UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(MARK ONE)

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

For the fiscal year ended December 31, 2013

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 No. 1-10765

UNIVERSAL HEALTH SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware	23-2077891
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
UNIVERSAL CORPORATE CENTER	19406-0958
367 South Gulph Road	(Zip Code)
P.O. Box 61558 King of Prussia, Pennsylvania
(Address of principal executive offices)

Registrant’s telephone number, including area code: (610) 768-3300

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

Title of each Class	Name of each exchange on which registered
Class B Common Stock, $.01 par value	New York Stock Exchange

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

Class D Common Stock, $.01 par value

(Title of each Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

Large accelerated filer  x Accelerated filer  ¨ Non-accelerated filer  ¨ Smaller reporting company  ¨

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

The aggregate market value of voting stock held by non-affiliates at June 30, 2013 was $6.0 billion. (For the purpose of this calculation, it was assumed that Class A, Class C, and Class D Common Stock, which are not traded but are convertible share-for-share into Class B Common Stock, have the same market value as Class B Common Stock. Also, for purposes of this calculation only, all directors are deemed to be affiliates.)

The number of shares of the registrant’s Class A Common Stock, $.01 par value, Class B Common Stock, $.01 par value, Class C Common Stock, $.01 par value, and Class D Common Stock, $.01 par value, outstanding as of January 31, 2014, were 6,595,708; 91,321,038; 664,000 and 29,983, respectively.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s definitive proxy statement for our 2013 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2013 (incorporated by reference under Part III).

UNIVERSAL HEALTH SERVICES, INC.

2013 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I
Item 1	Business	1
Item 1A	Risk Factors	15
Item 1B	Unresolved Staff Comments	28
Item 2	Properties	28
Item 3	Legal Proceedings	34
Item 4	Mine Safety Disclosure	37
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	38
Item 6	Selected Financial Data	41
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	88
Item 8	Financial Statements and Supplementary Data	89
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	90
Item 9A	Controls and Procedures	90
Item 9B	Other Information	90
PART III
Item 10	Directors, Executive Officers and Corporate Governance	91
Item 11	Executive Compensation	91
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	91
Item 13	Certain Relationships and Related Transactions, and Director Independence	91
Item 14	Principal Accountant Fees and Services	91
PART IV
Item 15	Exhibits and Financial Statement Schedules	92
SIGNATURES		97

Exhibit Index

This Annual Report on Form 10-K is for the year ended December 31, 2013. This Annual Report modifies and supersedes documents filed prior to this Annual Report. Information that we file with the Securities and Exchange Commission (the “SEC”) in the future will automatically update and supersede information contained in this Annual Report.

In this Annual Report, “we,” “us,” “our” and the “Company” refer to Universal Health Services, Inc. and its subsidiaries. UHS is a registered trademark of UHS of Delaware, Inc., the management company for, and a wholly-owned subsidiary of Universal Health Services, Inc. Universal Health Services, Inc. is a holding company and operates through its subsidiaries including its management company, UHS of Delaware, Inc. All healthcare and management operations are conducted by subsidiaries of Universal Health Services, Inc. To the extent any reference to “UHS” or “UHS facilities” in this report including letters, narratives or other forms contained herein relates to our healthcare or management operations it is referring to Universal Health Services, Inc.’s subsidiaries including UHS of Delaware, Inc. Further, the terms “we,” “us,” “our” or the “Company” in such context similarly refer to the operations of Universal Health Services Inc.’s subsidiaries including UHS of Delaware, Inc. Any reference to employees or employment contained herein refers to employment with or employees of the subsidiaries of Universal Health Services, Inc. including UHS of Delaware, Inc.

PART I

ITEM 1. Business

Our principal business is owning and operating, through our subsidiaries, acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers. As of February 27, 2014, we owned and/or operated 24 acute care hospitals and 193 behavioral health centers located in 37 states, Washington, D.C., Puerto Rico and the U.S. Virgin Islands. As part of our ambulatory treatment centers division, we manage and/or own outright or in partnerships with physicians, 5 surgical hospitals and surgery and radiation oncology centers located in 4 states.

Net revenues from our acute care hospitals, surgical hospitals, surgery centers and radiation oncology centers accounted for 49% of our consolidated net revenues in 2013, 50% in 2012 and 51% in 2011. Net revenues from our behavioral health care facilities accounted for 50% of our consolidated net revenues during each of 2013 and 2012 and 49% during 2011.

Services provided by our hospitals include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services. We provide capital resources as well as a variety of management services to our facilities, including central purchasing, information services, finance and control systems, facilities planning, physician recruitment services, administrative personnel management, marketing and public relations.

We are a Delaware corporation that was organized in 1979. Our principal executive offices are located at Universal Corporate Center, 367 South Gulph Road, P.O. Box 61558, King of Prussia, PA 19406. Our telephone number is (610) 768-3300.

Available Information

Our website is located at http://www.uhsinc.com. Copies of our annual, quarterly and current reports that we file with the SEC, and any amendments to those reports, are available free of charge on our website. The information posted on our website is not incorporated into this Annual Report. Our Board of Directors’ committee charters (Audit Committee, Compensation Committee and Nominating & Governance Committee), Code of Business Conduct and Corporate Standards applicable to all employees, Code of Ethics for Senior Financial Officers, Corporate Governance Guidelines and our Healthcare Code of Conduct, Corporate Compliance Manual and Compliance Policies and Procedures are available free of charge on our website. Copies of such reports and charters are available in print to any stockholder who makes a request. Such requests should be made to our Secretary at our King of Prussia, PA corporate headquarters. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers of any provision of our Code of Ethics for Senior Financial Officers by promptly posting this information on our website.

In accordance with Section 303A.12(a) of the New York Stock Exchange Listed Company Manual, we submitted our CEO’s certification to the New York Stock Exchange in 2013. Additionally, contained in Exhibits 31.1 and 31.2 of this Annual Report on Form 10-K, are our CEO’s and CFO’s certifications regarding the quality of our public disclosures under Section 302 of the Sarbanes-Oxley Act of 2002.

Our Mission

Our mission and objective is to provide superior healthcare services that patients recommend to families and friends, physicians prefer for their patients, purchasers select for their clients, employees are proud of, and investors seek for long-term results. To achieve this, we have a commitment to:

• service excellence

• continuous improvement in measurable ways

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• employee development

• ethical and fair treatment

• teamwork

• compassion

• innovation in service delivery

Business Strategy

We believe community-based hospitals will remain the focal point of the healthcare delivery network and we are committed to a philosophy of self-determination for both the company and our hospitals.

Acquisition of Additional Hospitals. We selectively seek opportunities to expand our base of operations by acquiring, constructing or leasing additional hospital facilities. We are committed to a program of rational growth around our core businesses, while retaining the missions of the hospitals we manage and the communities we serve. Such expansion may provide us with access to new markets and new healthcare delivery capabilities. We also continue to examine our facilities and consider divestiture of those facilities that we believe do not have the potential to contribute to our growth or operating strategy.

Improvement of Operations of Existing Hospitals and Services. We also seek to increase the operating revenues and profitability of owned hospitals by the introduction of new services, improvement of existing services, physician recruitment and the application of financial and operational controls.

We are involved in continual development activities for the benefit of our existing facilities. From time to time applications are filed with state health planning agencies to add new services in existing hospitals in states which require certificates of need, or CONs. Although we expect that some of these applications will result in the addition of new facilities or services to our operations, no assurances can be made for ultimate success by us in these efforts.

Quality and Efficiency of Services. Pressures to contain healthcare costs and technological developments allowing more procedures to be performed on an outpatient basis have led payors to demand a shift to ambulatory or outpatient care wherever possible. We are responding to this trend by emphasizing the expansion of outpatient services. In addition, in response to cost containment pressures, we continue to implement programs at our facilities designed to improve financial performance and efficiency while continuing to provide quality care, including more efficient use of professional and paraprofessional staff, monitoring and adjusting staffing levels and equipment usage, improving patient management and reporting procedures and implementing more efficient billing and collection procedures. In addition, we will continue to emphasize innovation in our response to the rapid changes in regulatory trends and market conditions while fulfilling our commitment to patients, physicians, employees, communities and our stockholders.

In addition, our aggressive recruiting of highly qualified physicians and developing provider networks help to establish our facilities as an important source of quality healthcare in their respective communities.

2013 Acquisition and Divestiture Activity:

Acquisitions of Assets and Businesses:

During 2013, we spent $13 million for the purchase of real property located in Pennsylvania, Nevada and Arizona.

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Divestitures:

During 2013, we received $37 million in connection with the divestiture of Peak Behavioral Health Services and certain other assets and real property including three previously closed behavioral health care facilities. We agreed to sell Peak Behavioral Health Services as part of our agreement with the Federal Trade Commission in connection with our acquisition of Ascend Health Corporation in October of 2012. The aggregate pre-tax gain on these divestitures did not have a material impact on our consolidated results of operations during 2013.

Hospital Utilization

We believe that the most important factors relating to the overall utilization of a hospital include the quality and market position of the hospital and the number, quality and specialties of physicians providing patient care within the facility. Generally, we believe that the ability of a hospital to meet the health care needs of its community is determined by its breadth of services, level of technology, emphasis on quality of care and convenience for patients and physicians. Other factors that affect utilization include general and local economic conditions, market penetration of managed care programs, the degree of outpatient use, the availability of reimbursement programs such as Medicare and Medicaid, and demographic changes such as the growth in local populations. Utilization across the industry also is being affected by improvements in clinical practice, medical technology and pharmacology. Current industry trends in utilization and occupancy have been significantly affected by changes in reimbursement policies of third party payors. We are also unable to predict the extent to which these industry trends will continue or accelerate. In addition, hospital operations are subject to certain seasonal fluctuations, such as higher patient volumes and net patient service revenues in the first and fourth quarters of the year.

The following table sets forth certain operating statistics for hospitals operated by us for the years indicated. Accordingly, information related to hospitals acquired during the five-year period has been included from the respective dates of acquisition, and information related to hospitals divested during the five year period has been included up to the respective dates of divestiture. Information related to the behavioral health care facilities acquired by us in connection with our acquisition of Psychiatric Solutions, Inc. (“PSI”), excluding 3 PSI facilities that were divested during 2011 pursuant to our agreement with the FTC, is included for the period of November 16, 2010 through December 31, 2012. The licensed and available beds for those facilities are included in 2010 on a weighted average basis for the period owned. Information related to the behavioral health care facilities acquired by us in connection with our acquisition of Ascend Health Corporation is included for the

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period of October 10, 2012 through December 31, 2012. The licensed and available beds for those facilities are included in 2012 on a weighted average basis for the period owned.

	2013			2012			2011			2010			2009
Average Licensed Beds:
Acute Care Hospitals (1)		5,652			5,682			5,726			5,689			5,484
Behavioral Health Centers		19,975			19,362			19,280			9,427			7,921
Average Available Beds (2):
Acute Care Hospitals (1)		5,429			5,457			5,424			5,383			5,128
Behavioral Health Centers		19,876			19,282			19,262			9,409			7,901
Admissions:
Acute Care Hospitals (1)		246,160			251,099			258,754			264,470			265,244
Behavioral Health Centers		402,088			374,865			352,208			166,434			136,639
Average Length of Stay (Days):
Acute Care Hospitals (1)		4.5			4.5			4.4			4.4			4.4
Behavioral Health Centers		13.3			14.0			14.6			15.1			15.4
Patient Days (3):
Acute Care Hospitals (1)		1,112,541			1,122,557			1,151,183			1,155,984			1,166,704
Behavioral Health Centers		5,365,734			5,245,499			5,157,454			2,507,046			2,105,625
Occupancy Rate-Licensed Beds (4):
Acute Care Hospitals (1)		54	%		54	%		55	%		56	%		58	%
Behavioral Health Centers		74	%		74	%		73	%		73	%		73	%
Occupancy Rate-Available Beds (4):
Acute Care Hospitals (1)		56	%		56	%		58	%		59	%		62	%
Behavioral Health Centers		74	%		75	%		73	%		73	%		73	%

(1) The statistical information for Auburn Regional Medical Center located in Washington (divested during the fourth quarter of 2012) is included in the above information through its respective divestiture date.

(2) “Average Available Beds” is the number of beds which are actually in service at any given time for immediate patient use with the necessary equipment and staff available for patient care. A hospital may have appropriate licenses for more beds than are in service for a number of reasons, including lack of demand, incomplete construction, and anticipation of future needs

(3) “Patient Days” is the sum of all patients for the number of days that hospital care is provided to each patient.

(4) “Occupancy Rate” is calculated by dividing average patient days (total patient days divided by the total number of days in the period) by the number of average beds, either available or licensed.

Sources of Revenue

We receive payments for services rendered from private insurers, including managed care plans, the federal government under the Medicare program, state governments under their respective Medicaid programs and directly from patients. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Sources of Revenue for additional disclosure. Other information related to our revenues, income and other operating information for each reporting segment of our business is provided in Note 11 to our Consolidated Financial Statements, Segment Reporting.

Regulation and Other Factors

Overview: The healthcare industry is subject to numerous laws, regulations and rules including, among others, those related to government healthcare participation requirements, various licensure and accreditations, reimbursement for patient services, health information privacy and security rules, and Medicare and Medicaid fraud and abuse provisions (including, but not limited to, federal statutes and regulations prohibiting kickbacks and other illegal inducements to potential referral sources, false claims submitted to federal health care programs

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and self-referrals by physicians). Providers that are found to have violated any of these laws and regulations may be excluded from participating in government healthcare programs, subjected to significant fines or penalties and/or required to repay amounts received from the government for previously billed patient services. Although we believe our policies, procedures and practices comply with governmental regulations, no assurance can be given that we will not be subjected to additional governmental inquiries or actions, or that we would not be faced with sanctions, fines or penalties if so subjected. Even if we were to ultimately prevail, a significant governmental inquiry or action under one of the above laws, regulations or rules could have a material adverse impact on us.

Licensing, Certification and Accreditation: All of our hospitals are subject to compliance with various federal, state and local statutes and regulations and receive periodic inspection by state licensing agencies to review standards of medical care, equipment and cleanliness. Our hospitals must also comply with the conditions of participation and licensing requirements of federal, state and local health agencies, as well as the requirements of municipal building codes, health codes and local fire departments. Various other licenses and permits are also required in order to dispense narcotics, operate pharmacies, handle radioactive materials and operate certain equipment.

All of our eligible hospitals have been accredited by The Joint Commission. All of our acute care hospitals and most of our behavioral health centers are certified as providers of Medicare and Medicaid services by the appropriate governmental authorities.

If any of our facilities were to lose its Joint Commission accreditation or otherwise lose its certification under the Medicare and Medicaid programs, the facility may be unable to receive reimbursement from the Medicare and Medicaid programs and other payors. We believe our facilities are in substantial compliance with current applicable federal, state, local and independent review body regulations and standards. The requirements for licensure, certification and accreditation are subject to change and, in order to remain qualified, it may become necessary for us to make changes in our facilities, equipment, personnel and services in the future, which could have a material adverse impact on operations.

Certificates of Need: Many of the states in which we operate hospitals have enacted certificates of need (“CON”) laws as a condition prior to hospital capital expenditures, construction, expansion, modernization or initiation of major new services. Failure to obtain necessary state approval can result in our inability to complete an acquisition, expansion or replacement, the imposition of civil or, in some cases, criminal sanctions, the inability to receive Medicare or Medicaid reimbursement or the revocation of a facility’s license, which could harm our business. In addition, significant CON reforms have been proposed in a number of states that would increase the capital spending thresholds and provide exemptions of various services from review requirements. In the past, we have not experienced any material adverse effects from those requirements, but we cannot predict the impact of these changes upon our operations.

Conversion Legislation: Many states have enacted or are considering enacting laws affecting the conversion or sale of not-for-profit hospitals to for-profit entities. These laws generally require prior approval from the attorney general, advance notification and community involvement. In addition, attorneys general in states without specific conversion legislation may exercise discretionary authority over these transactions. Although the level of government involvement varies from state to state, the trend is to provide for increased governmental review and, in some cases, approval of a transaction in which a not-for-profit entity sells a health care facility to a for-profit entity. The adoption of new or expanded conversion legislation and the increased review of not-for-profit hospital conversions may limit our ability to grow through acquisitions of not-for-profit hospitals.

Utilization Review: Federal regulations require that admissions and utilization of facilities by Medicare and Medicaid patients must be reviewed in order to ensure efficient utilization of facilities and services. The law and regulations require Peer Review Organizations (“PROs”) to review the appropriateness of Medicare and

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Medicaid patient admissions and discharges, the quality of care provided, the validity of diagnosis related group (“DRG”) classifications and the appropriateness of cases of extraordinary length of stay. PROs may deny payment for services provided, assess fines and also have the authority to recommend to the Department of Health and Human Services (“HHS”) that a provider that is in substantial non-compliance with the standards of the PRO be excluded from participating in the Medicare program. We have contracted with PROs in each state where we do business to perform the required reviews.

Audits: Most hospitals are subject to federal audits to validate the accuracy of Medicare and Medicaid program submitted claims. If these audits identify overpayments, we could be required to pay a substantial rebate of prior years’ payments subject to various administrative appeal rights. The federal government contracts with third-party “recovery audit contractors” (“RACs”) and “Medicaid integrity contractors” (“MICs”), on a contingent fee basis, to audit the propriety of payments to Medicare and Medicaid providers. The Recovery Audit Prepayment Review demonstration program will enable RACs to review claims before they are paid to ensure that the provider complied with all Medicare payment rules. Currently, the demonstration program is targeting states with high populations of fraud- and error-prone providers. Similarly, Medicare zone program integrity contractors (“ZPICs”) target claims for potential fraud and abuse. Additionally, Medicare administrative contractors (“MACs”) must ensure they pay the right amount for covered and correctly coded services rendered to eligible beneficiaries by legitimate providers. The Centers for Medicare and Medicaid Services (“CMS”) recently announced its intent to consolidate many of these Medicare and Medicaid program integrity functions into new unified program integrity contractors (“UPICs”), though it remains unclear what effect, if any, this proposed consolidation may have. We have undergone claims audits related to our receipt of federal healthcare payments during the last three years, the results of which have not required material adjustments to our consolidated results of operations. However, potential liability from future federal or state audits could ultimately exceed established reserves, and any excess could potentially be substantial. Further, Medicare and Medicaid regulations also provide for withholding Medicare and Medicaid overpayments in certain circumstances, which could adversely affect our cash flow.

Self-Referral and Anti-Kickback Legislation

The Stark Law: The Social Security Act includes a provision commonly known as the “Stark Law.” This law prohibits physicians from referring Medicare and Medicaid patients to entities with which they or any of their immediate family members have a financial relationship, unless an exception is met. These types of referrals are known as “self-referrals.” Sanctions for violating the Stark Law include civil penalties up to $15,000 for each violation, up to $100,000 for sham arrangements, up to $10,000 for each day an entity fails to report required information and exclusion from the federal health care programs. There are a number of exceptions to the self-referral prohibition, including an exception for a physician’s ownership interest in an entire hospital as opposed to an ownership interest in a hospital department unit, service or subpart. However, federal laws and regulations now limit the ability of hospitals relying on this exception to expand aggregate physician ownership interest or to expand certain hospital facilities. This recent regulation also places a number of compliance requirements on physician-owned hospitals related to reporting of ownership interest. There are also exceptions for many of the customary financial arrangements between physicians and providers, including employment contracts, leases and recruitment agreements that adhere to certain enumerated requirements.

We monitor all aspects of our business and have developed a comprehensive ethics and compliance program that is designed to meet or exceed applicable federal guidelines and industry standards. Nonetheless, because the law in this area is complex and constantly evolving, there can be no assurance that federal regulatory authorities will not determine that any of our arrangements with physicians violate the Stark Law.

Anti-kickback Statute: A provision of the Social Security Act known as the “anti-kickback statute” prohibits healthcare providers and others from directly or indirectly soliciting, receiving, offering or paying money or other remuneration to other individuals and entities in return for using, referring, ordering, recommending or arranging for such referrals or orders of services or other items covered by a federal or state

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health care program. However, recent changes to the anti-kickback statute have reduced the intent required for violation; one is no longer required to “have actual knowledge or specific intent to commit a violation of” the anti-kickback statute in order to be found in violation of such law.

The anti-kickback statute contains certain exceptions, and the Office of the Inspector General of the Department of Health and Human Services (“OIG”) has issued regulations that provide for “safe harbors,” from the federal anti-kickback statute for various activities. These activities, which must meet certain requirements, include (but are not limited to) the following: investment interests, space rental, equipment rental, practitioner recruitment, personnel services and management contracts, sale of practice, referral services, warranties, discounts, employees, group purchasing organizations, waiver of beneficiary coinsurance and deductible amounts, managed care arrangements, obstetrical malpractice insurance subsidies, investments in group practices, freestanding surgery centers, donation of technology for electronic health records and referral agreements for specialty services. The fact that conduct or a business arrangement does not fall within a safe harbor or exception does not automatically render the conduct or business arrangement illegal under the anti-kickback statute. However, such conduct and business arrangements may lead to increased scrutiny by government enforcement authorities.

Although we believe that our arrangements with physicians and other referral sources have been structured to comply with current law and available interpretations, there can be no assurance that all arrangements comply with an available safe harbor or that regulatory authorities enforcing these laws will determine these financial arrangements do not violate the anti-kickback statute or other applicable laws. Violations of the anti-kickback statute may be punished by a criminal fine of up to $25,000 for each violation or imprisonment, however, under 18 U.S.C. Section 3571, this fine may be increased to $250,000 for individuals and $500,000 for organizations. Civil money penalties may include fines of up to $50,000 per violation and damages of up to three times the total amount of the remuneration and/or exclusion from participation in Medicare and Medicaid.

Similar State Laws: Many of the states in which we operate have adopted laws that prohibit payments to physicians in exchange for referrals similar to the anti-kickback statute and the Stark Law, some of which apply regardless of the source of payment for care. These statutes typically provide criminal and civil penalties as well as loss of licensure. In many instances, the state statutes provide that any arrangement falling in a federal safe harbor will be immune from scrutiny under the state statutes. However, in most cases, little precedent exists for the interpretation or enforcement of these state laws.

