10-K

- -------------------------------------------------------------------------------



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K


(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
   [X]     SECURITIES EXCHANGE
           ACT OF 1934 [FEE REQUIRED]
           For the fiscal year ended August 31, 1996

           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the
           Transition period from __________ to __________

                         Commission file number: 1-11591

- -------------------------------------------------------------------------------


                                ORNDA HEALTHCORP
             (Exact name of Registrant as specified in its charter)

- -------------------------------------------------------------------------------



                   DELAWARE                               75-1776092
        (State or other jurisdiction of     (I.R.S. Employer Identification No.)
         incorporation or organization)

   3401 West End Avenue, Nashville, Tennessee                37203
    (Address of principal executive offices)               (Zip Code)

                                 (615) 383-8599
              (Registrant's telephone number, including area code)
                              --------------------

           Securities registered pursuant to Section 12(b) of the Act:
                          Common Stock, $.01 par value
                                (Title of class)

        Securities registered pursuant to Section 12(g) of the Act: None


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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of October 31, 1996, there were 58,362,456 shares of the Registrant's common
stock, $.01 par value, outstanding. The aggregate market value of the shares of
common stock held by non-affiliates of the Registrant, based on the $27.25
closing price of these shares on the New York Stock Exchange on October 31,
1996, was approximately $1.351 billion.



                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None



- -------------------------------------------------------------------------------

                                TABLE OF CONTENTS


                                     PART I

Item 1.   Business........................................................... 1

Item 2.   Properties.........................................................31

Item 3.   Legal Proceedings..................................................33

Item 4.   Submission of Matters to a Vote of Security-Holders................33

                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters
          ...................................................................34

Item 6.   Selected Financial Data............................................35

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations..........................................36

Item 8.   Financial Statements and Supplementary Data........................45

Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure...........................................45

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.................46

Item 11.  Executive Compensation.............................................50

Item 12.  Security Ownership of Certain Beneficial Owners and Management.....57

Item 13.  Certain Relationships and Related Transactions.....................58

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K...60

                                       -i-

                                     PART I

Item 1.   Business.

The Company(1)

     The Company is a provider of health care services in the United States,
delivering a broad range of inpatient and outpatient health care services in 15
states, primarily in urban and suburban communities in the southern and western
United States. At August 31, 1996, the Company operated 49 general acute care
hospitals, six surgery centers, numerous outpatient and specialty clinics, one
psychiatric hospital and a managed health care Medicaid plan (the "Medicaid
HMO") with approximately 34,000 participants.

     Services provided by the Company's hospitals include general surgery,
internal medicine, obstetrics, emergency room care, radiology, diagnostic
services, coronary care, pediatric services and psychiatric services. On an
outpatient basis, the Company's services include, among others, same-day
surgery, diagnostic radiology (e.g., magnetic resonance imaging, CT scanning,
X-ray), rehabilitative therapy, clinical laboratory services, pharmaceutical
services and psychiatric services. The Company's surgery centers provide a
cost-effective alternative to inpatient care for the performance of minor
surgeries. Certain of the Company's hospitals offer other specialized and
community-based services, including cardiac surgery, home health services,
pediatric care, rehabilitation, AIDS treatment and clinics specializing in the
treatment of industrial accidents and women's health. The Company also operates
the Medicaid HMO pursuant to which the Company currently provides health care
services, under fixed price contracts, to approximately 34,000 principally
indigent members of the Arizona Health Care Cost Containment System.

     The Company has expanded its service capabilities and broadened its
geographic presence in key geographic areas through a series of strategic
acquisitions of hospital management companies and individual facilities and
medical centers over the last three years. These acquisitions have provided the
basis for the Company's strategy of developing integrated health care delivery
networks to provide cost-effective, quality health care services.

     The Company was incorporated under the laws of the State of Delaware in
1981. The Company's principal executive offices are located at 3401 West End
Avenue, Nashville, Tennessee 37203 and its telephone number is (615) 383-8599.

Recent Developments-Proposed Merger

     On October 16, 1996, the Company entered into a definitive Agreement
and Plan of Merger with Tenet Healthcare Corporation ("Tenet") and OHC
Acquisition Co., a wholly-owned subsidiary of Tenet ("Merger Sub"), pursuant to
which, subject to the terms and conditions set forth therein, Merger Sub will
merge with and into the Company (the "Merger"). It is expected that the
transaction will be tax-free and accounted for as a pooling-of-interests. Under
the terms of the Agreement, which was approved by the Boards of Directors of the
Company and Tenet, the Company's stockholders will receive in the Merger 1.35
shares of common stock of Tenet and the associated preferred stock purchase
rights in exchange for each
- ------------------
         (1)The term "the Company" as used herein refers to OrNda HealthCorp and
its direct and indirect subsidiaries, affiliated partnerships and affiliated
limited liability companies, unless otherwise stated or indicated by context.
The term "subsidiaries" as used herein shall also mean affiliated partnerships
and affiliated limited liability companies.

                                       -1-

share of common stock of the Company. The shares of Tenet common stock to be
issued in the Merger will be registered under the Securities Act of 1933, as
amended. Consummation of the Merger is subject to a number of conditions,
including approval of the Company's and Tenet's stockholders and regulatory
approvals. See Note 10 to the Company's consolidated financial statements for
more information about the Merger.

     Tenet is headquartered in Santa Barbara , California, and at October
31, 1996 owned or leased and operated, through its subsidiaries, 76 acute care
hospitals and related businesses in 13 states.

     On October 17, 1996, the Company entered into a Stock Option Agreement
with Tenet whereby the Company has granted to Tenet an option to purchase up to
11,608,358 shares of the Company's common stock at a price of $29.869 per share,
exercisable only upon the occurrence of certain events. Also, on October 17,
1996 Tenet entered into a Stock Option Agreement with the Company whereby Tenet
has granted to the Company an option to purchase up to 28,388,098 shares of
Tenet's common stock at a price of $22.125 per share, exercisable only upon the
occurrence of certain events.

     In addition, on October 17, 1996, Tenet and certain stockholders of the
Company representing approximately 14% of the Company's outstanding shares
entered into certain Stockholder Voting Agreements providing, subject to the
terms and conditions set forth therein, that such stockholders will vote the
shares of common stock of the Company held by them in favor of the Merger.

Business Strategy

     In fiscal 1996 the Company operated with the following business
strategies:

     Development of Integrated Health Care Delivery Networks. The health
care industry has become increasingly dominated by governmental fixed
reimbursement programs and managed health care plans, causing cost containment
pressure to rise. In order to succeed in this environment, the Company has
selectively acquired health care providers with complementary geographic
locations and service capabilities, while continuing to develop relationships
with managed care organizations, other health care providers and physicians with
the goal of establishing integrated health care delivery networks. The Company
believes that the establishment of integrated networks will allow it to (i)
improve the quality of care provided by sharing expertise in the provision of
specialized services within each geographic area; (ii) extend the Company's
services into new geographic areas and provide the Company with access to a
broader base of patients; (iii) rationalize the use of expensive equipment by
sharing such equipment among nearby facilities and further reduce costs through
increased purchasing power and other economies of scale; and (iv) manage entire
episodes of illness on a coordinated, cost-effective basis, rather than through
the provision of costly, isolated treatments. The Company has utilized the
following approaches in connection with its development of integrated health
care delivery networks:

         o Hospitals as "Hubs" for Delivery Systems. The Company has established
         relationships with other health care providers in certain areas which
         it serves by building upon the primary and tertiary care provided by
         the Company's hospitals in such areas, and integrating these services
         with the outpatient and specialty services of other providers. The
         Company believes that hospitals are the logical hubs for the
         development of integrated health care delivery systems due to their
         highly developed infrastructure, extensive base of services,
         sophisticated equipment and skilled personnel.

                                       -2-

         o Flexibility to Participate in Varying Capacities in Different
         Networks. The Company's broad range of delivery capabilities provides
         it with the flexibility to participate in different capacities in the
         networks. For example, in areas in which the Company operates a large
         number of hospitals, it generally takes a leadership role in
         establishing relationships with other providers to develop integrated
         networks. In areas in which the Company is not one of the key providers
         of acute care services, the Company generally participates in networks
         by integrating its service capabilities with the local providers of
         complementary health care services. In addition, through its Medicaid
         HMO in Phoenix, Arizona and its national and regional managed care
         contracts, the Company has demonstrated its ability to provide health
         care services on a fixed rate contract basis in conjunction with both
         governmental and private payors. The Company intends to pursue
         opportunities for similar arrangements in connection with the
         development of networks in its other areas. In addition, the Company
         continually analyzes whether each of its hospitals fits within its
         strategic plans and may divest itself of hospitals that do not so fit.

         o Physician Alliances. The Company generally furthers its development
         of integrated networks by expanding its alliances with physicians to
         create long-term hospital/physician linkages. These arrangements allow
         physicians to participate in the delivery of health care at the network
         level. The alliances include: (i) encouraging physicians practicing at
         its hospitals to form independent physician associations ("IPAs"), (ii)
         having the Company join with those IPAs, physicians and physician group
         practices to form physician hospital organizations ("PHOs") to contract
         with managed care and other payors and (iii) forming management
         services organizations ("MSOs") to (A) purchase physician practices or
         their assets, as appropriate, (B) provide management and administrative
         services to physicians, physician group practices and IPAs and (C)
         enter into managed care contracts both on behalf of those groups and,
         in certain circumstances, on behalf of PHOs. For example, in southern
         California and south Florida, the Company has formed relationships with
         physician groups to participate in capitated health care contracts. The
         Company is pursuing similar arrangements with other physician groups
         and in other areas.

         o Operations in Key Geographic Areas. The Company has developed its
         operations in several key geographic areas that the Company recognizes
         as presenting growth opportunities. For example, the Company has
         developed and expects to continue to develop an integrated health care
         delivery network in California, which possesses a high concentration of
         managed care payors. Similarly, the Company is building health care
         delivery networks in Florida and Arizona, areas with dense populations
         and a significant managed care presence.

         o Managed Care Contracts. As cost containment pressures in the health
         care industry have increased and managed care arrangements have
         proliferated, the Company has attracted new contracts with managed care
         organizations including HMOs. The Company's geographic diversity,
         ability to provide a full range of medical services and cost-effective
         operations have led to its execution of a number of one important type
         of managed care contracts, risk sharing contracts that cover capitated
         lives. In its fiscal year ended August 31, 1996, the Company signed
         additional regional and national contracts with managed care
         organizations, including both risk sharing and non-risk sharing
         contracts. The Company believes its strategy of developing integrated
         health care delivery networks while reducing costs and increasing
         operating efficiencies positions it to attract additional managed care
         contracts in the future.

                                       -3-

     Strategic Acquisitions. The Company has pursued strategic acquisitions
of health care providers in geographic areas and with service capabilities that
will facilitate the development of integrated networks. For example, in August
1996 the Company acquired Centinela Hospital Medical Center ("Centinela"), a
provider of tertiary care services in a 400-bed acute care facility located in
Inglewood, California. The Company had a primary care presence in this area
prior to such acquisition and is in the process of integrating the tertiary care
services provided by Centinela with those provided by its primary care hospitals
in nearby communities, thereby furthering the development of an integrated
network of providers in these areas. Similarly, the Company believes that its
January 1996 acquisition of Houston Northwest Medical Center, a provider of
tertiary care services in the Houston area, provided the Company with an
opportunity to develop an integrated health care delivery network by
establishing relationships with other health care providers in the area. In
furtherance of this strategy in the northwest Houston area, the Company also
acquired Cypress Fairbanks Medical Center in July 1996. Also, the November 1995
acquisition by the Company of Universal Medical Center (now, Florida Medical
Center, South) in Plantation, Florida will, in the Company's view, enhance the
Company's integrated network in the south Florida area and permit the Company to
provide cost effective obstetric and pediatric specialty services in the area.
See "Recent Acquisitions" and "Pending Acquisitions."

     Outpatient Services. Pressures to contain health care costs and
technological developments allowing more procedures to be performed on an
outpatient basis have led payors to demand a shift to ambulatory or outpatient
care wherever possible. The Company has responded to this trend by enhancing its
hospitals' outpatient capabilities through (i) selective conversion of excess
acute care bed capacity for use in outpatient treatment; (ii) improvement of
outpatient diagnostic services; (iii) a more efficient outpatient admissions
process; and (iv) a restructuring of existing surgical capacity to allow greater
concentration in the outpatient area. The Company's facilities will emphasize
those outpatient services that the Company believes will grow in demand and that
can be provided on a cost-effective, high-revenue- growth basis. The Company
believes that it is well positioned to compete effectively with alternate site
providers of outpatient services because its general acute care hospitals are
able to offer a broader range of services at competitive prices. The Company
intends to continue to make capital expenditures to expand and upgrade its
outpatient facilities.

     Cost Reduction Programs. An important component of the Company's
strategy is to position itself as a cost-effective provider of health care
services in each of its markets. As cost containment pressures have increased,
the Company has continued to focus on improving operating performance and
efficiency through the following key operating initiatives: (i) rationalization
of services and technologies in all facilities; (ii) standardization of medical
supply purchasing practices and usage; (iii) improvement of patient management,
resource consumption and reporting procedures; (iv) improvement in salary and
wage expenses by monitoring staff levels and developing productivity standards;
and (v) reduction in purchased services expense through more effective use of
outsourcing arrangements. The Company intends to continue to apply these
operating initiatives throughout its existing networks and facilities and in
connection with any future acquisitions.

     Community-Based Services. The Company intends to continue to implement
specialty programs on a selective basis to maintain and enhance the range and
quality of its health care services. The Company focuses on the particular needs
of each community it serves and tailors its services based upon local conditions
and the Company's ability to provide such services on a competitive basis.
Examples of specialty services provided by the Company in response to local
demand include rehabilitation services, home health services, AIDS treatment,
cardiac surgery, weight loss services, pain treatment programs, pediatric care,

                                       -4-

hemodialysis and women's health services. In designing and implementing such
programs, the Company analyzes general demographic information and specific
demand data generated by its hospitals, and seeks to work with physicians,
employers and other members of the local community.

Recent Acquisitions

     The Company has expanded its service capabilities and broadened its
geographic presence in core markets through a series of strategic acquisitions
of health care providers over the last three years.

Fiscal 1994

     AHM Merger. On April 19, 1994, the Company acquired American Healthcare
Management, Inc. ("AHM") in a merger transaction (the "AHM Merger") accounted
for as a pooling of interests. Stockholders of AHM received an aggregate of 16.6
million newly-issued shares of the Company's common stock for their outstanding
shares of AHM common stock. Prior to the AHM Merger, AHM was a publicly-held
hospital management company operating 16 general acute care hospitals.

     Summit Health Merger. Concurrently with the AHM Merger, the Company
acquired Summit Health Ltd. ("Summit Health") in a merger transaction accounted
for as a purchase (the "Summit Merger" and, together with the AHM Merger, the
"1994 Mergers"). Stockholders of Summit Health received an aggregate of $192.1
million in cash and 7.5 million newly-issued shares of the Company's common
stock for their outstanding shares of Summit Health common stock. Prior to the
Summit Merger, Summit Health was a publicly-held hospital management company
which operated 12 general acute care hospitals and a variety of outpatient
specialty health care clinics and programs.

     Fountain Valley. On August 9, 1994, the Company purchased Fountain
Valley Regional Hospital and Medical Center ("Fountain Valley"), a provider of
tertiary care services in Orange County, California. The total purchase price of
approximately $105.2 million was paid in cash. The transaction also included
approximately $41.0 million paid by an unrelated real estate investment trust
which, at the Company's direction, purchased and is leasing to the Company
certain of Fountain Valley's real estate. Fountain Valley, located in Fountain
Valley, California, comprises a 413-bed tertiary care hospital, a surgery
center, an imaging center and four medical office buildings.

Fiscal 1995

     St. Lukes. On February 13, 1995, the Company acquired three hospitals
and related health care businesses located in the Phoenix, Arizona metropolitan
area that comprised substantially all of the health care businesses of the St.
Luke's Health System ("St. Luke's"). The three hospitals acquired were St.
Luke's Medical Center, a 221-bed acute care hospital in Phoenix; Tempe St.
Luke's Hospital, a 110-bed acute care hospital in Tempe; and St. Luke's
Behavioral Health Center, an 86-bed psychiatric hospital in Phoenix. Other
related businesses acquired include a 55-bed skilled nursing care unit in
Phoenix, Advantage Health, a Medicaid HMO plan which was merged with the
Company's Medicaid HMO, and certain rehabilitation and clinic businesses. The
aggregate consideration paid for St. Luke's was approximately $120.3 million,
subject to certain post-closing adjustments. Approximately $3.0 million of the
purchase price was paid through the issuance of the Company's common stock and
approximately $65.0 million was paid in cash by an unrelated real estate
investment trust which, at the Company's direction, purchased and is leasing to
the Company substantially all of St. Luke's real estate, with the balance paid
by the Company in cash.

                                       -5-

Fiscal 1996

     Houston Northwest. Effective January 1, 1996, the Company acquired from
the HNW Employee Stock Ownership Plan (the "ESOP") all of its controlling
capital stock ownership interest (the "ESOP Shares") in Houston Northwest
Medical Center, Inc. ("HNW"), whose principal asset is a 498-bed tertiary care
hospital in Houston, Texas, known as Houston Northwest Medical Center, for a
purchase price of approximately $125 million in cash and the assumption or
repayment of approximately $29 million of HNW third party, long-term
indebtedness. At the time of the acquisition, the Company already owned mortgage
debt of, and preferred stock in, HNW which was included on the Company's balance
sheet as of August 31, 1995, as a $73.8 million investment. As a result of the
acquisition of the ESOP Shares, the Company obtained ownership of 100% of the
capital stock of HNW.

     To obtain financing for the acquisition of HNW as well as other
strategic acquisitions, in October 1995 the Company executed a $900 million
Amended and Restated Credit, Security, Guaranty and Pledge Agreement (the
"Restated Credit Facility") among the Company and two subsidiaries of the
Company (OrNda Hospital Corporation and AHM Acquisition Co., Inc.) as Borrowers,
the Guarantors named therein, the Lenders named therein, The Bank of Nova Scotia
("Scotiabank") as Administrative Agent for the Lenders, Scotiabank and Citicorp
USA Inc. ("Citicorp") as Co-Syndication Agents for the Lenders, Citicorp as
Documentation Agent for the Lenders, General Electric Capital Corporation, The
Industrial Bank of Japan, Limited, New York Branch, The Long-Term Credit Bank of
Japan, Limited, New York Branch, NationsBank N.A., The Toronto-Dominion Bank and
Wells Fargo Bank, as Co-Agents for the Lenders, and AmSouth Bank of Alabama,
Bank of America NT & SA, CoreStates Bank, N.A., Credit Lyonnais Cayman Island
Branch, Creditanstalt-Bankverein and Deutsche Bank AG, New York and/or Cayman
Islands Branch, as Lead Managers for the Lenders. The Restated Credit Facility
amended the Company's previous Credit, Security, Guaranty and Pledge Agreement,
dated April 19, 1994 (the "Previous Credit Facility"), and increased the
facility from $660 million to $900 million. The Restated Credit Facility became
effective on October 30, 1995.

     The Restated Credit Facility, which matures October 30, 2001, consists
of (i) a revolving commitment of $440 million to refinance a portion of the debt
outstanding under the Previous Credit Facility, for general corporate purposes
(including, without limitation, acquisitions) and to issue up to $50 million of
letters of credit and (ii) a $460 million term loan to refinance a portion of
the debt outstanding under the Previous Credit Facility, payable in quarterly
installments, which commenced February 29, 1996. At October 31, 1996, the
Company had approximately $742.6 million of borrowings and letters of credit
outstanding under the Restated Credit Facility.

     Centinela. Effective August 1, 1996, the Company acquired Centinela
Hospital Medical Center ("Centinela"), a 400-bed acute care hospital located in
Inglewood, California. Also, acquired in this acquisition were eight primary
care clinics owned and operated by Centinela in the vicinity of the hospital.
This acquisition added another tertiary care hospital and some primary care
clinics to the Company's sixteen other hospitals in southern California.

     Saint Vincent/Fallon Healthcare System. Effective September 1, 1996,
the Company acquired Saint Vincent Healthcare System, an integrated health care
delivery system, consisting of a 432-bed acute care teaching hospital in
Worcester, Massachusetts, three skilled nursing facilities and other health
related

                                       -6-

companies, and a minority interest in a 280-member multi-specialty group
physician practice, the Fallon Clinic.

     Also, in connection with this acquisition, the Company has agreed to
fund the construction of a new replacement hospital known as Medical City, which
will be located in downtown Worcester, Massachusetts. Once the facility is
operational, a majority of services currently provided at Saint Vincent Hospital
will be transferred to the new medical center, which will include 299 acute care
inpatient beds, a Level II trauma center, physician offices and diagnostic and
other ancillary services.

     This integrated health care delivery system consists of Saint Vincent
Healthcare System, the Fallon Clinic and the Fallon Community Health Plan. It is
a physician-directed model that allows physicians to coordinate care for their
patients within a seamless delivery system. Although the Health Plan was not
acquired by the Company, there are long-term contracts among the Health Plan and
Saint Vincent Hospital and the Fallon Clinic.

     Other Fiscal  Year 1996 Acquisitions.

     Also, the Company acquired the following additional hospitals in its
fiscal year ended August 31, 1996, each of which hospitals complements existing
operations of the Company's other hospitals:

                                                                                              
State                 Name                                         Location              Effective        Licensed
                                                                                           Date           Beds
Florida               Universal Medical Center                     Plantation, FL        11/1/95          202
                      (now, Florida Medical Center, South)

California            Westside Hospital                            Los Angeles, CA       7/1/96           68

Texas                 Cypress Fairbanks Medical Center             Houston, TX           7/1/96           149



     Through these acquisitions in the last three years the Company has
expanded its service capabilities and broadened its geographic presence in
certain strategic areas in order to position the Company as a provider of
cost-effective quality health care services.

Pending Acquisitions

     At November 12, 1996, the Company has pending two strategic
acquisitions which are described below.

     In October 1996 the Company and United Western Medical Centers
("United"), a not-for-profit corporation headquartered in Santa Ana, California,
executed definitive agreements for the Company to acquire substantially all of
United's assets which consist primarily of Western Medical Center, a 288-bed
acute care hospital in Santa Ana, California; Western Medical Center-Anaheim, a
193-bed acute care hospital in Anaheim, California; and Western Medical
Center-Bartlett, a 202-bed skilled nursing facility in Santa Ana, California.
These facilities will further enhance the Company's integrated delivery network
in southern California by becoming the Company's 18th and 19th hospitals in the
area. The closing of this transaction

                                       -7-

is subject to customary closing conditions, Board of Directors' approvals,
review by the California Attorney General and review under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.

     Additionally, on October 25, 1996, the George Washington University and
the Company executed a letter of intent to form a partnership to operate the
University's 170-year old academic medical hospital in Washington, D.C. in which
the Company would have a 80% partnership interest and the George Washington
University would have a 20% partnership interest. Under the proposed agreement,
which is subject to board and regulatory approvals, the hospital will continue
its educational mission and charity care, as well as improve its facilities and
create an integrated health care delivery network. The George Washington
University Medical Center is an acute care teaching facility located in the
Foggy Bottom area of Washington, D.C.

Risks Associated with Acquisition Strategy

     The Company has recently completed several acquisitions of health care
providers and intends to pursue additional acquisitions. See "Recent
Acquisitions" and "Pending Acquisitions." There can be no assurance that the
Company will be able to realize expected operating and economic efficiencies
from its recent acquisitions or from any future acquisitions. In addition, there
can be no assurance that the Company will be able to locate suitable acquisition
candidates in the future, consummate acquisitions on favorable terms or
successfully integrate newly acquired businesses and facilities with the
Company's operations. The consummation of acquisitions could result in the
incurrence or assumption by the Company of additional indebtedness, subject to
debt incurrence restrictions set forth in the Restated Credit Facility.

Health Care Facilities

     At August 31, 1996, the Company operated 49 general acute care
("general" or "acute care") hospitals, one psychiatric hospital, numerous
outpatient and specialty clinics and six surgery centers in 15 states, primarily
in the southern and western United States. The hospitals are owned or leased by
subsidiaries of the Company or through joint venture arrangements with
subsidiaries of the Company. At August 31, 1996, the Company operated 17
hospitals in southern California, and believes that it is able to offer quality,
cost-effective health care services by integrating its primary and tertiary care
facilities in the area. In the greater Phoenix, Arizona area, the Company
operated at August 31, 1996, five hospitals, two surgery centers and a Medicaid
HMO (Health Choice Arizona) which provides services principally to indigents in
the State of Arizona under fixed price contracts. At August 31, 1996, the
Company operated five hospitals in Florida and eight hospitals in Texas. The
Company also operated at August 31, 1996 hospitals in the following states:
Indiana, Iowa, Louisiana, Mississippi, Missouri, Nevada, Oregon, Washington,
West Virginia and Wyoming. Effective September 1, 1996, the Company began
operating its first hospital in Massachusetts. In addition, at August 31, 1996,
the Company owned or leased all or a substantial part of approximately 70
medical office buildings located in proximity to its hospitals. See Item
2-"Properties."

     Of the 50 hospitals operated by the Company at August 31, 1996, 17
hospitals are located in southern California and two hospitals are located
elsewhere in California. The Company's 19 California acute care hospitals
generated approximately 36.4% of its total revenue for the year ended August 31,
1996. In addition, five hospitals which generated approximately 16.5% of the
Company's total revenue for the 1996 fiscal year are located in Florida, six
hospitals which generated approximately 9.7% of the Company's total revenue for
the 1996 fiscal year are located in Arizona and eight hospitals which generated
approximately 16.0% of the Company's total revenue for the 1996 fiscal year are
located in Texas. The concentration of

                                       -8-

hospitals in Arizona, California, Florida and Texas increases the risk that any
adverse economic, regulatory or other developments that may occur in such areas
may adversely affect the Company's operations or financial condition. In
addition, the Company has experienced, and expects that it will continue to
experience, delays in payment and in rate increases by Medi-Cal, the name of the
state Medicaid program in California. Although these delays have not had a
material adverse effect on the Company, there can be no assurance that future
delays will not have such an effect.

Hospital Operations

     Services provided by the Company's general hospitals include general
surgery, internal medicine, obstetrics, emergency room care, radiology,
diagnostic services, coronary care, pediatric services and psychiatric services.
On an outpatient basis, the Company's services include, among others, same-day
surgery, diagnostic radiology (e.g., magnetic resonance imaging, CT scanning,
X-ray), rehabilitative therapy, clinical laboratory services, pharmaceutical
services and psychiatric services.

     Each Company hospital is managed on a day-to-day basis by a hospital
chief executive officer and chief financial officer. The Company has implemented
incentive compensation programs designed to reward hospital management personnel
for accomplishing established performance goals.

     The medical, professional and ethical practices (including the
performance of medical and surgical procedures) of each of the Company's
hospitals are generally supervised and regulated by the hospital's Board of
Trustees, which generally includes practicing physicians, members of the
community and representatives of the Company management, and by the hospital's
medical staff. Subject to the control of the hospital's Board of Trustees, the
medical staff of each hospital supervises and regulates its members and the
medical activities of the hospital. In turn, the Board of Trustees is subject to
the general control of the board of directors of the Company's subsidiary which
owns the hospital.

     In addition to providing capital resources, the Company provides a
variety of management services to its hospitals, including information systems,
human resource management, reimbursement, finance and technical accounting
support, purchasing support, legal and tax services and construction management.
The Company establishes fiscal and accounting policies at the corporate level
for use at each of its facilities. Also, all major capital expenditure decisions
must be approved by senior corporate management.

     The Company also has established a quality assurance committee at each
of its hospitals under the direction of a physician to review and to set
standards for medical practices and nursing care and to assure compliance with
regulatory standards. These committees develop quality assurance programs
involving all departments, medical staffs, patients and services, and
periodically monitor patient care, including admissions, discharges, length of
stay and treatment. The Company also has established utilization review
committees that monitor patient care. Additionally, the Company requires that
each of its hospitals has a plan for continuous quality improvement in its
delivery of health care services.

     Like most hospitals, the Company's hospitals do not engage in extensive
medical research and medical education programs. However, some of the Company's
hospitals have an affiliation with medical schools, including the clinical
rotation of medical students.

                                       -9-

     The following table sets forth certain combined historical operating
statistics for the hospitals operated by the Company, including AHM, for each of
the periods indicated:


                                                                           Years Ended August 31,
                                                                                                       
                                                             1992          1993         1994          1995            1996
                                                             ----          ----         ----          ----            ----
Number of hospitals at period end.................             31            34           46            46              50
Licensed beds at period end.......................          5,210         6,114        8,025         8,069           9,685
Patient days......................................        727,226       711,621      871,938     1,076,782       1,187,421
Adjusted patient days(1)..........................      1,018,788       991,760     1,201,98     1,512,070       1,732,203
Average length of stay(days)......................            6.2           6.0          4.9           5.3             5.0
Admissions........................................        117,248       118,284      179,085       204,204         237,669
Adjusted admissions(2)............................        163,350       164,845      246,872       286,753         346,711
Occupancy rate(3).................................          38.2%         35.7%        35.2%         36.4%           38.1%

- ------------------

(1) Total patient days for the period multiplied by the ratio of total patient
revenue divided by total inpatient revenue. (2) Total admissions for the period
multiplied by the ratio of total patient revenue divided by total inpatient
revenue.
(3) Average daily census for the period divided by licensed beds.


         Consistent with industry trends, the Company's hospitals have
experienced a significant shift from inpatient to outpatient care as well as
decreases in average lengths of inpatient stay primarily as a result of hospital
payment changes by Medicare, insurance carriers and self-insured employers.
These changes generally encourage the utilization of outpatient, rather than
inpatient, services whenever possible, and shortened lengths of stay for
inpatient care. As a result, outpatient utilization has increased over the past
five years and represents approximately 31.3% of gross patient revenues for the
year ended August 31, 1996 while average lengths of patient stay have decreased
from 6.2 days for fiscal 1992 to 5.0 days for fiscal 1996. Another factor
affecting hospital utilization levels is improved treatment protocols as a
result of medical technology and pharmacological advances. The Company's growth
in outpatient gross revenue and more intensive utilization of ancillary
services, along with inpatient price increases, have resulted in net revenue
growth despite decreases in inpatient volume and decreases in average length of
inpatient stay. The Company is unable to predict whether such trends will
continue.

     The Company's hospitals experience seasonal fluctuations in occupancy,
with the highest number of admissions taking place in January through April, and
the lowest in November and December. Seasonal fluctuations result from various
factors, including seasonal cycles of illness, climate and weather conditions,
vacation patterns of both hospital patients and admitting physicians and other
factors relating to the timing of elective hospital procedures.

     Medicaid HMO. With its acquisitions of Summit Health and St. Luke's,
the Company obtained ownership of two Medicaid HMO's which have been merged and
are run under the name Health Choice Arizona ("HCA"). Since October 1990, HCA
has had a contract with the State of Arizona to provide health care services to
members of the Arizona Health Care Cost Containment System ("AHCCCS"). AHCCCS
administers the Medicaid and other state health care assistance programs in
Arizona and also contracts for health care services for certain other groups
such as employers with less than 40 employees. HCA's current contract covers
approximately 34,000 members in Maricopa County and Pima County, Arizona which
contain the Phoenix and Tucson metropolitan areas. HCA's business represents a
significant percent of the net revenues of the Company's six hospitals and two
surgery centers in Arizona.

                                      -10-

Sources of Revenue

     In General. The sources of the Company's hospital revenues are charges
related to the services provided by the hospitals and their staffs, such as
radiology, operation rooms, pharmacy, physiotherapy and laboratory procedures,
and basic charges for the hospital room and related services such as general
nursing care, meals, maintenance and housekeeping. The Company receives payment
for health care services from (i) the federal government under the Medicare
program, (ii) state governments under their respective federally-regulated
Medicaid programs, (iii) managed care operators, including health maintenance
organizations ("HMOs") and preferred provider organization ("PPOs") and (iv)
other private payors including commercial insurers like Blue Cross and patients
directly. In addition, some states, such as California and Washington, are
contracting with private HMOs to provide benefits to Medicaid recipients.
Further, Medicare also contracts with private HMOs to provide benefits to
Medicare beneficiaries. The following table sets forth the approximate
percentages of total gross operating revenue of the Company from the sources
indicated for each of its three most recently completed fiscal years:

                                               1994          1995          1996
                                               ----          ----          ----
Medicare........................              45.4%         40.4%         37.7%
Medicaid/Medi-Cal...............              18.3%         18.3%         18.4%
Managed Care....................              23.3%         26.9%         31.4%
All Other Payors................              13.0%         14.4%         12.5%
                                              -----         -----         -----
   Total:.......................             100.0%        100.0%         100.0%
                                             ======        ======         ======

     Hospital gross revenues depend upon inpatient occupancy levels, the
extent to which ancillary services and therapy programs are ordered by
physicians and provided to patients and the volume of outpatient procedures.
Reimbursement rates for inpatient routine services vary significantly depending
on the type of service (e.g., acute care, intensive care or psychiatric) and the
geographic location of the hospital. The Company has experienced an increase in
the percentage of patient revenues attributable to outpatient services in recent
years. This increase is primarily the result of advances in technology (which
allow more services to be provided on an outpatient basis), construction or
acquisition of additional outpatient facilities and increased pressures from
Medicare, Medicaid, HMOs, PPOs and insurers to reduce hospital stays and provide
services, where possible, on a less expensive outpatient basis. The Company's
experience with respect to increased outpatient volume mirrors the trend in the
hospital industry.

     Most hospitals (including all of the Company's hospitals) derive a
substantial portion of their revenue from the Medicare and Medicaid programs,
which are governmental programs designed to reimburse participating health care
providers for covered services rendered and items furnished to qualified
beneficiaries. Both of these governmental programs are heavily regulated and
subject to frequent changes which in recent years have reduced, and in future
years are expected to continue to reduce, Medicare and Medicaid payments to
hospitals. In light of its hospitals' high percentage of Medicare and Medicaid
patients, the Company's ability in the future to operate its business
successfully will depend in large measure on its ability to adapt to changes in
these programs. See "Governmental Regulation - Health Care Reform".

     The Medicare program is designed primarily to provide health care
services to persons aged 65 and over and those who are chronically disabled or
who have End Stage Renal Disease. The Medicaid program is designed to provide
medical assistance to the medically indigent. Medicaid is a joint federal and
state program in which states voluntarily participate. Payment rates under the
Medicaid program are set by each

                                      -11-

participating state, and rates and covered services may vary from state to
state, although such variations are subject to a framework of federal
requirements. Over 50% of Medicaid funding comes from the federal government,
with the balance shared by state and local governments. The Medicare program is
administered by the federal government, primarily the Department of Health and
Human Services ("HHS") and the Health Care Financing Administration ("HCFA"),
while the Medicaid program is administered by individual state governments,
subject to compliance with federally mandated requirements in order to obtain
federal financial participation.

     Amounts received under Medicare, Medicaid and from managed care
organizations and certain other private insurers generally are less than the
hospital's customary charges for the services provided. Patients are not
generally responsible for any differences between customary charges and amounts
reimbursed under these programs for such services, but are responsible to the
extent of any exclusions, deductibles or co-insurance features of their
coverage. In recent years, the Company's facilities have experienced an increase
in the amount of such exclusions, deductibles and co-insurance. In addition, the
major governmental and private purchasers of health care are increasingly
negotiating the amounts they will pay for services performed, and managed care
operators, which offer prepaid and discounted medical service packages,
represent a growing segment of health care payors. The Company believes that its
recent acquisition activity, together with the business strategies described
above, will position the Company to compete more effectively in this changing
environment.

     Medicare. Beginning in 1983, reimbursement to hospitals under the
Medicare program changed significantly and these changes have had, and are
expected to continue to have, significant adverse effects on the Company's
hospitals and the health care industry in general. Prior to 1983, Medicare
reimbursed general hospitals on a cost-based system for inpatient services,
capital costs and outpatient services. In 1983, in the most significant change,
Medicare established a prospective payment system for inpatient services under
which inpatient discharges from general hospitals are classified into categories
of treatments, known as Diagnosis Related Groups ("DRGs"), which classify
illnesses according to the estimated intensity of hospital resources necessary
to furnish care for each principal diagnosis. Under this prospective payment
system hospitals generally receive a fixed amount based upon a value assigned to
the DRG, which amount is calculated on a per discharge basis for each Medicare
patient (as adjusted for area wage differentials). The DRG payment is a set rate
(the "DRG rate"), and is generally paid regardless of how long the patient
actually stays in the hospital or what costs are actually incurred in providing
care to a particular Medicare patient. If the actual cost of caring for a
patient is less than the DRG payment, the hospital is allowed to keep the excess
payment as profit; if the cost is more than the DRG payment, the hospital must
generally absorb the loss. (For extremely unusual cases, known as "outliers,"
additional payments may be made to the hospital.) The purpose of the prospective
payment system is to encourage hospitals to operate more efficiently and to
avoid unnecessary utilization of health care services.

     Primarily as a result of federal budget deficit considerations, for
several years the annual percentage increases to the DRG rates have been lower
than both the inflationary percentage increases in the cost of goods and
services purchased by all general hospitals and the inflationary increases in
the Company's costs. The index used by HCFA to adjust the DRG rates gives
consideration to the annual increases in the cost of goods and services
purchased by hospitals (the "Market Basket"). The increase in the Market Basket
for the fiscal years beginning October 1, 1995 and October 1, 1996 were
established as 3.5% and 2.5%, respectively. However, in recent years federal
legislation has reduced the increases in the DRG rates below the Market Basket
amounts. Thus, pursuant to the Omnibus Budget Reconciliation Act of 1993 ("OBRA
1993"), the DRG rates for hospitals it classifies as "large urban" (the class
hospital from which more than 90% of the

                                      -12-

Company's revenue comes) were or will be adjusted by the annual Market Basket
percentage change: (1) minus 2.0%, effective October 1, 1995, (2) minus 0.5%,
effective October 1, 1996, and (3) without reduction, effective October 1, 1997
and each year thereafter, unless, in each case, altered by subsequent
legislation (which the Company deems likely given the current emphasis on
decreasing the federal budget deficit). Unless changed by subsequent
legislation, the result will be an increase of 2.0% in the DRG rates for federal
fiscal year ("FFY") 1997 over what such rates were for FFY 1996. At November 12,
1996, Congress is in the process of establishing the health care budget for
future periods, including FFY 1997. The Company anticipates that payments to
hospitals will be reduced as a result of future legislation but is unable to
predict what the amount of the final reduction will be. See "Governmental
Regulation - Health Care Reform".

     The Company's one psychiatric hospital, as well as the psychiatric and
rehabilitation units in some of its hospitals that are certified by the
respective state licensure bureaus as distinct part units of such general
hospitals, are currently exempt from the prospective payment system and are
reimbursed on a cost-based system wherein target rates for each facility are
used in applying various limitations and incentives. Such facilities received a
Market Basket increase of 3.4% in target rates effective for cost reporting
periods commencing in FFY 1996 and such increase is expected to be 2.5% in FFY
1997. Based on OBRA 1993, the target rates for such facilities exempt from the
prospective payment system are scheduled to be adjusted in cost reporting years
FFY 1996 and FFY 1997 by the applicable annual Market Basket percentage change
minus 1%. Proposals have been made that would change the method of payment for
services provided at these facilities to a prospective payment system. The
Omnibus Budget Reconciliation Act of 1990 ("OBRA 1990") requires HHS to develop
a proposal to modify the current target rate system or to replace it with a
prospective payment system. It cannot be predicted by the Company if any such
proposals will be implemented.

     Prior to October 1, 1990, Medicare payments for outpatient
hospital-based services were generally the lower of hospital costs or customary
charges. Due to federal budget restraints, OBRA 1990 and OBRA 1993 reduced the
cost component by 5.8% for FFY's 1991 through 1998 so that currently Medicare
payments for the majority of outpatient services generally are the lower of
94.2% of hospital costs, customary charges or a blend of 94.2% of hospital costs
and a fee schedule (such fee schedule generally being lower than hospital
costs). Outpatient laboratory services are paid based on a fee schedule which is
substantially lower than customary charges. Certain ambulatory surgery
procedures are paid for at a rate based on a blend of hospital costs and the
rate paid by Medicare for similar procedures performed in free-standing
ambulatory surgery centers. Certain radiology and other diagnostic services are
paid on a blend of actual cost and prevailing area charge.

     The provisions of OBRA 1990 required the Secretary of HHS to develop a
proposal for a prospective payment system for all hospital-based outpatient
services. The Secretary's report, which was due on September 1, 1991, was
submitted to Congress on March 17, 1995. The Secretary's report recommends a
phase-in of a prospective payment system for outpatient services with
prospective payment rates, known as Ambulatory Payment Groups ("APGs"), being
established initially for surgical and radiological services and other
diagnostic procedures that account for almost half of hospital outpatient
Medicare charges. Other groups of outpatient services would be brought under a
prospective payment system as appropriate methodologies are developed. The
report also addressed changes to beneficiary coinsurance and the computation of
coinsurance under the current blended payment method. Implementation of the
Secretary's proposals would require Congress to enact legislation. The effect on
the Company of a change to a prospective payment system or other changes to the
existing payment system for Medicare outpatients, if legislation were to be
enacted, cannot be predicted by the Company at this time. Gross Medicare
outpatient

                                      -13-

revenues were approximately 30.3% of the Company's total gross outpatient
revenues, or approximately 9.5% of the Company's total gross operating revenues,
for the year ended August 31, 1996.

     In addition to the operating payments described above, the Medicare
program historically provided reimbursement to hospitals for certain costs of
capital (such as depreciation, property taxes, rent and interest) on a
reasonable cost basis. However, pursuant to final HHS regulations issued in
August 1991, reimbursement for capital expenditures related to inpatient care
was incorporated into a prospective payment system which will be phased in over
a ten-year transition period beginning October 1, 1991 during which many
hospitals actual capital costs will be given less consideration and the Federal
Rate (as defined below) will be given more consideration each year. The
regulations establish a standard federal rate per discharge for capital-related
inpatient hospital costs (the "Federal Rate"). The Federal Rate is based on the
estimated FFY 1992 national average Medicare inpatient capital-related cost per
discharge under cost reimbursement. A hospital is paid under one of the
following two different payment methodologies during this transition period: (i)
hospitals with a hospital-specific rate (the rate established for a hospital
based on the cost report ending on or before December 31, 1990) below the
Federal Rate would be paid on a fully prospective payment methodology and (ii)
hospitals with a hospital-specific rate above the Federal Rate would be paid
based on a hold-harmless payment methodology or 100% of the Federal Rate
whichever results in a higher payment, subject to a 90% cap through FFY 1995
enacted by OBRA 1990 which is described in the following sentence. As required
by OBRA 1990, however, the Federal Rate was adjusted in FFY 1992 through FFY
1995 so that aggregate payments for capital did not exceed 90% of the amounts
that would have been payable under a reasonable cost reimbursement basis. This
adjustment mandated by OBRA 1990 expired on September 30, 1995. The expiration
of this OBRA 1990 provision reset the total capital payments in FY 1996 to 100%
of aggregate capital costs.

     To date the impact of prospective payment system capital reimbursement
related to inpatient care has not been material to the Company's Medicare
capital reimbursement. The established Federal Rate for FFY 1994 was reduced by
9.33% to $378 per patient discharge, and for FFY 1995 was reduced by 0.4% to
$377 per patient discharge. The established Federal Rate for FFY 1996 increased
22.5% to $461.96 per patient discharge. This increase was primarily the result
of the expiration of the "90% adjustment" provision of OBRA 1990 on September
30, 1995 that is mentioned above. (Legislation passed by Congress in 1995 and
vetoed by the President would have resulted in a reduction of the capital
payment rate for FFY 1996 rather than the increase caused by such OBRA 1990
provision expiring.) In FFY 1997 the Federal Rate will fall by 4.99% to $438.92
due to budget neutrality adjustments. Thus, based upon these changes and the
Company's analysis of the manner in which these regulations have been applied by
HHS, the Company does not believe that, in aggregate, its hospitals have been
materially affected by these regulations in recent years. Payments for future
years, however, including those related to new capital expenditures, will be
affected by annual updates in the Federal Rate and the possibility of future
legislation reducing capital reimbursement which the Company feels is likely.
However, management cannot predict the effect of such changes on the Company's
results of operations or financial condition.

The Medicare program also reimburses each hospital on a reasonable cost
basis for the Medicare program's pro rata share of the hospital's allowable
capital costs related to outpatient services. Outpatient capital reimbursement
was reduced by 15% (i.e., 85% of outpatient capital costs) during FFY 1990 and
OBRA 1990 extended the 15% reduction through FFY 1991. OBRA 1990 further
directed that outpatient capital reimbursement be reduced by only 10% beginning
FFY 1992 through FFY 1995. OBRA 1993 extended the 10% reduction through FFY
1998.

                                      -14-

     During the 1980's automatic spending cuts occurred in Medicare program
payments under the "Gramm-Rudman-Hollings Amendment" enacted by Congress in
December 1985. Pursuant to OBRA 1990, Congress revised the Gramm-Rudman budget
and sequestration process and established a "pay-as-you-go" system for
entitlement programs, including Medicare. Thus, legislation increasing
entitlements and/or reducing revenues must be deficit-neutral (i.e., it must pay
for itself by a reduction in entitlement spending elsewhere or additional
revenues). Legislation violating the pay-as-you-go principle would trigger a
sequestration of entitlement program funds in the same amount that such
legislation added to the deficit. Up to a maximum of 4% of Medicare program
funds would be included among those sequestered. Medicaid program funds,
however, continue to be exempt from sequestration. In recent federal fiscal
years payment reductions under the revised sequestration process have not been
implemented. If implemented in future years, these reductions could have a
material adverse effect on the Company's operating revenues. However, because
the actual amount of the reduction for any fiscal year may vary according to the
federal deficit, the financial impact of the revised process on the Company
cannot be predicted.

