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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
Commission file number 001-15925
COMMUNITY HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Delaware	 	13-3893191	
(State or other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer
Identification Number)	
 	 	
4000 Meridian Boulevard
Franklin, Tennessee	 	37067
(Zip Code)	
(Address of principal executive offices)	 	 	
615-465-7000
(Registrant’s telephone number)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ     No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ     No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

            Large accelerated filer þ	  	Accelerated filer ¨          Non-accelerated filer ¨          Smaller reporting company ¨             	
 	  	(Do not check if a smaller reporting company)                	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   ¨   No   þ
As of May 1, 2014, there were outstanding 115,266,239 shares of the Registrant’s Common Stock, $0.01 par value.

 

Table of Contents
Community Health Systems, Inc.
Form 10-Q
For the Three Months Ended March 31, 2014

Part I.	 	Financial Information	  	 	Page	  	
 	 	 	 	
 	 	Item 1.	 	Financial Statements:	  	 	 	 	
 	 	 	 	
 	 	 	 	Condensed Consolidated Balance Sheets - March 31, 2014 and December 31, 2013 (Unaudited)	  	 	2	  	
 	 	 	 	
 	 	 	 	Condensed Consolidated Statements of (Loss) Income - Three Months Ended March 31, 2014 and March  31, 2013 (Unaudited)	  	 	3	  	
 	 	 	 	
 	 	 	 	Condensed Consolidated Statements of Comprehensive (Loss) Income - Three Months Ended March  31, 2014 and March 31, 2013 (Unaudited)	  	 	4	  	
 	 	 	 	
 	 	 	 	Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2014 and March  31, 2013 (Unaudited)	  	 	5	  	
 	 	 	 	
 	 	 	 	Notes to Condensed Consolidated Financial Statements (Unaudited)	  	 	6	  	
 	 	 	 	
 	 	Item 2.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	47	  	
 	 	 	 	
 	 	Item 3.	 	Quantitative and Qualitative Disclosures about Market Risk	  	 	70	  	
 	 	 	 	
 	 	Item 4.	 	Controls and Procedures	  	 	70	  	
 	 	 	
Part II. 	 	Other Information	  	 	 	 	
 	 	 	 	
 	 	Item 1.	 	Legal Proceedings	  	 	71	  	
 	 	 	 	
 	 	Item 1A.  	 	Risk Factors	  	 	80	  	
 	 	 	 	
 	 	Item 2.	 	Unregistered Sales of Equity Securities and Use of Proceeds	  	 	80	  	
 	 	 	 	
 	 	Item 3.	 	Defaults Upon Senior Securities	  	 	80	  	
 	 	 	 	
 	 	Item 4.	 	Mine Safety Disclosures	  	 	80	  	
 	 	 	 	
 	 	Item 5.	 	Other Information	  	 	80	  	
 	 	 	 	
 	 	Item 6.	 	Exhibits	  	 	81	  	
 	 	
Signatures	  	 	82	  	
 	 	
Index to Exhibits	  	 	83	  	
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
(Unaudited)

 	  	        March 31, 2014        	 	 	        December 31, 2013        	 	
ASSETS	  	 	 	 	 	 	 	 	
Current assets:	  	 	 	 	 	 	 	 	
Cash and cash equivalents	  	$	613 	 	 	$	373 	 	
Patient accounts receivable, net of allowance for doubtful accounts of $3,437 and $2,439 at March 31, 2014 and December 31, 2013, respectively	  	 	3,129 	 	 	 	2,328 	 	
Supplies	  	 	529 	 	 	 	373 	 	
Prepaid income taxes	  	 	220 	 	 	 	107 	 	
Deferred income taxes	  	 	294 	 	 	 	101 	 	
Prepaid expenses and taxes	  	 	204 	 	 	 	127 	 	
Other current assets (including assets of hospitals held for sale of $72 and $32 at March 31, 2014 and December 31, 2013, respectively)	  	 	638 	 	 	 	339 	 	
 	  	 	 	 	 	 	 	 	
Total current assets	  	 	5,627 	 	 	 	3,748 	 	
 	  	 	 	 	 	 	 	 	
Property and equipment	  	 	14,174 	 	 	 	10,493	  	
Less accumulated depreciation and amortization	  	 	(3,602)	  	 	 	(3,425)	  	
 	  	 	 	 	 	 	 	 	
Property and equipment, net	  	 	10,572 	 	 	 	7,068	  	
 	  	 	 	 	 	 	 	 	
Goodwill	  	 	8,373 	 	 	 	4,430	  	
 	  	 	 	 	 	 	 	 	
Other assets, net (including assets of hospitals held for sale of $148 and $69 at March 31, 2014 and December 31, 2013, respectively)	  	 	2,390 	 	 	 	1,871	  	
 	  	 	 	 	 	 	 	 	
Total assets	  	$	26,962 	 	 	$	17,117 	 	
 	  	 	 	 	 	 	 	 	
LIABILITIES AND EQUITY	  	 	 	 	 	 	 	 	
Current liabilities:	  	 	 	 	 	 	 	 	
Current maturities of long-term debt	  	$	199 	 	 	$	167 	 	
Accounts payable	  	 	1,016	  	 	 	951 	 	
Deferred income taxes	  	 	-	  	 	 	3 	 	
Accrued interest	  	 	165 	 	 	 	112 	 	
Accrued liabilities (including liabilities of hospitals held for sale of $31 and $19 at March 31, 2014 and December 31, 2013, respectively)	  	 	1,746	  	 	 	1,225 	 	
 	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	3,126 	 	 	 	2,458 	 	
 	  	 	 	 	 	 	 	 	
Long-term debt	  	 	16,799 	 	 	 	9,286 	 	
 	  	 	 	 	 	 	 	 	
Deferred income taxes	  	 	1,134 	 	 	 	906 	 	
 	  	 	 	 	 	 	 	 	
Other long-term liabilities	  	 	1,425 	 	 	 	977 	 	
 	  	 	 	 	 	 	 	 	
Total liabilities	  	 	22,484 	 	 	 	13,627 	 	
 	  	 	 	 	 	 	 	 	
Redeemable noncontrolling interests in equity of consolidated subsidiaries	  	 	692 	 	 	 	358 	 	

EQUITY	  	 	 	 	 	 	 	 	
Community Health Systems, Inc. stockholders’ equity:	  	 	 	 	 	 	 	 	
Preferred stock, $.01 par value per share, 100,000,000 shares authorized; none issued	  	 	-	  	 	 	-	  	
Common stock, $.01 par value per share, 300,000,000 shares authorized; 116,236,453 shares issued and 115,260,904 shares outstanding at March 31, 2014, and 95,987,032 shares issued and 95,011,483 shares outstanding at December 31, 2013	  	 	1 	 	 	 	1 	 	
Additional paid-in capital	  	 	1,995 	 	 	 	1,256 	 	
Treasury stock, at cost, 975,549 shares at March 31, 2014 and December 31, 2013	  	 	(7)	  	 	 	(7)	  	
Accumulated other comprehensive loss	  	 	(58)	  	 	 	(67)	  	
Retained earnings	  	 	1,774 	 	 	 	1,885 	 	
 	  	 	 	 	 	 	 	 	
Total Community Health Systems, Inc. stockholders’ equity	  	 	3,705 	 	 	 	3,068 	 	
Noncontrolling interests in equity of consolidated subsidiaries	  	 	81 	 	 	 	64 	 	
 	  	 	 	 	 	 	 	 	
Total equity	  	 	3,786 	 	 	 	3,132 	 	
 	  	 	 	 	 	 	 	 	
Total liabilities and equity	  	$	26,962 	 	 	$	17,117 	 	
 	  	 	 	 	 	 	 	 	
See accompanying notes to the condensed consolidated financial statements.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(In millions, except share and per share data)
(Unaudited)

 	  	                    Three Months  Ended                    
March 31,	 	
 	  	2014	 	 	2013	 	
 	 	 	
Operating revenues (net of contractual allowances and discounts)	  	$	4,900 	 	 	  $	3,752 	 	
Provision for bad debts	  	 	705 	 	 	 	478 	 	
 	  	 	 	 	 	 	 	 	
Net operating revenues	  	 	4,195 	 	 	 	3,274 	 	
 	  	 	 	 	 	 	 	 	
Operating costs and expenses:	  	 	 	 	 	 	 	 	
Salaries and benefits	  	 	2,004 	 	 	 	1,555 	 	
Supplies	  	 	635 	 	 	 	494 	 	
Other operating expenses	  	 	1,023 	 	 	 	696 	 	
Electronic health records incentive reimbursement	  	 	(40)	  	 	 	(19)	  	
Rent	  	 	99 	 	 	 	70 	 	
Depreciation and amortization	  	 	257 	 	 	 	190 	 	
Amortization of software to be abandoned	  	 	42 	 	 	 	-	  	
 	  	 	 	 	 	 	 	 	
Total operating costs and expenses	  	 	4,020 	 	 	 	2,986 	 	
 	  	 	 	 	 	 	 	 	
Income from operations	  	 	175 	 	 	 	288 	 	
Interest expense, net	  	 	224 	 	 	 	156 	 	
Loss from early extinguishment of debt	  	 	73 	 	 	 	1 	 	
Equity in earnings of unconsolidated affiliates	  	 	(11)	  	 	 	(16)	  	
Impairment of long-lived assets	  	 	24 	 	 	 	-	  	
 	  	 	 	 	 	 	 	 	
(Loss) income from continuing operations before income taxes	  	 	(135)	  	 	 	147 	 	
(Benefit) provision for income taxes	  	 	(57)	  	 	 	49 	 	
 	  	 	 	 	 	 	 	 	
(Loss) income from continuing operations	  	 	(78)	  	 	 	98 	 	
 	  	 	 	 	 	 	 	 	
Discontinued operations, net of taxes:	  	 	 	 	 	 	 	 	
Loss from operations of entities held for sale	  	 	(2)	  	 	 	(2)	  	
Impairment of hospitals held for sale	  	 	(18)	  	 	 	-	  	
 	  	 	 	 	 	 	 	 	
Loss from discontinued operations, net of taxes	  	 	(20)	  	 	 	(2)	  	
 	  	 	 	 	 	 	 	 	
Net (loss) income	  	 	(98)	  	 	 	96 	 	
Less: Net income attributable to noncontrolling interests	  	 	14 	 	 	 	17 	 	
 	  	 	 	 	 	 	 	 	
Net (loss) income attributable to Community Health Systems, Inc. stockholders	  	$	(112)	  	 	  $	79 	 	
 	  	 	 	 	 	 	 	 	
Basic (loss) earnings per share attributable to Community Health Systems, Inc. common stockholders(1):	  	 	 	 	 	 	 	 	
Continuing operations	  	$	(0.86)	  	 	  $	0.89 	 	
Discontinued operations	  	 	(0.19)	  	 	 	(0.02)	  	
 	  	 	 	 	 	 	 	 	
Net (loss) income	  	$	(1.05)	  	 	  $	0.87 	 	
 	  	 	 	 	 	 	 	 	
Diluted (loss) earnings per share attributable to Community Health Systems, Inc. common stockholders(1):	  	 	 	 	 	 	 	 	
Continuing operations	  	$	(0.86)	  	 	  $	0.88 	 	
Discontinued operations	  	 	(0.19)	  	 	 	(0.02)	  	
 	  	 	 	 	 	 	 	 	
Net (loss) income	  	$	(1.04)	  	 	  $	0.86 	 	
 	  	 	 	 	 	 	 	 	
Weighted-average number of shares outstanding:	  	 	 	 	 	 	 	 	
Basic	  	 	106,601,997 	 	 	 	91,002,615 	 	
 	  	 	 	 	 	 	 	 	
Diluted	  	 	107,180,584 	 	 	 	91,998,993 	 	

 
(1) Total per share amounts may not add due to rounding.
See accompanying notes to the condensed consolidated financial statements.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In millions)
(Unaudited)

 	  	                Three Months Ended                 
March 31,	 	
 	  	2014	 	 	2013	 	
 	 	 	
Net (loss) income	  	$	(98)	  	 	$	96 	 	
Other comprehensive income, net of income taxes:	  	 	 	 	 	 	 	 	
Net change in fair value of interest rate swaps, net of tax	  	 	9 	 	 	 	16 	 	
Net change in fair value of available-for-sale securities, net of tax	  	 	-	  	 	 	2 	 	
Amortization and recognition of unrecognized pension cost components, net of tax	  	 	-	  	 	 	1 	 	
 	  	 	 	 	 	 	 	 	
Other comprehensive income	  	 	9 	 	 	 	19 	 	
 	  	 	 	 	 	 	 	 	
Comprehensive (loss) income	  	 	(89)	  	 	 	115 	 	
Less: Comprehensive income attributable to noncontrolling interests	  	 	14 	 	 	 	17 	 	
 	  	 	 	 	 	 	 	 	
Comprehensive (loss) income attributable to Community Health Systems, Inc. stockholders	  	$	(103)	  	 	$	98 	 	
 	  	 	 	 	 	 	 	 	
See accompanying notes to the condensed consolidated financial statements.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

 	  	              Three Months Ended                   
March 31,	 	
 	  	2014	 	  	2013	 	
Cash flows from operating activities:	  	 	 	 	  	 	 	 	
Net (loss) income	  	$	(98)	  	  	$	96 	 	
Adjustments to reconcile net (loss) income to net cash provided by operating activities:	  	 	 	 	  	 	 	 	
Depreciation and amortization	  	 	302 	 	  	 	192 	 	
Stock-based compensation expense	  	 	11 	 	  	 	10 	 	
Impairment of long-lived assets and hospitals held for sale	  	 	42 	 	  	 	-	  	
Loss from early extinguishment of debt	  	 	73 	 	  	 	1 	 	
Excess tax benefit relating to stock-based compensation	  	 	(3)	  	  	 	(5)	  	
Other non-cash expenses, net	  	 	6 	 	  	 	6 	 	
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:	  	 	 	 	  	 	 	 	
Patient accounts receivable	  	 	(171)	  	  	 	(148)	  	
Supplies, prepaid expenses and other current assets	  	 	14 	 	  	 	(2)	  	
Accounts payable, accrued liabilities and income taxes	  	 	(83)	  	  	 	(98)	  	
Other	  	 	(28)	  	  	 	5 	 	
 	  	 	 	 	  	 	 	 	
Net cash provided by operating activities	  	 	65 	 	  	 	57 	 	
 	  	 	 	 	  	 	 	 	
Cash flows from investing activities:	  	 	 	 	  	 	 	 	
Acquisitions of facilities and other related equipment	  	 	(2,774)	  	  	 	(5)	  	
Purchases of property and equipment	  	 	(181)	  	  	 	(113)	  	
Proceeds from sale of property and equipment	  	 	-	  	  	 	1 	 	
Purchases of available-for-sale securities	  	 	(78)	  	  	 	-	  	
Proceeds from sales of available-for-sale securities	  	 	76 	 	  	 	-	  	
Increase in other investments	  	 	(99)	  	  	 	(69)	  	
 	  	 	 	 	  	 	 	 	
Net cash used in investing activities	  	 	(3,056)	  	  	 	(186)	  	
 	  	 	 	 	  	 	 	 	
Cash flows from financing activities:	  	 	 	 	  	 	 	 	
Proceeds from exercise of stock options	  	 	6 	 	  	 	72 	 	
Repurchase of restricted stock shares for payroll tax withholding requirements	  	 	(11)	  	  	 	(14)	  	
Stock buy-back	  	 	-	  	  	 	(19)	  	
Deferred financing costs and other debt-related costs	  	 	(269)	  	  	 	(1)	  	
Excess tax benefit relating to stock-based compensation	  	 	3 	 	  	 	5 	 	
Redemption of noncontrolling investments in joint ventures	  	 	(5)	  	  	 	-	  	
Distributions to noncontrolling investors in joint ventures	  	 	(19)	  	  	 	(15)	  	
Borrowings under credit agreements	  	 	7,079 	 	  	 	101 	 	
Issuance of long-term debt	  	 	4,000 	 	  	 	-	  	
Proceeds from receivables facility	  	 	133 	 	  	 	300 	 	
Repayments of long-term indebtedness	  	 	(7,686)	  	  	 	(403)	  	
 	  	 	 	 	  	 	 	 	
Net cash provided by financing activities	  	 	3,231 	 	  	 	26 	 	
 	  	 	 	 	  	 	 	 	
Net change in cash and cash equivalents	  	 	240 	 	  	 	(103)	  	
Cash and cash equivalents at beginning of period	  	 	373 	 	  	 	388 	 	
 	  	 	 	 	  	 	 	 	
Cash and cash equivalents at end of period	  	$	613 	 	  	$	285 	 	
 	  	 	 	 	  	 	 	 	
Supplemental disclosure of cash flow information:	  	 	 	 	  	 	 	 	
Interest payments	  	$	(280)	  	  	$	(150)	  	
 	  	 	 	 	  	 	 	 	
Income tax (paid), net of refunds received	  	$	79 	 	  	$	-	  	
 	  	 	 	 	  	 	 	 	
See accompanying notes to the condensed consolidated financial statements.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements of Community Health Systems, Inc. (the “Parent”, or “Parent Company”) and its subsidiaries (the “Company”) as of March 31, 2014 and December 31, 2013 and for the three-month periods ended March 31, 2014 and March 31, 2013, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. All intercompany transactions and balances have been eliminated. The results of Health Management Associates, Inc. (“HMA”) are included from January 27, 2014, the date of the HMA merger. The results of operations for the three months ended March 31, 2014, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2014. Certain information and disclosures normally included in the notes to consolidated financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company believes the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2013, contained in the Company’s Annual Report on Form 10-K.
Noncontrolling interests in less-than-wholly-owned consolidated subsidiaries of the Parent are presented as a component of total equity on the condensed consolidated balance sheets to distinguish between the interests of the Parent Company and the interests of the noncontrolling owners. Noncontrolling interests that are redeemable or may become redeemable at a fixed or determinable price at the option of the holder or upon the occurrence of an event outside of the control of the Company are presented in mezzanine equity on the condensed consolidated balance sheets.
During the three months ended March 31, 2014, the Company made the decision to sell certain of its small hospitals and entered into definitive agreements to sell two hospitals. The condensed consolidated statement of income for the three months ended March 31, 2013 has been restated to reclassify the results of operations for several hospitals that were owned or leased in 2013 to discontinued operations. The condensed consolidated balance sheet as of December 31, 2013 has been restated to present the hospitals that were owned or leased in 2013 as held for sale for comparative purposes with the March 31, 2014 presentation.
Throughout these notes to the condensed consolidated financial statements, Community Health Systems, Inc., and its consolidated subsidiaries are referred to on a collective basis as the “Company.” This drafting style is not meant to indicate that the publicly-traded Parent or any subsidiary of the Parent owns or operates any asset, business, or property. The hospitals, operations and businesses described in this filing are owned and operated, and management services provided, by distinct and indirect subsidiaries of Community Health Systems, Inc.
Allowance for Doubtful Accounts. Accounts receivable are reduced by an allowance for amounts that could become uncollectible in the future. Substantially all of the Company’s receivables are related to providing healthcare services to its hospitals’ patients.
The Company estimates the allowance for doubtful accounts by reserving a percentage of all self-pay accounts receivable without regard to aging category, based on collection history, adjusted for expected recoveries and, if present, anticipated changes in trends. For all other non-self-pay payor categories, the Company reserves 100% of all accounts aging over 365 days from the date of discharge. The percentage used to reserve for all self-pay accounts is based on the Company’s collection history. The Company collects substantially all of its third-party insured receivables, which include receivables from governmental agencies.
Collections are impacted by the economic ability of patients to pay and the effectiveness of the Company’s collection efforts. Significant changes in payor mix, business office operations, economic conditions or trends in federal and state governmental healthcare coverage could affect the Company’s collection of accounts receivable and the estimates of the collectability of future accounts receivable. The process of estimating the allowance for doubtful accounts requires the Company to estimate the collectability of self-pay accounts receivable, which is primarily based on its collection history, adjusted for expected recoveries and, if present, anticipated changes in collection trends. The Company also continually reviews its overall reserve adequacy by monitoring historical cash collections as a percentage of trailing net revenue less provision for bad debts, as well as by analyzing current period net revenue and admissions by payor classification, aged accounts receivable by payor, days revenue outstanding, and the impact of recent acquisitions and dispositions.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Operating revenues, net of contractual allowances and discounts (but before the provision for bad debts), recognized during the three months ended March 31, 2014 and 2013 were as follows (in millions):

 	  	                    Three Months  Ended                    
March 31,	 	
 	  	2014	 	 	2013	 	
Medicare	  	$	1,298 	  	 	$	978 	  	
Medicaid	  	 	459 	  	 	 	326 	  	
Managed Care and other third-party payors	  	 	2,430 	  	 	 	1,948 	  	
Self-pay	  	 	713 	  	 	 	500 	  	
 	  	 	 	 	 	 	 	 	
Total	  	$	4,900 	  	 	$	3,752 	  	
 	  	 	 	 	 	 	 	 	
Electronic Health Records Incentive Reimbursement. The American Recovery and Reinvestment Act of 2009 included provisions for implementing health information technology under the Health Information Technology for Economic and Clinical Health Act (“HITECH”). These provisions were designed to increase the use of electronic health records (“EHR”) technology and establish the requirements for a Medicare and Medicaid incentive payments program beginning in 2011 for eligible hospitals and providers that adopt and meaningfully use certified EHR technology. The Company utilizes a gain contingency model to recognize EHR incentive payments. Recognition occurs when the eligible hospitals adopt or demonstrate meaningful use of certified EHR technology for the applicable payment period and have available the Medicare cost report information for the relevant full cost report year used to determine the final incentive payment.
Medicaid EHR incentive payments are calculated based on prior period Medicare cost report information available at the time when eligible hospitals adopt, implement or demonstrate meaningful use of certified EHR technology. Since the information for the relevant full Medicare cost report year is available, the incentive income from resolving the gain contingency is recognized when eligible hospitals adopt, implement or demonstrate meaningful use of certified EHR technology.
Medicare EHR incentive payments are calculated based on the Medicare cost report information for the full cost report year that began during the federal fiscal year in which meaningful use is demonstrated. Since the necessary information is only available at the end of the relevant full Medicare cost report year, the incentive income from resolving the gain contingency is recognized when eligible hospitals demonstrate meaningful use of certified EHR technology and the information for the applicable full Medicare cost report year to determine the final incentive payment is available.
In some instances, the Company may receive estimated Medicare EHR incentive payments prior to when the Medicare cost report information used to determine the final incentive payment is available. In these instances, recognition of the gain for EHR incentive payments is deferred until all recognition criteria described above are met.
Eligibility for annual Medicare incentive payments is dependent on providers demonstrating meaningful use of EHR technology. Initial Medicaid incentive payments were available to providers that adopt, implement or upgrade certified EHR technology; however, providers must demonstrate meaningful use of such technology in subsequent years to qualify for additional incentive payments. Medicaid EHR incentive payments are fully funded by the federal government and administered by the states; however, the states are not required to offer EHR incentive payments to providers.
The Company recognized approximately $40 million and $19 million for the three months ended March 31, 2014 and 2013, respectively, of incentive reimbursement for HITECH incentives from Medicare and Medicaid related to certain of the Company’s hospitals and for certain of the Company’s employed physicians that have demonstrated meaningful use of certified EHR technology or have completed attestations to their adoption or implementation of certified EHR technology. These incentive reimbursements are presented as a reduction of operating costs and expenses on the condensed consolidated statements of income. The Company received cash related to the incentive reimbursement for HITECH incentives of approximately $62 million and $45 million for the three months ended March, 31, 2014 and 2013, respectively. As of March 31, 2014 and 2013, $93 million and $20 million, respectively, were recorded as deferred revenue as all criteria for gain recognition had not been met.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Professional Liability Insurance for the Hospitals Acquired in the HMA Merger. Reserves for self-insured professional liability indemnity claims and related expenses, including attorneys’ fees and other related costs of litigation that have been incurred and will be incurred in the future, are determined using actuarially-based techniques and methodologies. The data used to develop such reserves is based on asserted and unasserted claim information that has been accumulated by the Company’s incident reporting system, historical loss payment patterns and industry trends. The Company uses the wholly-owned captive insurance subsidiary and the risk retention group subsidiary, which were acquired during the HMA merger and are domiciled in the Cayman Islands and South Carolina, respectively, to self-insure a significant portion of its professional liability risks for the hospitals acquired in the HMA merger. Those insurance subsidiaries, which are collectively referred to as the “Insurance Subsidiaries,” provide (i) claims-made coverage to all of the hospitals and other healthcare facilities acquired in the HMA merger and (ii) occurrence-basis coverage to most of the physicians employed by the hospitals and other healthcare facilities acquired in the HMA merger. The employed physicians not covered by the Insurance Subsidiaries generally maintain claims-made policies with unrelated third party insurance companies. To mitigate the exposure of the program covering the hospitals and other healthcare facilities acquired in the HMA merger, the Insurance Subsidiaries buy claims-made reinsurance policies from unrelated third parties for claims above self-retention levels of $10 million or $15 million per claim, depending on the policy year.
Professional Liability Insurance for All Other Community Health Systems, Inc. Hospitals. The Company is primarily self-insured for professional liability claims; however, the Company obtains excess insurance that transfers the risk of loss to a third-party insurer for claims in excess of self-insured retentions. The Company’s excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002, substantially all of the Company’s professional and general liability risks were subject to a less than $1 million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2 million per occurrence. Substantially all claims reported after June 1, 2003 and before June 1, 2005 are self-insured up to $4 million per claim. Substantially all claims reported on or after June 1, 2005 are self-insured up to $5 million per claim. Management on occasion has selectively increased the insured risk at certain hospitals based upon insurance pricing and other factors and may continue that practice in the future. Excess insurance for all hospitals has been purchased through commercial insurance companies and generally covers the Company for liabilities in excess of the self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of which totals up to $95 million per occurrence and in the aggregate for claims reported on or after June 1, 2003, up to $145 million per occurrence and in the aggregate for claims reported on or after June 1, 2008 and up to $195 million per occurrence and in the aggregate for claims incurred and reported after January 1, 2010. For certain policy years, if the first aggregate layer of excess coverage becomes fully utilized, then the Company’s self-insured retention could increase to $10 million per claim for any subsequent claims in that policy year until the Company’s total aggregate coverage is met.
Effective January 1, 2008, the hospitals acquired from Triad Hospitals, Inc. (“Triad”) are insured on a claims-made basis as described above and through commercial insurance companies as described above for substantially all claims occurring on or after January 1, 2002 and reported on or after January 1, 2008. Substantially all losses for the former Triad hospitals in periods prior to May 1999 were insured through a wholly-owned insurance subsidiary of HCA Holdings Inc. (“HCA”), Triad’s owner prior to that time, and excess loss policies maintained by HCA. HCA has agreed to indemnify the former Triad hospitals in respect of claims covered by such insurance policies arising prior to May 1999. After May 1999 through December 31, 2006, the former Triad hospitals obtained insurance coverage on a claims incurred basis from HCA’s wholly-owned insurance subsidiary, with excess coverage obtained from other carriers that is subject to certain deductibles. Effective for claims incurred after December 31, 2006, Triad began insuring its claims from $1 million to $5 million through its wholly-owned captive insurance company, replacing the coverage provided by HCA. Substantially all claims occurring during 2007 were self-insured up to $10 million per claim.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
2.  ACCOUNTING FOR STOCK-BASED COMPENSATION
Stock-based compensation awards have been granted under the Community Health Systems, Inc. Amended and Restated 2000 Stock Option and Award Plan, amended and restated as of March 20, 2013 (the “2000 Plan”), and the Community Health Systems, Inc. 2009 Stock Option and Award Plan, amended and restated as of March 19, 2014 (the “2009 Plan”).
The 2000 Plan allowed for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (the “IRC”), as well as stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units, performance-based shares or units and other share awards. Prior to being amended in 2009, the 2000 Plan also allowed for the grant of phantom stock. Persons eligible to receive grants under the 2000 Plan include the Company’s directors, officers, employees and consultants. All options granted under the 2000 Plan have been “nonqualified” stock options for tax purposes. Generally, vesting of these granted options occurs in one-third increments on each of the first three anniversaries of the award date. Options granted prior to 2005 have a 10-year contractual term, options granted in 2005 through 2007 have an eight-year contractual term and options granted in 2008 through 2011 have a 10-year contractual term. The Company has not granted stock option awards under the 2000 Plan since 2011. Pursuant to the amendment and restatement of the 2000 Plan dated March 20, 2013, no further grants will be awarded under the 2000 Plan.
The 2009 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the IRC and for the grant of stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units, performance-based shares or units and other share awards. Persons eligible to receive grants under the 2009 Plan include the Company’s directors, officers, employees and consultants. To date, all options granted under the 2009 Plan have been “nonqualified” stock options for tax purposes. Generally, vesting of these granted options occurs in one-third increments on each of the first three anniversaries of the award date. Options granted in 2011 or later have a 10-year contractual term. As of March 31, 2014, 5,168,381 shares of unissued common stock were reserved for future grants under the 2009 Plan, assuming the Company’s stockholders approve the March 19, 2014 amendment of the 2009 Plan, which will add 4,000,000 additional shares for future grants.
The exercise price of all options granted is equal to the fair value of the Company’s common stock on the option grant date.
The following table reflects the impact of total compensation expense related to stock-based equity plans on the reported operating results for the respective periods (in millions):

 	  	                Three Months Ended                 
March 31,	 	
 	  	2014	 	 	2013	 	
Effect on income from continuing operations before income taxes	  	$	(11)	  	 	$	(10)	  	
 	  	 	 	 	 	 	 	 	
Effect on net income	  	$	(7)	  	 	$	(6)	  	
 	  	 	 	 	 	 	 	 	
At March 31, 2014, $99 million of unrecognized stock-based compensation expense was expected to be recognized over a weighted-average period of 32 months. Of that amount, $1 million related to outstanding unvested stock options was expected to be recognized over a weighted-average period of 10 months and $98 million related to outstanding unvested restricted stock and restricted stock units was expected to be recognized over a weighted-average period of 32 months. There were no modifications to awards during the three months ended March 31, 2014 and 2013.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Options outstanding and exercisable under the 2000 Plan and the 2009 Plan as of March 31, 2014, and changes during the three-month period following December 31, 2013, were as follows (in millions, except share and per share data):

 	 	        Shares        	 	 	Weighted-
Average
    Exercise Price    	 	 	Weighted-
Average
Remaining
     Contractual     
Term	 	Aggregate
Intrinsic
      Value as of      
March  31,
2014	 	
Outstanding at December 31, 2013	 	 	3,737,545 	  	 	$	34.88 	  	 	 	 	 	 	 	
Granted	 	 	- 	  	 	 	- 	  	 	 	 	 	 	 	
Exercised	 	 	(174,462)	  	 	 	35.01 	  	 	 	 	 	 	 	
Forfeited and cancelled	 	 	(7,672)	  	 	 	34.61 	  	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Outstanding at March 31, 2014	 	 	3,555,411 	  	 	$	34.87 	  	 	3.9 years	 	$	17 	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Exercisable at March 31, 2014	 	 	3,426,809 	  	 	$	35.40 	  	 	3.7 years	 	$	14 	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
No stock options were granted during the three months ended March 31, 2014 and 2013. The aggregate intrinsic value (the number of in-the-money stock options multiplied by the difference between the Company’s closing stock price on the last trading day of the reporting period ($39.17) and the exercise price of the respective stock options) in the table above represents the amount that would have been received by the option holders had all option holders exercised their options on March 31, 2014. This amount changes based on the market value of the Company’s common stock. The aggregate intrinsic value of options exercised during the three months ended March 31, 2014 and 2013 was $1 million and $19 million, respectively. The aggregate intrinsic value of options vested and expected to vest approximates that of the outstanding options.
The Company has also awarded restricted stock under the 2000 Plan and the 2009 Plan to its directors and employees of certain subsidiaries. The restrictions on these shares generally lapse in one-third increments on each of the first three anniversaries of the award date. Certain of the restricted stock awards granted to the Company’s senior executives contain a performance objective that must be met in addition to any vesting requirements. If the performance objective is not attained, the awards will be forfeited in their entirety. Once the performance objective has been attained, restrictions will lapse in one-third increments on each of the first three anniversaries of the award date. In addition, a restricted stock award grant dated March 1, 2014 has a performance objective that is measured based on the realization of synergies related to the HMA merger over a two-year period. The performance objective may be met in part in the first year or in whole or in part over the two-year period. Depending on the degree of attainment of the performance objective, restrictions may lapse on a portion of the award grant over the first three anniversaries of the award date at a level dependent upon the amount of synergies realized. If the synergies related to the HMA merger do not reach a certain level, then the awards will be forfeited in their entirety. Notwithstanding the above-mentioned performance objectives and vesting requirements, the restrictions will lapse earlier in the event of death, disability or termination of employment by the Company for any reason other than for cause of the holder of the restricted stock, or change in control of the Company. Restricted stock awards subject to performance standards are not considered outstanding for purposes of determining earnings per share until the performance objectives have been satisfied.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Restricted stock outstanding under the 2000 Plan and the 2009 Plan as of March 31, 2014, and changes during the three-month period following December 31, 2013, were as follows:

 	  	              Shares               	 	 	Weighted-
Average Grant
    Date Fair Value    	 	
Unvested at December 31, 2013	  	 	1,607,489 	  	 	$	35.13 	  	
Granted	  	 	1,943,000 	  	 	 	41.19 	  	
Vested	  	 	(818,877)	  	 	 	34.65 	  	
Forfeited	  	 	(2,007)	  	 	 	34.82 	  	
 	  	 	 	 	 	 	 	 	
Unvested at March 31, 2014	  	 	2,729,605 	  	 	 	39.59 	  	
 	  	 	 	 	 	 	 	 	
Restricted stock units (“RSUs”) have been granted to the Company’s outside directors under the 2000 Plan and the 2009 Plan. On February 16, 2012, each of the Company’s outside directors received a grant under the 2009 Plan of 6,645 RSUs. On February 27, 2013, each of the Company’s outside directors received a grant under the 2009 Plan of 3,596 RSUs. On March 1, 2014, each of the Company’s outside directors received a grant under the 2009 Plan of 3,614 RSUs. Vesting of these shares of RSUs occurs in one-third increments on each of the first three anniversaries of the award date.
RSUs outstanding under the 2000 Plan and the 2009 Plan as of March 31, 2014, and changes during the three-month period following December 31, 2013, were as follows:

 	  	              Shares               	 	  	Weighted-
Average Grant
    Date Fair Value    	 	
Unvested at December 31, 2013	  	 	55,536 	  	  	$	31.33 	  	
Granted	  	 	21,684 	  	  	 	41.51 	  	
Vested	  	 	(27,858)	  	  	 	30.87 	  	
Forfeited	  	 	- 	  	  	 	- 	  	
 	  	 	 	 	  	 	 	 	
Unvested at March 31, 2014	  	 	49,362 	  	  	 	36.07 	  	
 	  	 	 	 	  	 	 	 	
3.  COST OF REVENUE
Substantially all of the Company’s operating costs and expenses are “cost of revenue” items. Operating costs that could be classified as general and administrative by the Company would include the Company’s corporate office costs at its Franklin, Tennessee office and Naples, Florida office, which were $74 million and $45 million for the three months ended March 31, 2014 and 2013, respectively. Included in these amounts is stock-based compensation expense of $11 million and $10 million for the three months ended March 31, 2014 and 2013, respectively.
4.  USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates under different assumptions or conditions.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
5.  ACQUISITIONS AND DIVESTITURES
Acquisitions
The Company accounts for all transactions that represent business combinations using the acquisition method of accounting, where the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity are recognized and measured at their fair values on the date the Company obtains control in the acquiree. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts. Adjustments to these provisional amounts during the measurement period (defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed and any noncontrolling interests has been obtained, limited to one year from the acquisition date) are recorded as of the date of acquisition. Any material impact to comparative information for periods after acquisition, but before the period in which adjustments are identified, is reflected in those prior periods as if the adjustments were considered as of the acquisition date. Goodwill is determined as the excess of the fair value of the consideration conveyed in the acquisition over the fair value of the net assets acquired.
Approximately $57 million and $1 million of acquisition and related integration costs related to prospective and closed acquisitions were expensed during the three months ended March 31, 2014 and 2013, respectively, and are included in other operating expenses on the condensed consolidated statements of income.
HMA Merger
On January 27, 2014, the Company completed the HMA merger by acquiring all the outstanding shares of HMA’s common stock for approximately $7.3 billion, including the assumption of approximately $3.8 billion of existing indebtedness, for consideration for each share of HMA’s common stock consisting of $10.50 in cash, 0.06942 of a share of the Company’s common stock, and one contingent value right (“CVR”). The CVR entitles the holder to receive a cash payment of up to $1.00 per CVR (subject to downward adjustment), subject to the final resolution of certain legal matters pertaining to HMA, as defined in the CVR agreement. HMA owned and operated 71 hospitals in 15 states in non-urban communities located primarily in the southeastern United States. On a combined basis, after taking into account the acquisition, the Company owns and operates 206 hospitals in 29 states.
In connection with the HMA merger, the Company and CHS/Community Health Systems, Inc. (“CHS”) entered into a third amendment and restatement of its credit facility, providing for additional financing and recapitalization of certain of the Company’s term loans. In addition, the Company and CHS also issued: (i) $1.0 billion aggregate principal amount of 5.125% Senior Secured Notes due 2021 and (ii) $3.0 billion aggregate principal amount of 6.875% Senior Notes due 2022.
The total consideration of the HMA merger has been allocated to the assets acquired and liabilities assumed based upon their respective preliminary fair values. The purchase price represented a premium over the fair value of the net tangible and identifiable intangible assets acquired for reasons such as:
 
 	—	 	expanded the number of markets in which the Company operates in existing states;	
 
 	—	 	extended and strengthened the Company’s hospital and physician networks;	
 
 	—	 	many support functions will be centralized; and	
 
 	—	 	duplicate corporate functions will be eliminated.	
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
The table below summarizes the calculation of consideration paid and preliminary allocations of the purchase price (including assumed liabilities and long-term debt assumed and repaid at closing) for the HMA merger (in millions):

 	  	          Three Months Ended          
March 31, 2014	 	
Cash paid	  	  $	2,778 	  	
Shares issued	  	 	736 	  	
Contingent value right	  	 	16 	  	
 	  	 	 	 	
Total consideration	  	  $	3,530 	  	

Current assets	  	  $	1,299 	  	
Property and equipment	  	 	3,672 	  	
Goodwill	  	 	3,942 	  	
Intangible assets	  	 	93 	  	
Other long-term assets	  	 	146 	  	
Liabilities	  	 	(5,267)	  	
Noncontrolling interests	  	 	(355)	  	
 	  	 	 	 	
Total identifiable net assets	  	  $	3,530 	  	
 	  	 	 	 	
The allocation process requires the analysis of acquired fixed assets, contracts, contractual commitments, and legal contingencies to identify and record the fair value of all assets acquired and liabilities assumed. Because of the proximity of the transaction to the end of the current quarter, the values of certain assets and liabilities are based on preliminary valuations and estimates and are subject to adjustment as additional information is obtained. Such additional information includes, but is not limited to: valuations and physical counts of property and equipment, analysis of physician income guarantee contracts, valuation of contractual commitments and valuation of the legal contingencies underlying the CVR issued as consideration for the HMA merger. Material adjustments to goodwill may result upon the completion of these matters. All goodwill related to HMA is recorded in the hospital operations reporting unit.
Net operating revenues and income from continuing operations before income taxes from hospitals acquired from HMA from the date of acquisition through March 31, 2014 was approximately $1.1 billion and $84 million, respectively. The following unaudited pro forma results of operations of the Company for the three months ended March 31, 2014 and 2013 assume that the HMA merger occurred at the beginning of the periods presented. The pro forma amounts include certain adjustments, including interest expense, depreciation and taxes. The pro forma amounts for the three months ended March 31, 2014 were adjusted to exclude approximately $56 million of nonrecurring acquisition and related integration costs incurred by the Company. Pro forma amounts for the three months ended March 31, 2013 were adjusted to include these costs. The pro forma net loss for the three months ended March 31, 2014 includes a charge for the early extinguishment of debt of $73 million before taxes and $45 million after taxes, or $0.42 per share (diluted). The pro forma results do not include adjustments related to cost savings or other synergies that are anticipated as a result of the HMA merger. These unaudited pro forma results are not necessarily indicative of the actual results of operations (in millions, except per share data).

