more than one APC for an encounter. CMS annually updates the APCs and the rates paid for each APC.

Inpatient Psychiatric Facility Prospective Payment System

The inpatient psychiatric facility (“IPF”) prospective payment system (“IPF-PPS”) applies to psychiatric hospitals and psychiatric units located within acute care hospitals that have been designated as exempt from the hospital inpatient prospective payment system. The IPF-PPS is based on prospectively determined per-diem rates and includes an outlier policy that authorizes additional payments for extraordinarily costly cases. As of December 31, 2020, 17 of our general hospitals in continuing operations operated IPF units.

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Inpatient Rehabilitation Prospective Payment System

Rehabilitation hospitals and rehabilitation units in acute care hospitals meeting certain criteria established by CMS are eligible to be paid as an inpatient rehabilitation facility (“IRF”) under the IRF prospective payment system (“IRF-PPS”). Payments under the IRF-PPS are made on a per-discharge basis. The IRF-PPS uses federal prospective payment rates across distinct case-mix groups established by a patient classification system. As of December 31, 2020, we operated one freestanding IRF, and 15 of our general hospitals in continuing operations operated IRF units.

Physician and Other Health Professional Services Payment System

Medicare uses a fee schedule to pay for physician and other health professional services based on a list of services and their payment rates referred to as the Medicare Physician Fee Schedule (“MPFS”). In determining payment rates for each service, CMS considers the amount of clinician work required to provide a service, expenses related to maintaining a practice, and professional liability insurance costs. These three factors are adjusted for variation in the input prices in different markets, and the sum is multiplied by the fee schedule’s conversion factor (average payment amount) to produce a total payment amount.

Cost Reports

The final determination of certain Medicare payments to our hospitals, such as DSH, DGME, IME and bad debt expense, are retrospectively determined based on our hospitals’ cost reports. The final determination of these payments often takes many years to resolve because of audits by the program representatives, providers’ rights of appeal, and the application of numerous technical reimbursement provisions.

For filed cost reports, we adjust the accrual for estimated cost report settlements based on those cost reports and subsequent activity, and record a valuation allowance against those cost reports based on historical settlement trends. The accrual for estimated cost report settlements for periods for which a cost report is yet to be filed is recorded based on estimates of what we expect to report on the filed cost reports and a corresponding valuation allowance is recorded as previously described. Cost reports must generally be filed within five months after the end of the annual cost report reporting period. After the cost report is filed, the accrual and corresponding valuation allowance may need to be adjusted.

Medicare Claims Reviews

HHS estimates that the overall FFY 2020 Medicare FFS improper payment rate for the program is approximately 6.3%. The FFY 2020 error rate for Hospital IPPS payments is approximately 3.0%. CMS has identified the FFS program as a program at risk for significant erroneous payments. One of CMS’ stated key goals is to pay claims properly the first time. This means paying the right amount, to legitimate providers, for covered, reasonable and necessary services provided to eligible beneficiaries. According to CMS, paying correctly the first time saves resources required to recover improper payments and ensures the proper expenditure of Medicare Trust Fund dollars. CMS has established several initiatives to prevent or identify improper payments before a claim is paid, and to identify and recover improper payments after paying a claim. The overall goal is to reduce improper payments by identifying and addressing coverage and coding billing errors for all provider types. Under the authority of the Social Security Act, CMS employs a variety of contractors (e.g., MACs, Recovery Audit Contractors and Unified Program Integrity Contractors) to process and review claims according to Medicare rules and regulations.

Claims selected for prepayment review are not subject to the normal Medicare FFS payment timeframe. Furthermore, prepayment and post-payment claims denials are subject to administrative and judicial review, and we intend to pursue the reversal of adverse determinations where appropriate. We have established robust protocols to respond to claims reviews and payment denials. In addition to overpayments that are not reversed on appeal, we incur additional costs to respond to requests for records and pursue the reversal of payment denials. The degree to which our Medicare FFS claims are subjected to prepayment reviews, the extent to which payments are denied, and our success in overturning denials could have a material adverse effect on our cash flows and results of operations.

Meaningful Use of Health Information Technology

The Health Information Technology for Economic and Clinical Health (“HITECH”) Act, which is part of the American Recovery and Reinvestment Act of 2009, promotes the use of healthcare information technology by, among other things, providing financial incentives to hospitals and physicians to become “meaningful users” of electronic health record (“EHR”) systems and imposing penalties on those who do not. Under the HITECH Act and other laws and regulations, eligible

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hospitals that fail to demonstrate and maintain meaningful use of certified EHR technology every year (and have not applied and qualified for a hardship exception) are subject to a 75% reduction of the Medicare market basket update. Eligible healthcare professionals are also subject to positive or negative payment adjustments based, in part, on their use of EHR technology. We have made significant investments in our information systems to bring our hospitals and employed physicians into EHR compliance, and we continue to invest in the maintenance and utilization of these certified EHR systems. Failure to continue to do so could subject us to penalties that may have an adverse effect on our net revenues and results of operations.

Medicaid

Medicaid programs and the corresponding reimbursement methodologies vary from state to state and from year to year. Estimated revenues under various state Medicaid programs, including state-funded Medicaid managed care programs, constituted approximately 17.8%, 18.4% and 19.8% of total net patient service revenues less implicit price concessions of our acute care hospitals and related outpatient facilities for the years ended December 31, 2020, 2019 and 2018, respectively. We also receive DSH and other supplemental revenues under various state Medicaid programs. For the years ended December 31, 2020, 2019 and 2018, our total Medicaid revenues attributable to DSH and other supplemental revenues were approximately $754 million, $782 million and $847 million, respectively. The 2020 period included $239 million related to the California provider fee program, $230 million related to the Michigan provider fee program, $164 million related to Medicaid DSH programs in multiple states, $55 million related to the Texas Section 1115 waiver program, and $66 million from a number of other state and local programs.

Even prior to the COVID-19 pandemic, several states in which we operate faced budgetary challenges that resulted in reduced Medicaid funding levels to hospitals and other providers. Because most states must operate with balanced budgets, and the Medicaid program is generally a significant portion of a state’s budget, states can be expected to adopt or consider adopting future legislation designed to reduce or not increase their Medicaid expenditures. In addition, some states delay issuing Medicaid payments to providers to manage state expenditures. As an alternative means of funding provider payments, many of the states in which we operate have adopted supplemental payment programs authorized under the Social Security Act. Continuing pressure on state budgets and other factors could adversely affect the Medicaid supplemental payments our hospitals receive.

Because we cannot predict what actions the federal government or the states may take under existing or future legislation and/or regulatory changes to address budget gaps, deficits, Medicaid expansion, provider fee programs or Medicaid Section 1115 waivers, we are unable to assess the effect that any such legislation or regulatory action might have on our business; however, the impact on our future financial position, results of operations or cash flows could be material.

Medicaid and Managed Medicaid net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment from Medicaid-related programs in the states in which our facilities are (or were, as the case may be) located, as well as from Medicaid programs in neighboring states, for the years ended December 31, 2020, 2019 and 2018 are set forth in the following table. These revenues are presented net of provider taxes or assessments paid by our hospitals, which are reported as an offset reduction to FFS Medicaid revenue.

Years Ended December 31,

Pennsylvania — — 8

Medicaid and Managed Medicaid revenues comprised 45% and 55%, respectively, of our Medicaid-related net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment for the year ended December 31, 2020.

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Regulatory and Legislative Changes

The Medicare and Medicaid programs are subject to statutory and regulatory changes, administrative and judicial rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease payments from these government programs in the future, as well as affect the cost of providing services to our patients and the timing of payments to our facilities. We are unable to predict the effect of future government healthcare funding policy changes on our operations. If the rates paid or services covered by governmental payers are reduced, or if we or one or more of our subsidiaries’ hospitals are excluded from participation in the Medicare or Medicaid program or any other government healthcare program, there could be a material adverse effect on our business, financial condition, results of operations or cash flows. Recent regulatory and legislative updates to the Medicare and Medicaid payment systems, as well as other government programs impacting our business, are provided below.

Payment and Policy Changes to the Medicare Inpatient Prospective Payment Systems

Section 1886(d) of the Social Security Act requires CMS to update inpatient FFS payment rates for hospitals reimbursed under the IPPS annually. The updates generally become effective October 1, the beginning of the federal fiscal year. In September 2020 and in a December 2020 correction notice, CMS issued the final Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2021 Rates (“Final IPPS Rule”). The Final IPPS Rule includes the following payment and policy changes:

•A market basket increase of 2.4% for MS-DRG operating payments for hospitals reporting specified quality measure data and that are meaningful users of electronic health record technology; CMS also finalized certain proposed adjustments to the 2.4% market basket increase that resulted in a net operating payment update of 2.9% (before budget neutrality adjustments), as follows:

•No multifactor productivity adjustment under the ACA (i.e., an adjustment of 0.0%) for FFY 2021; and

•A 0.5% increase, as required under the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”);

•Updates to the three factors used to determine the amount and distribution of Medicare UC-DSH Amounts;

•A 0.84% net increase in the capital federal MS-DRG rate; and

•An increase in the cost outlier threshold from $26,552 to $29,064.

According to CMS, the combined impact of the payment and policy changes in the Final IPPS Rule for operating costs will yield an average 2.5% increase in Medicare operating MS-DRG FFS payments for hospitals in urban areas, and an average 2.4% increase in operating MS-DRG FFS payments for proprietary hospitals in FFY 2021. We estimate that all of the payment and policy changes affecting operating MS-DRG and UC-DSH Amounts will result in an estimated 1.8% increase in our annual Medicare FFS IPPS payments, which yields an estimated increase of approximately $37 million. Because of the uncertainty associated with various factors that may influence our future IPPS payments by individual hospital, including legislative, regulatory or legal actions, admission volumes, length of stay and case mix, we cannot provide any assurances regarding our estimate of the impact of the payment and policy changes.

