# HCA Healthcare, Inc. (HCA) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from HCA Healthcare, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/860730/000095017024016524/hca-20231231.htm
Accession: 0000950170-24-016524
Filing date: 2024-02-16
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/HCA/
All MD&A years: /company/HCA/mda/
Previous year: /company/HCA/mda/fy2022/ (FY 2022)
Next year: /company/HCA/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The accompanying consolidated financial statements present certain information with respect to the financial position, results of operations and cash flows of HCA Healthcare, Inc. which should be read in conjunction with the following discussion and analysis. The terms “HCA,” “Company,” “we,” “our,” or “us,” as used herein, refer to HCA Healthcare, Inc. and its affiliates. The term “affiliates” means direct and indirect subsidiaries of HCA Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners.

Forward-Looking Statements

This annual report on Form 10-K includes certain disclosures that contain “forward-looking statements,” within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include statements regarding expected capital expenditures, expected dividends, expected share repurchases, expected net claim payments, expected inflationary pressures and all other statements that do not relate solely to historical or current facts, and can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control, which could significantly affect current plans and expectations and our future financial position and results of operations. These factors include, but are not limited to, (1) changes in or related to general economic conditions nationally and regionally in our markets, including inflation and economic and business conditions (and the impact thereof on the economy, financial markets and banking industry); changes in revenues due to declining patient volumes; changes in payer mix (including increases in uninsured and underinsured patients); potential increased expenses related to labor, supply chain or other expenditures; workforce disruptions; supply shortages and disruptions (including as a result of geopolitical disruptions); and the impact of potential federal government shutdowns, (2) the impact of our significant indebtedness and the ability to refinance such indebtedness on acceptable terms, (3) the impact of current and future federal and state health reform initiatives and possible changes to other federal, state or local laws and regulations affecting the health care industry, including, but not limited to, proposals to expand coverage of federally-funded insurance programs as an alternative to private insurance or establish a single-payer system (such reforms often referred to as “Medicare for All”), (4) the effects related to the implementation of sequestration spending reductions required under the Budget Control Act of 2011, related legislation extending these reductions and those required under the Pay-As-You-Go Act of 2010 as a result of the federal budget deficit impact of the American Rescue Plan Act of 2021, and the potential for future deficit reduction legislation that may alter these spending reductions, which include cuts to Medicare payments, or create additional spending reductions, (5) increases in the amount and risk of collectability of uninsured accounts and deductibles and copayment amounts for insured accounts, (6) the ability to achieve operating and financial targets, attain expected levels of patient volumes and revenues, and control the costs of providing services, (7) possible changes in Medicare, Medicaid and other state programs, including Medicaid supplemental payment programs, Medicaid waiver programs or SDPs that may impact reimbursements to health care providers and insurers and the size of the uninsured or underinsured population, (8) personnel-related capacity constraints, increases in wages and the ability to attract, utilize and retain qualified management and other personnel, including affiliated physicians, nurses and medical and technical support personnel, (9) the highly competitive nature of the health care business, (10) changes in service mix, revenue mix and surgical volumes, including potential declines in the population covered under third-party payer agreements, the ability to enter into and renew third-party payer provider agreements on acceptable terms and the impact of consumer-driven health plans and physician utilization trends and practices, (11) the efforts of health insurers, health care providers, large employer groups and others to contain health care costs, (12) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (13) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (14) changes in accounting practices, (15) the emergence of and effects related to pandemics, epidemics and outbreaks of infectious diseases or other public health crises, including but not limited to developments related to COVID-19, (16) future divestitures which may result in charges and possible impairments of long-lived assets, (17) changes in business strategy or development plans, (18) delays in receiving payments for services provided, (19) the outcome of pending and any future tax audits, disputes and litigation associated with our tax positions, (20) the impact of known and unknown government investigations, litigation and other claims that may be made against us, (21) the impact of actual and potential cybersecurity incidents or security breaches, including the data security incident disclosed in July 2023, (22) our ongoing ability to demonstrate meaningful use of certified electronic health record technology and the impact of interoperability requirements, (23) the impact of natural

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HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Forward-Looking Statements (continued)

disasters, such as hurricanes and floods, physical risks from climate change or similar events beyond our control, (24) changes in U.S. federal, state, or foreign tax laws including interpretive guidance that may be issued by taxing authorities or other standard setting bodies, (25) the results of our efforts to use technology and resilience initiatives, including artificial intelligence and machine learning, to drive efficiencies, better outcomes and an enhanced patient experience, and (26) other risk factors described in this annual report on Form 10-K. As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of HCA. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report, which forward-looking statements reflect management’s views only as of the date of this report. We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.

2023 Operations Summary

Net income attributable to HCA Healthcare, Inc. totaled $5.242 billion, or $18.97 per diluted share, for 2023, compared to $5.643 billion, or $19.15 per diluted share, for 2022. The 2023 results include losses on sales of facilities of $5 million, or $0.04 per diluted share. The 2022 results include gains on sales of facilities of $1.301 billion, or $2.46 per diluted share, and losses on retirement of debt of $78 million, or $0.20 per diluted share. Our provisions for income taxes for 2023 and 2022 include tax benefits of $93 million, or $0.34 per diluted share, and $77 million, or $0.26 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 276.412 million shares and 294.666 million shares for the years ended December 31, 2023 and 2022, respectively. During 2023 and 2022, we repurchased 14.465 million and 30.747 million shares, respectively, of our common stock.

Revenues increased to $64.968 billion for 2023 from $60.233 billion for 2022. Revenues increased 7.9% and 7.6%, respectively, on a consolidated basis and on a same facility basis for 2023, compared to 2022. The consolidated revenues increase can be primarily attributed to the combined impact of a 4.9% increase in equivalent admissions and a 2.8% increase in revenue per equivalent admission. The same facility revenues increase resulted primarily from the combined impact of a 4.8% increase in equivalent admissions and a 2.7% increase in revenue per equivalent admission.