 	  	                Three Months Ended                 
March 31,	 	
 	  	2014	 	 	2013	 	
Pro forma net operating revenues	  	  $	4,570 	  	 	  $	4,703 	  	
Pro forma net (loss) income attributable to Community Health Systems, Inc. stockholders	  	 	(146)	  	 	 	54 	  	
Pro forma net (loss) income per share attributable to Community Health Systems, Inc. common stockholders:	  	 	 	 	 	 	 	 	
Basic	  	  $	(1.30)	  	 	  $	0.49 	  	
 	  	 	 	 	 	 	 	 	
Diluted	  	  $	(1.30)	  	 	  $	0.49 	  	

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Other Acquisitions
During the three months ended March 31, 2014, the Company paid approximately $1 million to acquire the operating assets and related businesses of certain physician practices, clinics and other ancillary businesses that operate within the communities served by its hospitals. In connection with these acquisitions, during 2014, the Company allocated less than $1 million of the consideration paid to property and equipment and net working capital and the remainder, approximately $1 million consisting of intangible assets that do not qualify for separate recognition, to goodwill.
Discontinued Operations
During the three months ended March 31, 2014, the Company made the decision to sell certain of its small hospitals, which are classified as held for sale at March 31, 2014. Two other hospitals are required to be divested by the Federal Trade Commission as a condition of its approval of the HMA merger: Riverview Regional Medical Center (281 licensed beds) located in Gadsden, Alabama, and Carolina Pines Regional Medical Center (116 licensed beds) located in Hartsville, South Carolina. In addition, Williamson Memorial Hospital (76 licensed beds) located in Williamson, West Virginia had entered into a definitive agreement to be sold prior to the HMA merger. The Company has entered into a definitive agreement to sell one of its other hospitals and has begun actively marketing the sale of several other hospitals during the quarter ended March 31, 2014. In connection with management’s decision to sell these facilities, the Company has classified the results of operations of the above mentioned hospitals as discontinued operations in the accompanying condensed consolidated statements of income.
Net operating revenues and loss from discontinued operations for the respective periods are as follows (in millions):

 	  	                Three Months Ended                 
March 31,	 	
 	  	            2014            	 	 	            2013            	 	
 	 	 	
Net operating revenues	  	$	70 	  	 	$	38 	  	

Loss from operations of entities held for sale before income taxes	  	 	(4)	  	 	 	(4)	  	
Impairment of hospitals held for sale before income taxes	  	 	(22)	  	 	 	- 	  	
 	  	 	 	 	 	 	 	 	
Loss from discontinued operations, before taxes	  	 	(26)	  	 	 	(4)	  	
Income tax benefit	  	 	(6)	  	 	 	(2)	  	
 	  	 	 	 	 	 	 	 	
Loss from discontinued operations, net of taxes	  	$	(20)	  	 	$	(2)	  	
 	  	 	 	 	 	 	 	 	
Interest expense was allocated to discontinued operations based on sale proceeds available for debt repayment.
In April 2014, the Financial Accounting Standards Board issue Accounting Standards Update (“ASU”) 2014-08, which changes the requirements for reporting discontinued operations. A discontinued operation continues to include a component of an entity or a group of components of an entity, or a business activity. However, in a shift reflecting stakeholder concerns that too many disposals of small groups of assets that are recurring in nature qualified for reporting as discontinued operations, a disposal of a component of an entity or a group of components of an entity will be required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. A business or nonprofit activity that, on acquisition, meets the criteria to be classified as held for sale will still be a discontinued operation. Additional disclosures will be required for significant components of the entity that are disposed of or are held for sale but do not qualify as discontinued operations. This ASU is effective for fiscal years beginning after December 15, 2014 and is to be applied on a prospective basis for disposals or components initially classified as held for sale after that date. The Company will adopt this ASU on January 1, 2015 and is currently evaluating the impact on its consolidated financial position, results of operations and cash flows.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
6.  INCOME TAXES
The total amount of unrecognized benefit that would affect the effective tax rate, if recognized, was approximately $15 million as of March 31, 2014. A total of approximately $8 million of interest and penalties is included in the amount of the liability for uncertain tax positions at March 31, 2014. It is the Company’s policy to recognize interest and penalties related to unrecognized benefits in its condensed consolidated statements of income as income tax expense.
The Company, or one of its subsidiaries, files income tax returns in the United States federal jurisdiction and various state jurisdictions. The Company has extended the federal statute of limitations through December 31, 2014 for Triad for the tax periods ended December 31, 1999, December 31, 2000, April 30, 2001, June 30, 2001, December 31, 2001, December 31, 2002, December 31, 2003, December 31, 2004, December 31, 2005, December 31, 2006 and July 25, 2007. With few exceptions, the Company is no longer subject to state income tax examinations for years prior to 2010. The Company’s federal income tax returns for the 2009 and 2010 tax years are currently under examination by the Internal Revenue Service (“IRS”). The Company believes the results of these examinations will not be material to its consolidated results of operations or consolidated financial position. During the year ended December 31, 2013, the IRS concluded its examination of the federal tax return of Community Health Systems, Inc. for the tax periods ended December 31, 2007 and 2008. The results of these examinations did not have a material effect on the Company’s consolidated results of operations or consolidated financial position. The Company has extended the federal statute of limitations through December 31, 2014 for Community Health Systems, Inc. for the tax periods ended December 31, 2007 and 2008, and through June 30, 2015 for the tax periods ended December 31, 2009 and 2010.
The Company has recorded a preliminary purchase price allocation resulting in goodwill of approximately $3.9 billion, which is not tax deductible for income tax purposes. Goodwill consists of the excess of the purchase price over the fair market value of the acquired assets. The purchase price allocation is preliminary and subject to change as additional information is obtained during the measurement period.
The Company’s effective tax rates were 42.2% and 33.3% for the three months ended March 31, 2014 and 2013, respectively. The increase in the Company’s effective tax rate is primarily related to non-deductible transaction costs associated with the HMA merger.
Cash paid for income taxes, net of refunds received, resulted in a net refund of $79 million and net cash paid of less than $1 million during the three months ended March 31, 2014 and 2013, respectively.
7.  GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the three months ended March 31, 2014 are as follows (in millions):

Balance as of December 31, 2013	  	$	                    4,430 	  	
Goodwill acquired as part of acquisitions during current year	  	 	3,943 	  	
 	  	 	 	 	
Balance as of March 31, 2014	  	$	8,373 	  	
 	  	 	 	 	
Goodwill is allocated to each identified reporting unit, which is defined as an operating segment or one level below the operating segment (referred to as a component of the entity). Management has determined that the Company’s operating segments and hospital management services operations meet the criteria to be classified as reporting units. At March 31, 2014, the hospital operations reporting unit, the home care agency operations reporting unit, and the hospital management services reporting unit had approximately $8.3 billion, $44 million and $33 million, respectively, of goodwill.
Goodwill is evaluated for impairment at the same time every year and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. There is a two-step method for determining goodwill impairment. Step one is to compare the fair value of the reporting unit with the unit’s carrying amount, including goodwill. If this test indicates the fair value is less than the carrying value, then step two is required to compare the implied fair value of the reporting unit’s goodwill with the carrying value of the reporting unit’s goodwill. The Company performed its last annual goodwill evaluation during the fourth quarter of 2013. No impairment was indicated by this evaluation. The next annual goodwill evaluation will be performed during the fourth quarter of 2014.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
The Company estimates the fair value of the related reporting units using both a discounted cash flow model as well as an EBITDA multiple model. The cash flow forecasts are adjusted by an appropriate discount rate based on the Company’s estimate of a market participant’s weighted-average cost of capital. These models are both based on the Company’s best estimate of future revenues and operating costs and are reconciled to the Company’s consolidated market capitalization, with consideration of the amount a potential acquirer would be required to pay, in the form of a control premium, in order to gain sufficient ownership to set policies, direct operations and control management decisions.
Approximately $93 million of intangible assets other than goodwill were acquired during the three months ended March 31, 2014. These acquired intangibles represent the Company’s initial estimate of the fair value of the contract-based intangible assets related to the certificates of need and Medicare licenses obtained in the HMA merger. As previously discussed, this estimated amount is subject to change pending the completion of the valuation and appraisal analysis currently in process. The gross carrying amount of the Company’s other intangible assets subject to amortization was $64 million at March 31, 2014 and $51 million at December 31, 2013, and the net carrying amount was $33 million at March 31, 2014 and $21 million at December 31, 2013. The carrying amount of the Company’s other intangible assets not subject to amortization was $130 million and $50 million at March 31, 2014 and December 31, 2013, respectively. Other intangible assets are included in other assets, net on the Company’s condensed consolidated balance sheets. Substantially all of the Company’s intangible assets are contract-based intangible assets related to operating licenses, management contracts, or non-compete agreements entered into in connection with prior acquisitions.
The weighted-average amortization period for the intangible assets subject to amortization is approximately six years. There are no expected residual values related to these intangible assets. Amortization expense on these intangible assets was $1 million and $1 million during the three months ended March 31, 2014 and 2013, respectively. Amortization expense on intangible assets is estimated to be $6 million for the remainder of 2014, $8 million in 2015, $7 million in 2016, $3 million in 2017, $2 million in 2018, $2 million in 2019 and $5 million thereafter.
The gross carrying amount of capitalized software for internal use was approximately $1.1 billion and $988 million at March 31, 2014 and December 31, 2013, respectively, and the net carrying amount considering accumulated amortization was approximately $565 million and $560 million at March 31, 2014 and December 31, 2013, respectively. The estimated amortization period for capitalized internal-use software is generally three years, except for capitalized costs related to significant system conversions, which is generally eight to ten years. There is no expected residual value for capitalized internal-use software. At March 31, 2014, there was approximately $150 million of capitalized costs for internal-use software that is currently in the development stage and will begin amortization once the software project is complete and ready for its intended use. Amortization expense on capitalized internal-use software was $84 million and $31 million during the three months ended March 31, 2014 and 2013, respectively. Amortization expense on capitalized internal-use software is estimated to be $127 million for the remainder of 2014, $144 million in 2015, $75 million in 2016, $45 million in 2017, $36 million in 2018, $27 million in 2019 and $70 million thereafter. The Company also expects to record approximately $41 million of additional amortization expense during the three months ended June 30, 2014 as a result of the change in estimated useful life of certain software applications as discussed below.
In connection with the HMA merger, the Company further analyzed its intangible assets related to internal-use software used in certain of its hospitals for patient and clinical systems, including software required to meet criteria for meaningful use attestation and ICD-10 compliance. This analysis resulted in management reassessing its usage of certain software products and rationalizing that, with the addition of the HMA hospitals in the first quarter of 2014, those software applications were going to be discontinued and replaced with new applications that better integrate meaningful use and ICD-10 compliance, are more cost effective and can be implemented at a greater efficiency of scale over future implementations. During the three months ended March 31, 2014, the Company recorded an impairment charge of approximately $24 million related to software in-process that has been abandoned at March 31, 2014 and the acceleration of amortization of approximately $42 million related to shortening the remaining useful life of software currently in use with an expected abandonment date of July 1, 2014.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
8.  EARNINGS PER SHARE 
The following table sets forth the components of the numerator and denominator for the computation of basic and diluted earnings per share for income (loss) from continuing operations, discontinued operations and net (loss) income attributable to Community Health Systems, Inc. common stockholders (in millions, except share data):

 	  	              Three Months Ended               
March 31,	 	
 	  	2014	 	 	2013	 	
Numerator:	  	 	 	 	 	 	 	 	
(Loss) income from continuing operations, net of taxes	  	$	(78)	  	 	$	98 	  	
Less: Income from continuing operations attributable to noncontrolling interests	  	 	14 	  	 	 	17 	  	
 	  	 	 	 	 	 	 	 	
(Loss) income from continuing operations attributable to Community Health Systems, Inc. common stockholders — basic and diluted	  	$	(92)	  	 	$	81 	  	

Loss from discontinued operations, net of taxes	  	$	(20)	  	 	$	(2)	  	
Less: Loss from discontinued operations attributable to noncontrolling interests	  	 	- 	  	 	 	- 	  	
 	  	 	 	 	 	 	 	 	
Loss from discontinued operations attributable to Community Health Systems, Inc. common stockholders — basic and diluted	  	$	(20)	  	 	$	(2)	  	

Denominator:	  	 	 	 	 	 	 	 	
Weighted-average number of shares outstanding — basic	  	 	106,601,997 	  	 	 	91,002,615 	  	
Effect of dilutive securities:	  	 	 	 	 	 	 	 	
Restricted stock awards	  	 	103,368 	  	 	 	281,447 	  	
Employee stock options	  	 	470,133 	  	 	 	705,189 	  	
Other equity-based awards	  	 	5,086 	  	 	 	9,742 	  	
 	  	 	 	 	 	 	 	 	
Weighted-average number of shares outstanding — diluted	  	 	107,180,584 	  	 	 	91,998,993 	  	

 	  	Three Months Ended
March 31,	 	
 	  	2014	 	 	2013	 	
Dilutive securities outstanding not included in the computation of earnings per share because their effect is antidilutive:	  	 	 	 	 	 	 	 	
 	 	 	
Employee stock options and restricted stock awards	  	 	1,891,000 	  	 	 	- 	  	

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
9.  STOCKHOLDERS’ EQUITY
Authorized capital shares of the Company include 400,000,000 shares of capital stock consisting of 300,000,000 shares of common stock and 100,000,000 shares of preferred stock. Each of the aforementioned classes of capital stock has a par value of $0.01 per share. Shares of preferred stock, none of which were outstanding as of March 31, 2014, may be issued in one or more series having such rights, preferences and other provisions as determined by the Board of Directors without approval by the holders of common stock.
Historically, the Company has not paid any cash dividends. In December 2012, the Company declared and paid a special dividend of $0.25 per share to holders of its common stock at the close of business as of December 17, 2012, which totaled approximately $23 million. The Company did not pay a cash dividend in 2013 and does not anticipate the payment of any other cash dividends in the foreseeable future. The Company’s Credit Facility limits the Company’s ability to pay dividends and/or repurchase stock to an amount not to exceed $200 million in the aggregate plus an additional $25 million each year plus the aggregate amount of proceeds from the exercise of stock options. The indentures governing the senior and senior secured notes also limit the Company’s ability to pay dividends and/or repurchase stock. As of March 31, 2014, under the most restrictive test under these agreements, the Company has approximately $393 million remaining available with which to pay permitted dividends and/or repurchase shares of stock or its senior and senior secured notes.
The following schedule presents the reconciliation of the carrying amount of total equity, equity attributable to the Company, and equity attributable to the noncontrolling interests for the three-month period ended March 31, 2014 (in millions):

 	 	 	 	 	Community Health Systems, Inc. Stockholders	 	 	 	 	 	 	 	
 	 	Redeemable
  Noncontrolling  
Interests	 	 	Common
Stock	 	 	   Additional   
Paid-In
Capital	 	 	  Treasury  
Stock	 	 	 
Accumulated
Other
  Comprehensive  
(Loss) Income	 	 	    Retained    
Earnings	 	 	  Noncontrolling  
Interests	 	 	  Total Equity  	 	
Balance, December 31, 2013	 	$	358 	 	 	$	1 	 	 	$	1,256 	 	 	$	(7)	  	 	$	(67)	  	 	$	1,885 	 	 	$	64 	 	 	$	3,132 	 	
Comprehensive income	 	 	11 	 	 	 	-	  	 	 	-	  	 	 	-	  	 	 	9 	 	 	 	(111)	  	 	 	4 	 	 	 	(98)	  	
Distributions to noncontrolling interests, net of contributions	 	 	(12)	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	(7)	  	 	 	(7)	  	
Purchase of subsidiary shares from noncontrolling interests	 	 	(4)	  	 	 	-	  	 	 	(1)	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	(1)	  	
Other reclassifications of noncontrolling interests	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	
Noncontrolling interests in acquired entity	 	 	335 	 	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	20 	 	 	 	20 	 	
Adjustment to redemption value of redeemable noncontrolling interests	 	 	4 	 	 	 	-	  	 	 	(4)	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	(4)	  	
Repurchases of common stock	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	
Issuance of common stock in connection with the exercise of stock options	 	 	-	  	 	 	-	  	 	 	6 	 	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	6 	 	
Issuance of shares in exchange for HMA common stock	 	 	-	  	 	 	-	  	 	 	736 	 	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	736 	 	
Cancellation of restricted stock for tax withholdings on vested shares	 	 	-	  	 	 	-	  	 	 	(11)	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	(11)	  	
Excess tax benefit from exercise of stock options	 	 	-	  	 	 	-	  	 	 	2 	 	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	2 	 	
Share-based compensation	 	 	-	  	 	 	-	  	 	 	11 	 	 	 	-	  	 	 	-	  	 	 	-	  	 	 	-	  	 	 	11 	 	

Balance, March 31, 2014	 	$	692 	 	 	$	1 	 	 	$	1,995 	 	 	$	(7)	  	 	$	(58)	  	 	$	1,774 	 	 	$	81 	 	 	$	3,786 	 	

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
The following schedule discloses the effects of changes in the Company’s ownership interest in its less-than-wholly-owned subsidiaries on Community Health Systems, Inc. stockholders’ equity (in millions):

 	  	        Three Months Ended        
March 31, 2014	 	
Net loss attributable to Community Health Systems, Inc. stockholders	  	$	(98)	  	
Transfers to the noncontrolling interests:	  	 	 	 	
Net decrease in Community Health Systems, Inc. paid-in capital for purchase of subsidiary partnership interests	  	 	(1)	  	
 	  	 	 	 	
Net transfers to the noncontrolling interests	  	 	(1)	  	
 	  	 	 	 	
Change to Community Health Systems, Inc. stockholders’ equity from net loss attributable to Community Health Systems, Inc. stockholders and transfers to noncontrolling interests	  	$	(99)	  	
 	  	 	 	 	
10.  EQUITY INVESTMENTS
As of March 31, 2014, the Company owned equity interests of 27.5% in four hospitals in Las Vegas, Nevada, and 26.1% in one hospital in Las Vegas, Nevada, in which Universal Health Systems, Inc. owns the majority interest, and an equity interest of 38.0% in three hospitals in Macon, Georgia, in which HCA owns the majority interest.
Summarized combined financial information for these unconsolidated entities in which the Company owns an equity interest is as follows (in millions):

 	  	Three Months Ended
March 31,	 	
 	  	            2014            	 	  	            2013            	 	
Revenues	  	$	332 	  	  	$	315 	  	
Operating costs and expenses	  	 	294 	  	  	 	283 	  	
Income from continuing operations before taxes	  	 	39 	  	  	 	32 	  	
The summarized financial information was derived from the unaudited financial information provided to the Company by those unconsolidated entities.
In March 2005, the Company began purchasing items, primarily medical supplies, medical equipment and pharmaceuticals, under an agreement with HealthTrust Purchasing Group, L.P. (“HealthTrust”), a group purchasing organization in which the Company is a noncontrolling partner. As part of the HMA merger, the Company acquired HMA’s ownership in HealthTrust. As of March 31, 2014, the Company had a 25.9% ownership interest in HealthTrust.
The Company’s investment in all of its unconsolidated affiliates was $436 million and $422 million at March 31, 2014 and December 31, 2013, respectively, and is included in other assets, net in the accompanying condensed consolidated balance sheets. Included in the Company’s results of operations is the Company’s equity in pre-tax earnings from all of its investments in unconsolidated affiliates, which was $11 million and $16 million for the three months ended March 31, 2014 and 2013, respectively.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
11.   LONG-TERM DEBT
Long-term debt consists of the following (in millions):

 	  	        March 31,        
2014	 	  	        December 31,        
2013	 	
Credit Facility:	  	 	 	 	  	 	 	 	
Term loan A	  	  $	1,000 	  	  	  $	637 	  	
Term loan B	  	 	- 	  	  	 	60 	  	
Term loan C	  	 	- 	  	  	 	3,353 	  	
Term loan D	  	 	4,590 	  	  	 	- 	  	
Term loan E	  	 	1,672 	  	  	 	- 	  	
Revolving credit loans	  	 	- 	  	  	 	- 	  	
8% Senior Notes due 2019	  	 	2,020 	  	  	 	2,020 	  	
7 1⁄8% Senior Notes due 2020	  	 	1,200 	  	  	 	1,200 	  	
5 1⁄8% Senior Secured Notes due 2018	  	 	1,600 	  	  	 	1,600 	  	
5 1⁄8% Senior Secured Notes due 2021	  	 	1,000 	  	  	 	- 	  	
6 7⁄8% Senior Notes due 2022	  	 	3,000 	  	  	 	- 	  	
Receivables Facility	  	 	633 	  	  	 	500 	  	
Capital lease obligations	  	 	214 	  	  	 	46 	  	
Other	  	 	69 	  	  	 	37 	  	
 	  	 	 	 	  	 	 	 	
Total debt	  	 	16,998 	  	  	 	9,453 	  	
Less current maturities	  	 	(199)	  	  	 	(167)	  	
 	  	 	 	 	  	 	 	 	
Total long-term debt	  	  $	16,799 	  	  	  $	9,286 	  	
 	  	 	 	 	  	 	 	 	
Credit Facility
The Company’s wholly-owned subsidiary CHS has senior secured financing under a credit facility with a syndicate of financial institutions led by Credit Suisse, as administrative agent and collateral agent. Prior to the HMA merger, this credit facility included a $750 million term loan A facility due October 25, 2016, a term loan B due July 25, 2014, a term loan C due January 25, 2017 and a $750 million revolving credit facility for working capital and general corporate purposes.
In connection with the HMA merger, the Company and CHS entered into a third amendment and restatement of its credit facility (the “Credit Facility”), providing for additional financing and recapitalization of certain of the Company’s term loans, including (i) the replacement of the revolving credit facility with a new $1.0 billion revolving facility maturing in 2019 (the “Revolving Facility”), (ii) the addition of a new $1.0 billion Term A facility due 2019 (the “Term A Facility”), (iii) a Term D facility in an aggregate principal amount equal to approximately $4.6 billion due 2021 (which includes certain term C loans that were converted into such Term D facility (collectively, the “Term D Facility”)), (iv) the conversion of certain term C loans into Term E Loans and the borrowing of new Term E Loans in an aggregate principal amount of approximately $1.7 billion due 2017 and (v) the addition of flexibility commensurate with the Company’s post-acquisition structure. In addition to funding a portion of the consideration in connection with the HMA merger, some of the proceeds of the Term A Facility and Term D Facility were used to refinance the outstanding $637 million existing Term A facility due 2016 and the $60 million of term loans due 2014, respectively. The revolving credit facility includes a subfacility for letters of credit.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
The loans under the Credit Facility bear interest on the outstanding unpaid principal amount at a rate equal to an applicable percentage plus, at CHS’ option, either (a) an Alternate Base Rate (as defined) determined by reference to the greater of (1) the Prime Rate (as defined) announced by Credit Suisse or (2) the Federal Funds Effective Rate (as defined) plus 0.50% or (3) the adjusted London Interbank Offered Rate (“LIBOR”) on such day for a three-month interest period commencing on the second business day after such day plus 1%. Loans in respect of the Credit Facilities may be borrowed in LIBOR and Alternate Base Rate. Loans in respect of the Revolving Facility and the Term A Facility will accrue interest at a rate per annum initially equal to LIBOR plus 2.75%, in the case of LIBOR borrowings, and Alternate Base Rate plus 1.75%, in the case of Alternate Base Rate borrowings. In addition, the margin in respect of the Revolving Facility and the Term A Facility will be subject to step-downs determined by reference to a leverage based pricing grid. Loans in respect of the Term D Facility and the Term E Facility will accrue interest at a rate per annum equal to LIBOR plus 3.25%, in the case of LIBOR borrowings, and Alternate Base Rate plus 2.25%, in the case of Alternate Base Rate Borrowings. The Term D Facility will be subject to a 1.00% LIBOR floor.
The Credit Facility must be prepaid in an amount equal to (1) 100% of the net cash proceeds of certain asset sales and dispositions by the Company and its subsidiaries, subject to certain exceptions and reinvestment rights, (2) 100% of the net cash proceeds of issuances of certain debt obligations or receivables-based financing by the Company and its subsidiaries, subject to certain exceptions, and (3) 50%, subject to reduction to a lower percentage based on the Company’s leverage ratio (as defined in the Credit Facility generally as the ratio of total debt on the date of determination to the Company’s EBITDA, as defined, for the four quarters most recently ended prior to such date), of excess cash flow (as defined) for any year, commencing in 2008, subject to certain exceptions. Voluntary prepayments and commitment reductions are permitted in whole or in part, without any premium or penalty, subject to minimum prepayment or reduction requirements.
The obligor under the Credit Facility is CHS. All of the obligations under the Credit Facility are unconditionally guaranteed by the Company and certain of its existing and subsequently acquired or organized domestic subsidiaries. All obligations under the Credit Facility and the related guarantees are secured by a perfected first priority lien or security interest in substantially all of the assets of the Company, CHS and each subsidiary guarantor, including equity interests held by the Company, CHS or any subsidiary guarantor, but excluding, among others, the equity interests of non-significant subsidiaries, syndication subsidiaries, securitization subsidiaries and joint venture subsidiaries.
CHS has agreed to pay letter of credit fees equal to the applicable percentage then in effect with respect to Eurodollar rate loans under the revolving credit facility times the maximum aggregate amount available to be drawn under all letters of credit outstanding under the subfacility for letters of credit. The issuer of any letter of credit issued under the subfacility for letters of credit will also receive a customary fronting fee and other customary processing charges. CHS is obligated to pay commitment fees of 0.50% per annum (subject to reduction based upon the Company’s leverage ratio) on the unused portion of the revolving credit facility.
The Credit Facility contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting the Company’s and its subsidiaries’ ability, subject to certain exceptions, to, among other things (1) declare dividends, make distributions or redeem or repurchase capital stock, (2) prepay, redeem or repurchase other debt, (3) incur liens or grant negative pledges, (4) make loans and investments and enter into acquisitions and joint ventures, (5) incur additional indebtedness or provide certain guarantees, (6) make capital expenditures, (7) engage in mergers, acquisitions and asset sales, (8) conduct transactions with affiliates, (9) alter the nature of the Company’s businesses, (10) grant certain guarantees with respect to physician practices, (11) engage in sale and leaseback transactions or (12) change the Company’s fiscal year. The Company is also required to comply with specified financial covenants (consisting of a maximum secured net leverage ratio and an interest coverage ratio) and various affirmative covenants.
Events of default under the Credit Facility include, but are not limited to, (1) CHS’ failure to pay principal, interest, fees or other amounts under the credit agreement when due (taking into account any applicable grace period), (2) any representation or warranty proving to have been materially incorrect when made, (3) covenant defaults subject, with respect to certain covenants, to a grace period, (4) bankruptcy events, (5) a cross default to certain other debt, (6) certain undischarged judgments (not paid within an applicable grace period), (7) a change of control, (8) certain ERISA-related defaults and (9) the invalidity or impairment of specified security interests, guarantees or subordination provisions in favor of the administrative agent or lenders under the Credit Facility.
As of March 31, 2014, the availability for additional borrowings under the Credit Facility was approximately $1.0 billion pursuant to the Revolving Facility, of which $77 million was set aside for outstanding letters of credit. CHS has the ability to amend the Credit Facility to provide for one or more tranches of term loans in an aggregate principal amount of $1.5 billion, which CHS has not yet accessed. As of March 31, 2014, the weighted-average interest rate under the Credit Facility, excluding swaps, was 4.3%.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
As of March 31, 2014, the Company had letters of credit issued, primarily in support of potential insurance-related claims and certain bonds, of approximately $77 million.
8% Senior Notes due 2019
On November 22, 2011, CHS completed its offering of $1.0 billion aggregate principal amount of 8% Senior Notes due 2019 (the “8% Senior Notes”), which were issued in a private placement. The net proceeds from this issuance, together with available cash on hand, were used to finance the purchase of up to $1.0 billion aggregate principal amount of CHS’ then outstanding 8  7 ⁄ 8 % Senior Notes and related fees and expenses. On March 21, 2012, CHS completed the secondary offering of $1.0 billion aggregate principal amount of 8% Senior Notes, which were issued in a private placement (at a premium of 102.5%). The net proceeds from this issuance were used to finance the purchase of approximately $850 million aggregate principal amount of CHS’ then outstanding 8  7 ⁄ 8 % Senior Notes, to pay related fees and expenses and for general corporate purposes. The 8% Senior Notes bear interest at 8% per annum, payable semiannually in arrears on May 15 and November 15, commencing May 15, 2012. Interest on the 8% Senior Notes accrues from the date of original issuance. Interest is calculated on the basis of a 360-day year comprised of twelve 30-day months.
Except as set forth below, CHS is not entitled to redeem the 8% Senior Notes prior to November 15, 2015.
Prior to November 15, 2014, CHS is entitled, at its option, to redeem a portion of the 8% Senior Notes (not to exceed 35% of the outstanding principal amount) at a redemption price equal to 108% of the principal amount of the notes redeemed plus accrued and unpaid interest, with the proceeds from certain public equity offerings. Prior to November 15, 2015, CHS may redeem some or all of the 8% Senior Notes at a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest, if any, plus a “make-whole” premium, as described in the 8% Senior Notes indenture. On and after November 15, 2015, CHS is entitled, at its option, to redeem all or a portion of the 8% Senior Notes upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the periods set forth below:

Period	  	     Redemption Price         	 	
November 15, 2015 to November 14, 2016	  	 	104.000 %    	  	
November 15, 2016 to November 14, 2017	  	 	102.000 %    	  	
November 15, 2017 to November 15, 2019	  	 	100.000 %    	  	
Pursuant to a registration rights agreement entered into at the time of the issuance of the 8% Senior Notes, as a result of an exchange offer made by CHS, substantially all of the 8% Senior Notes issued in November 2011 and March 2012 were exchanged in May 2012 for new notes (the “8% Exchange Notes”) having terms substantially identical in all material respects to the 8% Senior Notes (except that the 8% Exchange Notes were issued under a registration statement pursuant to the 1933 Act). References to the 8% Senior Notes shall also be deemed to include the 8% Exchange Notes unless the context provides otherwise.
7 1⁄8% Senior Notes due 2020
On July 18, 2012, CHS completed an underwritten public offering under its automatic shelf registration filed with the SEC of $1.2 billion aggregate principal amount of 7  1 ⁄ 8 % Senior Notes due 2020 (the “7  1 ⁄ 8 % Senior Notes”). The net proceeds from this issuance were used to finance the purchase or redemption of $934 million aggregate principal amount plus accrued interest of CHS’ outstanding 8  7 ⁄ 8 % Senior Notes, to pay for consents delivered in connection therewith, to pay related fees and expenses, and for general corporate purposes. The 7  1 ⁄ 8 % Senior Notes bear interest at 7.125% per annum, payable semiannually in arrears on July 15 and January 15, commencing January 15, 2013. Interest on the 7  1 ⁄ 8 % Senior Notes accrues from the date of original issuance. Interest is calculated on the basis of a 360-day year comprised of twelve 30-day months.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Except as set forth below, CHS is not entitled to redeem the 7 1⁄8% Senior Notes prior to July 15, 2016.
Prior to July 15, 2015, CHS is entitled, at its option, to redeem a portion of the 7 1⁄8% Senior Notes (not to exceed 35% of the outstanding principal amount) at a redemption price equal to 107.125% of the principal amount of the notes redeemed plus accrued and unpaid interest, with the proceeds from certain public equity offerings. Prior to July 15, 2016, CHS may redeem some or all of the 7  1 ⁄ 8 % Senior Notes at a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest, if any, plus a “make-whole” premium, as described in the 7  1 ⁄ 8 % Senior Notes indenture. On and after July 15, 2016, CHS is entitled, at its option, to redeem all or a portion of the 7  1 ⁄ 8 % Senior Notes upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the periods set forth below:

Period	  	         Redemption Price         	 	
July 15, 2016 to July 14, 2017	  	 	103.563 %    	  	
July 15, 2017 to July 14, 2018	  	 	101.781 %    	  	
July 15, 2018 to July 15, 2020	  	 	100.000 %    	  	
5 1⁄8% Senior Secured Notes due 2018
On August 17, 2012, CHS completed an underwritten public offering under its automatic shelf registration filed with the SEC of $1.6 billion aggregate principal amount of 5  1 ⁄ 8 % Senior Secured Notes due 2018 (the “2018 Senior Secured Notes”). The net proceeds from this issuance, together with available cash on hand, were used to finance the prepayment of $1.6 billion of the outstanding term loans due 2014 under the Credit Facility and related fees and expenses. The 2018 Senior Secured Notes bear interest at 5.125% per annum, payable semiannually in arrears on August 15 and February 15, commencing February 15, 2013. Interest on the 2018 Senior Secured Notes accrues from the date of original issuance. Interest is calculated on the basis of a 360-day year comprised of twelve 30-day months. The 2018 Senior Secured Notes are secured by a first-priority lien subject to a shared lien of equal priority with certain other obligations, including obligations under the Credit Facility, and subject to prior ranking liens permitted by the indenture governing the 2018 Senior Secured Notes on substantially the same assets, subject to certain exceptions, that secure CHS’ obligations under the Credit Facility.
Except as set forth below, CHS is not entitled to redeem the 2018 Senior Secured Notes prior to August 15, 2015.
Prior to August 15, 2015, CHS is entitled, at its option, to redeem a portion of the 2018 Senior Secured Notes (not to exceed 35% of the outstanding principal amount) at a redemption price equal to 105.125% of the principal amount of the notes redeemed plus accrued and unpaid interest, with the proceeds from certain public equity offerings. Prior to August 15, 2015, CHS may redeem some or all of the 2018 Senior Secured Notes at a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest, if any, plus a “make-whole” premium, as described in the 2018 Senior Secured Notes indenture. On and after August 15, 2015, CHS is entitled, at its option, to redeem all or a portion of the 2018 Senior Secured Notes upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the periods set forth below:

Period	  	         Redemption Price         	 	
August 15, 2015 to August 14, 2016	  	 	102.563 %    	  	
August 15, 2016 to August 14, 2017	  	 	101.281 %    	  	
August 15, 2017 to August 15, 2018	  	 	100.000 %    	  	
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
5 1⁄8% Senior Secured Notes due 2021
On January 27, 2014, CHS issued $1.0 billion aggregate principal amount of 5 1⁄8% Senior Secured Notes due 2021 (the “2021 Senior Secured Notes”). The net proceeds from this issuance were used to finance the HMA merger. The 2021 Senior Secured Notes bear interest at 5.125% per annum, payable semiannually in arrears on February 1 and August 1, commencing August 1, 2014. Interest on the 2021 Senior Secured Notes accrues from the date of original issuance. Interest is calculated on the basis of a 360-day year comprised of twelve 30-day months. The 2021 Senior Secured Notes are secured by a first-priority lien subject to a shared lien of equal priority with certain other obligations, including obligations under the Credit Facility, and subject to prior ranking liens permitted by the indenture governing the 2021 Senior Secured Notes on substantially the same assets, subject to certain exceptions, that secure CHS’ obligations under the Credit Facility.
Except as set forth below, CHS is not entitled to redeem the 2021 Senior Secured Notes prior to February 1, 2017.
Prior to February 1, 2017, CHS is entitled, at its option, to redeem a portion of the 2021 Senior Secured Notes (not to exceed 40% of the outstanding principal amount) at a redemption price equal to 105.125% of the principal amount of the notes redeemed plus accrued and unpaid interest, with the proceeds from certain equity offerings. Prior to February 1, 2017, CHS may redeem some or all of the 2021 Senior Secured Notes at a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest, if any, plus a “make-whole” premium, as described in the 2021 Senior Secured Notes indenture. On and after February 1, 2017, CHS is entitled, at its option, to redeem all or a portion of the 2021 Senior Secured Notes upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the periods set forth below:

Period	  	         Redemption Price         	 	
February 1, 2017 to January 31, 2018	  	 	103.844 %    	  	
February 1, 2018 to January 31, 2019	  	 	102.563 %    	  	
February 1, 2019 to January 31, 2020	  	 	101.281 %    	  	
February 1, 2020 to January 31, 2021	  	 	100.000 %    	  	
6 7⁄8% Senior Notes due 2022
On January 27, 2014, CHS issued $3.0 billion aggregate principal amount of 6 7⁄8% Senior Notes due 2022 (the “6  7 ⁄ 8 % Senior Notes”). The net proceeds from this issuance were used to finance the HMA merger. The 6  7 ⁄ 8 % Senior Notes bear interest at 6.875% per annum, payable semiannually in arrears on February 1 and August 1, commencing August 1, 2014. Interest on the 6  7 ⁄ 8 % Senior Notes accrues from the date of original issuance. Interest is calculated on the basis of a 360-day year comprised of twelve 30-day months. The 6  7 ⁄ 8 % Senior Notes are secured by a first-priority lien subject to a shared lien of equal priority with certain other obligations, including obligations under the Credit Facility, and subject to prior ranking liens permitted by the indenture governing the 6  7 ⁄ 8 % Senior Notes on substantially the same assets, subject to certain exceptions, that secure CHS’ obligations under the Credit Facility.
Except as set forth below, CHS is not entitled to redeem the 6 7⁄8% Senior Notes prior to February 1, 2018.
Prior to February 1, 2017, CHS is entitled, at its option, to redeem a portion of the 6 7⁄8% Senior Notes (not to exceed 40% of the outstanding principal amount) at a redemption price equal to 106.875% of the principal amount of the notes redeemed plus accrued and unpaid interest, with the proceeds from certain public equity offerings. Prior to February 1, 2018, CHS may redeem some or all of the 6  7 ⁄ 8 % Senior Notes at a redemption price equal to 100% of the principal amount of the notes redeemed plus accrued and unpaid interest, if any, plus a “make-whole” premium, as described in the 6  7 ⁄ 8 % Senior Notes indenture. On and after February 1, 2018, CHS is entitled, at its option, to redeem all or a portion of the 6  7 ⁄ 8 % Senior Notes upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as a percentage of principal amount on the redemption date), plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the periods set forth below:

Period	  	         Redemption Price         	 	
February 1, 2018 to January 31, 2019	  	 	103.438 %    	  	
February 1, 2019 to January 31, 2020	  	 	101.719 %    	  	
February 1, 2020 to January 31, 2022	  	 	100.000 %    	  	
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Receivables Facility
On March 21, 2012, CHS and certain of its subsidiaries entered into an accounts receivable loan agreement (the “Receivables Facility”) with a group of lenders and banks, Credit Agricolé Corporate and Investment Bank, as a managing agent and as the administrative agent, and The Bank of Nova Scotia, as a managing agent. On March 7, 2013, CHS and certain of its subsidiaries amended the Receivables Facility to add an additional managing agent, The Bank of Tokyo-Mitsubishi UFJ, Ltd., to increase the size of the facility from $300 million to $500 million and to extend the scheduled termination date. Additional subsidiaries of the Company also agreed to participate in the Receivables Facility as of that date. On March 31, 2014, CHS and certain of its subsidiaries amended the Receivables Facility to increase the size of the facility from $500 million to $700 million and to extend the scheduled termination date. Additional subsidiaries of the Company also agreed to participate in the Receivables Facility as of that date. The existing and future non-self pay patient-related accounts receivable (the “Receivables”) for certain of the Company’s hospitals serves as collateral for the outstanding borrowings under the Receivables Facility. The interest rate on the borrowings is based on the commercial paper rate plus an applicable interest rate spread. Unless earlier terminated or subsequently extended pursuant to its terms, the Receivables Facility will expire on March 21, 2016, subject to customary termination events that could cause an early termination date. The Company maintains effective control over the Receivables because, pursuant to the terms of the Receivables Facility, the Receivables are sold from certain of the Company’s subsidiaries to CHS, which then sells or contributes the Receivables to a special-purpose entity that is wholly-owned by CHS. The wholly-owned special-purpose entity in turn grants security interests in the Receivables in exchange for borrowings obtained from the group of third-party lenders and banks of up to $700 million outstanding from time to time based on the availability of eligible Receivables and other customary factors. The group of third-party lenders and banks do not have recourse to the Company or its subsidiaries beyond the assets of the wholly-owned special-purpose entity that collateralizes the loan. The Receivables and other assets of the wholly-owned special-purpose entity will be available first and foremost to satisfy the claims of the creditors of such entity. The outstanding borrowings pursuant to the Receivables Facility at March 31, 2014 totaled $633 million and are classified as long-term debt on the condensed consolidated balance sheet. At March 31, 2014, the carrying amount of Receivables included in the Receivables Facility totaled approximately $1.2 billion and is included in patient accounts receivable on the condensed consolidated balance sheet.
Loss from Early Extinguishment of Debt
The financing transactions discussed above resulted in a loss from early extinguishment of debt of $73 million and $1 million for the three months ended March 31, 2014 and 2013, respectively, and an after-tax loss of $45 million and less than $1 million for the three months ended March 31, 2014 and 2013, respectively.
Other Debt
As of March 31, 2014, other debt consisted primarily of the mortgage obligation on the Company’s corporate headquarters and other obligations maturing in various installments through 2028. Other debt also included approximately $6 million related to the balance at March 31, 2014 of the HMA 3.75% Convertible Senior Subordinated Notes due 2028. Subsequent to March 31, 2014, the remaining balance of these notes was paid off.
To limit the effect of changes in interest rates on a portion of the Company’s long-term borrowings, the Company is a party to 14 separate interest swap agreements in effect at March 31, 2014, with an aggregate notional amount for currently effective swaps of $2.0 billion, and four forward-starting swap agreements with an aggregate notional amount of $900 million. On each of these swaps, the Company receives a variable rate of interest based on the three-month LIBOR in exchange for the payment of a fixed rate of interest. The Company currently pays, on a quarterly basis, interest on the Revolving Facility and the Term A Facility at a rate per annum equal to LIBOR plus 275 basis points. Loans in respect of the Term D Facility and the Term E Facility accrue interest at a rate per annum equal to LIBOR plus 325 basis points. The Term D Facility is also subject to a 100 basis point LIBOR floor. See Note 12 for additional information regarding these swaps.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
The Company paid interest of $280 million and $150 million on borrowings during the three months ended March 31, 2014 and 2013, respectively.
12.  FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments has been estimated by the Company using available market information as of March 31, 2014 and December 31, 2013, and valuation methodologies considered appropriate. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange (in millions):