Historically, CMS has used charges reduced to cost to set the relative weights assigned to each MS-DRG. In the Final IPPS Rule, CMS expressed a concern that chargemaster rates rarely reflect the true market costs. In order to reduce its reliance on the hospital chargemaster, CMS determined that, beginning in 2021, hospitals will be required to report in the annual cost report the median payer-specific negotiated charge that the hospital has negotiated with all of its Medicare Advantage payers by MS-DRG. This information may potentially be used to set the IPPS MS-DRG relative weights in FFY 2024. This standard is in addition to the pricing transparency requirements effective January 1, 2021 in the hospital price transparency final rule issued in November 2019 that was upheld by a federal District Court. In December 2020, the U.S. Court of Appeals for the District of Columbia affirmed the federal District Court’s decision.

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Payment and Policy Changes to the Medicare Outpatient Prospective Payment and Ambulatory Surgery Center Payment Systems

In December 2020, CMS released the policy changes and payment rates for the Hospital Outpatient Prospective Payment System (“OPPS”) and Ambulatory Surgical Center Payment System for calendar year (“CY”) 2021 (“Final OPPS/ASC Rule”). The Final OPPS/ASC Rule includes the following payment and policy changes:

•A net increase of 2.4% for the OPPS rates based on a market basket increase of 2.4% with no multifactor productivity adjustment required by the ACA (i.e., an adjustment of 0.0% for CY 2021);

•A continuation of the reduced payment amount for drugs acquired with a discount under CMS’ 340B program (“340B Drugs”) to a rate of average sales price (“ASP”) minus 22.5% (the 340B program is the subject of litigation discussed in greater detail below);

•Elimination of the Inpatient Only List (which is the list of procedures that must be performed on an inpatient basis) over a transitional period beginning in CY 2021 and ending in CY 2024, starting with the removal of 266 musculoskeletal services from the list for CY 2021;

•The addition of two new OPPS service categories for which prior authorization is required; and

•A 2.4% increase to the Ambulatory Surgical Center payment rates.

CMS projects that the combined impact of the payment and policy changes in the Final OPPS/ASC Rule will yield an average 2.4% increase in Medicare FFS OPPS payments for hospitals in urban areas and an average 3.2% increase in Medicare FFS OPPS payments for proprietary hospitals. Based on CMS’ estimates, the projected annual impact of the payment and policy changes in the Final OPPS/ASC Rule on our hospitals is an increase to Medicare FFS hospital outpatient revenues of approximately $24 million, which represents an increase of approximately 3.6%. Because of the uncertainty associated with various factors that may influence our future OPPS payments, including legislative or legal actions, volumes and case mix, we cannot provide any assurances regarding our estimate of the impact of the payment and policy changes.

The Medicare Access and CHIP Reauthorization Act of 2015

The MACRA replaced the Medicare Sustainable Growth Rate methodology with a new system for establishing the annual updates to the MPFS beginning in 2019. The new payment system helps to link FFS payments to quality and value with payment incentives and penalties. Additionally, the MACRA reduced the restoration of the 3.2% coding and document adjustment to hospital inpatient rates that was expected to be effective in FFY 2018 to 3.0%; as modified by the 21st Century Cures Act, the adjustment was applied at the rate of 0.5% for FFY 2018 and 0.5% for FFYs 2019 and 2020; it will continue to be applied at the rate of 0.5% through 2023.

Less than 1% of the net operating revenue generated by our Hospital Operations segment during the year ended 2020 was related to the MPFS. We are unable to estimate the potential impact of the MACRA; however, the maximum incentive and penalty adjustments could result in an increase or decrease in our annual net revenues of approximately $15 million. Additionally, we cannot predict the effect of the MACRA on our future operations, revenues and cash flows.

Payment and Policy Changes to the Medicare Physician Fee Schedule

In December 2020, CMS released the CY 2021 MPFS Final Rule which updates payment policies, payment rates and other provisions for services reimbursed under the MPFS on and after January 1, 2021. The statutory update factor to the MPFS conversion factor (the base rate that is used to convert relative value units (“RVUs”) into payment rates) for CY 2021, as required by the MACRA, was set at 0.0%. The final conversion factor also reflects a negative budget neutrality adjustment of 10.20% to account for the estimated positive or negative effects of the changes on each specialty due to, among other things, CMS’ projection of volumes in each specialty and the recalibration of the RVUs. CMS estimates that the combined impact of the payment and policy changes in the MPFS Final Rule will not result in any change in payments. The Consolidated Appropriations Act, 2021 provides a one-time 3.75% increase in MPFS payments for CY 2021.

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The Coronavirus Aid, Relief, and Economic Security Act of 2020 and Related Legislation

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Act”), which was signed into law on April 24, 2020, the Continuing Appropriations Act, 2021 and Other Extensions Act (the “Continuing Appropriations Act”), which was signed into law October 1, 2020, and the Consolidated Appropriations Act, 2021 (the “Consolidated Appropriations Act” and, collectively, with the CARES Act, the PPP Act, and the Continuing Appropriations Act, the “COVID Acts”), which was signed into law on December 27, 2020 authorized $2.9 trillion in government spending to mitigate the economic effects of the COVID-19 pandemic. Below is a brief overview of certain provisions of these laws that have impacted, and that we expect will continue to impact, our business. This summary is not exhaustive, and additional legislative action and regulatory developments may evolve rapidly. There is no assurance that we will continue to receive or remain eligible for funding or assistance under the COVID Acts or similar measures. Statements regarding the projected impact of COVID-19 relief programs on our operations and financial condition are forward-looking and are made as of the date of this filing.

Public Health and Social Services Emergency Fund—The COVID Acts have authorized $178 billion in payments to be distributed through the Provider Relief Fund. Distributions from the PRF to providers commenced during the three months ended June 30, 2020. Payments from the PRF are not loans and, therefore, they are not subject to repayment. However, as a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for lost revenues and unreimbursed COVID-related costs as defined by HHS, and that the providers will not seek collection of out‐of‐pocket payments from a COVID-19 patient that are greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network provider. All recipients of PRF payments are required to comply with the reporting requirements described in the terms and conditions and as determined by HHS. In January 2021, HHS released updated reporting requirements that include lost revenues, expenses attributable to COVID-19 and non-financial information. The updated reporting requirements reflect certain provisions of the Consolidated Appropriations Act affecting the calculation of lost revenues, as well as the distribution of PRF funds among subsidiaries in a hospital system. Furthermore, HHS has indicated that it will be closely monitoring and, along with the Office of Inspector General, auditing providers to ensure that recipients comply with the terms and conditions of relief programs and to prevent fraud and abuse. All providers will be subject to civil and criminal penalties for any deliberate omissions, misrepresentations or falsifications of any information given to HHS. Except for certain immaterial PRF payments we returned to HHS, we have formally accepted PRF payments issued to our providers and the terms and conditions associated with those payments.

During the year ended December 31, 2020, our Hospital Operations and Ambulatory Care segments recognized approximately $868 million of Provider Relief Fund income associated with lost revenues and COVID-related costs. We recognized an additional $17 million of Provider Relief Fund income from our unconsolidated affiliates during this period. Lastly, our Hospital Operations and Ambulatory Care segments recognized $14 million of grant income from state and local grant programs during 2020. Grant income recognized by our Hospital Operations and Ambulatory Care segments is presented in grant income and grant income recognized through our unconsolidated affiliates is presented in equity in earnings of unconsolidated affiliates in the accompanying Consolidated Statements of Operations for the year ended December 31, 2020. Based on the uncertainty regarding future estimates of lost revenues and COVID-related costs or the impact of further updates to HHS guidance, if any, we cannot provide any assurances regarding the amount of grant income to be recognized in the future.

Medicare and Medicaid Payment Policy Changes—The COVID Acts also alleviate some of the financial strain on hospitals, physicians, other healthcare providers and states through a series of Medicare and Medicaid payment policies that temporarily increase Medicare and Medicaid reimbursement and allow for added flexibility, as described below:

•Effective May 1, 2020 through March 31, 2021, the 2% sequestration reduction on Medicare FFS and Medicare Advantage payments to hospitals, physicians and other providers is suspended and is scheduled to resume effective April 2021. The impact of this change on our operations was an increase of approximately $67 million of revenues in 2020.

•The CARES Act instituted a 20% increase in the Medicare MS-DRG payment for COVID-19 hospital admissions for the duration of the public health emergency as declared by the Secretary of HHS.

•The CARES Act eliminated the scheduled nationwide reduction of $4 billion in federal Medicaid DSH allotments in FFY 2020 mandated by the Affordable Care Act and decreased the FFY 2021 DSH reduction from $8 billion to $4 billion effective December 1, 2020. Later COVID Acts eliminated the FFY 2021 DSH reduction entirely and delayed the remaining DSH reductions until FFY 2024.

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•The CARES Act expanded the Medicare accelerated payment program, which provides prepayment of claims to providers in certain circumstances, such as national emergencies or natural disasters. Under this measure, providers could request accelerated payments during which time providers continue to receive payments for services. Under the CARES Act, accelerated payments could be retained for 120 days; at the end of the 120-day period, the accelerated payment would be repaid via an offset of payments on claims that would otherwise be paid. Generally, repayments of the accelerated payments we received were to commence during the three months ended September 2020; however, under Section 2501 of the Continuing Appropriations Act, providers may retain the accelerated payments for one year from the date of receipt before CMS commences recoupment, which will be effectuated by a 25% offset of claims payments for 11 months, followed by 50% offset for the succeeding six months. At the end of the 29‐month period, interest on the unpaid balance will be assessed at 4% per annum. Through December 31, 2020, our hospitals and other providers applied for and received approximately $1.5 billion of accelerated payments.

•A 6.2% increase in the Federal Medical Assistance Percentage (“FMAP”) matching funds was instituted to help states respond to the COVID-19 pandemic. The additional funds are available to states from January 1, 2020 through the quarter in which the public health emergency period ends, provided that states meet certain conditions. An increase in states’ FMAP leverages Medicaid’s existing financing structure, which allows federal funds to be provided to states more quickly and efficiently than establishing a new program or allocating money from a new funding stream. Increased federal matching funds support states in responding to the increased need for services, such as testing and treatment during the COVID-19 public health emergency, as well as increased enrollment as more people lose income and qualify for Medicaid during the economic downturn.

