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Item 2 — Management's Discussion and Analysis
Tenet Healthcare Corp · 10-Q · Q2 FY2026 · Period ended Jun 30, 2026
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INTRODUCTION TO MANAGEMENT’S DISCUSSION AND ANALYSIS
The purpose of this section, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to give context to the analysis of our financial information, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows. MD&A, which should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, includes the following sections:
•Management Overview
•Forward-Looking Statements
•Sources of Revenue for Our Hospital Operations Segment
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
Our business consists of our Hospital Operations and Services (“Hospital Operations”) segment and our Ambulatory Care segment. Our Hospital Operations segment is comprised of our acute care and specialty hospitals, a network of employed physicians and ancillary outpatient facilities. At June 30, 2026, our subsidiaries operated 50 hospitals serving primarily urban and suburban communities in eight states. Our Hospital Operations segment also included 135 outpatient facilities, including urgent care centers, imaging centers, off-campus hospital emergency departments and micro‑hospitals, at June 30, 2026. In addition, our Hospital Operations segment provides revenue cycle management and value-based care services to hospitals and other healthcare facilities, health systems, physician practices, employers and other clients through Conifer Health Solutions, LLC (“Conifer”).
Our Ambulatory Care segment, through USPI Holding Company, Inc. (together with its subsidiaries, “USPI”), held ownership interests in 538 ambulatory surgery centers (each, an “ASC”), 405 of which are consolidated, and 26 surgical hospitals, eight of which are consolidated, in 37 states at June 30, 2026. USPI’s facilities offer a range of procedures and service lines, including, among other specialties: orthopedics, total joint replacement, and spinal and other musculoskeletal procedures; gastroenterology; pain management; otolaryngology (ear, nose and throat); ophthalmology; and urology.
Unless otherwise indicated, all financial and statistical information included in MD&A relates to our continuing operations, with dollar amounts expressed in millions (except per adjusted admission and per adjusted patient day amounts). Continuing operations information includes the results of all facilities operated during any portion of the periods presented, and it reflects the performance of those facilities only for the time periods in which we operated them. Continuing operations information excludes the results of our hospitals and other businesses classified as discontinued operations for accounting purposes. We believe this presentation is useful to investors because continuing operations information reflects the impact of the addition or disposition of individual hospitals and other operations on our volumes, revenues and expenses.
In certain cases, information presented in MD&A for our Hospital Operations segment is described as presented on a same‑hospital basis, which includes facilities we operated for the entirety of the periods presented. For the six-month periods ended June 30, 2026 and 2025, information presented on a same‑hospital basis includes the results of our same 49 hospitals and those outpatient centers we operated throughout both periods, and excludes the results of: Florida Coast Medical Center, the acute care hospital we opened in Florida in September 2025; businesses classified as discontinued operations for accounting purposes during those periods; and other ancillary facilities acquired or divested during the reporting periods that have a limited financial or operational impact. We present same‑hospital data because we believe it provides investors with useful information regarding the performance of our current portfolio of hospitals and other operations that are comparable for the periods presented. Furthermore, same‑hospital data may more clearly reflect recent trends we are experiencing with respect to volumes, revenues and expenses exclusive of variations caused by the addition or disposition of individual hospitals and other operations.
Our Ambulatory Care segment reports growth data on a same-facility systemwide basis, which includes both consolidated and unconsolidated facilities held at the end of the period, as well as facilities acquired during the period on a pro forma basis as if owned for the full period. Divested facilities are generally excluded; however, management may include facilities sold near the end of the period when, in its judgment, their inclusion provides financial statement users with a better understanding of the segment’s performance. This approach offers insights into the performance of our current portfolio by excluding variations from facility acquisitions or dispositions. Although we do not record the revenues of unconsolidated
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facilities, this information is important for understanding the financial performance of our Ambulatory Care segment, as these revenues form the basis for calculating management services revenues and equity in earnings of unconsolidated affiliates. Additionally, this presentation enhances comparability across periods.
We present certain operational metrics and statistics in order to provide additional insight into our operational performance efficiency and to help investors better understand management’s view and strategic focus. We define these operational metrics and statistics as follows:
Adjusted admissions—represents actual admissions in the period adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual admissions by the sum of gross inpatient revenues and outpatient revenues and dividing the result by gross inpatient revenues;
Adjusted patient days—represents actual patient days in the period adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient days by the sum of gross inpatient revenues and outpatient revenues and dividing the result by gross inpatient revenues; and
Utilization of licensed beds—represents patient days divided by the number of days in the period divided by average licensed beds.
We also present certain metrics as a percentage of net operating revenues because a significant portion of our operating expenses are variable, and we present certain metrics on a per adjusted admission and per adjusted patient day basis to show trends other than volume.
MANAGEMENT OVERVIEW
OPERATING ENVIRONMENT AND TRENDS
In the Management Overview section of MD&A in our Annual Report on Form 10-K for the year ended December 31, 2025 (“Annual Report”), we described several key trends that continue to impact the healthcare industry, along with other factors affecting our business environment and operations, including the potential impact of changes in federal and state healthcare laws, regulations, funding policies and reimbursement practices. We continue to monitor developments affecting Medicaid funding, health insurance marketplace enrollment and payer mix, as well as the influence of geopolitical dynamics, trade tensions, tariffs and export control rules on pricing and availability within global supply chains. These challenges underscore the importance of operational discipline and adaptive cost management as we navigate the evolving healthcare landscape.
STRATEGIES
Expanding Our Ambulatory Care Segment—We continue to focus on opportunities to expand our Ambulatory Care segment through acquisitions, organic growth in our physician relationships and service lines, construction of new outpatient centers and strategic partnerships. We believe USPI’s ASCs and surgical hospitals offer many advantages to patients and physicians, including greater affordability, predictability, flexibility and convenience. Moreover, due in part to advancements in surgical techniques, medical technology and anesthesia, as well as the lower cost structure and greater efficiencies that are attainable at a specialized outpatient site, we believe the volume and complexity of surgical cases performed in an outpatient setting will continue to increase over time. Historically, our outpatient services have generated significantly higher margins for us than inpatient services.
Driving Growth in Our Hospital Operations Segment—We remain committed to better positioning our hospitals and competing more effectively in the ever‑evolving healthcare environment by focusing on driving performance through operational effectiveness, investing in our physician enterprise, particularly our specialist network, enhancing patient and physician satisfaction, growing our higher‑demand clinical service lines, expanding patient and physician access, and optimizing our portfolio of assets. We believe our efforts in these areas improve the quality of care we deliver and enhance growth.
Improving the Customer Care Experience—As consumers continue to become more engaged in managing their health, we recognize that understanding what matters most to them and earning their loyalty is imperative to our success. As such, we have enhanced our focus on treating our patients as traditional customers by: (1) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (2) expanding service lines aligned with growing community demand, including a focus on aging and chronic disease patients; (3) offering greater affordability and predictability, including simplified registration and discharge procedures, particularly in our outpatient centers; (4) improving our culture of service; and (5) offering health programs and educational materials tailored to meet the needs of the communities we serve.
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Recent advancements in technology and applications in healthcare have allowed us to accelerate the adoption of artificial intelligence (“AI”) and Generative AI-enabled tools in areas such as clinical care coordination, medical documentation, revenue cycle management and administrative services. When used responsibly, we believe AI has the potential to enhance our business processes and support efficient delivery of high‑quality care.
