-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NAUk0G/m90e4MxYRI1qH3LJQ1Yayw21p5CTnbXMz/FPAeuR6Py2DUGKCftYEPThc 3Y/WEVqdmZgLHCv3iOTF9g== 0000950144-99-003522.txt : 19990331 0000950144-99-003522.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950144-99-003522 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLUMBIA HCA HEALTHCARE CORP/ CENTRAL INDEX KEY: 0000860730 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 752497104 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-11239 FILM NUMBER: 99578128 BUSINESS ADDRESS: STREET 1: ONE PARK PLZ CITY: NASHVILLE STATE: TN ZIP: 37203 BUSINESS PHONE: 6153449551 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA HEALTHCARE CORP DATE OF NAME CHANGE: 19930830 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA HOSPITAL CORP DATE OF NAME CHANGE: 19930328 10-K405 1 COLUMBIA/HCA HEALTHCARE CORP 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-11239 --------------------- COLUMBIA/HCA HEALTHCARE CORPORATION (Exact Name of Registrant as Specified in its Charter) --------------------- DELAWARE 75-2497104 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) ONE PARK PLAZA 37203 NASHVILLE, TENNESSEE (Zip Code) (Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (615) 344-9551 Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $.01 Par Value New York Stock Exchange
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. [X] As of March 15, 1999, there were outstanding 621,233,662 shares of the Registrant's Voting Common Stock and 21,000,000 shares of the Registrant's Nonvoting Common Stock. As of March 15, 1999 the aggregate market value of the Common Stock held by non-affiliates was approximately $9,110,186,000. For purposes of the foregoing calculation only, the Registrant's directors, executive officers, The Columbia/HCA Healthcare Corporation Stock Bonus Plan, The Columbia/HCA Healthcare Corporation Salary Deferral Plan and the San Leandro Retirement and Savings Plan have been deemed to be affiliates. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for its 1999 Annual Meeting of Stockholders are incorporated by reference into Part III hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INDEX
PAGE REFERENCE --------- PART I Item 1. Business.................................................... 3 Item 2. Properties.................................................. 21 Item 3. Legal Proceedings........................................... 22 Item 4. Submission of Matters to a Vote of Security Holders......... 32 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 33 Item 6. Selected Financial Data..................................... 34 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 36 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 52 Item 8. Financial Statements and Supplementary Data................. 52 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 52 PART III Item 10. Directors and Executive Officers of the Registrant.......... 53 Item 11. Executive Compensation...................................... 53 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 53 Item 13. Certain Relationships and Related Transactions.............. 53 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 54
2 3 PART I ITEM 1. BUSINESS GENERAL Columbia/HCA Healthcare Corporation is one of the leading health care services companies in the United States. At December 31, 1998, the Company operated 266 general, acute care hospitals and 15 psychiatric hospitals. In addition, as part of its comprehensive health care networks, the Company operated 102 outpatient surgery centers and provided extensive outpatient and ancillary services. Affiliates of the Company are also partners in several joint ventures that collectively own and operate 22 general, acute care hospitals, 2 psychiatric hospitals and 5 outpatient surgery centers which are accounted for using the equity method. The Company and its affiliates are located in 32 states, England and Switzerland. The term the "Company" or "Columbia/HCA" as used herein refers to Columbia/HCA Healthcare Corporation and its affiliates unless otherwise stated or indicated by context. The term "affiliates" means direct and indirect subsidiaries of Columbia/HCA Healthcare Corporation and partnerships and joint ventures in which such subsidiaries are partners. The Company's primary objective is to provide the communities it serves a comprehensive array of quality health care services in the most cost effective manner possible. The Company's general, acute care hospitals usually provide a full range of services commonly available in hospitals to accommodate such medical specialties as internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency services. Outpatient and ancillary health care services are provided by the Company's general, acute care hospitals, as well as at freestanding facilities operated by the Company, including outpatient surgery and diagnostic centers, rehabilitation facilities and other facilities. In addition, the Company operates psychiatric hospitals which generally provide a full range of mental health care services in inpatient, partial hospitalization and outpatient settings. The Company also operates preferred provider organizations in 46 states. During 1998, the Company completed the sale of 36 hospitals, which included the sale of 21 hospitals to a consortium of not-for-profit entities. The Company also sold 36 ambulatory surgery centers. Throughout the year, the Company acquired six hospitals and completed construction on three hospitals. In the third and fourth quarters of 1998, the Company substantially completed the sale of its home health business. During the second and third quarters of 1998, the Company completed the sale of three of the four units acquired when the Company acquired Value Health, Inc. ("Value Health"). The Company acquired Value Health in August 1997 in a merger accounted for as a purchase (the "Value Health Merger"). During April 1995, the Company acquired Healthtrust, Inc. -- The Hospital Company ("Healthtrust") in a merger transaction accounted for as a pooling of interests (the "Healthtrust Merger"). Healthtrust began operations through the acquisition of a group of hospitals and related assets from Hospital Corporation of America (the predecessor to HCA) in September 1987. During May 1994, Healthtrust acquired EPIC Holdings, Inc. ("EPIC") in a transaction accounted for as a purchase. During September 1994, the Company acquired Medical Care America, Inc. ("MCA") in a transaction accounted for as a purchase. During February 1994, the Company acquired HCA-Hospital Corporation of America ("HCA") in a merger transaction accounted for as a pooling of interests. Effective September 1993, the Company acquired Galen Health Care, Inc. ("Galen") in a merger transaction accounted for as a pooling of interests. Galen began operations as an independent publicly held corporation upon the distribution of all of its common stock by its then 100% owner, Humana Inc., in March 1993. The Company, through various predecessor entities, began operations on July 1, 1988. The Company was incorporated in Nevada in January 1990 and reincorporated in Delaware in September 1993. The Company's principal executive offices are located at One Park Plaza, Nashville, Tennessee 37203, and its telephone number at such address is (615) 344-9551. BUSINESS STRATEGY The Company's business strategy is to be a comprehensive provider of quality health care services in select communities. The Company maintains and replaces equipment, renovates and constructs replacement 3 4 facilities and adds new services to increase the attractiveness of its hospitals and other facilities to patients and local physicians. By developing a comprehensive health care network with a broad range of health care services located throughout a market area, the Company believes it is better able to attract and serve patients and physicians. The Company believes it is also able to reduce operating costs by sharing certain services among several facilities in the same area and is better positioned to work with health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs") and employers. The Company generally seeks to operate each of its facilities as part of a network with other health care facilities that it owns or operates within the same region. The Company is concentrating on those communities where the Company is a leader or has a reasonable expectation of becoming a leader. By narrowing its focus to these communities, the Company seeks to take advantage of the synergies that come from economies of scale. In instances where assets within a particular community do not fit within the Company's business strategy and where acquisitions of additional facilities in the area are not possible or practical, the Company may seek to joint venture or partner with other local facilities or, alternatively, may seek to divest those assets. See Note 16 -- Segment and Geographic Information in the Notes to Consolidated Financial Statements. As a part of its business strategy, the Company continues to reevaluate and restructure its operations to create a smaller, more focused company. This strategy will allow Company management to concentrate their efforts on the Company's strategic locations, which are typically located in urban areas that are characterized by highly integrated health care facility networks. During 1999, the Company sold 36 hospitals and 36 surgery centers in non-strategic locations, substantially all of its home health care operations and various other assets. The Company also plans to spin-off the Company's Pacific (38 hospitals and 17 surgery centers) and America (23 hospitals) operating groups into two independent, publicly traded companies named Triad Hospitals and LifePoint Hospitals, respectively. Management believes that by separating the groups into two smaller, focused public companies, whose facilities are located outside the Company's strategic markets, the performance and profitability of the facilities in these groups should be enhanced. Management also believes that the new companies will have more focused management, have more effective operating structures based on local conditions and will be better able to tailor compensation incentives for employees to each group's performance. The spin-offs are anticipated to be completed in the second quarter of 1999, subject to receipt of a favorable ruling from the Internal Revenue Service (the "IRS"), certain regulatory approvals and financing. The Company will continually reassess and refine its business strategy throughout 1999. CHALLENGES, RESTRUCTURING AND PROGRESS While the Company continued to encounter significant legal and operational challenges and changes during 1998, the Company also made significant progress in the implementation of the business plan and strategy developed and initiated during 1997. The Company made significant strides in 1998 in refining its business plan and strategy. The Company is restructuring its operations to create a smaller and more focused company. The restructuring includes divestitures of certain non-strategic hospitals, surgery centers and various other assets. The Company also has substantially implemented the action plan developed in August 1997, to return the Company's emphasis to its primary goal of local, community-focused care and to redefine its approach to certain business practices that may have led to the investigations by certain government agencies. The Company has instituted a values based culture to insure patient care is our primary focus and to strive to deliver high quality, cost-effective, community based health care. The Company has solid leadership, enhanced policies and procedures and a preeminent compliance program. The Company has substantially completed the sale of its home care units and the repurchase of physician interests in hospitals. 4 5 While management believes the reorganization and other plans are in the best interest of the Company and its shareholders, management is not currently able to predict what effect such actions might have on the Company's financial position or results of operations. The Company remains the subject of several Federal investigations into its business practices, as well as governmental investigations by numerous states. The Company is working closely with the appropriate governmental authorities to resolve these matters. The Company is also named in other various legal proceedings, which include qui tam actions, shareholder derivative and class action suits filed in Federal court, shareholder derivative actions filed in state courts, patient/payer actions and general liability claims. The Company is defending these actions vigorously. See Item 3 -- "Legal Proceedings." It is too early to predict the outcome or quantify the effects that the ongoing investigations and litigation, the initiation of additional investigations or litigation, if any, and the related media coverage will have on the Company's financial condition or results of operations in future periods. Were the Company to be found in violation of Federal or state laws relating to Medicare, Medicaid or similar programs, the Company could be subject to substantial monetary fines, civil and criminal penalties and exclusion from participation in the Medicare and Medicaid programs. Any such sanctions could have a material adverse effect on the Company's financial position and results of operations. HEALTH CARE FACILITIES The Company currently owns, manages or operates hospitals, ambulatory surgery centers, diagnostic centers, cardiac rehabilitation centers, physical therapy centers, radiation oncology centers, comprehensive outpatient rehabilitation centers and various other programs. At December 31, 1998, the Company, either directly or through joint ventures, operated 288 general, acute care hospitals with 57,865 licensed beds. Most of the Company's general, acute care hospitals provide medical and surgical services, including inpatient care, intensive and cardiac care, diagnostic services and emergency services. The general, acute care hospitals also provide outpatient services such as outpatient surgery, laboratory, radiology, respiratory therapy, cardiology and physical therapy. A local advisory board, which usually includes members of the hospital's medical staff, generally makes recommendations concerning the medical, professional and ethical practices at each hospital and monitors such practices. However, the hospital is ultimately responsible for ensuring that these practices conform to established standards. When the Company acquires a hospital, it establishes quality assurance programs to support and monitor quality of care standards and to meet accreditation and regulatory requirements. Patient care evaluations and other quality of care assessment activities are monitored on a continuing basis. 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. At December 31, 1998, the Company either directly or through joint ventures, operated 17 psychiatric hospitals with 1,843 licensed beds. The Company's psychiatric hospitals provide therapeutic programs tailored to child psychiatric, adolescent psychiatric, adult psychiatric, adolescent alcohol or drug abuse and adult alcohol or drug abuse patients. The hospitals use the "treatment team" concept whereby the admitting physician, team psychologist, social workers, nurses, therapists and counselors coordinate each phase of therapy. Services provided by this team include crisis intervention, individual psychotherapy, group and family therapy, social services, chemical dependency counseling, behavioral modification and physical therapy. Family aftercare plans are actively promoted from the time of admission, through hospitalization and after discharge. An aftercare plan measures each patient's post-program progress and utilizes one or more self-help groups. Program procedures are designed to ensure that quality standards are achieved and maintained. Certain of the Company's general, acute care hospitals also have a limited number of licensed psychiatric beds. Other outpatient or related health care services operated by the Company include ambulatory surgery centers, diagnostic centers, outpatient physical therapy/rehabilitation centers, outpatient radiation therapy 5 6 centers, cardiac rehabilitation centers and skilled nursing services. These outpatient and related services are an integral component of the Company's strategy to develop a comprehensive health care network in each of its target markets. In addition to providing capital resources, the Company makes available a variety of management services to its health care facilities, most significantly: ethics and compliance programs; national supply and equipment purchasing and leasing contracts; accounting, financial and clinical systems; governmental reimbursement assistance; construction planning and coordination; information systems; legal counsel; personnel management and internal audit. SOURCES OF REVENUE Hospital revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charges or negotiated payment rates for such services. Charges and reimbursement rates for inpatient routine services vary significantly depending on the type of service (e.g., medical/surgical, 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. This increase is primarily the result of advances in technology (which allow more services to be provided on an outpatient basis), acquisitions of additional outpatient facilities and increased pressures from Medicare, Medicaid, HMOs, PPOs, employers and insurers to reduce hospital stays and provide services, where possible, on a less expensive outpatient basis. The Company receives payment for patient services from the Federal government primarily under the Medicare program, state governments under their respective Medicaid programs, HMOs, PPOs and other private insurers as well as directly from patients. The approximate percentages of patient revenues from continuing operations of the Company's facilities from such sources during the periods specified below were as follows:
YEARS ENDED DECEMBER 31, ------------------ 1998 1997 1996 ---- ---- ---- Medicare.................................................... 30% 34% 35% Medicaid.................................................... 6% 6% 6% Managed care................................................ 32% 28% 25% Other sources............................................... 32% 32% 34% ---- ---- ---- Total............................................. 100% 100% 100% ==== ==== ====
Medicare is a Federal program that provides certain hospital and medical insurance benefits to persons age 65 and over, some disabled persons and persons with end-stage renal disease. Medicaid is a Federal-state program administered by the states which provides hospital benefits to qualifying individuals who are unable to afford care. Substantially all of the Company's hospitals are certified as providers of Medicare and Medicaid services. Amounts received under the Medicare and Medicaid programs are generally significantly less than the hospital's customary charges for the services provided. To attract additional volume, most of the Company's hospitals offer discounts from established charges to certain large group purchasers of health care services, including Blue Cross, other private insurance companies, employers, HMOs, PPOs and other managed care plans. Blue Cross is a private health care program that funds hospital benefits through independent plans that vary in each state. These discount programs limit the Company's ability to increase charges in response to increasing costs. See "Competition." Patients are generally not responsible for any difference between customary hospital charges and amounts reimbursed for such services under Medicare, Medicaid, some Blue Cross plans, HMOs or PPOs, but are responsible to the extent of any exclusions, deductibles or co-insurance features of their coverage. The amount of such exclusions, deductibles and co-insurance has generally been increasing each year. Collection of amounts due from individuals is typically more difficult than from governmental or business payers. 6 7 Medicare Under the Medicare program the Company receives reimbursement under a prospective payment system ("PPS") for inpatient hospital services. Psychiatric, long-term care, rehabilitation, specially designated children's hospitals and certain designated cancer research hospitals, as well as psychiatric or rehabilitation units that are distinct parts of a hospital and meet Health Care Financing Administration ("HCFA") criteria for exemption, are currently exempt from PPS and are reimbursed on a cost based system, subject to certain cost limits (known as TEFRA limits). Under PPS, fixed payment amounts per inpatient discharge are established based on the patient's assigned diagnosis related group ("DRG"). DRGs classify treatments for illnesses according to the estimated intensity of hospital resources necessary to furnish care for each principal diagnosis. DRG rates have been established for each hospital participating in the Medicare program and are based upon a statistically normal distribution of severity. When treatments for certain patients fall well outside the normal distribution, providers receive additional payments (outliers). DRG payments do not consider a specific hospital's cost, but are adjusted for area wage differentials. The majority of capital costs for acute care facilities are reimbursed on a prospective payment system based on DRG weights multiplied by a Federal rate adjusted for a geographic rate. DRG rates are updated and recalibrated annually and have been affected by several recent Federal enactments. The index used to adjust the DRG rates (the "market basket") gives consideration to the inflation experienced by hospitals (within the hospital market basket) in purchasing goods and services. However, for several years the percentage increases to the DRG rates have been lower than the percentage increases in the costs of goods and services purchased by hospitals. The DRG rates are adjusted each Federal fiscal year, which begins on October 1. The historical DRG rate increases were 1.1% 1.5% and 2.0% for Federal fiscal years 1995, 1996 and 1997, respectively. For Federal fiscal year 1998, there was no increase. The budgeted updates for Federal fiscal years 1999 through 2002 are market basket minus 1.9%, 1.8%, 1.1% and 1.1% respectively. The Company anticipates that future legislation may decrease the rate of increase for DRG payments in the future, but is not able to predict the amount of the reduction. Outpatient services provided at general, acute care hospitals typically are reimbursed by Medicare at the lower of customary charges or approximately 82% of actual cost, subject to additional limits on the reimbursement of certain outpatient services. The Balanced Budget Act of 1997 ("BBA-97"), enacted August 5, 1997, contains provisions that affect outpatient services, including a requirement that HCFA adopt a prospective payment system for outpatient hospital services to begin January 1, 1999. However, implementation of the PPS will be delayed because of Year 2000 systems concerns. The outpatient PPS will be implemented as soon as possible after January 1, 2000. At such time as PPS is implemented, the rates will be based on the rates that would have been in effect January 1, 1999, updated by the rate of increase in the hospital market basket minus one percentage point. The Company is not able to predict the effect, if any, that the new payment system will have on its financial results. After the fee schedule is established for this new PPS system, the fee schedule is to be updated by the market basket minus 1.0% for each of Federal fiscal years 2000 through 2002. Similarly, effective January 1, 1999, therapy services rendered by hospitals to outpatients and inpatients not covered under a Part A stay are reimbursed according to the Medicare physician fee schedule. Payments to PPS-exempt hospitals and units, (i.e., inpatient psychiatric, rehabilitation and long-term hospital services), are based upon reasonable cost, subject to a cost per discharge target. These limits are updated annually by a market basket index. For Federal fiscal years 1995, 1996 and 1997, the market basket rate of increase was 3.7%, 3.4%, and 2.5% respectively. For Federal fiscal years 1994 through 1997, the market basket is reduced by the lesser of 1% or the percentage difference between 10% and the percentage by which the hospital's allowable operating costs exceed the target amount in Federal fiscal year 1990. For Federal fiscal year 1998, there was no increase. For Federal fiscal year 1999, the market basket index is projected to be 2.4%. The update for cost reporting periods October 1, 1998 to September 30, 1999 is the market basket less a percentage point between 0% and 2.4% depending on the hospital's or unit's costs in relation to the ceiling (target). Furthermore, limits have been established for the cost per discharge target at the 75th percentile for 7 8 each category of PPS-exempt hospitals and hospital units. For Federal fiscal year 1998, these limits are $10,534, $19,104, and $37,688 per discharge respectively. For Federal fiscal year 1999, these new limits are $10,787, $19,562 and $38,593 per discharge respectively. In addition the cost per discharge for new hospitals/hospital units cannot exceed 110% of the national median target rate for hospitals in the same category. For Federal fiscal year 1998 these amounts were $8,517, $16,738, and $18,947 per discharge for inpatient psychiatric, rehabilitation and long-term hospital services, respectively, and are wage adjusted. For Federal fiscal year 1999, these amounts are $8,686, $17,077 and $22,010 per discharge for inpatient psychiatric, rehabilitation and long-term hospital services, respectively. Skilled nursing facilities ("SNF") have historically been reimbursed by Medicare on the basis of actual costs, subject to certain limits. The BBA-97 requires the establishment of a prospective payment system for Medicare skilled nursing facilities under which facilities will be paid a Federal per diem rate for virtually all covered services. The new payment system will be phased in over three cost reporting periods, starting with cost reporting periods beginning on or after July 1, 1998. The law also institutes consolidated billing for skilled nursing facility services, under which payments for most non-physician Part B services for beneficiaries no longer eligible for Part A skilled nursing facility care will be made to the facility, regardless of whether the item or service was furnished by the facility, by others under arrangement, or under any other contracting or consulting arrangement. Consolidated billing is being implemented on a transition basis due to HCFA's delays in modifying the systems. BBA-97 also requires the United States Department of Health and Human Services ("HHS") to establish a PPS for home health services, to be implemented beginning October 1, 1999. Prior to implementation, the BBA-97 establishes certain interim payment reforms for cost reporting periods beginning on or after October 1, 1997, including reduced per visit costs limits, and agency-specific per beneficiary annual limits on an agency's costs. Effective for cost reporting periods beginning on or after October 1, 1997, home health agencies are paid the lower of (i) their reasonable costs, (ii) per visit limits or (iii) blended agency specific per beneficiary limits based on 98% of 1994 base year costs. Currently, physicians are paid by Medicare on a physician fee schedule. However, physicians working in rural health clinics, such as those maintained by the Company, are reimbursed for their professional and administrative services through the rural health clinic at cost subject to per visit limits unless the rural health clinic is based at a rural hospital with less than 50 beds. Medicare has special payment provisions for "sole community hospitals." A sole community hospital is generally the only hospital in at least a 35-mile radius. Thirteen of the Company's facilities qualify as sole community hospitals under Medicare regulations. Special payment provisions related to sole community hospitals include a higher reimbursement rate, which is based on a blend of hospital-specific costs and the national DRG rate, and a 90% payment "floor" for capital costs which guarantees the sole community hospital capital reimbursement equal to 90% of capital cost. In addition, the CHAMPUS program has special payment provisions for hospitals recognized as sole community hospitals for Medicare purposes (i.e., exempt from CHAMPUS DRG-based payment system). BBA-97 mandates a prospective payment system for skilled nursing facility services for Medicare cost reporting periods commencing after June 30, 1998, hospital outpatient services beginning January 1, 1999, home health services for Medicare cost reporting periods beginning after September 30, 1999, and inpatient rehabilitation hospital services for Medicare cost reporting periods beginning after September 30, 2000. Prior to the commencement of the prospective payment systems, payment constraints will be applied to PPS-exempt hospitals and units for Medicare cost reporting periods beginning on or after October 1, 1997. As of December 31, 1998, the Company had 87 rehabilitation hospitals/units, 163 skilled nursing facility units, 3 long term care hospitals and 48 psychiatric hospitals/units. Medicaid Most state Medicaid payments are made under a prospective payment system or under programs which negotiate payment levels with individual hospitals. Medicaid reimbursement is often less than a hospital's cost of services. Medicaid is currently funded jointly by the states and Federal government. The amount of the 8 9 Federal government's portion is at least 50% of the state's qualifying costs. The Federal government and many states are currently considering significant reductions in the level of Medicaid funding while at the same time expanding Medicaid benefits, which could adversely affect future levels of Medicaid reimbursement received by the Company's hospitals. On November 27, 1991, Congress enacted the Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991 which limit the amount of voluntary contributions and provider-specific taxes that can be used by states to fund Medicaid and require the use of broad-based taxes for such funding. As a result of enactment of these amendments, certain states in which the Company operates have adopted broad-based provider taxes to fund their Medicaid programs. The impact of these new taxes upon the Company has not been materially adverse. However, the Company is unable to predict whether any additional broad-based provider taxes will be adopted by the states in which it operates and, accordingly, is unable to assess the effect of such additional taxes on its results of operations or financial position. Annual Cost Reports All hospitals participating in the Medicare program, whether paid on a reasonable cost basis or under PPS, are required to meet certain financial reporting requirements. Federal regulations require the submission of annual cost reports covering the revenue, costs and expenses associated with the services provided by each hospital to Medicare beneficiaries. Annual cost reports required under the Medicare and Medicaid programs are subject to routine audits, which may result in adjustments to the amounts ultimately determined to be due to 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 it is common to contest issues raised in audits of prior years' reports. The Company believes that adequate provisions have been made in its financial statements for any material retroactive adjustments that might result from such audits and that final resolution of the contested issues will not have a material adverse effect upon its results of operations or financial position. Reviews of previously submitted annual cost reports and the cost report preparation process are areas included in the ongoing government investigations of the Company. It is too early to predict the outcome of these investigations, but if the Company or any of its facilities were found to be in violation of Federal or state laws relating to Medicare, Medicaid or similar programs, the Company could be subject to substantial monetary fines, civil and criminal penalties and exclusion from participation in the Medicare and Medicaid programs. Any such sanctions could have a material adverse effect on the financial position and results of operations of the Company. See Item 3 -- "Legal Proceedings." Managed Care Pressures to control the costs of health care have resulted in increases to the percentage of admissions and net revenues attributable to managed care payers. The percentage of the Company's admissions attributable to managed care payers increased from 35.2% for the year ended December 31, 1997 to 38.7% for the year ended December 31, 1998. The percentage of the Company's net revenue from continuing operations attributable to managed care payers increased from 28.4% for the year ended December 31, 1997 to 31.7% for the year ended December 31, 1998. The Company expects that the trend toward increasing percentages related to managed care payers will continue in the future. The Company generally receives lower payments from managed care payers than from traditional commercial/indemnity insurers. Commercial Insurance The Company's hospitals provide services to individuals covered by private health care insurance. Private insurance carriers make direct payments to such hospitals or, in some cases, reimburse their policyholders based upon the particular hospital's established charges and the particular coverage provided in the insurance policy. 9 10 Commercial insurers are continuing efforts to limit the costs of hospital services by adopting discounted payment mechanisms, including prospective payment or DRG-based payment systems for more inpatient and outpatient services. To the extent that such efforts are successful and reduce the insurers' reimbursement to hospitals for the costs of providing services to their beneficiaries, such reduced levels of reimbursement may have a negative impact on the operating results of the Company's hospitals. HOSPITAL UTILIZATION The Company believes that the two most important factors relating to the overall utilization of a hospital are the quality and market position of the hospital and the number and quality of physicians providing patient care within the facility. Generally, the Company believes that the ability of a hospital to be a market leader is determined by its breadth of services, level of technology, emphasis on quality of care and convenience for patients and physicians. Other factors which impact utilization include the growth in local population, local economic conditions and market penetration of managed care programs. The following table sets forth certain operating statistics for hospitals owned by the Company for each of the most recent five years. Medical/surgical hospital operations are subject to certain seasonal fluctuations, including decreases in patient utilization during holiday periods and increases in the cold weather months. Psychiatric hospital operations are also subject to certain seasonal fluctuations, including decreases in patient occupancy during the summer months and holiday periods.
YEARS ENDED DECEMBER 31, --------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- Number of hospitals at end of period(a)... 281 309 319 319 311 Number of licensed beds at end of period(b)............................... 53,693 60,643 61,931 61,347 59,595 Weighted average licensed beds(c)......... 59,104 61,096 62,708 61,617 57,517 Admissions(d)............................. 1,888,800 1,915,100 1,895,400 1,774,800 1,565,500 Equivalent admissions(e).................. 2,870,900 2,901,400 2,826,000 2,598,300 2,202,600 Average length of stay (days)(f).......... 5.0 5.0 5.1 5.3 5.6 Average daily census(g)................... 25,675 26,006 26,583 25,917 23,841 Occupancy rate(h)......................... 43% 43% 42% 42% 41%
- --------------- (a) Excludes 24 facilities in 1998, 27 facilities in 1997, 22 facilities in 1996 and 19 facilities in 1995 that are not consolidated (accounted for using the equity method) for financial reporting purposes. (b) Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency. (c) Represents the average number of licensed beds, weighted based on periods owned. (d) Represents the total number of patients admitted (in the facility for a period in excess of 23 hours) to the Company's hospitals and is used by management and certain investors as a general measure of inpatient volume. (e) Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation "equates" outpatient revenue to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume. (f) Represents the average number of days admitted patients stay in the Company's hospitals. (g) Represents the average number of patients in the Company's hospital beds each day. (h) Represents the percentage of hospital licensed beds occupied by patients. Both average daily census and occupancy rate provide measures of the utilization of inpatient rooms. Hospitals have experienced significant shifts from inpatient to outpatient care as well as decreases in average lengths of inpatient stay, primarily as a result of improvements in technology and clinical practices and hospital payment changes by Medicare, insurance carriers, managed care programs and self-insured 10 11 employers. These changes generally encourage the utilization of outpatient, rather than inpatient, services whenever possible, and shorter lengths of stay for inpatient care. COMPETITION Generally, other hospitals in the local markets served by most of the Company's hospitals provide similar services that are offered by the Company's hospitals. Additionally, in the past several years the number of freestanding outpatient surgery and diagnostic centers in the geographic areas in which the Company operates has increased significantly. As a result, most of the Company's hospitals operate in an increasingly competitive environment. The rates charged by the Company's hospitals are intended to be competitive with those charged by other local hospitals for similar services. In some cases, competing hospitals are more established than the Company's hospitals. Some competing hospitals are owned by tax-supported government agencies and many others by not-for-profit entities which may be supported by endowments and charitable contributions and are exempt from sales, property and income taxes. Such exemptions and support are not available to the Company's hospitals. In addition, in certain localities served by the Company there are large teaching hospitals which provide highly specialized facilities, equipment and services which may not be available at most of the Company's hospitals. Psychiatric hospitals frequently attract patients from areas outside their immediate locale and, therefore, the Company's psychiatric hospitals compete with both local and regional hospitals, including the psychiatric units of general, acute care hospitals. 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, technology offered and prices charged. 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. One of the most significant factors in the competitive position of a hospital is the number and quality of physicians affiliated with the hospital. Although physicians may at any time terminate their affiliation with a hospital operated by the Company, the Company's hospitals seek to retain physicians of varied specialties on the hospitals' medical staffs and to attract other qualified physicians. The Company believes that physicians refer patients to a hospital primarily on the basis of the quality of services it renders to patients and physicians, the quality of other physicians on the medical staff, the location of the hospital and the quality of the hospital's facilities, equipment and employees. Accordingly, the Company strives to maintain high ethical and professional standards and quality facilities, equipment, employees and services for physicians and their patients. Another major factor in the competitive position of a hospital is management's ability to negotiate service contracts with purchasers of group health care services. HMOs and PPOs attempt to direct and control the use of hospital services through managed care programs and to obtain discounts from hospitals' established charges. In addition, employers and traditional health insurers are increasingly interested in containing costs through negotiations with hospitals for managed care programs and discounts from established charges. Generally, hospitals compete for service contracts with group health care service purchasers on the basis of price, market reputation, geographic location, quality and range of services, quality of the medical staff and convenience. The importance of obtaining contracts with managed care organizations varies from market to market depending on the market strength of such organizations. State certificate of need ("CON") laws, which place limitations on a hospital's ability to expand hospital services and add new equipment, may also 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 those states which have no CON laws or which set relatively high levels of expenditures before they become reviewable by state authorities, competition in the form of new services, facilities and capital spending is more prevalent. The Company has not experienced, and does not expect to experience, any material adverse effects from state CON requirements or from the imposition, elimination or relaxation of such requirements. See "Regulation and Other Factors." 11 12 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 payers. As both private and government payers 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 payers may require changes in the Company's facilities, equipment, personnel, rates and/or services in the future. The hospital industry and the Company's hospitals continue to have significant unused capacity. Inpatient utilization, average lengths of stay and average occupancy rates continue to be negatively affected by payer-required pre-admission authorization, utilization review and by payer pressure to maximize outpatient and alternative health care delivery services for less acutely ill patients. Increased competition, admissions constraints and payer pressures are expected to continue. To meet these challenges, the Company expands many of its facilities to include outpatient centers, offers discounts to private payer groups, enters into capitation contracts in some service areas, upgrades facilities and equipment and offers new programs and services. REGULATION AND OTHER FACTORS Licensure, Certification and Accreditation Health care facility construction and operation is subject to Federal, state and local regulations relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, fire prevention, rate-setting and compliance with building codes and environmental protection laws. Facilities are subject to periodic inspection by governmental and other authorities to assure continued compliance with the various standards necessary for licensing and accreditation. The Company's health care facilities are properly licensed under appropriate state laws. Substantially all of the Company's general, acute care hospitals are certified under the Medicare program or are accredited by the Joint Commission on Accreditation of Healthcare Organizations ("Joint Commission"), the effect of which is to permit the facilities to participate in the Medicare and Medicaid programs. Certain of the Company's psychiatric hospitals do not participate in these programs. Should any facility lose its Joint Commission accreditation, or otherwise lose its certification under the Medicare program, the facility would be unable to receive reimbursement from the Medicare and Medicaid programs. 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, certification 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. Certificates of Need The construction of new facilities, the acquisition of existing facilities and the addition of new beds or services may be subject to review 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 the addition of beds or services or certain other capital expenditures. Failure to obtain necessary state approval can result in the inability to expand facilities, complete an acquisition or change ownership. Further, violation may result in the imposition of civil or, in some cases, criminal sanctions, the denial of Medicare or Medicaid reimbursement or the revocation of a facility's license. State Rate Review Some 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. 12 13 In the aggregate, state rate or budget review and indigent tax provisions have not 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 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 or cost. PROs may deny payment for services provided, may assess fines and also have the authority to recommend to the HHS that a provider which is in substantial noncompliance with the standards of the PROs be excluded from participating in the Medicare program. Utilization review is also a requirement of most non-governmental managed care organizations. Medicare Regulations and Fraud and Abuse Participation in the Medicare program is heavily regulated by Federal statute 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; (ii) paying remuneration for Medicare referrals (so called "fraud and abuse" which is prohibited by the "anti-kickback" provisions of the Social Security Act, hereinafter the "Anti-Fraud Amendments"); (iii) failing to stabilize all individuals who come to its emergency room who have an "emergency medical condition," whether or not any such individual is eligible for Medicare; (iv) 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 (v) 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), such hospital's participation in the Medicare program may be terminated or civil or criminal penalties may be imposed upon such hospital under certain provisions of the Social Security Act. Moreover, HHS and the courts have interpreted the Anti-Fraud Amendments broadly to include the intentional offer, payment, solicitation or receipt of anything of value if one purpose of the payment is to induce the referral of Medicare business. Health care providers generally are concerned that many relatively innocuous, or even beneficial, commercial arrangements with their physicians (or others that provide referrals) may technically violate this strict interpretation of the Anti-Fraud Amendments. In 1976 Congress established the Office of Inspector General ("OIG") at HHS 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. In order to provide guidance to health care providers on ways to engage in legitimate business practices and avoid scrutiny under the Anti-Fraud Amendments, the OIG has from time to time issued "fraud alerts" identifying features of transactions, which, if present, may indicate that the transaction violates the fraud and abuse law. The OIG has identified the following incentive arrangements as potential violations: (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 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 13 14 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) coverage on the hospital's group health insurance plans at an inappropriately low cost to the physician or (i) payment for services (which may include consultations at the hospital) which require few, if any, substantive duties by the physician, or payment for services in excess of the fair market value of services rendered. The OIG has encouraged persons having information about hospitals who offer the above types of incentives to physicians to report such information to the OIG. In addition, in July 1991, the OIG issued final regulations outlining certain "safe harbors" for practices, which, although potentially capable of inducing prohibited referrals of business under Medicare or state health programs, would not be subject to enforcement action under the Anti-Fraud Amendments. The practices protected 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. 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 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. Section 1877 of the Social Security Act (commonly known as the "Stark Law") prohibits referrals of Medicare and Medicaid patients 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 Medicaid. "Designated health services" include among other things, clinical laboratory services, physical and occupational therapy services, radiology services, durable medical equipment, home health, and inpatient and outpatient hospital services. Sanctions for violating the Stark Law include civil monetary penalties up to $15,000 per prohibited service provided, assessments equal to twice the dollar value of each such service provided and exclusion from the Medicare and Medicaid programs. There are certain exceptions to the self-referral prohibition, including an exception if the physician has an ownership interest in the entire hospital. Proposed regulations implementing the Stark Law, as amended, have not been implemented. The Company cannot predict the final form that such regulations will take or the effect that the Stark Law or the regulations 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 Anti-Fraud Amendments, but with broader effect since they apply regardless of the source of payment for care. These statutes typically provide criminal and civil penalties as well as loss of licensure. Many states also have passed legislation similar to the Stark Law, but with broader effect, since the legislation applies regardless of the source of payment for care. The scope of these state laws is broad, and little precedent exists for their interpretation or enforcement. The Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), which became effective January 1, 1997, amends, among other things, Title XI (42 U.S.C. & 1301 et seq.), to broaden the scope of certain fraud and abuse laws to include all health care services whether or not they are reimbursed under a Federal program, and creates new enforcement mechanisms to combat fraud and abuse, including an incentive program under which individuals can receive up to $1,000 for providing information on Medicare fraud and abuse that leads to the recovery of at least $100 of Medicare funds. 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 14 15 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 was followed by BBA-97 which was enacted by Congress on August 5, 1997. BBA-97 contains a significant number of new fraud and abuse provisions. Civil monetary penalties ("CMP") may now be imposed for violations of the anti-kickback provisions of the Medicare and Medicaid statute (previously, exclusion or criminal prosecution were the only actions under the anti-kickback statute) as well as contracting with an individual or entity that the provider knows or should know is excluded from a federal health care program. BBA-97 provides for a CMP of $50,000 and damages of not more than three times the amount of remuneration in the prohibited activity. In addition, BBA-97 also has important discharge planning and reimbursement provisions as well as surety bond requirements for home health agencies. The Social Security Act also 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. Like the Anti-Fraud Amendments, this statute is very broad. Careful and accurate coding of claims for reimbursement must be performed to avoid liability under the false claims statutes. 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 Anti-Fraud Amendments, the Stark Law, 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, 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. 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 Federal Medicaid regulations also prohibit fraudulent and abusive practices and authorize the exclusion from such program of providers in violation of such regulations. Medicare Regulations and Fraud and Abuse are areas included in the government investigation of the Company. See Item 3 -- "Legal Proceedings." State Legislation Some of the states in which the Company operates have laws that prohibit corporations and other entities from employing physicians and practicing medicine for a profit or that prohibit certain direct and indirect payments or fee-splitting arrangements between health care providers that are designed to induce or encourage the referral of patients to, or the recommendation of, particular providers for medical products and services. In addition, some states restrict certain business relationships between physicians and pharmacies. Possible sanctions for violation of these restrictions include loss of license and civil and criminal penalties. These statutes vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies. Although the Company exercises care in an effort to structure its arrangements with health care providers to comply with the relevant state statutes, and although management believes that the Company is in substantial compliance with these laws, there can be no assurance that (i) governmental officials charged with responsibility for enforcing these laws will not assert that the Company or certain transactions in which it is involved are in violation of such laws and (ii) such state laws will ultimately be interpreted by the courts in a manner consistent with the practices of the Company. 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 15 16 health care system, either nationally or at the state level. Among the proposals under consideration are cost controls on hospitals, insurance market reforms to increase the availability of group health insurance to small businesses, requirements that all businesses offer health insurance coverage to their employees and the creation of a single government health insurance plan that would cover all citizens. 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. 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. Conversion Legislation Many states have enacted or are considering enacting laws affecting the conversion or sale of not-for-profit hospitals. These laws, in general, include provisions relating to attorney general approval, advance notification and community involvement. In addition, state attorneys general in states without specific conversion legislation may exercise authority over these transactions based upon existing law. In many states there has been an increased interest in the oversight of not-for-profit conversions. The adoption of conversion legislation and the increased review of not-for-profit hospital conversions may limit the Company's ability to grow through acquisitions of not-for-profit hospitals. Revenue Ruling 98-15 In March 1998, the IRS issued guidance regarding the tax consequences of joint ventures between for-profit and not-for-profit hospitals. The Company is continuing to review the impact of the tax ruling on its existing joint ventures, or the development of future ventures, and is consulting with its joint venture partners and tax advisers to develop an appropriate course of action. The tax ruling could limit joint venture development with not-for-profit hospitals, require the restructuring of certain existing joint ventures with not-for-profits and influence the exercise of "put agreements" (that require the Company to purchase the partner's interest in the joint venture) by certain existing joint venture partners. ENVIRONMENTAL MATTERS The Company is subject to various Federal, state and local statutes and ordinances regulating the discharge of materials into the environment. Management does not believe that the Company will be required to expend any material amounts in order to comply with these laws and regulations or that compliance will materially affect its capital expenditures, earnings or competitive position. INSURANCE As is typical in the health care industry, the Company is subject to claims and legal actions by patients in the ordinary course of business. Through a wholly-owned insurance subsidiary, the Company insures a substantial portion of its professional and general liability risks. The Company's health care facilities are insured by the insurance subsidiary for losses of up to $25 million per occurrence, a portion of which is reinsured with unrelated commercial carriers. The Company also maintains professional and general liability insurance with unrelated commercial carriers for losses in excess of amounts insured by its insurance subsidiary. The Company and its insurance subsidiary maintain allowances for loss for professional and general liability risks which totalled $1.4 billion at December 31, 1998. Management considers such allowances, which are based on actuarially determined estimates, to be adequate for such liability risks. Any losses incurred in excess of the established allowances for loss will be reflected as a charge to earnings of the Company. Any losses incurred in excess of amounts funded and maintained with commercial excess liability insurance carriers will be funded from the Company's working capital. While the Company's cash flow has been adequate to provide for professional and general liability claims in the past, there can be no assurance that such amounts will continue to be adequate. If payments for professional and general liabilities exceed 16 17 anticipated losses, the results of operations and financial condition of the Company could be adversely affected. EMPLOYEES AND MEDICAL STAFFS At December 31, 1998 the Company had approximately 260,000 employees, including approximately 61,000 part-time employees. Employees at 11 hospitals are represented by various labor unions. The Company considers its employee relations to be satisfactory. While the Company's hospitals experience 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. There can be no assurance as to future availability and cost of qualified medical personnel. References herein to "employees" refer to employees of affiliates of the Company. The Company's hospitals are staffed by licensed physicians who have been admitted to the medical staff of individual hospitals. With certain exceptions, physicians generally are not employees of the Company's hospitals. However, some physicians provide services in the Company's hospitals under contracts, which generally describe a term of service, provide and establish the duties and obligations of such physicians, require the maintenance of certain performance criteria and fix compensation for such services. Any licensed physician may apply to be admitted to the medical staff of any of the Company's hospitals, but admission to the staff must be approved by the hospital's medical staff and the appropriate governing board of the hospital in accordance with established credentialling criteria. Members of the medical staffs of the Company's hospitals often also serve on the medical staffs of other hospitals and may terminate their affiliation with a hospital at any time. 17 18 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company as of March 15, 1999, were as follows:
NAME AGE POSITION(S) ---- --- ----------- Thomas F. Frist, Jr., M.D. .......... 60 Chairman of the Board and Chief Executive Officer Jack O. Bovender, Jr. ............... 53 President and Chief Operating Officer David G. Anderson.................... 51 Vice President -- Finance and Treasurer Richard M. Bracken................... 46 President -- Western Group Victor L. Campbell................... 52 Senior Vice President Kenneth C. Donahey................... 48 Senior Vice President and Chief Financial Officer -- America Group W. Leon Drennan...................... 43 Senior Vice President Rosalyn S. Elton..................... 37 Vice President -- Operations Finance James A. Fitzgerald, Jr. ............ 44 Vice President -- Contracts and Operations Support James M. Fleetwood, Jr. ............. 51 President and Chief Operating Officer -- America Group V. Carl George....................... 55 Vice President -- Development Jay F. Grinney....................... 48 President -- Eastern Group Neil D. Hemphill..................... 45 Senior Vice President -- Administration and Human Resources -- America Group Frank M. Houser, M.D. ............... 58 Senior Vice President -- Quality and Medical Director R. Milton Johnson.................... 42 Vice President & Controller Patricia T. Lindler.................. 51 Vice President -- Reimbursement Scott L. Mercy....................... 37 Chief Executive Officer -- America Group A. Bruce Moore, Jr. ................. 39 Vice President -- Operations Administration Philip R. Patton..................... 46 Senior Vice President -- Human Resources James D. Shelton..................... 45 President -- Pacific Group Joseph N. Steakley................... 44 Vice President -- Internal Audit & Consulting Services Robert A. Waterman................... 45 Senior Vice President and General Counsel Noel Brown Williams.................. 44 Senior Vice President and Chief Information Officer Alan R. Yuspeh....................... 49 Senior Vice President -- Ethics, Compliance and Corporate Responsibility
