HCA Holdings 2011 Annual Report Download - page 71

HCA HOLDINGS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Critical Accounting Policies and Estimates (Continued)
Professional Liability Claims (Continued)
Changes in our professional liability reserves, net of reinsurance recoverable, for the years ended
December 31, are summarized in the following table (dollars in millions):
2011 2010 2009
Net reserves for professional liability claims, January 1 ............. $1,248 $1,269 $1,330
Provision for current year claims ............................. 298 272 258
Favorable development related to prior years’ claims ............. (54) (50) (47)
Total provision ......................................... 244 222 211
Payments for current year claims ............................. 774
Payments for prior years’ claims ............................. 233 236 268
Total claim payments .................................... 240 243 272
Net reserves for professional liability claims, December 31 .......... $1,252 $1,248 $1,269
The favorable development related to prior years’ claims resulted from declining claim frequency and
moderating claim severity trends. We believe these favorable trends are primarily attributable to tort reforms
enacted in key states, particularly Texas, and our risk management and patient safety initiatives, particularly in
the area of obstetrics.
Income Taxes
We calculate our provision for income taxes using the asset and liability method, under which deferred tax
assets and liabilities are recognized by identifying the temporary differences that arise from the recognition of
items in different periods for tax and accounting purposes. Deferred tax assets generally represent the tax effects
of amounts expensed in our income statement for which tax deductions will be claimed in future periods.
Although we believe we have properly reported taxable income and paid taxes in accordance with
applicable laws, federal, state or international taxing authorities may challenge our tax positions upon audit.
Significant judgment is required in determining and assessing the impact of uncertain tax positions. We report a
liability for unrecognized tax benefits from uncertain tax positions taken or expected to be taken in our income
tax return. During each reporting period, we assess the facts and circumstances related to uncertain tax positions.
If the realization of unrecognized tax benefits is deemed probable based upon new facts and circumstances, the
estimated liability and the provision for income taxes are reduced in the current period. Final audit results may
vary from our estimates.
Results of Operations
Revenue/Volume Trends
Our revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered
by physicians and provided to patients, the volume of outpatient procedures and the charge and negotiated
payment rates for such services. Gross charges typically do not reflect what our facilities are actually paid. Our
facilities have entered into agreements with third-party payers, including government programs and managed
care health plans, under which the facilities are paid based upon the cost of providing services, predetermined
rates per diagnosis, fixed per diem rates or discounts from gross charges. We do not pursue collection of amounts
related to patients who meet our guidelines to qualify for charity care; therefore, they are not reported in
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