Because of the uncertainty associated with various factors that may influence our future Medicare and Medicaid payments, including future legislative, legal or regulatory actions, or changes in volumes and case mix, there is a risk that our estimates of the impact of the aforementioned payment and policy changes will be incorrect and that actual payments received under, or the ultimate impact of, these programs will differ materially from our expectations.

Funding for Uninsured Individuals—The CARES Act provides claims reimbursement to healthcare providers generally at Medicare rates for testing uninsured individuals for COVID-19 and treating uninsured individuals with a COVID-19 diagnosis. A portion of the funding will also be used to reimburse providers for COVID-19 vaccine administration to uninsured individuals.

Tax Changes—Beginning March 27, 2020, all employers were able to elect to defer payment of the 6.2% employer Social Security tax through December 31, 2020. Deferred tax amounts are required to be paid in equal amounts over two years, with payments due in December 2021 and December 2022. During the year ended December 31, 2020, we deferred Social Security tax payments totaling $275 million pursuant to this CARES Act provision. In addition, the CARES Act increases the interest expense deduction limitation from 30% of adjusted taxable income to 50% of adjusted taxable income for the 2019 and 2020 tax years, allowing businesses to take a larger deduction. This change is expected to increase our federal tax net operating loss (“NOL”) carryforwards into future years, as further described in Note 19 to the accompanying Consolidated Financial Statements.

CMS Innovation Models

The CMS Innovation Center develops and tests innovative payment and service delivery models that have the potential to reduce Medicare, Medicaid or CHIP expenditures while preserving or enhancing the quality of care for beneficiaries. Congress has defined – both through the Affordable Care Act and previous legislation – a number of specific demonstrations for CMS to conduct, including bundled payment models. Generally, the bundled payment models hold hospitals financially accountable for the quality and costs for an entire episode of care for a specific diagnosis or procedure from the date of the hospital admission or inpatient procedure through 90 days post-discharge, including services not provided by the hospital, such as physician, inpatient rehabilitation, skilled nursing and home health care. Provider participation in some of these models is voluntary; for example, 34 hospitals in our Hospital Operations segment and six surgical hospitals in our Ambulatory Care segment participate in the CMS Bundled Payments for Care Improvement Advanced (“BPCIA”) program that became effective October 1, 2018, and USPI also holds the CMS contract for two physician group practices participating in the BPCIA program. Participation in certain other bundled payment arrangements is mandatory for providers located in randomly selected geographic locations. Under the mandatory models, hospitals are eligible to receive incentive payments or will be subject to payment reductions within certain corridors based on their performance against quality and spending criteria. In 2015, CMS finalized a five-year bundled payment model, called the Comprehensive Care for Joint Replacement (“CJR”) model, which

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includes hip and knee replacements, as well as other major leg procedures. Sixteen hospitals in our Hospital Operations segment and four surgical hospitals in our Ambulatory Care segment currently participate in the CJR model.

Significant Litigation

340B Litigation

The 340B program allows certain hospitals (i.e., only nonprofit organizations with specific federal designations and/or funding) (“340B Hospitals”) to purchase drugs at discounted rates from drug manufacturers. In the final rule regarding Hospital OPPS payment and policy changes for CY 2018, CMS reduced the payment for 340B Drugs from ASP plus 6% to ASP minus 22.5% and made a corresponding budget-neutral increase to payments to all hospitals for other drugs and services reimbursed under the OPPS (the “340B Payment Adjustment”). In the final rules regarding OPPS payment and policy changes for CYs 2019, 2020 and 2021, CMS continued the 340B Payment Adjustment. Certain hospital associations and hospitals commenced litigation challenging CMS’ authority to impose the 340B Payment Adjustment for CYs 2018, 2019 and 2020. In May 2019, the U.S. District Court for the District of Columbia (the “District Court”) held that the adoption of the 340B Payment Adjustment in the CY 2019 OPPS Final Rule exceeded CMS’ statutory authority by reducing drug reimbursement rates for 340B Hospitals. This holding followed the District Court’s December 2018 conclusion that HHS exceeded its statutory authority in reducing the CY 2018 OPPS for the 340B Payment Adjustment. The District Court did not grant a permanent injunction to the 340B Payment Adjustment, nor did it vacate the 2018 and 2019 rules. In July 2019, the District Court issued a Memorandum Opinion granting HHS’ motion for entry of final judgment, thus allowing HHS to proceed with a pending appeal of the District Court’s rulings at the U.S. Court of Appeals for the District of Columbia Circuit (the “Circuit Court”). In July 2020, a three-judge panel of the Circuit Court reversed the District Court’s holding, finding that HHS’ decision to reduce the payment rate for 340B Drugs was based on a reasonable interpretation of the Medicare statute. In October 2020, the Circuit Court denied the plaintiff hospital associations’ and hospitals’ request for an en banc hearing. We cannot predict what further actions CMS or Congress might take with respect to the 340B program; however, the outcome could have an adverse effect on our net revenues and cash flows.

Medicare Disproportionate Share Hospital Litigation

Prior to October 1, 2013, DSH payments were based on the Pre-ACA DSH Formula. In the final rule regarding IPPS payment and policy changes for FFY 2005, CMS revised its policy on the calculation of one of the ratios used in the Pre-ACA DSH Formula. A group of hospitals challenged the policy change claiming that CMS failed to provide adequate notice and a comment period. The District Court vacated the rule. CMS appealed the ruling, and the Circuit Court affirmed the District Court’s decision. Since then, CMS has continued to use the vacated policy and was again met with legal challenges. In 2019, the U.S. Supreme Court (“SCOTUS”) upheld the Circuit Court’s decision that CMS’ continued use of the vacated policy is not legal. Although the SCOTUS decision applies only to the 2012 ratios for the plaintiff hospitals, it establishes a precedent that we believe will ultimately result in a favorable outcome in our pending Medicare DSH appeals for years 2005-2013; however, we cannot predict the timing or outcome of our appeals or when and how CMS will implement the SCOTUS decision. A favorable outcome of our DSH appeals could have a material impact on our future revenues and cash flows.

PRIVATE INSURANCE

Managed Care

We currently have thousands of managed care contracts with various HMOs and PPOs. HMOs generally maintain a full-service healthcare delivery network comprised of physician, hospital, pharmacy and ancillary service providers that HMO members must access through an assigned “primary care” physician. The member’s care is then managed by his or her primary care physician and other network providers in accordance with the HMO’s quality assurance and utilization review guidelines so that appropriate healthcare can be efficiently delivered in the most cost-effective manner. HMOs typically provide reduced benefits or reimbursement (or none at all) to their members who use non-contracted healthcare providers for non-emergency care.

PPOs generally offer limited benefits to members who use non-contracted healthcare providers. PPO members who use contracted healthcare providers receive a preferred benefit, typically in the form of lower co-pays, co-insurance or deductibles. As employers and employees have demanded more choice, managed care plans have developed hybrid products that combine elements of both HMO and PPO plans, including high-deductible healthcare plans that may have limited benefits, but cost the employee less in premiums.

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The amount of our managed care net patient service revenues, including Medicare and Medicaid managed care programs, from our hospitals and related outpatient facilities during the years ended December 31, 2020, 2019 and 2018 was $9.022 billion, $9.516 billion and $9.213 billion, respectively. Our top 10 managed care payers generated 62% of our managed care net patient service revenues for the year ended December 31, 2020. National payers generated 44% of our managed care net patient service revenues for the year ended December 31, 2020. The remainder comes from regional or local payers. At December 31, 2020 and 2019, 66% and 65%, respectively, of our net accounts receivable for our Hospital Operations segment were due from managed care payers.

Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted FFS rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient’s bill is subject to adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. We believe it is reasonably likely for there to be an approximately 3% increase or decrease in the estimated contractual allowances related to managed care plans. Based on reserves at December 31, 2020, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $17 million. Some of the factors that can contribute to changes in the contractual allowance estimates include: (1) changes in reimbursement levels for procedures, supplies and drugs when threshold levels are triggered; (2) changes in reimbursement levels when stop-loss or outlier limits are reached; (3) changes in the admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (4) final coding of in-house and discharged-not-final-billed patients that change reimbursement levels; (5) secondary benefits determined after primary insurance payments; and (6) reclassification of patients among insurance plans with different coverage and payment levels. Contractual allowance estimates are periodically reviewed for accuracy by taking into consideration known contract terms, as well as payment history. We believe our estimation and review process enables us to identify instances on a timely basis where such estimates need to be revised. We do not believe there were any adjustments to estimates of patient bills that were material to our revenues. In addition, on a corporate-wide basis, we do not record any general provision for adjustments to estimated contractual allowances for managed care plans. Managed care accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for these payers and other factors that affect the estimation process.

We expect managed care governmental admissions to continue to increase as a percentage of total managed care admissions over the near term. However, the managed Medicare and Medicaid insurance plans typically generate lower yields than commercial managed care plans, which have been experiencing an improved pricing trend. Although we have benefited from solid year-over-year aggregate managed care pricing improvements for some time, we have seen these improvements moderate in recent years, and we believe this moderation could continue into the future. In the year ended December 31, 2020, our commercial managed care net inpatient revenue per admission from the hospitals in our Hospital Operations segment was approximately 95% higher than our aggregate yield on a per admission basis from government payers, including managed Medicare and Medicaid insurance plans.

Indemnity

An indemnity-based agreement generally requires the insurer to reimburse an insured patient for healthcare expenses after those expenses have been incurred by the patient, subject to policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her utilization of healthcare and selection of healthcare providers.

UNINSURED PATIENTS

Uninsured patients are patients who do not qualify for government programs payments, such as Medicare and Medicaid, do not have some form of private insurance and, therefore, are responsible for their own medical bills. A significant number of our uninsured patients are admitted through our hospitals’ emergency departments and often require high-acuity treatment that is more costly to provide and, therefore, results in higher billings, which are the least collectible of all accounts.