These laws and regulations are extremely complex and, in many cases, we don’t have the benefit of regulatory or judicial interpretation. It is possible that different interpretations or enforcement of these laws and regulations could subject our current or past practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses. A determination that we have violated one or more of these laws, or the public announcement that we are being investigated for possible violations of one or more of these laws (see “Legal Proceedings”), could have a material adverse effect on our business, financial condition or results of operations and our business reputation could suffer significantly. In addition, we cannot predict whether other legislation or regulations at the federal or state level will be adopted, what form such legislation or regulations may take or what their impact on us may be.

If we are deemed to have failed to comply with the anti-kickback statute, the Stark Law or other applicable laws and regulations, we could be subjected to liabilities, including criminal penalties, civil penalties (including the loss of our licenses to operate one or more facilities), and exclusion of one or more facilities from participation in the Medicare, Medicaid and other federal and state health care programs. The imposition of such penalties could have a material adverse effect on our business, financial condition or results of operations.

Federal False Claims Act and Similar State Regulations: A current trend affecting the health care industry is the increased use of the federal False Claims Act, and, in particular, actions being brought by individuals on the government’s behalf under the False Claims Act’s qui tam, or whistleblower, provisions.

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Whistleblower provisions allow private individuals to bring actions on behalf of the government by alleging that the defendant has defrauded the Federal government.

When a defendant is determined by a court of law to have violated the False Claims Act, the defendant may be liable for up to three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 to $11,000 for each separate false claim. There are many potential bases for liability under the False Claims Act. Liability often arises when an entity knowingly submits a false claim for reimbursement to the federal government. The Fraud Enforcement and Recovery Act of 2009 (“FERA”) has expanded the number of actions for which liability may attach under the False Claims Act, eliminating requirements that false claims be presented to federal officials or directly involve federal funds. FERA also clarifies that a false claim violation occurs upon the knowing retention, as well as the receipt, of overpayments. In addition, recent changes to the anti-kickback statute have made violations of that law punishable under the civil False Claims Act. Further, a number of states have adopted their own false claims provisions as well as their own whistleblower provisions whereby a private party may file a civil lawsuit on behalf of the state in state court. Recent changes to the False Claims Act require that federal healthcare program overpayments be returned within 60 days from the date the overpayment was identified, or by the date any corresponding cost report was due, whichever is later. Failure to return an overpayment within this period may result in additional civil False Claims Act liability.

Other Fraud and Abuse Provisions: The Social Security Act also imposes criminal and civil penalties for submitting false claims to Medicare and Medicaid. False claims include, but are not limited to, billing for services not rendered, billing for services without prescribed documentation, misrepresenting actual services rendered in order to obtain higher reimbursement and cost report fraud. Like the anti-kickback statute, these provisions are very broad.

Further, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) broadened the scope of the fraud and abuse laws by adding several criminal provisions for health care fraud offenses that apply to all health benefit programs, whether or not payments under such programs are paid pursuant to federal programs. HIPAA also introduced enforcement mechanisms to prevent fraud and abuse in Medicare. There are civil penalties for prohibited conduct, including, but not limited to billing for medically unnecessary products or services.

HIPAA Administrative Simplification and Privacy Requirements: The administrative simplification provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), require the use of uniform electronic data transmission standards for health care claims and payment transactions submitted or received electronically. These provisions are intended to encourage electronic commerce in the health care industry. HIPAA also established federal rules protecting the privacy and security of personal health information. The privacy and security regulations address the use and disclosure of individual health care information and the rights of patients to understand and control how such information is used and disclosed. Violations of HIPAA can result in both criminal and civil fines and penalties.

We believe that we are in material compliance with the privacy regulations of HIPAA, as we continue to develop training and revise procedures to address ongoing compliance. The HIPAA security regulations require health care providers to implement administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of patient information. HITECH has since strengthened certain HIPAA rules regarding the use and disclosure of protected health information, extended certain HIPAA provisions to business associates, and created new security breach notification requirements. HITECH has also extended the ability to impose civil money penalties on providers not knowing that a HIPAA violation has occurred. We believe that we have been in substantial compliance with HIPAA and HITECH requirements to date. Recent changes to the HIPAA regulations may result in greater compliance requirements for healthcare providers, including expanded obligations to report breaches of unsecured patient data, as well as create new liabilities for the actions of parties acting as business associates on our behalf.

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Red Flags Rule: In addition, the Federal Trade Commission (“FTC”) Red Flags Rule requires financial institutions and businesses maintaining accounts to address the risk of identity theft. The Red Flag Program Clarification Act of 2010, signed on December 18, 2010, appears to exclude certain healthcare providers from the Red Flags Rule, but permits the FTC or relevant agencies to designate additional creditors subject to the Red Flags Rule through future rulemaking if the agencies determine that the person in question maintains accounts subject to foreseeable risk of identity theft. Compliance with any such future rulemaking may require additional expenditures in the future.

Patient Safety and Quality Improvement Act of 2005: On July 29, 2005, the Patient Safety and Quality Improvement Act of 2005 was enacted, which has the goal of reducing medical errors and increasing patient safety. This legislation establishes a confidential reporting structure in which providers can voluntarily report “Patient Safety Work Product” (“PSWP”) to “Patient Safety Organizations” (“PSOs”). Under the system, PSWP is made privileged, confidential and legally protected from disclosure. PSWP does not include medical, discharge or billing records or any other original patient or provider records but does include information gathered specifically in connection with the reporting of medical errors and improving patient safety. This legislation does not preempt state or federal mandatory disclosure laws concerning information that does not constitute PSWP. PSOs are certified by the Secretary of the HHS for three-year periods and analyze PSWP, provide feedback to providers and may report non-identifiable PSWP to a database. In addition, PSOs are expected to generate patient safety improvement strategies.

Environmental Regulations: Our healthcare operations generate medical waste that must be disposed of in compliance with federal, state and local environmental laws, rules and regulations. Infectious waste generators, including hospitals, face substantial penalties for improper disposal of medical waste, including civil penalties of up to $25,000 per day of noncompliance, criminal penalties of up to $50,000 per day, imprisonment, and remedial costs. In addition, our operations, as well as our purchases and sales of facilities are subject to various other environmental laws, rules and regulations. We believe that our disposal of such wastes is in material compliance with all state and federal laws.

Corporate Practice of Medicine: Several states, including Florida, Nevada, California and Texas, have laws and/or regulations that prohibit corporations and other entities from employing physicians and practicing medicine for a profit or that prohibit certain direct and indirect payments or fee-splitting arrangements between health care providers that are designed to induce or encourage the referral of patients to, or the recommendation of, particular providers for medical products and services. Possible sanctions for violation of these restrictions include loss of license and civil and criminal penalties. In addition, agreements between the corporation and the physician may be considered void and unenforceable. These statutes and/or regulations vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies. We do not expect these state corporate practice of medicine proscriptions to significantly affect our operations. Many states have laws and regulations which prohibit payments for referral of patients and fee-splitting with physicians. We do not make any such payments or have any such arrangements.

EMTALA: All of our hospitals are subject to the Emergency Medical Treatment and Active Labor Act (“EMTALA”). This federal law generally requires hospitals that are certified providers under Medicare to conduct a medical screening examination of every person who visits the hospital’s emergency room for treatment and, if the patient is suffering from a medical emergency, to either stabilize the patient’s condition or transfer the patient to a facility that can better handle the condition. Our obligation to screen and stabilize emergency medical conditions exists regardless of a patient’s ability to pay for treatment. There are severe penalties under EMTALA if a hospital fails to screen or appropriately stabilize or transfer a patient or if the hospital delays appropriate treatment in order to first inquire about the patient’s ability to pay. Penalties for violations of EMTALA include civil monetary penalties and exclusion from participation in the Medicare program. In addition to any liabilities that a hospital may incur under EMTALA, an injured patient, the patient’s family or a medical facility that suffers a financial loss as a direct result of another hospital’s violation of the law can bring a civil suit against the hospital unrelated to the rights granted under that statute.

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The federal government broadly interprets EMTALA to cover situations in which patients do not actually present to a hospital’s emergency room, but present for emergency examination or treatment to the hospital’s campus, generally, or to a hospital-based clinic that treats emergency medical conditions or are transported in a hospital-owned ambulance, subject to certain exceptions. EMTALA does not generally apply to patients admitted for inpatient services; however, CMS has recently sought industry comments on the potential applicability of EMTALA to hospital inpatients and the responsibilities of hospitals with specialized capabilities, respectively. CMS has not yet issued regulations or guidance in response to that request for comments. The government also has expressed its intent to investigate and enforce EMTALA violations actively in the future. We believe that we operate in substantial compliance with EMTALA.

Health Care Industry Investigations: We are subject to claims and suits in the ordinary course of business, including those arising from care and treatment afforded by our hospitals and are party to various government investigations and litigation. Please see Item 3. Legal Proceedings included herein for additional disclosure. In addition, currently, and from time to time, some of our facilities are subjected to inquiries and/or actions and receive notices of potential non-compliance of laws and regulations from various federal and state agencies. Providers that are found to have violated these laws and regulations may be excluded from participating in government healthcare programs, subjected to potential licensure, certification, and/or accreditation revocation, subjected to fines or penalties or required to repay amounts received from the government for previously billed patient services.

We monitor all aspects of our business and have developed a comprehensive ethics and compliance program that is designed to meet or exceed applicable federal guidelines and industry standards. Because the law in this area is complex and constantly evolving, governmental investigation or litigation may result in interpretations that are inconsistent with industry practices, including ours. Although we believe our policies, procedures and practices comply with governmental regulations, no assurance can be given that we will not be subjected to inquiries or actions, or that we will not be faced with sanctions, fines or penalties in connection with the investigations. Even if we were to ultimately prevail, the government’s inquiry and/or action in connection with these matters could have a material adverse effect on our future operating results.

Our substantial Medicare, Medicaid and other governmental billings may result in heightened scrutiny of our operations. It is possible that governmental entities could initiate additional investigations or litigation in the future and that such matters could result in significant penalties as well as adverse publicity. It is also possible that our executives and/or managers could be included as targets or witnesses in governmental investigations or litigation and/or named as defendants in private litigation.

Revenue Rulings 98-15 and 2004-51: In March 1998 and May 2004, the IRS issued guidance regarding the tax consequences of joint ventures between for-profit and not-for-profit hospitals. As a result of the tax rulings, the IRS has proposed, and may in the future propose, to revoke the tax-exempt or public charity status of certain not-for-profit entities which participate in such joint ventures or to treat joint venture income as unrelated business taxable income to them. The tax rulings have limited development of joint ventures and any adverse determination by the IRS or the courts regarding the tax-exempt or public charity status of a not-for-profit partner or the characterization of joint venture income as unrelated business taxable income could further limit joint venture development with not-for-profit hospitals, and/or require the restructuring of certain existing joint ventures with not-for-profits.

State Rate Review: Some states where we operate hospitals have adopted legislation mandating rate or budget review for hospitals or have adopted taxes on hospital revenues, assessments or licensure fees to fund indigent health care within the state. In the aggregate, state rate reviews and indigent tax provisions have not materially, adversely affected our results of operations.

Medical Malpractice Tort Law Reform: Medical malpractice tort law has historically been maintained at the state level. All states have laws governing medical liability lawsuits. Over half of the states have limits on

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damages awards. Almost all states have eliminated joint and several liability in malpractice lawsuits, and many states have established limits on attorney fees. Many states had bills introduced in their legislative sessions to address medical malpractice tort reform. Proposed solutions include enacting limits on non-economic damages, malpractice insurance reform, and gathering lawsuit claims data from malpractice insurance companies and the courts for the purpose of assessing the connection between malpractice settlements and premium rates. Reform legislation has also been proposed, but not adopted, at the federal level that could preempt additional state legislation in this area.

Compliance Program: Our company-wide compliance program has been in place since 1998. Currently, the program’s elements include a Code of Conduct, risk area specific policies and procedures, employee education and training, an internal system for reporting concerns, auditing and monitoring programs, and a means for enforcing the program’s policies.

Since its initial adoption, the compliance program continues to be expanded and developed to meet the industry’s expectations and our needs. Specific written policies, procedures, training and educational materials and programs, as well as auditing and monitoring activities have been prepared and implemented to address the functional and operational aspects of our business. Specific areas identified through regulatory interpretation and enforcement activities have also been addressed in our program. Claims preparation and submission, including coding, billing, and cost reports, comprise the bulk of these areas. Financial arrangements with physicians and other referral sources, including compliance with anti-kickback and Stark laws and emergency department treatment and transfer requirements are also the focus of policy and training, standardized documentation requirements, and review and audit.

Medical Staff and Employees

Our facilities had approximately 66,100 employees on December 31, 2013, of whom approximately 47,000 were employed full-time. Our hospitals are staffed by licensed physicians who have been admitted to the medical staff of individual hospitals. In a number of our markets, physicians may have admitting privileges at other hospitals in addition to ours. Within our acute care division, approximately 140 physicians are employed by physician practice management subsidiaries of ours either directly or through contracts with affiliated group practices structured as 501A corporations. Members of the medical staffs of our hospitals also serve on the medical staffs of hospitals not owned by us and may terminate their affiliation with our hospitals at any time. In addition, within our behavioral health division, approximately 380 psychiatrists are employed by subsidiaries of ours either directly or through contracts with affiliated group practices structured as 501A corporations. Each of our hospitals is managed on a day-to-day basis by a managing director employed by a subsidiary of ours. In addition, a Board of Governors, including members of the hospital’s medical staff, governs the medical, professional and ethical practices at each hospital. We believe that our relations with our employees are satisfactory.

Approximately 1,600 of our employees at five of our hospitals are unionized. At Valley Hospital Medical Center, unionized employees belong to the Culinary Workers and Bartenders Union, the International Union of Operating Engineers and the Service Employees International Union (“SEIU”). Nurses and technicians at Desert Springs Hospital are represented by the SEIU and International Union of Operating Engineers. At The George Washington University Hospital, unionized employees are represented by the SEIU or the Hospital Police Association. Registered Nurses, Licensed Practical Nurses, certain technicians and therapists, pharmacy assistants, and some clerical employees at HRI Hospital in Boston are represented by the SEIU. At Brooke Glen Behavioral Hospital, unionized employees are represented by the Teamsters and the Northwestern Nurses Association/Pennsylvania Association of Staff Nurses and Allied Professionals. A union representation election was held at Corona Regional Medical Center (“Corona”) in January of 2013 for the nursing staff. A majority of those who cast ballots voted to be represented by the United Nurses Associations of California/Union of Health Care Professionals (UNAC/UHCP). Corona timely filed objections to the election and an appeal. The results have not yet been certified. The National Labor Relations Board is currently reviewing the appeal.

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Competition

The health care industry is highly competitive. In recent years, competition among healthcare providers for patients has intensified in the United States due to, among other things, regulatory and technological changes, increasing use of managed care payment systems, cost containment pressures and a shift toward outpatient treatment. In all of the geographical areas in which we operate, there are other hospitals that provide services comparable to those offered by our hospitals. In addition, some of our competitors include hospitals that are owned by tax-supported governmental agencies or by nonprofit corporations and may be supported by endowments and charitable contributions and exempt from property, sale and income taxes. Such exemptions and support are not available to us.

In some markets, certain of our competitors may have greater financial resources, be better equipped and offer a broader range of services than us. Certain hospitals that are located in the areas served by our facilities are specialty or large hospitals that provide medical, surgical and behavioral health services, facilities and equipment that are not available at our hospitals. The increase in outpatient treatment and diagnostic facilities, outpatient surgical centers and freestanding ambulatory surgical also increases competition for us.

The number and quality of the physicians on a hospital’s staff are important factors in determining a hospital’s success and competitive advantage. Typically, physicians are responsible for making hospital admissions decisions and for directing the course of patient treatment. We believe that physicians refer patients to a hospital primarily on the basis of the patient’s needs, the quality of other physicians on the medical staff, the location of the hospital and the breadth and scope of services offered at the hospital’s facilities. We strive to retain and attract qualified doctors by maintaining high ethical and professional standards and providing adequate support personnel, technologically advanced equipment and facilities that meet the needs of those physicians.

In addition, we depend on the efforts, abilities, and experience of our medical support personnel, including our nurses, pharmacists and lab technicians and other health care professionals. We compete with other health care providers in recruiting and retaining qualified hospital management, nurses and other medical personnel. Our acute care and behavioral health care facilities are experiencing the effects of a shortage of skilled nursing staff nationwide, which has caused and may continue to cause an increase in salaries, wages and benefits expense in excess of the inflation rate. In addition, in some markets like California, there are requirements to maintain specified nurse-staffing levels. To the extent we cannot meet those levels, we may by required to limit the healthcare services provided in these markets which would have a corresponding adverse effect on our net operating revenues.

Many states in which we operate hospitals have CON laws. The application process for approval of additional covered services, new facilities, changes in operations and capital expenditures is, therefore, highly competitive in these states. In those states that do not have CON laws or which set relatively high levels of expenditures before they become reviewable by state authorities, competition in the form of new services, facilities and capital spending is more prevalent. See “Regulation and Other Factors.”

Our ability to negotiate favorable service contracts with purchasers of group health care services also affects our competitive position and significantly affects the revenues and operating results of our hospitals. Managed care plans attempt to direct and control the use of hospital services and to demand that we accept lower rates of payment. In addition, employers and traditional health insurers are increasingly interested in containing costs through negotiations with hospitals for managed care programs and discounts from established charges. In return, hospitals secure commitments for a larger number of potential patients. Generally, hospitals compete for service contracts with group health care service purchasers on the basis of price, market reputation, geographic location, quality and range of services, quality of the medical staff and convenience. The importance of obtaining contracts with managed care organizations varies from market to market depending on the market strength of such organizations.

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A key element of our growth strategy is expansion through the acquisition of additional hospitals in select markets. The competition to acquire hospitals is significant. We face competition for acquisition candidates primarily from other for-profit health care companies, as well as from not-for-profit entities. Some of our competitors have greater resources than we do. We intend to selectively seek opportunities to expand our base of operations by adhering to our disciplined program of rational growth, but may not be successful in accomplishing acquisitions on favorable terms.

Relationship with Universal Health Realty Income Trust:

At December 31, 2013, we held approximately 6.1% of the outstanding shares of Universal Health Realty Income Trust (the “Trust”). We serve as Advisor to the Trust under an annually renewable advisory agreement pursuant to the terms of which we conduct the Trust’s day-to-day affairs, provide administrative services and present investment opportunities. In addition, certain of our officers and directors are also officers and/or directors of the Trust. Management believes that it has the ability to exercise significant influence over the Trust, therefore we account for our investment in the Trust using the equity method of accounting. We earned an advisory fee from the Trust, which is included in net revenues in the accompanying consolidated statements of income, of approximately $2.4 million during 2013, $2.1 million during 2012 and $2.0 million during 2011.

Our pre-tax share of income from the Trust was $842,000 during 2013, $1.2 million during 2012 and $4.6 million during 2011, and is included in net revenues in the accompanying consolidated statements of income for each year. Included in our share of the Trust’s income for 2012 and 2011 was approximately $500,000 in 2012 and $3.7 million in 2011 related to our share of the net favorable impact realized by the Trust in connection with: (i) gains on the sale of medical office buildings (in 2012 and 2011), and; (ii) gain on fair value recognition resulting from the Trust’s purchase of minority ownership interests in majority owned limited liability companies partially offset by a provision for asset impairment (in 2011).

The carrying value of our investment in the Trust was $8.1 million and $9.3 million at December 31, 2013 and 2012, respectively, and is included in other assets in the accompanying consolidated balance sheets. The market value of our investment in the Trust was $31.5 million at December 31, 2013 and $39.9 million at December 31, 2012, based on the closing price of the Trust’s stock on the respective dates.

Total rent expense under the operating leases on the four hospital facilities with the Trust (as discussed below) was $16.4 million during 2013 and $16.3 million during each of 2012 and 2011. In addition, certain of our subsidiaries are tenants in several medical office buildings owned by limited liability companies in which the Trust holds either 100% of the ownership interest or various noncontrolling, majority ownership interests.

The Trust commenced operations in 1986 by purchasing certain properties from us and immediately leasing the properties back to our respective subsidiaries. Most of the leases were entered into at the time the Trust commenced operations and provided for initial terms of 13 to 15 years with up to six additional 5-year renewal terms. Each lease also provided for additional or bonus rental, as discussed below. The base rents are paid monthly and the bonus rents are computed and paid on a quarterly basis, based upon a computation that compares current quarter revenue to a corresponding quarter in the base year. The leases with our subsidiaries are unconditionally guaranteed by us and are cross-defaulted with one another.

Pursuant to the terms of the leases with the Trust, we have the option to renew the leases at the lease terms described above by providing notice to the Trust at least 90 days prior to the termination of the then current term. In addition, we have rights of first refusal to: (i) purchase the respective leased facilities during and for 180 days after the lease terms at the same price, terms and conditions of any third-party offer, or; (ii) renew the lease on the respective leased facility at the end of, and for 180 days after, the lease term at the same terms and conditions pursuant to any third-party offer. We also have the right to purchase the respective leased facilities at the end of the lease terms or any renewal terms at their appraised fair market value as well as purchase any or all of the four leased hospital properties at their appraised fair market value upon one month’s notice should a change of control of the Trust occur.

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The table below details the remaining renewal options and terms for each of our four hospital facilities leased from the Trust:

Hospital Name	Type of Facility	Annual Minimum Rent		End of Lease Term		Renewal Term (years)
McAllen Medical Center	Acute Care	$	5,485,000		December, 2016		15	(a)
Wellington Regional Medical Center	Acute Care	$	3,030,000		December, 2016		15	(b)
Southwest Healthcare System, Inland Valley Campus	Acute Care	$	2,648,000		December, 2016		15	(b)
The Bridgeway	Behavioral Health	$	930,000		December, 2014		10	(c)

(a) We have three 5-year renewal options at existing lease rates (through 2031).

(b) We have one 5-year renewal options at existing lease rates (through 2021) and two 5-year renewal options at fair market value lease rates (2022 through 2031).

(c) We have two 5-year renewal options at fair market value lease rates (2015 through 2024).