During 2023, consolidated admissions increased 2.7% and same facility admissions increased 3.3%, compared to 2022. Inpatient surgical volumes increased 1.3% on a consolidated basis and increased 2.0% on a same facility basis during 2023, compared to 2022. Outpatient surgical volumes increased 2.1% on a consolidated basis and increased 2.5% on a same facility basis during 2023, compared to 2022. Emergency room visits increased 4.1% on a consolidated basis and increased 4.7% on a same facility basis during 2023, compared to 2022.

The estimated cost of total uncompensated care increased $229 million for 2023, compared to 2022. Consolidated and same facility uninsured admissions each declined 0.4%, and consolidated and same facility uninsured emergency room visits increased 4.0% and 4.4%, respectively, for 2023, compared to 2022.

Interest expense totaled $1.938 billion for 2023, compared to $1.741 billion for 2022. The $197 million increase in interest expense for 2023 was primarily due to an increase in the average effective interest rate.

Cash flows from operating activities increased $909 million, from $8.522 billion for 2022 to $9.431 billion for 2023. The increase in cash flows from operating activities was related primarily to a positive change in working capital items of $695 million, mainly from an increase in accounts payable and accrued expenses, and an increase in net income of $275 million, excluding losses and gains on sales of facilities and losses on retirement of debt.

Business Strategy

We are committed to providing the communities we serve with high quality, convenient and cost-effective health care while growing our business and creating long-term value for our stockholders. We strive to be the health care system of choice in the communities we serve by developing comprehensive networks locally and supporting these networks with enterprise expertise and economies of scale. Our strategy is organized around a framework that seeks to drive sustained growth by delivering operational excellence, attracting exceptional physicians and other health care professionals, developing comprehensive services, creating greater access, and coordinating higher quality care for patients. To achieve these objectives, we align our efforts around the following growth agenda:

57

HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Business Strategy (continued)

Grow Our Presence in Existing Markets. We believe we are well positioned in a number of large and growing markets that will allow us the opportunity to generate long-term, attractive growth through the expansion of our presence in these markets. We plan to continue recruiting and strategically collaborating with the physician community and developing comprehensive service lines such as cardiology, neurology, oncology, orthopedics and women’s services. Additional components of our growth strategy include providing access and convenience through developing various outpatient facilities, including, but not limited to surgery centers, urgent care clinics, freestanding emergency care facilities, imaging centers and home health and hospice services, as well as seeking to improve coordination of care and patient retention across our markets.

Achieve Industry-Leading Performance in Clinical, Operational and Satisfaction Measures. Achieving high levels of patient safety, patient satisfaction and clinical quality are central goals of our business. To achieve these goals, we have implemented a number of initiatives including infection reduction initiatives, hospitalist programs, advanced health information technology and evidence-based medicine programs. We routinely analyze operational practices from our best-performing hospitals to identify ways to implement organization-wide performance improvements and reduce clinical variation. We believe these initiatives will continue to improve patient care, help us achieve cost efficiencies and favorably position us in an environment where our constituents are increasingly focused on quality, efficacy and efficiency.

Recruit and Retain Physicians and Other Health Care Professionals to Meet the Need for High Quality Health Services. We depend on the quality and dedication of the health care providers and other team members who serve at our facilities. We believe a critical component of our growth strategy is our ability to successfully recruit and strategically collaborate with physicians and other health care professionals to provide high quality care. We attract and retain physicians and other health care professionals by providing high quality, convenient facilities with advanced technology, by expanding our specialty services and by building our outpatient operations. We believe our continued investment in the employment, recruitment and retention of physicians and other health care professionals will improve the quality of care at our facilities.

Continue to Utilize Economies of Scale to Grow the Company. We believe there is significant opportunity to continue to grow our company by fully utilizing the scale and scope of our organization. We continue to invest in initiatives such as care navigators, clinical data exchange and centralized patient transfer operations, which will enable us to improve coordination of care and patient retention across our markets. We believe our centrally managed business processes and ability to leverage cost-saving practices across our extensive network will enable us to continue to manage costs effectively. We continue to invest in our shared service platforms to deploy key components of our support infrastructure, including revenue cycle management, health care group purchasing, supply chain management and staffing functions.

Pursue a Disciplined Development Strategy. We continue to believe there are significant growth opportunities in our markets. We will continue to provide financial and operational resources to analyze and develop our in-market opportunities. To complement our in-market growth agenda and achieve cost savings and other benefits for the patients and communities we serve, we intend to focus on selectively developing and acquiring new hospitals, outpatient facilities and other health care service providers.

Our strategy also emphasizes investments that seek to advance our clinical systems and digital capabilities, transform care models with innovative care solutions, expand our workforce development programs and enhance our health care networks and partnerships.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. Our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results may differ from these estimates.

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HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Policies and Estimates (continued)

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenues

Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from payers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. The estimated reimbursement amounts are made on a payer-specific basis and are recorded based on the best information available regarding management’s interpretation of the applicable laws, regulations and contract terms. Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals. We have invested significant resources to refine and improve our billing systems and the information system data used to make contractual allowance estimates. We have developed standardized calculation processes and related employee training programs to improve the utility of our patient accounting systems.

Patients treated at hospitals for non-elective care who have income at or below 400% of the federal poverty level are eligible for charity care, and we limit the patient responsibility amounts for these patients to a percentage of their annual household income, computed on a sliding scale based upon their annual income and the applicable percentage of the federal poverty level. Patients treated at hospitals for non-elective care who have income above 400% of the federal poverty level are eligible for certain other discounts which limit the patient responsibility amounts for these patients to a percentage of their annual household income, computed on a sliding scale based upon their annual income and the applicable percentage of the federal poverty level. We apply additional discounts to limit patient responsibility for certain emergency services. The federal poverty level is established by the federal government and is based on income and family size. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care. We may attempt to provide assistance to uninsured patients to help determine whether they may qualify for Medicaid, other federal or state assistance, or charity care. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.

