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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 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 No. 000-18799
HEALTH MANAGEMENT ASSOCIATES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 61-0963645
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5811 Pelican Bay Boulevard
Suite 500
Naples, Florida 34108-2710
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(941) 598-3131
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange
on Which Registered
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Class A Common Stock, $.01 par value New York Stock Exchange
================================================================================
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of November 30, 1998 there were 251,673,393 shares of Common
Stock, par value $.01 per share outstanding. The aggregate market value of the
voting stock held by non-affiliates of the Registrant is $4,000,776,709. Market
value is determined by reference to the listed price of the Registrant's Class A
Common Stock as of the close of business on November 30, 1998.
Portions of the Registrant's definitive Proxy Statement to be issued
in connection with the Annual Meeting of Stockholders of the Registrant to be
held on February 16, 1999 have been incorporated by reference into Part III,
Items 10, 11, 12 and 13 of this Report.
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TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
HEALTH MANAGEMENT ASSOCIATES, INC.
Fiscal year ended September 30, 1998
PART I
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Page
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Item 1. Business.................................................... 1
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders........ 17
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................. 18
Item 6. Selected Financial Data..................................... 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 19
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.. 25
Item 8. Financial Statements and Supplementary Data................. 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................... 44
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 44
Item 11. Executive Compensation...................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 44
Item 13. Certain Relationships and Related Transactions.............. 44
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K................................................. 44
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Note: Portions of the Registrant's definitive Proxy Statement to be issued
in connection with the Annual Meeting of Stockholders of the
Registrant to be held on February 16, 1999 have been incorporated by
reference into Part III, Items 10, 11, 12, and 13 of this Report.
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PART I
Item 1. Business
General
Health Management Associates, Inc. (the "Company" or the
"Registrant") was incorporated in Delaware in 1979 and succeeded to the
operations of its subsidiary, Hospital Management Associates, Inc., which was
formed in 1977. The Company provides a broad range of general acute care health
services in non-urban communities. As of September 30, 1998, the Company
operated 28 general acute care hospitals with a total of 3,527 licensed beds and
four psychiatric hospitals with a total of 294 licensed beds. For the year ended
September 30, 1998 ("Fiscal 1998"), the acute care hospital operations accounted
for approximately 95% of the Company's net patient service revenue and the
psychiatric hospital operations accounted for approximately 2%. See Item 2
"Properties".
Business Strategy
The Company pursues a business strategy of efficiently and profitably
operating its existing base of facilities and selectively acquiring additional
100 to 300 bed acute care hospitals located in non-urban communities in market
areas of 40,000 to 300,000 people in the southeastern and southwestern United
States. The Company seeks to acquire at reasonable prices acute care hospitals
which are the sole or predominant health care providers in their market service
areas. In evaluating potential acquisitions, the Company requires a hospital's
market service area to exhibit a demographic need for the facility and to have
an established physician base which can be augmented by the Company's ability to
attract additional physicians to the community. Many of the hospitals the
Company has acquired were unprofitable at the time of acquisition. Upon
acquiring a facility, the Company employs a well-qualified executive director
and controller, implements its proprietary management information system,
recruits physicians, introduces strict cost control measures with respect to
hospital staffing and volume purchasing under Company-wide agreements, and
spends the necessary capital to renovate the facility and upgrade equipment. The
Company strives to provide at least 90% of the acute care needs of each
community its hospitals serve, thereby reducing the out-migration of potential
patients to hospitals in larger urban areas.
The Company manages each acquired hospital to maximize operating
margins and return on capital within the first 36 to 48 months of operations, a
time period which the Company believes is sufficient to fully implement the plan
of improvement. Generally, the Company has been successful in achieving a
significant improvement in the operating performance of its facilities within
this time period. Once a facility has matured, the Company generally achieves
additional growth through favorable demographic trends, the continued growth of
physicians' practice in the community, expansion of health care services offered
and selective rate increases.
