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 give context to the analysis of our financial information, 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 and Services Segment
• Results of Operations
• Liquidity and Capital Resources
• Recently Issued Accounting Standards
• Critical Accounting Estimates
Our business consists of our Hospital Operations and Services (“Hospital Operations”) segment and our Ambulatory Care segment. Our Hospital Operations segment is comprised of our acute care and specialty hospitals, a network of employed physicians and ancillary outpatient facilities. At December 31, 2025, our subsidiaries operated 50 hospitals serving primarily urban and suburban communities in eight states. Our Hospital Operations segment also included 132 outpatient facilities, namely urgent care centers, imaging centers, off-campus hospital emergency departments and micro‑hospitals, at December 31, 2025. In addition, our Hospital Operations segment provides revenue cycle management and value‑based care services to hospitals, health systems, physician practices, employers and other clients through Conifer Health Solutions, LLC.
Our Ambulatory Care segment, through USPI Holding Company, Inc. (together with its subsidiaries, “USPI”), held ownership interests in 533 ambulatory surgery centers (each, an “ASC”), 401 of which are consolidated, and 26 surgical hospitals, eight of which are consolidated, in 37 states at December 31, 2025. USPI’s facilities offer a range of procedures and service lines, including, among other specialties: orthopedics, total joint replacement, and spinal and other musculoskeletal procedures; gastroenterology; pain management; otolaryngology (ear, nose and throat); ophthalmology; and urology.
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 admission and per adjusted patient day amounts). Continuing operations information includes the results of all facilities operated during any portion of the periods presented, and it reflects the performance of those facilities only for the time periods in which we operated them. Continuing operations information excludes the results of our hospitals and other businesses classified as discontinued operations for accounting purposes. We believe this presentation is useful to investors because continuing operations information reflects the impact of the addition or disposition of individual hospitals and other operations on our volumes, revenues and expenses.
In certain cases, information presented in MD&A for our Hospital Operations segment is described as presented on a same‑hospital basis, which includes facilities we operated for the entirety of the periods presented. For the years ended December 31, 2025 and 2024, information presented on a same-hospital basis includes the results of our same 47 hospitals and those outpatient centers we operated throughout both years, and excludes the results of: (1) three hospitals located in South Carolina and certain related operations (the “SC Hospitals”) we sold in January 2024; (2) four hospitals and certain related operations located in Orange County and Los Angeles County, California (the “OCLA CA Hospitals”) we sold in March 2024; (3) two hospitals and certain related operations located in San Luis Obispo County, California (the “Central CA Hospitals”), which we also sold in March 2024; (4) Westover Hills Baptist Hospital, the acute care hospital we opened in Texas in July 2024; (5) a rehabilitation hospital in El Paso, Texas, in which we acquired a majority ownership interest in September 2024; (6) five hospitals and certain related operations located in Alabama we divested in September 2024 (the “AL Hospitals” and, together with the SC Hospitals, OCLA CA Hospitals and Central CA Hospitals, the “Divested Hospitals”); (7) Florida Coast Medical Center, the acute care hospital we opened in Florida in September 2025; and (8) businesses classified as discontinued operations for accounting purposes during those periods, along with other ancillary facilities acquired or during the reporting periods that have a limited financial or operational impact. We present same‑hospital data because we believe it provides investors with useful information regarding the performance of our current portfolio of hospitals and other operations that are comparable for the periods presented. Furthermore, same‑hospital data may more clearly reflect recent
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trends we are experiencing with respect to volumes, revenues and expenses exclusive of variations caused by the addition or disposition of individual hospitals and other operations.
Our Ambulatory Care segment reports growth data on a same-facility systemwide basis, which includes both consolidated and unconsolidated facilities held at the end of the period, as well as facilities acquired during the period on a pro forma basis as if owned for the full period. Divested facilities are generally excluded; however, management may include facilities sold near the end of the period when, in its judgment, their inclusion provides financial statement users with a better understanding of the segment’s performance. This approach offers insights into the performance of our current portfolio by excluding variations from facility acquisitions or dispositions. Although we do not record the revenues of unconsolidated facilities, this information is important for understanding the financial performance of our Ambulatory Care segment, as these revenues form the basis for calculating management services revenues and equity in earnings of unconsolidated affiliates. Additionally, this presentation enhances comparability across periods.
We present certain operational metrics and statistics in order to provide additional insight into our operational performance efficiency and to help investors better understand management’s view and strategic focus. We define these operational metrics and statistics as follows:
Adjusted admissions— represents actual admissions in the period adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual admissions by the sum of gross inpatient revenues and outpatient revenues and dividing the result by gross inpatient revenues;
Adjusted patient days— represents actual patient days in the period adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient days by the sum of gross inpatient revenues and outpatient revenues and dividing the result by gross inpatient revenues;
Utilization of licensed bed s — represents patient days divided by the number of days in the period divided by average licensed beds; and
Accounts receivable days outstanding (“AR Days”)— calculated as our accounts receivable on the last date in the quarter divided by our net operating revenues for the quarter ended on that date divided by the number of days in the quarter. This calculation includes our Hospital Operations segment’s contract assets and excludes our California provider fee program revenues and activity related to our divested facilities.
We also present certain metrics as a percentage of net operating revenues because a significant portion of our operating expenses are variable, and we present certain metrics on a per adjusted admission and per adjusted patient day basis to show trends other than volume.
MANAGEMENT OVERVIEW
RECENT DEVELOPMENT
On January 27, 2026, we entered into an agreement with CommonSpirit Health (a successor to Catholic Health Initiatives) (“CHI”) relating to Conifer Health Solutions, LLC (“Conifer”). Subject to the terms of that agreement and other related contracts, the parties have agreed to, among other things: (1) terminate the amended and restated master services agreement pursuant to which Conifer provides end-to-end revenue cycle management services to certain CHI facilities effective as of December 31, 2026; (2) CHI’s payment to us of an aggregate amount equal to $1.900 billion in annual installments over the next three years; provided that, of such amount, $540 million was satisfied on January 27, 2026 by offsetting the $540 million due to CHI from Conifer as described in the next clause; (3) the reduction of our redeemable noncontrolling interest balance, and an increase in our additional paid-in capital balance associated with the redemption by Conifer of CHI’s minority equity interest in Conifer, in exchange for a payment by Conifer of $540 million, which redemption is effective as of January 1, 2026; and (4) the grant of mutual releases to each other in respect of potential disputes related to Conifer.
OPERATING ENVIRONMENT AND TRENDS
Industry Trends and Healthcare Policy Changes —We believe that several key trends are continuing to shape the demand for healthcare services: (1) consumers, employers and insurers are actively seeking lower‑cost solutions and better value with respect to healthcare spending; (2) patient volumes are shifting from inpatient to outpatient settings due to technological advances 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.
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The healthcare industry remains subject to significant legislative and regulatory uncertainty. Changes in federal and state healthcare laws, regulations, funding policies or reimbursement practices – especially those involving reductions to government payment rates or access to insurance coverage – could have a material impact on our future revenues and expenses. As discussed in greater detail in the Government Programs section below, the One Big Beautiful Bill Act (“OBBBA”) enacted significant changes to, among other things, the federal tax code and U.S. healthcare policy, coverage and reimbursement systems. While the most consequential healthcare provisions are not scheduled to take effect until 2027 and thereafter, the OBBBA introduces new limitations and eligibility requirements that are expected to materially impact Medicaid funding (including supplemental payments) and enrollment, as well as the health insurance marketplace. The implementation of these requirements is subject to individual state interpretation, and we are unable to predict at this time how states will implement the various requirements of the law. In addition, the OBBBA contained significant changes to the U.S. federal tax code related to the deductibility of depreciation and business interest expense. However, these changes did not have a material impact on our tax expense for the year ended December 31, 2025.
Macroeconomic and Industry Context —The healthcare environment remains influenced by broader macroeconomic and operational factors. Our business has been impacted by inflation and its effects on salaries, wages and benefits, as well as other costs. While general inflation moderated somewhat during 2025, inflation specific to medical supply prices remained high due to current economic conditions and other factors. Furthermore, geopolitical dynamics, trade tensions, tariffs and export control rules may continue to influence pricing and availability within global supply chains. These challenges underscore the importance of operational discipline and adaptive cost management as we navigate the evolving healthcare landscape.
STRATEGIES
Expanding Our Ambulatory Care Segment —We continue to focus on opportunities to expand our Ambulatory Care segment through acquisitions, organic growth in our physician relationships and service lines, construction of new outpatient centers and strategic partnerships. 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 surgical techniques, medical technology and anesthesia, as well as 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 over time. Historically, our outpatient services have generated significantly higher margins for us than inpatient services. During the year ended December 31, 2025, we acquired controlling ownership interests in 27 ASCs and one surgical hospital, and a noncontrolling ownership interest in one additional ASC; prior to these acquisitions, we did not hold an investment in any of these facilities. During the same period, we also increased our ownership interests in nine ASCs sufficient to consolidate them and opened six de novo ASCs.
Driving Growth in Our Hospital Operations Segment —We remain committed to better positioning our hospitals and competing more effectively in the ever‑evolving healthcare environment by focusing on driving performance through operational effectiveness, investing in our physician enterprise, particularly our specialist network, enhancing patient and physician satisfaction, growing our higher‑demand clinical service lines, expanding patient and physician access, and optimizing our portfolio of assets. We believe our efforts in these areas improve the quality of care we deliver and enhance growth.
In September 2025, we opened the newly constructed Florida Coast Medical Center in Port St. Lucie, Florida. This 54‑bed acute care hospital offers specialized services, including advanced cardiac care, diagnostic services, an emergency care department, general surgery, neurosciences, orthopedics, robotics and urology.
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) offering health programs and educational materials tailored to meet the needs of the communities we serve.
Recent advancements in technology and applications in healthcare have allowed us to accelerate the adoption of artificial intelligence (“AI”) and Generative AI‑enabled tools in areas such as clinical care coordination, medical documentation, revenue cycle management and administrative services. When used responsibly, we believe AI has the potential to enhance our business processes and support efficient delivery of high‑quality care.
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Improving Profitability— We continue to focus on growing patient volumes and effective cost management as a means to improve profitability. We believe that emphasis on higher‑demand clinical service lines, focus on expanding our ambulatory care business, cultivation of our culture of service and utilizing contracting strategies that create shared value with payers should help us grow our patient volumes over time. We are also continuing to pursue 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 contract variation.