Implicit price concessions relate primarily to amounts due directly from patients. Estimated implicit price concessions are recorded for all uninsured accounts, regardless of the age of those accounts. Accounts are written off when all reasonable collection efforts have been performed. The estimates for implicit price concessions are based upon management’s assessment of historical writeoffs and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. Management relies on the results of detailed reviews of historical writeoffs and collections at facilities that represent a majority of our revenues and accounts receivable (the “hindsight analysis”) as a primary source of information in estimating the collectability of our accounts receivable. We perform the hindsight analysis quarterly, utilizing rolling twelve-months accounts receivable collection and writeoff data. We believe our quarterly updates to the estimated implicit price concession amounts at each of our hospital facilities provide reasonable estimates of our revenues and valuations of our accounts receivable. These routine, quarterly changes in estimates have not resulted in material adjustments to the valuations of our accounts receivable or period-to-period comparisons of our revenues.

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HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Policies and Estimates (Continued)

Revenues (continued)

To quantify the total impact of and trends related to uninsured patient accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions. A summary of the estimated cost of total uncompensated care for the years ended December 31, follows (dollars in millions):

[[GREPCENT_TABLE]]
[["","","2023","","","2022","","","2021"],["Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)","","$","55,341","","","$","51,180","","","$","49,074"],["Cost-to-charges ratio (patient care costs as percentage of gross patient charges)","","","10.5","%","","","11.0","%","","","11.3","%"],["Total uncompensated care","","$","35,426","","","$","31,734","","","$","29,642"],["Multiply by the cost-to-charges ratio","","","10.5","%","","","11.0","%","","","11.3","%"],["Estimated cost of total uncompensated care","","$","3,720","","","$","3,491","","","$","3,350"]]
[[/GREPCENT_TABLE]]

Management expects a continuation of the challenges related to collection of patient due accounts. Adverse changes in the percentage of our patients having adequate health care coverage, increases in patient responsibility amounts under certain health care coverages, general economic conditions, patient accounting service center operations, payer mix, or trends in federal, state, and private employer health care coverage could affect the collection of accounts receivable, cash flows and results of operations.

Professional Liability Claims

We, along with virtually all health care providers, operate in an environment with professional liability risks. Our facilities are insured by our insurance subsidiary for losses up to $80 million per occurrence, subject, in most cases, to a $15 million per occurrence self-insured retention. The insurance subsidiary has obtained reinsurance for professional liability risks generally above a retention level of either $25 million or $35 million per occurrence, depending on the jurisdiction for the related claim. We purchase excess insurance on an occurrence reported basis for losses in excess of amounts insured by our insurance subsidiary. Provisions for losses related to professional liability risks were $619 million, $517 million and $453 million for the years ended December 31, 2023, 2022 and 2021, respectively. We recorded an increase to the provision for professional liability risks of $40 million during 2023 and reductions to the provision for professional liability risks of $55 million and $87 million for 2022 and 2021, respectively, due to the receipt of updated actuarial information.

Reserves for professional liability risks represent the estimated ultimate cost of all reported and unreported losses incurred through the respective consolidated balance sheet dates. The estimated ultimate cost includes estimates of direct expenses and fees paid to outside counsel and experts, but does not include the general overhead costs of our insurance subsidiary or corporate office. Individual case reserves are established based upon the particular circumstances of each reported claim and represent our estimates of the future costs that will be paid on reported claims. Case reserves are reduced as claim payments are made and are adjusted upward or downward as our estimates regarding the amounts of future losses are revised. Once the case reserves for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years, and geographic location of our hospitals. Several actuarial methods are employed to utilize this data to produce estimates of ultimate losses and reserves for incurred but not reported claims, including: paid and incurred extrapolation methods utilizing paid and incurred loss development to estimate ultimate losses; frequency and severity methods utilizing paid and incurred claims development to estimate ultimate average frequency (number of claims) and ultimate average severity (cost per claim); and Bornhuetter-Ferguson methods which add expected development to actual paid or incurred experience to estimate ultimate losses. These methods use our company-specific historical claims data and other information. Company-specific claim reporting and payment data collected over an approximate 20-year period is used in our reserve estimation process. This company-specific data includes information regarding our business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, professional liability retentions for each policy year, geographic information and other data.

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HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Policies and Estimates (Continued)

Professional Liability Claims (continued)

Reserves and provisions for professional liability risks are based upon actuarially determined estimates. The estimated reserve ranges, net of amounts receivable under reinsurance contracts, were $1.863 billion to $2.230 billion at December 31, 2023 and $1.802 billion to $2.159 billion at December 31, 2022. Our estimated reserves for professional liability claims may change significantly if future claims differ from expected trends. We perform sensitivity analyses which model the volatility of key actuarial assumptions and monitor our reserves for adequacy relative to all our assumptions in the aggregate. Based on our analysis, we believe the estimated professional liability reserve ranges represent the reasonably likely outcomes for ultimate losses. We consider the number and severity of claims to be the most significant assumptions in estimating reserves for professional liabilities. A 2.5% change in the expected frequency trend could be reasonably likely and would increase the reserve estimate by $31 million or reduce the reserve estimate by $30 million. A 2.5% change in the expected claim severity trend could be reasonably likely and would increase the reserve estimate by $137 million or reduce the reserve estimate by $126 million. We believe adequate reserves have been recorded for our professional liability claims; however, due to the complexity of the claims, the extended period of time to resolve the claims and the wide range of potential outcomes, our ultimate liability for professional liability claims could change by more than the estimated sensitivity amounts and could change materially from our current estimates.

The reserves for professional liability risks cover approximately 2,100 and 2,000 individual claims at December 31, 2023 and 2022, respectively, and estimates for unreported potential claims. The time period required to resolve these claims can vary depending upon the jurisdiction and whether the claim is settled or litigated. The average time period between the occurrence and final resolution for our professional liability claims is approximately five years, although the facts and circumstances of each individual claim can result in an occurrence-to-resolution timeframe that varies from this average. The estimation of the timing of payments beyond a year can vary significantly.

