UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2022

or

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

For the transition period from ___________ to ________

Commission file number 001-15925

COMMUNITY HEALTH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-3893191
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
4000 Meridian Boulevard Franklin, Tennessee	37067 (Zip Code)
(Address of principal executive offices)

615-465-7000

(Registrant’s telephone number)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	CYH	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑     No ☐

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

Large accelerated filer ☑	Accelerated filer ☐	Smaller reporting company ☐
Non-accelerated filer ☐		Emerging growth company ☐

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

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

As of July 21, 2022, there were outstanding 134,713,069 shares of the Registrant’s Common Stock, $0.01 par value.

Community Health Systems, Inc.

Form 10-Q

For the Three and Six Months Ended June 30, 2022

Part I.	Financial Information		Page
	Item 1.	Financial Statements:
		Condensed Consolidated Statements of (Loss) Income – Three and Six Months Ended June 30, 2022 and June 30, 2021 (Unaudited)	2
		Condensed Consolidated Statements of Comprehensive (Loss) Income – Three and Six Months Ended June 30, 2022 and June 30, 2021 (Unaudited)	3
		Condensed Consolidated Balance Sheets – June 30, 2022 and December 31, 2021 (Unaudited)	4
		Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2022 and June 30, 2021 (Unaudited)	5
		Notes to Condensed Consolidated Financial Statements (Unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
	Item 4.	Controls and Procedures	42
Part II.	Other Information
	Item 1.	Legal Proceedings	43
	Item 1A.	Risk Factors	44
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
	Item 3.	Defaults Upon Senior Securities	45
	Item 4.	Mine Safety Disclosures	45
	Item 5.	Other Information	45
	Item 6.	Exhibits	46
Signatures			47

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(In millions, except share and per share data)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Net operating revenues	$	2,934		$	3,007		$	6,044		$	6,020
Operating costs and expenses:
Salaries and benefits		1,295			1,266			2,620			2,569
Supplies		487			500			985			992
Other operating expenses		830			715			1,683			1,453
Lease cost and rent		78			78			155			156
Pandemic relief funds		(8	)		(1	)		(55	)		(83	)
Depreciation and amortization		133			133			261			272
Impairment and (gain) loss on sale of businesses, net		—			2			6			23
Total operating costs and expenses		2,815			2,693			5,655			5,382
Income from operations		119			314			389			638
Interest expense, net		218			219			435			449
Loss from early extinguishment of debt		—			8			5			79
Equity in earnings of unconsolidated affiliates		(1	)		(4	)		(6	)		(15	)
(Loss) income before income taxes		(98	)		91			(45	)		125
Provision for income taxes		200			54			223			123
Net (loss) income		(298	)		37			(268	)		2
Less: Net income attributable to noncontrolling interests		28			31			59			60
Net (loss) income attributable to Community Health Systems,    Inc. stockholders	$	(326	)	$	6		$	(327	)	$	(58	)
(Loss) earnings per share attributable to Community Health    Systems, Inc. stockholders:
Basic	$	(2.52	)	$	0.04		$	(2.54	)	$	(0.46	)
Diluted	$	(2.52	)	$	0.04		$	(2.54	)	$	(0.46	)
Weighted-average number of shares outstanding:
Basic		129,095,571			127,069,252			128,460,419			126,414,901
Diluted		129,095,571			130,737,124			128,460,419			126,414,901

See accompanying notes to the condensed consolidated financial statements.

2

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In millions)

(Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2022			2021		2022			2021
Net (loss) income	$	(298	)	$	37	$	(268	)	$	2
Other comprehensive (loss) income, net of income taxes:
Net change in fair value of available-for-sale debt securities,    net of tax		(6	)		1		(14	)		(3	)
Amortization and recognition of unrecognized pension cost   components, net of tax		—			—		—			1
Other comprehensive (loss) income		(6	)		1		(14	)		(2	)
Comprehensive (loss) income		(304	)		38		(282	)		—
Less: Comprehensive income attributable to noncontrolling    interests		28			31		59			60
Comprehensive (loss) income attributable to Community Health    Systems, Inc. stockholders	$	(332	)	$	7	$	(341	)	$	(60	)

See accompanying notes to the condensed consolidated financial statements.