Managing Our Capital Structure —In November 2025, we executed a new senior secured revolving credit facility (the “2025 Credit Agreement”) and concurrently terminated our then-existing senior secured revolving credit facility prior to its scheduled maturity date. Also in November, we finalized an amendment of our letter of credit facility. Through these transactions, we increased the borrowing capacity available to us and secured more favorable terms, pricing and reporting requirements.
During the three months ended December 31, 2025, we issued $1.500 billion aggregate principal amount of our 5.500% senior secured notes due on November 15, 2032 (the “2032 Senior Secured First Lien Notes”) and $750 million aggregate principal amount of our 6.000% senior notes due on November 15, 2033 (the “2033 Senior Unsecured Notes”). We used the net proceeds from these issuances, together with cash on hand, to redeem all $1.500 billion aggregate principal amount outstanding of our 6.250% senior secured second lien notes due February 2027 (the “February 2027 Senior Secured Second Lien Notes”) and redeem $750 million of the then $2.500 billion aggregate principal amount outstanding of our 6.125% senior notes due October 2028 (the “October 2028 Senior Unsecured Notes”) in advance of their respective maturity dates.
All of our long‑term debt has a fixed rate of interest, except for outstanding borrowings under our 2025 Credit Agreement, of which we had none at December 31, 2025. In addition, the maturity dates of our notes are staggered from 2027 through 2033. We believe that our capital structure helps to minimize the near‑term impact of increased interest rates, and the staggered maturities of our debt allow us to retire or refinance our debt over time.
In the year ended December 31, 2025, we repurchased $1.386 billion of our common stock pursuant to our share repurchase program. Our program has no expiration date, it does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time. At December 31, 2025, there was $1.490 billion available under this program for future repurchases.
Our ability to execute on our strategies and respond to the aforementioned trends in the current operating environment is subject to numerous 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
The following table presents selected operating statistics for our Hospital Operations and Ambulatory Care segments on a continuing operations basis:
Three Months Ended December 31,
Increase
(Decrease)
Hospital Operations – hospitals and related outpatient facilities:
Number of hospitals (at end of period)
Total admissions
Adjusted admissions
Paying admissions (excludes charity and uninsured)
Charity and uninsured admissions
Admissions through emergency department
Emergency department visits, outpatient
Total emergency department visits
Total surgeries
Patient days — total
Adjusted patient days
Average length of stay (days)
Average licensed beds
Utilization of licensed beds
Total visits
Paying visits (excludes charity and uninsured)
Charity and uninsured visits
Ambulatory Care:
Total consolidated facilities (at end of period)
Total consolidated cases
The change is the difference between the 2025 and 2024 amounts or percentages presented.
Total admissions increased by 488, or 0.4%, total surgeries increased by 610, or 0.9%, and total emergency department visits increased by 1,986, or 0.4%, in the three months ended December 31, 2025 compared to the three months ended December 31, 2024.
The 7.7% increase in our Ambulatory Care segment’s total consolidated cases during the three months ended December 31, 2025, as compared to the same period in 2024, was primarily attributable to incremental case volume from newly acquired and developed ASCs and same‑facility case volume growth, net of the impact of the sale or closure of certain facilities.
The following table presents net operating revenues by segment on a continuing operations basis:
Three Months Ended December 31,
Increase
(Decrease)
Hospital Operations
Ambulatory Care
Total
Consolidated net operating revenues increased by $454 million, or 8.9%, in the three months ended December 31, 2025 compared to the same period in 2024. The increase of $280 million, or 7.3%, in our Hospital Operations segment’s net operating revenues for the three‑month period in 2025 compared to the same period in 2024 was primarily due to the positive impact of a more favorable payer mix, increases in our same-hospital admissions, higher patient acuity, growth in Medicaid supplemental revenue and negotiated commercial rate increases in the 2025 period.
Net operating revenues in our Ambulatory Care segment increased by $174 million, or 13.8%, in the three months ended December 31, 2025 compared to the same period in 2024. This change was primarily driven by our newly acquired and developed ASCs, net of the impact of the sale or closure of certain facilities, negotiated commercial rate increases, higher patient acuity and increases in same-facility case volume in the 2025 period.
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The following table presents information about selected operating expenses by segment on a continuing operations basis:
Three Months Ended December 31,
Increase
(Decrease)
Hospital Operations:
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Ambulatory Care:
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Total:
Salaries, wages and benefits
Supplies
Other operating expenses
Total
Rent/lease expense (1) :
Hospital Operations
Ambulatory Care
Total
Included in other operating expenses.
The following table presents information about our Hospital Operations segment’s selected operating expenses per adjusted admission on a continuing operations basis:
Three Months Ended December 31,
Increase
(Decrease)
Salaries, wages and benefits per adjusted admission
Supplies per adjusted admission
Other operating expenses per adjusted admission
Total per adjusted admission
Salaries, wages and benefits expense for our Hospital Operations segment increased by $94 million, or 5.3%, in the three months ended December 31, 2025 compared to the same period in 2024. This increase was primarily attributable to higher incentive compensation expense, annual merit increases and an increase in employee benefit costs during the 2025 period. On a per adjusted admission basis, salaries, wages and benefits expense in our Hospital Operations segment increased by 4.3% in the three months ended December 31, 2025 compared to the three months ended December 31, 2024.
Supplies expense for our Hospital Operations segment increased by $22 million, or 3.7%, during the three months ended December 31, 2025 compared to the same period in 2024. This change was driven by an increase in same‑hospital admissions, as well as higher acuity, during the 2025 period. These increases were partially offset by our continued focus on cost‑efficiency measures, which include product standardization, contract management, improved utilization, bulk purchases, focused spending and operational improvements, among others. On a per adjusted admission basis, supplies expense increased by 2.7% in the three months ended December 31, 2025 compared to the three months ended December 31, 2024.
Other operating expenses for our Hospital Operations segment increased by $77 million, or 8.5%, in the three months ended December 31, 2025 compared to the same period in 2024. This increase was primarily attributable to higher professional and consulting fees, as well as an increase in malpractice expense, during the three-month period in 2025. On a per adjusted admission basis, other operating expenses during the three months ended December 31, 2025 increased by 7.1% compared to the same period in 2024.
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LIQUIDITY AND CAPITAL RESOURCES OVERVIEW
Cash and cash equivalents were $2.883 billion at December 31, 2025 compared to $2.975 billion at September 30, 2025.
Significant cash flow items in the three months ended December 31, 2025 included:
• Net cash provided by operating activities before interest, taxes, impairment and restructuring charges, and acquisition‑related costs, and litigation costs and settlements of $1.255 billion;
• Proceeds from the issuance of $2.250 billion aggregate principal amount of our 2032 Senior Secured First Lien Notes and 2033 Senior Unsecured Notes;
• Debt payments of $2.282 billion, including $2.250 billion to fully redeem our February 2027 Senior Secured Second Lien Notes and partially redeem our October 2028 Senior Unsecured Notes;
• Interest payments totaling $366 million;
• Capital expenditures of $364 million;
• $224 million of distributions paid to noncontrolling interests;
• $198 million of payments to purchase approximately 943 thousand shares of our common stock; and
• Income tax payments of $121 million.
Net cash provided by operating activities was $3.540 billion in the year ended December 31, 2025 compared to $2.047 billion in the year ended December 31, 2024. Key factors contributing to the change between 2025 and 2024 included the following:
• An increase in net income before interest, taxes, depreciation and amortization, impairment and restructuring charges, acquisition‑related costs, litigation costs and settlements, losses from the early extinguishment of debt, other non-operating income or expense, and net losses on sales, consolidation and deconsolidation of facilities of $571 million;
• Income tax payments that were $821 million lower in 2025 than in 2024; and
• The timing of 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 presents the sources of net patient service revenues for our hospitals and related outpatient facilities, expressed as percentages of net patient service revenues from all sources on a continuing operations basis:
Years Ended December 31,
Medicare
Medicaid
Managed care (1)
Uninsured
Indemnity and other
Includes Medicare and Medicaid managed care programs.
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Our payer mix on an admissions basis for our hospitals, expressed as a percentage of total admissions from all sources on a continuing operations basis, is presented below:
Years Ended December 31,
Medicare
Medicaid
Managed care (1)
Charity and uninsured
Indemnity and other
Includes Medicare and Medicaid managed care programs.
Our hospitals and outpatient facilities are subject to various factors that affect our service mix, revenue mix and patient volumes and, thereby, impact our net patient service revenues and results of operations. These factors include, among others: changes in federal and state statutes, regulations and executive orders that effect the healthcare industry directly or indirectly, particularly those impacting government healthcare funding; changes in general economic conditions, including inflation, whether due to geopolitical dynamics, trade tensions, export control rules, tariffs or other factors; the number of uninsured and underinsured individuals in local communities treated at our facilities; cybersecurity incidents, including those targeting our vendors, and other unanticipated information technology outages; disease hotspots and seasonal cycles of illness; weather‑related conditions and natural disasters; physician recruitment, satisfaction, retention and attrition; advances in technology and treatments that reduce length of stay or permit procedures to be performed in an outpatient rather than inpatient setting; local healthcare competitors; utilization pressure by managed care organizations, as well as managed care contract negotiations or ; performance data on quality measures and patient , as well as pricing for services; any publicity about us, or our joint venture partners, that impacts our relationships with physicians and patients; and changing consumer behavior, including with respect to the timing of elective procedures.
GOVERNMENT PROGRAMS
The Centers for Medicare & Medicaid Services (“CMS”) is an agency of the U.S. Department of Health and Human Services (“HHS”) that administers a number of government programs authorized by federal law; it is the single largest payer of healthcare services in the United States. 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 Children’s Health Insurance Program (“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”) 2029.
Recent and Potential Future Changes to Healthcare Policy
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”), extended health coverage to millions of uninsured legal U.S. residents through a combination of private sector health insurance reforms and public program expansion. The expansion of Medicaid in 40 states and the District of Columbia is currently financed through:
• 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 on October 1, 2027.
Of the eight states in which we operate acute care and specialty hospitals, four have taken action in accordance with the Affordable Care Act to expand their Medicaid programs; however, over half of our licensed beds at December 31, 2025 were located in four states, namely Florida, South Carolina, Tennessee and Texas, that have not expanded Medicaid under the law.