Reserves for professional liability risks were $2.089 billion and $2.043 billion at December 31, 2023 and 2022, respectively. The current portion of these reserves, $532 million and $515 million at December 31, 2023 and 2022, respectively, is included in “other accrued expenses.” Obligations covered by reinsurance and excess insurance contracts are included in the reserves for professional liability risks, as we remain liable to the extent reinsurers and excess insurance carriers do not meet their obligations. Reserves for professional liability risks (net of $42 million and $60 million receivable under reinsurance and excess insurance contracts at December 31, 2023 and 2022, respectively) were $2.047 billion and $1.983 billion at December 31, 2023 and 2022, respectively. The estimated total net reserves for professional liability risks at December 31, 2023 and 2022 are comprised of $947 million and $793 million, respectively, of case reserves for known claims and $1.100 billion and $1.190 billion, respectively, of reserves for incurred but not reported claims.

Changes in our professional liability reserves, net of reinsurance recoverable, for the years ended December 31, are summarized in the following table (dollars in millions):

[[GREPCENT_TABLE]]
[["","","2023","","","2022","","","2021"],["Net reserves for professional liability claims, January 1","","$","1,983","","","$","1,967","","","$","1,924"],["Provision for current year claims","","","573","","","","538","","","","530"],["Unfavorable (favorable) development related to prior years\u2019 claims","","","46","","","","(21",")","","","(77",")"],["Total provision","","","619","","","","517","","","","453"],["Payments for current year claims","","","13","","","","4","","","","5"],["Payments for prior years\u2019 claims","","","537","","","","493","","","","379"],["Total claim payments","","","550","","","","497","","","","384"],["Effect of new retroactive reinsurance contracts","","","(5",")","","","(4",")","","","(26",")"],["Net reserves for professional liability claims, December 31","","$","2,047","","","$","1,983","","","$","1,967"]]
[[/GREPCENT_TABLE]]

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HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Policies and Estimates (Continued)

Income Taxes

We calculate our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences that arise from the recognition of items in different periods for tax and accounting purposes. Deferred tax assets generally represent the tax effects of amounts expensed in our income statement for which tax deductions will be claimed in future periods. Interest and penalties payable to taxing authorities are included as a component of our provision for income taxes. We have elected to treat taxes incurred on global intangible low-taxed income as a period expense.

Although we believe we have properly reported taxable income and paid taxes in accordance with applicable laws, federal, state or foreign taxing authorities may challenge our tax positions upon audit. Significant judgment is required in determining and assessing the impact of uncertain tax positions. We report a liability for unrecognized tax benefits from uncertain tax positions taken or expected to be taken in our income tax returns. During each reporting period, we assess the facts and circumstances related to uncertain tax positions. If the realization of unrecognized tax benefits is deemed probable based upon new facts and circumstances, the estimated liability and the provision for income taxes are reduced in the current period. Final audit results may vary from our estimates.

Results of Operations

Revenue/Volume Trends

Our revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charge and negotiated payment rates for such services. Gross charges typically do not reflect what our facilities are actually paid. Our facilities have entered into agreements with third-party payers, including government programs and managed care health plans, under which the facilities are paid based upon the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from gross charges. We do not pursue collection of amounts related to patients who meet our guidelines to qualify for charity care; therefore, they are not reported in revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care.

Revenues increased 7.9% to $64.968 billion for 2023 from $60.233 billion for 2022 and increased 2.5% for 2022 from $58.752 billion for 2021. The increase in revenues in 2023 can be primarily attributed to the combined impact of a 4.9% increase in equivalent admissions and a 2.8% increase in revenue per equivalent admission compared to the prior year. The increase in revenues in 2022 can be primarily attributed to the combined impact of a 2.1% increase in equivalent admissions and a 0.4% increase in revenue per equivalent admission compared to the prior year.

Same facility revenues increased 7.6% for the year ended December 31, 2023 compared to the year ended December 31, 2022 and increased 3.2% for the year ended December 31, 2022 compared to the year ended December 31, 2021. The 7.6% increase for 2023 can be primarily attributed to the combined impact of a 4.8% increase in equivalent admissions and a 2.7% increase in revenue per equivalent admission. The 3.2% increase for 2022 can be primarily attributed to the net impact of a 3.3% increase in equivalent admissions and a 0.1% decline in revenue per equivalent admission.

Consolidated admissions increased 2.7% during 2023 compared to 2022 and declined 0.7% during 2022 compared to 2021. Consolidated surgeries increased 1.8% during 2023 compared to 2022 and increased 1.0% during 2022 compared to 2021. Consolidated emergency room visits increased 4.1% during 2023 compared to 2022 and increased 5.9% during 2022 compared to 2021.

Same facility admissions increased 3.3% during 2023 compared to 2022 and increased 0.5% during 2022 compared to 2021. Same facility surgeries increased 2.3% during 2023 compared to 2022 and increased 1.5% during 2022 compared to 2021. Same facility emergency room visits increased 4.7% during 2023 compared to 2022 and increased 7.6% during 2022 compared to 2021.

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HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

Same facility uninsured emergency room visits increased 4.4% and same facility uninsured admissions declined 0.4% during 2023 compared to 2022. Same facility uninsured emergency room visits increased 6.6% and same facility uninsured admissions declined 4.6% during 2022 compared to 2021.

The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and the uninsured for the years ended December 31, 2023, 2022 and 2021 are set forth below.

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2023","","","2022","","","2021"],["Medicare","","","21","%","","","22","%","","","23","%"],["Managed Medicare","","","25","","","","23","","","","21"],["Medicaid","","","4","","","","4","","","","5"],["Managed Medicaid","","","13","","","","14","","","","13"],["Managed care and insurers","","","30","","","","30","","","","31"],["Uninsured","","","7","","","","7","","","","7"],["","","","100","%","","","100","%","","","100","%"]]
[[/GREPCENT_TABLE]]

The approximate percentages of our inpatient revenues related to Medicare, managed Medicare, Medicaid, managed Medicaid, and managed care and insurers for the years ended December 31, 2023, 2022 and 2021 are set forth below.

