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Tagged Note 1 - us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock--> <!-- xbrl,ns --> <!-- xbrl,nx --> <font style="font-family:times new roman" size="2"><b></b></font> <p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><b>1.&#160;BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES </b></font></p> <p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">The unaudited condensed consolidated financial statements of Community Health Systems, Inc. and its subsidiaries (the &#8220;Company&#8221;) as of March&#160;31, 2012 and December&#160;31, 2011 and for the three-month period ended March&#160;31, 2012 and March&#160;31, 2011, have been prepared in accordance with accounting principles generally accepted in the United States of America (&#8220;U.S.&#160;GAAP&#8221;). 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 operations for the three months ended March&#160;31, 2012, are not necessarily indicative of the results to be expected for the full fiscal year ending December&#160;31, 2012. 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 &#8220;SEC&#8221;). 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&#160;31, 2011, contained in the Company&#8217;s Annual Report on Form&#160;10-K. </font></p> <p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">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. </font></p> <p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2"><i>Allowance for Doubtful Accounts.</i>&#160;In July 2011, the Financial Accounting Standards Board (&#8220;FASB&#8221;) issued Accounting Standards Update (&#8220;ASU&#8221;) 2011-07, which requires healthcare organizations that perform services for patients for which the ultimate collection of all or a portion of the amounts billed or billable cannot be determined at the time services are rendered to present all bad debt expense associated with patient service revenue as an offset to the patient service revenue line item in the statement of operations. The ASU also requires qualitative disclosures about the Company&#8217;s policy for recognizing revenue and bad debt expense for patient service transactions and quantitative information about the effects of changes in the assessment of collectibility of patient service revenue. This ASU was adopted by the Company on January&#160;1, 2012. Upon adoption, the Company&#8217;s provision for bad debts was presented as a reduction of net operating revenue after contractual adjustments and discounts. The condensed consolidated statement of income for the three months ended March&#160;31, 2011 has been restated to present the provision for bad debts as a reduction of net operating revenue for comparative purposes with the March&#160;31, 2012 presentation. </font></p> <p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Accounts receivable are reduced by an allowance for amounts that could become uncollectible in the future. 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text-indent:4%"><font style="font-family:times new roman" size="2">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&#8217;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. </font></p> <p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><u>Reasonably Possible Contingencies </u></font></p> <p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2"> For all of the legal matters 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. </font></p> <p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">On February&#160;10, 2006, the Company received a letter 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 &#8220;intergovernmental payments,&#8221; &#8220;upper payment limit programs,&#8221; and &#8220;Medicaid disproportionate share hospital payments.&#8221; The February 2006 letter focused on the Company&#8217;s hospitals in three states: Arkansas, New Mexico, and South Carolina. On August&#160;31, 2006, the Company received a follow up letter from the Department of Justice requesting additional documents relating to the programs in New Mexico and the payments to the Company&#8217;s three hospitals in that state. Through the beginning of 2009, 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 its three New Mexico hospitals caused the State of New Mexico to submit improper claims for federal funds, in violation of the Federal False Claims Act. At one point, the Civil Division calculated that the three hospitals received ineligible federal participation payments from August 2000 to June 2006 of approximately $27.5 million and said that if it proceeded to trial, it would seek treble damages plus an appropriate penalty for each of the violations of the Federal False Claims Act. This investigation has culminated in the federal government&#8217;s intervention in a qui tam lawsuit styled U.S. ex rel. Baker vs. Community Health Systems, Inc., pending in the United States District Court for the District of New Mexico. The federal government filed its complaint in intervention on June&#160;30, 2009. The relator filed a second amended complaint on July&#160;1, 2009. Both of these complaints expand the time period during which alleged improper payments were made. The Company filed motions to dismiss all of the federal government&#8217;s and the relator&#8217;s claims on August&#160;28, 2009. On March&#160;19, 2010, the court granted in part and denied in part the Company&#8217;s motion to dismiss as to the relator&#8217;s complaint. On July&#160;7, 2010, the court denied the Company&#8217;s motion to dismiss the federal government&#8217;s complaint in intervention. On July&#160;21, 2010, the Company filed its answer and pretrial discovery began. On June&#160;2, 2011, the relator filed a Third Amended Complaint adding subsidiaries Community Health Systems Professional Services Corporation and CHS/Community Health Systems, Inc. as defendants. On June&#160;6, 2011, the government filed its First Amended Complaint in intervention adding Community Health Systems Professional Services Corporation as a defendant. Discovery is closed. Motions for Summary Judgment were filed