The expansion of health insurance coverage under the Affordable Care Act resulted in an increase in the number of patients using our facilities with either private or public program coverage and a decrease in uninsured and charity care admissions. Although a substantial portion of our patient volumes and, as a result, our revenues have historically been derived
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from government healthcare programs, reductions to our reimbursement under the Medicare and Medicaid programs due to the Affordable Care Act have been partially offset by increased revenues from providing care to previously uninsured individuals.
Over the past several years, various laws and regulations lengthened the enrollment period, expanded income eligibility, and provided enhanced premium tax credits to eligible individuals purchasing Affordable Care Act coverage through state and federal health insurance marketplaces – all of which led to higher enrollment numbers, particularly in states that have not expanded Medicaid. Certain of these provisions expired at the end of 2025, resulting in significant increases in health insurance premiums. Such increases have led to decreases in enrollment and insurance coverage, and are expected to cause a corresponding rise in the uninsured or a shift of individuals from commercial coverage to government program coverage or other more limited coverage alternatives beginning in 2026. As such, we may experience decreased patient volumes, reduced revenues and an increase in uncompensated care, which would adversely affect our results of operations and cash flows.
The impact of the OBBBA is expected to be far‑reaching, with significant implications for states, their healthcare programs and consumers. Key provisions, the most consequential of which are set to take effect beginning in 2027, include new Medicaid work requirements, caps on state-directed payments, limits on provider taxes, stricter eligibility checks, financial incentives for accurate state administration and reforms to federal subsidies.
Once the OBBBA is implemented, the Congressional Budget Office anticipates that millions of individuals could lose health insurance between now and 2034. With respect to Medicaid, these coverage losses may primarily be attributable to policy changes, including the aforementioned work requirements, more frequent eligibility reviews and limits on eligibility. With respect to individuals who purchase Affordable Care Act coverage through state and federal marketplaces, these losses may primarily be attributable to changes in pre-verification requirements and limits to tax credit eligibility. States are awaiting additional guidance from federal agencies on several provisions and are likely to have variation in the details of how they will implement the provisions of the law.
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 reevaluate their financial plans for 2026 and beyond. The OBBBA’s legislative and forthcoming regulatory changes may result in material reductions to Medicaid payments, changes and reductions to Medicaid supplemental payment programs, and payment delays. Federal government denials or delayed approvals of state waiver applications or extension requests could also materially impact Medicaid funding levels, most significantly in those states that have expanded Medicaid.
At this time, we cannot estimate the OBBBA’s impact, nor can we predict the timing of that impact, on our future business, financial condition or results of operations, however, we may experience decreased payments (including supplemental payments) from Medicare, Medicaid and other government programs, as well as delays in the timing of payments to our facilities.
We also cannot predict whether or how Congress may further extend or modify provisions of or relating to the Affordable Care Act, the OBBBA or other laws affecting the healthcare industry generally, nor can we predict how government agencies or the current administration might further influence, promulgate or implement rules, regulations or executive orders that affect the healthcare industry directly or indirectly.
If the rates paid by governmental payers are materially reduced, if the scope of services covered by governmental payers is significantly limited, if eligibility or enrollment is further restricted, if there are changes to align payment rates for certain procedures across various care settings in a site neutral manner, or if we or one or more of our hospitals are excluded from participation in the Medicare or Medicaid program or any other government healthcare program, there may be a material adverse effect on our business, financial condition, results of operations or cash flows. Future federal and state healthcare funding policy changes, along with other initiatives and requirements, may, among other things, adversely affect our patient volumes, case mix and revenue mix, increase our operating costs, materially reduce the reimbursement we receive for our services, diminish our competitive position or require us to expend resources to modify certain aspects of our operations.
M edicare
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. Our total net patient service revenues from operation of the hospitals and related outpatient facilities in our Hospital Operations
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segment for services provided to patients enrolled in the Original Medicare Plan were $2.119 billion, $2.132 billion and $2.383 billion for the years ended December 31, 2025, 2024 and 2023, respectively.
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 Updates” 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 more costly 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 Affordable Care Act revised the Medicare DSH adjustment effective for discharges occurring on or after 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 Affordable Care Act 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, 2025, 39 of our hospitals qualified for Medicare DSH payments.
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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 (Part C) days used in the DSH calculation as set forth in the Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates. In June 2023, CMS issued a Final Action on the Treatment of Medicare Part C Days in the Calculation of a Hospital’s Medicare Disproportionate Patient Percentage (the “2023 Final Action”), which finalized CMS’ August 2020 proposed rule to include Medicare Advantage days in the Medicare fraction for all discharges prior to October 1, 2013. On September 30, 2025, the U.S. District Court for the District of Columbia (the “DC District Court”) issued a decision holding that the 2023 Final Action was impermissibly retroactive, arbitrary and capricious. Despite this finding, the DC District Court declined to vacate the 2023 Final Action and instead ordered the parties to file briefs to address whether vacatur is the appropriate remedy. We are not able to predict the remedy ultimately resulting from the DC District Court’s decision nor are we to predict the outcome of new legal , if any, or of pending appeals; however, a 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 limits, is made in the form of Direct Graduate Medical Education (“DGME”) and Indirect Medical Education (“IME”) payments. As of December 31, 2025, 29 of our hospitals were affiliated with academic institutions and were eligible to receive such payments.
IPPS Quality Adjustments —The Affordable Care Act also authorizes quality adjustments to Medicare IPPS payments under the following programs:
• Value‑Based Purchasing (“VBP”) Program – 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 (“HAC”) 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, which CMS updates annually and are generally based on a hospital’s performance from prior periods, can have an adverse impact on our IPPS operating payments.
Hospital Outpatient Prospective Payment System
Under the outpatient prospective payment system (“OPPS”), 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.
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.
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
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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 (an average payment amount or a base rate that is used to convert relative units into payment rates) to produce a total payment amount. As required by statute, beginning in calendar year (“CY”) 2026, there will be two separate conversion factors: one factor for qualifying alternative payment model (“APM”) participants (“QPs”), and one factor for physicians and practitioners who are not QPs (“non-QP clinicians”).
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 MACs, providers’ rights of appeal, and the application of numerous technical reimbursement provisions. In addition, payments made under cost reports for recently divested hospitals are often made to the current operator of the facility even if we retained the right to such funds as part of the related divestiture, and we may incur fees and expenses collecting those funds from the current operator.
For filed cost reports, we adjust the accrual for estimated cost report settlements based on those cost reports and subsequent activity, and we consider the necessity of recording a valuation allowance based on historical settlement results. 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, if necessary, based on the method 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 2025 Medicare FFS improper payment rate for the program is approximately 6.6%. The 2025 error rate for Hospital IPPS payments is approximately 3.2%. CMS has identified the FFS program as a program at risk for significant erroneous payments, and one of the agency’s 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 Contractors) to process and review 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 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 an 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 hospitals that fail to demonstrate and maintain meaningful use of certified EHR technology and/or submit quality data every year (and have not applied and qualified for a hardship exception) are subject to a 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 continue to invest in the maintenance and utilization of certified EHR systems for our hospitals and employed physicians. Failure 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. In addition to traditional Medicaid programs, we also receive DSH and other supplemental revenues under various state Medicaid programs. All Medicaid patient service revenue is presented net of provider taxes or assessments paid by our
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hospitals. During the years ended December 31, 2025, 2024 and 2023, revenue from Medicaid programs included $1.338 billion, $1.161 billion and $929 million, respectively, of revenue attributable to DSH and other supplemental programs. Revenues from Medicaid programs constituted approximately 11%, 10% and 9% of the total net patient service revenues of our hospitals and related outpatient facilities for the years ended December 31, 2025, 2024 and 2023, respectively.
Several states in which we operate continue to face budgetary challenges that have 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 where we operate have adopted supplemental payment programs authorized under the Social Security Act. Continuing pressure on state budgets and other factors, including legislative and regulatory changes, could result in future reductions to Medicaid payments, payment delays, or changes and reductions to Medicaid supplemental payment programs. Federal government denials or delayed approvals of waiver applications or extension requests by the states where we operate could also materially impact our Medicaid funding levels.
Total Medicaid and Medicaid managed care net patient service revenues recognized by the hospitals and related outpatient facilities in our Hospital Operations segment for the years ended December 31, 2025, 2024 and 2023 were $2.822 billion, $2.845 billion and $2.776 billion, respectively. During the year ended December 31, 2025, Medicaid and Medicaid managed care revenues comprised 54% and 46%, respectively, of our Medicaid‑related net patient service revenues recognized by the hospitals and related outpatient facilities in our Hospital Operations segment. All Medicaid and Medicaid managed care patient service revenues are presented net of provider taxes or assessments paid by our hospitals.
Patient advocates from our Eligibility and Enrollment Services program (“EES”) 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 EES, net of appropriate implicit price concessions. Based on recent trends, approximately 98% of all accounts in the EES are ultimately approved for benefits under a government program, such as Medicaid. There was $152 million and $210 million of accounts receivable in the EES still awaiting determination of eligibility under a government program at December 31, 2025 and 2024, respectively.
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, Medicaid eligibility redeterminations, provider fee programs, state‑directed payment 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.
Regulatory and Legislative Updates
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 Medicare inpatient FFS payment rates for hospitals reimbursed under the IPPS annually. The updates generally become effective October 1, the beginning of the FFY. In August 2025, CMS issued final changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2026 Rates (“Final IPPS Rule”). According to CMS, the combined impact of the payment and policy changes in the Final IPPS Rule for operating costs will yield an average 4.4% increase in Medicare operating payments for proprietary hospitals in FFY 2026. The Final IPPS Rule includes the following payment and policy changes, among others:
• A market basket increase of 3.3% for MS‑DRG operating payments for hospitals reporting specified quality measure data and that are meaningful users of EHR technology; CMS also finalized a 0.7% multifactor productivity reduction required by the Affordable Care Act that results in a net operating payment update of 2.6% before budget neutrality adjustments;
• A decrease in the cost outlier threshold from $46,217 to $40,397;
• A 2.35% net increase in the capital federal MS‑DRG rate;
• Updates to the factors used to determine the amount and distribution of Medicare UC‑DSH Amounts; and
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• Updates to the implementation of the Transforming Episode Accountability Model (“TEAM”), which are in effect for certain episodic categories from January 1, 2026 through December 31, 2030. TEAM will be mandatory, with limited exceptions, for all hospitals located within the CMS‑selected Core-Based Statistical Areas (“CBSAs”). At December 31, 2025, nine hospitals in our Hospital Operations segment and one surgical hospital in our Ambulatory Care segment were located in CBSAs.