     The Medicare program makes additional payments to those hospitals that
serve a disproportionate share of low income patients. The Company has a
significant number of hospitals that receive these disproportionate share
payments. The qualification and funding for disproportionate share payments can
vary by fiscal year. Disproportionate share payments to the Company for future
years could be significantly lower than historical payments.

     Considerable uncertainty surrounds the future determination of payment
levels for DRGs and for other services currently being reimbursed on a cost
basis. OBRA 1993 provides for certain federal budget targets through FFY 1997
which, if not achieved, may result in further legislative reductions in Medicare
payments. Further legislation in the prospective payment area which could arise
could be additional reductions or eliminations of DRG rate increases or
otherwise revising DRG rates downward to take into account evidence of
historical reductions in hospital operating costs. In addition, in past years
automatic spending cuts in Medicare program payments occurred
under"Gramm-Rudman" and such spending cuts could occur in future years under the
"pay-as-you-go" system created by OBRA 1990 or under similar new legislation.
Also, substantial areas of the Medicare program are subject to legislative and
regulatory changes, administrative rulings, interpretations, administrative
discretion, governmental funding restrictions and requirements for utilization
review (such as second opinions for surgery and pre-admission criteria). These
matters, as well as more general governmental budgetary concerns, may
significantly reduce payments made to the Company's hospitals under the Medicare
program, and there can be no assurance that future Medicare payment rates will
be sufficient to cover cost increases in providing services to Medicare
patients. Moreover, reductions in the future could have a material adverse
impact on the revenues of the Company's hospitals. However, because the actual
amount of the reduction for any particular fiscal year may vary according to the
federal deficit, the financial impact of future reductions on the Company's
hospitals cannot be predicted. See "Governmental Regulation - Health Care
Reform".

     Medicaid. State Medicaid payment methodology varies from state to state
but very common are state Medicaid prospective payment systems or state programs
that negotiate payment rates with individual hospitals. Generally, however,
Medicaid payments are less than Medicare payments and are substantially less
than a hospital's cost of services. In 1991 Congress passed legislation limiting
the states' use of provider-specific taxes and donated funds to obtain federal
Medicaid matching funds. As a result of the legislation, certain states in which
the Company operates have adopted broad-based provider taxes to fund their
Medicaid programs. Congress has also established a national limit on
disproportionate share hospital adjustments (which are additional amounts of
Medicaid funds required to be paid to hospitals which provide

                                      -15-

a disproportionate amount of Medicaid and low-income inpatient services).
Disproportionate share payments for future years could be significantly less
than the payments received by the Company's hospitals in prior years. This
legislation and the resulting state broad-based provider taxes have adversely
affected the Company's net Medicaid payments, but to date the net impact has not
been materially adverse.

     The federal government and many states are currently considering
additional ways to limit the increases in their levels of Medicaid funding,
which also could adversely affect future levels of Medicaid payments received by
the Company's hospitals. Because the Company cannot predict precisely what
action the federal government or the states will take as a result of existing
and future legislation, the Company is unable to assess the effect of such
legislation on its business. Like Medicare funding, Medicaid funding may also be
affected by health care reform legislation, and it is impossible to predict the
effect such legislation might have on the Company. See "Governmental Regulation
- - Health Care Reform".

     Effective January 1, 1995, the California Department of Health Services
began changing the payment system for participants in the California Medicaid
program ("Medi-Cal") in certain counties, including those in which the Company
principally operates, from fee-for-service contractual arrangements to managed
care plans. The Company is unable to predict the effect these changes will have
on its operations. No assurance can be given that such Medi-Cal payment changes
will not have a material adverse effect on the Company's financial position or
results of operations.

     Annual Cost Reports. The Company's annual cost reports which are
required under the Medicare and Medicaid programs are subject to audit, which
may result in adjustments to the amounts ultimately determined to be due the
Company under these reimbursement programs. These audits often require several
years to reach the final determination of amounts earned under the programs.
Providers also have rights of appeal, and the Company is currently contesting
certain issues raised in audits of prior years' reports. Management believes
that adequate provision has been made in its financial statements for any
material retroactive adjustments that might result from all of such audits and
that final resolution of all of these issues will not have a material adverse
effect upon the Company's results of operations or financial position. Due to
the implementation of the Medicare prospective payment system in 1983, the
amount of reimbursement to the Company's general acute care hospitals
potentially affected by audit adjustments has substantially diminished in recent
years.

     Managed Care. The Company has been and will be increasingly affected by
the amount of health care provided through managed care organizations. Managed
care arrangements typically reimburse providers based on a percent of charges or
on a per diem basis. In certain markets, the Company's hospitals are now
entering into risk sharing, or capitated, arrangements. These arrangements
reimburse the hospital based on a fixed fee per participant in a managed care
plan with the hospital assuming the cost of services provided, regardless of the
level of utilization. If utilization is higher than anticipated and/or costs are
not effectively controlled, such arrangements could produce low or negative
operating margins. As of August 31, 1996 the portion of the Company's revenues
derived from risk sharing contracts is not material.

     Commercial Insurance. The Company's hospitals provide services to
individuals covered by private health care insurance. Private insurance carriers
either reimburse their policy holders or make direct payments to the Company's
hospitals based upon the particular hospital's established charges and the
particular coverage provided in the insurance policy. Blue Cross is a health
care financing program that provides its subscribers with hospital benefits
through independent organizations that vary from state to state.

                                      -16-

The Company's hospitals are paid directly by local Blue Cross organizations on
the basis agreed to by each hospital and Blue Cross by a written contract.

     Recently, several commercial insurers have undertaken efforts to limit
the costs of hospital services by adopting prospective payment or DRG-based
systems. To the extent such efforts are successful, and to the extent that the
insurers' systems fail to reimburse hospitals for the costs of providing
services to their beneficiaries, such efforts may have a negative impact on the
results of operations of the Company's hospitals.

Limits on Reimbursement

     As stated above, the Company derives a substantial portion of its
revenue from the Medicare and Medicaid programs. During its fiscal years ended
August 31, 1994, 1995 and 1996, the Company derived an aggregate of 63.7%,
58.7%, and 56.1%, respectively, of its gross revenue from the Medicare and
Medicaid programs.

     Changes in existing governmental reimbursement programs in recent years
have resulted in reduced levels of reimbursement for health care services, and
additional changes are anticipated. See "Sources of Revenue-Medicare." Such
changes are likely to result in further reductions in the rate of increase in
reimbursement levels especially since both Congress and the current
Administration have proposed health care budgets that reduce federal payments to
hospitals and other providers. The Company anticipates that payments to
hospitals will be reduced as a result of future legislation but is unable to
predict what the amount of the final reduction will be. See "Governmental
Regulation - Health Care Reform."

     In addition, private payors, especially managed care payors,
increasingly are demanding discounted fee structures or the assumption by health
care providers of all or a portion of the financial risk through prepaid
capitation arrangements. Inpatient utilization, average lengths of stay and
occupancy rates continue to be negatively affected by payor-required
pre-admission authorization and utilization review and by payor pressure to
maximize outpatient and alternative health care delivery services for less
acutely ill patients. In addition, efforts to impose reduced allowances, greater
discounts and more stringent cost controls by government and other payors are
expected to continue.

     Significant limits on reimbursement rates could adversely affect the
Company's result of operations. The Company is unable to predict the effect
these changes will have on its operations.  No assurance can be given that such
reforms will not have a material adverse effect on the Company.  See 
"Governmental Regulation - Health Care Reform."

Competition

     The health care industry is highly competitive and has been
characterized in recent years by increased competition for patients and staff
physicians, excess capacity at general hospitals, a shift from inpatient to
outpatient settings and increased consolidation. The principal factors
contributing to these trends are cost-containment efforts by managed care
payors, employers and traditional health insurers, changes in regulations and
reimbursement policies, increases in the number and type of competing health
care providers, changes in physician practice patterns and advances in medical
technology. The Company's future success will depend, in part, on the ability of
the Company's hospitals to continue to attract staff physicians, to enter into
managed care contracts, to organize and structure integrated health care
delivery networks with other

                                      -17-

health care providers and physician practice groups and to acquire hospitals.
There can be no assurance that the Company or the Company's hospitals will
continue to be able, on terms favorable to the Company, to attract physicians to
their staffs, to enter into managed care contracts, to organize and structure
integrated health care delivery networks or to acquire hospitals, for which
other health care companies with greater financial resources, with more
facilities in a given geographic area or offering a wider range of services may
be competing.

     The Company's ability to continue to compete successfully for such
contracts or to form or participate in such systems also may depend upon, among
other things, the Company's ability to increase the number of its facilities and
services offered through the acquisition of hospitals, groups of hospitals,
other health care businesses, ancillary health care providers, physician
practices and physician practice assets and the Company's ability to finance
such acquisitions.

     Generally, other hospitals in the local markets served by most of the
Company's hospitals provide services that are offered by the Company's
hospitals. Certain of the Company's local competitors have greater financial
resources, are better equipped and offer a broader range of services than the
Company. In addition, hospitals owned by governmental agencies and other
tax-exempt entities benefit from endowments, charitable contributions and
tax-exempt financing, which advantages are not enjoyed by the Company's
facilities.

     The Company believes that its hospitals compete within local markets on
the basis of many factors, including the quality of care, ability to attract and
retain quality physicians, location, breadth of services and technology offered
and prices charged. The Company's competition ranges from large, multi-facility
companies to small single-hospital owners. The Company also competes with
free-standing outpatient surgery and diagnostic centers. The competition among
hospitals and other health care providers has intensified in recent years as
hospital occupancy rates have declined. The Company's strategies are designed,
and management believes that its hospitals are positioned, to be competitive
under these changing circumstances.

     In large part, hospital revenues depend on the physicians on staff who
admit or refer patients to the hospital. Physicians refer patients to hospitals
on the basis of the quality of services provided by the hospital to patients and
their physicians, the hospital's location, the quality of the medical staff
affiliated with the hospital and the quality of the hospital's facilities,
equipment and employees. The Company attracts physicians to its hospitals by
equipping its hospitals with sophisticated equipment, providing physicians with
a large degree of independence in conducting their hospital practices and
sponsoring training programs to educate physicians on advanced medical
procedures and otherwise creating a health care environment within which
physicians prefer to practice. While physicians may terminate their association
with a hospital at any time, the Company believes that by striving to maintain
and improve the level of care at its hospitals and by maintaining high ethical
and professional standards, it will retain qualified physicians with a variety
of specialties.

     The competitive position of a hospital is increasingly affected by its
ability to negotiate managed care service contracts with purchasers of group
health care services. Such purchasers include employers, PPOs and HMOs. PPOs and
HMOs attempt to direct and control the use of hospital services through
management of care and either receive discounts from a hospital's established
charges or pay based on a fixed per diem or on a capitated basis where hospitals
receive fixed periodic payments based on the number of members of the
organization regardless of the actual services provided. In addition, employers
and

                                      -18-

traditional health insurers are increasingly interested in containing costs
through negotiations with hospitals for managed care programs and discounts from
established charges. A hospital's ability to compete for such contracts is
affected by many factors, including the scope, breadth and quality of services a
hospital offers in a given geographic area, its ability to form its own, or to
join with other health care providers to form, integrated health care delivery
systems and the scope, breadth and quality of services offered by competing
hospitals and/or systems. The Company evaluates changing circumstances in each
geographic area on an ongoing basis and positions itself to compete in the
managed care market by forming its own or joining with others to form integrated
health care delivery systems.

     The importance to a hospital of its ability to obtain contracts with
PPOs and HMOs and other managed care organizations which purchase health care
varies from market to market, depending on the degree of market penetration of
such organizations, but such market penetration is increasing each year in
almost every local market as these payors attempt to control rising health care
costs. In geographic areas where such managed care penetration is strong, the
failure of a hospital to obtain managed care contracts could negatively impact
that hospital's volume of patients and revenues and therefore could have a
material adverse impact on such hospital's results of operations and cash flow.

     State certificate of need ("CON") laws, which place limitations on a
hospital's ability to expand hospital services and add new equipment, also may
have the effect of restricting competition. The application process for approval
of covered services, facilities, changes in operations and capital expenditures
is, therefore, highly competitive in states with CON laws. Competition in the
form of new services, facilities and capital spending is more prevalent in those
states which have no CON laws (which at the current time include the states of
Arizona, California and Texas) or which set relatively high levels of
expenditures before they become reviewable by state authorities. At August 31,
1996, 11 of the 15 states in which the Company owned hospitals had CON
requirements applicable to general hospitals. See "Governmental Regulation -
Certificates of Need."

     The Company, and the health care industry as a whole, face the
challenge of continuing to provide quality patient care while dealing with
rising costs, strong competition for patients and a general reduction of
reimbursement rates by both private and government payors. As both private and
government payors reduce the scope of what may be reimbursed and reduce
reimbursement levels for what is covered, federal and state efforts to reform
the United States health care system may further impact reimbursement rates.
Changes in medical technology, existing and future legislation, regulations and
interpretations and competitive contracting for provider services by private and
government payors may require changes in the Company's facilities, equipment,
personnel, rates and/or services in the future. See "Governmental Regulation -
Health Care Reform".

     The general hospital industry and the Company's general hospitals
continue to have significant unused capacity, and, thus, there is substantial
competition for patients. Inpatient utilization, average lengths of stay and
average occupancy rates continue to be negatively affected by payor-required
pre-admission authorization, utilization review and by payor pressure to
maximize outpatient and alternative health care delivery services for less
acutely ill patients. Increased competition, admissions constraints and payor
pressures are expected to continue. There continue to be increases in inpatient
acuity and intensity of services as less intensive services shift from an
inpatient to an outpatient basis or to alternative health care delivery services
because of technology improvements and as cost controls by payors become
greater. Allowances and discounts are expected to continue to rise, and to cause
decreases in revenues, because of increasing cost controls by government and
private group payors and because of the increasing percentage

                                      -19-

of business (and related discounts) from group purchasers of health care. To
meet these challenges, the Company has expanded many of its general hospitals'
facilities to include outpatient centers, offers discounts to private payor
groups, enters into capitation contracts in some service areas, upgrades
facilities and equipment and offers new programs and services.

     There has been significant consolidation in the hospital industry over
the past decade due, in large part, to continuing pressures on payments from
government and private payors and increasing shifts away from the provision of
traditional in-patient services. Those economic trends have caused many
hospitals to consolidate either through merger or affiliation. Some hospitals
have even closed. It is expected that these cost-containment pressures will
continue and will lead to further consolidation in the hospital industry. On
October 16, 1996, the Company entered into a definitive Agreement and Plan of
Merger with Tenet and Merger Sub. See "Recent Developments-Proposed Merger."

Medical Staffs and Employees

     As of August 31, 1996, approximately 15,000 licensed physicians were
members of the medical staffs of the Company's hospitals. Medical staff members
are generally independent contractors and not generally employees of the
Company's hospitals. A small number of physicians, however, have been
historically employed by, or have contracted with, the Company primarily to
staff emergency rooms, to provide certain ancillary services and to serve in
administrative capacities, such as directors of special services. Recently, the
Company also has begun employing physicians, primarily primary care physicians,
where permitted by law. Those physicians who serve in administrative capacities
at the Company's hospitals are primarily part-time employees or independent
contractors who usually have private practices in addition to their
responsibilities to the Company. Members of the medical staffs of the Company's
hospitals often also are members of the medical staffs of hospitals not owned by
the Company and each may terminate his or her affiliation with a Company
hospital at any time. Generally, a patient is admitted to a hospital only at the
request of a member of the hospital's medical staff. Applications for staff
privileges at each of the Company's hospitals are approved by the Board of
Trustees at each hospital. Any licensed physician may apply to be admitted to
the medical staff of any of the Company's hospitals. Nurses, therapists, lab
technicians, facility maintenance staff and the administrative staff of
hospitals, however, normally are employees of the Company.

     At August 31, 1996, the Company and its subsidiaries had approximately
26,000 employees. The Company believes it has good labor relations with its
employees. A small percentage of the Company's employees are represented by
labor unions. While the Company's hospitals experience additional union
organizational activity from time to time, the Company does not expect such
efforts to materially affect its future operations. The Company's hospitals,
like most hospitals, have experienced labor costs rising faster than the general
inflation rate. In recent years, the Company generally has not experienced
material difficulty in recruiting and retaining employees, including nurses and
professional staff members, primarily as a result of staff retention programs
and general economic conditions. However, there can be no assurance as to future
availability and cost of qualified medical personnel.

Governmental Regulation

     General. The health care industry is subject to extensive federal,
state and local regulation relating to licensure, conduct of operations,
ownership of facilities, addition of facilities and services and prices for
services, as described below. Participation in the Medicare program is heavily
regulated by federal statute

                                      -20-

and regulation. If a hospital provider fails substantially to comply with the
numerous conditions of participation in the Medicare program or performs certain
prohibited acts (e.g., (i) making false claims to Medicare for services not
rendered or misrepresenting actual services rendered in order to obtain higher
reimbursement (see discussion below); (ii) paying remuneration for Medicare
referrals (so called "fraud and abuse" which is prohibited by the
"anti-kickback" provisions of the Social Security Act and which is discussed
below); (iii) physicians making referrals to entities with which the physician
has a financial relationship (actions prohibited by the so-called
"anti-referral" laws discussed below) or (iv) denying treatment to any
individual who comes to its emergency room who has an "emergency medical
condition," whether or not any such individual is eligible for Medicare (so
called "patient dumping", which is prohibited by the federal "COBRA" law which
is discussed below).

     The Company is unable to predict the future course of federal, state
and local regulation or legislation, including Medicare and Medicaid statutes
and regulations. Further changes in the regulatory framework could have a
material adverse effect on the financial results of the Company's operations.

     False Claims. The Social Security Act imposes criminal and civil
penalties for making false claims to Medicare and Medicaid for services not
rendered or for misrepresenting actual services rendered in order to obtain
higher reimbursement. This statute is very broad. Careful and accurate coding of
claims for reimbursement must be performed to avoid liability under the federal
false claims statute.

     COBRA. In 1986 Congress passed Title IX of the Consolidated Omnibus
Budget Reconciliation Act of 1985 (commonly known as "COBRA", but also known as
the Emergency Medical Treatment and Labor Act). COBRA prohibits generally the
practice known as "patient dumping" --- hospitals denying treatment to emergency
patients or women in labor, often by transferring them to another hospital in
unstable medical condition. More specifically, COBRA prohibits (i) failing to
stabilize all individuals who come to a hospital's emergency room who have an
"emergency medical condition," whether or not any such individual is eligible
for Medicare; (ii) transferring any stabilized patient to another health care
facility before such other facility has agreed to the transfer of such patient,
while such other facility does not have sufficient room and staff to treat the
patient, without the patient's emergency department medical records, or without
appropriate life support equipment; and (iii) transferring any unstabilized
patient except those transferred at the patient's request or with physician
certification that the medical risks from the transfer are less harmful than
continued treatment at the transferring facility. Hospitals that violate COBRA
may be terminated from the Medicare program and may be fined up to $50,000 for
each violation.

     Federal and State Fraud and Abuse and Anti-Referral Legislation. The
Social Security Act contains prohibitions on offering, paying, soliciting or
receiving remuneration intended to induce business reimbursed under the Medicare
or Medicaid programs. Thus, financial arrangements between hospitals and
persons, such as physicians, who are in a position to refer patients or induce
the acquisition of any goods or services paid for by the Medicare or Medicaid
programs, must comply with the "fraud and abuse" anti- kickback provisions of
the Social Security Act (presently codified in Section 1128B(b) of the Social
Security Act, hereinafter the "Antifraud Amendments"). In addition to felony
criminal penalties (fines of up to $25,000 and imprisonment for up to five years
per referral), the Social Security Act establishes civil monetary penalties and
the sanction of excluding violators from Medicare and Medicaid participation.

     The Antifraud Amendments have been interpreted broadly by the federal
regulators and the courts to prohibit the intentional payment of anything of
value if one purpose is to influence the referral of Medicare or Medicaid
business. Health care providers generally have been concerned in recent years
that

                                      -21-

many of its customary, and even relatively innocuous, commercial arrangements
with their physicians may technically violate this broad interpretation of the
Antifraud Amendments.

     In 1976, Congress established the Office of Inspector General of the
United States Department of Health and Human Services ("OIG") to identify and
eliminate fraud, abuse and waste in HHS programs and to promote efficiency and
economy in HHS departmental operations. The OIG carries out this mission through
a nationwide program of audits, investigations and inspections. The OIG also
operates a 24-hour 800 number "hotline" where persons with information on health
care fraud are encouraged to report their information to the OIG and may even
remain anonymous in the process.

     In order to provide guidance to health care providers on ways to engage
in legitimate business practices and avoid scrutiny under the Antifraud
Amendments, the OIG has from time to time issued "Special Fraud Alerts"
identifying features of transactions, which, if present, may indicate that the
transaction violates the Antifraud Amendments. In May 1992, the OIG issued a
Special Fraud Alert regarding hospital incentives to physicians. The alert
identified the following incentive arrangements as potential violations of the
statute: (a) payment of any sort of incentive by the hospital each time a
physician refers a patient to the hospital, (b) the use of free or significantly
discounted office space or equipment (in facilities usually located close to the
hospital), (c) provision of free or significantly discounted billing, nursing or
other staff services, (d) free training for a physician's office staff in areas
such as management techniques, CPT coding and laboratory techniques, (e)
guarantees which provide that, if the physician's income fails to reach a
predetermined level, the hospital will supplement the remainder up to a certain
amount, (f) low-interest or interest-free loans, or loans which may be forgiven
if a physician refers patients (or some number of patients) to the hospital, (g)
payment of the costs of a physician's travel and expenses for conferences, (h)
payment for a physician's continuing education courses, (i) coverage on the
hospital's group health insurance plan at an inappropriately low cost to the
physician and (j) payment for services which require few, if any, substantive
duties by the physician, or payment for services in excess of the fair market
value of services rendered. In this fraud alert the OIG encouraged persons
having information about hospitals who offer the above types of incentives to
physicians to report such information to the OIG on the "hotline" or through
other means.

     In addition, the OIG has issued regulations outlining certain "safe
harbor" practices, which, although potentially capable of inducing prohibited
referrals of business under the Medicare or Medicaid programs, would not be
subject to enforcement action under the Social Security Act. The practices
covered by the regulations include certain physician joint venture transactions,
rental of space and equipment, personal services and management contracts, sales
of physician practices, referral services, warranties, discounts, payments to
employees, group purchasing organizations and waivers of beneficiary deductibles
and co- payments. Additional proposed safe harbors are published by the OIG from
time to time. Certain of the Company's current arrangements with physicians,
including joint ventures, do not qualify for the current safe harbor exemptions
and, as a result, such arrangements risk scrutiny by the OIG and may be subject
to enforcement action. The failure of these arrangements to satisfy all of the
conditions of the applicable safe harbor criteria does not mean that the
arrangements are illegal. Nevertheless, certain of the Company's current
financial arrangements with physicians, including joint ventures, and the
Company's future development of joint ventures and other financial arrangements
with physicians, could be adversely affected by the failure of such arrangements
to comply with the safe harbor regulations, or the future adoption of other
legislation or regulation in these areas.


                                      -22-

     The Company has a Compliance Program to educate its employees on the
contents and meaning of the OIG's Special Fraud Alerts and "safe harbors." See
"Governmental Regulation - The Company's Compliance Program."

     The federal Medicaid regulations also prohibit fraudulent and abusive
practices including kickbacks and authorize the exclusion from such program of
providers in violation of such regulations.

     On August 21, 1996, President Clinton signed significant new federal
health reform legislation known as the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"). Most important for health care providers,
the new law includes comprehensive and far-reaching amendments or supplements to
the Antifraud Amendments. It also contains substantive provisions relating to
portability of health insurance coverage and limitations on preexisting
condition exclusions. Most of the provisions of HIPAA become effective January
1, 1997.

     As to the amendments or supplements to the Antifraud Amendments, HIPAA
is intended to enhance federal health care law enforcement by creating and
funding three new health care fraud and abuse enforcement programs: The Fraud
and Abuse Control Program, The Medicare Integrity Program and the Beneficiary
Incentive Program. The Fraud and Abuse Control Program calls for the
coordination of federal, state and local authorities to control fraud and abuse
with respect to not only Medicare and Medicaid but, for the first time, with
respect to private health insurance plans as well. The Medicare Integrity
Program directs HHS to enter into separate contracts with private entities to
carry out certain fraud and abuse detection activities. Through the Beneficiary
Incentive Program, HIPAA authorizes the Secretary of HHS to provide payments to
individuals who (i) report information leading to the imposition of civil
monetary penalties under the fraud and abuse laws or (ii) make suggestions that
result in Medicare and Medicaid program savings. Under HIPAA, health care fraud,
now defined as knowingly and willfully executing or attempting to execute a
"scheme or device" to defraud any health care benefit program, is made a federal
criminal offense. In addition, for the first time, federal enforcement officials
will have the ability to exclude from Medicare and Medicaid any investors,
officers and managing employees associated with business entities that have
committed health care fraud, even if the investor, officer or employee had no
knowledge of the fraud. HIPAA also establishes a new violation for the payment
of inducements to Medicare or Medicaid beneficiaries in order to influence those
beneficiaries to order or receive services from a particular provider or
practitioner. HIPAA requires HHS to establish a significant new national health
care fraud and abuse data collection program by January 1, 1997. This program
will collect reports of final adverse actions (including civil, criminal,
license and certification sanctions and any other publicly available negative
findings) against health care providers, suppliers or licensed practitioners.
Governmental agencies and private plans will both report and have access to the
information collected by the program. Also, HIPAA requires the Secretary of HHS
to issue advisory opinions with respect to whether particular transactions
violate the Medicare and Medicaid anti-kickback laws. The Secretary is also
required to request suggestions for the issuance of additional safe harbors
under the Antifraud Amendments. One important new safe harbor already contained
in HIPAA exempts certain risk-sharing arrangements from the Antifraud
Amendments.

     Effective January 1, 1991, Section 1877 of the Social Security Act
(commonly known as "Stark I") prohibited referrals of Medicare and Medicaid
patients to clinical laboratories with which a referring physician has a
financial relationship. OBRA 1993 included certain amendments to Section 1877
(such amendments commonly known as "Stark II") which substantially broadened the
scope of prohibited physician self-referrals to include referrals by physicians
to entities with which the physician has a financial relationship and which
provide certain "designated health services" which are reimbursable by Medicare
or

                                      -23-

Medicaid. "Designated health services" include not only the clinical laboratory
services which were the only such services covered by Stark I, but also, among
other things, physical and occupational therapy services, radiology services,
DME, home health, and inpatient and outpatient hospital services. Sanctions for
violating Stark I or II include civil money penalties up to $15,000 per
prohibited service provided, assessments equal to 200% of the dollar value on
each such service provided and exclusion from the Medicare and Medicaid
programs. Stark II contains certain exceptions to the self-referral prohibition,
including an exception if the physician has an ownership interest in the entire
hospital. Stark II became effective January 1, 1995 and contemplates the
promulgation of regulations implementing the new provisions. The Company cannot
predict the final form that such regulations will take or the effect that Stark
II or the regulations to be promulgated thereunder will have on the Company.

     Many states in which the Company operates also have laws that prohibit
payments to physicians for patient referrals with statutory language similar to
the Antifraud Amendments, but with broader effect since they apply regardless of
the source of the payment for the care. These statutes typically provide
criminal and civil penalties as well as loss of licensure. Many states also have
passed legislation similar to Stark II, but also with broader effect since the
legislation applies regardless of the source of the payment for the care. The
scope of these state laws is broad, and little precedent exists for their
interpretation or enforcement.

     Certain of the Company's current financial arrangements with
physicians, including joint ventures, and the Company's future development of
joint ventures and other financial arrangements with physicians, could be
adversely affected by the failure of such arrangements to comply with the
Antifraud Amendments, Section 1877, current state laws or other legislation or
regulation in these areas adopted in the future. The Company is unable to
predict the effect of such regulations or whether other legislation or
regulations at the federal or state level in any of these areas will be adopted,
what form such legislation or regulations may take or their impact on the
Company. The Company is continuing to enter into new financial arrangements with
physicians and other providers in a manner structured to comply in all material
respects with these laws. Under the Company's joint venture arrangements,
physician investors are not and will not be under any obligation to refer or
admit their patients, including Medicare or Medicaid beneficiaries, to receive
services at the Company's facilities, nor are distributions to those physician
investors contingent upon or calculated with reference to referrals by the
investors. On this basis, the Company does not believe the ownership of
interests in or receipt of distributions from the Company's joint ventures would
be construed to be knowing and willful payments to the physician investors to
induce them to refer patients in violation of the Antifraud Amendments. There
can be no assurance, however, that (i) governmental officials charged with the
responsibility for enforcing these laws will not assert that the Company is in
violation thereof or (ii) such statutes will ultimately be interpreted by the
courts in a manner consistent with the Company's interpretation.

     The Company's Compliance Program. The Company maintains a multi-faceted
Corporate Compliance and Ethics Program which it formally established in 1995.
The Program is managed and implemented on a day-to-day basis by the Company's
Vice President-Compliance & Ethics and his staff who work with experienced
health care lawyers both in the Company's Legal Department and in outside law
firms who act as special counsel to the Company. The Program runs under the
oversight of a high-level management Compliance Committee made up of the
Company's Chief Operating Officer, Chief Financial Officer, General Counsel and
its Vice President-Compliance & Ethics as well as Board oversight by the Audit,
Ethics and Quality Assurance Committee of the Company's Board of Directors. The
Compliance Program was adopted to ensure that high ethical and conduct standards
are met in the operation of the Company's business and to ensure that the
Company has implemented policies and procedures so that the Company's employees
will act in full compliance with all applicable laws, regulations and Company

                                      -24-

policies. Under the Program a 45-page Corporate Compliance Handbook was prepared
and distributed to all Company employees. The Program provides initial and
periodic compliance and ethics training to every Company employee and encourages
all employees to report any legal or ethical violations to a toll-free telephone
hotline, even on an anonymous basis, without fear of retaliation. Also, under
the Program each of the Company's hospitals is subjected to an internal legal
audit for regulatory compliance with the Antifraud Amendments and the other
fraud and abuse laws at least annually.

     Summit Health OIG Investigation. In February 1996, the Company's Midway
Hospital Medical Center ("Midway") in Los Angeles, California, which was
acquired from Summit Health in April 1994, received an investigative subpoena
from the Office of the Inspector General of the United States Department of
Health and Human Services (the "OIG"). The subpoena called for the production of
all of Midway's agreements or other financial arrangements with physicians and
documents related thereto from January 1, 1992 to the present. The subpoena
states that it was issued in connection with an investigation being conducted by
the OIG concerning possible violations of Medicare rules and regulations. The
Company has been advised that the investigation is in connection with a civil
investigation under the direction of the Civil Division of the Department of
Justice. The Company has hired an outside law firm to conduct an independent
review of the matter. The Company is fully cooperating with the government
investigation. In June 1996 the government expanded this civil investigation to
arrangements between physicians and the remaining eleven hospitals which the
Company acquired from Summit Health in 1994. As a consequence of agreements to
cooperate in the investigation, the Company is voluntarily producing the same
type of documentation from these additional hospitals. Also, in an apparently
unrelated matter, the government has requested and the Company has agreed to
provide similar records from a single hospital outside the group acquired from
Summit Health in 1994.

     The government investigation is in its early stages. The Company has
made, and is expected to continue to make, extensive production of documents and
other information to the government in response to this investigation.
Additionally, the Company and its outside counsel have held numerous meetings
with the governmental attorneys in respect of this matter and, as a result, the
Company believes that at this time this investigation is focused primarily on
its hospitals' physician arrangements and not the hospitals' Medicare or
Medicaid billing practices. Although no proceedings have been instituted, in the
event that the OIG believes that any wrongdoing has occurred, civil and possibly
criminal proceedings could be instituted. If any such proceedings were
instituted and the outcome were unfavorable, the Company could be subject to
fines, penalties and damages ("Monetary Payments") and also could be excluded
from Medicare and other government reimbursement programs. The aggregate amount
of the Monetary Payments and any such exclusion could have a material adverse
effect on the Company's financial position or results of operations. The result
of this investigation and its impact, if any, cannot be predicted or estimated
at this time. Based on information currently available to it, management
believes that if the investigation remains limited to physician arrangements,
remains civil in nature and, with the single exception noted above, relates only
to the practices of the hospitals of an acquired corporation, the final outcome
of this investigation will not have a material adverse effect on the Company's
financial position or results of operations.

     Health Care Reform. Health care, as one of the largest industries in
the United States, continues to attract much legislative interest and public
attention. In recent years, an increasing number of legislative proposals have
been introduced or proposed in Congress and in some state legislatures that
would effect major changes in the health care system, either nationally or at
the state level. Reform proposals under consideration in recent years at the
federal level have been price or cost controls on hospitals, insurance market
reforms to increase the availability of group health insurance to small
businesses, requirements that

                                      -25-

all businesses offer health insurance coverage to their employees, the creation
of a single government health insurance plan that would cover all citizens and
reductions in payments to hospitals providing a disproportionate amount of care
to indigent patients. The costs of certain proposals would be funded in
significant part by reductions in payments by governmental programs, including
Medicare and Medicaid, to health care providers such as hospitals.

     During 1994, President Clinton repeatedly stated that one of his
primary objectives was to reform the nation's health care system to insure
universal coverage and address the rising costs of care. However, no large-scale
federal reform was passed by the U.S. Congress in 1994. Despite the failure to
pass large scale health care reform in 1994, the Congressional debate about
health care continued in 1995 and 1996, but this time largely in the context of
reducing Medicare and Medicaid payments as part of the overall attempt to reduce
federal budget deficits. Although in October 1995 both the U.S. House of
Representatives and the U.S. Senate passed budget bills providing for large
savings under the Medicare and Medicaid programs over the subsequent seven years
(e.g., $270 million in Medicare savings) in order to reach a balanced budget by
2002, President Clinton vetoed such legislation and proposed significantly
lesser cuts in Medicare and Medicaid spending. As a result of the deadlock, the
Medicare and Medicaid cuts adopted by Congress failed to become law in FFY 1996.

     There continue to be federal and state proposals that would, and
actions that do, impose more limitations on government and private payments to
providers such as the Company and proposals to increase copayments and
deductibles from program and private patients. At the federal level, both
Congress and the current Administration have continued to propose health care
budgets that substantially reduce payments under the Medicare and Medicaid
programs. Indeed, both Houses of Congress in May 1996 passed budget resolutions
proposing large savings in Medicare and Medicaid funding over the next six years
(e.g., $168 million in Medicare savings) in order to reach a balanced budget by
2002, but again President Clinton has proposed cuts substantially below those
proposed by Congress. Once again, it is not clear whether final legislation
cutting Medicare and Medicaid costs will result in FFY 1997. In addition, a
number of states are considering the enactment of managed care initiatives
designed to reduce their Medicaid expenditures, to provide universal low-cost
coverage, additional care and/or additional taxes on hospitals to help finance
or expand the states' Medicaid systems.

     While the Company anticipates that payments to hospitals will be
reduced as a result of future federal and state legislation, it is uncertain at
this time what legislation on health care reform may ultimately be enacted or
whether other changes in the administration or interpretation of governmental
health care programs will occur. There can be no assurance that future health
care legislation or other changes in the administration or interpretation of
governmental health care programs will not have a material adverse effect on the
Company's business, financial condition or results of operations.

     Licensure and Accreditation. Health care facility construction and
operation is subject to extensive federal, state and local legislation and
regulation relating to the adequacy of medical care, equipment, personnel,
hygiene, operating policies and procedures, fire prevention, rate-setting and
compliance with building codes and environmental protection laws. Hospitals must
maintain strict standards in order to obtain their state hospital licenses from
a department of health or other applicable agency in each state. In granting and
renewing licenses, a department of health considers, among other things, the
physical buildings and equipment, the qualifications of the administrative
personnel and nursing staff, the quality of care and continuing compliance with
the laws and regulations relating to the operation of the facilities. State
licensing of facilities is a prerequisite to certification under the Medicare
and Medicaid programs. Various other

                                      -26-

licenses and permits also are required in order to dispense narcotics, operate
pharmacies, handle radioactive materials and operate certain equipment. Hospital
facilities are subject to periodic inspection by governmental and other
authorities to assure continued compliance with the various standards necessary
for their licensing and accreditation. All of the Company's health care
facilities are properly licensed under appropriate state laws, are certified for
participation under the Medicare and Medicaid programs and are accredited by the
Joint Commission on Accreditation of Health Care Organizations ("JCAHO"), except
for one hospital which is accredited by the American Osteopathic Association.
JCAHO regularly conducts an on-site review and inspection of every hospital
seeking to obtain or maintain its accreditation. JCAHO accreditation usually
runs for three year periods. Hospitals accredited by JCAHO are deemed to be in
compliance with the standards for participation in the Medicare program,
although Medicare can conduct its own compliance reviews.

     In addition to JCAHO inspections and inspections conducted by certain
state and local regulatory authorities, HCFA, generally in response to specific
complaints from patients but also occasionally on a random basis, causes
hospitals participating in the Medicare program to be inspected.

     Some of the Company's hospitals were inspected by JCAHO, HCFA and state
licensing authorities during its fiscal year ended August 31, 1996, and none of
these hospitals lost their ability to participate in the Medicare program or a
state Medicaid program as a result of such inspections, although any such
inspection in the future could have a different result.

     Management believes that the Company's facilities are in substantial
compliance with current applicable federal, state, local and independent review
body regulations and standards. The requirements for licensure and accreditation
are subject to change and, in order to remain qualified, it may be necessary for
the Company to effect changes in its facilities, equipment, personnel and
services. Although the Company intends to continue its licensing and
qualifications, there is no assurance that its hospitals will be able to comply
in the future.

     Certificates of Need. The construction of new facilities, the
acquisition of existing facilities, and the addition of new beds or services may
be reviewable by state regulatory agencies under a CON program. The Company
operates hospitals in some states that require approval under a CON program.
Such laws generally require appropriate state agency determination of public
need and approval prior to beds or services being added, or a related capital
amount being spent. This requirement can increase the cost (in time and money)
of a project and may affect the feasibility of some projects. Following a number
of years of decline, the number of states requiring CONs is once again on the
rise. State legislators once again are looking at the CON process as a way to
contain rising health care costs. Failure to obtain necessary state approval can
result in the inability to complete an acquisition or change of ownership, the
imposition of civil or, in some cases, criminal sanctions, the inability to
receive Medicare or Medicaid reimbursement or the revocation of a facility's
license. See "Competition".

     State Rate Review. A few states in which the Company owns hospitals
have adopted legislation mandating rate or budget review for hospitals or have
adopted taxes on hospital revenues, assessments or licensure fees to fund
indigent health care within the state.

     In Florida, a budget review process and a Maximum Allowable Rate
Increase ("MARI") on revenue increases per admission has been in effect with
respect to the Company's hospitals since 1986. MARI limits hospital net revenue
per admission increases to an administratively determined cost of health care
index plus

                                      -27-

an additional percentage in excess thereof. This law has limited the Company's
ability to increase rates at its Florida hospitals. The Company owned five
hospitals aggregating 1,755 beds in Florida as of August 31, 1996.

     In the aggregate, state rate or budget review and indigent tax
provisions have not to date materially adversely affected the Company's results
of operations. The Company is unable to predict whether any additional state
rate or budget review or indigent tax provisions will be adopted and,
accordingly, is unable to assess the effect thereof on its results of operations
or financial condition.

     Utilization Review. The Company's facilities in recent years have been
negatively affected by controls imposed by governmental and private payors
designed to reduce admissions and lengths of stay. Such controls, including what
is commonly referred to as "utilization review", have resulted in a reduction of
patient access to certain treatments and procedures by reviewing the necessity
of the admission or outpatient procedure and the course of treatment. Federal
law contains numerous provisions designed to ensure that services rendered by
hospitals to Medicare and Medicaid patients meet professionally recognized
standards, are medically necessary and that claims for reimbursement are
properly filed. These provisions include a requirement that a sampling of
admissions of Medicare and Medicaid patients must be reviewed by peer review
organizations ("PROs"), which review the appropriateness of Medicare and
Medicaid patient admissions and discharges, the quality of care provided, the
validity of DRG classifications and the appropriateness of cases of
extraordinary length of stay. PROs may deny payment for services provided, may
assess fines and also have the authority to recommend to HHS that a provider
which is in substantial noncompliance with the standards of the PRO be excluded
from participating in the Medicare program. Utilization review is also a
requirement of most non-governmental managed care organizations.

     Environmental Matters. The Company is subject to various federal, state
and local statutes and ordinances regulating the discharge of materials into the
environment. The Company's hospitals generate pathological wastes, biohazardous
(infectious) wastes, chemical wastes, waste oil and other solid wastes. The
Company usually incinerates or contracts for disposal of its wastes. No
litigation currently exists against the Company related to waste disposal, and
the Company is not aware of any ongoing investigation by any government agencies
in this area. The Company believes that the Company and its facilities are
currently in compliance, in all material respects, with applicable federal,
state and local statutes and ordinances regulating the discharge of materials
into the environment. The Company does not believe that it will be required to
expend any material amounts in order to remain in compliance with these laws and
regulations or that compliance will materially affect its capital expenditures,
earnings or competitive position.

Professional Liability and Insurance

     As is typical in the health care industry, the Company is subject to
claims and legal actions by patients and others in the ordinary course of
business. The Company is partially self-insured for its hospital professional
liability, comprehensive general liability and excess casualty claims and
maintains an unfunded reserve for such risks. For hospital professional
liability, comprehensive general liability and excess casualty claims asserted,
the Company assumes such liability risks under its self-insured retention up to
$3 million per claim, and $30 million in the aggregate, for claims reported from
June 1, 1995 to June 1, 1997. The Company also purchases excess levels of
coverage above such self-insured retention. For the twelve months ending June 1,
1996 and June 1, 1997, the Company purchased for each such year a layer of
excess insurance above these self-insured retentions in the amount of $50
million per claim and $50 million in the aggregate that may be applied towards
hospital professional liability, comprehensive general liability and excess

                                      -28-

casualty claims. Although the Company's cash flow and reserves for self-insured
liabilities have been adequate in the past to provide for such self-insured
liabilities, and the Company believes that it has adequately provided for future
self-insured liabilities, there can be no assurance that the Company's cash flow
and reserves will continue to be adequate. If actual payments of claims with
respect to the Company's self-insured liabilities exceed projected payments of
claims, the results of operations of the Company could be adversely affected. In
addition, while the Company's layer of excess insurance has been adequate in the
past to provide for liability and casualty claims, there can be no assurance
that adequate insurance will continue to be available at favorable price levels.
If new insurance is not provided to replace existing insurance upon its
expiration on June 1, 1997, the results of operations of the Company could be
adversely affected.

Other Litigation

     The Company currently, and from time to time, is subject to claims and
suits arising in the ordinary course of business, including claims for damages
for personal injuries or for wrongful restriction of, or interference with,
physicians' staff privileges. In certain of these actions the claimants have
asked for punitive damages against the Company, which usually are not covered by
insurance. In the opinion of management, the ultimate resolution of any of these
pending claims and legal proceedings will not have a material adverse effect on
the Company's financial position or results of operations.

     Broad provisions in the Medicare and Medicaid laws, as well as similar
provisions in many state laws, deal with fraud and abuse, false claims and
physician self-referrals. In recent years, government investigations of alleged
violations of these laws have become common place in the health care industry.
As with all health care providers participating to any significant extent in the
Medicare and Medicaid programs, the Company could be materially adversely
affected if it were to be found in violation of the fraud and abuse, false
claims or physician self-referral laws as a result of its current or past
business operations.  See "Summit Health OIG Investigation."

Certain Income Tax Matters

     The Company's federal income tax returns are not presently under audit
by the Internal Revenue Service (the "IRS"), except in respect of Summit Health
as disclosed below. Furthermore, the Company's federal income tax returns for
taxable years through August 31, 1992 are no longer subject to IRS audit, with
certain limited exceptions and except in respect of net operating loss
carryforwards for income tax purposes ("NOL's") for prior years, which may be
subject to IRS audit as NOL's are utilized in subsequent tax years. Also, Summit
Health has extended the statute of limitations for fiscal years 1987 to 1992
through March 31, 1997.

     The Company has approximately $199 million of NOL's which expire from
2001 to 2009 and which are available on a limited basis to offset federal net
taxable income. The AHM Merger caused an "ownership change" within the meaning
of Section 382(g) of the Internal Revenue Code for both the Company and AHM.
Consequently, allowable federal deductions relating to NOL's of the Company and
AHM arising in periods prior to the AHM Merger are thereafter subject to annual
limitations of approximately $19 million and $16 million for the Company and
AHM, respectively. In addition, approximately $55 million of the NOL's are
subject to an annual limitation of approximately $3 million due to prior
"ownership changes" of the Company. The annual limitations may be increased in
order to offset certain built-in gains which are recognized during the five-year
period following an ownership change. In addition, the NOL's from pre-

                                      -29-

merger tax years of AHM may only be applied against the prospective taxable
income of the AHM entities group. The limitations described above are not
currently expected to significantly affect the ability of the Company to
ultimately recognize the benefit of these NOL's in future years.

     In recent years the IRS was examining the federal income tax returns
for fiscal years 1984, 1985 and 1986 of Summit Health, which became a
wholly-owned subsidiary of the Company in April 1994 and merged into the Company
in September 1994. Summit Health received a revenue agent's report from the IRS
with proposed adjustments for the years 1984 through 1986 aggregating as of
August 31, 1996 approximately $16.6 million of income tax, $66.4 million of
interest on the tax, $43.9 million of penalties and $25.6 million of interest on
the penalties. After receiving the revenue agent's report, Summit Health filed a
protest contesting the proposed adjustments. On October 28, 1996, the Company
entered into a Closing Agreement on Final Determination with the IRS for the
above audit period, by agreeing and paying additional tax of $647,000 and
interest of $888,000 to close the audit of Summit Health for the fiscal years
1984 through 1986. The Closing Agreement is subject to review by the Joint
Congressional Committee on Taxation since the matter relates to a refund of
taxes to Summit Health in excess of $1 million.

                                       -30-

Item 2.           Properties.

