Washington, D.C. 20549
Form 10-Q
(Mark One)
For the quarterly period ended September 30, 2021

Commission file number:  001-37576
Surgery Partners, Inc.
(Exact name of registrant as specified in its charter)
Delaware 47-3620923
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

310 Seven Springs Way, Suite 500
Brentwood, Tennessee 37027
(Address of principal executive offices and zip code)
(615) 234-5900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareSGRYThe Nasdaq Global Select Market
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  x  No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer o
Accelerated filer ☒
Non-accelerated filer o
Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  x
As of October 29, 2021, there were 82,436,720 shares of the registrant’s common stock outstanding.


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Item 1.  Financial Statements
(Dollars in millions, except per share amounts)

September 30,
December 31,
Current assets:
Cash and cash equivalents$330.4 $317.9 
Accounts receivable
393.4 382.2 
Inventories59.3 56.4 
Prepaid expenses29.8 17.6 
Other current assets28.8 27.4 
Total current assets841.7 801.5 
Property and equipment, net of accumulated depreciation of $254.0 and $189.3, respectively
542.1 544.6 
Goodwill and other intangible assets, net3,659.3 3,514.9 
Investments in and advances to affiliates89.6 90.3 
Right-of-use operating lease assets320.5 310.1 
Long-term deferred tax assets128.1 124.8 
Other long-term assets50.3 27.0 
Total assets$5,631.6 $5,413.2 
Current liabilities:
Accounts payable$116.5 $100.2 
Accrued payroll and benefits73.1 65.4 
Medicare accelerated payments and deferred governmental grants81.8 109.8 
Other current liabilities208.3 217.0 
Current maturities of long-term debt60.8 64.4 
Total current liabilities540.5 556.8 
Long-term debt, less current maturities2,791.9 2,792.4 
Right-of-use operating lease liabilities312.4 300.9 
Other long-term liabilities124.4 139.7 
Non-controlling interests—redeemable310.4 306.8 
Redeemable preferred stock - Series A; shares authorized - 310,000; shares issued or outstanding - none and 310,000, respectively; redemption value - $ and $434.5, respectively
Stockholders' equity:
Preferred stock, $0.01 par value; shares authorized - 20,000,000; shares issued or outstanding - none
Common stock, $0.01 par value; shares authorized - 300,000,000; shares issued and outstanding - 82,458,385 and 50,461,706, respectively
0.8 0.5 
Additional paid-in capital1,306.0 607.9 
Accumulated other comprehensive loss(47.9)(61.0)
Retained deficit(502.6)(431.8)
Total Surgery Partners, Inc. stockholders' equity756.3 115.6 
Non-controlling interests—non-redeemable795.7 766.5 
Total stockholders' equity1,552.0 882.1 
Total liabilities and stockholders' equity$5,631.6 $5,413.2 

See notes to unaudited condensed consolidated financial statements.


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(Unaudited, dollars in millions, except per share amounts, shares in thousands)