Self-pay accounts receivable, which include amounts due from uninsured patients, as well as co-pays, co-insurance amounts and deductibles owed to us by patients with insurance, pose significant collectability problems. At both December 31, 2020 and 2019, approximately 4% of our net accounts receivable for our Hospital Operations segment was self‐pay. Further, a significant portion of our implicit price concessions relates to self-pay amounts. We provide revenue cycle management services through Conifer, which is subject to various statutes and regulations regarding consumer protection in

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areas including finance, debt collection and credit reporting activities. For additional information, see Item 1, Business — Regulations Affecting Conifer’s Operations, of Part I of this report.

Conifer has performed systematic analyses to focus our attention on the drivers of bad debt expense for each hospital. While emergency department use is the primary contributor to our implicit price concessions in the aggregate, this is not the case at all hospitals. As a result, we have increased our focus on targeted initiatives that concentrate on non-emergency department patients as well. These initiatives are intended to promote process efficiencies in collecting self-pay accounts, as well as co-pay, co-insurance and deductible amounts owed to us by patients with insurance, that we deem highly collectible. We leverage a statistical-based collections model that aligns our operational capacity to maximize our collections performance. We are dedicated to modifying and refining our processes as needed, enhancing our technology and improving staff training throughout the revenue cycle process in an effort to increase collections and reduce accounts receivable.

Over the longer term, several other initiatives we have previously announced should also help address the challenges associated with serving uninsured patients. For example, our Compact with Uninsured Patients (“Compact”) is designed to offer managed care-style discounts to certain uninsured patients, which enables us to offer lower rates to those patients who historically had been charged standard gross charges. Under the Compact, the discount offered to uninsured patients is recognized as a contractual allowance, which reduces net operating revenues at the time the self-pay accounts are recorded. The uninsured patient accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for self-pay accounts and other factors that affect the estimation process. We also provide financial assistance through our charity and uninsured discount programs to uninsured patients who are unable to pay for the healthcare services they receive. Our policy is not to pursue collection of amounts determined to qualify for financial assistance; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital’s eligibility for Medicaid DSH payments. These payments are intended to mitigate our cost of uncompensated care. Some states have also developed provider fee or other supplemental payment programs to mitigate the shortfall of Medicaid reimbursement compared to the cost of caring for Medicaid patients.

The initial expansion of health insurance coverage resulted in an increase in the number of patients using our facilities with either health insurance exchange or government healthcare insurance program coverage. However, we continue to have to provide uninsured discounts and charity care due to the failure of states to expand Medicaid coverage and for persons living in the country who are not permitted to enroll in a health insurance exchange or government healthcare insurance program. The following table shows our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses and which exclude the costs of our health plan businesses) of caring for our uninsured and charity patients in the years ended December 31, 2020, 2019 and 2018.

Years Ended December 31,

Estimated costs for:

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RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2020 COMPARED TO THE YEAR ENDED DECEMBER 31, 2019

The following two tables summarize our consolidated net operating revenues, operating expenses and operating income from continuing operations, both in dollar amounts and as percentages of net operating revenues, for the years ended December 31, 2020 and 2019. We present metrics as a percentage of net operating revenues because a significant portion of our costs are variable.

Years Ended December 31,

Net operating revenues:

Inter-segment eliminations (528) (573) 45

Equity in earnings of unconsolidated affiliates 169 175 (6)

Operating expenses:

Depreciation and amortization 857 850 7

Impairment and restructuring charges, and acquisition-related costs 290 185 105

Litigation and investigation costs 44 141 (97)

Years Ended December 31,

Net operating revenues 100.0 % 100.0 % — %

Grant income 5.0 % — % 5.0 %

Equity in earnings of unconsolidated affiliates 1.0 % 0.9 % 0.1 %

Operating expenses:

Salaries, wages and benefits 47.8 % 47.0 % 0.8 %

Other operating expenses, net 23.4 % 22.6 % 0.8 %

Depreciation and amortization 4.9 % 4.6 % 0.3 %

Litigation and investigation costs 0.2 % 0.8 % (0.6) %

Total net operating revenues decreased by $839 million, or 4.5%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. Hospital Operations net operating revenues, net of inter-segment eliminations, decreased by $687 million, or 4.6%, for the year ended December 31, 2020 compared to the same period in 2019, primarily due to lower patient volumes as a result of the COVID-19 pandemic, partially offset by higher patient acuity, a more favorable payer mix and improved terms of our managed care contracts.

Ambulatory Care net operating revenues decreased by $86 million, or 4.0%, for the year ended December 31, 2020 compared to the 2019 period. The decrease was primarily due to the negative impact of shelter-in-place orders on patient volumes and the mandated suspension of many elective procedures due to the COVID-19 pandemic, as well as a decrease of $40 million due to the deconsolidation of a facility. These impacts were partially offset by an increase from acquisitions of $105 million.

Conifer net operating revenues decreased by $66 million, or 4.8%, for the year ended December 31, 2020 compared to 2019. Conifer revenues from third-party customers, which are not eliminated in consolidation, decreased $21 million, or 2.6%, for the year ended December 31, 2020 compared to the 2019 period. Conifer’s net operating revenues were negatively impacted

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by the unfavorable downstream impact of the COVID-19 pandemic on its clients’ patient volumes, as well as attrition due to planned hospital divestitures by its clients.

The following table shows selected operating expenses of our three reportable business segments. Information for our Hospital Operations segment is presented on a same-hospital basis, which includes the results of our same 65 hospitals operated throughout the years ended December 31, 2020 and 2019 and excludes the results of three Chicago‐area hospitals we divested effective January 28, 2019. We present same-hospital data because we believe it provides investors with useful information regarding the performance of our hospitals and other operations that are comparable for the periods presented.

Years Ended December 31,

Selected Operating Expenses 2020 2019 Increase(Decrease)

Hospital Operations — Same-Hospital

Salaries, wages and benefits $ 7,136 $ 7,320 (2.5) %

Ambulatory Care

Salaries, wages and benefits $ 609 $ 635 (4.1) %

Conifer

Salaries, wages and benefits $ 673 $ 727 (7.4) %

Total

Salaries, wages and benefits $ 8,418 $ 8,682 (3.0) %

Rent/lease expense(1)

(1) Included in other operating expenses.

RESULTS OF OPERATIONS BY SEGMENT

Our operations are reported in three segments:

•Hospital Operations, which is comprised of our acute care and specialty hospitals, ancillary outpatient facilities, urgent care centers, micro-hospitals and physician practices. As described in Note 5 to the accompanying Consolidated Financial Statements, certain of these facilities were classified as held for sale at December 31, 2020 and 2019.

•Ambulatory Care, which is comprised of USPI’s ASCs, urgent care centers, imaging centers and surgical hospitals. As described in Note 5 to the accompanying Consolidated Financial Statements, certain of these facilities were classified as held for sale at December 31, 2020. In December 2020, USPI acquired controlling interests in the SCD Centers, which added 45 ASCs to USPI’s total centers.

•Conifer, which provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.

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Hospital Operations Segment

The following tables show operating statistics of our continuing operations hospitals and related outpatient facilities on a same-hospital basis, unless otherwise indicated, which includes the results of our same 65 hospitals operated throughout the years ended December 31, 2020 and 2019 and excludes the results of three Chicago‐area hospitals we divested effective January 28, 2019. We present same-hospital data because we believe it provides investors with useful information regarding the performance of our hospitals and other operations that are comparable for the periods presented. We present certain metrics on a per-adjusted-patient-admission and per-adjusted-patient-day basis to show trends other than volume. We present certain metrics as a percentage of net operating revenues because a significant portion of our operating expenses are variable.

Same-Hospital Continuing Operations

Years Ended December 31,

Admissions, Patient Days and Surgeries 2020 2019 Increase(Decrease)

Number of hospitals (at end of period) 65 65 — (1)

Paying admissions as a percentage of total admissions 93.7 % 94.0 % (0.3) % (1)

Average length of stay (days) 5.09 4.65 9.5 %

Utilization of licensed beds(3) 48.8 % 50.6 % (1.8) % (1)

(1) The change is the difference between 2020 and 2019 amounts shown.

Same-HospitalContinuing Operations

Years Ended December 31,

Outpatient Visits 2020 2019 Increase(Decrease)

Paying visits as a percentage of total visits 93.0 % 93.4 % (0.4) % (1)

(1) The change is the difference between the 2020 and 2019 amounts shown.

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Same-HospitalContinuing Operations

Years Ended December 31,

Selected revenue data – hospitals and related outpatient facilities

Net patient service revenue per adjusted patient day(1)(2) $ 2,666 $ 2,573 3.6 %

(1) Revenues are net of implicit price concessions.

Same-HospitalContinuing Operations

Years Ended December 31,

Total Segment Selected Operating Expenses 2020 2019 Increase(Decrease)

Supplies as a percentage of net operating revenues 17.6 % 17.4 % 0.2 % (1)

(1) The change is the difference between the 2020 and 2019 amounts shown.

Revenues

Same-hospital net operating revenues decreased $665 million, or 4.5%, during the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to lower patient volumes as a result of the COVID-19 pandemic, partially offset by higher patient acuity, a more favorable payer mix and improved terms of our managed care contracts. Our Hospital Operations segment also recognized income from federal, state and local grants totaling $823 million during the year ended December 31, 2020, which is not included in net operating revenues. Same-hospital admissions decreased 11.6% in the year ended December 31, 2020 compared to the 2019 period. Same-hospital outpatient visits decreased 19.4% in the year ended December 31, 2020 compared to the 2019 period.