         The following table sets forth the name of, location of and the number
of licensed beds in the Company's hospitals as of August 31, 1996. All of the
hospitals are general acute care hospitals, except for the one hospital
indicated in footnote (3) below which is a psychiatric hospital. Of the
Company's 50 hospitals, 40 are owned (of which four are operated pursuant to
joint ventures) and 10 are leased as of August 31, 1996. See Item 1 -
"Business-Recent Acquisitions" and "Business-Pending Acquisitions."
                                                                                        
                                                                                                 Licensed
State                      Name                                            Location                Beds(1)

Arizona.............       Community Hospital Medical Center               Phoenix                   59
                           Mesa General Hospital Medical Center(2)         Mesa                     138
                           St. Luke's Behavioral Health Center(3)(4)       Phoenix                   86
                           St. Luke's Medical Center(4)                    Phoenix                  276
                           Tempe St. Luke's Hospital(4)                    Tempe                     90
                           Tucson General Hospital                         Tucson                   146

California..........       Brotman Medical Center                          Culver City              438
                           Centinela Hospital Medical Center               Inglewood                400
                           Chapman Medical Center(5)                       Orange                   135
                           Coastal Communities Hospital(6)                 Santa Ana                177
                           Community Hospital of Huntington Park(7)        Huntington Park           99
                           Fountain Valley Regional Hospital and           Fountain Valley          413
                              Medical Center
                           French Hospital Medical Center                  San Luis Obispo          147
                           Greater El Monte Community Hospital             South El Monte           113
                           Harbor View Medical Center                      San Diego                156
                           Midway Hospital Medical Center                  Los Angeles              225
                           Mission Hospital of Huntington Park             Huntington Park          127
                           Monterey Park Hospital                          Monterey Park            102
                           Santa Ana Hospital Medical Center(8)            Santa Ana                 90
                           St. Luke Medical Center                         Pasadena                 162
                           Suburban Medical Center(9)                      Paramount                184
                           Valley Community Hospital(10)                   Santa Maria               70
                           Westside Hospital                               Los Angeles               68
                           Whittier Hospital Medical Center                Whittier                 159
                           Woodruff Community Hospital                     Long Beach                96

Florida.............       Coral Gables Hospital(11)                       Coral Gables             273
                           Florida Medical Center(12)                      Fort Lauderdale          459
                           Florida Medical Center, South                   Plantation               202
                           North Bay Medical Center                        New Port Richey          122
                           Parkway Regional Medical Center(13)             North Miami              699

Indiana.............       Winona Memorial Hospital                        Indianapolis             317

Iowa................       Davenport Medical Center                        Davenport                150

Louisiana...........       Minden Medical Center                           Minden                   121

                                       -31-

                                                                                                 Licensed
State                      Name                                            Location                Beds(1)

Massachusetts.......       Saint Vincent Hospital(14)                      Worcester                432

Mississippi.........       Gulf Coast Medical Center                       Biloxi                   189

Missouri............       Twin Rivers Regional Medical Center             Kennett                  126

Nevada..............       Lake Meade Hospital Medical Center              North Las Vegas          198

Oregon..............       Eastmoreland Hospital                           Portland                 100
                           Woodland Park Hospital(15)                      Portland                 209

Texas...............       Cypress Fairbanks Medical Center                Houston                  149
                           Garland Community Hospital                      Garland                  113
                           Houston Northwest Medical Center                Houston                  498
                           Lake Pointe Medical Center                      Rowlett                   92
                           Sharpstown General Hospital                     Houston                  190
                           South Park Hospital & Medical Center            Lubbock                  101
                           Southwest General Hospital                      San Antonio              286
                           Trinity Valley Medical Center                   Palestine                150

Washington..........       Puget Sound Hospital                            Tacoma                   160

West Virginia.......       Plateau Medical Center                          Oak Hill                  91

Wyoming.............       Lander Valley Medical Center(16)                Lander                   102

- ------------------

(1)      The number of licensed beds represents the maximum number of beds
         permitted in the facility under its state license. The total number of
         beds for all facilities is 9,685.
(2)      Leased facility. The lease expires July 31, 2003, subject to renewal by
         the Company until July 31, 2023.
(3)      Psychiatric facility.
(4)      Leased facility.  The lease expires January 31, 2010, subject to
         renewal by the Company until January 31, 2015.
(5)      Leased facility.  The lease expires December 31, 2013.
(6)      Joint venture with minority interests owned by physicians.
(7)      Leased facility. The lease expires November 25, 2023.
(8)      Leased facility. The lease expires August 31, 2003, subject to renewal
         by the Company until August 31, 2013.
(9)      Leased facility. The lease expires October  31, 2004, subject to
         renewal by the Company until October  31, 2020.
(10)     Leased facility.  The lease expires July 31, 2003, subject to renewal
         by the Company until July 31, 2023.
(11)     Joint venture with minority interests owned by physicians.
(12)     Joint venture with minority interests owned by physicians.
(13)     Effective September 1, 1996, the 352 bed license of Golden Glades
         Medical Center was combined with the license of this nearby hospital
         resulting in this hospital's licensed beds increasing to 699 licensed
         beds.
(14)     This hospital was acquired by the Company effective September 1, 1996.
(15)     The land on which the facility is located is leased, and such ground
         lease expires December 31, 2019.
(16)     Joint venture with minority interests owned by physicians.



     The Company maintains its corporate headquarters in approximately
50,000 square feet of leased office space at 3401 West End Avenue, Nashville,
Tennessee. In addition to the hospitals identified as owned or leased in the
table above, and various parcels of undeveloped land, mostly adjacent to its
hospitals, the Company owns or leases approximately 70 medical office buildings
typically adjacent to its hospitals. The Company also operates six outpatient
ambulatory surgery centers, two in Mesa and Phoenix, Arizona

                                      -32-

and four in Fountain Valley, San Luis Obispo, Westminster and Whittier,
California. Three of such surgery centers are located in leased facilities and
three are located in buildings owned by the Company.

     Of the $1.3 billion net book value of the Company's property, plant and
equipment at August 31, 1996, approximately $143.4 million of these assets were
subject to mortgages or liens as collateral for approximately $71.9 million of
indebtedness. At August 31, 1996, four of the Company's hospitals were owned
subject to mortgage or other liens. The Company's headquarters, hospitals and
other facilities are suitable for their respective uses and are, in general,
adequate for the Company's present needs.

Item 3.   Legal Proceedings.

     Information with respect to this Item is incorporated herein by
reference to Item 1 - "Business- Governmental Regulation - Summit Health OIG
Investigation"; Item 1 - "Business-Professional Liability and Insurance"; Item 1
- - "Business-Other Litigation"; and Item 1 - "Business-Certain Income Tax
Matters.

Item 4.   Submission of Matters to a Vote of Security-Holders.

     None.

                                      -33-

                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.

     The Company's common stock currently trades on the New York Stock
Exchange under the symbol ORN. The Company began trading on The New York Stock
Exchange on December 20, 1995.

     The following table sets forth the high and low sale prices for the
Company's common stock for the fiscal periods beginning September 1, 1995 and
ending August 31, 1996 as indicated below and as reported by the Nasdaq Stock
Market (prior to December 20, 1995) and by The New York Stock Exchange (on and
after December 20, 1995).

1995                                                    High         Low
                                                        ----         ----
First Quarter...........................               $17 3/4      $12 5/8
Second Quarter..........................                16 3/8       10 1/2
Third Quarter...........................                18 7/8       15
Fourth Quarter..........................                21           15 1/4

1996
First Quarter...........................               $23 1/4      $17 1/4
Second Quarter..........................                26 7/8       19 1/4
Third Quarter...........................                29 5/8       24
Fourth Quarter..........................                26 1/2       19 1/2

     There were 1,435 holders of record of shares of the Company's common
stock as of October 31, 1996. The Company's registrar and transfer agent for its
common stock is Society National Bank, Dallas, Texas.

     The Company has not paid any cash dividends on its common stock in the
past three years. The Company currently intends to retain all earnings for
working capital, capital expenditures, general corporate purposes and reduction
of outstanding indebtedness. Accordingly, the Company does not expect to pay any
cash dividends in the foreseeable future. The declaration and payment of future
dividends, if any, will be at the sole discretion of the Board of Directors and
will depend upon the Company's profitability, financial condition, cash
requirements, future prospects and other factors deemed relevant by the Board of
Directors. In addition, the terms of the Company's Restated Credit Facility and
certain of the Company's other long-term indebtedness contain substantial
restrictions on the Company's ability to pay dividends.

                                      -34-

Item 6.   Selected Financial Data.

     The following table sets forth selected historical financial data and
other operating information of the Company giving effect to the 1994 Mergers.
The selected historical financial data for the five fiscal years ended August
31, 1996 are derived from the consolidated financial statements of the Company.
Because the Company accounted for the 1994 AHM Merger as a pooling-of-interests
transaction, the historical financial data of the Company includes AHM's
historical results of operations. All information contained in the following
table should be read in conjunction with the consolidated financial statements
and related notes of the Company included herein.

                                              SELECTED FINANCIAL DATA
                                       (in thousands, except per share data)


                                                                               Years Ended August 31,
                                                        --------------------------------------------------------------------------
                                                                                                                
                                                             1992           1993            1994             1995             1996
                                                             ----           ----            ----             ----             ----
Statement of Operations:
Total revenue(1)                                        $ 808,523    $   961,795      $1,274,359       $1,842,701       $2,147,232
Interest expense                                           40,229         68,660          83,428          109,100          107,243
Interest income                                            (3,226)        (3,380)         (2,862)          (4,582)          (4,399)
Income (loss) from investments in Houston
   Northwest Medical Center                                (8,210)           173           3,634           14,006            5,128
Income (loss) before income tax expense
   and extraordinary item                                 (68,836)        14,768         (45,985)          87,084          135,113
Income tax expense                                          1,266          1,129           1,057           15,772           35,242
Income (loss) before extraordinary item                   (70,102)        13,639         (47,042)          71,312           99,871
Net income (loss)                                         (20,435)         9,797         (59,338)          71,312           99,871
Net income (loss) applicable to common
   and common equivalent shares                           (21,798)         8,098         (61,205)          69,312           99,539
Net income (loss) per common and
   common equivalent share                                  (0.71)          0.23           (1.62)            1.53             1.73
Net income (loss) per common share
   assuming full dilution (2)                           $   (0.71)    $     0.23      $    (1.62)       $    1.51       $     1.72

                                                                                     August 31,
                                                        --------------------------------------------------------------------------
                                                             1992           1993            1994             1995             1996
                                                             ----           ----            ----             ----             ----
Balance Sheet Data:
Working capital                                         $  46,669    $    26,173      $    6,801       $    5,422       $   88,137
Total assets                                              994,407      1,205,137       1,846,543        1,946,404        2,466,528
Long-term debt
   (excluding current maturities)                         570,971        705,425       1,067,088        1,013,423        1,229,930
Total shareholders' equity(3)                             185,882        212,108         328,106          393,138          640,417

- ------------------

(1) Total revenue is comprised of patient revenue, net of contractual
    adjustments, and other revenue.
(2) Per share information for the years ended August 31, 1992, 1993, and 1994 is
    based on  primary shares because earnings per share assuming full dilution
    is anti-dilutive.
(3) The Company adopted Financial Accounting Standards (SFAS) Statement No. 115
    "Accounting for Certain Investments in Debt and Equity Securities"
    effective September 1, 1993, which resulted in a $70.9 million and $51.8
    million increase in shareholders' equity at August 31, 1994 and 1995,
    respectively, with no impact on income. There are no income tax effects
    because of the availability of net operating loss carryforwards. All
    investments accounted for under SFAS No. 115 are classified as
    available-for-sale.


                                      -35-

Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations.

     Proposed Tenet Merger. On October 16, 1996, the Company entered into a
definitive agreement to merge with Tenet Healthcare Corporation ("Tenet"). Under
the terms of the definitive agreement, which was approved by the Board of
Directors of both companies, stockholders owning OrNda common stock would
receive 1.35 shares of Tenet common stock and the associated preferred stock
purchase rights for each share of OrNda common stock and the Company will become
a wholly-owned subsidiary of Tenet. The merger transaction will be tax-free and
accounted for as a pooling of interests and is expected to close in March 1997.

     Consummation of the merger is subject to a number of conditions,
including stockholder approval of both companies. The merger is also subject to
the applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act, local regulatory approvals, and confirmation that the
transaction qualifies as a pooling-of-interests for accounting purposes and as a
tax-free reorganization under the Internal Revenue Code.

     Other Mergers and Acquisitions.  The Company's recent operating results
were significantly affected by mergers, acquisitions and divestitures as
discussed below.As discussed in Note 2 to the accompanying consolidated
financial statements, OrNda HealthCorp ("OrNda") completed the AHM and Summit
Mergers on April 19, 1994. The AHM Merger was accounted for as a pooling-of-
interests and, accordingly, the operations of AHM and OrNda have been
combined in the accompanying consolidated financial statements. The Summit
Merger was accounted for as a purchase and, accordingly, its operations have
been included since the date of the merger. The discussion herein is based upon
the combined operations of OrNda and AHM for all periods presented in the
accompanying consolidated financial statements and including Summit Health
effective April 19, 1994. To enhance understandability, discussion and analysis
of financial condition and results of operations of the separate companies is
included, where necessary. Hereafter, the combined entity of OrNda and AHM is
referred to as the "Company", while the separate operations of OrNda and AHM,
prior to the Mergers, are referred to as "OrNda" and "AHM", respectively.

     In addition to the AHM and Summit Mergers, the Company's results of
operations have been impacted by the August 1994 acquisition of Fountain Valley
Regional Hospital and Medical Center ("Fountain Valley") and related businesses
in Fountain Valley, California, the February 1995 acquisition of three hospitals
and related businesses that comprise the St. Luke's Health System ("St. Luke's")
in Arizona, the January 1996 acquisition of Houston Northwest Medical Center
("HNW"), the July 1996 acquisition of Cypress Fairbanks Medical Center in
Houston, Texas ("Cypress Fairbanks") and the August 1996 acquisition of
Centinela Medical Center in Inglewood, California ("Centinela").

     Cost in excess of net assets acquired ("Goodwill"), net of
amortization, increased approximately $179.8 million in fiscal 1996 primarily
from goodwill associated with the acquisitions of HNW ($100.0 million), Cypress
Fairbanks ($24.4 million) and Centinela ($52.1 million). Goodwill, net of
amortization, increased approximately $43.9 million in fiscal 1995 primarily
from the acquisition of St. Luke's of $4.0 million; adjustments associated with
the acquisition of Fountain Valley of $2.9 million; in connection with the buy
out of a joint venture at one of the Company's hospitals of $11.5 million; and,
final adjustments to the acquisition of Summit Health of $31.6 million. The
adjustments to the Summit Health goodwill resulted principally from the
finalization of appraisals on fixed assets acquired, resolution of certain
assumed litigation, and receipt of actuarial estimates on termination of pension
plans.

                                      -36-

     Divestitures. Effective in the third quarter of fiscal 1994, the
Company's management decided upon a plan of disposition to sell Decatur Hospital
in Decatur, Georgia. During the fourth quarter of fiscal 1994, management also
entered into plans to dispose of Lewisburg Community Hospital in Lewisburg,
Tennessee, Gibson General Hospital in Trenton, Tennessee, and Pasadena General
Hospital in Pasadena, Texas. These four hospitals have a total of 486 licensed
beds. The Company consummated the sale of the Decatur Hospital in June 1994 and
the sale of the Gibson Hospital effective October 31, 1994. Effective December
31, 1994, the Company sold Ross Hospital, a 92-bed psychiatric facility in
Kentfield, California.

     The Company sold the hospital in Lewisburg on March 1, 1995 and had
definitive agreements to lease the Pasadena General Hospital real property and
sell the operations of Pasadena General Hospital to the lessee. The lessee
assumed ownership of operations and began leasing Pasadena General Hospital on
March 3, 1995. On or about March 27, 1995, the Company became aware that the
buyer/lessee of Pasadena had failed to perform under its contractual agreement.
On March 31, 1995, the Company re-assumed management of the facility until the
facility was closed on May 14, 1995. On July 7, 1995, the Company entered into a
definitive agreement to sell the real property of Pasadena General Hospital to a
third party. The sales price resulted in an additional loss on sale of $5.7
million which was recorded in the third quarter of fiscal 1995. The above noted
divestitures did not have a significant impact on subsequent operations.

     Geographic Concentration. The Company operates hospitals in greater
southern California, South Florida, Arizona and Texas which generated the
following percentages of the Company's total revenue for the years ended August
31, 1995 and 1996, respectively:
                                                                                       

                                  Number          Percentage of Fiscal           Number            Percentage of Fiscal
                                    of                    1995                      of                     1996
                                Hospitals             Total Revenue             Hospitals             Total Revenue

Southern California                 15                    34.8%                    17                     31.6%
South Florida                        5                    19.3%                     5                     16.5%
Arizona                              6                     8.9%                     6                      9.7%
Texas                                6                    10.2%                     8                     16.0%


     To the extent favorable or unfavorable changes in regulations or market
conditions occur in the these areas, such changes would likely have a
corresponding impact on the Company's results of operations.

RESULTS OF OPERATIONS

     General Trends. During the periods discussed below, the Company's
results of operations were affected by certain industry trends, changing
components of total revenue, and changes in the Company's debt structure. The
Company's results of operations have also been impacted by the mergers,
acquisitions and divestitures discussed above.

     Industry Trends. Outpatient services accounted for 31.3% and 28.8% of
actual gross patient revenue for the years ended August 31, 1996 and 1995,
respectively, reflecting the industry trend towards greater use of outpatient
services and the expansion of the Company's outpatient services primarily
achieved through the opening of new outpatient clinics in key markets in fiscal
1996 and 1995. The Company expects the industry trend towards outpatient
services to continue as procedures currently being performed on an

                                      -37-

inpatient basis become available on an outpatient basis through technological
and pharmaceutical advances. The Company plans to provide quality health care
services as an extension of its hospitals through a variety of outpatient
activities including surgery, diagnostics, physician clinics and home health.

     As discussed below, excluding the effect of the acquisitions and the
divestitures noted above ("same hospitals basis"), total revenues have
increased, reflecting higher utilization of outpatient and ancillary services,
increased acuity of patients admitted, and an increase in admissions for
inpatient procedures. The impact on revenue of increased patient acuity and
general price increases has been partially offset by the increasing proportion
of revenues derived from managed care providers. These major payors
substantially pay on a fixed payment rate on a per patient or a per diem basis
instead of a cost or charge reimbursement methodology. Fixed payments limit the
ability of the Company to increase revenues through price increases. While these
fixed payment rates have increased annually, the increases have historically
been at a rate less than the Company's increases in costs, and have been
inadequate to reflect increases in costs associated with improved medical
technologies. The Company has been able to mitigate such inflationary pressures
through cost control programs, as well as utilization management programs which
reduce the number of days that patients stay in the hospital and the amount of
hospital services provided to the patient. The average length of stay has
decreased from 5.3 days for the year ended August 31, 1995 to 5.0 days for the
year ended August 31, 1996. The Company has programs designed to improve the
margins associated with the revenues derived from government payors and managed
care providers. In addition, the Company has programs designed to enhance
overall hospital margins.

Year Ended August 31, 1996 Compared With The Year Ended August 31, 1995.

     Total revenue for the year ended August 31, 1996 increased over the
same period in the prior year by $304.5 million or 16.5% to $2.1 billion. The
16.5% increase is primarily a result of the acquisitions discussed above as well
as an increase in same hospitals revenue as discussed below. The increase in
total revenue attributable to acquisitions, net of divestitures, was $179.9
million. Net income applicable to common shares for the year ended August 31,
1996 was $99.5 million, or $1.73 per share, compared to $69.3 million, or $1.53
per share, in the same period last year.

     Operating expenses in the year ended August 31, 1996 increased 14.1%
($222.1 million) compared to the same period in the prior year primarily as a
result of acquisitions and the increase in same hospital revenues and volumes
discussed below.

     On a same hospitals basis, total revenue increased 7.6% ($124.6
million) primarily as a result of a 2.9% increase in admissions and a 13.5%
increase in gross outpatient revenue. On a same hospitals basis, salaries and
benefits increased as a percent of total revenue from 45.3% in fiscal 1995 to
45.4% in fiscal 1996. Supplies expense increased 11.4% ($24.1 million) and as a
percentage of total revenue increased from 12.8% in fiscal 1995 to 13.3% in
fiscal 1996. Purchased services decreased 5.6% ($10.6 million) and as a
percentage of total revenue decreased from 11.6% in fiscal 1995 to 10.2% in
fiscal 1996 primarily due to a reclassification in fiscal 1996 of the supply
component of major contracts from purchased services to supplies expense. The
provision for doubtful accounts increased 1.1% ($1.3 million) but decreased from
7.1% of total revenue for year ended August 31, 1995 to 6.7% for the year ended
August 31, 1996. Other operating expenses increased 7.0% ($9.5 million) and as a
percentage of total revenue was 8.3% in fiscal 1995 and 1996.

                                      -38-

     The effect of price increases implemented by the Company's hospitals
was nominal as gross revenue from fixed reimbursement third party payors
represented approximately 87.5% of the Company's total gross revenue in 1996.
Over the last several years, the portion of the Company's total revenue derived
from fixed reimbursement third party payors has increased while rates of
increases from these payors have generally been less than medical-related
inflation, resulting in increased efforts by the Company to implement cost
containment initiatives and re-evaluate hospital programs for adequacy of
profitability. Since these trends are likely to continue, the Company's ability
to improve operating results at its existing hospitals is dependent on its
continued effectiveness in reducing its costs of services. The Company's
operations may also be enhanced through strategic acquisitions as was
particularly evident in fiscal 1994 and fiscal 1995 with the mergers with AHM
and Summit Health and the individual hospital acquisitions. The Company intends
to pursue strategic acquisitions of health care providers in geographic areas
and with service capabilities that will facilitate the development of integrated
networks.

     Depreciation and amortization for fiscal 1996, increased 21.9% ($18.7
million) over the prior year primarily as a result of the acquisitions of St.
Luke's, HNW, Cypress Fairbanks and Centinela. The increase in depreciation and
amortization attributable to acquisitions, net of divestitures, was $11.1
million. In addition, amortization on intangibles increased as a result of new
business units.

     Interest expense for the fiscal 1996 as compared to the same period
last year decreased 1.7% ($1.9 million) primarily as a result of a decline in
the average debt balance outstanding and improved pricing under the Restated
Credit Facility. Such decrease was partially reduced by the effect of a $2.2
million reduction in interest expense in the third quarter of fiscal 1995
related to an interest rate swap agreement. Of the Company's total indebtedness
of $1.3 billion at August 31, 1996, approximately $692.2 million bears interest
at rates that fluctuate with market rates, such as the Prime Rate or LIBOR.
Increases in market interest rates will adversely affect the Company's net
income.

     Minority interest, which represents the amounts paid or payable to
physicians pursuant to the Company's joint venture arrangements, increased $7.5
million in fiscal 1996 as compared to fiscal 1995, primarily as a result of a
$9.4 million exchange of minority interest ownership in two hospitals for
minority interest investment in two group physician practices in the first
quarter of fiscal 1996 and the acquisition of HNW which had existing joint
ventures.

     In fiscal 1996, the Company recorded income of $5.1 million, compared
to $14.0 million in fiscal 1995, related to its investments in HNW which
primarily represented non-cash income related to the Company's investment in HNW
redeemable preferred stock. Effective January 1, 1996, the Company acquired HNW
from the hospital's ESOP. Following the transaction, HNW became a wholly owned
subsidiary of the Company. See Note 2 to the accompanying consolidated financial
statements for further discussion of the Company's investments in HNW as well as
the acquisition of HNW.

     The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). The majority of the Company's deferred tax assets related to
approximately $198.9 million of tax loss and credit carryforwards at August 31,
1996, which the Company has available to offset future taxable income. The AHM
Merger (see Note 2 to the consolidated financial statements) caused an
"ownership change" within the meaning of Section 382(g) of the Internal Revenue
Code (the "IRC") for both OrNda and AHM. Consequently, allowable federal
deductions relating to tax attribute carryforwards of OrNda and AHM arising in
periods prior to the merger

                                      -39-

are thereafter subject to annual limitations (OrNda - $19.0 million; AHM - $16.0
million). For AHM, such tax attribute carryforwards can only be applied against
the prospective taxable income of the entities that previously comprised AHM.
These limitations may be increased for "built-in-gains", as defined under the
IRC, recognized during a five-year period following the date of the merger.
Management assesses the realizability of the deferred tax assets on at least a
quarterly basis and currently is satisfied, despite the annual limitations, that
it is more likely than not that the deferred tax assets recorded at August 31,
1996, net of the valuation allowance, will be realized through reversal of
deferred tax liabilities.

     For the year ended August 31, 1996 the Company recorded income tax
expense of $35.2 million on pre-tax income of $135.1 million, an amount less
than the statutory rate, primarily due to the availability of net operating loss
carryforwards.

Year Ended August 31, 1995 Compared with the Year Ended August 31, 1994.

     Total revenue for the year ended August 31, 1995, increased over the
prior year by $568.3 million or 44.6% to $1.8 billion. The 44.6% increase is
primarily a result of the Summit Merger and other hospital acquisitions
discussed above. The increase in total revenue attributable to acquisitions, net
of divestitures was $496.5 million. Net income applicable to common shares for
the year ended August 31, 1995 was $69.3 million, or $1.53 per share compared to
a net loss of $61.2 million, or $(1.62) per share in prior year.

     Operating expenses for the year ended August 31, 1995, increased 44.4%
($485.8 million) over the prior year primarily as a result of the acquisitions
discussed above. Actual salaries and benefits as a percentage of total revenue
declined from 45.1% in fiscal 1994 to 43.6% in fiscal 1995 mainly as a result of
reductions in corporate office personnel attained in combining the OrNda and AHM
corporate offices and due to labor efficiencies achieved at certain facilities.

     Actual other operating expenses increased 35.2% ($55.1 million). This
category of expense increased at a rate greater than other categories due to the
1994 acquisition of Summit Health, which owns a Medicaid HMO that includes the
majority of its non-salary expenses in other operating expense. In addition, the
St. Luke's acquisition in fiscal 1995 also included a Medicaid HMO. Operating
expenses for the year ended August 31, 1995, increased approximately $17.4
million for claims payments made by the Medicaid HMO to third party providers.
In addition, other operating expenses increased $12.3 million for rent expense
related to acquisitions financed through leasing agreements with third parties.

     On a same hospitals basis, total revenue increased 6.9% ($71.9 million)
primarily as a result of a 3.9% increase in admissions and a 18.7% ($105.2
million) increase in gross outpatient revenue. On a same hospitals basis,
salaries and benefits increased 8.7% ($41.7 million) primarily due to
inflationary increases and an increase in same hospital revenue. Supplies
expense increased 3.9% ($5.0 million) and as a percentage of total revenue
decreased from 12.4% in fiscal 1994 to 12.1% in fiscal 1995, primarily as a
result of favorable reductions in expenses under supply contracts in
pharmaceuticals and other areas. Purchased services increased 3.5% ($4.0
million) but as a percentage of total revenue remained at 14.4% in fiscal 1994
and fiscal 1995 primarily as a result of increases in marketing and rent
expenses. Other operating expenses increased 10.1% ($9.2 million) and as a
percentage of total revenue increased from 8.8% in fiscal 1994 to 9.0% in fiscal
1995, primarily as a result of increases in marketing and rent expenses. The
provision for doubtful accounts increased 17.0% ($12.4 million) and increased
from 7.0% of total revenue in 1994 to 7.6% in 1995. In connection with the
Mergers, during the year ended August 31, 1994, the Company changed the
methodologies used by the previously separate companies to calculate the
allowance for doubtful accounts

                                      -40-

to conform to a single method for OrNda and AHM which resulted in a $3.3
million favorable impact on the provision for doubtful accounts in 1994.

     Depreciation and amortization for the year ended August 31, 1995,
increased 27.6% ($18.4 million) over the prior year primarily as a result of the
Summit Merger and other acquisitions discussed previously. The increase in
depreciation and amortization attributable to acquisitions, net of divestitures,
was $19.1 million.

     Interest expense increased 30.8% ($25.7 million) as a result of
additional indebtedness incurred to finance the acquisitions discussed above as
well as increases in market interest rates. Such increase was partially offset
by a decrease in interest expense of $2.2 million related to an interest rate
swap agreement in the third quarter of fiscal 1995. Of the Company's total
indebtedness of $1.1 billion at August 31, 1995, approximately $480.2 million 
bore interest at rates that fluctuate with market rates, such as the Prime Rate
or LIBOR. Market interest rates increased from 1994 to 1995 causing the 
Company's interest expense to increase.

     Minority interest, which represents the amounts paid or payable to
physicians pursuant to the Company's joint venture arrangements, decreased 94.0%
($3.8 million) in fiscal 1995 as compared to fiscal 1994, primarily as a result
of the repurchase of joint venture interests and a decline in operations at
certain of the Company's joint ventures.

     In fiscal 1995, the Company recorded income of $14.0 million, compared
to $3.6 million in fiscal 1994, related to its investments in HNW which
primarily represented non-cash income related to the Company's investment in HNW
redeemable preferred stock. See Note 2 to the accompanying consolidated
financial statements for further discussion of the Company's investments in HNW.

     For the year ended August 31, 1995, the Company recorded income tax
expense of $15.8 million on pretax income of $87.1 million, an amount less than
the statutory rate, primarily due to the availability of net operating loss
carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

     At August 31, 1996, the Company had working capital of $88.1 million,
of which $17.4 million was cash, compared with $5.4 million at August 31, 1995.
The Company's cash portion of working capital is primarily managed through a
revolving credit arrangement, whereby excess cash generated through operations
or otherwise is generally used to reduce the outstanding revolving credit
facility. When cash requirements arise, the revolving credit facility is drawn
upon as needed. On October 27, 1995, the Company executed the Restated Credit
Facility to increase the borrowing capacity of the Company from $660.0 million
to $900.0 million. Under the terms of the Restated Credit Facility, as of August
31, 1996, the Company had $146.6 million of borrowing capacity available for
general corporate purposes and acquisitions. See Note 5 to the accompanying
consolidated financial statements for further discussion of the Restated Credit
Facility. The revolving credit facility matures on October 30, 2001 and is
classified as long-term debt on the Company's balance sheet.

     In fiscal 1996, the Company's operating activities provided cash of
$154.4 million. Cash from operations was used for the $16.2 million
increase in patient accounts receivable, net of the provision for doubtful
accounts. The increase in patient accounts receivable resulted primarily
from the increase in same 

                                      -41-

store revenues, delays in payment from certain state Medicaid/Medicare
programs and due to the acquisition and start up of new business units during
fiscal 1996. Cash from operations was used for income tax payments of $28.9
million and interest payments of $107.4 million. Such uses were partially offset
by $20.6 million of proceeds from sales of an investment security classified as
trading.

     Net cash used in investing activities of $532.6 million during fiscal
1996 consisted primarily of capital expenditures of $102.6 million and $431.2
million for the acquisitions of hospitals and related assets.
 The Company's management currently expects to incur approximately $125.0
million of capital expenditures in fiscal 1997 for replacement equipment and
construction at existing facilities.

     Net cash provided by financing activities for the year ended August 31,
1996 of $390.7 million resulted primarily from $199.3 million sale of common
stock and exercise of stock options and the $200.6 million excess of long term 
debt borrowings over principal payments on long term debt. On November 6, 1995,
the Company completed the sale of 10,000,000 shares of its common stock at a
$17.625 per share public offering price. On November 9, 1995, the underwriters
exercised an option to purchase an additional 1,500,000 shares to cover 
over-allotments. The net proceeds of approximately $192.3 million, after
deducting offering expenses and underwriting discounts, was used to reduce the 
indebtedness under the revolving portion of the Restated Credit Facility in the 
amount of $27.2 million and for general corporate purposes.

     On November 7, 1995, the Company issued a notice of redemption to the
holders of its Payable in Kind Cumulative Redeemable Convertible Preferred Stock
(the "PIK Preferred") for $15 per share with a redemption date of December 8,
1995. In the quarter ended November 30, 1995, 1,355,519 shares of PIK Preferred
were converted into 1,355,519 shares of the Company's common stock and 7,416
shares of the PIK Preferred remained outstanding. On December 8, 1995, the
remaining 7,416 shares of PIK Preferred were redeemed for $15 per share plus
dividends of $0.16 per share accrued through the redemption date.

     The Company believes that its cash flows generated by operations
together with availability of credit under the Restated Credit Facility will be
sufficient to meet the Company's short and long-term operational cash needs.
However, the Company's net debt-to-total-capitalization ratio at August 31, 1996
is 66.5%. Such leverage limits the amount of additional indebtedness available
to the Company for acquisitions (including certain announced and pending
acquisitions) requiring capital in excess of amounts currently available under
the Restated Credit Facility. The Company is currently in discussion with its
current syndicate of banks to increase its credit facility to an amount
sufficient to finance the Company's announced and pending acquisitions.
Alternative financing may also be available under other arrangements, such as
off-balance-sheet financing arrangements.

     As of August 31, 1996, the Company had approximately $692.2 million of
debt outstanding under the Restated Credit Facility with an interest rate of
LIBOR plus 1.25%. Interest rates in the future may be subject to upward and
downward adjustments based on the Company's leverage ratio. To the extent that
interest rates increase in the future, the Company may experience higher
interest rates on such debt. A 1% increase in the prime rate or LIBOR would
result in approximately a $6.9 million increase in annual interest expense based
upon the Company's credit facility indebtedness outstanding at August 31, 1996.

     The ratio of earnings to fixed charges and preferred stock dividends
was 0.51, 1.61 and 1.99 for the years ended August 31, 1994, 1995 and 1996,
respectively. The ratio of earnings to fixed charges and preferred stock
dividends is calculated by dividing earnings before income taxes plus fixed
charges by the 

                                      -42-

sum of fixed charges which consists of interest expense, amortization of
financing costs, preferred stock dividends and the portion of rental expense
which is deemed to be representative of the interest component. The ratio of 
earnings to fixed charges and preferred stock dividends is an indication of the 
Company's ability to pay interest expense and other fixed charges.

     In recent years the IRS was examining the federal income tax returns
for fiscal years 1984, 1985 and 1986 of Summit Health, which became a
wholly-owned subsidiary of the Company in April 1994 and merged into the Company
in September 1994. Summit Health received a revenue agent's report from the IRS
with proposed adjustments for the years 1984 through 1986 aggregating as of
August 31, 1996 approximately $16.6 million of income tax, $66.4 million of
interest on the tax, $43.9 million of penalties and $25.6 million of interest on
the penalties. After receiving the revenue agent's report, Summit Health filed a
protest contesting the proposed adjustments. On October 28, 1996, the Company
entered into a Closing Agreement on Final Determination with the IRS for the
above audit period, by agreeing and paying additional tax of $647,000 and
interest of $888,000 to close the audit of Summit Health for the fiscal years
1984 through 1986. The Closing Agreement is subject to review by the Joint
Congressional Committee on Taxation since the matter relates to a refund of
taxes to Summit Health in excess of $1 million.

     Inflation. A significant portion of the Company's operating expenses
are subject to inflationary increases, the impact of which the Company has
historically been able to substantially offset through charge increases,
expanding services and increased operating efficiencies. To the extent that
inflation occurs in the future, the Company may not be able to pass on the
increased costs associated with providing health care services to patients with
government or managed care payors, unless such payors correspondingly increase
reimbursement rates.

GENERAL

     Revenue Trends. Future trends for revenue and profitability are
difficult to predict. The Company believes, however, there will be continuing
pressure to reduce costs and develop integrated delivery systems with
geographically concentrated service capabilities. Accomplishment of these
objectives can be achieved through the continuation of strategic acquisitions
and affiliations with other health care providers. Such acquisitions and
affiliations enhance the Company's ability to 1) negotiate with managed care
providers in each area of geographic concentration; 2) negotiate reduced costs
with vendors; 3) acquire or create physician groups; and 4) reduce duplication
of services in local communities. The Company believes acquisitions and
affiliations are likely to continue as investor-owned hospitals represent
less than 15% of the hospital industry as of August 31, 1996.

     Health Care Reform. The Company derives a substantial portion of its
revenue from third party payors, including the Medicare and Medicaid programs.
During fiscal 1994, 1995 and, 1996, the Company derived an aggregate of 63.7%,
58.7% and 56.2%, respectively, of its gross revenue from the Medicare and
Medicaid programs.

     Changes in existing governmental reimbursement programs in recent years
have resulted in reduced levels of reimbursement for health care services, and
additional changes are anticipated. Such changes are likely to result in further
reductions in the rate of increase in reimbursement levels. In addition, private
payors, including managed care payors, increasingly are demanding discounted fee
structures or the assumption by health care providers of all or a portion of the
financial risk through prepaid capitation arrangements. Inpatient utilization,
average lengths of stay and occupancy rates continue to be negatively 

                                      -43-

affected by payor-required pre-admission authorization and utilization review 
and by payor pressure to maximize outpatient and alternative health care 
delivery services for less acutely ill patients. In addition, efforts to impose
reduced allowances, greater discounts and more stringent cost controls by 
government and other payors are expected to continue.

     Significant limits on reimbursement rates could adversely affect the
Company's results of operations. The Company is unable to predict the effect
these changes will have on its operations. No assurance can be given that such
reforms will not have a material adverse effect on the Company.

     Technological Changes. The rapid technological changes in health care
services will continue to require significant expenditures for new equipment and
updating of physical facilities. The Company believes that the cash flows
generated by its operations together with availability of credit under the
Restated Credit Facility will be sufficient to meet the Company's short and
long-term cash needs for capital expenditures and operations.

     Excess Capacity. Excess capacity in general acute care hospitals will
require the Company to continue to shift resources from traditional inpatient
care to various outpatient activities. The Company's ability to effectively
shift those resources and maintain market share will have a direct impact on the
continued profitability of the Company.

     Tax Rate. The Company expects its effective tax rate to increase to
approximately 32% for fiscal 1997 due to recent acquisitions. This estimated
rate does not reflect the effect of any pending acquisitions which may cause the
rate to increase. Additionally, the Company expects its effective tax rate to
approximate the statutory tax rate by fiscal 1998.

     Stock. The Company's stock price is subject to significant volatility.
If revenues or earnings fail to meet expectations of the investment community or
if the regulators allege that the Company is materially in violation of the
fraud and abuse, false claims or physician self-referral laws, there could be an
immediate and significant impact on the trading price for the Company's stock.
Because of stock market forces beyond the Company's control and the nature of
its business, such shortfalls can be sudden. The Tenet merger noted above could 
have an impact on the price of the Company's stock.

     New Accounting Standards. In March 1995, the Financial Accounting
Standards Board issued Financial Accounting Standard No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," (SFAS No. 121) which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company currently plans to adopt SFAS No. 121 in the first quarter of fiscal
1997 and, based on current circumstances, does not believe the effect of
adoption will be material.

     Forward-Looking Statements. Certain statements contained in this
Report, including without limitation statements containing the words "believes"
"anticipates" "intends" "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied

                                      -44-

by such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both nationally and in the
regions in which the Company operates; industry capacity; demographic changes; 
existing government regulations and changes in, or the failure to comply with,
governmental regulations; legislative proposals for health care reform; the
ability to enter into managed care provider arrangements on acceptable terms;
changes in Medicare and Medicaid reimbursement levels; liability and other
claims asserted against the Company; competition; the loss of any significant
customers; changes in business strategy or development plans; the ability to
attract and retain qualified personnel, including physicians; the availability
and terms of capital to fund the expansion of the Company's business, including
the acquisition of additional facilities; and other factors referenced in this
Report. Certain of these factors are discussed in more detail elsewhere in this
Report, including without limitation under "Business Strategy", "Risks
Associated with Acquisition Strategy", "Limits on Reimbursement", "Competition"
and "Governmental Regulation". Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.

Item 8.   Financial Statements and Supplementary Data.

     The response to this Item is submitted in a separate section of this
report. See page F-1 and pages F-3 through F-23.

Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure.

     None.

                                      -45-

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

Information About Executive Officers and Directors

     The following table sets forth certain information as of
November 1, 1996 regarding the executive officers and directors of the Company.
                                                                                         
                                                                                                  Served as Director or
                                                                                                  Executive Officer of
Name                          Age       Position                                                  the Company since
- ----                          ---       --------                                                  -----------------
Charles N. Martin, Jr........ 53        Chairman, President & Chief Executive Officer             January 1992
William L. Hough............. 45        Executive Vice President & Chief Operating Officer        July 1995
Keith B. Pitts............... 39        Executive Vice President & Chief Financial Officer        August 1992
Raymond Denson............... 55        Senior Vice President - Operations                        September 1986
Paula Y. Eleazar............. 43        Senior Vice President - Chief Information Officer         April 1992
James Johnston............... 52        Senior Vice President - Human Resources                   November 1995
Anthony C. Krayer............ 52        Senior Vice President - Operations                        June 1994
Carol A. Murdock............. 36        Senior Vice President - Business Development              April 1994
                                                                & Managed Care
William M. Murray............ 51        Senior Vice President - Operations                        March 1995
Phillip W. Roe............... 35        Senior Vice President, Controller &                       September 1996
                                                               Chief Accounting Officer
Ronald P. Soltman............ 50        Senior Vice President, General Counsel and Secretary      April 1994
Alan G. Thomas............... 42        Senior Vice President - Hospital Financial Operations     April 1995
William V.B. Webb............ 44        Senior Vice President - Acquisitions & Development        September 1996
Kenneth K. Westbrook......... 46        Senior Vice President - Operations                        June 1996
Richard A. Gilleland......... 52        Director                                                  October 1991
Leonard Green................ 70        Director                                                  April 1992
Peter A. Joseph.............. 44        Director                                                  October 1991
Paul S. Levy................. 49        Director                                                  October 1991
Angus C. Littlejohn, Jr...... 46        Director                                                  October 1991
John F. Nickoll.............. 61        Director                                                  April 1994
John J. O'Shaughnessy........ 52        Director                                                  April 1994
M. Lee Pearce, M.D........... 65        Director                                                  March 1993



         Charles N. Martin, Jr. has served as Chairman of the Board of
Directors, President and Chief Executive Officer of the Company since January
1992 except during the period April 1994 until August 1995 he was Chairman of
the Board and Chief Executive Officer. Mr. Martin was President and Chief
Operating Officer of HealthTrust, Inc., a hospital management company, from
September 1987 until October 1991. From September 1980 to September 1987, Mr.
Martin held a number of executive positions at Hospital Corporation of America,
and from April 1987 to August 1987 served as a director of Hospital Corporation
of America.

         William L. Hough has served as Executive Vice President and Chief
Operating Officer of the Company since August 1995.  Prior thereto, Mr. Hough
was Executive Vice President - Hospital Operations after joining the Company in 
May 1995. From September 1987 to April 1995, Mr. Hough served in various

                                      -46-

executive positions with HealthTrust, Inc. including Group Vice President from
May 1994 to April 1995 and Regional Vice President from April 1990 to April
1994.

     Keith B. Pitts has served as Executive Vice President and Chief
Financial Officer of the Company since August 1992. From July 1991 to August
1992, Mr. Pitts was a partner in Ernst & Young LLP's Southeast Region Health
Care Consulting Group, and from January 1988 to July 1991 he was a partner and
Regional Director in Ernst & Young LLP's Western Region Health Care Consulting
Group. Mr. Pitts was a Regional Vice President and Treasurer of Amherst
Associates, a health care consulting firm, from July 1986 until it merged into
Ernst & Young LLP in January 1988. Mr. Pitts is also a director of Horizon
Mental Health Management, Inc. and Summit Care Corporation.

     Raymond Denson has served as Senior Vice President - Operations of the
Company since April 1990. Mr. Denson served as a Vice President-Operations of
the Company from September 1986 until April 1990.

     Paula Y. Eleazar has been Senior Vice President and Chief Information
Officer of the Company since April 1994. Prior thereto she served as Vice
President and Chief Information Officer of the Company from April 1992 until
April 1994. For more than ten years prior to joining the Company, Ms. Eleazar
was employed by Hospital Corporation of America, a hospital management company,
principally in its information systems division and as the Assistant
Administrator of Henrico Doctors Hospital, Richmond, Virginia.

     James Johnston has been Senior Vice President - Human Resources of the
Company since November 1995. From 1984 until November 1995 Mr. Johnston served
as the Company's Vice President - Human Resources.

     Anthony C. Krayer has been Senior Vice President - Operations of the
Company since September 1996. Prior thereto he served as Senior Vice President -
Acquisitions and Development of the Company from June 1994 until September 1996.
From July 1993 to June 1994 Mr. Krayer was Senior Vice President of OrNda of
South Florida, Inc., a subsidiary of the Company. From January 1992 until June
1993, Mr. Krayer was Chief Operating Officer of Florida Medical Center ("FMC"),
a 459-bed acute care hospital located in Fort Lauderdale, Florida, which was
purchased by a subsidiary of the Company in June 1993. From October 1989 until
December 1991, Mr. Krayer was Chief Financial Officer of FMC. From 1980 until
October 1989 Mr. Krayer was a partner of Ernst & Whinney (predecessor to Ernst &
Young LLP).

     Carol A. Murdock has been Senior Vice President - Business Development
& Managed Care of the Company since April 1995. From April 1994 until April
1995, Ms. Murdock was the Company's Senior Vice President - Business
Development. Prior thereto she was Vice President, Marketing of Summit Health,
Ltd., a hospital management company, from June 1993 until April 1994. From
November 1992 until May 1993, Ms. Murdock was Assistant Vice President/
Marketing of National Medical Enterprises, Inc. (now known as Tenet Healthcare
Corporation ) ("Tenet"), a hospital management company, and from December 1990
until November 1992 she was Director, Product Line Development, of Tenet.

     William M. Murray has been Senior Vice President - Operations of the
Company since March 1995. Prior thereto, from 1988 until March 1995, Mr. Murray
was President and Chief Executive Officer of the St. Luke's Health System, a
not-for-profit multi-institutional health care delivery system serving the
Phoenix, Arizona metropolitan area and central Arizona.