Payment and Policy Changes to the Medicare Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems —In November 2025, CMS released the final policy changes and payment rates for the Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System for CY 2026 (“Final OPPS/ASC Rule”). The Final OPPS/ASC Rule includes the following payment and policy changes, among others:
• An estimated net increase of 2.6% for the OPPS rates based on a market basket increase of 3.3%, reduced by a multifactor productivity adjustment required by the Affordable Care Act of 0.7%;
• Adoption of a site neutrality payment policy for drug administration in off-campus outpatient departments; and
• A 2.6% 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 3.3% increase in Medicare FFS OPPS payments for propriety hospitals.
Final Rule on the Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022 —CMS’ 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 (“340B Drugs”). In the CY 2018 final rule regarding OPPS payment and policy changes, CMS reduced the payment for 340B Drugs from the average sales price (“ASP”) plus 6% to the 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”). CMS retained the same 340B Payment Adjustment in the final rules regarding OPPS payment and policy changes for CYs 2019 through 2022. Certain hospital associations and hospitals commenced litigation challenging CMS’ authority to impose the 340B Payment Adjustment for CYs 2018, 2019 and 2020. Following the initial court decisions and a series of appeals, the U.S. Supreme Court (the “Supreme Court”) unanimously ruled in June 2022 that the decision to impose the 340B Payment Adjustment in CYs 2018 and 2019 was unlawful, and the case was remanded to the lower courts to determine the appropriate remedy. In response to the Supreme Court’s decision, the final rules regarding OPPS payment and policy changes for CY 2023 affirmed that CMS was now applying the default rate, generally ASP plus 6%, to 340B Drugs and biologicals, and it had removed the 340B Payment Adjustment made in 2018. To address the remediation for the prior years’ , CMS released the Hospital Outpatient Prospective Payment System: Remedy for 340B-Acquired Drugs Payment Policy for Calendar Years 2018-2022 Final Rule in November 2023. The final rule provides for a one-time lump sum remedy payment to each 340B Hospital that received a in 340B Drug payments from 2018 through 2022 (to which CMS will not apply interest). Due to budget neutrality requirements, CMS also implemented a reduction to future non‑drug item and service payments through an adjustment to the OPPS conversion factor by minus 0.5% starting in CY 2026 until the full amount is offset. In the CY 2026 proposed rule, CMS proposed to increase the 340B remedy reduction from 0.5% to 2.0%, effectively accelerating the estimated recoupment timeline from 16 to six years. In the CY 2026 final rule, CMS did not finalize its proposal to increase the remedy reduction. Although CMS the accelerated recoupment timeline, the agency anticipates a larger, up to 2.0%, reduction in future rulemaking.
Payment and Policy Changes to the MPFS —In October 2025, CMS released the CY 2026 Medicare Physician Fee Schedule Final Rule (“MPFS Final Rule”). The MPFS Final Rule includes updates to payment policies, payment rates and other provisions for services reimbursed under the MPFS from January 1 through December 31, 2026. The MPFS Final Rule also includes a one-time temporary 2.5% MPFS conversion factor increase from the OBBBA. Under the MPFS Final Rule, the CY 2026 conversion factors will increase from $32.35 to $33.57 for qualifying APM QPs and to $33.40 for non-QP clinicians.
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.
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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.
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, 2025, 2024 and 2023 was $9.696 billion, $9.809 billion and $10.248 billion, respectively. Our top 10 managed care payers generated 69% of our managed care net patient service revenues for the year ended December 31, 2025. During the same period, national payers generated 48% of our managed care net patient service revenues; the remainder came from regional or local payers. At December 31, 2025 and 2024, 67% and 68%, respectively, of our Hospital Operations segment’s net accounts receivable 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, 2025, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $42 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 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 during the years ended December 31, 2025, 2024 or 2023. 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.
In recent years, managed care governmental admissions have increased as a percentage of total managed care admissions. However, in year ended December 31, 2025, admissions growth from commercial managed care plans was greater than the growth in admissions from Medicare and Medicaid managed care programs. Commercial managed care plans typically generate higher yields than managed care governmental insurance plans. We have continued to benefit from year‑over‑year aggregate managed care commercial pricing improvements.
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. 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 December 31, 2025 and 2024, 7% and 5%, respectively, of our Hospital Operations segment’s accounts receivable was self‑pay. Further, a significant portion of our implicit price concessions relates to self‑pay amounts. The revenue cycle management services we provide are subject to various statutes and regulations regarding consumer protection in areas including finance, debt collection and credit reporting activities.
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We perform systematic analyses to focus our attention on the drivers of implicit price concessions 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 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 expansion of health insurance coverage under the Affordable Care Act resulted in an increase in the number of patients using our facilities with either private or public program coverage and a decrease in uninsured and charity care admissions, along with reductions in Medicare and Medicaid reimbursement to healthcare providers, including us. However, we continue to provide uninsured discounts and charity care due to the failure of certain 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 presents our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses) of caring for our uninsured and charity patients:
Years Ended December 31,
Estimated costs for:
Uninsured patients
Charity care patients
Total
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RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2025 COMPARED TO THE YEAR ENDED DECEMBER 31, 2024
The following table presents our consolidated net operating revenues, operating expenses and operating income, both in dollar amounts and as percentages of net operating revenues, on a continuing operations basis:
Years Ended December 31,
Increase
(Decrease)
Net operating revenues:
Hospital Operations
Ambulatory Care
Net operating revenues
Equity in earnings of unconsolidated affiliates
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net losses (gains) on sales, consolidation and deconsolidation of facilities
Operating income
Net operating revenues
Equity in earnings of unconsolidated affiliates
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net losses (gains) on sales, consolidation and deconsolidation of facilities
Operating income
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The following table presents our net operating revenues, operating expenses and operating income, both in dollar amounts and as percentages of net operating revenues, by segment on a continuing operations basis:
Year Ended December 31, 2025
Year Ended December 31, 2024 (1)
Hospital Operations
Ambulatory Care
Hospital Operations
Ambulatory Care
Net operating revenues
Equity in earnings of unconsolidated affiliates
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net losses (gains) on sales, consolidation and deconsolidation of facilities
Operating income
Net operating revenues
Equity in earnings of unconsolidated affiliates
Operating expenses:
Salaries, wages and benefits
Supplies
Other operating expenses, net
Depreciation and amortization
Impairment and restructuring charges, and acquisition-related costs
Litigation and investigation costs
Net losses (gains) on sales, consolidation and deconsolidation of facilities
Operating income
Grant income is no longer significant enough to be presented separately and is now included in net operating revenues for the respective segment. Prior‑year ratios have been adjusted to reflect the resulting change in net operating revenues.
Consolidated net operating revenues increased by $635 million, or 3.1%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. Our Hospital Operations segment’s net operating revenues decreased by $3 million during the year ended December 31, 2025 as compared to 2024. This decrease was primarily attributable to the impact of the sales of the Divested Hospitals in 2024, partially offset by a more favorable payer mix, increases in our same‑hospital admissions, higher patient acuity, growth in Medicaid supplemental revenue and negotiated commercial rate increases during 2025. During the year ended December 31, 2025, net operating revenues in our Ambulatory Care segment increased by $638 million, or 14.1%, as compared to 2024. This growth was primarily driven by our newly acquired and developed ASCs, net of the impact of the sale or closure of certain facilities, negotiated commercial rate increases, higher patient acuity and the addition of new service lines in 2025.
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RESULTS OF OPERATIONS BY SEGMENT
Hospital Operations Segment
The following tables present operating statistics, revenues and expenses of our hospitals and related outpatient facilities on a same‑hospital basis, unless otherwise indicated:
Same-Hospital
Years Ended December 31,
Increase
(Decrease)
Admissions, Patient Days and Surgeries
Number of hospitals
Total admissions
Adjusted admissions
Paying admissions (excludes charity and uninsured)
Charity and uninsured admissions
Admissions through emergency department
Paying admissions as a percentage of total admissions
Charity and uninsured admissions as a percentage of total admissions
Emergency department admissions as a percentage of total admissions
Surgeries — inpatient
Surgeries — outpatient
Total surgeries
Patient days — total
Adjusted patient days
Average length of stay (days)
Licensed beds (at end of period)
Average licensed beds
Utilization of licensed beds
The change is the difference between the 2025 and 2024 amounts or percentages presented.
Same-Hospital
Years Ended December 31,
Increase
(Decrease)
Outpatient Visits
Total visits
Paying visits (excludes charity and uninsured)
Charity and uninsured visits
Emergency department visits
Surgery visits
Paying visits as a percentage of total visits
Charity and uninsured visits as a percentage of total visits
The change is the difference between the 2025 and 2024 percentages presented.
Same-Hospital
Years Ended December 31,
Increase
(Decrease)
Revenues
Total segment net operating revenues
Selected revenue data – hospitals and related outpatient facilities:
Net patient service revenues
Net patient service revenue per adjusted admission
Net patient service revenue per adjusted patient day
Same-Hospital
Years Ended December 31,
Increase
(Decrease)
Selected Operating Expenses
Salaries, wages and benefits
Supplies
Other operating expenses
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Same-Hospital
Years Ended December 31,
Increase
(Decrease) (1)
Selected Operating Expenses as a Percentage of Net Operating Revenues
Salaries, wages and benefits
Supplies
Other operating expenses
The change is the difference between the 2025 and 2024 percentages presented.
Revenues
Same‑hospital net operating revenues increased by $973 million, or 6.5%, during the year ended December 31, 2025 compared to the previous year. This increase was attributable to the positive impact of a more favorable payer mix, higher patient admissions and acuity, growth in Medicaid supplemental revenue and negotiated commercial rate increases during 2025.
Salaries, Wages and Benefits
Same‑hospital salaries, wages and benefits expense increased by $247 million, or 3.5%, in the year ended December 31, 2025 compared to 2024. This change was primarily attributable to higher employee benefit costs, annual merit increases, and an increase in recruiting and retention costs. These factors were partially offset by a decrease in contract labor and premium pay costs during 2025. As a percentage of net operating revenues, same‑hospital salaries, wages and benefits expense decreased by 140 basis points to 46.3% in the year ended December 31, 2025 compared to the year ended December 31, 2024.