Thomas F. Frist, Jr., M.D. has served as Chairman of the Board and Chief Executive Officer since July 1997. Previously, he served as Vice Chairman of the Board of the Company from April 1995 until July 1997. From February 1994 to April 1995, he was Chairman of the Board of the Company. Dr. Frist was Chairman of the Board, President and Chief Executive Officer of HCA -- Hospital Corporation of America ("HCA") from 1988 to February 1994. Jack O. Bovender, Jr. has served as President and Chief Operating Officer of the Company since August 1997. From April 1994 to August 1997, he was retired after serving as Chief Operating Officer of HCA from 1992 until 1994. Prior to 1992, Mr. Bovender held several senior level positions with HCA. David G. Anderson has served as Vice President -- Finance of the Company since September 1993 and was elected to the additional position of Treasurer in November 1996. From March 1993 until September 1993, Mr. Anderson served as Vice President -- Finance and Treasurer of Galen Health Care, Inc. From July 1988 to March 1993, Mr. Anderson served as Vice President -- Finance and Treasurer of Humana Inc. Richard M. Bracken has served as President -- Western Group of the Company since August 1997. From January 1995 to August 1997, Mr. Bracken served as President of the Pacific Division of the Company. From July 1993 to December 1994, he served as President of Nashville Healthcare Network, Inc. From December 1981 to June 1993, he served in various hospital Chief Executive Officer and Administrator positions with HCA. 18 19 Victor L. Campbell has served as Senior Vice President of the Company since February 1994. Prior to that time, Mr. Campbell served as HCA's Vice President for Investor, Corporate and Government Relations. Mr. Campbell joined HCA in 1972. Mr. Campbell is currently a director of the Federation of American Health Systems and the American Hospital Association. Kenneth C. Donahey has served as Senior Vice President and Chief Financial Officer -- America Group of the Company since November 1998. Prior to that time, Mr. Donahey served as Senior Vice President and Controller of the Company from April 1995 to November 1998. Mr. Donahey served as Senior Vice President and Controller of Healthtrust from April 1993 to April 1995. Mr. Donahey served as Vice President and Controller of Healthtrust from 1987 to 1993. W. Leon Drennan has served as President -- Physician Services for the Company since January 1998. Mr. Drennan served as Senior Vice President -- Internal Audit of the Company from February 1995 to December 1997. From February 1994 to January 1995, Mr. Drennan served as Vice President -- Internal Audit of the Company. Mr. Drennan served as Vice President -- Internal Audit for HCA from 1987 until 1994. Rosalyn S. Elton has served as Vice President -- Operations Finance of the Company since August 1993. From October 1990 to August 1993, Ms. Elton served as Vice President -- Financial Planning and Treasury. James A. Fitzgerald, Jr. has served as Vice President -- Contracts and Operations Support of the Company since 1994. From 1993 to 1994, he served as the Vice President of Operations Support for HCA. From July 1981 to 1993, Mr.Fitzgerald served as Director of Internal Audit for HCA. James M. Fleetwood, Jr. has served as President -- America Group of the Company since January 1998. Mr. Fleetwood served as President -- Florida Group of the Company from May 1996 to January 1998. Mr. Fleetwood served as President of the Company's North Florida Division from April 1995 to May 1996. From August 1992 to April 1995, Mr. Fleetwood was a Regional Vice President of Healthtrust. V. Carl George has served as Vice President -- Development of the Company since April 1995. From September 1987 to April 1995, Mr. George served as Director of Development for Healthtrust. Jay F. Grinney has served as President -- Eastern Group of the Company since May 1996. From October 1993 to May 1996, Mr. Grinney served as President of the Greater Houston Division of the Company. From November 1992 to October 1993, Mr. Grinney served as Chief Operating Officer of the Houston Region of the Company. Neil D. Hemphill has served as Senior Vice President -- Administration and Human Resources -- America Group of the Company since September 1998. Prior to that time, Mr. Hemphill served as Senior Vice President--Human Resources of the Company from February 1994 to August 1998. Mr. Hemphill served as Vice President -- Human Resources of the Company from June 1992 to February 1994. Frank M. Houser, M.D. has served as Senior Vice President -- Quality and Medical Director of the Company since November 1997. Dr. Houser served as President -- Physician Management Services of the Company from May 1996 to November 1997. Dr. Houser served as President of the Georgia Division of the Company from December 1994 to May 1996. From May 1993 to December 1994, Dr. Houser served as the Medical Director of External Operations at The Emory Clinic, Inc. in Atlanta, Georgia. Dr. Houser served as State Public Health Director, Georgia Department of Human Resources, from July 1991 to May 1993. R. Milton Johnson has served as Vice President and Controller of the Company since November 1998. Prior to that time, Mr. Johnson served as Vice President -- Tax of the Company from May 1995 to October 1998. Prior to that time, Mr. Johnson served as Director of Tax of Healthtrust from September 1987 to April 1995. Patricia T. Lindler has served as Vice President -- Reimbursement of the Company since September 1998. Prior to that time, Ms. Lindler was the President of Health Financial Directions, Inc. from March 1995 to September 1998. From January 1993 to February 1995, Ms. Lindler served as Director of Reimbursement of the Company's Florida Group. 19 20 Scott L. Mercy has served as Chief Executive Officer of the America Group of the Company since September 1998. From April 1996 to August 1998, Mr. Mercy served as President and Chief Executive Officer of American Service Group, Inc. where he has also served as Chairman of the Board since September 1998. From February 1994 to February 1995, Mr. Mercy was Senior Vice President -- Financial Operations of the Company, and prior to that time was Vice President -- Financial Operations and Director -- Financial Operations Support of HCA. A. Bruce Moore, Jr. has served as Vice President -- Operations Administration of the Company since September 1997. From October 1996 to September 1997 Mr. Moore served as Vice President -- Benefits of the Company. Mr. Moore served as Vice President of Compensation of the Company from March 1995 until October 1996. From February 1994 to March 1995, Mr. Moore served as Director -- Compensation of the Company. Mr. Moore also served as Director -- Compensation for HCA from November 1987 until February 1994. Philip R. Patton has served as Senior Vice President -- Human Resources of the Company since September 1998. Previously, Mr. Patton served as Vice President of Human Resources of Quorum Health Group, Inc. from 1996 to August 1998. From 1994 to 1996, Mr. Patton was retired after serving as Senior Vice President of Human Resources of HCA from 1979 to 1994. James D. Shelton has served as President -- Pacific Group of the Company since January 1, 1998. Mr. Shelton served as President -- Central Group of the Company from June 1994 until January 1998. From May 1993 to June 1994, Mr. Shelton was employed by National Medical Enterprises, Inc. ("NME") (presently called Tenet Healthcare Corporation) as Executive Vice President of the Central Division. Mr. Shelton served as Senior Vice President of Operations for NME from August 1986 until May 1993. Joseph N. Steakley has served as Vice President -- Internal Audit and Consulting Services since November 1997. From December 1975 until October 1997, Mr. Steakley worked for Ernst & Young LLP where he served as a partner from October 1989. Robert A. Waterman has served as Senior Vice President and General Counsel of the Company since November 1997. Mr. Waterman served as a partner in the law firm of Latham & Watkins from September 1993 to October 1997; he was also Chair of the firm's healthcare group during 1997. Prior to September 1993, Mr. Waterman was a partner in the law firm of McCutchen, Doyle, Brown & Enersen. Noel Brown Williams has served as Senior Vice President and Chief Information Officer of the Company since October 1997. From October 1996 to September 1997, Ms. Williams served as Chief Information Officer for American Service Group/Prison Health Services, Inc. From September 1995 to September 1996, Ms. Williams worked as an independent consultant. From June 1993 to June 1995, Ms. Williams served as Vice President, Information Services for Columbia/HCA Information Services. From February 1979 to June 1993, she held various positions with HCA Information Services. Alan R. Yuspeh has served as Senior Vice President -- Ethics, Compliance and Corporate Responsibility of the Company since October 1997. From September 1991 until October 1997, Mr. Yuspeh was a partner with the law firm of Howrey & Simon. As a part of his law practice, Mr. Yuspeh served from 1987 to 1997 as Coordinator of the Defense Industry Initiative on Business Ethics and Conduct. 20 21 ITEM 2. PROPERTIES The following table lists, by state, the number of hospitals (general, acute care and psychiatric) owned, managed or operated by the Company as of December 31, 1998:
LICENSED STATE HOSPITALS BEDS ----- --------- -------- Alabama..................................................... 2 221 Alaska...................................................... 1 254 Arizona..................................................... 5 792 Arkansas.................................................... 3 573 California.................................................. 14 2,759 Colorado.................................................... 8 2,119 Florida..................................................... 52 12,034 Georgia..................................................... 20 3,327 Idaho....................................................... 2 462 Illinois.................................................... 6 1,252 Indiana..................................................... 2 460 Kansas...................................................... 4 1,407 Kentucky.................................................... 9 1,409 Louisiana................................................... 19 2,725 Massachusetts............................................... 2 475 Mississippi................................................. 1 130 Missouri.................................................... 2 466 Nevada...................................................... 2 808 New Hampshire............................................... 2 295 New Mexico.................................................. 2 385 North Carolina.............................................. 2 193 Ohio........................................................ 4 1,617 Oklahoma.................................................... 8 1,359 Oregon...................................................... 2 198 South Carolina.............................................. 5 950 Tennessee................................................... 22 3,261 Texas....................................................... 67 13,051 Utah........................................................ 8 1,001 Virginia.................................................... 15 3,512 Washington.................................................. 1 119 West Virginia............................................... 6 1,282 Wyoming..................................................... 1 70 INTERNATIONAL - ------------------------------------------------------------ Switzerland................................................. 2 225 United Kingdom.............................................. 4 517 --- ------ 305 59,708 === ======
In addition to the hospitals listed in the above table, the Company operates 107 outpatient surgery centers. The Company also operates medical office buildings in conjunction with its hospitals. These office buildings are primarily occupied by physicians who practice at the Company's hospitals. The Company owns and maintains its headquarters in approximately 580,000 square feet of space in five office buildings in Nashville, Tennessee. 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. 21 22 ITEM 3. LEGAL PROCEEDINGS The Company is facing significant legal challenges. The Company is the subject of various Federal and state investigations, qui tam actions, shareholder derivative and class action suits filed in Federal court, shareholder derivative actions filed in state courts, patient/payer actions and general liability claims. FEDERAL AND STATE INVESTIGATIONS In March 1997, various facilities of the Company's El Paso, Texas operations were searched by Federal authorities pursuant to search warrants, and the government removed various records and documents. In February 1998, an additional warrant was executed and a single computer was seized. In July 1997, various Company affiliated facilities and offices were searched pursuant to search warrants issued by the United States District Court in several states. During July, September and November 1997, the Company was also served with subpoenas requesting records and documents related to laboratory billing and DRG coding in various states and home health operations in various jurisdictions, including, but not limited to, Florida. In January 1998, the Company received a subpoena which requested records and documents relating to physician relationships. Also, in July 1997, the United States District Court for the Middle District of Florida, in Fort Myers, issued an indictment against three employees of a subsidiary of the Company. The indictment relates to the alleged false characterization of interest payments on certain debt resulting in Medicare and CHAMPUS overpayments since 1986 to Fawcett Memorial Hospital, a Port Charlotte, Florida hospital that was acquired by the Company in 1992. The Company has been served with subpoenas for various records and documents. A fourth employee of a subsidiary of the Company was indicted in July 1998 by a superseding indictment. In addition, several hospital facilities affiliated with the Company in various states have received individual Federal and/or state government inquiries, both informal and formal, requesting information related to reimbursement from government programs. In general, the Company believes that the United States Department of Justice and other Federal and state governmental authorities are investigating certain acts, practices or omissions alleged to have been engaged in by the Company with respect to Medicare, Medicaid and CHAMPUS patients regarding (a) allegedly improper DRG coding (commonly referred to as "upcoding") relating to bills submitted for medical services, (b) allegedly improper outpatient laboratory billing (e.g., unbundling of services and medically unnecessary tests), (c) inclusion of allegedly improper items in cost reports submitted as a basis for reimbursement under Medicare, Medicaid and similar government programs, (d) arrangements with physicians and other parties that allegedly violate certain Federal and state laws governing fraud and abuse, anti-kickback and "Stark" laws and (e) allegedly improper acquisitions of home health care agencies and allegedly excessive billing for home health care services. The Company is cooperating in these investigations and understands, through written notice and other means, that it is a target in these investigations. Given the scope of the ongoing investigations, the Company expects additional subpoenas and other investigative and prosecutorial activity to occur in these and other jurisdictions in the future. The Company is also the subject of a formal order of investigation by the Securities and Exchange Commission. The Company understands that the investigation relates to the anti-fraud, insider trading, periodic reporting and internal accounting control provisions of the federal securities laws. While it is too early to predict the outcome of any of the ongoing investigations or the initiation of any additional investigations, were the Company to be found in violation of Federal or state laws relating to Medicare, Medicaid or similar programs, the Company could be subject to substantial monetary fines, civil and criminal penalties and exclusion from participation in the Medicare and Medicaid programs. Any such sanctions could have a material adverse effect on the Company's financial position and results of operations. (See Note 2-Investigations and Note 12-Contingencies of the Notes to Consolidated Financial Statements.) 22 23 LAWSUITS Qui Tam Actions Several qui tam actions have been brought by private parties ("relators") on behalf of the United States of America and have been unsealed and served on the Company. With the exception of two cases discussed below, the government has declined to intervene in the qui tam actions unsealed to date. To the best of the Company's knowledge, the actions allege, in general, that the Company and certain subsidiaries and/or affiliated partnerships violated the False Claims Act, 31 U.S.C. sec.3729 et seq., for improper claims submitted to the government for reimbursement. The lawsuits seek damages of three times the amount of all Medicare or Medicaid claims (involving false claims) presented by the defendants to the Federal government, civil penalties of not less than $5,000 nor more than $10,000 for each such Medicare or Medicaid claim, attorneys' fees and costs. The Company is aware of additional qui tam actions that remain under seal and believes that there are other sealed qui tam cases of which it is unaware. On February 12, 1999, the United States filed a Motion before the Judicial Panel on Multidistrict Litigation ("MDL Panel") seeking to transfer and consolidate all qui tam actions against the Company, including those that are sealed and unsealed, for purposes of discovery and pretrial matters, to the District Court for the District of Columbia. The MDL Panel denied the Motion on procedural grounds relating to notice but granted leave to refile. On October 5, 1998, the matter of United States of America ex rel. James F. Alderson v. Columbia/HCA Healthcare Corp., Healthtrust-The Hospital Company and Quorum Health Group, et al., Case No. 97-2035-CIV-T-23E, in the Middle District of Florida, Tampa Division, was unsealed. The government intervened in this action on October 1, 1998. The Complaint was originally filed in Montana in 1993 but was later transferred to Florida. The Complaint alleges that defendants made false statements in annual Medicare cost reports over a period of ten years. The Complaint further alleges that defendants engaged in a scheme of filing improper reimbursement claims while keeping a "secret" set of books which were known as "reserve cost reports" and concealing these books from Medicare auditors. The Government filed an Amended Complaint. The Government has not yet served an Amended Complaint on the Columbia/HCA defendants. The matter of United States of America ex rel. Sara Ortega v. Columbia/HCA Healthcare Corp., et al., No. EP95-CA-259H, was filed on July 31, 1998 in the Western District of Texas, El Paso Division. The Complaint alleges that defendants submitted false statements to the Joint Commission on Accreditation of Healthcare Organizations in order to be eligible for Medicare payments, thereby rendering false defendants' claims for Medicare reimbursement. The Complaint also alleges that defendants engaged in fraudulent accounting practices. Defendants have moved to dismiss the Complaint and that motion is pending. The matter of United States of America, ex rel. Scott Pogue v. Diabetes Treatment Centers of America, Inc., et al., Civil Action No. 3-94-0515, was filed under seal on June 23, 1994 in the United States District Court for the Middle District of Tennessee. On February 6, 1995, the United States filed its Notice of Non-Intervention and on that same date, the District Court ordered the complaint unsealed. In general, the relator contends that sums paid to physicians by the Diabetes Treatment Centers of America, who served as Medical Directors at a hospital affiliated with the Company, were unlawful payments for the referrals of their patients. Plaintiffs have filed a motion for partial summary judgment which is pending. In December 1998, the matter of United States of America ex rel. John W. Schilling v. Columbia/HCA Healthcare Corporation, et al., Civil Action No. 96-1264-CIV-T-23B, in the Middle District of Florida, was unsealed. The Government has intervened in this action. The Complaint alleges that defendants made false statements in annual Medicare cost reports. The Complaint further alleges, as in Alderson, that Columbia kept "reserve cost reports." The Government has not yet served the Complaint on Defendants. A lawsuit captioned United States of America ex rel. James Thompson v. Columbia/HCA Healthcare Corporation, et al. was filed on March 10, 1995 in the United States District Court for the Southern District of Texas, Corpus Christi Division (Civil Action No. C-95-110). In general, the relator claims that the defendants (the Company and certain subsidiaries and affiliated partnerships) engaged in a widespread strategy to pay physicians money for referrals and engaged in other conduct to induce referrals, such as: 23 24 (i) offering physicians equity interests in hospitals; (ii) offering loans to physicians; (iii) paying money under the guise of "consultation fees" to physicians to guarantee their capital investment; (iv) paying consultation fees, rent or other monies to physicians; (v) providing office space for free or reduced rent; (vi) providing free or reduced rate vacations and trips; (vii) providing free or reduced rate opportunities for additional medical training; (viii) providing income guarantees; and (ix) granting physicians exclusive rights to perform procedures in particular fields of practice. The defendants filed a Motion to Dismiss the Second Amended Complaint in November 1995 which was granted by the Court in July 1996. In August 1996, the relator appealed to the United States Court of Appeals for the Fifth Circuit, and in October 1997, the Fifth Circuit affirmed in part and vacated and remanded in part the Trial Court's rulings. Defendants filed a Second Amended Motion to Dismiss which was denied on August 18, 1998. On August 21, 1998, relator filed a Third Amended Complaint. Discovery has begun and defendants are in the process of producing documents at this time. On December 21, 1995, a matter entitled United States of America ex rel. Roy Meidinger vs. Lee Memorial Health System, et al., Case No. 95-423-FTM-99D, was filed in the United States District Court for the Middle District of Florida, Fort Myers Division. This case was brought against approximately 2,500 health care providers and insurance companies, including Columbia Southwest Florida Regional Medical Center, and generally concerns misrepresentation of customary charges to HCFA. In December 1996, the United States declined to intervene. On September 29, 1998, Plaintiff filed a Fifth Amended Complaint that sought no relief from the Company. The matter of United States of America ex rel. Sandra Russell; and Sandra Russell, in her own right v. EPIC Healthcare Management Group, et al., No. H-95-99151, was filed on January 18, 1995 in the United States District Court for the Southern District of Texas, Houston Division. The complaint alleges that the defendants submitted claims, records and/or statements for Medicare reimbursement in connection with home health services which were false. The defendants moved to dismiss in May 1997. The Court granted defendants' motion but allowed the relator the right to replead. Relator filed an amended complaint. Defendants filed a second motion to dismiss which was granted on June 25, 1998. Relator filed an Appeal which is pending before the Fifth Circuit. The matter of Mary Ann Wisz, Individually, and ex rel. United States of America v. C/HCA Development, Inc. d/b/a Columbia-Olympia Fields Osteopathic Hospital and Medical Center, Inc., et al., Case No. 97-C-2646, was filed on April 16, 1997, in the United States District Court for the Northern District of Illinois, Eastern Division. An amended complaint was filed on February 17, 1998, and on May 15, 1998, plaintiff was permitted leave to file its Second Amended Complaint. In addition to adding Midwestern University as a party defendant, the Second Amended Complaint contained allegations that Olympia Fields Osteopathic Hospital and Medical Center and/or the Chicago Osteopathic Hospital changed dates on out-patient surgical procedures. That portion of the Second Amended Complaint has been answered and discovery is ongoing. The Second Amended Complaint also alleges that one or both hospitals directed surgical nurses to misdesignate the severity of surgeries. That portion of the Second Amended Complaint was subject to a partial motion to dismiss, which motion was fully briefed and was granted. The Company intends to pursue the defense of the qui tam actions vigorously. Shareholder Derivative and Class Action Complaints Filed in the U.S. District Courts Since April 1997, numerous securities class action and derivative lawsuits have been filed in the United States District Court for the Middle District of Tennessee against the Company and a number of its current and former directors, officers and/or employees. On October 10, 1997, the Court entered an order consolidating all of the above-mentioned securities class action claims into a single-captioned case, Morse, Sidney, et al. v. R. Clayton McWhorter, et al., Case No. 3-97-0370. All of the other individual securities class action lawsuits were administratively closed by the Court. The consolidated Morse lawsuit is a purported class action seeking the certification of a class of persons or entities who acquired the Company's common stock from April 9, 1994 to September 9, 1997. The consolidated lawsuit was brought against the Company, Richard Scott, David Vandewater, Thomas Frist, Jr., 24 25 R. Clayton McWhorter, Carl E. Reichardt, Magdalena Averhoff, M.D., T. Michael Long and Donald S. MacNaughton. The lawsuit alleges, among other things, that the defendants committed violations of the Federal securities laws by materially inflating the Company's revenues and earnings through a number of practices, including upcoding, maintaining reserve cost reports, disseminating false and misleading statements, cost shifting, illegal reimbursements, improper billing, unbundling and violating various Medicare laws. The lawsuit seeks damages, costs and expenses. Plaintiffs filed their Motion for Class Certification in February 1998, and defendants filed responsive briefs. No ruling has been made on class certification. On October 10, 1997, the Court entered an order consolidating the above-mentioned derivative law claims into a single-captioned case, McCall, H. Carl, as Comptroller of the State of New York and as Trustee of the New York State Common Retirement Fund, derivatively on behalf of Columbia/HCA Healthcare Corporation v. Richard L. Scott, et al., No. 3-97-0838. All of the other derivative lawsuits were administratively closed by the Court. The consolidated McCall lawsuit was brought against the Company, Thomas Frist, Jr., Richard L. Scott, David T. Vandewater, R. Clayton McWhorter, Magdalena Averhoff, M.D., Frank S. Royal, M.D., T. Michael Long, William T. Young and Donald S. MacNaughton. The lawsuit alleges, among other things, derivative claims against the individual defendants that they intentionally or negligently breached their fiduciary duties to the Company by authorizing, permitting or failing to prevent the Company from engaging in various schemes to improperly increase revenue, upcoding, improper cost reporting, improper referrals, improper acquisition practices and overbilling. In addition, the lawsuit asserts a derivative claim against some of the individual defendants for breaching their fiduciary duties by allegedly engaging in improper insider trading. The lawsuit seeks restitution, damages, recoupment of fines or penalties paid by the Company, restitution and pre-judgment interest against the alleged insider trading defendants, and costs and expenses. In addition, the lawsuit seeks orders: (i) prohibiting the Company from paying individual defendants employment benefits; (ii) terminating all improper business relationships with individual defendants; and (iii) requiring the Company to implement effective corporate governance and internal control mechanisms designed to monitor compliance with federal and state laws and ensure reports to the Board of material violations. The defendants filed motions to dismiss in both the Morse and McCall lawsuits. These motions were referred to the Magistrate Judge for consideration. In June 1998, the Magistrate Judge recommended that the Court grant the motions to dismiss in both cases. Plaintiffs in both cases have filed objections to the Magistrate's recommendations with the District Court, and defendants have filed responsive pleadings. Shareholder Derivative Actions Filed in State Courts Several derivative actions have been filed in state court by certain purported stockholders of the Company against certain of the Company's current and former officers and directors alleging breach of fiduciary duty, and failure to take reasonable steps to ensure that the Company did not engage in illegal practices thereby exposing the Company to significant damages. Two purported derivative actions entitled Barron, Evelyn, et al. v. Magdelena Averhoff, et al., (Civil Action No. 15822NC), filed on July 22, 1997, and Kovalchick, John E. v. Magdelena Averhoff, et al., Civil Action No. 15829NC, filed on July 29, 1997, have been filed in the Court of Chancery of the State of Delaware in and for New Castle County. The actions were brought on behalf of the Company by certain purported shareholders of the Company against certain of the Company's current and former officers and directors. The suits seek damages, attorneys' fees and costs. In the Barron lawsuit, plaintiffs also seek an Order (i) requiring individual defendants to return to the Company all salaries or remunerations paid them by the Company, together with proceeds of the sale of Columbia/HCA stock made in breach of their fiduciary duties; (ii) prohibiting the Company from paying any individual defendant any benefits pursuant to the terms of employment, consulting or partnership agreements; and (iii) terminating all improper business relationships between the Company and any individual defendant. In the Kovalchick lawsuit, plaintiffs also seek an Order (i) requiring individual defendants to return to the Company all salaries or remunerations paid to them by the Company and all proceeds from the sale of Columbia/HCA stock made in breach of their fiduciary duties; (ii) requiring that an impartial Compliance Committee be appointed to meet regularly; and (iii) requiring that the Company be prohibited from paying any director/defendant any benefits pursuant to terms of 25 26 employment, consulting or partnership agreements. Plaintiffs in both Barron and Kovalchick have granted the defendants an indefinite extension of time to respond to the Complaint. On August 14, 1997, a similar purported derivative action entitled State Board of Administration of Florida, the public pension fund of the State of Florida in behalf of itself and in behalf of all other stockholders of Columbia/HCA Healthcare Corporation derivatively in behalf of Columbia/HCA Healthcare Corporation vs. Magdalena Averhoff, et al., (No. 97-2729), was filed in the Circuit Court in Davidson County, Tennessee on behalf of the Company by certain purported shareholders of the Company against certain of the Company's current and former directors and officers. These lawsuits seek damages and costs as well as orders (i) enjoining the Company from paying benefits to individual defendants; (ii) requiring termination of all improper business relationships with individual defendants; (iii) requiring the Company to provide for "independent public directors;" and (iv) requiring the Company to put in place proper mechanisms of corporate governance. The Court has entered an Order temporarily staying the lawsuit. That order recently expired and the defendants have filed a motion to extend the duration of the stay. The matter of Louisiana State Employees Retirement System, a public pension fund of the State of Louisiana, in behalf of itself and in behalf of all other stockholders of Columbia/HCA Healthcare Corporation derivatively in behalf of Columbia/HCA Healthcare Corporation v. Magdalena Averhoff, et al., another derivative action, was filed on March 19, 1998 in the Circuit Court of the Eleventh Judicial Circuit, Dade County, Florida, General Jurisdiction Division (Case No. 98-6050 CA04) and the defendants removed it to the United States District Court, Southern District of Florida (Case No. 98-814-CIV). The Louisiana State Employees Retirement System is the public pension fund of the State of Louisiana. The suit alleges, among other things, breach of fiduciary duties resulting in damage to the Company. The lawsuit seeks damages from the individual defendants to be paid to the Company and attorneys' fees, costs and expenses. In addition, the lawsuit seeks orders (i) requiring the individual defendants to pay to the Company all benefits received by them from the Company; (ii) enjoining the Company from paying any benefits to individual defendants; (iii) requiring that defendants terminate all improper business relationships with the Company and any individual defendants; (iv) requiring that the Company provide for appointment of a majority of "independent public directors;" and (v) requiring that the Company put in place proper mechanisms of corporate governance. On August 10, 1998, the Court transferred this case to the Middle District of Tennessee. By agreement of the parties, the case has been administratively closed pending the outcome of the Court's ruling on the defendants' motions to dismiss the McCall action referred to above. The Company intends to pursue the defense of these Federal and state Shareholder Derivative and Class Action Complaints vigorously. Patient/Payer Actions and Other Class Actions The Company is a party to several purported class action lawsuits which have been filed by patients and/or payers against the Company and/or certain of its current and/or former officers and/or directors alleging, in general, improper and fraudulent billing, overcharging, coding and physician referrals, as well as other violations of law. Certain of the lawsuits have been conditionally certified as class actions. The matter of Boyson, Cordula, on behalf of herself and all others similarly situated v. Columbia/HCA Healthcare Corporation was filed on September 8, 1997 in the United States District Court for the Middle District of Tennessee, Nashville Division (Civil Action No. 3-97-0936). The original complaint, which sought certification of a national class comprised of all persons or entities who have paid for medical services provided by the Company, alleges, among other things, that the Company has engaged in a pattern and practice of (i) inflating diagnosis and medical treatments of its patients to receive larger payments from the purported class members; (ii) providing unnecessary medical care; and (iii) billing for services never rendered. This lawsuit seeks injunctive relief requiring the Company to perform an accounting to identify and disgorge medical bill overcharges. It also seeks damages, attorneys' fees, interest and costs. In an Order entered on June 11, 1998 by the MDL Panel, other lawsuits against the Company were consolidated with the Boyson case in the Middle District of Tennessee. The amended complaint in Boyson was withdrawn and superseded by the Coordinated Class Action Complaint filed in the MDL proceeding on September 21, 1998. (See In re: Columbia/HCA Healthcare Corporation Billing Practices Litigation, below.) 26 27 The matter of Brown, Nancy, individually and on behalf of all others similarly situated v. Columbia/ HCA Healthcare Corporation was filed on November 16, 1995, in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida, Case No. 95-9102 AD. The suit alleges that Palms West Hospital charged excessive amounts for goods and services associated with patient care and treatment, including items such as pharmaceuticals, medical supplies, laboratory tests, medical equipment and related medical services such as x-rays. The suit seeks the certification of a nationwide class, and damages for patients who have paid bills for the allegedly unreasonable portion of the charges as well as interest, attorneys' fees and costs. In response to defendant's amended motion to dismiss filed in January 1996, plaintiff amended the Complaint and defendant subsequently filed an answer and defenses in June 1996. On October 15, 1997, Harald Jackson moved to intervene in the lawsuit (see case below). The court denied Jackson's motion on December 19, 1997. To date, discovery is proceeding and no class has been certified. In October 1997, Colville, Douglas et al. v. Columbia/Palm Drive Hospital, et al. was filed in the Sonoma County Superior Court, California, Case No. 217646. The suit seeks certification of a class comprised of uninsured patients treated at the Company's hospitals and entities in California who have been treated and charged different fees than any other patient. The suit alleges, among other things, that the Company fraudulently overcharged the plaintiffs and that it unlawfully charged uninsured patients at a higher rate for the same services, compared to patients with insurance or Medicare. This lawsuit sought damages, attorneys' fees and costs, restitution and injunctive relief. In March 1998, the Company filed a Demurrer Motion. The Demurrer was granted in part and denied in part. Plaintiff filed an Amended Complaint and the defendants filed a Second Demurrer Motion in June 1998. The Court granted the Demurrer as to all causes of action. Plaintiff filed a Third Amended Complaint and the Company's response was filed on or about November 2, 1998. Following a settlement reached by the parties, the Court entered an order dismissing the lawsuit on December 18, 1998. Jane Doe and her husband, John Doe, on their own behalf, and on behalf of all other persons similarly situated vs. HCA Health Services of Tennessee, Inc., d/b/a HCA Donelson Hospital n/k/a Summit Medical Center is a class action suit filed on August 17, 1992 in the First Circuit Court for Davidson County, Tennessee, Case No. 92C-2041. The suit principally alleges that Summit Medical Center's charges for hospital services and supplies for medical services (a hysterectomy in the plaintiff's case) exceeded the reasonable costs of its goods and services, that the overcharges constitute a breach of contract and an unfair or deceptive trade practice as well as a breach of the duty of good faith and fair dealing. This suit seeks damages, costs and attorneys' fees. In addition, the suit seeks a declaratory judgment recognizing plaintiffs' rights to be free from predatory billing and collection practices and an Order (i) requiring defendants to notify plaintiff class members of entry of declaratory judgment and (ii) enjoining defendants from further efforts to collect charges from the plaintiffs. In 1997, this case was certified as a class action consisting of all past, present and future patients at Summit Medical Center. In July 1997, Summit filed a Motion for Summary Judgment. In March 1998, the Court denied the Motion for Summary Judgment and ordered the parties into mediation. In June 1998, the Court of Appeals denied defendant's application for permission to appeal the trial court's denial of the summary judgment motion. Summit has filed an application for permission to appeal to the Supreme Court of Tennessee, which the Supreme Court granted on November 9, 1998, and remanded the case to the Court of Appeals for review on the merits. The case is set for oral argument before the Court of Appeals on June 8, 1999. The trial court withdrew the order for mediation pending defendant's appeal of the summary judgment denial. Ferguson, Charles, on behalf of himself and all other similarly situated v. Columbia/HCA Healthcare Corporation, et al. was filed on September 16, 1997 in the Circuit Court for Washington County, Tennessee, Civil Action No. 18679. This lawsuit seeks certification of a national class comprised of all individuals and entities who paid or were responsible for payment of any portion of a bill for medical care or treatment provided by the Company and alleges, among other things, that the Company engaged in billing fraud by excessively billing patients for services rendered, billing patients for services not rendered or not medically necessary, uniformly using improper codes to report patient diagnosis, and improperly and illegally recruiting doctors to refer patients to the Company's hospitals. The proposed class is broad enough to encompass all private payers, including individuals, insurers and health and welfare plans. The suit seeks damages, interest, 27 28 attorneys' fees, costs and expenses. In addition, the suit seeks an Order (i) requiring defendants to provide an accounting of plaintiffs and class members who overpaid or were obligated to overpay; and (ii) requiring defendants to disgorge all monies illegally collected from plaintiffs and the class. Plaintiff filed a Motion for Class Certification in September 1997 which has not been ruled on. In December 1997, the Company filed a Motion for Summary Judgment which was denied. In January 1998, plaintiff filed a Motion for Leave to File a Second Amended Class Action Complaint to Add an Additional Class Representative which was granted but the Court dismissed the claims asserted by the additional plaintiff. In June 1998, plaintiff filed a Motion for Leave of Court to File a Third Amended Class Action Complaint, and in October 1998, plaintiff filed a Motion for Leave of Court to File a Fourth Amended Class Action Complaint. Both proposed Amended Complaints seek to add new named plaintiffs to represent the proposed class. Both seek to add additional allegations of billing fraud, including improper billing for laboratory tests, inducing doctors to perform unnecessary medical procedures, improperly admitting patients from emergency rooms and maximizing patients' lengths of stay as inpatients in order to increase charges, and improperly inducing doctors to refer patients to the Company's home healthcare units or psychiatric hospitals. Both seek an additional order that the Company's contracts with plaintiffs and all class members are rescinded and that the Company must repay all monies received from plaintiffs and the class members. The Court has not ruled on either Motion for Leave to Amend. Discovery is underway in the case. The Company in September 1998 filed another Motion for Summary Judgment contesting the standing of the named plaintiffs to bring the alleged claims. That motion has not been ruled on by the Court. The matter of The United Paper Workers International Union, et al. v. Columbia/HCA Healthcare Corporation, et al., was filed on September 3, 1998 in the Circuit Court for Washington County, Tennessee, Civil Action No. 19350. The lawsuit contains billing fraud allegations similar to those in the Ferguson case and seeks certification of a national class comprised of all self-insured employers who paid or were obligated to pay any portion of a bill for, among other things, pharmaceuticals, medical supplies or medical services. The suit seeks declaratory relief, damages, interest, attorneys' fees and other litigation costs. In addition, the suit seeks an Order (i) requiring defendants to provide an accounting to plaintiffs and class members who overpaid or were obligated to overpay, (ii) requiring defendants to disgorge all monies illegally collected from plaintiffs and the class, and (iii) rescinding all contracts of defendants with plaintiffs and all class members. The complaint has not been served formally on the Company. The matter of Douglas, Cheryl, individually, and on behalf of all others similarly situated v. Columbia/ HCA Healthcare Corporation, et al. is a purported class action filed on March 5, 1998 in the Circuit Court of Cook County, Illinois, County Department, Chancery Division, Case No. 98 CH 2942. The suit generally alleges that defendants were involved in fraudulent and deceptive acts including wrongful billing, unnecessary treatment and wrongful diagnosis of patients with illnesses that necessitate higher medical fees for financial gain. The suit seeks damages, costs and expenses. On September 18, 1998, the Company's motion to dismiss was granted and plaintiff's complaint was dismissed without prejudice. Plaintiff has filed an Amended Complaint with substantially the same claims as the original complaint and the Company has moved to dismiss the Amended Complaint. That motion is presently being briefed and is set for hearing on April 14, 1999. The matter of Hoop, Kemp, et al. v. Columbia/HCA Health Corporation, et al. was filed on August 18, 1997 in the District Court of Johnson County, Texas, Civil Action No. 249-171-97. This suit seeks certification of a Texas class comprised of persons who paid for any portion of an improper or fraudulent bill for medical services rendered by any Texas facility owned or operated by the Company. The suit seeks damages, attorneys' fees, costs and expenses, as well as restitution to plaintiffs and the class in the amount by which defendants have been unjustly enriched and equitable and injunctive relief. The lawsuit principally alleges that the Company perpetrated a fraudulent scheme that consisted of systematic and routine overbilling through false and inaccurate bills, including padding, billing for services never provided, and exaggerating the seriousness of patients' illnesses. The lawsuit also alleges that the Company systematically entered into illegal kickback schemes with doctors for patient referrals. The Company filed its answer in November 1997 denying the claims. Plaintiffs have recently sought to commence discovery. 28 29 The matter of Jackson, Harald F., individually and on behalf of all others similarly situated v. Columbia/HCA Healthcare Corporation was initially filed as a motion to intervene in the Brown matter in October 1997 in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida. The Court denied Jackson's motion on December 19, 1997, and Jackson subsequently filed a Complaint in the same state court on December 23, 1997, Case No. 97-011419-AI. This suit seeks certification of a national class of persons or entities who were allegedly overcharged for medical services by the Company through an alleged practice of systematically and unlawfully inflating prices, concealing its practice of inflating prices, and engaging in, and concealing, a uniform practice of overbilling. The proposed class is broad enough to encompass all private payers, including individuals, insurers and health and welfare plans. This suit seeks damages on behalf of the plaintiff and individual members of the class as well as interest, attorneys' fees and costs. In January 1998, the case was removed to the United States District Court, Southern District of Florida, Case No. 98-CIV-8050. In February 1998, Jackson filed an amended complaint, and the case was remanded to state court. The Company has filed motions in response to the amended complaint which are pending. Jackson has moved to transfer the case to the judge handling the Brown case which is also pending. Discovery has commenced. The matter of Johnson, Bruce A., et al. v. Plantation General Hospital, Limited Partnership was filed on March 9, 1992 in the Circuit Court for the Seventeenth Judicial Circuit, State of Florida, Broward County, Case No. 92-06823 Division 2. In general, the suit alleges that the hospital charged excessive amounts for pharmaceuticals, medical supplies and laboratory tests. The suit sought certification of a class. Count I sought a price reduction on all outstanding bills in the amount of the allegedly excessive portion of the charges. Counts II and III sought damages for patients who have paid bills containing allegedly excessive amounts for the alleged unreasonable portion of the charges. Plaintiffs' Complaint claimed fees from any recovery or benefit in the action. In September 1995, the trial court certified a class and the Fourth District Court of Appeals affirmed. In October 1996, the hospital filed a Motion for Summary Judgment on Counts II and III on the basis of the voluntary payment defense. The Court granted the motion in November 1997. In April 1998, following the hospital's statement that it would deem the six to eleven year old outstanding debt of class members to be fully satisfied, summary judgment was granted to the class on Count I on the ground of mootness. No monetary judgment was recovered. In September 1998, the Court entered an order denying plaintiffs' motion for attorneys' fees and granting their motion for costs. Both parties have appealed the September 1998 orders. Those appeals are pending. There have been no appeals of the final judgments. The matter of Operating Engineers Local No. 312 Health & Welfare Fund, on behalf of itself and as representative of a class of those similarly situated v. Columbia/HCA Healthcare Corporation was filed on August 6, 1997 in the United States District Court for the Eastern District of Texas, Civil Action No. 597CV203. The original complaint alleged violations of the Racketeering Influenced and Corrupt Organization Act ("RICO") based on allegations that the defendant has employed one or more schemes or artifices to defraud the plaintiff and purported class members through fraudulent billing for services not performed, fraudulent overcharging in excess of correct rates and fraudulent concealment and misrepresentation. In October 1997, the Company filed a motion to transfer venue and to dismiss the lawsuit on jurisdiction and venue grounds because the RICO claims are deficient. The motion to transfer was denied on January 23, 1998. The motion to dismiss was also denied. In February 1998, defendant filed a petition with the MDL Panel to consolidate this case with Boyson for pretrial proceedings in the Middle District of Tennessee. During the pendency of the motion to consolidate, plaintiff amended its Complaint to add allegations under the Employee Retirement Income Security Act of 1974 ("ERISA") as well as state law claims. The amended complaint seeks damages, attorneys' fees and costs, as well as disgorgement and injunctive relief. The MDL Panel granted defendant's motion to consolidate in June 1998, and this action was transferred to the Middle District of Tennessee. The amended complaint in Operating Engineers was withdrawn and superseded by the Coordinated Class Action Complaint filed in the MDL proceeding on September 21, 1998. On April 24, 1998, two matters, Board of Trustees of the Carpenters & Millwrights of Houston & Vicinity Welfare Trust Fund v. Columbia/HCA Healthcare Corporation, Case No. 598CV157, and Board of Trustees of the Texas Ironworkers' Health Benefit Plan v. Columbia/HCA Healthcare Corporation, Case No. 598CV158, were filed in the United States District Court for the Eastern District of Texas. The original 29 30 Complaint in these suits alleged violations of RICO only. Plaintiffs in both cases principally alleged that in order to inflate its revenues and profits, defendant engaged in fraudulent billing for services not performed, fraudulent overcharging in excess of correct rates and fraudulent concealment and misrepresentation. These suits seek damages, attorneys' fees and costs, as well as disgorgement and injunctive relief. Plaintiffs subsequently amended their complaint to add allegations under ERISA as well as state law claims. These suits have been consolidated by the MDL Panel with Boyson and transferred to the Middle District of Tennessee for pretrial proceedings. The amended complaints in these suits were withdrawn and superseded by the Coordinated Class Action Complaint filed in the MDL proceeding on September 21, 1998. The matter of Tennessee Laborers Health and Welfare Fund, on behalf of itself and all others similarly situated vs. Columbia/HCA Healthcare Corporation, Case No. 3-98-0437, was filed in the United States District Court of the Middle District of Tennessee, Nashville Division, on May 14, 1998. The lawsuit seeks certification of a national class comprised of all employee welfare benefit plans that have paid for medical services provided by the Company. This case involves allegations under ERISA, as well as state law claims which are similar to those alleged in Boyson. Plaintiff, an Employee Welfare Benefit Plan, alleges that defendant violated the terms of the Plan documents by overbilling the Plans, including but not limited to, exaggerating the severity of illnesses, providing unnecessary treatment, billing for services not rendered and other methods of overbilling and further violated the terms of the Plan documents by taking Plan assets in payment of such improper bills. Plaintiff further alleges that defendant intentionally concealed or suppressed the true nature of its patients' illnesses, and the actual treatment provided to those patients, and its improper billing. The suit seeks injunctive relief in the form of an accounting, damages, attorneys' fees, interest and costs. This suit has been consolidated by the Court with Boyson and the other cases transferred by the MDL Panel to the Middle District of Tennessee. The complaint in Tennessee Laborers was withdrawn and superseded with the filing of the Coordinated Class Action Complaint in the MDL proceeding on September 21, 1998. The matter of In re: Columbia/HCA Healthcare Corporation Billing Practices Litigation, Master File No. MDL 1227, was commenced by Order of the MDL Panel entered on June 11, 1998 granting the Company's petition to consolidate the Boyson and Operating Engineers cases for pretrial purposes in the Middle District of Tennessee pursuant to 28 U.S.C. sec. 1407. Three other cases that have been consolidated with Boyson and Operating Engineers in the MDL proceeding are (i) Board of Trustees of the Carpenters & Millwrights of Houston & Vicinity Welfare Trust Fund, (ii) Board of Trustees of the Texas Ironworkers' Health Benefit Plan, and (iii) Tennessee Laborers Health and Welfare Fund. On September 21, 1998, the plaintiffs in five consolidated cases filed a Coordinated Class Action Complaint, which the Company answered on October 13, 1998. The plaintiffs seek certification of two proposed classes including all private individuals and all employee welfare benefit plans that have paid for health-related goods or services provided by the Company. The plaintiffs allege, among other things, that the Company has engaged in a pattern and practice of inflating charges, concealing the true nature of patients' illnesses, providing unnecessary medical care, and billing for services never rendered. The plaintiffs seek damages, attorneys' fees and costs, as well as disgorgement and injunctive relief. A scheduling order has been entered that provides for class certification motions to be filed by February 22, 1999 and for discovery to be completed by June 30, 1999. The parties are currently engaged in discovery and plaintiffs recently filed a motion to extend the time periods in the scheduling order. The Company intends to pursue the defense of these class actions vigorously. While it is premature to predict the outcome of the qui tam, shareholder derivative and class action lawsuits, the amounts claimed are substantial. It is possible that an adverse resolution, individually or in the aggregate, could have a material adverse impact on the Company's liquidity, financial position and results of operations. See Note 2 -- Investigations and 12 -- Contingencies of the Notes to Consolidated Financial Statements. The Company believes the ongoing investigations, qui tam, shareholder cases, class action cases and related media coverage are having a negative effect on the Company's financial position and results of operations. However, the Company is unable to measure the effect or predict the magnitude that these matters 30 31 and the related media coverage could have on the Company's future results of operations and financial position. General Liability and Other Claims The matter of Landgraff, Anne M. and Gina Magarian, on behalf of the Columbia/HCA Stock Bonus Plan v. Columbia/HCA Healthcare Corporation of America, et al. was originally filed on November 7, 1997 in the United States District Court for the Northern District of Georgia, Atlanta Division, Civil Action No. 97-CV-3381 and transferred by agreement of the parties to the United States District Court for the Middle District of Tennessee, Civil Action No. 3-98-0090. The plaintiffs filed a second amended complaint on April 24, 1998 against the Company and certain members of the Company's Retirement Committee during 1997 alleging breach of fiduciary duty owing to the participants in the Stock Bonus Plan by failing to sell the Plan's holdings of Company stock based upon knowledge of material public and non-public adverse information and by failing to act solely in the interests and for the benefit of the participants. The suit generally alleges that the defendants fraudulently concealed information from the public and fraudulently inflated the Company's stock price through billing fraud, overcharges, inaccurate Medicare cost reports and illegal kickbacks for physician referrals. The suit seeks an order allowing the plaintiffs to proceed on behalf of the Plan as in a derivative action, a judgment for compensatory and restitutionary damages for the losses allegedly experienced by the Plan because of breaches of fiduciary duty, an order transferring management of the Plan to a competent, neutral third-party, and an award of pre-judgment interest, reasonable attorneys fees and costs. The parties are currently engaged in discovery. A trial date of June 1999 has been set. A class action styled Mary Forsyth, et al. v. Humana, Inc., et al., Case No. CV-S-89-249-DWH, was filed on March 29, 1989, in the United States District Court for the District of Nevada. Plaintiffs are two classes of individuals who paid for, or received coverage under, group insurance policies sold in the State of Nevada by Humana Insurance. They allege violations of antitrust laws, ERISA and RICO which arise from the sale of the policies and from incentives provided under the policies for insureds to use Humana Sunrise Hospital in Las Vegas, a facility now owned by the Company. The suit seeks attorneys' fees and costs, as well as injunctive relief and insurance benefits for plaintiffs. In 1993, the United States District Court granted summary judgment dismissing most of plaintiffs' claims but granted plaintiffs judgment on one claim. Plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit which, in May 1997, affirmed the judgment on the ERISA claims; reversed as to the antitrust claims; and reversed in part as to the RICO claims, but affirmed the District Court's grant of summary judgment limiting RICO damages to three times the ERISA damages. In their current complaint, plaintiffs claim approximately $133 million in antitrust damages that is subject to statutory trebling. However, in their most recent expert report, plaintiffs' expert claims antitrust damages of approximately $13-$21 million. Humana Inc. ("Humana") has petitioned the United States Supreme Court for a Writ of Certiorari on the RICO claims which was granted. On January 20, 1999, the Supreme Court affirmed the Ninth Circuit's decision that the plaintiffs could proceed with their RICO claims. The Supreme Court did not address the amount of damages that plaintiffs could seek on their claim. The entire case is now back in the Nevada district court, where Humana has filed several motions seeking dismissal of the antitrust claims. A trial is expected to be scheduled before the end of the year. On December 4, 1997, a lawsuit captioned Florida Software Systems, Inc., a Florida corporation v. Columbia/HCA Healthcare Corporation, a Delaware corporation was filed in the United States District Court for the Middle District of Florida (Civil Action No. 97-2866-C.V.-T-17b). The lawsuit alleges that the defendant breached an agreement under which Florida Software Systems, Inc. was allegedly granted the exclusive right to provide medical claims management for certain claims made by the Company for payment to any third party payers in connection with the rendering of medical care or services. The lawsuit alleges claims for fraud, breach of implied contract and breach of contract. The lawsuit seeks damages, attorneys' fees and costs, as well as injunctive relief. On October 15, 1998, the Company filed a counterclaim and third party complaint against Florida Software Systems, Inc., Receivable Dynamics Inc., Nevada Communications Corporation, Norman R. Dobiesz, Maureen Donovan Dobiesz, Stuart M. Lopata, and Samuel A. Greco (a 31 32 former senior officer at the Company). The counterclaim alleges racketeering, conspiracy, breach of fiduciary duty, and breach of contract. Defendants have filed a motion to dismiss the counterclaim. The Company intends to pursue the defense of these actions and prosecution of its counterclaims and third party claims vigorously. The Company is also subject to claims and suits arising in the ordinary course of business, including claims 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 are usually not covered by insurance. In the opinion of management, the ultimate resolution of these pending claims and legal proceedings will not have a material adverse effect on the Company's results of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of 1998. 32 33 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange, Inc. (the "NYSE") (symbol "COL"). The table below sets forth, for the calendar quarters indicated, the high and low sales prices per share reported on the NYSE Composite Tape for the Company's Common Stock.