                                      -47-

     Phillip W. Roe has been Senior Vice President, Controller and Chief
Accounting Officer of the Company since September 1996. Prior thereto, from
October 1994 until September 1996, Mr. Roe was Vice President, Controller and
Chief Accounting Officer of the Company. From July 1994 until October 1994, Mr.
Roe was Assistant Vice President and Controller of the Company. Mr. Roe joined
the Company in March 1992 and from March 1992 to July 1994 he was the Director,
Financial Reporting, of the Company. From 1988 to March 1992 Mr. Roe was Senior
Manager in the Dallas, Texas office of Ernst & Young LLP.

     Ronald P. Soltman has been Senior Vice President and General Counsel of
the Company since April 1994 and Secretary of the Company since September 1994.
From 1984 until February 1994, he was Vice President and Assistant General
Counsel of Hospital Corporation of America. From February 1994 until March 1994
he was Vice President and Assistant General Counsel of Columbia/HCA Healthcare
Corporation, a hospital management company.

     Alan G. Thomas has been Senior Vice President - Hospital Financial
Operations of the Company since April 1995. Prior thereto, Mr. Thomas was Vice
President - Reimbursement and Revenue Enhancement of the Company from June 1994
until April 1995, Assistant Vice President of Reimbursement from December 1992
to June 1994, Director of Reimbursement from August 1992 to December 1992 and
Assistant Division Controller from March 1990 until August 1992.

     William V.B. Webb has been Senior Vice President - Acquisitions and
Development of the Company since September 1996. Prior thereto, from February
1992 when he joined the Company until September 1996 Mr. Webb was Vice President
- - Development of the Company. From November 1991 to February 1992 Mr. Webb was
employed by The Martin Companies (a health care management and investment
company) as a development executive.

     Kenneth K. Westbrook has been Senior Vice President - Operations of the
Company since June 1996. Prior thereto, Mr. Westbrook was from September 1995 to
June 1996 Chief Operating Officer of the Pacific Division of Columbia/HCA
Healthcare Corporation, which Division was responsible for overseeing more than
15 California hospitals. From August 1991 until August 1995 Mr. Westbrook was
Chief Executive Officer of Chino Valley Medical Center, a 130-bed acute care
hospital in Chino, California.

     Richard A.  Gilleland  has served as a director of the Company  since
October 1991. Mr. Gilleland is a private investor. Mr. Gilleland was the
President and Chief Executive Officer of AMSCO  International,  Inc., a
manufacturer of medical sterilizers, from July 1995 until July 1996. Prior
thereto, Mr. Gilleland was Chairman,  President and Chief Executive  Officer of
Kendall International,  Inc. ("Kendall"),  a manufacturer of health care
supplies, from July 1990 to July 1995.  Mr.  Gilleland  was also  Chairman and
Chief Executive  Officer of American  Medical  International,  Inc. from January
1989 to November 1989 and of Intermedics, Inc. from August 1986 to January 1989.
Mr. Gilleland is also a of  DuPuy,  Inc.,  Physicians  Resource  Group,  Quest
Medical  Inc., Remington Arms and Tyco International, Ltd.

     Leonard Green has served as a director of the Company since April 1992. Mr.
Green has been President and Chief Executive Officer of Green Management and
Investment Co., a private investment management company, since 1985. From 1980
to 1985, Mr. Green served as President and Chief Executive Officer of Yuma
Management Corp., the general partner of Universal Home Health Care Associates,
which was subsequently merged into Quality Care, Inc., a home health care
company. Mr. Green is also a director of Apria Healthcare Group, Inc., Cyro
Cell International, Inc. and Nu-Tech Bio-Med, Inc.

                                      -48-

     Peter A. Joseph has served as a director of the Company since October
1991. Mr. Joseph has been a general partner of JLL Associates L.P. ("JLL
Associates"), which is a general partner of the Joseph Littlejohn & Levy Fund,
L.P. (the "JLL Fund"), since November 1990 and a partner of Joseph Littlejohn
and Levy ("JLL") and its predecessors, a merchant banking firm and the sponsor
of the JLL Fund, since July 1987. Mr. Joseph has also served as President of
Lancer Industries, Inc. ("Lancer Industries"), an industrial holding company,
since April 1992 and as Secretary and director of Lancer Industries since July
1989. Lancer Industries owns 100% of the capital stock of JLL Inc., which
pursuant to contract manages the JLL Fund. Mr. Joseph is also a director of
Fairfield Manufacturing Company, Inc. ("Fairfield") and Hayes Wheels
International ("Hayes").

     Paul S. Levy has served as a director of the Company since October
1991. Mr. Levy has been a general partner of JLL Associates since November 1990
and a partner of JLL and its predecessors since May 1988. Mr. Levy has served as
Chairman of the Board of Directors and Chief Executive Officer of Lancer
Industries since July 1989. Mr. Levy is also a director of Fairfield, Foodbrands
America, Inc. ("Foodbrands") and Hayes.

     Angus C. Littlejohn, Jr. has served as a director of the Company since
October 1991. Mr. Littlejohn has been the Chairman of the Board and Chief
Executive Officer of Littlejohn & Co., Inc., a merchant banking firm, since
September 1996. Prior thereto he was a general partner of JLL Associates from
November 1990 to September 1996 and a partner of JLL (and its predecessors) from
July 1987 until September 1996. From July 1989 until April 1992, Mr. Littlejohn
also served as President of Lancer Industries. Mr. Littlejohn is also a director
of Foodbrands and Freedom Chemical Company.

     John F. Nickoll has served as a director of the Company since April 1994.
He has been Chairman of the Board of Directors, President and Chief Executive
Officer of The Foothill Group, Inc. ("Foothill"), an asset-based lender
and asset management company, since October 1995. From 1984 to October
1995 Mr. Nickoll was President, Vice Chairman of the Board of Directors,
Co-Chief Executive Officer and Chief Operating Officer of Foothill. From
1977 to 1984, he was President and Vice Chairman of the Board of Directors
of Foothill and from 1970 to 1976, he was Executive Vice President and
Vice Chairman of the Board of Directors of Foothill. Mr. Nickoll also is a
director of CIM-High Yield Securities, Inc. and Regency Health Services.

     John J. O'Shaughnessy has served as a director of the Company since
April 1994. He has been President of Strategic Management Associates, Inc., a
health care consulting firm in Washington, D.C., since 1988. From 1986 to 1988,
he was Senior Vice President of the Greater New York Hospital Association, and
from 1983 to 1986 he was Assistant Secretary for Management and Budget of the
Department of Health and Human Services, Washington, D.C.

     M. Lee Pearce, M.D. has served as a director of the Company since March
1993. Dr. Pearce is and has been for the last five years a private investor.
Dr. Pearce also serves as a director of IVAX Corporation.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission ("SEC") reports
of ownership and reports of changes in ownership in the Company's common stock
and other equity

                                      -49-

securities of the Company. Such officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) reports they file.

     Based solely on review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
its fiscal year ended August 31, 1996, the Company believes that none of its
officers, directors and greater than 10% stockholders failed to file on a timely
basis, as disclosed in such reports, reports required by Section 16(a) of the
Exchange Act during the Company's fiscal year ended August 31, 1996, except that
two directors of the Company (Messrs. Leonard Green and John F. Nickoll) each
filed one Form 4 late failing in each case to report one transaction on a timely
basis, in Mr. Green's case about one week late and in Mr. Nickoll's case about
one month late.

Item 11.  Executive Compensation.

     The following table sets forth, for the three fiscal years ended August
31, 1996, the compensation paid by the Company and its subsidiaries to the
Company's Chief Executive Officer and its four other most highly compensated
executive officers (the "Named Executive Officers"):

                                            SUMMARY COMPENSATION TABLE
                                                                                                     Long -Term
                                                                                                    Compensation
                                                                                                    ------------

                                                         Annual Compensation                           Awards

                                        -----------------------------------------------------       ------------
                                                                                                     
                                                                                                     Securities         All Other
                                        Fiscal                                Other Annual           Underlying        Compensation
Name and Principal Position              Year      Salary($)   Bonus($)    Compensation($)(a)        Options(#)         ($)(a)(b)
- --------------------------------------- ------     --------    --------    ------------------       ------------       ------------

Charles N. Martin, Jr.................   1996      800,000     825,000              (c)                      --              3,306
   Chairman of the Board, President and  1995      750,000     685,125              (c)                      --              6,198
   Chief Executive Officer               1994      600,000     820,000        1,244,755               1,400,000              8,649

William L. Hough(d)...................   1996      550,000     550,000              (c)                 175,000              3,515
  Executive Vice President and           1995      102,899        --                (c)                 175,000                 --
  Chief Operating Officer                1994           --        --                 --                      --                 --

Keith B. Pitts........................   1996      466,668     475,000              (c)                  50,000              2,836
   Executive Vice President and          1995      450,000     450,000              (c)                      --              1,980
   Chief Financial Officer               1994      363,333     300,000          211,145                 335,000              7,122

Anthony C. Krayer.....................   1996      290,000     159,500              (c)                  60,000              2,714
   Senior Vice President-Operations      1995      290,000     145,000              (c)                      --              6,514
                                         1994      291,474        --                (c)                  30,000              4,497

Raymond Denson........................   1996      275,000     203,500              (c)                  15,000              2,714
  Senior Vice President-Operations       1995      271,667     165,000              (c)                      --              6,531
                                         1994      256,667     100,000              (c)                  55,000              7,869

- ------------------

(a)  Other Annual Compensation for Mr. Martin in 1994 includes $1,233,675
     related to principal and accrued interest forgiven under a loan made by the
     Company to Mr. Martin pursuant to his January 15, 1992 employment
     agreement. Other Annual Compensation for Mr. Pitts in 1994 includes
     $200,000 in a special relocation payment to reimburse him for losses on the
     sale of his residence in order for him to move to Nashville, Tennessee to
     commence employment with the Company. The 1994 loan forgiveness granted to
     Mr. Martin and the 1994 special relocation payment to Mr. Pitts were
     approved by the Compensation Committee of the Company's Board of Directors.

                                      -50-

(b)  The amounts disclosed under All Other Compensation in the Summary
     Compensation Table represent for the Named Executive Officers in
     fiscal 1996 (i) the following amounts of the Company's matching
     contributions made under the Company's 401(k) Plan: Mr. Martin: $2,714;
     Mr. Hough: $3,199; Mr. Pitts: $2,714; Mr. Krayer: $2,714; and
     Mr. Denson: $2,714; and (ii) the following amounts of insurance premiums
     paid by the Company with respect to group term life insurance: Mr. Martin:
     $592; Mr. Hough: $326; Mr. Pitts: $122; Mr. Krayer: $0; and Mr.
     Denson: $0.
(c)  No such compensation was paid other than perquisites which have not been
     included because their aggregate value did not meet the reporting threshold
     of the lesser of $50,000 or 10 percent of salary plus bonus.
(d)  Mr. Hough's employment by the Company commenced on  May 30, 1995.


Stock Option Grants Fiscal Year 1996

     In the fiscal year ended August 31, 1996, the grants of stock options
under the Company's stock- based employee benefit plans to the Named Executive
Officers were as follows:

                                                                   OPTION GRANTS IN FISCAL YEAR 1996
                                                                           Individual Grants
                                ----------------------------------------------------------------------------------------------------
                                                                                        
                                  Number of      Percent of                                               Potential Realizable Value
                                 Securities    Total Options                                              At Assumed Annual Rates of
                                 Underlying      Granted to                     Market Price              Stock Price Appreciation
                                   Options      Employees in      Exercise       on Date of   Expiration       for Option Term(a)
Name                             Granted(#)     Fiscal Year     Price ($/Sh)    Grant ($/Sh)     Date     0%($)    5%($)      10%($)
- ----                             ----------     -----------     ------------    ------------     ----     -----    -----      ------
Charles N. Martin, Jr.........      -0-              --             --              --            --         --        --         --
William L. Hough..............   125,000(b)         15.8            18.75           18.75      12/29/05     -0- 1,473,750  3,513,750
                                  50,000(c)         6.9             27.125          27.125     06/01/06     -0-   853,000  2,161,000
Keith B. Pitts................    50,000(c)         6.9             27.125          27.125     06/01/06     -0-   853,000  2,161,000
Anthony C. Krayer.............    45,000(b)         5.7             18.75           18.75      12/29/05     -0-   530,550  1,264,950
                                  15,000(c)         2.1             27.125          27.125     06/01/06     -0-   255,900    648,300
Raymond Denson................    15,000(c)         2.1             27.125          27.125     06/01/06     -0-   255,900    648,300

- ------------------

(a)  The dollar amounts under these columns are the results of calculations at
     0%, and at the 5% and 10% annual appreciation rates set by the
     Securities and Exchange Commission for illustrative purposes and,
     therefore, are not intended to forecast future financial performance or
     possible future appreciation, if any, in the price of the Company's common
     stock.  Stockholders are, therefore, cautioned against drawing any
     conclusions from the appreciation data shown, aside from the fact that the
     optionees will only realize value from the option grants if the price
     of the Company's common stock appreciates, which would benefit all
     stockholders commensurately.  The Company did not use an alternative
     formula for grant valuation as it is not aware of any formula which will 
     determine, with reasonable accuracy, a present value based on future
     unknown or volatile factors.  Also, these amounts do not take into account
     provisions of the options relating to termination of the options
     following termination of employment, nontransferability or the fact that
     the options will vest and become exercisable only if certain other
     events occur.  See footnotes (b) and (c) below.
(b)  These options become exercisable in full on November 29, 2005, provided
     they may become exercisable earlier (i) 100% upon a change of control of
     the Company, (ii) in whole or in part at any time at the discretion of the
     Compensation Committee of the Board of Directors, (iii) in five equal
     annual installments subject to the Company's satisfaction of certain
     performance criteria for each of its five fiscal years ended August 31,
     commencing August 31, 1996 and ending August 31, 2000, or (iv) 100% upon
     the Company's meeting different performance criteria for two consecutive
     fiscal years.
(c)  These options become exercisable in full on May 1, 2006, provided they may
     become exercisable earlier (i) 100% upon a change of control of the
     Company, (ii) in whole or in part at any time at the discretion of the
     Compensation Committee of the Board of Directors, or (iii) in five equal
     annual installments subject to the Company's satisfaction of certain
     performance criteria for each of its five fiscal years ended August 31,
     commencing August 31, 1996 and ending August 31, 2000.



Stock Option Exercises, Holdings and Year-End Values

     The following table sets forth information with respect to the Named
Executive Officers concerning their exercise of stock options during the fiscal
year ended August 31, 1996 and in respect of the number and value of unexercised
options held by each of them as of August 31, 1996.

                                      -51-


                                  AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1996
                                       AND OPTION VALUES AT AUGUST 31, 1996

                                                                                            
                                         Shares                             Number of Securities
                                        Acquired                           Underlying Unexercised          Value of Unexercised
                                           On            Value               Options At Fiscal            In-The-Money Options At
                                        Exercise       Realized                 Year-End(#)                Fiscal Year-End($)(a)
Name                                      (#)             ($)             Exercisable   Unexercisable   Exercisable   Unexercisable
- ----                                      ---             ---             -----------   -------------   -----------   -------------
Charles N. Martin, Jr...............      -0-             -0-              1,450,000         700,000    18,775,000        7,525,000
William L. Hough....................      -0-             -0-                     --         350,000            --        1,968,750
Keith B. Pitts......................      -0-             -0-                210,000         175,000     2,873,750        1,343,750
Anthony C. Krayer...................      -0-             -0-                 12,000          78,000       129,000          508,500
Raymond Denson......................      -0-             -0-                 89,400          48,000     1,689,482          354,750

- ------------------

(a)  The closing price for the Company's common stock as reported by the New
     York Stock Exchange on August 30, 1996, was $25.75. Value is calculated on
     the basis of the difference between the option exercise price and $25.75
     multiplied by the number of shares of the Company's common stock underlying
     the options.


Compensation of Directors

     Each director who is neither a Company employee nor officer is entitled
to receive $20,000 per year and each director is entitled to reimbursement for
all out-of-pocket expenses to attend meetings. In addition, each non-employee
member of a committee of the Board is entitled to receive $1,000 for each
committee meeting he attends that is not held in conjunction with a meeting of
the Board of Directors. Also, pursuant to the OrNda HealthCorp Outside Directors
Stock Option Plan, upon initial election to the Board of Directors, a
non-employee director is granted an option to acquire 5,000 shares of the
Company's common stock on the last Friday of the month of such director's
election to the Board and on the last Friday of January of each year thereafter
each non-employee director is granted an option to acquire 2,500 shares of the
Company's common stock. Such options are granted at fair market value, that is,
at a price equal to the closing price per share of the Company's common stock on
the New York Stock Exchange on the last trading day immediately before the day
on which the option is granted.

Employment Contracts and Termination of Employment Arrangements

     In January 1992, the Company entered into an employment agreement with
Charles N. Martin, Jr., which was amended in June 1995 (the "Martin Agreement"),
pursuant to which Mr. Martin agreed to serve as Chairman of the Board and Chief
Executive Officer of the Company. The Martin Agreement is for a five year term
expiring January 15, 1997 and is automatically extended thereafter for
additional one year terms unless either the Company or Mr. Martin elects not to
extend the term (the "Martin Term").

     The Martin Agreement provides that Mr. Martin will receive a base
salary of $500,000 per year (or such greater amount as the Board of Directors of
the Company may determine -- as of November 1, 1996, Mr. Martin's base salary
was $825,000), annual bonuses in such amounts as the Board of Directors of the
Company may determine, reimbursement for certain expenses incurred by Mr. Martin
and pension, medical and other customary employee benefits.

     Upon the Company's termination of Mr. Martin's employment prior to a
Change of Control (as defined in the Martin Agreement) other than for Cause or
Disability (each as defined in the Martin Agreement) (a) prior to January 15,
1997, Mr. Martin will receive an amount equal to three times, and (b)

                                      -52-

on and after January 15, 1997, Mr. Martin will receive an amount equal to two
times his base salary and an amount equal to the average of his annual bonuses
actually paid to him with respect to the two years immediately preceding the
year in which such termination of employment occurs, such amount payable in
substantially equal monthly installments over the remainder of the Martin Term.
Also, the Company will continue to provide Mr. Martin with medical, life
insurance and certain other employee benefits over the remainder of the Martin
Term.

     Upon termination of Mr. Martin's employment with the Company after a
Change of Control (i) by the Company other than for Cause or Disability or (ii)
by Martin for Good Reason (as defined in the Martin Agreement), Mr. Martin will
receive a lump-sum payment (payable not later than five days after his
termination of employment) in an amount equal to three times his base salary and
an amount equal to the average of his annual bonuses paid to him with respect to
the two years immediately preceding the year in which such termination of
employment occurs. Also, the Company will continue to provide Mr. Martin with
medical, life insurance and certain other employee benefits over the remainder
of the Martin Term.

     Pursuant to the Martin Agreement (i) in January 1992 Mr. Martin
purchased from the Company 1,000,000 shares of the Company's common stock (the
"Martin 1992 Stock Purchase") for a purchase price of $7.75 per share ($5.50
less than the closing price of the shares on the Nasdaq National Market System
on such date) by delivering to the Company $10,000 and a promissory note (the
"Purchase Money Promissory Note") in the amount of $7,740,000 due January 1993,
bearing interest at the prime rate as announced by Citibank, N.A. from time to
time, (ii) the Company adopted certain amendments to its 1991 Stock Option Plan
and granted to Mr. Martin an option (the "1992 Option") thereunder to purchase
750,000 shares of Common Stock at an exercise price per share of $10.75, and
(iii) the Company adopted its 1992 Management Equity Plan (the "1992 Plan") and
agreed to grant to Mr. Martin, upon his request, an option under the 1992 Plan
to purchase up to 2.2 million shares of the Company's common stock at $20.00 per
share. However, in April 1994 the Company terminated the 1992 Plan and received
stockholders approval for adoption of its 1994 Management Equity Plan under
which the Company satisfied its obligations to Mr. Martin in this regard by
granting him an option in June 1994 to purchase 1,400,000 shares of the
Company's common stock under the 1994 Management Equity Plan (the "1994
Option"). The Company recorded a $4.2 million non-cash charge for the fiscal
year ended August 31, 1992 related to Mr. Martin's 1992 purchase of the
Company's common stock and the grant to Mr. Martin of the 1992 Option. The 1994
Option was granted with an exercise price equal to the market price of the
shares on the date of grant ($15.00) and, as a result, the Company recorded no
charge related to the grant of the 1994 Option. On January 15, 1993, Mr. Martin
repaid the full amount of the Purchase Money Promissory Note plus accrued
interest.

     Generally, the 1992 Option became exercisable as to one-third of the
shares covered thereby on each of the first three anniversaries of the date the
1992 Option was granted, and terminates on the tenth anniversary of such date of
grant or upon the earlier termination of Mr. Martin's employment with the
Company. The 1992 Option is currently exercisable in respect of all 750,000
shares. Upon termination of Mr. Martin's employment by the Company in breach of
the Martin Agreement or by Mr. Martin for Good Reason (as defined in the Martin
Agreement) the expiration of the 1992 Option will be delayed until one year
following such termination of employment.

     The 1994 Option is currently exercisable in respect of 840,000 shares
(i.e. it is 60% vested) and becomes exercisable in full on June 22, 2004,
provided the 1994 Option may become exercisable earlier (i) 100% upon a change
of control of the Company, (ii) in whole or in part at any time at the
discretion of the Compensation Committee of the Board of Directors, (iii) in two
20% installments subject to the Company's

                                      -53-

satisfaction of certain performance criteria for its fiscal years ending August
31, 1997 and August 31, 1998, or (iv) 100% upon the Company's meeting different
performance criteria for two consecutive fiscal years.

     Pursuant to the Martin Agreement, at Mr. Martin's request in 1992 the
Company loaned to Mr. Martin $1,375,000 (the "1992 Martin Loan") which was an
amount sufficient to pay Mr. Martin's income taxes with respect to the Martin
1992 Stock Purchase due as a result of the shares being purchased at a price
less than their fair market value on the date of purchase. The principal of the
1992 Martin Loan was due February 13, 1997 and bore interest at a rate equal to
the prime rate announced by Citibank, N.A. from time to time which interest was
due annually on each February 13 after the loan was made. The 1992 Martin Loan
was forgiven by the Company on June 22, 1994 on which date $1,176,617 in
principal and $57,058 in accrued interest was outstanding on such loan. In
addition, the Martin Agreement provides certain registration rights with respect
to the shares of the Company's common stock purchased by Mr. Martin pursuant to
the Martin Agreement, as well as the shares of the Company's common stock which
may be acquired by him pursuant to the 1992 Option and the 1994 Option. The
Company was obligated under the Martin Agreement to reimburse Mr. Martin for up
to $300,000 of reasonable expenses incurred by Mr. Martin in connection with a
business controlled by Mr. Martin during the period from September 1, 1991 until
January 15, 1992 and reasonable legal fees incurred by Mr. Martin in connection
with the Martin Agreement.

     Effective May 1, 1996, the Company entered into an employment agreement
with William L. Hough (the "Hough Agreement") pursuant to which Mr. Hough agreed
to serve as Executive Vice President and Chief Operating Officer of the Company.
The Hough Agreement is for a three year term expiring May 1, 1999, provided
until May 1, 1998, at the end of each day the term of the Hough Agreement shall
automatically be extended for an additional day (the "Hough Term"). Also, the
Hough Term is automatically extended on May 1, 2001 and each May 1 thereafter
for additional one year terms unless either the Company or Mr. Hough elects not
to extend the Hough Term.

     The Hough Agreement provides that Mr. Hough will receive a base salary
of $550,000 per year or such greater amount as the Board of Directors of the
Company may determine. As of November 1, 1996, Mr. Hough's base salary under the
Hough Agreement was $550,000. Pursuant to the Hough Agreement Mr. Hough is also
to receive annual bonuses in such amounts as the Board of Directors of the
Company may determine, and pension, medical and other customary employee
benefits.

     Upon termination of Mr. Hough's employment with the Company by the
Company prior to a Change of Control (as defined in the Hough Agreement) other
than for Cause or Disability (each as defined in the Hough Agreement), Mr. Hough
will receive an amount equal to the lesser of (i) three times and (ii) the
greater of two and the number of years remaining in the Hough Term, times his
base salary and an amount equal to the average of his annual bonuses actually
paid to him with respect to the two years immediately preceding the year in
which such termination of employment occurs, such amount payable in
substantially equal monthly installments over the remainder of the Hough Term.
Also, in such event the Company will continue to provide Mr. Hough with medical,
life insurance and certain other employee benefits over the remainder of the
Hough Term.

     Upon termination of Mr. Hough's employment with the Company after a
Change of Control (i) by the Company other than for Cause or Disability or (ii)
by Mr. Hough for Good Reason (as defined in the Hough Agreement), Mr. Hough will
receive a lump-sum payment (payable not later than five days after his
termination of employment) in an amount equal to three times his base salary and
an amount generally equal

                                      -54-

to the average of his annual bonuses paid to him with respect to the two years
immediately preceding the year in which such termination of employment occurs.
Also, the Company will provide Mr. Hough with medical, life insurance and
certain other employee benefits over the remainder of the Hough Term.

     Effective March 1, 1995, the Company entered into an employment
agreement with Keith B. Pitts (the "Pitts Agreement") pursuant to which Mr.
Pitts agreed to serve as Executive Vice President and Chief Financial Officer of
the Company. The Pitts Agreement is for a three year term expiring March 1,
1998, provided until March 1, 1997, at the end of each day the term of the Pitts
Agreement shall automatically be extended for an additional day (the "Pitts
Term"). Also, the Pitts Term is automatically extended on March 1, 2000 and each
March 1 thereafter for additional one year terms unless either the Company or
Mr. Pitts elects not to extend the Pitts Term.

     The Pitts Agreement provides that Mr. Pitts will receive a base salary
of $450,000 per year or such greater amount at the Board of Directors of the
Company may determine. As of November 1, 1996, Mr. Pitts' base salary under the
Pitts Agreement was $475,000. Pursuant to the Pitts Agreement Mr. Pitts is also
to receive annual bonuses in such amounts as the Board of Directors of the
Company may determine, and pension, medical and other customary employee
benefits.

     Upon termination of Mr. Pitts' employment with the Company by the
Company prior to a Change of Control (as defined in the Pitts Agreement) other
than for Cause or Disability (each as defined in the Pitts Agreement), Mr. Pitts
will receive an amount equal to the lesser of (i) three times and (ii) the
greater of two and the number of years remaining in the Pitts Term, times his
base salary and an amount equal to the average of his annual bonuses actually
paid to him with respect to the two years immediately preceding the year in
which such termination of employment occurs, such amount payable in
substantially equal monthly installments over the remainder of the Pitts Term.
Also, in such event the Company will continue to provide Mr. Pitts with medical,
life insurance and certain other employee benefits over the remainder of the
Pitts Term.

     Upon termination of Mr. Pitts' employment with the Company after a
Change of Control (i) by the Company other than for Cause or Disability or (ii)
by Mr. Pitts for Good Reason (as defined in the Pitts Agreement), Mr. Pitts will
receive a lump-sum payment (payable not later than five days after his
termination of employment) in an amount equal to three times his base salary and
an amount equal to the average of his annual bonuses paid to him with respect to
the two years immediately preceding the year in which such termination of
employment occurs. Also, the Company will provide Mr. Pitts with medical, life
insurance and certain other employee benefits over the remainder of the Pitts
Term.

     Each of the Martin, Hough and Pitts Agreements contains a provision
insuring that the payments made thereunder are fully deductible by the Company
for federal income tax purposes by reducing the payments which are actually made
to the extent necessary to make such payments fully deductible by the Company.

Severance Protection Agreements

     Since the hospital management company industry is in a consolidation
era and since the threat of a change of control of the Company may result in the
distraction or even the departure of senior management personnel to the
detriment of the Company and its stockholders, the Company has executed with
(or, in a few cases, is in the process of executing with) 30 members of its
senior management (including two of the

                                      -55-

Named Executive Officers, Messrs. Denson and Krayer) so-called "severance
protection agreements" ("SPA's") which provide such executives upon loss of
their employment with reasonable severance payments and a reasonable
continuation of their health care and related benefits which will induce such
executives to remain in the Company's employ and encourage their continued
attention to their assigned duties without concern for their individual personal
financial and employment security. In order to obtain severance payments and
other benefits under the SPA's, there would have to be both a Change in Control
(as defined in the SPA's) of the Company plus the employment of the executive
would have to be terminated (i) by the Company or by the successor entity other
than for Cause (as defined in the SPA's), death, disability or reitrement or
(ii) by the executive for Good Reason (as defined in the SPA's) and not by the
executive without Good Reason. Good Reason includes, without limitation, (i) any
adverse change in the executive's title, authorities and responsibilities; (ii)
a reduction in base salary except for across-the-board salary reductions
similarly affecting all senior executives; and (iii) a relocation of the
executive's office of more than 30 miles.

     The term of each SPA is until December 31, 1997 provided on January 1,
1998 and on each January 1 thereafter the term shall automatically be extended
for one additional year unless the Company gives notice by September 30 of the
preceding year that it does not want to extend the term. Once a Change of
Control occurs, the SPA's extend for three (3) years after the Change of
Control. However, each SPA terminates if the executive leaves the employ of the
Company prior to a Change of Control.

     The SPA's provide that if any such executive's employment is terminated
within three years after a Change in Control of the Company (other than a
termination for Cause, etc. as set forth above), such executive will receive:
(a) a lump-sum payment equal to, with respect to the Company's Senior Vice
Presidents (which includes two of the Named Executive Officers, Messrs. Denson
and Krayer), two times, and with respect to its Vice Presidents, 1 1/2 times the
sum of (1) such executive's annual base salary plus (2) the executive's target
annual incentive bonus and (b) health care and related benefits as provided in
the Company's plans until the earlier of (i) 18 months after termination of
employment and (ii) new employment being obtained by the executive and the new
employer commencing these types of benefits for the executive. Also, the SPA's
contain a provision insuring that the payments made thereunder are fully
deductible by the Company for federal income tax purposes by reducing the
payments which are actually made to the extent necessary to make such payments
fully deductible by the Company.

Indemnification Agreements

     The Company has entered into indemnification agreements with each of
its directors and officers (an "Indemnitee") to provide contractual right to
indemnification, to the maximum extent permitted by law, for expenses (including
attorney's fees), judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by the Indemnitee in connection with any
proceeding (including to the extent permitted by applicable law, any derivative
action) to which he or she is, or is threatened to be made, a party by reason of
his or her status as a director or officer.

Compensation Committee Interlocks and Insider Participation

     The members of the Compensation Committee of the Company's Board of
Directors during the Company's fiscal year ended August 31, 1996 were Messrs.
Peter A. Joseph, Richard A. Gilleland and M. Lee Pearce, M.D. None of these
individuals was at any time during the fiscal year ended August 31, 1996, or at
any time prior or subsequent thereto, an officer or employee of the Company or
any of its subsidiaries.

                                      -56-

There were no Compensation Committee interlocks or insider (employee)
participation during the Company's fiscal year ended August 31, 1996.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

     The following table sets forth certain information, as of October 31,
1996, concerning shares of the Company's common stock held by (a) each director
of the Company, (b) each executive officer of the Company named in the Summary
Compensation Table (a "Named Executive Officer") set forth below, (c) all
directors and executive officers of the Company as a group and (d) each other
stockholder owning beneficially at least 5% of the outstanding common stock of
the Company.
                                                                                           
                                                                 Number of Shares                   Percentage
Directors                                                     Beneficially Owned (a)             Ownership(b)(c)
- ---------                                                     ----------------------             ---------------
Richard A. Gilleland..................................                 5,000(d)                         *
Leonard Green.........................................                 6,000(e)                         *
Peter A. Joseph.......................................             7,111,774(f)                      12.2%
Paul S. Levy..........................................             7,119,561(f)                      12.2%
Angus C. Littlejohn, Jr...............................                 5,000(g)                         *
Charles N. Martin, Jr.................................             2,575,000(h)                       4.4%
John F. Nickoll.......................................                40,498(d)                         *
John J. O'Shaughnessy.................................                41,000(d)                         *
M. Lee Pearce, M.D....................................               600,000(i)                       1.0%

Other Named Executive Officers
Raymond Denson........................................               106,914(j)                         *
William L. Hough......................................                70,759(k)                         *
Anthony C. Krayer.....................................                30,667(l)                         *
Keith B. Pitts........................................               250,764(m)                         *

Other
All directors and executive officers as a group
   (22 persons).......................................            11,134,746(n)                      19.1%
Joseph Littlejohn & Levy Fund, L.P.
   450 Lexington Avenue
   New York, NY  10017................................             7,111,774(o)                      12.2%

- ------------------

(a)  Unless other indicated, each stockholder shown in the table has sole voting
     and investment power with respect to the shares beneficially owned. The
     number of shares shown as beneficially owned includes all options, warrants
     and convertible securities held by such person, entity or group which are
     exercisable or convertible within 60 days.
(b)  The percentages of beneficial ownership as to each person, entity or group
     assume that all options, warrants and convertible securities held by such
     person, entity or group which are exercisable or convertible within 60
     days, but not those held by others shown in the table, have been exercised
     or converted.
(c)  An asterisk (*) in the table means percentage ownership of less than one
     percent. Percentages are calculated based on 58,362,456 shares of the
     Company's common stock outstanding as of October 31, 1996.
(d)  Includes exercisable options in respect of 5,000 shares.
(e)  1,000 of these shares are owned by Mr. Green's wife. Mr. Green disclaims
     beneficial ownership of such 1,000
     shares. Includes exercisable options in respect of 5,000 shares.
(f)  Based on information set forth in the Schedule 13D Amendments No. 13 and 14
     made by the JLL Fund and other reporting persons which were filed with the
     Securities and Exchange Commission on October 21, 1996 and October

                                      -57-

     28, 1996, respectively.  All of such shares, other than 7,787 shares
     beneficially owned by Mr. Levy, are owned by the JLL Fund. Messrs. Joseph
     and Levy are officers and directors of Lancer Industries, limited partner
     of JLL Associates and the owner of 100% of the capital stock of JLL Inc.
     which pursuant to contract manages the JLL Fund. Messrs. Joseph and Levy
     are each general partners of JLL Associates, which is the general partner
     of the JLL Fund. Except with respect to 7,787 shares owned by Mr. Levy,
     Messrs. Joseph and Levy disclaim beneficial ownership of all of such
     shares. Includes exercisable options in respect of 15,000 shares.  Messrs.
     Joseph and Levy and Angus C. Littlejohn have entered into agreements or
     arrangements intended to give the economic benefits of such options when
     exercised to JLL, Inc., the manager of the JLL Fund, which may result in an
     economic benefit to JLL Funds' investors.  Thus, Messrs. Joseph, Levy and
     Littlejohn disclaim beneficial ownership of such options. See Note (g)
     below.
(g)  Includes exercisable options in respect of 5,000 shares. Mr. Littlejohn has
     entered into agreements or arrangements intended to give the economic
     benefits of such options when exercised to JLL, Inc., the manager of the
     JLL Fund, which may result in an economic benefit to JLL Funds' investors.
     Thus, Mr. Littlejohn disclaims beneficial ownership of such options.
(h)  Includes exercisable options in respect of 1,590,000 shares.
(i)  Dr. Pearce has sole voting control over 200,000 of these shares which are
     owned by a charitable organization and as to which shares Dr. Pearce
     disclaims any beneficial ownership. By virtue of the Letter Agreement dated
     February 9, 1993 among Dr. Pearce, Mr. Rudy Noriega and the JLL Fund, the
     JLL Fund and Messrs. Joseph and Levy may be deemed to have a beneficial
     ownership interest in all of such 600,000 shares. Each of such persons has
     disclaimed beneficial ownership of such shares.
(j)  Includes exercisable options in respect of 103,400 shares.
(k)  Includes exercisable options in respect of 70,000 shares.
(l)  Includes exercisable options in respect of 30,000 shares.
(m)  Includes exercisable options in respect of 245,000 shares.
(n)  Includes exercisable options in respect of 2,351,741 shares.
(o)  Messrs. Joseph and Levy may be deemed to beneficially own such shares.
     Each of such persons has disclaimed beneficial ownership of such shares.
     See Note (f) above.



     In answer to the information required by Item 403(c) of Regulation S-K,
the Company incorporates by reference herein the information set forth in Item
1-"Business-Recent Developments-Proposed Merger" of this Form 10-K.

Item 13.  Certain Relationships and Related Transactions.

     In 1995 the Company created a Corporate Compliance Program to ensure
that high ethical standards are observed in the operation of the Company's
business and to ensure that the Company and its employees act in full compliance
with all applicable laws and regulations. To assist the Company in this
endeavor, in May 1995 the Company engaged Strategic Management Systems, Inc.
("SMS") to give its expert advise (the "Compliance Consulting") to the Company
in the designing of the Program and in its initial implementation (including the
initiation of an 800 number "hotline" for employees to report compliance
matters, even on an anonymous basis if so desired by the employee) and to
head-up the Company's initial employee training program in respect of compliance
matters (the "Compliance Training"). In the Compliance Training, SMS assisted
the Company in educating the Company's 26,000 employees as to the standards of
conduct set forth in the Company's detailed Corporate Compliance Handbook and
also educated the Company's Human Resources professionals on how to handle
solely by themselves Handbook education in the future in respect of new
employees. SMS's President, Richard P. Kusserow, was the Inspector General of
the federal Department of Health and Human Services from 1981 to 1992. For the
Compliance Consulting, the Company paid SMS $12,000 a month for each of the 12
months commencing May 9, 1995 and ended May 8, 1996 and for Compliance
Consulting and Compliance Training the Company is paying SMS $6,000 a month for
each

                                      -58-

of the 12 months commencing June 1, 1996 and ending May 31, 1997 plus $200 per
hour for consulting work in excess of 33 hours per month; and for Compliance
Training during the period July 1995 until January 1996, the Company paid SMS
$230,000, in each case plus reasonable out-of-pocket expenses incurred in
performing the services for the Company. Also, in June 1995 the Company first
subscribed to the Fraud and Abuse Control Information System ("FACIS")(TM), a
computerized data base to assist those in the health care field to detect fraud
and abuse by identifying individuals and entities found by governmental agencies
to have engaged in fraudulent or abusive activities. Access to FACIS was
purchased by the Company from Governmental Management Services, Inc. ("GMS") at
an annual subscription cost of $5,000 for the twelve months ended June 30, 1996
plus the following additional charges: $10 for computer log-on and first 5
minutes of use; $1 each additional minute of on-line time; and $5 for
downloading of provider records. The Company purchased access to FACIS for the
twelve months ended July 31, 1997 for a total subscription cost of $10,000. John
J. O'Shaughnessy, a current director of the Company, is the Chairman of the
Board of SMS and of GMS and owns approximately 60% of the capital stock of each
of SMS and GMS.

                                      -59-

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     (a)(1) and (2) List of Financial Statements and Financial Statement
                    Schedules.  The response to this portion of Item 14 is
                    submitted as a separate section of this report.  See page
                    F-1.

     (a)(3)    List of Exhibits.(1)

Exhibit
   No.                              Description
- -------                             -----------

2.1      Agreement and Plan of Merger, dated as of October 16, 1996, among Tenet
         Healthcare Corporation, OHC Acquisition Co. and the Company.
         (Incorporated by reference to Exhibit 2.1 filed with the Company's Form
         8-K dated October 16, 1996.)

3.1      Restated Certificate of Incorporation of the Company as currently in
         effect. (Incorporated by reference to exhibits filed with the Company's
         Current Report on Form 8-K dated October 15, 1991.)

3.2      Certificate of Amendment to the Company's Restated Certificate of
         Incorporation. (Incorporated by reference  to Exhibit 3 to the
         Company's Current Report on Form 8-K dated April 19, 1994.)

3.3      By-Laws of the Company. (Incorporated by reference to Exhibit 4(c)
         included in Company's Registration Statement on Form S-8 under the
         Securities Act of 1933, as amended (the "Securities Act"),
         File No. 33-81778.)

4.1      Certificate of Designation of Payable-in-Kind Cumulative Redeemable
         Convertible Preferred Stock of the Company.  (Incorporated by reference
         to exhibits filed with the Company's Registration Statement on Form
         S-1 under the Securities Act, File No. 33-46876.)

4.2      Certificate of Correction of Certificate of Designation of
         Payable-in-Kind Cumulative Redeemable Convertible Preferred Stock.
         (Incorporated by reference to exhibits filed with the Company's
         Registration Statement on Form S-1 under the Securities Act,
         File No. 33-46876.)

4.3      Certificate of Elimination of Provisions of the Restated Certificate of
         Incorporation of OrNda HealthCorp Relating to the Preferences and
         Rights of the Redeemable Convertible Preferred Stock. (Incorporated by
         reference to exhibits filed with the Company's Annual Report on Form
         10-K for the year ended August 31, 1993.)

- ------------------
         (1)Copies of Exhibits to Form 10-K will be furnished upon the written
request of any stockholder of the Company at a charge of $.25 per page plus
postage.

                                      -60-

4.4      Indenture relating to the 12 1/4% Senior Subordinated Notes of the
         Company (the "12 1/4% Notes") due 2002 dated as of May 15, 1992,
         between the Company and U.S. Trust Company of Texas, N.A., as Trustee,
         including form of Note. (Incorporated by reference to Exhibit 1 filed
         with the Company's Current Report on Form 8-K dated May 28, 1992.)

4.5      First Supplemental Indenture relating to the 12 1/4% Notes, dated as of
         April 19, 1994 by and among Company, Summit Health Ltd. and U.S. Trust
         Company of Texas, N.A., as Trustee. (Incorporated by reference to
         Exhibit 4.2 filed with the Company's Registration Statement on Form S-3
         under the Securities Act, File No. 33-54651.)

4.6      Second Supplemental Indenture relating to the 12 1/4% Notes, dated as
         of November 1, 1994, by and among the Company, Summit Hospital
         Corporation and U.S. Trust Company of Texas, N.A., as Trustee.
         (Incorporated by reference to Exhibit 4.6 filed with the Company's
         Annual Report on Form 10-K for the year ended August 31, 1994.)

4.7      Amended and Restated Credit, Security, Guaranty and Pledge Agreement,
         dated as of October 27, 1995, among the Company, Summit Hospital
         Corporation and AHM Acquisition Co., Inc. as the Borrowers, the
         Guarantors named therein, the Lenders named therein, The Bank of Nova
         Scotia ("Scotiabank") as Administrative Agent for the Lenders,
         Scotiabank and Citicorp USA, Inc. ("Citicorp") as Co-Syndication Agents
         for the Lenders, and Citicorp as Documentation Agent for the Lenders.
         (Incorporated by reference to Exhibit 4 filed with the Company's
          Current Report on Form 8-K dated October 30, 1995.)(2)

10.1     1990 Stock Option Plan of the Company. (Incorporated by reference to
         exhibits filed with the Company's Annual Report on Form 10-K for the
         year ended August 31, 1990.)*

10.2     Form of Indemnification Agreement between the Company and each of its
         directors and executive officers. (Incorporated by reference to
         exhibits filed with the Company's Registration Statement on Form S-1
         under the Securities Act, File No. 33-34712.)*

10.3     Employment Agreement dated as of January 15, 1992 between the Company
         and Charles N. Martin, Jr. (Incorporated by reference to exhibits filed
         with the Company's Registration Statement on Form S-1 under the
         Securities Act, File No. 33-46876.)*

10.4     Amended 1991 Stock Option Plan. (Incorporated by reference to exhibits
         filed with the Company's Registration Statement on Form S-1 under the
         Securities Act, File No. 33-46876.)*

10.5     Amended 1991 Stock Accumulation Plan. (Incorporated by reference to
         exhibits filed with the Company's Registration Statement on Form S-1
         under the Securities Act, File No. 33-46876.)*

10.6     Amended and Restated Incentive Bonus Plan. (Incorporated by reference
         from Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for
         the quarter ended February 28, 1995.)*

- ------------------
     (2)The Company hereby agrees to furnish to the Securities and Exchange
Commission, upon request, a copy of all other instruments defining the rights
of holders of its long-term debt. Such instruments are not being listed or filed
herein since the amount of debt with respect to any such instrument does not
exceed 10% of the total consolidated assets of the Company and its subsidiaries.

     *Management compensatory plan or arrangement.

                                      -61-

10.7     Summit Health Ltd. Stock Option Plan. (Incorporated by reference to
         Exhibit 10.12  filed with the Company's Annual Report on Form 10-K for
         the year ended August 31, 1994.)*

10.8     Summit Health Ltd. 1992 Stock Option Plan. (Incorporated by reference
         to Exhibit 10.13 filed with the Company's Annual Report on Form 10-K
         for the year ended August 31, 1994.)*

10.9     American Healthcare Management, Inc. 1990 Non-Employee Directors'
         Stock Plan. (Incorporated by reference to Exhibit 10.14 filed with the
         Company's Annual Report on Form 10-K for the year ended August 31,
         1994.)*

10.10    Description of car allowance plan for OrNda officers. (Incorporated by
         reference to Exhibit 10.11 filed with the Company's Annual Report on
         Form 10-K for the year ended August 31, 1995.)*

10.11    Tax Planning and Medical Expense Benefit Plan. (Incorporated by
         reference to Exhibit 10.17 filed with the Company's Annual Report on
         Form 10-K for the year ended August 31, 1995.)*

10.12    Asset Purchase Agreement, dated as of November 10, 1994, among St.
         Luke's Health System, St. Luke's Rehabilitation Center, Inc., St.
         Luke's La Ciudad Corporation and OrNda HealthCorp of Phoenix, Inc.
         (Incorporated by reference to Exhibit 2.1 filed in the Company's
         Current Report on Form 8-K dated February 13, 1995.)

10.13    First Amendment to Asset Purchase Agreement dated as of January 31,
         1995 among St. Luke's Health System, St. Luke's Rehabilitation Center,
         Inc., St. Luke's La Ciudad Corporation and OrNda HealthCorp of Phoenix,
         Inc. (Incorporated by reference to Exhibit 2.2 filed in the Company's
         Current Report on Form 8-K dated February 13, 1995.)