Executive Officers of the Registrant

The executive officers, whose terms will expire at such time as their successors are elected, are as follows:

Name and Age	Present Position with the Company
Alan B. Miller (76)	Chairman of the Board and Chief Executive Officer
Marc D. Miller (43)	President and Director
Steve G. Filton (56)	Senior Vice President, Chief Financial Officer and Secretary
Debra K. Osteen (58)	Senior Vice President, President of Behavioral Health Care Division
Marvin G. Pember (60)	Senior Vice President, President of Acute Care Division

Mr. Alan B. Miller has been Chairman of the Board and Chief Executive Officer since inception and also served as President from inception until May, 2009. Prior thereto, he was President, Chairman of the Board and Chief Executive Officer of American Medicorp, Inc. He currently serves as Chairman of the Board, Chief Executive Officer and President of Universal Health Realty Income Trust. He is the father of Marc D. Miller, President and Director.

Mr. Marc D. Miller was elected President in May, 2009 and prior thereto served as Senior Vice President and co-head of our Acute Care Hospitals since 2007. He was elected a Director in May, 2006 and Vice President in 2005. He has served in various capacities related to our acute care division since 2000. He was elected to the Board of Trustees of Universal Health Realty Income Trust in December, 2008. He is the son of Alan B. Miller, our Chairman of the Board and Chief Executive Officer.

Mr. Filton was elected Senior Vice President and Chief Financial Officer in 2003 and he was elected Secretary in 1999. He had served as Vice President and Controller since 1991 and Director of Corporate Accounting since 1985.

Ms. Osteen was elected Senior Vice President in 2005 and serves as President of our Behavioral Health Care Division. She was elected Vice President in 2000 and has served in various capacities related to our Behavioral Health Care facilities since 1984.

Mr. Pember commenced employment with us in August, 2011 and serves as President of our Acute Care Division. He was formerly employed for 12 years at Indiana University Health, Inc. (formerly known as Clarian Health Partners, Inc.), a nonprofit hospital system that operates multiple facilities in Indiana, where he served as Executive Vice President and Chief Financial Officer.

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ITEM 1A. Risk Factors

We are subject to numerous known and unknown risks, many of which are described below and elsewhere in this Annual Report. Any of the events described below could have a material adverse effect on our business, financial condition and results of operations. Additional risks and uncertainties that we are not aware of, or that we currently deem to be immaterial, could also impact our business and results of operations.

A significant portion of our revenue is produced by facilities located in Nevada, Texas and California.

Nevada: We own 6 acute care hospitals and 4 behavioral healthcare facilities as listed in Item 2. Properties (we owned two additional behavioral health facilities which were acquired by us from PSI in November, 2010 before the facilities were divested during the third and fourth quarters of 2011 pursuant to our agreement with the Federal Trade Commission, as discussed herein). On a combined basis, these facilities contributed 16% during each of 2013 and 2012 and 17% in 2011 of our consolidated net revenues. On a combined basis, after deducting an allocation for corporate overhead expense, these facilities generated 6% in 2013, 8% in 2012, and 11% in 2011 of our income from operations after net income attributable to noncontrolling interest.

Texas: We own 7 acute care hospitals and 22 behavioral healthcare facilities as listed in Item 2. Properties. On a combined basis, these facilities contributed 18% of our consolidated net revenues during each of 2013, 2012 and 2011. On a combined basis, after deducting an allocation for corporate overhead expense, these facilities generated 15% in 2013, 12% in 2012, and 14% in 2011 of our income from operations after net income attributable to noncontrolling interest.

California: We own 5 acute care hospitals and 6 behavioral healthcare facilities as listed in Item 2. Properties. On a combined basis, these facilities contributed 9% in 2013 and 10% of our consolidated net revenues during each of 2012 and 2011. On a combined basis, after deducting an allocation for corporate overhead expense, these facilities generated 4% in 2013, 6% in 2012, and 5% in 2011 of our income from operations after net income attributable to noncontrolling interest.

The significant portion of our revenues and earnings derived from these facilities makes us particularly sensitive to legislative, regulatory, economic, environmental and competition changes in Nevada, Texas and California. Any material change in the current payment programs or regulatory, economic, environmental or competitive conditions in these states could have a disproportionate effect on our overall business results.

Our revenues and results of operations are significantly affected by payments received from the government and other third party payors.

We derive a significant portion of our revenue from third-party payors, including the Medicare and Medicaid programs. Changes in these government programs in recent years have resulted in limitations on reimbursement and, in some cases, reduced levels of reimbursement for healthcare services. Payments from federal and state government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease program payments, as well as affect the cost of providing service to patients and the timing of payments to facilities. We are unable to predict the effect of recent and future policy changes on our operations. In addition, the uncertainty and fiscal pressures placed upon federal and state governments as a result of, among other things, the substantial deterioration in general economic conditions and the funding requirements from the federal healthcare reform legislation, may affect the availability of taxpayer funds for Medicare and Medicaid programs. If the rates paid or the scope of services covered by government payors are reduced, there could be a material adverse effect on our business, financial position and results of operations.

We receive Medicaid revenues in excess of $90 million annually from each of Texas, Pennsylvania, Washington, D.C., Illinois, Virginia and Massachusetts, making us particularly sensitive to reductions in

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Medicaid and other state based revenue programs (which have been implemented in various forms with respect to our areas of operation in the respective 2013 state fiscal years) as well as regulatory, economic, environmental and competitive changes in those states. Based upon the state budgets for the 2013 fiscal year (which generally began at various times during the second half of 2012), we estimate that, on a blended basis, our aggregate Medicaid rates were reduced by approximately 1% (or approximately $15 million annually) from the average rates in effect during the states’ 2012 fiscal years (which generally ended during the third quarter of 2012). Based upon the state budgets for the 2014 fiscal year (which will generally began at various times during the second half of 2013), we estimate that, on a blended basis, our aggregate Medicaid rates will remain relatively unchanged from the 2013 fiscal year rates.

In addition to changes in government reimbursement programs, our ability to negotiate favorable contracts with private payors, including managed care providers, significantly affects the revenues and operating results of our hospitals. Private payors, including managed care providers, increasingly are demanding that we accept lower rates of payment.

We expect continued third-party efforts to aggressively manage reimbursement levels and cost controls. Reductions in reimbursement amounts received from third-party payors could have a material adverse effect on our financial position and our results of operations.

A worsening of the economic and employment conditions in the United States could materially affect our business and future results of operations.

Our patient volumes, revenues and financial results depend significantly on the universe of patients with health insurance, which to a large extent is dependent on the employment status of individuals in our markets. A continuation or worsening of economic conditions may result in a continued high unemployment rate which will likely increase the number of individuals without health insurance. As a result, our facilities may experience a decrease in patient volumes, particularly in less intense, more elective service lines, or a significant increase in services provided to uninsured patients. These factors could have a material unfavorable impact on our future patient volumes, revenues and operating results.

Our patient revenues and payor mix during the last few years were adversely affected by economic conditions, particularly in certain markets, such as Nevada, Texas and California, where a significant portion of our revenues are concentrated and unemployment rates remain high. In our acute care business, we experienced net revenue pressures caused primarily by declining commercial payor utilization and an increase in the number of uninsured and underinsured patients treated at our facilities. We can provide no assurance that these trends will not continue. During 2013, our revenues and payor mix within our acute care operations have been volatile making it difficult to predict the results for 2014 or thereafter.

In addition, we recorded approximately $2.37 billion of aggregate goodwill as a result of our acquisition of PSI in November, 2010 and Ascend in October, 2012, and, as of December 31, 2013, we had approximately $3.05 billion of goodwill recorded on our consolidated balance sheet. Should the revenues and financial results of our acute care and/or behavioral health care facilities be materially, unfavorably impacted due to, among other things, a worsening of the economic and employment conditions in the United States that could negatively impact our patient volumes and reimbursement rates, a continued rise in the unemployment rate and continued increases in the number of uninsured patients treated at our facilities, we may incur future charges to recognize impairment in the carrying value of our goodwill and other intangible assets, which could have a material adverse effect on our financial results.

Reductions or changes in Medicare funding could have a material adverse effect on our future results of operations.

On January 3, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (the “2012 Act”). The 2012 Act postponed for two months sequestration cuts mandated under the Budget Control Act of

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2011. The postponed sequestration cuts include a 2% annual reduction over ten years in Medicare spending to providers. Medicaid is exempt from sequestration. The 2012 Act provides a one-year fix to statutory reductions in physician reimbursement and extends other Medicare provisions. In order to offset the cost of these extensions, the 2012 Act reduces payments to other providers totaling almost $26 billion over ten years. Approximately half of those funds will come from reductions in Medicare reimbursement to hospitals. Although the Bipartisan Budget Act of 2013 has reduced certain sequestration-related budgetary cuts, spending reductions related to the Medicare program remain in place. On December 26, 2013, President Obama signed into law H.J. Res. 59, the Bipartisan Budget Act of 2013, which includes the Pathway for SGR Reform Act of 2013 (“the Act”). In addition, on February 15, 2014, Public Law 113-082 was enacted. The Act and subsequent federal legislation achieves new savings by extending sequestration for mandatory programs – including Medicare – for another three years, through 2024. Please see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Sources of Revenue-Medicare, for additional disclosure.

The 2012 Act includes a document and coding (“DCI”) adjustment and a reduction in Medicaid disproportionate share hospital (“DSH”) payments. Expected to save $10.5 billion over 10 years, the DCI adjustment decreases projected Medicare hospital payments for inpatient and overnight care through a downward adjustment in annual base payment increases. These reductions are meant to recoup what Medicare authorities consider to be “overpayments” to hospitals that occurred as a result of the transition to Medicare Severity Diagnosis Related Groups. The reduction in Medicaid DSH payments is expected to save $4.2 billion over 10 years. This provision extends the changes regarding DSH payments established by the Legislation and determines future allotments off of the rebased level.

We are subject to uncertainties regarding health care reform.

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the “PPACA”). The Healthcare and Education Reconciliation Act of 2010 (the “Reconciliation Act”), which contains a number of amendments to the PPACA, was signed into law on March 30, 2010. Two primary goals of the PPACA, combined with the Reconciliation Act (collectively referred to as the “Legislation”), are to provide for increased access to coverage for healthcare and to reduce healthcare-related expenses.

Although it is expected that as a result of the Legislation there may be a reduction in uninsured patients, which should reduce our expense from uncollectible accounts receivable, the Legislation makes a number of other changes to Medicare and Medicaid which we believe may have an adverse impact on us. It has been projected that the Legislation will result in a net reduction in Medicare and Medicaid payments to hospitals totaling $155 billion over 10 years. The Legislation revises reimbursement under the Medicare and Medicaid programs to emphasize the efficient delivery of high quality care and contains a number of incentives and penalties under these programs to achieve these goals. The Legislation provides for decreases in the annual market basket update for federal fiscal years 2010 through 2019, a productivity offset to the market basket update beginning October 1, 2011 for Medicare Part B reimbursable items and services and beginning October 1, 2012 for Medicare inpatient hospital services. The Legislation and subsequent revisions provide for reductions to both Medicare DSH and Medicaid DSH payments. The Medicare DSH reductions began in October, 2013 with no material adverse impact to the reimbursements we receive expected until 2015 while Medicaid DSH reimbursements would not be adversely impacted until 2016. The Legislation implements a value-based purchasing program, which will reward the delivery of efficient care. Conversely, certain facilities will receive reduced reimbursement for failing to meet quality parameters; such hospitals will include those with excessive readmission or hospital-acquired condition rates.

A 2012 U.S. Supreme Court ruling limited the federal government’s ability to expand health insurance coverage by holding unconstitutional sections of the Legislation that sought to withdraw federal funding for state noncompliance with certain Medicaid coverage requirements. Pursuant to that decision, the federal government may not penalize states that choose not to participate in the Medicaid expansion program by reducing their existing Medicaid funding. Therefore, states can choose to accept or not to participate without risking the loss of

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federal Medicaid funding. As a result, many states, including Texas, have not expanded their Medicaid programs without the threat of loss of federal funding.

The various provisions in the Legislation that directly or indirectly affect Medicare and Medicaid reimbursement are scheduled to take effect over a number of years. The impact of the Legislation on healthcare providers will be subject to implementing regulations, interpretive guidance and possible future legislation. Certain Legislation provisions, such as those creating the Medicare Shared Savings Program and the Independent Payment Advisory Board, create uncertainty in how healthcare may be reimbursed by federal programs in the future. Thus, we cannot predict the impact of the Legislation on our future reimbursement at this time and we can provide no assurance that the Legislation will not have a material adverse effect on our future results of operations.

The Legislation also contained provisions aimed at reducing fraud and abuse in healthcare. The Legislation amends several existing laws, including the federal Anti-Kickback Statute and the False Claims Act, making it easier for government agencies and private plaintiffs to prevail in lawsuits brought against healthcare providers. While Congress had previously revised the intent requirement of the Anti-Kickback Statute to provide that a person is not required to “have actual knowledge or specific intent to commit a violation of” the Anti-Kickback Statute in order to be found in violation of such law, the Legislation also provides that any claims for items or services that violate the Anti-Kickback Statute are also considered false claims for purposes of the federal civil False Claims Act. The Legislation provides that a healthcare provider that retains an overpayment in excess of 60 days is subject to the federal civil False Claims Act, although final regulations implementing this statutory requirement remain pending. The Legislation also expands the Recovery Audit Contractor program to Medicaid. These amendments also make it easier for severe fines and penalties to be imposed on healthcare providers that violate applicable laws and regulations.

We have partnered with local physicians in the ownership of certain of our facilities. These investments have been permitted under an exception to the physician self-referral law. The Legislation permits existing physician investments in a hospital to continue under a “grandfather” clause if the arrangement satisfies certain requirements and restrictions, but physicians are prohibited from increasing the aggregate percentage of their ownership in the hospital. The Legislation also imposes certain compliance and disclosure requirements upon existing physician-owned hospitals and restricts the ability of physician-owned hospitals to expand the capacity of their facilities.

The impact of the Legislation on each of our hospitals may vary. Because Legislation provisions are effective at various times over the next several years, we anticipate that many of the provisions in the Legislation may be subject to further revision. We cannot predict the impact the Legislation may have on our business, results of operations, cash flow, capital resources and liquidity, or whether we will be able to successfully adapt to the changes required by the Legislation.

We are required to treat patients with emergency medical conditions regardless of ability to pay.

In accordance with our internal policies and procedures, as well as the Emergency Medical Treatment and Active Labor Act, or EMTALA, we provide a medical screening examination to any individual who comes to one of our hospitals while in active labor and/or seeking medical treatment (whether or not such individual is eligible for insurance benefits and regardless of ability to pay) to determine if such individual has an emergency medical condition. If it is determined that such person has an emergency medical condition, we provide such further medical examination and treatment as is required to stabilize the patient’s medical condition, within the facility’s capability, or arrange for transfer of such individual to another medical facility in accordance with applicable law and the treating hospital’s written procedures. Our obligations under EMTALA may increase substantially going forward; CMS has sought stakeholder comments concerning the potential applicability of EMTALA to hospital inpatients and the responsibilities of hospitals with specialized capabilities, respectively, but has yet to issue further guidance in response to that request. If the number of indigent and charity care

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patients with emergency medical conditions we treat increases significantly, or if regulations expanding our obligations to inpatients under EMTALA is proposed and adopted, our results of operations will be harmed.

If we are not able to provide high quality medical care at a reasonable price, patients may choose to receive their health care from our competitors.

In recent years, the number of quality measures that hospitals are required to report publicly has increased. CMS publishes performance data related to quality measures and data on patient satisfaction surveys that hospitals submit in connection with the Medicare program. Federal law provides for the future expansion of the number of quality measures that must be reported. Additionally, the Legislation requires all hospitals to annually establish, update and make public a list of their standard charges for products and services. If any of our hospitals achieve poor results on the quality measures or patient satisfaction surveys (or results that are lower than our competitors) or if our standard charges are higher than our competitors, our patient volume could decline because patients may elect to use competing hospitals or other health care providers that have better metrics and pricing. This circumstance could harm our business and results of operations.

An increase in uninsured and underinsured patients in our acute care facilities or the deterioration in the collectability of the accounts of such patients could harm our results of operations.

Collection of receivables from third-party payors and patients is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and the portion of the bill that is the patient’s responsibility, which primarily includes co-payments and deductibles. However, we also have substantial receivables due to us as of December 31, 2013 (a significant portion of which is past due) from certain state-based funding programs, most particularly Illinois and Texas as discussed herein. We estimate our provisions for doubtful accounts based on general factors such as payor mix, the agings of the receivables, historical collection experience and assessment of probability of future collections. We routinely review accounts receivable balances in conjunction with these factors and other economic conditions that might ultimately affect the collectability of the patient accounts and make adjustments to our allowances as warranted. Significant changes in business office operations, payor mix, economic conditions or trends in federal and state governmental health coverage could affect our collection of accounts receivable, cash flow and results of operations. If we experience unexpected increases in the growth of uninsured and underinsured patients or in bad debt expenses, our results of operations will be harmed.

Our hospitals face competition for patients from other hospitals and health care providers.

The healthcare industry is highly competitive, and competition among hospitals, and other healthcare providers for patients and physicians has intensified in recent years. In all of the geographical areas in which we operate, there are other hospitals that provide services comparable to those offered by our hospitals. Some of our competitors include hospitals that are owned by tax-supported governmental agencies or by nonprofit corporations and may be supported by endowments and charitable contributions and exempt from property, sales and income taxes. Such exemptions and support are not available to us.

In some markets, certain of our competitors may have greater financial resources, be better equipped and offer a broader range of services than we. The number of inpatient facilities, as well as outpatient surgical and diagnostic centers, many of which are fully or partially owned by physicians, in the geographic areas in which we operate has increased significantly. As a result, most of our hospitals operate in an increasingly competitive environment.

If our competitors are better able to attract patients, recruit physicians and other healthcare professionals, expand services or obtain favorable managed care contracts at their facilities, we may experience a decline in patient volume and our business may be harmed.

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Our performance depends on our ability to recruit and retain quality physicians.

Typically, physicians are responsible for making hospital admissions decisions and for directing the course of patient treatment. As a result, the success and competitive advantage of our hospitals depends, in part, on the number and quality of the physicians on the medical staffs of our hospitals, the admitting practices of those physicians and our maintenance of good relations with those physicians. Physicians generally are not employees of our hospitals, and, in a number of our markets, physicians have admitting privileges at other hospitals in addition to our hospitals. They may terminate their affiliation with us at any time. If we are unable to provide high ethical and professional standards, adequate support personnel and technologically advanced equipment and facilities that meet the needs of those physicians, they may be discouraged from referring patients to our facilities and our results of operations may decline.

It may become difficult for us to attract and retain an adequate number of physicians to practice in certain of the non-urban communities in which our hospitals are located. Our failure to recruit physicians to these communities or the loss of physicians in these communities could make it more difficult to attract patients to our hospitals and thereby may have a material adverse effect on our business, financial condition and results of operations.

Generally, the top ten attending physicians within each of our facilities represent a large share of our inpatient revenues and admissions. The loss of one or more of these physicians, even if temporary, could cause a material reduction in our revenues, which could take significant time to replace given the difficulty and cost associated with recruiting and retaining physicians.

If we do not continually enhance our hospitals with the most recent technological advances in diagnostic and surgical equipment, our ability to maintain and expand our markets will be adversely affected.

The technology used in medical equipment and related devices is constantly evolving and, as a result, manufacturers and distributors continue to offer new and upgraded products to health care providers. To compete effectively, we must continually assess our equipment needs and upgrade when significant technological advances occur. If our facilities do not stay current with technological advances in the health care industry, patients may seek treatment from other providers and/or physicians may refer their patients to alternate sources, which could adversely affect our results of operations and harm our business.

If we fail to effectively and timely implement electronic health record systems, our operations could be harmed.

As required by HITECH, we are in the process of developing and implementing an incentive payment program for eligible hospitals and health care professionals that adopt and meaningfully use certified electronic health record technology. If our facilities or physicians are unable to meet the requirements for participation in the incentive payment program, we will not be eligible to receive incentive payments that could offset some of the costs of implementing an electronic health record system. Further, beginning in federal fiscal year 2015, eligible hospitals and professionals that fail to demonstrate meaningful use of certified electronic health record technology will be subject to reduced payments from Medicare. Any failure by us to effectively implement an electronic health record system in a timely manner could have an adverse effect on our results of operations.

Our performance depends on our ability to attract and retain qualified nurses and medical support staff and we face competition for staffing that may increase our labor costs and harm our results of operations.

We depend on the efforts, abilities, and experience of our medical support personnel, including our nurses, pharmacists and lab technicians and other healthcare professionals. We compete with other healthcare providers in recruiting and retaining qualified hospital management, nurses and other medical personnel.

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The nationwide shortage of nurses and other medical support personnel has been a significant operating issue facing us and other healthcare providers. This shortage may require us to enhance wages and benefits to recruit and retain nurses and other medical support personnel or require us to hire expensive temporary personnel. In addition, in some markets like California, there are requirements to maintain specified nurse-staffing levels. To the extent we cannot meet those levels, we may be required to limit the healthcare services provided in these markets, which would have a corresponding adverse effect on our net operating revenues.

We cannot predict the degree to which we will be affected by the future availability or cost of attracting and retaining talented medical support staff. If our general labor and related expenses increase, we may not be able to raise our rates correspondingly. Our failure to either recruit and retain qualified hospital management, nurses and other medical support personnel or control our labor costs could harm our results of operations.

Increased labor union activity is another factor that could adversely affect our labor costs. Union organizing activities and certain potential changes in federal labor laws and regulations could increase the likelihood of employee unionization in the future, to the extent a greater portion of our employee base unionized, it is possible our labor costs could increase materially.

If we fail to comply with extensive laws and government regulations, we could suffer civil or criminal penalties or be required to make significant changes to our operations that could reduce our revenue and profitability.

The healthcare industry is required to comply with extensive and complex laws and regulations at the federal, state and local government levels relating to, among other things: hospital billing practices and prices for services; relationships with physicians and other referral sources; adequacy of medical care and quality of medical equipment and services; ownership of facilities; qualifications of medical and support personnel; confidentiality, maintenance, privacy and security issues associated with health-related information and patient medical records; the screening, stabilization and transfer of patients who have emergency medical conditions; certification, licensure and accreditation of our facilities; operating policies and procedures, and; construction or expansion of facilities and services.