HIGH LOW ------ ------ 1998 First Quarter............................................. $32.50 $24.13 Second Quarter............................................ 34.63 27.75 Third Quarter............................................. 32.44 19.88 Fourth Quarter............................................ 27.25 17.00 1997 First Quarter............................................. $44.88 $31.25 Second Quarter............................................ 40.00 30.38 Third Quarter............................................. 40.44 26.63 Fourth Quarter............................................ 32.13 25.75
At the close of business on March 15, 1999, there were approximately 16,500 holders of record of the Company's Common Stock and one holder of record of the Company's Nonvoting Common Stock. The Company currently pays a regular quarterly dividend of $.02 per share. While it is the present intention of the Company's Board of Directors to continue paying a quarterly dividend of $.02 per share, the declaration and payment of future dividends by the Company will depend upon many factors, including the Company's earnings, financial condition, business needs, capital and surplus and regulatory considerations. 33 34 ITEM 6. SELECTED FINANCIAL DATA COLUMBIA/HCA HEALTHCARE CORPORATION SELECTED FINANCIAL DATA AS OF AND FOR THE YEARS ENDED DECEMBER 31 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- SUMMARY OF OPERATIONS: Revenues.............................................. $ 18,681 $ 18,819 $ 18,786 $ 17,132 $ 14,543 Salaries and benefits................................. 7,811 7,631 7,205 6,779 5,963 Supplies.............................................. 2,901 2,722 2,655 2,536 2,144 Other operating expenses.............................. 3,771 4,263 3,689 3,203 2,661 Provision for doubtful accounts....................... 1,442 1,420 1,196 994 853 Depreciation and amortization......................... 1,247 1,238 1,143 976 804 Interest expense...................................... 561 493 488 458 387 Equity in earnings of affiliates...................... (112) (68) (173) (28) (8) Gains on sales of facilities.......................... (744) -- -- -- -- Impairment of long-lived assets....................... 542 442 -- -- -- Restructuring of operations and investigation related costs............................................... 111 140 -- -- -- Merger, facility consolidation and other costs........ -- -- -- 387 159 ---------- ---------- ---------- ---------- ---------- 17,530 18,281 16,203 15,305 12,963 ---------- ---------- ---------- ---------- ---------- Income from continuing operations before minority interests and income taxes.......................... 1,151 538 2,583 1,827 1,580 Minority interests in earnings of consolidated entities............................................ 70 150 141 113 40 ---------- ---------- ---------- ---------- ---------- Income from continuing operations before income taxes............................................... 1,081 388 2,442 1,714 1,540 Provision for income taxes............................ 549 206 981 689 611 ---------- ---------- ---------- ---------- ---------- Income from continuing operations..................... 532 182 1,461 1,025 929 Discontinued operations: Income (loss) from operations of discontinued businesses, net of income taxes (benefits)........ (80) 12 44 39 -- Losses on disposals of discontinued businesses, net of income tax benefits............................ (73) (443) -- -- -- Extraordinary charges on extinguishments of debt, net of income tax benefits.............................. -- -- -- (103) (115) Cumulative effect of accounting change, net of income tax benefit......................................... -- (56) -- -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss)............................. $ 379 $ (305) $ 1,505 $ 961 $ 814 ========== ========== ========== ========== ========== Basic earnings (loss) per share: Income from continuing operations................... $ .82 $ .28 $ 2.17 $ 1.54 $ 1.46 Discontinued operations: Income (loss) from operations of discontinued businesses...................................... (.12) .02 .07 .06 -- Losses on disposals of discontinued businesses.... (.11) (.67) -- -- -- Extraordinary charges on extinguishments of debt.... -- -- -- (.16) (.18) Cumulative effect of accounting change.............. -- (.09) -- -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss)............................. $ .59 $ (.46) $ 2.24 $ 1.44 $ 1.28 ========== ========== ========== ========== ========== Shares used in computing basic earnings (loss) per share (in thousands)................................ 643,719 657,931 670,774 665,407 634,837
34 35 COLUMBIA/HCA HEALTHCARE CORPORATION SELECTED FINANCIAL DATA AS OF AND FOR THE YEARS ENDED DECEMBER 31 -- (CONTINUED) (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Diluted earnings (loss) per share: Income from continuing operations................... $ .82 $ .27 $ 2.15 $ 1.52 $ 1.44 Discontinued operations: Income (loss) from operations of discontinued businesses...................................... (.12) .02 .07 .06 -- Losses on disposals of discontinued businesses.... (.11) (.67) -- -- -- Extraordinary charges on extinguishments of debt.... -- -- -- (.15) (.18) Cumulative effect of accounting change.............. -- (.08) -- -- -- ---------- ---------- ---------- ---------- ---------- Net income (loss)............................. $ .59 $ (.46) $ 2.22 $ 1.43 $ 1.26 ========== ========== ========== ========== ========== Shares used in computing diluted earnings (loss) per share (in thousands)................................ 646,649 663,090 677,886 673,071 643,943 Cash dividends per common share....................... $ .08 $ .07 $ .08 $ .08 $ .08 Redemption of preferred stock purchase rights......... -- $ .01 -- -- -- FINANCIAL POSITION: Assets............................................ $ 19,429 $ 22,002 $ 21,116 $ 19,805 $ 16,278 Working capital................................... 304 1,650 1,389 1,409 1,092 Net assets of discontinued operations............. -- 841 212 142 -- Long-term debt, including amounts due within one year............................................ 6,753 9,408 6,982 7,380 5,672 Minority interests in equity of consolidated entities........................................ 765 836 836 722 278 Stockholders' equity.............................. 7,581 7,250 8,609 7,129 6,090 CASH FLOW DATA: Cash provided by operating activities............. $ 1,916 $ 1,483 $ 2,589 $ 2,264 $ 1,747 Cash provided by (used in) investing activities... 970 (2,746) (2,219) (3,610) (1,946) Cash provided by (used in) financing activities... (2,699) 1,260 (489) 1,510 (81) OPERATING DATA: Number of hospitals at end of period(a)........... 281 309 319 319 311 Number of licensed beds at end of period(b)....... 53,693 60,643 61,931 61,347 59,595 Weighted average licensed beds(c)................. 59,104 61,096 62,708 61,617 57,517 Admissions(d)..................................... 1,888,800 1,915,100 1,895,400 1,774,800 1,565,500 Equivalent admissions(e).......................... 2,870,900 2,901,400 2,826,000 2,598,300 2,202,600 Average length of stay (days)(f).................. 5.0 5.0 5.1 5.3 5.6 Average daily census(g)........................... 25,675 26,006 26,538 25,917 23,841 Occupancy(h)...................................... 43% 43% 42% 42% 41%
- --------------- (a) Excludes 24 facilities in 1998, 27 facilities in 1997, 22 facilities in 1996 and 19 facilities in 1995 that are not consolidated (accounted for using the equity method) for financial reporting purposes. (b) Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency. (c) Weighted average licensed beds represents the average number of licensed beds, weighted based on periods owned. (d) Represents the total number of patients admitted (in the facility for a period in excess of 23 hours) to the Company's hospitals and is used by management and certain investors as a general measure of inpatient volume. (e) Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation "equates" outpatient revenue to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume. (f) Represents the average number of days admitted patients stay in the Company's hospitals. Average length of stay has declined due to the continuing pressures from managed care and other payers to restrict admissions and reduce the number of days that are covered by the payers for certain procedures, and by technological and pharmaceutical improvements. (g) Represents the average number of patients in the Company's hospital beds each day. (h) Represents the percentage of hospital licensed beds occupied by patients. Both average daily census and occupancy rate provide measures of the utilization of inpatient rooms. 35 36 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Selected Financial Data and the accompanying consolidated financial statements set forth certain information with respect to the financial position, results of operations and cash flows of Columbia/HCA Healthcare Corporation which should be read in conjunction with the following discussion and analysis. The term the "Company" or "Columbia/HCA" as used herein refers to Columbia/HCA Healthcare Corporation and its affiliates unless otherwise stated or indicated by context. The term "affiliates" means direct and indirect subsidiaries of Columbia/HCA Healthcare Corporation and partnerships and joint ventures in which such subsidiaries are partners. FORWARD-LOOKING STATEMENTS This "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains disclosures which are "forward-looking statements." Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan" or "continue." These forward-looking statements are based on the current plans and expectations of the Company and are subject to a number of uncertainties and risks that could significantly affect current plans and expectations and the future financial condition and results. These factors include, but are not limited to, (i) the outcome of the known and unknown governmental investigations and litigation involving the Company's business practices, (ii) the highly competitive nature of the health care business, (iii) the efforts of insurers, health care providers and others to contain health care costs, (iv) possible changes in the Medicare program that may further limit reimbursements to health care providers and insurers, (v) changes in Federal, state or local regulation affecting the health care industry, (vi) the possible enactment of Federal or state health care reform, (vii) the ability to attract and retain qualified management and personnel, including physicians, (viii) liabilities and other claims asserted against the Company, (ix) fluctuations in the market value of the Company's common stock, (x) ability to complete the share repurchase program, (xi) changes in accounting practices, (xii) changes in general economic conditions, (xiii) future divestitures which may result in additional charges, (xiv) the complexity of integrated computer systems and the success and expense of the remediation efforts of the Company and relevant third parties in achieving Year 2000 readiness, (xv) the ability to enter into managed care provider arrangements on acceptable terms, (xvi) the availability and terms of capital to fund the expansion of the Company's business, (xvii) changes in business strategy or development plans, (xviii) slowness of reimbursement, and (xix) other risk factors described above. As a consequence, current plans, anticipated actions and future financial condition and results may materially differ from those expressed in any forward-looking statements made by or on behalf of the Company. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this "Management's Discussion and Analysis of Financial Condition and Results of Operations." INVESTIGATIONS The Company is currently the subject of several Federal investigations into certain of its business practices, as well as governmental investigations by various states. The Company is cooperating in these investigations and understands, through written notice and other means, that it is a target in these investigations. Given the breadth of the ongoing investigations, the Company expects additional subpoenas and other investigative and prosecutorial activity to occur in these and other jurisdictions in the future. The Company is the subject of a formal order of investigation by the Securities and Exchange Commission ("SEC"). The Company understands that the SEC investigation includes the anti-fraud, periodic reporting and internal accounting control provisions of the Federal securities laws. The Company cannot predict the outcome or quantify effects that the ongoing investigations, the initiation of additional investigations, if any, and the related media coverage will have on the Company's 36 37 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) INVESTIGATIONS (CONTINUED) financial condition or results of operations in future periods. Were the Company to be found in violation of Federal or state laws relating to Medicare, Medicaid or similar programs, the Company could be subject to substantial monetary fines, civil and criminal penalties and exclusion from participation in the Medicare and Medicaid programs. Any such sanctions could have a material adverse effect on the Company's financial position and results of operations. (See Note 12 -- Contingencies in the Notes to Consolidated Financial Statements.) BUSINESS STRATEGY Columbia/HCA's primary objective is to provide the communities it serves with a comprehensive array of quality health care services in the most cost effective manner possible. The Company's general, acute care hospitals usually provide a full range of services commonly available in hospitals, such as internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency services. Outpatient and ancillary health care services are provided by the Company's general, acute care hospitals, as well as at freestanding facilities operated by the Company, including outpatient surgery centers, diagnostic centers, rehabilitation facilities and other facilities. In addition, Columbia/HCA operates psychiatric hospitals which generally provide a full range of mental health care services in inpatient, partial hospitalization and outpatient settings. The Company also operates preferred provider organizations in 46 states. In November 1997, Columbia/HCA reorganized its operations into five divisions. Columbia/HCA is currently in the process of establishing two of those divisions, America Group and Pacific Group, as independent, publicly-traded companies through tax-free spin-offs of these companies to Columbia/HCA stockholders. America's hospitals are located in non-urban areas where, in almost every case, America's hospital is the only hospital in the community. Approximately three-quarters of Pacific's hospitals are located in small cities, generally in the Southern, Western and Southwestern United States, where Pacific's hospital is usually either the only hospital or one of two hospitals in the community, and the remainder of Pacific's hospitals are located in larger urban areas. Management believes that separating the America and Pacific Groups into two smaller, strategically focused public companies will have positive effects on the performance and profitability of the facilities in these groups by enabling more focused management attention, more effective operating strategies based on local market conditions, and compensation incentives for employees that are more closely tied to group performance. During the third quarter of 1997, management implemented plans to divest the Company's home health businesses and three of the four Value Health business units (Value Health was a provider of specialty managed care benefit programs). The divestitures of the three Value Health business units and the home health operations were completed during 1998. The results of operations of these divested businesses are reflected in the consolidated statements of operations as discontinued operations. The divestiture of the home health operations and the Value Health business units and the spin-offs of the America and Pacific Groups, will allow Columbia/HCA management to focus their efforts on the Company's core markets, which are typically located in urban areas that are characterized by highly integrated health care facility networks. The Company's strategy in these select communities is to be a comprehensive provider of quality health care services. The Company maintains and replaces equipment, renovates and constructs replacement facilities and adds new services to increase the attractiveness of its hospitals and other facilities to patients and physicians. By developing a comprehensive health care network with a broad range of health care services 37 38 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) BUSINESS STRATEGY (CONTINUED) located throughout a market area, the Company believes it achieves greater visibility and is better able to attract and serve patients and physicians. The Company believes it is also able to reduce operating costs by sharing certain services among several facilities in the same market and is better positioned to work with health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs") and employers. The Company generally seeks to operate each of its facilities as part of a network with other health care facilities that it owns or operates within the same region. In instances where acquisitions of additional facilities in the area are not possible or practical, the Company may seek joint ventures or partnership arrangements with other local facilities or alternatively, may seek to divest those assets. RESULTS OF OPERATIONS Revenue/Volume Trends During the past year, the Company has experienced declines in revenue and volume growth rates as well as operational deficiencies. Management believes three primary factors have contributed to the declines in revenue and volume growth rates: the impact of reductions in Medicare payments mandated by the Balanced Budget Act of 1997 ("BBA-97"), the continuing trend toward the conversion of more services to an outpatient basis and the impact of the government investigations. The Company's revenues continue to be affected by an increasing proportion of revenue being derived from fixed payment, higher discount sources, including Medicare, Medicaid and managed care plans. In addition, insurance companies, government programs (other than Medicare) and employers purchasing health care services for their employees are negotiating discounted amounts that they will pay health care providers rather than paying standard prices. The Company expects patient volumes from Medicare and Medicaid to continue to increase due to the general aging of the population and expansion of state Medicaid programs. However, under BBA-97, the Company's reimbursement from the Medicare and Medicaid programs was reduced and will be further reduced as some reductions will be phased in over the next two years. BBA-97 has accelerated a shift, by certain Medicare beneficiaries, from traditional Medicare coverage to medical coverage that is provided under managed care plans. The Company generally receives lower payments per patient under managed care plans than under traditional indemnity insurance plans. With an increasing proportion of services being reimbursed based upon fixed payment amounts (where the payment is based upon the diagnosis, regardless of the cost incurred or level of service provided), revenues, earnings and cash flows are being significantly reduced. Admissions related to Medicare, Medicaid and managed care plan patients were 89.5%, 88.3% and 86.0% of total admissions in 1998, 1997 and 1996, respectively. Revenues from capitation arrangements (prepaid health service agreements) are less than 1% of consolidated revenues. The Company's revenues also continue to be affected by the trend toward certain services being performed more frequently on an outpatient basis. The growth in outpatient services is expected to continue in the health care industry as procedures performed on an inpatient basis are converted to outpatient procedures through continuing advances in pharmaceutical and medical technologies. The redirection of certain procedures to an outpatient basis is also influenced by pressures from payers to direct certain procedures from inpatient care to outpatient care. Generally, the payments received for an outpatient procedure are less than those received for a similar procedure performed in an inpatient setting. Outpatient revenues grew to 39% of net patient revenues in 1998 from 37% in 1997 and 36% in 1996. Management believes that the impact of the ongoing governmental investigations of certain of the Company's business practices and the related media coverage, combined with the restructuring of operations (including the spin-offs, the divestiture of the home health operations and the announced divestitures of several facilities) have created uncertainties with physicians, patients and payers in certain markets. 38 39 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Revenue/Volume Trends (Continued) Reductions in the rate of increase in Medicare and Medicaid reimbursement, increasing percentages of patient volume being related to patients participating in managed care plans and continuing trends toward more services being performed on an outpatient basis are expected to present an ongoing challenge to the Company. The challenges presented by these trends are enhanced in that the Company does not have the ability to control these trends and the associated risks. To maintain and improve its operating margins in future periods, the Company must increase patient volumes while controlling the cost of providing services. If the Company is not able to achieve reductions in the cost of providing services through operational efficiencies, and the trend of declining reimbursements and payments continue, results of operations and cash flow will deteriorate. Management believes that the proper response to these challenges includes the delivery of a broad range of quality health care services to physicians and patients with operating decisions being made by the local management teams and local physicians. 39 40 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Revenue/Volume Trends (Continued) The following are comparative summaries of results from continuing operations for the years ended December 31, 1998, 1997 and 1996 (dollars in millions, except per share amounts):
1998 1997 1996 -------------- --------------- --------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------ ----- ------- ----- ------- ----- Revenues.................................................... $18,681 100.0 $18,819 100.0 $18,786 100.0 Salaries and benefits....................................... 7,811 41.8 7,631 40.6 7,205 38.4 Supplies.................................................... 2,901 15.5 2,722 14.5 2,655 14.1 Other operating expenses.................................... 3,771 20.2 4,263 22.6 3,689 19.6 Provision for doubtful accounts............................. 1,442 7.7 1,420 7.5 1,196 6.4 Depreciation and amortization............................... 1,247 6.7 1,238 6.6 1,143 6.1 Interest expense............................................ 561 3.0 493 2.6 488 2.6 Equity in earnings of affiliates............................ (112) (0.6) (68) (0.4) (173) (0.9) Gains on sales of facilities................................ (744) (4.0) -- -- -- -- Impairment of long-lived assets............................. 542 2.9 442 2.4 -- -- Restructuring of operations and investigation related costs..................................................... 111 0.6 140 0.7 -- -- ------- ----- ------- ----- ------- ----- 17,530 93.8 18,281 97.1 16,203 86.3 ------- ----- ------- ----- ------- ----- Income from continuing operations before minority interests and income taxes.......................................... 1,151 6.2 538 2.9 2,583 13.7 Minority interests in earnings of consolidated entities..... 70 0.4 150 0.8 141 0.7 ------- ----- ------- ----- ------- ----- Income from continuing operations before income taxes....... 1,081 5.8 388 2.1 2,442 13.0 Provision for income taxes.................................. 549 3.0 206 1.1 981 5.2 ------- ----- ------- ----- ------- ----- Income from continuing operations........................... $ 532 2.8 $ 182 1.0 $ 1,461 7.8 ======= ===== ======= ===== ======= ===== Basic earnings per share from continuing operations......... $ .82 $ .28 $ 2.17 Diluted earnings per share from continuing operations....... $ .82 $ .27 $ 2.15 % changes from prior year: Revenues.................................................. (0.7)% 0.2% 9.7% Income from continuing operations before income taxes..... 178.8 (84.1) 42.4 Income from continuing operations......................... 191.2 (87.5) 42.5 Basic earnings per share from continuing operations....... 192.9 (87.1) 40.9 Diluted earnings per share from continuing operations..... 203.7 (87.4) 41.4 Admissions(a)............................................. (1.4) 1.0 6.8 Equivalent admissions(b).................................. (1.1) 2.7 8.8 Revenues per equivalent admission......................... 0.3 (2.4) 0.8 Same facility % changes from prior year(c): Revenues.................................................. (0.2) 1.1 6.6 Admissions(a)............................................. 0.4 1.7 3.8 Equivalent admissions(b).................................. 1.4 3.5 5.8 Revenues per equivalent admission......................... (1.5) (2.3) 0.7
- --------------- (a) Represents the total number of patients admitted (in the facility for a period in excess of 23 hours) to the Company's hospitals and is used by management and certain investors as a general measure of inpatient volume. (b) Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The equivalent admissions computation "equates" outpatient revenue to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume. (c) Same facility information excludes the operations of hospitals and their related facilities which were either acquired or divested during the current and prior year. 40 41 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Years Ended December 31, 1998 and 1997 Revenues decreased 0.7% to $18.68 billion in 1998 compared to $18.82 billion in 1997, primarily as a result of the sales of facilities and declines in volumes. Inpatient admissions decreased 1.4% from a year ago and equivalent admissions (adjusted to reflect combined inpatient and outpatient volume) decreased 1.1%. On a same facility basis, revenues decreased 0.2%, admissions increased 0.4% and equivalent admissions increased 1.4% from a year ago. The small decline in revenue, compared to the decline in equivalent admissions resulted in a slight increase in revenue per equivalent admission of 0.3%. On a same facility basis, the decline in revenue compared to an increase in equivalent admissions resulted in a decline in revenue per equivalent admission of 1.5%. As previously discussed, the increase in outpatient volume activity is primarily a result of the continuing trend of certain services, previously provided in an inpatient setting, being converted to an outpatient setting. The decline in revenues was due to several factors including decreases in Medicare reimbursement rates mandated by the BBA-97 which became effective October 1, 1997 (lowered 1998 revenues by approximately $215 million), continued increases in discounts from the growing number of managed care payers (managed care as a percentage of total admissions increased to 39% in 1998 compared to 35% in 1997), delays experienced in obtaining Medicare cost report settlements (cost report filings and settlements resulted in favorable revenue adjustments of $37 million in 1998 compared to $43 million in 1997), and a net decrease in the number of consolidated hospitals and surgery centers since 1997 due to the sales of several facilities during 1998. There were 281 consolidated hospitals and 102 surgery centers at December 31, 1998 compared to 309 hospitals and 140 surgery centers at December 31, 1997. Income from continuing operations before income taxes increased 178.8% to $1.1 billion in 1998 from $388 million in 1997. Pretax margins increased to 5.8% in 1998 from 2.1% in 1997. The increase in pretax income was primarily attributable to gains on the sales of facilities and a small increase in the operating margin. Excluding the gains on sales of facilities, asset impairment charges and restructuring of operations and investigation related costs, income from continuing operations before income taxes increased 2% to $990 million in 1998 from $970 million in 1997 and the pretax margin increased to 5.3% in 1998 from 5.2% in 1997. These increases were attributable to decreases in operating expenses as a percent of revenues. Operating expenses increased as a percentage of revenues in almost every expense category, except other operating expenses which declined 2.4% from 1997. The increases were primarily attributable to the Company's inability to adjust expenses in line with the decreases experienced in revenues and reimbursement trends. Management's attention to the investigations, reactions by certain physicians and patients to the negative media coverage and management changes at several levels and locations throughout the Company continue to contribute to the Company's inability to implement changes to reduce operating expenses in response to the revenue declines. Salaries and benefits, as a percentage of revenues, increased to 41.8% in 1998 from 40.6% in 1997. The increase was due to a 3.4% increase in salaries and benefits per equivalent admission, which can be attributed to a 2.7% increase in labor cost per hour and a 0.5% increase in man-hours per equivalent admission. Supply costs increased as a percentage of revenues to 15.5% in 1998 from 14.5% in 1997 due to a 7.7% increase in the cost of supplies per equivalent admission, while revenues per equivalent admission increased only 0.3%. Other operating expenses (which includes contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance, marketing and non-income taxes) decreased as a percentage of revenues to 20.2% in 1998 from 22.6% in 1997. The decrease was due to small decreases in several of these expense 41 42 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Years Ended December 31, 1998 and 1997 (Continued) categories as a percentage of revenues, including lower marketing costs being incurred due to the cancellation of a national branding campaign. Provision for doubtful accounts, as a percentage of revenues, increased to 7.7% in 1998 from 7.5% in 1997 due to internal factors such as computer information system conversions (including patient accounting systems) at certain facilities and external factors such as payer mix shifts to managed care plans (resulting in increased amounts of patient co-payments and deductibles) and increases in claim audits and remittance denials from certain payers. Management is unable to quantify the effects of each of these factors, but the shift in payer mix is expected to continue and the provision for doubtful accounts is likely to remain at higher levels than in past years (1996 and prior). Equity in earnings of affiliates increased slightly as a percentage of revenues to 0.6% in 1998 from 0.4% in 1997. Depreciation and amortization increased as a percentage of revenues to 6.7% in 1998 from 6.6% in 1997, primarily due to the slowdown in revenue growth and increased capital expenditures related to ancillary services (such as outpatient services) and information systems. Capital expenditures in these areas generally result in shorter depreciation and amortization lives for the assets acquired than typical hospital acquisitions. Interest expense increased to $561 million in 1998 compared to $493 million in 1997. A primary reason for the increased interest expense is an increase in the average interest rate on the Company's borrowings. The Company's credit ratings were downgraded in both 1998 and 1997 and this has caused a shift in credit sources from the commercial paper market to bank debt. During 1998, Columbia/HCA recognized a pretax gain of $744 million ($365 million after-tax) on the sale of certain hospitals and surgery centers. The gain includes a pretax gain of $570 million ($335 million after-tax) on the sale of 21 hospitals to a consortium of not-for-profit entities, a pretax gain of $203 million ($50 million after-tax) on the sale of 34 surgery centers, and a loss of $29 million ($20 million after-tax) on the sale of 6 hospitals and other facilities. See Note 3-Restructuring of Operations in the Notes to Consolidated Financial Statements. During 1998, management approved a plan to divest a group of the Company's medical office buildings. The divestiture is expected to be completed through either sales or the transfer of the medical office buildings to a joint venture in which the Company may maintain a minority interest. The carrying value for these medical office buildings, along with certain hospitals and other facilities expected to be sold, was reduced to fair value, based upon estimates of sales values resulting in a non-cash, pretax impairment charge of $542 million ($175 million of the total impairment charge was related to the medical office buildings). See Note 3-Restructuring of Operations in the Notes to Consolidated Financial Statements. During 1997, the Company recorded $442 million of asset impairment charges. The charges primarily related to hospital and surgery center facilities to be sold or closed ($402 million) and physician practices ($40 million) where projected future cash flows were less than the carrying value of the related assets. The Company incurred $111 million and $140 million of costs during 1998 and 1997, respectively, in connection with the investigations and changes in management and business strategy. In 1998, these costs included $96 million in professional fees related to the investigations, $5 million in severance costs and $10 million in other costs. In 1997, these costs included $61 million in severance costs, $44 million in professional fees related to the investigations and $35 million in other costs. 42 43 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Years Ended December 31, 1998 and 1997 (Continued) Minority interests decreased as a percentage of revenues to 0.4% in 1998 from 0.8% in 1997. The decrease in minority interest expense was attributable to declines in profitability in certain operations that have minority ownership and the sales during 1998 of certain minority owned operations (the majority of the 34 surgery centers that were sold during 1998 had minority owners). Income from continuing operations increased 191.2% to $532 million ($.82 per diluted share) during 1998 compared to $182 million ($.27 per diluted share) in 1997. Excluding the gains on sales of facilities, asset impairment charges, and restructuring of operations and investigation related costs, income from continuing operations increased 4.3% to $590 million ($.91 per diluted share) in 1998 from $565 million ($.85 per diluted share) in 1997. As previously discussed, the Company is currently in the process of restructuring its operations (including the spin-offs of the America and Pacific Groups and the divestiture of certain facilities). See Note 3-Restructuring of Operations in the Notes to Consolidated Financial Statements. Assuming the completion of the restructuring, the Company's remaining core assets had pro forma net income from continuing operations which increased 44.6% to $364 million in 1998 from $251 million in 1997. Excluding gains on sales of facilities, impairment of long-lived assets and restructuring of operations and investigation related costs, pro forma net income for the Company's remaining core assets increased 37.9% to $688 million in 1998 from $499 million in 1997. Years Ended December 31, 1997 and 1996 Income from continuing operations before income taxes declined 84.1% to $388 million in 1997 from $2.4 billion in 1996 and pretax margins decreased to 2.1% in 1997 from 13.0% in 1996. The decrease in pretax income was primarily attributable to the impairment charges on long-lived assets, restructuring of operations and investigation related costs, a decline in revenue growth rates and decreases in the operating margin. Excluding the asset impairment charges and restructuring of operations and investigation related costs, income from continuing operations before income taxes declined 60.3% to $970 million in 1997 from $2.4 billion in 1996 and pretax margins decreased to 5.2% in 1997 from 13.0% in 1996. The operating results declines, excluding the significant changes, were attributable to declines in revenue growth rates and increases in operating expenses as a percent of revenues. Revenues increased 0.2% to $18.82 billion in 1997 compared to $18.79 billion 1996. Inpatient admissions increased 1.0% from 1996. On a same facility basis, revenues increased 1.1%, admissions increased 1.7% and equivalent admissions (adjusted to reflect combined inpatient and outpatient volume) increased 3.5% from 1996. The increase in outpatient activity is primarily a result of the continuing trend of certain services, previously provided in an inpatient setting, being converted to an outpatient setting (average daily outpatient visits increased 7.1% in 1997 compared to 1996). The patient volume growth rates experienced in 1997 were less than the rates experienced in prior years, which management believes was due, in part, to the reactions of certain physicians and patients to the negative media coverage related to the ongoing governmental investigations and increased competition. The revenue growth rate in 1997 was less than experienced in prior years which management believes was attributable to several factors, including, divestitures of facilities (there were 10 fewer consolidated facilities at the end of 1997 compared to 1996), delays experienced in obtaining Medicare cost report settlements (cost report settlements resulted in favorable revenue adjustments of $43 million in 1997 compared to $242 million in 1996) and decreases in Medicare rates of reimbursement mandated by the BBA-97 which became effective 43 44 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Years Ended December 31, 1997 and 1996 (Continued) October 1, 1997 (lowered 1997 revenues by approximately $50 million). Also contributing to the decline were continued increases in discounts from the growing number of managed care payers which required management to increase estimates for discounts from managed care payers. During 1997, managed care as a percent of total admissions increased to 35% compared to 32% during 1996. Total net revenues per equivalent admission declined 2.4% to $6,486 in 1997 from $6,648 in 1996. Operating expenses increased as a percentage of revenues in every expense category. The increases, as described below, were primarily attributable to the Company's inability during the third and fourth quarters of 1997 to adjust expenses on a timely basis in line with the decreases experienced in volume trends. Management attention to the investigations, reactions by certain physicians and patients to the negative media coverage and management changes at several levels and locations throughout the Company contributed to the Company's inability to implement changes to reduce operating expenses in response to the volume and revenue growth rate declines. Salaries and benefits, as a percentage of revenues, increased to 40.6% in 1997 from 38.4% in 1996. The primary reason for the increase was the decline in revenues per equivalent admission. The Company was unable to adjust staffing on a timely basis corresponding with the declining equivalent admission growth rate. Supply costs increased as a percentage of revenues to 14.5% in 1997 from 14.1% in 1996 due to a decline in net revenue per equivalent admission while the cost of supplies remained relatively unchanged. Other operating expenses, as a percentage of revenues, increased to 22.6% in 1997 from 19.6% in 1996. The decrease was due, in part, to an increase in contract services as a percentage of revenues to 8.9% in 1997 from 7.6% in 1996 which resulted from payments to third parties on a fee basis for both new services and services previously performed by Company employees. Included in other operating expenses in 1997 are costs associated with start-up activities which were previously capitalized and subsequently amortized. The Company changed its policy on accounting for start-up costs effective January 1, 1997, which resulted in approximately $106 million in other operating expenses for 1997, compared to such costs being capitalized and the related expense recorded as amortization expense during 1996. See Note 8-Accounting Change in the Notes to Consolidated Financial Statements. Also included in other operating expenses are professional fees, repairs and maintenance, rents and leases, utilities, insurance and non-income taxes. There were no significant changes in any of these expenses as a percentage of revenues. Provision for doubtful accounts, as a percentage of revenues, increased to 7.5% in 1997 from 6.4% in 1996 due to internal factors such as computer information system conversions (including patient accounting systems) at various facilities and external factors such as payer mix shifts to managed care plans (resulting in increased amounts of patient co-payments and deductibles) and payer remittance slowdowns. The information system conversions hampered the business office billing functions and collection efforts in those facilities as some resources were directed to installing and converting systems and building new data files, rather than devoting full effort to billing and collecting receivables. The Company experienced an increased occurrence of charge audits from certain payers due to the negative publicity surrounding the government investigations which have resulted in delays in the collection of receivables. Management is unable at this time to predict when or if, these delays in collecting accounts receivable will improve or the effect the delays will have on the ultimate amounts collected. Equity in earnings of affiliates decreased as a percentage of revenues to 0.4% in 1997 from 0.9% in 1996 primarily due to decreased profitability at certain facilities acquired through joint ventures during 1995 and 1996. Offsetting the decreased profitability were increases in the number of facilities accounted for using the 44 45 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Years Ended December 31, 1997 and 1996 (Continued) equity method of accounting. As of December 31, 1997, there were 27 hospitals and five freestanding surgery centers compared to 22 hospitals and four freestanding surgery centers at December 31, 1996. Depreciation and amortization increased as a percentage of revenues to 6.6% in 1997 from 6.1% in 1996, primarily due to the slowdown in revenue growth and increased capital expenditures related to ancillary services (such as outpatient services) and information systems. Capital expenditures in these areas generally result in shorter depreciation and amortization lives for the assets acquired than typical hospital acquisitions. Included in the overall increase in depreciation and amortization was a decrease in amortization during 1997 related to the Company's new policy of expensing start-up costs through operating expenses rather than capitalizing and expensing through amortization. Interest expense increased to $493 million in 1997 compared to $488 million in 1996 primarily as a result of an increase in the average outstanding debt during 1997 compared to 1996. This was due, in part, to the additional debt incurred in 1997 related to the Company's $1.0 billion common stock repurchase program. The interest expense associated with the increase in debt related to the Value Health Merger has been allocated to "Discontinued operations" and is therefore not included in interest expense from continuing operations. During 1997, the Company recorded $442 million of asset impairment charges. The charges primarily relate to hospital and surgery center facilities to be sold or closed ($402 million) and physician practices where projected future cash flows were less than the carrying value of the related assets ($40 million). See Note 3 -- Restructuring of Operations in the Notes to Consolidated Financial Statements. The Company incurred $140 million of costs during 1997 in connection with the investigations and changes in management and business strategy. These costs included $61 million in severance costs, $44 million in professional fees related to the investigations and $35 million in other costs. Minority interests increased slightly as a percentage of revenues to 0.8% in 1997 from 0.7% in 1996. Income from continuing operations decreased 87.5% to $182 million ($.27 per diluted share) during 1997 compared to $1.5 billion ($2.15 per diluted share) in 1996. Excluding the asset impairment charges, restructuring of operations and investigation related costs, income from continuing operations declined 61.3% to $565 million ($.85 per diluted share) in 1997 from $1.5 billion ($2.15 per diluted share) in 1996. As previously discussed, the Company is currently in the process of restructuring its operations. See Note 3 -- Restructuring of Operations in the Notes to Consolidated Financial Statements. Assuming the completion of the restructuring, the Company's remaining core assets had pro forma net income from continuing operations which decreased 81.4% to $251 million in 1997 from $1,353 million in 1996. Excluding gains on sales of facilities, impairment of long-lived assets and restructuring of operations and investigation related costs, pro forma net income for the Company's remaining core assets decreased 63.2% to $499 million in 1997 from $1,353 million in 1996. Liquidity Cash provided by continuing operating activities totaled $1.9 billion in 1998 compared to $1.5 billion in 1997 and $2.6 billion in 1996. The increase from 1997 to 1998, and the decrease from 1996 to 1997, were primarily due to the loss incurred from continuing operations during 1997. During 1998, the Company applied for and received a refund for approximately $350 million resulting from excess estimated tax payments made in 1997 based upon more profitable prior periods. This resulted in an increase in income taxes receivable in 1997, which negatively affected 1997 cash flows. 45 46 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Liquidity (Continued) Cash provided by investing activities increased to $1.0 billion in 1998, compared to cash used in investing activities of $2.7 billion in 1997 and $2.2 billion in 1996. The increase was primarily due to proceeds from the sales of certain discontinued operations of $718 million in 1998 and proceeds from the disposition of hospitals and other health care entities of $2.1 billion in 1998 compared to $212 million in 1997 and $166 million in 1996. Also in 1998, cash flows from discontinued operations resulted in a $41 million use of cash, compared to an approximately $1.2 billion use of cash in 1997 to complete the Value Health acquisition. Cash flows used in financing activities totaled approximately $2.7 billion during 1998, compared to cash provided by financing activities of $1.3 billion in 1997 and cash flows used in financing activities of $489 million in 1996. The cash flows provided by continuing operating activities and investing activities were primarily used to pay down debt during 1998. During 1997, the Company repurchased approximately 29 million shares of its common stock pursuant to its $1.0 billion stock repurchase program announced and completed in 1997. The repurchase was funded by the issuance of long-term debt, commercial paper and bank borrowings. During 1996 the excess of cash flows provided by continuing operating activities over cash used in investing activities was used to pay down long-term debt and commercial paper borrowings. Working capital totaled $304 million at December 31, 1998 and $1.7 billion at December 31, 1997. Included in current liabilities is $741 million outstanding under the Company's former 364-day revolving credit facility which was converted to a one-year term loan. The Company repaid the one-year term loan in February 1999. Management believes that cash flows from operations and amounts available under the Company's credit facilities are sufficient to meet expected liquidity needs during 1999. Investments of the Company's professional liability insurance subsidiary to maintain statutory equity and pay claims totaled $1.8 billion and $1.5 billion at December 31, 1998 and 1997, respectively. During 1997, the Company announced both the cessation of sales of interests in hospitals to physicians and its intention to repurchase physician ownership interests in the Company's hospitals. The Company repurchased approximately $41 million and $73 million of physician interests in 1998 and 1997, respectively. The Company has various agreements with joint venture partners whereby the partners have an option to sell or "put" their interests in the joint venture back to the Company within specific periods at fixed prices or prices based on certain formulas. The combined put price under all such agreements was approximately $1.0 billion at December 31, 1998. During April 1998, the partner in the Memorial Healthcare Group, Inc. joint venture exercised its put option whereby the Company purchased the partner's interest in the joint venture for approximately $40 million. The Company cannot predict if, or when, other joint venture partners will exercise such options. During the first quarter of 1998, the Internal Revenue Service issued guidance regarding certain tax consequences of joint ventures between for-profit and not-for-profit hospitals. The Company has not determined the impact of the tax ruling on its existing joint ventures and is consulting with its joint venture partners and tax advisers to develop appropriate courses of action. The tax ruling could require the restructuring of certain joint ventures with not-for-profits or influence the exercise of the put agreements by certain joint venture partners. In February 1999, the Company announced that its Board of Directors authorized the repurchase of up to an additional $1 billion of its common stock. The Company expects to repurchase its shares through open market purchases, privately negotiated transactions or through a series of accelerated or forward purchase contracts. 