10.14    1994 Annual Incentive Plan for Officers of OrNda HealthCorp.
         (Incorporated by reference to Exhibit 10(b) to the Company's Quarterly
         Report on Form 10-Q for the quarter ended February 28, 1995.)*

10.15    Employment Agreement dated as of March 1, 1995 between the Company and
         Keith B. Pitts. (Incorporated by reference to Exhibit 10(d) to the
         Company's Quarterly Report on Form 10-Q for the quarter ended February
         28, 1995.)*

10.16    Amendment No. 1 to Employment Agreement dated as of June 1, 1995,
         between the Company and Charles N. Martin, Jr. (Incorporated by
         reference to Exhibit 10.22 filed with the Company's Annual Report on
         Form 10-K for the year ended August 31, 1995.)*

10.17    Forms of Stock Option Agreement between the Company and its officer
         stock option grantees for its June 1994 and August 1995 stock option
         grants. (Incorporated by reference to Exhibit 10.23 filed with the
         Company's Annual Report on Form 10-K for the year ended August 31,
         1995.)*

10.18    Resignation Agreement dated as of August 31, 1995, between the Company
         and Donald J. Amaral. (Incorporated by reference to Exhibit 10.24 filed
         with the Company's Annual Report on Form 10-K for the year ended
         August 31, 1995.)*

- ------------------
     *Management compensatory plan or arrangement.

                                      -62-

10.19    Registration Rights Agreement dated as of February 9, 1993, among the
         Company, Rudy J. Noriega and M. Lee Pearce, M.D. (Incorporated by
         reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K
         for the year ended August 31, 1994.)

10.20    Registration Rights Agreement dated as of April 19, 1994, among the
         Company, John W. Gildea, Gildea Management Co., The Network Company II
         Limited, John F. Nickoll and The Foothill Group, Inc. (Incorporated by
         reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K
         for the year ended August 31, 1994.)

10.21    Employment Agreement dated as of March 1, 1996 between the Company and
         William L. Hough.*

10.22    Form of Stock Option Agreement between the Company and its executive
         office stock option grantees for its April 1996 stock option grants.
         (Incorporated by reference to Exhibit 10(o) to the Company's Quarterly
         Report on Form 10-Q for the quarter ended May 31, 1996.)*

10.23    OrNda HealthCorp Outside Directors Stock Option Plan. (Incorporated by
         reference from Exhibit B to the Company's definitive proxy statement
         for its 1996 Annual Meeting of Stockholders filed with the Securities
         and Exchange Commission under the Securities Exchange Act of 1934 on
         December 8, 1995.)*

10.24    OrNda HealthCorp 1994 Management Equity Plan, as amended on January 19,
         1996. (Incorporated by reference from Exhibit 4(d) to the Company's
         Registration Statement No. 333-399 on Form S-8, filed with the
         Securities and Exchange Commission under the Securities Act of 1933 on
         January 24, 1996.)*

10.25    Form of Stock Option Agreement between the Company and its executive
         officer stock option grantees for its November 1995 stock option
         grants. (Incorporated by reference from Exhibit 10 to the Company's
         Quarterly Report Form 10-Q for the quarter ended November 30, 1995).*

10.26    Form of Stock Option Agreement between the Company and its directors
         under its Outside Directors Stock Option Plan.*

10.27    First Amendment and Limited Waiver to Amended and Restated Credit,
         Security, Guaranty and Pledge Agreement dated as of September 12, 1996
         among the Company, OrNda Hospital Corporation and AHM Acquisition Co.,
         Inc. as the Borrowers, the Guarantors named therein, the Lenders named
         therein, Scotiabank as Administrative Agent for the Lenders and
         Scotiabank and Citicorp as Co-Syndication Agents for the Lenders.

10.28    Stock Option Agreement, dated October 17, 1996, between the Company, as
         Grantee, and Tenet Healthcare Corporation, as Issuer. (Incorporated by
         reference to Exhibit 10.1 filed with the Company's Form 8-K dated
         October 16, 1996.)

10.29    Stock Option Agreement, dated October 17, 1996, between the Company,
         as Issuer, and Tenet Healthcare Corporation, as Grantee. (Incorporated
         by reference to Exhibit 10.2 filed with the Company's Form 8-K dated
         October 16, 1996.)

- ------------------
     *Management compensatory plan or arrangement.

                                      -63-

11       Statement re computation of per share earnings.

21       List of Subsidiaries of the Company.

23       Consent of Ernst & Young LLP

24       Powers of Attorney

27       Financial Data Schedule (included only in filings under the Electronic
         Data Gathering Analysis and Retrieval System)

99.1     Stockholder Voting Agreement, dated as of October 17, 1996, between
         Tenet Healthcare Corporation and Charles N. Martin, Jr. (Incorporated
         by reference to Exhibit 99.1 as filed with the Company's Form 8-K dated
         October 16, 1996.)

99.2     Stockholder Voting Agreement, dated as of October 17, 1996, between
         Tenet Healthcare Corporation and Joseph Littlejohn & Levy Fund, L.P.
         (Incorporated by reference to Exhibit 99.2 as filed with the Company's
         Form 8-K dated October 16, 1996.)



(b)      Reports on Form 8-K. One report on Form 8-K was filed by the Company
         during the fiscal quarter ended August 31, 1996 as follows:

Date of                                                        Any Financial
Current Report                 Item(s) Reported                Statements Filed
- --------------                 ----------------                ----------------
June 25, 1996                  Item 5-Other Events                    No
                               Item 7(c)-Exhibits

(c)      Exhibits. The exhibits required by Item 601 of Regulation S-K are filed
         herewith with this report or are incorporated by reference and are
         contained in the Exhibits listed in response to Item 14(a)(3).

(d)      Financial Statement Schedules Required by Regulation S-X.  Reference is
         hereby made to pages F-1 and F-24 of this report for financial
         statement schedules required by Regulation S-X.

                                      -64-

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

         ORNDA HEALTHCORP                                 Date
           (Registrant)

         By: /s/ Charles N. Martin, Jr.                   November 13, 1996
                 Charles N. Martin, Jr.
                 Chairman of the Board, President
                 and  Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


                                                                          
Signature                         Title                                         Date

/s/ Charles N. Martin, Jr.        Chairman of the Board, President and          November 13, 1996
Charles N. Martin, Jr.            Chief Executive Officer
                                  (Principal Executive Officer)

/s/ Keith B. Pitts                Executive Vice President &                    November 13, 1996
Keith B. Pitts                    Chief Financial Officer
                                  (Principal Financial Officer)

/s/ Phillip W. Roe                Senior Vice President, Controller &           November 13, 1996
Phillip W. Roe                    Chief Accounting Officer
                                  (Principal Accounting Officer)


     This report has been signed on behalf of the following directors,
constituting, together with the director signing above, at least a majority of
the Board of Directors, pursuant to powers of attorney duly executed by such
individuals, by Keith B. Pitts, Attorney-in-Fact, signing his name hereto:

                                  Leonard Green
                                 Peter A. Joseph
                                  Paul S. Levy
                              John J. O'Shaughnessy


/Keith B. Pitts                                           November 13, 1996
Keith B. Pitts                                                   Date

                                      -65-

                           ANNUAL REPORT ON FORM 10-K

ITEM 14(a) (1) and (2)

                        ORNDA HEALTHCORP AND SUBSIDIARIES

                          INDEX OF FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE


The  following   consolidated  financial  statements  of  the  Company  and  its
subsidiaries are included in Item 8:


                                                                        Page No.

        Consolidated Statements of Operations - Years Ended
              August 31, 1994, 1995 and 1996..............................F-3

        Consolidated Balance Sheets - August 31, 1995 and 1996............F-4

        Consolidated Statements of Shareholders' Equity -
              Years Ended August 31, 1994, 1995 and 1996..................F-5

        Consolidated Statements of Cash Flows - Years Ended
              August 31, 1994, 1995 and 1996..............................F-6

        Notes to Consolidated Financial Statements........................F-7

The following  consolidated  financial statement schedule of the Company and its
subsidiaries is included in Item 14(d):

        Schedule VIII - Valuation and Qualifying Accounts.................F-24

        All  other  schedules  for  which  provision  is made in the  applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related  instructions,  are inapplicable or have been disclosed in the
notes to consolidated financial statements, and therefore, have been omitted.











                                       F-1








Report of Independent Auditors

Board of Directors and Shareholders
OrNda HealthCorp

     We have  audited  the  accompanying  consolidated  balance  sheets of OrNda
HealthCorp  and  Subsidiaries  as of August 31,  1995 and 1996,  and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
each of the three years in the period  ended  August 31,  1996.  Our audits also
included the  financial  statement  schedule  listed in the Index at Item 14(a).
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
OrNda  HealthCorp  and  Subsidiaries  at  August  31,  1995  and  1996,  and the
consolidated results of operations and cash flows for each of the three years in
the  period  ended  August 31,  1996,  in  conformity  with  generally  accepted
accounting  principles.  Also, in our opinion,  the related financial  statement
schedule, when considered in relation to the basic financial statements taken as
a whole,  presents  fairly in all material  respects the  information  set forth
therein.






                                                              ERNST & YOUNG LLP

Nashville, Tennessee
October 25, 1996






                                       F-2



                                         ORNDA HEALTHCORP AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                       (in thousands, except per share data)


                                                                                    Year Ended August 31,
                                                                     --------------------------------------------------
                                                                                                  
                                                                          1994              1995               1996
                                                                     -------------      -------------     -------------




Total Revenue                                                        $   1,274,359      $   1,842,701     $   2,147,232
Costs and Expenses:
     Salaries and benefits                                                 574,152            803,081           935,386
     Supplies                                                              158,884            236,189           291,570
     Purchased services                                                    119,095            207,599           203,219
     Provision for doubtful accounts                                        86,249            122,193           141,833
     Other operating expenses                                              156,474            211,606           230,786
     Depreciation and amortization                                          66,765             85,170           103,828
     Interest expense                                                       83,428            109,100           107,243
     Interest income                                                        (2,862)            (4,582)           (4,399)
     Special executive compensation                                          2,530                 --                --
     Merger transaction expenses                                            29,992                 --                --
     Loss (gain) on asset sales                                             45,272               (973)               --
     Minority interests                                                      3,999                240             7,781
                                                                     -------------      -------------     -------------       
                                                                           (49,619)            73,078           129,985
Income from investments in Houston
     Northwest Medical Center                                                3,634             14,006             5,128
                                                                     -------------      -------------     ------------- 
Income (loss) before income tax
     expense and extraordinary items                                       (45,985)            87,084           135,113
Income tax expense                                                           1,057             15,772            35,242
                                                                     -------------      -------------     -------------
Income (loss) before extraordinary items                                   (47,042)            71,312            99,871
Extraordinary items                                                        (12,296)                --                --
                                                                     -------------      -------------     -------------

Net income (loss)                                                         ( 59,338)            71,312            99,871
Preferred stock dividend requirements                                       (1,867)            (2,000)             (332)
                                                                     -------------      -------------     ------------- 
Net income (loss) applicable to common
     and common equivalent shares                                    $     (61,205)     $      69,312     $      99,539
                                                                     =============      =============     =============
Earnings (loss) per common and
     common equivalent share:
          Income (loss) before extraordinary items                   $       (1.29)     $        1.53     $        1.73
          Extraordinary items                                                (0.33)                --                --
                                                                     -------------      -------------     -------------
          Net income (loss)                                          $       (1.62)     $        1.53     $        1.73
                                                                     =============      =============     =============
Earnings (loss) per share assuming full dilution:
          Income (loss) before extraordinary items                   $       (1.29)     $        1.51     $        1.72
          Extraordinary items                                                (0.33)                --                --
                                                                     -------------      -------------     -------------
          Net income (loss)                                          $       (1.62)     $        1.51     $        1.72
                                                                     =============      =============     =============
Weighted average common and dilutive
     common equivalent shares outstanding                                   37,879             45,294            57,509
                                                                     =============      =============     =============
Weighted average common shares outstanding
     assuming full dilution                                                 37,879             47,382            58,064
                                                                     =============      =============     =============


                                            See the accompanying notes.
                                                        F-3



                                         ORNDA HEALTHCORP AND SUBSIDIARIES
                                            CONSOLIDATED BALANCE SHEETS
                                         (in thousands, except share data)

                                                                                           As of August 31,
                                                                              ---------------------------------------
                                                                                                   
                                                                                   1995                      1996
                                                                              -------------             -------------
                                                       ASSETS
Current Assets:
     Cash and cash equivalents                                                $       4,963             $      17,435
     Patient accounts receivable, net of allowance
          for uncollectible accounts  of $58,632 and
          $78,447 at August 31, 1995 and 1996, respectively                         307,601                   379,874
     Supplies, at cost                                                               34,097                    42,168
     Other                                                                           57,052                    86,338
                                                                              -------------             -------------
          Total Current Assets                                                      403,713                   525,815
Property, Plant and Equipment, at cost:
     Land                                                                           126,436                   152,449
     Buildings and improvements                                                     870,352                 1,062,953
     Equipment and fixtures                                                         359,979                   490,498
                                                                              -------------             -------------
                                                                                  1,356,767                 1,705,900
     Less accumulated depreciation and amortization                                 288,410                   370,707
                                                                              -------------             -------------
                                                                                  1,068,357                 1,335,193
Investments in Houston Northwest Medical Center                                      73,755                        --
Excess of Purchase Price Over Net Assets Acquired,
     net of accumulated amortization                                                318,029                   497,806
Other Assets                                                                         82,550                   107,714
                                                                              -------------             -------------
                                                                              $   1,946,404             $   2,466,528
                                                                              =============             =============
                                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
     Accounts payable                                                         $     117,258             $     168,403
     Accrued expenses and other liabilities                                         220,851                   209,525
     Current maturities of long-term debt                                            60,182                    59,750
                                                                              -------------             -------------
          Total Current Liabilities                                                 398,291                   437,678
Long-term Debt                                                                    1,013,423                 1,229,930
Other Liabilities                                                                   141,552                   158,503
Shareholders' Equity:
     Convertible preferred stock,
          $.01 par value, 10,000,000 authorized
          shares, issued and outstanding 1,329,701
          shares at August 31, 1995                                                  20,112                        --
     Common stock, $.01 par value
          authorized 200,000,000 shares,
          issued and outstanding 44,877,804 and
          58,250,996 shares at August 31, 1995 and 1996,
          respectively                                                                  449                       583
     Additional paid-in capital                                                     414,805                   633,983
     Retained earnings (deficit)                                                    (94,020)                    5,851
     Unrealized gains on available-for-sale
          securities, net of tax                                                     51,792                        --
                                                                              -------------             -------------
                                                                                   393,138                    640,417
                                                                              -------------             -------------
                                                                              $   1,946 404             $   2,466,528
                                                                              =============             =============


                                            See the accompanying notes.

                                                        F-4



                                                  ORNDA HEALTHCORP AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                           (in thousands)

                                                                                                              
                                                                       Convertible         Additional     Retained
                                              Common Stock           Preferred Stock        Paid-In       Earnings
                                           Shares      Amount      Shares     Amount       Capital       (Deficit)        Other
                                           ------     -------      ------    --------      ---------      ---------      ---------
BALANCE AT AUGUST 31, 1993                 34,483     $   345       1,194    $ 18,062      $ 299,137      $(105,436)     $      --
Issuance of common stock                    8,961          89          --          --        102,416             --             --
Paid-in-kind dividends on
     PIK preferred                             --          --         123       1,867         (1,867)            --             --
Conversion of convertible preferred             7          --          (7)       (104)           104             --             --
Stock option compensation                      --          --          --          --          2,530             --             --
Net loss                                       --          --          --          --             --        (59,338)            --
Net unrealized gain on available-for-sale 
     securities, net of tax                    --          --          --          --             --             --         70,859
Pooling adjustment to conform
     AHM's fiscal year                         --          --          --          --             --           (558)            --
                                           ------     -------      ------    --------      ---------      ---------      ---------
BALANCE AT AUGUST 31, 1994                 43,451         434       1,310      19,825        402,320       (165,332)        70,859
Issuance of common stock                    1,313          14          --          --         10,980             --             --
Paid-in-kind dividend on
     PIK preferred                             --          --         134       2,000         (2,000)            --             --
Conversion of convertible preferred           114           1        (114)     (1,713)         1,712             --             --
Tax effect of Summit options                   --          --          --          --          1,793             --             --
Net income                                     --          --          --          --             --         71,312             --
Decrease in unrealized gain on
     available-for-sale securities,
     net of tax                                --          --          --          --             --             --        (19,067)
                                           ------     -------      ------    --------      ---------      ---------      ---------
BALANCE AT AUGUST 31, 1995                 44,878         449       1,330      20,112        414,805        (94,020)        51,792
Issuance of common stock                   12,017         120          --          --        199,192             --             -- 
Paid-in-kind dividend on
     PIK preferred                             --          --          33         332           (332)            --             -- 
Conversion of convertible preferred         1,356          14      (1,356)    (20,333)        20,319             --             -- 
Redemption of preferred stock                  --          --          (7)       (111)            (1)            --             -- 
Net income                                     --          --          --          --             --         99,871             --
Decrease in unrealized gain on
     available-for-sale securities,
     net of tax                                --          --          --          --             --             --         (4,791)
Elimination of unrealized gain on
     investment in HNW upon acquisition 
     of HNW                                    --          --          --          --             --             --        (47,001)
                                           ------     -------      ------    --------      ---------      ---------      --------- 
BALANCE AT AUGUST 31, 1996                 58,251     $   583          --          --      $ 633,983      $   5,851             --
                                           ======     =======      ======    ========      =========      =========      =========

                                                 See the accompanying notes.

                                                             F-5



                                                  ORNDA HEALTHCORP AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (in thousands)

                                                                                                  Year Ended August 31
                                                                                                                 
                                                                                        1994              1995              1996
                                                                                    ------------       -----------       ----------
CASH FLOW PROVIDED BY OPERATING ACTIVITIES:
     Net income (loss)                                                              $   (59,338)       $    71,312       $   99,871
           Adjustments to reconcile net income (loss) to net cash
               provided by operating activities:
                 Non-cash portion of income from investments in
                      Houston Northwest Medical Center                                   (1,049)           (11,344)          (4,213)
                 Non-cash portion of special executive compensation                       2,530                 --               --
                 Loss (gain) on asset sales                                              45,272               (973)              --
                 Extraordinary items                                                     12,296                 --               --
                 Depreciation and amortization                                           66,765             85,170          103,828
                 Provision for doubtful accounts                                         86,249            122,193          141,833
                 Amortization of debt discount                                              411                 33               13
                 Noncash pooling expenses related to AHM Merger                          13,166                 --               --
                 Changes  in  assets  and   liabilities   net  of  effects  from
                      acquisitions and dispositions of hospitals:
                            Net patient accounts receivable                             (93,089)          (143,348)        (158,077)
                            Other current assets                                          5,943             (9,379)         (19,894)
                            Other assets                                                 (5,230)            (3,087)             400
                            Accounts payable, accrued expenses
                                 and other current liabilities                          (10,744)            18,690          (36,105)
                            Other liabilities                                           (25,017)             3,452            6,097
                 Other                                                                   (2,162)                --               --
           Proceeds from sales of trading investment security                                --                 --           20,625
                                                                                    -----------        -----------       ----------
           Net cash provided by operating activities                                     36,003            132,719          154,378
                                                                                    -----------        -----------       ----------
CASH FLOW USED IN INVESTING ACTIVITIES:
            Acquisitions of hospitals and related assets                               (361,475)           (60,251)        (431,193)
            Proceeds from sales of assets                                                 6,893             18,912            3,037
            Capital expenditures                                                        (47,724)           (71,910)        (102,573)
            Issuance of notes receivable                                                 (7,025)            (2,810)          (6,213)
            Payments received on long-term notes and other receivables                    1,572             12,484            6,067
            Other investing activities                                                    7,453             (5,789)          (1,719)
                                                                                    -----------        -----------       ---------- 
            Net cash used in investing activities                                      (400,306)          (109,364)        (532,594)
                                                                                    -----------        -----------       ---------- 
CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES:
            Issuance of stock                                                             6,293              7,029          199,312
            Principal payments on long-term debt borrowings                            (486,151)          (142,071)        (120,435)
            Proceeds received on long-term debt borrowings                              860,865            101,177          321,000
            Financing costs incurred in connection with long-term borrowings            (21,207)              (637)          (3,797)
            Other                                                                        (1,147)            (1,264)          (5,392)
                                                                                    -----------        -----------       ---------- 
            Net cash provided by (used in) financing activities                         358,653            (35,766)         390,688
                                                                                    -----------        -----------       ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                     (5,650)           (12,411)          12,472
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                           25,914             17,374            4,963
Pooling adjustment to beginning of period balance to conform AHM's
     fiscal year                                                                         (2,890)                --               --
                                                                                    -----------        -----------       ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                            $    17,374        $     4,963       $   17,435
                                                                                    ===========        ===========       ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid during the period for:
            Interest (net of amount capitalized)                                    $    86,575        $   108,598       $  107,432
            Income taxes                                                                    387              1,825           28,920
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
     Preferred stock dividends                                                            1,867              2,000              332
     Stock issued for acquisitions of hospitals and related assets                       96,212              3,965               --
     Capital lease obligations incurred                                                   4,346              2,605              196
                                             
                           See the accompanying notes.
                                       F-6




                        ORNDA HEALTHCORP AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 August 31, 1996

NOTE 1 - GENERAL AND ACCOUNTING POLICIES

        Reporting Entity: OrNda HealthCorp ("Company"), which is incorporated in
the State of  Delaware,  is a  provider  of health  care  services  through  the
operation of general acute care hospitals  located primarily in the southern and
western  United States.  Of the 49 general acute care hospitals  operated by the
Company at August 31, 1996,  19 hospitals  are located in California of which 17
hospitals are located in the southern California area. In addition,  5 hospitals
are located in southern  Florida  and 6  hospitals  are located in Arizona.  The
concentration of hospitals in California, southern Florida and Arizona increases
the risk that any adverse  economic,  regulatory or other  developments that may
occur in such areas may adversely  affect the Company's  operations or financial
condition.

        Consolidation:   The  consolidated   financial  statements  include  the
accounts of the Company,  its majority owned  subsidiaries and limited liability
corporations and partnerships in which the Company or one of its subsidiaries is
a general partner and has a controlling interest.  Limited partner distributions
are shown as "minority interests" in the Consolidated  Statements of Operations.
All material  intercompany  accounts and  transactions  have been  eliminated in
consolidation.  Certain prior year amounts have been  reclassified to conform to
the current year presentation.  The results of hospital  operations  acquired in
purchase transactions are included from their respective acquisition dates.

        Use of Estimates in Financial  Statements:  Judgment and  estimation  is
exercised  by  management  in  certain  areas of the  preparation  of  financial
statements.  Some of the  more  significant  areas  include  the  allowance  for
uncollectible  accounts,  settlement  amounts due to or  receivable  from fiscal
intermediaries,  reserves for self-insurance risks, and reserves for litigation.
Management believes that such estimates are adequate.

        Total Revenue:  Total revenue represents net patient service revenue and
other revenue and is reported at the net  realizable  amounts due from patients,
third-party  payors,  and others for  services  rendered.  Net  patient  service
revenue  generated from Medicare and  Medicaid/Medi-Cal  reimbursement  programs
accounted  for  approximately  57%,  51% and 52% of total  net  patient  service
revenue  for the years  ended  August  31,  1994,  1995 and 1996,  respectively.
Settlement  amounts due to or  receivables  from Medicare and  Medicaid/Medi-Cal
programs are determined by fiscal  intermediaries.  The  difference  between the
final  determination  and  estimated  amounts  accrued  is  accounted  for as an
adjustment to revenue in the year of final  determination.  Management  believes
that adequate provision has been made in the consolidated  financial  statements
for potential  adjustments  resulting from such examinations.  Recapture amounts
due to or  receivable  from  the  Medicare  program  are  determined  by  fiscal
intermediaries.  The difference  between the final  determination  and estimated
amounts accrued for recapture  related to sold facilities is accounted for as an
adjustment  to gain or loss on asset  sales in the year of final  determination.
Management  believes that adequate  provision has been made in the  consolidated
financial  statements for potential  adjustments  resulting from examinations of
such recapture amounts.

        As stated  above,  the  Company  derives a  substantial  portion  of its
revenue from the Medicare and  Medicaid/Medi-Cal  programs.  Changes in existing
governmental  reimbursement  programs in recent  years have  resulted in reduced
levels of  reimbursement  for  health  care  services.  Additional  changes  are
anticipated  which are  likely to result in  further  reductions  in the rate of
increase in reimbursement levels.

     Earnings  (Loss) Per Common  Share:  Earnings  (loss) per common and common
equivalent share is based on the Company's  weighted average number of shares of
common stock outstanding during the year adjusted

                                      F-7




to give effect to dilutive  stock options and warrants using the treasury stock
method. The dilutive effect of stock options and warrants was 1.1 million shares
in  fiscal  1995 and 1.9  million  shares in fiscal  1996.  The  effect of stock
options and warrants was anti-dilutive for fiscal 1994.

        Earnings  (loss) per share  assuming  full  dilution  also  assumes  the
conversion of the Company's redeemable  convertible  preferred stock into common
shares  in fiscal  1995 and  1996.  The  effect  of the  redeemable  convertible
preferred stock was anti-dilutive in fiscal 1994.

        Cash and Cash Equivalents:  For purposes of the Consolidated  Statements
of Cash Flows,  the Company  considers all highly liquid debt instruments with a
maturity of three  months or less when  purchased  to be cash  equivalents.  The
carrying  amount  reported  in the balance  sheet for cash and cash  equivalents
approximates fair value.

     Supplies: Supplies are priced at cost (first-in,  first-out method) and are
not in excess of market.
      
     Property,  Plant  and  Equipment:  Depreciation  is  computed  using the
straight-line method over the estimated useful lives of the assets. The range of
useful lives estimated for buildings and improvements is 10 to 40 years, and for
equipment  and  fixtures  is 3 to 25 years.  Assets  related to  capital  leases
including  improvements are amortized on a straight-line basis over the terms of
the leases or the  useful  lives of the  assets,  whichever  is shorter  and the
amortization  expense is  included  with  depreciation  expense.  Buildings  and
Improvements include construction in progress of $27.2 million and $31.0 million
at August 31,  1995 and 1996,  respectively.  The Company  capitalized  interest
costs of $1.3 million,  $1.3 million and $1.5 million related to construction in
progress for the years ended August 31, 1994, 1995 and 1996, respectively.

        Intangible  Assets:  Deferred financing costs of $29.8 million and $28.1
million at August 31, 1995 and 1996, respectively,  are included in Other Assets
in the accompanying  Consolidated Balance Sheets and are amortized over the life
of the related debt using the  effective  interest  method.  Deferred  financing
costs are net of accumulated  amortization  of $7.1 million and $12.6 million at
August 31, 1995 and 1996, respectively.

        Goodwill  is  amortized  on a straight  line basis and the  amortization
period  (20  to 40  years  for  hospitals  and 5 to 10  years  for  non-hospital
acquisitions)  is  based  upon the  estimated  economic  lives  of the  hospital
buildings  acquired which range from 25 to 40 years as determined by independent
appraisers,  the indefinite useful life of any Certificates of Need acquired and
competition   within  the  local   markets.   Goodwill  is  net  of  accumulated
amortization  of $15.9  million  and $30.8  million at August 31, 1995 and 1996,
respectively.  The  carrying  value of  goodwill is reviewed by the Company on a
quarterly basis if the facts and circumstances  suggest that it may be impaired.
Factors  considered  in  evaluating  impairment  include  unexpected  or adverse
changes  in  the  following:   (i)  the  economic,   competitive  or  regulatory
environments in which the Company  operates,  (ii)  profitability and (iii) cash
flows.  If the  review  indicates  that  goodwill  will not be  recoverable,  as
determined based on the undiscounted  cash flows of the entity acquired over the
remaining  amortization  period, the Company's carrying value of the goodwill is
reduced by the estimated shortfall of cash flows.

        Impairment of Long-Lived Assets: In March 1995, the Financial Accounting
Standards Board issued Financial Accounting Standard No 121, "Accounting for the
Impairment of  Long-Lived  Assets and for Long- Lived Assets to Be Disposed Of,"
(SFAS No. 121) which  requires  impairment  losses to be recorded on  long-lived
assets used in operations  when  indicators  of  impairment  are present and the
undiscounted  cash flows estimated to be generated by those assets are less than
the assets'  carrying  amount.  SFAS No. 121 also  addresses the  accounting for
long-lived  assets that are  expected to be disposed  of. The Company  currently
plans to adopt SFAS No. 121 in the first  quarter of fiscal  1997 and,  based on
current circumstances, does not believe the effect of adoption will be material.

                                       F-8




        Professional Liability Insurance: At August 31, 1994, 1995 and 1996, the
general and professional  liability risks of the Company were self-insured up to
$3.0  million  on  a  per-occurrence  basis  and  up  to  $30.0  million  on  an
aggregate-per-claim-year  basis. At August 31, 1996, the Company carried general
and professional  liability  insurance from an unrelated  commercial carrier for
losses  above  the  self-insurance  limits  to $50.0  million.  Liabilities  for
self-insured  professional  and general  liability risks at August 31, 1996, for
both  asserted  and  unasserted  claims,  are  based  on  actuarially  projected
estimates  discounted at an average rate of 8.0% to their present value based on
historical  loss payment  patterns.  Although the ultimate  settlement  of these
liabilities  may vary  from  such  estimates,  management  believes  the  amount
provided in the Company's financial statements is adequate.

NOTE 2 - MERGER, ACQUISITION AND DISPOSITION TRANSACTIONS

Fiscal 1996

Houston Northwest Medical Center

        Houston  Northwest  Medical  Center  ("HNW")  is a  498-bed  acute  care
facility  located in  Houston,  Texas.  Effective  January 1, 1996,  the Company
purchased  the  controlling  equity  interests in HNW for a total cash  purchase
price of $153.9 million and commenced  operation of the facility.  In connection
with the  acquisition,  the Company  recorded  assets with a fair value of $90.4
million,  liabilities of $36.5 million and goodwill of $100.0 million.  Purchase
price  adjustments  have not been  finalized as of August 31, 1996,  but are not
expected to be material.

        Prior to January 1996, the Company's investments in HNW consisted of (i)
two classes of mandatorily redeemable preferred stock with a redemption value of
$62.5  million;  and,  (ii) a mortgage  note  receivable  with a balance of $7.4
million at December 31, 1995.

        The Company  recognized the following income related to it's investments
in HNW until January 1996,  at which time the Company  began  consolidating  the
operations of HNW (in thousands):

                                                                   Year Ended August  31,
                                                        -----------------------------------------
                                                                               
                                                           1994             1995          1996
                                                        ----------      ----------     ----------
     Accretion of discount on mandatorily
       redeemable preferred stock                       $    1,918      $    2,086     $      757
     Dividend income on mandatorily
       redeemable preferred stock                           10,266          11,258          4,123
     Equity method losses from common
       stock investment                                    (9,135)             --             --
     Interest income on mortgage note
       receivable                                              585             662            248
                                                        ----------      ----------     ----------
                                                        $    3,634      $   14,006     $    5,128
                                                        ==========      ==========     ==========


Cypress Fairbanks Medical Center

     Effective July 1, 1996, the Company  purchased  Cypress  Fairbanks  Medical
Center ("Cypress Fairbanks"),  a 149-bed acute care hospital in Houston,  Texas,
and related  healthcare  facilities  for $76.1 million.  In connection  with the
acquisition  the Company  recorded  assets  with a fair value of $60.0  million,
liabilities  of $8.3  million and  goodwill  of $24.4  million.  Purchase  price
adjustments  have not been finalized as of August 31, 1996, but are not expected
to be material.



                                       F-9




Centinela Hospital Medical Center

     Effective August 1, 1996, the Company purchased  Centinela Hospital Medical
Center  ("Centinela"),  a 400-bed acute care hospital in Inglewood,  California,
and related  healthcare  businesses for $125.3  million.  In connection with the
acquisition,  the Company  recorded  assets with a fair value of $94.3  million,
liabilities  of $21.1  million and  goodwill of $52.1  million.  Purchase  price
adjustments  have not been finalized as of August 31, 1996, but are not expected
to be material.

Others

     Effective  November  1, 1995,  the Company  completed  the  acquisition  of
Universal  Medical Center (renamed  Florida  Medical Center - South),  a 202-bed
facility  located in  Plantation,  Florida.  Effective July 1, 1996, the Company
acquired  Westside   Hospital,   a  68-bed  facility  located  in  Los  Angeles,
California.  The combinced  cost of these  acquisitions  was $32.1  million.  In
connection  with these  acquisitions,  the Company  acquired  assets with a fair
value of $32.9  million,  assumed  liabilities of $3.6 million and recorded $2.7
million of goodwill.  Purchase price  adjustments  have not been finalized as of
August 31, 1996, but are not expected to be material.

Fiscal 1995

St. Luke's Health System

       Effective  February  13,1995,  the Company purchased three hospitals with
417 beds and related businesses that comprise the St. Luke's Health System ("St.
Luke's") in the Phoenix,  Arizona metropolitan area for $120.3 million including
$3.0 million of the Company's common stock (195,122 shares).  In connection with
the acquisition,  the Company acquired assets with a fair value of $45.9 million
and assumed liabilities of $26.8 million and recorded $7.1 million of goodwill.

Suburban

      Effective November 1, 1994, the Company purchased Suburban Medical Center,
a 184 licensed-bed  hospital located in Paramount,  California for $4.6 million.
In connection  with the  acquisition,  the Company  acquired  assets with a fair
value or $5.2  million,  assumed  liabilities  of $2.2 million and recorded $1.6
million of goodwill.

Other

      During  the third  quarter of fiscal  1995,  the  Company  sold all of its
common  stock   interest  in  Horizon   Mental  Health   Management,   Inc.  for
approximately $8.4 million resulting in a gain on sale of $6.7 million. The gain
is included in gain on asset sales in the accompanying  statement of operations,
net of the loss on the consummation of a sale entered into in fiscal 1994.

     During fiscal 1995, the Company's  investment in an independent  non-public
company  previously  accounted  for under the equity  method was  exchanged  for
common stock of a publicly  traded entity  resulting in a $9.6 million  non-cash
gain on  exchange of  securities  and the new  securities  being  classified  as
trading under Statement of Financial Accounting Standard No. 115 "Accounting for
Certain  Investments in Debt and Equity  Securities".  The Company also recorded
non-cash write-downs or reserves on certain non-operating assets of $9.6 million
for impairment or declines in value deemed to be other than temporary.




                                      F-10




Fiscal 1994

AHM
     On April 19, 1994, the Company completed a merger with American  Healthcare
Management,  Inc.  ("AHM"),  a  health  care  services  company  engaged  in the
operation of general acute care hospitals. AHM owned or leased 16 hospitals in 9
states, with a total of 2,028 licensed beds. The AHM Merger was accounted for as
a pooling of interests in which  shareholders  of AHM received 0.6 of a share of
the Company's common stock,  representing 16.6 million additional shares issued,
in exchange for each share of AHM common stock held. In connection  with the AHM
Merger,  the  Company  recorded  $30.0  million of  nonrecurring  charges and an
extraordinary loss of $8.4 million as a result of refinancing  OrNda's and AHM's
senior credit facilities. Prior to the AHM Merger, AHM used a fiscal year ending
December 31. Accordingly, the recast operating results of AHM for the year ended
September 30, 1993,  were  combined with the operating  results of OrNda for the
year ended August 31, 1993,  and the AHM balance sheet accounts at September 30,
1993,  were combined with OrNda's  balance sheet accounts at August 31, 1993, in
order to restate the accompanying  financial statements for periods prior to the
AHM Merger. As a result of this restatement,  an adjustment for AHM's net income
for the  month  of  September  1993 is  reflected  as a 1994  adjustment  to the
consolidated retained earnings (deficit) and the Consolidated  Statement of Cash
Flows for fiscal 1994  includes an adjustment to the balance at the beginning of
the period for AHM's cash activity for the month of September  1993.  The effect
of the  differing  fiscal years on the  Company's  financial  statements  is not
significant.

      The  following is a summary of the results of the separate  operations  of
OrNda  and  AHM  included  in the  Consolidated  Statements  of  Operations  (in
thousands):

                                                                                                
                                                                    OrNda               AHM           Consolidated
                                                               -------------     ---------------     --------------
Seven months ended March 31, 1994:
     Total revenue                                             $     454,531     $       205,044     $      659,575
     Net income                                                        1,696               7,546              9,242



     In the third  quarter of fiscal 1994,  the Company  recorded the  following
nonrecurring  charges in connection with the AHM Merger,  all of which have been
paid as of August 31, 1996. (in thousands):
                                                                                                          
                                                                  Cash                    Noncash
                                                                 Expense                  Expense                  Total
                                                               -----------              -----------            ------------
Employee benefit and certain severance actions                 $     8,456              $       999            $      9,455
Investment advisory and professional fees                            6,077                       --                   6,077
Costs of information systems consolidations
     primarily related to the write-down of assets                   1,000                   10,260                  11,260
Other                                                                1,293                    1,907                   3,200
                                                               -----------              -----------            ------------
                                                               $    16,826              $    13,166            $     29,992
                                                               ===========              ===========            ============


Summit

     On April 19, 1994,  the Company also  completed a merger with Summit Health
Ltd. ( "Summit "), a health care  services  company  engaged in the operation of
(i) general  acute care  hospitals,  (ii) a managed care entity  contracting  to
provide services to the Arizona Health Care Cost Containment  System,  and (iii)

                                      F-11




outpatient surgery centers.  Summit owned or leased 12 acute care hospitals
in 4 states with a total of 1,611 licensed beds. The Summit merger was accounted
for as a purchase in which Summit shareholders received $5.50 in cash and 0.2157
shares of the  Company's  common  stock for each share of Summit  common  stock,
representing  $192.1  million  of cash paid and 7.5  million  additional  shares
issued at a market value of $96.2 million. In connection with the Summit Merger,
the Company  also  acquired  real estate  previously  leased by Summit for $60.6
million. Furthermore, the Company assumed or paid $21.9 million of Summit's debt
resulting  in a total  acquisition  cost of  approximately  $370.8  million.  In
connection with the Summit Merger, the Company acquired assets with a fair value
of $320.9  million,  assumed  liabilities of $161.5 million and recorded  $211.4
million of goodwill.

Fountain Valley

      Effective July 31, 1994, the Company  purchased  Fountain  Valley Regional
Hospital and Medical Center  ("Fountain  Valley"),  located in Fountain  Valley,
California  for $105.2  million.  The  facilities  include a 413-bed  acute care
hospital, a surgery center, an imaging center and four medical office buildings.
In connection  with the  acquisition,  the Company  acquired  assets with a fair
value of $104.2  million and assumed  liabilities  of $20.2 million and recorded
$21.2 million of goodwill.

Other

      During fiscal 1994, the Company, in separate transactions, sold or entered
into agreements to sell four hospitals, resulting in a loss of $45.3 million.

Pro Forma Information

      The following pro forma information  reflects the fiscal 1996 acquisitions
as if they  had  occurred  on  September  1,  1994 and  1995,  the  fiscal  1995
acquisitions  as if they had  occurred on  September  1, 1993 and 1994,  and the
fiscal 1994  acquisitions  as if they had  occurred on  September  1, 1993  (in
thousands, except per share data):
                                                                               
                                                         1994             1995             1996
                                                     ------------     ------------     ------------

     Total revenue                                   $  1,828,445     $  2,312,765     $  2,408,507
     Net income (loss)                                    (22,762)          72,955           99,717
     Net income (loss)applicable
         to common shares                                 (24,629)          70,955           98,385
     Net income (loss) per common share                     (0.58)            1.56             1.73
     Net income (loss) per common share
         assuming full dilution                      $      (0.58)    $       1.54     $       1.72



NOTE 3 - INCOME TAXES

      The provision for income taxes for the years ended August 31 is as follows
(in thousands):
                                                                               
                                                         1994             1995             1996
                                                     ------------     ------------     ------------
Current federal income tax                           $        169     $     14,657     $     23,160
Current state income tax                                      888            4,750            8,938
Deferred federal income tax benefit                            --           (3,635)              --
Deferred state income tax                                      --               --            3,144
                                                     ------------     ------------     ------------
                                                     $      1,057     $     15,772     $     35,242
                                                     ============     ============     ============



                                      F-12




        Deferred   income  taxes   reflect  the  net  tax  effect  of  temporary
differences between the carrying amounts of assets and liabilities for financial
reporting  purposes  and the amounts used for income tax  purposes.  Significant
components of the Company's  federal deferred tax assets and liabilities for the
years ended August 31 are tax effected as follows (in thousands):
                                                                                              
                                                                        1994             1995             1996
                                                                    ------------     ------------     ------------
Deferred tax assets:
     Net operating loss carryovers                                  $     98,358     $     82,245     $     69,620
     Capital loss carryovers                                               1,593               --               --
     Alternative minimum tax credit carryovers                                --            1,036            2,691
     General business credit carryovers                                    7,652            7,652            6,649
     Excess tax basis over book basis of
          accounts receivable                                              18,825          19,889           25,837
     Excess tax basis over book basis of
          other assets                                                    10,051               --               --
     Accrued expenses                                                     19,590           18,894           20,745
     Professional liability reserves                                       8,285            9,422           10,608
     Capital lease liability                                               4,786            4,626            4,024
     Other deferred tax assets                                               790            6,157            1,166
                                                                   -------------     ------------     ------------
Total deferred tax assets                                                169,930          149,921          141,340
     Valuation allowances                                                (53,375)         (48,072)         (41,506)
                                                                   -------------     ------------     -------------
Total deferred tax assets net of allowance                               116,555          101,849           99,834
Deferred tax liabilities:
     Tax in excess of book depreciation                                   76,432           79,449          106,185
     Excess book basis over tax basis of
          certain investments                                             34,779           21,896               --
     Unamortized cash to accrual method adjustments                        9,243            4,960            1,249
     Other deferred tax liabilities                                        3,232               --               --
                                                                   -------------     ------------     ------------
Total deferred tax liabilities                                           123,686          106,305          107,434
                                                                   -------------     ------------     ------------
Net deferred tax liability                                         $       7,131     $      4,456     $      7,600
                                                                   =============     ============     ============




        At August 31,  1996,  the Company has net current  deferred  federal tax
assets of $43.0 million and net noncurrent  deferred  federal tax liabilities of
$50.6 million.

        The effective income tax rate before  extraordinary  items differed from
the federal statutory rate for the years ended August 31 as follows:
                                                                                              
                                                                       1994              1995             1996
                                                                   -------------     ------------     ------------
Income tax expense (benefit) at federal
     statutory rate                                                        (35.0)%           35.0%            35.0%
Nondeductible goodwill amortization                                           --              3.2              2.9
Operating loss for which no
     benefit was recognized                                                 35.0               --               --
Benefit of prior year losses realized                                         --            (23.7)           (17.6)
State income tax                                                             1.9              3.6              5.8
Federal alternative minimum tax                                              0.4               --               --
                                                                   -------------     ------------     -------------
Effective income tax rate                                                    2.3 %           18.1%            26.1%
                                                                   =============     ============     =============



                                      F-13




        The  following  schedule  summarizes  approximate  tax  attribute  carry
forwards from prior tax returns for both OrNda and AHM, which are available on a
limited basis to offset federal net taxable income (in thousands):

                                                           Expiration
                                                             Periods
                                                           ----------
Net operating loss ("NOL")            $ 198,915             2001-2009
General business credits                  6,649             1997-2001
Alternative minimum tax credit            2,691                None

     The AHM Merger caused an "ownership  change"  within the meaning of Section
382(g)  of the  Internal  Revenue  Code for both  OrNda  and AHM.  Consequently,
allowable  federal  deductions  relating  to NOL's of OrNda and AHM  arising  in
periods prior to the AHM Merger are thereafter  subject to annual limitations of
approximately  $19 million and $16 million for OrNda and AHM,  respectively.  In
addition,  approximately  $55  million  of the  NOL's are  subject  to an annual
limitation  of  approximately  $3 million  due to prior  "ownership  changes" of
OrNda.  The  annual  limitations  may be  increased  in order to offset  certain
built-in  gains which are  recognized  during the five year period  following an
ownership  change.  In addition,  the NOL's from pre-merger tax years of AHM may
only be applied against the prospective taxable income of the AHM entities.  The
limitations  described above are not currently expected to significantly  affect
the ability of the Company to ultimately recognize the benefit of these NOL's in
future years.

        The Company's  federal income tax returns are not presently  under audit
by the Internal  Revenue  Service  (the  "IRS"),  except in respect to Summit as
disclosed  below.  Furthermore,  the  Company's  federal  income tax returns for
taxable years through August 31, 1991 are no longer subject to IRS audit, except
for net  operating  loss and credit carry  forwards for income tax purposes from
prior years which may be subject to IRS audit as net  operating  loss and credit
carry  forwards are utilized in subsequent  tax years.  Also,  Summit Health has
extended the statute of limitations  for fiscal years 1987 to 1992 through March
31, 1997.

        In recent  years  the IRS has been  examining  the  federal  income  tax
returns for fiscal years 1984,  1985 and 1986 of Summit  Health,  which became a
wholly-owned subsidiary of the Company in April 1994 and merged into the Company
in September 1994.  Summit Health received a revenue agent's report from the IRS
with  proposed  adjustments  for the years 1984 through 1986  aggregating  as of
August 31, 1996  approximately  $16.6  million of income tax,  $66.4  million of
interest on the tax, $43.9 million of penalties and $25.6 million of interest on
the penalties. After receiving the revenue agent's report, Summit Health filed a
protest  contesting the proposed  adjustments.  On October 28, 1996, the Company
entered  into a Closing  Agreement on Final  Determination  with the IRS for the
above  audit  period,  by agreeing  and paying  additional  tax of $647,000  and
interest of $888,000  to close the audit of Summit  Health for the fiscal  years
1984  through  1986.  The  Closing  Agreement  is subject to review by the Joint
Congressional  Committee  on  Taxation  since the matter  relates to a refund of
taxes to Summit  Health in excess of $1 million.  