Among these laws are the federal False Claims Act, the Health Insurance Portability and Accountability Act of 1996, (“HIPAA”), the federal anti-kickback statute and the provision of the Social Security Act commonly known as the “Stark Law.” These laws, and particularly the anti-kickback statute and the Stark Law, impact the relationships that we may have with physicians and other referral sources. We have a variety of financial relationships with physicians who refer patients to our facilities, including employment contracts, leases and professional service agreements. We also provide financial incentives, including minimum revenue guarantees, to recruit physicians into communities served by our hospitals. The Office of the Inspector General of the Department of Health and Human Services, or OIG, has enacted safe harbor regulations that outline practices that are deemed protected from prosecution under the anti-kickback statute. A number of our current arrangements, including financial relationships with physicians and other referral sources, may not qualify for safe harbor protection under the anti-kickback statute. Failure to meet a safe harbor does not mean that the arrangement necessarily violates the anti-kickback statute, but may subject the arrangement to greater scrutiny. We cannot assure that practices that are outside of a safe harbor will not be found to violate the anti-kickback statute. CMS recently published a Medicare self-referral disclosure protocol, which is intended to allow providers to self-disclose actual or potential violations of the Stark law. Because there are only a few judicial decisions interpreting the Stark law, there can be no assurance that our hospitals will not be found in violation of the Stark Law or that self-disclosure of a potential violation would result in reduced penalties.

Federal regulations issued under HIPAA contain provisions that require us to implement and, in the future, may require us to implement additional costly electronic media security systems and to adopt new business practices designed to protect the privacy and security of each of our patient’s health and related financial information. Such privacy and security regulations impose extensive administrative, physical and technical

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requirements on us, restrict our use and disclosure of certain patient health and financial information, provide patients with rights with respect to their health information and require us to enter into contracts extending many of the privacy and security regulatory requirements to third parties that perform duties on our behalf. Additionally, recent changes to HIPAA regulations may result in greater compliance requirements, including obligations to report breaches of unsecured patient data, as well as create new liabilities for the actions of parties acting as business associates on our behalf.

These laws and regulations are extremely complex, and, in many cases, we do not have the benefit of regulatory or judicial interpretation. In the future, it is possible that different interpretations or enforcement of these laws and regulations could subject our current or past practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses. A determination that we have violated one or more of these laws (see Item 3-Legal Proceedings), or the public announcement that we are being investigated for possible violations of one or more of these laws, could have a material adverse effect on our business, financial condition or results of operations and our business reputation could suffer significantly. In addition, we cannot predict whether other legislation or regulations at the federal or state level will be adopted, what form such legislation or regulations may take or what their impact on us may be. See Item 1 Business—Self-Referral and Anti-Kickback Legislation.

If we are deemed to have failed to comply with the anti-kickback statute, the Stark Law or other applicable laws and regulations, we could be subjected to liabilities, including criminal penalties, civil penalties (including the loss of our licenses to operate one or more facilities), and exclusion of one or more facilities from participation in the Medicare, Medicaid and other federal and state healthcare programs. The imposition of such penalties could have a material adverse effect on our business, financial condition or results of operations.

We are subject to occupational health, safety and other similar regulations and failure to comply with such regulations could harm our business and results of operations.

We are subject to a wide variety of federal, state and local occupational health and safety laws and regulations. Regulatory requirements affecting us include, but are not limited to, those covering: (i) air and water quality control; (ii) occupational health and safety (e.g., standards regarding blood-borne pathogens and ergonomics, etc.); (iii) waste management; (iv) the handling of asbestos, polychlorinated biphenyls and radioactive substances; and (v) other hazardous materials. If we fail to comply with those standards, we may be subject to sanctions and penalties that could harm our business and results of operations.

We may be subject to liabilities from claims brought against our facilities.

We are subject to medical malpractice lawsuits, product liability lawsuits, class action lawsuits and other legal actions in the ordinary course of business. Some of these actions may involve large claims, as well as significant defense costs. We cannot predict the outcome of these lawsuits or the effect that findings in such lawsuits may have on us. In an effort to resolve one or more of these matters, we may choose to negotiate a settlement. Amounts we pay to settle any of these matters may be material. All professional and general liability insurance we purchase is subject to policy limitations. We believe that, based on our past experience and actuarial estimates, our insurance coverage is adequate considering the claims arising from the operations of our hospitals. While we continuously monitor our coverage, our ultimate liability for professional and general liability claims could change materially from our current estimates. If such policy limitations should be partially or fully exhausted in the future, or payments of claims exceed our estimates or are not covered by our insurance, it could have a material adverse effect on our operations.

We may be subject to governmental investigations, regulatory actions and whistleblower lawsuits

The federal False Claims Act permits private parties to bring qui tam, or whistleblower, lawsuits against companies. Whistleblower provisions allow private individuals to bring actions on behalf of the government

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alleging that the defendant has defrauded the federal government. These private parties are entitled to share in any amounts recovered by the government, and, as a result, the number of whistleblower lawsuits that have been filed against providers has increased significantly in recent years. Because qui tam lawsuits are filed under seal, we could be named in one or more such lawsuits of which we are not aware. Please see Item 3. Legal Proceedings for disclosure of current related matters.

The failure of certain employers, or the closure of certain facilities, could have a disproportionate impact on our hospitals.

The economies in the non-urban communities in which our hospitals operate are often dependent on a small number of large employers. Those employers often provide income and health insurance for a disproportionately large number of community residents who may depend on our hospitals and other health care facilities for their care. The failure of one or more large employer or the closure or substantial reduction in the number of individuals employed at facilities located in or near the communities where our hospitals operate, could cause affected employees to move elsewhere to seek employment or lose insurance coverage that was otherwise available to them. The occurrence of these events could adversely affect our revenue and results of operations, thereby harming our business.

If any of our existing health care facilities lose their accreditation or any of our new facilities fail to receive accreditation, such facilities could become ineligible to receive reimbursement under Medicare or Medicaid.

The construction and operation of healthcare facilities are subject to extensive federal, state and local regulation relating to, among other things, the adequacy of medical care, equipment, personnel, operating policies and procedures, fire prevention, rate-setting and compliance with building codes and environmental protection. Additionally, such facilities are subject to periodic inspection by government authorities to assure their continued compliance with these various standards.

All of our hospitals are deemed certified, meaning that they are accredited, properly licensed under the relevant state laws and regulations and certified under the Medicare program. The effect of maintaining certified facilities is to allow such facilities to participate in the Medicare and Medicaid programs. We believe that all of our healthcare facilities are in material compliance with applicable federal, state, local and other relevant regulations and standards. However, should any of our healthcare facilities lose their deemed certified status and thereby lose certification under the Medicare or Medicaid programs, such facilities would be unable to receive reimbursement from either of those programs and our business could be materially adversely effected.

Our growth strategy depends, in part, on acquisitions, and we may not be able to continue to acquire hospitals that meet our target criteria. We may also have difficulties acquiring hospitals from not-for-profit entities due to regulatory scrutiny.

Acquisitions of hospitals in select markets are a key element of our growth strategy. We face competition for acquisition candidates primarily from other for-profit healthcare companies, as well as from not-for-profit entities. Some of our competitors have greater resources than we do. Also, suitable acquisitions may not be accomplished due to unfavorable terms.

In addition, many states have enacted, or are considering enacting, laws that affect the conversion or sale of not-for-profit hospitals to for-profit entities. These laws generally require prior approval from the state attorney general, advance notification and community involvement. In addition, attorneys general in states without specific conversion legislation may exercise discretionary authority over such transactions. Although the level of government involvement varies from state to state, the trend is to provide for increased governmental review and, in some cases, approval of a transaction in which a not-for-profit entity sells a healthcare facility to a for-profit entity. The adoption of new or expanded conversion legislation, increased review of not-for-profit hospital conversions or our inability to effectively compete against other potential purchasers could make it more difficult for us to acquire additional hospitals, increase our acquisition costs or make it difficult for us to acquire hospitals that meet our target acquisition criteria, any of which could adversely affect our growth strategy and results of operations.

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Further, the cost of an acquisition could result in a dilutive effect on our results of operations, depending on various factors, including the amount paid for the acquisition, the acquired hospital’s results of operations, allocation of the purchase price, effects of subsequent legislation and limits on rate increases.

We may fail to improve or integrate the operations of the hospitals we acquire, which could harm our results of operations and adversely affect our growth strategy.

We may be unable to timely and effectively integrate the hospitals that we acquire with our ongoing operations. We may experience delays in implementing operating procedures and systems in newly acquired hospitals. Integrating a new hospital could be expensive and time consuming and could disrupt our ongoing business, negatively affect cash flow and distract management and other key personnel. In addition, acquisition activity requires transitions from, and the integration of, operations and, usually, information systems that are used by acquired hospitals. In addition, some of the hospitals we acquire had significantly lower operating margins than the hospitals we operate prior to the time of our acquisition. If we fail to improve the operating margins of the hospitals we acquire, operate such hospitals profitably or effectively integrate the operations of acquired hospitals, our results of operations could be harmed.

If we acquire hospitals with unknown or contingent liabilities, we could become liable for material obligations.

Hospitals that we acquire may have unknown or contingent liabilities, including, but not limited to, liabilities for failure to comply with applicable laws and regulations. Although we typically attempt to exclude significant liabilities from our acquisition transactions and seek indemnification from the sellers of such hospitals for these matters, we could experience difficulty enforcing those obligations or we could incur material liabilities for the past activities of hospitals we acquire. Such liabilities and related legal or other costs and/or resulting damage to a facility’s reputation could harm our business.

Our subsidiaries, PSI, and its subsidiaries, are subject to pending legal actions, governmental investigations and regulatory actions.

Our subsidiaries, PSI, and its subsidiaries, are subject to pending legal actions, governmental investigations and regulatory actions (see Item 3-Legal Proceedings).

State efforts to regulate the construction or expansion of health care facilities could impair our ability to expand.

Many of the states in which we operate hospitals have enacted Certificates of Need, or CON, laws as a condition prior to hospital capital expenditures, construction, expansion, modernization or initiation of major new services. Our failure to obtain necessary state approval could result in our inability to complete a particular hospital acquisition, expansion or replacement, make a facility ineligible to receive reimbursement under the Medicare or Medicaid programs, result in the revocation of a facility’s license or impose civil or criminal penalties on us, any of which could harm our business.

In addition, significant CON reforms have been proposed in a number of states that would increase the capital spending thresholds and provide exemptions of various services from review requirements. In the past, we have not experienced any material adverse effects from those requirements, but we cannot predict the impact of these changes upon our operations.

Controls designed to reduce inpatient services may reduce our revenues.

Controls imposed by third-party payors designed to reduce admissions and lengths of stay, commonly referred to as “utilization review,” have affected and are expected to continue to affect our facilities. Utilization review entails the review of the admission and course of treatment of a patient by managed care plans. Inpatient

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utilization, average lengths of stay and occupancy rates continue to be negatively affected by payor-required preadmission authorization and utilization review and by payor pressure to maximize outpatient and alternative healthcare delivery services for less acutely ill patients. Efforts to impose more stringent cost controls are expected to continue. Although we cannot predict the effect these changes will have on our operations, significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on our business, financial position and results of operations.

Our revenues and volume trends may be adversely affected by certain factors over which we have no control.

Our revenues and volume trends are dependent on many factors, including physicians’ clinical decisions and availability, payor programs shifting to a more outpatient-based environment, whether or not certain services are offered, seasonal and severe weather conditions, including the effects of extreme low temperatures, hurricanes and tornados, earthquakes, current local economic and demographic changes. In addition, technological developments and pharmaceutical improvements may reduce the demand for healthcare services or the profitability of the services we offer.

Fluctuations in our operating results, quarter to quarter earnings and other factors may result in decreases in the price of our common stock.

The stock markets have experienced volatility that has often been unrelated to operating performance. These broad market fluctuations may adversely affect the trading price of our common stock and, as a result, there may be significant volatility in the market price of our common stock. If we are unable to operate our hospitals as profitably as we have in the past or as our stockholders expect us to in the future, the market price of our common stock will likely decline as stockholders could sell shares of our common stock when it becomes apparent that the market expectations may not be realized.

In addition to our operating results, many economic and seasonal factors outside of our control could have an adverse effect on the price of our common stock and increase fluctuations in our quarterly earnings. These factors include certain of the risks discussed herein, demographic changes, operating results of other hospital companies, changes in our financial estimates or recommendations of securities analysts, speculation in the press or investment community, the possible effects of war, terrorist and other hostilities, adverse weather conditions, the level of seasonal illnesses, managed care contract negotiations and terminations, changes in general conditions in the economy or the financial markets, or other developments affecting the health care industry.

We are subject to significant corporate regulation as a public company and failure to comply with all applicable regulations could subject us to liability or negatively affect our stock price.

As a publicly traded company, we are subject to a significant body of regulation, including the Sarbanes-Oxley Act of 2002. While we have developed and instituted a corporate compliance program based on what we believe are the current best practices in corporate governance and continue to update this program in response to newly implemented or changing regulatory requirements, we cannot provide assurance that we are or will be in compliance with all potentially applicable corporate regulations. For example, we cannot provide assurance that, in the future, our management will not find a material weakness in connection with its annual review of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We also cannot provide assurance that we could correct any such weakness to allow our management to assess the effectiveness of our internal control over financial reporting as of the end of our fiscal year in time to enable our independent registered public accounting firm to state that such assessment will have been fairly stated in our Annual Report on Form 10-K or state that we have maintained effective internal control over financial reporting as of the end of our fiscal year. If we fail to comply with any of these regulations, we could be subject to a range of regulatory actions, fines or other sanctions or litigation. If we must disclose any material weakness in our internal control over financial reporting, our stock price could decline.

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A cyber security incident could cause a violation of HIPAA, breach of member privacy, or other negative impacts.

A cyber-attack that bypasses our information technology (“IT”) security systems causing an IT security breach, loss of protected health information or other data subject to privacy laws, loss of proprietary business information, or a material disruption of our IT business systems, could have a material adverse impact on our business and result of operations. In addition, our future results of operations, as well as our reputation, could be adversely impacted by theft, destruction, loss, or misappropriation of public health information, other confidential data or proprietary business information.

Different interpretations of accounting principles could have a material adverse effect on our results of operations or financial condition.

Generally accepted accounting principles are complex, continually evolving and may be subject to varied interpretation by us, our independent registered public accounting firm and the SEC. Such varied interpretations could result from differing views related to specific facts and circumstances. Differences in interpretation of generally accepted accounting principles could have a material adverse effect on our financial position or results of operations.

We continue to see rising costs in construction materials and labor. Such increased costs could have an adverse effect on the cash flow return on investment relating to our capital projects.

The cost of construction materials and labor has significantly increased. As we continue to invest in modern technologies, emergency rooms and operating room expansions, the construction of medical office buildings for physician expansion and reconfiguring the flow of patient care, we spend large amounts of money generated from our operating cash flow or borrowed funds. Although we evaluate the financial feasibility of such projects by determining whether the projected cash flow return on investment exceeds our cost of capital, such returns may not be achieved if the cost of construction continues to rise significantly or the expected patient volumes are not attained.

The deterioration of credit and capital markets may adversely affect our access to sources of funding and we cannot be certain of the availability and terms of capital to fund the growth of our business when needed.

We require substantial capital resources to fund our acquisition growth strategy and our ongoing capital expenditure programs for renovation, expansion, construction and addition of medical equipment and technology. We believe that our capital expenditure program is adequate to expand, improve and equip our existing hospitals. We cannot predict, however, whether financing for our growth plans and capital expenditure programs will be available to us on satisfactory terms when needed, which could harm our business.

To fund all or a portion of our future financing needs, we rely on borrowings from various sources including fixed rate, long-term debt as well as borrowings pursuant to our revolving credit facility and accounts receivable securitization program. If any of the lenders were unable to fulfill their future commitments, our liquidity could be impacted, which could have a material unfavorable impact our results of operations and financial condition.

In addition, global capital markets have experienced volatility that has tightened access to capital markets and other sources of funding. In the event we need to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time. Our inability to obtain financing on terms acceptable to us could have a material unfavorable impact on our results of operations, financial condition and liquidity.

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We depend heavily on key management personnel and the departure of one or more of our key executives or a significant portion of our local hospital management personnel could harm our business.

The expertise and efforts of our senior executives and key members of our local hospital management personnel are critical to the success of our business. The loss of the services of one or more of our senior executives or of a significant portion of our local hospital management personnel could significantly undermine our management expertise and our ability to provide efficient, quality healthcare services at our facilities, which could harm our business.

The number of outstanding shares of our Class B Common Stock is subject to potential increases or decreases.

At December 31, 2013, 25.7 million shares of Class B Common Stock were reserved for issuance upon conversion of shares of Class A, C and D Common Stock outstanding, for issuance upon exercise of options to purchase Class B Common Stock and for issuance of stock under other incentive plans. Class A, C and D Common Stock are convertible on a share for share basis into Class B Common Stock. To the extent that these shares were converted into or exercised for shares of Class B Common Stock, the number of shares of Class B Common Stock available for trading in the public market place would increase substantially and the current holders of Class B Common Stock would own a smaller percentage of that class.

In addition, from time-to-time our Board of Directors approve stock repurchase programs authorizing us to purchase shares of our Class B Common Stock on the open market at prevailing market prices or in negotiated transactions off the market. Such repurchases decrease the number of outstanding shares of our Class B Common Stock. Conversely, as a potential means of generating additional funds to operate and expand our business, we may from time-to-time issue equity through the sale of stock which would increase the number of outstanding shares of our Class B Common Stock. Based upon factors such as, but not limited to, the market price of our stock, interest rate on borrowings and uses or potential uses for cash, repurchase or issuance of our stock could have a dilutive effect on our future basic and diluted earnings per share.

The right to elect the majority of our Board of Directors and the majority of the general shareholder voting power resides with the holders of Class A and C Common Stock, the majority of which is owned by Alan B. Miller, our Chief Executive Officer and Chairman of our Board of Directors.

Our Restated Certificate of Incorporation provides that, with respect to the election of directors, holders of Class A Common Stock vote as a class with the holders of Class C Common Stock, and holders of Class B Common Stock vote as a class with holders of Class D Common Stock, with holders of all classes of our Common Stock entitled to one vote per share.

As of March 21, 2013, the shares of Class A and Class C Common Stock constituted 6.9% of the aggregate outstanding shares of our Common Stock, had the right to elect five members of the Board of Directors and constituted 86.2% of our general voting power. As of March 21, 2013, the shares of Class B and Class D Common Stock (excluding shares issuable upon exercise of options) constituted 93.1% of the outstanding shares of our Common Stock, had the right to elect two members of the Board of Directors and constituted 13.8% of our general voting power.

As to matters other than the election of directors, our Restated Certificate of Incorporation provides that holders of Class A, Class B, Class C and Class D Common Stock all vote together as a single class, except as otherwise provided by law.

Each share of Class A Common Stock entitles the holder thereof to one vote; each share of Class B Common Stock entitles the holder thereof to one-tenth of a vote; each share of Class C Common Stock entitles the holder thereof to 100 votes (provided the holder of Class C Common Stock holds a number of shares of

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Class A Common Stock equal to ten times the number of shares of Class C Common Stock that holder holds); and each share of Class D Common Stock entitles the holder thereof to ten votes (provided the holder of Class D Common Stock holds a number of shares of Class B Common Stock equal to ten times the number of shares of Class D Common Stock that holder holds).

In the event a holder of Class C or Class D Common Stock holds a number of shares of Class A or Class B Common Stock, respectively, less than ten times the number of shares of Class C or Class D Common Stock that holder holds, then that holder will be entitled to only one vote for every share of Class C Common Stock, or one-tenth of a vote for every share of Class D Common Stock, which that holder holds in excess of one-tenth the number of shares of Class A or Class B Common Stock, respectively, held by that holder. The Board of Directors, in its discretion, may require beneficial owners to provide satisfactory evidence that such owner holds ten times as many shares of Class A or Class B Common Stock as Class C or Class D Common Stock, respectively, if such facts are not apparent from our stock records.

Since a substantial majority of the Class A shares and Class C shares are controlled by Mr. Alan B. Miller and members of his family who are also directors and officers of our company, and they can elect a majority of our company’s directors and effect or reject most actions requiring approval by stockholders without the vote of any other stockholders, there are potential conflicts of interest in overseeing the management of our company.

In addition, because this concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that may otherwise be beneficial to our businesses, our business and prospects and the trading price of our securities could be adversely affected.

ITEM 1B. Unresolved Staff Comments

None.

ITEM 2. Properties

Executive and Administrative Offices

We own office buildings in King of Prussia and Wayne, Pennsylvania, Brentwood, Tennessee and Denton, Texas.