The Company also selectively reviews potential acquisitions of
psychiatric hospitals on an opportunistic basis. The demographic criteria for a
psychiatric hospital is a minimum service area of about 250,000 people. The
psychiatric hospital business is characterized by substantial competition within
a market area and requires a substantial investment in marketing.
See Item 2 "Properties" for a description of the Company's current
facilities.
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Operations and Marketing
Upon acquisition of a hospital, the Company immediately implements
its policies to achieve its financial and operating goals. The Company (i)
appraises current management personnel and makes necessary changes, (ii) seeks
to reduce expenses by managing staffing more effectively and purchasing supplies
through volume agreements, (iii) improves billings and collections and (iv)
installs its proprietary management information system. The Company's flexible
staffing program allows the Company to manage its labor costs effectively by
properly staffing a hospital based on current occupancy, utilizing a combination
of full-time and part-time employees. The Company's management information
system provides the executive director and the controller with the necessary
financial and operational information to operate the hospital effectively and to
implement the Company's flexible staffing program. Based on the information
gathered, the Company can also assist physicians in appropriate case management.
The Company also attempts to increase admissions and outpatient
business through marketing programs. The marketing programs of each of the
Company's hospitals are directed by the hospital's executive director to best
suit the particular geographic, demographic and economic characteristics of the
hospital's market area. A key element of the Company's marketing strategy is to
establish and maintain a cooperative relationship with its physicians. The
Company pursues an active physician recruitment program to attract and retain
qualified specialists and other physicians to broaden the services available.
The Company's hospitals often provide newly recruited physicians with various
services to assist them in opening and commencing the operation of their
practices, including staffing assistance, financial support, and equipment and
office rental subsidies. Such costs are generally expensed as incurred. The
Company's hospitals also pursue various strategies aimed at increasing
utilization of their services, particularly emergency and outpatient services.
For example, some hospitals offer an emergency service program which calls for a
60-second response to an emergency room patient. Some hospitals also provide a
one-day surgery service available on weekends.
The Company generally relies more on marketing for psychiatric
hospitals than for acute care hospitals. The Company believes that marketing
through direct mail, community programs, and radio spots is an effective method
of increasing business at its psychiatric hospitals because these hospitals
obtain patients from a broader range of referral sources, including
self-referral and family referral. See "Competition -- Psychiatric Hospitals" in
this Item 1. These marketing programs highlight various psychiatric disorders,
encouraging the affected person or family to seek help from one of the Company's
psychiatric hospitals.
The Company considers its management structure to be decentralized.
Its hospitals are run by experienced executive directors and controllers having
both authority and responsibility for day-to-day operations. Incentive
compensation programs have been implemented to reward such managers for
accomplishing established goals. The Company employs a relatively small
corporate staff to provide services such as systems design and development,
marketing assistance, training, human resource management, reimbursement,
technical accounting support, purchasing and construction management. Financial
control is maintained through fiscal and accounting policies which are
established at the corporate level for use at the hospitals. Financial
information is centralized at the corporate level through the Company's
proprietary management information system.
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Selected Operating Statistics
The following table sets forth selected operating statistics for the
Company's hospitals for the periods and dates indicated.
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Year ended September 30,
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1996 1997 1998
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Total hospitals owned or leased
(as of the end of period) ................. 24 26 32
Licensed beds (as of end of period) ......... 2,841 3,108 3,821
Admissions .................................. 82,701 100,677 123,713
Patient days ................................ 419,418 494,977 615,248
Acute care average length of stay (days)..... 4.7 4.6 4.6
Psychiatric average length of stay (days).... 12.2 14.1 19.4
Occupancy rate (1) .......................... 43% 45% 47%
Outpatient utilization (2) .................. 34% 35% 35%
Earnings before depreciation, interest
and income taxes margin ................... 24% 24% 25%
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(1) Hospital occupancy rates are affected by many factors, including the
population size and general economic conditions within the service area, the
degree of variation in medical and surgical products, outpatient use of
hospital services, quality and treatment availability at competing
hospitals, and seasonality. Generally, the Company's hospitals experience a
seasonal decline in occupancy in the first and fourth fiscal quarters.