3

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

(Unaudited)

	June 30, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	346		$	507
Patient accounts receivable		2,001			2,062
Supplies		356			355
Prepaid income taxes		99			94
Prepaid expenses and taxes		263			192
Other current assets		264			269
Total current assets		3,329			3,479
Property and equipment		9,759			9,757
Less accumulated depreciation and amortization		(4,220	)		(4,204	)
Property and equipment, net		5,539			5,553
Goodwill		4,224			4,219
Deferred income taxes		53			53
Other assets, net		1,913			1,913
Total assets	$	15,058		$	15,217
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current maturities of long-term debt	$	32		$	31
Current operating lease liabilities		153			147
Accounts payable		832			830
Accrued liabilities:
Employee compensation		624			655
Accrued interest		221			225
Other		433			476
Total current liabilities		2,295			2,364
Long-term debt		12,183			12,109
Deferred income taxes		410			192
Long-term operating lease liabilities		569			535
Other long-term liabilities		759			827
Total liabilities		16,216			16,027
Redeemable noncontrolling interests in equity of consolidated subsidiaries		498			480
STOCKHOLDERS’ DEFICIT
Community Health Systems, Inc. stockholders’ deficit:
Preferred stock, $.01 par value per share, 100,000,000 shares authorized; none issued		—			—
Common stock, $.01 par value per share, 300,000,000 shares authorized; 134,683,113    shares issued and outstanding at June 30, 2022, and 132,146,282 shares issued    and outstanding at December 31, 2021		1			1
Additional paid-in capital		2,090			2,118
Accumulated other comprehensive loss		(27	)		(14	)
Accumulated deficit		(3,804	)		(3,477	)
Total Community Health Systems, Inc. stockholders’ deficit		(1,740	)		(1,372	)
Noncontrolling interests in equity of consolidated subsidiaries		84			82
Total stockholders’ deficit		(1,656	)		(1,290	)
Total liabilities and stockholders’ deficit	$	15,058		$	15,217

See accompanying notes to the condensed consolidated financial statements.

4

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Six Months Ended
	June 30,
	2022			2021
Cash flows from operating activities:
Net (loss) income	$	(268	)	$	2
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		261			272
Deferred income taxes		221			118
Stock-based compensation expense		8			13
Impairment and (gain) loss on sale of businesses, net		6			23
Loss from early extinguishment of debt		5			79
Other non-cash expenses, net		95			(3	)
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
Patient accounts receivable		61			(32	)
Supplies, prepaid expenses and other current assets		(72	)		31
Repayment/derecognition of Medicare accelerated payments		—			(134	)
Accounts payable, accrued liabilities and income taxes		(63	)		(2	)
Other		(100	)		(87	)
Net cash provided by operating activities		154			280
Cash flows from investing activities:
Acquisitions of facilities and other related businesses		(4	)		(4	)
Purchases of property and equipment		(191	)		(212	)
Proceeds from disposition of hospitals and other ancillary operations		3			7
Proceeds from sale of property and equipment		7			3
Purchases of available-for-sale debt securities and equity securities		(55	)		(63	)
Proceeds from sales of available-for-sale debt securities and equity securities		41			48
Purchases of investments in unconsolidated affiliates		(8	)		(2	)
Increase in other investments		(30	)		(32	)
Net cash used in investing activities		(237	)		(255	)
Cash flows from financing activities:
Repurchase of restricted stock shares for payroll tax withholding requirements		(8	)		(5	)
Deferred financing costs and other debt-related costs		(73	)		(310	)
Proceeds from noncontrolling investors in joint ventures		1			—
Redemption of noncontrolling investments in joint ventures		(1	)		(3	)
Distributions to noncontrolling investors in joint ventures		(73	)		(66	)
Other borrowings		34			19
Issuance of long-term debt		1,535			4,310
Repayments of long-term indebtedness		(1,493	)		(4,396	)
Net cash used in financing activities		(78	)		(451	)
Net change in cash and cash equivalents		(161	)		(426	)
Cash and cash equivalents at beginning of period		507			1,676
Cash and cash equivalents at end of period	$	346		$	1,250
Supplemental disclosure of cash flow information:
Interest payments	$	(410	)	$	(304	)
Income tax payments, net	$	(6	)	$	(1	)

See accompanying notes to the condensed consolidated financial statements.

5

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES 

The unaudited condensed consolidated financial statements of Community Health Systems, Inc. (the “Parent” or “Parent Company”) and its subsidiaries (the “Company”) as of June 30, 2022 and December 31, 2021 and for the three-month and six-month periods ended June 30, 2022 and 2021, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. All intercompany transactions and balances have been eliminated. The results of operations for the three and six months ended June 30, 2022, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2022. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates under different assumptions or conditions.

Certain information and disclosures normally included in the notes to the consolidated financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company believes the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 17, 2022 (“2021 Form 10-K”).

Reclassifications. Certain prior period amounts have been reclassified to conform to the current period presentation within the condensed consolidated statements of cash flows.

Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the Parent are presented as a component of total equity on the condensed consolidated balance sheets to distinguish between the interests of the Parent Company and the interests of the noncontrolling owners. Noncontrolling interests that are redeemable or may become redeemable at a fixed or determinable price at the option of the holder or upon the occurrence of an event outside of the control of the Company are presented in mezzanine equity on the condensed consolidated balance sheets.