Improving Profitability—We continue to focus on growing patient volumes and effective cost management as a means to improve profitability. We believe that emphasis on higher‑demand clinical service lines, focus on expanding our ambulatory care business, cultivation of our culture of service and utilization of contracting strategies that create shared value with payers should help us grow our patient volumes over time. We are also continuing to pursue new opportunities to enhance efficiency, including further integration of enterprise‑wide centralized support functions, outsourcing additional functions unrelated to direct patient care and reducing clinical contract variation.
Managing Our Capital Structure—All of our long‑term debt has a fixed rate of interest, except for outstanding borrowings under our senior secured revolving credit facility (the “Credit Agreement”), of which we had none at June 30, 2026. In addition, the maturity dates of our notes are staggered from 2027 through 2033. We believe that our capital structure helps to minimize the near‑term impact of increases in interest rates, and the staggered maturities of our debt allow us to retire or refinance our debt over time.
In the six months ended June 30, 2026, we repurchased 7.021 million shares of our common stock pursuant to our share repurchase program. This program has no expiration date, it does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time. At June 30, 2026, there was $2.130 billion available under the program for future repurchases.
Our ability to execute on our strategies and respond to the aforementioned trends in the current operating environment is subject to numerous risks and uncertainties, all of which may cause actual results to be materially different from expectations. For information about risks and uncertainties that could affect our results of operations, see the Forward‑Looking Statements and Risk Factors sections in Part I of our Annual Report.
RECENT RESULTS OF OPERATIONS
The following table presents selected operating statistics for our Hospital Operations and Ambulatory Care segments on a continuing operations basis:
Three Months Ended June 30, Increase (Decrease)
2026 2025
Hospital Operations – hospitals and related outpatient facilities:
Number of hospitals (at end of period) 50 49 1 (1)
Total admissions 120,290 116,963 2.8 %
Adjusted admissions 218,246 211,520 3.2 %
Paying admissions (excludes charity and uninsured) 114,045 111,725 2.1 %
Charity and uninsured admissions 6,245 5,238 19.2 %
Admissions through emergency department 89,902 88,179 2.0 %
Emergency department visits, outpatient 452,932 440,669 2.8 %
Total emergency department visits 542,834 528,848 2.6 %
Total surgeries 68,461 68,517 (0.1) %
Patient days — total 580,228 562,088 3.2 %
Adjusted patient days 1,013,234 984,297 2.9 %
Average length of stay (days) 4.82 4.81 0.2 %
Average licensed beds 12,515 12,435 0.6 %
Utilization of licensed beds 50.9 % 49.7 % 1.2 % (1)
Total visits 1,343,427 1,353,380 (0.7) %
Paying visits (excludes charity and uninsured) 1,239,408 1,261,649 (1.8) %
Charity and uninsured visits 104,019 91,731 13.4 %
Ambulatory Care:
Total consolidated facilities (at end of period) 413 393 20 (1)
Total consolidated cases 512,979 487,171 5.3 %
(1) The change is the difference between the 2026 and 2025 amounts or percentages presented.
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Total admissions increased by 3,327, or 2.8%, total emergency department visits increased by 13,986, or 2.6%, and charity and uninsured admissions increased by 1,007, or 19.2%, in the three months ended June 30, 2026 compared to the three months ended June 30, 2025.
The 5.3% increase in our Ambulatory Care segment’s total consolidated cases in the three months ended June 30, 2026, as compared to the same period in 2025, was primarily attributable to incremental case volume from our 2025 and 2026 acquisitions and de novo development, partially offset by a decrease in same-facility case volume and the impact of the closure and sale of certain facilities.
The following table presents net operating revenues by segment on a continuing operations basis:
Three Months Ended June 30, Increase (Decrease)
Revenues 2026 2025
Hospital Operations $ 4,240 $ 4,001 6.0 %
Ambulatory Care 1,388 1,270 9.3 %
Total $ 5,628 $ 5,271 6.8 %
Consolidated net operating revenues increased by $357 million, or 6.8%, in the three months ended June 30, 2026 compared to the same period in 2025. The increase of $239 million, or 6.0%, in our Hospital Operations segment’s net operating revenues for the three‑month period in 2026, as compared to the same period in 2025, was primarily attributable to higher patient volumes, partially offset by a less favorable payer mix, during the 2026 period.
Net operating revenues in our Ambulatory Care segment increased by $118 million, or 9.3%, in the three months ended June 30, 2026 compared to the same period in 2025. This change was primarily driven by our 2025 and 2026 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the closure and sale of certain facilities. Same-facility revenue growth, driven by incremental revenue from negotiated commercial rate increases, higher patient acuity and the addition of new service lines, also contributed to this increase.
The following table presents information about selected operating expenses by segment on a continuing operations basis:
Three Months Ended June 30, Increase (Decrease)
2026 2025
Hospital Operations:
Salaries, wages and benefits $ 1,893 $ 1,846 2.5 %
Supplies 615 600 2.5 %
Other operating expenses, net 971 934 4.0 %
Total $ 3,479 $ 3,380 2.9 %
Ambulatory Care:
Salaries, wages and benefits $ 338 $ 314 7.6 %
Supplies 369 332 11.1 %
Other operating expenses, net 203 185 9.7 %
Total $ 910 $ 831 9.5 %
Total:
Salaries, wages and benefits $ 2,231 $ 2,160 3.3 %
Supplies 984 932 5.6 %
Other operating expenses, net 1,174 1,119 4.9 %
Total $ 4,389 $ 4,211 4.2 %
Rent/lease expense(1):
Hospital Operations $ 55 $ 55 — %
Ambulatory Care 49 44 11.4 %
Total $ 104 $ 99 5.1 %
(1) Included in other operating expenses, net.
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The following table presents information about our Hospital Operations segment’s selected operating expenses per adjusted admission on a continuing operations basis:
Three Months Ended June 30, Increase (Decrease)
2026 2025
Salaries, wages and benefits per adjusted admission $ 8,675 $ 8,728 (0.6) %
Supplies per adjusted admission 2,817 2,838 (0.7) %
Other operating expenses, net per adjusted admission 4,449 4,415 0.8 %
Total per adjusted admission $ 15,941 $ 15,981 (0.3) %
Salaries, wages and benefits expense for our Hospital Operations segment increased by $47 million, or 2.5%, in the three months ended June 30, 2026 compared to the same period in 2025. This increase was primarily attributable to annual merit increases for certain of our employees and higher incentive compensation expense, partially offset by a decrease in health benefits cost as compared to the 2025 period. On a per adjusted admission basis, salaries, wages and benefits expense decreased by 0.6% in the three months ended June 30, 2026 compared to the three months ended June 30, 2025.
Supplies expense for our Hospital Operations segment increased by $15 million, or 2.5%, during the three months ended June 30, 2026 compared to the three months ended June 30, 2025. This change was primarily due to higher patient volumes during the 2026 period, partially offset by our continued focus on cost‑efficiency measures. These measures include product standardization, contract management, improved utilization, bulk purchases, focused spending and operational improvements, among others. On a per adjusted admission basis, supplies expense decreased by 0.7% in the three months ended June 30, 2026 compared to the three months ended June 30, 2025.
Other operating expenses for our Hospital Operations segment increased by $37 million, or 4.0%, in the three months ended June 30, 2026 compared to the same period in 2025. This increase was primarily attributable to increases in malpractice expense and medical fees during the 2026 period. On a per adjusted admission basis, other operating expenses increased by 0.8% in the three months ended June 30, 2026 compared to the three months ended June 30, 2025.