Three Months Ended September 30,Nine Months Ended September 30,
Revenues$559.2 $496.1 $1,614.9 $1,311.8 
Operating expenses:
Salaries and benefits162.3 141.7 468.7 398.2 
Supplies160.1 142.8 464.9 382.2 
Professional and medical fees56.8 46.3 169.7 138.4 
Lease expense23.4 21.9 68.8 64.7 
Other operating expenses34.1 29.2 98.5 83.9 
Cost of revenues436.7 381.9 1,270.6 1,067.4 
General and administrative expenses25.5 25.2 76.8 73.3 
Depreciation and amortization25.2 24.1 76.1 69.3 
Income from equity investments(2.9)(3.1)(8.5)(7.6)
Loss on disposals and deconsolidations, net1.9 0.7 2.0 7.1 
Transaction and integration costs10.2 5.4 24.7 15.8 
Impairment charges 33.5  33.5 
Grant funds 9.9 (20.0)(33.2)
(Gain) loss on debt extinguishment(0.5) 9.1  
Litigation settlement   1.2 
Other income(0.5) (3.3)(1.7)
Total operating expenses495.6 477.6 1,427.5 1,225.1 
Operating income 63.6 18.5 187.4 86.7 
Interest expense, net(54.2)(51.5)(160.9)(147.8)
Income (loss) before income taxes9.4 (33.0)26.5 (61.1)
Income tax expense (benefit)1.2 1.3 (1.3)(14.5)
Net income (loss)8.2 (34.3)27.8 (46.6)
Less: Net income attributable to non-controlling interests(31.1)(27.3)(98.6)(75.0)
Net loss attributable to Surgery Partners, Inc.(22.9)(61.6)(70.8)(121.6)
Less: Amounts attributable to participating securities (10.0)(10.3)(29.2)
Net loss attributable to common stockholders$(22.9)$(71.6)$(81.1)$(150.8)
Net loss per share attributable to common stockholders
Diluted (1)
Weighted average common shares outstanding
Basic 80,726 48,883 68,350 48,736 
Diluted (1)
80,726 48,883 68,350 48,736 
(1) The impact of potentially dilutive securities for all periods presented was not considered because the effect would be anti-dilutive in those periods.

See notes to unaudited condensed consolidated financial statements.


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(Unaudited, dollars in millions)

Three Months Ended September 30,Nine Months Ended September 30,
Net income (loss)$8.2 $(34.3)$27.8 $(46.6)
Other comprehensive income (loss), net of tax:
Derivative activity6.5 3.3 13.1 (14.6)
Comprehensive income (loss)14.7 (31.0)40.9 (61.2)
Less: Comprehensive income attributable to non-controlling interests(31.1)(27.3)(98.6)(75.0)
Comprehensive loss attributable to Surgery Partners, Inc.$(16.4)$(58.3)$(57.7)$(136.2)

See notes to unaudited condensed consolidated financial statements.


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(Unaudited, dollars in millions, shares in thousands)

Common StockAdditional
Paid-in Capital
Accumulated Other Comprehensive LossRetained DeficitNon-Controlling Interests—
Balance at December 31, 202050,462 $0.5 $607.9 $(61.0)$(431.8)$766.5 $882.1 
Net (loss) income— — — — (21.0)21.1 0.1 
Equity-based compensation812 — (2.8)— — — (2.8)
Preferred dividends— — (10.3)— — — (10.3)
Equity offering8,625 0.1 248.2 — — — 248.3 
Other comprehensive income— — — 6.4 — — 6.4 
Acquisition and disposal of shares of non-controlling interests, net— — 0.3 — — 2.0 2.3 
Distributions to non-controlling interests—non-redeemable holders— — — — — (20.8)(20.8)
Balance at March 31, 202159,899 $0.6 $843.3 $(54.6)$(452.8)$768.8 $1,105.3 
Net (loss) income— — — — (26.9)22.0 (4.9)
Equity-based compensation(29)— 3.7 — — — 3.7 
Preferred share conversion22,609 0.2 439.5 — — — 439.7 
Other comprehensive income— — — 0.2 — — 0.2 
Acquisition and disposal of shares of non-controlling interests, net— — 11.9 — — (6.3)5.6 
Distributions to non-controlling interests—non-redeemable holders— — — — — (22.3)(22.3)
Balance at June 30, 202182,479 $0.8 $1,298.4 $(54.4)$(479.7)$762.2 $1,527.3 
Net (loss) income— — — — (22.9)21.7 (1.2)
Equity-based compensation(21)— 4.1 — — — 4.1 
Other comprehensive income— — — 6.5 — — 6.5 
Acquisition and disposal of shares of non-controlling interests, net— — 3.5 — — 33.6 37.1 
Distributions to non-controlling interests—non-redeemable holders— — — — — (21.8)(21.8)
Balance at September 30, 202182,458 $0.8 $1,306.0 $(47.9)$(502.6)$795.7 $1,552.0 

See notes to unaudited condensed consolidated financial statements.