The following table shows the consolidated net accounts receivable by payer at December 31, 2020 and 2019:

Net cost report settlements receivable and valuation allowances 34 12

Self-pay uninsured 32 25

Self-pay balance after insurance 74 76

Estimated future recoveries 156 162

Total discontinued operations 1 2

When we have an unconditional right to payment, subject only to the passage of time, the right is treated as a receivable. Patient accounts receivable, including billed accounts and certain unbilled accounts, as well as estimated amounts due from third-party payers for retroactive adjustments, are receivables if our right to consideration is unconditional and only the passage of time is required before payment of that consideration is due. Estimated uncollectable amounts are generally considered implicit price concessions that are a direct reduction to patient accounts receivable rather than allowance for doubtful accounts. Amounts related to services provided to patients for which we have not billed and that do not meet the conditions of unconditional right to payment at the end of the reporting period are contract assets. For our Hospital Operations segment, our contract assets include services that we have provided to patients who are still receiving inpatient care in our facilities at the end of the reporting period. Our Hospital Operations segment’s contract assets are included in other current assets in the accompanying Consolidated Balance Sheets at December 31, 2020 and 2019.

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Collection of accounts receivable has been a key area of focus, particularly over the past several years. At December 31, 2020, our Hospital Operations segment collection rate on self-pay accounts was approximately 25.5%. Our self‐pay collection rate includes payments made by patients, including co-pays, co-insurance amounts and deductibles paid by patients with insurance. Based on our accounts receivable from uninsured patients and co-pays, co-insurance amounts and deductibles owed to us by patients with insurance at December 31, 2020, a 10% decrease or increase in our self-pay collection rate, or approximately 3%, which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to patient accounts receivable of approximately $9 million. There are various factors that can impact collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, the volume of patients through our emergency departments, the increased burden of co-pays and deductibles to be made by patients with insurance, and business practices related to collection efforts. These factors, many of which have been affected by the COVID-19 pandemic, continuously change and can have an impact on collection trends and our estimation process.

Payment pressure from managed care payers also affects the collectability of our accounts receivable. We typically experience ongoing managed care payment delays and disputes; however, we continue to work with these payers to obtain adequate and timely reimbursement for our services. Our estimated Hospital Operations segment collection rate from managed care payers was approximately 97.3% at December 31, 2020.

We manage our implicit price concessions using hospital-specific goals and benchmarks such as (1) total cash collections, (2) point-of-service cash collections, (3) AR Days and (4) accounts receivable by aging category. The following tables present the approximate aging by payer of our net accounts receivable from the continuing operations of our Hospital Operations segment of $2.348 billion and $2.476 billion at December 31, 2020 and 2019, respectively, excluding cost report settlements receivable and valuation allowances of $34 million and $12 million, respectively, at December 31, 2020 and 2019:

Medicare Medicaid ManagedCare Indemnity,Self-Payand Other Total

Medicare Medicaid ManagedCare Indemnity,Self-Payand Other Total

Conifer continues to implement revenue cycle initiatives to improve our cash flow. These initiatives are focused on standardizing and improving patient access processes, including pre-registration, registration, verification of eligibility and benefits, liability identification and collections at point-of-service, and financial counseling. These initiatives are intended to reduce denials, improve service levels to patients and increase the quality of accounts that end up in accounts receivable. Although we continue to focus on improving our methodology for evaluating the collectability of our accounts receivable, we may incur future charges if there are unfavorable changes in the trends affecting the net realizable value of our accounts receivable.

At December 31, 2020, we had a cumulative total of patient account assignments to Conifer of $2.264 billion related to our continuing operations. These accounts have already been written off and are not included in our receivables or in the allowance for doubtful accounts; however, an estimate of future recoveries from all the accounts assigned to Conifer is determined based on our historical experience and recorded in accounts receivable.

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Patient advocates from Conifer’s Medicaid Eligibility Program (“MEP”) screen patients in the hospital to determine whether those patients meet eligibility requirements for financial assistance programs. They also expedite the process of applying for these government programs. Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending, under the MEP, with appropriate contractual allowances recorded. Based on recent trends, approximately 97% of all accounts in the MEP are ultimately approved for benefits under a government program, such as Medicaid. The following table shows the approximate amount of accounts receivable in the MEP still awaiting determination of eligibility under a government program at December 31, 2020 and 2019 by aging category:

December 31,

Salaries, Wages and Benefits

Same-hospital salaries, wages and benefits decreased by $184 million, or 2.5%, in the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease is primarily attributable to reduced patient volumes as a result of the COVID-19 pandemic, decreased health benefits costs, and the impact of previously announced workforce reductions as part of our enterprise-wide cost-reduction and efficiency initiatives. The decrease was partially offset by higher costs due to an increased average length of patient stay, annual merit increases for certain of our employees, a greater number of employed physicians and increased incentive compensation expense. Same-hospital salaries, wages and benefits as a percentage of net operating revenues increased by 100 basis points to 50.1% in the year ended December 31, 2020 compared to the 2019 period. This increase is primarily due to reduced patient revenues as a result of the COVID-19 pandemic. Salaries, wages and benefits expense for the years ended December 31, 2020 and 2019 included stock-based compensation expense of $28 million and $30 million, respectively.

Supplies

Same-hospital supplies expense decreased by $90 million, or 3.5%, in the year ended December 31, 2020 compared to the same period in 2019. This decrease was primarily attributable to reduced patient volumes as a result of the COVID-19 pandemic, as well as the impact of the group-purchasing strategies and supplies-management services we utilize to reduce costs. The decrease was partially offset by increased costs of certain supplies as a result of the COVID-19 pandemic, as well as growth in our higher-acuity, supply-intensive surgical services. Same-hospital supplies expense as a percentage of net operating revenues increased by 20 basis points to 17.6% in the year ended December 31, 2020 compared to the 2019 period. This increase is due to reduced patient revenues as a result of the COVID-19 pandemic.

We strive to control supplies expense through product standardization, consistent contract terms and end-to-end contract management, improved utilization, bulk purchases, focused spending with a smaller number of vendors and operational improvements. The items of current cost-reduction focus include personal protective equipment, cardiac stents and pacemakers, orthopedics, implants and high-cost pharmaceuticals.

Other Operating Expenses, Net

Same-hospital other operating expenses decreased by $48 million, or 1.3%, in the year ended December 31, 2020 compared to the same period in 2019. Same-hospital other operating expenses as a percentage of net operating revenues increased by 70 basis points to 24.6% compared to 23.9% in the year ended December 31, 2019, primarily due to reduced patient revenues as a result of the COVID-19 pandemic. Additionally, there is proportionally a higher level of fixed costs (e.g., rent expense) in other operating expenses than salaries, wages and benefits or supplies expense. The changes in other operating expenses included:

•increased medical fees of $103 million;

•increased rent and lease expense of $39 million;

•decreased consulting and legal fees of $36 million;

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•decreased costs of contracted services of $17 million;

•decreased expenses related to our risk-contracting business in California of $17 million;

•decreased repair and maintenance costs of $17 million;

•decreased malpractice expense of $33 million;

•decreased costs of $40 million associated with funding indigent care services at our hospitals, which costs were substantially offset by reduced net patient revenues; and

•increased gains on asset sales of $18 million compared to the 2019 period primarily related to the divestiture of a medical office building.

AmbulatoryCareSegment

Our Ambulatory Care segment is comprised of USPI’s ASCs, urgent care centers, imaging centers and surgical hospitals. USPI operates its surgical facilities in partnership with local physicians and, in many of these facilities, a health system partner. We hold an ownership interest in each facility, with each being operated through a separate legal entity in most cases. USPI operates facilities on a day-to-day basis through management services contracts. Our sources of earnings from each facility consist of:

•management services revenues, computed as a percentage of each facility’s net revenues (often net of implicit price concessions); and

•our share of each facility’s net income (loss), which is computed by multiplying the facility’s net income (loss) times the percentage of each facility’s equity interests owned by USPI.

Our role as an owner and day-to-day manager provides us with significant influence over the operations of each facility. For many of the facilities our Ambulatory Care segment operates (106 of 396 facilities at December 31, 2020), this influence does not represent control of the facility, so we account for our investment in the facility under the equity method for an unconsolidated affiliate. USPI controls 290 of the facilities our Ambulatory Care segment operates, and we account for these investments as consolidated subsidiaries. Our net earnings from a facility are the same under either method, but the classification of those earnings differs. For consolidated subsidiaries, our financial statements reflect 100% of the revenues and expenses of the subsidiaries, after the elimination of intercompany amounts. The net profit attributable to owners other than USPI is classified within “net income available to noncontrolling interests.”

For unconsolidated affiliates, our consolidated statements of operations reflect our earnings in two line items:

•equity in earnings of unconsolidated affiliates—our share of the net income (loss) of each facility, which is based on the facility’s net income (loss) and the percentage of the facility’s outstanding equity interests owned by USPI; and

•management and administrative services revenues, which is included in our net operating revenues—income we earn in exchange for managing the day-to-day operations of each facility, usually quantified as a percentage of each facility’s net revenues less implicit price concessions.

Our Ambulatory Care segment operating income is driven by the performance of all facilities USPI operates and by USPI’s ownership interests in those facilities, but our individual revenue and expense line items contain only consolidated businesses, which represent 73% of those facilities. This translates to trends in consolidated operating income that often do not correspond with changes in consolidated revenues and expenses, which is why we disclose certain statistical and financial data on a pro forma systemwide basis that includes both consolidated and unconsolidated (equity method) facilities.

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Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

The following table summarizes certain consolidated statements of operations items for the periods indicated:

Years Ended December 31,

Ambulatory Care Results of Operations 2020 2019 Increase (Decrease)

Grant income $ 59 $ — N/A

Equity in earnings of unconsolidated affiliates $ 163 $ 160 1.9 %

Salaries, wages and benefits $ 609 $ 635 (4.1) %

Other operating expenses, net $ 349 $ 340 2.6 %

Our Ambulatory Care net operating revenues decreased by $86 million, or 4.0%, for the year ended December 31, 2020 compared to the 2019 period. The change was driven by a decrease in same-facility net operating revenues of $151 million due primarily to the COVID-19 pandemic, as well as a decrease of $40 million due to the deconsolidation of a facility, partially offset by an increase from acquisitions of $105 million. Our Ambulatory Care segment also recognized income from federal grants totaling $59 million during the year ended December 31, 2020, which is not included in net operating revenues.