28

Facilities

The following tables set forth the name, location, type of facility and, for acute care hospitals and behavioral health care facilities, the number of licensed beds:

Acute Care Hospitals

Name of Facility	Location	Number of Beds		Real Property Ownership Interest
Aiken Regional Medical Centers	Aiken, South Carolina		183		Owned
Aurora Pavilion	Aiken, South Carolina		62		Owned
Centennial Hills Hospital Medical Center (1)	Las Vegas, Nevada		177		Owned
Corona Regional Medical Center	Corona, California		238		Owned
Desert Springs Hospital (1)	Las Vegas, Nevada		293		Owned
Doctors’ Hospital of Laredo (9)	Laredo, Texas		183		Owned
Fort Duncan Regional Medical Center	Eagle Pass, Texas		101		Owned
The George Washington University Hospital (2)	Washington, D.C.		371		Owned
Lakewood Ranch Medical Center	Bradenton, Florida		120		Owned
Manatee Memorial Hospital	Bradenton, Florida		319		Owned
Northern Nevada Medical Center	Sparks, Nevada		108		Owned
Northwest Texas Healthcare System	Amarillo, Texas		385		Owned
The Pavilion at Northwest Texas Healthcare System	Amarillo, Texas		90		Owned
Palmdale Regional Medical Center	Palmdale, California		157		Owned
South Texas Health System (4)
Edinburg Regional Medical Center/Children’s Hospital	Edinburg, Texas		213		Owned
McAllen Medical Center (3)	McAllen, Texas		441		Leased
McAllen Heart Hospital	McAllen, Texas		60		Owned
South Texas Behavioral Health Center	McAllen, Texas		134		Owned
Southwest Healthcare System
Inland Valley Campus (3)	Wildomar, California		132		Leased
Rancho Springs Campus	Murrieta, California		120		Owned
Spring Valley Hospital Medical Center (1)	Las Vegas, Nevada		237		Owned
St. Mary’s Regional Medical Center	Enid, Oklahoma		245		Owned
Summerlin Hospital Medical Center (1)	Las Vegas, Nevada		454		Owned
Temecula Valley Hospital	Temecula, California		140		Owned
Texoma Medical Center	Denison, Texas		228		Owned
TMC Behavioral Health Center	Denison, Texas		60		Owned
Valley Hospital Medical Center (1)	Las Vegas, Nevada		320		Owned
Wellington Regional Medical Center (3)	West Palm Beach, Florida		233		Leased

Behavioral Health Care Facilities

Name of Facility	Location	Number of Beds		Real Property Ownership Interest
Alabama Clinical Schools	Birmingham, Alabama		80		Owned
Alhambra Hospital	Rosemead, California		103		Owned
Alliance Health Center	Meridian, Mississippi		214		Owned
Anchor Hospital	Atlanta, Georgia		127		Owned

29

Name of Facility	Location	Number of Beds		Real Property Ownership Interest
Arbour Counseling Services	Rockland, Massachusetts		—		Owned
The Arbour Hospital	Boston, Massachusetts		136		Owned
Arbour Senior Care	Rockland, Massachusetts		—		Owned
Arbour-Fuller Hospital	South Attleboro, Massachusetts		103		Owned
Arbour-HRI Hospital	Brookline, Massachusetts		68		Owned
Arrowhead Behavioral Health	Maumee, Ohio		52		Owned
Atlantic Shores Hospital	Fort Lauderdale, Florida		72		Owned
Austin Lakes Hospital	Austin, Texas		54		Leased
Austin Oaks Hospitals	Austin, Texas		80		Owned
Behavioral Educational Services	Riverdale, Florida		—		Leased
Behavioral Hospital of Bellaire	Houston, Texas		120		Leased
Belmont Pines Hospital	Youngstown, Ohio		102		Owned
Benchmark Behavioral Health System	Woods Cross, Utah		84		Owned
Bloomington Meadows Hospital	Bloomington, Indiana		78		Owned
Boulder Creek Academy	Bonners Ferry, Idaho		100		Owned
Brentwood Behavioral Health of Mississippi	Flowood, Mississippi		105		Owned
Brentwood Hospital	Shreveport, Louisiana		200		Owned
The Bridgeway (3)	North Little Rock, Arkansas		103		Leased
Brook Hospital—Dupont	Louisville, Kentucky		88		Owned
Brook Hospital—KMI	Louisville, Kentucky		110		Owned
Brooke Glen Behavioral Hospital	Fort Washington, Pennsylvania		146		Owned
Brynn Marr Hospital	Jacksonville, North Carolina		100		Owned
Calvary Addiction Recovery Center	Phoenix, Arizona		50		Owned
Canyon Ridge Hospital	Chino, California		106		Owned
The Carolina Center for Behavioral Health	Greer, South Carolina		125		Owned
Cedar Grove Residential Treatment Center	Murfreesboro, Tennessee		36		Owned
Cedar Hills Hospital (10)	Beaverton, Oregon		78		Owned
Cedar Ridge	Oklahoma City, Oklahoma		60		Owned
Cedar Ridge Residential Treatment Center	Oklahoma City, Oklahoma		56		Owned
Cedar Springs Behavioral Health	Colorado Springs, Colorado		110		Owned
Centennial Peaks	Louisville, Colorado		72		Owned
Center for Change	Orem, Utah		58		Owned
Central Florida Behavioral Hospital	Orlando, Florida		126		Owned
Chicago Children’s Center for Behavioral Health	Chicago, Illinois		40		Leased
Clarion Psychiatric Center	Clarion, Pennsylvania		74		Owned
Coastal Behavioral Health	Savannah, Georgia		50		Owned
Coastal Harbor Treatment Center	Savannah, Georgia		145		Owned
Columbus Behavioral Center for Children and Adolescents	Columbus, Indiana		56		Owned
Community Cornerstones	Rio Piedras, Puerto Rico		—		Leased
Compass Intervention Center	Memphis, Tennessee		108		Owned
Copper Hills Youth Center	West Jordan, Utah		197		Owned
Cottonwood Treatment Center	S. Salt Lake City, Utah		86		Leased
Crescent Pines	Stockbridge, Georgia		50		Owned
Cumberland Hall	Hopkinsville, Kentucky		97		Owned
Cumberland Hospital	New Kent, Virginia		130		Owned
Cypress Creek Hospital	Houston, Texas		96		Owned
Del Amo Hospital	Torrance, California		166		Owned
Diamond Grove Center	Louisville, Mississippi		55		Owned

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Name of Facility	Location	Number of Beds		Real Property Ownership Interest
Dover Behavioral Health	Dover, Delaware		73		Owned
Emerald Coast Behavioral Hospital	Panama City, Florida		90		Owned
Fairmount Behavioral Health System	Philadelphia, Pennsylvania		239		Owned
Fairfax Hospital	Kirkland, Washington		157		Owned
First Home Care (VA)	Portsmouth, Virginia		—		Leased
First Hospital Panamericano—Cidra	Cidra, Puerto Rico		165		Owned
First Hospital Panamericano—San Juan	San Juan, Puerto Rico		45		Owned
First Hospital Panamericano—Ponce	Ponce, Puerto Rico		30		Owned
Forest View Hospital	Grand Rapids, Michigan		82		Owned
Fort Lauderdale Hospital	Fort Lauderdale, Florida		100		Leased
Foundations Behavioral Health	Doylestown, Pennsylvania		118		Leased
Foundations for Living	Mansfield, Ohio		84		Owned
Fox Run Hospital	St. Clairsville, Ohio		100		Owned
Fremont Hospital	Fremont, California		96		Owned
Friends Hospital	Philadelphia, Pennsylvania		219		Owned
Garfield Park Hospital	Chicago, Illinois		88		Owned
Glen Oaks Hospital	Greenville, Texas		54		Owned
Good Samaritan Counseling Center	Anchorage, Alaska		—		Owned
Gulf Coast Youth Services	Fort Walton Beach, Florida		24		Owned
Hampton Behavioral Health Center	Westhampton, New Jersey		110		Owned
Harbour Point (Pines)	Portsmouth, Virginia		186		Owned
Hartgrove Hospital	Chicago, Illinois		150		Owned
Havenwyck Hospital	Auburn Hills, Michigan		251		Owned
Heartland Behavioral Health Services	Nevada, Missouri		155		Owned
Hermitage Hall	Nashville, Tennessee		112		Owned
Heritage Oaks Hospital	Sacramento, California		125		Owned
Hickory Trail Hospital	DeSoto, Texas		86		Owned
Highlands Behavioral Health System	Highlands Ranch, Colorado		86		Owned
High Point Treatment Center	Cooper City, Florida		60		Owned
Hill Crest Behavioral Health Services	Birmingham, Alabama		205		Owned
Holly Hill Hospital	Raleigh, North Carolina		168		Owned
The Horsham Clinic	Ambler, Pennsylvania		206		Owned
Hughes Center	Danville, Virginia		56		Owned
Intermountain Hospital	Boise, Idaho		155		Owned
Kempsville Center of Behavioral Health	Norfolk, Virginia		82		Owned
KeyStone Center	Wallingford, Pennsylvania		145		Owned
Kingwood Pines Hospital	Kingwood, Texas		116		Owned
La Amistad Behavioral Health Services	Maitland, Florida		80		Owned
Lake Bridge Behavioral Health	Macon, Georgia		155		Owned
Lakeside Behavioral Health System	Memphis, Tennessee		311		Owned
Laurel Heights Hospital	Atlanta, Georgia		122		Owned
Laurel Oaks Behavioral Health Center	Dothan, Alabama		118		Owned
Laurel Ridge Treatment Center	San Antonio, Texas		250		Owned
Liberty Point Behavioral Health	Stauton, Virginia		50		Owned
Lighthouse Care Center of Augusta	Augusta, Georgia		106		Owned
Lighthouse Care Center of Conway	Conway, South Carolina		140		Owned
Lincoln Prairie Behavioral Health Center	Springfield, Illinois		88		Owned
Lincoln Trail Behavioral Health System	Radcliff, Kentucky		140		Owned
Mayhill Hospital	Denton, Texas		59		Leased

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Name of Facility	Location	Number of Beds		Real Property Ownership Interest
McDowell Center for Children	Dyersburg, Tennessee		32		Owned
The Meadows Psychiatric Center	Centre Hall, Pennsylvania		107		Owned
Meridell Achievement Center	Austin, Texas		134		Owned
Mesilla Valley Hospital	Las Cruces, New Mexico		120		Owned
Michiana Behavioral Health Center	Plymouth, Indiana		80		Owned
Midwest Center for Youth and Families	Kouts, Indiana		74		Owned
Millwood Hospital	Arlington, Texas		122		Leased
Mountain Youth Academy	Mountain City, Tennessee		68		Owned
Natchez Trace Youth Academy	Waverly, Tennessee		90		Owned
NDA Behavioral Health System	Mount Dora, Florida		132		Owned
Newport News Behavioral Health Center	Newport News, Virginia		108		Owned
North Spring Behavioral Healthcare	Leesburg, Virginia		77		Leased
North Star Hospital	Anchorage, Alaska		74		Owned
North Star Bragaw	Anchorage, Alaska		36		Owned
North Star DeBarr Residential Treatment Center	Anchorage, Alaska		60		Owned
North Star Palmer Residential Treatment Center	Palmer, Alaska		30		Owned
Northwest Academy	Bonners Perry, Idaho		120		Owned
Oak Plains Academy	Ashland City, Tennessee		90		Owned
Okaloosa Youth Academy	Crestview, Florida		144		Leased
Old Vineyard Behavioral Health	Winston-Salem, North Carolina		104		Owned
Palmetto Lowcountry Behavioral Health	North Charleston, South Carolina		112		Owned
Palmetto Pee Dee Behavioral Health	Florence, South Carolina		59		Leased
Palmetto Summerville	Summerville, South Carolina		60		Leased
Palm Shores Behavioral Health Center	Bradenton, Florida		64		Owned
Parkwood Behavioral Health System	Olive Branch, Mississippi		128		Owned
The Pavilion	Champaign, Illinois		103		Owned
Peachford Behavioral Health System of Atlanta	Atlanta, Georgia		246		Owned
Pembroke Hospital	Pembroke, Massachusetts		115		Owned
Pinnacle Pointe Hospital	Little Rock, Arkansas		124		Owned
Poplar Springs Hospital	Petersburg, Virginia		208		Owned
Prairie St John’s	Fargo, North Dakota		139		Owned
Pride Institute	Eden Prairie, Minnesota		42		Owned
Provo Canyon School	Provo, Utah		274		Owned
Provo Canyon Behavioral Hospital	Orem, Utah		80		Owned
The Recovery Center	Wichita Falls, Texas		34		Leased
The Ridge Behavioral Health System	Lexington, Kentucky		110		Owned
Rivendell Behavioral Health Services of Arkansas	Benton, Arkansas		77		Owned
Rivendell Behavioral Health Services of Kentucky	Bowling Green, Kentucky		125		Owned
River Crest Hospital	San Angelo, Texas		80		Owned
Riveredge Hospital	Forest Park, Illinois		210		Owned
River Oaks Hospital	New Orleans, Louisiana		126		Owned
River Park Hospital	Huntington, West Virginia		187		Owned
River Point Behavioral Health	Jacksonville, Florida		99		Owned
Rockford Center	Newark, Delaware		118		Owned
Rock River Residential Center	Rockford, Illinois		59		Owned
Rolling Hills Hospital	Franklin, Tennessee		80		Owned
Roxbury	Shippensburg, Pennsylvania		112		Owned
Salt Lake Behavioral Health	Salt Lake City, Utah		118		Leased
San Marcos Treatment Center	San Marcos, Texas		265		Owned

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Name of Facility	Location	Number of Beds		Real Property Ownership Interest
SandyPines Hospital	Tequesta, Florida		130		Owned
Schick Shadel Hospital	Burin, Washington		60		Owned
Shadow Mountain Behavioral Health System	Tulsa, Oklahoma		215		Owned
Sierra Vista Hospital	Sacramento, California		120		Owned
St. Louis Behavioral Medicine Institute	St. Louis, Missouri		—		Owned
St. Simons by the Sea	St. Simons, Georgia		101		Owned
Spring Mountain Sahara	Las Vegas, Nevada		30		Owned
Spring Mountain Treatment Center	Las Vegas, Nevada		82		Owned
Springwoods	Fayetteville, Arkansas		80		Owned
Stonington Institute	North Stonington, Connecticut		73		Owned
Streamwood Behavioral Health	Streamwood, Illinois		162		Owned
Summit Oaks Hospital	Summit, New Jersey		126		Owned
SummitRidge	Lawrenceville, Georgia		86		Owned
Talbott Recovery Campus	Atlanta, Georgia		—		Owned
Texas NeuroRehab Center	Austin, Texas		151		Owned
Three Rivers Behavioral Health	West Columbia, South Carolina		118		Owned
Three Rivers Residential Treatment-Midlands Campus	West Columbia, South Carolina		59		Owned
Timberlawn Mental Health System	Dallas, Texas		144		Owned
Turning Point Hospital	Moultrie, Georgia		59		Owned
Turning Point Youth Center	St. Johns, Michigan		60		Owned
Two Rivers Psychiatric Hospital	Kansas City, Missouri		105		Owned
University Behavioral Center	Orlando, Florida		112		Owned
University Behavioral Health of Denton	Denton, Texas		104		Owned
University Behavioral Health of El Paso	El Paso, Texas		163		Owned
Upper East TN Juvenile Detention Facility	Johnson City, Tennessee		10		Owned
Valle Vista Hospital	Greenwood, Indiana		102		Owned
Valley Hospital	Phoenix, Arizona		122		Owned
Vines Hospital	Ocala, Florida		98		Owned
Virgin Islands Behavioral Services	St. Croix, Virgin Islands		30		Owned
Virginia Beach Psychiatric Center	Virginia Beach, Virginia		100		Owned
Wekiva Springs	Jacksonville, Florida		68		Owned
Wellstone Regional Hospital	Jeffersonville, Indiana		100		Owned
West Hills Hospital	Reno, Nevada		95		Owned
West Oaks Hospital	Houston, Texas		160		Owned
Westwood Lodge Hospital	Westwood, Massachusetts		133		Owned
Willow Springs Center	Reno, Nevada		116		Owned
Windmoor Healthcare	Clearwater, Florida		120		Owned
Windsor—Laurelwood Center	Willoughby, Ohio		160		Leased
Wyoming Behavioral Institute	Casper, Wyoming		130		Owned

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Surgical Hospitals, Ambulatory Surgery Centers and Radiation Oncology Centers

Name of Facility	Location	Real Property Ownership Interest
Cancer Care Institute of Carolina	Aiken, South Carolina		Owned
Cornerstone Regional Hospital (5)	Edinburg, Texas		Leased
Northwest Texas Surgery Center (6)	Amarillo, Texas		Leased
Palms Westside Clinic ASC (8)	Royal Palm Beach, Florida		Leased
Temecula Valley Day Surgery and Pain Therapy Center (7)	Murrieta, California		Leased

(1) Desert Springs Hospital, Summerlin Hospital Medical Center, Valley Hospital Medical Center, Spring Valley Hospital Medical Center and Centennial Hills Hospital Medical Center are owned by limited liability companies (“LLCs”) in which we hold controlling, majority ownership interests of approximately 72%. The remaining minority ownership interests in these facilities are held by unaffiliated third-parties. All hospitals are managed by us.

(2) We hold an 80% ownership interest in this facility through a general partnership interest in a limited partnership. The remaining 20% ownership interest is held by an unaffiliated third-party.

(3) Real property leased from Universal Health Realty Income Trust.

(4) In October, 2007, the licenses for Edinburg Regional Medical Center/Children’s Hospital, McAllen Medical Center, McAllen Heart Hospital and South Texas Behavioral Health Center were consolidated under one license operating as the South Texas Health System.

(5) We manage and own a noncontrolling interest of approximately 50% in the entity that operates this facility.

(6) We own a majority interest in an LLC that owns and operates this center.

(7) We own minority interests in an LLC that owns and operates this center which is managed by a third-party.

(8) We own a noncontrolling ownership interest of approximately 50% in the entity that operates this facility that is managed by a third-party.

(9) We hold an 89% ownership interest in this facility through both general and limited partnership interests. The remaining 11% ownership interest is held by unaffiliated third parties.

(10) Land of this facility is leased.

We own or lease medical office buildings adjoining some of our hospitals. We believe that the leases on the facilities, medical office buildings and other real estate leased or owned by us do not impose any material limitation on our operations. The aggregate lease payments on facilities leased by us were $60 million in 2013, $53 million in 2012 and $55 million in 2011.

ITEM 3. Legal Proceedings

We are subject to claims and suits in the ordinary course of business, including those arising from care and treatment afforded by our hospitals and are party to litigation, as outlined below.

Office of Inspector General (“OIG”) and Other Government Investigations

In September, 2010, we, along with many other companies in the healthcare industry, received a letter from the United States Department of Justice (“DOJ”) advising of a False Claim Act investigation being conducted in connection with the implantation of implantable cardioverter defibrillators (“ICDs”) from 2003 to 2010 at several of our acute care facilities. The DOJ alleges that ICDs were implanted and billed by our facilities in contravention of a National Coverage Determination regarding these devices. We have established a reserve in connection with this matter which did not have a material impact on our consolidated financial statements.

In July, 2012, one of our subsidiaries, Peachford Behavioral Health System of Atlanta located in Atlanta, Georgia, received a subpoena from the OIG for the Department of Health and Human Services requesting various

34

documents. We have provided all requested documents. During the fourth quarter of 2013, we were notified that the governmental agencies investigating this matter had declined to proceed.

In February, 2013, the OIG served a subpoena requesting various documents from January, 2008 to the date of the subpoena directed at Universal Health Services, Inc. (“UHS”) concerning it and UHS of Delaware, Inc., and several UHS owned facilities including: Keys of Carolina, Old Vineyard Behavioral Health, The Meadows Psychiatric Center, Streamwood Behavioral Health, Hartgrove Hospital, Rock River Academy and Residential Treatment Center, Roxbury Treatment Center, Harbor Point Behavioral Health Center, f/k/a, The Pines Residential Treatment Center, including the Crawford, Brighton and Kempsville campuses, Wekiva Springs Center and River Point Behavioral Health. Prior to receiving this subpoena: (i) the Keys of Carolina and Old Vineyard received notification during the second half of 2012 from the United States Department of Justice of its intent to proceed with an investigation following requests for documents for the period of January, 2007 to October, 2012 from the North Carolina state Attorney General’s Office; (ii) Harbor Point Behavioral Health Center received a subpoena in December, 2012 from the Attorney General of the Commonwealth of Virginia requesting various documents from July, 2006 to the date of the subpoena, and; (iii) The Meadows Psychiatric Center received a subpoena from the OIG in February, 2013 requesting certain documents from 2008 to the date of the subpoena. Unrelated to these matters, the Keys of Carolina was closed and the real property was sold in January, 2013. In April, 2013, the OIG served facility specific subpoenas on Wekiva Springs Center and River Point Behavioral Health requesting various documents from January, 2005 to the date of the subpoena. In June, 2013, the OIG served a subpoena on Coastal Harbor Health System in Savannah, Georgia requesting documents from January, 2009 to the date of the subpoena. In July, 2013, another subpoena was issued to Wekiva Springs Center and River Point Behavioral Health requesting additional records. We have been advised by the DOJ’s Criminal Frauds Section that they have received a referral from the DOJ Civil Division and have opened an investigation of River Point Behavioral Health and Wekiva Springs Center. In February, 2014, we were notified that the investigation conducted by the Criminal Frauds Section has been expanded to include the National Deaf Academy. At present, we are uncertain as to the focus, scope or extent of the investigations, liability of the facilities and/or potential financial exposure, if any, in connection with these matters.

Matters Relating to PSI:

The following matters pertain to PSI or former PSI facilities (owned by subsidiaries of Psychiatric Solutions, Inc.) which were in existence prior to the acquisition of PSI and for which we have assumed the defense as a result of our acquisition which was completed in November, 2010:

Garden City Employees’ Retirement System v. PSI:

This is a purported shareholder class action lawsuit filed in the United States District Court for the Middle District of Tennessee against PSI and the former directors in 2009 alleging violations of federal securities laws. We intend to defend the case vigorously. Should we be deemed liable in this matter, we believe we would be entitled to commercial insurance recoveries for amounts paid by us, subject to certain limitations and deductibles. Included in our consolidated balance sheets as of December 31, 2013 and 2012, is an estimated reserve (current liability) and corresponding commercial insurance recovery (current asset) which did not have a material impact on our financial statements. Although we believe the commercial insurance recoveries are adequate to satisfy potential liability and related legal fees in connection with this matter, we can provide no assurance that the ultimate liability will not exceed the commercial insurance recoveries which would make us liable for the excess.

Department of Justice Investigation of Friends Hospital:

In October, 2010, Friends Hospital in Philadelphia, Pennsylvania, received a subpoena from the DOJ requesting certain documents from the facility. The requested documents have been collected and provided to the DOJ for review and examination. Another subpoena was issued to the facility in July 2011 requesting additional documents, which have been collected and delivered to the DOJ. At present, we are uncertain as to the focus, scope or extent of the investigation, liability of the facility and/or potential financial exposure, if any, in connection with this matter.

35

Department of Justice Investigation of Riveredge Hospital:

In 2008, Riveredge Hospital in Chicago, Illinois received a subpoena from the DOJ requesting certain information from the facility. Additional requests for documents were also received from the DOJ in 2009 and 2010. The requested documents have been provided to the DOJ. At present, we are uncertain as to the focus, scope or extent of the investigation, liability of the facility and/or potential financial exposure, if any, in connection with this matter.

Virginia Department of Medical Assistance Services Recoupment Claims:

The Virginia Department of Medical Assistance Services (“DMAS”) has conducted audits at seven former PSI Residential Treatment Centers operated in the Commonwealth of Virginia to confirm compliance with provider rules under the state’s Medicaid Provider Services Manual (“Manual”). As a result of those audits, DMAS claims the facilities failed to comply with the requirements of the Manual and has requested repayment of Medicaid payments to those facilities. PSI had previously filed appeals to repayment demands at each facility which are currently pending. We had previously agreed to a settlement of this matter which was approved by Virginia state officials during the first quarter of 2014. The aggregate refund of Medicaid payments made to those facilities, as requested by DMAS, and the settlement amount is not material to our consolidated financial position or results of operations.