LIQUIDITY AND CAPITAL RESOURCES OVERVIEW
Cash and cash equivalents were $2.170 billion at June 30, 2026 compared to $2.967 billion at March 31, 2026. Significant cash flow items in the three months ended June 30, 2026 included:
•Net cash provided by operating activities before payments for interest, taxes, restructuring charges, acquisition‑related costs, and litigation costs and settlements of $1.275 billion;
•$1.042 billion of payments to purchase 5.675 million shares of our common stock;
•Interest payments of $341 million;
•$322 million of income tax payments;
•Distributions paid to noncontrolling interests totaling $201 million; and
•$168 million of capital expenditures.
Net cash provided by operating activities was $2.226 billion in the six months ended June 30, 2026 compared to $1.751 billion in the six months ended June 30, 2025. Key factors contributing to the change between the 2026 and 2025 periods included the following:
•Contract termination payments received of $540 million in the 2026 period;
•Interest payments that were $34 million lower in the 2026 period;
•An $88 million increase in income tax payments during the 2026 period; and
•The timing of working capital items.
FORWARD-LOOKING STATEMENTS
This report includes “forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, target, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward‑looking statements, including (but not limited to) disclosures regarding (1) our future
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earnings, financial position, and operational and strategic initiatives, (2) developments in the healthcare industry, and (3) the anticipated impacts of economic and public health conditions and government actions on our business. Forward‑looking statements represent management’s expectations, based on currently available information, as to the outcome and timing of future events, but, by their nature, address matters that are indeterminate. They involve known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward‑looking statements. Such factors include, but are not limited to, the risks described in the Forward‑Looking Statements and Risk Factors sections in Part I of our Annual Report.
Readers should keep in mind the risk factors and other cautionary statements in our Annual Report and in this report and not place undue reliance on forward-looking statements. Should one or more of the risks and uncertainties described in these reports occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward‑looking statement. We specifically disclaim any obligation to revise or update any information contained in a forward‑looking statement or any forward‑looking statement in its entirety except as required by law.
All forward‑looking statements attributable to us are expressly qualified in their entirety by this cautionary information.
SOURCES OF REVENUE FOR OUR HOSPITAL OPERATIONS SEGMENT
We earn revenues for patient services from a variety of sources, primarily managed care payers and the federal Medicare program, as well as state Medicaid programs, indemnity‑based health insurance companies and uninsured patients (that is, patients who do not have health insurance and are not covered by some other form of third‑party arrangement).
The following table presents the sources of net patient service revenues for our hospitals and related outpatient facilities, expressed as percentages of net patient service revenues from all sources on a continuing operations basis:
Three Months Ended June 30, Increase (Decrease)(1) Six Months Ended June 30, Increase (Decrease)(1)
2026 2025 2026 2025
Medicare 14.6 % 15.3 % (0.7) % 15.4 % 15.6 % (0.2) %
Medicaid 13.8 % 11.0 % 2.8 % 12.1 % 10.9 % 1.2 %
Managed care(2) 67.3 % 70.2 % (2.9) % 68.1 % 69.6 % (1.5) %
Uninsured — % — % — % 0.1 % 0.5 % (0.4) %
Indemnity and other 4.3 % 3.5 % 0.8 % 4.3 % 3.4 % 0.9 %
(1) The change is the difference between the 2026 and 2025 percentages presented.
(2) Includes Medicare and Medicaid managed care programs.
Our payer mix on an admissions basis for our hospitals, expressed as a percentage of total admissions from all sources on a continuing operations basis, is presented below:
Three Months Ended June 30, Increase (Decrease)(1) Six Months Ended June 30, Increase (Decrease)(1)
Admissions from: 2026 2025 2026 2025
Medicare 18.3 % 18.5 % (0.2) % 18.8 % 19.0 % (0.2) %
Medicaid 3.8 % 3.8 % — % 3.8 % 3.7 % 0.1 %
Managed care(2) 68.7 % 69.6 % (0.9) % 68.6 % 69.4 % (0.8) %
Charity and uninsured 5.2 % 4.4 % 0.8 % 4.8 % 4.2 % 0.6 %
Indemnity and other 4.0 % 3.7 % 0.3 % 4.0 % 3.7 % 0.3 %
(1) The change is the difference between the 2026 and 2025 percentages presented.
(2) Includes Medicare and Medicaid managed care programs.
GOVERNMENT PROGRAMS
The Centers for Medicare & Medicaid Services (“CMS”) is an agency of the U.S. Department of Health and Human Services that administers a number of government programs authorized by federal law; it is the single largest payer of healthcare services in the United States. Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, as well as some younger people with certain disabilities and conditions, and is provided without regard to income or assets. Medicaid is co‑administered by the states and is jointly funded by the federal government and state governments. Medicaid is the nation’s main public health insurance program for people with low incomes and is the largest
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source of health coverage in the United States. The Children’s Health Insurance Program (“CHIP”), which is also co‑administered by the states and jointly funded, provides health coverage to children in families with incomes too high to qualify for Medicaid, but too low to afford private coverage. Unlike Medicaid, the CHIP is limited in duration and requires the enactment of reauthorizing legislation. Funding for the CHIP has been reauthorized through federal fiscal year (“FFY”) 2029.
Recent and Potential Future Changes to Healthcare Policy
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”), extended health coverage to millions of uninsured legal U.S. residents through a combination of private sector health insurance reforms and public program expansion. The expansion of Medicaid in 40 states (including four of the eight states in which we operate acute care and specialty hospitals) and the District of Columbia is currently financed through:
•negative “productivity adjustments” to the annual market basket updates, which began in 2011 and do not expire under current law; and
•reductions to Medicare and Medicaid disproportionate share hospital (“DSH”) payments, which began for Medicare payments in FFY 2014 and, under current law, are scheduled to commence for Medicaid payments on October 1, 2027.
The expansion of health insurance coverage under the Affordable Care Act resulted in an increase in the number of patients using our facilities with either private or public program coverage and a decrease in uninsured and charity care admissions. Although a substantial portion of our patient volumes and, as a result, our revenues have historically been derived from government healthcare programs, reductions to our reimbursement under the Medicare and Medicaid programs due to the Affordable Care Act have been partially offset by increased revenues from providing care to previously uninsured individuals.
Over the past several years, various laws and regulations lengthened the enrollment period, expanded income eligibility, and provided enhanced premium tax credits to eligible individuals purchasing Affordable Care Act coverage through state and federal health insurance marketplaces – all of which led to higher enrollment numbers, particularly in states that have not expanded Medicaid. Certain of these provisions expired at the end of 2025, resulting in significant increases in health insurance premiums and decreases in enrollment and insurance coverage. These changes have contributed to a rise in the number of uninsured and shifts of individuals from commercial coverage to government program coverage or other more limited coverage alternatives. As a result, we expect an adverse impact on our patient volumes, payer mix and revenues. We continue to monitor the extent to which decreases in insurance coverage will adversely affect these metrics and our overall results of operations.
The impact of The One Big Beautiful Bill Act (“OBBBA”), which was enacted in July 2025, is expected to be far‑reaching, with significant implications for states, their healthcare programs and consumers. Key provisions, the most consequential of which are set to take effect beginning in 2027, include new Medicaid work requirements, caps on state‑directed payments, limits on provider taxes, stricter eligibility checks, financial incentives for accurate state administration and reforms to federal subsidies.