                                      F-14




NOTE 4 - OTHER CURRENT ASSETS AND LIABILITIES

        Other current assets and liabilities  consist of the following at August
31 (in thousands):
                                                                                    
                                                                        1995                   1996
                                                                  -----------------      ----------------
Other Current Assets:
     Other accounts receivable, net                               $          27,021      $         58,040
     Trading security                                                        14,920                    --
     Receivable for surplus rebate on 
          Centinela's bond defeasance                                            --                13,755 
     Other current assets                                                    15,111                14,543
                                                                  -----------------      ----------------
                                                                  $          57,052      $         86,338
                                                                  =================      ================
Accrued Expenses and Other Liabilities:
     Due to third-party payors                                    $          99,833      $         64,474
     Salaries, benefits and other compensation                               34,493                42,435
     Vacation and sick pay                                                   23,473                25,703
     Interest                                                                16,018                15,829
     Other                                                                   47,034                61,084
                                                                  -----------------      ----------------
                                                                  $         220,851      $        209,525
                                                                  =================      ================


NOTE 5 - LONG-TERM DEBT

        A summary of long-term debt at August 31 follows (in thousands):

                                                                                    
                                                                        1995                   1996
                                                                  -----------------      ----------------
Parent Company:
     Senior Credit Facilities:
          Revolving Credit Facilities                             $         119,000      $        266,000
          Term Loans                                                        361,175               426,250
     12.25% Senior Subordinated Notes due 2002                              400,000               400,000
     10.25% Senior Subordinated Notes due 2003                                  511                   511
     11.375% Senior Subordinated Notes due 2004                             125,000               125,000

Subsidiaries:
     Secured Debt -- other  (including  capitalized
     leases); rates,  generally fixed, average 
     11.9%; payable in periodic installments
     through 2023                                                            67,919                71,919
                                                                  -----------------      ----------------
                                                                          1,073,605             1,289,680
Less current portions                                                        60,182                59,750
                                                                  -----------------      ----------------
                                                                       $  1,013,423           $ 1,229,930
                                                                  =================      ================



Senior Credit Facilities

     On October 27, 1995,  the Company  executed an amended and restated  credit
agreement  (the  "Restated  Credit  Facility")  which  increased  the  Company's
borrowing capacity under its credit facility from  approximately  $660.0 million
to $900.0  million,  of which $692.2 million was  outstanding on August 31, 1996
and of which  commitment  availability  had been  reduced  by issued  letters of
credit of $27.4  million and  scheduled  principal  payments  of $33.8  million,
resulting in available  credit of $146.6 million.  The Restated Credit Facility,
which amends the Company's  previous credit agreement dated April 19, 1994, will

                                      F-15




mature on October 30,  2001,  and  consists  of the  following  facilities  (the
"Senior  Credit  Facilities"):  (i)revolving  commitment  of $440.0  million  to
refinance the debt under the previous credit  agreement,  for general  corporate
purposes,  to issue up to $50  million of letters of credit,  and for  strategic
acquisitions;  and (ii) a $460.0  million term loan to refinance  debt under the
previous credit agreement payable in incremental quarterly installments.

        Loans under the Restated Credit Facility bear interest, at the option of
the Company,  at a rate equal to either (i) the "alternate base rate" plus 0.25%
or (ii)  LIBOR  plus  1.25%,  in each case  subject to  potential  decreases  or
increases  dependent  on the  Company's  leverage  ratio.  Interest  is  payable
quarterly if a rate based on the alternate base rate is elected or at the end of
the LIBOR  period  (but in any  event not to exceed 90 days) if a rate  based on
LIBOR is elected. The weighted average interest rate on the Company's borrowings
under the Senior Credit Facilities at August 31, 1996, was 6.7%.

        In certain  circumstances,  the Company is  required  to make  principal
prepayments on the Senior Credit  Facilities,  including the receipt of proceeds
from the issuance of additional  subordinated  indebtedness,  certain asset sale
proceeds not used to acquire  additional assets within a specified  period,  and
50% of the  proceeds in excess of $50 million  from the  issuance of  additional
equity not used to acquire additional assets, fund capital expenditures or repay
subordinated  debt  within one year.  The  Company may prepay at any time all or
part of the outstanding Senior Credit Facilities without penalty.

        The Restated Credit Facility limits,  under certain  circumstances,  the
Company's  ability  to incur  additional  indebtedness,  sell  material  assets,
acquire the capital stock or assets of another business,  or pay dividends.  The
Restated  Credit  Facility also requires the Company to maintain a specified net
worth and meet or exceed certain coverage,  leverage,  and indebtedness  ratios.
Indebtedness under the Restated Credit Facility is secured by a perfected, first
priority security interest in the stock of all existing and future  subsidiaries
of the Company, intercompany notes of indebtedness, majority-owned partnerships
and certain specified investments.

12.25% Senior Subordinated Notes

        In May 1992,  OrNda issued $400 million  aggregate  principal  amount of
12.25% senior subordinated notes due May 2002 ( the "12.25% Notes").  The 12.25%
Notes  are  subordinated  to  the  Company's  Senior  Credit  Facilities  and to
indebtedness  of the  Company's  subsidiaries.  Interest on the 12.25%  Notes is
payable  semiannually on May 15 and November 15,  commencing  November 15, 1992.
The 12.25% Notes mature on May 15, 2002, but may be redeemed in whole or in part
at the option of the Company on or after June 1, 1997 through  June 1, 2000,  at
specified redemption prices in excess of par and thereafter at par.

10.25% Senior Subordinated Notes

        On July 28, 1993, AHM issued $100 million aggregate  principal amount of
10% senior  subordinated notes due July 2003 (the "10% Notes").  Interest on the
10% Notes is payable  semiannually  on February 1 and August 1 of each year. The
10% Notes  mature on August 1, 2003,  but may be redeemed in whole or in part at
the option of the  Company on or after  August 1, 1998  through  July 1, 2000 at
specified redemption prices in excess of par and thereafter at par.

     Pursuant to the Waiver and Consent Agreement dated February 3, 1994, by and
among the Company and the holders of a majority in  principal  amount of the 10%
Notes,  as  consideration  for their  agreement to make  certain  changes to the
Notes'  Indenture to effect the AHM Merger (see Note 2) and other  matters,  the
Company (i) paid to the holders on the closing date of the AHM Merger $15.00 for
each $1,000 principal
                                      F-16




amount of  outstanding  10% Notes and (ii) increased the rate of interest on the
10% Notes  from 10% per annum to 10.25%  per  annum  (redefined  as the  "10.25%
Notes").  The AHM Merger  caused a "change of control," as defined in the Notes'
Indenture,  which  required the Company to make a prompt offer to repurchase all
or any portion of the 10.25%  Notes owned by the holders  thereof at 101% of the
principal  amount,  together  with  accrued  interest  thereon,  to the  date of
repurchase.  Pursuant to the offer,  $99.3 million of 10.25% Notes were redeemed
through August 31, 1994,  resulting in a loss on early extinguishment of debt of
$4.1 million.  The 10.25% Notes are  subordinated to the Company's Senior Credit
Facilities and subsidiary indebtedness.

11.375% Senior Subordinated Notes

        On August 23, 1994, the Company issued $125 million aggregate  principal
amount of 11.375%  senior  subordinated  notes due August 15, 2004 (the "11.375%
Notes").  The 11.375%  Notes are  subordinated  to the  Company's  Senior Credit
Facilities and subsidiary  indebtedness  but rank pari passu in right of payment
to the Company's 12.25% Notes and 10.25% Notes. Interest on the 11.375% Notes is
payable  semiannually  on  February  15 and August 15 of each year.  The 11.375%
Notes may be  redeemed  in whole or in part at the  option of the  Company on or
after August 15, 1999 through August 15, 2002, at specified redemption prices in
excess of par and  thereafter  at par. Net  proceeds of $121.0  million from the
sale of the  11.375%  Notes  were used to reduce  the  Company's  Senior  Credit
Facilities.

Other

        At August 31, 1996, approximately $143.4 million of the Company's assets
were subject to mortgage or liens as collateral for approximately  $71.9 million
of indebtedness, including capital leases.

        Maturities of debt,  including  capitalized lease  obligations,  for the
next five fiscal years and thereafter are as follows (in thousands):


                             1997        $    59,750
                             1998             78,237
                             1999             89,493
                             2000             95,158
                             2001            125,970
                             Thereafter      841,072
                                         -----------
                                         $ 1,289,680
                                         ===========

        In connection with the Summit merger (see Note 2), the Company  acquired
a 38.6%  interest in Summit Care  Corporation  ("Summit  Care")  which  operates
nursing care and retirement  centers.  At August 31, 1994,  approximately  $37.4
million   aggregate   principal  amount  of  the  Company's  7.5%   Exchangeable
Subordinated Notes due 2003 (the "7.5% Notes"), which were exchangeable,  at the
option of the  holders,  into the  Company's  38.6%  interest in the Summit Care
Common  Stock,  were  outstanding.  The  investment in Summit Care was increased
approximately  $30.5 million in the Summit merger  purchase price  allocation to
estimated  fair value of $37.4 million which was the carrying  value of the 7.5%
Notes at the merger  date.  The 7.5% Notes,  as well as accrued  interest on the
7.5% Notes, and the investment in Summit Care common stock were accounted for as
an asset held for sale and the net investment was included in other assets.

                                      F-17




        From  September 1, 1994 through July 31, 1995,  $9.6 million of the 7.5%
Notes were voluntarily exchanged for Summit Care common stock. Effective June 1,
1995,  with the  consent of the  holders of the 7.5%  Notes,  the  Indenture  in
respect of the 7.5% Notes was amended to change the earliest  redemption date of
the 7.5%  Notes  from  April  1,  1996 to June 1,  1995.  The  Company  issued a
redemption  notice for 100% of the outstanding 7.5% Notes on August 3, 1995, and
the holders of $27.8 million of the 7.5 % Notes exchanged for Summit Care common
stock prior to the August 28, 1995,  redemption date for the balance of the 7.5%
Notes. As a result, as of August 31, 1996, the Company owned 1,414 shares,  .02%
of the common stock of Summit Care.

NOTE 6 - LEASES

        The Company leases  hospitals,  office  facilities  and equipment  under
agreements that generally  require the Company to pay all maintenance,  property
taxes and insurance costs and that expire on various dates extending to the year
2023.  Certain leases include  options to purchase the leased property during or
at the end of the lease term at specified  amounts.  Minimum rental  commitments
under operating leases having an initial or remaining noncancelable term of more
than one year for the next five fiscal years and  thereafter;  minimum  payments
under  capital  leases at August 31,  1996,  for the next five fiscal  years and
thereafter;  and the related  present  value of future  minimum  payments  under
capital leases are as follows (in thousands):

                                            Capital             Operating
                                            Leases               Leases
                                        -----------------   -----------------

     1997                               $           5,663   $          51,291
     1998                                           4,248              43,073
     1999                                           2,205              34,632
     2000                                           1,337              31,263
     2001                                           1,261              28,343
     Thereafter                                    17,229             261,534
                                        -----------------   -----------------
     Total minimum rental payments                 31,943   $         450,136
                                                            =================
     Less amounts representing interest            14,838
                                        -----------------
     Present value of future
          minimum lease payments                   17,105
     Less current portion                           4,088
                                        $          13,017
                                        =================

        Operations for the years ended August 31, 1994, 1995, and 1996,  include
rent expense on operating  leases of $32.9  million,  $58.1  million,  and $62.2
million, respectively.

        Property under capital lease at August 31 is as follows (in thousands):


                                               1995               1996
                                         -----------------   -----------------
     Building and improvements           $          37,220   $          37,880
     Equipment and fixtures                         19,603              19,200
                                         -----------------   -----------------
                                                    56,823              57,080
     Less accumulated amortization                  18,707              23,392
                                         -----------------   -----------------
                                         $          38,116   $          33,688
                                         =================   =================

                                      F-18




NOTE 7 - SHAREHOLDERS' EQUITY, WARRANTS AND EMPLOYEE STOCK OPTIONS

Common Stock

        The Company has not paid any  dividends on its common  stock.  Under the
terms  of the  Company's  Restated  Credit  Facility,  the  Company  may not pay
dividends on its common stock.

        On November 6, 1995, the Company completed the sale of 10,000,000 shares
of its common stock at a $17.625 per share public offering price. On November 9,
1995, the underwriters  exercised an option to purchase an additional  1,500,000
shares  to cover  over-allotments.  The net  proceeds  of  approximately  $192.7
million, after deducting offering expenses and underwriting discounts, were used
to reduce all of the  indebtedness  under the revolving  portion of the Restated
Credit Facility in the amount of $27.2 million. The remaining proceeds were used
for general corporate purposes.

Warrants

        At August 31,  1996,  the Company has warrants  outstanding  to purchase
92,600 shares of common stock at an exercise price of $17.89 per share. Warrants
can be exercised through April 30, 2000.

Stock Options and Stock Bonus Plans

        On April 19, 1994,  OrNda's  shareholders  approved the 1994  Management
Equity Plan to replace the 1992  Management  Equity Plan. No awards were granted
under the 1992 Management  Equity Plan. The 1994 Management Equity Plan provides
for the granting of stock  options  (either  incentive or  nonqualified),  stock
appreciation  rights, or limited stock appreciation  rights to key employees and
consultants of the Company.  Under the 1994 Management  Equity Plan, the Company
may grant awards for up to 6,550,000 shares of common stock. Generally, the 1994
Management  Equity Plan provides that options may be outstanding for a period of
up to ten years  from the date of the grant and may become  exercisable  at such
time or under such  conditions  as the  compensation  committee of the Company's
Board of Directors shall  determine.  For incentive stock options  granted,  the
exercise  price  generally  will equal the fair  market  value of the  Company's
common stock on the date of the grant.

        Effective November 29, 1995, OrNda's  shareholders  approved the Outside
Directors  Stock  Option  Plan,  under which the  Company  may grant  options to
outside directors for up to 300,000 shares of common stock.

        On April 19, 1994,  the  Company's  shareholders  approved the Incentive
Stock Bonus Plan which  provides  for the payment of cash and issuance of shares
of the  Company's  common stock to key  employees as an annual  incentive  bonus
based upon the extent to which the Company  achieves certain  performance  goals
specified in advance by the  compensation  committee of the  Company's  Board of
Directors.  Under the  Incentive  Stock Bonus Plan,  the Company may issue up to
600,000 shares of the Company's  common stock. As of August 31, 1996, no options
have been granted under this plan.

        In  addition  to the  7,450,000  shares of  common  stock  reserved  for
issuance  under the 1994  Management  Equity Plan, the Outside  Directors  Stock
Option  Plan and the  Incentive  Stock Bonus  Plan,  the  Company  has  reserved
1,434,958  shares of common stock at August 31, 1996,  for issuance  pursuant to
options granted under various stock option plans for OrNda, AHM and Summit prior
to the AHM Merger and the Summit  merger.  No options are  available  for future
grant  under the stock  option  plans  established  prior to the April 19,  1994
mergers.  On December 31, 1993,  OrNda granted options to purchase  500,000
                              
                                      F-19




shares of common stock to key employees at exercise prices ranging from $7.75 to
$10.75 per share.  Since the  exercise  price was below the market  value of the
Company's common stock on the date of grant, the Company recorded  $2,530,000 of
noncash stock option  compensation in fiscal 1994 with an offsetting increase to
Additional  Paid-In  Capital  for the excess of the market  price at the date of
grant over the exercise price.

        The  following is a summary of option  transactions  during fiscal 1994,
1995 and 1996:
                                                                                                                          
                                                                                       Price Range
                                                                                     --------------
Balance at August 31, 1993                                         2,823,479         $1.67 - $11.34

     Options Granted                                               3,455,000         $7.75 - $15.00
     Options Assumed in Summit Merger                                245,553         $2.21 - $13.34
     Options Exercised                                              (918,808)        $1.67 - $13.34
     Options Forfeited                                              (115,002)        $4.80 - $15.00
                                                              --------------

Balance at August 31, 1994                                         5,490,222         $1.67 - $15.00

     Options Granted                                                 175,000                 $19.50
     Options Exercised                                              (898,334)        $3.92 - $13.34
     Options Forfeited                                              (450,542)        $2.97 - $15.00
                                                              --------------

Balance at August 31, 1995                                         4,316,346

     Options Granted                                               1,554,500         $18.75- $27.13
     Options Exercised                                              (470,280)        $ 2.21- $15.00
     Options Forfeited                                             ( 210,108)        $15.00- $27.13
                                                              --------------

Balance at August 31, 1996                                         5,190,458         $ 3.92- $27.13
                                                              ==============

Exercisable at August 31, 1996                                     2,470,758         $ 3.92- $15.00

Available for Future Grant at
    August 31, 1996                                                3,479,700



Redeemable Convertible Preferred Stock

        On October 15,  1991,  OrNda  issued 1 million  shares of $.01 par value
Payable in Kind  Cumulative  Redeemable  Convertible  Preferred  Stock (the "PIK
Preferred"). The PIK Preferred has an aggregate liquidation value of $15 million
and is entitled to dividends at the rate of 9% of the liquidation  value thereof
until  October 31, 1999,  9.9% from  November 1, 1999 through  October 31, 2000,
10.8% from November 1, 2000 through  October 31, 2001, and 15%  thereafter.  The
Company issued additional  shares of PIK Preferred as paid-in-kind  dividends of
123,468 in fiscal 1994, 133,474 in fiscal 1995, and 33,234 in fiscal 1996.

        On November 7, 1995,  the Company  issued a notice of  redemption to the
holders  of its PIK  Preferred  for  $15 per  share  with a  redemption  date of
December 8, 1995.  In the fiscal  quarter  ended  November 30,  1995,  1,355,519
shares of PIK Preferred were  converted  into 1,355,519  shares of the Company's
common stock.  On December 8, 1995, the remaining  7,416 shares of PIK Preferred
were  redeemed  for $15 per share  plus  dividends  of $0.16  per share  accrued
through the redemption date.

                                      F-20




NOTE 8 - OTHER

        Effective July 1, 1986, OrNda adopted the OrNda  HealthCorp  Savings and
Investment Plan (the "401(k) Plan").  The 401(k) Plan is a defined  contribution
plan whereby employees who have completed one year of service in which they have
worked  a  minimum  of  1,000  hours  and are age 21 or older  are  eligible  to
participate.  Through  December  31,  1994,  the 401(k)  Plan  allowed  eligible
employees to make  contributions  of 2% to 7% of their annual  compensation  and
employer  contributions were made at a rate of 50% of the employee contributions
up to a maximum  of 3.5% of annual  compensation.  Effective  January  1,  1995,
through  December  31,1995,  the  401(k)  Plan was  amended  to  allow  eligible
employees to make  contributions  of 2% to 15% of their annual  compensation and
employer  contributions were made at a rate of 50% of the employee contributions
up to a maximum of 1.5% of annual  compensation.  Effective January 1, 1996, the
401(k) Plan was amended  such that  employer  contributions  are now made in the
Company's  common stock at a rate of 50% of the employee  contributions  up to a
maximum of 2.0% of annual  compensation.  Employer  contributions vest 20% after
three years of service and continue  vesting at 20% per year until fully vested.
The  Company's  matching  expense  for fiscal  years  1994,  1995,  and 1996 was
approximately $3.2 million, $4.5 million, and $4.8 million, respectively.

        The carrying amounts and fair values of certain  financial  instruments,
disclosed  elsewhere,  consisted  of  the  following  at  August  31,  1996  (in
thousands):
                                                                                                     
                                                                             Carrying Amount             Fair Value
                                                                             ---------------           -------------
Long-Term Debt (see Note 6):
     Senior Credit Facilities                                                $       692,250           $     692,250
     12.25% Senior Subordinated Notes due 2002                                       400,000                 430,500
     10.25% Senior Subordinated Notes due 2003                                           511                     511
     11.375% Senior Subordinated Notes due 2004                                      125,000                 138,750
     Secured Debt - Other                                                    $        71,919           $      71,919



        The  carrying  amounts of the  Company's  borrowings  at August 31, 1996
approximate  their fair value based on discounted cash flow analyses,  using the
Company's  current  incremental  borrowing  rates for similar types of borrowing
arrangements or quoted market prices,  if available,  except that the fair value
of the 12.25% Senior  Subordinated Notes approximates  107.625% of par value and
the fair value of the 11.375% Senior  Subordinated Notes approximates  111.0% of
par value based on recent bid/ask indications.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

        The  Company  continually  evaluates  contingencies  based upon the best
available  information.  Final  determination  of amounts  earned  from  certain
third-party payors is subject to review by appropriate  governmental authorities
or their agents. In the opinion of management,  adequate provision has been made
for any adjustments that may result from such reviews.

        Broad  provisions  in the Medicare and Medicaid laws deal with fraud and
abuse,  false claims and physician  self-referrals as well as similar provisions
in many  state  laws.  In recent  years,  government  investigations  of alleged
violations of these laws have become  common place in the health care  industry.
The Company is currently  under civil  investigation  under the direction of the
Civil Division of the Department of Justice  concerning  possible  violations of
Medicare  rules and  regulations.  The  investigation  is  primarily  related to
arrangements  between  physicians  and the twelve  hospitals  which the  Company
acquired from Summit Health, Ltd. in 1994. The Company is fully cooperating with
the government

                                      F-21




investigation   and  is   voluntarily   producing   documents   related  to  the
investigation.  Also, in an apparently  unrelated  matter,  the  government  has
requested  and the Company has agreed to provide  similar  records from a single
hospital outside the group acquired from Summit Health,  Ltd. in 1994.  Although
no  proceedings  have  been  instituted,  in the  event  that the  Office of the
Inspector  General of the United States  Department of Health and Human Services
believes  that  any  wrongdoing  has  occurred,   civil  and  possibly  criminal
proceedings could be instituted. If any such proceedings were instituted and the
outcome were unfavorable,  the Company could be subject to fines,  penalties and
damages ("Monetary Payments") and also could be excluded from Medicare and other
government reimbursement programs. The aggregate amount of the Monetary Payments
and any such  exclusion  could have a material  adverse  effect on the Company's
financial  position or results of operations.  The result of this  investigation
and its impact,  if any, cannot be predicted or estimated at this time. Based on
information   currently  available  to  it,  management  believes  that  if  the
investigation  remains  civil in nature  and,  with the single  exception  noted
above, relates to the practices of the hospitals of an acquired corporation, the
final outcome of this  investigation  will not have a material adverse effect on
the Company's financial position or results of operations.

        The Company is subject to various  legal  proceedings  and claims  which
arise in the ordinary  course of  business.  In the opinion of  management,  the
ultimate  resolution of such pending legal  proceedings will not have a material
effect on the Company's financial position or results of operations.

NOTE 10 - SUBSEQUENT EVENTS

        Effective  September 1, 1996, the Company  completed the  acquisition of
The Fallon  Healthcare  System's  Saint Vincent  Healthcare  System,  located in
Worcester, Massachusetts,  consisting of a 432-bed acute care teaching hospital,
three skilled  nursing  facilities  and other health  related  companies,  and a
minority interest in the 280-member  multi-specialty  group physician  practice,
The Fallon Clinic. The Company has committed to fund the construction, estimated
at $225.0 million, of a new replacement hospital, known as Medical City.

        On October 8, 1996, the Company entered into a definitive agreement with
United Western Medical Centers,  a not-for-profit  corporation  headquartered in
Santa Ana,  California,  to acquire  substantially  all of United's assets which
consist  primarily of Western Medical  Center,  a 288-bed acute care hospital in
Santa Ana,  California;  Western  Medical  Center-Anaheim,  a 193-bed acute care
hospital in Anaheim, California; and Western Medical Center-Bartlett,  a 202-bed
skilled  nursing  facility  in Santa Ana,  California.  United  Western  Medical
Centers has approximately $185 million in annual net revenues in its most recent
fiscal year.  The closing of this  transaction  is subject to customary  closing
conditions,  Board of Directors' approvals and review by the California Attorney
General.

     On October 16, 1996,  the Company  entered  into a definitive  agreement to
merge  with  Tenet  Healthcare  Corporation  ("Tenet").  Under  the terms of the
definitive  agreement,  which was unanimously approved by the Board of Directors
of both companies,  shareholders of OrNda common stock would receive 1.35 shares
of Tenet common stock and the associated  preferred  stock  purchase  rights for
each share of OrNda common stock.  The merger  transaction  will be tax-free and
accounted  for as a pooling of interests and is expected to close in March 1997.
Consummation  of the  merger is  subject  to a number of  conditions,  including
shareholder  approval  of both  companies.  The  merger is also  subject  to the
applicable waiting periods under the Hart-Scott-  Rodino Antitrust  Improvements
Act, local regulatory approvals, and confirmation that the transaction qualifies
as  a   pooling-of-interests   for   accounting   purposes  and  as  a  tax-free
reorganization under the Internal Revenue Code.

                                      F-22


     As of November  13,  1996,  the Company is in  discussion  with its current
syndicate of banks to increase its credit  facility to $1.2  billion,  an amount
sufficient to cover the Company's pending acquisitions.

NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

        Quarterly financial  information for the years ended August 31, 1995 and
1996 is summarized below (in thousands, except per share data):


                                                                                       Quarter Ended
                                                         -------------------------------------------------------------------
                                                                                                    
                                                          November 30       February 28          May 31          August 31  
                                                         -------------     -------------     -------------     -------------
1995

Total revenue                                            $     418,021     $     442,725     $     497,890     $     484,065
Income before income taxes
     and extraordinary item                              $      16,104     $      22,571     $      28,837     $      19,572
Net income                                               $      13,350     $      19,919     $      22,091     $      15,952
Net income per common and
     common equivalent share                             $        0.29     $       0.43      $        0.47     $        0.34
Net income per common share
     assuming full dilution                              $        0.29     $       0.43      $        0.47     $        0.33
1996

Total revenue                                            $     493,565     $     542,888     $     557,866     $     552,913
Income before income taxes                               $      25,869     $      37,782     $      40,123     $      31,339
Net income                                               $      19,919     $      27,455     $      29,290     $      23,207
Net income per common and
     common equivalent share                             $        0.40     $        0.46     $        0.49     $        0.39
Net income per common share
     assuming full dilution                              $        0.39     $        0.46     $        0.49     $        0.39


                                      F-23






                                                                                                              SCHEDULE VIII
                                                  ORNDA HEALTHCORP AND SUBSIDIARIES
                                                  VALUATION AND QUALIFYING ACCOUNTS
                                                           (in thousands)
                                                                                                        
                                                                      Additions
                                                            -------------------------------

                                           Balance            Charged           Charged to
                                        at Beginning          to Costs             Other                                Balance at
Description                               of Period         and Expenses         Accounts          Deductions         End of Period
- -----------                             -------------       -------------     -------------       -------------       -------------
Year ended August 31, 1996:

     Allowance for
           uncollectible
           accounts                     $      58,632       $     140,923     $          --       $    (141,110) (1)  $      78,447
                                                                                                         20,002  (3)            
     Allowance for
          uncollectible
          long-term
          receivables                   $       2,675       $       1,000     $          --       $          --       $       3,675

Year ended August 31, 1995:

     Allowance for
           uncollectible
           accounts                     $      59,855       $     122,193     $          --       $    (131,031) (1)  $      58,632
                                                                                                          7,615  (3)
     Allowance for
          uncollectible
          long-term
          receivables                   $       7,659       $          --     $          --       $      (4,984) (1)  $       2,675

Year ended August 31, 1994:

     Allowance for 
          uncollectible
          accounts                      $      47,289       $      87,844     $          --       $     (92,217) (1)  $      59,855 
                                                                                                         (1,317) (2) 
                                                                                                         18,256  (3) 
     Allowance  for
          uncollectible
          long-term
          receivables                   $      12,679       $      (1,595)    $       5,425)      $       2,000  (3)  $       7,659

(1) Uncollectible accounts written off, net of recoveries.
(2) Allowances related to hospital sold.
(3) Allowances recorded in acquisitions.


                                     F-24

                                                   EXHIBIT INDEX

Exhibit
  No.                                               Description                                            Page No.
                                                                                                          
2.1           Agreement and Plan of Merger, dated as of October 16, 1996, among Tenet
              Healthcare Corporation, OHC Acquisition Co. and the Company. (Incorporated by
              reference to Exhibit 2.1 filed with the Company's Form 8-K dated October 16,
              1996.)............................................................................................N/A

3.1           Restated Certificate of Incorporation of the Company as currently in effect.
              (Incorporated by reference to exhibits filed with the Company's Current Report on
              Form 8-K dated October 15, 1991.).................................................................N/A

3.2           Certificate of Amendment to the Company's Restated Certificate of Incorporation.
              (Incorporated by reference  to Exhibit 3 to the Company's Current Report on Form
              8-K dated April 19, 1994.)........................................................................N/A

3.3           By-Laws of the Company. (Incorporated by reference to Exhibit 4(c) included in
              Company's Registration Statement on Form S-8 under the Securities Act of 1933,
              as amended (the "Securities Act"), File No. 33-81778.)............................................N/A

4.1           Certificate of Designation of Payable-in-Kind Cumulative Redeemable Convertible
              Preferred Stock of the Company.  (Incorporated by reference to exhibits filed with
              the Company's Registration Statement on Form S-1 under the Securities Act, File
              No. 33-46876.)....................................................................................N/A

4.2           Certificate of Correction of Certificate of Designation of Payable-in-Kind
              Cumulative Redeemable Convertible Preferred Stock. (Incorporated by reference
              to exhibits filed with the Company's Registration Statement on Form S-1 under the
              Securities Act, File No. 33-46876.)...............................................................N/A

4.3           Certificate of Elimination of Provisions of the Restated Certificate of Incorporation
              of OrNda HealthCorp Relating to the Preferences and Rights of the Redeemable
              Convertible Preferred Stock. (Incorporated by reference to exhibits filed with the
              Company's Annual Report on Form 10-K for the year ended August 31, 1993.).........................N/A

4.4           Indenture relating to the 12 1/4% Senior Subordinated Notes of the Company  (the
              "12 1/4% Notes") due 2002 dated as of May 15, 1992, between the Company and
              U.S. Trust Company of Texas, N.A., as Trustee, including form of Note.
              (Incorporated by reference to Exhibit 1 filed with the Company's Current Report on
              Form 8-K dated May 28, 1992.).....................................................................N/A

4.5           First Supplemental Indenture relating to the 12 1/4% Notes, dated as of April 19,
              1994 by and among Company, Summit Health Ltd. and U.S. Trust Company of
              Texas, N.A., as Trustee. (Incorporated by reference to Exhibit 4.2 filed with the

                                                        -i-

              Company's Registration Statement on Form S-3 under the Securities Act, File No.
              33-54651.)........................................................................................N/A

4.6           Second Supplemental Indenture relating to the 12 1/4% Notes, dated as of November
              1, 1994, by and among the Company, Summit Hospital Corporation and U.S. Trust
              Company of Texas, N.A., as Trustee. (Incorporated by reference to Exhibit 4.6 filed
              with the Company's Annual Report on Form 10-K for the year ended August 31,
              1994.)............................................................................................N/A

4.7           Amended and Restated Credit, Security, Guaranty and Pledge Agreement, dated as
              of October 27, 1995, among the Company, Summit Hospital Corporation and AHM
              Acquisition Co., Inc. as the Borrowers, the Guarantors named therein, the Lenders
              named therein, The Bank of Nova Scotia ("Scotiabank") as Administrative Agent
              for the Lenders, Scotiabank and Citicorp USA, Inc. ("Citicorp") as Co-Syndication
              Agents for the Lenders, and Citicorp as Documentation Agent for the Lenders.
              (Incorporated by reference to Exhibit 4 filed with the Company's Current Report on
              Form 8-K dated October 30, 1995.).................................................................N/A

10.1          1990 Stock Option Plan of the Company. (Incorporated by reference to exhibits
              filed with the Company's Annual Report on Form 10-K for the year ended August
              31, 1990.)........................................................................................N/A

10.2          Form of Indemnification Agreement between the Company and each of its directors
              and executive officers. (Incorporated by reference to exhibits filed with the
              Company's Registration Statement on Form S-1 under the Securities Act, File No.
              33-34712.)........................................................................................N/A

10.3          Employment Agreement dated as of January 15, 1992 between the Company and
              Charles N. Martin, Jr. (Incorporated by reference to exhibits filed with the
              Company's Registration Statement on Form S-1 under the Securities Act, File No.
              33-46876.)........................................................................................N/A

10.4          Amended 1991 Stock Option Plan. (Incorporated by reference to exhibits filed with
              the Company's Registration Statement on Form S-1 under the Securities Act, File
              No. 33-46876.)....................................................................................N/A

10.5          Amended 1991 Stock Accumulation Plan. (Incorporated by reference to exhibits
              filed with the Company's Registration Statement on Form S-1 under the Securities
              Act, File No. 33-46876.)..........................................................................N/A

10.6          Amended and Restated Incentive Bonus Plan. (Incorporated by reference from
              Exhibit  10(a)  to the Company's Quarterly Report on Form 10-Q for the quarter
              ended February 28, 1995.).........................................................................N/A

10.7          Summit Health Ltd. Stock Option Plan. (Incorporated by reference to Exhibit 10.12
              filed with the Company's Annual Report on Form 10-K for the year ended August
              31, 1994.)........................................................................................N/A

                                                       -ii-

10.8          Summit Health Ltd. 1992 Stock Option Plan. (Incorporated by reference to Exhibit
              10.13  filed with the Company's Annual Report on Form 10-K for the year ended
              August 31, 1994.).................................................................................N/A

10.9          American Healthcare Management, Inc. 1990 Non-Employee Directors' Stock Plan.
              (Incorporated by reference to Exhibit 10.14 filed with the Company's Annual
              Report on Form 10-K for the year ended August 31, 1994.)..........................................N/A

10.10         Description of car allowance plan for OrNda officers. (Incorporated by reference
              to Exhibit 10.11 filed with the Company's Annual Report on Form 10-K for the
              year ended August 31, 1995.)......................................................................N/A

10.11         Tax Planning and Medical Expense Benefit Plan. (Incorporated by reference to
              Exhibit 10.17 filed with the Company's Annual Report on Form 10-K for the year
              ended August 31, 1995.)...........................................................................N/A

10.12         Asset Purchase Agreement, dated as of November 10, 1994, among St. Luke's
              Health System, St. Luke's Rehabilitation Center, Inc., St. Luke's La Ciudad
              Corporation and OrNda HealthCorp of Phoenix, Inc. (Incorporated by reference to
              Exhibit 2.1 filed in the Company's Current Report on Form 8-K dated February 13,
              1995.)............................................................................................N/A

10.13         First Amendment to Asset Purchase Agreement dated as of January 31, 1995 among
              St. Luke's Health System, St. Luke's Rehabilitation Center, Inc., St. Luke's La
              Ciudad Corporation and OrNda HealthCorp of Phoenix, Inc. (Incorporated by
              reference to Exhibit 2.2 filed in the Company's Current Report on Form 8-K dated
              February 13, 1995.)...............................................................................N/A

10.14         1994 Annual Incentive Plan for Officers of OrNda HealthCorp. (Incorporated by
              reference to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the
              quarter ended February 28, 1995.).................................................................N/A

10.15         Employment Agreement dated as of March 1, 1995 between the Company and
              Keith B. Pitts. (Incorporated by reference to Exhibit 10(d) to the Company's
              Quarterly Report on Form 10-Q for the quarter ended February 28, 1995.)...........................N/A

10.16         Amendment No. 1 to Employment Agreement dated as of June 1, 1995, between
              the Company and Charles N. Martin, Jr. (Incorporated by reference to Exhibit 10.22
              filed with the Company's Annual Report on Form 10-K for the year ended August
              31, 1995.)........................................................................................N/A

10.17         Forms of Stock Option Agreement between the Company and its officer stock
              option grantees for its June 1994 and August 1995 stock option grants.
              (Incorporated by reference to Exhibit 10.23 filed with the Company's Annual
              Report on Form 10-K for the year ended August 31, 1995.)..........................................N/A

                                                       -iii-

10.18         Resignation Agreement dated as of August 31, 1995, between the Company and
              Donald J. Amaral. (Incorporated by reference to Exhibit 10.24 filed with the
              Company's Annual Report on Form 10-K for the year ended August 31, 1995.).........................N/A

10.19         Registration Rights Agreement dated as of February 9, 1993, among the Company,
              Rudy J. Noriega and M. Lee Pearce, M.D. (Incorporated by reference to Exhibit
              10.23 to the Company's Annual Report on Form 10-K for the year ended August 31,
              1994.)............................................................................................N/A

10.20         Registration Rights Agreement dated as of April 19, 1994, among the Company,
              John W. Gildea, Gildea Management Co., The Network Company II Limited, John
              F. Nickoll and The Foothill Group, Inc. (Incorporated by reference to Exhibit 10.25
              to the Company's Annual Report on Form 10-K for the year ended August 31,
              1994.)............................................................................................N/A

10.21         Employment Agreement dated as of March 1, 1996 between the Company and
              William L. Hough.....................................................................................

10.22         Form of Stock Option Agreement between the Company and its executive office
              stock option grantees for its April 1996 stock option grants. (Incorporated by
              reference to Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the
              quarter ended May 31, 1996.)......................................................................N/A

10.23         OrNda HealthCorp Outside Directors Stock Option Plan. (Incorporated by reference
              from Exhibit B to the Company's definitive proxy statement for its 1996 Annual
              Meeting of Stockholders filed with the Securities and Exchange Commission under
              the Securities Exchange Act of 1934 on December 8, 1995.).........................................N/A

10.24         OrNda HealthCorp 1994 Management Equity Plan, as amended on January 19,
              1996. (Incorporated by reference from Exhibit 4(d) to the Company's Registration
              Statement No. 333-399 on Form S-8, filed with the Securities and Exchange
              Commission under the Securities Act of 1933 on January 24, 1996.).................................N/A

10.25         Form of Stock Option Agreement between the Company and its executive officer
              stock option grantees for its November 1995 stock option grants. (Incorporated by
              reference from Exhibit 10 to  the Company's Quarterly Report Form 10-Q for the
              quarter ended November 30, 1995)..................................................................N/A

10.26         Form of Stock Option Agreement between the Company and its directors under its
              Outside Directors Stock Option Plan..................................................................

10.27         First Amendment and Limited Waiver to Amended and Restated Credit, Security,
              Guaranty and Pledge Agreement dated as of September 12, 1996 among the
              Company, OrNda Hospital Corporation and AHM Acquisition Co., Inc. as the
              Borrowers, the Guarantors named therein, the Lenders named therein, Scotiabank
              as Administrative Agent for the Lenders and Scotiabank and Citicorp as Co-
              Syndication Agents for the Lenders...................................................................

                                                       -iv-

10.28         Stock Option Agreement, dated October 17, 1996, between the Company, as
              Grantee, and Tenet Healthcare Corporation, as Issuer. (Incorporated by reference
              to Exhibit 10.1 filed with the Company's Form 8-K dated October 16, 1996.)........................N/A

10.29         Stock Option Agreement, dated October 17, 1996, between the Company, as Issuer,
              and Tenet Healthcare Corporation, as Grantee. (Incorporated by reference to Exhibit
              10.2 filed with the Company's Form 8-K dated October 16, 1996.)...................................N/A

11            Statement re computation of per share earnings.......................................................

21            List of Subsidiaries of the Company..................................................................

23            Consent of Ernst & Young LLP.........................................................................

24            Powers of Attorney...................................................................................

27            Financial Data Schedule (included only in filings under the Electronic Data
              Gathering Analysis and Retrieval System).............................................................

99.1          Stockholder Voting Agreement, dated as of October 17, 1996, between Tenet
              Healthcare Corporation and Charles N. Martin, Jr. (Incorporated by reference to
              Exhibit 99.1 as filed with the Company's Form 8-K dated October 16, 1996.)........................N/A

99.2          Stockholder Voting Agreement, dated as of October 17, 1996, between Tenet
              Healthcare Corporation and Joseph Littlejohn & Levy Fund, L.P. (Incorporated by
              reference to Exhibit 99.2 as filed with the Company's Form 8-K dated October 16,
              1996.)............................................................................................N/A

                                                        -v-

                                                                  EXHIBIT 10.21

                              EMPLOYMENT AGREEMENT

                  AGREEMENT made as of May 1, 1996, by and between OrNda
Healthcorp, a Delaware corporation (the "Company"), and William L. Hough (the
"Executive").

                  WHEREAS, the Executive currently serves as Executive Vice
President and Chief Operating Officer of the Company and has served in such
capacity since August 1995;

                  WHEREAS, the Company desires to secure for itself the
continuing services of the Executive from and after the date hereof and the
Executive desires to render such services, in each case pursuant to the terms
and conditions hereof;

                  WHEREAS, the Compensation Committee (the "Compensation
Committee") of the Company's Board of Directors (the "Board") has approved and
authorized the Company's entry into this Agreement with the Executive; and

                  WHEREAS, the parties desire to enter into this Agreement
setting forth the terms and conditions of the employment relationship of the
Executive with the Company.

                  NOW, THEREFORE, the parties agree as follows:

                  1.  Employment.  The Company hereby employs the Executive, and
the Executive hereby accepts employment with the Company, upon the terms and
subject to the conditions set forth herein.

                  2. Term. This Agreement is for the three-year period (the
"Term") commencing on May 1, 1996 (the "Effective Date") and terminating on the
third anniversary of the Effective Date, or upon the Executive's earlier death,
disability or other termination of employment pursuant to Section 10; provided,
however, that at the end of each day during the Extension Period (as defined
below) the Term shall automatically be extended for one additional day; and
provided, further, that commencing on the fifth anniversary of the Effective
Date and on each anniversary thereafter the Term shall automatically be extended
for one additional year unless, not later than 90 days prior to any such
anniversary, either party hereto shall have notified the other party hereto that
such extension shall not take effect. For purposes of this Section 2, the
Extension Period shall be the period beginning on the Effective Date and ending
on the earlier of (i) the Date of Termination (as defined below) and (ii) the
day preceding the second anniversary of the Effective Date.

                  3.  Position.  During the Term, the Executive shall serve as
Executive Vice President and Chief Operating Officer of the Company or in such
other senior executive position in the Company as the Executive should approve.

                  4.  Duties and Reporting Relationship.  During the Term, the
Executive shall, on a full time basis, use his skills and render services to the
best of his abilities in supervising and conducting the operations of the
Company.

                  5.  Place of Performance.  The Executive shall perform his
duties and conduct his business at the principal executive offices of the
Company, except for required travel on the Company's business.

                  6.  Salary and Annual Bonus.

                           (a)  Base Salary.  The Executive's base salary
hereunder shall be $550,000 a year, payable monthly. The Board shall review such
base salary at least annually and make such adjustment from time to time as it
may deem advisable, but the base salary shall not at any time be less than
$550,000 a year.

                           (b)  Annual Bonus.  The Compensation Committee shall
provide the Executive with an annual bonus plan providing the Executive with an 
opportunity to earn annual bonus compensation and shall cause the Company to pay
to him any earned annual bonus in addition to his base salary.

                  7.  Vacation, Holidays and Sick Leave.  During the Term, the
Executive shall be entitled to paid vacation, paid holidays and sick leave in
accordance with the Company's standard policies for its senior executive
officers.

                  8. Business Expenses. The Executive will be reimbursed for all
ordinary and neces sary business expenses incurred by him in connection with his
employment upon timely submission by the Executive of receipts and other
documentation as required by the Internal Revenue Code and in conformance with
the Company's normal procedures.

                  9. Pension and Welfare Benefits. During the Term, the
Executive shall be eligible to participate fully in all health benefits,
insurance programs, pension and retirement plans and other employee benefit and
compensation arrangements available to senior officers of the Company generally.

                  10.  Termination of Employment.

                           (a)  General.  The Executive's employment hereunder
may be terminated with out any breach of this Agreement only under the following
circumstances.

                           (b)  Death or Disability.

                                    (i)  The Executive's employment hereunder
          shall automatically terminate upon the death of the Executive.

                                    (ii)  If, as a result of the Executive's
          incapacity due to physical or mental illness, the Executive shall have
          been absent from his duties with the Company for any six (6) months
          (whether or not consecutive) during any twelve (12)

                                       -2-

          month period, the Company may terminate the Executive's employment
          hereunder for any such incapacity (a "Disability").

                           (c)  Cause.  The Company may terminate the
Executive's employment hereunder for Cause. For purposes of this Agreement,
"Cause" shall mean (i) the willful failure or refusal by the Executive to
perform his duties hereunder (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness), which has not ceased
within ten (10) days after a written demand for substantial performance is
delivered to the Executive by the Company, which demand identifies the manner in
which the Company believes that the Executive has not performed such duties,
(ii) the willful engaging by the Executive in misconduct which is materially
injurious to the Company, monetarily or otherwise (including, but not limited
to, conduct described in Section 14) or (iii) the conviction of the Executive
of, or the entering of a plea of nolo contendere by the Executive with respect
to, a felony. Notwithstanding the foregoing, the Executive's employment
hereunder shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Board at a meeting of the Board (after written notice to the
Executive and a reasonable opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board), finding that in the good
faith opinion of the Board the Executive should be terminated for Cause.