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(Unaudited, dollars in millions, shares in thousands)

Common StockAdditional
Paid-in Capital
Accumulated Other Comprehensive LossRetained DeficitNon-Controlling Interests—
Balance at December 31, 201949,299 $0.5 $662.7 $(50.7)$(315.7)$686.6 $983.4 
Net (loss) income— — — — (27.5)13.6 (13.9)
Equity-based compensation1,219 — 2.8 — — — 2.8 
Preferred dividends— — (9.5)— — — (9.5)
Other comprehensive loss— — — (25.2)— — (25.2)
Acquisition and disposal of shares of non-controlling interests, net— — (0.7)— — 1.4 0.7 
Distributions to non-controlling interests—non-redeemable holders— — — — — (14.9)(14.9)
Balance at March 31, 202050,518 $0.5 $655.3 $(75.9)$(343.2)$686.7 $923.4 
Net (loss) income— — — — (32.5)22.8 (9.7)
Equity-based compensation33 — 3.8 — — — 3.8 
Preferred dividends— — (9.7)— — — (9.7)
Other comprehensive income— — — 7.3 — — 7.3 
Acquisition and disposal of shares of non-controlling interests, net— — (1.2)— — 2.9 1.7 
Distributions to non-controlling interests—non-redeemable holders— — — — — (20.9)(20.9)
Balance at June 30, 202050,551 $0.5 $648.2 $(68.6)$(375.7)$691.5 $895.9 
Net (loss) income— — — — (61.6)19.3 (42.3)
Equity-based compensation(56)— 3.0 — — — 3.0 
Preferred dividends— — (10.0)— — — (10.0)
Other comprehensive income— — — 3.3 — — 3.3 
Acquisition and disposal of shares of non-controlling interests, net— — (37.9)— — 7.6 (30.3)
Distributions to non-controlling interests—non-redeemable holders— — — — — (18.8)(18.8)
Balance at September 30, 202050,495 $0.5 $603.3 $(65.3)$(437.3)$699.6 $800.8 

See notes to unaudited condensed consolidated financial statements.


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(Unaudited, dollars in millions)

Nine Months Ended September 30,
Cash flows from operating activities:
Net income (loss)$27.8 $(46.6)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization76.1 69.3 
Non-cash interest expense, net12.0 3.1 
Equity-based compensation expense13.4 9.9 
Loss on disposals and deconsolidations, net2.0 7.1 
Impairment charges 33.5 
Loss on debt extinguishment9.1  
Deferred income taxes(2.3)(15.3)
Income from equity investments, net of distributions received0.2 (1.0)
Non-cash lease expense30.3 29.4 
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable(18.4)(11.9)
Medicare accelerated payments and deferred governmental grants(48.5)141.0 
DOJ settlement payments(32.2) 
Other operating assets and liabilities(2.1)19.5 
Net cash provided by operating activities67.4 238.0 
Cash flows from investing activities:
Purchases of property and equipment(43.5)(27.8)
Payments for acquisitions, net of cash acquired(101.0)(14.2)
Proceeds from disposals of facilities and other assets2.5 48.3 
Other investing activities0.3 0.5 
Net cash (used in) provided by investing activities(141.7)6.8 
Cash flows from financing activities:
Principal payments on long-term debt(328.4)(197.3)
Borrowings of long-term debt293.0 428.0 
Payments of debt issuance costs(11.7)(8.3)
Proceeds from equity offering260.9  
Payments of equity offering costs(12.7) 
Payment of preferred dividends(5.1) 
Distributions to non-controlling interest holders(97.5)(82.3)
Receipts (payments) related to ownership transactions with non-controlling interest holders2.4 (27.3)
Other financing activities(14.4)(0.3)
Net cash provided by financing activities86.5 112.5 
Net increase in cash, cash equivalents and restricted cash12.2 357.3 
Cash, cash equivalents and restricted cash at beginning of period318.2 93.0 
Cash, cash equivalents and restricted cash at end of period$330.4 $450.3 
See notes to unaudited condensed consolidated financial statements.