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2023","","","2022","","","2021"],["Medicare","","","22","%","","","23","%","","","23","%"],["Managed Medicare","","","18","","","","17","","","","16"],["Medicaid","","","9","","","","7","","","","6"],["Managed Medicaid","","","6","","","","8","","","","6"],["Managed care and insurers","","","45","","","","45","","","","49"],["","","","100","%","","","100","%","","","100","%"]]
[[/GREPCENT_TABLE]]

At December 31, 2023, we owned and operated 46 hospitals and 29 surgery centers in the state of Florida. Our Florida facilities’ revenues totaled $15.004 billion, $13.763 billion and $13.593 billion for the years ended December 31, 2023, 2022 and 2021, respectively. At December 31, 2023, we owned and operated 50 hospitals and 39 surgery centers in the state of Texas. Our Texas facilities’ revenues totaled $17.871 billion, $16.472 billion and $15.356 billion for the years ended December 31, 2023, 2022 and 2021, respectively. During 2023, 2022 and 2021, 58%, 58% and 56%, respectively, of our admissions and 51%, 50% and 49%, respectively, of our revenues were generated by our Florida and Texas facilities. Uninsured admissions in Florida and Texas represented 73%, 74% and 72%, respectively, of our uninsured admissions during 2023, 2022 and 2021.

We receive a significant portion of our revenues from government health programs, principally Medicare and Medicaid, which are highly regulated and subject to frequent and substantial changes. Some state Medicaid programs use, or have applied to use, waivers granted by CMS to implement Medicaid expansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards. We receive supplemental payments in several states. We are aware these supplemental payment programs are currently being reviewed by certain state agencies and some states have made requests to CMS to replace their existing supplemental payment programs. It is possible these reviews and requests will result in the restructuring of such supplemental payment programs and could result in the payment programs being reduced or eliminated. Because deliberations about these programs are ongoing, we are unable to estimate the financial impact the program structure modifications, if any, may have on our results of operations.

63

HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Key Performance Indicators

We present certain metrics and statistical information that management uses when assessing our results of operations. We believe this information is useful to investors as it provides insight to how management evaluates operational performance and trends between reporting periods. Information on how these metrics and statistical information are defined is provided in the following tables summarizing operating results and operating data.

Operating Results Summary

The following are comparative summaries of operating results and certain operating data for the years ended December 31, 2023, 2022 and 2021 (dollars in millions):

[[GREPCENT_TABLE]]
[["","","2023","","","2022","","","2021"],["","","Amount","","","Ratio","","","Amount","","","Ratio","","","Amount","","","Ratio"],["Revenues","","$","64,968","","","","100.0","","","$","60,233","","","","100.0","","","$","58,752","","","","100.0"],["Salaries and benefits","","","29,487","","","","45.4","","","","27,685","","","","46.0","","","","26,779","","","","45.6"],["Supplies","","","9,902","","","","15.2","","","","9,371","","","","15.6","","","","9,481","","","","16.1"],["Other operating expenses","","","12,875","","","","19.8","","","","11,155","","","","18.5","","","","9,961","","","","17.0"],["Equity in earnings of affiliates","","","(22",")","","","\u2014","","","","(45",")","","","(0.1",")","","","(113",")","","","(0.2",")"],["Depreciation and amortization","","","3,077","","","","4.7","","","","2,969","","","","5.0","","","","2,853","","","","4.9"],["Interest expense","","","1,938","","","","3.0","","","","1,741","","","","2.9","","","","1,566","","","","2.7"],["Losses (gains) on sales of facilities","","","5","","","","\u2014","","","","(1,301",")","","","(2.2",")","","","(1,620",")","","","(2.8",")"],["Losses on retirement of debt","","","\u2014","","","","\u2014","","","","78","","","","0.1","","","","12","","","","\u2014"],["","","","57,262","","","","88.1","","","","51,653","","","","85.8","","","","48,919","","","","83.3"],["Income before income taxes","","","7,706","","","","11.9","","","","8,580","","","","14.2","","","","9,833","","","","16.7"],["Provision for income taxes","","","1,615","","","","2.5","","","","1,746","","","","2.9","","","","2,112","","","","3.6"],["Net income","","","6,091","","","","9.4","","","","6,834","","","","11.3","","","","7,721","","","","13.1"],["Net income attributable to noncontrolling interests","","","849","","","","1.3","","","","1,191","","","","1.9","","","","765","","","","1.3"],["Net income attributable to HCA Healthcare, Inc.","","$","5,242","","","","8.1","","","$","5,643","","","","9.4","","","$","6,956","","","","11.8"],["% changes from prior year:"],["Revenues","","","7.9","%","","","","","","2.5","%","","","","","","14.0","%"],["Income before income taxes","","","(10.2",")","","","","","","(12.7",")","","","","","","81.1"],["Net income attributable to HCA Healthcare, Inc.","","","(7.1",")","","","","","","(18.9",")","","","","","","85.3"],["Admissions(a)","","","2.7","","","","","","","(0.7",")","","","","","","4.0"],["Equivalent admissions(b)","","","4.9","","","","","","","2.1","","","","","","","6.8"],["Revenue per equivalent admission","","","2.8","","","","","","","0.4","","","","","","","6.8"],["Same facility % changes from prior year(c):"],["Revenues","","","7.6","","","","","","","3.2","","","","","","","14.4"],["Admissions(a)","","","3.3","","","","","","","0.5","","","","","","","4.8"],["Equivalent admissions(b)","","","4.8","","","","","","","3.3","","","","","","","7.6"],["Revenue per equivalent admission","","","2.7","","","","","","","(0.1",")","","","","","","6.3"]]
[[/GREPCENT_TABLE]]

(a)
Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.

(b)
Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation “equates” outpatient revenue to the volume measure (admissions) used to measure inpatient volume, resulting in a general measure of combined inpatient and outpatient volume.

(c)
Same facility information excludes the operations of hospitals and their related facilities that were either acquired, divested or removed from service during the current and prior year.