Salaries, wages and benefits expense decreased by $26 million, or 4.1%, during the year ended December 31, 2020 compared to the same period in 2019. This change is attributable to a decrease in same-facility salaries, wages and benefits expense of $41 million due primarily to the necessary flexing of staff as patient volumes decreased at our centers early in the year due to shelter-in-place orders and the mandated suspension of many elective procedures at the beginning of the COVID-19 pandemic, as well as a decrease of $9 million due to the deconsolidation of a facility. These impacts were partially offset by an increase from acquisitions of $24 million. Salaries, wages and benefits expense for the years ended December 31, 2020 and 2019 included stock-based compensation expense of $14 million and $11 million, respectively.

Supplies expense increased by $20 million, or 4.5%, during the year ended December 31, 2020 compared to 2019. The change was driven by an increase from acquisitions of $33 million, partially offset by a decrease in same-facility supplies expense of $1 million as a result of the reduced number of cases due to the COVID-19 pandemic, as well as a decrease of $12 million due to the deconsolidation of a facility.

Other operating expenses increased by $9 million, or 2.6%, during the year ended December 31, 2020 compared to the 2019 period. The change was driven by an increase from acquisitions of $18 million, partially offset by a decrease in same-facility other operating expenses of $2 million due primarily to strong expense management while patient volumes were reduced as a result of the COVID-19 pandemic, as well as a decrease of $7 million due to the deconsolidation of a facility.

Facility Growth

The following table summarizes the changes in our same-facility revenue year-over-year on a pro forma systemwide basis, which includes both consolidated and unconsolidated (equity method) facilities. While we do not record the revenues of unconsolidated facilities, we believe this information is important in understanding the financial performance of our Ambulatory Care segment because these revenues are the basis for calculating our management services revenues and, together with the expenses of our unconsolidated facilities, are the basis for our equity in earnings of unconsolidated affiliates.

Ambulatory Care Facility Growth Year Ended December 31, 2020

Net revenues (5.6)%

Net revenue per case 4.9%

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Joint Ventures with Health System Partners

USPI’s business model is to jointly own its facilities with local physicians and, in many of these facilities, a not-for-profit health system partner. Accordingly, as of December 31, 2020, the majority of facilities in our Ambulatory Care segment are operated in this model.

Ambulatory Care Facilities Year Ended December 31, 2020

Facilities:

With a health system partner 222

Without a health system partner 174

Total facilities operated 396

Acquisitions 55

De novo 3

Dispositions/Mergers (8)

Total increase in number of facilities operated 50

During the year ended December 31, 2020, we acquired controlling interests in 52 ASCs in Arizona, Colorado, Florida, Indiana, Louisiana, Maryland, Missouri, New Hampshire, Ohio, Tennessee, Texas, Washington and Wisconsin, 45 of which were acquired in December 2020, as well as one imaging center in Texas. We paid cash totaling approximately $1.2 billion for these acquisitions. Of these 53 newly acquired outpatient centers, one is jointly owned with a health system partner, four are jointly owned with a health system partner and local physicians, and 48 are jointly owned with local physicians only. We also opened two new ASCs and one urgent care center, closed two ASCs and deconsolidated one ASC during the year ended December 31, 2020.

During the year ended December 31, 2020, we acquired noncontrolling interests in one surgical hospital and one ASC, both of which are located in California. We paid cash totaling approximately $24 million for these ownership interests. Each of these facilities is jointly owned with local physicians and health system partners.

We also regularly engage in the purchase of equity interests with respect to our investments in unconsolidated affiliates and consolidated facilities that do not result in a change of control. These transactions are primarily the acquisitions of equity interests in ASCs and the investment of additional cash in facilities that need capital for acquisitions, new construction or other business growth opportunities. During the year ended December 31, 2020, we invested approximately $1 million in such transactions.

ConiferSegment

Our Conifer segment generated net operating revenues of $1.306 billion and $1.372 billion during the years ended December 31, 2020 and 2019, respectively, a portion of which was eliminated in consolidation as described in Note 23 to the accompanying Consolidated Financial Statements. Conifer revenues from third-party customers, which are not eliminated in consolidation, decreased $21 million, or 2.6%, for the year ended December 31, 2020 compared to the 2019 period. Conifer’s net operating revenues were negatively impacted by the unfavorable downstream impact of the COVID-19 pandemic on its clients’ patient volumes, as well as attrition due to planned hospital divestitures by its clients.

Salaries, wages and benefits expense for Conifer decreased $54 million, or 7.4%, in the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to cost savings realized through our Global Business Center. Salaries, wages and benefits expense for the years ended December 31, 2020 and 2019 included stock-based compensation expense of $2 million and $1 million, respectively.

Other operating expenses for Conifer increased $8 million, or 3.1%, in the year ended December 31, 2020 compared to the year ended December 31, 2019.

Agreements document the current terms and conditions of various services Conifer provides to Tenet hospitals, as well as certain administrative services our Hospital Operations segment provides to Conifer; however, execution of a restructured long-term services agreement between Conifer and Tenet is a condition to completion of the proposed spin-off. Conifer’s contract with Tenet represented 40.4% of the net operating revenues Conifer recognized in the year ended December 31, 2020.

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Consolidated

Impairment and Restructuring Charges, and Acquisition-Related Costs

During the year ended December 31, 2020, we recorded impairment and restructuring charges and acquisition-related costs of $290 million, consisting of $92 million of impairment charges, $184 million of restructuring charges and $14 million of acquisition-related costs. Impairment charges included $76 million for the write-down of hospital buildings to their estimated fair values in one of our markets, which assets are part of our Hospital Operations segment. Material adverse trends in our recent estimates of future undiscounted cash flows of the hospitals indicated the aggregate carrying value of the hospitals’ long-lived assets was not recoverable from the estimated future cash flows. We believe the most significant factors contributing to the adverse financial trends included reductions in volumes of insured patients, shifts in payer mix from commercial to governmental payers combined with reductions in reimbursement rates from governmental payers, and high levels of uninsured patients. As a result, we updated the estimate of the fair value of the hospitals’ long-lived assets and compared it to the aggregate carrying value of those assets. Because the fair value estimates were lower than the aggregate carrying value of the long-lived assets, an impairment charge was recorded for the difference in the amounts. The aggregate carrying value of the hospitals’ assets held and used for which impairment charges were recorded was $483 million at December 31, 2020. We also recorded $16 million of other impairment charges. Restructuring charges consisted of $65 million of employee severance costs, $50 million related to the transitioning of various administrative functions to our Global Business Center, $23 million of charges due to the termination of the USPI management equity plan, $14 million of contract and lease termination fees, and $32 million of other restructuring costs. Acquisition-related costs consisted of $14 million of transaction costs.Our impairment and restructuring charges and acquisition-related costs for the year ended December 31, 2020 were comprised of $187 million from our Hospital Operations segment, $57 million from our Ambulatory Care segment and $46 million from our Conifer segment.

During the year ended December 31, 2019, we recorded impairment and restructuring charges and acquisition-related costs of $185 million, consisting of $42 million of impairment charges, $137 million of restructuring charges and $6 million of acquisition-related costs. Impairment charges consisted of $26 million of charges to write-down assets held for sale to their estimated fair value, less estimated costs to sell, for certain of our Memphis-area facilities and $16 million of other impairment charges. Restructuring charges consisted of $57 million of employee severance costs, $28 million related to the transitioning of various administrative functions to our Global Business Center, $6 million of contract and lease termination fees, and $46 million of other restructuring costs. Acquisition-related costs consisted of $6 million of transaction costs. Our impairment and restructuring charges and acquisition-related costs for the year ended December 31, 2019 were comprised of $111 million from our Hospital Operations segment, $18 million from our Ambulatory Care segment and $56 million from our Conifer segment.

Our impairment tests presume stable, improving or, in some cases, declining operating results in our hospitals, which are based on programs and initiatives being implemented that are designed to achieve the hospital’s most recent projections. If these projections are not met, or if in the future negative trends occur that impact our future outlook, future impairments of long-lived assets and goodwill may occur, and we may incur additional restructuring charges, which could be material.

Litigation and Investigation Costs

Litigation and investigation costs for the years ended December 31, 2020 and 2019 were $44 million and $141 million, respectively, primarily related to costs associated with significant legal proceedings and governmental investigations. The costs in the 2019 period include accruals for a now-resolved matter described in Note 17 to the accompanying Consolidated Financial Statements.

Net Gains (Losses) on Sales, Consolidation and Deconsolidation of Facilities

During the year ended December 31, 2020, we recorded net gains on sales, consolidation and deconsolidation of facilities of $14 million, primarily comprised of aggregate gains of $15 million related to consolidation changes of certain USPI businesses due to ownership changes and a gain of $7 million related to post-closing adjustments on the 2017 sale of facilities in the Houston area, partially offset by a loss of $5 million related to post-closing adjustments on the 2019 sale of three of our hospitals in the Chicago area and a loss of $3 million related to post-closing adjustments on the 2018 sale of MacNeal Hospital.

During the year ended December 31, 2019, we recorded net losses on sales, consolidation and deconsolidation of facilities of $15 million, primarily comprised of a $14 million loss on the sale of three of our hospitals in the Chicago area, as well as other operations affiliated with the hospitals.

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Interest Expense

Interest expense for the year ended December 31, 2020 was $1.003 billion compared to $985 million for the year ended December 31, 2019.

Loss from Early Extinguishment of Debt

Loss from early extinguishment of debt was $316 million for the year ended December 31, 2020. This loss consisted of aggregate losses of $320 million related to the debt redemption and purchase transactions described in Note 8 to the accompanying Consolidated Financial Statements, partially offset by $4 million of gains on the extinguishment of mortgage notes.

Loss from early extinguishment of debt was $227 million for the year ended December 31, 2019, consisting of losses related to the debt redemption transactions described in Note 8 to the accompanying Consolidated Financial Statements.