Substantially all of the Company’s operating costs and expenses are “cost of revenue” items. Operating costs that could be classified as general and administrative by the Company include the Company’s corporate office costs at its Franklin, Tennessee office, which were $57 million and $52 million for the three months ended June 30, 2022 and 2021, respectively, and $120 million and $112 million for the six months ended June 30, 2022 and 2021, respectively.

Throughout these notes to the unaudited condensed consolidated financial statements, Community Health Systems, Inc., and its consolidated subsidiaries are referred to on a collective basis as the “Company.” This drafting style is not meant to indicate that the publicly traded Parent or any particular subsidiary of the Parent owns or operates any asset, business, or property. The hospitals, operations and businesses described in this filing are owned and operated by distinct and indirect subsidiaries of Community Health Systems, Inc.

Revenue Recognition.   

Net Operating Revenues

Net operating revenues are recorded at the transaction price estimated by the Company to reflect the total consideration due from patients and third-party payors in exchange for providing goods and services in patient care. These services are considered to be a single performance obligation and have a duration of less than one year. Revenues are recorded as these goods and services are provided. The transaction price, which involves significant estimates, is determined based on the Company’s standard charges for the goods and services provided, with a reduction recorded for price concessions related to third party contractual arrangements as well as patient discounts and other patient price concessions. During each of the three and six-month periods ended June 30, 2022 and 2021, the impact of changes to the inputs used to determine the transaction price was considered immaterial.

Currently, several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers that is not specifically tied to an individual’s care, some of which offsets a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from the Centers for Medicare & Medicaid Services (“CMS”) and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. Under these supplemental programs, the Company recognizes revenue and related expenses in the period in which amounts are estimable and payment is reasonably assured. Reimbursement under these programs is reflected in net operating revenues. Taxes or other program-related costs are reflected in other operating expenses.

6

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (continued)

The Company’s net operating revenues during the three and six months ended June 30, 2022 and 2021 have been presented in the following table based on an allocation of the estimated transaction price with the patient between the primary patient classification of insurance coverage (in millions):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Medicare	$	616	$	642	$	1,285	$	1,335
Medicaid		445		420		912		811
Managed Care and other third-party payors		1,862		1,919		3,794		3,835
Self-pay		11		26		53		39
Total	$	2,934	$	3,007	$	6,044	$	6,020

Patient Accounts Receivable

Patient accounts receivable are recorded at net realizable value based on certain assumptions determined by each payor. For third-party payors including Medicare, Medicaid, and Managed Care, the net realizable value is based on the estimated contractual reimbursement percentage, which is based on current contract prices or historical paid claims data by payor. For self-pay accounts receivable, which includes patients who are uninsured and the patient responsibility portion for patients with insurance, the net realizable value is determined using estimates of historical collection experience without regard to aging category. These estimates are adjusted for estimated conversions of patient responsibility portions, expected recoveries and any anticipated changes in trends.  

Patient accounts receivable can be impacted by the effectiveness of the Company’s collection efforts. Additionally, significant changes in payor mix, business office operations, economic conditions or trends in federal and state governmental healthcare coverage could affect the net realizable value of accounts receivable. The Company also continually reviews the net realizable value of accounts receivable by monitoring historical cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net revenue and admissions by payor classification, days revenue outstanding, the composition of self-pay receivables between pure self-pay patients and the patient responsibility portion of third-party insured receivables, the impact of recent acquisitions and dispositions and the impact of current economic and other events.

Final settlements for some payors and programs are subject to adjustment based on administrative review and audit by third parties. As a result of these final settlements, the Company has recorded amounts due to third-party payors of $107 million and $118 million as of June 30, 2022 and December 31, 2021, respectively, and these amounts are included in accrued liabilities-other in the accompanying condensed consolidated balance sheets. Amounts due from third-party payors were $100 million and $114 million as of June 30, 2022 and December 31, 2021, respectively, and are included in other current assets in the accompanying condensed consolidated balance sheets. Substantially all Medicare and Medicaid cost reports are final settled through 2017.

Charity Care

In the ordinary course of business, the Company renders services to patients who are financially unable to pay for hospital care. The Company’s policy is to not pursue collections for such amounts; therefore, the related charges for those patients who are financially unable to pay and that otherwise do not qualify for reimbursement from a governmental program are not reported in net operating revenues, and are thus classified as charity care. The Company determines amounts that qualify for charity care based on the patient’s household income relative to the federal poverty level guidelines, as established by the federal government. The Company updated its policy during the three months ended March 31, 2022 in a manner which increased the number of accounts qualifying for charity care. This resulted in an increase in charity care services during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.