(2) Outpatient revenue as a percent of Total Patient Service Revenue (as defined
in "Sources of Revenue" in this Item 1).
Competition
Acute Care Hospitals. The healthcare industry is highly competitive
and in recent years has been characterized by increased competition for patients
and staff physicians, a shift from inpatient to outpatient settings and
increased consolidation. The principal factors contributing to these trends are
advances in medical technology, cost-containment efforts by managed care payors,
employers and traditional health insurers, changes in regulations and
reimbursement policies, increases in the number and type of competing health
care providers and changes in physician practice patterns. A hospital will
compete within the geographic area in which it operates by distinguishing itself
based on the quality and scope of medical services provided. With respect to the
delivery of general acute care services, most of the Company's hospitals face
less competition in their immediate patient service areas than would be expected
in larger communities. While the Company's hospitals are generally the
predominant provider in their respective communities, most of its hospitals face
competition; however, that competition is generally limited to a single
competitor in each respective market. The Company seeks to provide at least 90%
of the health care needs in each community its hospital serves. For the
specialized treatment of diseases, such as neurological and major
cardiopulmonary disorders and health problems of relatively low incidence in the
population served, requiring specialized technology, residents in the Company's
service areas will generally be referred for treatment at major medical centers.
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The competitive position of a hospital is increasingly affected by
its ability to negotiate service contracts with purchasers of group health care
services. Such purchasers include employers, PPOs and HMOs. PPOs and HMOs
attempt to direct and control the use of hospital services through management of
care and either (i) receive discounts from a hospital's established charges or
(ii) pay based on a fixed per diem or on a capitated basis, where hospitals
receive fixed periodic payments based on the number of members of the
organization regardless of the actual services provided. To date, HMOs have not
been a competitive factor in the Company's nonurban hospitals. 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. In return, hospitals secure commitments
for a larger number of potential patients. Accordingly, the Company has been
proactive in establishing or joining such programs to maintain, and even
increase, hospital services. Management believes the Company is able to compete
effectively in its markets, and does not believe such programs will have a
significant adverse impact on the Company's net revenue. See "Operations and
Marketing" in this Item 1.
Psychiatric Hospitals. Generally, the Company's psychiatric hospitals
face substantial competition in their market areas because the Company's
psychiatric hospitals compete in larger urban areas than do its acute care
hospitals and these hospitals also seek to draw patients from secondary service
areas (service referrals). Psychiatric hospitals generally benefit from a
broader range of referral sources than do acute care hospitals. Such referral
sources include physicians, social agencies, both private and governmental,
community mental health centers, local court systems, licensed non-medical
professionals such as psychologists, clergy and mental health counselors, self
referrals and family referrals. In recent years third party payors have
significantly reduced payments to psychiatric hospitals through rate reductions,
shorter inpatient lengths-of-stay, movement from inpatient to outpatient
treatments, and various alternative treatment programs. The Company's
psychiatric hospitals have been negatively affected by these changes. To respond
to these changes, several of the Company's psychiatric hospitals have moved into
the youth services market, which includes a variety of services for the troubled
child and adolescent groups. These changes have served to reverse the negative
trends in recent years. However, as noted earlier in Item 1., psychiatric
operations only account for approximately 2% of the Company's net revenue.
Acquisitions. The Company faces competition for the acquisition of
non- urban community acute care hospitals from proprietary and not-for-profit
multi- hospital groups. Some of these competitors may have greater financial and
other resources than the Company. Historically, the Company has been able to
acquire hospitals at reasonable prices. However, increased competition for the
acquisition of nonurban community acute care hospitals could have an adverse
impact on the Company's ability to acquire such hospitals on favorable terms.
Consolidation. There has been significant consolidation in the
hospital industry over the past decade due, in large part, to continuing
pressures on payments from government and private payors and increasing shifts
away from the provision of traditional in-patient services. Those economic
trends have caused many hospitals to close and many to consolidate either
through acquisitions or affiliations. The Company believes that these cost
containment pressures will continue and will lead to further consolidation in
the hospital industry.