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1. Organization and Summary of Accounting Policies
Surgery Partners, Inc., a Delaware corporation, acting through its subsidiaries, owns and operates a national network of surgical facilities and ancillary services. The surgical facilities, which include ambulatory surgery centers ("ASCs") and surgical hospitals, primarily provide non-emergency surgical procedures across many specialties, including, among others, gastroenterology, general surgery, ophthalmology, orthopedics and pain management. The Company's surgical hospitals also provide services such as diagnostic imaging, laboratory, obstetrics, oncology, pharmacy, physical therapy and wound care. Ancillary services are comprised of multi-specialty physician practices, urgent care facilities and anesthesia services. Unless the context otherwise indicates, Surgery Partners, Inc. and its subsidiaries are referred to herein as "Surgery Partners," "we," "us," "our" or the "Company."
As of September 30, 2021, the Company owned or operated a portfolio of 127 surgical facilities, comprised of 110 ASCs and 17 surgical hospitals in 31 states. The Company owns these facilities in partnership with physicians and, in some cases, health care systems in the markets and communities it serves. The Company owned a majority interest in 90 of the surgical facilities and consolidated 110 of the facilities for financial reporting purposes.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation of the Company's financial position and results of operations have been included. The Company’s fiscal year ends on December 31 and interim results are not necessarily indicative of results for a full year or any other interim period. The information contained in these condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Annual Report on Form 10-K").
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, as well as interests in partnerships and limited liability companies controlled by the Company through its ownership of a majority voting interest or other rights granted to the Company by contract to manage and control the affiliate's business. All significant intercompany balances and transactions are eliminated in consolidation.
Certain reclassifications have been made to the comparative periods' financial statements to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and footnotes. Examples include, but are not limited to, estimates of accounts receivable allowances, professional and general liabilities and the estimate of deferred tax assets or liabilities. Actual results could differ from those estimates.
COVID-19 Pandemic
The COVID-19 global pandemic has significantly affected the Company's facilities, employees, patients, communities, business operations and financial performance, as well as the United States economy and financial markets. The impact of COVID-19 on the Company's surgical facilities varies based on the market in which the facility operates, the type of surgical facility and the procedures that are typically performed. Although the Company cannot provide any certainty regarding the length and severity of the impact of the COVID-19 pandemic, surgical case volumes continue to improve in 2021 as government restrictions ease and public sentiment changes. The Company has implemented new clinical safety measures to provide a safe environment for its patients, surgeons and employees.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law to provide stimulus funding for the United States economy. As part of the CARES Act, the United States government announced that it would offer relief to eligible health care providers, including distribution of direct grants to hospitals, ASCs and other health care providers based on how much they bill Medicare. Payments received from these grants are not required to be repaid provided the recipients attest to and comply with certain terms and conditions, including limitations on balance billing and not using funds received from the grants to reimburse expenses or losses that other sources are obligated to reimburse. The Company has received approximately $67 million of the grant funds distributed under the CARES Act and other governmental assistance programs, including approximately $8 million during the nine months ended September 30, 2021. The Company did not receive any grant funds during the three months ended September 30, 2021. The recognition of amounts received is conditioned upon attestation with terms and conditions that funds will be used for COVID-19 related healthcare expenses or lost revenues.