on March&#160;27, 2012 and there is currently no trial date set. On March&#160;30, 2012, the court denied the Company&#8217;s motion to exclude Plaintiffs&#8217; expert witness testimony, which the Company believes fails to follow the controlling Medicaid statute and regulations and results in an exaggeration of the damages estimate by fourfold. The Company has the opportunity to challenge the methodology employed at trial. The Company is vigorously defending this action. </font></p> <p style="margin-top:18px;margin-bottom:0px"><font style="font-family:times new roman" size="2"><u>Matters for which an Outcome Cannot be Assessed </u></font></p> <p style="margin-top:6px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2"> 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 very preliminary stage, there are not sufficient facts available to make these assessments. </font></p> <p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">On April&#160;8, 2011, the Company received a document subpoena, dated March&#160;31, 2011, from the United States Department of Health and Human Services, Office of Inspector General (the &#8220;OIG&#8221;), in connection with an investigation of possible improper claims submitted to Medicare and Medicaid. The subpoena, issued from the OIG&#8217;s Chicago, Illinois office, requested documents from all of the Company&#8217;s hospitals and appears to concern emergency department processes and procedures, including the Company&#8217;s hospitals&#8217; use of the Pro-MED Clinical Information System, which is a third-party software system that assists with the management of patient care and provides operational support and data collection for emergency department management and has the ability to track discharge, transfer and admission recommendations of emergency department physicians. The subpoena also requested other information about the Company&#8217;s relationships with emergency department physicians, including financial arrangements. The subpoena&#8217;s requests were very similar to those contained in the Civil Investigative Demands received by the Company&#8217;s Texas hospitals from the Office of the Attorney General of the State of Texas on November&#160;15, 2010. This investigation is being led by the Department of Justice. The Company is continuing to cooperate with the government including detailing a process for a medical necessity review by clinical reviewers and physicians of a sampling of medical records at a small number of hospitals. </font></p> <p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">On April&#160;11, 2011, Tenet Healthcare Corporation (&#8220;Tenet&#8221;) filed suit against the Company, Wayne T. Smith and W. Larry Cash in the United States District Court for the Northern District of Texas. The suit alleged the Company committed violations of certain federal securities laws by making certain statements in various proxy materials filed with the SEC in connection with the Company&#8217;s offer to purchase Tenet. Tenet alleged that the Company engaged in a practice to under-utilize observation status and over-utilize inpatient admission status and asserts that by doing so, the Company created undisclosed financial and legal liability to federal, state and private payors. The suit seeks declaratory and injunctive relief and Tenet&#8217;s costs. On April&#160;19, 2011, the Company filed a motion to dismiss the complaint. On April&#160;28, 2011, the Company responded to the allegations during its earnings release conference call as discussed in the Company&#8217;s Form 8-K furnished on April&#160;28, 2011. On May&#160;16, 2011, Tenet filed an amended complaint. On June&#160;29, 2011, the Company filed a motion to dismiss the amended complaint. A hearing on the Company&#8217;s motion to dismiss occurred on September&#160;8, 2011. On March&#160;21, 2012, the court dismissed this case in its entirety, with prejudice. </font></p> <p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">On April&#160;22, 2011, a joint motion was filed by the relator and the United States Department of Justice in the case styled United States ex rel. and Reuille vs. Community Health Systems Professional Services Corporation and Lutheran Musculoskeletal Center, LLC d/b/a Lutheran Hospital, in the United States District Court for the Northern District of Indiana, Fort Wayne Division. The lawsuit was originally filed under seal on January&#160;7, 2009. The suit is brought under the False Claims Act and alleges that Lutheran Hospital of Indiana billed the Medicare program for (a)&#160;false 23 hour observation after outpatient surgeries and procedures, and (b)&#160;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. The relator had worked in the case management department of Lutheran Hospital of Indiana but was reassigned to another department in the fall of 2006. This facility was acquired by the Company as part of the July&#160;25, 2007 merger transaction with Triad. The complaint also includes allegations of age discrimination in Ms.&#160;Reuille&#8217;s 2006 reassignment and retaliation in connection with her resignation on October&#160;1, 2008. The Company had cooperated fully with the government in its investigation of this matter, but had been unaware of the exact nature of the allegations in the complaint. On December&#160;27, 2010, the government filed a notice that it declined to intervene in this suit. The motion contained additional information about how the government intended to proceed with an investigation regarding &#8220;allegations of improper billing for inpatient care at other hospitals associated with Community Health Systems, Inc. . . . asserted in other qui tam complaints in other jurisdictions.&#8221; The motion stated that the Department of Justice has &#8220;consolidated its investigations&#8221; of the Company and other related entities and that &#8220;the Civil Division of the Department of Justice, multiple United States Attorneys&#8217; offices, and the Office of Inspector General for the Department of Health and Human Services (the &#8220;HHS&#8221;) are now closely coordinating their investigation of these overlapping allegations. The Attorney General of Texas has initiated an investigation; the United States intends to work cooperatively with Texas and any other States investigating these allegations.