Supplies
Same‑hospital supplies expense increased by $121 million, or 5.3%, in the year ended December 31, 2025 compared to 2024. This increase was driven by higher patient admissions and acuity, partially offset by our cost‑efficiency measures. Same‑hospital supplies expense as a percentage of net operating revenues decreased by 10 basis points to 15.0% in the year ended December 31, 2025 compared to the year ended December 31, 2024.
Other Operating Expenses, Net
Same‑hospital other operating expenses increased by $210 million, or 6.1%, in the year ended December 31, 2025 compared to 2024. This change was primarily attributable to increases in medical fees, professional and consulting fees, and malpractice expense during 2025. Same‑hospital other operating expenses as a percentage of net operating revenues decreased by 10 basis points from 23.0% for the year ended December 31, 2024 to 22.9% for the year December 31, 2025.
Ambulatory Care Segment
Our Ambulatory Care segment is comprised of USPI’s ASCs and surgical hospitals. USPI operates its facilities in partnership with local physicians and, in many of these facilities, a health system partner. In most cases, we hold ownership interests in the facilities and operate them through separate legal entities. Our sources of earnings consist of:
• management and administrative services revenues from the facilities USPI operates through management services contracts, usually computed as a percentage of each facility’s net revenues; 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 in which our Ambulatory Care segment holds an ownership interest (150 of 559 facilities at December 31, 2025), this influence does not represent control of the facility, so we account for our investment in each of these facilities under the equity method for an unconsolidated affiliate. USPI controls 409 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 whether it is consolidated or unconsolidated, but the classification of those earnings differs. For consolidated subsidiaries, our financial statements reflect 100% of the revenues and expenses of the subsidiaries. The net profit attributable to owners other than USPI is classified within net income available (loss attributable) to noncontrolling interests.
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For unconsolidated affiliates, our 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 computed as a percentage of each facility’s net revenues.
The following table presents selected revenue and expense information for our Ambulatory Care segment:
Years Ended December 31,
Increase
(Decrease)
Net operating revenues
Equity in earnings of unconsolidated affiliates
Salaries, wages and benefits
Supplies
Other operating expenses, net
Revenues
Our Ambulatory Care segment’s net operating revenues increased by $638 million, or 14.1%, during the year ended December 31, 2025 compared to 2024. The change was driven by (1) a $300 million increase from 2024 and 2025 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the sale or closure of certain facilities, and (2) a $338 million increase in same‑facility net operating revenues, which was primarily attributable to incremental revenue from negotiated commercial rate increases, higher patient acuity and the addition of new service lines during 2025.
Salaries, Wages and Benefits
Salaries, wages and benefits expense increased by $128 million, or 11.3%, during the year ended December 31, 2025 compared to 2024. This change was driven by an $87 million increase from 2024 and 2025 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the sale or closure of certain facilities. A $41 million increase in same‑facility salaries, wages and benefits expense also contributed to the increase. Salaries, wages and benefits expense as a percentage of net operating revenues decreased by 60 basis points from 25.1% in the year ended December 31, 2024 to 24.5% in the year ended December 31, 2025.
Supplies
Supplies expense increased by $188 million, or 15.8%, during the year ended December 31, 2025 compared to 2024. The change was driven by a $91 million increase from 2024 and 2025 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the sale or closure of certain facilities. An increase of $97 million in same‑facility supplies expense, due primarily to higher patient acuity and the addition of new service lines during 2025, also contributed to this change. Supplies expense as a percentage of net operating revenues increased by 40 basis points from 26.2% in the year ended December 31, 2024 to 26.6% in the year ended December 31, 2025.
Other Operating Expenses, Net
Other operating expenses increased by $114 million, or 17.5%, during the year ended December 31, 2025 compared to 2024. The change was primarily driven by (1) a $68 million increase from 2024 and 2025 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the sale or closure of certain facilities, and (2) a $46 million increase in same-facility other operating costs during 2025. Other operating expenses as a percentage of net operating revenues increased from 14.3% for the year ended December 31, 2024 to 14.8% for 2025.
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Facility Growth
The following table presents the year-over-year changes in our revenue and cases on a same‑facility systemwide basis:
Year Ended December 31, 2025
Net revenues
Cases
Net revenue per case
Facility Acquisitions and Investment
The table below presents the aggregate cash activity related to our acquisition of various ownership interests in ambulatory care facilities:
Years Ended December 31,
Purchases of controlling interests
Acquisition-related cash adjustments
Purchases of noncontrolling interests
Equity investment in unconsolidated affiliates and consolidated facilities that did not result in a change of control
During the year ended December 31, 2025, we commenced operations at six de novo ASCs. In the same period, we paid an aggregate of $301 million to acquire controlling ownership interests in 27 ASCs and one surgical hospital in which we previously held no investment, as well as nine facilities that were previously unconsolidated. We also acquired a non‑controlling ownership interest in an ASC and ceased operations or disposed of 19 ASCs during the year ended December 31, 2025.
Consolidated
Impairment and Restructuring Charges, and Acquisition-Related Costs
The following table presents information about our impairment and restructuring charges, and acquisition‑related costs:
Years Ended December 31,
Consolidated:
Impairment charges
Restructuring charges
Acquisition-related costs
Total impairment and restructuring charges, and acquisition-related costs
By segment:
Hospital Operations
Ambulatory Care
Total impairment and restructuring charges, and acquisition-related costs
Restructuring charges during the year ended December 31, 2025 included $15 million of contract and lease termination fees, $13 million related to the transition of various administrative functions to our Global Business Center (“GBC”) in the Philippines, $8 million of employee severance costs and $8 million of other restructuring costs. Impairment charges for the year ended December 31, 2025 primarily related to the write-down of our investments in certain unconsolidated affiliates. During the year ended December 31, 2024, restructuring charges consisted of $17 million of legal costs related to the sale of certain businesses, $12 million of contract and lease termination fees, $11 million of employee severance costs, $9 million related to the transition of various administrative functions to our GBC and $7 million of other restructuring costs. Impairment charges for the year ended December 31, 2024 primarily related to the write-down of certain intangible assets held by our Ambulatory Care segment to their estimated fair value. Acquisition‑related costs during both 2025 and 2024 consisted entirely of transaction costs.
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Our impairment tests presume stable, improving or, in some cases, declining operating results in our facilities, which are based on programs and initiatives being implemented that are designed to achieve each facility’s most recent projections. If these projections are not met, or 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, 2025 and 2024 were $64 million and $35 million, respectively.
Gains and Losses on Sales, Consolidation and Deconsolidation of Facilities
We recorded net losses from the sale, consolidation and deconsolidation of facilities of $1 million during the year ended December 31, 2025. This activity included net losses related to the consolidation of certain facilities by our Ambulatory Care segment, partially offset by a gain related to post-closing adjustments from the divestiture of our AL Hospitals in 2024 and gains recognized in 2025 from the divestiture of certain facilities by our Hospital Operations and Ambulatory Care segments.
We recorded gains from the sale, consolidation and deconsolidation of facilities totaling $2.916 billion during the year ended December 31, 2024. Activity during 2024 primarily consisted of aggregate gains recognized from the sales of the Divested Hospitals, as well as facilities sold, consolidated and deconsolidated by our Ambulatory Care segment.
Interest Expense
Interest expense for the years ended December 31, 2025 and 2024 was $821 million and $826 million, respectively.
Losses from Early Extinguishment of Debt
During the year ended December 31, 2025, we recorded net losses of $4 million primarily related to the full redemption of our February 2027 Senior Secured Second Lien Notes and the partial redemption of our October 2028 Senior Unsecured Notes, in each case in advance of their maturity dates. These losses derived from the write-off of unamortized issuance costs associated with the respective notes.
During the year ended December 31, 2024, we recorded losses of $8 million related to the redemption of our 4.875% senior secured first lien notes due 2026 in advance of their maturity date. These losses derived from the write-off of unamortized issuance costs associated with the notes.
Income Tax Expense
During the year ended December 31, 2025, we recorded income tax expense of $433 million on pre‑tax income of $2.800 billion compared to income tax expense of $1.184 billion on pre‑tax income of $5.248 billion during the year ended December 31, 2024.
A reconciliation between the amount of reported income tax expense and the amount computed by multiplying income before income taxes by the statutory federal tax rate is presented below.
Years Ended December 31,
Amount
Percent
Amount
Percent
Tax expense at statutory federal rate
Domestic federal tax
Nontaxable or nondeductible items:
Tax benefit attributable to noncontrolling interests
Nondeductible goodwill
Other
Stock-based compensation tax benefit
Other
State and local income taxes, net of federal income tax effect
Changes in valuation allowances
Changes in prior year unrecognized tax benefits
Income tax expense
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During the year ended December 31, 2025, the valuation allowance increased by $2 million, including an increase of $11 million due to limitations on the tax deductibility of interest expense, and a decrease of $9 million due to changes in the expected realizability of deferred tax assets. The balance in the valuation allowance as of December 31, 2025 was $160 million. During the year ended December 31, 2024, the valuation allowance decreased by $90 million, including a decrease of $180 million primarily for utilization of interest expense carryforwards due to gains from sales of facilities, an increase of $92 million due to an acquisition, and a decrease of $2 million due to changes in the expected realizability of deferred tax assets. The balance in the valuation allowance as of December 31, 2024 was $158 million.
Net Income Available to Noncontrolling Interests
The table below presents net income available to noncontrolling interests by segment for the periods indicated:
Years Ended December 31,
Hospital Operations
Ambulatory Care
Total net income available to noncontrolling interests
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2024 COMPARED TO THE YEAR ENDED DECEMBER 31, 2023
A discussion of our results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found in our Annual Report on Form 10-K for the year ended December 31, 2024.
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LIQUIDITY AND CAPITAL RESOURCES
CASH REQUIREMENTS
Scheduled Contractual Obligations
Our obligations to make future cash payments under scheduled contractual obligations are summarized in the table below, all as of December 31, 2025. Other than with respect to the repayment of long-term debt, we expect to use net cash generated from operating activities or cash on hand to satisfy the below obligations. We also have the ability to use borrowings under our 2025 Credit Agreement. Long‑term debt maturities may be refinanced or repaid using net cash generated from operating activities or from the proceeds from sales of facilities.