Once the OBBBA is implemented, the Congressional Budget Office anticipates that millions of individuals will lose health insurance by 2034. With respect to Medicaid, these coverage losses may primarily be attributable to policy changes, including the work requirements, more frequent eligibility reviews and limits on eligibility. With respect to individuals who purchase Affordable Care Act coverage through state and federal marketplaces, these losses may primarily be attributable to changes in pre-verification requirements and limits to tax credit eligibility. States are awaiting additional guidance from federal agencies on several provisions and are likely to have variation in the details of how they will implement the provisions of the law.
Because most states must operate with balanced budgets, and the Medicaid program is generally a significant portion of a state’s budget, states can be expected to reevaluate their financial plans over the coming years. The OBBBA’s legislative and forthcoming regulatory changes may result in material reductions to Medicaid payments, changes and reductions to Medicaid supplemental payment programs, and payment delays. Federal government denials or delayed approvals of state waiver applications or extension requests could also materially impact Medicaid funding levels, most significantly in those states that have expanded Medicaid.
At this time, we cannot estimate the OBBBA’s impact, nor can we predict the timing of that impact, on our future business, financial condition or results of operations; however, we may experience decreased payments (including supplemental
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payments) from Medicare, Medicaid and other government programs, as well as delays in the timing of payments to our facilities.
We also cannot predict whether or how Congress may further modify provisions of or relating to the Affordable Care Act, the OBBBA or other laws affecting the healthcare industry generally, nor can we predict how government agencies or the current administration might further influence, promulgate or implement rules, regulations or executive orders that affect the healthcare industry directly or indirectly.
To the extent the rates paid by governmental payers are materially reduced, the scope of services covered by governmental payers is significantly limited, eligibility or enrollment is further restricted, there are changes to align payment rates for certain procedures across various care settings in a site neutral manner, or we or one or more of our hospitals are excluded from participation in the Medicare or Medicaid program or any other government healthcare program, there may be a material adverse effect on our business, financial condition, results of operations or cash flows. Future federal and state healthcare funding policy changes, along with other initiatives and requirements, may, among other things, adversely affect our patient volumes, case mix and revenue mix, increase our operating costs, materially reduce the reimbursement we receive for our services, diminish our competitive position or require us to expend resources to modify certain aspects of our operations.
Medicare
Medicare offers its beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan (which includes “Part A” and “Part B”), is a fee‑for‑service (“FFS”) payment system. The other option, called Medicare Advantage (sometimes called “Part C” or “MA Plans”), includes health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), private FFS Medicare special needs plans and Medicare medical savings account plans.
Our total net patient service revenues from the hospitals and related outpatient facilities in our Hospital Operations segment for services provided to patients enrolled in the Original Medicare Plan were $534 million and $530 million for the three months ended June 30, 2026 and 2025, respectively, and $1.099 billion and $1.078 billion for the six months ended June 30, 2026 and 2025, respectively. A general description of the types of payments we receive for services provided to patients enrolled in the Original Medicare Plan is provided in our Annual Report. Recent regulatory and legislative updates to the terms of these payment systems and their estimated effect on our revenues can be found under “Regulatory and Legislative Updates” below.
Medicaid
Medicaid programs and the corresponding reimbursement methodologies vary from state‑to‑state and from year‑to‑year. In addition to traditional Medicaid programs, we also receive DSH and other supplemental revenues under various state Medicaid programs. All Medicaid patient service revenue is presented net of provider taxes or assessments paid by our hospitals. During the three and six months ended June 30, 2026 and 2025, revenue from Medicaid programs included $447 million and $351 million, respectively, and $751 million and $677 million, respectively, of revenue attributable to DSH and other supplemental programs. Revenues from Medicaid programs constituted approximately 12% and 11% of the total net patient service revenues of our hospitals and related outpatient facilities for the six-month periods ended June 30, 2026 and 2025, respectively.
Because we cannot predict what actions the federal government or the states may take under existing or future legislation and/or regulatory changes to address budget gaps, deficits, Medicaid expansion, Medicaid eligibility redeterminations, provider fee programs, state‑directed payment programs or Medicaid Section 1115 waivers, we are unable to assess the effect that any such legislation or regulatory action might have on our business; however, the impact on our future financial position, results of operations or cash flows could be material.
Regulatory and Legislative Updates
Material updates to the information set forth in our Annual Report about the Medicare and Medicaid payment systems, as well as other government programs impacting our business, are provided below.
Proposed Payment and Policy Changes to the Medicare Inpatient Prospective Payment Systems—Section 1886(d) of the Social Security Act requires CMS to update Medicare inpatient FFS payment rates for hospitals reimbursed under the inpatient prospective payment systems (“IPPS”) annually. The updates generally become effective October 1, the beginning of the FFY. In April 2026, CMS issued proposed changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2027 Rates (“Proposed IPPS Rule”). According to CMS, the combined impact of the proposed
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payment and policy changes in the Proposed IPPS Rule for operating costs will yield an average 1.0% increase in Medicare operating payments for proprietary hospitals in FFY 2027.
Proposed Payment and Policy Changes to the Medicare Outpatient Prospective Payment and Ambulatory Surgery Center Payment Systems—In July 2026, CMS released the proposed policy changes and payment rates for the Hospital Outpatient Prospective Payment System (“OPPS”) and Ambulatory Surgical Center Payment System for Calendar Year (“CY”) 2027 (“Proposed OPPS/ASC Rule”). CMS projects that the impact of the payment and policy changes in the Proposed OPPS/ASC Rule will yield an average 7.4% net increase in Medicare FFS OPPS payments for proprietary hospitals in CY 2027. The proposed net increase includes a reduction in overall Medicare FFS OPPS payments for proprietary hospitals due to CMS’ proposal to revise its November 2023 final rule entitled Hospital OPPS: Remedy for 340B-Acquired Drug Payment Policy for CYs 2018‑2022. In the prior rule, CMS proposed a reduction in non‑drug items and services by 0.5% per year until the prescribed payment reduction total had been recovered in full. This revised 340B remedy provision in the Proposed OPPS/ASC Rule updates the annual offset percentage for non-drug items and services from 0.5% to 3.0% starting in CY 2027; CMS estimates this increased offset will remain in effect through CY 2029. In addition, CMS projects that the impact of the payment and policy changes in the Proposed OPPS/ASC Rule will yield an average increase of 2.4% in Medicare FFS ASC payments.
MANAGED CARE
As described in detail in our Annual Report, in addition to payments from government programs, we receive revenue under contracts with commercial insurers, including both managed care arrangements with various HMOs and PPOs and indemnity‑based agreements. These contracts offer varying structures for patient access, utilization and reimbursement. Our top 10 managed care payers generated 66% of our managed care net patient service revenues for the six months ended June 30, 2026. During the same period, national payers generated 50% of our managed care net patient service revenues; the remainder came from regional or local payers.
The amount of our managed care net patient service revenues, including Medicare and Medicaid managed care programs, from our hospitals and related outpatient facilities during the three months ended June 30, 2026 and 2025 was $2.470 billion and $2.423 billion, respectively, and $4.864 billion and $4.823 billion during the six months ended June 30, 2026 and 2025, respectively. All Medicaid managed care patient service revenue is presented net of provider taxes or assessments paid by our hospitals.