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The Company’s assessment of whether the terms and conditions for amounts received are reasonably assured of having been met considers, among other things, the CARES Act, the COVID-19 Economic Relief Bill, enacted on December 27, 2020, and all frequently asked questions and other interpretive guidance issued by the United States Department of Health and Human Services ("HHS"), including in the Provider Relief Fund Reporting Portal and associated user guides. This guidance sets forth the allowable methods for quantifying eligible healthcare related expenses and lost revenues. Only healthcare related expenses attributable to COVID-19 that another source has not reimbursed and is not obligated to reimburse are eligible to be claimed. Based on guidance, the Company estimates approximately $20.0 million of grant funds received qualified for recognition as a reduction in operating expenses for the nine months ended September 30, 2021.
Amounts received, but not recognized as a reduction to operating expenses, are reflected as a component of Medicare accelerated payments and deferred governmental grants in the condensed consolidated balance sheets as of both September 30, 2021 and December 31, 2020. Any unrecognized amounts may be recognized as a reduction in operating expenses in subsequent periods if the underlying conditions for recognition are met. HHS’ interpretation of the underlying terms and conditions of grant funds received through the CARES Act and other governmental assistance programs, including auditing and reporting requirements, may evolve. Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such payments may result in the Company’s inability to recognize certain payments, changes in the estimate of amounts recognized, or the derecognition of amounts previously recognized, which may be material.
As a way to increase cash flow to Medicare providers impacted by the COVID-19 pandemic, the CARES Act expanded the Medicare Accelerated and Advance Payment Program, which allowed for most providers and suppliers, including the Company’s surgical hospitals and ASCs to request an advance payment of anticipated Medicare revenues. The Company received approximately $120 million of accelerated payments during the year ended December 31, 2020. The payments received were deferred and included in the condensed consolidated balance sheets. During the three and nine months ended September 30, 2021, approximately $18 million and $38 million, respectively, has been repaid in accordance with the terms of the program. These repayments are included as a component of the change in Medicare accelerated payments and deferred government grants in the condensed consolidated statements of cash flows. Under these terms, repayment started one year after the initial funding by offsetting 25% of new claims paid by CMS. After 11 months of repayment at this level, the repayments will increase to 50% of new claims paid by CMS for a period of six months. Any outstanding amounts due at the end of the repayment period are subject to interest at a rate of 4%. As of September 30, 2021 and December 31, 2020, the current portion of deferred accelerated payments was approximately $80 million and $95 million, respectively, and is included as a component of Medicare accelerated payments and deferred governmental grants in the condensed consolidated balance sheets. The long-term portion is included as a component of other long-term liabilities in the condensed consolidated balance sheets. The Company does not expect to receive additional Medicare accelerated payments.
The CARES Act also provided for the deferral of the Company's portion of social security payroll taxes during 2020. Under the CARES Act, half of the deferred amount will be paid in each of December 2021 and December 2022. As of both September 30, 2021 and December 31, 2020, the Company had deferred approximately $16.9 million. The current portion is included as a component of accrued payroll and benefits and the long term portion is included as a component of other long-term liabilities in the condensed consolidated balance sheets.
The Company is closely monitoring legislative actions and regulatory guidance at the federal, state and local levels with respect to the CARES Act as other governmental assistance might become available to the Company.
Variable Interest Entities
The condensed consolidated financial statements include the accounts of variable interest entities ("VIE") in which the Company is the primary beneficiary under the provisions of the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification 810, "Consolidation". The Company has the power to direct the activities that most significantly impact a VIE's economic performance. Additionally, the Company would absorb the majority of the expected losses from any of these entities should such expected losses occur. As of September 30, 2021, the Company's consolidated VIEs include four surgical facilities and three physician practices.
The total assets (excluding goodwill and intangible assets, net) of the consolidated VIEs included in the accompanying condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 were $26.7 million and $27.7 million, respectively, and the total liabilities of the consolidated VIEs were $19.1 million and $21.1 million, respectively.
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. The Company uses fair value measurements based on inputs classified into the following hierarchy:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These may include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, depending on the nature of the item being valued.