Total
Years Ended December 31,
Thereafter
(In Millions)
Long-term debt (1)
Finance lease obligations (1)
Long-term non-cancelable operating lease obligations
Academic teaching services
Defined benefit plan obligations
Information technology services contracts
Purchase orders
Total
Amounts include both principal and interest.
Long-term Debt —During the year ended December 31, 2025, we executed our new 2025 Credit Agreement and concurrently terminated our then-existing senior secured revolving credit facility prior to its scheduled maturity date. Our 2025 Credit Agreement, which has a scheduled maturity date of November 4, 2030, provides for, subject to borrowing availability, revolving loans in an aggregate principal amount of up to $1.900 billion with a $200 million subfacility for standby letters of credit. Our borrowing availability is calculated by reference to a borrowing base that is determined by specified percentages of eligible accounts receivable, eligible inventory and Medicaid supplemental payments. At December 31, 2025, we had no cash borrowings outstanding under the 2025 Credit Agreement, and we had less than $1 million of standby letters of credit outstanding.
At December 31, 2025, we had senior unsecured notes and senior secured notes with aggregate principal amounts outstanding of $12.662 billion. A payment of the principal and any accrued but unpaid interest is due upon the maturity date of the respective notes, which dates are staggered from 2027 through 2033. We completed the following transactions during the year ended December 31, 2025, all of which occurred in November:
• We issued $1.500 billion aggregate principal amount of our 2032 Senior Secured First Lien Notes. We will pay interest on these notes on May 15 and November 15 of each year, which payments will commence on May 15, 2026.
• In addition, we issued $750 million aggregate principal amount of our 2033 Senior Unsecured Notes. We will pay interest on these notes on May 15 and November 15 of each year, which payments will commence on May 15, 2026.
• We used the net proceeds from the issuance of the 2032 Senior Secured First Lien Notes and 2033 Senior Unsecured Notes, together with cash on hand, to finance the redemption of all $1.500 billion aggregate principal amount outstanding of our February 2027 Senior Secured Second Lien Notes and the redemption of $750 million aggregate principal amount of the then $2.500 billion aggregate principal amount outstanding of our October 2028 Senior Unsecured Notes, in each case in advance of their maturity dates.
Interest payments, net of capitalized interest, were $865 million, $851 million and $882 million in the years ended December 31, 2025, 2024 and 2023, respectively. For the year ending December 31, 2026, we expect annual interest payments to be approximately $750 million to $760 million.
Future maturities of our long-term debt obligations are summarized in the table above. See Note 8 to the accompanying Consolidated Financial Statements for additional information about our long‑term debt obligations.
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Lease Obligations— We have operating lease agreements primarily for real estate, including off‑campus outpatient facilities, medical office buildings, and corporate and other administrative offices, as well as medical and office equipment. Our finance leases primarily relate to medical and office equipment and real estate. As of December 31, 2025, we had fixed payment obligations of $1.709 billion under non‑cancellable lease agreements. Future payments due in connection with our operating and finance leases, including imputed interest, are summarized in the table above. Additional information about our lease commitments is provided in Note 7 to the accompanying Consolidated Financial Statements.
Academic Teaching Services— We enter into contracts for academic teaching services with university and physician groups to support graduate medical education. These agreements contain various rights and termination provisions.
Defined Benefit Plan Obligations— We maintain three frozen, non‑qualified defined benefit plans that provide supplemental retirement benefits to certain of our current and former executives. These plans are unfunded, and plan obligations are paid from our working capital. We also maintain a frozen, qualified defined benefit plan for certain of our current and former employees in Detroit. See Note 10 to the accompanying Consolidated Financial Statements for additional information about our defined benefit plans.
Information Technology Services Contracts— We enter into various non‑cancellable contracts for information technology services and licenses as a normal part of our business. These contracts generally relate to information technology infrastructure support and services, software licenses for certain operational and administrative systems, and cybersecurity‑related software and services.
Purchase Orders— We had outstanding short‑term purchase commitments of $284 million at December 31, 2025, which we expect to pay within 12 months.
Other Contractual Obligations
Asset Retirement Obligations— Asset retirement obligations represent the estimated costs to perform environmental remediation work, which we are legally obligated to complete, at certain of our facilities upon their retirement. This work could include asbestos abatement, the removal of underground storage tanks and other similar activities. At December 31, 2025, the undiscounted aggregate future estimated payments related to these obligations was $206 million. We are unable to predict the timing of these payments due to the uncertainty and long timeframes inherent in these obligations.
Standby Letters of Credit— 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 have a letter of credit facility (as amended to date, the “LC Facility”) that provides for the issuance, from time to time, of standby and documentary letters of credit in an aggregate principal amount of up to $200 million. Drawings under any letter of credit issued under the LC Facility accrue interest if not reimbursed within three business days. At December 31, 2025, we had $104 million of standby letters of credit outstanding under the LC Facility. The timing of reimbursement payments is uncertain, as we cannot foresee when, or if, a standby letter of credit will be drawn upon.
Guarantees— Our guarantees include minimum revenue guarantees, primarily related to physicians under relocation agreements and physician groups that provide services at our hospitals, as well as operating lease guarantees. At December 31, 2025, the maximum potential amount of future payments under these guarantees was $219 million, of which $138 million were included in other current liabilities in the accompanying Consolidated Balance Sheet at December 31, 2025. The timing and amount of future payments under these guarantees is uncertain.
Professional and General Liability Obligations— At December 31, 2025, the current and long‑term professional and general liability reserves included in our Consolidated Balance Sheet were $276 million and $951 million, respectively, and the current and long‑term workers’ compensation reserves included in our Consolidated Balance Sheet were $36 million and $91 million, respectively. The timing of professional and general liability payments is uncertain as such payments depend on several factors, including the nature of claims and when they are received.
Other than the obligations described above, we had no off‑balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources at December 31, 2025.
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Other Cash Requirements
Capital Expenditures— Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations); surgical hospital expansion focused on higher‑acuity services; equipment and information systems additions and replacements; introduction of new medical technologies (including robotics); design and construction of new facilities; and various other capital improvements. In September 2025, we opened the newly constructed, 54-bed Florida Coast Medical Center in Port St. Lucie, Florida. Capital expenditures were $1.010 billion, $931 million and $751 million in the years ended December 31, 2025, 2024 and 2023, respectively. We anticipate that our capital expenditures for the year ending December 31, 2026 will total approximately $700 million to $800 million, including $111 million that was accrued as a liability at December 31, 2025.
By the beginning of 2030, all hospitals in California providing acute care services must meet standards that are intended to ensure that they remain intact and capable of continued operation following an earthquake. We began analyzing the nonstructural performance category (“NPC”) seismic requirements for our hospitals in California in 2022 and completed the analysis in 2023. This analysis, which identified the NPC work required to be completed in future years to bring our hospitals in compliance with the building requirements by the 2030 deadline, was submitted to the State for review at the end of 2023. Since that time, we have sold six California hospitals.
We have initiated design work for the structural performance category (“SPC”) improvements required by the 2030 deadline. Designs are specific to each facility and involve the testing of construction materials. The completed engineering and architectural design documents will require regulatory review by the State before we can obtain construction permits. In addition to the previously identified NPC requirements, the final SPC scope of work will inform our budgeting and scheduling of the work. At this time, we are unable to estimate the cost of this work.
Income Taxes— Income tax payments, net of tax refunds, were $450 million and $1.271 billion in the years ended December 31, 2025 and 2024, respectively. Of the income tax payments made during the year ended December 31, 2024, $855 million was attributable to income tax obligations arising from our sales of the Divested Hospitals. At December 31, 2025, our carryforwards available to offset future taxable income consisted of (1) federal net operating loss (“NOL”) carryforwards of approximately $291 million pre‑tax, $140 million of which expires in 2026 to 2037 and $151 million of which has no expiration date, for which the associated deferred tax benefit net of valuation allowance is $2 million, (2) capital loss carryforwards of $100 million, for which the deferred tax benefit net of valuation allowance is $23 million, and (3) state NOL carryforwards of approximately $2.937 billion expiring in 2026 through 2045 for which the associated deferred tax benefit, net of valuation allowance and federal tax impact, is approximately $23 million.
Most of the federal net operating loss carryforwards and capital loss carryforwards are subject to separate return limitation year restrictions under the Internal Revenue Code and may be utilized only to offset taxable income of certain entities. 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 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, 2021 remain subject to audit by the IRS.
SOURCES AND USES OF CASH
Our liquidity for the year ended December 31, 2025 was primarily derived from net cash provided by operating activities and cash on hand. 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. Our 2025 Credit Agreement provides additional liquidity to manage fluctuations in operating cash caused by these factors. We had $2.883 billion of cash and cash equivalents on hand at December 31, 2025 to fund our operations and capital expenditures, as well as funds available under our 2025 Credit Agreement.
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Cash Collections
The following table presents our consolidated net accounts receivable by payer:
December 31,
Medicare
Medicaid
Net cost report settlements receivable and valuation allowances
Managed care
Self-pay uninsured
Self-pay balance after insurance
Estimated future recoveries
Other payers
Total Hospital Operations
Ambulatory Care
Accounts receivable, net
The collection of accounts receivable is a key area of focus for our business. At December 31, 2025 and 2024, our Hospital Operations segment collection rate on self‑pay accounts was approximately 24% and 28%, respectively. 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, 2025, a 10% increase or decrease in our self‑pay collection rate, equivalent to a fluctuation of approximately two percentage points in the collection rate, which we believe could be a reasonably likely change, would result in a favorable or unfavorable adjustment to patient accounts receivable of approximately $14 million.
We also typically experience ongoing managed care payment delays, payer policy changes 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 95% and 96% at December 31, 2025 and 2024, respectively.
Various factors can influence collection trends, including changes in the economy and inflation, which in turn impact unemployment rates and the number of uninsured and underinsured patients. Additional variables include the volume of patients through our emergency departments, the increased burden of co-pays and deductibles to be made by patients with insurance, successful cyber‑attacks against us or the third-party systems we interact with, and business practices related to collection efforts. These factors are dynamic and can affect collection trends and our estimation processes.
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 of our Hospital Operations segment of $2.015 billion and $2.045 billion at December 31, 2025 and 2024, respectively. Cost report settlements receivable, net of payables and related valuation allowances, of $1 million and $6 million at December 31, 2025 and 2024, respectively, are excluded from the tables.