UNINSURED PATIENTS
Uninsured patients are patients who do not qualify for government programs payments, such as Medicare and Medicaid, do not have some form of private insurance and, therefore, are responsible for their own medical bills. We provide financial assistance through our Compact with Uninsured Patients, which is designed to offer discounts to certain uninsured patients, and our charity and uninsured discount programs for uninsured patients who are unable to pay for the healthcare services they receive. The following table presents our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses) of caring for our uninsured and charity patients:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Estimated costs for:
Uninsured patients $ 132 $ 104 $ 240 $ 218
Charity care patients 35 42 69 59
Total estimated costs for uninsured and charity care patients $ 167 $ 146 $ 309 $ 277
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RESULTS OF OPERATIONS
The following table presents our consolidated net operating revenues, operating expenses and operating income, both in dollar amounts and as percentages of net operating revenues, on a continuing operations basis:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Net operating revenues:
Hospital Operations $ 4,240 $ 4,001 $ 8,288 $ 8,030
Ambulatory Care 1,388 1,270 2,708 2,464
Net operating revenues 5,628 5,271 10,996 10,494
Revenue from contract termination 413 — 826 —
Equity in earnings of unconsolidated affiliates 65 61 116 117
Operating expenses:
Salaries, wages and benefits 2,231 2,160 4,405 4,279
Supplies 984 932 1,945 1,839
Other operating expenses, net 1,174 1,119 2,296 2,209
Depreciation and amortization 215 208 444 414
Impairment and restructuring charges, and acquisition-related costs 31 24 55 43
Litigation and investigation costs 3 28 30 45
Net losses (gains) on sales, consolidation and deconsolidation of facilities (33) 38 (34) 16
Operating income $ 1,501 $ 823 $ 2,797 $ 1,766
Net operating revenues 100.0 % 100.0 % 100.0 % 100.0 %
Revenue from contract termination 7.3 % — % 7.5 % — %
Equity in earnings of unconsolidated affiliates 1.2 % 1.2 % 1.1 % 1.1 %
Operating expenses:
Salaries, wages and benefits 39.6 % 41.0 % 40.1 % 40.8 %
Supplies 17.5 % 17.7 % 17.7 % 17.5 %
Other operating expenses, net 20.9 % 21.3 % 20.9 % 21.1 %
Depreciation and amortization 3.7 % 3.9 % 4.0 % 3.9 %
Impairment and restructuring charges, and acquisition-related costs 0.6 % 0.5 % 0.5 % 0.4 %
Litigation and investigation costs 0.1 % 0.5 % 0.3 % 0.4 %
Net losses (gains) on sales, consolidation and deconsolidation of facilities (0.6) % 0.7 % (0.3) % 0.2 %
Operating income 26.7 % 15.6 % 25.4 % 16.8 %
Consolidated net operating revenues increased $502 million, or 4.8%, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. Our Hospital Operations segment’s net operating revenues increased by $258 million, or 3.2%, during the six months ended June 30, 2026 compared to the same period in 2025. This increase was primarily driven by higher patient volumes, partially offset by a less favorable payer mix, during the six months ended June 30, 2026.
During the three and six months ended June 30, 2026, we recognized $413 million and $826 million, respectively, of revenue related to the termination of the revenue cycle management agreement between Catholic Health Initiatives (“CHI”), now known as CommonSpirit Health, and Conifer. See Note 1 to the accompanying Condensed Consolidated Financial Statements for additional information regarding this transaction.
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The following tables present our net operating revenues, operating expenses and operating income, both in dollar amounts and as percentages of net operating revenues, by segment on a continuing operations basis:
Three Months Ended June 30, 2026 Six Months Ended June 30, 2026
Hospital Operations Ambulatory Care Hospital Operations Ambulatory Care
Net operating revenues $ 4,240 $ 1,388 $ 8,288 $ 2,708
Revenue from contract termination 413 — 826 —
Equity in earnings of unconsolidated affiliates 1 64 1 115
Operating expenses:
Salaries, wages and benefits 1,893 338 3,737 668
Supplies 615 369 1,219 726
Other operating expenses, net 971 203 1,893 403
Depreciation and amortization 174 41 362 82
Impairment and restructuring charges, and acquisition-related costs 13 18 25 30
Litigation and investigation costs 3 — 17 13
Net gains on sales, consolidation and deconsolidation of facilities — (33) — (34)
Operating income $ 985 $ 516 $ 1,862 $ 935
Net operating revenues 100.0 % 100.0 % 100.0 % 100.0 %
Revenue from contract termination 9.7 % — % 10.0 % — %
Equity in earnings of unconsolidated affiliates — % 4.6 % — % 4.2 %
Operating expenses:
Salaries, wages and benefits 44.6 % 24.4 % 45.1 % 24.7 %
Supplies 14.5 % 26.6 % 14.7 % 26.8 %
Other operating expenses, net 22.9 % 14.6 % 22.8 % 14.9 %
Depreciation and amortization 4.1 % 3.0 % 4.4 % 3.0 %
Impairment and restructuring charges, and acquisition-related costs 0.3 % 1.2 % 0.3 % 1.1 %
Litigation and investigation costs 0.1 % — % 0.2 % 0.5 %
Net gains on sales, consolidation and deconsolidation of facilities — % (2.4) % — % (1.3) %
Operating income 23.2 % 37.2 % 22.5 % 34.5 %
Three Months Ended June 30, 2025 Six Months Ended June 30, 2025
Hospital Operations Ambulatory Care Hospital Operations Ambulatory Care
Net operating revenues $ 4,001 $ 1,270 $ 8,030 $ 2,464
Equity in earnings of unconsolidated affiliates 2 59 4 113
Operating expenses:
Salaries, wages and benefits 1,846 314 3,670 609
Supplies 600 332 1,189 650
Other operating expenses, net 934 185 1,845 364
Depreciation and amortization 173 35 340 74
Impairment and restructuring charges, and acquisition-related costs 10 14 19 24
Litigation and investigation costs 28 — 45 —
Net losses (gains) on sales, consolidation and deconsolidation of facilities — 38 (10) 26
Operating income $ 412 $ 411 $ 936 $ 830
Net operating revenues 100.0 % 100.0 % 100.0 % 100.0 %
Equity in earnings of unconsolidated affiliates — % 4.6 % — % 4.6 %
Operating expenses:
Salaries, wages and benefits 46.1 % 24.7 % 45.7 % 24.7 %
Supplies 15.0 % 26.1 % 14.8 % 26.4 %
Other operating expenses, net 23.4 % 14.6 % 22.9 % 14.8 %
Depreciation and amortization 4.3 % 2.8 % 4.2 % 3.0 %
Impairment and restructuring charges, and acquisition-related costs 0.2 % 1.0 % 0.2 % 0.9 %
Litigation and investigation costs 0.7 % — % 0.6 % — %
Net losses (gains) on sales, consolidation and deconsolidation of facilities — % 3.0 % (0.1) % 1.1 %
Operating income 10.3 % 32.4 % 11.7 % 33.7 %
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RESULTS OF OPERATIONS BY SEGMENT
Hospital Operations Segment
The following tables present operating statistics, revenues and expenses of our hospitals and related outpatient facilities on a same‑hospital basis, unless otherwise indicated:
Same-Hospital Same-Hospital
Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease)
Admissions, Patient Days and Surgeries 2026 2025 2026 2025
Number of hospitals 49 49 — (1) 49 49 — (1)
Total admissions 119,667 116,964 2.3 % 240,042 237,054 1.3 %
Adjusted admissions 216,970 211,520 2.6 % 431,195 424,559 1.6 %
Paying admissions (excludes charity and uninsured) 113,436 111,732 1.5 % 228,545 227,021 0.7 %
Charity and uninsured admissions 6,231 5,232 19.1 % 11,497 10,033 14.6 %
Admissions through emergency department 89,361 88,178 1.3 % 181,074 179,564 0.8 %
Paying admissions as a percentage of total admissions 94.8 % 95.5 % (0.7) % (1) 95.2 % 95.8 % (0.6) % (1)
Charity and uninsured admissions as a percentage of total admissions 5.2 % 4.5 % 0.7 % (1) 4.8 % 4.2 % 0.6 % (1)
Emergency department admissions as a percentage of total admissions 74.7 % 75.4 % (0.7) % (1) 75.4 % 75.7 % (0.3) % (1)
Surgeries — inpatient 29,466 30,031 (1.9) % 58,558 59,564 (1.7) %
Surgeries — outpatient 38,577 38,486 0.2 % 75,167 75,208 (0.1) %
Total surgeries 68,043 68,517 (0.7) % 133,725 134,772 (0.8) %
Patient days — total 578,329 562,083 2.9 % 1,176,303 1,167,868 0.7 %
Adjusted patient days 1,009,275 984,293 2.5 % 2,030,800 2,021,009 0.5 %
Average length of stay (days) 4.83 4.81 0.4 % 4.90 4.93 (0.6) %
Licensed beds (at end of period) 12,469 12,435 0.3 % 12,469 12,435 0.3 %
Average licensed beds 12,461 12,435 0.2 % 12,453 12,435 0.1 %
Utilization of licensed beds 51.0 % 49.7 % 1.3 % (1) 52.2 % 51.9 % 0.3 % (1)
(1) The change is the difference between the 2026 and 2025 amounts or percentages presented.