46 47 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Liquidity (Continued) In July 1998, the Company announced a stock repurchase program under which up to $1 billion of the Company's common stock would be repurchased by entering into a series of forward purchase contracts. Approximately 44 million shares have been purchased, at an average cost of approximately $22.65 per share. The majority of these shares were purchased by certain financial organizations through a series of forward purchase contracts. In accordance with the terms of the forward purchase contracts, which permit settlement on a net share basis, the shares purchased remain issued and outstanding until the forward purchase contracts are settled. The Company expects settlement of the contracts to occur during the second quarter of 1999. In connection with the Company's share repurchase programs, the Company entered into a Letter of Credit Agreement (the "LOC Agreement") with the United States Department of Justice (the "DOJ"). As part of the LOC Agreement, the Company will provide the DOJ with Letters of Credit totaling $1 billion. The LOC Agreement also provides that the Company's share repurchase program announced in February 1999 may be made, at the Company's discretion, through open market purchases, privately negotiated transactions or through a series of accelerated or forward purchase contracts. The Company and the DOJ acknowledge that the amount in the LOC Agreement is not based upon the amount or expected amount of any potential settlement. The LOC Agreement does not constitute an admission of liability by the Company. The resolution of the government investigations and the various lawsuits and legal proceedings that have been asserted could result in substantial liabilities to the Company. The ultimate liabilities cannot be reasonably estimated, as to the timing or amounts, at this time; however, it is possible that results of operations, financial position and liquidity could be materially, adversely affected upon the resolution of certain of these contingencies. Capital Resources Excluding acquisitions, capital expenditures were $1.3 billion in 1998 and $1.4 billion in both 1997 and 1996. Planned capital expenditures in 1999 are expected to approximate $1.2 billion. Management believes that its capital expenditure program is adequate to expand, improve and equip its existing health care facilities. Columbia/HCA expended $215 million, $440 million (excluding discontinued operations), and $809 million for acquisitions and investments in and advances to affiliates (generally 50% interests in joint ventures that are accounted for using the equity method) during 1998, 1997 and 1996, respectively. Changes in management and business strategy have resulted in declines the Company's acquisition plans compared to prior years. Columbia/HCA expects to finance capital expenditures with internally generated and borrowed funds. Available sources of capital include public or private debt, amounts available under the Company's revolving credit facility (approximately $1.0 billion as of February 28, 1999) and equity. At December 31, 1998, there were projects under construction which had an estimated additional cost to complete and equip of approximately $1.1 billion. During the third quarter of 1998, the Company amended the one-year term loan and the revolving credit facility primarily to allow repurchases of up to $1.0 billion of its common stock. During the third quarter of 1998, the Company entered into a $1.0 billion term loan agreement with several banks which matures February 2002. The one-year term loan, the revolving credit facility and the new $1.0 billion term loan contain customary covenants which include (i) limitations on additional debt, (ii) limitations on sales of assets, mergers and 47 48 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Capital Resources (Continued) changes of ownership, and (iii) maintenance of certain interest coverage ratios. The Company is currently in compliance with all such covenants. During the third quarter of 1997, the Company began replacing amounts outstanding under its commercial paper programs with borrowings under its bank credit facilities. This was due to limited access to the commercial paper market as a funding source caused by downgrades of the Company's senior debt and commercial paper credit ratings by Moody's Investors Service ("Moody's") and Standard and Poor's. In February 1998, Moody's downgraded the Company's senior debt credit rating to Ba2 and its commercial paper rating to NP (not prime). In February 1999, Standard & Poor's downgraded the Company's senior debt rating to BB+ and its commercial paper rating to B. The Company anticipates closing on a new $1.0 billion Senior Interim Term Loan at the end of March 1999. It is anticipated that the proceeds will be used to fund the $1.0 billion share repurchase program approved in February 1999. The Company also plans to amend its current revolving credit facility and $1.0 billion term loan to permit the spin-off of the Company's America and Pacific operating groups and to place a $1.25 billion letter of credit sublimit in the revolving credit facility. The Company's restructuring of operations discussed earlier has resulted in the receipt of a significant amount of cash proceeds in 1998. The Company continues to manage its capital structure during this process through the application of such proceeds, as it considers appropriate, to the repayment of debt and the repurchase of its common stock. IMPACT OF YEAR 2000 COMPUTER ISSUES The Company has dedicated substantial resources to address the impact of the Year 2000 problem. The Company has engaged all relevant aspects of the organization in a coordinated effort to address the Year 2000 problem and to minimize the chance of an interruption to the Company's operations or impact to patient safety and health. The Year 2000 problem is the result of two potential malfunctions that could have an impact on the Company's systems and equipment. The first problem arises due to computers being programmed to use two rather than four digits to define the applicable year. The second problem arises in embedded chips, where microchips and microcontrollers have been designed using two rather than four digits to define the applicable year. Certain of the Company's computer programs, building infrastructure components (e.g., alarm systems and HVAC systems) and medical devices that are date sensitive, may recognize a date using "00" as the year 1900 rather than the year 2000. If uncorrected, the problem could result in computer system and program failures or equipment and medical device malfunctions that could result in a disruption of business operations or that could affect patient diagnosis and treatment. With respect to the information technology ("IT") systems portions of the Company's Year 2000 project, which address the inventory, assessment, remediation, testing and implementation of internally developed software, the Company has identified various software applications that are being addressed on separate time lines. The Company has begun remediating all these software applications and is testing the software applications where remediation has been completed. The Company has also completed the assessment of mission critical third party software (i.e., that software which is essential for day-to-day operations) and has developed testing and implementation plans with separate time lines. The Company has completed and placed into production 60% of software applications and is 75% complete on most of the remaining software applications and anticipates completing, in all material respects, remediation, testing and implementation for internally developed and mission critical third party software by June 30, 1999. Remediation, testing and 48 49 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) IMPACT OF YEAR 2000 COMPUTER ISSUES (CONTINUED) implementation of various software applications for certain of the Company's related subsidiaries are expected to be complete in the fourth quarter of 1999. These exceptions (to the June 1999 IT systems goals) should not have a material effect on the Company's readiness. The IT systems portion of the Company's Year 2000 project is currently on schedule in all material respects. With respect to the IT infrastructure portion of the Company's Year 2000 project, the Company has undertaken a program to inventory, assess and correct, replace or otherwise address impacted vendor-supplied products (hardware, systems software, business software, and telecommunication equipment). The Company has implemented a program to contact vendors, analyze information provided, and to remediate, replace or otherwise address IT products that pose a material Year 2000 impact. The Company anticipates completion, in all material respects, of the IT infrastructure portion of its program by June 1999. The IT infrastructure portion of the Company's Year 2000 project is currently on schedule in all material respects. The Company presently believes that with modifications to existing software or the installation of upgraded software under the IT infrastructure portion, the Year 2000 will not pose material operational problems for the Company's computer systems. However, if such modifications or upgrades are not accomplished in a timely manner, Year 2000 related failures could have a material adverse effect on the operations of the Company. With respect to the non-IT infrastructure portion of the Company's Year 2000 project, the Company has undertaken a program to inventory, assess and correct, replace or otherwise address impacted vendor products, medical equipment and other related equipment with embedded chips. The Company has implemented a program to contact vendors, analyze information provided, and to remediate, replace or otherwise address devices or equipment that pose a material Year 2000 impact. The Company anticipates completion, in all material respects, of the non-IT infrastructure portion of its program by September 30, 1999 (revised from the original date of June 30, 1999). With respect to such revised date, the non-IT infrastructure portion of the Company's Year 2000 project is currently on schedule in all material respects. The Company is prioritizing its non-IT infrastructure efforts by focusing on equipment and medical devices that will have a direct impact on patient care. The Company is directing substantial efforts to repair, replace, upgrade or otherwise address this equipment and these medical devices in order to minimize risk to patient safety and health. The Company is relying on information that is being provided to it by equipment and medical device manufacturers regarding the Year 2000 status of their products. While the Company is attempting to evaluate information provided by its previous and current vendors, there can be no assurance that in all instances accurate information is being provided. The Company also cannot in all instances guarantee that the repair, replacement or upgrade of all non-IT infrastructure systems will occur on a timely basis or that such repairs, replacements or upgrades will avoid all Year 2000 problems. The Company has initiated communications with its major third party payers and intermediaries, including government payers and intermediaries. The Company relies on these entities for accurate and timely reimbursement of claims, often through the use of electronic data interfaces. The Company has not received assurances that these interfaces will be timely converted. Testing with payers and intermediaries will not be completed by June 30, 1999 because the payers and intermediaries are not ready to test with the Company's systems. Failure of these third party systems could have a material adverse effect on the Company's cash flow and results of operations. The Company also has initiated communications with its mission critical suppliers and vendors (i.e., those suppliers and vendors whose products and services are essential for day-to-day operations) to verify their ability to continue to deliver goods and services through the Year 2000. The Company has not received assurances from all mission critical suppliers and vendors that they will be able to continue to deliver goods 49 50 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) IMPACT OF YEAR 2000 COMPUTER ISSUES (CONTINUED) and services through the Year 2000, but the Company is continuing its efforts to obtain such assurances. Failure of these third parties could have a material adverse effect on operations and/or the ability to provide health care services. With the assistance of external resources, the Company has undertaken the development of contingency plans in the event that its Year 2000 efforts, or the failures of third parties upon which the Company relies, are not successfully or timely completed. The Company has developed a contingency planning methodology and will implement contingency plans throughout 1999. While the Company is developing contingency plans to address possible failure scenarios, the Company recognizes that there are "worst case" scenarios which may develop and are largely outside the Company's control. The Company recognizes the risks associated with extended infrastructure (power, water, telecommunications) failure, the interruption of insurance payments to the Company and the failure of equipment or software that could impact patient safety or health despite the assurances of third parties. The Company is addressing these and other failure scenarios in its contingency planning effort and is engaging third parties in discussions regarding how to manage common failure scenarios, but the Company cannot currently estimate the likelihood or the potential cost of such failures. Currently, the Company does not believe that any reasonably likely worst case scenario will have a material impact on the Company's revenues or operations. Those reasonably likely worst case scenarios include continued expenditures for remediation, continued expenditures for replacement or upgrade of equipment, continued efforts regarding contingency planning, increased staffing for the periods immediately preceding and after January 1, and possible implementation of alternative payment schemes with the Company's payers. The Year 2000 project is currently estimated to have a minimum total cost of $86 million, of which the Company incurred $35 million in 1998. Cumulatively, the Company has incurred $50 million of costs related to the Year 2000 project. The increase to the estimated minimum total cost is related to estimates for repair or replacement of non-IT systems and costs related to an affiliated subsidiary. The estimate does not include payroll costs for certain internal employees because these costs are not separately tracked by the Company or asset replacement costs which cannot currently be estimated. The Company recognizes that the total cost is likely to increase as it completes its assessment of non-IT systems and as it continues its remediation and testing of IT systems and such increase could be material. The Company is not currently able to reasonably estimate the ultimate cost to be incurred for the assessment, remediation, upgrade, replacement and testing of its impacted non-IT systems. The majority of the costs related to the Year 2000 project will be expensed as incurred and are expected to be funded through operating cash flows. The costs of the project and estimated completion dates for the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantees that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area and the ability to locate and correct all relevant computer codes and all medical equipment. EFFECTS OF INFLATION AND CHANGING PRICES Various federal, state and local laws have been enacted that, in certain cases, limit the Company's ability to increase prices. Revenues for acute care hospital services rendered to Medicare patients are established under the federal government's prospective payment system. Total Medicare revenues approximated 30% in 1998, 34% in 1997 and 35% in 1996. 50 51 COLUMBIA/HCA HEALTHCARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) EFFECTS OF INFLATION AND CHANGING PRICES (CONTINUED) Management believes that hospital industry operating margins have been, and may continue to be, under significant pressure because of deterioration in inpatient volumes, changes in payer mix and growth in operating expenses in excess of the increase in prospective payments under the Medicare program. Management expects that the average rate of increase in Medicare prospective payments will range from 0% to 0.5% in 1999. In addition, as a result of increasing regulatory and competitive pressures, the Company's ability to maintain operating margins through price increases to non-Medicare patients is limited. HEALTH CARE REFORM In recent years, an increasing number of legislative proposals have been introduced or proposed to Congress and in some state legislatures that would significantly affect health care systems in the Company's markets. The cost of certain proposals would be funded in significant part by reduction in payments by government programs, including Medicare and Medicaid, to health care providers (similar to the reductions incurred as part of BBA-97 as previously discussed). While the Company is unable to predict which, if any, proposals for health care reform will be adopted, there can be no assurance that proposals adverse to the business of the Company will not be adopted. PENDING IRS DISPUTES The Company is contesting income taxes and related interest proposed by the IRS for prior years aggregating approximately $351 million as of December 31, 1998. Management believes that final resolution of these disputes will not have a material adverse effect on the results of operations or liquidity of the Company. (See Note 7 -- Income Taxes of the Notes to Consolidated Financial Statements for a description of the pending IRS disputes). 51 52 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk related to changes in interest rates and market values of securities. The Company currently uses derivative instruments to offset the market risk exposure of the investments in equity securities of its insurance subsidiary. No derivatives are currently used to alter the interest rate characteristics of the Company's debt instruments or the insurance subsidiary's investments in fixed income securities. The Company's use of derivatives is intended to lessen the impact on the fair value of its investments in equity securities that result from movements in market rates and prices. The Company uses sensitivity analysis models to evaluate these impacts. The Company's investments in fixed income and equity securities were $1,370 million and $394 million (including the value of derivative instruments), respectively, at December 31, 1998. These investments are carried at fair value with changes in unrealized gains and losses being recorded as adjustments to stockholders' equity. The fair value of investments is generally based on quoted market prices. Changes in interest rates and market values of securities are not expected to be material in relation to the financial position and operating results of the Company. With respect to the Company's interest-bearing liabilities, approximately $2,241 million of long-term debt at December 31, 1998 is subject to variable rates of interest, while the remaining balance in long-term debt of $4,512 million at December 31, 1998 is subject to fixed rates of interest. The estimated fair value of the Company's total long-term debt was $6,661 million at December 31, 1998. The estimates of fair value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities. Based on a hypothetical 1% increase in interest rates, the potential annualized losses in future pretax earnings would be approximately $22 million. The impact of such a change in interest rates on the carrying value of long-term debt would not be significant. The estimated changes to interest expense and the fair value of long-term debt are determined considering the impact of hypothetical interest rates on the Company's borrowing cost and long-term debt balances. These analyses do not consider the effects, if any, of the potential changes in the Company's credit ratings or the overall level of economic activity. Further, in the event of a change of significant magnitude, management would expect to take actions intended to further mitigate its exposure to such change. In February 1999, the Company repaid, in its entirety, variable interest rate loans under the Company's 364-day revolving credit agreement (which had a balance of $741 million at December 31, 1998) with proceeds from asset divestitures and additional variable interest rate borrowings under the Company's five-year revolving credit agreement. See Note 11 -- Long Term Debt in the Notes to Consolidated Financial Statements. Foreign operations and the related market risks associated with foreign currency are currently insignificant to the Company's results of operations and financial position. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information with respect to this Item is contained in the Company's consolidated financial statements indicated in the Index on Page F-1 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 52 53 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is set forth under the heading "Election of Directors" in the definitive proxy materials of the Company to be filed in connection with its 1999 Annual Meeting of Stockholders, except for the information regarding executive officers of the Company, which is contained in Item 1 of Part I of this Annual Report on Form 10-K. The information required by this Item contained in such definitive proxy materials is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is set forth under the heading "Executive Compensation" in the definitive proxy materials of the Company to be filed in connection with its 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is set forth under the heading "Principal Stockholders" in the definitive proxy materials of the Company to be filed in connection with its 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is set forth under the heading "Compensation Committee Interlocks and Insider Participation" in the definitive proxy materials of the Company to be filed in connection with its 1999 Annual Meeting of Stockholders, which information is incorporated herein by reference. 53 54 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents filed as part of the report: 1. Financial Statements The accompanying index to financial statements on page F-1 of this Annual Report on Form 10-K is provided in response to this item. 2. List of Financial Statement Schedules All schedules are omitted because the required information is not present, not present in material amounts or presented within the financial statements. 3. List of Exhibits 3.1(a) -- Restated Certificate of Incorporation of the Company (filed as Exhibit 3(a) to the Company's Current Report on Form 8-K dated February 11, 1994, and incorporated herein by reference). 3.1(b) -- Amendment to the Restated Certificate of Incorporation of the Company (filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). 3.2(a) -- By-laws of the Company (filed as Exhibit 2.2 to the Company's Registration Statement on Form 8-A dated August 31, 1993, and incorporated herein by reference). 3.2(b) -- Amendment to By-laws of the Company (filed as Exhibit 3.1(b) to the Company's Current Report on Form 8-K dated February 11, 1994, and incorporated herein by reference). 3.2(c) -- Amendment to By-laws of the Company (filed as Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). 4.1 -- Specimen Certificate for shares of Common Stock, par value $.01 per share, of the Company (filed as Exhibit 4.1 to the Company's Form SE to Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.2 -- Registration Rights Agreement between the Company and The 1818 Fund, L.P. dated March 18, 1991 (filed as Exhibit 4.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.3 -- Securities Purchase Agreement by and between the Company and The 1818 Fund, L.P. dated as of March 18, 1991 (filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.4 -- Warrant to purchase shares of Common Stock, par value $.01 per share, of the Company (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference). 4.5 -- Registration Rights Agreement dated as of March 16, 1989, by and among HCA-Hospital Corporation of America and the persons listed on the signature pages thereto (filed as Exhibit (g)(24) to Amendment No. 3 to the Schedule 13E-3 filed by HCA-Hospital Corporation of America, Hospital Corporation of America and The HCA Profit Sharing Plan on March 22, 1989, and incorporated herein by reference). 4.6 -- Assignment and Assumption Agreement dated as of February 10, 1994, between HCA-Hospital Corporation of America and the Company relating to the Registration Rights Agreement, as amended (filed as Exhibit 4.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.8(a) -- $2 Billion Credit Agreement dated as of February 10, 1994 (the "Credit Facility"), among the Company, the Several Banks and Other Financial Institutions, and Chemical Bank as Agent and as CAF Loan Agent (filed as Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.8(b) -- Agreement and Amendment to the Credit Facility dated as of September 26, 1994 (filed as Exhibit 4.10 to the Company's Registration Statement on Form S-4 (File No. 33-56803), and incorporated herein by reference).
54 55 4.8(c) -- Agreement and Amendment to the Credit Facility dated as of February 28, 1996 (filed as Exhibit 4.10(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference). 4.8(d) -- Agreement and Amendment to the Credit Facility dated as of February 26, 1997 (filed as Exhibit 4.10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference). 4.8(e) -- Agreement and Amendment to the Credit Facility dated as of June 17, 1997 (filed as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference). 4.8(f) -- Second Amendment to the Credit Facility, dated as of February 3, 1998 (filed as Exhibit 4.10(f) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference). 4.8(g) -- Third Amendment to the Credit Facility, dated as of March 26, 1998 (filed as Exhibit 4.10(g) to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference). 4.8(h) -- Fourth Amendment to the Credit Facility, dated as of July 10, 1998 (filed as Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). 4.9 -- Indenture dated as of December 15, 1993 between the Company and The First National Bank of Chicago, as Trustee (filed as Exhibit 4.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference). 4.10 -- $1 Billion Credit Agreement dated as of July 10, 1998 among the Registrant. The Several Banks and other Financial Institutions and NationsBank, N.A. as Documentation Agent, The Bank of Nova Scotia and Deutsche Bank Securities, as Co-Syndication Agents and The Chase Manhattan Bank, as Agent (filed as Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference). 10.1 -- Agreement and Plan of Merger among the Company, COL Acquisition Corporation and Healthtrust, Inc. -- The Hospital Company dated as of October 4, 1994 (filed as Exhibit 2 to the Company's Registration Statement on Form S-4 (File No. 33-56803), and incorporated herein by reference). 10.2 -- Agreement and Plan of Merger among the Company, CHOS Acquisition Corporation and HCA-Hospital Corporation of America dated as of October 2, 1993 (filed as Exhibit 2 to the Company's Registration Statement on Form S-4 (File No. 33-50735), and incorporated herein by reference). 10.3 -- Agreement and Plan of Merger between Galen Health Care, Inc. and the Company dated as of June 10, 1993 (filed as Exhibit 2 to the Company's Registration Statement on Form S-4 (File No. 33-49773), and incorporated herein by reference). 10.4 -- Agreement and Plan of Merger among Hospital Corporation of America, HCA-Hospital Corporation of America and TF Acquisition, Inc. dated November 21, 1988 plus a list identifying the contents of all omitted exhibits to the Agreement and Plan of Merger plus an agreement of Hospital Corporation of America to furnish supplementally to the Securities and Exchange Commission upon request a copy of all omitted exhibits (filed as Exhibit 2 to Hospital Corporation of America's Current Report on Form 8-K dated November 21, 1988, and incorporated herein by reference). 10.5 -- Amendment No. 1 to Agreement and Plan of Merger dated as of February 7, 1989, among Hospital Corporation of America, HCA-Hospital Corporation of America and TF Acquisition, Inc. (filed as Exhibit 2(b) to Hospital Corporation of America's Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated herein by reference). 10.6 -- Columbia Hospital Corporation Stock Option Plan (filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, and incorporated herein by reference).*
55 56 10.7(a) -- Columbia Hospital Corporation 1992 Stock and Incentive Plan (filed as Exhibit 10.14 to the Company's Registration Statement on Form S-1 (Reg. No. 33-48886), and incorporated herein by reference).* 10.7(b) -- Amended and Restated Columbia/HCA Healthcare Corporation 1992 Stock and Incentive Plan (which Plan is filed herewith).* 10.8 -- Columbia Hospital Corporation Outside Directors Nonqualified Stock Option Plan (filed as Exhibit 28.1 to the Company's Registration Statement on Form S-8 (File No. 33-55272), and incorporated herein by reference).* 10.9 -- HCA-Hospital Corporation of America 1989 Nonqualified Stock Option Plan, as amended through December 16, 1991 (filed as Exhibit 10(g) to HCA-Hospital Corporation of America's Registration Statement on Form S-1 (File No. 33-44906), and incorporated herein by reference).* 10.10 -- Form of Stock Option Agreement under the HCA-Hospital Corporation of America 1989 Nonqualified Stock Option Plan (filed as Exhibit 10(j) to HCA-Hospital Corporation of America's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated herein by reference).* 10.11 -- HCA-Hospital Corporation of America Nonqualified Initial Option Plan (filed as Exhibit 4.6 to the Company's Registration Statement on Form S-3 (File No. 33-52379), and incorporated herein by reference).* 10.12 -- Form of Indemnity Agreement with certain officers and directors (filed as Exhibit 10(kk) to Galen Health Care, Inc.'s Registration Statement on Form 10, as amended, and incorporated herein by reference). 10.13 -- Form of Severance Pay Agreement between Galen Health Care, Inc. and certain executives (filed as Exhibit 10(jj) to Galen Health Care, Inc.'s Registration Statement on Form 10, as amended, and incorporated herein by reference).* 10.14 -- Form of Severance Agreement between HCA-Hospital Corporation of America and certain executives dated as of November 1, 1993 (filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference).* 10.15 -- Assumption Agreement among the Company, CHOS Acquisition Corporation and HCA-Hospital Corporation of America dated as of February 10, 1994, relating to the Severance Agreements (filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference).* 10.16 -- Form of Severance Pay Agreement between the Company and certain executives dated as of June 10, 1993 (filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference).* 10.17 -- Form of Galen Health Care, Inc. 1993 Adjustment Plan (filed as Exhibit 4.15 to the Company's Registration Statement on Form S-8 (File No. 33-50147), and incorporated herein by reference).* 10.18 -- Columbia/HCA Healthcare Corporation 1997 Annual Incentive Plan (filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference).* 10.19 -- Columbia/HCA Healthcare Corporation Directors' Retirement Policy (filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference).* 10.20 -- HCA-Hospital Corporation of America 1992 Stock Compensation Plan (filed as Exhibit 10(t) to HCA-Hospital Corporation of America's Registration Statement on Form S-1 (File No. 33- 44906), and incorporated herein by reference).* 10.21 -- Columbia/HCA Healthcare Corporation 1995 Management Stock Purchase Plan (filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference).*
56 57 10.22 -- Employment Agreement, dated April 24, 1995 by and between the Company and R. Clayton McWhorter (filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference).* 10.23 -- Amended and Restated Agreement and Plan of Merger among the Company, CVH Acquisition Corporation and Value Health, Inc. dated as of April 14, 1997 (filed as Exhibit 2 to the Company's Current Report on Form 8-K dated April 22, 1997, and incorporated herein by reference). 10.24 -- Separation Agreement between the Company and Richard L. Scott dated July 25, 1997 (filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference).* 10.25 -- Separation Agreement between the Company and David T. Vandewater dated July 25, 1997 (filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference).* 10.26 -- Columbia/HCA Healthcare Corporation Directors Fees/Compensation Policy as revised May 14, 1998 (which policy is filed herewith).* 10.27 -- Columbia/HCA Healthcare Corporation Outside Directors Stock and Incentive Compensation Plan (filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference).* 10.28 -- Columbia/HCA Healthcare Corporation Amended and Restated 1995 Management Stock Purchase Plan (filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference).* 10.29 -- Columbia/HCA Healthcare Corporation Performance Equity Incentive Plan (filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference).* 10.30 -- Separation Agreement between the Company and Don Steen dated October 17, 1997 (filed as Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference).* 10.31 -- Separation Agreement between the Company and Dan Moen dated July 1, 1998 (which agreement is filed herewith).* 10.32 -- Separation Agreement between the Company and David White dated September 11, 1998 (which agreement is filed herewith).* 10.33 -- Letter Agreement between the Company and Robert Waterman dated October 31, 1997 (which agreement is filed herewith).* 10.34 -- Letter Agreement between the Company and R. Clayton McWhorter dated January 18, 1999 (which agreement is filed herewith).* 10.35 -- Columbia/HCA Healthcare Corporation 1999 Performance Equity Incentive Plan (which plan is filed herewith).* 10.36 -- Columbia/HCA Healthcare Corporation Severance Policy for America and Pacific Groups (which policy is filed herewith).* 10.37 -- Letter of Credit Agreement dated February 11, 1999 between Columbia/HCA Healthcare Corporation and the United States of America (filed as Exhibit 99 to the Company's Current Report on Form 8-K dated February 23, 1999, and incorporated herein by reference). 12 -- Statement re Computation of Ratio of Earnings to Fixed Charges. 18 -- Letter re Change in Accounting Principle. 21 -- List of Subsidiaries. 23 -- Consent of Ernst & Young LLP. 27 -- Financial Data Schedule for 1998 year-end information (for SEC use only).
- --------------- * Management compensatory plan or arrangement. 57 58 (b) Reports on Form 8-K. On October 27, 1998, the Company announced operating results for the third quarter and nine months ended September 30, 1998. On December 14, 1998, the Company announced that it filed with the Securities and Exchange Commission the Form 10 Registration Statements related to the proposed tax free spin-off to the Company's stockholders of LifePoint Hospitals, Inc. and Triad Hospitals, Inc., formerly known as the Company's America and Pacific Groups, respectively. 58 59 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. COLUMBIA/HCA HEALTHCARE CORPORATION By: /s/ THOMAS F. FRIST, JR., M.D. ------------------------------------- Thomas F. Frist, Jr., M.D. Chairman and Chief Executive Officer Dated: March 30, 1999 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/ THOMAS F. FRIST, JR., M.D. Chairman of the Board and Chief March 30, 1999 - ----------------------------------------------------- Executive Officer Thomas F. Frist, Jr., M.D. /s/ R. MILTON JOHNSON Vice President and Controller March 30, 1999 - ----------------------------------------------------- (Principal Accounting R. Milton Johnson Officer) /s/ MAGDALENA H. AVERHOFF, M.D. Director March 25, 1999 - ----------------------------------------------------- Magdalena H. Averhoff, M.D. /s/ MARTIN FELDSTEIN Director March 26, 1999 - ----------------------------------------------------- Martin Feldstein /s/ FREDERICK W. GLUCK Director March 25, 1999 - ----------------------------------------------------- Frederick W. Gluck /s/ T. MICHAEL LONG Director March 25, 1999 - ----------------------------------------------------- T. Michael Long /s/ R. CLAYTON MCWHORTER Director March 25, 1999 - ----------------------------------------------------- R. Clayton McWhorter /s/ JOHN H. MCARTHUR Director March 25, 1999 - ----------------------------------------------------- John H. McArthur /s/ THOMAS S. MURPHY Director March 25, 1999 - ----------------------------------------------------- Thomas S. Murphy /s/ KENT C. NELSON Director March 25, 1999 - ----------------------------------------------------- Kent C. Nelson /s/ CARL E. REICHARDT Director March 26, 1999 - ----------------------------------------------------- Carl E. Reichardt /s/ FRANK S. ROYAL, M.D. Director March 25, 1999 - ----------------------------------------------------- Frank S. Royal, M.D.
59 60 COLUMBIA/HCA HEALTHCARE CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors.............................. F-2 Consolidated Financial Statements: Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996....................... F-3 Consolidated Balance Sheets, December 31, 1998 and 1997... F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996........... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996....................... F-6 Notes to Consolidated Financial Statements................ F-7 Quarterly Consolidated Financial Information (Unaudited)............................................ F-26
F-1 61 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders Columbia/HCA Healthcare Corporation We have audited the accompanying consolidated balance sheets of Columbia/HCA Healthcare Corporation as of December 31, 1998 and 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Columbia/HCA Healthcare Corporation at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. As explained in Note 8 to the Consolidated Financial Statements, effective January 1, 1997, the Company changed its method of accounting for start-up costs. ERNST & YOUNG LLP Nashville, Tennessee February 19, 1999 F-2 62 COLUMBIA/HCA HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1998 1997 1996 ------- -------- ------- Revenues.................................................... $18,681 $ 18,819 $18,786 Salaries and benefits....................................... 7,811 7,631 7,205 Supplies.................................................... 2,901 2,722 2,655 Other operating expenses.................................... 3,771 4,263 3,689 Provision for doubtful accounts............................. 1,442 1,420 1,196 Depreciation and amortization............................... 1,247 1,238 1,143 Interest expense............................................ 561 493 488 Equity in earnings of affiliates............................ (112) (68) (173) Gains on sales of facilities................................ (744) -- -- Impairment of long-lived assets............................. 542 442 -- Restructuring of operations and investigation related costs..................................................... 111 140 -- ------- -------- ------- 17,530 18,281 16,203 ------- -------- ------- Income from continuing operations before minority interests and income taxes.......................................... 1,151 538 2,583 Minority interests in earnings of consolidated entities..... 70 150 141 ------- -------- ------- Income from continuing operations before income taxes....... 1,081 388 2,442 Provision for income taxes.................................. 549 206 981 ------- -------- ------- Income from continuing operations........................... 532 182 1,461 Discontinued operations: Income (loss) from operations of discontinued businesses, net of income taxes (benefits) of ($26) in 1998, $18 in 1997 and $29 in 1996................................... (80) 12 44 Losses on disposals of discontinued businesses, net of income tax benefit of $124 in 1997..................... (73) (443) -- Cumulative effect of accounting change, net of income tax benefit of $36............................................ -- (56) -- ------- -------- ------- Net income (loss)................................. $ 379 $ (305) $ 1,505 ======= ======== ======= Basic earnings (loss) per share: Income from continuing operations......................... $ .82 $ .28 $ 2.17 Discontinued operations: Income (loss) from operations of discontinued businesses............................................ (.12) .02 .07 Losses on disposals of discontinued businesses......... (.11) (.67) -- Cumulative effect of accounting change.................... -- (.09) -- ------- -------- ------- Net income (loss)................................. $ .59 $ (.46) $ 2.24 ======= ======== ======= Diluted earnings (loss) per share: Income from continuing operations......................... $ .82 $ .27 $ 2.15 Discontinued operations: Income (loss) from operations of discontinued businesses............................................ (.12) .02 .07 Losses on disposals of discontinued businesses......... (.11) (.67) -- Cumulative effect of accounting change.................... -- (.08) -- ------- -------- ------- Net income (loss)................................. $ .59 $ (.46) $ 2.22 ======= ======== =======
The accompanying notes are an integral part of the consolidated financial statements. F-3 63 COLUMBIA/HCA HEALTHCARE CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1998 1997 ------- ------- ASSETS Current assets: Cash and cash equivalents................................. $ 297 $ 110 Accounts receivable, less allowances for doubtful accounts of $1,645 -- 1998 and $1,661 -- 1997.......................................... 2,096 2,522 Inventories............................................... 434 452 Income taxes receivable................................... 149 532 Other..................................................... 887 807 ------- ------- 3,863 4,423 Property and equipment, at cost: Land...................................................... 925 967 Buildings................................................. 6,708 7,257 Equipment................................................. 7,449 7,461 Construction in progress (estimated cost to complete and equip after December 31, 1998 -- $1,066)................ 562 569 ------- ------- 15,644 16,254 Accumulated depreciation.................................. (6,195) (6,024) ------- ------- 9,449 10,230 Investments of insurance subsidiary......................... 1,614 1,422 Investments in and advances to affiliates................... 1,275 1,329 Intangible assets, net of accumulated amortization of $596 -- 1998 and $510 -- 1997............................. 2,910 3,521 Net assets of discontinued operations....................... -- 841 Other....................................................... 318 236 ------- ------- $19,429 $22,002 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 784 $ 929 Accrued salaries.......................................... 425 475 Other accrued expenses.................................... 1,282 1,237 Long-term debt due within one year........................ 1,068 132 ------- ------- 3,559 2,773 Long-term debt.............................................. 5,685 9,276 Professional liability risks, deferred taxes and other liabilities............................................... 1,839 1,867 Minority interests in equity of consolidated entities....... 765 836 Stockholders' equity: Common stock $.01 par; authorized 1,600,000,000 voting shares and 50,000,000 nonvoting shares; outstanding 621,578,300 voting shares and 21,000,000 nonvoting shares -- 1998 and 620,452,200 voting shares and 21,000,000 nonvoting shares -- 1997..................... 6 6 Capital in excess of par value............................ 3,498 3,480 Other..................................................... 11 13 Accumulated other comprehensive income.................... 80 92 Retained earnings......................................... 3,986 3,659 ------- ------- 7,581 7,250 ------- ------- $19,429 $22,002 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-4 64 COLUMBIA/HCA HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS IN MILLIONS)
COMMON STOCK CAPITAL IN ACCUMULATED --------------- EXCESS OF OTHER SHARES PAR PAR COMPREHENSIVE RETAINED (000) VALUE VALUE OTHER INCOME EARNINGS TOTAL ------- ----- ---------- ----- ------------- -------- ------ Balances, December 31, 1995................... 668,728 $7 $4,496 $26 $34 $2,566 $7,129 Comprehensive income: Net income................................ 1,505 1,505 Other comprehensive income (loss), net of tax (See NOTE 17): Net unrealized gains on investment securities........................... 24 24 Foreign currency translation adjustments.......................... (6) (6) --- ------ ------ Total comprehensive income........... 18 1,505 1,523 Cash dividends.............................. (54) (54) Stock options exercised, net................ 3,859 81 (5) 76 Other....................................... (1,088) (58) (7) (65) ------- -- ------ --- --- ------ ------ Balances, December 31, 1996................... 671,499 7 4,519 14 52 4,017 8,609 Comprehensive loss: Net loss.................................. (305) (305) Other comprehensive income, net of tax (See NOTE 17): Net unrealized gains on investment securities........................... 38 38 Foreign currency translation adjustments.......................... 2 2 --- ------ ------ Total comprehensive loss............. 40 (305) (265) Cash dividends.............................. (53) (53) Stock repurchases........................... (37,895) (1) (1,272) (1,273) Stock options exercised, net................ 4,108 100 (4) 96 Employee benefit plan issuances............. 3,740 108 108 Other....................................... 25 3 28 ------- -- ------ --- --- ------ ------ Balances, December 31, 1997................... 641,452 6 3,480 13 92 3,659 7,250 Comprehensive income: Net income................................ 379 379 Other comprehensive income (loss), net of tax (See NOTE 17): Net unrealized losses on investment securities........................... (13) (13) Foreign currency translation adjustments.......................... 1 1 --- ------ ------ Total comprehensive income........... (12) 379 367 Cash dividends.............................. (52) (52) Stock repurchases........................... (4,076) (98) (98) Stock options exercised, net................ 1,623 37 37 Employee benefit plan issuances............. 2,983 71 71 Other....................................... 596 8 (2) 6 ------- -- ------ --- --- ------ ------ Balances, December 31, 1998................... 642,578 $6 $3,498 $11 $80 $3,986 $7,581 ======= == ====== === === ====== ======
The accompanying notes are an integral part of the consolidated financial statements. F-5 65 COLUMBIA/HCA HEALTHCARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (DOLLARS IN MILLIONS)
1998 1997 1996 ------ ------ ------ Cash flows from continuing operating activities: Net income (loss)......................................... $ 379 $ (305) $1,505 Adjustments to reconcile net income (loss) to net cash provided by continuing operating activities: Provision for doubtful accounts...................... 1,442 1,420 1,196 Depreciation and amortization........................ 1,247 1,238 1,143 Income taxes......................................... 351 (782) 269 Gains on sales of facilities......................... (744) -- -- Impairment of long-lived assets...................... 542 442 -- Loss (income) from discontinued operations........... 153 431 (44) Increase (decrease) in cash from operating assets and liabilities: Accounts receivable............................... (1,229) (1,167) (1,360) Inventories and other assets...................... (39) 25 (14) Accounts payable and accrued expenses............. (177) 121 (145) Other................................................ (9) 60 39 ------ ------ ------ Net cash provided by continuing operating activities...................................... 1,916 1,483 2,589 ------ ------ ------ Cash flows from investing activities: Purchase of property and equipment........................ (1,255) (1,422) (1,391) Acquisition of hospitals and health care entities......... (215) (411) (748) Disposal of hospitals and health care entities............ 2,060 212 166 Purchase of investments................................... (294) (74) (219) Investment in discontinued operations, net................ 677 (1,060) (26) Other..................................................... (3) 9 (1) ------ ------ ------ Net cash provided by (used in) investing activities...................................... 970 (2,746) (2,219) ------ ------ ------ Cash flows from financing activities: Issuance of long-term debt................................ 3 249 459 Net change in commercial paper and bank borrowings........ (2,514) 2,453 (579) Repayment of long-term debt............................... (147) (318) (303) Issuances (repurchases) of common stock, net.............. 8 (1,082) (20) Payment of cash dividends and redemption of preferred stock purchase rights.................................. (52) (53) (54) Other..................................................... 3 11 8 ------ ------ ------ Net cash provided by (used in) financing activities...................................... (2,699) 1,260 (489) ------ ------ ------ Change in cash and cash equivalents......................... 187 (3) (119) Cash and cash equivalents at beginning of period............ 110 113 232 ------ ------ ------ Cash and cash equivalents at end of period.................. $ 297 $ 110 $ 113 ====== ====== ====== Interest payments........................................... $ 566 $ 471 $ 499 Income tax payments, net of refunds......................... $ (139) $1,168 $ 709