Income Tax Expense

During the year ended December 31, 2020, we recorded an income tax benefit of $97 million in continuing operations on pre-tax income of $671 million compared to income tax expense of $160 million in continuing operations on pre-tax income of $320 million during the year ended December 31, 2019. The reconciliation between the amount of recorded income tax expense (benefit) and the amount calculated at the statutory federal tax rate is shown in the following table:

Years Ended December 31,

Tax expense at statutory federal rate of 21% $ 141 $ 67

State income taxes, net of federal income tax benefit 33 21

Expired state net operating losses, net of federal income tax benefit 1 2

Tax attributable to noncontrolling interests (75) (79)

Nondeductible goodwill — 4

Nondeductible executive compensation 6 6

Nondeductible litigation costs — 7

Expired charitable contribution carryforward 1 8

Stock-based compensation tax deficiencies (benefits) (2) 4

Changes in valuation allowance (226) 133

Change in tax contingency reserves, including interest — (14)

Other items 10 4

Income tax expense (benefit) $ (97) $ 160

As a result of the change in the business interest expense disallowance rules under the CARES Act, we recorded an income tax benefit of $88 million during the year ended December 31, 2020 to decrease the valuation allowance for interest expense and carryforwards due to the additional deduction of interest expense. In September 2020, we filed an application with the Internal Revenue Services (“IRS”) to change our method of accounting for certain capitalized costs on our 2019 tax return. This change in tax accounting method resulted in additional interest expense being allowed on our 2019 and 2020 tax returns. We reduced our valuation allowance by an additional $126 million in the year ended December 31, 2020 related to the change in tax accounting method. Charitable contribution carryforward and state valuation allowance changes resulted in an additional $12 million decrease for the year ended December 31, 2020.

Net Income Available to Noncontrolling Interests

Net income available to noncontrolling interests was $369 million for the year ended December 31, 2020 compared to $386 million for the year ended December 31, 2019. Net income available to noncontrolling interests in the 2020 period was comprised of $322 million of income related to our Ambulatory Care segment and $66 million of income related to our Conifer segment, partially offset by a $19 million loss related to our Hospital Operations segment. Of the portion related to our Ambulatory Care segment, $12 million of income was related to the minority interests in USPI.

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ADDITIONAL SUPPLEMENTAL NON-GAAP DISCLOSURES

The financial information provided throughout this report, including our Consolidated Financial Statements and the notes thereto, has been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, we use certain non-GAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements, some of which are recurring or involve cash payments. We use this information in our analysis of the performance of our business, excluding items we do not consider relevant to the performance of our continuing operations. In addition, we use these measures to define certain performance targets under our compensation programs.

“Adjusted EBITDA” is a non-GAAP measure we define as net income available (loss attributable) to Tenet Healthcare Corporation common shareholders before (1) the cumulative effect of changes in accounting principle, (2) net loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax (4) income tax benefit (expense), (5) gain (loss) from early extinguishment of debt, (6) other non-operating income (expense), net, (7) interest expense, (8) litigation and investigation (costs) benefit, net of insurance recoveries, (9) net gains (losses) on sales, consolidation and deconsolidation of facilities, (10) impairment and restructuring charges and acquisition-related costs, (11) depreciation and amortization, and (12) income (loss) from divested and closed businesses (i.e., our health plan businesses). Litigation and investigation costs do not include ordinary course of business malpractice and other litigation and related expense.

We believe the foregoing non-GAAP measure is useful to investors and analysts because it presents additional information about our financial performance. Investors, analysts, company management and our board of directors utilize this non-GAAP measure, in addition to GAAP measures, to track our financial and operating performance and compare that performance to peer companies, which utilize similar non-GAAP measures in their presentations. The human resources committee of our board of directors also uses certain non-GAAP measures to evaluate management’s performance for the purpose of determining incentive compensation. We believe that Adjusted EBITDA is a useful measure, in part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to GAAP and other non-GAAP measures, as factors in determining the estimated fair value of shares of our common stock. Company management also regularly reviews the Adjusted EBITDA performance for each operating segment. We do not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance. The non-GAAP Adjusted EBITDA measure we utilize may not be comparable to similarly titled measures reported by other companies. Because this measure excludes many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly, investors are encouraged to use GAAP measures when evaluating our financial performance.

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The following table shows the reconciliation of Adjusted EBITDA to net income available (loss attributable) to Tenet Healthcare Corporation common shareholders (the most comparable GAAP term) for the years ended December 31, 2020 and 2019:

Years Ended December 31,

Less: Net income available to noncontrolling interests (369) (386)

Income from discontinued operations, net of tax — 11

Income from continuing operations 768 160

Income tax benefit (expense) 97 (160)

Loss from early extinguishment of debt (316) (227)

Other non-operating income (expense), net 1 (5)

Litigation and investigation costs (44) (141)

Impairment and restructuring charges, and acquisition-related costs (290) (185)

Depreciation and amortization (857) (850)

Income (loss) from divested and closed businesses 20 (2)

Less: Net operating revenues from health plans 21 1

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2019 COMPARED TO THE YEAR ENDED DECEMBER 31, 2018

A discussion of the results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018 prior to the recast to reflect retrospective application of a change in accounting principle can be found in our Annual Report on Form 10-K for the year ended December 31, 2019. The impact of the recast on our results for prior periods is described in Note 1 to the accompanying Consolidated Financial Statements.

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LIQUIDITY AND CAPITAL RESOURCES

CASH REQUIREMENTS

Our obligations to make future cash payments under contracts, such as debt and lease agreements, and under contingent commitments, such as standby letters of credit and minimum revenue guarantees, are summarized in the table below, all as of December 31, 2020:

Total Years Ended December 31, Later Years

(In Millions)

Medicare accelerated payment program(2) 1,505 603 902 — — — —

Standby letters of credit 88 88 — — — — —

Asset retirement obligations 166 — — — — — 166

Academic affiliation agreements(4) 82 43 33 6 — — —

Tax liabilities 5 — — — — — 5

Purchase orders 318 318 — — — — —

(1)Includes interest through maturity date/lease termination.

(2)Includes $113 million of Medicare accelerated payments received by our unconsolidated affiliates for whom we provide cash management services.

(3)Includes minimum revenue guarantees, primarily related to physicians under relocation agreements and physician groups that provide services at our hospitals, and operating lease guarantees.

(4)These agreements contain various rights and termination provisions.

(5)Professional liability and workers’ compensation reserves, and our obligations under the Baylor Put/Call Agreement, as defined and described in Note 18 to our Consolidated Financial Statements, have been excluded from the table. At December 31, 2020, the current and long-term professional and general liability reserves included in our Consolidated Balance Sheet were $243 million and $735 million, respectively, and the current and long-term workers’ compensation reserves included in our Consolidated Balance Sheet were $40 million and $117 million, respectively. Redeemable noncontrolling interests in USPI that are subject to the Baylor Put/Call Agreement totaled $226 million at December 31, 2020.

Standby letters of credit are required principally by our insurers and various states to collateralize our workers’ compensation programs pursuant to statutory requirements and as security to collateralize the deductible and self-insured retentions under certain of our professional and general liability insurance programs. The amount of collateral required is primarily dependent upon the level of claims activity and our creditworthiness. The insurers require the collateral in case we are unable to meet our obligations to claimants within the deductible or self-insured retention layers.

We consummated the following transactions affecting our long-term commitments in the year ended December 31, 2020:

•On September 16, 2020, we sold $2.500 billion aggregate principal amount of6.125% senior notes, which will mature on October 1, 2028 (the “2028 Senior Notes”). We will pay interest on the 2028 Senior Notes semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2021. The proceeds from the sale of the 2028 Senior Notes were used, after payment of fees and expenses, together with cash on hand, to finance the redemption of all $2.556 billion aggregate principal amount then outstanding of our 8.125% senior unsecured notes due 2022 (the “2022 Senior Notes”) for approximately $2.843 billion. In connection with the redemption, we recorded a loss from early extinguishment of debt of approximately $305 million in the three months ended September 30, 2020, primarily related to the difference between the purchase price and the par value of the 2022 Senior Notes, as well as the write-off of associated unamortized issuance costs.

•In August and July 2020, we purchased approximately $109 million aggregate principal amount of our 2022 Senior Notes for approximately $114 million. In connection with the purchases, we recorded losses from early extinguishment of debt totaling $7 million in the three months ended September 30, 2020, primarily related to the differences between the purchase prices and the par values of the 2022 Senior Notes, as well as the write-offs of associated unamortized issuance costs.

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•In June 2020, we purchased approximately $135 million aggregate principal amount of our 2022 Senior Notes for approximately $142 million. In connection with the purchase, we recorded a loss from early extinguishment of debt of approximately $8 million in the three months ended June 30, 2020, primarily related to the difference between the purchase price and the par value of the 2022 Senior Notes, as well as the write-off of associated unamortized issuance costs.

•On June 16, 2020, we sold $600 million aggregate principal amount of 4.625% senior secured first lien notes, which will mature on June 15, 2028 (the “2028 Senior Secured First Lien Notes”). We will pay interest on the 2028 Senior Secured First Lien Notes semi-annually in arrears on June 15 and December 15 of each year, which payments commenced on December 15, 2020.

•On April 7, 2020, we sold $700 million aggregate principal amount of 7.500% senior secured first lien notes, which will mature on April 1, 2025 (the “2025 Senior Secured First Lien Notes”). We will pay interest on the 2025 Senior Secured First Lien Notes semi-annually in arrears on April 1 and October 1 of each year, which payments commenced on October 1, 2020. A portion of the proceeds from the sale of the 2025 Senior Secured First Lien Notes was used, after payment of fees and expenses, to repay the $500 million aggregate principal amount of borrowings outstanding under our Credit Agreement as of March 31, 2020.