Same-Hospital Same-Hospital
Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease)
Outpatient Visits 2026 2025 2026 2025
Total visits 1,339,845 1,339,040 0.1 % 2,688,938 2,729,744 (1.5) %
Paying visits (excludes charity and uninsured) 1,236,148 1,247,898 (0.9) % 2,483,930 2,544,410 (2.4) %
Charity and uninsured visits 103,697 91,142 13.8 % 205,008 185,334 10.6 %
Emergency department visits 450,125 440,671 2.1 % 906,225 915,291 (1.0) %
Surgery visits 38,577 38,486 0.2 % 75,167 75,208 (0.1) %
Paying visits as a percentage of total visits 92.3 % 93.2 % (0.9) % (1) 92.4 % 93.2 % (0.8) % (1)
Charity and uninsured visits as a percentage of total visits 7.7 % 6.8 % 0.9 % (1) 7.6 % 6.8 % 0.8 % (1)
(1) The change is the difference between the 2026 and 2025 percentages presented.
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Same-Hospital Same-Hospital
Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease)
Revenues 2026 2025 2026 2025
Total segment net operating revenues $ 4,216 $ 3,975 6.1 % $ 8,246 $ 7,999 3.1 %
Selected revenue data – hospitals and related outpatient facilities:
Net patient service revenues $ 3,648 $ 3,443 6.0 % $ 7,106 $ 6,932 2.5 %
Net patient service revenue per adjusted admission $ 16,813 $ 16,277 3.3 % $ 16,480 $ 16,328 0.9 %
Net patient service revenue per adjusted patient day $ 3,614 $ 3,498 3.3 % $ 3,499 $ 3,430 2.0 %
Same-Hospital Same-Hospital
Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease)
Selected Operating Expenses 2026 2025 2026 2025
Salaries, wages and benefits $ 1,884 $ 1,845 2.1 % $ 3,721 $ 3,670 1.4 %
Supplies 612 600 2.0 % 1,215 1,189 2.2 %
Other operating expenses, net 962 911 5.6 % 1,874 1,798 4.2 %
$ 3,458 $ 3,356 3.0 % $ 6,810 $ 6,657 2.3 %
Same-Hospital Same-Hospital
Selected Operating Expenses as a Percentage of Net Operating Revenues Three Months Ended June 30, Increase(Decrease)(1) Six Months Ended June 30, Increase(Decrease)(1)
2026 2025 2026 2025
Salaries, wages and benefits 44.7 % 46.4 % (1.7) % 45.1 % 45.9 % (0.8) %
Supplies 14.5 % 15.1 % (0.6) % 14.7 % 14.9 % (0.2) %
Other operating expenses, net 22.8 % 22.9 % (0.1) % 22.7 % 22.5 % 0.2 %
(1) The change is the difference between the 2026 and 2025 percentages presented.
Revenues
Same‑hospital net operating revenues increased by $241 million, or 6.1%, during the three months ended June 30, 2026 compared to the three months ended June 30, 2025. This increase was primarily attributable to higher patient volumes, partially offset by a less favorable payer mix, during the 2026 period.
Same‑hospital net operating revenues increased by $247 million, or 3.1%, during the six months ended June 30, 2026 compared to the same period in 2025. This change was primarily driven by the same factors discussed above.
Salaries, Wages and Benefits
Same‑hospital salaries, wages and benefits expense increased by $39 million, or 2.1%, in the three months ended June 30, 2026 compared to the same period in 2025. This change was primarily driven by annual merit increases for certain of our employees and higher incentive compensation expense, partially offset by a decrease in health benefits cost, during the 2026 period. Same‑hospital salaries, wages and benefits expense as a percentage of net operating revenues decreased by 170 basis points to 44.7% in the three months ended June 30, 2026 compared to the three months ended June 30, 2025.
Same‑hospital salaries, wages and benefits expense increased by $51 million, or 1.4%, in the six months ended June 30, 2026 compared to the same period in 2025. This increase was primarily attributable to the same factors discussed above. Same‑hospital salaries, wages and benefits expense as a percentage of net operating revenues decreased by 80 basis points to 45.1% in the six months ended June 30, 2026 compared to the six months ended June 30, 2025.
Supplies
Same‑hospital supplies expense increased by $12 million, or 2.0%, in the three months ended June 30, 2026 compared to the same period in 2025. This increase was driven by higher patient volumes during the 2026 period, partially offset by our cost‑efficiency measures. Same‑hospital supplies expense as a percentage of net operating revenues decreased from 15.1% for the three months ended June 30, 2025 to 14.5% for the three months ended June 30, 2026.
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Same‑hospital supplies expense increased by $26 million, or 2.2%, in the six months ended June 30, 2026 compared to the same period in 2025. This increase was driven by the same factors described above. Same‑hospital supplies expense as a percentage of net operating revenues in the six months ended June 30, 2026 was generally consistent with the same period in 2025 at 14.7%.
Other Operating Expenses, Net
Same‑hospital other operating expenses increased by $51 million, or 5.6%, in the three months ended June 30, 2026 compared to the same period in 2025. This increase was primarily attributable to increases in medical fees and malpractice expense during the 2026 period. Same‑hospital other operating expenses as a percentage of net operating revenues in the three months ended June 30, 2026 was generally consistent with the same period in 2025 at 22.8%.
Same‑hospital other operating expenses increased by $76 million, or 4.2%, in the six months ended June 30, 2026 compared to the same period in 2025. In addition to the factors discussed above, this change was also attributable to higher professional and consulting fees during the 2026 period. Same‑hospital other operating expenses as a percentage of net operating revenues in the six months ended June 30, 2026 was generally consistent with the same period in 2025 at 22.7%.