The accompanying notes are an integral part of the consolidated financial statements. F-6 66 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ACCOUNTING POLICIES Reporting Entity Columbia/HCA Healthcare Corporation is a holding company whose affiliates own and operate hospitals and related health care entities. The term "affiliates" includes direct and indirect subsidiaries of Columbia/ HCA Healthcare Corporation and partnerships and joint ventures in which such subsidiaries are partners. At December 31, 1998, these affiliates owned and operated 281 hospitals, 102 freestanding surgery centers and provided extensive outpatient and ancillary services. Affiliates of Columbia/HCA are also partners in several 50/50 joint ventures that own and operate 24 hospitals and 5 freestanding surgery centers which are accounted for using the equity method. The Company's facilities are located in 32 states, England and Switzerland. The terms "Columbia/HCA" or the "Company" as used in this annual report on Form 10-K refer to Columbia/ HCA Healthcare Corporation and its affiliates unless otherwise stated or indicated by content. Basis of Presentation The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements include all subsidiaries and entities controlled by the Company. Significant intercompany transactions have been eliminated. Investments in entities which the Company does not control, but in which it has a substantial ownership interest and can exercise significant influence, are accounted for using the equity method. The Company has completed various acquisitions, disposals and joint venture transactions that have been recorded under the purchase method of accounting. Accordingly, the accounts of these entities have been consolidated with those of the Company for periods subsequent to the acquisition of controlling interest and for periods prior to the disposal of controlling interest. Revenues The Company's health care facilities have entered into agreements with third-party payers, including government programs and managed care health plans, under which the facilities are paid based upon established charges, the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from established charges. Revenues are recorded at estimated amounts due from patients and third-party payers for the health care services provided. Settlements under reimbursement agreements with third-party payers are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined (in relation to certain government programs, primarily Medicare, this is generally referred to as the "cost report" filing and settlement process). The adjustments to estimated settlements resulted in increases to revenues of $37 million, $43 million and $242 million in 1998, 1997 and 1996, respectively. In association with the ongoing Federal investigations into certain of Columbia/HCA's business practices, the applicable governmental agencies have substantially ceased the final settlement of the Company's cost reports. Since the cost reports are not being settled, the Company is not receiving the updated information which has historically been the basis used by the Company to adjust estimated settlement amounts. At this time, the Company cannot predict when, or if, the historical cost report settlement process will be resumed. Management believes that adequate provisions have been made for adjustments that may result from final determination of amounts earned under these programs. The Company provides care without charge to patients who are financially unable to pay for the health care services they receive. Because the Company does not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. F-7 67 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 1 -- ACCOUNTING POLICIES (CONTINUED) Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments with a maturity of three months or less when purchased. Carrying values of cash and cash equivalents approximate fair value due to the short-term nature of these instruments. Accounts Receivable Columbia/HCA receives payment for services rendered from Federal and state agencies (under the Medicare, Medicaid and Champus programs), managed care health plans, commercial insurance companies, employers and patients. During the years ended December 31, 1998 and 1997, approximately 30% and 34%, respectively, of the Company's revenues related to patients participating in the Medicare program. Columbia/ HCA recognizes that revenues and receivables from government agencies are significant to the Company's operations, but Columbia/HCA does not believe that there are significant credit risks associated with these government agencies. Columbia/HCA does not believe that there are any other significant concentrations of revenues from any particular payer that would subject the Company to any significant credit risks in the collection of its accounts receivable. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Long-lived Assets (a) Property and Equipment Depreciation expense, computed using the straight-line method, was $1.1 billion in 1998, $1.1 billion in 1997 and $1.0 billion in 1996. Buildings and improvements are depreciated over estimated useful lives ranging generally from 10 to 40 years. Estimated useful lives of equipment vary generally from 3 to 10 years. (b) Intangible Assets Intangible assets consist primarily of costs in excess of the fair value of identifiable net assets of acquired entities and are amortized using the straight-line method generally over periods ranging from 30 to 40 years for hospital acquisitions and periods ranging from 5 to 20 years for physician practice, clinic and other acquisitions. Noncompete agreements and debt issuance costs are amortized based upon the lives of the respective contracts or loans. When events, circumstances and operating results indicate that the carrying values of certain long-lived assets and the related identifiable intangible assets might be impaired, Columbia/HCA prepares projections of the undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the projections indicate that the recorded amounts are not expected to be recoverable, such amounts are reduced to estimated fair value. Professional Liability Insurance Claims A substantial portion of the Company's professional liability risks is insured through a wholly-owned insurance subsidiary of Columbia/HCA, which is funded annually. Provisions for losses related to professional liability risks are based upon actuarially determined estimates. To the extent that subsequent claims information varies from management's estimates, any adjustments to estimated liability amounts are reflected in current operating results. Allowances for professional liability risks were $1.4 and $1.3 billion at December 31, 1998 and 1997, respectively. F-8 68 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 1 -- ACCOUNTING POLICIES (CONTINUED) Investments of Insurance Subsidiary At December 31, 1998, all of the investments of the Company's wholly-owned insurance subsidiary were classified as "available for sale" as defined in Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). At December 31, 1997, a portion of the insurance subsidiary's investments (approximately $57 million) were classified as trading securities. Trading securities are bought and held principally for the purpose of selling them in the near future. Trading securities are recorded at fair value and unrealized gains and losses are included in results of operations. Minority Interests in Consolidated Entities The consolidated financial statements include all assets, liabilities, revenues and expenses of less than 100% owned entities controlled by Columbia/HCA. Accordingly, management has recorded minority interests in the earnings and equity of such entities. Columbia/HCA is a party to several partnership agreements which generally include provisions for the redemption of minority interests using specified valuation techniques. Stock Based Compensation The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock benefit plans. Accordingly, no compensation cost has been recognized for the Company's employee stock benefit plans. Earnings Per Share In 1997, the Financial Accounting Standards Board issued Statement No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts for all periods have been presented, and restated where appropriate, to conform to the SFAS 128 requirements. Comprehensive Income In 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and disclosure of comprehensive income and its components in the financial statements. The Company has elected to report comprehensive income and its components in the consolidated statements of stockholders' equity. Disclosures about Segments of an Enterprise In 1998, Columbia/HCA adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. F-9 69 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 1 -- ACCOUNTING POLICIES (CONTINUED) Derivatives In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is required to be adopted in years beginning after June 15, 1999. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new statement will have a significant effect on the results of operations or the financial position of the Company. Reclassifications Certain prior year amounts have been reclassified to conform to the 1998 presentation. NOTE 2 -- INVESTIGATIONS The Company is currently the subject of several Federal investigations into its business practices, as well as governmental investigations by various states. The Company is cooperating in these investigations and understands, through written notice and other means, that it is a target in these investigations. Given the breadth of the ongoing investigations, the Company expects additional subpoenas and other investigative and prosecutorial activity to occur in these and other jurisdictions in the future. Columbia/HCA is a defendant in several qui tam actions brought by private parties on behalf of the United States of America, which have been unsealed and served on Columbia/HCA. The actions allege, in general, that Columbia/HCA and certain subsidiaries and/or affiliated partnerships violated the False Claims Act for improper claims submitted to the government for reimbursement. The lawsuits seek damages of three times the amount of all Medicare or Medicaid claims (involving false claims) presented by the defendants to the Federal government, civil penalties of not less than $5,000 nor more than $10,000 for each such Medicare or Medicaid claim, attorney's fees and costs. The government has intervened in two qui tam actions. Columbia/HCA is aware of additional qui tam actions that remain under seal and believes that there are other sealed qui tam cases of which it is unaware. The Company is the subject of a formal order of investigation by the Securities and Exchange Commission. The Company understands that the investigation includes the anti-fraud, periodic reporting and internal accounting control provisions of the Federal securities laws. Management believes the ongoing investigations and related media coverage are having a negative effect on the Company's results of operations. It is too early to predict the outcome or effect of the ongoing investigations or qui tam and other actions or whether any additional investigations or litigations will be commenced. If Columbia/HCA is found to have violated Federal or state laws relating to Medicare, Medicaid or similar programs, the Company could be subject to substantial monetary fines, civil and criminal penalties and exclusion from participation in the Medicare and Medicaid programs. Similarly, the amounts claimed in the qui tam and other actions may be substantial, and Columbia/HCA could be subject to substantial costs resulting from an adverse outcome of one or more such actions. Any such sanctions or losses could have a material adverse effect on the Company's financial position and results of operations. (See Note 12 -- Contingencies and Part I, Item 3: Legal Proceedings.) NOTE 3 -- RESTRUCTURING OF OPERATIONS The Company is currently in the process of restructuring its operations in an effort to create a smaller and more focused company. The restructuring includes the divestitures of certain hospitals, surgery centers and related facilities, the spin-offs of two companies that currently represent the Pacific and America operating groups and the divestitures of the Company's home health and certain other businesses, as described in Note 5 -- Discontinued Operations. F-10 70 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- RESTRUCTURING OF OPERATIONS (CONTINUED) Divestiture of Certain Hospitals and Surgery Centers During 1998, Columbia/HCA recognized a net pretax gain of $744 million ($365 million after-tax) on the sale of certain hospitals and surgery centers. The gain includes the sale of 20 consolidated hospitals and 1 non-consolidated hospital to a consortium of not-for-profit entities for gross proceeds of approximately $1.2 billion, resulting in a pretax gain of $570 million ($335 million after-tax). The $744 million net gain also includes the completed sale of 34 ambulatory surgery centers for proceeds of approximately $550 million. The sale of these surgery centers resulted in a pretax gain of $203 million ($50 million after-tax). The high effective tax rate of 73% on the gain was due to significant amounts of non-deductible goodwill related to the surgery centers sold. Also included in the $744 million net gain was a pretax loss of $29 million ($20 million after-tax) on the sales of 6 hospitals for gross proceeds of approximately $108 million. Proceeds from these sales were used to repay bank borrowings. During September 1998, management approved a plan to divest a group of the Company's medical office buildings. The divestiture is expected to be completed during 1999 through either sales or the transfer of the medical office buildings to a joint venture in which the Company may maintain a minority interest. The carrying value for the medical office buildings was reduced to fair value of approximately $482 million, based on estimates of sales values, resulting in a non-cash, pretax charge of approximately $175 million. For the years ended December 31, 1998, 1997 and 1996, respectively, these medical office buildings to be divested had net revenues of approximately $120 million, $110 million and $98 million and incurred losses from continuing operations before the pretax charge and income tax benefits of approximately $115 million , $101 million and $72 million. Proceeds from the medical office buildings divestiture will be used to repay bank borrowings. During the third and fourth quarters of 1998, management identified and initiated plans to sell or close during 1999, 23 consolidated hospitals and 1 non-consolidated hospital. The carrying value for certain of the hospitals and other assets expected to be sold was reduced to fair value of approximately $422 million based on estimates of sales values, resulting in a non-cash, pretax charge of approximately $367 million. For the years ended December 31, 1998, 1997 and 1996, respectively, the hospitals and other assets for which the impairment charge was recorded had net revenues of approximately $896 million, $954 million and $963 million and incurred income (losses) from continuing operations before the pretax charge and income taxes (benefits) of approximately $(77) million, $6 million, and $103 million. The sales of 8 of the 24 hospitals were completed in 1998 for gross proceeds of approximately $180 million. Proceeds (which approximated the carrying values) from the completed divestitures were, and from the expected remaining divestitures will be, used to repay bank borrowings. During the fourth quarter of 1997, management identified and initiated plans to close or sell twenty hospital facilities and fifteen surgery centers (primarily optical surgery centers) that were identified as not compatible with the Company's operating plans. The carrying value of these facilities was reduced to fair value of approximately $226 million, based on estimates of sales values, for a total non-cash charge, pretax of $402 million. As of December 31, 1998, the Company had completed the sales or closure of 18 hospitals and nine surgery centers. Proceeds (which approximated the carrying values) were used to repay bank borrowings. The Company recorded, also during the fourth quarter of 1997, a non-cash, pretax loss of approximately $40 million related to the impairment of intangibles and other long-lived assets of certain physician practices where the recorded asset values were not deemed to be fully recoverable based upon the operating results trend and projected future cash flows. These assets are now recorded at estimated fair value. The asset impairment charges did not have a significant impact on the Company's cash flows and are not expected to significantly impact cash flows for future periods. As a result of the write-downs, depreciation and amortization expense related to these assets will decrease in future periods. In the aggregate, the net effect of F-11 71 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- RESTRUCTURING OF OPERATIONS (CONTINUED) Divestiture of Certain Hospitals and Surgery Centers (Continued) the change in depreciation and amortization expense is not expected to have a material effect on operating results for future periods. Spin-Offs The Company is continuing with its previously announced plan to create two tax-free spin-off companies. In August 1998, the Company submitted a ruling request to the Internal Revenue Service (the "IRS") requesting that the proposed spin-offs be tax-free to the Company and its shareholders. The two proposed spin-off companies currently represent the Pacific and America operating groups. At December 31, 1998, the Pacific group was comprised of 38 consolidating hospitals with $1,589 million and $1,609 million in revenues for the years ended December 31, 1998 and 1997, respectively. EBITDA (earnings before depreciation and amortization, interest expense, impairment of long-lived assets, management fees, minority interests and income taxes) for the Pacific Group was $149 million and $188 million for the years ended December 31, 1998 and 1997, respectively. The America group was comprised of 23 consolidating hospitals with $498 million and $488 million in revenues for the years ended December 31, 1998 and 1997, respectively. EBITDA for the America Group was $57 million and $82 million for the years ended December 31, 1998 and 1997, respectively. NOTE 4 -- RESTRUCTURING OF OPERATIONS AND INVESTIGATION RELATED COSTS During 1998 and 1997, the Company recorded the following pretax charges in connection with the restructuring of operations and the investigation related costs as discussed in Note 2 -- Investigations and Note 3 -- Restructuring of Operations (in millions):
1998 1997 ---- ---- Severance costs............................................. $ 5 $ 61 Professional fees related to investigations................. 96 44 Other....................................................... 10 35 ---- ---- Total............................................. $111 $140 ==== ====
NOTE 5 -- DISCONTINUED OPERATIONS Included in discontinued operations are three of the four business units acquired in the August 1997 merger with Value Health, Inc. ("Value Health") and the Company's home health care businesses. The Company implemented plans to dispose of these businesses during 1997. During the second and third quarters of 1998, the Company completed the sales of the three Value Health units for proceeds totaling $662 million. The proceeds from the sales were used to repay bank borrowings. The Company recorded a $73 million loss upon completion of these sales in 1998, representing an adjustment to the tax benefit related to the estimated $443 million after-tax loss on disposal of discontinued operations recorded in the fourth quarter of 1997. During the third and fourth quarters of 1998, the Company completed five separate sales transactions that included substantially all of the Company's home health care operations and received approximately $90 million in proceeds. The proceeds from the sales were used to repay bank borrowings. F-12 72 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5 -- DISCONTINUED OPERATIONS (CONTINUED) Revenues of the discontinued businesses totaled $1.0 billion, $2.0 billion and $1.1 billion for the years ended December 31, 1998, 1997 and 1996, respectively. NOTE 6 -- ACQUISITIONS During the past three years, Columbia/HCA has acquired various hospitals and related health care entities (or controlling interests in such entities), all of which have been accounted for by the purchase method. The aggregate purchase price of these transactions has been allocated to the assets acquired and liabilities assumed based upon their respective fair values. The consolidated financial statements include the accounts and operations of acquired entities for periods subsequent to the respective acquisition dates. The following is a summary of hospitals and other health care entity acquisitions consummated during the last three years (excluding the acquisition of Value Health) (dollars in millions):
1998 1997 1996 ---- ---- ------ Number of hospitals......................................... 6 5 14 Number of licensed beds..................................... 852 974 2,652 Purchase price information: Hospitals: Fair value of assets acquired.......................... $205 $162 $ 737 Liabilities assumed.................................... (39) (39) (103) ---- ---- ------ Net assets acquired............................... 166 123 634 Contributions from minority partners................... (54) (24) (133) ---- ---- ------ 112 99 501 Other health care entities acquired....................... 103 312 247 ---- ---- ------ Net cash paid..................................... $215 $411 $ 748 ==== ==== ======
The purchase price paid in excess of the fair value of identifiable net assets of acquired entities aggregated $86 million in 1998, $221 million in 1997 and $291 million in 1996. The pro forma effect of these acquisitions on the Company's results of operations for the periods prior to the respective consummation dates was not significant. NOTE 7 -- INCOME TAXES The provision for income taxes on income from continuing operations consists of the following (dollars in millions):
1998 1997 1996 ---- ---- ---- Current: Federal................................................. $637 $313 $804 State................................................... 116 56 145 Deferred: Federal................................................. (169) (134) 27 State................................................... (35) (29) 5 ---- ---- ---- $549 $206 $981 ==== ==== ====
F-13 73 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- INCOME TAXES (CONTINUED) A reconciliation of the federal statutory rate to the effective income tax rate follows:
1998 1997 1996 ---- ---- ---- Federal statutory rate...................................... 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit....... 4.9 4.6 4.0 Non-deductible intangible assets............................ 11.4 12.7 1.3 Other items, net............................................ (0.5) 0.6 (0.2) ---- ---- ---- Effective income tax rate................................... 50.8% 52.9% 40.1% ==== ==== ====
A summary of the items comprising the deferred tax assets and liabilities at December 31 follows (dollars in millions):
1998 1997 --------------------- --------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- Depreciation and fixed asset basis differences.............................. $ -- $407 $ -- $648 Reserves for professional and general liability and other risks................ 351 -- 395 -- Doubtful accounts.......................... 316 -- 360 -- Compensation............................... 98 -- 104 -- Other...................................... 182 281 170 260 ---- ---- ------ ---- $947 $688 $1,029 $908 ==== ==== ====== ====
Deferred income taxes of $486 million and $423 million at December 31, 1998 and 1997, respectively, are included in other current assets. Noncurrent deferred income tax liabilities totaled $227 and $302 million at December 31, 1998 and 1997, respectively. At December 31, 1998, federal and state net operating loss carryforwards (expiring in years 1999 through 2004) available to offset future taxable income approximated $784 million and $96 million, respectively. Utilization of net operating loss carryforwards in any one year may be limited and, in certain cases, result in a reduction of intangible assets. Net deferred tax assets related to such carryforwards are not significant. IRS Disputes The Company is currently contesting before the United States Tax Court (the "Tax Court") and the United States Court of Federal Claims certain claimed deficiencies and adjustments proposed by the IRS in conjunction with its examination of the Company's 1994 Federal income tax return, Columbia Healthcare Corporation's ("CHC") 1993 and 1994 Federal income tax returns, HCA-Hospital Corporation of America, Inc.'s ("HCA") 1981 through 1988 and 1991 through 1993 Federal income tax returns and Healthtrust, Inc.-The Hospital Company's ("Healthtrust") 1990 through 1994 Federal income tax returns. The disputed items include: the disallowance of certain acquisition-related costs, executive compensation, system conversion costs and insurance premiums which were deducted in calculating taxable income and the methods of accounting used by certain subsidiaries for calculating taxable income related to vendor rebates and governmental receivables. The IRS is claiming an additional $351 million in income taxes and interest through December 31, 1998. Tax Court decisions received in 1996 and 1997 related to HCA's 1981 through 1988 Federal income tax returns may be appealed by the IRS or the Company to the United States Court of Appeals, Sixth Circuit. The Company expects any decisions regarding the appeal of these rulings will be made during 1999. F-14 74 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- INCOME TAXES (CONTINUED) IRS Disputes (Continued) Management believes that adequate provisions have been recorded to satisfy final resolution of the disputed issues. Management believes that the Company, CHC, HCA and Healthtrust properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with the IRS during previous examinations and that final resolution of these disputes will not have a material adverse effect on the results of operations or financial position of the Company. NOTE 8 -- ACCOUNTING CHANGE In the fourth quarter of 1997, the Company changed its method of accounting for start-up costs. The change involved expensing these costs as incurred rather than capitalizing and subsequently amortizing such costs. The Company believes the new method is preferable due to the changes in the Company's business strategy and reviews of emerging accounting guidance on accounting for similar (i.e., start-up, software system training and process re-engineering) costs. The change in accounting principle resulted in the write-off of the costs capitalized as of January 1, 1997. The cumulative effect of the write-off, $56 million (net of tax benefit), was expensed in the 1997 statement of operations. Had the new method been used in the past, the pro forma effect on prior years would have primarily affected 1996 (such costs incurred for periods prior to 1996 are considered immaterial to operations for those periods). The pro forma effect on 1997 and 1996 follows (dollars in millions, except per share amounts):
1997 1996 -------------------- -------------------- AS AS REPORTED PRO-FORMA REPORTED PRO-FORMA -------- --------- -------- --------- Income from continuing operations............. $ 182 $ 182 $1,461 $1,405 Earnings per share -- basic................. $ .28 $ .28 $ 2.17 $ 2.08 Earnings per share -- diluted............... $ .27 $ .27 $ 2.15 $ 2.07 Net income (loss)............................. $(305) $(249) $1,505 $1,449 Earnings (loss) per share -- basic.......... $(.46) $(.37) $ 2.24 $ 2.15 Earnings (loss) per share -- diluted........ $(.46) $(.38) $ 2.22 $ 2.14
F-15 75 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9 -- EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share from continuing operations (dollars in millions, except per share amounts):
1998 1997 1996 ------- ------- ------- NUMERATOR (A): Income from continuing operations.................... $ 532 $ 182 $ 1,461 ======= ======= ======= DENOMINATOR: Share reconciliation (in thousands): Shares used for basic earnings per share............. 643,719 657,931 670,774 Effect of dilutive securities: Stock options................................... 2,310 4,407 6,214 Warrants and other.............................. 620 752 898 ------- ------- ------- Shares used for diluted earnings per share........... 646,649 663,090 677,886 ======= ======= ======= EARNINGS PER SHARE: Basic earnings per share from continuing operations........................................ $ .82 $ .28 $ 2.17 ======= ======= ======= Diluted earnings per share from continuing operations........................................ $ .82 $ .27 $ 2.15 ======= ======= =======
(a) Amount is used for both basic and diluted earnings per share computations since there is no earnings effect related to the dilutive securities. NOTE 10 -- INVESTMENTS OF INSURANCE SUBSIDIARY A summary of the insurance subsidiary's investments at December 31 follows (dollars in millions):
1998 ----------------------------------- UNREALIZED AMOUNTS AMORTIZED -------------- FAIR COST GAINS LOSSES VALUE --------- ----- ------ ------ Fixed maturities: United States Government......................... $ 119 $ -- $ -- $ 119 States and municipalities........................ 886 32 -- 918 Mortgage-backed securities....................... 78 1 -- 79 Corporate and other.............................. 173 2 (1) 174 Money market funds............................... 27 -- -- 27 Redeemable preferred stocks...................... 52 1 -- 53 ------ ---- ---- ------ 1,335 36 (1) 1,370 ------ ---- ---- ------ Equity securities: Perpetual preferred stocks....................... 21 1 -- 22 Common stocks.................................... 287 126 (41) 372 ------ ---- ---- ------ 308 127 (41) 394 ------ ---- ---- ------ $1,643 $163 $(42) 1,764 ====== ==== ==== Amounts classified as current assets............... (150) ------ Investment carrying value.......................... $1,614 ======
F-16 76 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- INVESTMENTS OF INSURANCE SUBSIDIARY (CONTINUED)
1997 ----------------------------------- UNREALIZED AMOUNTS AMORTIZED -------------- FAIR COST GAINS LOSSES VALUE --------- ----- ------ ------ Fixed maturities: United States Government......................... $ 17 $ -- $ -- $ 17 States and municipalities........................ 657 24 -- 681 Mortgage-backed securities....................... 107 2 -- 109 Corporate and other.............................. 128 3 (1) 130 Money market funds............................... 63 -- -- 63 Redeemable preferred stocks...................... 64 -- -- 64 ------ ---- ---- ------ 1,036 29 (1) 1,064 ------ ---- ---- ------ Equity securities: Perpetual preferred stocks....................... 36 1 (1) 36 Common stocks.................................... 303 130 (18) 415 ------ ---- ---- ------ 339 131 (19) 451 ------ ---- ---- ------ $1,375 $160 $(20) 1,515 ====== ==== ==== Amounts classified as current assets............... (93) ------ Investment carrying value.......................... $1,422 ======
The fair value of investment securities is generally based on quoted market prices. Scheduled maturities of investments in debt securities at December 31, 1998 were as follows (dollars in millions):
AMORTIZED FAIR COST VALUE --------- ------ Due in one year or less..................................... $ 243 $ 243 Due after one year through five years....................... 368 377 Due after five years through ten years...................... 361 378 Due after ten years......................................... 285 293 ------ ------ 1,257 1,291 Mortgage-backed securities.................................. 78 79 ------ ------ $1,335 $1,370 ====== ======
The average expected maturity of the investments in debt securities listed above approximated 4.1 years at December 31, 1998. Expected and scheduled maturities may differ because the issuers of certain securities may have the right to call, prepay or otherwise redeem such obligations without penalty. The tax equivalent yield on investments (including common stocks) averaged 10% for 1998, 12% for 1997 and 7% for 1996. Tax equivalent yield is the rate earned on invested assets, excluding unrealized gains and losses, adjusted for the benefit of certain investment income not being subject to taxation. F-17 77 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 10 -- INVESTMENTS OF INSURANCE SUBSIDIARY (CONTINUED) The cost of securities sold is based on the specific identification method. Sales of securities for the years ended December 31 are summarized below (dollars in millions).
1998 1997 1996 ---- ---- ---- Fixed maturities: Cash proceeds............................................. $341 $364 $287 Gross realized gains...................................... 3 3 3 Gross realized losses..................................... 1 1 3 Equity securities: Cash proceeds............................................. $308 $249 $135 Gross realized gains...................................... 77 76 27 Gross realized losses..................................... 30 10 13
NOTE 11 -- LONG TERM DEBT A summary of long-term debt at December 31 (including related interest rates for 1998) follows (dollars in millions):
1998 1997 ------ ------ Senior collateralized debt (rates generally fixed, averaging 9.7%) payable in periodic installments through 2034....... $ 196 $ 247 Senior debt (rates generally fixed, averaging 7.7%) payable in periodic installments through 2095..................... 4,193 4,283 Bank term loans (floating rates, averaging 6.8%)............ 1,741 -- Bank credit agreements (floating rates, averaging 6.4%)..... 500 4,755 Subordinated debt (rates generally fixed, averaging 6.9%) payable in periodic installments through 2015............. 123 123 ------ ------ Total debt, average life of eleven years (rates averaging 7.4%)..................................................... 6,753 9,408 Less amounts due within one year............................ 1,068 132 ------ ------ $5,685 $9,276 ====== ======
Credit Facilities The Company's revolving credit facility (the "Credit Facility") is comprised of a $2.0 billion, five-year revolving credit agreement expiring February 2002. As of December 31, 1998, the Company had $500 million outstanding under the Credit Facility. As of February 1999, interest is payable generally at either LIBOR plus .45% to 1.50% (depending on the Company's credit ratings), the prime lending rate or a competitive bid rate. The Credit Facility contains customary covenants which include (i) a limitation on debt levels, (ii) a limitation on sales of assets, mergers and changes of ownership and (iii) maintenance of minimum interest coverage ratios. Significant Financing Activities 1998 During June 1998, the Company's 364 day credit facility was converted into a one-year term loan maturing in June 1999. The one year term loan, which had a balance of $741 million at December 31, 1998, was paid off in its entirety in February 1999. In July 1998, the Company entered into a $1.0 billion term loan agreement with several banks which matures in February 2002. Proceeds from the $1.0 billion term loan were used to reduce other borrowings. F-18 78 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 11 -- LONG TERM DEBT (CONTINUED) Significant Financing Activities (Continued) In February 1998, the Company's senior debt rating was downgraded from Baa2 to Ba2 and from BBB+ to BBB- by Moody's Investors Service ("Moody's") and Fitch IBCA. In February 1999, Standard & Poor's ("S&P") downgraded the Company's senior debt rating from BBB to BB+. Commercial paper and subordinated debt ratings were downgraded in similar fashion. 1997 During 1997, the Company's senior debt credit ratings were downgraded from A2 to Baa2 and from A- to BBB by Moody's and S&P, respectively. The Company's commercial paper ratings were downgraded from P-1 to P-3 and from A-2 to A-3 by Moody's and S&P, respectively. The decline in the Company's commercial paper ratings significantly limited access to this financing source. As such, during the third quarter of 1997, the Company began replacing amounts outstanding under its commercial paper programs with borrowings under its bank credit facilities. In June 1997, Columbia/HCA issued $200 million of 7.00% notes due 2007. 1996 During 1996, Columbia/HCA issued $100 million of 6.875% notes due 2001; $200 million of 7.25% notes due 2008 and $100 million of 7.75% debentures due 2036. General Information Maturities of long-term debt in years 2000 through 2003 (excluding borrowings under the Credit Facility) are $669 million, $628 million, $512 million and $337 million, respectively. The estimated fair value of the Company's long-term debt was $6.7 billion and $9.5 billion at December 31, 1998 and 1997, respectively, compared to carrying amounts aggregating $6.8 billion and $9.4 billion, respectively. The estimates of fair value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities. NOTE 12 -- CONTINGENCIES Significant Legal Proceedings Various lawsuits, claims and legal proceedings (see Note 2 -- Investigations and Part I, Item 3: Legal Proceedings, for descriptions of the ongoing government investigations and other legal proceedings) have been and are expected to be instituted or asserted against the Company, including those relating to shareholder derivative and class action complaints; class action lawsuits filed by patients and payers alleging, in general, improper and fraudulent billing, coding and physician referrals, as well as other violations of law; certain qui tam or "whistleblower" actions alleging, in general, unlawful claims for reimbursement or unlawful payments to physicians for the referral of patients and other violations and litigation matters. In certain of these actions the claimants may seek punitive damages against the Company, which are usually not covered by insurance. While the amounts claimed may be substantial, the ultimate liability cannot be determined or reasonably estimated at this time due to the considerable uncertainties that exist. Therefore, it is possible that results of operations, financial position and liquidity in a particular period could be materially, adversely affected upon the resolution of certain of these contingencies. F-19 79 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 12 -- CONTINGENCIES (CONTINUED) General Liability Claims The Company is subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians' staff privileges. It is management's opinion that the ultimate resolution of pending claims and legal proceedings will not have a material adverse effect on the Company's results of operations or financial position. NOTE 13 -- CAPITAL STOCK AND STOCK REPURCHASES Capital Stock The terms and conditions associated with each class of Columbia/HCA common stock are substantially identical except for voting rights. All nonvoting common stockholders may convert their shares on a one-for-one basis into voting common stock, subject to certain limitations. In addition, certain voting common stockholders may convert their shares on a one-for-one basis into nonvoting common stock. On May 15, 1997, the Board of Directors of the Company authorized the redemption of all outstanding preferred stock purchase rights. The redemption price of $.01 per share was paid on September 1, 1997 and was distributed to stockholders along with the quarterly dividend. Stock Repurchase Program In February 1999, the Company announced that its Board of Directors has authorized the repurchase of up to an additional $1 billion of its common stock. The Company expects to repurchase its shares through open market purchases, privately negotiated transactions or through a series of accelerated or forward purchase contracts. In July 1998, the Company announced a stock repurchase program under which up to $1 billion of the Company's common stock would be repurchased, primarily by entering into a series of forward purchase contracts. Approximately 44 million shares have been purchased at an average cost of approximately $22.65 per share. The majority of these shares were purchased by certain financial organizations through a series of forward purchase contracts. In accordance with the terms of the forward purchase contracts which permit settlement on a net shares basis, the shares purchased remain issued and outstanding until the forward purchase contracts are settled. The Company expects the forward purchase contracts will be settled during the first and second quarters of 1999. In connection with the Company's share repurchase programs, the Company has recently entered into a Letter of Credit Agreement (the "LOC Agreement") with the United States Department of Justice (the "DOJ"). As part of the LOC Agreement, the Company will provide the DOJ with Letters of Credit totaling $1 billion. The LOC Agreement also provides that the Company's repurchase program announced in February 1999 may be made, at the Company's discretion, through open market purchases or privately negotiated transactions. The Company and the DOJ acknowledge that the amount in the LOC Agreement is not based upon the amount or expected amount of any potential settlement. The LOC Agreement does not constitute an admission of liability by the Company. The Company announced in April 1997 that the Company's Board of Directors authorized the repurchase of up to $1 billion of the Company's common stock. At December 31, 1997, the Company had completed the repurchase program by acquiring approximately 29.4 million shares. Repurchased shares are available for reissuance for general corporate purposes. F-20 80 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 13 -- CAPITAL STOCK AND STOCK REPURCHASES (CONTINUED) Other Stock Repurchases The Board of Directors has authorized the Company to repurchase shares to be used for stock issuances related to the Company's employee stock benefit plans. During 1997, the Company repurchased approximately 8.5 million shares (at a cost of approximately $273 million) to fund employee stock benefit plan issuances. NOTE 14 -- STOCK BENEFIT PLANS The Columbia/HCA Healthcare Corporation 1992 Stock and Incentive Plan (the "1992 Plan") is the primary plan under which options to purchase common stock may be granted to officers, employees and directors. In May 1996, the stockholders approved an amendment to the 1992 Plan which increased the number of options authorized to 60,000,000 of which 19,062,000 are available for grant at December 31, 1998. Under the 1992 Plan, options are generally granted at no less than market price on the date of grant. Options are exercisable in whole or in part beginning one to five years after the grant and ending ten years after the grant. In October 1997, the Compensation Committee of the Company's Board of Directors modified and amended the 1992 Plan agreements to provide for immediate and 100% vesting upon a "change of control" (as defined in the amendment) of the Company. The amendment is applicable for all options available for grant as well as all options previously issued under the 1992 Plan. In the past, Columbia/HCA has had various other plans under which options to purchase common stock have been granted to officers, employees and directors. Generally, options have been granted at no less than the market price on the date of grant. Exercise provisions vary, but most options are exercisable in whole or in part beginning two to four years after the grant and ending four to fifteen years after grant. Information regarding these option plans for 1998, 1997 and 1996 is summarized below (share amounts in thousands):
STOCK OPTION PRICE PER WEIGHTED AVERAGE OPTIONS SHARE EXERCISE PRICE ------- ---------------- ---------------- Balances, December 31, 1995................. 26,384 $0.14 to 38.11 $ 19.87 Granted................................... 10,446 26.58 to 38.92 37.13 Exercised................................. (4,329) 0.14 to 35.25 13.27 Cancelled................................. (3,034) 0.40 to 38.11 26.87 ------- Balances, December 31, 1996................. 29,467 0.14 to 38.92 26.23 Granted................................... 23,111 26.42 to 43.50 33.68 Conversion of Value Health Stock Options................................ 3,189 7.11 to 62.72 32.93 Exercised................................. (4,138) 0.14 to 37.67 16.72 Cancelled................................. (6,614) 0.40 to 55.61 33.70 ------- Balances, December 31, 1997................. 45,015 0.14 to 62.72 30.18 Granted................................... 7,092 22.25 to 33.94 26.57 Exercised................................. (1,629) 0.40 to 32.50 18.59 Cancelled................................. (9,819) 0.14 to 62.72 32.87 ------- Balances, December 31, 1998................. 40,659 0.14 to 43.25 29.36 =======
F-21 81 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14 -- STOCK BENEFIT PLANS (CONTINUED)
1998 1997 1996 -------- -------- -------- Weighted average fair value for options granted during the year................... $ 8.81 $ 11.98 $ 13.47 Options exercisable.......................... 10,757 8,892 7,552 Options available for grant.................. 19,323 18,436 35,613
The following table summarizes information regarding the options outstanding at December 31, 1998 (share amounts in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ---------------------- WEIGHTED AVERAGE WEIGHTED NUMBER WEIGHTED NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE RANGE OF OUTSTANDING CONTRACTUAL EXERCISE AT EXERCISE EXERCISE PRICES AT 12/31/98 LIFE PRICE 12/31/98 PRICE --------------- ----------- ----------- -------- ----------- -------- $9.72 to $38.11................. 155 1 year $17.35 154 $17.36 7.73 to 37.13.................. 1,922 4 years 12.81 1,907 12.82 0.14 to 28.92.................. 3,937 5 years 18.82 3,221 17.26 26.42 to 32.50.................. 4,425 6 years 27.49 2,288 27.50 30.73 to 38.47.................. 6,301 7 years 37.03 1,757 37.02 12.86 to 43.25.................. 23,806 9 years 30.97 1,317 27.80 0.14... .......................... 113 15 years 0.14 113 0.14 ------ ------ 40,659 10,757 ====== ======
The Company has an Employee Stock Purchase Plan ("ESPP") which provides an opportunity to purchase shares of its common stock at a discount (through payroll deductions over six month intervals) to substantially all employees. Shares of common stock reserved for the Company's employee stock purchase plan were 4,378,000 at December 31, 1998. The Company applies the provisions of APB 25 in accounting for its stock options and stock purchase plans, and accordingly, compensation cost is not recognized in the consolidated statements of operations. As required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has determined the pro forma net income (loss) and earnings (loss) per share as if compensation cost for the Company's employee stock option and stock purchase plans had been determined based upon their fair value at the grant date. These pro forma amounts are as follows (dollars in millions, except per share amounts):
1998 1997 1996 ---- ----- ------ Net income (loss): As reported............................................... $379 $(305) $1,505 Pro forma................................................. 346 (344) 1,471 Basic earnings (loss) per share: As reported............................................... $.59 $(.46) $ 2.24 Pro forma................................................. .54 (.52) 2.19 Diluted earnings (loss) per share: As reported............................................... $.59 $(.46) $ 2.22 Pro forma................................................. .54 (.52) 2.17
The pro forma impact only takes into account employee stock options granted since January 1, 1995 and is likely to increase in future years as additional options are granted and amortized ratably over the vesting period. F-22 82 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14 -- STOCK BENEFIT PLANS (CONTINUED) For SFAS 123 purposes, the weighted average fair values of the Company's stock options granted in 1998, 1997 and 1996 were $8.81, $11.98 and $13.47 per share, respectively. The fair values were estimated using the Black-Scholes option valuation model with the following weighted average assumptions:
1998 1997 1996 ---- ---- ---- Risk-free interest rate..................................... 4.75% 5.61% 5.81% Expected volatility......................................... .24 .24 .24 Expected life, in years..................................... 6 6 6 Expected dividend yield..................................... .30% .23% .19%
The pro forma compensation cost related to the shares of common stock issued under the ESPP was $13 million, $14 million and $19 million for the years 1998, 1997 and 1996, respectively. These pro forma costs were estimated based on the difference between the price paid and the fair market value of the stock on the last day of the subscription period. NOTE 15 -- EMPLOYEE BENEFIT PLANS Columbia/HCA maintains noncontributory, defined contribution retirement plans covering substantially all employees. Benefits are determined as a percentage of a participant's earned income and are vested over specified periods of employee service. Retirement plan expense was $170 million for 1998, $194 million for 1997 and $164 million for 1996. Amounts approximately equal to retirement plan expense are funded annually. Columbia/HCA maintains various contributory benefit plans which are available to employees who meet certain minimum requirements. Certain of the plans require that Columbia/HCA match an amount ranging from 25% to 100% of a participant's contribution up to certain maximum levels. The cost of these plans totaled $21 million for 1998, $19 million for 1997 and $18 million for 1996. Columbia/HCA contributions are funded periodically during each year. NOTE 16 -- SEGMENT AND GEOGRAPHIC INFORMATION Columbia/HCA operates in one line of business which is operating hospitals and related health care entities. During the years ended December 31, 1998, 1997 and 1996, approximately 30%, 34% and 35%, respectively, of the Company's revenues related to patients participating in the Medicare program. In November 1997, Columbia/HCA restructured its operations into five divisions which are organized geographically. Included in these five divisions are the East Group made up of 109 consolidated hospitals located in the Eastern United States and the West Group made up of 97 consolidated hospitals located in the Western United States. These two divisions make up the Company's core operations and are typically located in urban areas that are characterized by highly integrated facility networks. The America Group includes 23 consolidated hospitals which are located in non-urban areas where, in almost every case the hospital is the only hospital in the community. The Pacific Group includes 38 consolidated hospitals, approximately three-quarters of which are located in small cities, generally in the Southern, Western and Southwestern United States where the hospital is usually the only hospital or one of two hospitals in the community, and the remainder of Pacific's facilities are located in larger urban areas typically characterized by a high rate of population growth. Columbia/HCA has now determined to establish the America Group and the Pacific Group as two independent, publicly-traded companies. See Note 3-Restructuring of Operations. The Atlantic Group includes 13 hospitals which are not located in the Company's core markets and are currently held for sale. F-23 83 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 16 -- SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED) The geographic distributions of the Company's revenues, EBITDA and assets are summarized in the following table (EBITDA is defined as income from continuing operations before depreciation and amortization, interest expense, gains on sales of facilities, impairment of long-lived assets, restructuring of operations and investigation related costs, minority interests and income taxes) (dollars in millions):