At December 31, 2020, using the last 12 months of Adjusted EBITDA, our ratio of total long-term debt, net of cash and cash equivalent balances, to Adjusted EBITDA was 4.22x. This ratio at December 31, 2020 was temporarily impacted by the increase in cash received from advances from Medicare. We anticipate this ratio will fluctuate from quarter to quarter based on earnings performance and other factors, including the use of our revolving credit facility as a source of liquidity and acquisitions that involve the assumption of long-term debt. We seek to manage this ratio and increase the efficiency of our balance sheet by following our business plan and managing our cost structure, including through possible asset divestitures, and through other changes in our capital structure. As part of our long-term objective to manage our capital structure, we may seek to retire, purchase, redeem or refinance some of our outstanding debt or issue equity or convertible securities, in each case subject to prevailing market conditions, our liquidity requirements, operating results, contractual restrictions and other factors. Our ability to achieve our leverage and capital structure objectives is subject to numerous risks and uncertainties, many of which are described in the Forward-Looking Statements and Risk Factors sections in Part I of this report.

Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations), equipment and information systems additions and replacements, introduction of new medical technologies, design and construction of new buildings, and various other capital improvements, as well as commitments to make capital expenditures in connection with acquisitions of businesses. Capital expenditures were $540 million, $670 million and $617 million in the years ended December 31, 2020, 2019 and 2018, respectively. We had initially anticipated higher capital expenditures in 2020 than we had in 2019, but we later decided to reduce planned 2020 capital expenditures in response to the COVID-19 pandemic. We anticipate that our capital expenditures for continuing operations for the year ending December 31, 2021 will total approximately $700 million to $750 million, including $93 million that was accrued as a liability at December 31, 2020. We have initiated construction on a new 100-bed acute care hospital in Fort Mill, South Carolina. The general contractor mobilized in December 2020, completing all pre-construction conditions of the certificate of need approval. Our plans have been submitted to and approved by the South Carolina Department of Health and Environment Control. The project is currently on schedule for completion in the third quarter of 2022, and we expect it to cost approximately $150 million over the construction period.

Interest payments, net of capitalized interest, were $962 million, $946 million and $976 million in the years ended December 31, 2020, 2019 and 2018, respectively. For the year ending December 31, 2021, we expect annual interest payments to be approximately $920 million to $930 million.

Income tax payments, net of tax refunds, were $12 million in both of the years ended December 31, 2020 and 2019 and $25 million in the year ended December 31, 2018. At December 31, 2020, our carryforwards available to offset future taxable income consisted of (1) federal NOL carryforwards of approximately $2.367 billion pre-tax, $1.126 billion of which expires in 2021 to 2034 and $1.241 billion of which has no expiration date, (2) general business credit carryforwards of approximately $25 million expiring in 2023 through 2039, (3) charitable contribution carryforwards of approximately $195 million expiring in 2021 through 2025 and (4) state NOL carryforwards of $3.728 billion expiring in 2021 through 2040 for which the associated deferred tax benefit, net of valuation allowance and federal tax impact, is $61 million. Our ability to utilize NOL carryforwards to reduce future taxable income may be limited under Section 382 of the Internal Revenue Code if certain ownership changes in our company occur during a rolling three-year period. These ownership changes include purchases of common stock under share repurchase programs, the offering of stock by us, the purchase or sale of our stock by 5% shareholders, as defined in the Treasury regulations, or the issuance or exercise of rights to acquire our stock. If such

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ownership changes by 5% shareholders result in aggregate increases that exceed 50 percentage points during the three-year period, then Section 382 imposes an annual limitation on the amount of our taxable income that may be offset by the NOL carryforwards or tax credit carryforwards at the time of ownership change.

Periodic examinations of our tax returns by the IRS or other taxing authorities could result in the payment of additional taxes. The IRS has completed audits of our tax returns for all tax years ended on or before December 31, 2007. All disputed issues with respect to these audits have been resolved and all related tax assessments (including interest) have been paid. Our tax returns for years ended after December 31, 2007 and USPI’s tax returns for years ended after December 31, 2016 remain subject to audit by the IRS.

SOURCES AND USES OF CASH

Our liquidity for the year ended December 31, 2020 was primarily derived from net cash provided by operating activities, cash on hand and borrowings under our revolving credit facility. During 2020, we also received supplemental funds from Medicare and from federal, state and local grants pursuant to legislation designed to mitigate the disruptive effects of the COVID-19 pandemic. We had $2.446 billion of cash and cash equivalents on hand at December 31, 2020 to fund our operations and capital expenditures, and our borrowing availability under our credit facility was $1.900 billion based on our borrowing base calculation at December 31, 2020.

When operating under normal conditions, our primary source of operating cash is the collection of accounts receivable. As such, our operating cash flow is impacted by levels of cash collections, as well as levels of implicit price concessions, due to shifts in payer mix and other factors.

Net cash provided by operating activities was $3.407 billion for the year ended December 31, 2020 compared to $1.233 billion for the year ended December 31, 2019. Key factors contributing to the change between the 2020 and 2019 periods include the following:

•Approximately $1.4 billion of cash advances received from Medicare pursuant to COVID-19 stimulus legislation;

•$900 million of cash received from federal, state and local grants, including the Provider Relief Fund;

•A $260 million deferral of our payroll tax match in 2020 pursuant to COVID-19 stimulus legislation;

•Decreased cash receipts of $81 million related to supplemental Medicaid programs in California and Texas;

•Higher interest payments of $16 million in the 2020 period;

•An increase of $141 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements; and

•The timing of other working capital items.

Net cash used in investing activities was $1.608 billion for the year ended December 31, 2020 compared to $619 million for the year ended December 31, 2019. The 2020 amount included an increase in investments for purchases of businesses or joint venture interests of $1.152 billion, primarily due to the acquisition of controlling interests in 45 ASCs in December 2020. The 2019 period included proceeds from sales of facilities and other assets of $63 million primarily from the sale of three hospitals and hospital-affiliated operations in the Chicago area. Additionally, capital expenditures decreased from $670 million in 2019 to $540 million in 2020, reflecting our decision to reduce planned capital expenditures in response to the COVID-19 pandemic.

Net cash provided by financing activities was $385 million for the year ended December 31, 2020 compared to net cash used in financing activities of $763 million for the year ended December 31, 2019. The 2020 amount included proceeds from the issuance of $2.5 billion aggregate principal amount of our 2028 Senior Notes,$700 million aggregate principal amount of our 2025 Senior Secured First Lien Notes and $600 million aggregate principal amount of our 2028 Senior Secured First Lien Notes. The 2020 amount also included $3.1 billion of payments for our redemption and purchase of $2.8 billion aggregate principal amount of our outstanding 2022 Senior Notes, $113 million of cash advances from Medicare and $74 million of stimulus grants received by our Ambulatory Care segment’s non-consolidated affiliates. In 2019, we sold a total of $5.7 billion aggregate principal amount of notes. The proceeds from the sales of those notes were used, after payment of fees and expenses, together with cash on hand and borrowings under our senior secured revolving credit facility, to fund the

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redemptions of a total of $5.7 billion aggregate principal amount of notes. The 2019 amount also included $70 million of cash paid for debt issuance costs related to these transactions. For additional information regarding our long-term debt, see Note 8 to the accompanying Consolidated Financial Statements.

We have several structured payables arrangements that are a part of our strategy to make our procurement processes more efficient and cost effective. At December 31, 2020, we were paying approximately 3,750 vendors under these programs, with an annual charge volume of approximately $844 million. We do not expect these programs to result in any significant changes to our liquidity.

We record our equity securities and our debt securities classified as available-for-sale at fair market value. The majority of our investments are valued based on quoted market prices or other observable inputs. We have no investments that we expect will be negatively affected by the current economic conditions such that they will materially impact our financial condition, results of operations or cash flows.

DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS

Credit Agreement. We amended the credit agreement for our senior secured revolving credit facility in April 2020 (as amended, the “Credit Agreement”) to, among other things, (i) increase the aggregate revolving credit commitments from the previous limit of $1.5 billion to $1.9 billion, subject to borrowing availability, and (ii) increase the advance rate and raise limits on certain eligible accounts receivable in the calculation of the borrowing base, in each case, for an incremental period of 364 days. In addition to revolving loans, our senior secured revolving credit facility provides a $200 million subfacility for standby letters of credit. Obligations under the Credit Agreement, which has a scheduled maturity date of September 12, 2024, are guaranteed by substantially all of our domestic wholly owned hospital subsidiaries and are secured by a first-priority lien on the eligible inventory and accounts receivable owned by us and the subsidiary guarantors, including receivables for Medicaid supplemental payments. At December 31, 2020, we were in compliance with all covenants and conditions in our Credit Agreement. At December 31, 2020, we had no cash borrowings outstanding under the Credit Agreement, and we had less than $1 million of standby letters of credit outstanding. Based on our eligible receivables, $1.9 billion was available for borrowing under the Credit Agreement at December 31, 2020.

Letter of Credit Facility. In March 2020, we amended our letter of credit facility (as amended, the “LC Facility”) to extend the scheduled maturity date of the LC Facility from March 7, 2021 to September 12, 2024 and to increase the aggregate principal amount of standby and documentary letters of credit that from time to time may be issued thereunder from $180 million to $200 million. In July 2020, we further amended the LC Facility to increase the maximum secured debt covenant from 4.00 to 1.00 on a quarterly basis up to 6.00 to 1.00 for the quarter ending March 31, 2021, which maximum ratio will step down on a quarterly basis through the quarter ending December 31, 2021. Obligations under the LC Facility are guaranteed and secured by a first‐priority pledge of the capital stock and other ownership interests of certain of our wholly owned domestic hospital subsidiaries on an equal ranking basis with our senior secured first lien notes. At December 31, 2020, we were in compliance with all covenants and conditions in our LC Facility. At December 31, 2020, we had $88 million of standby letters of credit outstanding under the LC Facility.

Senior Secured and Senior Unsecured Note Refinancing Transactions. In 2020, we sold $2.5 billion aggregate principal amount of our 2028 Senior Notes,$700 million aggregate principal amount of our 2025 Senior Secured First Lien Notes and $600 million aggregate principal amount of our 2028 Senior Secured First Lien Notes. The proceeds from the sales of these notes were used, after payment of fees and expenses, together with cash on hand, to fund the redemptions of a total$3.1 billion of payments for our redemption and purchase of $2.8 billion aggregate principal amount of our outstanding 2022 Senior Notes and to repay outstanding borrowings under the Credit Agreement.

LIQUIDITY