 	  	March 31, 2014	 	  	December 31, 2013	 	
 	  	        Carrying        
Amount	 	  	    Estimated Fair    
Value	 	  	        Carrying        
Amount	 	  	    Estimated Fair    
Value	 	
Assets:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash and cash equivalents	  	$	613 	  	  	$	613 	  	  	$	373 	  	  	$	373 	  	
Available-for-sale securities	  	 	245 	  	  	 	245 	  	  	 	65 	  	  	 	65 	  	
Trading securities	  	 	42 	  	  	 	42 	  	  	 	38 	  	  	 	38 	  	
Liabilities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Contingent Value Right	  	 	16 	  	  	 	16 	  	  	 	- 	  	  	 	- 	  	
Credit Facility	  	 	7,262 	  	  	 	7,315 	  	  	 	4,050 	  	  	 	4,085 	  	
8% Senior Notes	  	 	2,020 	  	  	 	2,206 	  	  	 	2,020 	  	  	 	2,172 	  	
7 1⁄8% Senior Notes	  	 	1,200 	  	  	 	1,306 	  	  	 	1,200 	  	  	 	1,246 	  	
2018 Senior Secured Notes	  	 	1,600 	  	  	 	1,689 	  	  	 	1,600 	  	  	 	1,662 	  	
2021 Senior Secured Notes	  	 	1,000 	  	  	 	1,028 	  	  	 	- 	  	  	 	- 	  	
6 7⁄8% Senior Notes	  	 	3,000 	  	  	 	3,144 	  	  	 	- 	  	  	 	- 	  	
Receivables Facility and other debt	  	 	702 	  	  	 	702 	  	  	 	537 	  	  	 	537 	  	
The estimated fair value is determined using the methodologies discussed below in accordance with accounting standards related to the determination of fair value based on the U.S. GAAP fair value hierarchy as discussed in Note 13. The estimated fair value for financial instruments with a fair value that does not equal its carrying value is considered a Level 1 valuation. The Company utilizes the market approach and obtains indicative pricing from the administrative agent to the Credit Facility to determine fair values, which are validated through publicly available subscription services such as Bloomberg where relevant.
Cash and cash equivalents. The carrying amount approximates fair value due to the short-term maturity of these instruments (less than three months).
Available-for-sale securities. Estimated fair value is based on closing price as quoted in public markets or other various valuation techniques.
Trading securities. Estimated fair value is based on closing price as quoted in public markets.
Contingent Value Right. Estimated fair value is based on the closing price as quoted on the public market where the CVR is traded.
Credit Facility. Estimated fair value is based on information from the Company’s bankers regarding relevant pricing for trading activity among the Company’s lending institutions.
8% Senior Notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as an underwriter in the sale of these notes.
7 1⁄8% Senior Notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as an underwriter in the sale of these notes.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
2018 Senior Secured Notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as an underwriter in the sale of these notes.
2021 Senior Secured Notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as an underwriter in the sale of these notes.
6 7⁄8% Senior Notes. Estimated fair value is based on the average bid and ask price as quoted by the bank who served as an underwriter in the sale of these notes.
Receivables Facility and other debt. The carrying amount of the Receivables Facility and all other debt approximates fair value due to the nature of these obligations.
Interest rate swaps. The fair value of interest rate swap agreements is the amount at which they could be settled, based on estimates calculated by the Company using a discounted cash flow analysis based on observable market inputs and validated by comparison to estimates obtained from the counterparty. The Company incorporates credit valuation adjustments (“CVAs”) to appropriately reflect both its own nonperformance or credit risk and the respective counterparty’s nonperformance or credit risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance or credit risk, the Company has considered the impact of any netting features included in the agreements.
The Company assesses the effectiveness of its hedge instruments on a quarterly basis. For the three months ended March 31, 2014 and 2013, the Company completed an assessment of the cash flow hedge instruments and determined the hedges to be highly effective. The Company has also determined that the ineffective portion of the hedges do not have a material effect on the Company’s consolidated financial position, operations or cash flows. The counterparties to the interest rate swap agreements expose the Company to credit risk in the event of nonperformance. However, at March 31, 2014, since the majority of the swap agreements entered into by the Company were in a net liability position so that the Company would be required to make the net settlement payments to the counterparties; the Company does not anticipate nonperformance by those counterparties. The Company does not hold or issue derivative financial instruments for trading purposes.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Interest rate swaps consisted of the following at March 31, 2014:

            Swap #            	  	  Notional Amount  
(in millions)	 	  	 Fixed Interest Rate 	 	  	Termination Date	  	      Fair Value (in      
millions)	 	
1	  	$	100 	  	  	 	5.231 %  	  	  	July 25, 2014	  	$	2 	  	
2	  	 	100 	  	  	 	5.231 %  	  	  	July 25, 2014	  	 	2 	  	
3	  	 	200 	  	  	 	5.160 %  	  	  	July 25, 2014	  	 	3 	  	
4	  	 	75 	  	  	 	5.041 %  	  	  	July 25, 2014	  	 	1 	  	
5	  	 	125 	  	  	 	5.022 %  	  	  	July 25, 2014	  	 	2 	  	
6	  	 	100 	  	  	 	2.621 %  	  	  	July 25, 2014	  	 	1 	  	
7	  	 	100 	  	  	 	3.110 %  	  	  	July 25, 2014	  	 	1 	  	
8	  	 	100 	  	  	 	3.258 %  	  	  	July 25, 2014	  	 	1 	  	
9	  	 	200 	  	  	 	2.693 %  	  	  	October 26, 2014	  	 	3 	  	
10	  	 	300 	  	  	 	3.447 %  	  	  	August 8, 2016	  	 	19 	  	
11	  	 	200 	  	  	 	3.429 %  	  	  	August 19, 2016	  	 	13 	  	
12	  	 	100 	  	  	 	3.401 %  	  	  	August 19, 2016	  	 	6 	  	
13	  	 	200 	  	  	 	3.500 %  	  	  	August 30, 2016	  	 	13 	  	
14	  	 	100 	  	  	 	3.005 %  	  	  	November 30, 2016	  	 	6 	  	
15	  	 	200 	  	  	 	2.055 %  	  	  	July 25, 2019	  	 	- 	(1) 	
16	  	 	200 	  	  	 	2.059 %  	  	  	July 25, 2019	  	 	- 	(2) 	
17	  	 	200 	  	  	 	2.613 %  	  	  	August 30, 2019	  	 	- 	(3) 	
18	  	 	300 	  	  	 	2.892 %  	  	  	August 30, 2020	  	 	- 	(4) 	

(1) This interest rate swap becomes effective July 25, 2014.
(2) This interest rate swap becomes effective July 25, 2014.
(3) This interest rate swap becomes effective August 30, 2015.
(4) This interest rate swap becomes effective August 30, 2015.
The Company is exposed to certain risks relating to its ongoing business operations. The risk managed by using derivative instruments is interest rate risk. Interest rate swaps are entered into to manage interest rate fluctuation risk associated with the term loans in the Credit Facility. Companies are required to recognize all derivative instruments as either assets or liabilities at fair value in the condensed consolidated statement of financial position. The Company designates its interest rate swaps as cash flow hedges. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.
Assuming no change in March 31, 2014 interest rates, approximately $63 million of interest expense resulting from the spread between the fixed and floating rates defined in each interest rate swap agreement will be recognized during the next 12 months. If interest rate swaps do not remain highly effective as a cash flow hedge, the derivatives’ gains or losses resulting from the change in fair value reported through OCI will be reclassified into earnings.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
The following tabular disclosure provides the amount of pre-tax loss recognized as a component of OCI during the three months ended March 31, 2014 and 2013 (in millions):

 	 	 	  	  Amount of Pre-Tax Loss Recognized in OCI (Effective  
Portion)	 	
Derivatives in Cash Flow Hedging Relationships	 	 	  	 
Three Months Ended March 31,	 	
 	 	 	  	2014	 	 	2013	 	
Interest rate swaps	 	 	  	$	(3)	  	 	$	(3)	  	
The following tabular disclosure provides the location of the effective portion of the pre-tax loss reclassified from accumulated other comprehensive loss (“AOCL”) into interest expense on the condensed consolidated statements of income during the three months ended March 31, 2014 and 2013 (in millions):

 	 	 	  	Amount of Pre-Tax Loss Reclassified from
AOCL into Income  (Effective Portion)	 	
Location of Loss Reclassified from AOCL into Income (Effective Portion)	 	 	  	 
Three Months Ended March 31,	 	
 	 	 	  	2014	 	  	2013	 	
Interest expense, net	 	 	  	$	18 	  	  	$	27 	  	
The fair values of derivative instruments in the condensed consolidated balance sheets as of March 31, 2014 and December 31, 2013 were as follows (in millions):

 	  	Asset Derivatives	 	 	Liability Derivatives	 	
 	  	March 31, 2014	 	 	December 31, 2013	 	 	March 31, 2014	 	 	December 31, 2013	 	
 	  	Balance
Sheet
Location	 	 	 	Fair Value	 	 	Balance
Sheet
Location	 	 	 	Fair Value	 	 	Balance
Sheet
Location	 	 	 	Fair Value	 	 	Balance
Sheet
Location	 	 	 	Fair Value	 	
Derivatives designated as hedging instruments	  	Other
assets, net	 	$	 	 	- 	  	 	Other
assets, net	 	$	 	 	- 	  	 	Other long-
term
liabilities	 	$	 	 	73 	  	 	Other long-
term
liabilities	 	$	 	 	88 	  	
13.   FAIR VALUE
Fair Value Hierarchy
Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Company utilizes the U.S. GAAP fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumption about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
 
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The inputs used to measure fair value are classified into the following fair value hierarchy:

Level 1:	 	Quoted market prices in active markets for identical assets or liabilities.	
 	 	
Level 2:	 	Observable market-based inputs or unobservable inputs that are corroborated by market data.	
 	 	
Level 3:	 	Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Level 3 includes values determined using pricing models, discounted cash flow methodologies, or similar techniques reflecting the Company’s own assumptions.	
In instances where the determination of the fair value hierarchy measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment of factors specific to the asset or liability.
The following table sets forth, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as of March 31, 2014 and December 31, 2013 (in millions):

 	  	  March 31, 2014  	 	  	        Level 1        	 	  	        Level 2        	 	  	        Level 3        	 	
Available-for-sale securities	  	$	245  	  	  	$	123 	  	  	$	122  	  	  	$	- 	  	
Trading securities	  	 	42  	  	  	 	42 	  	  	 	-  	  	  	 	- 	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total assets	  	$	287  	  	  	$	165 	  	  	$	122  	  	  	$	- 	  	

Contingent Value Right	  	$	16  	  	  	$	16 	  	  	$	-  	  	  	$	- 	  	
Fair value of interest rate swap agreements	  	 	73  	  	  	 	- 	  	  	 	73  	  	  	 	- 	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total liabilities	  	$	89  	  	  	$	16 	  	  	$	73  	  	  	$	- 	  	

 	  	December 31,
2013	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	
Available-for-sale securities	  	$	65  	  	  	$	65 	  	  	$	-  	  	  	$	- 	  	
Trading securities	  	 	38  	  	  	 	38 	  	  	 	-  	  	  	 	- 	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total assets	  	$	103  	  	  	$	103 	  	  	$	-  	  	  	$	- 	  	

Fair value of interest rate swap agreements	  	$	88  	  	  	$	- 	  	  	$	88  	  	  	$	- 	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total liabilities	  	$	88  	  	  	$	- 	  	  	$	88  	  	  	$	- 	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Available-for-sale securities and trading securities classified as Level 1 are measured using quoted market prices. Level 2 available-for-sale securities primarily consisted of: (i) bonds and notes issued by the United States government and its agencies, domestic and foreign corporations and foreign governments; and (ii) preferred securities issued by domestic and foreign corporations. The estimated fair values of these securities are determined using various valuation techniques, including a multi-dimensional relational model that incorporates standard observable inputs and assumptions such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids/offers and other pertinent reference data.
The CVR liability represents the estimate of the fair value for the contingent consideration paid to HMA shareholders as part of the HMA merger. The CVR is listed on the NASDAQ and the valuation at March 31, 2014 is based on the quoted trading price for the CVR on the last day of the period. Subsequent changes in the estimated fair value of the CVR will be recorded in future periods through the statement of income.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
The valuation of the Company’s interest rate swap agreements is determined using market valuation techniques, including discounted cash flow analysis on the expected cash flows of each agreement. This analysis reflects the contractual terms of the agreement, including the period to maturity, and uses observable market-based inputs, including forward interest rate curves. The fair value of interest rate swap agreements are determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on the expectation of future interest rates based on observable market forward interest rate curves and the notional amount being hedged.
The Company incorporates CVAs to appropriately reflect both its own nonperformance or credit risk and the respective counterparty’s nonperformance or credit risk in the fair value measurements. In adjusting the fair value of its interest rate swap agreements for the effect of nonperformance or credit risk, the Company has considered the impact of any netting features included in the agreements. The CVA on the Company’s interest rate swap agreements at March 31, 2014 resulted in a decrease in the fair value of the related liability of $3 million and an after-tax adjustment of $2 million to OCI. The CVA on the Company’s interest rate swap agreements at December 31, 2013 resulted in a decrease in the fair value of the related liability of $1 million and an after-tax adjustment of less than $1 million to OCI.
The majority of the inputs used to value its interest rate swap agreements, including the forward interest rate curves and market perceptions of the Company’s credit risk used in the CVAs, are observable inputs available to a market participant. As a result, the Company has determined that the interest rate swap valuations are classified in Level 2 of the fair value hierarchy.
14.  SEGMENT INFORMATION
The Company operates in two distinct operating segments, represented by hospital operations (which includes its general acute care hospitals and related healthcare entities that provide inpatient and outpatient healthcare services) and home care agency operations (which provide in-home outpatient care).
Only the hospital operations segment meets the criteria as a separate reportable segment. The financial information for the home care agency segment does not meet the quantitative thresholds for a separate identifiable reportable segment and is combined into the corporate and all other reportable segment.
Substantially all of the assets acquired in the HMA merger are recorded as part of the hospital operations segment. The distribution between reportable segments of the Company’s net operating revenues and income from continuing operations before income taxes is summarized in the following tables (in millions):

 	  	Three Months Ended
March 31,	 	
 	  	            2014            	 	  	            2013            	 	
Net operating revenues:	  	 	 	 	  	 	 	 	
Hospital operations	  	$	4,136 	  	  	$	3,229 	  	
Corporate and all other	  	 	59 	  	  	 	45 	  	
 	  	 	 	 	  	 	 	 	
Total	  	$	4,195 	  	  	$	3,274 	  	

Income from continuing operations before income taxes:	  	 	 	 	  	 	 	 	
Hospital operations	  	$	26 	  	  	$	207 	  	
Corporate and all other	  	 	(161) 	  	  	 	(60)	  	
 	  	 	 	 	  	 	 	 	
Total	  	$	(135) 	  	  	$	147 	  	

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
15.  OTHER COMPREHENSIVE INCOME
The following table present information about items reclassified out of accumulated other comprehensive income (loss) by component for the three months ended March 31, 2014 and 2013 (in millions, net of tax):

 	 	Change in Fair
  Value of Interest  
Rate Swaps	 	 	Change in Fair
  Value of Available  
for Sale Securities	 	 	Change in
      Unrecognized      
Pension  Cost
Components	 	 	  Accumulated Other  
Comprehensive
Income (Loss)	 	
Balance as of December 31, 2013	 	 $	(56)	  	 	 $	7 	  	 	 $	(18)	  	 	 $	(67)	  	
Other comprehensive (loss) income before reclassifications	 	 	(2)	  	 	 	- 	  	 	 	- 	  	 	 	(2)	  	
Amounts reclassified from accumulated other comprehensive income (loss)	 	 	11 	  	 	 	- 	  	 	 	- 	  	 	 	11 	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net current-period other comprehensive income	 	 	9 	  	 	 	- 	  	 	 	- 	  	 	 	9 	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of March 31, 2014	 	 $	(47)	  	 	 $	7 	  	 	 $	(18)	  	 	 $	(58)	  	

 	 	Change in Fair
Value of Interest
Rate Swaps	 	 	Change in Fair
Value of Available
for Sale Securities	 	 	Change in
Unrecognized
Pension Cost
Components	 	 	Accumulated Other
Comprehensive
Income (Loss)	 	
Balance as of December 31, 2012	 	 $	(116)	  	 	 $	5 	  	 	 $	(34)	  	 	 $	(145)	  	
Other comprehensive (loss) income before reclassifications	 	 	(2)	  	 	 	2 	  	 	 	- 	  	 	 	- 	  	
Amounts reclassified from accumulated other comprehensive income (loss)	 	 	18 	  	 	 	- 	  	 	 	1 	  	 	 	19 	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net current-period other comprehensive income	 	 	16 	  	 	 	2 	  	 	 	1 	  	 	 	19 	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of March 31, 2013	 	 $	(100)	  	 	 $	7 	  	 	 $	(33)	  	 	 $	(126)	  	

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
The following table presents a subtotal for each significant reclassification to net income out of accumulated other comprehensive income (loss) and the line item affected in the accompanying condensed consolidated statement of income during the three months ended March 31, 2014 and 2013 (in millions):

For the Three Months Ended March 31, 2014	
Details about accumulated other
comprehensive income (loss) components	  	    Amount reclassified    
from AOCL	 	  	Affected line item in the
statement where net
income is presented	
Gains and losses on cash flow hedges	  	 	 	 	  	 	
Interest rate swaps	  	 $	(18)	  	  	Interest expense, net	
 	  	 	7 	  	  	Tax benefit	
 	  	 	 	 	  	 	
 	  	 $	(11)	  	  	Net of tax	

Amortization of defined benefit pension items	  	 	 	 	  	 	
Prior service costs	  	 $	- 	  	  	Salaries and benefits	
Actuarial losses	  	 	- 	  	  	Salaries and benefits	
 	  	 	 	 	  	 	
 	  	 	- 	  	  	Total before tax	
 	  	 	- 	  	  	Tax benefit	
 	  	 	 	 	  	 	
 	  	 $	- 	  	  	Net of tax	

For the Three Months Ended March 31, 2013	
Details about accumulated other
comprehensive income (loss) components	  	Amount reclassified
from AOCL	 	  	Affected line item in the
statement where net
income is presented	
Gains and losses on cash flow hedges	  	 	 	 	  	 	
Interest rate swaps	  	 $	(27)	  	  	Interest expense, net	
 	  	 	9 	  	  	Tax benefit	
 	  	 	 	 	  	 	
 	  	 $	(18)	  	  	Net of tax	

Amortization of defined benefit pension items	  	 	 	 	  	 	
Prior service costs	  	 $	- 	  	  	Salaries and benefits	
Actuarial losses	  	 	(1)	  	  	Salaries and benefits	
 	  	 	 	 	  	 	
 	  	 	(1)	  	  	Total before tax	
 	  	 	- 	  	  	Tax benefit	
 	  	 	 	 	  	 	
 	  	 $	(1)	  	  	Net of tax	

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
16.  CONTINGENCIES
The Company is a party to various legal proceedings incidental to its business. In the opinion of management, any ultimate liability with respect to these actions will not have a material adverse effect on the Company’s consolidated financial position, cash flows or results of operations. In addition, in connection with the closing of the HMA merger on January 27, 2014, the Company has become liable for both recorded and unrecorded contingencies of HMA. The Company’s management is not aware of any unrecorded contingencies assumed in connection with the HMA merger, whose ultimate outcome will have a material adverse effect on the Company’s consolidated financial position, cash flows or results of operations. With respect to all litigation matters, the Company considers the likelihood of a negative outcome. If the Company determines the likelihood of a negative outcome is probable and the amount of the loss can be reasonably estimated, the Company records an estimated loss for the expected outcome of the litigation and discloses that fact together with the amount accrued, if it was estimable. If the likelihood of a negative outcome is reasonably possible and the Company is able to determine an estimate of the possible loss or a range of loss, the Company discloses that fact together with the estimate of the possible loss or range of loss. However, it is difficult to predict the outcome or estimate a possible loss or range of loss in some instances because litigation is subject to significant uncertainties.
HMA Litigation and Related CVR
The CVR agreement entitles the holder to receive a cash payment of up to $1.00 per CVR, subject to downward adjustment based on the final resolution of certain legal matters related to HMA. Such legal matters include, but are not limited to, certain litigation as previously disclosed by HMA in public filings with the SEC, in each case existing on or prior to the date of the merger agreement. The adjustment reducing the ultimate amount paid to holders of the CVR is determined based on the amount of losses incurred by the Company in connection with such litigation. If the aggregate amount of losses (which includes the amount paid for damages, costs, fees and expenses (including, without limitation, attorneys’ fees and expenses), and all fines, penalties, settlement amounts, indemnification obligations and other liabilities) exceeds a deductible of $18 million, then the amount payable in respect of each CVR shall be reduced (but not below zero) by an amount equal to the quotient obtained by dividing: (a) the product of (i) all losses in excess of the deductible and (ii) 90%; by (b) the number of CVRs outstanding on the date on which final resolution of the existing litigation occurs. Based on the 264,544,053 of CVRs outstanding, the maximum payment to holders of the CVRs could be approximately $265 million.
The following table represents the impact of legal expenses paid or incurred to date and settlements paid or deemed final as of March 31, 2014 on the amounts owed to CVR holders (in millions):

 	  	          Deductible          	 	  	CHS
        Responsibility        
at 10%	 	  	Reduction to
Amount Owed
      to CVR Holders      
at 90%	 	  	      Total Expenses      
and Settlement
Cost	 	
As of January 27, 2014	  	   $	- 	  	  	  $	- 	  	  	   $	- 	  	  	  $	- 	  	
Legal expenses incurred and/or paid during the three months ended March 31, 2014	  	 	3 	  	  	 	- 	  	  	 	- 	  	  	 	3 	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
As of March 31, 2014	  	   $	3 	  	  	  $	- 	  	  	   $	- 	  	  	  $	3 	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Amounts owed to CVR holders is dependent on the ultimate resolution of the litigation and determination of losses incurred.
Underlying the CVR agreement is a number of claims asserted against the Company. The Company will record the fair market value of payments estimated to be required in connection with those claims as part of the acquired assets and liabilities at the date of acquisition under the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations.” The Company is currently in the process of determining the fair value of those underlying claims and potential settlement of the CVR but has not completed this analysis as of March 31, 2014. A portion of this underlying liability had been previously recorded by HMA and has been reflected as an acquired liability. This amount is $42 million and is recorded in accrued liabilities on the accompanying condensed consolidated balance sheet. The claims related to this portion of the liability are summarized below. The remaining liability will be recorded as part of the opening balance sheet upon completion of the fair market value analysis. The settlement of any or all of the claims and expenses incurred on behalf of the Company in defending itself will reduce the amounts owed to the CVR holders.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Probable Contingencies - HMA
OIG Investigation of Certain HMA Hospitals’ Relationships with Allegiance
On February 22, 2012 and February 24, 2012, the United States Department of Health and Human Services office of the Inspector General (“OIG”) served subpoenas on certain HMA hospitals relating to those hospitals’ relationships with Allegiance Health Management, Inc. (“Allegiance”). Allegiance, which is unrelated to HMA, is a post-acute healthcare management company that provides intensive outpatient psychiatric (“IOP”) services to patients. The HMA hospitals that were served subpoenas were: (i) Central Mississippi Medical Center in Jackson, Mississippi; (ii) Crossgates River Oaks Hospital in Brandon, Mississippi; (iii) Davis Regional Medical Center in Statesville, North Carolina; (iv) Lake Norman Regional Medical Center in Mooresville, North Carolina; (v) the Medical Center of Southeastern Oklahoma in Durant, Oklahoma; and (vi) Natchez Community Hospital in Natchez, Mississippi. Each of those hospitals has or had a contract with Allegiance. Among other things, the subpoenas seek: (i) documents related to the hospitals’ financial relationships with Allegiance; (ii) documents related to patients who received IOP services from Allegiance at the HMA hospitals, including their patient medical records; (iii) documents relating to complaints or concerns regarding Allegiance’s IOP services at the HMA hospitals; (iv) documents relating to employees, physicians and therapists who were involved with the IOP services provided by Allegiance at the HMA hospitals; and (v) other documents related to Allegiance, including leases, contracts, policies and procedures, training documents, budgets and financial analyses. The period of time covered by the subpoenas is January 1, 2008 through the date of subpoena compliance. The Company will continue to cooperate with the investigations. Prior to the HMA merger, HMA determined that a liability for this claim is probable and a liability was recorded by HMA during the quarter ended December 31, 2013, which was assumed as part of the HMA merger.
Department of Justice Investigation of Kyphoplasty Procedures at Certain HMA Hospitals
Several HMA hospitals received letters during 2009 requesting information in connection with a DOJ investigation relating to kyphoplasty procedures. Kyphoplasty is a minimally invasive spinal procedure used to treat vertebral compression fractures. The DOJ is currently investigating hospitals and hospital operators in multiple states to determine whether certain Medicare claims for kyphoplasty were incorrect when billed as an inpatient service rather than as an outpatient service. The DOJ’s investigation originated with a False Claims Act lawsuit against Kyphon, Inc., the company that developed the kyphoplasty procedure. The requested information has been provided to the DOJ and the Company is continuing to cooperate with the investigation. Prior to the HMA merger, HMA determined that a liability for this claim is probable and an incremental liability was recorded by HMA during the quarter ended December 31, 2013, which was assumed as part of the HMA merger.
Probable Contingencies - CHS
Department of Justice Investigation of Medicare Short-Stay Admissions from Emergency Departments of CHS Hospitals
In April 2011, the Company received a document subpoena from OIG in connection with an investigation of possible improper claims submitted to Medicare and Medicaid. The subpoena was directed to all of the Company’s hospitals and requested documents concerning emergency department processes and procedures, including the hospitals’ use of the Pro-MED Clinical Information System, a third-party software system that assists with the management of patient care and provides operational support and data collection for emergency department management. The subpoena also sought information about the Company’s relationships with emergency department physicians, including financial arrangements.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
We are currently in negotiations with the Department of Justice about resolving its claims in connection with its investigation into the Company’s short stay hospital admissions for the years 2005-2010, as well as their investigation at our hospital in Laredo, Texas. Based on those negotiations, which are not final, we believe that a reserve of $102 million is sufficient to cover the federal government’s claims for Medicare, Tricare, and Medicaid admissions (including the claims described in the Legal Proceedings section in Part II Item 1 of this Form 10-Q related to United States ex rel. and Reuille vs. Community Health Systems Professional Services Corporation and Lutheran Musculoskeletal Center, LLC d/b/a Lutheran Hospital (United States District Court for the Northern District of Indiana, Fort Wayne Division) and the May 2011 subpoena identified as “Shelbyville, Tennessee OIG Subpoena”), certain claims specifically related to our hospital in Laredo, Texas, and other related legal expenses. This reserve is not meant to include third party legal expenses. The Company is also negotiating a corporate integrity agreement with the Office of the Inspector General of the Department of Health and Human Services.
There are a number of legal matters for which, based on information currently available, the Company believes that a negative outcome is known or is probable. In the aggregate, including the matters described above, an estimate of these losses has been accrued in the amount of $169 million and $119 million at March 31, 2014 and December 31, 2013, respectively, and is included in accrued liabilities in the accompanying condensed consolidated balance sheets. Due to the uncertainties and difficulty in predicting the ultimate resolution of these contingencies, the actual amount could differ from the estimated amount; however, the Company does not believe a change in estimate for any of these matters would be material.
The table below presents a reconciliation of the beginning and ending liability balances in connection with probable contingencies recorded during the three months ended March 31, 2014 (in millions):

 	  	        CVR Related Liability        
at Fair Value	 	  	ASC 450
        Probable Contingency        	 	
Balance as of December 31, 2013	  	$	- 	  	  	$	119 	  	
Assumed liabilities for HMA contingencies	  	 	42 	  	  	 	6 	  	
Expense	  	 	- 	  	  	 	3 	  	
Cash payments	  	 	- 	  	  	 	(1)	  	
 	  	 	 	 	  	 	 	 	
Balance as of March 31, 2014	  	$	42 	  	  	$	127 	  	
 	  	 	 	 	  	 	 	 	
Other costs incurred related to probable contingencies, including attorneys’ fees, totaled $3 million and less than $1 million for the three months ended March 31, 2014 and 2013, respectively, and are included in other operating expenses in the accompanying condensed consolidated statements of income.
Reasonably Possible Contingencies
For the legal matter below, the Company believes that a negative outcome is reasonably possible, but the Company is unable to determine an estimate of the possible loss or a range of loss.
 
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
U.S. ex rel. Baker vs. Community Health Systems, Inc. (United States District Court for the District of New Mexico)
The Company’s knowledge of this matter originated in early 2006 with correspondence from the Civil Division of the Department of Justice requesting documents in an investigation it was conducting involving the Company. The inquiry related to the way in which different state Medicaid programs apply to the federal government for matching or supplemental funds that are ultimately used to pay for a small portion of the services provided to Medicaid and indigent patients. These programs are referred to by different names, including “intergovernmental payments,” “upper payment limit programs,” and “Medicaid disproportionate share hospital payments.” For approximately three years, the Company provided the Department of Justice with requested documents, met with its personnel on numerous occasions and otherwise cooperated in its investigation. During the course of the investigation, the Civil Division notified the Company that it believed that the Company and three of its New Mexico hospitals caused the State of New Mexico to submit improper claims for federal funds, in violation of the Federal False Claims Act. This investigation has culminated in the federal government’s intervention in the referenced qui tam lawsuit, which alleges that the Company’s New Mexico hospitals “caused to be filed” false claims from the period of August 2000 through June 2011. Two of the Parent Company’s subsidiaries are also defendants in this lawsuit. The Company continues to vigorously defend this action. On December 4-5, 2013, the district court judge heard oral arguments on both sides’ motions for summary judgment. By telephone conference on December 19, 2013, he advised the parties that, with respect to the core motions for summary judgment, he was denying all parties’ motions, concluding that there were issues of fact to be determined at trial. Court ordered mediation began on March 12, 2014 and remains open. A trial date of October 14, 2014 has been assigned.
Matters for which an Outcome Cannot be Assessed - CHS
For all of the legal matters below, the Company cannot at this time assess what the outcome may be and is further unable to determine any estimate of loss or range of loss. Because the investigations are at a preliminary stage, there are not sufficient facts available to make these assessments.
Multi-provider National Department of Justice Investigations
Implantable Cardioverter Defibrillators (“ICDs”).  The Company was first made aware of this investigation in September 2010, when the Company received a letter from the Civil Division of the United States Department of Justice. The letter advised the Company that an investigation was being conducted to determine whether certain hospitals have improperly submitted claims for payment for ICDs. The period of time covered by the investigation was 2003 to 2010. The Company continues to fully cooperate with the government in this investigation and has provided requested records and documents. On August 30, 2012, the Department of Justice issued a document entitled, “Medical Review Guidelines/Resolution Model,” which sets out, for the purposes of this investigation, the patient conditions and criteria for the medical necessity of the implantation of ICDs in Medicare beneficiaries and how the Department of Justice will enforce the repayment obligations of hospitals. The Company is in the process of reviewing its medical records in light of the guidance contained in this document.
Class Action Shareholder Federal Securities Cases.  Three purported class action cases have been filed in the United States District Court for the Middle District of Tennessee; namely, Norfolk County Retirement System v. Community Health Systems, Inc., et al., filed May 9, 2011; De Zheng v. Community Health Systems, Inc., et al., filed May 12, 2011; and Minneapolis Firefighters Relief Association v. Community Health Systems, Inc., et al., filed June 21, 2011. All three seek class certification on behalf of purchasers of the Company’s common stock between July 27, 2006 and April 11, 2011 and allege that misleading statements resulted in artificially inflated prices for the Company’s common stock. In December 2011, the cases were consolidated for pretrial purposes and NYC Funds and its counsel were selected as lead plaintiffs/lead plaintiffs’ counsel. The Company’s motion to dismiss this case has been fully briefed and is pending before the court. The Company believes this consolidated matter is without merit and will vigorously defend this case.
Shareholder Derivative Actions.  Three purported shareholder derivative actions have also been filed in the United States District Court for the Middle District of Tennessee; Plumbers and Pipefitters Local Union No. 630 Pension Annuity Trust Fund v. Wayne T. Smith, et al., filed May 24, 2011; Roofers Local No. 149 Pension Fund v. Wayne T. Smith, et al., filed June 21, 2011; and Lambert Sweat v. Wayne T. Smith, et al., filed October 5, 2011. These three cases allege breach of fiduciary duty arising out of allegedly improper inpatient admission practices, mismanagement, waste and unjust enrichment. These cases have been consolidated into a single, consolidated action. The plaintiffs filed an operative amended derivative complaint in these three consolidated actions on March 15, 2012. The Company’s motion to dismiss was argued on June 13, 2013. On September 27, 2013, the court issued an order granting in part and denying in part the Company’s motion to dismiss. On October 14, 2013, the Company filed for a Motion for Reconsideration of the Order Granting in Part and Denying in Part the Motion to Dismiss, a Motion to Stay Discovery, and an unopposed Motion for Extension of Time to File an Answer. The Company believes all of the plaintiffs’ claims are without merit and will vigorously defend them.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Matters for which an Outcome Cannot be Assessed - HMA
Medicare/Medicaid Billing Lawsuits
During September 2010, HMA received a letter from the DOJ indicating that an investigation was being conducted to determine whether certain HMA hospitals improperly submitted claims for the implantation of ICDs. The DOJ’s investigation covers the period commencing with Medicare’s expansion of coverage for ICDs in 2003 to the present. The letter from the DOJ further indicates that the claims submitted by HMA’s hospitals for ICDs and related services need to be reviewed to determine if Medicare coverage and payment was appropriate. During 2010, the DOJ sent similar letters and other requests to a large number of unrelated hospitals and hospital operators across the country as part of a nation-wide review of ICD billing under the Medicare program. The Company is cooperating with the DOJ in its ongoing investigation, which could potentially give rise to claims against HMA and/or certain of its subsidiary hospitals under the False Claims Act or other statutes, regulations or laws. Additionally, the Company is conducting an internal review of hospital medical records related to ICDs that are the subject of the DOJ investigation. To date, the DOJ has not asserted any monetary or other claims against HMA or its hospitals in this matter and, at this time, the Company is unable to determine the potential impact, if any, that will result from the final resolution of the investigation.
Beginning during the week of December 16, 2013 eleven qui tam lawsuits filed by private individuals against HMA were unsealed in various United States district courts. The United States has elected to intervene in all or part of eight of these matters; namely U.S. ex rel. Craig Brummer v. Health Management Associates, Inc. et al. (Middle District Georgia) (“Brummer”); U.S. ex rel. Ralph D. Williams v. Health Management Associates, Inc. et al. (Middle District Georgia) (“Williams”); U.S. ex rel. Scott H. Plantz, M.D. et al. v. Health Management Associates, Inc., et al. (Northern District Illinois) (“Plantz”); U.S. ex rel. Thomas L. Mason, M.D. et al. v. Health Management Associates, Inc. et al. (Western District North Carolina) (“Mason”); U.S. ex rel. Jacqueline Meyer, et al. v. Health Management Associates, Inc., Gary Newsome et al. (“Jacqueline Meyer”) (District of South Carolina); U.S. ex rel. George Miller, et al. v. Health Management Associates, Inc. (Eastern District of Pennsylvania) (“Miller”); U.S. ex rel. Bradley Nurkin v. Health Management Associates, Inc. et al. (Middle District of Florida) (“Nurkin”); and U.S. ex rel. Paul Meyer v. Health Management Associates, Inc. et al. (Southern District Florida) (“Paul Meyer”). The United States has elected to intervene with respect to allegations in these cases that certain HMA hospitals inappropriately admitted patients and then submitted reimbursement claims for treating those individuals to federal healthcare programs in violation of the False Claims Act or that certain HMA hospitals had inappropriate financial relationships with physicians which violated the Stark law, the Anti-Kickback Statute, and the False Claims Act. Certain of these complaints also allege the same actions violated various state laws which prohibit false claims. The United States has declined to intervene in three of the eleven matters, namely U.S. ex rel. Anita France et al. v. Health Management Associates, Inc. (Middle District Florida) (“France”) which involves allegations of wrongful billing; U.S. ex rel. Sandra Simmons, v. Health Management Associates, Inc. et al. (Eastern District Oklahoma) (“Simmons”) which alleges unnecessary surgery by an employed physician and which was recently partially settled as to all allegations except alleged wrongful termination; and U.S. ex rel. David Napoliello, M.D. v. Health Management Associates, Inc. (Middle District Florida) (“Napoliello”) which alleges inappropriate admissions. On April 3, 2014, the Multi District Litigation Panel ordered the transfer and consolidation for pretrial proceedings of the eight intervened cases, plus the Napoliello matter, to the District of the District of Columbia under the name In Re: Health Management Associates, Inc. Qui Tam Litigation. The Company intends to defend against the allegations in these matters, but will also be cooperating with the government in the ongoing investigation of these allegations.
Wrongful Termination Lawsuit
On or about October 19, 2011, a wrongful termination action was commenced against HMA by Paul Meyer, HMA’s former Director of Compliance. That litigation, entitled Meyer v. Health Management Associates, Inc., was commenced in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. The plaintiff seeks unspecified compensatory and punitive damages. Mr. Meyer was terminated after insubordinately refusing to cooperate with HMA’s efforts to comply with its obligations under a government subpoena by refusing to return documents belonging to HMA that were in his possession. Moreover, Mr. Meyer’s failure to cooperate with HMA in response to a subpoena was contrary to both the intent and purpose of HMA’s compliance department and HMA’s company-wide compliance program. HMA has filed a counterclaim against Mr. Meyer for breach of contract, conversion and breach of duty of loyalty. The trial in this matter is scheduled to take place during the third quarter of 2014. The Company intends to vigorously defend against the wrongful termination allegations made by Mr. Meyer.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
17. SUBSEQUENT EVENTS
The Company evaluated all material events occurring subsequent to the balance sheet date for events requiring disclosure or recognition in the condensed consolidated financial statements.
On April 1, 2014, one or more subsidiaries of the Company completed the acquisition of Sharon Regional Health System in Sharon, Pennsylvania. This healthcare system includes Sharon Regional (251 licensed beds) and other outpatient and ancillary services. The total cash consideration paid at closing for long-lived assets was approximately $67 million, and for preliminary net working capital was approximately $1 million.
On April 1, 2014, one or more subsidiaries of the Company completed the acquisition of Munroe Regional Medical Center (421 licensed beds) in Ocala, Florida and other outpatient and ancillary services. The total cash consideration paid at closing for long-lived assets and prepaid rent on the leased property was approximately $191 million, and for preliminary net working capital was approximately $2 million.
18. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Senior Notes due 2019, 2020 and 2022, which are senior unsecured obligations of CHS, and the 5 1⁄8% Senior Secured Notes due 2018 and 2021 (collectively, “the Notes”) are guaranteed on a senior basis by the Company and by certain of its existing and subsequently acquired or organized 100% owned domestic subsidiaries. The Notes are fully and unconditionally guaranteed on a joint and several basis, with exceptions considered customary for such guarantees, limited to the release of the guarantee when a subsidiary guarantor’s capital stock is sold, or a sale of all of the subsidiary guarantor’s assets used in operations. The following condensed consolidating financial statements present Community Health Systems, Inc. (as parent guarantor), CHS (as the issuer), the subsidiary guarantors, the subsidiary non-guarantors and eliminations. These condensed consolidating financial statements have been prepared and presented in accordance with SEC Regulation S-X Rule 3-10 “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”
The accounting policies used in the preparation of this financial information are consistent with those elsewhere in the condensed consolidated financial statements of the Company, except as noted below:
 
 	•	 	Intercompany receivables and payables are presented gross in the supplemental condensed consolidating balance sheets.	
 
 	•	 	Cash flows from intercompany transactions are presented in cash flows from financing activities, as changes in intercompany balances with affiliates, net.	
 