Ambulatory Care Segment
The following table presents selected revenue and expense information for our Ambulatory Care segment:
Three Months Ended June 30, Increase (Decrease) Six Months Ended June 30, Increase (Decrease)
2026 2025 2026 2025
Net operating revenues $ 1,388 $ 1,270 9.3 % $ 2,708 $ 2,464 9.9 %
Equity in earnings of unconsolidated affiliates $ 64 $ 59 8.5 % $ 115 $ 113 1.8 %
Salaries, wages and benefits $ 338 $ 314 7.6 % $ 668 $ 609 9.7 %
Supplies $ 369 $ 332 11.1 % $ 726 $ 650 11.7 %
Other operating expenses, net $ 203 $ 185 9.7 % $ 403 $ 364 10.7 %
Revenues
Our Ambulatory Care segment’s net operating revenues increased by $118 million, or 9.3%, during the three months ended June 30, 2026 compared to the same period in 2025. The change was driven by (1) a $71 million increase from our 2025 and 2026 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the closure and sale of certain facilities, and (2) a $47 million increase in same‑facility net operating revenues, which was primarily attributable to incremental revenue from negotiated commercial rate increases, higher patient acuity and the addition of new service lines.
During the six months ended June 30, 2026, net operating revenues in our Ambulatory Care segment increased by $244 million, or 9.9%, as compared to the same period in 2025. This increase was driven by (1) a $148 million increase from our 2025 and 2026 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the closure and sale of certain facilities, and (2) an increase of $96 million in same‑facility net operating revenues attributable to incremental revenue from negotiated commercial rate increases, higher patient acuity and the addition of new service lines.
Salaries, Wages and Benefits
Salaries, wages and benefits expense increased by $24 million, or 7.6%, during the three months ended June 30, 2026 compared to the same period in 2025. This change was driven by (1) a $11 million increase from our 2025 and 2026 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the closure and sale of certain facilities, and (2) a $13 million increase in same‑facility salaries, wages and benefits expense. As a percentage of net operating revenues, salaries, wages and benefits expense decreased to 24.4% for the three months ended June 30, 2026 from 24.7% for the same period in 2025.
Salaries, wages and benefits expense increased by $59 million, or 9.7%, during the six months ended June 30, 2026 compared to the same period in 2025. This change was driven by (1) a $29 million increase from our 2025 and 2026 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the closure and sale of certain facilities, and (2) an increase of $30 million in same‑facility salaries, wages and benefits expense. Same‑facility salaries, wages and benefits expense as a percentage of net operating revenues in the six months ended June 30, 2026 was generally consistent with the same period in 2025 at 24.7%.
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Supplies
Supplies expense increased by $37 million, or 11.1%, during the three months ended June 30, 2026 compared to the same period in 2025. The change was driven by (1) an $15 million increase related to our 2025 and 2026 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the closure and sale of certain facilities, and (2) a $22 million increase in same‑facility supplies expense, due primarily to higher patient acuity and the addition of new service lines. Supplies expense as a percentage of net operating revenues increased to 26.6% for the three months ended June 30, 2026 from 26.1% for the same period in 2025.
Supplies expense increased by $76 million, or 11.7%, during the six months ended June 30, 2026 compared to the same period in 2025. The change was driven by (1) a $42 million increase related to our 2025 and 2026 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the closure and sale of certain facilities, and (2) a $34 million increase in same‑facility supplies expense, due primarily to higher patient acuity and the addition of new service lines. Supplies expense as a percentage of net operating revenues increased to 26.8% for the six months ended June 30, 2026 from 26.4% for the same period in 2025.
Other Operating Expenses, Net
Other operating expenses increased by $18 million, or 9.7%, during the three months ended June 30, 2026 compared to the same period in 2025. The change was driven by (1) a $10 million increase from our 2025 and 2026 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the closure and sale of certain facilities, and (2) an $8 million increase in same‑facility other operating expenses. Other operating expenses as a percentage of net operating revenues in the three months ended June 30, 2026 was generally consistent with the same period in 2025 at 14.6%.
Other operating expenses increased by $39 million, or 10.7%, during the six months ended June 30, 2026 compared to the same period in 2025. The change was driven by (1) a $25 million increase from our 2025 and 2026 acquisitions, de novo development and purchases of controlling interests, partially offset by the impact of the closure and sale of certain facilities, and (2) a $14 million increase in same‑facility other operating expenses. Other operating expenses as a percentage of net operating revenues in the six months ended June 30, 2026 was generally consistent with the same period in 2025 at 14.9%.
Facility Growth
The following table presents the year-over-year changes in our revenue and cases on a same‑facility systemwide basis:
Three Months Ended June 30, 2026 Six Months Ended June 30, 2026
Net revenues 5.0 % 5.3 %
Cases (1.2) % (0.6) %
Net revenue per case 6.3 % 5.9 %
Facility Acquisitions and Investment
The table below presents the aggregate cash investments and related cash adjustments associated with our acquisition of, and investment in, ownership interests in ambulatory care facilities:
Six Months Ended June 30,
2026 2025
Purchases of controlling interests $ 124 $ 138
Acquisition-related cash adjustments 2 9
Purchases of noncontrolling interests 4 —
Equity investment in facilities that did not result in a change of control:
Unconsolidated facilities — 4
Consolidated facilities 14 12
$ 144 $ 163
During the six months ended June 30, 2026, our Ambulatory Care segment paid an aggregate of $128 million to acquire controlling ownership interests in eight ASCs and a noncontrolling ownership interest in an additional ASC. In the same period, this segment also commenced operations at four de novo ASCs and ceased operations at eight ASCs.
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Consolidated
Gains and Losses on Sales, Consolidation and Deconsolidation of Facilities
We recorded net gains from the sale, consolidation and deconsolidation of facilities totaling $34 million during the six months ended June 30, 2026. The activity during this period primarily included an $18 million gain from the consolidation of an ASC and net gains of $11 million related to the sale of certain facilities, both in our Ambulatory Care segment.
We recorded net losses from the sale, consolidation and deconsolidation of facilities totaling $16 million during the six months ended June 30, 2025. The activity during this period primarily included net losses of $33 million related to the consolidation of certain facilities by our Ambulatory Care segment, partially offset by a gain of $10 million related to post‑closing adjustments from our Hospital Operations segment’s 2024 divestiture of five hospitals and certain related operations located in Alabama, net gains of $4 million from the sale of facilities by our Ambulatory Care segment and a gain of $3 million related to other activity.
Income Tax Expense
A reconciliation between the amount of reported income tax expense and the amount computed by multiplying income before income taxes by the statutory federal tax rate is presented below.
Six Months Ended June 30,
2026 2025
Amount Percent Amount Percent
Tax expense at statutory federal rate $ 519 21.0 % $ 296 21.0 %
Domestic federal tax:
Nontaxable or nondeductible items:
Tax benefit attributable to noncontrolling interests (89) (3.6) % (94) (6.7) %
Other 20 0.8 % 17 1.2 %
Stock-based compensation tax benefit (15) (0.6) % (5) (0.3) %
State and local income taxes, net of federal income tax effect 91 3.7 % 56 4.0 %
Changes in valuation allowances (7) (0.3) % (7) (0.5) %
Changes in prior year unrecognized tax benefits 2 0.1 % — — %
Income tax expense $ 521 21.1 % $ 263 18.7 %
Income before income taxes for the six months ended June 30, 2026 and 2025 was $2.472 billion and $1.407 billion, respectively. The change in our valuation allowance during each of the six-month periods in 2026 and 2025 was attributable to a decrease related to changes in the realizability of deferred tax assets, partially offset by an increase related to interest expense carryforwards.