1998 1997 1996 ------- ------- ------- Revenues: East Group........................................... $ 7,784 $ 7,705 $ 7,714 West Group........................................... 6,853 6,616 6,427 Pacific Group........................................ 1,589 1,609 1,600 America Group........................................ 498 488 464 Atlantic Group....................................... 1,600 2,017 2,035 Corporate and other.................................. 357 384 546 ------- ------- ------- $18,681 $18,819 $18,786 ======= ======= ======= EBITDA: East Group........................................... $ 1,590 $ 1,485 $ 1,939 West Group........................................... 998 1,047 1,549 Pacific Group........................................ 149 188 294 America Group........................................ 57 82 111 Atlantic Group....................................... 35 142 277 Corporate and other.................................. 39 (93) 44 ------- ------- ------- $ 2,868 $ 2,851 $ 4,214 ======= ======= ======= Assets: East Group........................................... $ 7,030 $ 6,985 $ 7,257 West Group........................................... 7,124 6,685 6,856 Pacific Group........................................ 1,371 1,411 1,426 America Group........................................ 355 398 376 Atlantic Group....................................... 553 1,528 1,694 Corporate and other.................................. 2,996 4,995 3,507 ------- ------- ------- $19,429 $22,002 $21,116 ======= ======= =======
NOTE 17 -- OTHER COMPREHENSIVE INCOME The following table sets forth the components of other comprehensive income, along with their respective income taxes (benefits) and the reclassification adjustments needed to exclude the portion of other comprehensive income already included in net income (loss), (dollars in millions):
INCOME PRETAX TAXES AFTER-TAX AMOUNT (BENEFITS) AMOUNT ------ ---------- --------- 1998 Unrealized gains (losses) on securities: Unrealized holding gains arising during the period........................................... $ 45 $ 17 $ 28 Less: reclassification adjustment for gains realized in net income........................... (64) (23) (41) ---- ---- ---- Net unrealized losses.............................. (19) (6) (13) Foreign currency translation adjustments.............. 1 -- 1 ---- ---- ---- Other comprehensive loss......................... $(18) $ (6) $(12) ==== ==== ====
F-24 84 COLUMBIA/HCA HEALTHCARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 17 -- OTHER COMPREHENSIVE INCOME (CONTINUED)
INCOME PRETAX TAXES AFTER-TAX AMOUNT (BENEFITS) AMOUNT ------ ---------- --------- 1997 Unrealized gains on securities: Unrealized holding gains arising during the period........................................... $147 $ 51 $ 96 Less: reclassification adjustment for gains realized in net income........................... (91) (33) (58) ---- ---- ---- Net unrealized gains............................... 56 18 38 Foreign currency translation adjustments: Unrealized translation adjustments arising during the period....................................... 16 6 10 Less: reclassification adjustment for gains realized in net income........................... (13) (5) (8) ---- ---- ---- Net unrealized translation adjustments............. 3 1 2 ---- ---- ---- Other comprehensive income....................... $ 59 $ 19 $ 40 ==== ==== ==== 1996 Unrealized gains on securities: Unrealized holding gains arising during the period........................................... $ 53 $ 20 $ 33 Less: reclassification adjustment for gains realized in net income........................... (14) (5) (9) ---- ---- ---- Net unrealized gains............................... 39 15 24 Foreign currency translation adjustments.............. (10) (4) (6) ---- ---- ---- Other comprehensive income....................... $ 29 $ 11 $ 18 ==== ==== ====
NOTE 18 -- ACCRUED EXPENSES AND ALLOWANCES FOR DOUBTFUL ACCOUNTS A summary of other accrued expenses at December 31 follows (in millions):
1998 1997 ------ ------ Employee benefit plans...................................... $ 211 $ 234 Workers compensation........................................ 63 105 Taxes other than income..................................... 182 209 Professional liability risks................................ 200 200 Interest.................................................... 229 194 Other....................................................... 397 295 ------ ------ $1,282 $1,237 ====== ======
A summary of activity in the Company's allowances for doubtful accounts follows (in millions):
PROVISION ACCOUNTS BALANCES AT FOR WRITTEN OFF, BALANCES BEGINNING DOUBTFUL NET OF AT END OF YEAR ACCOUNTS RECOVERIES OF YEAR ----------- --------- ------------ -------- Allowances for doubtful accounts: Year-ended December 31, 1996............. $ 1,165 $ 1,196 $ (981) $ 1,380 Year-ended December 31, 1997............. 1,380 1,420 (1,139) 1,661 Year-ended December 31, 1998............. 1,661 1,442 (1,458) 1,645
F-25 85 COLUMBIA/HCA HEALTHCARE CORPORATION QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1998 --------------------------------------- FIRST SECOND THIRD FOURTH ------ ------ ------ ------ Revenues.................................................... $4,901 $4,781 $4,579 $4,420 Net income (loss): Income (loss) from continuing operations.................. $ 219 $ 173 $ 163(b) $ (23)(c) Loss from discontinued operations......................... (22) (95)(a) (17) (19) ------ ------ ------ ------ Net income (loss)................................... $ 197 $ 78 $ 146 $ (42) ====== ====== ====== ====== Basic earnings (loss) per share: Income (loss) from continuing operations.................. $ .34 $ .27 $ .25 $ (.04) Loss from discontinued operations......................... (.03) (.15) (.03) (.02) ------ ------ ------ ------ Net income (loss)................................... $ .31 $ .12 $ .22 $ (.06) ====== ====== ====== ====== Diluted (loss) earnings per share: Income (loss) from continuing operations.................. $ .34 $ .27 $ .25 $ (.04) Loss from discontinued operations......................... (.03) (.15) (.03) (.02) ------ ------ ------ ------ Net Income (loss)................................... $ .31 $ .12 $ .22 $ (.06) ====== ====== ====== ====== Cash dividends.............................................. $ .02 $ .02 $ .02 $ .02 Market prices: High...................................................... $32.50 $34.63 $32.44 $27.25 Low....................................................... 24.13 27.75 19.88 17.00
1997 ---------------------------------------- FIRST SECOND THIRD FOURTH ------ ------ ------ ------- Revenues.................................................... $4,988 $4,845 $4,612 $ 4,374 Net income (loss): Income (loss) from continuing operations(d)............... $ 455 $ 385 $ 91 $ (749) Income (loss) from discontinued operations(e)............. 24 27 6 (488) Cumulative effect of accounting changes................... (56) -- -- -- ------ ------ ------ ------- Net income (loss)......................................... $ 423 $ 412 $ 97 $(1,237) ====== ====== ====== ======= Basic earnings (loss) per share: Income (loss) from continuing operations.................. $ .67 $ .58 $ .15 $ (1.16) Income (loss) from discontinued operations................ .04 .04 .01 (.76) Cumulative effect of accounting changes................... (.08) -- -- -- ------ ------ ------ ------- Net income (loss)................................... $ .63 $ .62 $ .16 $ (1.92) ====== ====== ====== ======= Diluted earnings (loss) per share: Income (loss) from continuing operations.................. $ .66 $ .58 $ .15 $ (1.16) Income (loss) from discontinued operations................ .04 .04 .01 (.76) Cumulative effect of accounting changes................... (.08) -- -- -- ------ ------ ------ ------- Net income (loss)................................... $ .62 $ .62 $ .16 $ (1.92) ====== ====== ====== ======= Cash dividends.............................................. $ .02 $ .02 $ .01 $ .02 Redemption of preferred stock purchase rights............... -- -- .01 -- Market prices(f): High...................................................... $44.88 $40.00 $40.44 $ 32.13 Low....................................................... 31.25 30.38 26.63 25.75
- --------------- (a) Second quarter loss from discontinued operations includes a $73 million ($.11 per basic and diluted share) adjustment to the tax benefit on the loss incurred upon completion of the disposal of discontinued operations (see NOTE 5 of the Notes to Consolidated Financial Statements). (b) Third quarter results include $242 million ($.38 per basic and diluted share) of gains on sales of facilities, $197 million ($.31 per basic and diluted share) of charges related to the impairment of long-lived assets and $13 million ($.02 per basic and diluted share) of costs related to restructuring and the investigation (see NOTE 3 and NOTE 4 of the Notes to Consolidated Financial Statements). (c) Fourth quarter results include $123 million ($.19 per basic and diluted share) of gains on sales of facilities, $152 million ($.23 per basic and diluted share) of charges related to the impairment of long-lived assets and $21 million ($.04 per basic and diluted share) of costs related to restructuring and the investigation (see NOTE 3 and NOTE 4 of the Notes to Consolidated Financial Statements). (d) Fourth quarter results include $290 million ($.45 per basic and diluted share) of charges related to the impairment of long-lived assets and $55 million ($.08 per basic and diluted share) of costs related to restructuring and the investigation (see NOTE 3 of the Notes to Consolidated Financial Statements). (e) Fourth quarter results include $443 million ($.69 per basic and diluted share) of charges related to the estimated loss on disposal of discontinued businesses (see NOTE 5 of the Notes to Consolidated Financial Statements). (f) Represents high and low sales prices of the Company's common stock which is traded on the New York Stock Exchange (ticker symbol COL). F-26 EX-10.7.B 2 AMENDED & RESTATED INCENTIVE PLAN 1 EXHIBIT 10.7(b) AMENDED AND RESTATED COLUMBIA/HCA HEALTHCARE CORPORATION 1992 STOCK AND INCENTIVE PLAN 1. Purpose of Plan. This Plan shall be known as the "Amended and Restated Columbia/HCA Healthcare Corporation 1992 Stock and Incentive Plan" and is hereinafter referred to as the "Plan." The purpose of the Plan is to aid in maintaining and developing personnel capable of assuring the future success of Columbia/HCA Healthcare Corporation, a Delaware corporation (the "Company"), to offer such personnel additional incentives to put forth maximum efforts for the success of the business, and to afford them an opportunity to acquire a proprietary interest in the Company through stock options and restricted stock awards as provided herein. Options granted under this Plan may be either incentive stock options ("Incentive Stock Options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options which do not qualify as Incentive Stock Options. 2. Stock Subject to Plan. Subject to the provisions of Section 7 hereof, the stock to be subject to options and restricted stock awards under the Plan shall be the Company's authorized Common Stock, par value $.01 per share (the "Common Stock"). Such shares may be either authorized but unissued shares or issued shares which have been reacquired by the Company. Subject to adjustment as provided in Section 7 hereof, the maximum number of shares which may be issued pursuant to options and other awards under this Plan shall be 60,000,000 shares. If an option or restricted stock award under the Plan is canceled, terminates, expires unexercised or is exchanged for other options without the issuance of shares of Common Stock, the shares of Common Stock shall, to the extent of such termination or nonuse, again be available for options and restricted stock awards thereafter granted during the term of the Plan. Any shares issued by the Company in connection with the assumption or substitution of outstanding grants from any acquired corporation shall not reduce the shares available for option grants and restricted stock awards under the Plan. 3. Administration of Plan. (a) The Plan shall be administered by a Committee (the "Committee") of two or more directors of the Company, none of whom shall be officers or employees of the Company and all of whom shall be "disinterested persons" with respect to the Plan within the meaning of Rule 16b-3(c)(2)(i) under the Securities Exchange Act of 1934 as in effect on the date this Plan is adopted by the Board of Directors. The members of the Committee shall be appointed by and serve at the pleasure of the Board of Directors. (b) The Committee shall have plenary authority in its discretion, but subject to the express provisions of the Plan: (i) to determine the purchase price of the Common Stock covered by each option, (ii) to determine the persons to whom and the time or times at which such options 2 or restricted stock awards shall be granted and the number of shares to be subject to each option or restricted stock award, (iii) to determine the terms of exercise of each option or receipt of each restricted stock award, (iv) to accelerate the time at which all or any part of an option may be exercised or an award may be received, (v) to amend or modify the terms of any option or award with the consent of the holder of the option or other award, (vi) to interpret the Plan, (vii) to prescribe, amend and rescind rules and regulations relating to the Plan, (viii) to determine the terms and provisions of each option or award agreement under the Plan (any of which agreements need not be identical), including the designation of those options intended to be Incentive Stock Options, and (ix) to make all other determinations necessary or advisable for the administration of the Plan, subject to the exclusive authority of the Board of Directors under Section 8 herein to amend or terminate the Plan. The Committee's determinations on the foregoing matters shall be final and conclusive. (c) The Committee shall select one of its members as its Chairperson and shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. The exercise of an option or receipt of an award shall be effective only if a written agreement shall have been duly executed and delivered by and on behalf of the Company following the grant of the option or other award. The Committee may appoint a Secretary and may make such rules and regulations for the conduct of its business as it shall deem advisable. 4. Options. (a) Eligibility. Incentive Stock Options may only be granted under this Plan to any full or part-time employee (which term as used herein includes, but is not limited to, officers and directors who are also employees) of the Company and of its present and future subsidiary corporations (herein called "subsidiaries"). Any full or part-time employee of the Company and of its subsidiaries, any full or part-time employee of an affiliated partnership of the Company, and consultants or independent contractors providing valuable services to the Company, one of its subsidiaries or one of its affiliated partnerships who are not also employees thereof, shall be eligible to receive options which do not qualify as Incentive Stock Options. In determining the persons to whom options shall be granted and the number of shares subject to each option, the Committee may take into account the nature of services rendered by the respective persons, their present and potential contributions to the success of the Company and such other factors as the Committee in its discretion shall deem relevant. A person who has been granted an option under this Plan may be granted an additional option or options under the Plan if the Committee shall so determine, provided, however, that to the extent the aggregate fair market value (determined at the time the Incentive Stock Option is granted) of the Common Stock with respect to which all Incentive Stock Options are exercisable for the first time by an employee during any calendar year (under all plans described in subsection (d) of Section 422 of the Code of his or her employer corporation and its parent and subsidiary 2 3 corporations) exceeds $100,000, such options shall be treated as options which do not qualify as Incentive Stock Options. Notwithstanding the foregoing, during the term of this Plan no person shall be granted options in respect of more than an aggregate of 10% of the shares of Common Stock authorized under this Plan. (b) Exercise Price. The option price for all Incentive Stock Options granted under the Plan shall be determined by the Committee but shall not be less than 100% of the fair market value of the Common Stock at the date of granting such option. The option price for options granted under the Plan which do not qualify as Incentive Stock Options shall also be determined by the Committee but may not be less than 50% of the fair market value of the Common Stock at the date of granting of such option. For purposes of the preceding two sentences and for all other valuation purposes under the Plan, the fair market value of the Common Stock shall be as reasonably determined by the Committee, but shall not be less than (i) the closing price of the stock as reported for composite transactions, if the Common Stock is then traded on a national securities exchange, (ii) the last sale price if the Common Stock is then quoted on the NASDAQ National Market System or (iii) the average of the closing representative bid and asked prices of the Common Stock as reported on NASDAQ on the date as of which fair market value is being determined. If on the date of grant of any option granted under the Plan, the Common Stock of the Company is not publicly traded, the Committee shall make a good faith attempt to satisfy the option price requirement of this Section 4(b) and in connection therewith shall take such action as it deems necessary or advisable. (e) Term. Each option and all rights and obligations thereunder shall, subject to the provisions of Section 4(f), expire on the date determined by the Committee and specified in the option agreement. The Committee shall be under no duty to provide terms of like duration for options granted under the Plan, but the term of an Incentive Stock Option may not extend more than ten (10) years from the date of granting of such option and the term of options granted under the Plan which do not qualify as Incentive Stock Options may not extend more than fifteen (15) years from the date of granting of such option. (d) Exercise. (i) The Committee shall have full and complete authority to determine, subject to Section 4(f) herein, whether the option will be exercisable in full at any time or from time to time during the term of the option, or to provide for the exercise thereof in such installments, upon the occurrence of such events and at such times during the term of the option as the Committee may determine. (ii) The exercise of any option granted hereunder shall be effective only at such time as the sale of Common Stock pursuant to such exercise will not violate any state or federal securities or other laws. (iii) An optionee electing to exercise an option shall give written notice to the Company of such election and of the number of shares subject to such exercise. The full purchase price of such shares shall be tendered with such notice of exercise. Payment shall be made to the Company in cash (including bank check, certified check, personal check, or money order), or, 3 4 at the discretion of the Committee and as specified by the Committee, (A) by delivering certificates for the Company's Common Stock already owned by the optionee having a fair market value as of the date of exercise equal to the full purchase price of the shares, together with any applicable withholding taxes, or (B) a combination of cash and such shares; provided, however, that an optionee shall not be entitled to tender shares of the Company's Common Stock pursuant to successive, substantially simultaneous exercises of options granted under this or any other stock option plan of the Company. The fair market value of such tendered shares shall be determined as provided in Section 4(b) herein. The Committee may also, in its sole discretion, permit option holders to deliver a notice of exercise of options and simultaneously to sell the shares of Common Stock thereby acquired pursuant to a brokerage or similar arrangement approved in advance by proper officers of the Company, using the proceeds of such sale as payment of the exercise price. Until such person has been issued the shares subject to such exercise, he or she shall possess no rights as a stockholder with respect to such shares. (e) Accelerated Ownership Feature. An option may, in the discretion of the Committee, include the right to acquire an accelerated ownership stock option ("AO Option"). An option which provides for the grant of an AO Option shall entitle the option holder upon exercise of that option and payment of the appropriate exercise price in shares of Common Stock that have been owned by such option holder for not less than six months prior to the date of exercise, to receive an AO Option. An AO Option is an option to purchase, at fair market value at the date of grant of the AO Option, a number of shares of Common Stock equal to the sum of the number of whole shares delivered by the option holder in payment of the exercise price of the original option and the number of whole shares, if any, withheld by the Company as payment for withholding taxes. An AO Option shall expire on the same date that the original option would have expired had it not been exercised. All AO Options shall be nonqualified options. (f) Effect of Termination of Employment or Death. (i) In the event that an optionee shall cease to be employed by the Company, its subsidiaries or its affiliated partnerships, if any, for any reason other than his or her serious misconduct or his or her death or disability, such optionee shall have the right to exercise the option to the extent of the full number of shares the optionee was entitled to purchase under the option on the date of termination, as follows: (A) with respect to an Incentive Stock Option, such optionee shall have the right to exercise the option at any time within three (3) months after such termination of employment, subject to the condition that no option shall be exercisable after the expiration of the term of the option; and (B) with respect to an option that does not qualify as an Incentive Stock Option, such optionee shall have the right to exercise the option at any time within a period determined by the Committee (which in no event shall be less than three months or more than five years after such termination), subject to the condition that no option shall be exercisable after the expiration of the term of the option. (ii) In the event that an optionee shall cease to be employed by the Company, its subsidiaries or its affiliated partnerships, if any, by reason of his or her serious 4 5 misconduct during the course of his or her employment, the option shall be terminated as of the date of the misconduct. (iii) If the optionee shall die while in the employ of the Company, a subsidiary or an affiliated partnership, if any, or within three (3) months after termination of employment, for any reason other than serious misconduct, or if employment is terminated because the optionee has become disabled (within the meaning of Code Section 22(e)(3)) while in the employ of the Company, a subsidiary or an affiliated partnership, if any, and such optionee shall not have fully exercised the option, such option may be exercised at any time within a period determined by the Committee (which in no event shall be less than three (3) months or more than five (5) years after his or her death or date of termination of employment for such disability) by the optionee, personal representatives, administrators, or guardians of the optionee, as applicable, or by any person or persons to whom the option is transferred by will or the applicable laws of descent and distribution, to the extent of the full number of shares he or she was entitled to purchase under the option on the date of death, termination of employment, if earlier, or date of termination for such disability and subject to the condition that no option shall be exercisable after the expiration of the term of the option. (iv) The Committee may extend the period during which an Incentive Stock Option is exercisable following termination of employment beyond the maximum period set forth in Section 4(f)(i)(A) above up to five (5) years after such termination of employment, subject to the condition that no option shall be exercisable after the expiration of the term of the option; provided, however, that in such event, such option or a portion of such option may not qualify for treatment as an incentive stock option within the meaning of Section 422 of the Code. (v) Nothing in the Plan or in any agreement thereunder shall confer on any employee any right to continue in the employ of the Company, any of its subsidiaries or any of its affiliated partnerships or affect, in any way, the right of the Company, any of its subsidiaries or any of its affiliated partnerships to terminate his or her employment at any time. (g) Ten Percent Stockholder Rule. Notwithstanding any other provisions in the Plan, if at the time an option is otherwise to be granted pursuant to the Plan the optionee owns directly or indirectly (within the meaning of Section 424(d) of the Code) Common Stock of the Company possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or its parent or subsidiary corporations, if any (within the meaning of Section 422(b)(6) of the Code), then any Incentive Stock Option to be granted to such optionee pursuant to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and the option price shall be not less than 110% of the fair market value of the Common Stock of the Company determined as described herein, and such option by its terms shall not be exercisable after the expiration of five (5) years from the date such option is granted. (h) Nontransferability. No option granted under the Plan shall be transferrable by an optionee, other than by will or the laws of descent or distribution as provided in Section 5 6 4(f)(iii) herein. During the lifetime of an optionee the option shall be exercisable only by such optionee (except as provided in Section 4(f)(iii) herein). 5. Restricted Stock Awards. Awards of Common Stock subject to forfeiture and transfer restrictions may be granted to any full or part-time employee of the Company, any of its subsidiaries or any of its affiliated partnerships, at any time or from time to time as determined by the Committee. The restricted stock awards shall be evidenced by agreements in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to the following terms and conditions and any additional terms and conditions established by the Committee that are consistent with the terms of the Plan: (a) Grant of Restricted Stock Awards. Each restricted stock award made under the Plan shall be for such number of shares of Common Stock as shall be determined by the Committee and set forth in the agreement containing the terms of such restricted stock award. Such agreement shall set forth a period of time during which the grantee must remain in the continuous employment of the Company in order for the forfeiture and transfer restrictions to lapse. If the Committee so determines, the restrictions may lapse during such restricted period in installments with respect to specified portions of the shares covered by the restricted stock award. The agreement may also, in the discretion of the Committee, set forth performance or other conditions that will subject the shares to forfeiture and transfer restrictions. The Committee may, at its discretion, waive all or any part of the restrictions applicable to any or all outstanding restricted stock awards. (b) Delivery of Common Stock and Restrictions. At the time of a restricted stock award, a certificate representing the number of shares of Common Stock awarded thereunder shall be registered in the name of the grantee. Such certificate shall be held by the Company or any custodian appointed by the Company for the account of the grantee subject to the terms and conditions of the Plan, and shall bear such a legend setting forth the restrictions imposed thereon as the Committee, in its discretion, may determine. The grantee shall have all rights of a stockholder with respect to the shares, including the right to receive dividends and the right to vote such shares, subject to the following restrictions: (i) the grantee shall not be entitled to delivery of the stock certificate until the expiration of the restricted period and the fulfillment of any other restrictive conditions set forth in the restricted stock agreement with respect to such shares; (ii) none of the shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed of during such restricted period or until after the fulfillment of any such other restrictive conditions; and (iii) except as otherwise determined by the Committee, all of the shares shall be forfeited and all rights of the grantee to such shares shall terminate, without further obligation on the part of the Company, unless the grantee remains in the continuous employment of the Company for the entire restricted period in relation to which such Common Stock was granted and unless any other restrictive conditions relating to the restricted stock award are met. Any Common Stock, any other securities of the Company and any other property (except for cash dividends) distributed with 6 7 respect to the shares of Common Stock subject to restricted stock awards shall be subject to the same restrictions, terms and conditions as such restricted shares of Common Stock. (c) Termination of Restrictions. At the end of the restricted period and provided that any other restrictive conditions of the restricted stock award are met, or at such earlier time as otherwise determined by the Committee, all restrictions set forth in the agreement relating to the restricted stock award or in the Plan shall lapse as to the restricted shares of Common Stock subject thereto, and a stock certificate for the appropriate number of shares of Common Stock, free of the restrictions and restricted stock legend, shall be delivered to the grantee or his or her beneficiary or estate, as the case may be. 6. Tax Withholding. The Company shall have the right to deduct from any settlement, including the delivery or vesting of shares, made under the Plan any federal, state or local taxes of any kind required by law to be withheld with respect to such payments or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. If Common Stock is used to satisfy tax withholding, such stock shall be valued based on the fair market value of such Common Stock when the tax withholding is required to be made. 7. Dilution and Other Adjustments. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split or other change in corporate structure affecting the Common Stock, such substitution or adjustment shall be made in the aggregate number of shares reserved for issuance under the Plan, in the number and option price of shares subject to outstanding options granted under the Plan, and in the number of shares subject to other outstanding awards granted under the Plan as may be determined to be appropriate by the Committee, in its sole discretion, provided that the number of shares subject to any award shall always be a whole number. 8. Amendment or Discontinuance of Plan. The Board of Directors of the Company may amend or discontinue the Plan at any time. Subject to the provisions of Section 7, no amendment of the Plan shall, without stockholder approval: (a) increase the maximum number of shares under the Plan as provided in Section 2 herein, (b) decrease the minimum option price provided in Section 4(b) herein, (c) extend the maximum option term under Section 4(c), or (d) materially modify the eligibility requirements for participation in the Plan. The above notwithstanding, the Board of Directors may amend the Plan to take into account changes in applicable securities, federal income tax laws and other applicable laws. The Board of Directors shall not alter or impair any option other award theretofore granted under the Plan without the consent of the holder of the option or other award. 7 8 9. Additional Restrictions. The Committee shall have full and complete authority to determine whether all or any part of the Common Stock of the Company acquired upon exercise of any of the options or other awards granted under the Plan shall be subject to restrictions on the transferability thereof or any other restrictions affecting in any manner the recipient's rights with respect thereto, but any such restriction shall be contained in the agreement relating to such options or other awards. 10. Effective Date and Termination of Plan. (a) The Plan was approved by the Board of Directors effective as of March 3, 1992, and shall be approved by the stockholders of the Company within twelve (12) months thereof. (b) Unless the Plan shall have been discontinued as provided in Section 8 hereof, the Plan shall terminate on March 3, 2002. No option or other award may be granted after such termination, but termination of the Plan shall not, without the consent of the holder of the option or other award, alter or impair any rights or obligations under any option or other award theretofore granted. 11. Limited Transferability. (a) Notwithstanding any other provisions of this Plan including, but not limited to, Section 4(h), an optionee, if permitted by his or her option agreement, may transfer options granted under this Plan if the option(s) and/or the transfer meet the following conditions: (i) The option must be an option which is not an Incentive Stock Option. (ii) The option may only be transferred to the optionee's immediate family, trusts established solely for the benefit of the optionee's immediate family or partnerships of which the only partners are members of the optionee's immediate family (a "Permitted Transferee"). (A) "Immediate family" means the optionee's children and grandchildren, including adopted children and grandchildren, stepchildren, parents, stepparents, grandparents, spouse, siblings (including half brothers and sisters), father-in-law, mother-in-law, daughters-in-law and sons-in-law. 8 9 (B) A trust to which an option is transferred must: be solely for the benefit of immediate family members; be irrevocable; preclude the optionee from being or becoming a beneficiary of such trust; preclude the trustee from paying the optionee or the optionee's estate or personal representative any principal or income to reimburse the estate or personal representative for any income tax liability attributable to the exercise of the option; preclude the optionee or his or her spouse from becoming a trustee of the trust, voting any shares held by the trust, exercising any powers of appointment with respect to the trust or any powers which would cause the principal or income of the trust to be included in the optionee or the optionee's spouse's income tax return or gross estate under any section of the Code or allow the optionee or the optionee's spouse to remove or replace any trustee of the trust. (iii) The option may be vested or nonvested. (iv) The Committee must consent to the transfer on a case by case basis. (v) The transfer must be for no consideration. (vi) After the transfer, the transferee will have sole responsibility for determining whether and when to exercise the option(s). (vii) Subsequent transfers of an Option transferred under this Section 11 shall be prohibited, other than by will or by the laws of descent and distribution upon the death of the transferee. (viii) The options transferred must remain subject to all of the other terms and conditions of this Plan. (b) Except as otherwise specifically provided in this Section 11, the transferee of the option shall be entitled to exercise all rights of an optionee under this Plan after the transfer. (c) With respect to options which have been granted prior to the effective date of this amendment, the Committee shall obtain the consent of the optionee to amend the option agreement to include the provisions of this amendment. Such amendment to the option agreement must provide that the optionee will no longer be required or permitted to consent to the termination, modification or amendment of the Plan with respect to such options. 9 10 (d) If in the opinion of counsel to the Company the transfer of an option under this Plan would disqualify the option as an exempt performance-based option under Section 162(m) of the Code. 10 EX-10.26 3 DIRECTORS FEES/COMPENSATION 1 EXHIBIT 10.26 COLUMBIA/HCA HEALTHCARE CORPORATION DIRECTORS' FEES/COMPENSATION (as revised May 14, 1998) Amended and Restated Columbia/HCA Healthcare Corporation Outside Directors' Stock and Incentive Compensation Plan - - Outside directors have the choice of (i) receiving an annual retainer of $40,000 payable in restricted stock that vests one year from the date of grant; or (ii) receiving, in lieu of annual retainers for the next 5 years, $200,000 in restricted stock units that vest annually over a 5-year period at a rate 20% per year. Non-Employee Directors first elected after 1998 will be given the choice of a prorated award (for the portion of the 5-year period they serve) or annual restricted stock retainers. In 1998, Non-Employee directors will be granted stock options (exercisable at the shares' fair market value on the date of grant) having an aggregate exercise price equal to 12.5 times the annual retainer. This grant is in lieu of an annual stock option grant for the next 5 years and will vest over a 5-year period at a rate of 20% per year, commencing on the date of grant. Other Fees - - Attendance fees of $1,200 per meeting are paid to non-employee directors for all scheduled meetings of the Board. - - Non-employee directors are paid a committee meeting fee of $1,000 per meeting (Committee Chairpersons $1,200) if such meeting is not held in conjunction with a regularly scheduled Board meeting. The Board of Directors has Audit, Compensation, Executive, Finance and Investment, Nominating and Ethics, Compliance and Corporate Responsibility Committees. Columbia/HCA Healthcare Foundation, Inc. - Matching Gift Program - - Effective for 1997 and subsequent years, the Company will match gifts from each Director to organizations and programs exempt from taxation (pursuant to Section 501(c)(3) of the Internal Revenue Code), including civic, cultural, educational and health and human services institutions, on a dollar-for-dollar basis, from a minimum of $500 per gift, up to an aggregate maximum of $15,000 annually. The Matching Gift Program will be administered by the Columbia/HCA Healthcare Foundation, Inc. To qualify for a matching gift, contributions must be personal gifts from the Director's own funds (including personal or family foundations and gifts made jointly with spouses), paid in cash or securities. Pledges do not qualify for matches. Directors who have retired from service on the Board may participate in this program through the end of the first year following the year in which retirement was effective. The Company reserves the right to determine whether gifts to organizations are within certain guidelines for qualification for matching. EX-10.31 4 SEPARATION AGREEMENT DAN MOEN 1 EXHIBIT 10.31 SEPARATION AGREEMENT AND GENERAL RELEASE This Agreement is entered into this 1st day of July, 1998, by and between Dan Moen (hereinafter "Employee") and Galen Health Care, Inc. (hereinafter "Company") and replaces the original agreement dated September 12, 1997 and amendment dated February 27, 1998. In consideration of Employee's agreement to the terms set forth below, and the mutual benefits to be derived hereunder, it is agreed as follows: All payments are subject to withholding for federal income tax, FICA, and other deductions required by law or regulation. 1. Employee is to receive payment equivalent to three year's salary ($1,800,000). Payment shall be paid in a lump sum within 10 days of the effective date of Employee's resignation, July 31, 1998. 2. In addition to the consideration described above, Employee is to receive $86,538 payment for all unused Paid Time Off (PTO). Payment shall be paid in a lump sum within 10 days of the effective date of Employee's resignation. 3. Vested options may be exercised in accordance with plan provisions. 4. In addition to the consideration described above, Employee is to receive $8,205 in consideration of COBRA health and dental insurance continuation for eighteen months. Payment shall be paid in a lump sum within 10 days of the effective date of Employee's resignation. 5. In addition to the consideration described above, Employee is to receive $35,000 in consideration of relocation expenses. Payment shall be paid in a lump sum within 10 days of the effective date of Employee's resignation. 6. In addition to the consideration described above, Employee is to receive $5,000 in consideration of outplacement services. Payment shall be paid in a lump sum within 10 days of the effective date of Employee's resignation. 7. In addition to the consideration described above, Employee shall receive a cash payment equal to either (i) the Fair Market Value on the last day of employment or (ii) the aggregate amount of the Annual Bonus applied to the receipt, in either case, of all Restricted Shares held by Employee. Payment shall be paid in accordance with plan provisions. 8. Employee agrees to sell and the Company agrees to purchase Employee's minority ownership interest in six (6) Columbia affiliated companies in Florida at fair market value and in as expeditious a manner as possible, consistent with similarly situated employees. The foregoing is in consideration of Employee's agreement that all promises set forth herein are accepted in full and final release and settlement of any and all claims of any type relating to Employee's employment or the operation of the Company which Employee ever had or may now have against Company, or any of its successors, purchasers, subsidiaries, assigns, affiliates, or parent, and the officers, agents, directors, or employees of any of them. Employee hereby agrees to make himself available at the request of the Company, at reasonable times and upon reasonable notice, to assist the Company on matters the Company shall designate in connection with issues involving litigation, compliance and/or any governmental or other investigations involving the Employee's tenure as an employee. Nothing in this statement shall require the Employee to act contrary to the advice of counsel. Employee shall be indemnified by the Company in accordance with, and to the fullest extent allowed by, the provisions of Delaware law and Article Sixteenth of the Restated Certificate of Incorporation of the Company and will be provided advancement of legal fees and costs to the fullest extent provided therein. It is further agreed that the terms of this agreement will not be revealed to any person not a party to it, other than as required by law and except for spouse and legal and financial advisors. Employee also agrees to expressly waive any rights under any other programs or agreements between Employee and Company including its parent other than as set forth herein or as provided for under existing company benefit plans including, but not limited to Employee's 401 (k) plan and Stock Purchase Plan. Also, in consideration of the agreements set forth herein, Employee agrees to bring no lawsuits, claims, or charges of any kind relating to his employment or separation from employment including, but not limited to claims under the Age Discrimination in Employment Act. Employee acknowledges to have read this agreement/release and to understand all of its terms. Each party agrees to not make any disparaging remarks regarding the other party. Employee further acknowledges to have been informed of the right to agree or not agree to the terms set forth herein and has executed this agreement voluntarily with full knowledge of its significance and consequences. Employee acknowledges to have been offered at least twenty-one (21) days to consider the terms and conditions of this document but has voluntarily chosen to execute the document on the date of its execution, as evidenced by his signature. In addition, Company and Employee agree that Employee has seven (7) days following the execution of this document in which to revoke this agreement by written notice. This agreement/release is binding on and shall inure to the benefit of Company, its parent and its successors and/or assigns. If you agree to all of the terms and conditions set forth herein, please signify by your signature below, and steps will be taken to implement this agreement. I acknowledge that I have read the foregoing, have had ample time to consider it, including ample time to consult with counsel, and voluntarily agree to all terms set forth herein. /s/ Dan Moen 7/1/98 - ----------------------------------------- ----------------------- Employee Date /s/ Neil Hemphill 7/1/98 - ----------------------------------------- ----------------------- Company Date EX-10.32 5 SEPARATION AGREEMENT DAVID WHITE 1 EXHIBIT 10.32 SEPARATION AGREEMENT AND GENERAL RELEASE This Agreement is entered into this 11th day of September, 1998, by and between David R. White (hereinafter "Employee") and Galen Health Care, Inc. (hereinafter "Company"). In consideration of Employee's agreement to the terms set forth below, and the mutual benefits to be derived hereunder, it is agreed as follows: All payments are subject to withholding for federal income tax, FICA, and other deductions required by law or regulation and will be made in a lump sum within ten (10) days following the date of execution of this Agreement. In consideration of these payments, Employee shall not, without prior written consent of Company, directly as an employee or employer engage in any business or render any services to any business that is in direct competition with the business of Company or any of its successors, purchasers, subsidiaries, assigns, affiliates, or parent for a period of two (2) years from the effective date of Employee's resignation. Employee further agrees to not solicit any employee of Company, its parent, subsidiaries or affiliates for employment for a period of two (2) years from the effective date of Employee's resignation. Company acknowledges that nothing in this Agreement is intended to preclude Employee from investing in or serving as a Director in any entity. 1. Employee is to receive payment equivalent to three year's salary ($1,800,000). 2. Employee is to receive $2,160,000 which represents eighty percent (80%) of Employee's maximum eligibility for payment under the terms of the Transaction Bonus Plan. This amount is to be paid by separate check. This payment is not considered to be severance. 3. Employee is to receive $76,153 payment for all unused Paid Time Off (PTO) as of the effective date of resignation, September 15, 1998. 4. Employee is to receive $6,728 in consideration of COBRA health insurance continuation for eighteen months. 5. Employee is to receive $35,000 in consideration of relocation expenses. 6. Employee is to receive $5,000 in consideration of outplacement services. 