General:

The healthcare industry is subject to numerous laws and regulations which include, among other things, matters such as government healthcare participation requirements, various licensure, certifications, and accreditations, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Government action has increased with respect to investigations and/or allegations concerning possible violations of fraud and abuse and false claims statutes and/or regulations by healthcare providers. Currently, and from time to time, some of our facilities are subjected to inquiries and/or actions and receive notices of potential non-compliance of laws and regulations from various federal and state agencies. Providers that are found to have violated these laws and regulations may be excluded from participating in government healthcare programs, subjected to potential licensure, certification, and/or accreditation revocation, subjected to fines or penalties or required to repay amounts received from the government for previously billed patient services. We monitor all aspects of our business and have developed a comprehensive ethics and compliance program that is designed to meet or exceed applicable federal guidelines and industry standards. Because the law in this area is complex and constantly evolving, governmental investigation or litigation may result in interpretations that are inconsistent with industry practices, including ours. Although we believe our policies, procedures and practices comply with governmental regulations, there is no assurance that we will not be faced with sanctions, fines or penalties in connection with such inquiries or actions, including with respect to the investigations and other matters discussed herein. Even if we were to ultimately prevail, such inquiries and/or actions could have a material adverse effect on us.

The outcome of any current or future litigation or governmental or internal investigations, including the matters described above, cannot be accurately predicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described above because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including, but not limited to: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties, or; (vii) there is a wide range of potential outcomes. It is possible that the outcome of these matters could have a material adverse impact on our future results of operations, financial position, cash flows and, potentially, our reputation.

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In addition, various suits and claims arising against us in the ordinary course of business are pending. In the opinion of management, the outcome of such claims and litigation will not materially affect our consolidated financial position or results of operations.

ITEM 4. Mine Safety Disclosures

Not applicable.

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PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Class B Common Stock is traded on the New York Stock Exchange. Shares of our Class A, Class C and Class D Common Stock are not traded in any public market, but are each convertible into shares of our Class B Common Stock on a share-for-share basis.

The table below sets forth, for the quarters indicated, the high and low reported closing sales prices per share reported on the New York Stock Exchange for our Class B Common Stock for the years ended December 31, 2013 and 2012:

	2013		2012
	High-Low Sales Price		High-Low Sales Price
Quarter:
1st	$	64.38-$49.69	$	44.78-$36.82
2nd	$	71.20-$60.12	$	43.72-$37.30
3rd	$	74.99-$63.83	$	45.75-$38.25
4th	$	83.12-$75.67	$	49.46-$41.31

The number of stockholders of record as of January 31, 2014 were as follows:

Class A Common	16
Class B Common	286
Class C Common	3
Class D Common	119

Stock Repurchase Programs

During the period of October 1, 2013 through December 31, 2013, we repurchased the following shares:

Additional Shares Authorized For Repurchase

Total number of shares purchased (a)

Average price paid per share for forfeited restricted shares

Total Number of shares purchased as part of publicly announced programs

Average price paid per share for shares purchased as part of publicly announced program

Aggregate purchase price paid (in thousands)

Maximum number of shares that may yet be purchased under the program

October, 2013

—

8,011

N/A

0

N/A

N/A

767,702

November, 2013

—

27,434

N/A

0

N/A

N/A

767,702

December, 2013

—

27,012

N/A

0

N/A

N/A

767,702

Total October through December

—

62,457

N/A

0

N/A

N/A

(a) Substantially all the shares repurchased during the fourth quarter of 2013 related to income tax withholding obligations resulting from the exercise of stock options. No shares were repurchased pursuant to our publicly announced stock repurchase program.

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Dividends

During the two years ending December 31, 2013, dividends per share were declared and paid as follows (the fourth quarter of 2012 dividend paid includes a special dividend of $0.40 per share):

	2013		2012
First quarter	$	.05	$	.05
Second quarter	$	.05	$	.05
Third quarter	$	.05	$	.05
Fourth quarter	$	.05	$	.45
Total	$	.20	$	.60

Equity Compensation

Refer to Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, of this report for information regarding securities authorized for issuance under our equity compensation plans.

Stock Price Performance Graph

The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return on the stock included in the Standard & Poor’s 500 Index and a Peer Group Index during the five year period ended December 31, 2013. The graph assumes an investment of $100 made in our common stock and each Index as of January 1, 2009 and has been weighted based on market capitalization. Note that our common stock price performance shown below should not be viewed as being indicative of future performance.

Companies in the peer group, which consist of companies in the S&P 500 Index or S&P MidCap 400 Index (in which we are also included), are as follows: Community Health Systems, Inc., Health Management Associates, Inc., LifePoint Hospitals, Inc., Tenet Healthcare Corporation and HCA Holdings, Inc. (included from March, 2011 at which time the company’s stock began publicly trading).

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COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

(The Company, S&P 500 and Peer Group)

Company Name / Index	2008		2009		2010		2011		2012		2013
Universal Health Services	$	100.00	$	163.32	$	233.81	$	210.19	$	264.94	$	446.59
S&P 500 Index	$	100.00	$	126.46	$	145.51	$	148.59	$	172.37	$	228.19
Peer Group	$	100.00	$	263.75	$	307.80	$	219.38	$	345.96	$	509.53

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ITEM 6. Selected Financial Data

The following table contains our selected financial data for, or as of the end of, each of the five years ended December 31, 2013. You should read this table in conjunction with the consolidated financial statements and related notes included elsewhere in this report and in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Year Ended December 31
	2013			2012 (4)			2011			2010 (5)			2009
Summary of Operations (in thousands)
Net revenues	$	7,283,822		$	6,961,400		$	6,760,222		$	4,900,147		$	4,585,329
Income from continuing operations before income taxes	$	869,332		$	763,663		$	696,336		$	428,097		$	474,722
Net income attributable to UHS	$	510,733		$	443,446		$	398,167		$	230,183		$	260,373
Net margin		7.0	%		6.4	%		5.9	%		4.7	%		5.7	%
Return on average equity		16.8	%		17.2	%		18.1	%		12.1	%		15.4	%
Financial Data (in thousands)
Cash provided by operating activities	$	884,241		$	799,231		$	710,683		$	501,344		$	541,262
Capital expenditures, net (1)	$	358,493		$	363,192		$	285,682		$	239,274		$	379,748
Total assets	$	8,311,723		$	8,200,843		$	7,665,245		$	7,527,936		$	3,964,463
Long-term borrowings	$	3,209,762		$	3,727,431		$	3,651,428		$	3,912,102		$	956,429
UHS’s common stockholders’ equity	$	3,249,979		$	2,713,345		$	2,296,352		$	1,978,772		$	1,751,071
Percentage of total debt to total capitalization		50	%		58	%		61	%		66	%		35	%
Operating Data—Acute Care Hospitals (2)
Average licensed beds		5,652			5,563			5,567			5,530			5,334
Average available beds		5,429			5,338			5,265			5,224			5,001
Inpatient admissions		246,160			245,234			250,278			255,522			256,821
Average length of patient stay		4.5			4.5			4.5			4.4			4.4
Patient days		1,112,541			1,095,790			1,114,807			1,116,643			1,130,531
Occupancy rate for licensed beds		54	%		54	%		55	%		55	%		58	%
Occupancy rate for available beds		56	%		56	%		58	%		59	%		62	%
Operating Data—Behavioral Health Facilities (2)
Average licensed beds		19,940			19,258			19,178			9,415			7,921
Average available beds		19,841			19,178			19,160			9,397			7,901
Inpatient admissions		401,565			373,437			351,086			166,310			136,639
Average length of patient stay		13.3			14.0			14.6			15.1			15.4
Patient days		5,354,334			5,212,800			5,130,245			2,503,770			2,105,625
Occupancy rate for licensed beds		74	%		74	%		73	%		73	%		73	%
Occupancy rate for available beds		74	%		74	%		73	%		73	%		73	%
Per Share Data (3)
Income from continuing operations attributable to UHS—basic	$	5.21		$	4.57		$	4.09		$	2.37		$	2.65
Income from continuing operations attributable to UHS—diluted	$	5.14		$	4.53		$	4.04		$	2.34		$	2.64
Net income attributable to UHS—basic	$	5.21		$	4.57		$	4.09		$	2.37		$	2.65
Net income attributable to UHS—diluted	$	5.14		$	4.53		$	4.04		$	2.34		$	2.64
Dividends declared	$	0.20		$	0.60		$	0.20		$	0.20		$	0.17
Other Information (3) (in thousands)
Weighted average number of shares outstanding—basic		98,033			96,821			97,199			96,786			97,794
Weighted average number of shares and share equivalents outstanding—diluted		99,361			97,711			98,537			97,973			98,275

(1) Amounts exclude non-cash capital lease obligations, if any.

(2) Excludes statistical information related to divested facilities and facilities held for sale.

(3) All periods have been adjusted to reflect the two-for-one stock split in the form of a 100% stock dividend paid in December, 2009.

(4) Includes data for the facilities acquired from Ascend on October 10, 2012 from the date of acquisition through December 31, 2012.

(5) Includes data for the facilities acquired from PSI on November 15, 2010 from the date of acquisition through December 31, 2010, excluding the data for the 3 former PSI facilities that were divested by us during the third and fourth quarters of 2011 and reflected as discontinued operations, as discussed herein.

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

Overview

Our principal business is owning and operating, through our subsidiaries, acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers. As of February 27, 2014, we owned and/or operated 24 acute care hospitals and 193 behavioral health centers located in 37 states, Washington, D.C., Puerto Rico and the U.S. Virgin Islands. As part of our ambulatory treatment centers division, we manage and/or own outright or in partnerships with physicians, 5 surgical hospitals and surgery and radiation oncology centers located in 4 states. In October, 2012, we acquired Ascend Health Corporation (“Ascend”). Ascend was the largest private behavioral health provider with 9 owned or leased freestanding inpatient facilities located in 5 states.

During the first quarter of 2012, we adopted the Financial Accounting Standards Board’s Accounting Standards Update (“ASU”) No. 2011-07, “Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities,” which required certain health care entities to change the presentation in their statement of operations by reclassifying the provision for bad debts associated with patient service revenue from an operating expense to a deduction from patient service revenue (net of contractual allowances and discounts). As a result, the provision for doubtful accounts for our acute care and behavioral health care facilities is reflected as a deduction from net revenues in the accompanying consolidated statements of income for 2013, 2012 and 2011. The adoption of this standard had no impact on our financial position or overall results of operations.

Net revenues from our acute care hospitals, surgical hospitals, surgery centers and radiation oncology centers accounted for 49% of our consolidated net revenues in 2013, 50% in 2012 and 51% in 2011. Net revenues from our behavioral health care facilities accounted for 50% of our consolidated net revenues during 2013, 50% during 2012 and 49% during 2011.

Services provided by our hospitals include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services. We provide capital resources as well as a variety of management services to our facilities, including central purchasing, information services, finance and control systems, facilities planning, physician recruitment services, administrative personnel management, marketing and public relations.

Forward-Looking Statements and Risk Factors

This Annual Report contains “forward-looking statements” that reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning our possible future results of operations, business and growth strategies, financing plans, expectations that regulatory developments or other matters will not have a material adverse effect on our business or financial condition, our competitive position and the effects of competition, the projected growth of the industry in which we operate, and the benefits and synergies to be obtained from our completed and any future acquisitions, and statements of our goals and objectives, and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “appears,” “projects” and similar expressions, as well as statements in future tense, identify forward-looking statements. In evaluating those statements, you should specifically consider various factors, including the risks related to healthcare industry trends and those set forth herein in Item 1A Risk Factors.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or our good faith belief with

42

respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Such factors include, among other things, the following:

• our ability to comply with the existing laws and government regulations, and/or changes in laws and government regulations;

• an increasing number of legislative initiatives have recently been passed into law that may result in major changes in the health care delivery system on a national or state level. No assurances can be given that the implementation of these new laws will not have a material adverse effect on our business, financial condition or results of operations;

• possible unfavorable changes in the levels and terms of reimbursement for our charges by third party payors or government programs, including Medicare or Medicaid;

• an increase in the number of uninsured and self-pay patients treated at our acute care facilities that unfavorably impacts our ability to satisfactorily and timely collect our self-pay patient accounts;

• our ability to enter into managed care provider agreements on acceptable terms and the ability of our competitors to do the same, including contracts with United/Sierra Healthcare in Las Vegas, Nevada;

• the outcome of known and unknown litigation, government investigations, false claim act allegations, and liabilities and other claims asserted against us, including matters as disclosed in Item 3. Legal Proceedings;

• the potential unfavorable impact on our business of deterioration in national, regional and local economic and business conditions, including a continuation or worsening of unfavorable credit market conditions;

• competition from other healthcare providers (including physician owned facilities) in certain markets, including McAllen/Edinburg, Texas, the site of one of our largest acute care facilities and Riverside County, California;

• technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for healthcare;

• our ability to attract and retain qualified personnel, nurses, physicians and other healthcare professionals and the impact on our labor expenses resulting from a shortage of nurses and other healthcare professionals;

• demographic changes;

• our ability to successfully integrate and improve our recent acquisitions and the availability of suitable acquisitions and divestiture opportunities;

• as discussed below in Sources of Revenue, we receive revenues from various state and county based programs, including Medicaid in all the states in which we operate, (we receive Medicaid revenues in excess of $90 million annually from each of Texas, Pennsylvania, Washington, D.C., Illinois, Virginia and Massachusetts); CMS-approved Medicaid supplemental programs in certain states including Oklahoma, California and Arkansas, and; state Medicaid disproportionate share hospital payments in certain states including Texas and South Carolina. We are therefore particularly sensitive to potential reductions in Medicaid and other state based revenue programs as well as regulatory, economic, environmental and competitive changes in those states. We can provide no assurance that reductions to revenues earned pursuant to these programs, particularly in the above-mentioned states, will not have a material adverse effect on our future results of operations;

• our ability to continue to obtain capital on acceptable terms, including borrowed funds, to fund the future growth of our business;

• some of our acute care facilities continue to experience decreasing inpatient admission trends;

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• our financial statements reflect large amounts due from various commercial and private payors and there can be no assurance that failure of the payors to remit amounts due to us will not have a material adverse effect on our future results of operations;

• in March, 2010, the Health Care and Education Reconciliation Act of 2010 and the Patient Protection and Affordable Care Act were enacted into law and created significant changes to health insurance coverage for U.S. citizens as well as material revisions to the federal Medicare and state Medicaid programs. The two combined primary goals of these acts are to provide for increased access to coverage for healthcare and to reduce healthcare-related expenses. Medicare, Medicaid and other health care industry changes are scheduled to be implemented at various times during this decade. We cannot predict the effect, if any, these enactments will have on our future results of operations;

• the Department of Health and Human Services (“HHS”) published final regulations in July, 2010 implementing the health information technology (“HIT”) provisions of the American Recovery and Reinvestment Act (referred to as the “HITECH Act”). The final regulation defines the “meaningful use” of Electronic Health Records (“EHR”) and establishes the requirements for the Medicare and Medicaid EHR payment incentive programs. The implementation period for these new Medicare and Medicaid incentive payments started in federal fiscal year 2011 and can end as late as 2016 for Medicare and 2021 for the state Medicaid programs. Hospitals that do not qualify as a meaningful user of EHR by 2015 are subject to a reduced market basket update to the inpatient prospective payment system standardized amount in 2015 and each subsequent fiscal year. Certain of our acute care hospitals implemented EHR applications in 2011 and 2012 and we continued the implementation at each of our acute care hospitals, on a facility-by-facility basis, until completion which occurred in June, 2013. Our acute care hospitals are eligible for Medicare and Medicaid EHR incentive payments upon implementation of the EHR application, once they have demonstrated meaningful use of certified EHR technology for the applicable stage or have completed attestations to their adoption or implementation of certified EHR technology. With the exception of the newly constructed Temecula Valley Hospital, which was opened in October, 2013, we believe that all of our acute care hospitals have met the stage 1, year one “meaningful use” criteria. Although we believe that our acute care hospitals will be in compliance with the EHR standards by 2015, there can be no assurance that all of our facilities will be in compliance and therefore not subject to the penalty provision of the HITECH Act. Should we (our acute care hospitals) qualify for incentive payments, there may be timing differences in the recognition of the incentive income and expenses recorded in connection with the implementation of the EHR applications which may cause material period-to-period changes in our future results of operations;

• in August, 2011, the Budget Control Act of 2011 (the “2011 Act”) was enacted into law. The 2011 Act imposed annual spending limits for most federal agencies and programs aimed at reducing budget deficits by $917 billion between 2012 and 2021, according to a report released by the Congressional Budget Office. Among its other provisions, the law established a bipartisan Congressional committee, known as the Joint Select Committee on Deficit Reduction (the “Joint Committee”), which was tasked with making recommendations aimed at reducing future federal budget deficits by an additional $1.5 trillion over 10 years. The Joint Committee was unable to reach an agreement by the November 23, 2011 deadline and, as a result, across-the-board cuts to discretionary, national defense and Medicare spending were implemented on March 1, 2013 resulting in Medicare payment reductions of up to 2% per fiscal year (approximately $35 million annual reduction to our Medicare net revenues effective as of April 1, 2013) with a uniform percentage reduction across all Medicare programs. We cannot predict whether Congress will restructure the implemented Medicare payment reductions or what other federal budget deficit reduction initiatives may be proposed by Congress;

• Our accounts receivable as of December 31, 2013, 2012 and 2011 includes amounts due from Illinois of approximately $49 million, $70 million and $54 million, respectively. Collection of the outstanding receivables continues to be delayed due to state budgetary and funding pressures. Approximately $28 million as of December 31, 2013, $51 million as of December 31, 2012 and $41 million as of December 31, 2011, of the receivables due from Illinois were outstanding in excess of 60 days, as of

44

each respective date. In addition, our accounts receivable as of December 31, 2013 includes approximately $46 million due from Texas in connection with Medicaid supplemental payment programs the majority of which we expect to collect during the second quarter of 2014. Although the accounts receivable due from Illinois and Texas could remain outstanding for the foreseeable future, since we expect to eventually collect all amounts due to us (we have received $27 million of cash remittances from Illinois in January, 2014), no related reserves have been established in our consolidated financial statements. However, we can provide no assurance that we will eventually collect all amounts due to us from Illinois and/or Texas. Failure to ultimately collect all outstanding amounts due from these states would have an adverse impact on our future consolidated results of operations and cash flows;

• the ability to obtain adequate levels of general and professional liability insurance on current terms;

• changes in our business strategies or development plans;

• fluctuations in the value of our common stock, and;

• other factors referenced herein or in our other filings with the Securities and Exchange Commission.

Given these uncertainties, risks and assumptions, as outlined above, you are cautioned not to place undue reliance on such forward-looking statements. Our actual results and financial condition could differ materially from those expressed in, or implied by, the forward-looking statements. Forward-looking statements speak only as of the date the statements are made. We assume no obligation to publicly update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except as may be required by law. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes.

A summary of our significant accounting policies is outlined in Note 1 to the financial statements. We consider our critical accounting policies to be those that require us to make significant judgments and estimates when we prepare our financial statements, including the following:

Revenue recognition: We record revenues and related receivables for health care services at the time the services are provided. Medicare and Medicaid revenues represented 38% of our net patient revenues during 2013, 39% during 2012 and 41% during 2011. Revenues from managed care entities, including health maintenance organizations and managed Medicare and Medicaid programs accounted for 49% of our net patient revenues during each of 2013 and 2012 and 47% during 2011.

We report net patient service revenue at the estimated net realizable amounts from patients and third-party payors and others for services rendered. We have agreements with third-party payors that provide for payments to us at amounts different from our established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges and per diem payments. Estimates of contractual allowances under managed care plans are based upon the payment terms specified in the related contractual agreements. We closely monitor our historical collection rates, as well as changes in applicable laws, rules and regulations and contract terms, to assure that provisions are made using the most accurate information available. However, due to the complexities involved in these estimations, actual payments from payors may be different from the amounts we estimate and record.

We estimate our Medicare and Medicaid revenues using the latest available financial information, patient utilization data, government provided data and in accordance with applicable Medicare and Medicaid payment rules and regulations. The laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation and as a result, there is at least a reasonable possibility that recorded

45

estimates will change by material amounts in the near term. Certain types of payments by the Medicare program and state Medicaid programs (e.g. Medicare Disproportionate Share Hospital, Medicare Allowable Bad Debts and Inpatient Psychiatric Services) are subject to retroactive adjustment in future periods as a result of administrative review and audit and our estimates may vary from the final settlements. Such amounts are included in accounts receivable, net, on our Consolidated Balance Sheets. The funding of both federal Medicare and state Medicaid programs are subject to legislative and regulatory changes. As such, we cannot provide any assurance that future legislation and regulations, if enacted, will not have a material impact on our future Medicare and Medicaid reimbursements. Adjustments related to the final settlement of these retrospectively determined amounts did not materially impact our results in 2013, 2012 or 2011. If it were to occur, each 1% adjustment to our estimated net Medicare revenues that are subject to retrospective review and settlement as of December 31, 2013, would change our after-tax net income by approximately $1 million.

We provide care to patients who meet certain financial or economic criteria without charge or at amounts substantially less than our established rates. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in net revenues or in accounts receivable, net. See additional disclosure below in Charity Care and Uninsured Discounts in Acute Care Hospital Services for our estimated uncompensated care provided and estimated cost of providing uncompensated care.

A portion of the accounts receivable at our acute care facilities are comprised of Medicaid accounts that are pending approval from third-party payers but we also have smaller amounts due from other miscellaneous payers such as county indigent programs in certain states. Our patient registration process includes an interview of the patient or the patient’s responsible party at the time of registration. At that time, an insurance eligibility determination is made and an insurance plan code is assigned. There are various pre-established insurance profiles in our patient accounting system which determine the expected insurance reimbursement for each patient based on the insurance plan code assigned and the services rendered. Certain patients may be classified as Medicaid pending at registration based upon a screening evaluation if we are unable to definitively determine if they are currently Medicaid eligible. When a patient is registered as Medicaid eligible or Medicaid pending our patient accounting system records net revenues for the services provided to that patient based upon the established Medicaid reimbursement rates pending ultimate disposition of the patient’s Medicaid eligibility. Based on general factors as discussed below in Provision for Doubtful Accounts, our acute care facilities make estimates at each financial reporting period to reserve for amounts that are deemed to be uncollectible. Such estimated uncollectible amounts related to Medicaid pending, as well as other accounts receivable payer classifications, are considered when the overall individual facility and company-wide reserves are developed. Adjustments related to the final determination of these accounts did not materially impact our results of operations in 2013, 2012 or 2011.