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The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, restricted invested assets and accounts payable approximate their fair values under Level 3 calculations.
A summary of the carrying amounts and estimated fair values of the Company's long-term debt follows (in millions):
Carrying AmountFair Value
September 30,
December 31,
September 30,
December 31,
Senior secured term loan$1,534.5 $1,539.4 $1,523.0 $1,533.4 
6.750% senior unsecured notes due 2025
$370.0 $370.0 $376.0 $376.0 
10.000% senior unsecured notes due 2027
$545.0 $545.0 $589.3 $596.8 
The fair values in the table above were based on Level 2 inputs using quoted prices for identical liabilities in inactive markets. The carrying amounts related to the Company's other long-term debt obligations, including finance lease obligations, approximate their fair values based on Level 3 inputs.
The Company's revenues generally relate to contracts with patients in which the performance obligations are to provide health care services. The Company recognizes revenues in the period in which its obligations to provide health care services are satisfied and reports the amount that reflects the consideration the Company expects to be entitled to receive. The contractual relationships with patients, in most cases, also involve a third-party payor (e.g., Medicare, Medicaid and private insurance organizations, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by or negotiated with the third-party payors. The payment arrangements with third-party payors for the services provided to the related patients typically specify payments at amounts less than the Company's standard charges. The Company continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.
A summary of revenues by service type as a percentage of total revenues follows:
Three Months Ended September 30,Nine Months Ended September 30,
Patient service revenues:
   Surgical facilities revenues95.6 %95.4 %95.5 %95.0 %
   Ancillary services revenues3.0 %3.4 %3.1 %3.6 %
Total patient service revenues98.6 %98.8 %98.6 %98.6 %
Other service revenues1.4 %1.2 %1.4 %1.4 %
Total revenues100.0 %100.0 %100.0 %100.0 %
Patient service revenues. This revenue is related to charging facility fees in exchange for providing patient care. The fee charged for health care procedures performed in surgical facilities varies depending on the type of service provided, but usually includes all charges for usage of an operating room, a recovery room, special equipment, medical supplies, nursing staff and medications. The fee does not normally include professional fees charged by the patient’s surgeon, anesthesiologist or other attending physician, which are billed directly by such physicians to the patient or third-party payor. However, in several surgical facilities, the Company charges for anesthesia services. Ancillary service revenues include fees for patient visits to the Company's physician practices, pharmacy services and diagnostic tests ordered by physicians.
Patient service revenues are recognized as performance obligations are satisfied. Performance obligations are based on the nature of services provided. Typically, the Company recognizes revenue at a point in time in which services are rendered and the Company has no obligation to provide further patient services. As the Company primarily performs outpatient procedures, performance obligations are generally satisfied same day and revenue is recognized on the date of service.
The Company determines the transaction price based on gross charges for services provided, net of estimated contractual adjustments and discounts from third-party payors. The Company estimates its contractual adjustments and discounts based on contractual agreements, its discount policies and historical experience. Changes in estimated contractual adjustments and discounts are recorded in the period of change.
Other service revenues. Other service revenues include management and administrative service fees derived from the non-consolidated facilities that the Company accounts for under the equity method, management of surgical facilities in which it does not own an interest, and management services provided to physician practices for which the Company is not required to provide capital or additional