7. Vested options may be exercised in accordance with plan provisions. Non-vested options scheduled to vest within twelve months following the effective date of Employee's resignation will be vested. The foregoing is in consideration of Employee's agreement that all promises set forth herein are accepted in full and final release and settlement of any and all claims of any type relating to Employee's employment or the operation of the Company which Employee ever had or may now have against Company, or any of its successors, purchasers, subsidiaries, assigns, affiliates, or parent, and the officers, agents, directors, or employees of any of them. Employee agrees to cooperate fully in conjunction with any investigation, dispute, grievance, claim or litigation which now exists or may arise in the future concerning any matters with which Employee may have been involved. Nothing in this statement shall require the Employee to act contrary to the advice of counsel. Employee shall be indemnified by the Company in accordance with, and to the fullest extent allowed by, the provisions of Delaware law and Article Sixteenth of the Restated Certificate of Incorporation of the Company and will be provided advancement of legal fees and costs to the extent provided therein. It is further agreed that the terms of this agreement will not be revealed to any person not a party to it, other than as required by law and except for legal and financial advisors. Employee also agrees to expressly waive any rights under any other programs or agreements between Employee and Company including its parent other than as set forth herein or as provided for under existing company benefit plans. Also, in consideration of the agreements set forth herein, Employee agrees to bring no lawsuits of any kind relating to employment or separation from employment including, but not limited to claims arising under the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, and the Americans with Disabilities Act. Employee acknowledges to have read this agreement/release and to understand all of its terms. Each party agrees to not make any disparaging remarks regarding the other party. Employee further acknowledges to have been informed of the right to agree or not agree to the terms set forth herein and has executed this agreement voluntarily with full knowledge of its significance and consequences. Employee acknowledges to have been offered at least twenty-one (21) days to consider the terms and conditions of this document but has voluntarily chosen to execute the document on the date of its execution, as evidenced by signature. In addition, Company and Employee agree that Employee has seven (7) days following the execution of this document in which to revoke this agreement by written notice. This agreement/release is binding on and shall inure to the benefit of Company, its parent and its successors and/or assigns. I acknowledge that I have read the foregoing, have had ample time to consider it, including ample time to consult with counsel, and voluntarily agree to all terms set forth herein. /s/ David R. White 9/14/98 - ----------------------------------------- ----------------------- Employee Date /s/ Neil Hemphill 9/14/98 - ----------------------------------------- ----------------------- Company Date EX-10.33 6 LETTER AGREEMENT ROBERT WATERMAN 1 EXHIBIT 10.33 October 31, 1997 Robert Waterman 9421 Green Hill Boulevard Brentwood, Fl 37027 Dear Robert: We are pleased about the prospect of your joining Columbia/HCA. This letter serves as formal confirmation of our verbal offer to you for the position of Senior Vice President and General Counsel, reporting to the CEO. After employment, your initial pay and benefits will be as follows: - - A monthly salary of $52,083.33, which is equivalent to an annual salary of $625,000. - - Options on 350,000 shares of Columbia/HCA stock. The strike price for these shares will be set on your first day of employment. Beginning in 1999, you will be eligible to participate in the annual stock option program. Participation is subject to plan terms and approval by the Board of Directors. - - If Columbia/HCA should terminate your employment without cause the following severance schedule would apply. - 1998-1999 three years severance - 2000-2002 two years severance - 2003 and beyond one years severance - - Questions regarding your relocation assistance should be directed to Ms. Kara Cravens, Corporate Relocation Administrator at (615) 344-2425. Columbia/HCA agrees to provide to one year of temporary living expense and a home purchase program in addition to our normal relocation policy. - - You are also entitled to participate in the LifeTimes Benefit Choices Program which allows you to choose from a number of benefits such as medical, dental, life, and long-term disability insurance subject to the terms of the plans. You are eligible for medical, dental and life insurance benefits on the first day of the month after you complete two calendar months of service. If you start on or before November 1, 1997, your benefits will begin on January 1, 1998. You will receive a complete packet of benefit instructions within 30 days of your joining the company. 2 October 31, 1997 Robert Waterman Page 2 This offer is contingent on the successful completion of a background investigation and reference checks. We are in the process of completing those and hope that there are no delays which might affect your employment date. In order for Columbia to comply with the Immigration Reform and Control Act of 1986 we require that you bring certain documents with you on your first day of employment. These documents are identified on the enclosed I-9 form which should be filled out and brought with you on your first day, along with the documents requested. We also ask that you complete the enclosed W-4 form which will ensure that the correct payroll taxes are deducted each pay cycle. If you have questions about either of these forms, please contact Shana Brandwein at 615-344-2924. Bob, we look forward to having you as a member of Columbia's team. We know that your past experience and expertise will have provided the tools for you to make significant contributions to the success of Columbia and that you will be rewarded commensurate with your contributions. Please indicate your acceptance of our offer by signing in the space provided below and returning the signed original to Human Resources for inclusion in your regular personnel file. An extra copy of this letter is enclosed for your records. Sincerely, /s/ Thomas F. Frist, Jr., M.D. Thomas F. Frist, Jr., M.D. Chairman and CEO cc: Compensation Relocation John Steele Enclosures: Columbia Corporate Compliance Program - Standards and Procedures I-9, W-4 I UNDERSTAND AND ACCEPT THE FOREGOING /s/ Robert Waterman - ------------------- Name - ------------------- Date EX-10.34 7 LETTER AGREEMENT R CLAYTON MCWHORTER 1 EXHIBIT 10.34 (COLUMBIA/HCA Healthcare Corporation LOGO) One Park Plaza P.O. Box 550 (37202-0550) Nashville, Tennessee 37203 Phone (615) 344-9551 COLUMBIA/HCA's Home page is http://www.columbiahca.com January 18, 1999 Mr. Clayton McWhorter c/o Shirly Newton 310 25th Avenue N., Suite 109 Nashville, TN 37203 Dear Mr. McWhorter: Per our agreement, in accordance with the terms of the HCA Supplemental Executive Retirement Plan (SERP), you are entitled to receive a lump sum distribution in the amount of $227,311.73 from the Plan. This payment will fulfill all of the Plan's obligations to you. This lump sum distribution is subject to both income tax and FICA tax withholding. Consequently, in accordance with applicable law, income taxes in the amount of $63,647.28, and FICA taxes in the amount of $7,797.22 have been withheld from your lump sum distribution and will be reported to the Internal Revenue Service on your 1999 Form W-2. The enclosed check represents the remainder of your lump sum distribution in the amount of $155,867.23. If you have any questions whatsoever regarding the enclosed check, please do not hesitate to call me. Very truly yours, /s/ Kimberly K. Sharp Kimberly K. Sharp AVP Savings and Retirement cc: Don Fuson, Director, Corporate Payroll Phil Patton, Senior Vice President, Human Resources EX-10.35 8 1999 PERFORMANCE EQUITY INCENTIVE PLAN 1 Exhibit 10.35 COLUMBIA/HCA HEALTHCARE CORPORATION PERFORMANCE EQUITY INCENTIVE PLAN Purpose and Administration of the Plan The Performance Equity Incentive Plan ("Plan") is established to encourage outstanding performance of employees who are in a position to make substantial contributions to the success of the Company. This plan is governed by the Columbia/HCA Healthcare Corporation 1992 Stock and Incentive Plan and is administered by the Compensation Committee. Participation Eligibility to participate in the Plan shall be extended generally to all full time regular/corporate payroll Director and above with at least three months employment in the fiscal year ("Participants") subject to approval by the CEO of Columbia/HCA Healthcare Corporation. For a Participant added during the Fiscal Year, the consideration shall be determined pursuant to the Plan and prorated. Proration may also apply to employees who transfer to a position eligible for a different incentive target. In general, the targets for this plan are approximately 50% of the Participants 1997 incentive target and range from 10% to 40%. Incentive Calculation and Payment Plan payments for Participants are based on a combination of financial/non financial measurements (see chart below). As soon as practical, after the Fiscal Year, when the financial results of the Company are known, the appropriate senior officer will review and recommend plan payments. The Committee may make adjustments to performance targets deemed necessary to avoid unwarranted penalties or windfalls. Such adjustments will recognize uncontrollable outside factors and will be kept to a minimum. Payments shall be made as soon as practicable, after the annual audit report has been issued, but in no event later than three months after the Fiscal Year. Payments will be in the form of restricted stock that will vest at 50% per year over the following two years. This Plan is not a "qualified" plan for tax purposes, and any payments are subject to tax withholding requirements. Plan Measurements
- ---------------------------------------------------------------------------------------------------------------------------- FINANCIAL NON FINANCIAL - ---------------------------------------------------------------------------------------------------------------------------- SWB as % of Net, Cash Flow, AR/Bad Debt Satisfaction EBITDA (Actual Department Or Supply Corp - Client Individual to Budget)* Budget*** Expense as % Ops - Patient Specific Goals - ---------------------------------------------------------------------------------------------------------------------------- Corporate 25% 25% ** 50% - ---------------------------------------------------------------------------------------------------------------------------- Operations 50% 20% 15% 15% - ----------------------------------------------------------------------------------------------------------------------------
* NOTE: EBITDA will have an upside potential of up to 150% for exceeding budget by 10% (both operations and Corporate). ** Each Corporate participant will have at least one Individual Specific Goal related to Client Satisfaction. *** Some Corporate departments may be measured on some other financial measure as approved by the SVP Human Resources and the Company COO. 1 2 Termination of Participant In the event a payment is due pursuant to the Plan and a Participant's employment with the Company is terminated prior to the payment by reason of retirement, total and permanent disability or death, such Participant (or estate in the event of death) shall receive a pro rata payment as soon as practical after the Fiscal Year, but in no event later than the three months after the Fiscal Year. The Committee or it's designee shall have authority to accelerate vesting on all unvested shares. A Participant who is otherwise voluntarily or involuntarily separated prior to the payment of any incentive compensation shall cease to be a Participant and shall not have earned any right to receive any payments pursuant to the Plan. In addition, a Participant will forfeit all unvested shares at the time of separation. 2 EX-10.36 9 SEVERANCE POLICY 1 EXHIBIT 10.36 SEVERANCE POLICY FOR AMERICA AND PACIFIC GROUPS In consideration of risk associated with the spin-off of the America and Pacific Groups the following severance schedule will be utilized throughout 1999 for the executives at the America and Pacific Groups. Group President and Senior Vice President Three years Division President Two Years Vice President One Year EX-12 10 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 COLUMBIA/HCA HEALTHCARE CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED) (DOLLARS IN MILLIONS)
YEARS ENDED DECEMBER 31, ------------------------------------------ 1998 1997 1996 1995 1994 ------ ------ ------ ------ ------ EARNINGS Income from continuing operations before minority interests and income taxes..................... $1,151 $ 538 $2,583 $1,827 $1,580 Fixed charges, exclusive of capitalized interest....................................... 695 629 616 583 491 ------ ------ ------ ------ ------ $1,846 $1,167 $3,199 $2,410 $2,071 ====== ====== ====== ====== ====== FIXED CHARGES Interest charged to expense....................... $ 561 $ 493 $ 488 $ 458 $ 387 Interest portion of rental expense and amortization of deferred loan costs............ 134 136 128 125 104 ------ ------ ------ ------ ------ Fixed charges, exclusive of capitalized interest....................................... 695 629 616 583 491 Capitalized interest.............................. 21 15 25 28 15 ------ ------ ------ ------ ------ $ 716 $ 644 $ 641 $ 611 $ 506 ====== ====== ====== ====== ====== Ratio of earnings to fixed charges................ 2.58 1.81 4.99 3.94 4.09 ====== ====== ====== ====== ======
EX-18 11 CHANGE IN ACCOUNTING PRINCIPLE 1 EXHIBIT 18 March 25, 1998 Mr. Kenneth C. Donahey Senior Vice President and Controller Columbia/HCA Healthcare Corporation One Park Plaza Nashville, Tennessee 37203 Dear Mr. Donahey: Note 11 of Notes to Consolidated Financial Statements of Columbia/HCA Healthcare Corporation (the Company) included in its Form 10-K for the year ended December 31, 1997 describes a change in the method of accounting for start-up costs, which include certain computer system training costs, from capitalizing and subsequently amortizing the costs to expensing the costs as incurred. You have advised us that you believe that the change is to a preferable method in your circumstances because of the changes in the Company's business strategy and recent guidance issued by accounting and reporting standard setting authorities, including the Financial Accounting Standards Board Emerging Issues Task Force. We conclude that the change in the method of accounting for start-up costs is to an acceptable alternative method which, based on your business judgment to make this change for the reasons cited above, is preferable in your circumstances. Very truly yours, /s/ ERNST & YOUNG LLP ---------------------- Ernst & Young, LLP EX-21 12 LIST OF SUBSIDIARIES 1 EXHIBIT 21 ALABAMA ------- Alabama-Tennessee Health Network, Inc. Columbia/HCA Montgomery Healthcare System, Inc. Community Hospital of Andalusia, Inc. Andalusia Regional Hospital Columbia Hospice Southeast Alabama Crestwood Hospital & Nursing Home, Inc. Crestwood Hospital Holdings, Inc. Doctor's Hospital of Mobile, Inc. Four Rivers Medical Center PHO, Inc. Galen Medical Corporation Colonial Manor Professional Building Metropolitan Hospital Montgomery Regional Medical Center Allied Health Institute Shoals Medical Building Huntsville Physical Therapy, Inc. Sports Therapy & Rehabilitation of Huntsville Huntsville Surgery Center, Ltd. 2 ALABAMA (Cont) --------------- Maynor Eye Center, Inc. Montgomery Surgical Center, Ltd. North Alabama Healthcare System, Inc. Primesource, L.L.C. Selma Medical Center Hospital, Inc. Linden Clinic P.T. Plus South Alabama Managed Care Contracting, Inc. South Alabama Medical Management Services, Inc. South Alabama Physician Services, Inc. Madison Medical Center Surgicare of Huntsville, Inc. 3 ALASKA ------- Chugach Physical Therapy, Inc. Chugach Physical Therapy & Fitness Center Columbia Behavioral Healthcare, Inc. North Star Hospital Columbia North Alaska Healthcare, Inc. 4 ARIZONA -------- Arizona ASC Management, Inc. Columbia Arizona, Inc. Columbia of Phoenix, Inc. Galen of Arizona, Inc. Doctors Medical Plaza-South HCA Health Services of Arizona, Inc. Healthwest Holdings, Inc. Hospital Corporation of Arizona ReHab Works Hospital Corporation of Northwest HTI Tucson Rehabilitation, Inc. Osborn Ambulatory Surgery Group, Ltd. Osborn Ambulatory Surgery Center Paradise Valley Psychiatric Services, Inc. Senior Horizons Phoenix Surgical Facilities, Ltd. 5 ARIZONA (Cont) --------------- Samaritan Surgicenters of Arizona, L.L.C. Thunderbird Samaritan Surgicenter Surgicare of Phoenix, Inc. Surgicenter of Glendale, Inc. Glendale Surgicenter Surgicenters of America, L.P. Surgicenters of America, Inc. Surgicenter Surgicenter Pain Unit 6 ARKANSAS -------- Central Arkansas Provider Network, Inc. Columbia El Dorado, Inc. Columbia Health System of Arkansas, Inc. DeQueen Health Services, Inc. Physician Management Services of DeQueen HCA Health Services of Arkansas, Inc. HCMH, Inc. MCSA, L.L.C. Medical Center of South Arkansas Surgicare Outpatient Center of Ft. Smith, Inc. 7 CALIFORNIA ---------- Beverly Hills Surgical Hospital, Ltd. Beverly Hills Women's Hospital, Ltd. Birthing Facility of Beverly Hills, Inc. C.H.L.H., Inc. CFC Investments, Inc. CH Systems Chino Community Hospital Corporation, Inc. Columbia Chino Valley Medical Center The Birthplace A Family Experience Columbia Fallbrook, Inc. Columbia Fallbrook Hospital Columbia Pacific Division, Inc. Columbia Primecare, LLC Columbia Psychiatric MSO, LLC Columbia Riverside, Inc. 8 CALIFORNIA (Cont) ----------------- Columbia/HCA San Clemente, Inc. Community Hospital of Gardena Corporation, Inc. Encino Hospital Corporation, Inc. Galen-Soch, Inc. HCA Allied Health Services of San Diego, Inc. HCA Health Services of California, Inc. HCA Hospital Services of San Diego, Inc. Healdsburg General Hospital, Inc. Huntington Beach Diagnostic Imaging Associates, Ltd. Huntington Intercommunity Hospital Huntington Beach Hospital Huntington Beach Diagnostic Imaging Center Kingsbury Capital Partners, L.P. Las Encinas Hospital Las Encinas Hospital LE Corporation Los Gatos Surgical Center, a California Limited Partnership Los Robles Regional Medical Center Los Robles Regional Medical Center 9 CALIFORNIA (Cont) ----------------- Los Robles Surgicenter MCA Investment Company Mission Bay Memorial Hospital, Inc. Neuro Affiliates Company North Anaheim Surgicenter, Ltd. Notami Hospitals of California, Inc. Columbia Bay Area Healthcare Network Columbia Lab Link Columbia Mission Oaks Hospital PPO Alliance Premier Psychiatric Management Company, a California G.P. Psychiatric Company of California, Inc. Riverside Healthcare System, L.L.C. Riverside Community Hospital Riverside Community Surgi-Center Samaritan Medical Center-San Clemente, LLC San Joaquin Surgery Center, Ltd. San Joaquin Surgical Center, Inc. San Jose Healthcare System, Inc. San Leandro Surgery Center, Ltd. Sebastopol Hospital Corporation SLCO, Inc. Columbia Homecare-San Leandro Columbia San Leandro Surgery Center 10 CALIFORNIA (Cont) ----------------- Southwest Center Surgery, Ltd. Columbia Southwest Surgical Clinic Southwest Surgical Clinic, Inc. Surgery Center Management, Ltd. Surgicare of Beverly Hills, Inc. Surgicare of Los Gatos, Inc. Surgicare of Montebello, Inc. Surgicare of North Anaheim, Inc. Surgicare of San Leandro, Inc. Surgicare of West Hills, Inc. Ukiah Hospital Corporation Visalia Community Hospital, Inc. VMC Management, Inc. VMC-GP, Inc. West Anaheim Community Hospital West Hills Hospital West Hills Hospital & Medical Center West Los Angeles Physicians' Hospital, Ltd. West Los Angeles Physicians' Hospital, Inc. Westminster Community Hospital Westside Hospital Limited Partnership 11 COLORADO -------- Bethesda Psychealth Ventures, Inc,. Centrum Surgery Center, Ltd. Centrum Surgery Center Colorado Healthcare Management, Inc. Columbia Continental Division, Inc. Columbia-HealthONE LLC Air Life, Inc. Arapahoe Medical Plaza Belmar Multispecialty, Inc. Bethesda Community Mental Health Center, Inc. Bethesda Employee Assistant Services, Inc. Bethesda Hospital, Inc. Bethesda Outpatient and Counseling Service, Inc. Bethesda PsycHealth, Inc. CallONE Cardiology Imaging Group Corporation Centennial Athletic Club, Inc. Centennial Healthcare Plaza, Inc. Center for Eating Management, Inc. Challenge Sport and Spine Center ChurcHealth, Inc. ChurcHelp, Inc. Columbia Aurora Presbyterian Hospital Columbia Care Manor Columbia Centennial Healthcare Plaza Columbia Medical Center of Aurora Columbia North Suburban Medical Center Columbia Park Manor Columbia Progressive Care Center Columbia Spalding Rehabilitation Hospital Columbia Swedish Medical Center Columbia Presbyterian/St. Luke's Medical Center Columbia-HealthONE Addiction Recovery Units, Inc. Columbia-HealthONE Aurora Eye Center, Inc. Columbia-HealthONE Business Health Access, Inc. Columbia-HealthONE Center for Diabetes Management, Inc. Columbia-HealthONE Center for Emotional Growth, Inc. Columbia-HealthONE Cosmetic Surgery Center, Inc. Columbia-HealthONE Eating Disorders, Inc. Columbia-HealthONE Emergency Services, Inc. Columbia-HealthONE Health Access, Inc. Columbia-HealthONE In Touch, Inc. Columbia-HealthONE Optifast, Inc. Columbia-HealthONE Physician Referral Dr. Right, Inc. Columbia-HealthONE Rocky Mountain Hernia Center, Inc. Columbia-HealthONE Senior Citizens Health Center, Inc. Columbia-HealthONE Sleep Disorders Center, Inc. Columbia-HealthONE TravelCare, Inc. Columbia-HealthONE Women's Health Access, Inc. Columbia-HealthONE Women's Services, Inc. Denver Broncos Sports Medicine, Inc. Head Pain Center HealthONE for Children HeartONE for Children Institute Holly Clinic, Inc. Holly Healthcare Bryant, Inc. Holly Healthcare Stapleton, Inc. Holly Occupational Medicine, Inc. HomeHealthONE, Inc. Lifelong Choices, Inc. Medical Business Access Patient Care 2000, Inc. Peak Performance in the Workplace, Inc. Positive Lifestyles, Inc. PresExpress PREStaurant PsyCare, Inc. PsycHealth, Inc. PsycSave, Inc. P/SL Blood Donor Center, Inc. P/SL Bone Marrow Transplant Program, Inc. P/SL Cardiac Emergency Network, Inc. P/SL Community Health Services, Inc. P/SL Hyperbaric Oxygen Medicine, Inc. P/SL Institute for Limb Preservation, Inc. P/SL Kidney-Pancreas Transplant Program, Inc. P/SL Magnetic Resonance Imaging, Inc. P/SL Medical Center for Children P/SL Mile High Medical Arts Building, Inc. P/SL Transplant Program, Inc. P/SL Professional Pharmacy, Inc. P/SL Women's and Children's Hospital, Inc. RapidCare, Inc. Rocky Mountain Children's Cancer Center, Inc. Rocky Mountain Gastrointestinal Motility Clinic, Inc. Rocky Mountain Neurology Center, Inc. Rose Medical Center Senior Health Access, Inc. St. Luke's Professional Plaza, Inc. Support Line, Inc. The Denver Spine Institute, Inc. The Lactation Program, Inc. The Parent Line, Inc. Timberline Medical Center, Inc. United SeniorCare, Inc. United Services Medical Clinic Your Partner in Health Care 12 COLORADO (Cont) --------------- Columbia/HCA of Denver, Inc. Columbia/Rose Health System, Inc. Columbine Psychiatric Center, Inc. Columbine Psychiatric Center Conifer MOB, LLC Denver Mid-Town Surgery Center, Ltd. Eyecare Providers of Colorado, Inc. Galen of Aurora, Inc. Aurora Physicians Building Health Care Indemnity, Inc. HealthONE Clinic Services, LLC Hospital-Based CRNA Services, Inc. Lakewood Surgicare, Inc. MOVCO, Inc. Rose Medical Center, Inc. Rose POB, Inc. Southwest MedPro, Ltd. Surgicare of Denver Mid-Town, Inc. 13 COLORADO (Cont) ---------------- Surgicare of Southeast Denver, Inc. Swedish Medpro, Inc. Swedish MOB, LLC Swedish MOB II, Inc. Swedish MOB II, LLC Swedish MOB III, Inc. Swedish MOB IV, Inc. 14 DELAWARE -------- Alice Hospital, LLC Alice Physicians and Surgeons Hospital, Inc. Alice Regional Hospital Alice Property, LLC Alice Real Estate, LLC Alice Surgeons, LLC Aligned Business Consortium Group, L.P. AlternaCare Corp. Amedicorp, Inc. Columbia The Surgery Center Imaging Imaging and Surgery Centers of America America Group Offices, LLC America Management Companies, LLC American Medicorp Development Co. Columbia County Medical Plaza Doctors Medical Plaza-North Duluth MedPlus East Ridge Doctors Building East Ridge Professional Building Lilburn MedPlus MetroImaging Roswell MedPlus 15 DELAWARE (Cont) ---------------- AMG-Crockett, LLC AMG-Hilcrest, LLC AMG-Hillside, LLC AMG-Livingston, LLC AMG-Logan, LLC AMG-Southern Tennessee, LLC AMG-Trinity, LLC AOGN, LLC Ashley Valley Medical Center, LLC Ashley Valley Medical Center Ashley Valley Physician Practice, LLC Atlanta Healthcare Management, L.P. Atlanta Market GP, Inc. Atlanta Orthopaedic Surgical Center, Inc. Barrow Medical Center, LLC Barrow Medical Center 16 DELAWARE (Cont) ---------------- BMC-CT, Inc. Beaumont Amdeco, L.P. Beaumont Medical Center, L.P. Beaumont Regional Medical Center Beaumont Property, LLC Beaumont Psychiatric, LLC Beaumont Real Estate, LLC Beaumont Regional, LLC Behavioral Health, LLC Bourbon Community Hospital, LLC Bourbon Community Hospital 17 DELAWARE (Cont) ---------------- Brazos Valley of Texas, L.P. Brazos Valley Surgical Center Brazos Valley Surgical Center, LLC Brownwood Hospital, L.P. Brownwood Regional Medical Center Brownwood Medical Center, LLC Brunswick Hospital, LLC BVSC, LLC C/HCA Capital, Inc. C/HCA Holding Corporation C/HCA, Inc. CCN Managed Care, Inc. Carlsbad Medical Center, LLC Medical Center of Carlsbad 18 DELAWARE (Cont) ---------------- Carlsbad Pecos Valley, LLC Castleview Hospital, LLC Castleview Hospital Castleview Physician Practice, LLC Central Health Holding Company, Inc. Central Health Services Hospice, Inc. CHC Finance Co. CHC Holdings, Inc. CHC Payroll Agent, Inc. Claremore Physicians, LLC Claremore Regional Hospital, LLC Claremore Regional Hospital Coastal Bend Hospital, Inc. North Bay Hospital Coastal Healthcare Services, Inc. Coastal Infusion Therapy Pharmacy Coliseum Health Group, LLC 19 DELAWARE (Cont) ---------------- Coliseum Medical Center, LLC Columbia Coliseum Medical Centers Coliseum Psychiatric Center Coliseum Psychiatric Center, LLC College Station Hospital, L.P. College Station Medical Center College Station Medical Center, LLC College Station Property, LLC College Station Real Estate, LLC Columbia America RC, Inc. Columbia Bethany GP, Inc. Columbia Bethany Holdings, Inc. Columbia Behavioral Health, LLC Columbia Destin Management, LLC Columbia GP, Inc. Columbia Healthcare Network of Central Kentucky, Inc. 20 DELAWARE (Cont) ---------------- Columbia Healthcare System of Phoenix Limited Partnership Columbia Medical Center Phoenix Columbia Homecare Group, Inc. KeyStone Integrated Home Care Premier Health Care Columbia Hospital (Palm Beaches) Limited Partnership Columbia Hospital Columbia Hospital Corporation of Fort Worth Columbia Hospital Corporation of Houston Columbia Bellaire Medical Center Columbia Hospital Corporation - Delaware Columbia Long Term Care Facility Limited Partnership Columbia Management Companies, Inc. Columbia Mesquite Health System, L.P. Columbia Olympia Management, Inc. Columbia Pacific RC, Inc. 21 DELAWARE (Cont) ---------------- Columbia Palm Beach GP, LLC Columbia Palms West Hospital Limited Partnership Columbia Rio Grande Healthcare, L.P. Rio Grande Regional Hospital Columbia Sentinel GP, Inc. Columbia Valley Healthcare System, L.P. Valley Regional Medical Center Columbia Westbank Healthcare, L.P. Columbia/HCA Middle East Management Company Columbia/JFK Medical Center Limited Partnership JFK Medical Center Transitional Care Unit CoralStone Management, Inc. Coronado Hospital, LLC Crestwood Healthcare, L.P. Crestwood Medical Center Crockett Hospital, LLC Crockett Hospital 22 DELAWARE (Cont) ---------------- CSMC, LLC Dallas PHY Service, LLC Dallas Physician Practice, L.P. Danforth Hospital, Inc. Columbia Mainland Medical Center Davis Community Hospital, LLC Delaware Psychiatric Company, Inc. DeQueen Regional Medical Center, LLC DeQueen Regional Medical Center Detar Hospital, LLC DFW Physerv, LLC DHL Corporation Doctors Hospital of Augusta, Inc. Augusta Diagnostic Associates Columbia Augusta Medical Center Columbia County Urgent Care Center West Augusta Imaging Center West Augusta Radiation Oncology Center Doctors Medical Center, LLC Doctors of Laredo, LLC 23 DELAWARE (Cont) ---------------- Doctors' Hospital of Laredo, Inc. Douglas Medical Center, LLC Douglas Medical Center Drake Development Company Drake Development Company II Drake Development Company III Drake Development Company IV Drake Development Company V Drake Development Company VI Drake Management Company EarthStone HomeHealth Company E.D. Clinics, LLC EDC San Antonio, L.P. Northwest Imaging Center EDI Alice Physicians and Surgeons, L.P. EDI Barrow, LLC EDI Mission Bay, LLC EDI Sherman, L.P. 24 DELAWARE (Cont) ---------------- Edison Homes-Southeast, Inc. Edmond Regional Medical Center, LLC Edmond Regional Medical Center El Dorado Medical Center, LLC El Dorado Hospital El Dorado Property, LLC EMMC, LLC EP Alice Property GP, LLC EP Alice Property LP, LLC EP Alice Propertyco, L.P. EP Barrow Propertyco, LLC EP Claremore Propertyco, LLC EP Medical Park Propertyco, LLC EP Mission Bay Propertyco, LLC EP Riverview Propertyco, LLC EP Sherman Property GP, LLC EP Sherman Property LP, LLC EP Sherman Propertyco, L.P. 25 DELAWARE (Cont) ---------------- EPIC Development, Inc. EPIC Diagnostic Centers, Inc. First Care Clinics EPIC Healthcare Group, Inc. EPIC Healthcare Management Company EPIC Holdings, Inc. EPIC Surgery Centers, Inc. Extendicare Properties, Inc. Eye Institute of Southern Arizona, LLC The Eye Institute of Southern Arizona FHAL, LLC Florida Surgery Center, LLC Forest Park Surgery Pavilion, Inc. Forest Park Surgery Pavilion, L.P. Fort Bend Hospital, Inc. Fort Bend Medical Center 26 DELAWARE (Cont) ---------------- Galen BH, Inc. Galen GOK, LLC Galen Health Care, Inc. Brandenburg Primary Care Center Columbia/Galen Galen Holdings, Inc. Galen Hospital, LLC Huntington Leasing Company Galen Hospital Alaska, Inc. Alaska Regional Hospital Galen Hospital Corporation, Inc. Columbia Women's Hospital of Indianapolis Floresville Medical Clinic Southwest Fertility Institute Township Line Pharmacy 27 DELAWARE (Cont) ---------------- Galen KY, LLC Galen MCS, LLC Galen MRMC, LLC Galen NMC, LLC Galen NSH, LLC Galen SOM, LLC Galen SSH, LLC Galen Texas, LLC Galendeco, Inc. Garden Park Community Hospital, L.P. Coastal Imaging Center of Gulfport Columbia Garden Park Hospital Columbia Outpatient Surgical Center GCMC, LLC General Health Services, Inc. Georgetown Community Hospital, LLC Georgetown Community Hospital 28 DELAWARE (Cont) ---------------- Georgetown Rehabilitation, LLC Georgetown Rehabilitation Center Georgia, L.P. GH Texas, LLC GHC Huntington Beach, LLC GHC San Leandro, LLC GHI Crockett, LLC GHI Sunrise Hospital, LLC GHT College Station, L.P. Good Samaritan Hospital, L.P. Good Samaritan Hospital Good Samaritan Hospital, LLC Greenbrier Realty, LLC Greenbrier Valley Medical Center, LLC Greene & Kellogg, Inc. Greystone Healthcare, Inc. GKI Lawrence, LLC Gulf Coast Hospital, L.P. Gulf Coast Medical Center 29 DELAWARE (Cont) ---------------- Gulf Coast Medical Center, LLC H.H.U.K., Inc. Halstead Hospital, LLC Halstead Hospital HCA-Hospital Corporation of America HCA Health Services of Midwest, Inc. Columbia Health System of Arkansas Columbia Weber Clinic HCA Investments, Inc. HCA Psychiatric Company (DE) HCA Wesley Rehabilitation Hospital, Inc. HCA, Inc. HCK Logan Memorial, LLC HDP Andalusia, LLC HDP DeQueen, LLC HDP Detar Hospital, L.P. 30 DELAWARE (Cont) ---------------- HDP El Dorado, LLC HDP Georgetown, LLC HDP Longview Medical, LLC HDP Longview Real Estate, LLC HDP Med (Longview), L.P. HDP Northwest, LLC HDP Plains, L.P. HDP Property, LLC HDP Real Estate, LLC HDP Smith County, LLC HDP Texas, LLC HDP Victoria, LLC HDP Woodland Heights, L.P. HDP Woodland Property, LLC HDPWH, LLC Healdsburg of California, LLC 31 DELAWARE (Cont) ---------------- Health Services (Delaware), Inc. Health Services Acquisition Corp. Healthcare Technology Assessment Corporation Healthtrust, Inc.- The Hospital Company Hearthstone Home Health, Inc. Heloma Operations, LLC HHNC, LLC Hillside Hospital, LLC Columbia Hillside Hospital Hobbs Physician Practice, LLC Hospital Development Properties, Inc. Columbia Edmond Medical Building Murchison Medical Building Murchison Medical Plaza 32 DELAWARE (Cont) ---------------- Hospital of Beaumont, LLC Hospital of South Valley, LLC HSD Mission Bay Leaseco, LLC HSD Riverview, LLC HST Physician Practice, LLC HTI Georgetown, LLC HTI PineLake, LLC Huntington Beach Amdeco, LLC Independence Regional Amdeco, LLC Independence Regional Health Center, LLC Indian Path, LLC Integrated Health Corporation Integrated Physician Services, LLC JCSH, LLC JCSHLP, LLC Katy Medical Center, Inc. Columbia Katy Medical Center 33 DELAWARE (Cont) ---------------- Kendall Regional Medical Center, LLC Kentucky MSO, LLC Lake City Health Centers, Inc. Lake Cumberland Regional Hospital, LLC Lake Cumberland Regional Hospital Lakeland Medical Center, LLC Lakeland Medical Center Lakeview Medical Center, LLC Laredo Hospital, L.P. Lawrence Amdeco, LLC Lawrence Medical, LLC Mt. Oread Surgery Centers Lea Regional Hospital, LLC Lea Regional Hospital Lewis-Gale Medical Center, LLC Columbia Lewis-Gale Medical Center Livingston Regional Hospital, LLC Livingston Regional Hospital Logan Memorial Hospital, LLC Logan Memorial Hospital Longview Medical Center, L.P. Longview Regional Hospital 34 DELAWARE (Cont) ---------------- Loon Investments, Inc. LRH, LLC LW-VHI, Inc. Macon Healthcare, LLC Macon Northside Health Group, LLC Macon Northside Hospital, LLC Mallard Finance Company Marion Holdings, LLC MCI Overland Park, LLC MCI Panhandle Surgical, L.P. Meadowview Physician Practice, LLC Meadowview Regional Medical Center, LLC Meadowview Regional Medical Center Meadowview Rights, LLC 35 DELAWARE (Cont) ---------------- Medical Arts Hospital of Texarkana, Inc. Medical Care America, Inc. Medical Care Financial Services Corp. Medical Care International, Inc. Medical Care Real Estate Finance, Inc. Medical Center at Terrell, LLC Medical Center of Brownwood, LLC Medical Center of Sherman, LLC Medical Corporation of America Medical Park Hospital, LLC Medical Park Hospital Medical Park MSO, LLC Medical Specialties, Inc. Coral Springs Family Medicine Parkway Medical Associates Medistone Healthcare Ventures, Inc. Columbia Hospice Fort Worth Columbia Hospice Waco Medistone Management Company 36 DELAWARE (Cont) ---------------- MediVision of Mecklenburg County, Inc. MediVision of Tampa, Inc. MediVision, Inc. Columbia Greater New Orleans Surgery Center Columbia Lake Worth Surgery Center Omni Eye Services Omni Eye Services of Chattanooga The Eye Institute of Southern Arizona The Eye Surgery Center of the Rio Grande Valley MedNet USA, Inc. Memorial Hospital, LLC Microwave Scalpel, Inc. Mid-Continent Health Services, Inc. Columbia Medical Supply/Pharmacy Middle Georgia Hospital, LLC Mission Bay Memorial Hospital, LLC Mobile Corps, Inc. Mount Oread Surgery Center, LLC Mount Oread Surgery Center MRT&C, Inc. Navarro Hospital, L.P. Navarro Regional Hospital 37 DELAWARE (Cont) ---------------- Navarro Regional, LLC North Texas Medical Center, Inc. Northwest Amdeco, LLC Northwest Florida Home Health Services, Inc. Northwest Hospital, LLC Northwest Hospital Northwest Real Estate, LLC Notami Hospitals, LLC Notami Holdco, Inc. Notami Service Company NRH, LLC NTGP, Inc. NTMC Ambulatory Surgery Center, L.P. Columbia Surgery Center of McKinney NTMC Management Company NTMC Venture, Inc. Odessa, LLC Orlando Outpatient Surgical Center, Inc. Overland Park Amdeco, LLC 38 DELAWARE (Cont) ---------------- Pacific East Division Office, L.P. Pacific Physicians Services, LLC Pampa Hospital, L.P. Medical Center of Pampa Pampa Medical Center, LLC Panhandle Medical Center, LLC Panhandle Property, LLC Panhandle Surgical Hospital, L.P. Panhandle, LLC Paragon SDS, Inc. Paragon WSC, Inc. Parkway Cardiac Center Management Company Parkway Hospital, Inc. Columbia North Houston Medical Center-Airline Campus Columbia North Houston Medical Center 39 DELAWARE (Cont) ---------------- Pecos Valley of New Mexico, LLC Phoenix Amdeco, LLC Physicians and Surgeons Hospital of Alice, L.P. Alice Physicians and Surgeons Hospital PineLake Physician Practice, LLC PineLake Regional Hospital, LLC Columbia PineLake Regional Hospital Piney Woods Healthcare System, L.P. Woodland Heights Medical Center Plantation General Hospital Limited Partnership Plantation General Hospital POH Holdings, LLC Poitras Practice, LLC PMM, Inc. Augusta Womens Medical Group Preferred Works, Inc. Primary Care Acquisition, Inc. 40 DELAWARE (Cont) ---------------- Primary Medical Management, Inc. Agoura Hills Medical Group Biltmore Women's Health Columbia Management Services Organization DeSoto Family Practice LaGrange Memorial Treatment Pavilion Louisburg Medical Group Mount Oread Family Care Northside Clinic Olathe Medical Group Park Medical Center Saguaro Medical Center The Carrollton Center for Family Health Care Westbrook Medical Practice Westlake Women's Health Management Clinic Psychiatric Services of Paradise Valley, LLC R. Kendall Brown Practice, LLC RCH, LLC Regional Hospital of Longview, LLC Riverside Hospital, Inc. COSMC Northwest Regional Hospital South Texas Pain Management Center Riverton Memorial Hospital, LLC Rivertown Memorial Hospital Riverton Physician Practices, LLC 41 DELAWARE (Cont) ---------------- Riverview Medical Center, LLC Riverview Medical Center Round Rock Hospital, Inc. SACMC, LLC Samaritan, LLC San Angelo Community Medical Center, LLC San Angelo Hospital, L.P. San Angelo Community Medical Center San Diego Hospital, L.P. Mission Bay Memorial Hospital Mission Bay Health Center San Jose, LLC San Jose Hospital, L.P. San Jose Medical Center San Jose Medical Center, LLC San Leandro Hospital, L.P. San Leandro Hospital San Leandro Medical Center, LLC SDH, LLC Select Healthcare, LLC 42 DELAWARE (Cont) ---------------- Sherman Hospital, L.P. Community Medical Center Sherman Sherman Medical Center, LLC Sherman Property, LLC Sherman Real Estate, LLC Siletchnik Practice, LLC Silsbee Doctors Hospital, L.P. Silsbee Doctors Hospital Silsbee Medical Center, LLC SJMC, LLC SLH, LLC SMCH, LLC Smith County Memorial Hospital, LLC Smith County Memorial Hospital South Arkansas Clinic, LLC South Valley Hospital, L.P. South Valley Hospital Southern Tennessee EMS, LLC Southern Tennessee Medical Center, LLC Southern Tennessee Medical Center 43 DELAWARE (Cont) ---------------- Southwestern Medical Center, LLC Southwestern Medical Center Spalding Rehabilitation, L.L.C. Springhill Medical Center, LLC Springhill Medical Center Springhill MOB, LLC Springview KY, LLC Stones River Hospital, LLC Stones River Hospital Suburban Medical Center at Hoffman Estates, Inc. Sun Bay Medical Office Building, Inc. Sunrise Hospital and Medical Center, LLC Sunrise Hospital and Medical Center Surgical Center of Amarillo, LLC Surgicare Corporation SVH, LLC Swedish MOB Acquisition, Inc. 44 DELAWARE (Cont) ---------------- Terrell Hospital, L.P. Medical Center at Terrell Terrell Medical Center, LLC Texas Psychiatric, LLC The Coltree Corporation THM Physician Practice, LLC TPC Beaumont Regional, L.P. Trinity Hospital, LLC Trinity Hospital Value Health Management, Inc. VHI Venturer, Inc. Vicksburg Healthcare, LLC Victoria Hospital, LLC Victoria of Texas, L.P. DeTar Hospital 45 DELAWARE (Cont) ---------------- Wagoner Community Hospital, LLC Wagoner Community Hospital WAMC, LLC Wesley Medical Center, LLC Wesley Medical Center West Anaheim Amdeco, LLC West Anaheim Hospital, L.P. West Anaheim Medical Center West Anaheim Medical Center, LLC West Virginia Mobile Services, LLC Westbury Hospital, Inc. Western Plains Regional Hospital, LLC WHMC, LLC Willamette Valley Clinics, LLC Willamette Valley Medical Center, LLC Willamette Valley Medical Center WJHC, LLC Women & Children's Hospital, LLC Women & Children's Hospital Woodland Heights Medical Center, LLC 46 FLORIDA ------- All About Staffing, Inc. Columbia Staffing Services Ambulatory Laser Associates, GP Ambulatory Surgery Center Group, Ltd. Ambulatory Surgery Center Bay Hospital, Inc. Gulf Coast Medical Center Belleair Surgery Center, Ltd. Belleair Surgery Center Big Cypress Medical Center, Inc. Bonita Bay Surgery Center, Inc. Bonita Bay Surgery Center, Ltd. Surgery Center Bonita Bay Brandon Regional Imaging, Inc. Brandon Surgi-Center Joint Venture Brandon Surgery Center Broward Healthcare System, Inc. Broward Physician Practices, Ltd. Cape Coral Surgery Center, Inc. Cape Coral Surgery Center, Ltd. Cape Coral Surgery Center 47 FLORIDA (Cont) -------------- CCH Management, Inc. CCH-GP, Inc. Cedarcare, Inc. Cedars BTW Program, Inc. Cedars Healthcare Group, Ltd. Cedars Medical Center Victoria Pavilion Central Florida Division Practice, Inc. Central Florida Regional Hospital, Inc. Central Florida CORF - Deltona Central Florida Regional Hospital Central Florida Rehabilitation - Deltona Columbia Rehab Management Lake Mary Imaging Women's Wellness Center Charlotte Community Hospital, Inc. Clearwater Community Hospital Limited Partnership Clearwater Community Hospital Collier County Home Health Agency, Inc. 48 FLORIDA (Cont) -------------- Columbia Behavioral Health, Ltd. Doral Palms Hospital Columbia Behavioral Healthcare of South Florida, Inc. Columbia Cancer Research Network of Florida, Inc. Columbia Central Florida Division, Inc. Columbia Credentialing Services, Inc. Columbia Deland Imaging Services, Inc. Columbia Development of Florida, Inc. Santa Rosa Emergency Medical Services Columbia Eye & Specialty Surgery Center, Ltd. Tampa Eye & Specialty Surgery Center Columbia Florida Group, Inc. Columbia Gulf Coast Network, Inc. Columbia Homecare - Central Florida, Inc. Columbia Homecare - North Florida, Inc. Columbia Homecare of Tampa Bay, Inc. Columbia Hospital Corporation of Central Miami Columbia Hospital Corporation of Kendall Columbia Hospital Corporation of Miami Columbia Hospital Corporation of Miami Beach 49 FLORIDA (Cont) -------------- Columbia Hospital Corporation of North Miami Beach Columbia Hospital Corporation of South Broward Columbia Hospital Corporation of South Dade Columbia Hospital Corporation of South Florida Florida Physicians Group Columbia Hospital Corporation of South Miami Columbia Hospital Corporation of Tamarac Columbia Hospital Corporation - SMM Columbia Integrated Services, Inc. Columbia Jacksonville Healthcare System, Inc. Columbia Lake Worth Surgical Center Limited Partnership Columbia Medical Alert Systems of Tampa Bay, Inc. Columbia Medical Group of Volusia County, Inc. Atlantic Medical Centers Family Medical Associates Columbia Memorial Diagnostic Services, Inc. Columbia North Central Florida Health System Limited Partnership Columbia North Florida Division, Inc. Columbia North Florida Regional Medical Center Limited Partnership Columbia Ocala Regional Medical Center Physician Group, Inc. CORMC Physician Group 50 FLORIDA (Cont) -------------- Columbia of Pinellas County, Inc. Columbia Park Healthcare System, Inc. Columbia Palm Beach Healthcare System Limited Partnership Columbia Park Medical Center, Inc. Lucerne Medical Center Columbia Physician Services - Florida Group, Inc. Columbia Behavioral Health Columbia Company Care Columbia Physician Services Columbia Senior Health Center Columbia Specialty Services Columbia Resource Network, Inc. Columbia South Florida Division, Inc. Columbia Tampa Bay Division, Inc. Columbia-Osceola Imaging Center, Inc. Columbia/HCA of Treasure Coast, Inc. Columbia/Bartow Healthcare System, Ltd. Bartow Memorial Hospital Company Care, Inc. Coral Springs Surgi-Center, Ltd. Surgery Center at Coral Springs 51 FLORIDA (Cont) -------------- Countryside Surgery Center, Ltd. Countryside Surgery Center Dade Physician Practices, Ltd. Daytona Medical Center, Inc. Atlantic Medical Center - Daytona Columbia CORF - Daytona Port Orange Medical Associates Daytona Physician Practices, Ltd. Deland Surgery Center, Ltd. Diagnostic Breast Center, Inc. Diagnostic Breast Center Doctor's Physicians Care, Inc. Doctors Osteopathic Medical Center, Inc. Doctors Family Clinic Gulf Coast Hospital Gulf Coast Pediatrics Gulf Shore Pediatrics Doctors Pediatric Clinic, Inc. Doctors Same Day Surgery Center, Inc. Doctors Same Day Surgery Center, Ltd. Doctors Same Day Surgery Center Doctors' Special Surgery Center of Jacksonville, Ltd. Single Day Surgery Center East Pointe Hospital, Inc. Columbia Healthlink East Pointe Hospital Lehigh Pediatrics East Point PHO, Inc. East Pointe Physician Management, Inc. 52 FLORIDA (Cont) -------------- Ed White Physician Clinic, Inc. Edward White Hospital, Inc. Edward White Hospital Physician Offices of Ed White Emergency Physician Services, Inc. Englewood Community Health Care Group, Inc. Englewood Community Hospital, Inc. Columbia Englewood Community Hospital Fawcett Memorial Hospital, Inc. Fawcett Memorial Hospital Columbia/HCA Spine & Arthritis Centers The Memory Center First Physicians Care, Inc. Florida Home Health Services - Private Care, Inc. Columbia Staffing Services Florida Medical Collection Services, Inc. Florida MRI Services, Inc. Florida Outpatient Surgery Center, Ltd. Florida Surgery Center Florida Primary Physicians, Inc. Florida Psychiatric Company, Inc. 53 FLORIDA (Cont) -------------- Fort Pierce Surgery Center, Ltd. Fort Walton Beach Medical Center, Inc. Fort Walton Beach Medical Center Galen Diagnostic Multicenter, Ltd. Medical Park Diagnostic Center Galen Hospital - Pembroke Pines, Inc. Memorial Hospital Pembroke Galen of Florida, Inc. Bushnell Family Practice Center Columbia Rehab Center - Daytona Dade City Professional Building Normandy Manor Transitional Living Facility Orange Park Medical Center Pasco Community Hospital Pasco Community Medical Park Seminole Family Health Centers St. Petersburg Medical Center West Central Florida OB/GYN Galencare, Inc. Brandon Regional Hospital Community Cancer Center of Brandon Regional Hospital Northeast Family Practice Center Northside Hospital Tampa Bay Vascular Institute West Central Florida - Shared Services 54 FLORIDA (Cont) -------------- Grant Center Hospital of Ocala, Inc. Columbia North Florida Regional MSO Physician Care Greater Ft. Myers Physician Practices, Ltd. Gulf Coast Health Technologies, Inc. Gulf Coast Physicians, Inc. Hamilton Memorial Hospital, Inc. Hamilton Medical Center HCA Family Care Center, Inc. Columbia Imaging Services Nova HCA Health Services of Florida, Inc. Bayonet Point Physician Practice Blake Medical Center Columbia Medical and Financial Management Columbia North Florida Radiation Oncology Columbia Regional Medical Center Bayonet Point Columbia Treasure Coast Physician Services Oak Hill Hospital Saint Lucie Medical Center HCA of Florida, Inc. HD&S Corp. Successor, Inc. Homecare North, Inc. Hospital Corporation of Lake Worth Palm Beach Regional Hospital 55 FLORIDA (Cont) -------------- Hospital Development & Services Corp. Imaging and Surgery Center of Florida, Inc. Clearwater Imaging Imaging Corp. of the Palm Beaches, Inc. Jacksonville Physician Practices, Ltd. Jacksonville Surgery Center, Ltd. Columbia Jacksonville Surgery Center JFK Real Properties, Ltd. Kendall Healthcare Group, Ltd. First Health Center Kendall Medical Center Kendall Outpatient Rehabilitation Facility The Atrium at Kendall Regional Medical Center Kendall Therapy Center, Ltd. Kendall Therapy Center Kissimmee Surgicare, Ltd. Columbia Kissimmee Surgery Center Lake City Homecare, Inc. Lake Worth MRI, Limited Largo Medical Center, Inc. Largo Medical Center 56 FLORIDA (Cont) -------------- Lawnwood Medical Center, Inc. Harbour Shores of Lawnwood Lawnwood Pavilion Lawnwood Regional Medical Center Lawnwood Regional Cancer Center Limited Partnership Lehigh Physician Practice, Ltd. M & M of Ocala, Inc. Manatee Surgicare, Ltd. Gulf Coast Surgery Center Marion Community Hospital, Inc. Ocala Regional Medical Center Medical Center of Port St. Lucie, Inc. Medical Center of Santa Rosa, Inc. Atlantic Medical Center - Ormond Columbia CORF - Peninsula Columbia Practice Management Services Medivision Properties of Hillsborough County, Inc. MedPlan, Inc. 57 FLORIDA (Cont) -------------- Memorial Healthcare Group, Inc. Memorial Hospital Jacksonville Specialty Hospital Jacksonville Memorial Surgicare, Ltd. Plaza Surgery Center MHS Partnership Holdings JSC, Inc. MHS Partnership Holdings SDS, Inc. Miami Beach Healthcare Group, Ltd. Aventura Comprehensive Cancer Center Aventura Health Center Aventura Hospital and Medical Center Aventura Hospital Senior Health Center Aventura Outpatient Rehabilitation Center Children's After Hours Walk-In Clinic Miami Heart Institute and Medical Center Hallandale Health Center North Miami Beach Surgical Center Wound Healing Center Miami Heart Medical Management Services, Inc. Naples Physician Practices, Ltd. Naples Rehabilitative Health Services, Inc. Naples Rehab Center 58 FLORIDA (Cont) -------------- New Port Richey Hospital, Inc. Community Hospital of New Port Richey New Port Richey Physician Hospital Organization, Inc. New Port Richey Surgery Center, Ltd. New Port Richey Surgery Center NMS of Florida, Inc. North Beach Hospital, Inc. North Central Florida Health System, Inc. North Central Florida Physician Practices, Ltd. Pediatric Associates of Gainesville North Florida Division Practice, Inc. North Florida GI Center, Ltd. North Florida GI Center GP, Inc. North Florida Immediate Care Center, Inc. North Florida Infusion Corporation North Florida Physician Services, Inc. 59 FLORIDA (Cont) -------------- North Florida Practice Management, Inc. North Florida Regional Imaging Center, Ltd. North Florida Regional Investments, Inc. North Florida Regional Medical Center, Inc. North Florida Regional Medical Center North Palm Beach County Surgery Center, Ltd. North County Surgicenter North Tampa Physician Practices, Ltd. Family Medical Care South Bay Family Medical Center Northwest Florida Healthcare Systems, Inc. Northwest Medical Center, Inc. Bayview Senior Health Center Behavioral Health Systems of North Broward Cypress Medical Office Building Northwest Medical Center Senior Health Center of Ft. Lauderdale Notami (Clearwater), Inc. CCH Healthcare Centers Notami Hospitals of Florida, Inc. Lake City Medical Center Oak Hill Acquisition, Inc. Columbia Oak Hill Ambulatory Surgery and Endoscopy Center Ocala Regional Outpatient Services, Inc. 60 FLORIDA (Cont) -------------- Okaloosa Hospital, Inc. Twin Cities Hospital Okeechobee Hospital, Inc. Raulerson Hospital OneSource Health Network of South Florida, Inc. OneSource Health Network OPMC Physician Group, Inc. Orange Park Medical Center, Inc. Orlando Depression Center, Inc. Orlando Depression Center Orlando Physician Practices, Ltd. Orlando Surgicare, Ltd. Columbia Same Day Surgicenter of Orlando Osceola Regional Hospital, Inc. Kissimmee Imaging Osceola Regional Medical Center Outpatient Surgical Services, Ltd. Outpatient Surgical Services Palm Beach Healthcare System, Inc. Palm Beach Physician Practices, Ltd. Palms West Physician Hospital Organization, Inc. Panhandle Physician Practices, Ltd. Paragon PHO of North Florida, Inc. 61 FLORIDA (Cont) -------------- PCMC Physician Group, Inc. Physical Therapy of Orlando, Inc. Central Florida Physical Therapy Kissimmee Physical Therapy Orlando Hand & Microvascular Pinellas Surgery Center, Ltd. Center for Special Surgery Plantation Physicians, Ltd. Port St. Lucie Surgery Center, Ltd. St. Lucie Surgery Center Premier Medical Management, Ltd. Premier Family Care Women's Health Specialists Premier Providers Network of Pinellas County, Inc. Premier Providers Network Premier Providers of Hillsborough County, Inc. Primary Care Medical Associates, Inc. Putnam Hospital, Inc. Putnam General Hospital San Pablo Surgery Center, Ltd. San Pablo Surgery Center 62 FLORIDA (Cont) -------------- Sarasota Doctors Hospital, Inc. Advanced Womens Care Doctors Data Center Doctors Hospital of Sarasota Doctors Medical Lab Midtown Nuclear Medicine Midtown Radiology MRI of Sarasota Paragon Associates in Internal Medicine Sarasota Rehabilitation Center Sarasota Vascular Lab The Center for Breast Care South Bay Physician Clinics, Inc. South Broward Medical Practice Partners, Ltd. South Broward Practices, Inc. South Dade Healthcare Group, Ltd. Deering Hospital Grant Center of Deering International