Provision for Doubtful Accounts: Collection of receivables from third-party payers and patients is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and the portion of the bill which is the patient’s responsibility, primarily co-payments and deductibles. We estimate our provisions for doubtful accounts based on general factors such as payer mix, the agings of the receivables and historical collection experience. We routinely review accounts receivable balances in conjunction with these factors and other economic conditions which might ultimately affect the collectability of the patient accounts and make adjustments to our allowances as warranted. At our acute care hospitals, third party liability accounts are pursued until all payment and adjustments are posted to the patient account. For those accounts with a patient balance after third party liability is finalized or accounts for uninsured patients, the patient receives statements and collection letters. Patients that express an inability to pay are reviewed for potential sources of financial assistance including our charity care policy. If the patient is deemed unwilling to pay, the account is written-off as bad debt and transferred to an outside collection agency for additional collection effort.

Uninsured patients that do not qualify as charity patients are extended an uninsured discount of a minimum of 30% of total charges. Our hospitals establish a partial reserve for self-pay accounts in the allowance for

46

doubtful accounts for both unbilled balances and those that have been billed and are under 90 days old. All self-pay accounts are fully reserved at 90 days from the date of discharge. Third party liability accounts are fully reserved in the allowance for doubtful accounts when the balance ages past 180 days from the date of discharge. Potential charity accounts are fully reserved when it is determined the patient may be unable to pay.

On a consolidated basis, we monitor our total self-pay receivables to ensure that the total allowance for doubtful accounts provides adequate coverage based on historical collection experience. Our accounts receivable are recorded net of allowance for doubtful accounts of $395 million and $311 million at December 31, 2013 and 2012, respectively.

Approximately 90% during 2013 and 87% during 2012 of our consolidated provision for doubtful accounts, was incurred by our acute care hospitals. Shown below is our payer mix concentrations and related aging of our billed accounts receivable, net of contractual allowances, for our acute care hospitals as of December 31, 2013 and 2012:

As of December 31, 2013:

(amounts in thousands)	0-60 days		61-120 days		121-180 days		Over 180 days
Medicare	$	66,125	$	8,885	$	2,983	$	12,500
Medicaid		20,710		15,095		10,309		27,422
Commercial insurance and other		237,587		78,048		35,671		71,191
Private pay		143,683		96,294		20,983		4,354
Total	$	468,105	$	198,322	$	69,946	$	115,467

As of December 31, 2012:

(amounts in thousands)	0-60 days		61-120 days		121-180 days		Over 180 days
Medicare	$	71,684	$	8,240	$	3,085	$	8,657
Medicaid		21,978		17,854		10,095		25,377
Commercial insurance and other		225,237		67,804		32,393		64,721
Private pay		113,771		64,707		21,483		27,948
Total	$	432,670	$	158,605	$	67,056	$	126,703

Accounting for Medicare and Medicaid Electronic Health Records Incentive Payments: In July 2010, the Department of Health and Human Services published final regulations implementing the health information technology provisions of the American Recovery and Reinvestment Act. The regulation defines the “meaningful use” of Electronic Health Records (“EHR”) and established the requirements for the Medicare and Medicaid EHR payment incentive programs. The implementation period for these new Medicare and Medicaid incentive payments started in federal fiscal year 2011 and can end as late as 2016 for Medicare and 2021 for the state Medicaid programs. We recognize income related to Medicare and Medicaid incentive payments using a gain contingency model that is based upon when our eligible hospitals have demonstrated “meaningful use” of certified EHR technology for the applicable period and the cost report information for the full cost report year that will determine the final calculation of the incentive payment is available.

Medicare EHR incentive payments: Federal regulations require that Medicare EHR incentive payments be computed based on the Medicare cost report that begins in the federal fiscal period in which a hospital meets the applicable “meaningful use” requirements. Since the annual Medicare cost report periods for each of our acute care hospitals ends on December 31^st, we will recognize Medicare EHR incentive income for each hospital during the fourth quarter of the year in which the facility meets the “meaningful use” criteria and during the fourth quarter of each applicable subsequent year.

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Medicaid EHR incentive payments: Medicaid EHR incentive payments are determined based upon prior period cost report information available at the time our hospitals met the “meaningful use” criteria. Therefore, the majority of the Medicaid EHR incentive income recognition occurred in the period in which the applicable hospitals were deemed to have met initial “meaningful use” criteria. Upon meeting subsequent fiscal year “meaningful use” criteria, our hospitals may become entitled to additional Medicaid EHR incentive payments which will be recognized as incentive income in future periods. Medicaid EHR incentive payments received prior to our hospitals meeting the “meaningful use” criteria were included in other current liabilities (as deferred EHR incentive income) in our consolidated balance sheet.

Self-Insured Risks: We provide for self-insured risks, primarily general and professional liability claims and workers’ compensation claims. Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimate of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. All relevant information, including our own historical experience is used in estimating the expected amount of claims. While we continuously monitor these factors, our ultimate liability for professional and general liability claims could change materially from our current estimates due to inherent uncertainties involved in making this estimate. Our estimated self-insured reserves are reviewed and changed, if necessary, at each reporting date and changes are recognized currently as additional expense or as a reduction of expense. Given our significant self-insured exposure for professional and general liability claims, there can be no assurance that a sharp increase in the number and/or severity of claims asserted against us will not have a material adverse effect on our future results of operations.

Professional and General Liability and Workers Compensation Liability:

Effective January 1, 2008, most of our subsidiaries became self-insured for professional and general liability exposure up to $10 million per occurrence. Prior to our acquisition of Psychiatric Solutions, Inc. (“PSI”) in November, 2010, our subsidiaries purchased several excess policies through commercial insurance carriers which provide for coverage in excess of $10 million up to $200 million per occurrence and in the aggregate. However, we are liable for 10% of the claims paid pursuant to the commercially insured coverage in excess of $10 million up to $60 million per occurrence and in the aggregate.

Prior to our acquisition in November, 2010, the PSI subsidiaries were commercially insured for professional and general liability insurance claims in excess of a $3 million self-insured retention to a limit of $75 million. PSI utilized its captive insurance company and that captive insurance company remains in place after our acquisition of PSI to manage the self-insured retention for all former PSI subsidiaries for claims incurred prior to January 1, 2011. The captive insurance company also continues to insure all professional and general liability claims, regardless of date incurred, for the former PSI subsidiaries located in Florida and Puerto Rico.

Since our acquisition of PSI on November 15, 2010, the former PSI subsidiaries are self-insured for professional and general liability exposure up to $3 million per occurrence and our legacy subsidiaries (which are not former PSI subsidiaries) are self-insured for professional and general liability exposure up to $10 million per occurrence. Effective November, 2010, our subsidiaries (including the former PSI subsidiaries) were provided with several excess policies through commercial insurance carriers which provide for coverage in excess of the applicable per occurrence self-insured retention (either $3 million or $10 million) up to $250 million per occurrence and in the aggregate. We remain liable for 10% of the claims paid pursuant to the commercially insured coverage in excess of $10 million up to $60 million per occurrence and in the aggregate. The 9 behavioral health facilities acquired from Ascend Health Corporation in October, 2012 have general and professional liability policies through commercial insurance carriers which provide for up to $20 million of aggregate coverage, subject to a $25,000 per occurrence deductible. These facilities, like our other facilities, are also provided excess coverage through commercial insurance carriers for coverage in excess of the underlying commercial policy limitations up to $250 million per occurrence and in the aggregate.

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Our estimated liability for self-insured professional and general liability claims is based on a number of factors including, among other things, the number of asserted claims and reported incidents, estimates of losses for these claims based on recent and historical settlement amounts, estimates of incurred but not reported claims based on historical experience, and estimates of amounts recoverable under our commercial insurance policies. While we continuously monitor these factors, our ultimate liability for professional and general liability claims could change materially from our current estimates due to inherent uncertainties involved in making this estimate. Given our significant self-insured exposure for professional and general liability claims, there can be no assurance that a sharp increase in the number and/or severity of claims asserted against us will not have a material adverse effect on our future results of operations.

As of December 31, 2013, the total accrual for our professional and general liability claims was $206 million, of which $44 million is included in current liabilities. As of December 31, 2012, the total accrual for our professional and general liability claims was $279 million, of which $48 million is included in current liabilities.

We recorded reductions to our professional and general liability self-insurance reserves (relating to prior years) amounting to $81 million during 2013, $27 million during 2012 and $11 million during 2011. The favorable change in our estimated future claims payments recorded during 2013, relating to years prior to 2013, were due primarily to: (i) an increased weighting given to company-specific metrics (to 100% from 75%), and decreased general industry metrics (to 0% from 25%), related to projected incidents per exposure, historical claims experience and loss development factors; (ii) historical data which measured the realized favorable impact of medical malpractice tort reform experienced in several states in which we operate, and; (iii) a decrease in claims related to certain higher risk specialties (such as obstetrical) due to a continuation of the company-wide patient safety initiative undertaken during the last several years. As the number of our facilities and our patient volumes have increased, thereby providing for a statistically significant data group, and taking into consideration our long-history of company-specific risk management programs and claims experience, our reserve analyses have included a greater emphasis on our historical professional and general liability experience which has developed favorably as compared to general industry trends. The favorable change recorded during 2012 resulted from favorable changes in our estimated future claims payments pursuant to a reserve analysis. The favorable change recorded during 2011 consisted primarily of third-party recoveries and reserve reductions in connection with PHICO–related claims which we became liable for upon PHICO’s (a former commercial insurance carrier) liquidation in 2002.

As of December 31, 2013, the total accrual for our workers’ compensation liability claims was $64 million, of which $34 million is included in current liabilities. As of December 31, 2012, the total accrual for our workers’ compensation liability claims was $66 million, of which $35 million is included in current liabilities. The adjustments recorded during the last three years to our prior year reserves for workers’ compensation claims did not have a material impact on our consolidated results of operations for the years ended December 31, 2013, 2012 or 2011.

Although we are unable to predict whether or not our future financial statements will include adjustments to our prior year reserves for self-insured general and professional and workers’ compensation claims, given the relatively unpredictable nature of the these potential liabilities and the factors impacting these reserves, as discussed above, it is reasonably likely that our future financial results may include material adjustments to prior period reserves.

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Below is a schedule showing the changes in our general and professional liability and workers’ compensation reserves during the three years ended December 31, 2013 (amount in thousands):

	General and
	Professional			Workers’
	Liability			Compensation			Total
Balance at January 1, 2011	$	289,437		$	71,024		$	360,461
Plus: Accrued insurance expense, net of commercial premiums paid (a)		50,865			32,747			83,612
Less: Payments made in settlement of self-insured claims		(43,786	)		(38,845	)		(82,631	)
Plus: Liabilities assumed in the acquisition of PSI		(4,467	)		0			(4,467	)
Balance at January 1, 2012		292,049			64,926			356,975
Plus: Accrued insurance expense, net of commercial premiums paid (a)		29,152			33,508			62,660
Less: Payments made in settlement of self-insured claims		(42,602	)		(32,480	)		(75,082	)
Balance at January 1, 2013		278,599			65,954			344,553
Plus: Accrued insurance expense, net of commercial premiums paid (a)		(35,182	)		31,361			(3,821	)
Less: Payments made in settlement of self-insured claims		(37,127	)		(33,517	)		(70,644	)
Balance at December 31, 2013	$	206,290		$	63,798		$	270,088

(a) General and professional liability amounts are net of adjustments recorded during each year, as discussed above.

In addition, we also maintain self-insured employee benefits programs for employee healthcare and dental claims. The ultimate costs related to these programs include expenses for claims incurred and paid in addition to an accrual for the estimated expenses incurred in connection with claims incurred but not yet reported.

Property Insurance:

Property Insurance:

We have commercial property insurance policies covering catastrophic losses, including windstorm damage, up to a $1 billion policy limit per occurrence, subject to a $250,000 deductible for the majority of our properties (the properties acquired from Psychiatric Solutions, Inc. are subject to a $50,000 deductible). Losses resulting from named windstorms are subject to deductibles between 3% and 5% of the declared total insurable value of the property. In addition, we have commercial property insurance policies covering catastrophic losses resulting from earthquake and flood damage, each subject to aggregated loss limits (as opposed to per occurrence losses). Our earthquake limit is $250 million, subject to a deductible of $250,000, except for facilities located within documented fault zones. Earthquake losses that affect facilities located in fault zones within the United States are subject to a $100 million limit and will have applied deductibles ranging from 1% to 5% of the declared total insurable value of the property. The earthquake limit in Puerto Rico is $25 million, subject to a $25,000 deductible. Non-critical flood losses have either a $250,000 or $500,000 deductible, based upon the location of the facility. Since certain of our facilities have been designated by our insurer as flood prone, we have elected to purchase policies from The National Flood Insurance Program to cover a substantial portion of the applicable deductible.

Due to an increase in property losses experienced nationwide in recent years, our catastrophic coverage for earthquake and flood has been limited to annual aggregate losses (as opposed to per occurrence losses). There can be no assurance that a sharp increase in uninsured property losses sustained by us, will not have a material adverse effect on our future results of operations.

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Long-Lived Assets: We review our long-lived assets, including intangible assets, for impairment whenever events or circumstances indicate that the carrying value of these assets may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of our asset based on our estimate of its undiscounted future cash flow. If the analysis indicates that the carrying value is not recoverable from future cash flows, the asset is written down to its estimated fair value and an impairment loss is recognized. Fair values are determined based on estimated future cash flows using appropriate discount rates.

Goodwill and Intangible Assets: Goodwill and indefinite-lived intangible assets are reviewed for impairment at the reporting unit level on an annual basis or sooner if the indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each reporting unit. We have designated September 1^st as our annual impairment assessment date and performed an impairment assessment as of September 1, 2013 which indicated no impairment of goodwill or indefinite-lived intangible assets. There were also no impairments during 2012 or 2011. Future changes in the estimates used to conduct the impairment review, including profitability and market value projections, could indicate impairment in future periods potentially resulting in a write-off of a portion or all of our goodwill or indefinite-lived intangible assets.

Income Taxes: Deferred tax assets and liabilities are recognized for the amount of taxes payable or deductible in future years as a result of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. We believe that future income will enable us to realize our deferred tax assets net of recorded valuation allowances relating to state net operating loss carry-forwards.

We operate in multiple jurisdictions with varying tax laws. We are subject to audits by any of these taxing authorities. Our tax returns have been examined by the Internal Revenue Service (“IRS”) through the year ended December 31, 2006. We believe that adequate accruals have been provided for federal, foreign and state taxes.

See Provision for Income Taxes and Effective Tax Rates below for discussion of our effective tax rates during each of the last three years.

Recent Accounting Pronouncements: For a summary of recent accounting pronouncements, please see Note 1 to the Consolidated Financial Statements Accounting Standards as included in this Report on Form 10-K for the year ended December 31, 2013.

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Results of Operations

The following table summarizes our results of operations, and is used in the discussion below, for the years ended December 31, 2013, 2012 and 2011 (dollar amounts in thousands):

	Year Ended December 31,
	2013						2012						2011
				% of Net						% of Net					% of Net
	Amount			Revenues			Amount			Revenues			Amount		Revenues
Net revenues before provision for doubtful accounts	$	8,411,038					$	7,688,071					$	7,356,798
Less: Provision for doubtful accounts		1,127,216						726,671						596,576
Net revenues		7,283,822			100.0	%		6,961,400			100.0	%		6,760,222		100.0	%
Operating charges:
Salaries, wages and benefits		3,604,620			49.5	%		3,440,917			49.4	%		3,326,378		49.2	%
Other operating expenses		1,468,744			20.2	%		1,376,122			19.8	%		1,353,693		20.0	%
Supplies expense		821,089			11.3	%		799,621			11.5	%		805,489		11.9	%
Depreciation and amortization		337,172			4.6	%		302,426			4.3	%		287,211		4.2	%
Lease and rental expense		97,758			1.3	%		94,885			1.4	%		90,323		1.3	%
Transaction costs		0			0.0	%		5,716			0.1	%		0		0.0	%
Electronic health records incentive income		(61,024	)		-0.8	%		(30,038	)		-0.4	%		0		0.0	%
Costs related to extinguishment of debt		0			0.0	%		29,170			0.4	%		0		0.0	%
Subtotal-operating expenses		6,268,359			86.1	%		6,018,819			86.5	%		5,863,094		86.7	%
Income from operations		1,015,463			13.9	%		942,581			13.5	%		897,128		13.3	%
Interest expense, net		146,131			2.0	%		178,918			2.6	%		200,792		3.0	%
Income before income taxes		869,332			11.9	%		763,663			11.0	%		696,336		10.3	%
Provision for income taxes		315,309			4.3	%		274,616			3.9	%		247,466		3.7	%
Net income		554,023			7.6	%		489,047			7.0	%		448,870		6.6	%
Less: Income attributable to noncontrolling interests		43,290			0.6	%		45,601			0.7	%		50,703		0.8	%
Net income attributable to UHS	$	510,733			7.0	%	$	443,446			6.4	%	$	398,167		5.9	%

Year Ended December 31, 2013 as compared to the Year Ended December 31, 2012:

Net revenues increased 5% or $322 million to $7.28 billion during 2013 as compared to $6.96 billion during 2012. The increase was primarily attributable to:

• a $239 million or 4% increase in net revenues generated at our acute care hospitals and behavioral health care facilities owned during both periods (which we refer to as “same facility”), and;

• other combined net increase of $83 million consisting primarily of the net revenues generated during the first ten months of 2013 at nine behavioral health facilities acquired from Ascend Health Corporation in October, 2012 (the operating results for these facilities for the months of November and December of 2013 and 2012 are included in our behavioral health care facilities-same facility basis results).

Income before income taxes (before deduction for income attributable to noncontrolling interests) increased $106 million to $869 million during 2013 as compared to $764 million during 2012. Included in our income before income taxes during 2013, as compared to 2012, was the following:

a. a decrease of $28 million at our acute care facilities as discussed below in Acute Care Hospital Services, excluding the impact of the applicable items mentioned in c., d., h., and j., below;

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b. an increase of $57 million at our behavioral health facilities, as discussed below in Behavioral Health Services, excluding the impact of the applicable items mentioned in c., and i., below;

c. a net increase of $53 million resulting from reductions recorded during 2013 and 2012 to our professional and general liability self-insurance reserves, as discussed above in Self-Insured Risks ($81 million reduction recorded in 2013 of which $63 million was applicable to our acute care hospitals and $18 million was applicable to our behavioral health facilities, and $27 million reduction recorded during 2012 of which $23 million was applicable to our acute care hospitals and $4 million was applicable to our behavioral health facilities);

d. a decrease of $33 million (net of related expenses) resulting from the pre-tax income recorded during 2012 related to an agreement, which was part of an industry-wide settlement related to underpayments of Medicare inpatient prospective payments during a number of prior years, entered into with the United States Department of Health and Human Services, the Secretary of Health and Human Services, and the Centers for Medicare and Medicaid Services;

e. a decrease of $26 million resulting from a gain realized on the sale of an acute care hospital (Auburn Regional Medical Center) which was sold during the fourth quarter of 2012;

f. an increase of $29 million resulting from the write-off deferred financing costs, during 2012, related to the portion of our Term Loan B credit facility that was extinguished during the third quarter of 2012;

g. an increase of $33 million due to a decrease in interest expense resulting primarily from a decrease in our average effective borrowing rate during 2013 as compared to 2012 (as discussed below in Interest Expense);

h. a net aggregate increase of $11 million resulting from the following unfavorable items recorded during 2012: (i) the revised Supplemental Security Income ratios utilized for calculating Medicare disproportionate share hospital reimbursements for federal fiscal years 2006 through 2009 ($7 million unfavorable impact), and; (ii) the write-off of receivables related to revenues recorded during 2011 at two of our acute care hospitals located in Florida resulting from reductions in certain county reimbursements due to reductions in federal matching Inter-Governmental Transfer funds ($4 million unfavorable impact);

i. a decrease of $14 million resulting from the 2011 portion, recorded in 2012, of net Medicaid supplemental reimbursements earned pursuant to new programs initiated in certain states in which we operate behavioral health facilities, most notably the Oklahoma Supplemental Hospital Offset Payment Program which was approved during 2012, retroactive to July 1, 2011;

j. an increase of $16 million related to the incentive income ($61 million in 2013 and $30 million in 2012), net of related expenses ($43 million in 2013 and $28 million in 2012), recorded during the each year in connection with the implementation of EHR applications at our acute care hospitals, and;

k. $8 million of other combined net increases.

Net income attributable to UHS increased $67 million to $511 million during 2013 as compared to $443 million during 2012. The increase consisted of:

• an increase of $106 million in income before income taxes, as discussed above;

• an increase of $2 million resulting from a decrease in the income attributable to noncontrolling interests, and;

• a decrease of $41 million resulting from an increase in the provision for income taxes resulting primarily from the income tax provision on the $108 million increase in pre-tax income ($106 million increase in income before income taxes plus the $2 million increase in income resulting from a decrease in the income attributable to noncontrolling interests).

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Year Ended December 31, 2012 as compared to the Year Ended December 31, 2011:

Net revenues increased 3% or $201 million to $6.96 billion during 2012 as compared to $6.76 billion during 2011. The increase was primarily attributable to:

• a $152 million or 2% increase in net revenues generated at our acute care hospitals and behavioral health care facilities owned during both periods, and;

• $49 million of other combined net increases in net revenues consisting primarily of $36 million of revenues resulting from an agreement, which was part of an industry-wide settlement related to underpayments of Medicare inpatient prospective payments during a number of prior years, entered into during the first quarter of 2012 with the United States Department of Health and Human Services, the Secretary of Health and Human Services, and the Centers for Medicare and Medicaid Services.