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assets. These agreements typically require the Company to provide recurring management services over a multi-year period, which are billed and collected on a monthly basis. The fees derived from these management arrangements are based on a predetermined percentage of the revenues of each facility or practice and are recognized in the period in which management services are rendered and billed. For the three and nine months ended September 30, 2020, other service revenues also includes optical service revenues, which consisted of handling charges billed to the members of the Company's optical products purchasing organization. The Company sold its optical products purchasing organization on December 31, 2020.
The following table sets forth patient service revenues by type of payor and as a percentage of total patient service revenues for the Company's consolidated surgical facilities (dollars in millions):
Three Months Ended September 30,
Patient service revenues:
Private insurance$271.4 49.2 %$257.4 52.6 %
Government248.0 45.0 %188.8 38.5 %
Self-pay15.9 2.9 %19.4 4.0 %
Other (1)
16.1 2.9 %24.2 4.9 %
Total patient service revenues551.4 100.0 %489.8 100.0 %
Other service revenues7.8 6.3 
Total revenues$559.2 $496.1 
Nine Months Ended September 30,
Patient service revenues:
Private insurance$790.5 49.6 %$682.6 52.8 %
Government700.6 44.0 %505.4 39.1 %
Self-pay46.9 2.9 %43.4 3.4 %
Other (1)
55.0 3.5 %62.1 4.7 %
Total patient service revenues1,593.0 100.0 %1,293.5 100.0 %
Other service revenues21.9 18.3 
Total revenues$1,614.9 $1,311.8 
(1)Other is comprised of anesthesia service agreements, automobile liability, letters of protection and other payor types.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash and cash equivalent balances at high credit quality financial institutions.
At December 31, 2020, cash, cash equivalents and restricted cash reported within the condensed consolidated statement of cash flows includes $0.3 million of restricted investments, which are reflected in other long-term assets in the condensed consolidated balance sheets. These restricted investments represented restricted cash held in accordance with the provisions of a long-term operating lease agreement held as security for performance under the Company's covenants and obligations within the agreement. The restrictions were released during the nine months ended September 30, 2021.
Accounts Receivable
Accounts receivable from third-party payors are recorded net of estimated implicit price concessions, which are estimated based on the historical trend of the Company's surgical hospitals’ cash collections and contractual write-offs, and for the Company's surgical facilities in general, established fee schedules, relationships with payors and procedure statistics. While changes in estimated reimbursement from third-party payors remain a possibility, the Company expects that any such changes would be minimal and, therefore, would not have a material effect on its financial condition or results of operations.
Accounts receivable consists of receivables from federal and state agencies (under the Medicare and Medicaid programs), private insurance organizations, employers and patients. Management recognizes that revenues and receivables from government agencies are significant to the Company's operations, but it does not believe that there is significant credit risk associated with these government agencies. Concentration of credit risk with respect to other payors is limited because of the large number of such payors.


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The Company recognizes that final reimbursement of accounts receivable is subject to final approval by each third-party payor. However, because the Company has contracts with its third-party payors and also verifies insurance coverage of the patient before medical services are rendered, the amounts that are pending approval from third-party payors are not considered significant. Amounts are classified outside of self-pay if the Company has an agreement with the third-party payor or has verified a patient’s coverage prior to services rendered. The Company's policy is to collect co-payments and deductibles prior to providing medical services. Patient services of the Company are primarily non-emergency, which allows the surgical facilities to control the procedures for which third-party reimbursement is sought and obtained. The Company does not require collateral from self-pay patients.
The Company's collection policies and procedures are based on the type of payor, size of claim and estimated collection percentage for each patient account. The Company analyzes accounts receivable at each of its surgical facilities to ensure the proper collection and aged category. Collection efforts include direct contact with third-party payors or patients, written correspondence and the use of legal or collection agency assistance, as required.
Goodwill represents the fair value of the consideration provided in an acquisition over the fair value of net assets acquired and is not amortized. Additions to goodwill include amounts resulting from new business combinations and incremental ownership purchases in the Company's subsidiaries. A summary of the Company's acquisitions and dispositions for the nine months ended September 30, 2021 is included in Note 2. "Acquisitions."