Travel Health Center South Florida Division Practice, Inc. South Seminole Hospital, Inc. Healthworks Plus South Seminole Community Hospital South Tampa Physician Practices, Ltd. Southwest Florida Division Practice, Inc. Southwest Florida Health System, Inc. Consult-A-Nurse Healthcare Referral Southwest Florida Management Associates, Inc. Southwest Florida Medical Ventures, Inc. 63 FLORIDA (Cont) -------------- Southwest Florida Regional Medical Center, Inc. Columbia Care Columbia Center for Cosmetic Surgery Columbia Health Services at Belmont Woods Mature Adult Counseling Center Southwest Florida Regional Medical Center The Memory Center Space Coast Surgical Center, Ltd. Columbia Surgery Center Merritt Island St. Augustine Hospital, Inc. Stuart Outpatient Surgery Center, Ltd. Columbia Surgery Center of Stuart Sun City Hospital, Inc. South Bay Hospital South Bay Physician Clinic South Bay Rehab Center South Bay Transitional Care Unit Surgical Center Associates, Ltd. Winter Park Ambulatory Surgery Center Surgical Park Center, Ltd. Radial Keratomy Institute of Surgical Park Surgical Park Center Surgiscopic Center at Surgical Park Surgicare America - Winter Park, Inc, Surgicare of Altamonte Springs, Inc. Surgicare of Brandon, Inc. Surgicare of Central Florida, Inc. Surgicare of Central Florida, Ltd. Central Florida Surgicenter Surgicare of Countryside, Inc. 64 FLORIDA (Cont) -------------- Surgicare of Deland, Inc. Surgicare of Florida, Inc. Tampa Bay Area Anesthesia Surgicare of Ft. Pierce, Inc. Surgicare of Kissimmee, Inc. Surgicare of Manatee, Inc. Surgicare of Merritt Island, Inc. Surgicare of New Port Richey, Inc. Surgicare of Orange Park, Inc. Orange Park Surgery Center Surgicare of Orange Park, Ltd. Surgicare of Orlando, Inc. Surgicare of Pinellas, Inc. Surgicare of Plantation, Inc. Surgicare of Port St. Lucie, Inc. Surgicare of St. Andrews, Inc. Surgicare of St. Andrews, Ltd. Surgery Center at St. Andrews 65 FLORIDA (Cont) -------------- Surgicare of Stuart, Inc. Surgicare of Tallahassee, Inc. Surgicare of West Palm Beach, Ltd. Surgicare of Zephyrhills, Inc. Systems Medical Management, Inc. OneSource Health Network PPO Alliance The Health Advantage Network Tallahassee Community Network, Inc. Tallahassee Medical Center, Inc. Tallahassee Community Hospital Tallahassee Orthopaedic Surgery Partners, Ltd. Tallahassee Outpatient Surgery Center Tallahassee Physician Practices, Ltd. Tamarac Acquisition Corporation Tamarac Hospital Corporation, Inc. Tampa Bay Division Practice, Inc. Tampa Bay Health System, Inc. Tampa Surgi-Centre, Inc. TCH Physician Group, Inc. The Pinellas Healthcare Alliance, Inc. Treasure Coast Centers, Inc. Columbia Emergi-Center Jensen Beach Columbia Emergi-Center St. Lucie West Treasure Coast Physician Practices, Ltd. University Hospital, Ltd. A Center for Women University Hospital & Medical Center University Pavilion University Parkway Healthcare Associates, Inc. 66 FLORIDA (Cont) -------------- University Physicians Pavilion Association, Inc. University Psychiatric Center, Inc. Victoria Hospital Partnership Visual Health and Surgical Center, Inc. Visual Health and Surgical Center Visual Health Plantation Visual Health/Bentz Eye Center Volusia Healthcare Network, Inc. West Broward Outpatient GI Center, Inc. West Florida Division, Inc. West Florida Regional Medical Center, Inc. Okaloosa Cancer Care Center West Florida Regional Medical Center West Palm Beach Eye Surgery, Ltd. Westside Surgery Center, Ltd. Columbia Parkside Surgery Center Winter Park Healthcare Group, Ltd. Park Infusion Winter Park Memorial Hospital Winter Park Physician Services, Inc. Women's and Children's Health Connection, Inc. 67 GEORGIA ------- Amisub of Georgia, Inc. AOA Gulf Coast Partners, Ltd. AOSC Sports Medicine, Ltd. AOSC Sports Medicine, Inc. Northside Sports Medicine & Rehabilitation Atlanta Home Care, L.P. Atlanta Outpatient Surgery Center, Inc. Atlanta Surgery Center, Ltd. Augusta Physician Practice Company Augusta Primary Care Barrow Physician Network, Inc. Cartersville Physician Practice Network, Inc. Center for Health and Management at W.P.F., L.P. Central Health Services, Inc. Central Home Health Care of Chattanooga, Inc. Chatsworth Hospital Corporation Church Street Doctors Buildings, Ltd. Church Street Partners, G.P. Coliseum Health Group, Inc. 68 GEORGIA (Cont) -------------- Coliseum Park Hospital, Inc. Columbia Coliseum Medical Centers Columbia Coliseum Same Day Surgery Center, Inc. Columbia Health Systems of Georgia Resource Network, Inc. Columbia Northlake Surgical Center, Ltd. Columbia Physicians Services, Inc. Columbia Polk General Hospital, Inc. Polk Medical Center Emergency Physicians of Polk Hospital Columbia Redmond Occupational Health, Inc. Columbia Surgicare of Augusta, Ltd. Columbia-Georgia PT, Inc. Columbus Cardiology, Inc. Columbus Doctors Hospital, Inc. Doctors Hospital Columbus Management Group, Inc. Community Home Nursing Care, Inc. Cumberland Physician Corporation Dekalb Home Health Services, Inc. Diagnostic Services, G.P. Doctors-I, Inc. Doctors-II, Inc. 69 GEORGIA (Cont) -------------- Doctors-III, Inc. Doctors-IV, Inc. Doctors-IX, Inc. Doctors-V, Inc. Doctors-VI, Inc. Doctors-VII, Inc. Doctors-VIII, Inc. Doctors-X, Inc. Dublin Community Hospital, Inc. Columbia Fairview Park Hospital Dunwoody Physician Practice Network, Inc. Eastside Physician Practice Network, Inc. Fairview Physician Practice Company Gainesville Cardiology, Inc. Georgia Psychiatric Company, Inc. Greater Gwinnett Physician Corporation Gwinnett Community Hospital, Inc. Eastside Medical Center 70 GEORGIA (Cont) -------------- HCA Health Services of Georgia, Inc. Hughston Sports Medicine Hospital Northlake Regional Medical Center Health Care Management Corporation Stewart Webster Healthfield Services of Middle Georgia, Inc. Hospital Corporation of Lanier, Inc. Lanier Park Hospital Lanier Physician Practice Network, Inc. Lanier Physician Services, Inc. Lanier Park Primary Care Magnetic Resonance Imaging Associates II, Ltd. Marietta Outpatient Medical Building, Inc. Marietta Outpatient Surgery, Ltd. Marietta Surgical Center Marietta Surgical Center, Inc. Med Corp., Inc. Med-Care, Inc. MedFirst, Inc. Medical Center-West, Inc. Parkway Medical Center MOSC Sports Medicine, Inc. SportsSouth Sports Medicine & Rehabilitation Newnan Hospitals, L.L.C. North Cobb Physical Therapy, Inc. North Cobb Physical Therapy 71 GEORGIA (Cont) -------------- North Georgia Home Health Agency, Inc. Northlake Physician Practice Network, Inc. Northlake Surgery Center, Inc. Northlake Surgical Center Orthopaedic Specialty Associates, L.P. Orthopaedic Sports Specialty Associates, Inc. Palmyra Park Hospital, Inc. Columbia Palmyra Medical Centers Parkway Physician Practice Company Peachtree Corners Surgery Center, Ltd. Peachtree Physician Practice Network, Inc. Polk Physician Practice Network, Inc. Redmond ER Services, Inc. Redmond P.D.N., Inc. Redmond Park Health Services, Inc. Redmond Park Hospital, Inc. Redmond Regional Medical Center Emergency Physicians of CRRMS The Surgery Center of Rome Redmond Physician Practice Company Redmond Prime Health 72 GEORGIA (Cont) -------------- Redmond Physician Practice Company II Redmond Physician Practice Company III Redmond Physician Practice Company IV Redmond Physician Practice Company V Redmond Physician Practice Company VI Rome Imaging Center Limited Partnership Southeast Division, Inc. Surgery Center of Rome, Inc. Surgicare of Augusta, Inc. Augusta Surgical Center Surgicare Outpatient Center of Brunswick, Inc. The Guild of Augusta Regional Medical Center The Rankin Tugaloo Home Health Agency, Inc. Urology Center of North Georgia, LLC West Paces Ferry Hospital, Inc. West Paces Medical Center West Paces Imaging Associates, L.P. West Paces Physician Services, Inc. West Paces Services, Inc. 73 IDAHO ----- Eastern Idaho Health Services, Inc. Eastern Idaho Regional Behavioral Health Center Eastern Idaho Regional Medical Center West Valley Medical Center, Inc. Columbia West Valley Medical Center 74 ILLINOIS -------- Chicago Grant Hospital, Inc. COFH, Inc. Columbia Chicago Division, Inc. Columbia Chicago Homecare, Inc. Columbia Chicago Osteopathic Hospitals, Inc. Columbia Chicago Northside Hospital, Inc. Columbia Chicago Northside Hospital Columbia Health Partners, Inc. Columbia LaGrange Hospital, Inc. Grant Square Imaging Columbia Physician Partners Management, Inc. Columbia Surgicare - North Michigan Ave., L.P. Michael Reese North - One Day Surgery Galen Hospital Illinois, Inc. Galen of Illinois, Inc. Community Medical Plaza Illinois Psychiatric Hospital Company, Inc. Chicago Lakeshore Hospital Columbia Behavioral Health Provider Organization Columbia Chicago Lakeshore Hospital South Campus Riveredge Hospital 75 ILLINOIS (Cont) --------------- Smith Laboratories, Inc. Surgicare of North Michigan Avenue, Inc. Surgicare of Palos Heights, Inc. 76 INDIANA ------- BAMI-COL, INC. Basic American Medical, Inc. Columbia PhysicianCare Outpatient Surgery Center, Ltd. Columbia PhysicianCare Outpatient Surgery Center F & E Community Developers of Florida, Inc. North Clark Community Hospital Jeffersonville MediVision, Inc. Surgicare of Indianapolis, Inc. Surgicare of Jeffersonville, L.L.C. John-Kenyon Surgery Center Terre Haute Regional Hospital, Inc. Indiana Institute for Lung Disease and Exercise Physiology Regional Family Medical Center Terre Haute Regional Hospital Terre Haute Regional Physician Hospital Organization, Inc. Thomasville Hospital, Inc. 77 KANSAS ------ Columbia Mid-West Division, Inc. Columbia/HCA of Dodge City, Inc. Day Surgery, Inc. Dodge City Healthcare Group, L.P. Medical Heights Hospitele Western Plains Regional Hospital Galen of Kansas, Inc. La Cygne Rural Health Clinic Womens Healthcare Group Galichia Laboratories, Inc. HCA Health Services of Kansas, Inc. Kansas Healthcare Laboratories OB-GYN Diagnostics, Inc. Overland Park Homecare Services, Inc. Surgicare of Wichita, Ltd. Columbia Surgicare of Wichita Surgicare of Wichita, Inc. Surgicenter of Johnson County, Inc. Surgicenter of Johnson County, Ltd. Columbia Surgicenter of Johnson County Total Healthcare, Inc. Western Plains Regional Hospital, Inc. Western Plains Quickcare Womens's Healthcare Management Group, LLC 78 KENTUCKY -------- A.C. Medical, Inc. B.G. MRI, Inc. Buffalo Trace Radiation Oncology Center Associates, L.L.C. Caretenders of Louisville, Inc. CHCK, Inc. Samaritan Hospital Kentucky Center for Reproductive Medicine LifeTek Home Infusion Primary Care Partners of Lexington Columbia Behavioral Health Network, Inc. Columbia Kentucky Division, Inc. Columbia Medical Group - Frankfort, Inc. Columbia Medical Group - Greenview, Inc. Columbia Medical Group - Logan Memorial, Inc. Columbia Medical Group - Louisville, Inc. Columbia Medical Group - Pinelake, Inc. Columbia/Kentucky Services, Inc. Community Hospital, Inc. Columbia PineLake Regional Hospital Frankfort Hospital, Inc. Bluegrass Regional Primary Care Centre Frankfort Regional Medical Center Galen International Holdings, Inc. Galen of Kentucky, Inc. 79 KENTUCKY (Cont) --------------- GALENCO, Inc. Greenview Hospital, Inc. Greenview Regional Hospital Hospital Corporation of Kentucky Scott Family Medicine Kentucky IMS, Inc. Lake Cumberland Health Care, Inc. Logan Memorial Hospital, Inc. Logan Memorial Hospital Physicians Medical Management, L.L.C. South Central Kentucky Corp. Spring View Health Alliance, Inc. Springview Hospital, Inc. Subco of Kentucky, Inc. Surgicare of Owensboro, Inc. Tri-County Community Hospital, Inc. 80 LOUISIANA --------- Acadiana Care Center, Inc. Acadiana Practice Management, Inc. Acadiana Regional Pharmacy, Inc. B.R.A.S.S. Partnership in Commendam Columbia B.R.A.S.S. BRASS East Surgery Center Partnership in Commendam Columbia Outpatient Surgery Center of Baton Rouge The Outpatient Surgery Center for Sight Caddo-Bossier Regional Clinic, L.L.C. Family First Columbia Healthcare System of Louisiana, Inc. Associates of Internal Medicine Physician Practice Management The Women's Center Columbia Lakeview Surgery Center, L.P. Columbia West Bank Hospital, Inc. Columbia/HCA Healthcare Corporation of Central Louisiana, Inc. Columbia/HCA of Baton Rouge, Inc. Capital Area Provider Alliance Columbia/HCA of New Orleans, Inc. Columbia Regional Healthcare Network Columbia/Lakeview, Inc. Dauterive Hospital Corporation Circle of Support Dauterive Hospital Physio-Industrial Network 81 LOUISIANA (Cont) ---------------- Doctors Hospital of Opelousas Limited Partnership Doctors' Hospital of Opelousas Galen of Louisiana, Inc. Cotton Valley Medical Clinic Cullen Rural Health Clinic Plain Dealing Medical Clinic Taylor Rural Health Clinic Hamilton Medical Center, Inc. HCA Health Services of Louisiana, Inc. North Monroe Hospital HCA Highland Hospital, Inc. Highland Hospital Lake Area Medical Center, Inc. Lake Area Women's Clinic Lake Area Surgicare, a Partnership in Commendam Columbia Surgicare of Lake Charles Lake Charles Surgery Center, Inc. Lakeview Radiation Oncology, L.L.C. Louisiana Psychiatric Company, Inc. Columbia DePaul Hospital Medical Center of Baton Rouge, Inc. Columbia Lakeside Hospital New Orleans Surgicare, Inc. 82 LOUISIANA (Cont) ---------------- Notami (Opelousas), Inc. Notami Hospitals of Louisiana, Inc. Riverview Medical Center Ponchartrain Regional Healthcare Network, Inc. Select Healthcare Services, Inc. Surgicare Merger Company of Louisiana Surgicare of Lafayette, Inc. Surgicare of Lakeview, Inc. Mandeville Surgery Center Surgicare Outpatient Center of Baton Rouge, Inc. Surgicare Outpatient Center of Lake Charles, Inc. Surgicenter of East Jefferson, Inc. University Healthcare System, L.C. Tulane University Hospital and Clinic Ville Platte Acquisition Corporation WGH, Inc. Williamson Eye Center, In Commendam Women's and Children's Hospital, Inc. Columbia Women's and Children's Hospital 83 MASSACHUSETTS ------------- Columbia Homecare, Limited Partnership Columbia Homecare of Massachusetts, Inc. Columbia Hospital Corporation of Massachusetts, Inc. Columbia Neponset Healthcare System, Inc. Health Imaging Center of Boston, Inc. Orlando Outpatient Surgical Center, Ltd. MediVision of Orlando Same Day Surgicare of New England, Inc. Same Day Surgicare of New England Surgicare of Suburban, Inc. Surgicenter Limited Partnership Waltham Surgicare, Inc. 84 MISSISSIPPI ----------- Brookwood Medical Center of Gulfport, Inc. Coastal Imaging Center of Gulfport, Inc. Coastal Imaging Center, L.P. Galen of Mississippi, Inc. Garden Park Investments, L.P. Garden Park Physician Services Corporation GOSC, LP GOSC-GP, Inc. Gulf Coast Medical Ventures, Inc. HTI Health Services, Inc. Lakeland Physicians Medical Building, Inc. Vicksburg Diagnostic Services, L.P. VIP, Inc. 85 MISSOURI -------- Business Health Services, Inc. Keystone Family Medical Clinic Clinical Management Services, Inc. CareNow Clinical Specialties, Inc. PRO-LAB Eye Care Surgicare, Ltd. Galen Sale Corporation HCA Health Services of Missouri, Inc. HEI Missouri, Inc. HEI Sullivan, Inc. Kansas City Surgicenters, Ltd. Surgicenter of Kansas City Kensington Care Services, Inc. American Nursing Services-Overland Park M.W.A, Inc. Medical Diagnostic Center Associates Limited Partnership Metropolitan Providers Alliance, Inc. 86 MISSOURI (Cont) --------------- Midwest Psychiatric Center, Inc. Missouri Healthcare System, L.P. Notami Hospitals of Missouri, Inc. Oak Grove Medical Clinic, Inc. Oak Grove MMP Odessa MMP Ozarks Medical Services, Inc. Physical Therapy Affiliates, Inc. Physical Therapy Affiliates PRI-MED, Inc. Surgicare of Antioch Hills, Inc. North Hills Medical & Surgical Center Surgicenter of Gladstone Surgicare of Independence, Inc. Truman-Forest Pharmacy, Inc. 87 NEBRASKA -------- Omaha Healthcare System, Inc. 88 NEVADA ------ CHC Venture Co. CHCA Capital GP, Inc. C/HCA Capital, Limited Partnership Columbia Hospital Corporation of West Houston Columbia Southwest Division, Inc. Columbia-SDH Holdings, Inc. Columbia/TSP Holdings, Inc. Consolidated Las Vegas Medical Centers Desert Physical Therapy, Inc. Columbia Desert Physical Therapy HCA Health Services of Nevada, Inc. Health Service Partners, Inc. James Bros., Inc. Las Vegas Physical Therapy, Inc. Lynn Maguire Physical Therapy Las Vegas Surgical Center, Ltd. 89 NEVADA (Cont) ------------- Las Vegas Surgicare, Inc. Las Vegas Surgicare, Ltd., a Nevada Limited Partnership Las Vegas Surgery Center MHI, Inc. National Care Services Corp. of Nevada Columbia Sunrise Diagnostic Center Kids Healthcare Sunrise Professional Pharmacy Nevada Psychiatric Company, Inc. Pasadena Holdings, Inc. Rio Grande/Piney Woods Holdings (Nevada), Inc. Sahara Outpatient Surgery Center, Ltd., a Nevada Limited Partnership Sahara Surgery Center Sunrise Clinical Research Institute, Inc. Sunrise Flamingo Surgery Center, Limited Partnership Flamingo Surgery Center Sunrise Hospital Columbia Henderson Clinic/Real Estate Columbia Precision Imaging Columbia Sunrise Health Strategies Sunrise Children's Hospital Sunrise Hospital & Medical Center 90 NEVADA (Cont) ------------- Sunrise Mountainview Hospital, Inc. MountainView Hospital Sunrise Outpatient Services, Inc. Surgicare of Green Valley, Inc. Surgicare of Las Vegas, Inc. Value Health Holdings, Inc. VH Holdco, Inc. VH Holdings, Inc. Western Plains Capital, Inc. 91 NEW HAMPSHIRE ------------- HCA Health Services of New Hampshire, Inc. Columbia Parkland Rehabilitation Services - Salem Columbia Portsmouth Pavilion Columbia Portsmouth Regional Hospital Londonderry Physical Therapy Center Main Street Medical Park Parkland Eldercare Parkland Medical Center Parkland Rehabilitation Services - Londonderry Windham Pediatrics Health Imaging Asset Management, Inc. Health Imaging Centers, Inc. Occupational Health Solutions of New England Limited Partnership Occupational Health Solutions of New England Regional Psychiatric Company, Inc. 92 NEW MEXICO ---------- HCA Health Services of New Mexico, Inc. Healthcare Corporation of Southern New Mexico Columbia Medical Center of Carlsbad Hobbs Community Hospital, Inc. New Mexico Psychiatric Company, Inc. Heights Psychiatric Hospital Pecos Valley, Inc. 93 NEW YORK -------- Critical Care America of New York, Incorporated 94 NORTH CAROLINA -------------- CareOne Home Health Services, Inc. Columbia Cape Fear Healthcare System, Limited Partnership Columbia Davis Holdings, Inc. Columbia North Carolina Division, Inc. Columbia Network Healthcare Columbia-CFMH, Inc. Cumberland Medical Center, Inc. Columbia Highsmith-Rainey Memorial Hospital Hope Mills Family Medicine Center Galen of North Carolina, Inc. HCA-Raleigh Community Hospital, Inc. Health Plus Heritage Hospital, Inc. Northeastern Rehabilitation Center Hospital Corporation of North Carolina Brunswick Community Hospital Columbia Care (NC) Intra-Net 95 NORTH CAROLINA (Cont) --------------------- HTI Health Services of North Carolina, Inc. Carolinas Bone & Joint Institute Carolinas Neuroscience Center Carolinas Neuroscience Institute Carolinas Orthopaedic & Sports Institute Carolinas Orthopaedic & Sports Medicine Center Carolinas Orthopaedic Institute Carolinas Physical Achievement Institute Carolinas Sports Medicine Institute Children's Work Out Orthopaedic Hospital & Center for Human Performance Orthopaedic Hospital & Center for Physical Achievement Orthopaedic Institute Orthopaedic Institute & Center for Research Southeast Bone & Joint Institute Southeast Orthopedic & Human Performance Institute Southeast Orthopaedic & Sports Medicine Center Southeast Orthopaedic & Sports Medicine Institute Southeastern Neuroscience Institute Southeastern Orthopaedic Institute Mecklenburg Surgical Land Development, Ltd. Old FDC Limited Partnership Optical Shop, Inc. The Optical Shop Raleigh Community Physical Therapy & Sports Medicine Center, Inc. Raleigh Community Primary Care Network, Inc. Raleigh Community Medical Office Building Ltd. Salem Optical Company, Inc. Salem Optical Co. Southeastern Eye Center, Inc. Southeastern Eye Center Wake Psychiatric Hospital, Inc. Holly Hill Hospital 96 OHIO ---- AHN Holdings, Inc. Columbia Beachwood Surgery Center, Ltd. Columbia-CSA/HS Greater Canton Area Healthcare System, L.P. Columbia Homecare Mercy Medical Center Mercy Medical Center Columbia-CSA/HS Greater Cleveland Area Healthcare System, L.P. Caritas Healthcare Partnership St. Vincent Charity Hospital Saint Lukes' Medical Center St. John West Shore Hospital Columbia Dayton Surgery Center, Ltd. Columbus Health Imaging Partnership Columbia Ohio Division, Inc. Columbia/Deaconess, Ltd., an Ohio Limited Liability Company Montgomery Surgery Center Columbia/Deaconess Surgery Center, Ltd. Columbia/HCA Healthcare Corporation of Northern Ohio E.N.T. Services, Inc. Lorain County Surgery Center, Ltd. The Surgery Center Lorain Middleburg Heights Surgical Center, Inc. Ohio Health Choice Ventures, Inc. Southwest Dual Diagnostic Center, G.P. Surgicare of Beachwood, Inc. Surgicare of Dayton, Inc. Surgicare of Lorain County, Inc. Surgicare of North Cincinnati, Inc. Surgicare of Westlake, Inc. The Surgery Center Laboratory, Inc. The Surgery Center Laboratory The Surgery Center, an Ohio Limited Partnership The Surgery Center The Surgery Center Radiology, Inc. The Surgery Center Radiology The Surgery Center West, Ltd. Westlake Surgicare, L.P. 97 OKLAHOMA -------- Bethany PHO, Inc. Claremore Regional Hospital, Inc. Corporate Advantage Columbia Crest, L.L.C. Columbia Doctors Hospital of Tulsa, Inc. Columbia Oklahoma Division, Inc. Columbia South Tulsa Hospital Company, Inc. Columbia/Edge Mobile Medical, L.L.C. Edmond Physician Hospital Organization, Inc. Green Country Anesthesiology Group, Inc. HCA Health Services of Oklahoma, Inc. Bethany Health Center Capstone Medical Group Columbia Presbyterian Hospital Presbyterian Center for Healthy Living Rogers Occupational Clinic University Health Partners Health Partners of Oklahoma, Inc. Healthcare Oklahoma, Inc. Integrated Management Services of Oklahoma, Inc. Lake Region Health Alliance Corporation Medical Imaging, Inc. Millennium Health are of Oklahoma, Inc. Seminole Medical Center Notami Hospitals of Oklahoma, Inc. Columbia Behavioral Health Center of Lawton 98 OKLAHOMA (Cont) --------------- Oklahoma Outpatient Surgery Limited Partnership Columbia Oklahoma Surgicare Oklahoma Surgicare, Inc. Plains Healthcare System, Inc. Presbyterian Office Building, Ltd. Rogers County PHO, Inc. Southwestern Medical Center, Inc. Stephenson Laser Center, L.L.C. Surgicare of Northwest Oklahoma, LP Surgicare of Oklahoma City-Midtown, LP Columbia Surgicare-Midtown Surgicare of Tulsa, Inc. Columbia Surgicare of Tulsa Wagoner Medical Group, Inc. 99 OREGON ------ Hospital Corporation of Douglas, Inc. Northern Oregon Healthcare Corporation Central Coast Counseling Roseburg Surgicenter, Ltd. 100 PENNSYLVANIA ------------ Basic American Medical Equipment Company, Inc. Chestnut Hill Surgical Investors, Inc. Chestnut Hill Hospital Outpatient Surgical Center Surgicare of Philadelphia, Inc. 101 RHODE ISLAND ------------ Atwood Surgicare, Inc. Blackstone Valley Surgicare, Inc. Columbia Blackstone Valley Surgicare Columbia Northeast Corporation Columbia Rhode Island Healthcare, Inc. Johnston Ambulatory Surgical Associates, Ltd. Pawtucket Outpatient Medical Building, Inc. Surgicare at the Crossing Limited, a Rhode Island Limited Partnership Warwick Surgicare, Inc. Wayland Square Surgicare, Inc. Columbia Wayland Square Surgicare 102 SOUTH CAROLINA -------------- C/HCA Development, Inc. Columbia Chicago Osteopathic Hospital & Medical Center Olympia Fields Osteopathic Hospital Carolina Behavioral Health, LLC Carolina Regional Surgery Center, Inc. Carolina Regional Surgery Center, Ltd. Carolina Regional Surgery Center Chesterfield General Hospital, Inc. Coastal Carolina Home Care, Inc. Colleton Ambulatory Care, LLC Columbia Carolinas Division, Inc. Columbia Charleston Healthcare System, Inc. Columbia-CSA/HS Greater Columbia Area Healthcare System, LP Providence Hospital Columbia/HCA Healthcare Corporation of South Carolina DMH Spartanburg, Inc. Doctors Memorial Hospital, Inc. Doctor's Memorial Hospital of Spartanburg, L.P. Edisto Multispecialty Associates, Inc. Colleton Internal Medicine Colleton Pediatric Associates Edisto Ear, Nose and Throat Edisto Orthopaedics and Sports Medicine Walterboro Internal Medicine 103 SOUTH CAROLINA (Cont) --------------------- HTI South Carolina, Inc. Marlboro Park Hospital Low Country Health Services, Inc. of the Southeast Myrtle Beach Hospital, Inc. Grand Strand Regional Medical Center North Trident Regional Hospital, Inc. Summerville Medical Center Trident Medical Center Trident Medical Services, Inc. Walterboro Community Colleton Medical Center Colleton Regional Non-Emergent Clinic Pulaski Medical Center 104 SWITZERLAND ----------- Permanence de L'Hopital de la Tour Geneva Outpatient Clinic Columbia Hopital de la Tour S.A. Hospital de la Tour et Pavilion Gourgas 105 TENNESSEE --------- America's Group, Inc. Appalachian OB/GYN Associates, Inc. Athens Community Hospital, Inc. Athens Regional Medical Center Atrium Memorial Surgical Center, Ltd. Atrium Memorial Surgical Center Availis Health Products, Inc. Availis Central Credentialing Services, Inc. Central Tennessee Hospital Corporation Columbia Cheatham Medical Center Horizon Medical Center Horizon Academy Regional Hospital of Jackson Charter North Star Behavioral Health System, LLC Chattanooga Healthcare Network Partner, Inc. Chattanooga Healthcare Network, L.P. Columbia Behavioral Health of Tennessee, L.L.C. Columbia Eastern Group, Inc. Columbia Health Management, Inc. Columbia Healthcare Network Columbia Psychiatric Network The Health Advantage Network of Tennessee Columbia Healthcare Network of Tri-Cities, Inc. Columbia Healthcare Network of West Tennessee, Inc. Columbia Information Systems, Inc. 106 TENNESSEE (Cont) ---------------- Columbia Integrated Health Systems, Inc. Columbia Medical Group - Athens, Inc. Athens Medical Group Columbia Medical Group - Centennial, Inc. Columbia Medical Group - Chatsworth, Inc. Columbia Medical Group - Crockett, Inc. Medical Practice Associates Columbia Medical Group - Daystar, Inc. Columbia Medical Group - Dickson, Inc. Horizon Medical Group Waverly Healthcare Services Columbia Medical Group - Eastridge, Inc. Columbia Medical Group - Franklin Medical Clinic, Inc. Columbia Medical Group - Hendersonville, Inc. Family Medical Center-Goodlettsville Family Medical Center-Portland Family Medical Center-White House Portland Community Health Center Columbia Medical Group - Hilcrest, Inc. Columbia Medical Group - Hillside, Inc. The Pediatric Center University Medical Associates Columbia Medical Group - Indian Path, Inc. Indian Path Medical Group 107 TENNESSEE (Cont) ---------------- Columbia Medical Group - Livingston, Inc. Family Practice Associates of Gainesboro Overton County Medical Center Twin Lake Otolaryngology Upper Cumberland Medical Associates Columbia Medical Group - Nashville Memorial, Inc. Internal Medicine Group Memorial Family Medicine Columbia Medical Group - North Side Specialty, Inc. Family Physicians of Johnson City Columbia Medical Group - Parkridge, Inc. East Brainerd Medical Center Family & Sports Medicine Four Corners Medical Center Gunbarrel Medical Signal Mountain Medical Center St. Elmo Medical Center Columbia Medical Group - Parthenon, Inc. Columbia Medical Group - Regional, Inc. Jackson Regional Pediatric Center Columbia Medical Group - River Park, Inc. McMinnville Medical Physicians Medical Group of McMinnville River Park Clinic Columbia Medical Group - South Pittsburg, Inc. Columbia Medical Group - Southern Hills, Inc. Columbia Cool Springs Medical Center Family Practice Associates of Southern Hills Internal Medicine Associates of Southern Hills Pediatric Associates of Southern Hills 108 TENNESSEE (Cont) ---------------- Columbia Medical Group - Southern Medical Group, Inc. Columbia Medical Group - Southern Tennessee, Inc. Southern Tennessee Medical Clinic of Monteagle Columbia Medical Group - Stones River, Inc. Stones River Family Medicine Columbia Medical Group - Summit, Inc. Summit Family Practice Columbia Medical Group - Sycamore Shoals, Inc. Avoca Family Health Center Hampton Family Medical Center Columbia Medical Group - The Frist Clinic, Inc. The Frist Clinic Columbia Medical Group - Trinity, Inc. North Clarksville Medical Clinic Trinity Family Clinic Columbia Medical Group - Volunteer, Inc. Martin Specialty Clinic Columbia Medical Group - Woodbury, Inc. Columbia Mid-America Group, Inc. Columbia Mid-Atlantic Division, Inc. Columbia Nashville Division, Inc. Columbia Northeast Division, Inc. Columbia Regional Medical Center, L.L.C. Columbia Volunteer Division, Inc. 109 TENNESSEE (Cont) ---------------- Crockett General Hospital, Inc. Cumberland Division, Inc. Donelson MRI Associates, L.P. Eastern Idaho Regional, L.L.C. Eastern Tennessee Medical Services, Inc. General Care Corp. Regional Hospital of Jackson GMC Management Services Organization, L.L.C. HCA Crossroads Residential Centers, Inc. HCA Development Company, Inc. HCA Health Services of Tennessee, Inc. Centennial Medical Center/Parthenon Pavilion Smyrna Medical Center Southern Hills Medical Center Summit Medical Center HCA Home and Clinical Services, Inc. HCA International Company HCA Medical Services, Inc. HCA Psychiatric Company HCA Realty, Inc. Healthcare Management Research and Development, Inc. Healthtrust, Inc.-The Hospital Company (TN) 110 TENNESSEE (Cont) ---------------- Hendersonville Hospital Corporation Bluegrass Urgent Care Center Columbia Hendersonville Hospital Westmoreland Family Clinic Holly Hill/Charter Behavioral Health System, L.L.C. Hometrust Management Services, Inc. Horizon Occupational Health Services Corporation Hospital Corporation of Smith and Overton County Livingston Regional Hospital Hospital Corporation of Tennessee Columbia Volunteer General Hospital Martin Pediatric and Adolescent Clinic Hospital Realty Corporation HTI Memorial Hospital Corporation Columbia Nashville Memorial Hospital Columbia Subacute Services of Tennessee HTI Tri-Cities Rehabilitation, Inc. Indian Path Hospital, Inc. Columbia Indian Path Surgery Center Superior Home Medical Equipment Indian Path Hospital, L.L.C. 111 TENNESSEE (Cont) ---------------- Indian Path Rehabilitation Center, Inc. IPN Services, Inc. Johnson City Eye & Ear Hospital, Inc. Judy's Foods, Inc. Knoxville Surgicare, Ltd. Columbia Sullins Surgery Center Medical Resource Group, Inc. Medical Center of Southwest Louisiana, L.P. Medical Center of Southwest Louisiana Medical Center Surgery Associates, L.P. Medical Plaza Ambulatory Surgery Center Associates, L.P. Plaza Day Surgery Medical Plaza MRI, L.P. Middle Tennessee Medical Services Corporation Masterpiece Healthcare Services TriMed Healthcare Services Nashville Psychiatric Company, Inc. North Florida Regional Freestanding Surgery Center, L.P. North Side Hospital, Inc. Northeast Tennessee Medical Center Parkridge Hospital, Inc. Columbia East Ridge Hospital Columbia Parkridge Medical Center Columbia Valley Hospital Parkside Surgery Center, Inc. Parthenon Financial Services, Inc. Parthenon Travel Services, Inc. Plano Ambulatory Surgery Associates, L.P. Columbia Surgery Center of Plano Quantum Innovations, Inc. Rio Grande Surgery Center Associates, L.P. Rio Grande Surgery Center River Park Hospital, Inc. River Park Hospital (TN) 112 TENNESSEE (Cont) ---------------- Rivergate Surgery Center, Limited Partnership Sanford Land Partnership SCMH Corporation The Renewal Center at Smith County Memorial Hospital Southern Tennessee Ambulance Services, Inc. SP Acquisition Corp. Columbia Grandview Medical Center Columbia South Pittsburg Hospital Columbia Whitwell Medical Center St. Mark's Ambulatory Surgery Associates, L.P. St. Mark's Outpatient Surgery Center Stones River Hospital, Inc. Southern Tennessee Skilled Facility Sullins Surgical Center, Inc. Surgicare of Madison, Inc. Surgicare Outpatient Center of Jackson, Inc. Sycamore Shoals Hospital, Inc. Tennessee Healthcare Management, Inc. Brentwood Primary Care Columbia Care Medical Center Columbia CorpCare Advantage Columbia Physician Services (TN) Manchester Family Medicine Marshall Medical Group Medical Associates of Athens Medical Group of Sparta Primary Care Associates Southern Tennessee Medical Center of Tracy City The Englewood Clinic Winchester Pediatrics The Charter Cypress Behavioral Health System, L.L.C. Cypress Hospital The Psychiatric Hospital at Vanderbilt Limited Partnership The Psychiatric Hospital at Vanderbilt Tri-City Lithotripsy Trident Ambulatory Surgery Center, L.P. 113 TEXAS ----- Ambulatory Endoscopy Clinic of Dallas, Ltd. Columbia Endoscopy Clinic of Dallas Arlington Diagnostic South, Inc. Austin Medical Center, Inc. Austin Diagnostic Clinic Bailey Square Ambulatory Surgical Center, Ltd. Bailey Square Outpatient Surgical Center, Inc. Barrow Medical Center CT Services, Ltd. Bay Area Healthcare Group, Ltd. Columbia On Call Rehabilitation Hospital of South Texas The Corpus Christi Medical Center - Bay Area The Corpus Christi Medical Center - Bayview The Corpus Christi Medical Center - Doctors Regional The Corpus Christi Medical Center - Heart Hospital Bay Area Surgical Investors, Ltd. Bay Area Surgicare Center, Inc. Beaumont Healthcare System, Inc. Beaumont Hospital, Inc. Columbia Beaumont Medical Center Fannin Pavilion Bedford-Northeast Community Hospital, Inc. Institute of Sports Rehabilitation and Fitness Northeast Community Hospital Skilled Nursing Unit Bellaire Imaging, Inc. Brazos Acquisition Corp. Brownsville-Valley Regional Medical Center, Inc. 114 TEXAS (Cont) ------------ Brownwood Regional Hospital, Inc. Columbia One Source Health Center - Comanche Columbia One Source Health Center - Cross Plains Columbia One Source Health Center - Dublin Columbia One Source Health Center - Early Columbia One Source Health Center - Rising Star Columbia One Source Health Center - San Saba Doctors Medical Clinic BVMC, Inc. Brazos Valley Medical Center - Bremond Columbia Treatment Center The Surgical Center Central San Antonio Surgery Center, Ltd. Methodist Ambulatory Surgery Center Central san Antonio Central San Antonio Surgical Center Investors, Ltd. CHC Management, Ltd. C.E.P. Physical Therapy Centers, Inc. CHC Payroll Company CHC Realty Company CHC-El Paso Corp. CHC Psychiatric Management, Ltd. CHC-Miami Corp. Clear Lake Regional Medical Center, Inc. Columbia Alvin Medical Center Columbia Clear Lake Regional Medical Center Clear lake Surgicare, Ltd. Coastal Bend Hospital CT Services, Ltd. COL - NAMC Holdings, Inc. Columbia Ambulatory Surgery Division, Inc. 115 TEXAS (Cont) ------------ Columbia Bay Area Realty, Ltd. Columbia BVMC, Inc. Columbia Call Center, Inc. Columbia Call Center Columbia Central Group, Inc. Columbia Central Texas Division, Inc. Columbia Central Verification Services, Inc. Columbia Champions Treatment Center, Inc. Columbia GP of Mesquite, Inc. Columbia Greater Houston Division, Inc. Greater Houston Division Creative Services Greater Houston Emergency Services, Inc. Columbia Greater Houston Division Healthcare Network, Inc. Columbia Healthcare Network (Houston) Columbia Hospital at Medical City Dallas Subsidiary, L.P. Green Oaks Hospital Medical City Dallas Hospital Columbia Hospital Corporation at the Medical Center Columbia Hospital Corporation of Arlington Columbia Hospital Corporation of Bay Area Columbia Hospital Corporation of Corpus Christi 116 TEXAS (Cont) ------------ Columbia Hospital Securities Corporation Columbia Hospital - Arlington(WC), Ltd. Columbia Hospital - El Paso, Ltd. Columbia Lone Star/Arkansas Division, Inc. Columbia Medical Arts Hospital Subsidiary, L.P. Columbia Medical Center at Lancaster Subsidiary, LP Medical Center at Lancaster Columbia Medical Center at Terrell, Subsidiary, LP Columbia Medical Center Dallas Southwest Subsidiary, LP Dallas Southwest Medical Center Columbia Medical Center of Arlington Subsidiary, LP Medical Center of Arlington Columbia Medical Center of Denton Subsidiary, LP Denton Regional Medical Center Denton Regional Medical Center - Little Elm Denton Regional Medical Center - Pilot Point Denton Regional Medical Center - Valley View Flow Rehabilitation Hospital Professional Health Care Services Columbia Medical Center of Las Colinas, Inc. Las Colinas Medical Center Columbia Medical Center of Lewisville Subsidiary, LP Medical center of Lewisville Columbia Medical Center of McKinney Subsidiary, LP North Central Medical Center 117 TEXAS (Cont) ------------ Columbia Medical Center of Plano Subsidiary, LP Medical Center of Plano Columbia Medical Center of Sherman Subsidiary, LP Columbia Navarro Regional Hospital Subsidiary, LP Columbia North Hills Hospital Subsidiary, LP Columbia Physicians Daysurgery Center Columbia North Texas Division, Inc. Columbia North Texas Healthcare System, L.P. Columbia North Texas Subsidiary GP, LLC Columbia North Texas Surgery Center Subsidiary, L.P. Columbia Northwest Medical Center, Inc. Columbia Patient Account Services, Inc. Columbia PDC of Dallas, Ltd. Columbia Physicians Daysurgery Center Columbia Plaza Medical Center of Fort Worth Subsidiary, LP Plaza Medical Center of Fort Worth Plaza Medical Center - East Columbia Psychiatric Management Co. Columbia South Texas Division, Inc. Columbia Specialty Hospital of Dallas Subsidiary, LP Columbia Specialty Hospitals, Inc. Columbia Surgery Group, Inc. Columbia-Quantum, Inc. Columbia/HCA Healthcare Corporation of Central Texas 118 TEXAS (Cont) ------------ Columbia/HCA Heartcare of Corpus Christi, Inc. Columbia/HCA International Group, Inc. Columbia/HCA of Houston, Inc. Columbia/HCA of North Texas, Inc. Columbia/HCA of San Angelo, Inc. Columbia/HCA Western Group, Inc. Columbia/Pasadena Healthcare System, L.P. Columbia/St. David's Healthcare System, L.P. Columbia Central Texas Imaging Center Columbia/St. David's Medicenters Lifeway Home Health (Austin, TX) Lifeway Home Health (Austin, TX-2) Lifeway Home Health (Bastrop, TX) Lifeway Home Health (Giddings, TX) Lifeway Home Health (La Grange, TX) Lifeway Home Health (Lockhart, TX) Lifeway Home Health (Marble Falls, TX) Lifeway Home Health (Round Rock, TX) Lifeway Home Health (San Marcos, TX) Round Rock Medical Center South Austin Hospital St. David's Healthcare Partnership St. David's Home Health Care St. David's Home Health Services St. David's Medical Center St. David's Pavillion St. David's Rehabilitation Center The Pavillion at St. David's Conroe Hospital Corporation Conroe Regional Medical Center Corpus Christi Healthcare Group, Ltd. Corpus Christi Surgery, Ltd. Surgicare of Corpus Christi Coronado Community Hospital, Inc. Coronado Health Network 119 TEXAS (Cont) ------------ Credentialing Center of South Texas, Inc. Crossroads Healthcare Management, LLC Cy-Fair Surgery Center, Ltd. Columbia Cy-Fair Surgery Center Doctor's Hospital of Laredo Limited Partnership Columbia Doctors Hospital of Laredo Columbia Homecare - Doctors Hospital of Laredo DFW Physician Services Corporation Columbia Practice Management Services (DFW) Doctors Hospital (Conroe), Inc. E.P. Physical Therapy Centers, Inc. El Paso Nurses Unlimited, Inc. Nurses Unlimited of El Paso El Paso Pathology Group, P.A. El Paso Physical Therapy Centers, Ltd. Columbia Physical Therapy Center El Paso Surgery Center, Limited Partnership El Paso Surgicenter, Inc. Columbia Surgical Center of El Paso Endoscopy Clinic of Dallas, Inc. EPIC Properties, Inc. EPIC/Alliance of North Texas, Ltd. EyeCare Providers of America, Inc. Fort Worth Investments, Inc. 120 TEXAS (Cont) ------------ Galen Hospital of Baytown, Inc. Galen Hospitals of Texas, Inc. Dunwoody Medical Center WellHealth Center Gallagher Park Surgicenter, Ltd. Columbia Surgery Center of Sherman Gramercy Surgery Center, Ltd. Columbia Gramercy Outpatient Surgery Center Greater Houston Emergency Services, Inc. Greater Houston Preferred Provider Option, Inc. Greater Houston PPO Gulf Coast Provider Network, Inc. HCA Health Services of Texas, Inc. HCA Alliance Airport Clinic McAllen Regional Imaging Center Med Alliance HCA Plano Imaging, Inc. Heart Center of Fort Worth, Ltd. Heartcare of Texas, Ltd. HEI Construction, Inc. HEI Orange, Inc. HEI Publishing, Inc. HEI Sealy, Inc. Houston Northwest Surgical Partners, Inc. 121 TEXAS (Cont) ------------ HTI Gulf Coast, Inc. Kingwood Surgery Center, Ltd. Columbia Kingwood Medical Center KPH-Consolidation, Inc. Laredo Imaging II, Ltd. Las Colinas Surgery Center, Ltd. Columbia Surgery Center of Las Colinas Longview Regional Hospital, Inc. Longview Regional Physician Hospital Organization, Inc. Mansfield Hospital, Inc. Med Plus of El Paso, Inc. Med-Center Hosp./Houston, Inc. Medical Care Surgery Center, Inc. Medical Center Healthcare Alliance, Inc. Medical City Dallas Hospital, Inc. Arlington Clinic Columbia Children's Hospital at Medical City Dallas Comfort Health Care Services Las Colinas Clinic MediPurchase, Inc. 122 TEXAS (Cont) ------------ Methodist Healthcare System of San Antonio, Ltd. Bandera Medical Clinic Care One (Kerrville, TX) Care One (Kerrville,TX Private Duty) Care One (North Central San Antonio,TX) Care One (North East San Antonio, TX) Care One (San Antonio,TX) Care One (San Antonio, TX private duty) Care One (Seguin, TX) Care One (South East San Antonio) Methodist Homecare Health Alternatives Metropolitan Hospital (TX) Northeast Methodist Hospital San Antonio Regional Hospital Southwest Texas Methodist Hospital Women's and Children's Hospital(TX) Metroplex Surgicenters, Inc. MGH Medical, Inc. Metropolitan Transitional Care Unit MHS Surgery Centers, L.L.C. Mid-Cities Surgi-Center, Inc. Midway Park Health Network, Inc. Navarro Memorial Hospital, Inc. Cedar Creek Medical Associates Kerens Clinic North Hills Surgicare, LP North Richland Hills Surgery Center, Inc. North Texas General, L.P. 123 TEXAS (Cont) ------------ North Texas Technologies, Ltd. Northeast Methodist Surgicare, Ltd. Methodist Ambulatory Surgery Center - Northeast Northeast PHO, Inc. Northeast Texas Imaging Center, Ltd. Oakwood Surgery Center, Ltd. Oakwood Surgery Center Orthopedic Hospital, Ltd. Texas Orthopedic Hospital Paragon of Texas Health Properties, Inc. Paragon Physicians Hospital Organization of South Texas, Inc. Paragon Surgery Centers of Texas, Inc. Park Central Surgery Center, Ltd. Parkway Cardiac Center, Ltd. Pasadena Bayshore Hospital, Inc. Columbia Bayshore Medical Center Piney Woods Holdings, Inc. Qualitycare Network of Greater Houston, Inc. Quantum/Bellaire Imaging, Ltd. Rim Building Partners, L.P. Rio Grande Regional Hospital, Inc. 124 TEXAS (Cont) ------------ Rio Grande Regional Investments, Inc. Rosewood Medical Center, Inc. Columbia Rosewood Medical Center MRI Southwest Rosewood Professional Office Building, Ltd. S.A. Medical Center, Inc. Salt Lake MRI Services, Ltd. San Antonio Regional Hospital, Inc. Silsbee Hospital, Inc. Silsbee Doctors Hospital South Texas Ambulatory Surgery Hospital, Ltd. Methodist Ambulatory Surgical Hospital - Northwest South Texas Surgicare, Inc. Southwest Houston Surgicare, Inc. Spring Branch Medical Center, Inc. Columbia Spring Branch Medical Center Sam Houston Memorial Hospital Sprocket Medical Management, Inc. Sugar Land Surgery Center, Ltd. Sun Towers/Vista Hills Holding Co. Sunbelt Regional Medical Center, Inc. East Houston Regional Medical Center 125 TEXAS (Cont) ------------ Surgical Center of Dallas, Inc. Surgical Center of Irving, Inc. Surgical Center of Southeast Texas, Ltd. Columbia Surgical Center of Southeast Texas Surgical Center of Wichita Falls, Inc. Surgical Facility of West Houston, LP. West Houston Outpatient Surgicare Center Surgicare of Amarillo, Inc. Surgicare of Central San Antonio, Inc. Surgicare of Gramercy, Inc. Surgicare of Kingwood, Inc. Surgicare of North San Antonio, Inc. Surgicare of Northeast San Antonio, Inc. Surgicare of Round Rock, Inc. Surgicare of Sherman, Inc. Surgicare of Southeast Texas, Inc. Surgicare of Sugar Land, Inc. Surgicare of Travis Center, Inc. Columbia Travis Centre Outpatient Surgery Surgicare of Victoria, Inc. Surgicare of Victoria, Ltd. 126 UTAH ---- Brigham City Community Hospital, Inc. Brigham City Community Hospital Brigham City Health Plan, Inc. Brigham City Physicians Group, Inc. Castleview Hospital, Inc. Columbia Mountain Division, Inc. Columbia Ogden Medical Center, Inc. Columbia Ogden Regional Medical Center Columbia Utah Division, Inc. Eastern Utah Health Plan, Inc. General Hospitals of Galen, Inc. Columbia Cartersville Medical Center Davis Hospital and Medical Center Peachtree Health and Fitness Center Peachtree Regional Hospital Healthcare of Central Utah, Inc. Healthtrust Utah Management Services, Inc. Hospital Corporation of Utah Bountiful Laundry Lakeview Hospital HTI Homemed of Utah, Inc. HTI of Utah, Inc. HTI Physician Services of Utah, Inc. HTI Utah Data Corporation Lakeview Health Plan, Inc. Medico Home Health Equipment, Ltd. MHHE Corporation 127 UTAH (Cont) ----------- Mountain View Health Plan, Inc. Mountain View Hospital, Inc. Mountain View Catering Mountain View Hospital Timpanogos Regional Hospital Mountain View Medical Office Building, Ltd. Northern Utah Healthcare Corporation Columbia St. Mark's Hospital Ogden Regional Health Plan, Inc. Pioneer Valley Hospital, Inc. Columbia Jefferson Medical Center Pioneer Valley Hospital Premier Medical Network, Inc. Salt Lake City Surgicare, Inc. Southridge Professional Plaza, L.L.C. St. Mark's Ambulatory Surgery Associates, L.P. St. Mark's Ambulatory Surgery Center St. Mark's Investments, Inc. St. Mark's Physicians, Inc. The Wasatch Endoscopy Center, Ltd. West Jordan Hospital Corporation 128 VIRGINIA -------- Alleghany Primary Care, Inc. Ambulatory Services Management Corp. of Chesterfield County, Inc. Behavioral Health of Virginia Corporation Chicago Medical School Hospital, Inc. Chippenham and Johnston-Willis Hospitals, Inc. Amelia Healthcare Clinic Chippenham Medical Center Johnston-Willis Hospital Tucker Pavilion Columbia Arlington Healthcare System, LLC Arlington Hospital Columbia Dominion Hospital Columbia Fairfax Imaging Columbia Fairfax Surgical Center Columbia Reston Hospital Center Northern Virginia Homecare Columbia Central Atlantic Division, Inc. Columbia Healthcare of Central Virginia Bon Air Family Practice Columbia Practice Services Columbia Primary Care Medical Office Services Richmond Specialty Group South Richmond Family Physicians 129 VIRGINIA (Cont) --------------- Columbia Home Therapies of Virginia, Inc. Columbia Medical Group - Southwest Virginia Columbia Pentagon City Hospital, L.L.C. Columbia Pentagon City Hospital Columbia Physicians Services, Inc. Columbia Primary Care Associates, Ltd. Ashburn Medical Center Associates in Medicine - Burke Associates in Medicine - Carlin Springs Associates in Medicine - Centerville Associates in Medicine - Fairfax Associates in Medicine - Fairlington Associates in Medicine - Falls Church Associates in Medicine - Falls Church East Associates in Medicine - Merrifield Associates in Medicine - Reston Associates in Medicine - Vienna Purceville Medical Center Purceville Urgent Care Reston Town Center Internal Medicine Tysons Corner Medical Center Tysons Pediatrics Union Mill Medical Center 130 VIRGINIA (Cont) --------------- Columbia Richmond Division, Inc. Columbia South Little Rock, Inc. Columbia/Alleghany Regional Hospital, Inc. Alleghany Healthcare Services Alleghany Regional Hospital Columbia/HCA John Randolph, Inc. Columbia John Randolph Medical Center River Bend Columbia John Randolph Medical Center Columbia/HCA Retreat Hospital, Inc. Columbia Retreat Hospital Galen of Virginia Galen Virginia Hospital Corporation Galen-Med, Inc. Columbia Clinch Valley Medical Center Columbia Lake Area Surgicare 131 VIRGINIA (Cont) --------------- HCA Health Services of Virginia, Inc. Greater Richmond Physician Referral Service HCA Chester Office Henrico Doctors Hospital Lewis-Gale Psychiatric Center Petersburg Psychiatric Hospital Reston Town Center Pediatrics Imaging and Surgery Centers Of Virginia, Inc. Insight Clinic Services, LC Lewis-Gale Hospital, Inc. Management Services of the Virginias, Inc. Medical Imaging & Technology Associates Montgomery Regional Hospital, Inc. Blue Ridge Health Clinic Montgomery Regional Hospital MOS Temps, Inc. MRI of Reston Limited Partnership New River Healthcare Plan, Inc. NOCO, Inc. 132 VIRGINIA (Cont) --------------- Northern Virginia Hospital Corporation Preferred Care of Richmond, Inc. Preferred Hospitals, Inc. Primary Health Group, Inc. Pulaski Community Hospital, Inc. Pulaski Community Hospital Reston Hospital Lithotripter, J.V. Richmond Medical Commons, LLC Surgicare of Virginia, Inc. United Ambulance Service, Inc. Virginia Hematology & Oncology Associates, Inc. Virginia Psychiatric Company, Inc. Barcroft Institute Peninsula Behavioral Center Peninsula Hospital Perspectives Health Services of Canada Poplar Springs Hospital 133 WASHINGTON ---------- ACH, Inc. Capital Network Services, Inc. Columbia Capital Medical Center Limited Partnership 134 WEST VIRGINIA ------------- Charleston Hospital, Inc. Columbia St. Francis Hospital St. Francis Health Clinic Columbia Parkersburg Healthcare System, Inc. Columbia/HCA WVMS Member, Inc. Columbia Mobile Services Columbia-S.J. Ventures Properties, Limited Partnership Columbia-St. Joseph's Healthcare System, Limited Partnership St. Joseph's Hospital Galen of West Virginia, Inc. Columbia Home Infusion Services Galen Shared Services St. Lukes Hospital HCA Health Services of West Virginia, Inc. Hospital Corporation of America Raleigh General Hospital All Care Medical Supply Beckley Hospital Raleigh General Hospital St. Luke's Princeton, LLC Teays Valley Health Services Corp. Putnam General Hospital Tri Cities Health Services Corp. Columbia River Park Hospital (WVA) 135 WEST VIRGINIA (Cont) -------------------- West Virginia Management Services Organization, Inc. Columbia Behavioral Health Network Physicians Care of The Virginias Zone, Incorporated 136 WISCONSIN --------- Psychiatric Company of Dane County, Inc. 137 WYOMING ------- Riverton MSO, Inc. Wyoming Health Services, Inc. EX-23 13 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Forms S-3 (File Nos. 333-05005,333-01337, 33-64105, 33-53661, 33-53409, 33-52379, and 33-50985) and Forms S-8 (File Nos. 333-64479, 333-33881, 333-18169, 33-62309, 33-62303, 33-55511, 33-55509, 33-55272, 33-55270, 33-52253, 33-51114, 33-51082, 33-51052, 33-50151, 33-50147, 33-49783 and 33-36571) of our report dated February 19, 1999 with respect to the consolidated financial statements included in this Annual Report (Form 10-K) of Columbia/HCA Healthcare Corporation for the year ended December 31, 1998. /s/ ERNST & YOUNG LLP Nashville, Tennessee March 26, 1999 EX-27 14 FINANCIAL DATA SCHEDULE 12/31/98
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENTS OF INCOME AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 297 0 3,741 1,645 434 3,863 15,644 6,195 19,429 3,559 5,685 0 0 6 7,575 19,429 0 18,681 0 10,712 3,771 1,442 561 1,081 549 532 (153) 0 0 379 .59 .59
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