 	•	 	Income tax expense is allocated from the parent guarantor to the income producing operations (other guarantors and non-guarantors) and the issuer through stockholders’ equity. As this approach represents an allocation, the income tax expense allocation is considered non-cash for statement of cash flow purposes.	
 
 	•	 	Interest expense, net has been presented to reflect net interest expense and interest income from outstanding long-term debt and intercompany balances.	
The Company’s intercompany activity consists primarily of daily cash transfers for purposes of cash management, the allocation of certain expenses and expenditures paid for by the Parent on behalf of its subsidiaries, and the push down of investment in its subsidiaries. This activity also includes the intercompany transactions between consolidated entities as part of the Receivables Facility that is further discussed in Note 11. The Company’s subsidiaries generally do not purchase services from one another; thus, the intercompany transactions do not represent revenue generating transactions. All intercompany transactions eliminate in consolidation.
From time to time, the Company sells and/or repurchases noncontrolling interests in consolidated subsidiaries, which may change subsidiaries between guarantors and non-guarantors. Amounts for prior periods are revised to reflect the status of guarantors or non-guarantors as of March 31, 2014.
 
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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Condensed Consolidating Balance Sheet
March 31, 2014

 	  	Parent
    Guarantor    	 	  	      Issuer      	 	  	Other
    Guarantors    	 	  	Non -
    Guarantors    	 	  	    Eliminations    	 	  	    Consolidated    	 	
 	  	(In millions)	 	
 	
ASSETS	  	
Current assets:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash and cash equivalents	  	  $	-	  	  	  $	-	  	  	  $	451 	 	  	  $	162 	 	  	  $	-	  	  	  $	613 	 	
Patient accounts receivable, net of allowance for doubtful accounts	  	 	-	  	  	 	-	  	  	 	1,039 	 	  	 	2,090 	 	  	 	-	  	  	 	3,129 	 	
Supplies	  	 	-	  	  	 	-	  	  	 	360 	 	  	 	169 	 	  	 	-	  	  	 	529 	 	
Prepaid income taxes	  	 	220 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	220 	 	
Deferred income taxes	  	 	294 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	294 	 	
Prepaid expenses and taxes	  	 	-	  	  	 	-	  	  	 	145 	 	  	 	59 	 	  	 	-	  	  	 	204 	 	
Other current assets	  	 	-	  	  	 	-	  	  	 	331 	 	  	 	307 	 	  	 	-	  	  	 	638 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total current assets	  	 	514 	 	  	 	-	  	  	 	2,326 	 	  	 	2,787 	 	  	 	-	  	  	 	5,627 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Intercompany receivable	  	 	1,237 	 	  	 	16,499 	 	  	 	3,263 	 	  	 	7,906 	 	  	 	(28,905)	  	  	 	-	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Property and equipment, net	  	 	-	  	  	 	-	  	  	 	7,010 	 	  	 	3,562 	 	  	 	-	  	  	 	10,572 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Goodwill	  	 	-	  	  	 	-	  	  	 	5,082 	 	  	 	3,291 	 	  	 	-	  	  	 	8,373 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Other assets, net	  	 	-	  	  	 	330 	 	  	 	1,625 	 	  	 	1,030 	 	  	 	(595)	  	  	 	2,390 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net investment in subsidiaries	  	 	3,092 	 	  	 	17,678 	 	  	 	6,704 	 	  	 	-	  	  	 	(27,474)	  	  	 	-	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total assets	  	  $	        4,843 	 	  	  $	        34,507 	 	  	  $	        26,010 	 	  	  $	18,576 	 	  	  $	        (56,974)	  	  	  $	26,962 	 	

LIABILITIES AND EQUITY	  	
Current liabilities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Current maturities of long-term debt	  	  $	-	  	  	  $	138 	 	  	  $	53 	 	  	  $	8 	 	  	  $	-	  	  	  $	199 	 	
Accounts payable	  	 	-	  	  	 	-	  	  	 	775 	 	  	 	241 	 	  	 	-	  	  	 	1,016 	 	
Deferred income taxes	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	- 	  	
Accrued interest	  	 	-	  	  	 	163 	 	  	 	1 	 	  	 	1 	 	  	 	-	  	  	 	165 	 	
Accrued liabilities	  	 	4 	 	  	 	-	  	  	 	1,248 	 	  	 	494 	 	  	 	-	  	  	 	1,746 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total current liabilities	  	 	4 	 	  	 	301 	 	  	 	2,077 	 	  	 	744 	 	  	 	-	  	  	 	3,126 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Long-term debt	  	 	-	  	  	 	15,944 	 	  	 	123 	 	  	 	732 	 	  	 	-	  	  	 	16,799 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Intercompany payable	  	 	-	  	  	 	14,370 	 	  	 	19,500 	 	  	 	15,143 	 	  	 	(49,013)	  	  	 	- 	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Deferred income taxes	  	 	1,134 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	1,134 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Other long-term liabilities	  	 	-	  	  	 	801 	 	  	 	822 	 	  	 	397 	 	  	 	(595)	  	  	 	1,425 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total liabilities	  	 	1,138 	 	  	 	31,416 	 	  	 	22,522 	 	  	 	17,016 	 	  	 	(49,608)	  	  	 	22,484 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Redeemable noncontrolling interests in equity of consolidated subsidiaries	  	 	-	  	  	 	-	  	  	 	-	  	  	 	692 	 	  	 	-	  	  	 	692 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Equity:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Community Health Systems, Inc. stockholders’ equity:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Preferred stock	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	- 	  	
Common stock	  	 	1 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	1 	 	
Additional paid-in capital	  	 	1,995 	 	  	 	1,175 	 	  	 	1,274 	 	  	 	655 	 	  	 	(3,104)	  	  	 	1,995 	 	
Treasury stock, at cost	  	 	(7)	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(7)	  	
Accumulated other comprehensive (loss) income	  	 	(58)	  	  	 	(58)	  	  	 	(16)	  	  	 	-	  	  	 	74 	 	  	 	(58)	  	
Retained earnings	  	 	1,774 	 	  	 	1,974 	 	  	 	2,230 	 	  	 	132 	 	  	 	(4,336)	  	  	 	1,774 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Community Health Systems, Inc. stockholders’ equity	  	 	3,705 	 	  	 	3,091 	 	  	 	3,488 	 	  	 	787 	 	  	 	(7,366)	  	  	 	3,705 	 	
Noncontrolling interests in equity of consolidated subsidiaries	  	 	-	  	  	 	-	  	  	 	-	  	  	 	81 	 	  	 	-	  	  	 	81 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total equity	  	 	3,705 	 	  	 	3,091 	 	  	 	3,488 	 	  	 	868 	 	  	 	(7,366)	  	  	 	3,786 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total liabilities and equity	  	  $	4,843 	 	  	  $	34,507 	 	  	  $	26,010 	 	  	  $	        18,576 	 	  	  $	(56,974)	  	  	  $	        26,962 	 	

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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Condensed Consolidating Balance Sheet
December 31, 2013

 	  	Parent
    Guarantor    	 	  	      Issuer      	 	  	Other
    Guarantors    	 	  	Non -
    Guarantors    	 	  	    Eliminations    	 	  	    Consolidated    	 	
 	  	(In millions)	 	
 	
ASSETS	  	
Current assets:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash and cash equivalents	  	  $	-	  	  	  $	-	  	  	  $	238 	 	  	  $	135 	 	  	  $	-	  	  	  $	373 	 	
Patient accounts receivable, net of allowance for doubtful accounts	  	 	-	  	  	 	-	  	  	 	871 	 	  	 	1,457 	 	  	 	-	  	  	 	2,328 	 	
Supplies	  	 	-	  	  	 	-	  	  	 	258 	 	  	 	115 	 	  	 	-	  	  	 	373 	 	
Prepaid income taxes	  	 	107 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	107 	 	
Deferred income taxes	  	 	101 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	101 	 	
Prepaid expenses and taxes	  	 	-	  	  	 	-	  	  	 	98 	 	  	 	29 	 	  	 	-	  	  	 	127 	 	
Other current assets	  	 	-	  	  	 	-	  	  	 	256 	 	  	 	83 	 	  	 	-	  	  	 	339 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total current assets	  	 	208 	 	  	 	-	  	  	 	1,721 	 	  	 	1,819 	 	  	 	-	  	  	 	3,748 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Intercompany receivable	  	 	579 	 	  	 	9,541 	 	  	 	4,534 	 	  	 	3,810 	 	  	 	(18,464)	  	  	 	-	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Property and equipment, net	  	 	-	  	  	 	-	  	  	 	4,674 	 	  	 	2,394 	 	  	 	-	  	  	 	7,068 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Goodwill	  	 	-	  	  	 	-	  	  	 	2,536 	 	  	 	1,894 	 	  	 	-	  	  	 	4,430 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Other assets, net	  	 	-	  	  	 	144 	 	  	 	1,430 	 	  	 	828 	 	  	 	(531)	  	  	 	1,871 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net investment in subsidiaries	  	 	3,194 	 	  	 	9,335 	 	  	 	4,030 	 	  	 	-	  	  	 	(16,559)	  	  	 	-	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total assets	  	  $	        3,981 	 	  	  $	19,020 	 	  	  $	        18,925 	 	  	  $	10,745 	 	  	  $	(35,554)	  	  	  $	17,117 	 	

LIABILITIES AND EQUITY	  	
Current liabilities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Current maturities of long-term debt	  	  $	-	  	  	  $	152 	 	  	  $	13 	 	  	  $	2 	 	  	  $	-	  	  	  $	167 	 	
Accounts payable	  	 	-	  	  	 	-	  	  	 	736 	 	  	 	215 	 	  	 	-	  	  	 	951 	 	
Deferred income taxes	  	 	3 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	3 	 	
Accrued interest	  	 	-	  	  	 	111 	 	  	 	-	  	  	 	1 	 	  	 	-	  	  	 	112 	 	
Accrued liabilities	  	 	4 	 	  	 	-	  	  	 	869 	 	  	 	352 	 	  	 	-	  	  	 	1,225 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total current liabilities	  	 	7 	 	  	 	263 	 	  	 	1,618 	 	  	 	570 	 	  	 	-	  	  	 	2,458 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Long-term debt	  	 	-	  	  	 	8,718 	 	  	 	51 	 	  	 	517 	 	  	 	-	  	  	 	9,286 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Intercompany payable	  	 	-	  	  	 	6,226 	 	  	 	13,060 	 	  	 	8,266 	 	  	 	(27,552)	  	  	 	-	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Deferred income taxes	  	 	906 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	906 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Other long-term liabilities	  	 	-	  	  	 	619 	 	  	 	671 	 	  	 	218 	 	  	 	(531)	  	  	 	977 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total liabilities	  	 	913 	 	  	 	15,826 	 	  	 	15,400 	 	  	 	9,571 	 	  	 	(28,083)	  	  	 	13,627 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Redeemable noncontrolling interests in equity of consolidated subsidiaries	  	 	-	  	  	 	-	  	  	 	-	  	  	 	358 	 	  	 	-	  	  	 	358 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Equity:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Community Health Systems, Inc. stockholders’ equity:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Preferred stock	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	
Common stock	  	 	1 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	1 	 	
Additional paid-in capital	  	 	1,256 	 	  	 	1,175 	 	  	 	1,274 	 	  	 	595 	 	  	 	(3,044)	  	  	 	1,256 	 	
Treasury stock, at cost	  	 	(7)	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(7)	  	
Accumulated other comprehensive (loss) income	  	 	(67)	  	  	 	(67)	  	  	 	(11)	  	  	 	-	  	  	 	78 	 	  	 	(67)	  	
Retained earnings	  	 	1,885 	 	  	 	2,086 	 	  	 	2,262 	 	  	 	157 	 	  	 	(4,505)	  	  	 	1,885 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total Community Health Systems, Inc. stockholders’ equity	  	 	3,068 	 	  	 	3,194 	 	  	 	3,525 	 	  	 	752 	 	  	 	(7,471)	  	  	 	3,068 	 	
Noncontrolling interests in equity of consolidated subsidiaries	  	 	-	  	  	 	-	  	  	 	-	  	  	 	64 	 	  	 	-	  	  	 	64 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total equity	  	 	3,068 	 	  	 	3,194 	 	  	 	3,525 	 	  	 	816 	 	  	 	(7,471)	  	  	 	3,132 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total liabilities and equity	  	$	3,981 	 	  	  $	        19,020 	 	  	  $	18,925 	 	  	  $	        10,745 	 	  	  $	        (35,554)	  	  	  $	        17,117 	 	

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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Condensed Consolidating Statement of Loss
Three Months Ended March 31, 2014

 	  	Parent
    Guarantor    	 	  	      Issuer      	 	  	Other
    Guarantors    	 	  	Non -
    Guarantors    	 	  	  Eliminations  	 	  	  Consolidated  	 	
 	  	(In millions)	 	
 	 	 	 	 	 	 	
Operating revenues (net of contractual allowances and discounts)	  	  $	-	  	  	  $	(4)	  	  	  $	3,130 	 	  	  $	1,774 	 	  	  $	-	  	  	  $	4,900 	 	
Provision for bad debts	  	 	-	  	  	 	-	  	  	 	480 	 	  	 	225 	 	  	 	-	  	  	 	705 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net operating revenues	  	 	-	  	  	 	(4)	  	  	 	2,650 	 	  	 	1,549 	 	  	 	-	  	  	 	4,195 	 	
Operating costs and expenses:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Salaries and benefits	  	 	-	  	  	 	-	  	  	 	1,154 	 	  	 	850 	 	  	 	-	  	  	 	2,004 	 	
Supplies	  	 	-	  	  	 	-	  	  	 	418 	 	  	 	217 	 	  	 	-	  	  	 	635 	 	
Other operating expenses	  	 	-	  	  	 	-	  	  	 	665 	 	  	 	358 	 	  	 	-	  	  	 	1,023 	 	
Electronic health records incentive reimbursement	  	 	-	  	  	 	-	  	  	 	(23)	  	  	 	(17) 	  	  	 	-	  	  	 	(40)	  	
Rent	  	 	-	  	  	 	-	  	  	 	54 	 	  	 	45 	 	  	 	-	  	  	 	99 	 	
Depreciation and amortization	  	 	-	  	  	 	-	  	  	 	189 	 	  	 	68 	 	  	 	-	  	  	 	257 	 	
Amortization of software to be abandoned	  	 	-	  	  	 	-	  	  	 	26 	 	  	 	16 	 	  	 	-	  	  	 	42 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total operating costs and expenses	  	 	-	  	  	 	-	  	  	 	2,483 	 	  	 	1,537 	 	  	 	-	  	  	 	4,020 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income from operations	  	 	-	  	  	 	(4)	  	  	 	167 	 	  	 	12 	 	  	 	-	  	  	 	175 	 	
Interest expense, net	  	 	-	  	  	 	40 	 	  	 	171 	 	  	 	13 	 	  	 	-	  	  	 	224 	 	
Loss from early extinguishment of debt	  	 	-	  	  	 	73 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	73 	 	
Equity in earnings of unconsolidated affiliates	  	 	112 	 	  	 	31 	 	  	 	15 	 	  	 	-	  	  	 	(169)	  	  	 	(11)	  	
Impairment of long-lived assets	  	 	-	  	  	 	-	  	  	 	24 	 	  	 	-	  	  	 	-	  	  	 	24 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
(Loss) income from continuing operations before income taxes	  	 	(112)	  	  	 	(148)	  	  	 	(43)	  	  	 	(1)	  	  	 	169 	 	  	 	(135)	  	
Provision for (benefit from) income taxes	  	 	-	  	  	 	(36)	  	  	 	(16)	  	  	 	(5)	  	  	 	-	  	  	 	(57)	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
(Loss) income from continuing operations	  	 	(112)	  	  	 	(112)	  	  	 	(27)	  	  	 	4 	 	  	 	169 	 	  	 	(78)	  	
Discontinued operations, net of taxes:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Loss from operations of entities held for sale	  	 	-	  	  	 	-	  	  	 	(5)	  	  	 	3 	 	  	 	-	  	  	 	(2)	  	
Impairment of hospitals held for sale	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(18)	  	  	 	-	  	  	 	(18)	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Loss from discontinued operations, net of taxes	  	 	-	  	  	 	-	  	  	 	(5)	  	  	 	(15)	  	  	 	-	  	  	 	(20)	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net (loss) income	  	 	(112)	  	  	 	(112)	  	  	 	(32)	  	  	 	(11)	  	  	 	169 	 	  	 	(98)	  	
Less: Net income attributable to noncontrolling interests	  	 	-	  	  	 	-	  	  	 	-	  	  	 	14 	 	  	 	-	  	  	 	14 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net (loss) income attributable to Community Health Systems, Inc. stockholders	  	  $	        (112)	  	  	  $	        (112)	  	  	  $	        (32)	  	  	  $	        (25)	  	  	  $	        169 	 	  	  $	        (112)	  	

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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Condensed Consolidating Statement of Income
Three Months Ended March 31, 2013

 	  	Parent
    Guarantor    	 	  	      Issuer      	 	  	Other
    Guarantors    	 	  	Non -
    Guarantors    	 	  	  Eliminations  	 	  	  Consolidated  	 	
 	  	(In millions)	 	
 	 	 	 	 	 	 	
Operating revenues (net of contractual allowances and discounts)	  	  $	-	  	  	  $	(3)	  	  	  $	2,403 	 	  	  $	1,352 	 	  	  $	-	  	  	  $	3,752 	 	
Provision for bad debts	  	 	-	  	  	 	-	  	  	 	332 	 	  	 	146 	 	  	 	-	  	  	 	478 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net operating revenues	  	 	-	  	  	 	(3)	  	  	 	2,071 	 	  	 	1,206 	 	  	 	-	  	  	 	3,274 	 	
Operating costs and expenses:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Salaries and benefits	  	 	-	  	  	 	-	  	  	 	907 	 	  	 	648 	 	  	 	-	  	  	 	1,555 	 	
Supplies	  	 	-	  	  	 	-	  	  	 	322 	 	  	 	172 	 	  	 	-	  	  	 	494 	 	
Other operating expenses	  	 	-	  	  	 	-	  	  	 	437 	 	  	 	259 	 	  	 	-	  	  	 	696 	 	
Electronic health records incentive reimbursement	  	 	-	  	  	 	-	  	  	 	(11)	  	  	 	(8)	  	  	 	-	  	  	 	(19)	  	
Rent	  	 	-	  	  	 	-	  	  	 	40 	 	  	 	30 	 	  	 	-	  	  	 	70 	 	
Depreciation and amortization	  	 	-	  	  	 	-	  	  	 	128 	 	  	 	62 	 	  	 	-	  	  	 	190 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total operating costs and expenses	  	 	-	  	  	 	-	  	  	 	1,823 	 	  	 	1,163 	 	  	 	-	  	  	 	2,986 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income from operations	  	 	-	  	  	 	(3)	  	  	 	248 	 	  	 	43 	 	  	 	-	  	  	 	288 	 	
Interest expense, net	  	 	-	  	  	 	14 	 	  	 	127 	 	  	 	15 	 	  	 	-	  	  	 	156 	 	
Loss from early extinguishment of debt	  	 	-	  	  	 	1 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	1 	 	
Equity in earnings of unconsolidated affiliates	  	 	(79)	  	  	 	(92)	  	  	 	(19)	  	  	 	-	  	  	 	174 	 	  	 	(16)	  	
Impairment of long-lived assets	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income from continuing operations before income taxes	  	 	79 	 	  	 	74 	 	  	 	140 	 	  	 	28 	 	  	 	(174)	  	  	 	147 	 	
Provision for (benefit from) income taxes	  	 	-	  	  	 	(5)	  	  	 	50 	 	  	 	4 	 	  	 	-	  	  	 	49 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income from continuing operations	  	 	79 	 	  	 	79 	 	  	 	90 	 	  	 	24 	 	  	 	(174)	  	  	 	98 	 	
Discontinued operations, net of taxes:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Loss from operations of entities held for sale	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(2)	  	  	 	-	  	  	 	(2)	  	
Impairment of hospitals held for sale	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Loss from discontinued operations, net of taxes	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(2)	  	  	 	-	  	  	 	(2)	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net income	  	 	79 	 	  	 	79 	 	  	 	90 	 	  	 	22 	 	  	 	(174)	  	  	 	96 	 	
Less: Net income attributable to noncontrolling interests	  	 	-	  	  	 	-	  	  	 	-	  	  	 	17 	 	  	 	-	  	  	 	17 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net income attributable to Community Health Systems, Inc. stockholders	  	  $	        79 	 	  	  $	        79 	 	  	  $	        90 	 	  	  $	        5 	 	  	  $	        (174)	  	  	  $	        79 	 	

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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Condensed Consolidating Statement of Comprehensive Loss
Three Months Ended March 31, 2014

 	  	Parent
    Guarantor    	 	  	      Issuer      	 	  	Other
    Guarantors    	 	  	Non -
    Guarantors    	 	  	  Eliminations  	 	  	  Consolidated  	 	
 	  	(In millions)	 	
 	 	 	 	 	 	 	
Net (loss) income	  	  $	(112)	  	  	  $	(112)	  	  	  $	(32)	  	  	  $	(11)	  	  	  $	169	  	  	  $	(98)	  	
Other comprehensive income, net of income taxes:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net change in fair value of interest rate swaps, net of tax	  	 	9	  	  	 	9	  	  	 	-	  	  	 	-	  	  	 	(9)	  	  	 	9	  	
Net change in fair value of available-for-sale securities, net of tax	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	
Amortization and recognition of unrecognized pension cost components, net of tax	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Other comprehensive income	  	 	9	  	  	 	9	  	  	 	-	  	  	 	-	  	  	 	(9)	  	  	 	9	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Comprehensive (loss) income	  	 	(103)	  	  	 	(103)	  	  	 	(32)	  	  	 	(11)	  	  	 	160	  	  	 	(89)	  	
Less: Comprehensive income attributable to noncontrolling interests	  	 	-	  	  	 	-	  	  	 	-	  	  	 	14	  	  	 	-	  	  	 	14	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Comprehensive (loss) income attributable to Community Health Systems, Inc. stockholders	  	  $	        (103)	  	  	  $	        (103)	  	  	  $	        (32)	  	  	  $	        (25)	  	  	  $	        160	  	  	  $	        (103)	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Condensed Consolidating Statement of Comprehensive Income
Three Months Ended March 31, 2013

 	  	Parent
    Guarantor    	 	  	      Issuer      	 	  	Other
    Guarantors    	 	  	Non -
    Guarantors    	 	  	  Eliminations  	 	  	  Consolidated  	 	
 	  	(In millions)	 	
 	 	 	 	 	 	 	
Net income	  	  $	79 	 	  	  $	79 	 	  	  $	90 	 	  	  $	22 	 	  	  $	(174)	  	  	  $	96 	 	
Other comprehensive income, net of income taxes:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net change in fair value of interest rate swaps, net of tax	  	 	16 	 	  	 	16 	 	  	 	-	  	  	 	-	  	  	 	(16)	  	  	 	16 	 	
Net change in fair value of available-for-sale securities, net of tax	  	 	2 	 	  	 	2 	 	  	 	2 	 	  	 	-	  	  	 	(4)	  	  	 	2 	 	
Amortization and recognition of unrecognized pension cost components, net of tax	  	 	1 	 	  	 	1 	 	  	 	1 	 	  	 	-	  	  	 	(2)	  	  	 	1 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Other comprehensive income	  	 	19 	 	  	 	19 	 	  	 	3 	 	  	 	-	  	  	 	(22)	  	  	 	19 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Comprehensive income	  	 	98 	 	  	 	98 	 	  	 	93 	 	  	 	22 	 	  	 	(196)	  	  	 	115 	 	
Less: Comprehensive income attributable to noncontrolling interests	  	 	-	  	  	 	-	  	  	 	-	  	  	 	17 	 	  	 	-	  	  	 	17 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Comprehensive income attributable to Community Health Systems, Inc. stockholders	  	  $	        98 	 	  	  $	        98 	 	  	  $	        93 	 	  	  $	        5 	 	  	  $	        (196)	  	  	  $	        98 	 	

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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)
 
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2014

 	  	Parent
    Guarantor    	 	  	      Issuer      	 	  	Other
    Guarantors    	 	  	Non -
    Guarantors    	 	  	  Eliminations  	 	  	  Consolidated  	 	
 	  	(In millions)	 	
 	 	 	 	 	 	 	
Net cash (used in) provided by operating activities	  	 $	75 	 	  	 $	298 	 	  	 $	60 	 	  	 $	(368)	  	  	 $	-	  	  	 $	65 	 	

Cash flows from investing activities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Acquisitions of facilities and other related equipment	  	 	-	  	  	 	-	  	  	 	(2,760)	  	  	 	(14)	  	  	 	-	  	  	 	(2,774)	  	
Purchases of property and equipment	  	 	-	  	  	 	-	  	  	 	(143)	  	  	 	(38)	  	  	 	-	  	  	 	(181)	  	
Purchases of available-for-sale securities	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(78)	  	  	 	-	  	  	 	(78)	  	
Proceeds from sales of available-for-sale securities	  	 	-	  	  	 	-	  	  	 	-	  	  	 	76 	 	  	 	-	  	  	 	76 	 	
Increase in other investments	  	 	-	  	  	 	-	  	  	 	(76)	  	  	 	(23)	  	  	 	-	  	  	 	(99)	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net cash used in investing activities	  	 	-	  	  	 	-	  	  	 	(2,979)	  	  	 	(77)	  	  	 	-	  	  	 	(3,056)	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash flows from financing activities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Proceeds from exercise of stock options	  	 	6 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	6 	 	
Repurchase of restricted stock shares for payroll tax withholding requirements	  	 	(11)	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(11)	  	
Stock buy-back	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	
Deferred financing costs and other-debt related costs	  	 	-	  	  	 	(269)	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(269)	  	
Excess tax benefit relating to stock-based compensation	  	 	3 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	3 	 	
Redemption of noncontrolling investments in joint ventures	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(5)	  	  	 	-	  	  	 	(5)	  	
Distributions to noncontrolling investors in joint ventures	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(19)	  	  	 	-	  	  	 	(19)	  	
Changes in intercompany balances with affiliates, net	  	 	(73)	  	  	 	(3,417)	  	  	 	3,122 	 	  	 	368 	 	  	 	-	  	  	 	-	  	
Borrowings under credit agreements	  	 	-	  	  	 	7,062 	 	  	 	17 	 	  	 	-	  	  	 	-	  	  	 	7,079 	 	
Issuance of long-term debt	  	 	-	  	  	 	4,000 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	4,000 	 	
Proceeds from receivables facility	  	 	-	  	  	 	-	  	  	 	-	  	  	 	133 	 	  	 	-	  	  	 	133 	 	
Repayments of long-term indebtedness	  	 	-	  	  	 	(7,674)	  	  	 	(7)	  	  	 	(5)	  	  	 	-	  	  	 	(7,686)	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net cash provided by (used in) financing activities	  	 	(75)	  	  	 	(298)	  	  	 	3,132 	 	  	 	472 	 	  	 	-	  	  	 	3,231 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net change in cash and cash equivalents	  	 	-	  	  	 	-	  	  	 	213 	 	  	 	27 	 	  	 	-	  	  	 	240 	 	
Cash and cash equivalents at beginning of period	  	 	-	  	  	 	-	  	  	 	238 	 	  	 	135 	 	  	 	-	  	  	 	373 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash and cash equivalents at end of period	  	  $	        -	  	  	 $	        -	  	  	 $	        451 	 	  	 $	        162 	 	  	 $	        -	  	  	 $	        613 	 	

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COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)

Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2013

 	  	Parent
    Guarantor    	 	  	       Issuer       	 	  	Other
   Guarantors   	 	  	Non -
   Guarantors   	 	  	  Eliminations  	 	  	  Consolidated  	 	
 	  	(In millions)	 	
 	 	 	 	 	 	 	
Net cash (used in) provided by operating activities	  	  $	(6)	  	  	 $	(13)	  	  	 $	173 	 	  	 $	(97)	  	  	 $	-	  	  	 $	57 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash flows from investing activities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Acquisitions of facilities and other related equipment	  	 	-	  	  	 	-	  	  	 	(4)	  	  	 	(1)	  	  	 	-	  	  	 	(5)	  	
Purchases of property and equipment	  	 	-	  	  	 	-	  	  	 	(95)	  	  	 	(18)	  	  	 	-	  	  	 	(113)	  	
Proceeds from sale of property and equipment	  	 	-	  	  	 	-	  	  	 	-	  	  	 	1 	 	  	 	-	  	  	 	1 	 	
Purchases of available-for-sale securities	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	
Proceeds from sales of available-for-sale securities	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	
Increase in other investments	  	 	-	  	  	 	-	  	  	 	(55)	  	  	 	(14)	  	  	 	-	  	  	 	(69)	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net cash used in investing activities	  	 	-	  	  	 	-	  	  	 	(154)	  	  	 	(32)	  	  	 	-	  	  	 	(186)	  	

Cash flows from financing activities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Proceeds from exercise of stock options	  	 	72 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	72 	 	
Repurchase of restricted stock shares for payroll tax withholding requirements	  	 	(14)	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(14)	  	
Stock buy-back	  	 	(19)	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(19)	  	
Deferred financing costs and other-debt related costs	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(1)	  	  	 	-	  	  	 	(1)	  	
Excess tax benefit relating to stock-based compensation	  	 	5 	 	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	5 	 	
Redemption of noncontrolling investments in joint ventures	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	
Distributions to noncontrolling investors in joint ventures	  	 	-	  	  	 	-	  	  	 	-	  	  	 	(15)	  	  	 	-	  	  	 	(15)	  	
Changes in intercompany balances with affiliates, net	  	 	(38)	  	  	 	219 	 	  	 	(132)	  	  	 	(49)	  	  	 	-	  	  	 	-	  	
Borrowings under credit agreements	  	 	-	  	  	 	90 	 	  	 	11 	 	  	 	-	  	  	 	-	  	  	 	101 	 	
Issuance of long-term debt	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	  	 	-	  	
Proceeds from receivables facility	  	 	-	  	  	 	-	  	  	 	-	  	  	 	300 	 	  	 	-	  	  	 	300 	 	
Repayments of long-term indebtedness	  	 	-	  	  	 	(296)	  	  	 	(6)	  	  	 	(101)	  	  	 	-	  	  	 	(403)	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net cash provided by (used in) financing activities	  	 	6 	 	  	 	13 	 	  	 	(127)	  	  	 	134 	 	  	 	-	  	  	 	26 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net change in cash and cash equivalents	  	 	-	  	  	 	-	  	  	 	(108)	  	  	 	5 	 	  	 	-	  	  	 	(103)	  	
Cash and cash equivalents at beginning of period	  	 	-	  	  	 	-	  	  	 	272 	 	  	 	116 	 	  	 	-	  	  	 	388 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Cash and cash equivalents at end of period	  	  $	        -	  	  	 $	        -	  	  	 $	        164 	 	  	 $	        121 	 	  	 $	        -	  	  	 $	        285 	 	

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read this discussion together with our unaudited condensed consolidated financial statements and the accompanying notes included herein.
Throughout this Quarterly Report on Form 10-Q, we refer to Community Health Systems, Inc., or the Parent Company, and its consolidated subsidiaries in a simplified manner and on a collective basis, using words like “we,” “our,” “us” and the “Company”. This drafting style is suggested by the Securities and Exchange Commission, or SEC, and is not meant to indicate that the publicly-traded Parent Company or any other subsidiary of the Parent Company owns or operates any asset, business or property. The hospitals, operations and businesses described in this filing are owned and operated, and management services provided, by distinct and indirect subsidiaries of Community Health Systems, Inc.
Executive Overview
We are one of the largest publicly-traded operators of hospitals in the United States in terms of number of facilities and net operating revenues. We provide healthcare services through the hospitals that we own and operate in non-urban and selected urban markets throughout the United States. We generate revenues by providing a broad range of general and specialized hospital healthcare services and other outpatient services to patients in the communities in which we are located. As of March 31, 2014, we owned or leased 197 hospitals comprised of 193 general acute care hospitals and four stand-alone rehabilitation or psychiatric hospitals, which are included in continuing operations. In addition to our hospitals and related businesses, we own and operate home care agencies, located primarily in markets where we also operate a hospital. Also, through our wholly-owned subsidiary, Quorum Health Resources, LLC, or QHR, we provide management and consulting services to non-affiliated general acute care hospitals located throughout the United States. For the hospitals and home care agencies that we own and operate, we are paid for our services by governmental agencies, private insurers and directly by the patients we serve. For our management and consulting services, we are paid by the non-affiliated hospitals utilizing our services.
On January 27, 2014, we and one of our wholly-owned subsidiaries completed the acquisition of Health Management Associates, Inc., or HMA, by acquiring all the outstanding shares of common stock of HMA, or HMA common stock, for approximately $7.3 billion, including the assumption of approximately $3.8 billion of indebtedness, consisting of a combination of cash and Parent Company common stock, with each share of HMA common stock issued and outstanding immediately prior to the effective time of the HMA merger becoming converted into the right to receive $10.50 in cash, 0.06942 of a share of the Parent Company’s common stock, and one contingent value right, or CVR, which entitles the holder of each CVR to receive a cash payment of $1.00 per share, following and conditioned upon the final resolution of certain legal matters involving HMA, subject to downward adjustments relating to the amount of certain losses arising out of or relating to such legal matters. HMA owned and operated 71 hospitals in 15 states in non-urban communities located primarily in the southeastern United States. On a combined basis, after taking into account the HMA merger, we own and operate 206 hospitals in 29 states. During the three months ended March 31, 2014, we recognized approximately $56 million of expenses related to the HMA merger.
In connection with the HMA merger, the Parent Company and CHS/Community Health Systems, Inc., or CHS, entered into a third amendment and restatement of its credit facility, or Credit Facility, providing for additional financing and recapitalization of certain of our term loans. In addition, we also issued: (i) $1.0 billion aggregate principal amount of 5.125% Senior Secured Notes due 2021 and (ii) $3.0 billion aggregate principal amount of 6.875% Senior Notes due 2022.
We believe the HMA merger will benefit us since it expanded the number of markets we serve and reduced our concentration of credit risk in any one state. We also believe that synergies obtained from eliminating duplicate corporate functions and centralizing many support functions will allow us to improve HMA’s margins. This merger also extends and strengthens our hospital and physician networks. Operating results and statistical data for the periods ended March 31, 2014, include comparative information for the operations of the acquired HMA hospitals from January 27, 2014, the date of the HMA merger. Throughout this executive overview and management’s discussion and analysis, same-store operating results and statistical data is hereinafter defined to include the hospitals acquired in the HMA merger for the months of February and March 2014 and 2013 and all other hospitals owned throughout both periods.
 
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Our net operating revenues for the three months ended March 31, 2014, increased $921 million to approximately $4.2 billion compared to approximately $3.3 billion for the three months ended March 31, 2013. We had a loss from continuing operations before noncontrolling interests of $78 million, compared to income of $98 million for the three months ended March 31, 2013. Loss from continuing operations before noncontrolling interests included an after-tax charge of $45 million for loss from early extinguishment of debt, $32 million after-tax expense for HMA merger and integration costs, an after-tax charge of $26 million for the acceleration of amortization of software to be abandoned, an after-tax charge of $15 million for impairment of long-lived assets and $2 million after-tax charge for legal expenses related to HMA legal proceedings which underlie the CVR agreement. Consolidated inpatient admissions for the three months ended March 31, 2014, increased 24.7%, compared to the three months ended March 31, 2013, and consolidated adjusted admissions for the three months ended March 31, 2014 increased 28.4%, compared to the three months ended March 31, 2013. These increases were primarily due to the HMA merger during 2014. Same-store inpatient admissions for the three months ended March 31, 2014, decreased 8.1%, compared to the three months ended March 31, 2013, and same-store adjusted admissions for the three months ended March 31, 2014 decreased 5.3%, compared to the three months ended March 31, 2013.
Self-pay revenues represented approximately 14.5% and 13.3% of our net operating revenues, net of contractual allowances and discounts (but before provision for bad debts), for the three months ended March 31, 2014 and 2013, respectively. The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 3.7% and 5.3% for the three months ended March 31, 2014 and 2013, respectively. Direct and indirect costs incurred by us in providing charity care services were approximately 0.6% and 0.9% of net operating revenues for the three months ended March 31, 2014 and 2013, respectively.
The Patient Protection and Affordable Care Act, or PPACA, was signed into law on March 23, 2010. In addition, the Health Care and Education Affordability Reconciliation Act of 2010, or Reconciliation Act, which contains a number of amendments to PPACA, was signed into law on March 30, 2010. These two healthcare acts, referred to collectively as the Reform Legislation, include a mandate that requires substantially all U.S. citizens to maintain medical insurance coverage, which will ultimately increase the number of persons with access to health insurance in the United States. The Reform Legislation, as originally enacted, is expected to expand health insurance coverage through a combination of public program expansion and private sector health insurance reforms. We believe the expansion of private sector and Medicaid coverage will, over time, increase our reimbursement related to providing services to individuals who were previously uninsured, which should reduce our expense from uncollectible accounts receivable. The Reform Legislation also makes a number of other changes to Medicare and Medicaid, such as reductions to the Medicare annual market basket update for federal fiscal years 2010 through 2019, a productivity offset to the Medicare market basket update which began October 1, 2011, and a reduction to the Medicare and Medicaid disproportionate share payments, that could adversely impact the reimbursement received under these programs. The various provisions in the Reform Legislation that directly or indirectly affect reimbursement are scheduled to take effect over a number of years. Over time, we believe the net impact of the overall changes as a result of the Reform Legislation will have a positive effect on our net operating revenues. Other provisions of the Reform Legislation, such as requirements related to employee health insurance coverage, should increase our operating costs.
The Reform Legislation may result in an increase in the number of patients using our facilities who have health insurance coverage. The Congressional Budget Office, or CBO, anticipates that, as a result of the Reform Legislation, millions of uninsured Americans across the nation could gain coverage through health insurance exchanges and Medicaid expansion. Based on CBO projections as issued on May 14, 2013, and July 30, 2013, the incremental insurance coverage due to the Reform Legislation could result in 13 million and 25 million formerly uninsured Americans gaining coverage by the end of 2014 and 2016, respectively. The CBO projects, by the end of 2016, a 45% reduction in the number of nonelderly Americans who remain uninsured due to the effects on insurance coverage from the Reform Legislation. The 29 states in which we operate hospitals include nine of the 10 states with the highest percentage of nonelderly uninsured people from among the state’s nonelderly population. More broadly, the 29 states in which we operate hospitals include 26 of the 30 states with the highest percentage of nonelderly uninsured people from among the state’s nonelderly population.
We have healthcare reform outreach efforts underway in select markets. Such efforts include the expanded use of eligibility screening services, select facility designations as Certified Application Counselor Organizations, and approximately 400 volunteers and staff members trained and designated as Certified Application Counselors, or CACs. These CACs will assist people in understanding and, if appropriate, enrolling in new coverage options, including, but not limited to Qualified Health Plans, or QHPs, on the health insurance exchange or marketplace, Medicaid Expansion, the Children’s Health Insurance Program, and the Medicaid program for those eligible but not yet enrolled.
 
