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[FRIED, FRANK , HARRIS, SHRIVER & JACOBSON LLP LETTERHEAD]
Direct Line: 212.859.8136
Fax: 212.859.8586
bagneje@ffhsj.com
September 22, 2006
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
RE: COMMUNITY HEALTH SYSTEMS, INC.
Dear Mr. Rosenberg:
The following revised response is being provided on behalf of Community
Health Systems, Inc. (the "Company") pursuant to our telephone conversation
on September 11, 2006, relative to the comment letter from the staff of the
Division of Corporation Finance (the "Staff") dated May 18, 2006 concerning
the Company's Form 10-K for the fiscal year ended December 31, 2005 (the
"2005 Form 10-K"), and the Company's response letter dated May 31, 2006.
You have indicated the Company's responses were satisfactory except that
its response to comment #1 (MD&A - Critical Accounting Policies - Third
Party Reimbursement) was also intended to cover other governmental as well
as non-governmental contractual adjustments.
The responses set forth below are numbered to correspond to the numbering
in the Staff's comment letter. Pages references in the response below are
to the 2005 Form 10-K.
The Company's Response to Comment #1 Is Revised as Follows:
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1. Please quantify and provide, in disclosure type format, for each
period presented, disclosure related to the amount of changes in
estimates of prior period contractual adjustments that you
recorded during the current period. For example for 2005, this
amount would represent the amount of the difference between
estimates of contractual adjustments for services provided in
2004 and the amount of the new estimate or settlement amount that
was recorded during 2005.
To elaborate on the information presented in "Management's
Discussion and Analysis - Critical Accounting Policies- Third
Party Reimbursement" in the 2005 Form 10-K, the Company accounts
for adjustments to cost report final settlements as contractual
allowance adjustments and records these contractual allowance
adjustment at the time such cost report final settlements are
determined. The actual cost report settlement amounts recorded in
each of the three years presented in the 2005 Form 10-K), which
includes amounts for governmental payors Medicare, Medicaid, and
TRICARE (f/k/a CHAMPUS), as well as certain Blue Cross payors,
and which represent changes in prior period estimates resulting
from these cost report final settlements, increased net operating
revenue of the Company by $93,000 and $2,075,000 for the years
ended December 31, 2005 and 2004, respectively, and decreased net
operating revenue of the Company by $2,309,000 for the year ended
December 31, 2003. The Company considers these adjustments made
for cost report final settlements related to prior periods to be
insignificant for these payers for all years presented in the
2005 Form 10-K and so indicated this fact in the footnotes to the
Company's financial statements that are included under Item 8 to
the 2005 Form 10-K (see Footnote 1 - Third-Party Reimbursement
paragraph).
The Company's automated contractual allowance system calculates
estimated contractual allowances for government payors Medicare,
Medicaid and TRICARE as well as non-governmental payors with
which the Company has contractual arrangements. The Company's
measurement of accuracy with regard to the estimated contractual
allowances calculated by the Company's automated contractual
allowance resides in the monitoring of the prior period cost
report contractual allowance adjustments, as described above,
coupled with the monitoring of the denial for payment for
accounts receivable subsequent to year end. In addition to the
final cost report settlements discussed above, denials may result
in out-of-period adjustments. Denials for payment cannot be
predicted and therefore are accounted for in the period in which
they become known. Denials for payments on both governmental and
non-governmental year end accounts receivable decreased net
operating revenue by $1,343,000, $719,000 and $1,006,000 for the
years ended December 31, 2005, 2004, and 2003, respectively.
Since the prior period cost report contractual allowance amounts
and the amounts for denials for payment on accounts receivable
are insignificant, the Company believes its automated contractual
allowance system provides a high degree of accuracy for estimated
contractual allowances. Furthermore, the Company has advised us
that nothing has come to the attention of its management that
would indicate a significant out of period adjustment to
contractual allowances has occurred.
In future filings with the Commission, the Company has advised us that it
will conform the disclosure in its management's discussion and analysis to
the disclosure of its third-party reimbursement as contained in the
aforementioned footnote to the Company's financial statements by including
a statement concerning its conclusion on the significance of these
adjustments.
The Company has advised us that it acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the 2005 Form 10-K;
o Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action
with respect to the 2005 Form 10-K; and
o the Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Please see attached as Exhibit A the Company's acknowledgment as to the
foregoing.
Should you have any questions or comments with respect to this filing,
please call me at (212) 859-8136 or Shawn Creedon at (212) 859-8742.
Sincerely,
/s/ Jeffrey Bagner
-------------------------
Jeffrey Bagner
cc: Sasha Parikh (Securities and Exchange Commission)
Mary Mast (Securities and Exchange Commission)
Rachel A. Seifert (Community Health Systems, Inc.)
Exhibit A
September 25, 2006
[Community Health Systems, Inc. Letterhead]
In response to comment number 6 of the comment letter, dated May 18, 2006,
of the staff of the Division of Corporation Finance, the Company hereby
acknowledges that:
o the Company is responsible for adequacy and accuracy of the
disclosure in the 2005 Form 10-K;
o Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action
with respect to the 2005 Form 10-K; and
o the Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
/s/ Wayne T. Smith
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Wayne T. Smith
Chairman of the Board, President
and Chief Executive Officer
/s/ W. Larry Cash
-----------------
W. Larry Cash
Executive Vice President,
Chief Financial Officer and Director
/s/ T. Mark Buford
------------------
T. Mark Buford
Vice President and Corporate
Controller