                           (d)  Termination by the Executive.  The Executive
shall be entitled to terminate his employment hereunder (A) for Good Reason or
(B) if his health should become impaired to an extent that makes his continued
performance of his duties hereunder hazardous to his physical or mental health,
provided that the Executive shall have furnished the Company with a written
statement from a qualified doctor to such effect and provided, further, that, at
the Company's request, the Executive shall submit to an examination by a doctor
selected by the Company and such doctor shall have concurred in the conclusion
of the Executive's doctor. For purposes of this Agreement, "Good Reason" shall
mean, (i) without the Executive's express written consent, any failure by the
Company to comply with any material provision of this Agreement, which failure
has not been cured within ten (10) days after notice of such noncompliance has
been given by the Executive to the Company or (ii) the occurrence (without the
Executive's express written consent), following a Change of Control during the
term of this Agreement, of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or failure to act
described below, such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination given in respect thereof:

                                    (I) any change in the Executive's title,
          authorities, responsibilities (including reporting responsibilities)
          which, in the Executive's reasonable judgment, represents an adverse
          change from his status, title, position or responsibilities (including
          reporting responsibilities) which were in effect immediately prior to
          the Change in Control or from his status, title, position or
          responsibilities (including reporting responsibilities) which were in
          effect following a Change in Control pursuant to the Executive's
          consent to accept any such change; the assignment

                                       -3-

          to him of any duties or work responsibilities which, in his reasonable
          judgment, are inconsistent with such status, title, position or work
          responsibilities; or any removal of the Executive from, or failure to
          reappoint or reelect him to any of such positions, except if any such
          changes are because of Disability, retirement, death or Cause;

                                    (II)  a reduction by the Company in the
          Executive's annual base salary as in effect on the date hereof or as
          the same may be increased from time to time except for across-the-
          board salary reductions similarly affecting all senior executives of
          the Company and all senior executives of any Person (as defined in
          Section 10(h)(i) below) in control of the Company provided in no event
          shall any such reduction reduce the Executive's base salary below
          $550,000;

                                    (III)  the relocation of the Executive's
          office at which he is to perform his duties, to a location more than
          thirty (30) miles from the location at which the Executive performed
          his duties prior to the Change in Control, except for required travel
          on the Company's business to an extent substantially consistent with
          his business travel obligations prior to the Change in Control;

                                    (IV)  if the Executive had been based at the
          Company's principal executive offices immediately prior to the Change
          of Control, the relocation of the Company's principal executive
          offices to a location more than 30 miles from the location of such
          offices immediately prior to the Change in Control;

                                    (V)  the failure by the Company, without the
          Executive's consent, to pay to the Executive any portion of the
          Executive's current compensation, or to pay to the Executive any
          portion of an installment of deferred compensation under any deferred
          compensation program of the Company, within seven (7) days of the date
          such compensation is due;

                                    (VI)  the failure by the Company to continue
          in effect any stock-based and/or cash annual or long-term incentive
          compensation plan in which the Executive participates immediately
          prior to the Change in Control, unless the Executive participates
          after the Change in Control in other comparable plans generally
          available to senior executives of the Company and senior executives of
          any Person in control of the Company;

                                    (VII)  the failure by the Company to
          continue to provide the Executive with benefits substantially similar
          in value to the Executive in the aggregate to those enjoyed by the
          Executive under any of the Company's pension, life insurance, medical,
          health and accident, or disability plans in which the Executive was
          participating immediately prior to the Change in Control, unless the
          Executive participates after the Change in Control in other comparable
          benefit plans 

                                      -4-

          generally available to senior executives of the Company and senior
          executives of any Person in control of the Company;

                                    (VIII) the adverse and substantial
          alteration of the nature and quality of the office space within which
          the Executive performed his duties prior to a Change in Control as
          well as in the secretarial and administrative support provided to the
          Executive, provided, however, that a reasonable alteration of the
          secretarial or administrative support provided to the Executive as a
          result of reasonable measures implemented by the Company to effectuate
          a cost-reduction or consolidation program shall not constitute Good
          Reason hereunder; or

                                    (IX)  any purported termination of the
          Executive's employment which is not effected pursuant to a Notice of
          Termination satisfying the requirements of Section 10(f) below; for
          purposes of this Agreement, no such purported termina tion shall be
          effective.

The Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any act or failure to act constituting Good
Reason hereunder.

                           (e)  Voluntary Resignation.  Should the Executive
wish to resign from his position with the Company or terminate his employment
for other than Good Reason during the Term, the Executive shall give sixty (60)
days written notice to the Company, setting forth the reasons and specifying the
date as of which his resignation is to become effective.

                           (f)  Notice of Termination.  Any purported
termination of the Executive's employment by the Company or by the Executive
shall be communicated by written Notice of Termination to the other party hereto
in accordance with Section 18. "Notice of Termination" shall mean a notice that
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.

                           (g)  Date of Termination.  "Date of Termination"
shall mean (i) if the Executive's employment is terminated because of death, the
date of the Executive's death, (ii) if the Executive's employment is terminated
for Disability, the date Notice of Termination is given, (iii) if the
Executive's employment is terminated pursuant to Subsection (c), (d) or
(e) hereof or for any other reason (other than death or Disability), the date
specified in the Notice of Termination (which, in the case of a termination for
Good Reason shall not be less than fifteen (15) nor more than sixty (60) days
from the date such Notice of Termination is given, and in the case of a
termination for any other reason shall not be less than thirty (30) days sixty
(60) days in the case of a under Subsection (e) hereof) from the date such
Notice of Termination is given).

                           (h)  Change in Control.  For purposes of this
Agreement, a Change in Control the Company shall have occurred if

                                       -5-

                                    (i)  any "Person" (as defined in Section
          3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") as
          modified and used in Sec tions 13(d) and 14(d) of the Exchange Act
          (other than (1) the Company or any of its subsidiaries, (2) any
          trustee or other fiduciary holding securities under an employee
          benefit plan of the Company or any of its subsidiaries, (3)
          an underwriter temporarily holding securities pursuant to an offering
          of such securities, or (4) any corporation owned, directly or
          indirectly, by the stockholders of the Company in substantially the
          same proportions as their ownership of the Company's common stock)),
          is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
          the Exchange Act), directly or indirectly, of securities of the
          Company representing more than 50% of the combined voting power of
          the Company's then outstanding voting securities;

                                    (ii)  during any period of not more than two
          consecutive years, not including any period prior to the date of this
          Agreement, individuals who at the beginning of such period constitute
          the Board, and any new director (other than a di rector designated by
          a person who has entered into an agreement with the Company to effect
          a transaction described in clause (i), (iii), or (iv) of this Section
          10(h)) whose election by the Board or nomination for election by the
          Company's stockholders was approved by a vote of at least two-thirds
          (2/3) of the directors then still in office who either were directors
          at the beginning of the period or whose election or nomination for
          election was previously so approved, cease for any reason to
          constitute at least a majority thereof;

                                    (iii)  the stockholders of the Company
          approve a merger or consolidation of the Company with any other
          corporation, other than both (A)(1) a merger or consolidation which
          would result in the voting securities of the Company outstanding
          immediately prior thereto continuing to represent (either by remaining
          outstanding or by being converted into voting securities of the
          surviving or parent entity) 50% or more of the combined voting power
          of the voting securities of the Company or such surviving or parent
          entity outstanding immediately after such merger or consolidation or
          (2) a merger or consolidation in which no person acquires 50% or more
          of the combined voting power of the Company's then outstanding
          securities; and (B) immediately after the consummation of such merger
          or consolidation described in clause (A)(1) or (A)(2) above (and for
          at least 180 days thereafter) neither the Company's Chief Executive
          Officer nor its Chief Financial Officer change from the people
          occupying such positions immediately prior to such merger or
          consolidation except as a result of their death or Disability and
          neither of such officers shall have changed prior to
          such merger or consolidation at the direction of a Person who has
          entered into an agreement with the Company the consummation of which
          will constitute a Change in Control of the Company; or

                                    (iv)  the stockholders of the Company
          approve a plan of complete liquidation of the Company or an agreement
          for the sale or disposition by the 

                                      -6-

          Company of all or substantially all of the Company's assets (or any
          transaction having a similar effect).

                           (i)  Resignation as Member of Board.  If the
          Executive's employment by the is terminated for any reason, the
          Executive hereby agrees that he shall submit his resignation as a
          member of the Board in writing on or the Date of Termination if the
          Executive is a member of the Board at such. If the Executive fails to
          submit such required resignation in writing, the of this Subsection
          10(i) may be deemed by the Company to constitute Executive's written
          resignation as a member of the Board effective as of the of
          Termination.

                  11. Compensation During Disability, Death or Upon Termination.

                           (a)  During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or mental
illness ("Disability Period"), the Executive shall continue to receive his full
salary at the rate then in effect for such period until his employment is
terminated pursuant to Section 10(b)(ii) hereof, provided that payments so made
to the Executive during the Disability Period shall be reduced by the sum of the
amounts, if any, payable to the Executive with respect to such period under
disability benefit plans of the Company or under the Social Security disability
insurance program, and which amounts were not previously applied to reduce any
such payment.

                           (b)  If the Executive's employment is terminated by
his death or Disability, Company shall pay (i) any amounts due to the Executive
under Section 6 the date of such termination and (ii) all such amounts that
would have due to the Executive under Section 6 had the Executive's employment
hereunder continued until the last day of the calendar year in which such
termination of employment occurred, in each case in accordance with Section
13(b), if applicable.

                           (c)  If the Executive's employment shall be
terminated by the Company for or by the Executive for other than Good Reason,
the Company shall pay the his full salary through the Date of Termination at the
rate in effect the time Notice of Termination is given, and the Company shall
have no obligations to the Executive under this Agreement.

                           (d)  If (A) following a Change of Control the Company
shall terminate the employment in breach of this Agreement, or (B) following a
Change of the Executive shall terminate his employment for Good Reason, then

                                    (i)  the Company shall pay the Executive his
          full salary through the Date of Termination at the rate in effect at
          the time Notice of Termina tion is given and all other unpaid amounts,
          if any, to which the Executive is entitled as of the Date of
          Termination under any compensation plan or program of the Company, at
          the time such payments are due;

                                       -7-

                                    (ii)  in lieu of any further salary payments
          to the Executive for periods subsequent to the Date of Termination,
          the Company shall pay as liquidated damages to the Executive an
          aggregate amount equal to the product of (A) the sum of (1) the
          Executive's annual salary rate in effect as of the Date of Termination
          and (2) the average of the annual bonuses actually paid to the
          Executive by the Company with respect to the two fiscal years which
          immediately precede the year of the Term in which the Date of
          Termination occurs provided if there was a bonus or bonuses paid to
          the Executive with respect only to one fiscal year which immediately
          precedes the year of the Term in which the Date of Termination occurs,
          then such single year's bonus or bonuses shall be utilized in the
          calculation pursuant to this clause (2) and (B) the number three
          (3);

                                    (iii)  the Company shall (x) continue
          coverage for the Executive under the Company's life insurance,
          medical, health, disability and similar welfare benefit plans (or, if
          continued coverage is barred under such plans, the Company shall
          provide to the Executive substantially similar benefits) for the
          remainder of the Term, and (y) provide the benefits which the
          Executive would have been entitled to receive pursuant to any
          supplemental retirement plan maintained by the Company had his
          employment continued at the rate of compensation specified herein for
          the remainder of the Term. Benefits otherwise receivable by the
          Executive pursuant to clause (x) of this Subsection 11(d)(iii) shall
          be reduced to the extent comparable benefits are actually received by
          the Executive from a subsequent em ployer during the period during
          which the Company is required to provide such benefits, and the
          Executive shall report any such benefits actually received by him to
          the Company; and

                                    (iv)  the payments provided for in this
          Section 11(d) (other than Section 11(d)(iii)) shall be made not later
          than the fifth day following the Date of Termination, provided,
          however, that if the amounts of such payments, and the limitation on
          such payments set forth in Section 15 hereof, cannot be finally
          determined on or before such day, the Company shall pay to the
          Executive on such day an estimate, as determined in good faith by the
          Company, of the minimum amount of such payments to which the Executive
          is clearly entitled and shall pay the remainder of such payments
          (together with interest at the rate provided in section 1274(b)(2)(B)
          of the Code (as defined in Section 15)) as soon as the amount thereof
          can be determined but in no event later than the thirtieth (30th) day
          after the Date of Termination. In the event that the amount of the
          estimated payments exceeds the amount determined by the Company within
          six (6) months after payment to have been due, such excess shall
          constitute a loan by the Company to the Executive, payable no later
          than the thirtieth (30th) business day after demand by the Company
          (together with interest at the rate provided in section 1274(b)(2)(B)
          of the Code). At the time that payments are made under this
          Section 11(d), the Company shall provide the Executive with a written
          statement setting forth the manner in which such 

                                      -8-

          payments were calculated and the basis for such calculations
          including, without limitation, any opinions or other advice the
          Company has received from outside counsel, auditors or consultants
          (and any such opinions or advice which are in writing shall be
          attached to the statement).

                           (e)  If prior to any Change of Control the Company
shall terminate the employment in breach of this Agreement, then

                                    (i)  the Company shall pay the Executive his
          full salary through the Date of Termination at the rate in effect at
          the time Notice of Termina tion is given and all other unpaid amounts,
          if any, to which the Executive is entitled as of the Date of
          Termination under any compensation plan or program of the Company, at
          the time such payments are due;

                                    (ii)  in lieu of any further salary payments
          to the Executive for periods subsequent to the Date of Termination,
          the Company shall pay as liquidated damages to the Executive an
          aggregate amount equal to the product of (A) the sum of (1) the
          Executive's annual salary rate in effect as of the Date of Termination
          and (2) the average of the annual bonuses actually paid to the
          Executive by the Company with respect to the two fiscal years which
          immediately precede the year of the Term in which the Date of
          Termination occurs provided if there was a bonus or bonuses paid to
          the Executive with respect only to one fiscal year which immediately
          precedes the year of the Term in which the Date of Termination occurs,
          then such single year's bonus or bonuses shall be utilized in the
          calculation pursuant to this clause (2) and (B) the lesser of (x) the
          number three (3) and (y) the greater of (aa) the number of years
          (including partial years) remaining in the Term and (bb) the number
          two (2); such amount to be paid in substantially equal monthly
          installments during the period commencing with the month immediately
          following the month in which the Date of Termination occurs and ending
          with the month corresponding to the end of the Term hereunder; and

                                    (iii)  the Company shall (x) continue
          coverage for the Executive under the Company's life insurance,
          medical, health, disability and similar welfare benefit plans (or, if
          continued coverage is barred under such plans, the Company shall
          provide to the Executive substantially similar benefits) for the
          remainder of the Term, and (y) provide the benefits which the
          Executive would have been entitled to receive pursuant to any
          supplemental retirement plan maintained by the Company had his
          employment continued at the rate of compensation specified herein for
          the remainder of the Term. Benefits otherwise receivable by the
          Executive pursuant to clause (x) of this Subsection 11(e)(iii) shall
          be reduced to the extent comparable benefits are actually received by
          the Executive from a subsequent em ployer during the period during
          which the Company is required to provide such bene-

                                      -9-

          fits, and the Executive shall report any such benefits actually
          received by him to the Company.

                           (f)  If the Executive shall terminate his employment
under clause (C) of 10(d) hereof, the Company shall pay the Executive his full
salary the Date of Termination at the rate in effect at the time Notice of
Termination is given, and the Company shall have no further obligations to the
Executive under this Agreement.

                           (g)  The Executive shall not be required to mitigate
the amount of any payment provided for in this Section 11 by seeking other
employment or otherwise, and, except as provided in Sections 11(d) and 11(e)
hereof, the amount of any payment or benefit provided for in this Section 11
shall (i) not be reduced by any compensation earned by the Executive as the
result of employment by another employer or by retirement benefits and (ii) be
the sole amount due to the Executive from the Company upon such termination of
employment, the Executive hereby waiving any claim for other compensation or
related damages (whether consequential, punitive or other) as a result of such
termination.

                  12.  Representations.

                           (a)  The Company represents and warrants that this
Agreement has been authorized by all necessary corporate action of the Company
and is a valid and binding agreement of the Company enforceable against it in
accordance with its terms.

                           (b)  The Executive represents and warrants that he
is not a party to any agreement or instrument which would prevent him from
entering into or performing his duties in any way under this Agreement.

                  13.  Successors; Binding Agreement.

                           (a)  The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.

                           (b)  This Agreement is a personal contract and the
rights and interests of the Executive hereunder may not be sold, transferred,
assigned, pledged, encumbered, or hypothecated by him, except as otherwise
expressly permitted by the provisions of this Agreement. This Agreement shall
inure to the benefit of and be enforceable by the Executive and his personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and . If the Executive should die while any amount would
still be payable to him hereunder had the Executive continued to live, all such
amounts, unless otherwise provided herein, shall be paid in

                                       -10-


accordance with the terms of this Agreement to his devisee, legatee or other
designee or, if there is no such designee, to his estate.

                  14.  Confidentiality  and Non-Competition Covenants.

                           (a)  The Executive covenants and agrees that he will
not at any time during and after the end of the Term, directly or indirectly,
use for his own account, or disclose to any person, firm or corporation, other
than authorized officers, directors and employees of the Company or its
subsidiaries, Confidential Information (as hereinafter defined) of the Company.
As used herein, "Confidential Information" of the Company means information of
any kind, nature or description which is disclosed to or otherwise known to the
Executive as a direct or indirect consequence of his association with the
Company, which information is not generally known to the public or in the
businesses in which the Company is engaged or which information relates to
specific investment opportunities within the scope of the Company's business
which were considered by the Executive or the Company during the term of this
Agreement. During the Term and for a period of two years following the
termination of the Executive's employment, the Executive shall not induce any
employee of the Company or its subsidiaries to terminate his or her employment
by the Company or its subsidiaries in order to obtain employment by any person,
firm or corporation affiliated with the Executive.

                           (b)  The Executive covenants and agrees that during
the Term and for a period of two (2) years following the termination of the
Executive's employment, the Executive shall not, directly or indirectly, own any
interest in, operate, join, control, or participate as a partner, director,
principal, officer, or agent of, enter into the employment of, act as a
consultant to, or perform any services for any entity which has material
operations which compete with any business in which the Company is engaged at
the time of the Executive's termination of employment unless such entity
disposes of the competing operations during the one-year period following the
commencement of the Executive's relationship with the entity that is prohibited
by this Section 14(b). Notwithstanding anything herein to the contrary, (1) the
foregoing provisions of this Section 14(b) shall not prevent the Executive from
acquiring securities representing not more than 5% of the outstanding voting
securities of any publicly held corporation and (2) the foregoing provisions of
this Section 14(b) shall not be applicable to a termination of the Executive's
employment (i) by the Company following a Change of Control in breach of this
Agreement, (ii) by the Executive for Good Reason following a Change of Control
or (iii) by the Company for Cause.

                  15.  Prohibition on Parachute Payments.

                  (a) Notwithstanding any other provisions of this Agreement, in
the event that any payment or benefit received or to be received by the
Executive in connection with a Change in Control of the Company or the
termination of the Executive's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (all such payments and benefits, including, without
limitation, base salary and bonus

                                      -11-

payments, being hereinafter called "Total Payments") would not be deductible (in
whole or part), by the Company, an affiliate or any Person making such payment
or providing such benefit as a result of section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), then, to the extent necessary to make
such portion of the Total Payments deductible (and after taking into account any
reduction in the Total Payments provided by reason of section 280G of the Code
in such other plan, arrangement or agreement), (A) such cash payments shall
first be reduced (if necessary, to zero), and (B) all other non-cash payments by
the Company to the Executive shall next be reduced (if necessary, to zero). For
purposes of this limitation (i) no portion of the Total Payments the receipt or
enjoyment of which the Executive shall have effectively waived in writing prior
to the Date of Termination shall be taken into account, (ii) no portion of the
Total Payments shall be taken into account which in the opinion of tax counsel
selected by the Company's independent auditors and reasonably acceptable to the
Executive does not constitute a "parachute payment" within the meaning of
section 280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A) of
the Code, (iii) such payments shall be reduced only to the extent necessary so
that the Total Payments (other than those referred to in clauses (i) or (ii)) in
their entirety constitute reasonable compensation for services actually rendered
within the meaning of section 280G(b)(4)(B) of the Code or are otherwise not
subject to disallowance as deductions, in the opinion of the tax counsel
referred to in clause (ii); and (iv) the value of any non-cash benefit or any
deferred payment or benefit included in the Total Payments shall be determined
by the Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.

                           (b)  If it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding that,
notwithstanding the good faith of the Executive and the Company in applying the
terms of this Section 15, the aggregate "parachute payments" paid to or for the
Executive's benefit are in an amount that would result in any portion of such
"parachute payments" not being deductible by reason of section 280G of the Code,
then the Executive shall have an obligation to pay the Company upon demand an
amount equal to the sum of (i) the excess of the aggregate "parachute payments"
paid to or for the Executive's benefit over the aggregate "parachute payments"
that could have been paid to or for the Executive's benefit without any portion
of such "parachute payments" not being deductible by reason of section 280G of
the Code; and (ii) interest on the amount set forth in clause (i) of this
sentence at the rate provided in section 1274(b)(2)(B) of the Code from the date
of the Executive's receipt of such excess until the date of such payment.

                  16. Entire Agreement. This Agreement contains all the
understandings between the parties hereto pertaining to the matters referred to
herein, and on the Effective Date shall supersede all undertakings and
agreements, whether oral or in writing, previously entered into by them with
respect thereto. The Executive represents that, in executing this Agreement, he
does not rely and has not relied upon any representation or statement not set
forth herein made by the Company with regard to the subject matter, bases or
effect of this Agreement or otherwise.

                  17.  Amendment or Modification, Waiver.  No provision of this
Agreement may be amended or waived unless such amendment or waiver is agreed to
in writing, signed by the Executive and by a duly authorized officer of the
Company.  No waiver by any party hereto of any breach

                                      -12-

by another party hereto of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same time, any prior time or any
subsequent time.

                  18. Notices. Any notice to be given hereunder shall be in
writing and shall be deemed given when delivered personally, sent by courier or
telecopy or registered or certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or to
such other address as such party may subsequently give notice of hereunder in
writing:

                  To Executive at:          William L. Hough
                                            704 Nantucket Circle
                                            Franklin, TN  37064

                  To the Company at:        OrNda HealthCorp
                                            3401 West End Avenue
                                            Suite 700
                                            Nashville, Tennessee 37203
                                            Attn:  General Counsel
                                            Telecopy: (615) 783-1232

                  Any notice delivered personally or by courier under this
Section 18 shall be deemed given on the date delivered and any notice sent by
telecopy or registered or certified mail, postage prepaid, return receipt
requested, shall be deemed given on the date telecopied or mailed.

                  19. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced to the
fullest extent permitted by law.

                  20.  Survivorship.  The respective rights and obligations of
the parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and obligations.

                  21.  Governing Law; Attorney's Fees.

                  (a) This Agreement will be governed by and construed in
accordance with the laws of the State of New York, without regard to its
conflicts of laws principles.

                  (b) The prevailing party in any dispute arising out of this
Agreement shall be entitled to be paid its reasonable attorney's fees incurred
in connection with such dispute from the other party to such dispute.

                                      -13-

                  22.  Headings.  All descriptive headings of sections and
paragraphs in this Agreement are intended solely for convenience, and no
provision of this Agreement is to be construed by reference to the heading of
any section or paragraph.

                  23.  Withholdings.  All payments to the Executive under this
Agreement shall be reduced by all applicable withholding required by federal,
state or local tax laws.

                  24.  Severance Protection Agreement.  The Severance Protection
Agreement dated as of July 27, 1995, between the Company and the Executive is
hereby terminated effective as of May 1, 1996.

                  25.  Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.

                                        ORNDA HEALTHCORP

                                        BY: /s/ Ronald P. Soltman
                                            Ronald P. Soltman
                                            Senior Vice President


                                        THE EXECUTIVE

                                       /s/ William L. Hough
                                       William L. Hough

                                      -14-

                                                                  EXHIBIT 10.26

                             STOCK OPTION AGREEMENT

         AGREEMENT dated as of __________ by and between OrNda HealthCorp, a
Delaware corporation (the "Company"), and __________ (the "Grantee").

         WHEREAS, the Company has adopted the OrNda HealthCorp Outside Directors
Stock Option Plan (the "Plan") and the Company's stockholders approved the Plan
on January 19, 1996; and

         WHEREAS, the parties wish to document herein the [initial] [annual]
automatic grant under the Plan to Grantee as an outside director of the Company
of a stock option to acquire an aggregate of [5,000] [2,500] shares of the
Company's Common stock, $.01 par value (the "Common Stock"), on the terms set
forth herein and in the Plan.

         NOW, THEREFORE, the parties agree as follows:

         1.    Definitions.  Capitalized terms not otherwise defined herein
shall have the meanings set forth in the Plan.

         2.    Grant of Option.  Pursuant to the Plan the Grantee is hereby
granted a nonqualified stock option (the "Option") to purchase an aggregate of
[5,000] [2,500] shares of Common Stock pursuant to the terms of this Agreement
and of the Plan.

         3.    Option Price.  The exercise price of the Option shall be $_____
per share of Common Stock issuable thereunder.

         4.    Conditions to Exercisability.

               (a)  The Option shall become exercisable in full on and after
[insert date one year after grant].

               (b) If for any reason during the term of an unexercised and
unexpired Option issued hereunder, the Grantee shall cease to be a voting member
of the Board, the Option shall terminate unless exercised prior to the end of
the 90 day period following the termination of Grantee's status as a voting
member of the Board (but in no event later than the expiration of the Option).

         5.    Period of Option.  The Option shall expire on the earliest to
occur of:

               (a)  the tenth anniversary of the date hereof; and

               (b) 90 days after the Grantee's termination as a voting member of
the Board.

         6.    Exercise of Option.

               (a) The Option shall be exercised in the following manner: the
Grantee, or the person or persons having the right to exercise the Option upon
the death or disability of the Grantee, shall deliver to the Company written
notice specifying the number of shares of Common Stock which the Grantee elects
to purchase. The Grantee (or such other person) must either (i) include with
such notice full payment of the exercise price for the Common Stock being
purchased pursuant to such notice or (ii) provide for a broker-dealer to forward
such full payment to the Company, in a manner and in a period of time acceptable
to the

                                       -1-

Company, in a cashless exercise procedure. Payment of the exercise price must be
made (i) in cash, (ii) by certified or cashier's check, (iii) by delivery to the
Company of Common Stock previously owned for at least six months and having a
Fair Market Value equal to the aggregate exercise price, or (iv) in a
combination of cash, check and Common Stock.

               (b) The Company may defer making payment or delivery of any
benefits hereunder until satisfactory arrangements have been made for the
payment of any tax attributable to any amounts payable on shares deliverable
hereunder. The Grantee shall be entitled to elect to pay all or a portion of all
taxes arising in connection with the exercise of the Option by electing to (1)
have the Company withhold shares of Common Stock, or (2) deliver other shares of
Common Stock previously owned by the Grantee having a Fair Market Value equal to
the amount to be withheld; provided, however, that the amount to be withheld
shall not exceed the Grantee's estimated total Federal, State and local tax
obligations associated with the transaction. The Fair Market Value of fractional
shares remaining after payment of the withholding taxes shall be paid to the
Grantee in cash.

               (c) No Grantee and no beneficiary or other person claiming
under or through Grantee will have any right, title or interest in or to any
shares of Common Stock allocated or reserved under the Plan or subject to the
Option except as to such shares of Common Stock, if any, that have been issued
or transferred to Grantee.

         7.    Entire Agreement. This Agreement contains all the understandings
between the parties hereto pertaining to the matters referred to herein, and
supersedes all undertakings and agreements, whether oral or in writing,
previously entered into by them with respect thereto. The Grantee represents
that, in executing this Agreement, he does not rely and has not relied upon any
representation or statement not set forth herein made by the Company with regard
to the subject matter, bases or effect of this Agreement or otherwise.

         8.    Amendment or Modification Waiver. No provision of this Agreement
may be amended or waived unless such amendment or waiver is agreed to in
writing, signed by the Grantee and by a duly authorized officer of the Company.
No waiver by any party hereto or any breach by another party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same time, any prior time or any subsequent time.

         9.    Notices. Any notice to be given hereunder shall be in writing and
shall be deemed given when delivered personally, sent by courier or telecopy or
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:

                  To Grantee at:
                  The Grantee's residence address
                  then on file with the Company

                  To the Company at:
                  OrNda HealthCorp
                  3401 West End Avenue
                  Nashville, Tennessee 37203
                  Attn: General Counsel
                  Telecopy: (615) 783-1232

                                       -2-

         Any notice delivered personally or by courier under this Section 9
shall be deemed given on the date delivered and any notice sent by telecopy or
registered or certified mail, postage prepaid, return receipt requested, shall
be deemed given on the date telecopied or mailed.

         10.   Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced to the
fullest extent permitted by law.

         11.   Nontransferability. This Option (or any portion thereof) is not
transferable by the Grantee otherwise than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act, or the rules thereunder. The designation of a
beneficiary by Grantee does not constitute a transfer.

         12.   Survivorship.  The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such  rights and obligations.

         13.   Governing Law.  This agreement will be governed by and construed
in accordance with the laws of the State of Tennessee, without regard to its
conflicts of laws principles.

         14.   Headings.  All descriptive headings of sections and paragraphs in
this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.

         15.   Construction. This Agreement is made under and subject to the
provisions of the Plan, and all of the provisions of the Plan are hereby
incorporated herein as provisions of this Agreement. If there is a conflict
between the provisions of this Agreement and the provisions of the Plan, the
provisions of the Plan will govern. By signing this Agreement, the Grantee
confirms that he has received a copy of the Plan and has had an opportunity to
review the contents thereof.

         16.   Counterparts.  This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

                                             ORNDA HEALTHCORP

                                             By:_______________________________

                                             Grantee:
                                             __________________________________

                                       -3-

                                                                  EXHIBIT 10.27

                                                               [CONFORMED COPY]



                      FIRST AMENDMENT AND LIMITED WAIVER TO
                          AMENDED AND RESTATED CREDIT,
                     SECURITY, GUARANTY AND PLEDGE AGREEMENT

         This FIRST AMENDMENT AND LIMITED WAIVER TO AMENDED AND RESTATED CREDIT,
SECURITY, GUARANTY AND PLEDGE AGREEMENT, dated as of September 12, 1996 (this
"Amendment"), is entered into by and among ORNDA HEALTHCORP, a Delaware
corporation ("OrNda"), ORNDA HOSPITAL CORPORATION (formerly known as Summit
Hospital Corporation), a California corporation ("OHC"), and AHM ACQUISITION
CO., INC., a Delaware corporation ("AHM Acquisition") (individually, a
"Borrower" and collectively, the "Borrowers"), the Persons named as Guarantors
parties hereto (individually, a "Guarantor" and collectively, the "Guarantors"),
the Persons named as Lenders parties hereto (individually, a "Lender" and
collectively, the "Lenders"), THE BANK OF NOVA SCOTIA, a Canadian chartered bank
("Scotiabank"), as administrative agent (in such capacity, the "Administrative
Agent") for itself and the other Lenders, CITICORP USA INC., a Delaware
corporation, as Documentation Agent for the Lenders, Scotiabank and Citicorp, as
Co-Syndication Agents for themselves and the other Lenders , GENERAL ELECTRIC
CAPITAL CORPORATION, THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH, THE
LONG-TERM CREDIT BANK OF JAPAN LIMITED, NEW YORK BRANCH, NATIONSBANK N.A., THE
TORONTO-DOMINION BANK and WELLS FARGO BANK, as Co-Agents for themselves and the
other Lenders, and AMSOUTH BANK OF ALABAMA, BANK OF AMERICA NT & SA, CORESTATES
BANK, N.A., CREDIT LYONNAIS CAYMAN ISLAND BRANCH, CREDITANSTALT-BANKVEREIN and
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCH, as Lead Managers for
themselves and the other Lenders.


                              W I T N E S S E T H:

         WHEREAS, the Borrowers, the Guarantors, the Lenders and the Agents have
heretofore entered into the Amended and Restated Credit, Security, Guaranty and
Pledge Agreement, dated as of October 27, 1995 (together with all Exhibits,
Schedules and

attachments thereto, in each case as amended or otherwise modified
prior to the date hereof, the "Credit Agreement");

         WHEREAS, the Borrowers desire to combine and treat simultaneous
investments in hospital acquisitions and investments in related physician groups
as the total acquisition price of a hospital and if a hospital is a Joint
Venture, then to treat the amount invested in such physician group as an
investment in a Joint Venture;

         WHEREAS, the Borrowers desire to treat the expenditures incurred in
connection with the construction of a new Fallon Medical City replacement
hospital as related to a Permitted Acquisition and not as expenditures related
to a Capital Expenditures;

         WHEREAS, the Guarantors will derive substantial benefits from
the amendments effected hereby; and

         WHEREAS, the Lenders and the Agents are willing, on and subject to the
terms and conditions set forth below, to amend and waive certain provisions of
the Credit Agreement as provided below (the Credit Agreement, as amended
pursuant to the terms of this Amendment, being referred to as the "Amended
Credit Agreement") below;

         NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Borrowers, the Guarantors, the Lenders and the
Agents hereby agree as follows:



PART I

                                   DEFINITIONS

         SUBPART 1.1. Certain Definitions. The following terms (whether or not
underscored) when used in this Amendment shall have the following meanings (such
meanings to be equally applicable to the singular and plural forms thereof):

         "Administrative Agent" is defined in the preamble.

                                       -2-




         "AHM Acquisition" is defined in the preamble.

         "Amended Credit Agreement" is defined in the fifth recital.

         "Amendment" is defined in the preamble.

         "Amendment No. 1" is defined in Subpart 3.1.

         "Borrower" and "Borrowers" are defined in the preamble.

         "Credit Agreement" is defined in the first recital.

         "First Amendment Effective Date" is defined in Subpart 3.1.

         "Guarantor" and "Guarantors" are defined in the preamble.

         "Lender" and "Lenders" are defined in the preamble.

         "OHC" is defined in the preamble.

         "Scotiabank" is defined in preamble.


         SUBPART 1.2. Other Definitions. Terms for which meanings are provided
in the Credit Agreement are, unless otherwise defined herein or the context
otherwise requires, used in this Amendment with such meanings.


                                     PART II

                          AMENDMENTS AND LIMITED WAIVER

         Effective on (and subject to the occurrence of) the First Amendment
Effective Date, the Credit Agreement is hereby amended and waived in accordance
with this Part II; except as so amended modified, or waived by this Amendment,
the Credit Agreement shall continue in full force and effect.

         SUBPART 2.1. Amendments to Article I. Article I of the Credit Agreement
is hereby amended in accordance with Subparts 2.1.1 and 2.1.2.

                                       -3-

         SUBPART 2.1.1. Section 1.1 ("Definitions") of the Credit Agreement is
hereby amended by inserting in such Section the following definitions in the
appropriate alphabetical order:

                  "Fallon Acquisition" means, collectively, (i) the acquisition
         contemplated under that certain Asset Purchase Agreement, dated as of
         April 22, 1996, among S.V. Hospital, L.L.C., Provident Nursing Homes,
         Inc., Clini-Tech Laboratories, Inc., collectively, as buyer, and Fallon
         Foundation, Inc., Clinitech Services, Inc., Providence House Nursing
         Home, Inc., Saint Vincent Health Care System, Inc., Saint Vincent
         Hospital, Inc., Certified Nursing Services, Inc., SVH Services, Inc.,
         Saint Vincent Faculty Practice, Inc., Saint Vincent Physician
         Associates, Inc. and Saint Vincent Management Corp., as the sellers,
         and (ii) the minority investment in the Fallon Clinic, Inc., as more
         fully described in that certain Agreement and Plan of Merger, dated as
         of April 22, 1996, among Fallon Clinic, Inc., OrNda Healthcorp of
         Massachusetts, Inc. and OrNda Acquisition Corp.

                  "Fallon Project" means the construction of the new Fallon
         Medical City replacement hospital to be located in Worcester,
         Massachusetts, which is to be built in connection with the Fallon
         Acquisition.

                  "First Amendment" means the First Amendment and Limited Waiver
         to Amended and Restated Credit, Security, Guaranty and Pledge
         Agreement, dated as of September 12, 1996, among the Borrowers, the
         Guarantors parties thereto, the Lenders parties
         thereto and the Agents.

                  "First Amendment Effective Date" is defined in
         Subpart 3.1 of the First Amendment.

                  "Residual Amount" means the amount of any residual payment
         which is (i) made or to be made in connection with an Operating Lease
         which is a synthetic lease or a leveraged lease at the termination of
         such synthetic lease or leveraged lease and (ii) a recourse obligation
         of any Borrower and/or any other Credit Party.

                                       -4-

         SUBPART 2.1.2. Section 1.1 of the Credit Agreement is hereby further
amended as follows:

         (a)  The definition of "Acquisition" is hereby amended in its
entirety to read as follows:


                  "Acquisition" means any transaction, or any series of
         related transactions, by which OrNda and/or any of its
         Subsidiaries directly or indirectly

                           (a) acquires any ongoing business or all or
                  substantially all of the assets (including, without
                  limitation, any Health Care Assets) of any firm, partnership,
                  joint venture, corporation or division thereof, whether
                  through purchase of assets, merger or otherwise,

                           (b) acquires (in one transaction or as the most
                  recent transaction in a series of transactions) control of at
                  least a majority in ordinary voting power of the securities of
                  a corporation which have ordinary voting power for the
                  election of directors,

                           (c) acquires control of a 50% or more ownership
                  interest in any partnership or joint venture, other than
                  through repurchases of Joint Venture interests permitted by
                  Section 6.9(i),

                           (d) makes any other expenditure for the Fallon
                  Project which, in accordance with GAAP, is or should be
                  treated as a Capital Expenditure, but instead OrNda elects to
                  treat as an "Acquisition" for the purposes of this Agreement
                  so long as, and only so long as, the aggregate amount of all
                  such expenditures do not at any time exceed $225,000,000; or

                           (e) makes any other expenditure for the construction
                  of property, plant and equipment (other than in connection
                  with the Fallon Project) which, in accordance with GAAP, is or
                  should be treated as a Capital Expenditure, but instead OrNda
                  elects to treat as an

                                       -5-

                  "Acquisition" for the purposes of this Agreement so long as,
                  and only so long as, the aggregate amount of all such
                  expenditures (other than in connection with the Fallon
                  Project) do not at any time exceed $50,000,000;

         provided, however, that the amount of an acquisition of the type
         described in clauses (a), (b) and (c) above of a Health Care Asset (of
         the type described in clause (a) of the definition of Health Care
         Asset) shall be deemed to include any majority or minority Investments
         that are made or committed to be made in a physician group or joint
         venture associated with such Health Care Asset and such Investments
         shall be included as Investments permitted under clause (b) of Section
         6.7; provided, further, however that an Acquisition shall not include
         an exchange of Health Care Assets consummated in accordance with the
         last paragraph of Section 6.4.

         (b)  Clause (b) of the definition of "Joint Venture" is hereby
amended in its entirety to read as follows:

                  (b) in which physicians, hospital personnel, hospitals,
         integrated health delivery systems or companies involved in the
         healthcare industry also have a direct or indirect equity or ownership
         interest (other than solely as a result of the ownership by any such
         physician, hospital personnel, hospital, integrated health delivery
         system or company involved in the healthcare industry of any capital
         stock of a Borrower) and

         SUBPART 2.2. Amendments to Article V. Article V of the Credit Agreement
is hereby amended in accordance with Subpart 2.2.1.

         SUBPART 2.2.1. Clause (i)(i)(A) of Section 5.1 ("Notice of Litigation")
of the Credit Agreement is hereby amended in its entirety to read as follows:

         (A) with respect to any such Person which reasonably could be expected
         to adversely affect such Person's right to receive a material portion
         of Medicare and Medicaid reimbursements to which it would otherwise be
         entitled, such Person's right to participate in Medicare and Medicaid
         programs or otherwise

                                       -6-

         have a material adverse effect on the receipt of Medicare and Medicaid
         reimbursement by any such Person which in the aggregate represent 10%
         or more of OrNda's Consolidated EBITDA for the immediately preceding
         Rolling Period, or

         SUBPART 2.3. Amendments to Article VI. Article VI of the Credit
Agreement is hereby amended in accordance with Subparts 2.3.1 through 2.3.3.

         SUBPART 2.3.1. Clause (l) of Section 6.1 ("Limitation on Indebtedness")
of the Credit Agreement is hereby amended by deleting the figure "$100,000,000"
in the last line of such clause and inserting the figure "$175,000,000" in lieu
thereof.

         SUBPART 2.3.2. Clause (k) of Section 6.7 ("Limitation on Investments")
of the Credit Agreement is hereby amended by deleting the figures "$60,000,000"
in the tenth line of such clause and "$10,000,000" in the last line of such
clause and inserting the figures $100,000,000" and "$50,000,000", respectively,
in lieu thereof.

         SUBPART 2.3.3. Section 6.18 ("Limitation on Leases") of the Credit
Agreement is hereby amended in its entirety to read as follows:

                  SECTION 6.18. Limitation on Leases. Incur, create or assume
         any commitment to make, or make, any Consolidated Operating Lease
         Payments in any Fiscal Year of OrNda in excess of 5% of Consolidated
         Total Revenues for such Fiscal Year of OrNda; provided, however, that
         in connection with such permitted Operating Leases, OrNda and the other
         Credit Parties that are Consolidated Subsidiaries of OrNda may enter
         into one or more Guaranties for the payment of Residual Amounts not in
         excess of $100,000,000; provided, further, that the Residual Amounts
         actually paid by OrNda and such other Credit Parties, when aggregated
         with all other Consolidated Operating Lease Payments made in any Fiscal
         Year of OrNda, will not exceed 5% of Consolidated Total Revenues for
         such Fiscal Year.

         SUBPART 2.4.  Limited Waiver and Approval.  Subject to the
conditions and on the terms set forth herein, and in reliance on
the representations and warranties of the Borrowers contained

                                       -7-

herein, the Lenders hereby (a) waive, as of the First Amendment Effective Date,
the delivery of a pro forma Compliance Certificate relating to the Fallon
Project pursuant to the requirements of Section 5.1(s) of the Credit Agreement
and (b) approve the Fallon Project for the purposes of Section 6.6(c)(iv) of the
Credit Agreement.

         SECTION 2.5. Limitation of Waiver. Subpart 2.4 of this Amendment shall
be limited precisely as written and relates solely to the waiver of the delivery
requirements of Section 5.1(s) of the Credit Agreement as such Section relates
to the delivery of a Compliance Certificate in connection with the Fallon
Acquisition, and nothing in this Amendment shall be deemed to:

                  (a) constitute a waiver of compliance by the Borrower with
         respect to (i) Section 5.1(s) of the Credit Agreement for any future
         Acquisitions or (ii) any other term, provision or condition of the
         Credit Agreement or any other instrument or agreement referred to
         therein or relating thereto, including compliance with the financial
         covenants set forth in Article VI of the Credit Agreement; or

                  (b) prejudice any right or remedy that the Agent or any Lender
         may now have or may have in the future under or in connection with the
         Credit Agreement or any other instrument or agreement referred to
         therein or relating thereto.

         Except as expressly set forth herein, the terms, provisions and
conditions of the Credit Agreement and the other Loan Documents shall remain in
full force and effect and are in all respects hereby ratified and confirmed.

         SUBPART 2.6. Conforming Amendments to Exhibit E to Credit Agreement.
Exhibit E (Form of Compliance Certificate) to the Credit Agreement is hereby
amended in its entirety to read as set forth in Annex I hereto.

         SUBPART 2.7. Covenant Compliance and Rates and Fees in Respect of Loans
and Letters of Credit outstanding or issued prior to the First Amendment
Effective Date. Notwithstanding anything in the foregoing to the contrary, any
determination of applicable interest rates and fees in respect of Loans and
Letters of Credit

                                       -8-

outstanding or issued under the Credit Agreement prior to the First Amendment
Effective Date, and any determination of compliance with the provisions of the
Credit Agreement (including with the financial covenants set forth in Article VI
of the Credit Agreement) for any period prior to the First Amendment Effective
Date, shall be made pursuant to the terms of the Credit Agreement as in effect
immediately prior to the First Amendment Effective Date and the defined terms
applicable to any such determination shall have the meanings provided in the
Credit Agreement as in effect immediately prior to the First Amendment Effective
Date.


                                    PART III

                     CONDITIONS TO EFFECTIVENESS; EXPIRATION

         SUBPART 3.1. First Amendment Effective Date. This Amendment, and the
amendments and modifications contained herein, shall be and become effective on
the date (the "First Amendment Effective Date") when each of the conditions set
forth in this Subpart 3.1 shall have been fulfilled to the satisfaction of the
Administrative Agent and each of the Lenders; provided, that, such date shall
occur prior to the termination date set forth in Subpart 3.2 (whereupon this
Amendment shall be known and may be referred to as "Amendment No. 1").

         SUBPART 3.1.1. Execution of Counterparts. The Administrative Agent
shall have received counterparts of this Amendment, duly executed and delivered
on behalf of the Borrowers, the Guarantors and the Required Lenders.

         SUBPART 3.1.2. Material Adverse Change. There has been no material
adverse change in the consolidated financial condition, results of operations,
assets, business, properties or prospects of OrNda and the Consolidated
Subsidiaries, taken as a whole, from the circumstances as reflected in the
audited financial statements of OrNda and the Consolidated Subsidiaries, OHC and
its consolidated Subsidiaries, and AHM Acquisition and its consolidated
Subsidiaries, in each case as of August 31, 1995, true and correct copies of
which were delivered pursuant to Section 5.1(a) of the Credit Agreement.


                                       -9-

         SUBPART 3.1.3. Legal Details, etc. All documents executed or submitted
pursuant hereto shall be satisfactory in form and substance to the
Administrative Agent and its counsel. The Administrative Agent and its counsel
shall have received all information and such counterpart originals or such
certified or other copies or such materials as the Administrative Agent or its
counsel may reasonably request, and all legal matters incident to the
transactions contemplated by this Amendment shall be satisfactory to the
Administrative Agent and its counsel.

         SUBPART 3.2. Expiration. If the First Amendment Effective Date shall
not have occurred on or prior to September 18, 1996, the agreements of the
parties hereto contained in this Amendment shall terminate effective immediately
on such date and without any further action.


                                     PART IV

                         MISCELLANEOUS; REPRESENTATIONS

         SUBPART 4.1. Cross-References. References in this Amendment to any Part
or Subpart are, unless otherwise specified or otherwise required by the context,
to such Part or Subpart of this Amendment.

         SUBPART 4.2. Loan Document Pursuant to Credit Agreement. This Amendment
is a Loan Document executed pursuant to the Credit Agreement and shall be
construed, administered and applied in accordance with all of the terms and
provisions of the Credit Agreement (and, following the First Amendment Effective
Date, the Amended Credit Agreement).