Medicare
Medicaid
Managed
Care
Indemnity,
Self-Pay
and Other
Total
At December 31, 2025:
0-60 days
61-120 days
121-180 days
Over 180 days
Total
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Medicare
Medicaid
Managed
Care
Indemnity,
Self-Pay
and Other
Total
At December 31, 2024:
0-60 days
61-120 days
121-180 days
Over 180 days
Total
We continue to implement revenue cycle initiatives intended to improve our cash flow. These initiatives are focused on standardizing and improving pre‑service 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. In our billing and accounts receivable operations, we continue to implement revenue cycle initiatives to accelerate liquidation and improve overall yield. 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.
Uses of Cash
Net cash provided by operating activities was $3.540 billion in the year ended December 31, 2025 compared to $2.047 billion in the year ended December 31, 2024. Key factors contributing to the change between 2025 and 2024 included the following:
• An increase in net income before interest, taxes, depreciation and amortization, impairment and restructuring charges, acquisition‑related costs, litigation costs and settlements, losses from the early extinguishment of debt, other non-operating income or expense, and net losses on sales, consolidation and deconsolidation of facilities of $571 million;
• Income tax payments that were $821 million lower in 2025 than in 2024; and
• The timing of working capital items.
Net cash used in investing activities was $1.275 billion for the year ended December 31, 2025 as compared to net cash provided by investing activities of $3.429 billion for the year ended December 31, 2024. The primary factors contributing to the change between 2025 and 2024 were: (1) investing activities during 2024 included proceeds from the sales of facilities and other assets of $4.981 billion, primarily from the sales of the Divested Hospitals; (2) a $263 million decrease in purchases of businesses or joint venture interests during 2025; and (3) capital expenditures that were $79 million higher during 2025 compared to 2024.
Net cash used in financing activities was $2.401 billion and $3.685 billion in the years ended December 31, 2025 and 2024, respectively. The primary factors contributing to the change between 2025 and 2024 were: (1) financing activities during 2025 include proceeds from the issuance of $2.250 billion aggregate principal amount of our 2032 Senior Secured First Lien Notes and 2033 Senior Unsecured Notes; (2) we made payments totaling $1.386 billion to repurchase 8,771 thousand shares of our common stock under our share repurchase program during 2025, an increase of $714 million over 2024; (3) long‑term debt payments were $129 million higher during 2025; (4) distributions to noncontrolling interest holders increased by $128 million during 2025 as compared to 2024; and (5) purchases of noncontrolling ownership interests decreased by $108 million during 2025.
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 and materially impact our financial condition, results of operations or cash flows.
DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS
Credit Agreement— At December 31, 2025, our 2025 Credit Agreement provided for revolving loans in an aggregate principal amount of up to $1.900 billion with a $200 million subfacility for standby letters of credit. At December 31, 2025, we had no cash borrowings outstanding under the 2025 Credit Agreement, and we had less than $1 million of standby letters of credit outstanding. Based on our eligible accounts receivable, eligible inventory and Medicaid supplemental payments,
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$1.900 billion was available for borrowing under the 2025 Credit Agreement at December 31, 2025. We were in compliance with all covenants and conditions in our 2025 Credit Agreement at December 31, 2025.
Letter of Credit Facility— Our LC Facility provides for the issuance, from time to time, of standby and documentary letters of credit in an aggregate principal amount of up to $200 million. At December 31, 2025, we were in compliance with all covenants and conditions in the LC Facility, and we had $104 million of standby letters of credit outstanding thereunder.
Senior Unsecured Notes and Senior Secured Notes —A detailed discussion of our debt transactions during the year ended December 31, 2025 is provided under the Cash Requirements subsection above. In aggregate, we recognized net losses from the early extinguishment of debt of $4 million in the year ended December 31, 2025 primarily related to the full redemption of our February 2027 Senior Secured Second Lien Notes and the partial redemption of our October 2028 Senior Unsecured Notes, in each case in advance of the notes’ maturity dates. These losses resulted from the write-off of unamortized issuance costs associated with the notes.
LIQUIDITY
From time to time, we expect to engage in additional capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at that time. We believe our existing debt agreements provide flexibility for future secured or unsecured borrowings.
Our cash on hand fluctuates day‑to‑day throughout the year based on the timing and levels of routine cash receipts and disbursements, including our book overdrafts, and required cash disbursements, such as interest payments and income tax payments. These fluctuations can result in material intra-quarter net operating and investing uses of cash that have caused, and in the future may cause, us to use our 2025 Credit Agreement as a source of liquidity. We believe that existing cash and cash equivalents on hand, borrowing availability under our 2025 Credit Agreement and anticipated future cash provided by our operating activities are adequate to meet our current cash needs. These sources of liquidity, in combination with any potential future debt incurrence, are adequate to finance planned capital expenditures, payments on the current portion of our long-term debt, payments to current and former joint venture partners, and other presently known operating needs.
Long-term liquidity for debt service and other purposes will be dependent on the amount of cash provided by operating activities and, subject to favorable market and other conditions, the successful completion of future borrowings and potential refinancings. However, our cash requirements could be materially affected by the use of cash in acquisitions of businesses, repurchases of securities, the exercise of put rights or other exit options by our joint venture partners, and contractual or regulatory commitments to fund capital expenditures in, or intercompany borrowings to, businesses we own. In addition, liquidity could be adversely affected should there be a deterioration in our results of operations, including our ability to generate sufficient cash from operations, as well as by the various risks and uncertainties discussed in this section and the Risk Factors section in Part I of this report, including changes in federal and state statutes, regulations and executive orders that effect the healthcare industry directly or indirectly, particularly those impacting government healthcare funding, and significant costs associated with legal proceedings and government investigations.
We have not relied on commercial paper or other short-term financing arrangements or entered into repurchase agreements or other short-term financing arrangements not otherwise reported in our balance sheet. In addition, we do not have significant exposure to floating interest rates given that all of our current long-term indebtedness has fixed rates of interest except for borrowings, if any, under our 2025 Credit Agreement.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 24 to the accompanying Consolidated Financial Statements for a discussion of recently issued and recently adopted accounting standards.
CRITICAL ACCOUNTING ESTIMATES
In preparing our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP), we must use estimates and assumptions that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may vary from those estimates.
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We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different outcomes under different conditions or when using different assumptions. Our critical accounting estimates cover the following areas:
• Recognition of net operating revenues, including contractual allowances and implicit price concessions;
• Accruals for general and professional liability risks;
• Impairment of long‑lived assets;
• Impairment of goodwill; and
• Accounting for income taxes.
REVENUE RECOGNITION
We report net patient service revenues at the amounts that reflect the consideration we expect to be entitled to in exchange for providing patient care. These amounts are due from patients, third‑party payers (including managed care payers and government programs) and others, and they include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews and investigations. Generally, we bill our patients and third‑party payers several days after the services are performed or shortly after discharge. Revenues are recognized as performance obligations are satisfied.
We determine performance obligations based on the nature of the services we provide. We recognize revenues for performance obligations satisfied over time based on actual charges incurred in relation to total expected charges. We believe that this method provides a faithful depiction of the transfer of services over the term of performance obligations based on the inputs needed to satisfy the obligations. Generally, performance obligations satisfied over time relate to patients in our hospitals receiving inpatient acute care services. We measure performance obligations from admission to the point when there are no further services required for the patient, which is generally the time of discharge. We recognize revenues for performance obligations satisfied at a point in time, which generally relate to patients receiving outpatient services, when (1) services are provided, and (2) we do not believe the patient requires additional services.
We determine the transaction price based on gross charges for services provided, reduced by contractual adjustments recognized for third‑party payers, discounts provided to uninsured patients in accordance with our Compact , and estimated implicit price concessions related primarily to uninsured patients. We determine our estimates of contractual adjustments and discounts based on contractual agreements, our discount policies and historical experience. We determine our estimate of implicit price concessions based on our historical collection experience using a portfolio approach as a practical expedient to account for patient contracts as collective groups rather than individually. The financial statement effects of using this practical expedient are not materially different from an individual contract approach.
The final determination of certain FFS Medicare and Medicaid program payments to our hospitals, such as DSH, DGME, IME and bad debt expense reimbursement, 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. We therefore record accruals to reflect the expected final settlements on our cost reports. For filed cost reports, we adjust the accrual for estimated cost report settlements based on those cost reports and subsequent activity, and we consider the necessity of recording a valuation allowance based on historical settlement results. 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, if necessary, based on the method 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. In addition, because the laws, regulations, instructions and rule interpretations governing Medicare and Medicaid reimbursement are complex and change frequently, the estimates we record could change by material amounts.
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
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reserves at December 31, 2025, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $42 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 during the year ended December 31, 2025. 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.
Generally, patients who are covered by third‑party payers are responsible for related co‑pays, co‑insurance and deductibles, which vary in amount. We also provide services to uninsured patients and offer uninsured patients a discount from standard charges. We estimate the transaction price for patients with co‑pays, co‑insurance and deductibles and for those who are uninsured based on historical collection experience and current market conditions. Under our Compact and other uninsured discount programs, the discount offered to certain 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 at the time they are recorded through implicit price concessions based on historical collection trends for self‑pay accounts and other factors that affect the estimation process.
We record implicit price concessions, primarily related to uninsured patients and patients with co‑pays, co‑insurance and deductibles. The implicit price concessions included in estimating the transaction price represent the difference between amounts billed to patients and the amounts we expect to collect based on our collection history with similar patients. Although outcomes vary, our policy is to attempt to collect amounts due from patients, including co‑pays, co‑insurance and deductibles due from patients with insurance, at the time of service while complying with all federal and state statutes and regulations, including, but not limited to, the Emergency Medical Treatment and Active Labor Act (“EMTALA”). Generally, as required by EMTALA, patients may not be denied emergency treatment due to inability to pay. Therefore, services, including the legally required medical screening examination and stabilization of the patient, are performed without delaying to obtain insurance information. In non‑emergency circumstances or for elective procedures and services, it is our policy to verify insurance prior to a patient being treated; however, there are various exceptions that can occur. Such exceptions can include, for example, instances where (1) we are unable to obtain verification because the patient’s insurance company was to be reached or contacted, (2) a determination is made that a patient may be eligible for benefits under various government programs, such as Medicaid or of , and it takes several days or weeks before qualification for such benefits is confirmed or , and (3) under physician orders we provide services to patients that require immediate treatment.