Sources of Revenue
The Company receives payment for services rendered to patients from
(i) the federal government under the Medicare program, (ii) each of the states
in which
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its hospitals are located under the Medicaid program, and (iii) private insurers
and patients. The following table sets forth the approximate percentage of Total
Patient Service Revenue (defined as revenue from all sources before deducting
contractual allowances and discounts from established billing rates) derived
from the various sources of payment for the periods indicated.
Year Ended September 30,
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1996 1997 1998
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Medicare ...................................... 52% 53% 49%
Medicaid ...................................... 13 13 13
Private and other sources...................... 35 3 38
--- --- ---
Total..................................... 100% 100% 100%
=== === ===
Hospital revenues depend upon inpatient occupancy levels, the extent
to which ancillary services and therapy programs are ordered by physicians and
provided to patients and the volume of outpatient procedures. Reimbursement
rates for inpatient routine services vary significantly depending on the type of
service (e.g., acute care, intensive care or psychiatric) and the geographic
location of the hospital. The Company has experienced an increase in the
percentage of patient revenues attributable to outpatient services in recent
years. This increase is primarily the result of advances in medical technology
(which allow more services to be provided on an outpatient basis) and increased
pressures from Medicare, Medicaid and insurers to reduce hospital stays and
provide services, where possible, on a less expensive outpatient basis. The
Company's experience with respect to increased outpatient volume mirrors the
trend in the hospital industry.
Medicare. Most hospitals (including all of the Company's hospitals)
derive a substantial portion of their revenue from the Medicare program, which
is a federal government program designed to reimburse participating health care
providers for covered services rendered and items furnished to qualified
beneficiaries. The Medicare program is heavily regulated and subject to frequent
changes which in recent years have reduced, and in future years are expected to
continue to reduce, Medicare payments to hospitals. In light of its hospitals'
high percentage of Medicare patients, the Company's ability in the future to
operate its business successfully will depend in large measure on its ability to
adapt to changes in the Medicare program.
The Medicare program is designed primarily to provide health care
services to persons aged 65 and over and those who are chronically disabled or
who have End Stage Renal Disease ("ESRD"). The Medicare program is governed by
the Social Security Act of 1965 and is administered by the federal government,
primarily the Department of Health and Human Services ("DHHS") and the Health
Care Financing Administration ("HCFA").
Legislative action and federal regulatory changes during the past
several years have resulted in significant changes in the Medicare program.
Formerly, Medicare provided reimbursement for the reasonable direct and indirect
costs of hospital services furnished to beneficiaries, plus an allowed return on
equity for proprietary hospitals. Pursuant to the Social Security Amendments of
1983 ("the Amendments") and subsequent budget reconciliation act modifications,
Congress adopted a prospective payment system ("PPS") to reimburse the routine
and ancillary operating costs of most Medicare inpatient hospital services.
Psychiatric, long-term care, rehabilitation and pediatric hospitals, as well as
psychiatric or rehabilitation units that are distinct parts of a hospital,
currently are exempt from PPS and continue to be reimbursed on a reasonable cost
basis. In addition, many outpatient services continue to be reimbursed, subject
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to certain regulatory limitations, on a reasonable cost basis. The Company's
four psychiatric hospitals, which are currently exempt from PPS reimbursement,
are subject to an operating cost per discharge limitation for Medicare
reimbursement purposes.
Under PPS, the Secretary of DHHS has established fixed payment
amounts per discharge for categories of hospital treatment, commonly known as
diagnosis- related groups ("DRGs"). DRG rates have been established for each
individual hospital participating in the Medicare program, in part based upon
the facility's geographic location. As a general rule under PPS, if a facility's
costs of providing care for the beneficiary are less than the predetermined DRG
rate, the facility retains the difference. Conversely, if the facility's costs
of providing the necessary service are more than the predetermined rate, the
facility must absorb the loss. Because DRG rates are based upon a statistically
normal distribution of severity, patients falling outside the normal
distribution are afforded additional payments and defined as "outliers." In
certain instances, additional payments may be received for outliers.
