CONTRACT BALANCES

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

CONTRACT BALANCES

CONTRACT BALANCES

Hospital Operations Segment

        Amounts related to services provided to patients for which we have not billed and that do not meet the conditions of unconditional right to payment at the end of the reporting period are contract assets. For our Hospital Operations segment, our contract assets consist primarily of services that we have provided to patients who are still receiving inpatient care in our facilities at the end of the reporting period. Our Hospital Operations segment’s contract assets are included in other current assets in the accompanying Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019.

In certain circumstances, when a hospital is experiencing financial difficulty due to delays in receiving payment for Medicare services provided, it may be eligible for an accelerated or advance payment pursuant to the Medicare accelerated

payment program. The CARES Act revised the Medicare accelerated payment program in an attempt to disburse payments to hospitals more quickly to mitigate shortfalls due to delays in non-essential procedures, as well as staffing and billing disruptions. In the three months ended June 30, 2020, our Hospital Operations segment received advance payments from the Medicare accelerated payment program following expansion of the program under the CARES Act. These advance payments are recorded as contract liabilities in the accompanying Condensed Consolidated Balance Sheet at June 30, 2020, except for $49 million related to our hospitals and other operations in the Memphis area, which payments are recorded as liabilities held for sale.

The opening and closing balances of contract assets and contract liabilities for our Hospital Operations segment are as follows:

			Contract Liability –
			Current
	Contract Assets		Advances from Medicare
December 31, 2019	$	170	$	—
June 30, 2020	176		1,266
Increase/(decrease)	$	6	$	1,266

December 31, 2018	$	169	$	—
June 30, 2019	160		—
Increase/(decrease)	$	(9)	$	—

         Approximately 85% of our Hospital Operations segment’s contract assets meet the conditions for unconditional right to payment and are reclassified to patient receivables within 90 days.

Ambulatory Care Segment

In the three months ended June 30, 2020, our Ambulatory Care segment also received advance payments from the Medicare accelerated payment program following expansion of the program under the CARES Act. The opening and closing balances of contract liabilities for our Ambulatory Care segment are as follows:

	Contract Liability –
	Current
	Advances from Medicare
December 31, 2019	$	—
June 30, 2020	167
Increase/(decrease)	$	167
December 31, 2018	$	—
June 30, 2019	—
Increase/(decrease)	$	—

Conifer Segment

        Conifer enters into contracts with customers to provide revenue cycle management and other services, such as value-based care, consulting and project services. The payment terms and conditions in our customer contracts vary. In some cases, customers are invoiced in advance and (for other than fixed-price fee arrangements) a true-up to the actual fee is included on a subsequent invoice. In other cases, payment is due in arrears. In addition, some contracts contain performance incentives, penalties and other forms of variable consideration. When the timing of Conifer’s delivery of services is different from the timing of payments made by the customers, Conifer recognizes either unbilled revenue (performance precedes contractual right to invoice the customer) or deferred revenue (customer payment precedes Conifer service performance). In the following table, customers that prepay prior to obtaining control/benefit of the service are represented by deferred contract revenue until the performance obligations are satisfied. Unbilled revenue represents arrangements in which Conifer has provided services to and the customer has obtained control/benefit of services prior to the contractual invoice date. Contracts with payment in arrears are recognized as receivables in the month the service is performed.

        The opening and closing balances of Conifer’s receivables, contract asset, and current and long-term contract liabilities are as follows:

					Contract Liability –		Contract Liability –
			Contract Asset –		Current		Long-Term
	Receivables		Unbilled Revenue		Deferred Revenue		Deferred Revenue
December 31, 2019	$	26	$	11	$	61	$	18
June 30, 2020	28		12		63		17
Increase/(decrease)	$	2	$	1	$	2	$	(1)
December 31, 2018	$	42	$	11	$	61	$	20
June 30, 2019	96		15		67		19
Increase/(decrease)	$	54	$	4	$	6	$	(1)

        The difference between the opening and closing balances of Conifer’s contract assets and contract liabilities are primarily related to prepayments for those customers who are billed in advance, changes in estimates related to metric-based services, and up-front integration services that are typically not distinct and are, therefore, recognized over the performance obligation period to which they relate. Our Conifer segment’s receivables and contract assets are reported as part of other current assets in our accompanying Condensed Consolidated Balance Sheets, and our Conifer segment’s current and long-term contract liabilities are reported as part of contract liabilities and other long-term liabilities, respectively, in our accompanying Condensed Consolidated Balance Sheets.