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, 2025, a 10% increase or decrease in our self‑pay collection rate, equivalent to a fluctuation of approximately two percentage points in the collection rate, which we believe could be a reasonably likely change, would result in a favorable or unfavorable adjustment to patient accounts receivable of approximately $14 million.
ACCRUALS FOR GENERAL AND PROFESSIONAL LIABILITY RISKS
We accrue for estimated professional and general liability claims, to the extent not covered by insurance, when they are probable and can be reasonably estimated. We maintain reserves, which are based on modeled estimates for the portion of our professional liability risks, including incurred but not reported claims, to the extent we do not have insurance coverage. Our liability consists of estimates established based upon calculations using several factors, including the number of expected claims, estimates of losses for these claims based on recent and historical settlement amounts, estimates of incurred but not reported claims based on historical experience and the timing of historical payments. We consider the number of expected claims and average cost per claim to be the most significant assumptions in estimating accruals for general and professional liabilities. Our liabilities are adjusted for new claims information in the period such information becomes known. Malpractice expense is recorded within other operating expenses in our consolidated statements of operations.
Our estimated reserves for professional and general liability claims will change significantly if future trends differ from projected trends. We believe it is reasonably likely for there to be a 500‑basis point increase or decrease in our frequency or severity trend. Based on our reserves and other information at December 31, 2025, a 500‑basis point increase in our
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frequency trend would increase the estimated reserves by $63 million, and a 500‑basis point decrease in our frequency trend would decrease the estimated reserves by $47 million. A 500‑basis point increase in our severity trend would increase the estimated reserves by $256 million, and a 500‑basis point decrease in our severity trend would decrease the estimated reserves by $186 million. In addition, because of the complexity of the claims, the extended period of time to settle the claims and the wide range of potential outcomes, our ultimate liability for professional and general liability claims could change materially from our current estimates.
The table below shows the case reserves and incurred but not reported and loss development reserves:
December 31,
Case reserves
Incurred but not reported and loss development reserves
Total reserves
Several actuarial methods, including the incurred, paid loss development and Bornhuetter‑Ferguson methods, are applied to our historical loss data to produce estimates of ultimate expected losses and the resulting incurred but not reported and loss development reserves. These methods use our specific historical claims data related to paid losses and loss adjustment expenses, historical and current case reserves, reported and closed claim counts, and a variety of hospital census information. These analyses are considered in our determination of our estimate of the professional liability claims, including the incurred but not reported and loss development reserve estimates. The determination of our estimates involves subjective judgment and could result in material changes to our estimates in future periods if our actual experience is materially different than our assumptions.
Malpractice claims generally take up to five years to settle from the time of the initial reporting of the occurrence to the settlement payment. Accordingly, the percentage of reserves at both December 31, 2025 and 2024 representing unsettled claims was approximately 98%.
The following table presents the amount of our accruals for professional and general liability claims and the corresponding activity therein:
Years Ended December 31,
Accrual for professional and general liability claims, beginning of the year
Less losses recoverable from re-insurance and excess insurance carriers
Expense related to (1) :
Current year
Prior years
Total incurred loss and loss expense
Paid claims and expenses related to:
Current year
Prior years
Total paid claims and expenses
Plus losses recoverable from re-insurance and excess insurance carriers
Accrual for professional and general liability claims, end of year
(1) Total malpractice expense, including premiums for insured coverage and recoveries from third parties, was $341 million and $309 million in the years ended December 31, 2025 and 2024, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
We evaluate our long‑lived assets for possible impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable from estimated future undiscounted cash flows (“UDCF”). If the estimated future UDCF are less than the carrying value of the asset group, we calculate the amount of an impairment charge only if the carrying value of the asset group exceeds the fair value. For purposes of impairment testing, all asset groups are evaluated at a level below that of the reporting unit, and their carrying values do not include any allocations of goodwill. The fair values of assets are estimated based on third‑party appraisals, established market values of comparable assets or internally developed estimates of future net cash flows expected to result from the use and ultimate disposition of those assets. The estimates of these future net cash flows are based on assumptions and projections we believe to be reasonable and
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supportable. Estimates require our subjective judgments and take into account assumptions about revenue and expense growth rates, operating margins and recoverable disposition values, based on industry and operating factors. These assumptions may vary by type of asset group and presume stable, improving or, in some cases, declining results, depending on their circumstances. If the presumed level of performance does not occur as expected, impairment may result.
We report long‑lived assets to be disposed of at the lower of their carrying amounts or fair values less costs to sell. In such circumstances, our estimates of fair value are based on third‑party appraisals, established market prices for comparable assets or internally developed estimates of future net cash flows.
Fair value estimates can change by material amounts in subsequent periods. Many factors and assumptions can impact the estimates, including the following risks:
• future financial results, which can be impacted by: volumes of insured patients and declines in commercial managed care patients; terms of managed care payer arrangements; healthcare policy changes; our ability to collect amounts due from uninsured and managed care payers; loss of volumes as a result of competition; physician recruitment and retention; and our ability to manage costs, such as labor costs, which can be adversely impacted by labor shortages, inflationary pressure on wages, minimum wage increases and labor union activity;
• changes in payments from governmental healthcare programs and in government regulations, such as reductions to Medicare and Medicaid payment rates resulting from government legislation or rule‑making or from budgetary challenges of states where we operate;
• how the facilities are operated in the future;
• the impact of future technological advancements on our business;
• the nature of the ultimate disposition of the assets; and
• macro-economic conditions, such as inflation and gross domestic product (GDP) growth.
During the years ended December 31, 2025, 2024 and 2023, we recorded impairment charges totaling $61 million, $7 million and $43 million, respectively. We recognized impairment charges related to our Hospital Operations segment of $13 million during the year ended December 31, 2025 and $1 million in each of the years ended December 31, 2024 and 2023. During the years ended December 31, 2025, 2024 and 2023, impairment charges totaling $48 million, $6 million and $42 million, respectively, related to our Ambulatory Care segment. Impairment charges recognized during the years ended December 31, 2025 and 2023 were primarily related to the write‑down of our investment in certain equity method investments held by our Ambulatory Care segment. During the year ended December 31, 2024, impairment charges were primarily related to the write-down of certain intangible assets held by our Ambulatory Care segment to their estimated fair value.
IMPAIRMENT OF GOODWILL
Goodwill represents the excess of purchase price over the net estimated fair value of identifiable assets acquired and liabilities assumed in a business combination. Goodwill is determined to have an indefinite useful life and is not amortized, but is instead subject to impairment tests performed at least annually, or when events occur that would more likely than not reduce the fair value of the reporting unit below its carrying amount. For goodwill, we assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Further testing is required only if we determine, based on the qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying value. Otherwise, no further impairment testing is required. If we determine the carrying value of goodwill is impaired, or if the carrying value of a business that is to be sold or otherwise disposed of exceeds its fair value, we reduce the carrying value, including any allocated goodwill, to fair value, with any impairment not to exceed the carrying amount of goodwill. Any impairment would be recognized as a charge to income from operations and a reduction in the carrying value of goodwill.
At December 31, 2025, our business included two reportable segments – Hospital Operations and Ambulatory Care. Our reportable segments are reporting units used to perform our goodwill impairment analysis, and goodwill is accordingly assigned to these reporting segments. We completed our annual goodwill impairment analysis as of October 1, 2025.
At both December 31, 2025 and 2024, the allocated goodwill balances related to our Hospital Operations segment was $2.697 billion. Goodwill balances related to our Ambulatory Care segment were $8.501 billion and $7.994 billion at December 31, 2025 and 2024, respectively. We performed a separate qualitative analysis for our reporting units and, in each case, determined it was more likely than not that the fair value of each reporting unit exceeded its respective carrying value. We therefore concluded that the segments’ goodwill was not impaired at either December 31, 2025 or 2024. Factors considered in
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these analyses included recent and estimated future operating trends derived from macro‑economic conditions, industry conditions and other factors specific to each reporting segment.
ACCOUNTING FOR INCOME TAXES
We account for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Income tax receivables and liabilities and deferred tax assets and liabilities are recognized based on the amounts that more likely than not will be sustained upon ultimate settlement with taxing authorities.
Developing our provision for income taxes and analysis of uncertain tax positions requires significant judgment and knowledge of federal and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets.
We assess the realization of our deferred tax assets to determine whether an income tax valuation allowance is required. Based on all available evidence, both positive and negative, and the weight of that evidence to the extent such evidence can be objectively verified, we determine whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The main factors that we consider include:
• Cumulative profits/losses in recent years, adjusted for certain nonrecurring items;
• Income/losses expected in future years;
• Unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels;
• The availability, or lack thereof, of taxable income in prior carryback periods that would limit realization of tax benefits; and
• The carryforward period associated with the deferred tax assets and liabilities.
During the year ended December 31, 2025, the valuation allowance increased by $2 million, including an increase of $11 million due to limitations on the tax deductibility of interest expense, and a decrease of $9 million due to changes in the expected realizability of deferred tax assets. The balance in the valuation allowance as of December 31, 2025 was $160 million. During the year ended December 31, 2024, the valuation allowance decreased by $90 million, including a decrease of $180 million primarily for utilization of interest expense carryforwards due to gains from sales of facilities, an increase of $92 million due to an acquisition, and a decrease of $2 million due to changes in the expected realizability of deferred tax assets. The balance in the valuation allowance as of December 31, 2024 was $158 million.
Deferred tax assets relating to interest expense limitations under Internal Revenue Code Section 163(j) have a full valuation allowance because the interest expense carryovers are not expected to be utilized in the foreseeable future.
We consider many factors when evaluating our uncertain tax positions, and such judgments are subject to periodic review. Tax benefits associated with uncertain tax positions are recognized in the period in which one of the following conditions is satisfied: (1) the more likely than not recognition threshold is satisfied; (2) the position is ultimately settled through negotiation or litigation; or (3) the statute of limitations for the taxing authority to examine and challenge the position has expired. Tax benefits associated with an uncertain tax position are derecognized in the period in which the more likely than not recognition threshold is no longer satisfied.
While we believe we have adequately provided for our income tax receivables or liabilities and our deferred tax assets or liabilities, adverse determinations by taxing authorities or changes in tax laws and regulations could have a material adverse effect on our consolidated financial position, results of operations or cash flows.
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