Community Health Systems 2015 Annual Report Download - page 85

inpatient admissions increased by 43.7% and adjusted admissions increased by 47.3% during the year ended
December 31, 2014. These increases were primarily due to the HMA merger during 2014. On a same-store basis,
inpatient admissions decreased by 4.2% and adjusted admissions decreased by 0.9% during the year ended
December 31, 2014.
Operating expenses as a percentage of net operating revenues remained consistent at 92.8% during both of the
years ended December 31, 2013 and 2014. Operating expenses, excluding depreciation and amortization and
impairment of long-lived assets, as a percentage of net operating revenues, decreased from 86.7% in 2013 to
86.3% in 2014. Salaries and benefits, as a percentage of net operating revenues, decreased from 47.6% in 2013 to
46.2% in 2014. This decrease in salaries and benefits, as a percentage of net operating revenues, was primarily
due to elimination of certain of HMA’s corporate overhead costs and productivity improvement from integrating
HMA into our operations during 2014. Supplies, as a percentage of net operating revenues, remained consistent
at 15.4% for the years ended December 31, 2014 and 2013. Other operating expenses, as a percentage of net
operating revenues, increased from 22.0% in 2013 to 23.3% in 2014. This increase in other operating expenses,
as a percentage of net operating revenues, was primarily due to increases in expenses related to achieving
meaningful use compliance and acquisition and integration-related expenses, primarily related to the HMA
merger. Government settlement and related costs, as a percentage of net revenues, decreased from 0.8% in 2013
to 0.5% in 2014. Rent, as a percentage of net operating revenues, increased from 2.2% in 2013 to 2.3% in 2014.
Electronic health records incentive reimbursements represent those incentives under the HITECH Act for
which the recognition criterion has been met. We have recognized approximately $259 million and $162 million
of incentive reimbursements, or 1.4% and 1.3% of net operating revenues, for the years ended December 31,
2014 and 2013, respectively. We received cash payments of $253 million and $203 million for these incentives
during the years ended December 31, 2014 and 2013, respectively. As of December 31, 2014 and 2013, $81
million and $90 million was recorded as deferred revenue as all criteria for gain recognition had not been met.
Depreciation and amortization, including $75 million of amortization of software to be abandoned recognized
during the six months ended June 30, 2014, as a percentage of net operating revenues, increased from 6.0% in
2013 to 6.3% in 2014. This increase was due primarily to the shortening of the remaining useful life of software,
which was previously in use with an abandonment date of July 1, 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 management of the Company, an
impairment charge of approximately $24 million was recorded during the year ended December 31, 2014. In
addition, an impairment of $17 million was recorded during the year ended December 31, 2014 on certain long-
lived assets at two of our smaller hospitals due to a reduction in volumes in recent years resulting in a decline in
projections of future cash flows and estimated fair values, and one hospital because of our decision to cease
operating as an acute care hospital. An impairment of $12 million was recorded during the year ended
December 31, 2013 on certain long-lived assets at four of our smaller hospitals primarily due to experiencing a
sustained increase in uncompensated care and reduction in volume during the year resulting in a decline in
projections of future cash flows and estimated fair values.
Interest expense, net, increased by $359 million from $613 million in 2013, to $972 million in 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 $394 million. These increases in interest expense were
partially offset by a decrease in interest rates during 2014, compared to 2013, which resulted in a decrease in
interest expense of $35 million.
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