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Our hospitals are well positioned to participate in the provider networks of various QHPs offering plan options on the health insurance exchanges. As of March 31, 2014, 195 of our 197 hospitals participated in a health insurance exchange agreement, 90% of our hospitals possessed two or more contracts, 87% of our hospitals had a contract with the first or second lowest cost bronze plans (QHPs with a 60% actuarial value), and 90% of our hospitals had a contract with the first or second lowest cost silver plans (QHPs with a 70% actuarial value). Most of our exchange reimbursement arrangements reflect a slight discount to that of commercial rates.
Also included in the Reform Legislation are provisions aimed at reducing fraud, waste and abuse in the healthcare industry. These provisions allocate significant additional resources to federal enforcement agencies and expand the use of private contractors to recover potentially inappropriate Medicare and Medicaid payments. The Reform Legislation amends several existing federal laws, including the Medicare Anti-Kickback Statute and the False Claims Act, making it easier for government agencies and private plaintiffs to prevail in lawsuits brought against healthcare providers. These amendments also make it easier for potentially severe fines and penalties to be imposed on healthcare providers accused of violating applicable laws and regulations.
On June 28, 2012, the Supreme Court of the United States largely upheld the constitutionality of the Reform Legislation, though it overturned an aspect of the legislation that would have permitted the Federal government to withhold all Medicaid funding from a state if that state did not expand Medicaid coverage to the extent required by the Reform Legislation. The Supreme Court’s ruling instead held that only new incremental funding could be withheld from a state in such a situation. As a result, states will face less severe financial consequences if they refuse to expand Medicaid coverage to individuals with incomes below certain thresholds. Since the Supreme Court’s ruling, some states have suggested that, for budgetary and other reasons, they would not expand their Medicaid programs. If states refuse to expand their Medicaid programs, the number of uninsured patients at our hospitals will decline by a smaller margin as compared to our expectations when the Reform Legislation was first adopted. In response to the Supreme Court ruling, the previous estimates of the reduction in uninsured individuals as a result of the Reform Legislation have been revised, with approximately 25 million additional individuals expected to have health insurance coverage by 2016. Of the 29 states in which we operate hospitals, 12 states are expanding their Medicaid programs. At this time, the other 17 states are not expanding Medicaid coverage. Florida, Indiana, Pennsylvania, Tennessee and Texas, where we operated a significant number of hospitals as of March 31, 2014, are five of the states that are not expanding Medicaid coverage. Three of the states that are not expanding Medicaid, including Pennsylvania, are evaluating options such as waiver plans to operate an alternative Medicaid expansion plan.
Because of the many variables involved, including clarifications and modifications resulting from the rule-making process, the development of agency guidance and future judicial interpretations, whether and how many states decide to expand or not to expand Medicaid coverage, the number of uninsured who elect to purchase health insurance coverage, budgetary issues at federal and state levels, and the potential for delays in the implementation of some of the provisions of the Reform Legislation, we may not be able to realize the positive impact the Reform Legislation may have on our business, results of operations, cash flow, capital resources and liquidity. Furthermore, we cannot predict whether we will be able to modify certain aspects of our operations to offset any potential adverse consequences from the Reform Legislation.
In a number of markets, we have partnered with local physicians in the ownership of our facilities. Such investments have been permitted under an exception to the physician self-referral law, or Stark Law, that allows physicians to invest in an entire hospital (as opposed to individual hospital departments). The Reform Legislation changed the “whole hospital” exception to the Stark Law. The Reform Legislation permits existing physician investments in a whole hospital to continue under a “grandfather” clause if the arrangement satisfies certain requirements and restrictions, but physicians are now prohibited, from the time the Reform Legislation became effective, from increasing the aggregate percentage of their ownership in the hospital. The Reform Legislation also restricts the ability of existing physician-owned hospitals to expand the capacity of their facilities.
 
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In addition to the Reform Legislation, the American Recovery and Reinvestment Act of 2009 included provisions for implementing health information technology under the Health Information Technology for Economic and Clinical Health Act, or HITECH. These provisions were designed to increase the use of electronic health records, or EHR, technology and establish the requirements for a Medicare and Medicaid incentive payments program beginning in 2011 for eligible hospitals and providers that adopt and meaningfully use certified EHR technology. These incentive payments are intended to offset a portion of the costs incurred to implement and qualify as a meaningful user of EHR. Rules adopted in July 2010 by the Department of Health and Human Services established an initial set of standards and certification criteria. Our hospital facilities have been implementing EHR technology on a facility-by-facility basis since 2011. We anticipate recognizing incentive reimbursement related to the Medicare or Medicaid incentives as we are able to implement the certified EHR technology, meet the defined “meaningful use criteria,” and information from completed cost report periods is available from which to calculate the incentive reimbursement. The timing of recognizing incentive reimbursement will not correlate with the timing of recognizing operating expenses and incurring capital costs in connection with the implementation of EHR technology which may result in material period-to-period changes in our future results of operations. Hospitals that do not qualify as a meaningful user of EHR technology by 2015 are subject to a reduced market basket update to the inpatient prospective payment system standardized amount in 2015 and each subsequent fiscal year. Although we believe that our hospital facilities will be in compliance with the EHR standards by 2015, there can be no assurance that all of our facilities will be in compliance and therefore not subject to the penalty provisions of HITECH. We recognized approximately $40 million and $19 million during the three months ended March 31, 2014 and 2013, respectively, of incentive reimbursement for HITECH incentive reimbursements from Medicare and Medicaid related to certain of our hospitals and for certain of our employed physicians, which are presented as a reduction of operating expenses.
As a result of our current levels of cash, available borrowing capacity, long-term outlook on our debt repayments, the refinancing of our term loans and our continued projection of our ability to generate cash flows, we do not anticipate a significant impact on our ability to invest the necessary capital in our business over the next twelve months and into the foreseeable future. We believe there continues to be ample opportunity for growth in substantially all of our markets by decreasing the need for patients to travel outside their communities for healthcare services. Furthermore, we continue to benefit from synergies from our acquisitions and will continue to strive to improve operating efficiencies and procedures in order to improve our profitability at all of our hospitals.
Sources of Revenue
The following table presents the approximate percentages of operating revenues, net of contractual allowances and discounts (but before provision for bad debts), by payor source for the periods indicated. The data for the periods presented are not strictly comparable due to the effect that hospital acquisitions have had on these statistics.

 	  	Three Months Ended
March 31,	 	 	 	
 	  	          2014          	 	  	          2013          	 	 	 	
 	 	 	 	
Medicare	  	 	26.5 %   	  	  	 	26.1 %   	  	 	 	
Medicaid	  	 	9.4       	  	  	 	8.7       	  	 	 	
Managed Care and other third-party payors	  	 	49.6       	  	  	 	51.9       	  	 	 	
Self-pay	  	 	14.5       	  	  	 	13.3       	  	 	 	
 	  	 	 	 	  	 	 	 	 	 	
Total	  	 	100.0 %   	  	  	 	100.0 %   	  	 	 	

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As shown above, we receive a substantial portion of our revenues from the Medicare and Medicaid programs. Included in Managed Care and other third-party payors is operating revenues from insurance companies with which we have insurance provider contracts, Medicare managed care, insurance companies for which we do not have insurance provider contracts, workers’ compensation carriers and non-patient service revenue, such as rental income and cafeteria sales. In the future, we generally expect revenues received from the Medicare and Medicaid programs to increase due to the general aging of the population. In addition, the Reform Legislation, currently in effect, should increase the number of insured patients, which, in turn, should reduce revenues from self-pay patients and reduce our provision for bad debts. The Reform Legislation, however, imposes significant reductions in amounts the government pays Medicare managed care plans. The trend toward increased enrollment in Medicare managed care may adversely affect our operating revenue growth. Other provisions in the Reform Legislation impose minimum medical-loss ratios and require insurers to meet specific benefit requirements. Furthermore, in the normal course of business, managed care programs, insurance companies and employers actively negotiate the amounts paid to hospitals. There can be no assurance that we will retain our existing reimbursement arrangements or that these third-party payors will not attempt to further reduce the rates they pay for our services.
Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-based reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for treatment of patients covered by these programs are generally less than the standard billing rates. We account for the differences between the estimated program reimbursement rates and the standard billing rates as contractual allowance adjustments, which we deduct from gross revenues to arrive at net operating revenues. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net (loss) income by an insignificant amount in each of the three-month periods ended March 31, 2014 and 2013.
The payment rates under the Medicare program for hospital inpatient and outpatient acute care services are based on a prospective payment system, depending upon the diagnosis of a patient’s condition. These rates are indexed for inflation annually, although increases have historically been less than actual inflation. On August 19, 2013, CMS issued the final rule to adjust this index by 2.5% for hospital inpatient acute care services that are reimbursed under the prospective payment system. The final rule also made other payment adjustments that, coupled with the 0.5% multifactor productivity reduction and a 0.3% reduction to hospital inpatient rates implemented pursuant to the Reform Legislation, yielded an estimated net 0.5% increase in reimbursement for hospital inpatient acute care services beginning October 1, 2013. Reductions in the rate of increase or overall reductions in Medicare reimbursement may cause a decline in the growth of our net operating revenues.
Currently, several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers to offset a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from the Centers for Medicare and Medicaid Services, or CMS, and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. Similar programs are also being considered by other states. After these supplemental programs are signed into law, we recognize revenue and related expenses in the period in which amounts are estimable and collection is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and included as Medicaid revenue in the table above, and fees, taxes or other program related costs are reflected in other operating expenses.
In addition, specified managed care programs, insurance companies and employers are actively negotiating the amounts paid to hospitals. The trend toward increased enrollment in managed care may adversely affect our net operating revenue growth.
 
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Results of Operations
Our hospitals offer a variety of services involving a broad range of inpatient and outpatient medical and surgical services. These include general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic services, psychiatric and rehabilitation services. The strongest demand for hospital services generally occurs during January through April and the weakest demand for these services occurs during the summer months. Accordingly, eliminating the effect of new acquisitions, our net operating revenues and earnings are historically highest during the first quarter and lowest during the third quarter. Same-store operating results include the hospitals acquired in the HMA merger for the months of February and March 2014 and 2013 as if they were owned during both comparable periods and all other hospitals owned throughout both periods.
The following tables summarize, for the periods indicated, selected operating data.

 	  	Three Months Ended
March 31,	 	 	 	
 	  	          2014          	 	  	          2013          	 	 	 	
 	 	 	
 	  	(Expressed as a percentage of net
operating revenues)	 	 	 	
Consolidated (a):	  	 	 	 	  	 	 	 	 	 	
Net operating revenues	  	 	100.0 %      	  	  	 	100.0 %      	  	 	 	
Operating expenses (b)	  	 	(88.7)         	  	  	 	(85.4)         	  	 	 	
Depreciation and amortization	  	 	(7.1)         	  	  	 	(5.8)         	  	 	 	
 	  	 	 	 	  	 	 	 	 	 	
Income from operations	  	 	4.2          	  	  	 	8.8          	  	 	 	
Interest expense, net	  	 	(5.4)         	  	  	 	(4.8)         	  	 	 	
Loss from early extinguishment of debt	  	 	(1.7)         	  	  	 	-           	  	 	 	
Equity in earnings of unconsolidated affiliates	  	 	0.3          	  	  	 	0.5          	  	 	 	
Impairment of long-lived assets	  	 	(0.6)         	  	  	 	-           	  	 	 	
 	  	 	 	 	  	 	 	 	 	 	
(Loss) income from continuing operations before income taxes	  	 	(3.2)         	  	  	 	4.5          	  	 	 	
Benefit (provision) for income taxes	  	 	1.4          	  	  	 	(1.5)         	  	 	 	
 	  	 	 	 	  	 	 	 	 	 	
(Loss) income from continuing operations	  	 	(1.8)         	  	  	 	3.0          	  	 	 	
Loss from discontinued operations, net of taxes	  	 	(0.5)         	  	  	 	(0.1)         	  	 	 	
 	  	 	 	 	  	 	 	 	 	 	
Net (loss) income	  	 	(2.3)         	  	  	 	2.9          	  	 	 	
Less: Net income attributable to noncontrolling interests	  	 	(0.4)         	  	  	 	(0.5)         	  	 	 	
 	  	 	 	 	  	 	 	 	 	 	
Net (loss) income attributable to Community Health Systems, Inc. stockholders	  	 	(2.7)%     	  	  	 	2.4 %      	  	 	 	

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 	  	        Three Months Ended        
March  31, 2014	
Percentage increase (decrease) from same period prior year (a):	  	 	
Net operating revenues	  	28.1 %  	
Admissions	  	24.7       	
Adjusted admissions (c)	  	28.4       	
Average length of stay	  	2.2       	
Net (loss) income attributable to Community Health Systems, Inc. (d)	  	(241.8)      	
Same-store percentage (decrease) increase from same period prior year (a)(e)	  	 	
Net operating revenues	  	(4.0)%   	
Admissions	  	(8.1)      	
Adjusted admissions (c)	  	(5.3)      	
 
(a)	We have restated our prior period financial statements and statistical results to reflect the reclassification as discontinued operations for the hospitals held for sale at March 31, 2014.	
(b)	Operating expenses include salaries and benefits, supplies, other operating expenses, government settlement and related costs reserve, electronic health records incentive reimbursement and rent.	
(c)	Adjusted admissions is a general measure of combined inpatient and outpatient volume. We computed adjusted admissions by multiplying admissions by gross patient revenues and then dividing that number by gross inpatient revenues.	
(d)	Includes loss from discontinued operations.	
(e)	Includes former HMA hospitals during February and March of the comparable periods and acquired hospitals to the extent we operated them in both years.	
Three Months Ended March 31, 2014 Compared to Three Months March 31, 2013
Net operating revenues increased $921 million to approximately $4.2 billion for the three months ended March 31, 2014, from approximately $3.3 billion for the three months ended March 31, 2013. Net operating revenues from hospitals acquired in 2014 contributed $1.1 billion, offset by a decrease of $130 million in net operating revenues from hospitals owned throughout both periods. On a same-store basis, net operating revenues decreased 4.0%.
On a consolidated basis, inpatient admissions increased by 24.7% and adjusted admissions increased by 28.4% during the three months ended March 31, 2014. These increases were primarily due to the HMA merger during 2014. On a same-store basis, inpatient admissions decreased by 8.1% and adjusted admissions decreased by 5.3% during the three months ended March 31, 2014. This decrease in same-store inpatient admissions was reflective of lower admissions from the impact of the severe winter weather, fewer flu and respiratory-related admissions, fewer admissions in short stays including the impact from the two-midnight rule, lower readmissions and lower admissions due to service closures in a few of our hospitals during the three months ended March 31, 2014, as compared to the three months ended March 31, 2013.
Operating expenses, excluding depreciation and amortization, as a percentage of net operating revenues, increased from 85.4% for the three months ended March 31, 2013 to 88.7% for the three months ended March 31, 2014. Salaries and benefits, as a percentage of net operating revenues, increased from 47.5% for the three months ended March 31, 2013 to 47.8% for the three months ended March 31, 2014. This increase in salaries and benefits, as a percentage of net operating revenues, was primarily due to volume decline in net operating revenues at hospitals owned throughout both periods, incurring duplicate salary costs for certain overhead positions which have not yet been eliminated related to the HMA merger, and annual pay rate increases taking effect at the beginning of the quarter. Supplies, as a percentage of net operating revenues, remained consistent at 15.1% for both of the three months ended March 31, 2014 and 2013. Other operating expenses, as a percentage of net operating revenues, increased from 21.3% for the three months ended March 31, 2013 to 24.4% for the three months ended March 31, 2014. This increase in other operating expenses, as a percentage of net operating revenues, was primarily due to increased acquisition and integration-related expenses, primarily related to the HMA merger, and expenses associated with the severe winter weather such as snow removal and additional fuel costs. Rent, as a percentage of net operating revenues, increased from 2.1% for the three months ended March 31, 2013 to 2.4% for the three months ended March 31, 2014. This increase in rent was primarily due to an increase in the number of leased assets from the hospitals acquired in the HMA merger.
 
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Electronic health records incentive reimbursements represent those incentives under the HITECH Act for which the recognition criterion has been met. We have recognized approximately $40 million and $19 million of incentive reimbursements, or 1.0% and 0.6% of net operating revenues, for the three months ended March 31, 2014 and 2013, respectively. We received cash payments of $62 million and $45 million for these incentives during the three months ended March 31, 2014 and 2013, respectively. As of March 31, 2014 and 2013, $93 million and $20 million, respectively, were recorded as deferred revenue as all criteria for gain recognition had not been met. Operating expenses incurred related to the installation and adoption of electronic health records, including depreciation and amortization, totaled approximately 0.9% of net operating revenues, of which depreciation and amortization represented 0.5% of net operating revenues for the three months ended March 31, 2014. Operating expenses incurred related to the installation and adoption of electronic health records, including depreciation and amortization, totaled approximately 0.6% of net operating revenues, of which depreciation and amortization represented 0.4% of net operating revenues for the three months ended March 31, 2013.
Depreciation and amortization, including $42 million of amortization of software to be abandoned, as a percentage of net operating revenues, increased from 5.8% for the three months ended March 31, 2013 to 7.1% for the three months ended March 31, 2014. This increase was due primarily to the shortening of the remaining useful life of software currently in use with an expected abandonment date of July 1, 2014.
Interest expense, net, increased by $68 million from $156 million for the three months ended March 31, 2013, to $224 million for the three months ended March 31, 2014. An increase in our average outstanding debt during 2014, primarily due to the additional debt incurred to acquire HMA, resulted in an increase in interest expense of $67 million. In addition, an increase in interest expense of $1 million as a result of more interest being capitalized during 2014, as compared to 2013, because the prior year period had more major construction projects.
The loss from early extinguishment of debt of $73 million was recognized during the three months ended March 31, 2014 after the repayment of the outstanding term loans under the Credit Facility. The loss from early extinguishment of debt of $1 million was recognized during the three months ended March 31, 2013 after the repayment of $207 million of the term loans due 2014.
Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, decreased from 0.5% for the three months ended March 31, 2013 to 0.3% for the three months ended March 31, 2014.
In connection with the HMA merger, we further analyzed our intangible assets related to internal-use software used in certain of our hospitals for patient and clinical systems, including software required to meet criteria for meaningful use attestation and ICD-10 compliance. This analysis resulted in management reassessing its usage of certain software products and rationalizing that, with the addition of the HMA hospitals in the first quarter of 2014, those software applications were going to be discontinued and replaced with new applications that better integrate meaningful use and ICD-10 compliance, are more cost effective and can be implemented at a greater efficiency of scale over future implementations. Because of this decision by executive management of the Company, an impairment charge of approximately $24 million was recorded during the three months ended March 31, 2014.
The net results of the above mentioned changes resulted in (loss) income from continuing operations before income taxes decreasing $282 million from income of $147 million for the three months ended March 31, 2013 to a loss of $135 million for the three months ended March 31, 2014.
(Benefit) provision for income taxes from continuing operations decreased from $49 million for the three months ended March 31, 2013 to an income tax benefit of $57 million for the three months ended March 31, 2014 due to the decrease in income from continuing operations before income taxes. Our effective tax rates were 42.2% and 33.3% for the three months ended March 31, 2014 and 2013, respectively. The increase in our effective tax rate is primarily related to non-deductible transaction costs associated with the HMA merger.
(Loss) income from continuing operations, as a percentage of net operating revenues, decreased from 3.0% for the three months ended March 31, 2013 to (1.8)% for the three months ended March 31, 2014.
 
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Net (loss) income, as a percentage of net operating revenues, decreased from 2.9% for the three months ended March 31, 2013 to (2.3)% for the three months ended March 31, 2014.
Net income attributable to noncontrolling interests, as a percentage of net operating revenues, decreased from 0.5% for the three months ended March 31, 2013 to 0.4% for the three months ended March 31, 2014.
Net (loss) income attributable to Community Health Systems, Inc. was $(112) million compared to $79 million for the three months ended March 31, 2013, a decrease of 241.8%. This decrease for the three months ended March 31, 2014 was primarily attributable to an increase in operating expenses as a percentage of net operating revenues, which were impacted by lower volumes during the quarter, loss from early extinguishment of debt and impairment of long-lived assets, as discussed above.
Liquidity and Capital Resources
Net cash provided by operating activities increased $8 million, from approximately $57 million for the three months ended March 31, 2013 to approximately $65 million for the three months ended March 31, 2014. The increase in cash provided by operating activities is a result of the net impact of the decline in net income of $194 million, offset by a $110 million increase to depreciation and amortization and an increase of $117 million in the non-cash charges to income primarily for loss on early extinguishment of debt and the impairment of long-lived assets and hospitals held for sale. Cash from operating activities also had a decline in working capital items of approximately $25 million, net of the effect of opening balances from the HMA merger. Total cash paid for interest during the three months ended March 31, 2014 was approximately $280 million and approximately $79 million was received as net refunds for income taxes. Included in net cash provided by operating activities for the three months ended March 31, 2014 is $62 million of cash received for HITECH incentive reimbursements, compared to $45 million for the three months ended March 31, 2013.
The cash used in investing activities increased $2.9 billion, from approximately $186 million for the three months ended March 31, 2013 to approximately $3.1 billion for the three months ended March 31, 2014. The increase in cash used in investing activities was due to an increase in cash paid for acquisitions of facilities and other related equipment of $2.8 billion, since we acquired HMA, including 71 hospitals, in the current period compared to no hospital acquisitions in the first three months of 2013, an increase in the cash used for the purchase of property and equipment of $68 million, a reduction in the proceeds from sale of property and equipment of $1 million and an increase in cash used for other investments of $30 million. Included in cash outflows for other investments for the three months ended March 31, 2014 is approximately $16 million of capital expenditures related to the purchase and implementation of certified EHR technology. The remaining cash outflows for other investments consists primarily of purchases and development of other internal-use software and payments made under non-employee physician recruiting agreements of $83 million. We anticipate being able to fund future routine capital expenditures with cash flows generated from operations.
Our net cash provided by financing activities was $3.2 billion for the three months ended March 31, 2014, compared to $26 million for the three months ended March 31, 2013. The increase in cash provided by financing activities, in comparison to the prior year, is primarily due to an increase in borrowings of our long-term debt, net of repayments, and the issuance of long-term debt, which was partially offset by payments for deferred financing costs and other debt-related costs, a decrease in proceeds from the receivables facility, and a decrease in proceeds from the exercise of stock options.
 
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Capital Expenditures
Cash expenditures for purchases of facilities and other related equipment were $2.8 billion for the three months ended March 31, 2014, compared to $5 million for the three months ended March 31, 2013. The expenditures during the three months ended March 31, 2014 were primarily for the HMA merger, including 71 hospitals, surgery centers, physician practices and other ancillary services. The expenditures during the three months ended March 31, 2013 were for the purchase of surgery centers and other physician practices.
Excluding the cost to construct replacement hospitals, our cash expenditures for routine capital for the three months ended March 31, 2014 totaled $179 million, compared to $113 million for the three months ended March 31, 2013. These capital expenditures related primarily to the purchase of additional equipment, minor renovations and information systems infrastructure. Costs to construct replacement hospitals for the three months ended March 31, 2014 totaled $2 million, compared to less than $1 million for the three months ended March 31, 2013. The costs to construct replacement hospitals for the three months ended March 31, 2014 and 2013 represent planning and construction costs for the two replacement hospitals discussed below.
Pursuant to a hospital purchase agreement in effect as of March 31, 2014, we have committed to build a replacement facility in York, Pennsylvania by July 2017. Construction costs, including equipment costs, for the York replacement facility is currently estimated to be approximately $100 million. In addition, in October 2008, after the purchase of the noncontrolling owner’s interest in our Birmingham, Alabama facility, we initiated the purchase of a site, which includes a partially constructed hospital structure, for a potential replacement to our existing Birmingham facility. In September 2010, we received approval of our request for a certificate of need from the Alabama Certificate of Need Review Board. This CON was challenged in the Alabama state circuit and appellate courts, but the CON was upheld by the Supreme Court of Alabama in May 2013, eliminating any further appeals. Our estimated construction costs, including the acquisition of the site and equipment costs, are approximately $280 million for the Birmingham replacement facility.
Capital Resources
Net working capital was approximately $2.5 billion at March 31, 2014, compared to $1.3 billion at December 31, 2013, an increase of $1.2 billion, primarily due to the net working capital acquired from the HMA merger with the remainder primarily attributable to an increase in accounts receivable and a decrease in accounts payable due to timing of collections and payments. We also had an increase in cash due primarily to financing activities during the three months ended March 31, 2014.
We have senior secured financing under a credit facility with a syndicate of financial institutions led by Credit Suisse, as administrative agent and collateral agent. Prior to the HMA merger, this credit facility included a $750 million term loan A facility due October 25, 2016, a term loan B due July 25, 2014, a term loan C due January 25, 2017 and a $750 million revolving credit facility for working capital and general corporate purposes.
In connection with the HMA merger on January 27, 2014, CHS entered into a third amendment and restatement, or the Amendment, of its existing credit agreement, dated as of July 25, 2007, as amended and restated as of November 5, 2010 and as of February 2, 2012, among the Parent Company, CHS, the lenders party thereto and Credit Suisse AG, as administrative agent and collateral agent. The Amendment provides for (i) the replacement of the revolving credit facility with a new $1.0 billion revolving facility maturing in 2019, or the Revolving Facility, (ii) the addition of a new $1.0 billion Term A facility due 2019, or the Term A Facility, (iii) a Term D facility in an aggregate principal amount equal to $4.6 billion due 2021 (which includes certain term C loans that were converted into such Term D facility (collectively, the Term D Facility)), (iv) the conversion of certain term C loans into Term E Loans and the borrowing of new Term E Loans in an aggregate principal amount of $1.7 billion and (v) the addition of flexibility commensurate with our post-acquisition structure. In addition to funding a portion of the consideration in connection with the HMA merger, some of the proceeds of the Term A Facility and Term D Facility were used to refinance the outstanding $637 million existing Term A facility due 2016 and the $60 million of term loans due 2014, respectively. The revolving credit facility also includes a subfacility for letters of credit.
 
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The loans under the Credit Facility bear interest on the outstanding unpaid principal amount at a rate equal to an applicable percentage plus, at our option, either (a) an Alternate Base Rate (as defined) determined by reference to the greater of (1) the Prime Rate (as defined) announced by Credit Suisse or (2) the Federal Funds Effective Rate (as defined) plus 0.5% or (3) the adjusted LIBOR rate on such day for a three-month interest period commencing on the second business day after such day plus 1%. Loans in respect of the Credit Facilities may be borrowed in LIBOR and Alternate Base Rate. Loans in respect of the Revolving Facility and the Term A Facility will accrue interest at a rate per annum initially equal to LIBOR plus 2.75%, in the case of LIBOR borrowings, and Alternate Base Rate plus 1.75%, in the case of Alternate Base Rate borrowings. In addition, the margin in respect of the Revolving Facility and the Term A Facility will be subject to step-downs determined by reference to a leverage based pricing grid. Loans in respect of the Term D Facility and the Term E Facility will accrue interest at a rate per annum equal to LIBOR plus 3.25%, in the case of LIBOR borrowings, and Alternate Base Rate plus 2.25%, in the case of Alternate Base Rate Borrowings. The Term D Facility will be subject to a 1.00% LIBOR floor.
The term loan facility must be prepaid in an amount equal to (1) 100% of the net cash proceeds of certain asset sales and dispositions by us and our subsidiaries, subject to certain exceptions and reinvestment rights, (2) 100% of the net cash proceeds of issuances of certain debt obligations or receivables-based financing by us and our subsidiaries, subject to certain exceptions, and (3) 50%, subject to reduction to a lower percentage based on our leverage ratio (as defined in the Credit Facility generally as the ratio of total debt on the date of determination to our EBITDA, as defined, for the four quarters most recently ended prior to such date), of excess cash flow (as defined) for any year, commencing in 2008, subject to certain exceptions. Voluntary prepayments and commitment reductions are permitted in whole or in part, without any premium or penalty, subject to minimum prepayment or reduction requirements.
The obligor under the Credit Facility is CHS. All of our obligations under the Credit Facility are unconditionally guaranteed by Community Health Systems, Inc. and certain of its existing and subsequently acquired or organized domestic subsidiaries. All obligations under the Credit Facility and the related guarantees are secured by a perfected first priority lien or security interest in substantially all of the assets of Community Health Systems, Inc., CHS and each subsidiary guarantor, including equity interests held by us or any subsidiary guarantor, but excluding, among others, the equity interests of non-significant subsidiaries, syndication subsidiaries, securitization subsidiaries and joint venture subsidiaries.
We have agreed to pay letter of credit fees equal to the applicable percentage then in effect with respect to Eurodollar rate loans under the revolving credit facility times the maximum aggregate amount available to be drawn under all letters of credit outstanding under the subfacility for letters of credit. The issuer of any letter of credit issued under the subfacility for letters of credit will also receive a customary fronting fee and other customary processing charges. We are obligated to pay commitment fees of 0.50% per annum (subject to reduction based upon our leverage ratio), on the unused portion of the revolving credit facility.
The Credit Facility contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting our and our subsidiaries’ ability, subject to certain exception, to, among other things, (1) declare dividends, make distributions or redeem or repurchase capital stock, (2) prepay, redeem or repurchase other debt, (3) incur liens or grant negative pledges, (4) make loans and investments and enter into acquisitions and joint ventures, (5) incur additional indebtedness or provide certain guarantees, (6) make capital expenditures, (7) engage in mergers, acquisitions and asset sales, (8) conduct transactions with affiliates, (9) alter the nature of our businesses, (10) grant certain guarantees with respect to physician practices, (11) engage in sale and leaseback transactions or (12) change our fiscal year. We and our subsidiaries are also required to comply with specified financial covenants (consisting of a maximum secured net leverage ratio and an interest coverage ratio) and various affirmative covenants.
 
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Events of default under the Credit Facility include, but are not limited to, (1) our failure to pay principal, interest, fees or other amounts under the credit agreement when due (taking into account any applicable grace period), (2) any representation or warranty proving to have been materially incorrect when made, (3) covenant defaults subject, with respect to certain covenants, to a grace period, (4) bankruptcy events, (5) a cross default to certain other debt, (6) certain undischarged judgments (not paid within an applicable grace period), (7) a change of control, (8) certain ERISA-related defaults and (9) the invalidity or impairment of specified security interests, guarantees or subordination provisions in favor of the administrative agent or lenders under the Credit Facility.
As of March 31, 2014, the availability for additional borrowings under our Credit Facility was $1.0 billion pursuant to the Revolving Facility, of which $77 million was set aside for outstanding letters of credit. We believe that these funds, along with internally generated cash and continued access to the bank credit and capital markets, will be sufficient to finance future acquisitions, capital expenditures and working capital requirements through the next 12 months and into the foreseeable future.
In connection with the consummation of the HMA merger, CHS issued: (i) $1.0 billion aggregate principal amount of 5.125% Senior Secured Notes due 2021, or the 2021 Senior Secured Notes, pursuant to an indenture, as supplemented, dated as of January 27, 2014, collectively, the Secured Indenture, by and among CHS, the Parent Company, the other guarantors from time to time party thereto, Regions Bank, as trustee, and Credit Suisse AG, as collateral agent, or the Collateral Agent and (ii) $3.0 billion aggregate principal amount of 6.875% Senior Notes due 2022, or the 6  7 ⁄ 8 % Senior Notes, pursuant to an indenture, as supplemented, dated as of January 27, 2014, collectively, the Unsecured Indenture, by and among CHS, the Parent Company, the other guarantors from time to time party thereto, and Regions Bank, as trustee, or the Unsecured Indenture.
The 2021 Senior Secured Notes are senior secured obligations of CHS and are guaranteed on a senior secured basis by us, CHS and certain of CHS’s subsidiaries. The 2021 Senior Secured Notes mature on August 1, 2021, and bear interest at a rate of 5.125% per annum, payable semi-annually in arrears in cash on February 1 and August 1 of each year, beginning on August 1, 2014. CHS is entitled to redeem some or all of the 2021 Senior Secured Notes at any time on or after February 1, 2017 at the redemption prices set forth in the Secured Indenture, plus accrued and unpaid interest, if any. In addition, prior to February 1, 2017, CHS may redeem some or all of the 2021 Senior Secured Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus a “make-whole” premium, as set forth in the Secured Indenture. CHS is entitled to redeem up to 40% of the aggregate principal amount of the 2021 Senior Secured Notes until February 1, 2017 with the net proceeds from certain equity offerings at the redemption price set forth in the Secured Indenture. The Secured Indenture also contains covenants that, among other things, subject to various qualifications and exceptions, limit the ability of CHS and certain of CHS’s subsidiaries to: incur or guarantee additional indebtedness; pay dividends or make other restricted payments; make certain investments; create or incur certain liens; sell assets and subsidiary stock; transfer all or substantially all of their assets or enter into merger or consolidation transactions; and enter into transactions with affiliates.
The 6 7⁄8% Senior Notes are senior unsecured obligations of CHS and are guaranteed on a senior basis by the Parent Company, CHS and certain of CHS’s subsidiaries. The 6  7 ⁄ 8 % Senior Notes mature on February 1, 2022, and bear interest at a rate of 6.875% per annum, payable semi-annually in arrears in cash on February 1 and August 1 of each year, beginning on August 1, 2014. CHS is entitled to redeem some or all of the 6  7 ⁄ 8 % Senior Notes at any time on or after February 1, 2018 at the redemption prices set forth in the Unsecured Indenture, plus accrued and unpaid interest, if any. In addition, prior to February 1, 2018, CHS may redeem some or all of the 6  7 ⁄ 8 % Senior Notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, plus a “make-whole” premium, as set forth in the Unsecured Indenture. CHS is entitled to redeem up to 40% of the aggregate principal amount of the 6  7 ⁄ 8 % Senior Notes until February 1, 2017 with the net proceeds from certain equity offerings at the redemption price set forth in the Unsecured Indenture. The Unsecured Indenture also contains covenants that, among other things, subject to various qualifications and exceptions, limit the ability of CHS, and certain of its subsidiaries to: incur or guarantee additional indebtedness; pay dividends or make other restricted payments; make certain investments; create or incur certain liens; sell assets and subsidiary stock; transfer all or substantially all of their assets or enter into merger or consolidation transactions; and enter into transactions with affiliates.
 
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On March 21, 2012, CHS completed the secondary offering of $1.0 billion aggregate principal amount of 8% Senior Notes, which were issued in a private placement (at a premium of 102.5%). The net proceeds from this issuance were used to finance the purchase of approximately $850 million aggregate principal amount of CHS’ then outstanding 8  7 / 8 % Senior Notes, to pay related fees and expenses and for general corporate purposes. On March 21, 2012, CHS completed the cash tender offer for $850 million of the then $1.8 billion aggregate outstanding principal amount of 8  7 / 8 % Senior Notes.
On July 18, 2012, CHS completed an underwritten public offering under our automatic shelf registration filed with the SEC of $1.2 billion aggregate principal amount of 7  1 / 8 % Senior Notes due 2020. The net proceeds of the offering were used to finance the purchase or redemption of the then outstanding $934 million principal amount plus accrued interest of the 8  7 / 8 % Senior Notes, to pay for consents delivered in connection therewith, to pay related fees and expenses, and for general corporate purposes.
On August 17, 2012, CHS completed an underwritten public offering under our automatic shelf registration filed with the SEC of $1.6 billion aggregate principal amount of 5  1 / 8 % Senior Secured Notes due 2018. The 5  1 / 8 % Senior Secured Notes are secured by a first-priority lien subject to a shared lien of equal priority with certain other obligations, including obligations under the Credit Facility, and subject to prior ranking liens permitted by the indenture governing the 5  1 / 8 % Senior Secured Notes on substantially the same assets, subject to certain exceptions, that secure CHS’ obligations under the Credit Facility. The net proceeds of the offering, together with available cash on hand, were used to finance the prepayment of $1.6 billion of the outstanding term loans due 2014 under the Credit Facility and related fees and expenses.
On March 21, 2012, through certain of its subsidiaries, CHS entered into an accounts receivable loan agreement, or the Receivables Facility, with a group of lenders and banks, Credit Agricolé Corporate and Investment Bank, as a managing agent and as the administrative agent, and The Bank of Nova Scotia, as a managing agent. On March 7, 2013, CHS and certain of its subsidiaries amended the Receivables Facility to add an additional managing agent, The Bank of Tokyo-Mitsubishi UFJ, Ltd., to increase the size of the facility from $300 million to $500 million and to extend the scheduled termination date. Additional subsidiaries also agreed to participate in the Receivables Facility as of that date. On March 31, 2014, CHS and certain of its subsidiaries amended the Receivables Facility to increase the size of the facility from $500 million to $700 million and to extend the scheduled termination date. Additional subsidiaries also agreed to participate in the Receivables Facility as of that date. The existing and future non-self pay patient-related accounts receivable, or the Receivables, for certain hospitals of CHS and its subsidiaries serve as collateral for the outstanding borrowings under the Receivables Facility. The interest rate on the borrowings is based on the commercial paper rate plus an applicable interest rate spread. Unless earlier terminated or subsequently extended pursuant to its terms, the Receivables Facility will expire on March 21, 2016, subject to customary termination events that could cause an early termination date. CHS maintains effective control over the Receivables because, pursuant to the terms of the Receivables Facility, the Receivables are sold from certain of CHS’ subsidiaries to CHS, and CHS then sells or contributes the Receivables to a special-purpose entity that is wholly-owned by CHS. The wholly-owned special-purpose entity in turn grants security interests in the Receivables in exchange for borrowings obtained from the group of third-party lenders and banks of up to $700 million outstanding from time to time based on the availability of eligible Receivables and other customary factors. The group of third-party lenders and banks do not have recourse to CHS or its subsidiaries beyond the assets of the wholly-owned special-purpose entity that collateralizes the loan. The Receivables and other assets of the wholly-owned special-purpose entity will be available first and foremost to satisfy the claims of the creditors of such entity. The outstanding borrowings pursuant to the Receivables Facility at March 31, 2014 totaled $633 million and are classified as long-term debt on the condensed consolidated balance sheet. At March 31, 2014, the carrying amount of Receivables included in the Receivables Facility totaled approximately $1.2 billion and is included in patient accounts receivable on the condensed consolidated balance sheet.
 
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As of March 31, 2014, we are currently a party to the following interest rate swap agreements to limit the effect of changes in interest rates on approximately 25.3% of our variable rate debt. On each of these swaps, we receive a variable rate of interest based on the three-month LIBOR, in exchange for the payment by us of a fixed rate of interest. We currently pay, on a quarterly basis, interest on the Revolving Facility and the Term A Facility at a rate per annum equal to LIBOR plus 275 basis points. Loans in respect of the Term D Facility and the Term E Facility accrue interest at a rate per annum equal to LIBOR plus 325 basis points. The Term D Facility is also subject to a 100 basis point LIBOR floor.

          Swap #          	  	 Notional Amount 
(in millions)	 	  	     Fixed Interest     
Rate	 	  	          Termination Date          	  	    Fair Value (in    
millions)	 	
1	  	$	100 	  	  	 	5.231 % 	  	  	July 25, 2014	  	$	2 	  	
2	  	 	100 	  	  	 	5.231 % 	  	  	July 25, 2014	  	 	2 	  	
3	  	 	200 	  	  	 	5.160 % 	  	  	July 25, 2014	  	 	3 	  	
4	  	 	75 	  	  	 	5.041 % 	  	  	July 25, 2014	  	 	1 	  	
5	  	 	125 	  	  	 	5.022 % 	  	  	July 25, 2014	  	 	2 	  	
6	  	 	100 	  	  	 	2.621 % 	  	  	July 25, 2014	  	 	1 	  	
7	  	 	100 	  	  	 	3.110 % 	  	  	July 25, 2014	  	 	1 	  	
8	  	 	100 	  	  	 	3.258 % 	  	  	July 25, 2014	  	 	1 	  	
9	  	 	200 	  	  	 	2.693 % 	  	  	October 26, 2014	  	 	3 	  	
10	  	 	300 	  	  	 	3.447 % 	  	  	August 8, 2016	  	 	19 	  	
11	  	 	200 	  	  	 	3.429 % 	  	  	August 19, 2016	  	 	13 	  	
12	  	 	100 	  	  	 	3.401 % 	  	  	August 19, 2016	  	 	6 	  	
13	  	 	200 	  	  	 	3.500 % 	  	  	August 30, 2016	  	 	13 	  	
14	  	 	100 	  	  	 	3.005 % 	  	  	November 30, 2016	  	 	6 	  	
15	  	 	200 	  	  	 	2.055 % 	  	  	July 25, 2019	  	 	- 	(1) 	
16	  	 	200 	  	  	 	2.059 % 	  	  	July 25, 2019	  	 	- 	(2) 	
17	  	 	200 	  	  	 	2.613 % 	  	  	August 30, 2019	  	 	- 	(3) 	
18	  	 	300 	  	  	 	2.892 % 	  	  	August 30, 2020	  	 	- 	(4) 	
 
(1) This interest rate swap becomes effective July 25, 2014.
(2) This interest rate swap becomes effective July 25, 2014.
(3) This interest rate swap becomes effective August 30, 2015.
(4) This interest rate swap becomes effective August 30, 2015.
The swaps that were in effect prior to the HMA merger remain in effect after the refinancing for the HMA merger and will continue to be used to limit the effects of changes in interest rates on portions of our amended credit facility.
The Credit Facility and/or the Notes contain various covenants that limit our ability to take certain actions including; among other things, our ability to:
 
 	•	 	incur, assume or guarantee additional indebtedness;	
 
 	•	 	issue redeemable stock and preferred stock;	
 
 	•	 	repurchase capital stock;	
 
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 	•	 	make restricted payments, including paying dividends and making investments;	
 
 	•	 	redeem debt that is junior in right of payment to the Notes;	
 
 	•	 	create liens without securing the Notes;	
 
 	•	 	sell or otherwise dispose of assets, including capital stock of subsidiaries;	
 
 	•	 	enter into agreements that restrict dividends from subsidiaries;	
 
 	•	 	merge, consolidate, sell or otherwise dispose of substantial portions of our assets;	
 
 	•	 	enter into transactions with affiliates and	
 
 	•	 	guarantee certain obligations.	
In addition, our Credit Facility contains restrictive covenants and requires us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet these restricted covenants and financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those tests. A breach of any of these covenants could result in a default under our Credit Facility and/or the Notes. Upon the occurrence of an event of default under our Credit Facility or the Notes, all amounts outstanding under our Credit Facility and the Notes may become immediately due and payable and all commitments under the Credit Facility to extend further credit may be terminated.
We believe that internally generated cash flows, availability for additional borrowings under our Credit Facility of $1.0 billion (consisting of a $1.0 billion revolving credit facility, of which $77 million is set aside for outstanding letters of credit) and our ability to amend the Credit Facility to provide for one or more tranches of term loans in an aggregate principal amount of $1.5 billion, and our continued access to the bank credit and capital markets will be sufficient to finance acquisitions, capital expenditures and working capital requirements through the next 12 months. We believe these same sources of cash, borrowings under our Credit Facility as well as access to bank credit and capital markets will be available to us beyond the next 12 months and into the foreseeable future.
On May 24, 2012, we filed a universal automatic shelf registration statement on Form S-3ASR, as amended on June 7, 2012, that will permit us, from time to time, in one or more public offerings, to offer debt securities, common stock, preferred stock, warrants, depositary shares, or any combination of such securities. The shelf registration statement will also permit our subsidiary, CHS, to offer debt securities that would be guaranteed by us, from time to time in one or more public offerings. The terms of any such future offerings would be established at the time of the offering.
The ratio of earnings to fixed charges is a measure of our ability to meet our fixed obligations related to our indebtedness. The following table shows the ratio of earnings to fixed charges for the three months ended March 31, 2014:

 	 	 Three Months Ended 
      March 31, 2014      	
 	 	
Ratio of earnings to fixed charges (1)	 	0.43 x   	
 
(1)	Fixed charges include interest expensed and capitalized during the year plus an estimate of the interest component of rent expense. There are no shares of preferred stock outstanding. See Exhibit 12 filed as part of this Report for the calculation of this ratio.	
 