A summary of activity related to goodwill for the nine months ended September 30, 2021 is as follows (in millions):
Balance at December 31, 2020$3,468.0 
Acquisitions, including post acquisition adjustments145.7 
Divestitures and deconsolidations(0.1)
Balance at September 30, 2021$3,613.6 
A detailed evaluation of potential impairment indicators was performed as of September 30, 2021, which specifically considered the ongoing impact of the COVID-19 pandemic. On the basis of available evidence as of September 30, 2021, no indicators of impairment were identified. Future estimates of fair value could be adversely affected if the actual outcome of one or more of the Company's assumptions changes materially in the future, including a material decline in the Company’s stock price and the fair value of its long-term debt, lower than expected surgical case volumes, higher market interest rates or increased operating costs. Such changes impacting the calculation of fair value, the risks of which are amplified by the COVID-19 pandemic, could result in a material impairment charge in the future.
Derivative Instruments and Hedging Activities
The Company records all derivatives on the balance sheet at fair value and any financing elements treated as debt instruments are recorded at amortized cost. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
The Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Non-Controlling Interests—Redeemable
Each partnership and limited liability company through which the Company owns and operates its surgical facilities is governed by a partnership or operating agreement, respectively. In certain circumstances, the applicable partnership or operating agreements for the Company's surgical facilities provide that the facilities will purchase all of the physician limited partners’ or physician minority members’, as applicable, ownership if certain adverse regulatory events occur, such as it becoming illegal for the physician(s) to own an interest in a surgical facility, refer patients to a surgical facility or receive cash distributions from a surgical facility. The non-controlling interestsredeemable are reported outside of stockholders' equity in the condensed consolidated balance sheets.


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A summary of activity related to non-controlling interests—redeemable for the nine months ended September 30, 2021 and 2020 is as follows (in millions):
Balance at beginning of period$306.8 $321.0 
Net income attributable to non-controlling interests—redeemable33.8 19.3 
Acquisition (disposal) of shares of non-controlling interests, net—redeemable2.4 (7.9)
Distributions to non-controlling interest—redeemable holders(32.6)(27.7)
Balance at end of period$310.4 $304.7 
Income Taxes
The Company uses the asset and liability method to account for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If a carryforward exists, the Company makes a determination as to whether the carryforward will be utilized in the future. A valuation allowance is established for certain carryforwards when their recoverability is deemed to be uncertain. The carrying value of the net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If our expectations for future operating results on a consolidated basis or at the state jurisdiction level vary from actual results due to changes in health care regulations, general economic conditions, or other factors, we may need to adjust the valuation allowance, for all or a portion of our deferred tax assets. Our income tax expense in future periods will be reduced or increased to the extent of offsetting decreases or increases, respectively, in our valuation allowance in the period when the change in circumstances occurs. These changes could have a significant impact on our future earnings.
The Company and certain of its subsidiaries file a consolidated federal income tax return. The partnerships, limited liability companies, and certain non-consolidated physician practice corporations also file separate income tax returns. The Company's allocable portion of each partnership's and limited liability company's income or loss is included in taxable income of the Company. The remaining income or loss of each partnership and limited liability company is allocated to the other owners.
The Company's effective tax rate was (4.9)% for the nine months ended September 30, 2021 compared to 23.7% for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, the effective tax rate differed from 21% primarily due to discrete tax benefits of (a) $4.4 million related to the vesting of restricted stock awards, and (b) $3.0 million related to entity divestitures. For the nine months ended September 30, 2020, the effective tax rate differed from 21% primarily due to (a) discrete tax benefits of $6.9 million attributable to the release of federal and state valuation allowances on the Company’s Internal Revenue Code Section 163(j) interest carryforwards as a result of the increase in deductible interest expense allowed under the CARES Act, and $5.0 million attributable to a portion of the payments under the Settlement Agreement, as defined in Note 9. "Commitments and Contingencies," being classified as "restitution" for income tax purposes, and (b) a discrete tax expense of $5.0 million attributable to the impairment of goodwill. Based upon the application of interim accounting guidance, the tax rate as a percentage of net income after income attributable to non-controlling interests will vary based upon the relative net income from period to period.
Recent Accounting Pronouncements
In March 2020, the FASB issued Accounting Standard Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting and applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU is effective as of March 12, 2020 through December 31, 2022. Entities may adopt ASU 2020-04 as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Company is evaluating the impact of this ASU on its consolidated financial statements.


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2. Acquisitions
During the nine months ended September 30, 2021, the Company acquired controlling interests in four surgical facilities in new markets and two surgical facilities in existing markets that were merged into existing facilities for aggregate cash consideration of $