64

HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Operating Results Summary (continued)

Operating Data:

[[GREPCENT_TABLE]]
[["","","2023","","","2022","","","2021"],["Number of hospitals at end of period","","","186","","","","182","","","","182"],["Number of freestanding outpatient surgical centers at end of period(a)","","","124","","","","126","","","","125"],["Number of licensed beds at end of period(b)","","","49,588","","","","49,281","","","","48,803"],["Weighted average beds in service(c)","","","41,873","","","","41,982","","","","42,148"],["Admissions(d)","","","2,130,728","","","","2,075,459","","","","2,089,975"],["Equivalent admissions(e)","","","3,788,434","","","","3,611,299","","","","3,536,238"],["Average length of stay (days)(f)","","","4.9","","","","5.1","","","","5.2"],["Average daily census(g)","","","28,721","","","","28,778","","","","29,752"],["Occupancy(h)","","","72","%","","","72","%","","","74","%"],["Emergency room visits(i)","","","9,342,783","","","","8,971,951","","","","8,475,345"],["Outpatient surgeries(j)","","","1,044,415","","","","1,023,239","","","","1,008,236"],["Inpatient surgeries(k)","","","528,845","","","","522,151","","","","522,069"],["Days revenues in accounts receivable(l)","","","53","","","","53","","","","49"],["Outpatient revenues as a % of patient revenues(m)","","","38","%","","","38","%","","","37","%"]]
[[/GREPCENT_TABLE]]

(a)
Excludes freestanding endoscopy centers (24 at December 31, 2023 and 21 at December 31, 2022 and 2021).

(b)
Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency.

(c)
Represents the average number of beds in service, weighted based on periods owned.

(d)
Represents the total number of patients admitted to our hospitals and is used by management and certain investors as a general measure of inpatient volume.

(e)
Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation “equates” outpatient revenue to the volume measure (admissions) used to measure inpatient volume, resulting in a general measure of combined inpatient and outpatient volume.

(f)
Represents the average number of days admitted patients stay in our hospitals.

(g)
Represents the average number of admitted patients in our hospital beds each day.

(h)
Represents the percentage of hospital beds in service that are occupied by patients (admitted and observations). Both average daily census and occupancy rate provide measures of the utilization of inpatient rooms.

(i)
Represents the number of patients treated in our emergency rooms.

(j)
Represents the number of surgeries performed on patients who were not admitted to our hospitals. Pain management and endoscopy procedures are not included in outpatient surgeries.

(k)
Represents the number of surgeries performed on patients who have been admitted to our hospitals. Pain management and endoscopy procedures are not included in inpatient surgeries.

(l)
Revenues per day is calculated by dividing the revenues for the fourth quarter of each year by the days in the quarter. Days revenues in accounts receivable is then calculated as accounts receivable at the end of the period divided by revenues per day.

(m)
Represents the percentage of patient revenues related to patients who are not admitted to our hospitals.

65

HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Years Ended December 31, 2023 and 2022

Net income attributable to HCA Healthcare, Inc. totaled $5.242 billion, or $18.97 per diluted share, for 2023, compared to $5.643 billion, or $19.15 per diluted share, for 2022. The 2023 results include losses on sales of facilities of $5 million, or $0.04 per diluted share. The 2022 results include gains on sales of facilities of $1.301 billion, or $2.46 per diluted share, and losses on retirement of debt of $78 million, or $0.20 per diluted share. Our provisions for income taxes for 2023 and 2022 include tax benefits of $93 million, or $0.34 per diluted share, and $77 million, or $0.26 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 276.412 million shares and 294.666 million shares for the years ended December 31, 2023 and 2022, respectively. During 2023 and 2022, we repurchased 14.465 million and 30.747 million shares, respectively, of our common stock.

During 2023, consolidated admissions increased 2.7% and same facility admissions increased 3.3% compared to 2022. Consolidated inpatient surgeries increased 1.3% and same facility inpatient surgeries increased 2.0% during 2023 compared to 2022. Emergency room visits increased 4.1% on a consolidated basis and increased 4.7% on a same facility basis during 2023 compared to 2022.

Revenues increased 7.9% to $64.968 billion for 2023 from $60.233 billion for 2022. The increase in revenues was due primarily to the combined impact of a 4.9% increase in equivalent admissions and a 2.8% increase in revenue per equivalent admission compared to 2022. Same facility revenues increased 7.6% due primarily to the combined impact of a 4.8% increase in equivalent admissions and a 2.7% increase in revenue per equivalent admission compared to 2022.

Salaries and benefits, as a percentage of revenues, were 45.4% in 2023 and 46.0% in 2022. Salaries and benefits per equivalent admission increased 1.5% in 2023 compared to 2022. Same facility salaries and benefits per full time equivalent increased 1.7% for 2023 compared to 2022. We continue to utilize certain contract, overtime and other premium rate labor costs to support our clinical staff and patients. While these costs have declined compared to the prior year period, future costs may be affected by labor market conditions and other factors. Share-based compensation expense was $262 million in 2023 and $341 million in 2022.

Supplies, as a percentage of revenues, were 15.2% in 2023 and 15.6% in 2022. Supply costs per equivalent admission increased 0.7% in 2023 compared to 2022. Supply costs per equivalent admission increased 3.1% for medical devices and 0.6% for general medical and surgical items, but declined 6.4% for pharmacy supplies in 2023 compared to 2022. The decline in pharmacy supplies is primarily related to lower application of certain COVID-19 therapies, combined with increased utilization of generic drugs during 2023 compared to 2022.

Other operating expenses, as a percentage of revenues, were 19.8% in 2023 and 18.5% in 2022. Other operating expenses are primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. The 1.3% increase in other operating expenses, as a percentage of revenues for 2023 compared to 2022, was primarily related to increased costs for state provider fees in certain states, professional fees and insurance. We have seen inflation have a negative impact on certain of these expenses and expect inflationary pressures will continue to impact operating expenses in 2024. Provisions for losses related to professional liability risks were $619 million and $517 million for 2023 and 2022, respectively. We recorded an increase of $40 million, or $0.11 per diluted share, during 2023 and a reduction of $55 million, or $0.14 per diluted share, during 2022 to our provision for professional liability risks related to the receipt of updated actuarial information.