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Off-balance Sheet Arrangements
Our consolidated operating results for both of the three-month periods ended March 31, 2014 and 2013, included $40 million of net operating revenues generated from four hospitals operated by us under operating lease arrangements at March 31, 2014. In addition, (loss) income from continuing operations included less than $(1) million and $1 million for the three months ended March 31, 2014 and 2013, respectively. In accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, the respective assets and the future lease obligations under these arrangements are not recorded on our condensed consolidated balance sheet. Lease costs under these arrangements are included in rent expense and totaled approximately $3 million for both of the three-month periods ended March 31, 2014 and 2013. The current terms of these operating leases expire between May 2015 and June 2022, not including lease extension options. If we allow these leases to expire, we would no longer generate revenues nor incur expenses from these hospitals.
In the past, we have utilized operating leases as a financing tool for obtaining the operations of specified hospitals without acquiring, through ownership, the related assets of the hospital and without a significant outlay of cash at the front end of the lease. We utilize the same operating strategies to improve operations at those hospitals held under operating leases as we do at those hospitals that we own. We have not entered into any operating leases for hospital operations since December 2000.
Noncontrolling Interests
We have sold noncontrolling interests in certain of our subsidiaries or acquired subsidiaries with existing noncontrolling interest ownership positions. In conjunction with the HMA merger, we acquired 29 hospitals containing minority ownership interests ranging from less than 1% to 40%. We do not believe these minority ownerships are material to our financial position or results of operations. As of March 31, 2014, we have hospitals in 37 of the markets we serve, with noncontrolling physician ownership interests ranging from less than 1% to 40%, including two hospitals that also have a non-profit entity as a partner. In addition, we have 13 other hospitals with noncontrolling interests owned by non-profit entities. Redeemable noncontrolling interests in equity of consolidated subsidiaries was $692 million and $358 million as of March 31, 2014 and December 31, 2013, respectively, and noncontrolling interests in equity of consolidated subsidiaries was $81 million and $64 million as of March 31, 2014 and December 31, 2013, respectively. The amount of net income attributable to noncontrolling interests was $14 million and $17 million for the three months ended March 31, 2014 and 2013, respectively. As a result of the change in the Stark Law “whole hospital” exception included in the Reform Legislation, we are not permitted to introduce physician ownership at any of our wholly-owned hospital facilities or increase the aggregate percentage of physician ownership in any of our existing hospital joint ventures.
Reimbursement, Legislative and Regulatory Changes
The Reform Legislation was enacted in the context of other ongoing legislative and regulatory efforts, which would reduce or otherwise adversely affect the payments we receive from Medicare and Medicaid. Within the statutory framework of the Medicare and Medicaid programs, including programs currently unaffected by the Reform Legislation, there are substantial areas subject to administrative rulings, interpretations and discretion which may further affect payments made under those programs, and the federal and state governments might, in the future, reduce the funds available under those programs or require more stringent utilization and quality reviews of hospital facilities. Additionally, there may be a continued rise in managed care programs and additional restructuring of the financing and delivery of healthcare in the United States. These events could cause our future financial results to decline. We cannot estimate the impact of Medicare and Medicaid reimbursement changes that have been enacted or are under consideration. We cannot predict whether additional reimbursement reductions will be made or whether any such changes would have a material adverse effect on our business, financial conditions, results of operations, cash flow, capital resources and liquidity.
 
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Inflation
The healthcare industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. In addition, our suppliers pass along rising costs to us in the form of higher prices. We have implemented cost control measures, including our case and resource management program, to curb increases in operating costs and expenses. We have generally offset increases in operating costs by increasing reimbursement for services, expanding services and reducing costs in other areas. However, we cannot predict our ability to cover or offset future cost increases, particularly any increases in our cost of providing health insurance benefits to our employees as a result of the Reform Legislation.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below.
As a result of the proximity of the HMA merger to the end of the quarter, we are still in the process of evaluating the accounting policies and estimation methodologies used by HMA and comparing those to the policies used by us. Consequently, for the quarter ended March 31, 2014, those hospitals acquired from HMA will have different policies and estimation methodologies for calculating their professional liability claims than that used for our other hospitals. We anticipate being substantially complete with our review and analysis of these accounting policies and estimation methodologies by the end of 2014 and in doing so will conform to a common set of policies. We anticipate differences are likely to result in our selection of a conforming policy. Changes in reserve balances could be material and will generally be adjusted through earnings in the period of change.
Third-party Reimbursement
Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for treatment of patients covered by these programs are generally less than the standard billing rates. Contractual allowances are automatically calculated and recorded through our internally developed “automated contractual allowance system.” Within the automated system, actual Medicare DRG data and payors’ historical paid claims data are utilized to calculate the contractual allowances. This data is automatically updated on a monthly basis. All hospital contractual allowance calculations are subjected to monthly review by management to ensure reasonableness and accuracy. We account for the differences between the estimated program reimbursement rates and the standard billing rates as contractual allowance adjustments, which we deduct from gross revenues to arrive at operating revenues (net of contractual allowances and discounts). The process of estimating contractual allowances requires us to estimate the amount expected to be received based on payor contract provisions. The key assumption in this process is the estimated contractual reimbursement percentage, which is based on payor classification and historical paid claims data. Due to the complexities involved in these estimates, actual payments we receive could be different from the amounts we estimate and record. If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at March 31, 2014 from our estimated reimbursement percentage, net loss for the three months ended March 31, 2014 would have changed by approximately $66 million, and net accounts receivable at March 31, 2014 would have changed by $108 million. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net (loss) income by an insignificant amount in each of the three-month periods ended March 31, 2014 and 2013.
 
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Allowance for Doubtful Accounts
Substantially all of our accounts receivable are related to providing healthcare services to our hospitals’ patients. Collection of these accounts receivable is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and outstanding patient balances for which the primary insurance payor has paid some but not all of the outstanding balance, with the remaining outstanding balance (generally deductibles and co-payments) owed by the patient. At the point of service, for patients required to make a co-payment, we generally collect less than 15% of the related revenue. For all procedures scheduled in advance, our policy is to verify insurance coverage prior to the date of the procedure. Insurance coverage is not verified in advance of procedures for walk-in and emergency room patients.
We estimate the allowance for doubtful accounts by reserving a percentage of all self-pay accounts receivable without regard to aging category, based on collection history, adjusted for expected recoveries and, if present, anticipated changes in trends. For all other non-self-pay payor categories, we reserve 100% of all accounts aging over 365 days from the date of discharge. The percentage used to reserve for all self-pay accounts is based on our collection history. We believe that we collect substantially all of our third-party insured receivables, which include receivables from governmental agencies.
Collections are impacted by the economic ability of patients to pay and the effectiveness of our collection efforts. Significant changes in payor mix, business office operations, economic conditions or trends in federal and state governmental healthcare coverage could affect our collection of accounts receivable. The process of estimating the allowance for doubtful accounts requires us to estimate the collectability of self-pay accounts receivable, which is primarily based on our collection history, adjusted for expected recoveries and, if available, anticipated changes in collection trends. Significant change in payor mix, business office operations, economic conditions, trends in federal and state governmental healthcare coverage or other third-party payors could affect our estimates of accounts receivable collectability. If the actual collection percentage differed by 1% at March 31, 2014 from our estimated collection percentage as a result of a change in expected recoveries, net loss for the three months ended March 31, 2014 would have changed by $42 million, and net accounts receivable at March 31, 2014 would have changed by $68 million. We also continually review our overall reserve adequacy by monitoring historical cash collections as a percentage of trailing net revenue less provision for bad debts, as well as by analyzing current period net revenue and admissions by payor classification, aged accounts receivable by payor, days revenue outstanding and the impact of recent acquisitions and dispositions.
Our policy is to write-off gross accounts receivable if the balance is under $10.00 or when such amounts are placed with outside collection agencies. We believe this policy accurately reflects our ongoing collection efforts and is consistent with industry practices. We had approximately $3.6 billion and $3.0 billion at March 31, 2014 and December 31, 2013, respectively, being pursued by various outside collection agencies. We expect to collect less than 3%, net of estimated collection fees, of the amounts being pursued by outside collection agencies. As these amounts have been written-off, they are not included in our gross accounts receivable or our allowance for doubtful accounts. Collections on amounts previously written-off are recognized as a reduction to bad debt expense when received. However, we take into consideration estimated collections of these future amounts written-off in evaluating the reasonableness of our allowance for doubtful accounts.
All of the following information is derived from our hospitals, excluding clinics, unless otherwise noted.
Patient accounts receivable from our hospitals represent approximately 95% of our total consolidated accounts receivable.
Days revenue outstanding was 61 days at March 31, 2014 and 67 days at December 31, 2013. Our target range for days revenue outstanding is from 53 to 63 days.
 
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Total gross accounts receivable (prior to allowance for contractual adjustments and doubtful accounts) was approximately $16.8 billion as of March 31, 2014 and approximately $10.9 billion as of December 31, 2013.
The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and doubtful accounts) summarized by payor is as follows:

 	  	     March 31,  
2014	 	  	   December 31,   
2013	 	
 	 	 	
Insured receivables	  	 	60.6 %  	  	  	 	59.8 %  	  	
Self-pay receivables	  	 	39.4      	  	  	 	40.2      	  	
 	  	 	 	 	  	 	 	 	
Total	  	 	100.0 %  	  	  	 	100.0 %  	  	
 	  	 	 	 	  	 	 	 	
Goodwill and Other Intangibles
Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired. Goodwill is evaluated for impairment at the same time every year and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. There is a two-step method for determining goodwill impairment. Step one is to compare the fair value of the reporting unit with the unit’s carrying amount, including goodwill. If this test indicates the fair value is less than the carrying value, then step two is required to compare the implied fair value of the reporting unit’s goodwill with the carrying value of the reporting unit’s goodwill. We performed our last annual goodwill evaluation during the fourth quarter of 2013. No impairment was indicated by this evaluation. The next annual goodwill evaluation will be performed during the fourth quarter of 2014.
Impairment or Disposal of Long-Lived Assets
Whenever events or changes in circumstances indicate that the carrying values of certain long-lived assets may be impaired, we project the undiscounted cash flows expected to be generated by these assets. If the projections indicate that the reported amounts are not expected to be recovered, such amounts are reduced to their estimated fair value based on a quoted market price, if available, or an estimate based on valuation techniques available in the circumstances.
Professional Liability Claims
Professional Liability Insurance for the Hospitals Acquired in the HMA Merger. Reserves for self-insured professional liability indemnity claims and related expenses, including attorneys’ fees and other related costs of litigation that have been incurred and will be incurred in the future, are determined using actuarially-based techniques and methodologies. The data used to develop such reserves is based on asserted and unasserted claim information that has been accumulated by our incident reporting system, historical loss payment patterns and industry trends. Such long-term liabilities have been discounted to their estimated present values. Management selects a discount rate that represents a risk-free interest rate correlating to the period when the claims are projected to be paid. We use the wholly-owned captive insurance subsidiary and the risk retention group subsidiary, which were acquired during the HMA merger and are domiciled in the Cayman Islands and South Carolina, respectively, to self-insure a significant portion of our professional liability risks for the hospitals acquired in the HMA merger. Those insurance subsidiaries, which are collectively referred to as the “Insurance Subsidiaries,” provide (i) claims-made coverage to all of the hospitals and other healthcare facilities acquired in the HMA merger and (ii) occurrence-basis coverage to most of the physicians employed by the hospitals and other healthcare facilities acquired in the HMA merger. The employed physicians not covered by the Insurance Subsidiaries generally maintain claims-made policies with unrelated third party insurance companies. To mitigate the exposure of the program covering the hospitals and other healthcare facilities acquired in the HMA merger, the Insurance Subsidiaries buy claims-made reinsurance policies from unrelated third parties for claims above self-retention levels of $10 million or $15 million per claim, depending on the policy year.
 
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Professional Liability Insurance for All Other Community Health Systems Hospitals. As part of our business of owning and operating hospitals, we are subject to legal actions alleging liability on our part. We accrue for losses resulting from such liability claims, as well as loss adjustment expenses that are out-of-pocket and directly related to such liability claims. These direct out-of-pocket expenses include fees of outside counsel and experts. We do not accrue for costs that are part of our corporate overhead, such as the costs of our in-house legal and risk management departments. The losses resulting from professional liability claims primarily consist of estimates for known claims, as well as estimates for incurred but not reported claims. The estimates are based on specific claim facts, our historical claim reporting and payment patterns, the nature and level of our hospital operations, and actuarially determined projections. The actuarially determined projections are based on our actual claim data, including historic reporting and payment patterns which have been gathered over approximately a 20-year period. As discussed below, since we purchase excess insurance on a claims-made basis that transfers risk to third-party insurers, the liability we accrue does include an amount for the losses covered by our excess insurance. We also record a receivable for the expected reimbursement of losses covered by our excess insurance. Since we believe that the amount and timing of our future claims payments are reliably determinable, we discount the amount we accrue for losses resulting from professional liability claims using the risk-free interest rate corresponding to the timing of our expected payments.
The net present value of the projected payments was discounted using a weighted-average risk-free rate of 1.6%, 1.2% and 1.2% in 2013, 2012 and 2011, respectively. This liability is adjusted for new claims information in the period such information becomes known to us. Professional malpractice expense includes the losses resulting from professional liability claims and loss adjustment expense, as well as paid excess insurance premiums, and is presented within other operating expenses in the accompanying condensed consolidated statements of income.
Our processes for obtaining and analyzing claims and incident data are standardized across all of our hospitals and have been consistent for many years. We monitor the outcomes of the medical care services that we provide and for each reported claim, we obtain various information concerning the facts and circumstances related to that claim. In addition, we routinely monitor current key statistics and volume indicators in our assessment of utilizing historical trends. The average lag period between claim occurrence and payment of a final settlement is between four and five years, although the facts and circumstances of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after settlement with the claimant is reached, settled claims represent less than 1.0% of the total liability at the end of any period.
For purposes of estimating our individual claim accruals, we utilize specific claim information, including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years, geography, and claims relating to the acquired Triad Hospitals, Inc., or Triad, hospitals versus claims relating to our other hospitals. Several actuarial methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses our company-specific historical claims data and other information. This company-specific data includes information regarding our business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data.
 
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Based on these analyses, we determine our estimate of the professional liability claims. The determination of management’s estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of management. Changes in reserving data or the trends and factors that influence reserving data may signal fundamental shifts in our future claim development patterns or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover, since our methods and models use different types of data and we select our liability from the results of all of these methods, we typically cannot quantify the precise impact of such factors on our estimates of the liability. Due to our standardized and consistent processes for handling claims and the long history and depth of our company-specific data, our methodologies have produced reliably determinable estimates of ultimate paid losses.
We are primarily self-insured for these claims; however, we obtain excess insurance that transfers the risk of loss to a third-party insurer for claims in excess of our self-insured retentions. Our excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002, substantially all of our professional and general liability risks were subject to a $0.5 million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2 million per occurrence. Substantially all claims reported after June 1, 2003 and before June 1, 2005 are self-insured up to $4 million per claim. Substantially all claims reported on or after June 1, 2005 are self-insured up to $5 million per claim. Management, on occasion, has selectively increased the insured risk at certain hospitals based upon insurance pricing and other factors and may continue that practice in the future. Excess insurance for all hospitals has been purchased through commercial insurance companies and generally covers us for liabilities in excess of the self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of which totals up to $95 million per occurrence and in the aggregate for claims reported on or after June 1, 2003, up to $145 million per occurrence and in the aggregate for claims incurred and reported after January 1, 2008 and up to $195 million per occurrence and in the aggregate for claims reported after June 1, 2010. For certain policy years, if the first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention could increase to $10 million per claim for any subsequent claims in that policy year until our total aggregate coverage is met.
Effective January 1, 2008, the former Triad hospitals are insured on a claims-made basis as described above and through commercial insurance companies as described above for substantially all claims occurring on or after January 1, 2002 and reported on or after January 1, 2008. Substantially all losses for the former Triad hospitals in periods prior to May 1, 1999 were insured through a wholly-owned insurance subsidiary of HCA Holdings, Inc., or HCA, Triad’s owner prior to that time, and excess loss policies maintained by HCA. HCA has agreed to indemnify the former Triad hospitals in respect of claims covered by such insurance policies arising prior to May 1, 1999. From May 1, 1999 through December 31, 2006, the former Triad hospitals obtained insurance coverage on a claims incurred basis from HCA’s wholly-owned insurance subsidiary with excess coverage obtained from other carriers that is subject to certain deductibles. Effective for claims incurred after December 31, 2006, Triad began insuring its claims from $1 million to $5 million through its wholly-owned captive insurance company, replacing the coverage provided by HCA. Substantially all claims occurring during 2007 were self-insured up to $10 million per claim.
There have been no significant changes in our estimate of the reserve for professional liability claims during the three months ended March 31, 2014.
Income Taxes
We must make estimates in recording provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets. We believe that future income will enable us to realize certain deferred tax assets, subject to the valuation allowance we have established.
The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was approximately $15 million as of March 31, 2014. A total of approximately $8 million of interest and penalties is included in the amount of liability for uncertain tax positions at March 31, 2014. It is our policy to recognize interest and penalties related to unrecognized benefits in our condensed consolidated statements of income as income tax expense.
 
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It is possible the amount of unrecognized tax benefit could change in the next twelve months as a result of a lapse of the statute of limitations and settlements with taxing authorities; however, we do not anticipate the change will have a material impact on our consolidated results of operations or consolidated financial position.
We, or one or more of our subsidiaries, file income tax returns in the United States federal jurisdiction and various state jurisdictions. We have extended the federal statute of limitations through December 31, 2013 for Triad for the tax periods ended December 31, 1999, December 31, 2000, April 30, 2001, June 30, 2001, December 31, 2001, December 31, 2002, December 31, 2003, December 31, 2004, December 31, 2005, December 31, 2006 and July 25, 2007. With few exceptions, we are no longer subject to state income tax examinations for years prior to 2009. Our federal income tax returns for the 2009 and 2010 tax years are currently under examination by the Internal Revenue Service, or IRS. We believe the results of these examinations will not be material to our consolidated results of operations or consolidated financial position. During the year ended December 31, 2013, the IRS concluded its examination of the federal tax return of Community Health Systems, Inc. for the tax periods ended December 31, 2007 and 2008. The results of these examinations did not have a material effect on our consolidated results of operations or consolidated financial position. We have extended the federal statute of limitations through December 31, 2014 for Community Health Systems, Inc. for the tax periods ended December 31, 2007 and 2008, and through June 30, 2015 for the tax periods ended December 31, 2009 and 2010.
Recent Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board issue Accounting Standards Update, or ASU, 2014-08, which changes the requirements for reporting discontinued operations. A discontinued operation continues to include a component of an entity or a group of components of an entity, or a business activity. However, in a shift reflecting stakeholder concerns that too many disposals of small groups of assets that are recurring in nature qualified for reporting as discontinued operations, a disposal of a component of an entity or a group of components of an entity will be required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. A business or nonprofit activity that, on acquisition, meets the criteria to be classified as held for sale will still be a discontinued operation. Additional disclosures will be required for significant components of the entity that are disposed of or are held for sale but do not qualify as discontinued operations. This ASU is effective for fiscal years beginning after December 15, 2014 and is to be applied on a prospective basis for disposals or components initially classified as held for sale after that date. We will adopt this ASU on January 1, 2015 and are currently evaluating the impact on our consolidated financial position, results of operations and cash flows.
FORWARD-LOOKING STATEMENTS
Some of the matters discussed in this report include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “thinks,” and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. These factors include the following:
 
 	•	 	general economic and business conditions, both nationally and in the regions in which we operate,	
 
 	•	 	implementation and effect of adopted and potential federal and state healthcare legislation,	
 
 	•	 	risks associated with our substantial indebtedness, leverage and debt service obligations,	
 
 	•	 	demographic changes,	
 
 	•	 	changes in, or the failure to comply with, governmental regulations,	
 
 	•	 	potential adverse impact of known and unknown government investigations, audits, and Federal and State False Claims Act litigation and other legal proceedings,	
 
 	•	 	our ability, where appropriate, to enter into and maintain managed care provider arrangements and the terms of these arrangements,	
 
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 	•	 	changes in, or the failure to comply with, managed care provider contracts, which could result in, among other things, disputes and changes in reimbursements, both prospectively and retroactively,	
 
 	•	 	changes in inpatient or outpatient Medicare and Medicaid payment levels,	
 
 	•	 	increases in the amount and risk of collectability of patient accounts receivable,	
 
 	•	 	increases in wages as a result of inflation or competition for highly technical positions and rising supply costs due to market pressure from pharmaceutical companies and new product releases,	
 
 	•	 	liabilities and other claims asserted against us, including self-insured malpractice claims,	
 
 	•	 	competition,	
 
 	•	 	our ability to attract and retain, at reasonable employment costs, qualified personnel, key management, physicians, nurses and other healthcare workers,	
 
 	•	 	trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals,	
 
 	•	 	changes in medical or other technology,	
 
 	•	 	changes in U.S. GAAP,	
 
 	•	 	the availability and terms of capital to fund additional acquisitions or replacement facilities,	
 
 	•	 	our ability to successfully make acquisitions or complete divestitures,	
 
 	•	 	our ability to successfully integrate any acquired hospitals, including those of HMA, or to recognize expected synergies from acquisitions,	
 
 	•	 	the impact of the acquisition of HMA on third-party relationships,	
 
 	•	 	the impact of seasonal severe weather conditions,	
 
 	•	 	our ability to obtain adequate levels of general and professional liability insurance and	
 
 	•	 	timeliness of reimbursement payments received under government programs.	
Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this filing. We assume no obligation to update or revise them or provide reasons why actual results may differ.
 
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Item 3.  Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate changes, primarily as a result of our Credit Facility which bears interest based on floating rates. In order to manage the volatility relating to the market risk, we entered into interest rate swap agreements described under the heading “Liquidity and Capital Resources” in Item 2. We utilize risk management procedures and controls in executing derivative financial instrument transactions. We do not execute transactions or hold derivative financial instruments for trading purposes. Derivative financial instruments related to interest rate sensitivity of debt obligations are used with the goal of mitigating a portion of the exposure when it is cost effective to do so. As interest rate swap agreements expire throughout the year, we will become more subject to variable interest rates during 2014.
A 1% change in interest rates on variable rate debt in excess of that amount covered by interest rate swaps would have resulted in interest expense fluctuating approximately $11 million and $4 million for the three months ended March 31, 2014 and 2013, respectively.
Item 4.  Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, with the participation of other members of management, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this report. Based on such evaluations, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective (at the reasonable assurance level) to ensure that the information required to be included in this report has been recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that the information required to be included in this report was accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As a result of the completion of the HMA merger on January 27, 2014, we have started to analyze the systems of disclosure controls and procedures and internal controls over financial reporting of the HMA hospitals and other operations and integrate them within our broader framework of controls. The SEC’s rules require us to complete this process by the first anniversary of the HMA merger. We plan to complete this evaluation and integration within the required time frame and report any changes in internal controls in our first annual report in which our assessment of HMA is included. We have excluded HMA’s operations from our evaluation of and conclusion on the effectiveness of our internal controls for the period covered by this report.
There are no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2014 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
 
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PART II OTHER INFORMATION
Item 1.  Legal Proceedings
From time to time, we receive various inquiries or subpoenas from state regulators, fiscal intermediaries, the Centers for Medicare and Medicaid Services and the Department of Justice regarding various Medicare and Medicaid issues. In addition to the subpoenas discussed below, we are currently responding to subpoenas and administrative demands concerning certain cardiology procedures, medical records and policies at a New Mexico hospital, a civil investigative demand concerning cardiology devices at a Pennsylvania hospital, a request for medical records at an Arizona hospital regarding transfers to a higher level of care and a request for medical records concerning dialysis treatment at a Virginia hospital. In addition, we are subject to other claims and lawsuits arising in the ordinary course of our business. We are not aware of any pending or threatened litigation that is not covered by insurance policies or reserved for in our condensed consolidated financial statements or which we believe would have a material adverse impact on us; however, some pending or threatened proceedings against us may involve potentially substantial amounts as well as the possibility of civil, criminal, or administrative fines, penalties, or other sanctions, which could be material. Settlements of suits involving Medicare and Medicaid issues routinely require both monetary payments as well as corporate integrity agreements. Additionally, qui tam or “whistleblower” actions initiated under the civil False Claims Act may be pending but placed under seal by the court to comply with the False Claims Act’s requirements for filing such suits. Also, from time to time, we detect issues of non-compliance with Federal healthcare laws pertaining to claims submission and reimbursement practices and/or financial relationships with physicians. We avail ourselves of various mechanisms to address potential overpayments arising out of these issues, including repayment of claims, rebilling of claims, and participation in voluntary disclosure protocols offered by the Centers for Medicare and Medicaid Services and the Office of the Inspector General. Participating in voluntary repayments and voluntary disclosure protocols can have the potential for significant settlement obligations or even enforcement action, however, we are not aware of any such exposures that have not been reserved for in our condensed consolidated financial statements or which we believe would have a material adverse impact on us.
Community Health Systems, Inc. Legal Proceedings
U.S. ex rel. Baker vs. Community Health Systems, Inc. (United States District Court for the District of New Mexico)
Our knowledge of this matter originated in early 2006 with correspondence from the Civil Division of the Department of Justice requesting documents in an investigation it was conducting involving the Company. The inquiry related to the way in which different state Medicaid programs apply to the federal government for matching or supplemental funds that are ultimately used to pay for a small portion of the services provided to Medicaid and indigent patients. These programs are referred to by different names, including “intergovernmental payments,” “upper payment limit programs,” and “Medicaid disproportionate share hospital payments.” For approximately three years, we provided the Department of Justice with requested documents, met with its personnel on numerous occasions and otherwise cooperated in its investigation. During the course of the investigation, the Civil Division notified us that it believed that we and three of our New Mexico hospitals caused the State of New Mexico to submit improper claims for federal funds, in violation of the Federal False Claims Act. This investigation has culminated in the federal government’s intervention in the referenced qui tam lawsuit, which alleges that our New Mexico hospitals “caused to be filed” false claims from the period of August 2000 through June 2011. Two of the Parent Company’s subsidiaries are also defendants in this lawsuit. We continue to vigorously defend this action. On December 4 - 5, 2013, the district court judge heard oral arguments on both sides’ motions for summary judgment. By telephone conference on December 19, 2013, he advised the parties that, with respect to the core motions for summary judgment, he was denying all parties’ motions, concluding that there were issues of fact to be determined at trial. Court ordered mediation began on March 12, 2014 and remains open. A trial date of October 14, 2014 has been assigned.
Multi-provider National Department of Justice Investigations
Kyphoplasty. Kyphoplasty is a surgical spine procedure that returns a compromised vertebra (either from trauma or osteoporotic disease process) to its previous height, reducing or eliminating severe pain. We were first made aware of this investigation in June 2008, when two of our hospitals received document request letters from the United States Attorney’s Office for the Western District of New York. Subsequently, additional hospitals (a total of five) also received requests for documents and/or medical records. The investigation covers the period of January 1, 2002 through June 9, 2008. This investigation is part of a national investigation and is related to a qui tam settlement between the same United States Attorney’s office and the manufacturer and distributor of the Kyphon product, which is used in performing the kyphoplasty procedure. We are cooperating with the investigation and we are continuing to evaluate and discuss this matter with the federal government.
 
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Implantable Cardioverter Defibrillators (ICDs). We were first made aware of this investigation in September 2010, when we received a letter from the Civil Division of the United States Department of Justice. The letter advised us that an investigation was being conducted to determine whether certain hospitals have improperly submitted claims for payment for ICDs. The period of time covered by the investigation was 2003 to 2010. We continue to fully cooperate with the government in this investigation and have provided requested records and documents. On August 30, 2012, the Department of Justice issued a document entitled, “Medical Review Guidelines/Resolution Model,” which sets out, for the purposes of this investigation, the patient conditions and criteria for the medical necessity of the implantation of ICDs in Medicare beneficiaries and how the Department of Justice will enforce the repayment obligations of hospitals. We are in the process of reviewing our medical records in light of the guidance contained in this document.
Department of Justice Investigation of Medicare Short-Stay Admissions from Emergency Departments
In April 2011, we received a document subpoena from the United States Department of Health and Human Services office of the Inspector General, or OIG, in connection with an investigation of possible improper claims submitted to Medicare and Medicaid. The subpoena was directed to all of our hospitals and requested documents concerning emergency department processes and procedures, including our hospitals’ use of the Pro-MED Clinical Information System, a third-party software system that assists with the management of patient care and provides operational support and data collection for emergency department management. The subpoena also sought information about our relationships with emergency department physicians, including financial arrangements.
We are currently in negotiations with the Department of Justice about resolving its claims in connection with the Department’s investigation into the Company’s short stay hospital admissions for the years 2005-2010, as well as its investigation at our hospital in Laredo, Texas described in the previous item. Based on those negotiations, which are not final, we believe that a reserve of $102 million is sufficient to cover the federal government’s claims for Medicare, Tricare, and Medicaid admissions, certain claims specifically related to our hospital in Laredo, Texas, and other related legal expenses. This reserve is not meant to include third party legal expense. We are also negotiating a corporate integrity agreement with the Office of the Inspector General of the Department of Health and Human Services.
The following matters, although initiated independently of the Department of Justice’s April 2011 subpoena, are factually related in some manner to that subpoena and are grouped here for clarity.
Laredo, Texas Department of Justice Investigation. In December 2009, we received a document subpoena from OIG requesting documents related to our hospital in Laredo, Texas. The categories of documents requested included case management, resource management, admission criteria, patient medical records, coding, billing, compliance, the Joint Commission accreditation, physician documentation, payments to referral sources, transactions involving physicians, disproportionate share hospital status and audits by the hospital’s Quality Improvement organization. In January 2010, we received a “request for information or assistance” from OIG’s Office of Investigation requesting patient medical records from this facility for certain Medicaid patients with extended lengths of stay. We continue to cooperate fully with this investigation.
Texas Attorney General Investigation of Emergency Department Procedures and Billing. In November 2010, we were served with substantially identical Civil Investigative Demands (CIDs) from the Office of Attorney General, State of Texas for all 18 of our affiliated Texas hospitals. The subject of the requests concerns emergency department procedures and billing. We have complied with these requests and provided all documentation and reports requested. We continue to cooperate fully with this investigation.
 
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United States ex rel. and Reuille vs. Community Health Systems Professional Services Corporation and Lutheran Musculoskeletal Center, LLC d/b/a Lutheran Hospital (United States District Court for the Northern District of Indiana, Fort Wayne Division).  This lawsuit was originally filed under seal in January 2009. The suit is brought under the False Claims Act and alleges that Lutheran Hospital of Indiana billed the Medicare program for (a) false 23 hour observation after outpatient surgeries and procedures, and (b) intentional assignment of inpatient status to one-day stays for cases that do not meet Medicare criteria for inpatient intensity of service or severity of illness. In December 2010, the government filed a notice that it declined to intervene in this suit. On April 22, 2011, a joint motion was filed by the relator and the Department of Justice to extend the period of time for the relator to serve us in the case to allow the government more time to decide if it will intervene in the case. The motion to stay was granted, as have subsequent joint motions, and the stay is currently continued until July 22, 2014. The original motion and subsequent filings gave insight to the fact that there are other qui tam complaints in other jurisdictions and that the government was consolidating its investigations and working cooperatively with other investigative bodies (including the Attorney General of the State of Texas). The government also confirmed that it considers the allegations made in the complaint styled Tenet Healthcare Corporation vs. Community Health Systems, Inc., et al. filed in the United States District Court for the Northern District of Texas, Dallas Division on April 11, 2011 to be related to the government’s consolidated investigation. We are cooperating fully with the government in its investigations.
Shelbyville, Tennessee OIG Subpoena. In May 2011, we received a subpoena from the Houston Office of OIG requesting 71 patient medical records from our hospital in Shelbyville, Tennessee. We provided the requested records and have met with the government regarding this matter. We continue to cooperate fully with this investigation.
SEC Subpoena. In May 2011, we received a subpoena from the SEC requesting documents related to or requested in connection with the various inquiries, lawsuits and investigations regarding, generally, emergency room admissions or observation practices at our hospitals. The subpoena also requested documents relied upon by us in responding to the Tenet litigation, as well as other communications about the Tenet litigation. As with all government investigations, we are cooperating fully with the SEC.
Class Action Shareholder Federal Securities Cases. Three purported class action cases have been filed in the United States District Court for the Middle District of Tennessee; namely, Norfolk County Retirement System v. Community Health Systems, Inc., et al., filed May 9, 2011; De Zheng v. Community Health Systems, Inc., et al., filed May 12, 2011; and Minneapolis Firefighters Relief Association v. Community Health Systems, Inc., et al., filed June 21, 2011. All three seek class certification on behalf of purchasers of our common stock between July 27, 2006 and April 11, 2011 and allege that misleading statements resulted in artificially inflated prices for our common stock. In December 2011, the cases were consolidated for pretrial purposes and NYC Funds and its counsel were selected as lead plaintiffs/lead plaintiffs’ counsel. Our motion to dismiss this case has been fully briefed and is pending before the court. We believe this consolidated matter is without merit and will vigorously defend this case.
Shareholder Derivative Actions. Three purported shareholder derivative actions have also been filed in the United States District Court for the Middle District of Tennessee; Plumbers and Pipefitters Local Union No. 630 Pension Annuity Trust Fund v. Wayne T. Smith, et al., filed May 24, 2011; Roofers Local No. 149 Pension Fund v. Wayne T. Smith, et al., filed June 21, 2011; and Lambert Sweat v. Wayne T. Smith, et al., filed October 5, 2011. These three cases allege breach of fiduciary duty arising out of allegedly improper inpatient admission practices, mismanagement, waste and unjust enrichment. These cases have been consolidated into a single, consolidated action. The plaintiffs filed an operative amended derivative complaint in these three consolidated actions on March 15, 2012. Our motion to dismiss was argued on June 13, 2013. On September 27, 2013, the court issued an order granting in part and denying in part our motion to dismiss. On October 14, 2013, we filed for a Motion for Reconsideration of the Order Granting in Part and Denying in Part the Motion to Dismiss, a Motion to Stay Discovery, and an unopposed Motion for Extension of Time to File an Answer. We believe all of the plaintiffs’ claims are without merit and will vigorously defend them.
 
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Other Government Investigations
Easton, Pennsylvania – Urologist. On June 13, 2011, our hospital in Easton, Pennsylvania received a document subpoena from the Philadelphia office of the United States Department of Justice. The documents requested included medical records for certain urological procedures performed by a non-employed physician who is no longer on the medical staff and other records concerning the hospital’s relationship with the physician. Certain procedures performed by the physician had been previously reviewed and appropriate repayments had been made. We are cooperating fully with the government in this investigation.
Hattiesburg, Mississippi – Allegiance Health Management, Inc. On February 23, 2012, our hospital in Hattiesburg, Mississippi received a document subpoena from OIG relating to its relationship with Allegiance Health Management, Inc., or Allegiance, a company that provides intensive outpatient psychiatric, or IOP, services to its patients. The subpoena seeks information concerning the hospital’s financial relationship with Allegiance, medical records of patients receiving IOP services, and other documents relating to Allegiance such as agreements, policies and procedures, audits, complaints, budgets, financial analyses and identities of those delivering services. We are cooperating fully with this investigation.
Qui Tam Cases – Government Declined Intervention
On June 2, 2011, an order was entered unsealing a relator’s qui tam complaint in the matter of U.S. ex rel. Wood M. Deming, MD, individually and on behalf of Regional Cardiology Consultants, PC v. Jackson-Madison County General Hospital, an Affiliate of West Tennessee Healthcare, Regional Hospital of Jackson, a Division of Community Health Systems Professional Services Corporation, James Moss, individually, Timothy Puthoff, individually, Joel Perchik, MD, individually, and Elie H. Korban, MD, individually . The action is pending in the Western District of Tennessee, Jackson Division. Regional Hospital of Jackson is an affiliated hospital and Mr. Puthoff is a former chief executive officer there. The Order recited that the United States had elected to intervene to a limited degree only concerning the claims against Dr. Korban for false and fraudulent billing for allegedly unnecessary stent procedures and for causing the submission of false claims by the hospitals. On July 28, 2011, we were served by the relator. On June 12, 2013, the government and Dr. Korban filed an advisory that they had reached a “handshake” settlement of all claims pled by the government. On December 17, 2013, the government filed a notice of settlement with Dr. Korban. We believe the claims against our hospital are without merit and we are vigorously defending this case.
On August 8, 2012, an order was entered unsealing a relator’s qui tam complaint in the matter of U.S. and N.M. ex rel. Sally Hansen v. Mimbres Memorial Hospital, et al . This action is pending in the United States District Court for New Mexico. This case cites alleged quality control failures as violations of the Clinical Laboratory Improvement Amendments of 1988 as the basis for a False Claims Act suit. Both the U.S. government and the New Mexico state government declined to intervene in this case. We filed a motion to dismiss and the relator filed an amended complaint. Both the U.S. government and the New Mexico state government have now declined to intervene on this amended complaint. On June 12, 2013, we filed a motion to dismiss the amended complaint. The relator also voluntarily dismissed Community Health Systems, Inc., without prejudice. Our motion to dismiss was granted on November 21, 2013 and relator’s motion for reconsideration of that decision was denied on January 24, 2014. On February 21, 2014, relator filed a notice of appeal to the Tenth Circuit Court of Appeals. We believe the claim against our hospital is without merit and we are vigorously defending this case.
On December 20, 2013, we became aware of a case styled U.S. ex rel. Macler v. Pinnacle Partners in Medicine, et. al (including our affiliated facility, Pottstown Memorial Medical Center, Pottstown, Pennsylvania), filed on April 17, 2013 in the Eastern District of Pennsylvania. The complaint alleges that certain patients did not receive a post-anesthesia visit as required by the Medicare Conditions of Participation and Pennsylvania law. The Department of Justice has declined to intervene in this case and the case was unsealed on or about December 19, 2013. We previously had not been aware of this case nor had any knowledge of any government investigation of the allegations. We have not been served with a complaint, but would anticipate that we will vigorously defend it if the case is pursued by the relator.
 