&#8221; The motion also stated that the Office of Audit Services for the Office of Investigations for HHS has been engaged to conduct a national audit of certain of the Company&#8217;s Medicare claims. The government 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&#160;11, 2011 to be related to the allegations in the qui tam and to what the government is now describing as a consolidated investigation. (Because qui tam suits are filed &#8220;under seal,&#8221; no one but the relator and the government knows that the suit has been filed or what allegations are being made by the relator on behalf of the government. Initially, the government has 60 days to make a determination about whether to intervene in a case and to act as the plaintiff or to decline to intervene and allow the relator to act as the plaintiff in the suit, but extensions of time are frequently granted to allow the government additional time to investigate the allegations. Even if, in the course of an investigation, the court partially unseals a complaint to allow the government and a defendant to work to a resolution of the complaint&#8217;s allegations, the defendant is prohibited from revealing to anyone even that the partial unsealing has occurred. As the investigation proceeds, the Company may learn of additional qui tam suits filed against the Company or its affiliated hospitals or related entities, or that contact letters, document requests, or medical record requests the Company has received in the past from various governmental agencies are generated from qui tam cases filed under seal.) The motion filed on April&#160;22, 2011 concluded by requesting a stay of the litigation in the Reuille case for 180 days, and on April&#160;25, 2011, the court granted the motion. The Company&#8217;s management company subsidiary, Community Health Systems Professional Services Corporation, the defendant in the Reuille case, consented to the request for the stay. On October&#160;19, 2011, the government filed an application to transfer the Reuille case to the Middle District of Tennessee or for an extension of the stay for an additional 180 days. The Company agreed that a stay for an additional, but shorter period of time, 90 days, was appropriate, but did not consent to the transfer of the case. The Company&#8217;s response setting forth the Company&#8217;s legal arguments was filed on October&#160;24, 2011. On November&#160;1, 2011, the court denied the motion to transfer the matter and extended the stay until April&#160;30, 2012. On April 26, 2012, the Company joined the government and the relator in a motion to extend the stay in this case for an additional 180 days. As noted in that filing, the Company is working with the government on a probe audit of medical records (described above with respect to the April 2011 subpoena). The Company is cooperating fully with the government in its investigations. </font></p> <p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">Three purported class action shareholder federal securities 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., Wayne T. Smith and W. Larry Cash, filed May&#160;5, 2011; De Zheng v. Community Health Systems, Inc., Wayne T. Smith and W. Larry Cash, filed May&#160;12, 2011; and Minneapolis Firefighters Relief Association v. Community Health Systems, Inc., Wayne T. Smith, W. Larry Cash and Thomas Mark Buford, filed June&#160;2, 2011. All three seek class certification on behalf of purchasers of the Company&#8217;s common stock between July&#160;27, 2006 and April&#160;11, 2011 and allege that misleading statements resulted in artificially inflated prices for the Company&#8217;s common stock. On September&#160;20, 2011, all three were assigned to the same judge as related cases. On December&#160;28, 2011, the court consolidated all three shareholder cases for pretrial purposes, selected NYC Funds as lead plaintiffs, and selected NYC Funds&#8217; counsel as lead plaintiffs&#8217; counsel. The parties are in the process of negotiating operative dates for these consolidated shareholder federal securities actions, including dates for the filing of an operative consolidated complaint and related briefing. </font></p> <p style="margin-top:12px;margin-bottom:0px; text-indent:4%"><font style="font-family:times new roman" size="2">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.&#160;630 Pension Annuity Trust Fund v. Wayne T. Smith, W. Larry Cash, T. Mark Buford, John A. Clerico, James S. Ely III, John A. Fry, William Norris Jennings, Julia B. North and H. Mitchell Watson, Jr., filed May&#160;24, 2011; Roofers Local No.&#160;149 Pension Fund v. Wayne T. Smith, W. Larry Cash, John A. Clerico, James S. Ely, III, John A. Fry, William Norris Jennings, Julia B. North and H. Mitchell Watson, Jr., filed June&#160;21, 2011; and Lambert Sweat v. Wayne T. Smith, W. Larry Cash, T. Mark Buford, John A. Clerico, James S. Ely, III, John A. Fry, William Norris Jennings, Julia B. North, H. Mitchell Watson, Jr. and Community Health Systems, Inc., filed October&#160;5, 2011. These three cases allege breach of fiduciary duty arising out of allegedly improper inpatient admission practices, mismanagement, waste and unjust enrichment. On September&#160;28, 2011, the court ordered that the Plumbers and Pipefitters Local Union No.&#160;630 Pension Annuity Trust Fund action and the Roofers Local No.&#160;149 Pension Fund action be consolidated for pretrial purposes, and appointed the derivative plaintiffs&#8217; lead counsel. On November&#160;29, 2011, the court ordered that the Lambert Sweat action be consolidated with the Plumbers and Roofers consolidated derivative actions. The Plaintiffs filed an operative amended derivative complaint in these three consolidated actions on March&#160;15, 2012. A responsive pleading is due May&#160;14, 2012. 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