7

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (continued)

These charity care services are estimated to be $409 million and $215 million for the three months ended June 30, 2022 and 2021, respectively, and $772 million and $444 million for the six months ended June 30, 2022 and 2021, respectively, representing the value (at the Company’s standard charges) of these charity care services that are excluded from net operating revenues. The estimated cost incurred by the Company to provide these charity care services to patients who are unable to pay was approximately $47 million and $26 million during the three months ended June 30, 2022 and 2021, respectively, and $88 million and $52 million during the six months ended June 30, 2022 and 2021, respectively. The estimated cost of these charity care services was determined using a ratio of cost to gross charges and applying that ratio to the gross charges associated with providing care to charity patients for the period.

Accounting for the Impairment or Disposal of Long-Lived Assets.    During the six months ended June 30, 2022, the Company recorded an impairment charge of approximately $6 million to adjust the carrying value of long-lived assets at a hospital that was subsequently sold at a sales price below carrying value.

During the six months ended June 30, 2021, the Company recorded a total combined net loss on disposal of approximately $23 million, of which (i) approximately $28 million was recorded to adjust the carrying value of long-lived assets at several hospitals that were sold at a sales price below carrying value, (ii) approximately $3 million was recorded related to divestiture related expenses, (iii) approximately $8 million of gain was recorded related to the disposal of the Company’s majority interest in a surgery center that was sold on January 1, 2021, and (iv) approximately $7 million of goodwill was allocated to facilities disposed of during the six months ended June 30, 2021.

The Company will continue to evaluate the potential for impairment of the long-lived assets of hospitals and other held-and-used businesses as well as evaluate offers for potential sales, as applicable. Based on such analysis, additional impairment charges may be recorded in the future.

Pandemic Relief Funds

During the six months ended June 30, 2022 and 2021, the Company received approximately $52 million and $7 million, respectively, in pandemic relief fund payments through various federal, state and local programs. Approximately $8 million and $1 million during the three months ended June 30, 2022 and 2021, respectively, and $55 million and $83 million during the six months ended June 30, 2022 and 2021, respectively, was recognized as a reduction to operating costs and expenses, as denoted by the caption “pandemic relief funds” within the condensed consolidated statements of (loss) income. Approximately $11 million of unrecognized pandemic relief funds received are reflected within accrued liabilities-other in the condensed consolidated balance sheet as of June 30, 2022. Such unrecognized amounts may either be returned or may be recognized in future periods if the underlying conditions for recognition are reasonably assured of having been met. The Company’s accounting policies for the recognition of pandemic relief funds is unchanged from the policies described in Note 1 to the Company’s consolidated financial statements included in the 2021 Form 10-K.

2.  ACCOUNTING FOR STOCK-BASED COMPENSATION 

Stock-based compensation awards have been granted under the Community Health Systems, Inc. Amended and Restated 2009 Stock Option and Award Plan, which was amended and restated as of March 17, 2021 and approved by the Company’s stockholders at the annual meeting of stockholders held on May 11, 2021 (the “2009 Plan”).

The 2009 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (“IRC”) and for the grant of stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units, performance-based shares or units and other share awards. Persons eligible to receive grants under the 2009 Plan include the Company’s directors, officers, employees and consultants. As of June 30, 2022, 6,906,176 shares of unissued common stock were reserved for future grants under the 2009 Plan.  

The following table reflects the impact of total compensation expense related to stock-based equity plans on the reported operating results for the respective periods (in millions):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Effect on (loss) income before income taxes	$	(3	)	$	(5	)	$	(8	)	$	(13	)
Effect on net (loss) income	$	(2	)	$	(4	)	$	(7	)	$	(10	)

8

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (continued)

At June 30, 2022, $45 million of unrecognized stock-based compensation expense related to outstanding unvested stock options, restricted stock and restricted stock units (the terms of which are summarized below) was expected to be recognized over a weighted-average period of 27 months. Of that amount, $7 million relates to outstanding unvested stock options expected to be recognized over a weighted-average period of 26 months and $38 million relates to outstanding unvested restricted stock and restricted stock units expected to be recognized over a weighted-average period of 27 months. There were no modifications to awards during the six months ended June 30, 2022 and 2021.

To date, all options granted under the 2009 Plan have been “nonqualified” stock options for tax purposes. Generally, these options vest in one-third increments on each of the first three anniversaries of the award date and have a 10-year contractual term. The exercise price of all options granted under the 2009 Plan is equal to the fair value of the Company’s common stock on the option grant date. 

The fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions and weighted-average fair values during the three and six months ended June 30, 2022 and 2021:

	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Expected volatility	N/A	N/A