         SUBPART 4.3. Full Force and Effect; Limited Amendment. Except as
expressly amended or waived hereby, all of the representations, warranties,
terms, covenants, conditions and other provisions of the Credit Agreement and
the other Loan Documents shall remain unamended and unwaived and shall continue
to be, and shall remain, in full force and effect in accordance with their
respective terms. The amendments and limited waiver set forth herein shall be
limited precisely as provided for herein to the provisions expressly amended
herein and shall not be deemed to be an amendment to, waiver of, consent to or
modification of any other term or

                                      -10-

provision of the Credit Agreement, any other Loan Document referred to therein
or herein or of any transaction or further or future action on the part of any
Borrower or any other Obligor which would require the consent of the Lenders
under the Credit Agreement or any of the other Loan Documents.

         SUBPART 4.4. Payment of Fees and Expenses. The Borrowers, jointly and
severally, hereby agree to pay and reimburse the Administrative Agent for all of
its reasonable fees and expenses incurred in connection with the negotiation,
preparation, execution and delivery of this Amendment and related documents,
including all reasonable fees and disbursements of counsel to the Administrative
Agent.

         SUBPART 4.5. Successors and Assigns. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.

         SUBPART 4.6. Counterparts. This Amendment may be executed by the
parties hereto in several counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which shall constitute
together but one and the same agreement.

         SUBPART 4.7. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW
YORK GENERAL OBLIGATION LAW).

         SUBPART 4.8. Compliance with Warranties, No Default, etc. Both before
and after giving effect to the occurrence of the First Amendment Effective Date
and the amendments to the Credit Agreement set forth above, the Borrowers
represent and warrant the following statements shall be true and correct:

                  (a) the representations and warranties set forth in Article
         III and in Sections 7.13 and 9.15 of the Credit Agreement (excluding,
         however, Sections 3.6 and 3.17 of the Credit Agreement) shall, in each
         case, be true and correct in all material respects with the same effect
         as if made on and as of the First Amendment Effective Date (except to
         the extent that such representations and warranties relate solely to an

                                      -11-

         earlier date, in which case such representations and warranties shall
         be true and correct as of such earlier date).

                  (b)  except as disclosed by the Borrowers to the
         Co-Syndication Agents and Lenders pursuant to Sections 3.6 and
         3.17 of the Credit Agreement,

                           (i) no labor controversy, litigation, arbitration or
                  governmental investigation or proceeding shall be pending or,
                  to the best knowledge of the Borrowers (after due inquiry),
                  threatened against the Borrowers or any of their Subsidiaries
                  which, in the opinion of the Required Lenders, would
                  reasonably be expected to have a Material Adverse Effect or
                  would adversely affect the legality, validity or
                  enforceability of this Agreement, the Notes or any other Loan
                  Document; and

                           (ii) no development shall have occurred in any labor
                  controversy, litigation, arbitration or governmental
                  investigation or proceeding disclosed pursuant to Sections 3.6
                  and 3.17 of the Credit Agreement which, in the opinion of the
                  Required Lenders, would reasonably be expected to have a
                  Material Adverse Effect; and

                  (c) No Default shall have then occurred and be continuing, and
         neither the Borrowers nor any of their Subsidiaries is in material
         violation of any law or governmental regulation or court order or
         decree, which violation would, individually or in the aggregate, have a
         Material Adverse Effect.

         SUBPART 4.9.  Additional General Representations.  In order to
induce the Lenders and the Agents to enter into this Amendment, the
Borrowers hereby additionally represent and warrant as follows:

                  (a) the execution and delivery of this Amendment and the
         performance by each of the Borrowers, each of their respective
         Subsidiaries and each other Obligor of each of their respective
         obligations hereunder, under each other Loan Document, under the Credit
         Agreement as amended hereby and, upon the occurrence of the First
         Amendment Effective Date,

                                      -12-

         under the Amended Credit Agreement are within such Person's corporate
         powers, have been duly authorized by all necessary corporate action,
         have received all necessary governmental approval (if any shall be
         required), and do not (i) contravene such Person's organic documents,
         (ii) contravene any contractual restriction, law or governmental
         regulation or court decree or order binding on or affecting such Person
         or (iii) result in, or require the creation or imposition of, any Lien
         on any of such Person's properties (other than pursuant to a Loan
         Document); and

                  (b) this Amendment, each other Loan Document, the Credit
         Agreement as amended hereby and, upon the occurrence of the First
         Amendment Effective Date, the Amended Credit Agreement are the legal,
         valid and binding obligations of each of the Borrowers, each of their
         respective Subsidiaries and each other Obligor enforceable in
         accordance with their respective terms (except as such enforceability
         may be limited by applicable bankruptcy, insolvency, reorganization or
         similar laws affecting creditors' rights generally and by principles of
         equity).


                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                      -13-

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective duly authorized officers as of the day and year
first above written.

                                            BORROWERS:

                                            ORNDA HEALTHCORP

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer

                                            ORNDA HOSPITAL CORPORATION (formerly
                                            known as Summit Hospital 
                                                Corporation)

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer

                                            AHM ACQUISITION CO., INC.

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer

                                            GUARANTORS:

                                            AHM CGH, INC.
                                            AHM GEMCH, INC.
                                            AHM JACKSON HOSPITAL INC.
                                            AHM MINDEN HOSPITAL, INC.
                                            AHM SMC, INC.
                                            AHM WCH, INC.
                                            AHMJV, INC.
                                            AMERICAN HEALTHCARE MANAGEMENT
                                                DEVELOPMENT COMPANY
                                            BONE MARROW/STEM CELL TRANSPLANT
                                                INSTITUTE OF FLORIDA, INC.
                                            C G DIAGNOSTIC, INC.
                                            CFMC LP, INC.
                                            CGH REALTY HOLDING, INC.
                                            CHHP, INC.
                                            CHR SERVICE CORP.
                                            CLINIC HOLDINGS, INC. (a Florida
                                                Corporation)

                                      -14-

                                            CLINIC HOLDINGS, INC. (a Missouri
                                                corporation)
                                            COASTAL COMMUNITIES HEALTH SYSTEMS,
                                                INC.
                                            COMMONWEALTH CONTINENTAL HEALTH
                                                CARE, INC.
                                            COMMONWEALTH CONTINENTAL HEALTH
                                                CARE III, INC.
                                            CORAL GABLES HOSPITAL, INC.
                                            CORAL GABLES HOSPITAL PARTNERS, INC.
                                            CVHS HOSPITAL CORPORATION
                                            CYPRESS FAIRBANKS MEDICAL CENTER,
                                                INC.
                                            DAVENPORT MEDICAL CENTER, INC.
                                            DHPG OF GEORGIA, INC.
                                            DOCTORS' HOSPITAL MEDICAL CENTER,
                                                INC.
                                            EGH, INC.
                                            FMC ACQUISITION INC.
                                            FOUNTAIN VALLEY HEALTH CARE, INC.
                                            FOUNTAIN VALLEY IMAGING CORPORATION
                                            FOUNTAIN VALLEY REGIONAL HOSPITAL &
                                                MEDICAL CENTER
                                            FRENCH HOSPITAL MEDICAL CENTER
                                            GCPG, INC.
                                            GGH, INC.
                                            GULF COAST COMMUNITY HOSPITAL, INC.
                                            HARBOR VIEW HEALTH SYSTEMS, INC.
                                            HARBOR VIEW MEDICAL CENTER
                                            HCW, INC.
                                            HEALTH CHOICE ARIZONA, INC.
                                            HEALTH CHOICE HMO, INC.
                                            HEALTH CHOICE PARTNERS, INC.
                                            HEALTH HOLDING COMPANY, INC.
                                            HEALTH RESOURCES CORPORATION OF
                                                AMERICA - CALIFORNIA
                                            HEALTH RESOURCES CORPORATION OF
                                                AMERICA - FLORIDA
                                            HNMC, INC.
                                            HNPG, INC.
                                            HOUSTON NORTHWEST HEALTH SYSTEM,INC.
                                            HOUSTON NORTHWEST HOME HEALTHCARE,
                                                INC.
                                            HOUSTON NORTHWEST MANAGEMENT
                                                SERVICES, INC.
                                            HOUSTON NORTHWEST MEDICAL CENTER,
                                                INC.

                                      -15-

                                            HOUSTON NORTHWEST PROVIDER ALLIANCE,
                                                INC.
                                            INDIANAPOLIS HEALTH SYSTEMS, INC.
                                            INDIANAPOLIS PHYSICIANS SERVICES,
                                                INC.
                                            LANDER VALLEY REGIONAL MEDICAL
                                                CENTER
                                            LBPG, INC.
                                            LCMH, INC.
                                            LEWISBURG COMMUNITY HOSPITAL, INC.
                                            MANAGED HEALTH ALLIANCE
                                            MATRIX ASSOCIATES, INC.
                                            MCF, INC.
                                            MCS ADMINISTRATIVE SERVICES, INC.
                                            MEDI-HEALTH OF FLORIDA, INC.
                                            MESA GENERAL HOSPITAL MEDICAL CENTER
                                                CENTER, INC.
                                            MIDWAY HOSPITAL MEDICAL CENTER, INC.
                                            MONTEREY PARK HOSPITAL
                                            MPH MANAGEMENT SERVICES, INC.
                                            NAI COMMUNITY HOSPITAL OF PHOENIX,
                                                INC.
                                            NLVH, INC.
                                            NLVPG OF NEVADA, INC.
                                            ORNDA ACCESS, INC.
                                            ORNDA HEALTH INITIATIVES, INC.
                                            ORNDA HEALTH SERVICES, INC.
                                            ORNDA HEALTHCHOICE, INC.
                                            ORNDA HEALTHCORP OF FLORIDA, INC.
                                            ORNDA HEALTHCORP OF PHOENIX, INC.
                                            ORNDA INVESTMENTS, INC.
                                            ORNDA MANAGEMENT SERVICES, INC.
                                            ORNDA OF SOUTH FLORIDA, INC.
                                            ORNDA OF SOUTH FLORIDA SERVICES
                                                CORPORATION
                                            PASADENA HOSPITAL CORPORATION
                                            POWAY HEALTH SYSTEMS, INC.
                                            PREMIER HEALTH RESOURCES, INC.
                                            PSH, INC.
                                            QUALICARE OF MISSISSIPPI, INC.
                                            QUALICARE OF WYOMING, INC.
                                            REPUBLIC HEALTH CORPORATION OF
                                                CENTRAL GEORGIA
                                            REPUBLIC HEALTH CORPORATION OF
                                                INDIANAPOLIS
                                            REPUBLIC HEALTH CORPORATION OF
                                                MEREDIAN

                                      -16-

                                            REPUBLIC HEALTH CORPORATION OF
                                                MESQUITE
                                            REPUBLIC HEALTH CORPORATION OF NORTH
                                                MIAMI
                                            REPUBLIC HEALTH CORPORATION OF
                                                ROCKWALL COUNTY
                                            REPUBLIC HEALTH CORPORATION OF SAN
                                                BERNARDINO
                                            REPUBLIC HEALTH CORPORATION OF TEXAS
                                            REPUBLIC HEALTH OF NORTH TEXAS, INC.
                                            REPUBLIC HEALTH PARTNERS, INC.
                                            RHC FLORIDA, INC.
                                            RHC PARKWAY, INC.
                                            RHCMS, INC.
                                            RHPC, INC.
                                            S.C. CAL., INC.
                                            S.C. LANDER, INC.
                                            S.C. LONGVIEW, INC.
                                            S.C. MANAGEMENT, INC.
                                            S.C. SAN ANTONIO, INC.
                                            SAN JUAN MEDICAL CENTER, INC.
                                            SANTA ANA HOSPITAL MEDICAL CENTER,
                                                INC.
                                            SHL/O CORP.
                                            SNF PHARMACY, INC.
                                            SOUTH FLORIDA PHYSICIANS SERVICES,
                                                INC.
                                            SOUTH PARK MEDICAL CENTER, INC.
                                            ST. LUKE MEDICAL CENTER
                                            STH CORPORATION
                                            SUMMIT AMBULATORY NETWORK, INC.
                                            SUMMIT RECEIVABLES CO.
                                            THE DAVENPORT CLINIC, INC.
                                            TUSCON GENERAL HOSPITAL, INC.
                                            USDHC, INC.
                                            VALLEY COMMUNITY HOSPITAL
                                            WCH MANAGEMENT SERVICES, INC.
                                            WEST LOS ANGELES HEALTH SYSTEMS,INC.
                                            WESTCENTER REHABILITATION FACILITY,
                                                INC.
                                            WHITTIER HOSPITAL MEDICAL CENTER,
                                                INC.
                                            WOODLAND PARK HOSPITAL, INC.
                                            WPH MANAGEMENT SERVICES, INC.

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer

                                      -17-

                                            BROTMAN PARTNERS, L.P.

                                            By West Los Angeles Health Systems,
                                            Inc., its sole general partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer


                                            CCHC - GOLDEN GLADES, LTD.,

                                            By Commonwealth Continental Health
                                            Care, Inc., its sole general partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer


                                            FLORIDA MEDICAL CENTER, LTD.,

                                            By MCF, Inc., its sole general
                                                partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer


                                            FOUNTAIN VALLEY IMAGING CENTER
                                                LIMITED PARTNERSHIP,

                                            By Fountain Valley Imaging
                                                Corporation, its sole general
                                                partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer

                                      -18-

                                            FOUNTAIN VALLEY OUTPATIENT SURGICAL
                                                CENTER LIMITED PARTNERSHIP,

                                            By Fountain Valley Health Care,
                                                Inc., its sole general partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer


                                            GARLAND COMMUNITY HOSPITAL, LTD.,

                                            By GCPG, Inc., its sole general
                                                partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer


                                            GOLDEN GLADES HOSPITAL, LTD.,

                                            By Commonwealth Continental Health
                                                Care, Inc., its sole general
                                                partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer


                                            HARBOR VIEW HEALTH PARTNERS, L.P.

                                            By Harbor View Health Systems, Inc.,
                                                its sole general partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer

                                      -19-

                                            LAKE POINTE MEDICAL CENTER, LTD.

                                            By Republic Health Partners, Inc.,
                                                its sole general partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer


                                            MMC CARDIOLOGY VENTURE

                                            By Indianapolis Health Systems,
                                                Inc., its sole general partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer


                                            NEW MEDICAL HORIZONS II, LTD.

                                            By   Cupress Fairbanks Medical
                                                Center, Inc., its sole general
                                                partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer


                                            WHITTIER SURGERY CENTER, L.P.

                                            By Whittier Hospital Medical Center,
                                                Inc., its sole general partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer

                                      -20-

                                            WINONA MEMORIAL HOSPITAL LIMITED
                                              PARTNERSHIP,

                                            By Republic Health Corporation of
                                                Indianapolis, its sole general
                                                partner

                                            By  /s/  Russell F. Tonnies
                                            Title: Vice President and Treasurer


                                            ADMINISTRATIVE AGENT:

                                            THE BANK OF NOVA SCOTIA,
                                                as Administrative Agent

                                            By  /s/  Carolyn A. Lopez
                                            Title: Relationship Manager


                                            DOCUMENTATION AGENT:

                                            CITICORP USA INC.,
                                                as Documentation Agent

                                            By  /s/  Margaret Au Brown
                                            Title: Vice President


                                            CO-SYNDICATION AGENTS:

                                            THE BANK OF NOVA SCOTIA,
                                                as Co-Syndication Agent

                                            By  /s/  Carolyn A. Lopez
                                            Title: Relationship Manager

                                      -21-

                                            CITICORP USA INC.,
                                                as Co-Syndication Agent

                                            By  /s/  Margaret Au Brown
                                            Title: Vice President


                                            CO-AGENTS:

                                            GENERAL ELECTRIC CAPITAL
                                                CORPORATION, as Co-Agent

                                            By  /s/  Cheryl P. Boyd
                                            Title: Authorized Signatory


                                            THE INDUSTRIAL BANK OF JAPAN,
                                                LIMITED, NEW YORK BRANCH,
                                                as Co-Agent

                                            By  /s/  Junri Oda
                                            Title: Senior Vice President
                                                   and Senior Manager


                                            THE LONG-TERM CREDIT BANK OF JAPAN
                                                LIMITED, NEW YORK BRANCH,
                                                as Co-Agent

                                            By  /s/  Satoru Otsubo
                                            Title: Joint General Manager


                                            NATIONSBANK N.A., as Co-Agent

                                            By  /s/  S. Walker Choppin
                                            Title: Senior Vice President


                                            THE TORONTO-DOMINION BANK,
                                                as Co-Agent

                                            By  /s/  Frederic B. Hawley
                                            Title: Manager, Credit
                                                Administration


                                      -22-

                                            WELLS FARGO BANK, as Co-Agent

                                            By  /s/  William J. Baird
                                            Title: Senior Vice President


                                            LEAD MANAGERS:

                                            AMSOUTH BANK OF ALABAMA,
                                                as Lead Manager

                                            By  /s/  Timothy L. Vardaman
                                            Title: Officer


                                            BANK OF AMERICA NT & SA,
                                                as Lead Manager

                                            By  /s/  Wyatt R. Ritchie
                                            Title: Managing Director


                                            CORESTATES BANK, N.A.,
                                                as Lead Manager

                                            By  /s/  Elizabeth D. Morris
                                            Title: Vice President


                                            CREDIT LYONNAIS CAYMAN ISLAND
                                                BRANCH, as Lead Manager

                                            By  /s/  Farboud Tavangar
                                            Title: Authorized Signature


                                            CREDITANSTALT-BANKVEREIN,
                                                as Lead Manager

                                            By_________________________________
                                              Title:

                                            By_________________________________
                                              Title:

                                      -23-

                                            DEUTSCHE BANK AG, NEW YORK AND/OR
                                                CAYMAN ISLANDS BRANCH,
                                                as Lead Manager

                                            By  /s/  Colin T. Taylor
                                            Title: Director

                                            By  /s/  Alka Goyal
                                            Title: Assistant Vice President


                                            LENDERS:

                                            ABN-AMRO BANK

                                            By_________________________________
                                            Title:

                                            By_________________________________
                                            Title:


                                            AMSOUTH BANK OF ALABAMA

                                            By  /s/  Timothy L. Vardaman
                                            Title: Officer


                                            BANC ONE

                                            By_________________________________
                                            Title:


                                            BANK OF AMERICA NT & SA

                                            By  /s/  Wyatt R. Ritchie
                                            Title: Managing Director

                                      -24-

                                            BANK OF IRELAND, GRAND CAYMAN BRANCH

                                            By_________________________________
                                            Title:


                                            THE BANK OF NOVA SCOTIA

                                            By  /s/  Carolyn A. Lopez
                                            Title: Relationship Manager


                                            CITICORP USA INC.

                                            By  /s/  Margaret Au Brown
                                            Title: Vice President


                                            CORESTATES BANK, N.A.

                                            By  /s/  Elizabeth D. Morris
                                            Title: Vice President


                                            CREDIT LYONNAIS CAYMAN ISLAND BRANCH

                                            By  /s/  Farboud Tavangar
                                            Title: Authorized Signature


                                            CREDITANSTALT-BANKVEREIN

                                            By_________________________________
                                            Title:

                                            By_________________________________
                                            Title:

                                      -25-

                                            DEUTSCHE BANK AG, NEW YORK AND/OR
                                                CAYMAN ISLANDS BRANCH

                                            By  /s/  Colin T. Taylor
                                            Title: Director

                                            By  /s/  Alka Goyal
                                            Title: Assistant Vice President


                                            DRESDNER BANK, AG, NEW YORK BRANCH
                                                AND GRAND CAYMAN BRANCH

                                            By  /s/  Andrew P. Nesi
                                            Title: Vice President

                                            By  /s/  John D. Padilla
                                            Title: Assistant Vice President


                                            FIRST AMERICAN NATIONAL BANK

                                            By_________________________________
                                            Title:


                                            FIRST UNION NATIONAL BANK OF NORTH
                                                CAROLINA

                                            By  /s/  Ann M. Dodd
                                            Title: Senior Vice President


                                            FLEET NATIONAL BANK

                                            By  /s/  Ginger Stolzenthaler
                                            Title: Vice President

                                      -26-

                                            GENERAL ELECTRIC CAPITAL CORPORATION

                                            By  /s/  Cheryl P. Boyd
                                            Title: Authorized Signatory


                                            THE INDUSTRIAL BANK OF JAPAN,
                                                LIMITED, NEW YORK BRANCH

                                            By  /s/  Junri Oda
                                            Title: Senior Vice President
                                                   and Senior Manager


                                            THE LONG-TERM CREDIT BANK OF JAPAN
                                                LIMITED, NEW YORK BRANCH

                                            By  /s/  Satoru Otsubo
                                            Title: Joint General Manager


                                            MERRILL LYNCH SENIOR FLOATING
                                                RATE FUND, INC.

                                            By  /s/  R. Douglas Henderson
                                            Title: Authorized Signatory


                                            MICHIGAN NATIONAL BANK

                                            By  /s/  Lisa Davidson McKinnon
                                            Title: Vice President


                                            THE MITSUBISHI TRUST AND BANKING
                                                CORPORATION, CHICAGO BRANCH

                                            By  /s/  Masaki Yamagishi
                                            Title: Chief Manager

                                      -27-

                                            FLEET BANK, N.A. successor to
                                                NATWEST BANK N.A.

                                            By  /s/  Pauline McHugh
                                            Title: Vice President


                                            NATIONSBANK, N.A.

                                            By  /s/  S. Walker Choppin
                                            Title: Senior Vice President


                                            PNC BANK KENTUCKY, INC.

                                            By  /s/  Kathryn M. Bohr
                                            Title: Assistant Vice President


                                            RESTRUCTURED OBLIGATIONS BACKED BY
                                                SENIOR ASSETS, B.V.

                                            By ABN TRUSTCOMPANY (NEDERLAND)
                                                B.V., its Managing Director

                                            By_________________________________
                                            Title:

                                            By
                                            Title:


                                            STICHTING RESTRUCTURED OBLIGATIONS
                                                BACKED BY SENIOR ASSETS 2,
                                                (ROSA 2)

                                            By ABN TRUSTCOMPANY (NEDERLAND)
                                                B.V., its Managing Director

                                            By_________________________________
                                            Title:

                                            By_________________________________
                                            Title:

                                      -28-

                                            THE SUMITOMO BANK, LTD., CHICAGO
                                                BRANCH

                                            By  /s/  Teryll L. Herron
                                            Title: Vice President

                                            By  /s/  E.B. Buchanan, Jr.
                                            Title: Vice President


                                            THE SUMITOMO TRUST & BANKING CO.,
                                                LTD., NEW YORK BRANCH

                                            By  /s/  Suraj P. Bhatia
                                            Title: Senior Vice President,
                                                Manager


                                            THE TORONTO-DOMINION BANK

                                            By  /s/  Frederic B. Hawley
                                            Title: Manager,
                                                Credit Administration


                                            UNITED STATES NATIONAL BANK OF
                                                OREGON

                                            By  /s/  Fiza Noordin
                                            Title: Assistant Vice President


                                            WELLS FARGO BANK

                                            By  /s/  William J. Baird
                                            Title: Senior Vice President

                                      -29-

                                                                     EXHIBIT 11




                                         ORNDA HEALTHCORP AND SUBSIDIARIES
                                  EXHIBIT 11 -- COMPUTATION OF PER SHARE EARNINGS
                                     (in thousands, except per share amounts)


                                                                                Year Ended August 31,
                                                                                           
                                                                        1994            1995            1996
                                                                   -------------   -------------   -------------
Primary

Average shares outstanding                                              37,879          44,197          55,654
Net effect of dilutive common stock
     equivalents:
          Stock options - treasury stock method                             -- (1)       1,097           1,855
                                                                   -------------   -------------   -------------
TOTAL                                                                   37,879          45,294          57,509
                                                                   =============   =============   =============

Net income (loss) before extraordinary
     item, as adjusted for preferred
     stock dividends                                               $   (48,909)    $    69,312     $    99,539
                                                                   =============   =============   =============

Per share amount before extraordinary
     item                                                          $     (1.29)    $      1.53     $      1.73
                                                                   =============   =============   =============

Net income (loss) as adjusted for
     preferred stock dividends                                     $   (61,205)    $    69,312     $    99,539
                                                                   ============    =============   =============

Per share amount                                                   $     (1.62)    $      1.53     $      1.73
                                                                   ============    =============   =============
Fully Diluted
Average shares outstanding                                              37,879          44,197          55,654
Net effect of dilutive common stock
     equivalents:
          Stock options - treasury stock method                             -- (1)       1,845           2,100
          Assumed conversion of redeemable
               preferred stock                                              -- (1)       1,340             310
                                                                   -------------   -------------   -------------
TOTAL                                                                   37,879          47,382          58,064
                                                                   =============   =============   =============

Net income (loss) before extraordinary
     item, as adjusted for preferred
     stock dividends                                               $   (48,909)    $    71,312     $    99,871
                                                                   =============   =============   =============

Per share amount before extraordinary
     item                                                          $     (1.29)    $      1.51     $      1.72
                                                                   =============   =============   =============

Net income (loss) as adjusted for
     preferred stock dividends                                     $   (61,205)    $    71,312     $    99,871
                                                                   =============   =============   =============

Per share amount                                                   $     (1.62)    $      1.51     $      1.72
                                                                   =============   =============   =============

(1) Shares issuable upon the exercise of stock options or conversion of
redeemable preferred stock have not been included in the calculation of loss per
share for fiscal 1994 because the effect of their inclusion would be
anti-dilutive.



                                                                     EXHIBIT 21

                                                  ORNDA HEALTHCORP SUBSIDIARIES
                                                                                     
Subsidiary                                                      State of Incorporation     Assumed Names
- ----------                                                      ----------------------     -------------

AHM Acquisition , Inc.                                                 Delaware
AHM CGH, Inc.                                                          California          Chapman General Hospital
                                                                                           Chapman Medical Center
                                                                                           Medtrust
AHM GEMCH, Inc.                                                        California          Greater El Monte Community Hospital
                                                                                           Medtrust
AHM Jackson Hospital, Inc.                                             Mississippi         Doctor's Hospital, Inc.
AHMJV, Inc.                                                            California
AHM SMC, Inc.                                                          California          Suburban Medical Center
AHM WCH, Inc.                                                          California          Woodruff Community Hospital
AHM Minden Hospital, Inc.                                              Louisiana           Minden Medical Center
                                                                                           Medtrust
American Healthcare Management Development Company                     Texas               Preston Recovery Co.
Biltmore Surgery Center, Inc.                                          Arizona
Bone Marrow/Stem Cell Transplant Institute of Florida, Inc.            Florida             Stem Cell Institute
C G Diagnostic, Inc.                                                   Florida             Coral Gables Diagnostic Center
Care Net Health Systems, Inc.                                          Tennessee
CFMC LP, Inc.                                                          Nevada
CGH Realty Holding, Inc.                                               Florida
CHHP, Inc.                                                             California          Community Hospital of Huntington Park
                                                                                           Mission Hospital of Huntington Park
CHR Service Corp                                                       Arizona
Clinic Holdings, Inc. (Missouri)                                       Missouri            Parkway Regional MLA Clinic
Clini-Tech Laboratories, Inc.                                          Massachusetts
Coastal Communities Health Systems, Inc.                               California
Commonwealth Continental Health Care III, Inc.                         Florida
Commonwealth Continental Health Care, Inc.                             Florida
Coral Gables Hospital, Inc.                                            Florida             Personal Care +
Coral Gables Hospital Partners, Inc.                                   Florida

                                                                -1-

Subsidiary                                                      State of Incorporation   Assumed Names
- ----------                                                      ----------------------   -------------
CVHS Hospital Corporation                                              California        Centinela Hospital Medical Center
                                                                       Centinela         Hospital Airport Medical Clinic
                                                                                         Intrastate Medical Collections
Cypress Fairbanks Medical Center, Inc.                                 Texas

Davenport Medical Center, Inc.                                         Iowa
Desert Communities Health Systems, Inc.                                California
DHPG of Georgia, Inc.                                                  Georgia
Doctors' Hospital Medical Center, Inc.                                 Colorado
EGH, Inc.                                                              Oregon            Eastmoreland General Hospital
                                                                                         Medtrust
                                                                                         Occu-Med Network
                                                                                         Southwest Family Clinic
Fountain Valley Health Care, Inc.                                      California
Fountain Valley Imaging Corp                                           California
Fountain Valley Pharmacy, Inc.                                         California        Private Care Pharmacy
Fountain Valley Regional Hospital & Medical Center                     California        The Center for Breast Care
                                                                                         Women's and Children's Specialty Services
French Hospital Medical Center                                         California
FMC Center, Inc.                                                       Delaware          Oakland Medical Mall
FMC Medical, Inc.                                                      Florida
GCPG, Inc.                                                             Delaware          Surgery-Associates-Garland (TX)
                                                                                         Youth Crossing (TX)
GGH, Inc. (formerly Gibson General Hospital, Inc.)                     Tennessee         Medtrust
GMPG, Inc.                                                             California
Gulf Coast Community Health Care Systems, Inc.                         Mississippi
Gulf Coast Community Hospital, Inc.                                    Mississippi       Gulf Oaks Medical Center
                                                                                         Gulf Oaks Hospital
                                                                                         Gulf Oaks Psychiatric Hospital
                                                                                         Gulf Oaks Recovery Center
Harbor View Medical Center, Inc.                                       California

                                                                -2-

Subsidiary                                                      State of Incorporation   Assumed Names
- ----------                                                      ----------------------   -------------

Harbor View Health Systems, Inc.                                       California
Harbor View Physicians Services, Inc.                                  California
HCW, Inc.                                                              Texas             Wylie Community Hospital
Health Choice Arizona, Inc.                                            Arizona           Managed Cre Stategies - Aizona
Health Choice HMO, Inc.                                                Arizona
Health Choice Partners, Inc.                                           Florida
Health Holding Company, Inc.                                           Delaware
Health Resources Corporation of America-California                     California
Health Resources Corporation of America-Florida                        Delaware          North Miami General Hospital
HNMC, Inc.                                                             Delaware          Houston Northwest Medical Center(TX)
HNPG, Inc.                                                             Texas
HNW GP, Inc.                                                           Delaware
Horizon Health Group, Inc.                                             Delaware
Houston Northwest Health System, Inc.                                  Texas
Houston Northwest Home Health Care, Inc.                               Texas
Houston Northwest Management Services, Inc.                            Texas
Houston Northwest Medical Center, Inc.                                 Delaware
Indianapolis Health Systems, Inc.                                      Indiana
Indianapolis Physician Services, Inc.                                  Indiana
LaHacienda Treatment Center, Inc.                                      Delaware          LaHacienda Treatment Center
                                                                                         Horizon Outpatient Services
Lander Valley Regional Medical Center                                  Wyoming
LBPG, Inc.                                                             California
LCMH, Inc.                                                             Texas
Lewisburg Community Hospital, Inc.                                     Tennessee
Life Visions, Inc. (Non-Profit)                                        Missouri
Lewisburg Hospital Properties, Inc.                                    Tennessee
Managed Health Alliance                                                California
Matrix Associates, Inc.                                                Arizona
MCS Administrative Services, Inc.                                      California
MCF, Inc.                                                              Florida

                                                                -3-

Subsidiary                                                      State of Incorporation   Assumed Names
- ----------                                                      ----------------------   -------------
Medi-Health of Florida, Inc.                                           Florida
Meridian Regional Hospital, Inc.                                       Mississippi
Mesa General Hospital Medical Center, Inc.                             Arizona
MGPG, Inc.                                                             California
Midway Hospital Medical Center, Inc.                                   California
Monterey Park Hospital                                                 California        Medtrust
MPC, Inc.                                                              West Virginia     Plateau Medical Center, Inc.
                                                                                         Medtrust
NAI Community Hospital of Phoenix, Inc.                                Arizona
Newport Beach Health Systems,  Inc.                                    California
NLVH, Inc.                                                             Nevada            North Las Vegas Hospital, Inc.
                                                                                         Community Hospital of North Las Vegas, Inc.
                                                                                         Lake Mead Hospital Medical Center, Inc.
                                                                                         Stewart Medical Center
NLVPG of Nevada, Inc.                                                  Nevada
Northwest Houston Providers Alliance, Inc.                             Texas
OHM Health Initiatives, Inc.                                           Massachusetts
OHM Services, Inc. (Non-Profit)                                        Massachusetts
OrNda FMC, Inc.                                                        Florida
OrNda Access, Inc.                                                     Arizona
OrNda Acquisition Corporation                                          Massachusetts
OrNda Ambulatory Network, Inc.                                         California
OrNda HealthChoice, Inc.                                               Arizona

OrNda HealthCorp of Florida, Inc.                                      California        Florida Medical Center South
OrNda HealthCorp of Massachusetts, Inc.                                Massachusetts

                                                                -4-

Subsidiary                                                      State of Incorporation   Assumed Names
- ----------                                                      ----------------------   -------------

OrNda HealthCorp of Phoenix, Inc.                                      California        Horizon Hospital
                                                                                         St. Luke's Medical Center (AZ)
                                                                                         St. Luke's Behavioral Health Center (AZ)
                                                                                         Tempe St. Luke's Hospital (AZ)
                                                                                         St. Luke's Skilled Nursing Facility (AZ)
                                                                                         St Luke's Rehabilitation Center (AZ)
                                                                                         St. Luke's Centre Medical Clinic (AZ)
                                                                                         Centre Clinic I (AZ)
                                                                                         Centre Clinic III (AZ)
                                                                                         East Valley Center for Primary Care (AZ)
                                                                                         Center For Primary Care (AZ)
OrNda Homecare, Inc.                                                   California
OrNda Hospital Corporation                                             California
OrNda Hospital Investment Corp.                                        Massachusetts
OrNda Health Initiatives, Inc.                                         Delaware          GCG Supplemental Staffing (TX)
                                                                                         High Tech Infusion (TX)
                                                                                         Home Health Management
                                                                                         Home Health Equipment (FL)
OrNda Investments, Inc.                                                Nevada
OrNda Management Services, Inc.                                        Delaware
OrNda of South Florida, Inc.                                           Delaware
OrNda of South Florida Services Corporation                            Florida
OrNda Receivables Company                                              California
Portland Health Centers, Inc.                                          Oregon
Poway Health Systems, Inc.                                             California
Premier Health Systems, Inc.                                           Delaware
Provident Nursing Homes, Inc.                                          Massachusetts
PSH, Inc.                                                              Washington        Puget Sound Hospital
                                                                                         Puget Sound Hospital Volunteers
                                                                                         Puget Sound Hospital Gift Shop
                                                                                         Medtrust

                                                                -5-

Subsidiary                                                      State of Incorporation   Assumed Names
- ----------                                                      ----------------------   -------------

Qualicare of Mississippi, Inc.                                         Louisiana
Qualicare of Wyoming, Inc.                                             Louisiana
Republic Health Corporation of Arizona                                 Arizona
Republic Health Corporation of California                              Delaware
Republic Health Corporation of Central Georgia                         Georgia
Republic Health Corporation of Hayward                                 California
Republic Health Corporation of Indianapolis                            Indiana             Winona Memorial Hospital
                                                                                           Midwest Medical Center
Republic Health Corporation of Meridian                                Delaware
Republic Health Corporation of Mesquite                                Delaware            Mesquite Physicians Hospital
Republic Health Corporation of North Miami                             Florida
Republic Health Corporation of Rockwall County                         Nevada
Republic Health Corporation of San Bernardino                          California
Republic Health Corporation of Texas                                   Nevada              Walnut Medical Center
                                                                                           Garland Community Hospital
                                                                                           GCG
                                                                                           Garland Diagnostic Center
                                                                                           Pulse Health Services
Republic Health of North Texas, Inc.                                   Texas
Republic Health Partners, Inc.                                         Delaware

RHC Florida, Inc.                                                      Delaware
RHC Parkway, Inc.                                                      Delaware
RHC Texas, Inc. (f/k/a Texas Regional Lab, Inc.)                       Texas               OHRL, Inc.(Texas)
RHCMS, Inc.                                                            Delaware
RHPC, Inc.                                                             Florida             Riverside Hospital, Inc.
                                                                                           North Bay Medical Center, Inc.
                                                                                           Medtrust
Rio Hondo Health Systems, Inc.                                         California          Rio Hondo Memorial Hospital
Rio Hondo Memorial Hospital                                            California

                                                                -6-

Subsidiary                                                      State of Incorporation   Assumed Names
- ----------                                                      ----------------------   -------------

Ross General Hospital                                                  California        Ross Horizon Hospital
                                                                                         Ross Hospital
Ross Hospital, Inc.                                                    Delaware
Sacramento Community Hospital, Inc.                                    California
San Juan Medical Center, Inc.                                          Florida
Santa Ana Hospital Medical Center, Inc.                                California
S.C. Cal., Inc.                                                        Washington        Trinity Valley Medical Center
                                                                                         Pulse Health Services
S.C. Management, Inc.                                                  Washington        Twin Rivers Fitness Center
                                                                                         Twin Rivers Medical Center
                                                                                         Quality Care Medical Supply
S.C. San Antonio, Inc.                                                 Washington        Southwest General Hospital
                                                                                         Generations
                                                                                         Impotence Center of South Texas
                                                                                         Safework Industrial Medicine Program
                                                                                         VIP Seniors Southwest MRI Imaging Center
                                                                                         Nurses Who Care Home Health Care Agency
S.V. Hospital, L.L.C.                                                  Massachusetts     Saint Vincent Hospital
SHL/O Corp                                                             Delaware
SNF Pharmacy, Inc.                                                     California
South Florida Physician Services, Inc.                                 Florida
Southwest Physician Management Services, Inc.                          Texas

South Park Medical Center, Inc.                                        Texas             South Park Medical Center
                                                                                         Lamesa Specialty Clinic
                                                                                         South Park Medical Center & Hospital
                                                                                         South Park Hospital & Medical Center
                                                                                         South Park Hospital
St. Luke Medical Center                                                California

                                                                -7-

Subsidiary                                                      State of Incorporation   Assumed Names
- ----------                                                      ----------------------   -------------

STH Corporation                                                        Texas             Sharpstown General Hospital
                                                                                         Medtrust
                                                                                         Workfit
S.V. Hospital, L.L.C.                                                  Massachusetts     Saint Vincent Hospital
The Davenport Clinic, Inc.                                             Iowa
TriLink Provider Services Organization, Inc.                           Florida
Tucson General Hospital, Inc.                                          Arizona
USDHC, Inc.                                                            California

Valley Community Hospital, Inc.                                        California
WCH Management Services, Inc.                                          California
West Los Angeles Health Systems, Inc.                                  California        Brotman Medical Center
Westcenter Rehabilitation Facility, Inc.                               Arizona           Westcenter
Westside Hospital, LLC                                                 Delaware
Whittier Hospital Medical Center, Inc.                                 California
Woodland Park Hospital, Inc.                                           Oregon            Medtrust
                                                                                         Pulse Health Services
WPH Management Services, Inc.                                          Oregon


                                                                -8-

                                                                     EXHIBIT 23

                                                                     EXHIBIT 23




                         Consent of Independent Auditors


We consent to the incorporation by reference in the following Registration
Statements:

a.   Form S-8 Registration Statement (No. 33-37699) relating to 851,563 shares
     of Common Stock issuable under the Republic Health Corporation Stock
     Accumulation Plan, the Republic Health Corporation 1990 Stock Option Plan
     and the Republic Health Corporation 1991 Stock Option Plan, filed on
     November 9, 1990;

b.   Form S-8 Registration Statement (No. 33-78620) relating to 860,002 shares
     of Common Stock issuable under the American Healthcare Management, Inc.
     1990 Non-Employee Directors' Stock Plan, the American Healthcare
     Management, Inc. 1990 Stock Plan, and the American Healthcare Management,
     Inc. 1990 Volla and Dubbs Executive Compensation Agreements, filed on May
     4, 1994;

c.   Form S-8 Registration Statement (No. 33-78618) relating to 245,512 shares
     of Common Stock issuable under the Summit Health Ltd. Stock Option Plan,
     the Summit Health Ltd. 1992 Stock Option Plan, and the Summit Health Ltd.
     Stock Option Agreements, filed on May 4, 1994;

d.   Form S-3 Registration Statement (No. 33-76700) relating to 1,376,755 shares
     of Payable-In-Kind Cumulative Redeemable Convertible Preferred Stock and
     4,321,651 shares of Common Stock of OrNda HealthCorp, effective on June 15,
     1994;

e.   Form S-8 Registration Statement (No. 33-81778) relating to 4,150,000 shares
     of Common Stock issuable under the OrNda HealthCorp 1994 Management Equity
     Plan and the OrNda HealthCorp Incentive Bonus Plan, filed on July 20, 1994;

f.   Form S-4 Registration Statement (No. 33-89046) relating to 1,000,000 shares
     of Common Stock issuable from time to time in certain of the acquisitions
     of OrNda HealthCorp, effective on June 6, 1995;

g.   Form S-8 Registration Statement (No. 333-00359) relating to 1,300,000
     shares of Common Stock issuable under the OrNda HealthCorp Employee Stock
     Purchase Plan and the OrNda HealthCorp Outside Directors Stock Option Plan,
     filed on January 22, 1996;

                                     Page 2


h.   Form S-8 Registration Statement (No. 333-00399) relating to 3,000,000
     shares of Common Stock issuable under the OrNda HealthCorp 1994
     Management Equity Plan, filed on January 24, 1996;

and in the related Prospectuses of our report dated October 25, 1996, with
respect to the consolidated financial statements and schedule of OrNda
HealthCorp included in the Annual Report (Form 10-K) for the year ended August
31, 1996.


                                                              ERNST & YOUNG LLP


Nashville, Tennessee
November 13, 1996

                                                                      EXHIBIT 24

                                POWER OF ATTORNEY

                           ANNUAL REPORT ON FORM 10-K
                                       FOR
                                ORNDA HEALTHCORP


         KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Keith B. Pitts, Executive Vice President
and Chief Financial Officer of OrNda HealthCorp (hereinafter referred to as the
"Company"), and Ronald P. Soltman, Senior Vice President, General Counsel and
Secretary of the Company, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute and file, or cause to be filed,
with the Securities and Exchange Commission (herein referred to as the
"Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1996,
and all amendments thereto, and all matters required by the Commission in
connection with such report under The Securities Exchange Act of 1934, as
amended, granting unto each such attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.


                                            /s/  Leonard Green
                                            Leonard Green
                                            Director

November 7, 1996

                                POWER OF ATTORNEY

                           ANNUAL REPORT ON FORM 10-K
                                       FOR
                                ORNDA HEALTHCORP


         KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Keith B. Pitts, Executive Vice President
and Chief Financial Officer of OrNda HealthCorp (hereinafter referred to as the
"Company"), and Ronald P. Soltman, Senior Vice President, General Counsel and
Secretary of the Company, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute and file, or cause to be filed,
with the Securities and Exchange Commission (herein referred to as the
"Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1996,
and all amendments thereto, and all matters required by the Commission in
connection with such report under The Securities Exchange Act of 1934, as
amended, granting unto each such attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.


                                            /s/  Peter A. Joseph
                                            Peter A. Joseph
                                            Director

November 7, 1996

                                POWER OF ATTORNEY

                           ANNUAL REPORT ON FORM 10-K
                                       FOR
                                ORNDA HEALTHCORP


     KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Keith B. Pitts, Executive Vice President
and Chief Financial Officer of OrNda HealthCorp (hereinafter referred to as the
"Company"), and Ronald P. Soltman, Senior Vice President, General Counsel and
Secretary of the Company, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute and file, or cause to be filed,
with the Securities and Exchange Commission (herein referred to as the
"Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1996,
and all amendments thereto, and all matters required by the Commission in
connection with such report under The Securities Exchange Act of 1934, as
amended, granting unto each such attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.


                                            /s/  Paul S. Levy
                                            Paul S. Levy
                                            Director

November 7, 1996

                                POWER OF ATTORNEY

                           ANNUAL REPORT ON FORM 10-K
                                       FOR
                                ORNDA HEALTHCORP


         KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints each of Keith B. Pitts, Executive Vice President
and Chief Financial Officer of OrNda HealthCorp (hereinafter referred to as the
"Company"), and Ronald P. Soltman, Senior Vice President, General Counsel and
Secretary of the Company, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to execute and file, or cause to be filed,
with the Securities and Exchange Commission (herein referred to as the
"Commission") the Company's Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 on Form 10-K for the year ended August 31, 1996,
and all amendments thereto, and all matters required by the Commission in
connection with such report under The Securities Exchange Act of 1934, as
amended, granting unto each such attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.


                                            /s/  John J. O'Shaughnessy
                                            John J. O'Shaughnessy
                                            Director

November 7, 1996

                                                                     EXHIBIT 27

EX-27

 

<ARTICLE> 5
<LEGEND>
This Financial Data Schedule contains summary financial information extracted
from the Company's balance sheet and statement of income and is qualified in its
entirety by reference to such financial statements.

<MULTIPLIER>                                     1,000
       
                             
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          AUG-31-1996
<PERIOD-END>                               AUG-31-1996
<CASH>                                          17,435
<SECURITIES>                                         0
<RECEIVABLES>                                  458,321
<ALLOWANCES>                                    78,447
<INVENTORY>                                     42,168
<CURRENT-ASSETS>                               525,815
<PP&E>                                       1,705,900
<DEPRECIATION>                                 370,707
<TOTAL-ASSETS>                               2,466,528
<CURRENT-LIABILITIES>                          437,678
<BONDS>                                      1,229,930
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           583
<OTHER-SE>                                     639,834
<TOTAL-LIABILITY-AND-EQUITY>                 2,466,528
<SALES>                                              0
<TOTAL-REVENUES>                             2,147,232
<CGS>                                                0
<TOTAL-COSTS>                                1,772,570
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                               141,833
<INTEREST-EXPENSE>                             107,243
<INCOME-PRETAX>                                135,113
<INCOME-TAX>                                    35,242
<INCOME-CONTINUING>                             99,871
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    99,871
<EPS-PRIMARY>                                     1.73
<EPS-DILUTED>                                     1.72