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Direct
Line: 212.859.8136
Fax: 212.859.4000
jeffrey.bagner@ffhsj.com
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February
23, 2009
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Mr. Jim
B. Rosenberg
Senior
Assistant Chief Accountant
United
States Securities and Exchange Commission
Division
of Corporation Finance
100 F
Street, N.E., Mail Stop 6010
Washington,
DC 20549
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Re:
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Community
Health Systems, Inc.
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Dear Mr.
Rosenberg:
This letter sets forth the response of Community Health Systems, Inc. (the “Company”) to the comment letter (the “Comment Letter”), dated February 20, 2009, of the staff of the Division of Corporation Finance relating to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 that was filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2008.
The
responses set forth below are numbered to correspond to the numbering in the
Comment Letter
Critical Accounting
Policies
Professional Liability Insurance Claims, page 55
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1.
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We have
reviewed the proposed revisions to your disclosure and have the following
comments:
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a.
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In the sixth paragraph, you attribute the increase in the current
accident year claims expense to the “partial ownership in 2007 of
hospitals acquired from Triad” and “full year of ownership in 2008 of
those former Triad hospitals”. This implies that the accident
year claims expense for the historically-owned hospitals remained flat
during 2007 and 2008. Please revise your disclosure to clarify
this fact or address any other factors that may have caused the
increase.
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The
Company’s intent in its response letter filed with the SEC on February 19, 2009
(the “February 19
Response Letter”) was to indicate that claims expense had remained
consistent with the increase in net operating revenues. The following
is the Company’s proposed revised disclosure to the sixth paragraph of the
proposed disclosure in the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Critical Accounting Policies –
Professional Liability Insurance Claims” section (the “MD&A Section”) of
its next Form 10-K for the period ended December 31, 2008 (the “2008 Form 10-K”), as
set forth in the February 19 Response Letter. The italicized print
indicates the changes from the disclosure set forth in the February 19 Response
Letter.
The
increase in current accident year claims expense in each respective year from
2006 to 2008 is consistent
with the increase in net operating revenues during the respective
periods. Income/expense related to prior accident years
reflects changes in estimates resulting from the filing of claims for prior year
incidents, claim settlements, updates from litigation, and our ongoing
investigation of open claims. Expense/income from discounting
reflects the changes in the weighted-average risk-free interest rate used and
timing of estimated payments for discounting in each respective
year.
Furthermore,
included as Exhibit
A is the Company’s proposed revised table that was included in the fifth
paragraph of the proposed disclosure in the MD&A Section of the 2008 Form
10-K, as set forth in the February 19 Response Letter. Changes relate
solely to the 2006 expense related to current accident year and 2006 expense
related to the expense from discounting.
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b.
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Also,
your description of changes in income/expense related prior accident does
not isolate or quantify the specific reasons for changes in your estimate
of prior accident years. Please revise
your proposed disclosure to discuss the specific
reasons about what caused the change in estimate of prior accident years,
identifying the loss years to which they relate and quantifying the dollar
amount of change.
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In the fourth paragraph of its proposed disclosure in the MD&A
Section of the 2008 Form 10-K, as set forth in the February 19 Response Letter,
the Company explained that changes in its estimates cannot precisely be
attributed to any specific factors since the Company determines the estimate of
its liability from the results of multiple methods. The Company is
not aware of any single fact or other factors that directly and materially
affect the Company’s disclosed amounts. The Company’s experience has
shown that when prior accident year amounts develop, it is generally
attributable to the most recent accident years. Furthermore, the
Company believes adding further disclosure to this matter suggests that the
Company believes this item to be more material and of greater significance than
its experience indicates. Based on the above, the Company has made no
further changes to its disclosure regarding expense related to prior accident
years.
Should
you have any questions or comments with respect to this filing, please call me
at (212) 859-8136.
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Sincerely,
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/s/
Jeffrey Bagner
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Jeffrey
Bagner
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cc: Tabatha
Akins (Securities and Exchange Commission)
Joel Parker (Securities and Exchange
Commission)
Rachel A.
Seifert (Community Health Systems, Inc.)
EXHIBIT A
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Year
ended December 31,
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||||||||||||
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2008
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2007
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2006
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||||||||||
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Accrual
for professional liability claims, January 1
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$ | 300,184 | $ | 104,161 | $ | 88,371 | ||||||
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Liability
acquired through acquisition:
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||||||||||||
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Gross
liability acquired
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- | 197,453 | - | |||||||||
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Discount
of liability acquired
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- | (26,309 | ) | - | ||||||||
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Discounted
liability acquired
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- | 171,144 | - | |||||||||
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Expense
(income) related to:
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||||||||||||
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Current
accident year
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110,010 | 73,039 | 43,441 | |||||||||
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Prior
accident years
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(15,826 | ) | 7,158 | 3,146 | ||||||||
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Expense
(income) from discounting
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11,449 | (1,040 | ) | 3,667 | ||||||||
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Total
incurred loss and loss expense
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105,683 | 79,157 | 50,254 | |||||||||
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Paid
claims and expenses related to:
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||||||||||||
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Current
accident year
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(688 | ) | (701 | ) | (574 | ) | ||||||
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Prior
accident years
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(54,600 | ) | (53,577 | ) | (33,890 | ) | ||||||
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Total
paid claims and expenses
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(55,288 | ) | (54,278 | ) | (34,464 | ) | ||||||
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Accrual
for professional liability claims, December 31
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$ | 350,579 | $ | 300,184 | $ | 104,161 | ||||||