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On February 4, 2014, a redacted case styled (Sealed Party) v. Pottstown Hospital Co., LLC d/b/a Pottstown Memorial Medical Center and Community Health Systems, Inc. was filed in the Eastern District of Pennsylvania. The complaint alleges the hospital traded on call agreements for referrals. There is no indication that the Department of Justice has intervened in this matter. This matter was previously reported in prior filings in the Legal Proceedings section as subpoenas to two Pennsylvania hospitals and one of our subsidiaries concerning on call agreements and physician directorships. We anticipate that we will vigorously defend this matter if it is pursued by the government or the relator.
Commercial Litigation and Other Lawsuits
Becker v. Community Health Systems, Inc. d/b/a Community Health Systems Professional Services Corporation d/b/a Community Health Systems d/b/a Community Health Systems PSC, Inc. d/b/a Rockwood Clinic P.S. and Rockwood Clinic, P.S. (Superior Court, Spokane, Washington).  This suit was filed on February 29, 2012, by a former chief financial officer at Rockwood Clinic in Spokane, Washington. Becker claims he was wrongfully terminated for allegedly refusing to certify a budget for Rockwood Clinic in 2012. On February 29, 2012, he also filed an administrative complaint with the Department of Labor, Occupational Safety and Health Administration alleging that he is a whistleblower under Sarbanes-Oxley; a response was filed on May 21, 2012. At a hearing on July 27, 2012, the court dismissed Community Health Systems, Inc. from this case and has subsequently certified the case for an interlocutory appeal of the denial to dismiss his employer and the management company. The appellate court has accepted the interlocutory appeal. We are vigorously defending this action.
Eliel Ntakirutimana, M.D. and Anesthesia Healthcare Partners of Laredo, P.A., Jose Berlioz, M.D. and Jose Berlioz, M.D., P.A. d/b/a Safari Pediatrics v. Laredo Texas Hospital Company, L.P. d/b/a Laredo Medical Center, CHS/Community Health Systems, Inc., Webb Hospital Corporation, Community Health Systems Professional Services Corporation, Community Health Systems, Inc., Abraham “Abe” Martinez, Argelia “Argie” Martinez, Michael Portacci, Wayne Smith, Timothy P. Adams, and Timothy Schmidt.  On December 28, 2012, two physicians and each of their professional associations, who previously contracted as independent contractors with Laredo Medical Center under contracts that could be terminated without cause upon certain written notice, filed a first amended complaint. The first amended complaint alleged claims for breaches of contracts, unjust enrichment, violation of the Texas Theft Liability Act, negligence, breach of fiduciary duty, knowing participation in breach of fiduciary duty, defamation and business disparagement, R.I.C.O., economic duress/coercion, tortious interference with contracts or prospective business relations, conspiracy, respondent superior, actual and apparent authority, ratification, vice-principal liability, and joint enterprise liability. The first amended complaint, in part, alleges facts concerning payments made by Dr. Eliel Ntakirutimana to former Laredo Medical Center CEO, Abe Martinez, who is also a defendant in the suit. On October 23, 2013, an Order staying the case until further notice was entered.
Certain Legal Proceedings Related to HMA
Medicare/Medicaid Billing Lawsuits
On January 11, 2010, HMA and one of its subsidiaries were named in a qui tam lawsuit entitled United States of America ex rel. J. Michael Mastej v. Health Management Associates, Inc. et al. in the U.S. District Court for the Middle District of Florida, Tampa Division. The plaintiff’s complaint alleged that, among other things, the defendants erroneously submitted claims to Medicare and that those claims were falsely certified to be in compliance with Section 1877 of the Social Security Act of 1935 (commonly known as the “Stark law”) and the Anti-Kickback Statute. The plaintiff’s complaint further alleged that the defendants’ conduct violated the False Claims Act. The plaintiff seeks recovery of all Medicare and Medicaid reimbursement that the defendants received as a result of the alleged false certifications and treble damages under the False Claims Act, as well as a civil penalty for each Medicare and Medicaid claim supported by such alleged false certifications. On August 18, 2010, the plaintiff filed a first amended complaint that was similar to the original complaint. On February 23, 2011, the case was transferred to the U.S. District Court for the Middle District of Florida, Fort Myers Division. On May 5, 2011, the plaintiff filed a second amended complaint, which was similar to the first amended complaint. On May 17, 2011, the defendants moved to dismiss the second amended complaint for failure to state a claim with the particularity required and failure to state a claim upon which relief can be granted. On January 26, 2012, the United States gave notice of its decision not to intervene in this lawsuit. On February 16, 2012, the court granted the defendants’ motion to dismiss, without prejudice. The court’s order permitted the plaintiff to file an amended complaint. On March 8, 2012, the plaintiff filed a third amended complaint, which was similar to the first amended complaint and the second amended complaint. On March 26, 2012, the defendants moved to dismiss the third amended complaint on the same bases set forth in earlier motions to dismiss. On March 19, 2013, the U.S. District Court for the Middle District of Florida, Tampa Division, dismissed the third amended complaint with prejudice. On March 28, 2013, the United States of America filed a motion to clarify that the dismissal with prejudice did not relate to the United States. On April 4, 2013, the defendants filed an opposition to the United States’ motion for clarification. The Government’s motion remains pending at this time. On April 16, 2013, the plaintiff filed a motion for relief from judgment and for leave to amend the complaint, and a proposed fourth amended complaint. On April 18, 2013, the plaintiff filed a notice of appeal. On May 2, 2013, the defendants filed
 
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an opposition to the plaintiff’s motion for relief from judgment and for leave to amend the complaint for the fourth time. On July 10, 2013, the court denied plaintiff’s motion for relief from judgment and for leave to amend the complaint for the fourth time. The case is now on appeal to the Eleventh Circuit Court of Appeals. On August 26, 2013, plaintiff submitted his initial brief and, on October 15, 2013, defendants filed their answer brief. We intend to vigorously defend HMA and its subsidiary against the allegations in this matter.
On July 31, 2013, a qui tam lawsuit captioned United States ex rel. Williams v. Health Management Associates, Inc. was unsealed in the U.S. District Court for the Middle District of Georgia. The complaint alleges that HMA and Walton Regional Medical Center, as well as Tenet Healthcare Corp. and several of its hospitals, engaged in a kickback scheme with Clinica de la Mama, a prenatal clinic, whereby Clinica de la Mama would provide translation and eligibility services in exchange for the referral of Medicaid patients to the defendant hospitals. The State of Georgia filed a similar complaint alleging that these referrals violated the Georgia False Medical Claims Act, the Georgia Medical Assistance Act, and various state laws. HMA has moved to dismiss the relater and State complaints, and its motion is currently pending before the Court. On March 18, 2014, the United States filed a complaint in intervention alleging that the relationship between Clinica de la Mama and Walton violated the federal False Claims Act and common law unjust enrichment and payment by mistake. We deny the allegations in these complaints and intend to defend against these claims.
Beginning during the week of December 16, 2013 eleven qui tam lawsuits filed by private individuals against HMA were unsealed in various United States district courts. The United States has elected to intervene in all or part of eight of these matters; namely  U.S. ex rel. Craig Brummer v. Health Management Associates, Inc. et al. (Middle District Georgia) (“Brummer”); U.S. ex rel. Ralph D. Williams v. Health Management Associates, Inc. et al. (Middle District Georgia) (“Williams”); U.S. ex rel. Scott H. Plantz, M.D. et al. v. Health Management Associates, Inc., et al. (Northern District Illinois) (“Plantz”); U.S. ex rel. Thomas L. Mason, M.D. et al. v. Health Management Associates, Inc. et al. (Western District North Carolina) (“Mason”); U.S. ex rel. Jacqueline Meyer, et al. v. Health Management Associates, Inc., Gary Newsome et al. (“Jacqueline Meyer”) (District of South Carolina); U.S. ex rel. George Miller, et al. v. Health Management Associates, Inc. (Eastern District of Pennsylvania) (“Miller”); U.S. ex rel. Bradley Nurkin v. Health Management Associates, Inc. et al. (Middle District of Florida) (“Nurkin”); and U.S. ex rel. Paul Meyer v. Health Management Associates, Inc. et al. (Southern District Florida) (“Paul Meyer”) . The United States has elected to intervene with respect to allegations in these cases that certain HMA hospitals inappropriately admitted patients and then submitted reimbursement claims for treating those individuals to federal healthcare programs in violation of the False Claims Act or that certain HMA hospitals had inappropriate financial relationships with physicians which violated the Stark law, the Anti-Kickback Statute, and the False Claims Act. Certain of these complaints also allege the same actions violated various state laws which prohibit false claims. The United States has declined to intervene in three of the eleven matters, namely  U.S. ex rel. Anita France et al. v. Health Management Associates, Inc. (Middle District Florida) (“France”)  which involves allegations of wrongful billing;  U.S. ex rel. Sandra Simmons, v. Health Management Associates, Inc. et al. (Eastern District Oklahoma) (“Simmons”)  which alleges unnecessary surgery by an employed physician and which was recently partially settled as to all allegations except alleged wrongful termination; and  U.S. ex rel. David Napoliello, M.D. v. Health Management Associates, Inc. (Middle District Florida) (“Napoliello”)  which alleges inappropriate admissions. On April 3, 2014, the Multi District Litigation Panel ordered the transfer and consolidation for pretrial proceedings of the eight intervened cases, plus the Napoliello matter, to the District of the District of Columbia under the name  In Re: Health Management Associates, Inc. Qui Tam Litigation . We intend to defend against the allegations in these matters, but will also be cooperating with the government in the ongoing investigation of these allegations.
Several HMA hospitals received letters during 2009 requesting information in connection with a DOJ investigation relating to kyphoplasty procedures. Kyphoplasty is a minimally invasive spinal procedure used to treat vertebral compression fractures. The DOJ is currently investigating hospitals and hospital operators in multiple states to determine whether certain Medicare claims for kyphoplasty were incorrect when billed as an inpatient service rather than as an outpatient service. The DOJ’s investigation originated with a False Claims Act lawsuit against Kyphon, Inc., the company that developed the kyphoplasty procedure. The requested information has been provided to the DOJ and we are cooperating with the investigation. Prior to the HMA merger, HMA determined that a liability for this claim is probable and an incremental liability was recorded by HMA during the quarter ended December 31, 2013, which was assumed as part of the HMA merger.
 
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During September 2010, HMA received a letter from the DOJ indicating that an investigation was being conducted to determine whether certain HMA hospitals improperly submitted claims for the implantation of ICDs. The DOJ’s investigation covers the period commencing with Medicare’s expansion of coverage for ICDs in 2003 to the present. The letter from the DOJ further indicates that the claims submitted by HMA’s hospitals for ICDs and related services need to be reviewed to determine if Medicare coverage and payment was appropriate. During 2010, the DOJ sent similar letters and other requests to a large number of unrelated hospitals and hospital operators across the country as part of a nation-wide review of ICD billing under the Medicare program. We are cooperating with the DOJ in its ongoing investigation, which could potentially give rise to claims against HMA and/or certain of its subsidiary hospitals under the False Claims Act or other statutes, regulations or laws. Additionally, we are conducting an internal review of hospital medical records related to ICDs that are the subject of the DOJ investigation. To date, the DOJ has not asserted any monetary or other claims against HMA or its hospitals in this matter and, at this time, we are unable to determine the potential impact, if any, that will result from the final resolution of the investigation.
On February 22, 2012 and February 24, 2012, OIG served subpoenas on certain HMA hospitals relating to those hospitals’ relationships with Allegiance. Allegiance, which is unrelated to HMA, is a post-acute healthcare management company that provides IOP services to patients. The HMA hospitals that were served subpoenas were: (i) Central Mississippi Medical Center in Jackson, Mississippi; (ii) Crossgates River Oaks Hospital in Brandon, Mississippi; (iii) Davis Regional Medical Center in Statesville, North Carolina; (iv) Lake Norman Regional Medical Center in Mooresville, North Carolina; (v) the Medical Center of Southeastern Oklahoma in Durant, Oklahoma; and (vi) Natchez Community Hospital in Natchez, Mississippi. Each of those hospitals has or had a contract with Allegiance. Among other things, the subpoenas seek: (i) documents related to the hospitals’ financial relationships with Allegiance; (ii) documents related to patients who received IOP services from Allegiance at the HMA hospitals, including their patient medical records; (iii) documents relating to complaints or concerns regarding Allegiance’s IOP services at the HMA hospitals; (iv) documents relating to employees, physicians and therapists who were involved with the IOP services provided by Allegiance at the HMA hospitals; and (v) other documents related to Allegiance, including leases, contracts, policies and procedures, training documents, budgets and financial analyses. The period of time covered by the subpoenas is January 1, 2008 through the date of subpoena compliance. We intend to cooperate with the investigations. Prior to the HMA merger, HMA determined that a liability for this claim is probable and a liability was recorded by HMA during the quarter ended December 31, 2013, which was assumed as part of the HMA merger.
Securities and Exchange Commission Investigation
On April 25, 2013, HMA received a subpoena from the SEC, issued pursuant to an investigation, requesting documents related to accounts receivable, billing write-downs, contractual adjustments, reserves for doubtful accounts, and accounts receivable aging, and revenue from Medicare, Medicaid and from privately insured or uninsured patients. On June 5, 2013, HMA received a supplemental subpoena from the SEC which requests additional financial reports. Subsequent subpoenas have been directed to us, our accountants, the former accountants for HMA and certain individuals. This investigation is ongoing and we are unable to determine the potential impact, if any, of this investigation.
 
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Class Action and Derivative Action Lawsuits
On April 30, 2012, two class action lawsuits that were brought against HMA and certain of its then executive officers, one of whom was at that time also a director, were consolidated in the U.S. District Court for the Middle District of Florida under the caption In Re: Health Management Associates, Inc., et al. and three pension fund plaintiffs were appointed as lead plaintiffs. On July 30, 2012, the lead plaintiffs filed an amended consolidated complaint purportedly on behalf of stockholders who purchased HMA’s common stock during the period from July 27, 2009, through January 9, 2012. The amended consolidated complaint (i) alleges that HMA made false and misleading statements in certain public disclosures regarding its business and financial results and (ii) asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended. Among other things, the plaintiffs claim that HMA inflated its earnings by engaging in fraudulent Medicare billing practices that entailed admitting patients to observation status when they should not have been admitted at all and to inpatient status when they should have been admitted to observation status. The plaintiffs seek unspecified monetary damages. On October 22, 2012, the defendants moved to dismiss the plaintiffs’ amended consolidated complaint for failure to state a claim or plead facts required by the Private Securities Litigation Reform Act. The plaintiffs filed an unopposed stipulation and proposed order to suspend briefing on the defendants’ motion to dismiss because they intended to seek leave of court to file a proposed second amended consolidated complaint. On December 15, 2012, the court entered an order approving the stipulation and providing a schedule for briefing with respect to the proposed amended pleadings. On February 25, 2013, the plaintiffs filed a second amended consolidated complaint, which asserts substantially the same claims as the amended consolidated complaint. As of August 15, 2013, the defendants’ motion to dismiss the second amended complaint for failure to state a claim and plead facts required by the Private Securities Litigation Reform Act was fully briefed and awaiting the Court’s decision. We intend to vigorously defend against the allegations in this lawsuit. We are unable to predict the outcome or determine the potential impact, if any, that could result from its final resolution.
On July 23, 2013, an action entitled Town of Davie Police Officers’ Pension Plan v. Dauten, et al., was filed in the Court of Chancery of the State of Delaware. This action purportedly was brought as a class action on behalf of all of HMA’s stockholders, as well as derivatively on behalf of HMA, against HMA’s then-directors (the “Former Directors”) and Wells Fargo Bank, National Association, Wells Fargo Securities, LLC (collectively, “Wells Fargo”), and Deutsche Bank Securities Inc. (“Deutsche Bank”). The complaint alleged, among other things, that the Former Directors breached their fiduciary duties by (i) approving a credit agreement in 2011 that contained a change of control covenant that plaintiff contended would have coerced shareholders into supporting their re-election and (ii) not approving the individuals nominated by Glenview Capital Management LLC (“Glenview”) for election to HMA’s board of directors (the “Nominees”) for the purpose of avoiding the triggering of similar but distinct change of control provisions contained in certain of HMA’s indentures. The complaint further alleged that Wells Fargo and Deutsche Bank aided and abetted such breaches by permitting the Former Directors to embed the change of control covenant in the credit agreement. The complaint sought declaratory and injunctive relief, including (i) a declaration that the Former Directors breached their fiduciary duties by entering into the credit agreement and (ii) an order permanently enjoining the Former Directors from invoking or enforcing the change of control covenant in the credit agreement. Plaintiff also sought unspecified damages and an award of attorneys’ fees and costs. Simultaneously with filing its complaint, plaintiff filed a Motion for a Temporary Restraining Order and Expedited Proceedings.
As disclosed in the preliminary and definitive proxy statements filed by the Company with the SEC on September 25, 2013, and November 22, 2013, respectively, before plaintiff filed this action, HMA already had determined and taken steps both to seek a waiver of the change in control covenant in its 2011 credit agreement and to interview Glenview’s Nominees for the purpose of approving them to avoid triggering an acceleration of the debt due under certain of its indentures if the Nominees were elected to HMA’s board of directors. Specifically, (i) representatives of HMA contacted representatives of Wells Fargo on July 18, 2013, to inquire about the necessary steps for obtaining a waiver under the credit agreement, and obtained such a waiver on July 29, 2013, so that a merger agreement with the Company could be executed on that date; and (ii) after interviews of all of the Glenview Nominees, HMA’s Former Directors approved those individuals on August 1, 2013, for the limited purpose of avoiding the acceleration of the debt due under certain of its indentures. On August 12, 2013, Glenview delivered to HMA sufficient consents to elect its Nominees to HMA’s board, replacing the Former Directors. On August 16, 2013, HMA announced that the Nominees had replaced the Former Directors on HMA’s Board. Thus, plaintiff’s class action claims were mooted by actions commenced by HMA before plaintiff filed its complaint on July 23, 2013, and plaintiff withdrew its request for injunctive relief.
 
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On September 20, 2013, the defendants moved to dismiss this action. After HMA’s stockholders approved the HMA merger on January 8, 2014, plaintiff moved to voluntarily dismiss its mooted class action claims, as well as its derivative claim (which plaintiff recognized it would lose standing to pursue after the HMA merger closed on January 27, 2014), and requested an award of attorneys’ fees and costs. Had plaintiff not moved to voluntarily dismiss its claims, defendants would have filed a brief in support of their motion to dismiss seeking dismissal of the complaint on a variety of grounds, including, but not limited to, mootness, lack of standing, laches, and failure to state a claim upon which relief may be granted.
On April 15, 2014, the Court entered a stipulation and order (the “Order”) regarding dismissal of the action. As required by the Order, the Company is hereby notifying stockholders that the derivative claim is being discontinued for lack of HMA stockholder standing, the action is being dismissed as moot, and HMA has agreed to pay plaintiff’s counsel $115,000 in full satisfaction of plaintiff’s pending request for attorneys’ fees and costs in the action. The action will be dismissed as moot without further action by the parties or the Court unless another stockholder of HMA submits a written objection to the Court within thirty days of this notice.
Wrongful Termination Lawsuit
On or about October 19, 2011, a wrongful termination action was commenced against HMA by Paul Meyer, HMA’s former Director of Compliance. That litigation, entitled Meyer v. Health Management Associates, Inc., was commenced in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida. The plaintiff seeks unspecified compensatory and punitive damages. Mr. Meyer was terminated after insubordinately refusing to cooperate with HMA’s efforts to comply with its obligations under a government subpoena by refusing to return documents belonging to HMA that were in his possession. Moreover, Mr. Meyer’s failure to cooperate with HMA in response to a subpoena was contrary to both the intent and purpose of HMA’s compliance department and HMA’s company-wide compliance program. HMA has filed a counterclaim against Mr. Meyer for breach of contract, conversion and breach of duty of loyalty. The trial in this matter is scheduled to take place during the third quarter of 2014. We intend to vigorously defend against the wrongful termination allegations made by Mr. Meyer.
Management of Significant Legal Proceedings
In accordance with our governance documents, including our Governance Guidelines and the charter of the Audit and Compliance Committee, our management of significant legal proceedings is overseen by the independent members of the Board of Directors and, in particular, the Audit and Compliance Committee. The Audit and Compliance Committee is charged with oversight of compliance, regulatory and litigation matters, and enterprise risk management. Management has been instructed to refer all significant legal proceedings and allegations of financial statement fraud, error, or misstatement to the Audit and Compliance Committee for its oversight and evaluation. Consistent with New York Stock Exchange and Sarbanes-Oxley independence requirements, the Audit and Compliance Committee is comprised entirely of individuals who are independent of Company management, and all three members of the Audit and Compliance Committee are “audit committee financial experts” as defined in the Exchange Act.
In addition, the Audit and Compliance Committee and the other independent members of the Board of Directors oversee the functions of the voluntary compliance program, including its auditing and monitoring functions and confidential disclosure program. In recent years, the voluntary compliance program has addressed the potential for a variety of billing errors that might be the subject of audits and payment denials by the CMS Recovery Audit Contractors’ permanent project, including MS-DRG coding, outpatient hospital and physician coding and billing, and medical necessity for services (including a focus on hospital stays of very short duration). Efforts by management, through the voluntary compliance program, to identify and limit risk from these government audits have included significant policy and guidance revisions, training and education, and auditing.
Since April 2011, our Audit and Compliance Committee and/or Board of Directors has met, on average, monthly to review the status of the lawsuits and investigations relating to allegations of improper billing for inpatient care at our hospitals and to oversee management in connection with our investigation and defense of these matters. At many of those meetings, the independent members of the Board of Directors have met in separate session, first with outside counsel handling the investigations and lawsuits, and then alone, to discuss their duties and oversight of these matters. The independent members of our Board of Directors remain fully engaged in the oversight of these matters.
 
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Item 1A.  Risk Factors
There have been no material changes with regard to risk factors previously disclosed in our most recent annual report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Historically, we have not paid any cash dividends. In December 2012, we declared and paid a special dividend of $0.25 per share to holders of our common stock at the close of business as of December 17, 2012, which totaled approximately $23 million. In the foreseeable future, we do not anticipate the payment of any other cash dividends. Our Credit Facility limits our ability to pay dividends and/or repurchase stock to an amount not to exceed $200 million in the aggregate plus an additional $25 million each year plus the aggregate amount of proceeds from the exercise of stock options. The indentures governing senior and senior secured notes also limit our ability to pay dividends and/or repurchase stock. As of March 31, 2014, under the most restrictive test under these agreements, we have approximately $393 million available with which to pay permitted dividends and/or repurchase shares of stock or our Notes.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
 
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Item 6. Exhibits

         No.         
 	 	  	Description

 	4.1 	  	  	Form of Common Stock Certificate	
 	 	
 	10.1 	  	  	Amendment No. 2, dated as of January 1, 2014, to the CHS/Community Health Systems, Inc. Amended and Restated Supplemental Executive Retirement Plan, as amended and restated on January 1, 2009	
 	 	
 	10.2 	  	  	Form of Performance Based Restricted Stock Award Agreement (Special Purpose) for Community Health Systems, Inc. 2009 Stock Option and Award Plan	
 	 	
 	10.3 	  	  	Form of Change in Control Severance Agreement (for executive officers appointed since January 1, 2009)	
 	 	
 	12 	  	  	Computation of Ratio of Earnings to Fixed Charges	
 	 	
 	31.1 	  	  	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
 	 	
 	31.2 	  	  	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
 	 	
 	32.1 	  	  	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 	 	
 	32.2 	  	  	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 	 	
 	101.INS	  	  	XBRL Instance Document	
 	 	
 	101.SCH	  	  	XBRL Taxonomy Extension Schema	
 	 	
 	101.CAL	  	  	XBRL Taxonomy Extension Calculation Linkbase	
 	 	
 	101.DEF	  	  	XBRL Taxonomy Extension Definition Linkbase	
 	 	
 	101.LAB	  	  	XBRL Taxonomy Extension Label Linkbase	
 	 	
 	101.PRE	  	  	XBRL Taxonomy Extension Presentation Linkbase	
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 	 	COMMUNITY HEALTH SYSTEMS, INC.	 	 	
 	 	                      (Registrant)	 	 	
 	 	 	 	
 	 	By:	 	/s/   Wayne T. Smith	 	 	
 	 	 	 	Wayne T. Smith	 	 	
 	 	 	 	Chairman of the Board and	 	 	
 	 	 	 	Chief Executive Officer	 	 	
 	 	 	 	(principal executive officer)	 	 	
 	 	 	 	
 	 	By:	 	/s/   W. Larry Cash	 	 	
 	 	 	 	W. Larry Cash	 	 	
 	 	 	 	President of Financial Services, Chief	 	 	
 	 	 	 	Financial Officer and Director	 	 	
 	 	 	 	(principal financial officer)	 	 	
 	 	 	 	
 	 	By:	 	/s/   Kevin J. Hammons	 	 	
 	 	 	 	Kevin J. Hammons	 	 	
 	 	 	 	Senior Vice President and Chief
Accounting Officer	 	 	
 	 	 	 	(principal accounting officer)	 	 	
Date: May 7, 2014
 
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Index to Exhibits

         No.         
 	 	  	Description

 	4.1 	  	  	Form of Common Stock Certificate	
 	 	
 	10.1 	  	  	Amendment No. 2, dated as of January 1, 2014, to the CHS/Community Health Systems, Inc. Amended and Restated Supplemental Executive Retirement Plan, as amended and restated on January 1, 2009	
 	 	
 	10.2 	  	  	Form of Performance Based Restricted Stock Award Agreement (Special Purpose) for Community Health Systems, Inc. 2009 Stock Option and Award Plan	
 	 	
 	10.3 	  	  	Form of Change in Control Severance Agreement (for executive officers appointed since January 1, 2009)	
 	 	
 	12 	  	  	Computation of Ratio of Earnings to Fixed Charges	
 	 	
 	31.1 	  	  	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
 	 	
 	31.2 	  	  	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
 	 	
 	32.1 	  	  	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 	 	
 	32.2 	  	  	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
 	 	
 	101.INS	  	  	XBRL Instance Document	
 	 	
 	101.SCH	  	  	XBRL Taxonomy Extension Schema	
 	 	
 	101.CAL	  	  	XBRL Taxonomy Extension Calculation Linkbase	
 	 	
 	101.DEF	  	  	XBRL Taxonomy Extension Definition Linkbase	
 	 	
 	101.LAB	  	  	XBRL Taxonomy Extension Label Linkbase	
 	 	
 	101.PRE	  	  	XBRL Taxonomy Extension Presentation Linkbase	
 
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Exhibit 4.1
 	 	 	 	 	 	 	
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE	  	 	  	 	  	COMMON STOCK
 
    $.01 PAR VALUE

         CUSIP   203668   10   8
            SEE REVERSE FOR CERTAIN  DEFINITIONS	
COMMUNITY HEALTH SYSTEMS, INC.
FULLY-PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF
Community Health Systems, Inc. (the “Corporation”), transferable on the books of the Corporation, in person or by duly authorized attorney, upon the surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued under and shall be subject to all the provisions of the Certificate of Incorporation and Bylaws of the Corporation and any amendments thereto, copies of which are on file with the Corporation and the Transfer Agent, to all of which the holder, by acceptance hereof, assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
In Witness Whereof, the Corporation has caused this certificate to be signed in facsimile by its duly authorized officers and the facsimile corporate seal to be duly affixed hereto.
 	 	 	 	 	
 	  	 	  	Dated:
 
 COUNTERSIGNED AND REGISTERED:
    AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
(Brooklyn, NY)          
TRANSFER AGENT AND REGISTRAR
 By:	
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER	  	EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL	  	AUTHORIZED SIGNATURE	

  A full statement of the designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights will be furnished by the Corporation, without charge, to any stockholder who so requests, upon application to the Transfer Agent named on the face hereof or to the office of the Corporation.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM	  	—	  	as tenants in common	  	UNIF GIFT MIN ACT —                   Custodian               	
 
TEN ENT	  	 
—	  	 
as tenants by the entireties	  	(Cust)                                 (Minor)    	
 
JT TEN	  	 
—	  	 
as joint tenants with right of	  	under Uniform Gifts to Minors	
 	  	 	  	survivorship and not as tenants	  	 	
 	  	 	  	in common	  	Act                                                     	
 	  	 	  	 	  	(State)                      	
Additional abbreviations may also be used though not in the above list.

For Value Received                     hereby sell, assign and transfer into	
 	 	
  PLEASE INSERT SOCIAL SECURITY OR OTHER   IDENTIFYING NUMBER OF ASSIGNEE	  	 	

 

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)	

 	

 	 	Shares	
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint	

 	 	Attorney,	
to transfer the said stock on the books of the within named Company with full power of substitution in the premises.	

Dated	 	 	  	 	

 	 	 	 	 	 	
 	 	X	 	 	 	
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.	 	 

	 	(SIGNATURE)	 	
 	 	X	 	 	 	
 	 	 	 	(SIGNATURE)	 	
 	 	 	 	 	 	
 	 	 	 	THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.	 	
 	 	 	 	 	 	
 	 	 	 	SIGNATURE(S) GUARANTEED BY:

 	 	 	 	    	 	

Exhibit 10.1
AMENDMENT NO. 2 TO THE
CHS/COMMUNITY HEALTH SYSTEMS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
THIS AMENDMENT NO. 2 TO THE CHS/COMMUNITY HEALTH SYSTEMS, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN dated as of January 1, 2014 (the “Amendment”), amends the CHS/Community Health Systems, Inc. Supplemental Executive Retirement Plan dated effective as of January 1, 2009 (as amended by Amendment No. 1 dated September 13, 2011, the “Plan”). Unless otherwise defined in this Amendment, capitalized terms shall have the meanings assigned to such terms in the Plan.
 
 	  1.	The Plan is hereby amended as follows:	
 
 	  (a)	The text of Section 2.1(a) is hereby deleted in its entirety and the following inserted in its place:	
(a) “Actuarial Equivalent” shall mean a benefit of equivalent value calculated based on the Uninsured Pensioners 1994 Mortality Table including Projections to 2003 using 50% of the Male Rates and 50% of the Female Rates as prescribed for qualified retirement plans under the General Agreement on Trades and Tariffs (GATT) and a discount rate equal to the average yield on 10-Year Treasury Bonds for the twenty-four (24) months preceding  the last day of the previous month (as determined by the Committee in good faith) , but in no event greater than 4% per annum.
 
 	  (b)	Section 5.1 Normal Retirement Benefit is hereby amended by adding the following paragraph immediately before the current final paragraph of that section:	
Notwithstanding the foregoing, a Participant may instead elect, at any time, to receive the benefit calculated under this Section 5.1 as an amount that is the Actuarial Equivalent of the Monthly Retirement Income as calculated pursuant to this Section 5.1 above as of the later of the Participant’s Eligibility Date (as defined below) or the Participant’s Election Date (as defined below), with interest thereon until such Participant’s Separation from Service in an amount equal to the average yield on 10-Year Treasury Bonds for the twenty-four (24) months preceding, calculated and compounded on a quarterly basis, but in no event greater than 4% per annum. For the sake of clarity, an election described in this paragraph made by a Participant who does not become an Eligible Participant (as defined below) shall be disregarded and such Participant shall receive the benefit, if any, to which such Participant is otherwise

entitled under this Plan. For purposes hereof, (i) an “Eligible Participant” is a Participant who has attained the Normal Retirement Date (i.e., has reached the age of 65) and has completed or been credited with at least twenty-five (25) years of Service, (ii) the “Eligibility Date” is the date a Participant becomes an Eligible Participant and (iii) the “Election Date” is the date a Participant makes the election described in this paragraph. An election made pursuant to this paragraph shall be made in writing delivered to the Secretary of the CHS/Community Health Systems, Inc. and once made, shall be final and irrevocable.
 
 	  2.	Except as amended hereby, the Plan shall remain unmodified and in full force and effect.	
IN WITNESS WHEREOF, CHS/Community Health Systems, Inc. has caused this Amendment to be executed by its duly authorized officer on the 26th day of February, 2014, being the date the Amendment was approved and adopted by the Board of Directors.

 	 	CHS/COMMUNITY HEALTH SYSTEMS, INC.    	
 	 	 	 	
 	 	By:	 	   /s/ Rachel A. Seifert	 	 	
 	 	Name: Rachel A. Seifert	 	 	
 	 	Title:   Executive Vice President, Secretary and
            General Counsel	 	 	
 
2

Exhibit 10.2
PERFORMANCE BASED RESTRICTED STOCK AWARD AGREEMENT (Special Purpose)
Community Health Systems, Inc.
2009 Stock Option and Award Plan
THIS AGREEMENT between you and Community Health Systems, Inc., a Delaware corporation (the “ Company ”) governs an Award of the Company’s Restricted Stock in the amount and on the date specified in your Award notification (the “ Date of Grant ”).
WHEREAS, the Company has adopted the Community Health Systems, Inc. 2009 Stock Option and Award Plan (the “ Plan ”) in order to provide additional incentive to certain employees and directors of the Company and its Subsidiaries;
WHEREAS, the Compensation Committee of the Company’s Board of Directors (the “Committee”) has determined to grant to you this Award of Restricted Stock as provided herein to encourage your efforts toward the continuing success of the Company;
WHEREAS, the Committee has determined to condition the Award on the attainment of certain performance-based criteria to better align your economic interests with those of the other stockholders of the Company and to ensure that the compensation attributable to this Award constitutes “qualified performance-based compensation” pursuant to Code §162(m) and the regulations promulgated thereunder; and
WHEREAS, the Committee has established the Performance Objectives (as defined in Section 3.1 below) (a) utilizing objectively determinable criteria, (b) on a date which is prior to the ninetieth (90 th ) day of the Company’s fiscal year, and (c) at a time when the attainment of the Performance Objectives is substantially uncertain .
NOW, THEREFORE, the parties hereto agree as follows:
 
1.	Grant of Restricted Stock.	
1.1       The Company hereby grants to you this Award of Shares of Performance Based Restricted Stock in the number set out in an electronic notification by the Company’s stock option plan administrator, as may be appointed from time to time (the “Plan Administrator”). The Shares of Performance Based Restricted Stock granted pursuant to this Award shall be issued in the form of a book entry of Shares in your name as soon as reasonably practicable after the Date of Grant and shall be subject to your (or your estate’s, if applicable) acknowledgement and acceptance of this Agreement by electronic means to the Plan Administrator as provided in Section 9 hereof, or as you have been otherwise instructed.
1.2       This Agreement shall be construed in accordance and consistent with, and subject to, the provisions of the Plan (the provisions of which are hereby incorporated by reference) and, except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall have the same definitions as set forth in the Plan.
 
2.	Restrictions on Transfer.	
The Shares of Performance Based Restricted Stock issued under this Agreement may not be sold, transferred or otherwise disposed of and may not be pledged or otherwise hypothecated until all restrictions on such Performance Based Restricted Stock shall have lapsed in the manner provided in Section 3, 4 or 5 hereof.

3.	Performance Objectives; Lapse of Restrictions.	
3.1        The Award is subject to the Company attaining at least one of the following “Performance Objectives” (herein so called): (i) the Company attains synergies (as determined by the Committee)(“Synergies”) from the acquisition of Health Management Associates, Inc. (the “Acquisition”) of $80 million during the period beginning February 1, 2014 and ending January 31, 2015; (ii) the Company attains Synergies from the Acquisition of at least $150 million during the period beginning February 1, 2014 and ending January 31, 2016; and/or (iii) the Company attains Synergies from the Acquisition of at least $200 million during the period beginning February 1, 2014 and ending January 31, 2016.
3.2        Except as provided in Sections 4, 5 and 6 hereof, if none of the Performance Objectives are attained, the Award shall lapse in its entirety.
3.3        Except as provided in Sections 4, 5 and 6 hereof:
(a)      If the Performance Objective set forth in Section 3.1(i) is attained, one-third (1/3) of the number of Shares of Performance Based Restricted Stock issued hereunder (rounded to the nearest whole Share, if necessary) shall vest (subject to verification by the Committee) on the first anniversary of the Date of Grant; and
(i)     if the Performance Objective set forth in Section 3.1(ii) is attained but the Performance Objective set forth in Section 3.1(iii) is not attained, one-half of the total original Award shall lapse and one-half of the unvested remainder of the Award (rounded to the nearest whole Share, if necessary) shall vest on each of the second and third anniversaries of the Date of Grant;
(ii)    if the Performance Objective set forth in Section 3.1(iii) is attained, one-third of the total original Award (rounded to the nearest whole Share, if necessary) shall vest on each of the second and third anniversaries of the Date of Grant; or
(iii)   if neither of the Performance Objectives set forth in Section 3.1(ii) or (iii) is attained, the remainder of the Award shall lapse in its entirety.
(b)      If the Performance Objective set forth in Section 3.1(i) is not attained, but;
(i)     the Performance Objective set forth in Section 3.1(ii) is attained (but not the Performance Objective set forth in Section 3.1(iii)), one-half of the total original Award (less the portion of the Award that has previously vested) (rounded to the nearest whole Share, if necessary) shall vest on each of the second and third anniversaries of the Date of Grant and one-half of the total original Award shall lapse; or
(ii)    the Performance Objective set forth in Section 3.1(iii) is attained, one-half of the total Award (rounded to the nearest whole Share, if necessary) shall vest on each of the second and third anniversaries of the Date of Grant.
 
4.	Effect of Certain Terminations of Employment.	
If your employment terminates as a result of your death or Disability, in each case if such termination occurs on or after the Date of Grant, all Shares of Performance Based Restricted Stock which have not become vested in accordance with Section 3 or 5 hereof shall vest, and the

restrictions thereon shall lapse as of the date of such termination. If your employment is terminated by your employer for any reason other than for Cause, then your Award shall continue until such time as it is determined that at least one of the Performance Objectives set forth in Section 3.1 above has been attained, and if attained, then the restrictions as to the entire Award shall lapse on the first anniversary of the Date of Grant (or if the termination occurs after at least one of the Performance Objectives has been attained, the restrictions as to the entire Award shall immediately lapse upon such termination). If, however, neither of the Performance Objectives is attained, the Award shall lapse in its entirety.
 
5.	Effect of Change in Control.	
In the event of a Change in Control of the Company at any time on or after the Date of Grant, the terms of the Plan shall control the vesting of any Shares of Performance Based Restricted Stock which have not become vested in accordance with Section 3 or 4 hereof.
 
6.	Forfeiture of Performance Based Restricted Stock.	
Upon the termination of your employment by you, the Company or its Subsidiaries for any reason other than those set forth in Section 4 hereof prior to such vesting, in addition to the circumstance described in Section 9(a) hereof, any and all Shares of Performance Based Restricted Stock which have not become vested in accordance with Section 3, 4 or 5 hereof shall be forfeited and shall revert to the Company.
 
7.	Delivery of Restricted Stock.	
7.1        Except as otherwise provided in Section 7.2 hereof, evidence of the book entry of Shares or, if requested by you prior to such lapse of restrictions, a stock certificate with respect to the Shares of Performance Based Restricted Stock for which the restrictions have lapsed pursuant to Section 3, 4 or 5 hereof, shall be delivered to you as soon as practicable following the date on which the restrictions on such Shares of Performance Based Restricted Stock have lapsed, free of all restrictions hereunder.
7.2        Evidence of the book entry of Shares with respect to Shares of Performance Based Restricted Stock in respect of which the restrictions have lapsed upon your death pursuant to Section 4 hereof or, if requested by the executors or administrators of your estate upon such lapse of restrictions, a stock certificate with respect to such Shares of Performance Based Restricted Stock, shall be delivered to the executors or administrators of your estate as soon as practicable following the Company’s receipt of notification of your death, free of all restrictions hereunder. In the event of your death, all references herein to “you” shall also include your executors, administrators, heirs or assigns.
 
8.	Dividends and Voting Rights.	
Subject to Section 9(a) hereof, upon issuance of the Shares of Performance Based Restricted Stock, you shall have all of the rights of a stockholder with respect to such Shares, including the right to vote the Shares and to receive all dividends or other distributions paid or made with respect thereto;  provided , however , that dividends or distributions declared or paid on the Performance Based Restricted Stock by the Company shall be deferred and reinvested in Shares of Performance Based Restricted Stock based on the Fair Market Value of a Share of the Company’s common stock on the date such dividend or distribution is paid or made (provided that no fractional Shares will be issued), and the additional Shares of Performance Based Restricted Stock thus acquired shall be subject to the same restrictions on transfer and forfeiture and the same vesting schedule as the Performance Based Restricted Stock in respect of which such dividends or distributions were made.

9.	Acknowledgement and Acceptance of Award Agreement.	
(a)       The Shares of Performance Based Restricted Stock granted to you pursuant to this Award shall be subject to your acknowledgement and acceptance of the Award and the terms of this Agreement to the Company or its Plan Administrator (including by electronic means, if so provided) no later than the earlier of (i) 180 days from the Date of Grant and (ii) the date that is immediately prior to the date that the Performance Based Restricted Stock vests pursuant to Section 4 or 5 hereof (the “ Return Date ”); provided that if you die before your Return Date, this requirement shall be deemed to be satisfied if the executor or administrator of your estate acknowledges and accepts this Agreement through the Company or its Plan Administrator no later than ninety (90) days following your death (the “ Executor Return Date ”). If this Agreement is not so acknowledged and accepted on or prior to your Return Date or the Executor Return Date, as applicable, the Award of Shares of Performance Based Restricted Stock evidenced by this Agreement shall be forfeited, and neither you nor your heirs, executors, administrators or successors shall have any rights with respect thereto.
(b)       If this Agreement is so acknowledged and accepted on or prior to your Return Date or the Executor Return Date, as applicable, all dividends and other distributions paid or made with respect to the Shares of Performance Based Restricted Stock granted hereunder prior to your Return Date or the Executor Return Date shall be treated in the manner provided in Section 8 hereof.
 
10.	No Right to Continued Employment.	
Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or its Subsidiaries to terminate your employment, nor confer upon you any right to continuing employment by the Company or any of its Subsidiaries or continuing service as a Board member.
 
