HCA Holdings 2011 Annual Report Download - page 69

HCA HOLDINGS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Critical Accounting Policies and Estimates (Continued)
Provision for Doubtful Accounts and the Allowance for Doubtful Accounts (Continued)
The approximate breakdown of accounts receivable by payer classification as of December 31, 2011 and
2010 is set forth in the following table:
% of Accounts Receivable
Under 91 Days 91—180 Days Over 180 Days
Accounts receivable aging at December 31, 2011:
Medicare and Medicaid ....................... 14% 1% 1%
Managed care and other insurers ................ 22 5 5
Uninsured .................................. 15 8 29
Total .................................... 51% 14% 35%
Accounts receivable aging at December 31, 2010:
Medicare and Medicaid ....................... 14% 1% 1%
Managed care and other insurers ................ 21 4 4
Uninsured .................................. 17 8 30
Total .................................... 52% 13% 35%
Professional Liability Claims
We, along with virtually all health care providers, operate in an environment with professional liability
risks. Our facilities are insured by our wholly-owned insurance subsidiary for losses up to $50 million per
occurrence, subject to a $5 million per occurrence self-insured retention. We purchase excess insurance on a
claims-made basis for losses in excess of $50 million per occurrence. Our professional liability reserves, net of
receivables under reinsurance contracts, do not include amounts for any estimated losses covered by our excess
insurance coverage. Provisions for losses related to professional liability risks were $244 million, $222 million
and $211 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Reserves for professional liability risks represent the estimated ultimate cost of all reported and unreported
losses incurred through the respective consolidated balance sheet dates. The estimated ultimate cost includes
estimates of direct expenses and fees paid to outside counsel and experts, but does not include the general
overhead costs of our insurance subsidiary or corporate office. Individual case reserves are established based
upon the particular circumstances of each reported claim and represent our estimates of the future costs that will
be paid on reported claims. Case reserves are reduced as claim payments are made and are adjusted upward or
downward as our estimates regarding the amounts of future losses are revised. Once the case reserves for known
claims are determined, information is stratified by loss layers and retentions, accident years, reported years, and
geographic location of our hospitals. Several actuarial methods are employed to utilize this data to produce
estimates of ultimate losses and reserves for incurred but not reported claims, including: paid and incurred
extrapolation methods utilizing paid and incurred loss development to estimate ultimate losses; frequency and
severity methods utilizing paid and incurred claims development to estimate ultimate average frequency (number
of claims) and ultimate average severity (cost per claim); and Bornhuetter-Ferguson methods which add expected
development to actual paid or incurred experience to estimate ultimate losses. These methods use our company-
specific historical claims data and other information. Company-specific claim reporting and settlement data
collected over an approximate 20-year period is used in our reserve estimation process. This company-specific
data includes information regarding our business, including historical paid losses and loss adjustment expenses,
66