Income before income taxes (before deduction for income attributable to noncontrolling interests) increased $67 million to $764 million during 2012 as compared to $696 million during 2011. Included in our income before income taxes during 2012, as compared to 2011, was the following:

a. a decrease of $53 million at our acute care facilities as discussed below in Acute Care Hospital Services, excluding the impact of the applicable items mentioned in c., f., h., and i., below;

b. an increase of $93 million at our behavioral health care facilities, as discussed below in Behavioral Health Services, excluding the impact of the applicable items mentioned in e., and h., below;

c. an increase of $33 million (net of related expenses) resulting from the above-mentioned 2012 agreement with the United States Department of Health and Human Services, the Secretary of Health and Human Services, and the Centers for Medicare and Medicaid Services;

d. a decrease of $29 million resulting from the write-off of deferred financing costs related to the portion of our Term Loan B credit facility that was extinguished during the third quarter of 2012;

e. an increase of $13 million representing the 2011 portion, recorded in 2012, of the net Medicaid supplemental reimbursements earned pursuant new programs initiated in certain states in which we operate behavioral health facilities, most particularly the Oklahoma Supplemental Hospital Offset Payment Program which was approved during 2012, retroactive to July 1, 2011;

f. a net aggregate decrease of $11 million resulting from the following items recorded during 2012: (i) the revised Supplemental Security Income ratios utilized for calculating Medicare disproportionate share hospital reimbursements for federal fiscal years 2006 through 2009 ($7 million unfavorable impact), and; (ii) the write-off of receivables related to revenues recorded during 2011 at two of our acute care hospitals located in Florida resulting from reductions in certain county reimbursements due to reductions in federal matching Inter-Governmental Transfer funds ($4 million unfavorable impact);

g. an increase of $22 million due to a decrease in interest expense resulting primarily from a decrease in our average effective interest rate (due primarily to an amendment to our credit agreement in March of 2011 which, among other things, provided for reductions in the rates payable for borrowings outstanding under our Term Loan A, Term Loan B and revolving credit facility), as discussed below in Interest Expense;

h. a net increase of $16 million resulting from reductions recorded during 2012 and 2011 to our professional and general liability reserves, as discussed above in Self-Insured Risks ($27 million reduction recorded in 2012 of which $23 million was applicable to our acute care hospitals and $4 million was applicable to our behavioral health facilities, and $11 million reduction recorded in 2011 of which $10 million was applicable to our acute care hospitals and $1 million was applicable to our behavioral health facilities);

i. an increase of $2 million related to the incentive income ($30 million), net of expenses ($28 million), recorded in connection with the implementation of EHR applications at our acute care hospitals;

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j. an increase of $26 million resulting from a gain realized on the sale of an acute care hospital (Auburn Regional Medical Center) which was sold during the fourth quarter of 2012, and;

k. $45 million of other combined net decreases including increased corporate overhead expenses, a net combined decrease of $6 million in the operating results of Auburn Regional Medical Center and Peak Behavioral Health Services which are reflected as discontinued operations (excluding the above-mentioned $26 million gain realized on the divestiture of Auburn Medical Center), and $6 million of transaction costs incurred during 2012 in connection with our acquisition of Ascend Health Corporation.

Net income attributable to UHS increased $45 million to $443 million during 2012 as compared to $398 million during 2011. The increase consisted of:

• an increase of $67 million in income before income taxes, as discussed above;

• an increase of $5 million resulting from a decrease in the income attributable to noncontrolling interests, and;

• a decrease of $27 million resulting from an increase in the provision for income taxes resulting primarily from the income tax provision on the $72 million increase in pre-tax income ($67 million increase in income before income taxes plus the $5 million increase in income resulting from a decrease in the income attributable to noncontrolling interests).

Acute Care Hospital Services

Year Ended December 31, 2013 as compared to the Year Ended December 31, 2012:

Acute Care Hospitals-Same Facility Basis

The following table summarizes the results of operations for our acute care facilities on a same facility basis and is used in the discussions below for the years ended December 31, 2013 and 2012 (dollar amounts in thousands):

	Year Ended December 31, 2013					Year Ended December 31, 2012
	Amount		% of Net Revenues			Amount		% of Net Revenues
Net revenues before provision for doubtful accounts	$	4,581,280				$	4,073,147
Less: Provision for doubtful accounts		1,014,455					635,283
Net revenues		3,566,825		100.0	%		3,437,864		100.0	%
Operating charges:
Salaries, wages and benefits		1,614,276		45.3	%		1,546,136		45.0	%
Other operating expenses		781,812		21.9	%		724,480		21.1	%
Supplies expense		641,078		18.0	%		624,950		18.2	%
Depreciation and amortization		191,274		5.4	%		188,243		5.5	%
Lease and rental expense		57,384		1.6	%		58,166		1.7	%
Subtotal-operating expenses		3,285,824		92.1	%		3,141,975		91.4	%
Income from operations		281,001		7.9	%		295,889		8.6	%
Interest expense, net		4,501		0.1	%		4,815		0.1	%
Income before income taxes		276,500		7.8	%		291,074		8.5	%

On a same facility basis during 2013, as compared to 2012, net revenues at our acute care hospitals increased $129 million or 4%. Income before income taxes decreased $15 million or 5% to $277 million or 7.8% of net revenues during 2013 as compared to $291 million or 8.5% of net revenues during 2012.

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Inpatient admissions to these facilities increased 0.2% during 2013, as compared to 2012, while patient days increased 1.4%. Adjusted admissions (adjusted for outpatient activity) increased 1.0% and adjusted patient days increased 2.2% during 2013, as compared to 2012. The average length of inpatient stay at these facilities was 4.5 days during each of 2013 and 2012. The occupancy rate, based on the average available beds at these facilities, was 56% during each of 2013 and 2012. On a same facility basis, net revenue per adjusted admission at these facilities increased 2.7% during 2013, as compared to 2012, and net revenue per adjusted patient day increased 1.5% during 2013, as compared to 2012.

All Acute Care Hospitals

The following table summarizes the results of operations for all our acute care operations during 2013 and 2012, which includes our acute care results on a same facility basis, as well as the impact of other items as mentioned below (dollar amounts in thousands).

	Year Ended December 31, 2013						Year Ended December 31, 2012
	Amount			% of Net Revenues			Amount			% of Net Revenues
Net revenues before provision for doubtful accounts	$	4,592,102					$	4,096,699
Less: Provision for doubtful accounts		1,015,733						635,283
Net revenues		3,576,369			100.0	%		3,461,416			100.0	%
Operating charges:
Salaries, wages and benefits		1,635,428			45.7	%		1,560,468			45.1	%
Other operating expenses		727,224			20.3	%		704,108			20.3	%
Supplies expense		643,169			18.0	%		624,955			18.1	%
Depreciation and amortization		227,368			6.4	%		201,536			5.8	%
Lease and rental expense		57,512			1.6	%		58,187			1.7	%
Electronic health records incentive income		(61,024	)		-1.7	%		(30,038	)		-0.9	%
Subtotal-operating expenses		3,229,677			90.3	%		3,119,216			90.1	%
Income from operations		346,692			9.7	%		342,200			9.9	%
Interest expense, net		4,501			0.1	%		4,815			0.1	%
Income before income taxes		342,191			9.6	%		337,385			9.7	%

During 2013, as compared to 2012, net revenues at our acute care hospitals increased $115 million or 3% to $3.58 billion due primarily to an increase in same facility revenues, as discussed above.

Income before income taxes increased $5 million to $342 million or 9.6% of net revenues during 2013 as compared to $337 million or 9.7% of net revenues during 2012.

Included in these results are the following:

• the $15 million decrease in income before income taxes experienced during 2013, as compared to 2012, at our acute care hospitals, on a same facility basis, as discussed above;

• a $40 million net increase resulting from reductions to our professional and general liability self-insurance reserves attributable to our acute care hospitals recorded during 2013 ($63 million) and 2012 ($23 million), as discussed above in Self-Insured Risks;

• a decrease of $33 million (net of related expenses) resulting from the pre-tax income recorded during 2012 related to an agreement with the United States Department of Health and Human Services, the Secretary of Health and Human Services, and the Centers for Medicare and Medicaid Services;

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• a net aggregate increase of $11 million resulting from the following unfavorable items which were recorded during 2012: (i) the revised Supplemental Security Income ratios utilized for calculating Medicare disproportionate share hospital reimbursements for federal fiscal years 2006 through 2009 ($7 million unfavorable impact), and; (ii) the write-off of receivables related to revenues recorded during 2011 at two of our acute care hospitals located in Florida resulting from reductions in certain county reimbursements due to reductions in federal matching Inter-Governmental Transfer funds ($4 million unfavorable impact);

• a net increase of $16 million related to the incentive income ($61 million in 2013 and $30 million in 2012), net of related expenses ($43 million in 2013 and $28 million in 2012), recorded in connection with the implementation of EHR applications at our acute care hospitals, and;

• a net other combined decrease of $14 million consisting primarily of the operating losses incurred at a Temecula Valley Hospital, a newly constructed 140-bed acute care facility located in Temecula, California that was completed and opened in October of 2013.

Year Ended December 31, 2012 as compared to the Year Ended December 31, 2011:

Acute Care Hospitals-Same Facility Basis

The following table summarizes the results of operations for our acute care facilities on a same facility basis and is used in the discussions below for the years ended December 31, 2012 and 2011 (dollar amounts in thousands):

	Year Ended December 31, 2012					Year Ended December 31, 2011
	Amount		% of Net Revenues			Amount		% of Net Revenues
Net revenues before provision for doubtful accounts	$	4,073,147				$	3,942,469
Less: Provision for doubtful accounts		635,283					518,512
Net revenues		3,437,864		100.0	%		3,423,957		100.0	%
Operating charges:
Salaries, wages and benefits		1,546,136		45.0	%		1,507,870		44.0	%
Other operating expenses		724,480		21.1	%		704,067		20.6	%
Supplies expense		624,950		18.2	%		622,175		18.2	%
Depreciation and amortization		188,243		5.5	%		190,322		5.6	%
Lease and rental expense		58,166		1.7	%		52,859		1.5	%
Subtotal-operating expenses		3,141,975		91.4	%		3,077,293		89.9	%
Income from operations		295,889		8.6	%		346,664		10.1	%
Interest expense, net		4,815		0.1	%		3,903		0.1	%
Income before income taxes		291,074		8.5	%		342,761		10.0	%

On a same facility basis during 2012, as compared to 2011, net revenues at our acute care hospitals increased $14 million or less than 1%. Income before income taxes decreased $52 million or 15% to $291 million or 8.5% of net revenues during 2012 as compared to $343 million or 10.0% of net revenues during 2011.

Inpatient admissions to these facilities decreased 2.0% during 2012, as compared to 2011, while patient days decreased 1.7%. Adjusted admissions (adjusted for outpatient activity) increased 0.2% and adjusted patient days increased 0.5% during 2012, as compared to 2011. The average length of inpatient stay at these facilities was 4.5 days during each of 2012 and 2011. The occupancy rate, based on the average available beds at these facilities, was 56% during 2012 and 58% during 2011. On a same facility basis, net revenue per adjusted

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admission at these facilities increased 0.2% during 2012, as compared to 2011, and net revenue per adjusted patient day decreased 0.1% during 2012, as compared to 2011.

The decrease in income before income taxes and pressure on patient volumes, net revenues and net revenue per adjusted admission and adjusted patient day experienced at our acute care hospitals during 2012, as compared to 2011, were largely due to a decline in organic revenue growth caused by the continuing trends of weak demand and deteriorating payor mix.

All Acute Care Hospitals

The following table summarizes the results of operations for all our acute care operations during 2012 and 2011, which includes our acute care results on a same facility basis, as well as the impact of other items as mentioned below (dollar amounts in thousands).

	Year Ended December 31, 2012						Year Ended December 31, 2011
	Amount			% of Net Revenues			Amount		% of Net Revenues
Net revenues before provision for doubtful accounts	$	4,096,699					$	3,942,469
Less: Provision for doubtful accounts		635,283						518,512
Net revenues		3,461,416			100.0	%		3,423,957		100.0	%
Operating charges:
Salaries, wages and benefits		1,560,468			45.1	%		1,507,870		44.0	%
Other operating expenses		704,108			20.3	%		693,897		20.3	%
Supplies expense		624,955			18.1	%		622,175		18.2	%
Depreciation and amortization		201,536			5.8	%		190,322		5.6	%
Lease and rental expense		58,187			1.7	%		52,859		1.5	%
Electronic health records incentive income		(30,038	)		-0.9	%		0		0.0	%
Subtotal-operating expenses		3,119,216			90.1	%		3,067,123		89.6	%
Income from operations		342,200			9.9	%		356,834		10.4	%
Interest expense, net		4,815			0.1	%		3,903		0.1	%
Income before income taxes		337,385			9.7	%		352,931		10.3	%

During 2012, as compared to 2011, net revenues at our acute care hospitals increased 1% or $37 million to $3.46 billion due primarily to the above-mentioned agreement related to underpayments of Medicare inpatient prospective payments during a number of prior years and an increase in same facility revenues, as discussed above.

Income before income taxes decreased $16 million to $337 million or 9.7% of net revenues during 2012 as compared to $353 million or 10.3% of net revenues during 2011.

Included in these results are the following:

• the $52 million decrease in income before income taxes experienced during 2012, as compared to 2011, at our acute care hospitals, on a same facility basis, as discussed above;

• the $13 million net favorable effect resulting from reductions to our professional and general liability self-insurance reserves recorded during 2012 ($23 million) and 2011 ($10 million), as discussed above in Self-Insured Risks;

• the favorable impact of $33 million (net of related expenses) recorded during 2012 resulting from the above-mentioned agreement with the United States Department of Health and Human Services, the Secretary of Health and Human Services, and the Centers for Medicare and Medicaid Services;

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• a net aggregate decrease of $11 million resulting from the following items which were recorded during 2012: (i) the revised Supplemental Security Income ratios utilized for calculating Medicare disproportionate share hospital reimbursements for federal fiscal years 2006 through 2009 ($7 million unfavorable impact), and; (ii) the write-off of receivables related to revenues recorded during 2011 at two of our acute care hospitals located in Florida resulting from reductions in certain county reimbursements due to reductions in federal matching Inter-Governmental Transfer funds ($4 million unfavorable impact), and;

• an increase of $2 million related to the incentive income ($30 million), net of expenses ($28 million), recorded during 2012 in connection with the implementation of EHR applications at our acute care hospitals.

Charity Care and Uninsured Discounts:

A significant portion of the patients treated throughout our portfolio of acute care hospitals are uninsured patients which, in part, has resulted from an increase in the number of patients who are employed but do not have health insurance or who have policies with relatively high deductibles. Patients treated at our hospitals for non-elective services, who have gross income less than 400% of the federal poverty guidelines, are deemed eligible for charity care. The federal poverty guidelines are established by the federal government and are based on income and family size. Because we do not pursue collection of amounts that qualify as charity care, they are not reported in our net revenues or in our accounts receivable, net. We also provide discounts to uninsured patients (included in “uninsured discounts” amounts below) who do not qualify for Medicaid or charity care. Because we do not pursue collection of amounts classified as uninsured discounts, they are not reported in our net revenues or in our accounts receivable, net. In implementing the discount policy, we first attempt to qualify uninsured patients for governmental programs, charity care or any other discount program. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.

Uncompensated care:

The following table shows the amounts recorded at our acute care hospitals for charity care and uninsured discounts, based on charges at established rates, for the years ended December 31, 2013, 2012 and 2011:

	(dollar amounts in thousands)
	2013					2012					2011
	Amount		%			Amount		%			Amount		%
Charity care	$	593,474		59	%	$	778,268		74	%	$	804,301		84	%
Uninsured discounts		405,296		41	%		267,304		26	%		151,447		16	%
Total uncompensated care	$	998,770		100	%	$	1,045,572		100	%	$	955,748		100	%

In addition, the provision for doubtful accounts at our acute care hospitals were approximately $1.02 billion during 2013, $635 million during 2012 and $519 million during 2011.

The estimated cost of providing uncompensated care:

The estimated cost of providing uncompensated care, as reflected below, were based on a calculation which multiplied the percentage of operating expenses for our acute care hospitals to gross charges for those hospitals by the above-mentioned total uncompensated care amounts. The percentage of cost to gross charges is calculated based on the total operating expenses for our acute care facilities divided by gross patient service revenue for those facilities. An increase in the level of uninsured patients to our facilities and the resulting adverse trends in

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the provision for doubtful accounts and uncompensated care provided could have a material unfavorable impact on our future operating results.

	(amounts in thousands)
	2013		2012		2011
Estimated cost of providing charity care	$	95,675	$	131,890	$	145,350
Estimated cost of providing uninsured discounts related care		65,338		45,299		27,363
Estimated cost of providing uncompensated care	$	161,013	$	177,189	$	172,713

Behavioral Health Care Services

Year Ended December 31, 2013 as compared to the Year Ended December 31, 2012

Behavioral Health Care Facilities-Same Facility Basis

The following table summarizes the results of operations for our behavioral health care facilities, on a same facility basis, and is used in the discussions below for the years ended December 31, 2013 and 2012 (dollar amounts in thousands):

	Year Ended					Year Ended
	December 31, 2013					December 31, 2012
			% of Net					% of Net
	Amount		Revenues			Amount		Revenues
Net revenues before provision for doubtful accounts	$	3,612,023				$	3,488,872
Less: Provision for doubtful accounts		104,069					90,574
Net revenues		3,507,954		100.0	%		3,398,298		100.0	%
Operating charges:
Salaries, wages and benefits		1,714,109		48.9	%		1,685,266		49.6	%
Other operating expenses		641,473		18.3	%		601,442		17.7	%
Supplies expense		165,675		4.7	%		167,065		4.9	%
Depreciation and amortization		96,934		2.8	%		91,886		2.7	%
Lease and rental expense		33,693		1.0	%		32,507		1.0	%
Subtotal-operating expenses		2,651,884		75.6	%		2,578,166		75.9	%
Income from operations		856,070		24.4	%		820,132		24.1	%
Interest expense, net		2,079		0.1	%		1,816		0.1	%
Income before income taxes		853,991		24.3	%		818,316		24.1	%

On a same facility basis during 2013, as compared to 2012, net revenues at our behavioral health care facilities increased $110 million or 3% to $3.51 billion during 2013 as compared to $3.40 billion during 2012. Income before income taxes increased $36 million or 4% to $854 million or 24.3% of net revenues during 2013 as compared to $818 million or 24.1% of net revenues during 2012.

Inpatient admissions to these facilities increased 3.2% during 2013, as compared to 2012, while patient days increased 0.7%. Adjusted admissions increased 3.5% and adjusted patient days increased 1.0% during 2013, as compared to 2012. The average length of patient stay at these facilities was 13.4 days during 2013 and 13.7 days during 2012. The occupancy rate, based on the average available beds at these facilities, was 75% during 2013 and 74% during 2012. On a same facility basis, net revenue per adjusted admission at these facilities decreased 0.3% during 2013, as compared to 2012, and net revenue per adjusted patient day increased 2.2% during 2013, as compared to 2012.

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All Behavioral Health Care Facilities

The following table summarizes the results of operations for all our behavioral health care facilities for 2013 and 2012, including, for the period of January through October of 2013, the 9 facilities acquired in October, 2012 from Ascend Health Corporation (the operating results for these facilities for November and December of 2013 and 2012 are included in the same facility results discussed above), as well as the impact of various other items as mentioned below (dollar amounts in thousands):

	Year Ended					Year Ended
	December 31, 2013					December 31, 2012
			% of Net					% of Net
	Amount		Revenues			Amount		Revenues
Net revenues before provision for doubtful accounts	$	3,779,237				$	3,551,511
Less: Provision for doubtful accounts		111,270					91,370
Net revenues		3,667,967		100.0	%		3,460,141		100.0	%
Operating charges:
Salaries, wages and benefits		1,799,589		49.1	%		1,717,751		49.6	%
Other operating expenses		654,937		17.9	%		603,700		17.4	%
Supplies expense		173,932		4.7	%		169,552		4.9	%
Depreciation and amortization		102,469		2.8	%		94,049		2.7	%
Lease and rental expense		39,092		1.1	%		34,569		1.0	%
Subtotal-operating expenses		2,770,019		75.5	%		2,619,621		75.7	%
Income from operations		897,948		24.5	%		840,520		24.3	%
Interest expense, net		2,079		0.1	%		1,917		0.1	%
Income before income taxes		895,869		24.4	%		838,603		24.2	%

During 2013, as compared to 2012, net revenues at our behavioral health care facilities increased 6% or $208 million to $3.67 billion during 2013 as compared to $3.46 billion during 2012. The increase in net revenues was attributable to:

• a $110 million increase in same facility revenues, as discussed above;

• a $137 million increase related to the 9 facilities acquired from Ascend Health Corporation in October, 2012 (consisting of the net revenues generated at the facilities during January through October of 2013, offset by the net revenues generated at the facilities during the partial month of October, 2012);

• a $14 million decrease due to the revenues recorded during 2012 representing the 2011 portion of the net Medicaid supplemental reimbursements earned pursuant to the Oklahoma Supplemental Hospital Offset Payment Program as well as similar programs in Ohio and Indiana, and;

• $25 million of other combined decreases resulting primarily from the divestiture, closure or operational wind-down of certain non-strategic behavioral health facilities/schools.

Income before income taxes increased $57 million or 7% to $896 million or 24.4% of net revenues during 2013, as compared to $839 million or 24.2% of net revenues during 2012. The increase in income before income taxes at our behavioral health facilities was attributable to:

• a $36 million increase at our behavioral health facilities on a same facility basis, as discussed above;

• a $14 million decrease resulting from the revenues recorded during 2012 representing the 2011 portion of the net Medicaid supplemental reimbursements earned pursuant to the Oklahoma Supplemental Hospital Offset Payment Program as well as similar programs in Ohio and Indiana;

• a $14 million net favorable increase resulting from reductions to our professional and general liability self-insurance reserves applicable to our behavioral health facilities recorded during 2013 ($18 million) and 2012 ($4 million), as discussed above in Self-Insured Risks, and;

• a $21 million of other combined net increases, including the income generated at the 9 facilities acquired from Ascend Health Corporation in October, 2012.

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Year Ended December 31, 2012 as compared to the Year Ended December 31, 2011

Behavioral Health Care Facilities-Same Facility Basis

The following table summarizes the results of operations for our behavioral health care facilities, on a same facility basis, and is used in the discussions below for the years ended December 31, 2012 and 2011 (dollar amounts in thousands):

	Year Ended					Year Ended
	December 31, 2012					December 31, 2011
			% of Net					% of Net
	Amount		Revenues			Amount		Revenues
Net revenues before provision for doubtful accounts	$	3,468,314				$	3,318,433
Less: Provision for doubtful accounts		88,925					76,963
Net revenues		3,379,389		100.0	%		3,241,470		100.0	%
Operating charges:
Salaries, wages and benefits		1,678,951		49.7	%