Equity in earnings of affiliates was $22 million for 2023 and $45 million for 2022. The decline of $23 million is primarily related to the operations of a hospital-based physician staffing joint venture.

Depreciation and amortization, as a percentage of revenues, were 4.7% in 2023 and 5.0% in 2022. Depreciation expense was $3.052 billion for 2023 and $2.941 billion for 2022. The increase of $111 million in depreciation expense relates primarily to capital expenditures at our existing facilities.

Interest expense increased to $1.938 billion for 2023 from $1.741 billion for 2022. The $197 million increase in interest expense was primarily due to an increase in the average effective interest rate. The average effective interest rate for our long-term debt was 5.0% for 2023 and 4.7% for 2022. Our average debt balance was $38.790 billion for 2023 compared to $37.363 billion for 2022.

66

HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Years Ended December 31, 2023 and 2022 (continued)

Losses on sales of facilities were $5 million for 2023 and gains on sales of facilities were $1.301 billion for 2022. The gains on sales of facilities for 2022 were primarily related to the sales of controlling interests in a subsidiary of our group purchasing organization and subsidiaries of our research entities.

During 2022, we issued $6.000 billion aggregate principal amount of senior notes and used a portion of the net proceeds to pay down our revolving credit facilities, and we redeemed all $1.250 billion outstanding aggregate principal amount of our 4.75% senior notes due 2023 and all $1.250 billion outstanding aggregate principal amount of our 5.875% senior notes due 2023. The aggregate pretax loss on retirement of debt for these two redemptions was $78 million.

The effective income tax rate was 23.6% for both 2023 and 2022. The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships.

Net income attributable to noncontrolling interests declined from $1.191 billion for 2022 to $849 million for 2023. The decline in net income attributable to noncontrolling interests related primarily to the gain on the sale of a controlling interest in a subsidiary of our group purchasing organization in 2022.

For results of operations comparisons relating to years ending December 31, 2022 and 2021, refer to our annual report on Form 10-K, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on February 17, 2023.

Liquidity and Capital Resources

Our primary cash requirements are paying our operating expenses, servicing our debt, capital expenditures on our existing properties, acquisitions of hospitals and health care entities, repurchases of our common stock, dividends to stockholders and distributions to noncontrolling interests. Our primary cash sources are from operating activities, issuances of debt securities and sales of hospitals and health care entities.

Cash provided by operating activities totaled $9.431 billion in 2023 compared to $8.522 billion in 2022 and $8.959 billion in 2021. The $909 million increase in cash provided by operating activities for 2023, compared to 2022, was related primarily to a positive change in working capital items of $695 million, mainly from an increase in accounts payable and accrued expenses, and an increase in net income of $275 million, excluding losses and gains on sales of facilities and losses on retirement of debt. The $437 million decline in cash provided by operating activities for 2022, compared to 2021, was related primarily to a negative change in working capital items of $649 million, mainly from a decline in accounts payable and accrued expenses, and a decline in net income of $687 million, excluding gains on sales of facilities and losses on retirement of debt, offset by a decline in cash payments for interest and income taxes of $847 million for 2022 compared to 2021. Cash payments for interest and income taxes increased $441 million for 2023 compared to 2022. Working capital totaled $2.272 billion at December 31, 2023 and $3.741 billion at December 31, 2022. The decline in working capital in the current period is primarily due to the $2.054 billion increase in long-term debt due within one year in the current period.

Cash used in investing activities was $5.317 billion, $3.389 billion and $2.643 billion in 2023, 2022 and 2021, respectively. Excluding acquisitions, capital expenditures were $4.744 billion in 2023, $4.395 billion in 2022 and $3.577 billion in 2021. Planned capital expenditures are expected to approximate between $5.1 billion and $5.3 billion in 2024. At December 31, 2023, there were projects under construction which had an estimated additional cost to complete and equip over the next five years of approximately $4.1 billion. We expect to fund capital expenditures with internally generated and borrowed funds. We expended $635 million, $224 million and $1.105 billion for acquisitions of hospitals and health care entities during 2023, 2022 and 2021, respectively. Cash flows from sales of hospitals and health care entities declined from $2.160 billion for 2021 (primarily related to the proceeds from our sales of five hospitals in Georgia and other health care entity investments) to $1.237 billion of net proceeds for 2022 (primarily related to proceeds from our sales of other health care entities) and were $193 million for 2023.

67

HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

Cash used in financing activities totaled $4.094 billion in 2023, $5.656 billion in 2022 and $6.655 billion in 2021. During 2023, we had a net increase of $1.295 billion in our indebtedness, paid dividends of $661 million and paid $3.811 billion for repurchases of common stock. During 2022, we had a net increase of $3.287 billion in our indebtedness, paid dividends of $653 million and paid $7.000 billion for repurchases of common stock. During 2021, we had a net increase of $3.255 billion in our indebtedness, paid dividends of $624 million and paid $8.215 billion for repurchases of common stock. During 2023, 2022 and 2021, we made distributions to noncontrolling interests of $640 million, $1.025 billion and $749 million, respectively. The increase in distributions in 2022 was related to the sale of a controlling interest in a subsidiary of our group purchasing organization.

We, or our affiliates, may in the future repurchase portions of our debt or equity securities, subject to certain limitations, from time to time in either the open market or through privately negotiated transactions, in accordance with applicable SEC and other legal requirements. The timing, prices, and sizes of purchases depend upon prevailing trading prices, general economic and market conditions, and other factors, including applicable securities laws.

During January 2022, January 2023 and January 2024, our Board of Directors authorized $8 billion, $3 billion and $6 billion, respectively, for share repurchases of the Company’s outstanding common stock. The January 2022 authorization was completed during 2023, and at December 31, 2023, there was $775 million of share repurchase authorization that remained available under the January 2023 authorization. Funds for the repurchase of debt or equity securities have, and are expected to, come primarily from cash generated from operations and borrowed funds.