11.	Withholding of Taxes.	
Prior to the delivery to you of a stock certificate or evidence of the book entry of Shares with respect to the Shares of Performance Based Restricted Stock in respect of which all restrictions have lapsed, you shall pay to the Company or the Company’s Plan Administrator, the federal, state and local income taxes and other amounts as may be required by law to be withheld by the Company (the “ Withholding Taxes ”) with respect to such Performance Based Restricted Stock. By acknowledging and accepting this Agreement in the manner provided in Section 9 hereof, you shall be deemed to elect to have the Company or the Plan Administrator withhold a portion of such Performance Based Restricted Stock having an aggregate Fair Market Value equal to the Withholding Taxes in satisfaction thereof, such election to continue in effect until you notify the Company or its Plan Administrator before such delivery that you shall satisfy such obligation in cash, in which event the Company or the Plan Administrator shall not withhold a portion of such Performance Based Restricted Stock as otherwise provided in this Section 11.
 
12.	Acknowledgement that You Are Bound by the Plan.	
By acknowledging and accepting this Award and the terms of this Agreement you hereby confirm the availability and your review of a copy of the Plan and the Prospectus, and other documents provided to you in connection with this Award by the Company or its Plan Administrator, and you agree to be bound by all the terms and provisions thereof.

13.	Modification of Agreement.	
This Agreement may be modified, amended, supplemented or terminated, and any terms or conditions may be waived, but only by a written instrument executed by both parties hereto; provided that the Company may modify, amend, supplement or terminate this Agreement in a writing signed by the Company without any further action by you if such modification, amendment, supplement or termination does not adversely affect your rights hereunder.
 
14.	Severability.	
Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.
 
15.	Governing Law.	
The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware without giving effect to the conflicts of laws principles thereof.
 
16.	Successors in Interest.	
This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of your legal representatives. All obligations imposed upon the Company and all rights granted to you under this Agreement shall be binding upon the Company’s successors and upon your heirs, executors, administrators and successors.
 
17.	Resolution of Disputes.	
Any dispute or disagreement which may arise under, or as a result of, or in any way relate to, the interpretation, construction or application of this Agreement shall first be referred to the Chief Executive Officer for informal resolution, and if necessary, referred to the Committee for its determination. Any determination made hereunder shall be final, binding and conclusive on you, your heirs, executors, administrators and successors, and the Company and its Subsidiaries for all purposes.
 
18.	Entire Agreement.	
This Agreement and the terms and conditions of the Plan constitute the entire understanding between you and the Company and its Subsidiaries, and supersede all other agreements, whether written or oral, with respect to the Award.
 
19.	Headings.	
The headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

20.	Notice.	
All notifications and other communications hereunder shall be in writing and, unless otherwise provided herein, shall be deemed to have been given when received by the party to whom such notice is to be given at its address set forth below, or such other address for the party as shall be specified by notice given pursuant hereto:
(a)        If to the Company, by regular mail to:
Community Health Systems, Inc.
4000 Meridian Boulevard
Franklin, TN 37067
Attention:  General Counsel
(b)        If to you or your legal representative, to such person at the address as reflected in the records of the Company.
 
21.	Consent to Jurisdiction.	
Each party hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of Tennessee and of the United States of America, in each case located in the County of Williamson, for any actions, suits or proceedings arising out of or relating to this Agreement, the Award or the Plan and the transactions contemplated hereby and thereby (“Litigation”) (and agrees not to commence any Litigation except in any such court), and further agrees that service of process, summons, notice or document by U.S. certified mail to such party’s respective address set forth in Section 20 hereof shall be effective service of process for any Litigation brought against such party in any such court. Each party hereby irrevocably and unconditionally waives any objection to the laying of venue of any litigation in the courts of the State of Tennessee or of the United States of America, in each case located in the County of Williamson, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any Litigation brought in any such court has been brought in an inconvenient forum.
22.      Deemed Execution. On the date of your electronic acceptance of the terms of the Award and this Agreement, this Agreement shall be deemed to have been executed and delivered by you and the Company.
COMMUNITY HEALTH SYSTEMS, INC.      

Exhibit 10.3

 
 
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT is made as of the        day of                  , 20     , by and among Community Health Systems, Inc. (the “ Corporation ”), Community Health Systems Professional Services Corporation (the “ Employer ”), and                   (the “ Executive ”).
WHEREAS, the Board of Directors of the Corporation and the Board of Directors of the Employer (the “ Boards ”) recognize that the possibility of a Change in Control (as hereinafter defined) exists and that the threat or the occurrence of a Change in Control can result in significant distraction of the Employer’s key management personnel because of the uncertainties inherent in such a situation;
WHEREAS, the Boards have determined that it is essential and in the best interest of the Employer, and the Corporation and its stockholders, for the Employer to retain the services of the Executive in the event of a threat or occurrence of a Change in Control and to ensure the Executive’s continued dedication and efforts in such event without undue concern for the Executive’s personal financial and employment security;
WHEREAS, in order to induce the Executive to remain in the employ of the Employer, particularly in the event of a threat or the occurrence of a Change in Control, the Employer desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event the Executive’s employment is terminated as a result of, or in connection with, a Change in Control;
NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows:
1.         Term of Agreement.  This Agreement shall commence as of                      , 20   , and shall continue in effect until December 31, 20     1  (the “ Term ”);  provided ,  however , that on December 31, 20     2 , and on each December 31st thereafter, the Term shall automatically be extended for one (1) year unless either the Executive or the Employer shall have given written notice to the other at least ninety (90) days prior thereto (i.e., on or before October 1st immediately preceding) that the Term shall not be so extended;  provided, further, however,  that following the occurrence of a Change in Control, the Term shall not expire prior to the expiration of thirty-six months (36) months 3  after such occurrence.

1 If the agreement is entered into before June 30, use December 31 of the following calendar year (e.g., If the agreement is dated March 1, 2009, the initial term should expire on December 31, 2010). If the agreement is entered into after June 30, use December 31 of the second calendar year following (e.g., If the agreement is dated September 1, 2009, the initial term should expire on December 31, 2011).
2 If the agreement is entered into before June 30, use December 31 of the current calendar year (e.g., If the agreement is dated March 1, 2009, the agreement should be extended for one year on December 31, 2009 unless otherwise indicated pursuant to the terms of the agreement). If the agreement is entered into after June 30, use December 31 of the following calendar year (e.g., If the agreement is dated September 1, 2009, the agreement should be extended for one year on December 31, 2010 unless otherwise indicated pursuant to the terms of the agreement).
3 36 months applies to CEO, CFO, Presidents, EVPs and SVPs; change to 24 months for VPs.
 
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2.      Termination of Employment. If the Executive’s employment with the Employer and with all other Affiliates of the Corporation shall be terminated, the Executive shall be entitled to the following compensation and benefits:
(a)      If the Executive experiences a “separation from service” (within the meaning of Section 409A(a)(2)(A)(i) of the Code) with the Employer and all other Affiliates of the Corporation as a result of (i) termination of Executive’s employment by the Employer without Cause (other than by reason of the Executive’s Disability) within thirty-six (36) months 4  following a Change in Control, or (ii) by the Executive’s termination of his or her employment for Good Reason within twenty-four (24) months 5  following a Change of Control, the Executive shall be entitled to the following:
(i)       the Employer shall pay the Executive the Executive’s Accrued Compensation;
(ii)      the Employer shall pay the Executive, at the same time that the Employer makes annual bonus payments under the Incentive Plan to other senior Executives, a pro rata portion of the annual bonus that would have been paid to the Executive under the Incentive Plan in respect of the year in which the Termination Date occurred had the Executive remained employed through the applicable payment date under the Incentive Plan, calculated by multiplying such amount by a fraction, the numerator of which is the number of days in the year through the Termination Date and the denominator of which is 365.
(iii)        the Employer shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, an amount determined by multiplying (A) three (3) 6  times the sum of (i) the Executive’s Base Amount and (ii) the Executive’s Bonus Amount;
(iv)      (A)   for thirty-six (36)7 months following the Termination Date (the “ Continuation Period ”), the Employer shall arrange, at its sole expense, to provide the Executive with health and welfare benefits (other than long-term disability insurance benefits) that are substantially similar to the better of (when considered in the aggregate) (X) those health and welfare benefits (other than long-term disability insurance benefits) that the Executive was receiving or entitled to receive immediately prior to the Change in Control, and (Y) those health and welfare benefits (other than long-term disability insurance benefits) that the Executive was receiving or entitled to receive immediately prior to the Termination Date, and (B) such Continuation Period will be considered service with the Employer for the purpose of determining service credits under or in respect of any health and welfare benefits applicable to the Executive or the Executive’s dependents or beneficiaries; and
(v)         the Employer shall reimburse the Executive for the costs, fees and expenses of outplacement assistance services (not to exceed twenty-five thousand dollars ($25,000)) provided by any bona fide outplacement agency selected by the Executive.
(b)      If the Executive’s employment with the Employer and with all Affiliates of the Corporation shall be terminated by the Employer without Cause (other than by reason of the

4 Change to 24 months for VPs.
5 Change to 12 months for VPs.
6 Severance for CEO, CFO, Presidents, EVPs and SVPs. For VPs, severance shall be 24 months (or 2 times base and bonus).
7 Change to 24 months for VPs.
 
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Executive’s Disability) at any time prior to the date of a Change in Control and such termination (A) occurred after the Corporation or the Employer entered into a definitive agreement, the consummation of which would constitute a Change in Control or (B) the Executive reasonably demonstrates that such termination was at the request of a third party who has indicated an intention or has taken steps reasonably calculated to effect a Change in Control (a “ Third Party ”), such termination shall be deemed to have occurred after a Change in Control.
(c)      If the Executive’s employment with the Employer and with all Affiliates of the Corporation shall be terminated for Cause, the Employer shall pay to the Executive any unpaid portion of the Executive’s base salary through the Termination Date at the rate in effect at the time Notice of Termination is given and shall pay any amounts required to be paid to the Executive pursuant to any other compensation plans, programs or arrangements then in effect, or which are required to be paid under applicable law, and the Employer shall have no further obligations to the Executive under this Agreement.
(d)      The amounts provided for in Sections 2(a) and 2(b)shall be subject to the Executive’s execution, delivery and non-revocation of a Waiver and Release of Claims substantially the form attached hereto as Exhibit A (the “ Release ”) within forty five (45) days after the Executive’s Termination Date and the amounts provided for in Sections 2(a)(ii), 2(b)(i), 2(b)(ii) and 2(b)(iii) shall be paid in a single lump sum cash payment on the forty fifth (45 th ) after the Executive’s Termination Date;  provided , however , that, notwithstanding the foregoing, if the Executive is a “specified employee” for purposes of Section 409A of Code and the regulations issued thereunder (a “ Specified Employee ”), any payments required to be made pursuant to Section 2(a)(ii), 2(b)(ii) and 2(b)(iii) shall not commence until one (1) day after the day which is six (6) months after the Executives separation from service (the “ Delay Period ”). In addition, if the Executive is a Specified Employee, to the extent that benefits to be provided to the Executive pursuant to Sections 2(b)(iv) and 2(b)(v) of this Agreement are not “disability pay,” “death benefit” plans or non-taxable medical benefits within the meaning of Treasury Regulation Section 1.409A-1(a)(5) or other benefits not considered nonqualified deferred compensation within the meaning of that regulation, such provision of benefits shall be delayed until the end of the Delay Period, unless the Executive’s termination occurs by reason of his death. Notwithstanding the foregoing, to the extent that the previous sentence applies to the provision of any ongoing benefits that would not be required to be delayed if the premiums were paid by the Executive, the Executive shall pay the full cost of the premiums for such benefits during the Delay Period and the Corporation shall pay the Executive an amount equal to the amount of such premiums paid by the Executive during the Delay Period within ten (10) days after the end of the Delay Period. To the extent that any benefits to be provided to the Executive pursuant to this Agreement are considered nonqualified deferred compensation and are reimbursements subject to Treasury Regulation Section 1.409A-3(i)(1)(iv), then (i) the reimbursement of eligible expenses related to such benefits shall be made on or before the last day of the Executive taxable year following the Executive taxable year in which the expense was incurred and (ii) notwithstanding anything to the contrary in this Agreement or any plan providing for such benefits, the amount of expenses eligible for reimbursements during any taxable year of the Executive shall not affect the expenses eligible for reimbursements in any other taxable year.
(e)      The Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise and no such payment or benefit shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment.
 
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(f)      The severance pay and benefits provided for in this Section 2 shall be in lieu of any other severance pay to which the Executive may be entitled under the Employer’s severance policy or any other plan, agreement or arrangement of the Employer or any other Affiliate of the Corporation.
(g)      The Executive’s entitlement to other compensation or benefits pursuant to the Employer’s employee benefit plans and other applicable programs and practices shall be determined in accordance with the terms of those plans, programs and practices as in effect from time to time.
(h)      The Employer’s and the Corporation’s obligations pursuant to this Section 2 shall be conditioned upon the Executive’s execution, delivery and non-revocation of the Release.
3.      INTENTIONALLY OMITTED [Gross-Up Payment].
4.      Notice of Termination.     Following a Change in Control, (i) any intended termination of the Executive’s employment by the Employer shall be communicated by a Notice of Termination from the Employer to the Executive, and (ii) any intended termination of the Executive’s employment by the Executive for Good Reason shall be communicated by a Notice of Termination from the Executive to the Employer within six (6) months of the Executive becoming aware of the event or action constituting Good Reason or, if later, within six (6) months after the date of the Change in Control.
5.      Fees and Expenses.  The Employer shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) incurred in good faith by the Executive as they become due over the lifetime of the Executive as a result of (a) the termination of the Executive’s employment by the Employer or by the Executive for Good Reason (including all such fees and expenses, if any, incurred in contesting, defending or disputing the basis for any such termination of employment), (b) the Executive’s hearing before the Board of Directors of the Corporation as contemplated in Section 17.5 of this Agreement or (c) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Employer under which the Executive is or may be entitled to receive benefits. Payments and reimbursements to which the Executive is entitled under this Section 5 shall be made not later than April 15 of the taxable year of the Employee next following the taxable year in which the expense was incurred.
6.      Transfer of Employment.    Notwithstanding any other provision herein to the contrary, the Employer shall cease to have any further obligation or liability to the Executive under this Agreement if (a) the Executive’s employment with the Employer terminates as a result of the transfer of the Executive’s employment to any other Affiliate of the Corporation, (b) this Agreement is assigned to such other Affiliate, and (c) such other Affiliate expressly assumes and agrees to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no assignment had taken place. Any Affiliate to which this Agreement is so assigned shall be treated as the “Employer” for all purposes of this Agreement on or after the date as of which such assignment to the Affiliate, and the Affiliate’s assumption and agreement to so perform this Agreement, becomes effective.
 
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7.      Corporation’s Obligation.  The Corporation agrees that it will take such steps as may be necessary to cause the Employer (or any Affiliate that has become the “Employer” pursuant to Section 6 hereof) to meet each of its obligations to the Executive under this Agreement.
8.      Notice.  For the purposes of this Agreement, notices and all other communications provided for in this Agreement (including any Notice of Termination) shall be in writing, shall be signed by the Executive if to the Employer or by a duly authorized officer of the Employer if to the Executive, and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid. Notices to the Employer or the Corporation shall be delivered to the attention of the General Counsel at the corporate headquarters of the Corporation. Notices to the Executive shall be delivered to the address reflected in the payroll records of the Employer. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt.
9.      Nature of Rights.  The Executive shall have the status of a mere unsecured creditor of the Employer and the Corporation with respect to the Executive’s right to receive any payment under this Agreement. This Agreement shall constitute a mere promise by the Employer and the Corporation to make payments in the future of the benefits provided for herein. It is the intention of the parties hereto that the arrangements reflected in this Agreement shall be treated as unfunded for tax purposes and, if it should be determined that Title I of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), is applicable to this Agreement, for purposes of Title I of ERISA. Except as provided in Section 2(g), nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Employer, the Corporation or any other Affiliate of the Corporation and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Employer, the Corporation or any other Affiliate of the Corporation. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Employer, the Corporation or any other Affiliate of the Corporation shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement.
10.     Settlement of Claims.  The Employer’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, defense, recoupment, or other right which the Employer may have against the Executive or others.
11.     Alternative Dispute Resolution.  The parties hereto agree that any controversy or claim arising out of or relating to this Agreement or the breach thereof, shall be settled by binding arbitration by an arbitration panel selected in accordance with the then-current arbitrator selection procedures of the American Arbitration Association. Such arbitration shall be conducted in the Middle District of Tennessee (absent mutual agreement by the parties to do otherwise) pursuant to the national rules for the resolution of employment disputes of the American Arbitration
 
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Association then in effect. The decision or award in any such arbitration will be final and binding upon the parties and judgment upon such decision or award may be entered in any court of competent jurisdiction or application may be made to any such court for judicial acceptance of such decision or award and an order of enforcement. In the event that any procedural matter is not covered by the aforesaid rules, the procedural law of Delaware will govern. The Employer shall bear all costs and expenses incurred by the Executive in the arbitration, as well as its own costs and expenses and the costs and expenses of any of its Affiliates.
12.    Miscellaneous.   No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive, the Corporation and the Employer. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representation, oral or otherwise, express or implied, with respect to the subject matter hereof has been made by any party which is not expressly set forth in this Agreement.
13.    Successors; Binding Agreement.
(a)      This Agreement shall be binding upon and shall inure to the benefit of the Employer, the Corporation and their respective Successors and Assigns. The Employer and the Corporation shall require their respective Successors and Assigns to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Employer and/or the Corporation would be required to perform it if no such succession or assignment had taken place.
(b)      Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive or the Executive’s beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal personal representative.
14.    Governing Law.  This Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the State of Delaware without giving effect to the conflict of laws principles thereof.
15.    Severability.  The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.
16.    Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto, and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto.
17.    Definitions.
17.1        Accrued Compensation.    For purposes of this Agreement, “Accrued Compensation ” shall mean all amounts of compensation for services rendered to the Employer or any other Affiliate that have been earned or accrued through the Termination Date but that have not been paid as of the Termination Date including (a) base salary, (b) reimbursement for
 
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reasonable and necessary business expenses incurred by the Executive on behalf of the Employer during the period ending on the Termination Date and (c) vacation pay;  provided, however,  that Accrued Compensation shall not include any amounts described in clause (a) or clause (d) that have been deferred pursuant to any salary reduction or deferred compensation elections made by the Executive.
17.2    Affiliate.   For purposes of this Agreement, “Affiliate” means any entity directly or indirectly controlled by, controlling or under common control with the Corporation or any corporation or other entity acquiring, directly or indirectly, all or substantially all the assets and business of the Corporation, whether by operation of law or otherwise.
17.3    Base Amount.  For purposes of this Agreement, “Base Amount” shall mean the Executive’s annual base salary at the rate in effect as of the date of a Change in Control or, if greater, at any time thereafter, determined without regard to any salary reduction or deferred compensation elections made by the Executive.
 17.4     Bonus Amount.  For purposes of this Agreement, “Bonus Amount” shall mean the greater of (a) the target annual bonus that would be payable to the Executive under the Incentive Plan in respect of the fiscal year during which the Termination Date occurs assuming that both the Corporation and the Executive satisfy 100% (but not in excess of 100%) of the performance objective(s) specified in or pursuant to the applicable agreement, policy, plan, program or arrangement and communicated to the Executive, and (b) the highest annual bonus paid or payable under the Incentive Plan in respect of any of the three full fiscal years ended prior to the Termination Date or, if greater, the three (3) full fiscal years ended prior to the Change in Control.
 17.5       Cause.  For purposes of this Agreement, a termination of employment is for “ Cause ” if the Executive has been convicted of a felony or the termination is evidenced by a resolution adopted in good faith by two-thirds of the Board of Directors of the Corporation that the Executive:
(a)      intentionally and continually failed substantially to perform the Executive’s reasonably assigned duties with the Employer or the Corporation (other than a failure resulting from the Executive’s incapacity due to physical or mental illness or from the assignment to the Executive of duties that would constitute Good Reason) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance, signed by a duly authorized officer of the Employer or the Corporation, has been delivered to the Executive specifying the manner in which the Executive has failed substantially to perform, or
(b)      intentionally engaged in conduct which is demonstrably and materially injurious to the Corporation or the Employer;  provided, however , that no termination of the Executive’s employment shall be for Cause as set forth in this Section 17.5(b) until (1) there shall have been delivered to the Executive a copy of a written notice, signed by a duly authorized officer of the Employer or the Corporation, setting forth that the Executive was guilty of the conduct set forth in this Section 17.5(b) and specifying the particulars thereof in detail, and (2) the Executive shall have been provided an opportunity to be heard in person by the Board of Directors of the Corporation (with the assistance of the Executive’s counsel if the Executive so desires).
 
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No act, nor failure to act, on the Executive’s part, shall be considered “intentional” unless the Executive has acted, or failed to act, with a lack of good faith and with a lack of reasonable belief that the Executive’s action or failure to act was in the best interest of the Corporation and the Employer. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after a Notice of Termination is given to the Employer by the Executive shall constitute Cause for purposes of this Agreement.
17.6    Change in Control. A “Change in Control” shall mean the occurrence of any of the following:
(a)        An acquisition (other than directly from the Corporation) of any voting securities of the Corporation (the “ Voting Securities ”) by any “ Person ” (as the term “person” is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than twenty-five percent (25%) of (1) the then-outstanding shares of common stock of the Corporation (or any other securities into which such shares of common stock are changed or for which such shares of common stock are exchanged) (the “Shares”) or (2) the combined voting power of the Corporation’s then-outstanding Voting Securities;  provided, however , that in determining whether a Change in Control has occurred pursuant to this paragraph (a), the acquisition of Shares or Voting Securities in a “Non-Control Acquisition” (as hereinafter defined) shall not constitute a Change in Control. A “ Non-Control Acquisition ” shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Corporation or (B) any corporation or other Person the majority of the voting power, voting equity securities or equity interest of which is owned, directly or indirectly, by the Corporation (for purposes of this definition, a “ Related Entity ”), (ii) the Corporation or any Related Entity, or (iii) any Person in connection with a “Non-Control Transaction” (as hereinafter defined); or
(b)       The individuals who, as of the date hereof, are members of the board of directors of the Corporation (the “ Incumbent Board ”), cease for any reason to constitute at least a majority of the members of the board of directors of the Corporation or, following a Merger (as hereinafter defined), the board of directors of (x) the corporation resulting from such Merger (the “Surviving Corporation”), if fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly, by another Person (a “ Parent Corporation ”) or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation;  provided, however , that, if the election, or nomination for election by the Corporation’s common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Plan, be considered a member of the Incumbent Board; and  provided, further, however , that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board of directors of the Corporation (a “ Proxy Contest ”), including by reason of any agreement intended to avoid or settle any Proxy Contest; or
 
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(c)       The consummation of:
 (i)     A merger, consolidation or reorganization (1) with or into the Corporation or (2) in which securities of the Corporation are issued (a “ Merger ”), unless such Merger is a “Non-Control Transaction.” A “Non-Control Transaction” shall mean a Merger in which:
 (A)     the stockholders of the Corporation immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the Surviving Corporation, if there is no Parent Corporation or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation;
 (B)     the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; and
 (C)     no Person other than (1) the Corporation, (2) any Related Entity, or (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to the Merger, was maintained by the Corporation or any Related Entity, or (4) any Person who, immediately prior to the Merger had Beneficial Ownership of twenty-five percent (25%) or more of the then outstanding Shares or Voting Securities, has Beneficial Ownership, directly or indirectly, of twenty-five percent (25%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation, if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by a Parent Corporation, or (y) if there is one or more than one Parent Corporation, the ultimate Parent Corporation; provided, however , that any Person described in clause (4) of this subsection (C) may not, immediately following the Merger, Beneficially Own more than forty percent (40%) of the combined voting power of the outstanding voting securities of the Surviving Corporation or the Parent Corporation, as applicable, for the Merger to constitute a Non-Control Transaction; or
 (ii)    A complete liquidation or dissolution of the Corporation; or
 (iii)   A Major Asset Disposition.
For purposes of the foregoing definition, the term “Major Asset Disposition” means the sale or other disposition in one transaction or a series of related transactions (other than a transfer to a Related Entity or a transfer under conditions that would constitute a Non-Control Transaction, with the disposition of assets being regarded as a Merger) of 50% or more of the assets of the Corporation and its subsidiaries on a consolidated basis; and any specified percentage or portion of the assets of the Corporation shall be based on the total gross fair market value, as determined by a majority of the members of the Incumbent Board without regard to any associated liabilities. For the avoidance of doubt, the distribution to the Corporation’s stockholders of the stock of a Related Entity or any other assets that constitute 50% or more of the assets of the Corporation and its subsidiaries on a consolidated basis (determined as aforesaid) shall constitute a Major Asset Disposition (whether or not such distribution constitutes a Non-Control Transaction).
 
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Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “ Subject Person ”) acquired Beneficial Ownership of more than the permitted amount of the then outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by the Corporation which, by reducing the number of Shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons; provided  that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by the Corporation and, after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities and such Beneficial Ownership increases the percentage of the then outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.
17.7.   Employer and Corporation.  For purposes of this Agreement, all references to the Employer and the Corporation shall include their respective Successors and Assigns.
17.8.   Disability.   For purposes of this Agreement, “Disability” shall mean a physical or mental infirmity which impairs the Executive’s ability to substantially perform the Executive’s duties with the Employer for six (6) consecutive months, and within the time period set forth in a Notice of Termination given to the Executive (which time period shall not be less than thirty (30) days), the Executive shall not have returned to full-time performance of the Executive’s duties; provided, however,  that if the Employer’s Long Term Disability Plan, or any successor plan (the “Disability Plan”), is then in effect, the Executive shall not be deemed disabled for purposes of this Agreement unless the Executive is also eligible for “Total Disability” (as defined in the Disability Plan) benefits (or similar benefits in the event of a successor plan) under the Disability Plan.
17.9.   Good Reason.
(a)      For purposes of this Agreement, “Good Reason” shall mean the occurrence after a Change in Control of any of the following events or conditions:
(1)      a change in the Executive’s status, title, position or responsibilities (including reporting responsibilities) which, in the Executive’s reasonable judgment, represents an adverse change from the Executive’s status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive’s reasonable judgment, are inconsistent with the Executive’s status, title, position or responsibilities; or any removal of the Executive from or failure to reappoint or reelect the Executive to any of such offices or positions, except in connection with the termination of the Executive’s employment for Disability, Cause, as a result of the Executive’s death or by the Executive other than for Good Reason;
(2)      a reduction in the Executive’s annual base salary below the Base Amount;
 
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(3)      the relocation of the offices of the Employer to a location more than twenty-five (25) miles from the location of such offices immediately prior to such Change in Control, or the Employer’s or the Corporation’s requiring the Executive to be based anywhere other than such offices, except to the extent the Executive was not previously assigned to a principal location and except for required travel on the Employer’s or the Corporation’s business to an extent substantially consistent with the Executive’s business travel obligations at the time of the Change in Control;
(4)      the failure by the Employer or the Corporation to pay to the Executive any portion of the Executive’s current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Employer or the Corporation in which the Executive participated, within seven (7) days of the date such compensation is due;
(5)      the failure by the Employer or the Corporation to (A) continue in effect (without reduction in benefit level, and/or reward opportunities) any material compensation or employee benefit plan in which the Executive was participating immediately prior to the Change in Control, unless a substitute or replacement plan has been implemented which provides substantially identical compensation or benefits to the Executive or (B) provide the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other compensation or employee benefit plan, program and practice in which the Executive was participating immediately prior to the Change in Control;
(6)      the failure of the Employer or the Corporation to obtain from its Successors or Assigns the express assumption and agreements required under Section 13 hereof; or
(7)      any purported termination of the Executive’s employment by the Employer which is not effected pursuant to a Notice of Termination satisfying the terms set forth in the definition of Notice of Termination (and, if applicable, the terms set forth in the definition of Cause).
(b)      Any event or condition (1) described in Section 17.9(a)(1), (2), (3), (4), (6) or (7) which occurs at any time prior to the date of a Change in Control and (A) which occurred after the Employer entered into a definitive agreement, the consummation of which would constitute a Change in Control or (B) which the Executive reasonably demonstrates was at the request of a Third Party who has indicated an intention or has taken steps reasonably calculated to effect a Change in Control, shall constitute Good Reason for purposes of this Agreement, notwithstanding that it occurred prior to a Change in Control.
17.10. Incentive Plan.   For purposes of this Agreement, “Incentive Plan” shall mean the 2004 Cash Incentive Plan, or any successor annual incentive plan, maintained by the Employer or any other Affiliate.
17.11. Notice of Termination.   For purposes of this Agreement, following a Change in Control, “ Notice of Termination ” shall mean a written notice of termination of the Executive’s employment, signed by the Executive if to the Employer or by a duly authorized
 
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officer of the Employer if to the Executive, which indicates the specific termination provision in this Agreement, if any, relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.
17.12. Interest Rate.  Without limiting the rights of the Executive at law or in equity, if the Employer fails to make any payment or provide any benefit required to be made or provided hereunder on a timely basis, the Employer will pay interest on the amount or value thereof at an annualized rate of interest equal to the so-called composite “prime rate” as quoted from time to time during the relevant period in the Southwest Edition of  The Wall Street Journal.  Such interest will be payable as it accrues on demand. Any change in such prime rate will be effective on and as of the date of such change.
17.13. Successors and Assigns.  For purposes of this Agreement, “Successors and Assigns” shall mean, with respect to the Employer or the Corporation, a corporation or other entity acquiring all or substantially all the assets and business of the Employer or the Corporation, as the case may be (including this Agreement) whether by operation of law or otherwise.
17.14. Termination Date.
(a)      For purposes of this Agreement, “Termination Date” shall mean (i) in the case of the Executive’s death, the date of death, (ii) if the Executive’s employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of the Executive’s duties on a full-time basis during such thirty (30) day period) and (iii) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause, shall not be less than thirty (30) days and, in the case of a termination for Good Reason, shall not be more than sixty (60) days, from the date such Notice of Termination is given);  provided, however,  that if within thirty (30) days after a Notice of Termination by the Employer for Cause or a Notice of Termination by the Executive for Good Reason is given, the party receiving such Notice of Termination in good faith notifies the other party that a dispute exists concerning the basis for the termination, the provisions of paragraph (b) shall apply.
(b)      (i) If the Executive gives the Employer Notice of Termination for Good Reason and the Employer disputes the basis for the termination, the Termination Date shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by arbitration as provided in Section 11, and the Employer shall continue to pay the Executive the Executive’s Base Amount and continue the Executive as a participant in all compensation, incentive, bonus, pension, profit sharing, medical, hospitalization, dental, life insurance and disability benefit plans in which the Executive was participating when the notice giving rise to the dispute was given, until such Termination Date,  provided that if the Executive continues to perform the Executive’s duties with the Employer during the pendency of such dispute, the Executive shall not be obligated to repay to the Employer any amounts paid or benefits provided pursuant to this Section 17.14(b), and  provided, further , that if the Executive ceased performing the Executive’s duties with the Employer during the pendency of such dispute, and the dispute is resolved in favor of the Executive, any amount owed to the Executive
 
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pursuant to Sections 2 and 3 of this Agreement shall be reduced to the extent of any amount the Executive received pursuant to this Section 17.14(b) during the pendency of such dispute; and (ii) if the Employer gives the Executive Notice of Termination for Cause and the Executive disputes the basis for the termination, the Termination Date shall be as determined pursuant to Section 17.14(a) and during the pendency of such dispute the Executive shall not be entitled to payment of the Executive’s Base Amount from the Employer and, except as required by law, the Executive’s participation in the Employer’s benefit plans and programs shall be discontinued.
[signature page follows]
 
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IN WITNESS WHEREOF, the Corporation and the Employer have caused this Agreement to be executed by their duly authorized officers and the Executive has executed this Agreement as of the day and year first above written.

 	 	Corporation:
 	
 	 	COMMUNITY HEALTH SYSTEMS, INC.	
 	 	 	 	 	
 	 	By:	 	 	 	 	 	 	
 	 	Name:	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	
 	 	
 	 	Employer:
 	
 	 	COMMUNITY HEALTH SYSTEMS
PROFESSIONAL SERVICES CORPORATION	
 	 	 	 	 	
 	 	By:	 	 	 	 	 	 	
 	 	Name:	 	 	 	 	 	 	
 	 	Title:	 	 	 	 	
 	 	
 	 	Executive:	
 	 	 	 	 	
 	 	By:	 	 	 	 	 	 	
 	 	 	 	 	 	 
Print Name:	 	 

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Exhibit A
WAIVER AND RELEASE OF CLAIMS
1.       General Release.   In consideration of the payments and benefits to be made under the Change in Control Severance Agreement, dated as of                 , 20     , to which Community Health Systems, Inc. (the “ Corporation ”), Community Health Systems Professional Services Corporation (the “ Employer ”), and                    (the “ Executive ”) are parties (the “ Agreement ”), the Executive, with the intention of binding the Executive and the Executive’s heirs, executors, administrators and assigns, does hereby release, remise, acquit and forever discharge the Corporation, the Employer and the parents, subsidiaries and affiliates of each of them (collectively, the “ Corporation Affiliated Group ”), their present and former officers, directors, executives, agents, shareholders, attorneys, employees and employee benefits plans (and the fiduciaries thereof), and the successors, predecessors and assigns of each of the foregoing (collectively, the “ Corporation Released Parties ”), of and from any and all claims, actions, causes of action, complaints, charges, demands, rights, damages, debts, sums of money, accounts, financial obligations, suits, expenses, attorneys’ fees and liabilities of whatever kind or nature in law, equity or otherwise, whether accrued, absolute, contingent, unliquidated or otherwise and whether now known, unknown, suspected or unsuspected which the Executive, individually or as a member of a class, now has, owns or holds, or has at any time heretofore had, owned or held, against any Corporation Released Party (an “ Action ”) arising out of or in connection with the Executive’s service as an employee, officer and/or director to any member of the Corporation Affiliated Group (or the predecessors thereof), including (i) the termination of such service in any such capacity, (ii) for severance or vacation benefits, unpaid wages, salary or incentive payments, (iii) for breach of contract, wrongful discharge, impairment of economic opportunity, defamation, intentional infliction of emotional harm or other tort and (iv) for any violation of applicable state and local labor and employment laws (including, without limitation, all laws concerning harassment, discrimination, retaliation and other unlawful or unfair labor and employment practices), any and all Actions based on the Employee Retirement Income Security Act of 1974 (“ ERISA ”), and any and all Actions arising under the civil rights laws of any federal, state or local jurisdiction, including, without limitation, Title VII of the Civil Rights Act of 1964 (“ Title VII ”), the Americans with Disabilities Act (“ ADA ”), Sections 503 and 504 of the Rehabilitation Act, the Family and Medical Leave Act and the Age Discrimination in Employment Act (“ ADEA ”), excepting only:
(a)      rights of the Executive under this Waiver and Release of Claims and under the Agreement;
(b)      rights of the Executive relating to equity awards held by the Executive as of the Executive’s date of termination;
(c)      the right of the Executive to receive benefits required to be paid in accordance with applicable law;
(d)      rights to indemnification the Executive may have (i) under applicable corporate law, (ii) under the by-laws or certificate of incorporation of any Corporation Released Party or (iii) as an insured under any director’s and officer’s liability insurance policy now or previously in force;
 
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(e)      claims (i) for benefits under any health, disability, retirement, supplemental retirement, deferred compensation, life insurance or other, similar employee benefit plan or arrangement of the Corporation Affiliated Group and (ii) for earned but unused vacation pay through the date of termination in accordance with applicable policy of the Corporation Affiliated Group; and
(f)      claims for the reimbursement of unreimbursed business expenses incurred prior to the date of termination pursuant to applicable policy of the Corporation Affiliated Group.
2.       No Admissions, Complaints or Other Claims.   The Executive acknowledges and agrees that this Waiver and Release of Claims is not to be construed in any way as an admission of any liability whatsoever by any Corporation Released Party, any such liability being expressly denied. The Executive also acknowledges and agrees that the Executive has not, with respect to any transaction or state of facts existing prior to the date hereof, filed any Actions against any Corporation Released Party with any governmental agency, court or tribunal.
3.       Application to all Forms of Relief.   This Waiver and Release of Claims applies to any relief no matter how called, including, without limitation, wages, back pay, front pay, compensatory damages, liquidated damages, punitive damages for pain or suffering, costs and attorney’s fees and expenses.
4.       Specific Waiver.     The Executive specifically acknowledges that the Executive’s acceptance of the terms of this Waiver and Release of Claims is, among other things, a specific waiver of any and all Actions under Title VII, ADEA, ADA and any state or local law or regulation in respect of discrimination of any kind;  provided ,  however , that nothing herein shall be deemed, nor does anything herein purport, to be a waiver of any right or Action which by law the Executive is not permitted to waive.
5.       Voluntariness.   The Executive acknowledges and agrees that the Executive is relying solely upon the Executive’s own judgment; that the Executive is over eighteen years of age and is legally competent to sign this Waiver and Release of Claims; that the Executive is signing this Waiver and Release of Claims of the Executive’s own free will; that the Executive has read and understood the Waiver and Release of Claims before signing it; and that the Executive is signing this Waiver and Release of Claims in exchange for consideration that the Executive believes is satisfactory and adequate. The Executive also acknowledges and agrees that the Executive has been informed of the right to consult with legal counsel and has been encouraged to do so.
6.       Complete Agreement/Severability.   This Waiver and Release of Claims constitutes the complete and final agreement between the parties and supersedes and replaces all prior or contemporaneous agreements, negotiations, or discussions relating to the subject matter of this Waiver and Release of Claims. All provisions and portions of this Waiver and Release of Claims are severable. If any provision or portion of this Waiver and Release of Claims or the application of any provision or portion of the Waiver and Release of Claims shall be determined to be invalid or unenforceable to any extent or for any reason, all other provisions and portions of this Waiver and Release of Claims shall remain in full force and shall continue to be enforceable to the fullest and greatest extent permitted by law.
 
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7.       Acceptance and Revocability.  The Executive acknowledges that the Executive has been given a period of 21 days within which to consider this Waiver and Release of Claims, unless applicable law requires a longer period, in which case the Executive shall be advised of such longer period and such longer period shall apply. The Executive may accept this Waiver and Release of Claims at any time within this period of time by signing the Waiver and Release of Claims and returning it to the Employer. This Waiver and Release of Claims shall not become effective or enforceable until seven calendar days after the Executive signs it. The Executive may revoke the Executive’s acceptance of this Waiver and Release of Claims at any time within that seven calendar day period by sending written notice to the Employer. Such notice must be received by the Employer within the seven calendar day period in order to be effective and, if so received, would void this Waiver and Release of Claims for all purposes.
8.       Governing Law.  Except for issues or matters as to which federal law is applicable, this Waiver and Release of Claims shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without giving effect to the conflicts of law principles thereof.

 	
 
Print Name:	 	 

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Exhibit 12
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)

 	  	Three Months Ended	 	
 	  	        March 31, 2014        	 	
Earnings	  	 	 	 	
Income from continuing operations before provision for income taxes	  	 $	(135)	  	
Income from equity investees	  	 	(11)	  	
Distributed income from equity investees	  	 	2 	  	
Interest and amortization of deferred finance costs	  	 	224 	  	
Amortization of capitalized interest	  	 	4 	  	
Implicit rental interest expense	  	 	25 	  	
 	  	 	 	 	
Total Earnings	  	 $	109 	  	

Fixed Charges	  	 	 	 	
Interest and amortization of deferred finance costs	  	 $	224 	  	
Capitalized interest	  	 	2 	  	
Implicit rental interest expense	  	 	25 	  	
 	  	 	 	 	
Total Fixed Charges	  	 $	251 	  	

Ratio of Earnings to Fixed Charges	  	 	0.43 	x 	

Exhibit 31.1
I, Wayne T. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Community Health Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2014	 	 	 	/s/  Wayne T. Smith	 	 	
 	 	 	 	Wayne T. Smith	 	 	
 	 	 	 	Chairman of the Board and
Chief Executive Officer	 	 	

Exhibit 31.2
I, W. Larry Cash, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Community Health Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2014	 	 	 	/s/  W. Larry Cash	 	 	
 	 	 	 	W. Larry Cash
President of Financial Services,
Chief Financial Officer and Director	 	 	

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Community Health Systems, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wayne T. Smith, Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 	  	/s/  Wayne T. Smith	  	 	
 	  	Wayne T. Smith	  	 	
 	  	Chairman of the Board and Chief Executive Officer	  	 	
May 7, 2014
A signed original of this written statement required by Section 906 has been provided to Community Health Systems, Inc. and will be retained by Community Health Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Community Health Systems, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, W. Larry Cash, Executive Vice President, Chief Financial Officer and Director of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 	  	/s/  W. Larry Cash	  	 	
 	  	W. Larry Cash	  	 	
 	  	President of Financial Services, Chief Financial Officer and Director	  	 	
May 7, 2014
A signed original of this written statement required by Section 906 has been provided to Community Health Systems, Inc. and will be retained by Community Health Systems, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.