Net Income Available to Noncontrolling Interests
The table below presents net income available to noncontrolling interests by segment for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2026 2025 2026 2025
Hospital Operations $ 7 $ 39 $ 18 $ 78
Ambulatory Care 212 195 405 372
Total net income available to noncontrolling interests $ 219 $ 234 $ 423 $ 450
LIQUIDITY AND CAPITAL RESOURCES
CASH REQUIREMENTS
There have been no material changes to our obligations to make future cash payments under scheduled contractual obligations, such as debt and lease agreements, and under contingent commitments, such as standby letters of credit and minimum revenue guarantees, as disclosed in our Annual Report, except for the matters set forth below and the additional lease obligations disclosed in Note 1 to our accompanying Condensed Consolidated Financial Statements.
Long-Term Debt
Interest payments, net of capitalized interest, were $365 million and $399 million in the six months ended June 30, 2026 and 2025, respectively.
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Other Cash Requirements
Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations); surgical hospital expansion focused on higher‑acuity services; equipment and information systems additions and replacements; introduction of new medical technologies (including robotics); design and construction of new facilities; and various other capital improvements. Capital expenditures were $348 million and $366 million in the six months ended June 30, 2026 and 2025, respectively. We anticipate that our capital expenditures for the year ending December 31, 2026 will total approximately $700 million to $800 million, including $111 million that was accrued as a liability at December 31, 2025.
We made income tax payments, net of tax refunds, of $330 million during the six months ended June 30, 2026 and $242 million during the same period in 2025. The current portion of our income tax payable was $69 million at June 30, 2026, with no comparable current liability outstanding at December 31, 2025.
SOURCES AND USES OF CASH
Our liquidity for the six months ended June 30, 2026 was primarily derived from net cash provided by operating activities and cash on hand. Our operating cash flow is impacted by levels of cash collections, as well as levels of implicit price concessions, due to shifts in payer mix and other factors. Our Credit Agreement provides additional liquidity to manage fluctuations in operating cash caused by these factors.
Net cash provided by operating activities was $2.226 billion in the six months ended June 30, 2026 compared to $1.751 billion in the six months ended June 30, 2025. Key factors contributing to the change between the 2026 and 2025 periods included the following:
•Contract termination payments received of $540 million in the 2026 period;
•Interest payments that were $34 million lower in the 2026 period;
•An $88 million increase in income tax payments during the 2026 period; and
•The timing of working capital items.
Net cash used in investing activities was $520 million during the six months ended June 30, 2026 compared to $501 million during the six months ended June 30, 2025. The change between the 2026 and 2025 periods was primarily attributable to an increase in purchases of marketable securities and long-term investments of $39 million, partially offset by decreases in capital expenditures and payments for purchases of businesses or joint venture interests of $18 million and $17 million, respectively, during the 2026 period.
Net cash used in financing activities was $2.419 billion and $1.644 billion during the six months ended June 30, 2026 and 2025, respectively. The change between the 2026 and 2025 periods was primarily attributable to (1) Conifer’s redemption of CHI’s minority equity interest effective January 1, 2026, which transaction was the primary driver of a $479 million increase in payments for purchases of noncontrolling interests, and (2) an increase of $265 million in purchases of our common stock, in each case during the 2026 period.
DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS
Credit Agreement—At June 30, 2026, our Credit Agreement provided for revolving loans in an aggregate principal amount of up to $1.900 billion with a $200 million subfacility for standby letters of credit. At June 30, 2026, we had no cash borrowings outstanding under the Credit Agreement, and we had less than $1 million of standby letters of credit outstanding. Based on our eligible accounts receivable, eligible inventory and Medicaid supplemental payments, $1.900 billion was available for borrowing under the Credit Agreement at June 30, 2026. We were in compliance with all covenants and conditions in our Credit Agreement at June 30, 2026.
Letter of Credit Facility—We have a letter of credit facility (as amended to date, the “LC Facility”) that provides for the issuance, from time to time, of standby and documentary letters of credit in an aggregate principal amount of up to $200 million. At June 30, 2026, we were in compliance with all covenants and conditions in the LC Facility, and we had $105 million of standby letters of credit outstanding thereunder.
Senior Unsecured Notes and Senior Secured Notes—At June 30, 2026, we had outstanding senior unsecured notes and senior secured notes with aggregate principal amounts outstanding of $12.662 billion. These notes have fixed interest rates and
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require semi-annual interest payments in arrears. The principal and any accrued but unpaid interest is due upon the maturity date of the respective notes, which dates are staggered from November 2027 through November 2033.
For additional information regarding our long-term debt, see Note 5 to the accompanying Condensed Consolidated Financial Statements and Note 8 to the Consolidated Financial Statements included in our Annual Report.
LIQUIDITY
From time to time, we expect to engage in additional capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at that time. We believe our existing debt agreements provide flexibility for future secured or unsecured borrowings.
Our cash on hand fluctuates day‑to‑day throughout the year based on the timing and levels of routine cash receipts and disbursements, including our book overdrafts, and required cash disbursements, such as interest payments and income tax payments. These fluctuations can result in material intra-quarter net operating and investing uses of cash that have caused, and in the future may cause, us to use our Credit Agreement as a source of liquidity. We believe that existing cash and cash equivalents on hand, borrowing availability under our Credit Agreement and anticipated future cash provided by our operating activities are adequate to meet our current cash needs. These sources of liquidity, in combination with any potential future debt incurrence, are adequate to finance planned capital expenditures, payments on the current portion of our long-term debt, payments to current and former joint venture partners, and other presently known operating needs.
Long-term liquidity for debt service and other purposes will be dependent on the amount of cash provided by operating activities and, subject to favorable market and other conditions, the successful completion of future borrowings and potential refinancings. However, our cash requirements could be materially affected by the use of cash in acquisitions of businesses, repurchases of securities, the exercise of put rights or other exit options by our joint venture partners, and contractual or regulatory commitments to fund capital expenditures in, or intercompany borrowings to, businesses we own. In addition, liquidity could be adversely affected should there be a deterioration in our results of operations, including our ability to generate sufficient cash from operations, as well as by the various risks and uncertainties discussed in this section, and the Risk Factors section in Part I of our Annual Report, including changes in federal and state statutes, regulations and executive orders that affect the healthcare industry directly or indirectly, particularly those impacting government healthcare funding, and significant costs associated with legal proceedings and government investigations.
We have not relied on commercial paper or other short-term financing arrangements or entered into repurchase agreements or other short-term financing arrangements not otherwise reported in our balance sheet. In addition, we do not have significant exposure to floating interest rates given that all of our current long-term indebtedness has fixed rates of interest except for borrowings, if any, under our Credit Agreement.
CRITICAL ACCOUNTING ESTIMATES
In preparing our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, we must use estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may vary from those estimates.
We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different outcomes under different conditions or when using different assumptions. Our critical accounting estimates cover the following areas:
•Recognition of net operating revenues, including contractual allowances and implicit price concessions;
•Accruals for general and professional liability risks;
•Impairment of long‑lived assets;
•Impairment of goodwill; and
•Accounting for income taxes.
Additional discussion of our critical accounting estimates is provided in our Annual Report.
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