        The amount of revenue Conifer recognized in both of the six month periods ended June 30, 2020 and 2019 that was included in the opening current deferred revenue liability was $56 million. This revenue consists primarily of prepayments for those customers who are billed in advance, changes in estimates related to metric-based services, and up-front integration services that are recognized over the services period.

Contract Costs

        We have elected to apply the practical expedient provided by FASB Accounting Standards Codification (“ASC”) 340-40-25-4 and expense as incurred the incremental customer contract acquisition costs for contracts in which the amortization period of the asset is one year or less. However, incremental costs incurred to obtain and fulfill customer contracts for which the amortization period of the asset is longer than one year, which consist primarily of Conifer deferred contract setup costs, are capitalized and amortized on a straight-line basis over the lesser of their estimated useful lives or the term of the related contract. In both of the three month periods ended June 30, 2020 and 2019, we recognized amortization expense of $1 million. In both of the six month periods ended June 30, 2020 and 2019, we recognized amortization expense of $2 million. At both June 30, 2020 and December 31, 2019, the unamortized customer contract costs were $25 million, and are presented as investments and other assets in the accompanying Condensed Consolidated Balance Sheets.NET OPERATING REVENUES        Net operating revenues for our Hospital Operations and Ambulatory Care segments primarily consist of net patient service revenues, principally for patients covered by Medicare, Medicaid, managed care and other health plans, as well as certain uninsured patients under our Compact and other uninsured discount and charity programs. Net operating revenues for our Conifer segment primarily consist of revenues from providing revenue cycle management services to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities.

        The table below shows our sources of net operating revenues from continuing operations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Hospital Operations:
Net patient service revenues from hospitals and related outpatient facilities
Medicare	$	597	$	721	$	1,302	$	1,479
Medicaid	259		316		540		630
Managed care	1,824		2,330		4,145		4,684
Uninsured	22		11		62		12
Indemnity and other	127		169		320		324
Total	2,829		3,547		6,369		7,129
Other revenues(1)	259		280		553		560
Hospital Operations total prior to inter-segment eliminations	3,088		3,827		6,922		7,689
Ambulatory Care	368		524		858		1,004
Conifer	305		355		637		704
Inter-segment eliminations	(113)		(146)		(249)		(292)
Net operating revenues	$	3,648	$	4,560	$	8,168	$	9,105

(1) Primarily physician practices revenues.

Adjustments for prior-year cost reports and related valuation allowances, principally related to Medicare and Medicaid, increased revenues in the six months ended June 30, 2020 and 2019 by $5 million and $17 million, respectively. Estimated cost report settlements and valuation allowances are included in accounts receivable in the accompanying Condensed Consolidated Balance Sheets (see Note 2). We believe that we have made adequate provision for any adjustments that may result from final determination of amounts earned under all the above arrangements with Medicare and Medicaid.

The table below shows the composition of net operating revenues for our Ambulatory Care segment:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net patient service revenues	$	349	$	496	$	813	$	947
Management fees	16		23		37		46
Revenue from other sources	3		5		8		11
Net operating revenues	$	368	$	524	$	858	$	1,004

The table below shows the composition of net operating revenues for our Conifer segment:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenue cycle services – Tenet	$	109	$	142	$	243	$	284
Revenue cycle services – other customers	172		187		348		367
Other services – Tenet	4		4		6		8
Other services – other customers	20		22		40		45
Net operating revenues	$	305	$	355	$	637	$	704

Other services represent approximately 7% of Conifer’s revenue and include value-based care services, consulting services and other client-defined projects.

Performance Obligations

The following table includes Conifer’s revenue that is expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, at the end of the reporting period. The amounts in the table primarily consist of revenue cycle management fixed fees, which are typically recognized ratably as the performance obligation is satisfied. The estimated revenue does not include volume or contingency based contracts, performance incentives, penalties or other variable consideration that is considered constrained. Conifer’s contract with Catholic Health Initiatives (“CHI”), a

minority interest owner of Conifer Health Solutions, LLC, represents the majority of the fixed-fee revenue related to remaining performance obligations. Conifer’s contract term with CHI ends December 31, 2032.

			Six Months Ending		Years Ending								Later Years
			December 31,
	Total		2020		2021		2022		2023		2024
Performance obligations	$	6,832	$	293	$	585	$	584	$	583	$	532	$	4,255