During 2023, our Board of Directors declared four quarterly dividends of $0.60 per share, or $2.40 per share in the aggregate, on our common stock. On January 29, 2024, our Board of Directors declared a quarterly dividend of $0.66 per share on our common stock payable on March 29, 2024 to stockholders of record at the close of business on March 15, 2024. The timing and amount of future cash dividends will vary based on a number of factors, including future capital requirements for strategic transactions, share repurchases and investing in our existing markets, the availability of financing on acceptable terms, debt service requirements, changes to applicable tax laws or corporate laws, changes to our business model and periodic determinations by our Board of Directors that cash dividends are in the best interest of stockholders and are in compliance with all applicable laws and agreements of the Company.

In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($6.107 billion as of December 31, 2023 and $6.228 billion as of January 31, 2024) and anticipated access to public and private debt and equity markets.

Investments of our insurance subsidiaries, held to maintain statutory equity levels and to provide liquidity to pay claims, totaled $564 million and $473 million at December 31, 2023 and 2022, respectively. The insurance subsidiary maintained net reserves for professional liability risks of $121 million and $147 million at December 31, 2023 and 2022, respectively. Our facilities are insured by our insurance subsidiary for losses up to $80 million per occurrence; however, this coverage is subject, in most cases, to a $15 million per occurrence self-insured retention. Net reserves for the self-insured professional liability risks retained were $1.926 billion and $1.836 billion at December 31, 2023 and 2022, respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate $524 million. We estimate that approximately $489 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention.

Financing Activities

We have significant debt service requirements. Our debt totaled $39.593 billion and $38.084 billion at December 31, 2023 and 2022, respectively. Our interest expense was $1.938 billion for 2023 and $1.741 billion for 2022.

During 2023, we issued $3.250 billion aggregate principal amount of senior notes comprised of (i) $1.000 billion aggregate principal amount of 5.200% senior notes due 2028, (ii) $1.250 billion aggregate principal amount of 5.500% senior notes due 2033 and (iii) $1.000 billion aggregate principal amount of 5.900% senior notes due 2053. We used the net proceeds to repay borrowings under our asset-based revolving credit facility.

Management believes that cash flows from operations, amounts available under our senior secured credit facilities and our anticipated access to public and private debt markets will be sufficient to meet expected liquidity needs for the foreseeable future.

68

HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

Financing Activities (continued)

HCA Inc., a direct wholly-owned subsidiary of HCA Healthcare, Inc., is the primary obligor under a substantial portion of our indebtedness, including our senior secured credit facilities and senior notes. The senior secured credit facilities are fully and unconditionally guaranteed on a senior secured basis by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are “Unrestricted Subsidiaries” under our Indenture dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our senior secured asset-based revolving credit facility). During 2022, the conditions in the senior secured indentures to permit the permanent release of the subsidiary guarantees and all collateral securing the senior secured notes were met. The subsidiary guarantees and collateral securing our senior secured credit facilities were not affected. Following this release of the subsidiary guarantees and collateral securing the senior secured notes, summarized financial information for HCA Healthcare, Inc., HCA Inc. and the subsidiary guarantors, and information about the subsidiary guarantees and affiliates whose securities were pledged as collateral are no longer required to be presented.

All of the senior notes issued by HCA Inc. in 2014 or later are fully and unconditionally guaranteed on an unsecured basis by HCA Healthcare, Inc. The combined assets, liabilities, and results of operations of HCA Healthcare, Inc. and HCA Inc. are not materially different than the corresponding amounts presented in the consolidated financial statements of HCA Healthcare, Inc. As a result, summarized financial information of HCA Healthcare, Inc. and HCA Inc. is not required to be presented under Rule 13-01 of Regulation S-X.

Market Risk

We are exposed to market risk related to changes in market values of securities. Our insurance subsidiaries held $564 million of investment securities at December 31, 2023. These investments are carried at fair value, with changes in unrealized gains and losses that are not credit-related being recorded as adjustments to other comprehensive income. At December 31, 2023, we had net unrealized losses of $28 million on the insurance subsidiaries’ investment securities.

We are exposed to market risk related to market illiquidity. Investments in debt and equity securities of our insurance subsidiaries could be impaired by the inability to access the capital markets. Should the insurance subsidiaries require significant amounts of cash in excess of normal cash requirements to pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less than what we might otherwise have been able to in a normal market environment. We may be required to recognize credit-related impairments on our investment securities in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to ratings downgrades or other issue-specific factors.

We are also exposed to market risk related to changes in interest rates. Debt of $3.193 billion at December 31, 2023 was subject to variable rates of interest, while the remaining debt balance of $36.400 billion at December 31, 2023 was subject to fixed rates of interest. Both the general level of interest rates and, for the senior secured credit facilities, our leverage affect our variable interest rates. Our variable debt is comprised primarily of amounts outstanding under the senior secured credit facilities. The average effective interest rate for our long-term debt was 5.0% for 2023 and 4.7% for 2022.

The estimated fair value of our total long-term debt was $38.253 billion at December 31, 2023. The estimates of fair value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities. Based on a hypothetical 1% increase in interest rates, the potential annualized reduction to future pretax earnings would be approximately $32 million. To mitigate the impact of fluctuations in interest rates, we generally target a majority of our debt portfolio to be maintained at fixed rates.

We are exposed to currency translation risk related to our foreign operations. We currently do not consider the market risk related to foreign currency translation to be material to our consolidated financial statements or our liquidity.

69

HCA HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Tax Examinations

At December 31, 2023, the Internal Revenue Service (“IRS”) was conducting examinations of the Company’s 2016, 2017 and 2018 federal income tax returns and the 2019 returns of certain affiliates. We are also subject to examination by the IRS for tax years after 2019 as well as by state and foreign taxing authorities. Management believes HCA Healthcare, Inc., its predecessors, subsidiaries and affiliates properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with the IRS, state and foreign taxing authorities, and final resolution of any disputes will not have a material, adverse effect on our results of operations or financial position. However, if payments due upon final resolution of any issues exceed our recorded estimates, such resolutions could have a material, adverse effect on our results of operations or financial position.