The DRG rates are updated annually to account for projected
inflation. For several years the annual updates or percentage increases to the
DRG rates have been lower than the actual inflation in the cost of goods and
services purchased by general hospitals. The inflation index used by HCFA to
adjust the DRG rates gives consideration to the cost of goods and services
purchased by hospitals as well as non-hospitals (the "market basket"). The
increase in the market basket for the year beginning on October 1, 1998 is 2.2%.
Pursuant to the Balanced Budget Act of 1997, the net annual updates have been
set as follows: federal fiscal year ("FY") 1999, market basket minus 1.9%; FY
2000, market basket minus 1.8%; FY 2001 and FY 2002, market basket minus 1.1%;
and, for FY 2003 and each subsequent FY, the market basket percentage increase.
The Company cannot predict how future adjustments by Congress and the HCFA will
affect the profitability of its health care facilities.
Hospitals currently excluded from the PPS, such as psychiatric and
rehabilitation hospitals, receive reimbursement based on their reasonable costs,
with limits placed upon the annual rate of increase in operating costs per
discharge. Pursuant to the Balanced Budget Act of 1997, the annual update for FY
1998 was set at 0%. For FY 1999 through FY 2002, the annual update factor is
dependent upon where the hospital's costs fall in relation to the limits set by
the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"). The annual
update factor will range from 0% to the market basket percentage increase,
depending upon whether the hospital's costs are at, below or above the TEFRA
target limits. The Company currently has four hospitals that are exempt from the
PPS.
Prior to October 1, 1990, Medicare payments for outpatient
hospital-based services were generally the lower of hospital costs or customary
charges. Due to federal budget restraints, the Omnibus Budget Reconciliation Act
of 1993 ("OBRA-1993") reduced Medicare payments for the majority of outpatient
services to the lower of 94.2% of hospital costs, customary charges or a blend
of 94.2% of hospital costs and a fee schedule (such fee schedule generally being
lower than hospital costs) through FY 1998. The Balanced Budget Act of 1997
extends this reduction through FY 1999 and during FY 2000 before January 1,
2000. The Balanced Budget Act of 1997 also requires the development of a
prospective payment system for outpatient services beginning on January 1, 1999.
Outpatient laboratory services are paid based on a fee schedule which is
substantially lower than customary charges. Certain ambulatory surgery
procedures are paid for at a rate based on a blend of hospital costs and the
rate paid by Medicare for similar procedures performed in free-standing
ambulatory surgery centers.
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Certain radiology and other diagnostic services are paid on a blend of actual
cost and prevailing area charge.
Payments under the Medicare program for capital related costs, for
cost reporting periods prior to October 1, 1991, were made on a reasonable cost
basis. Reasonable capital costs generally include depreciation, rent and lease
expense, capital interest, property taxes, insurance related to the physical
plant, fixed equipment and movable equipment. As a result of changes made to the
Social Security Act by the Omnibus Reconciliation Act of 1987 ("OBRA-1987")
hospitals paid under PPS for operating costs must be reimbursed for capital
costs on a prospective basis, effective with the cost reporting period beginning
October 1, 1991 (i.e., FY 1992). HCFA implemented the PPS for capital costs for
FY 1992 based upon FY 1989 Medicare inpatient capital costs per discharge
updated to FY 1992 by the estimated increase in Medicare capital costs per
discharge. A ten year transition period, beginning with FY 1992, was established
for the phasing- in of the capital PPS. Under the transition period rules,
hospitals with a hospital-specific capital rate below the standard Federal rate
are paid on a fully prospective methodology. Hospitals with a hospital-specific
rate above the standard Federal rate are paid based on a hold-harmless method or
100% of the standard Federal rate, whichever results in the higher payment.
Beginning with cost reporting periods on or after October 1, 2001, at the end of
the transition period, all hospitals are to be paid at the standard Federal
rate. Pursuant to the Balanced Budget Act of 1997, capital payment rates must be
rebased in FY 1998 using the actual rates in effect in FY 1995 and the budget
neutrality adjustment factor used to determine the federal capital payment rate
on September 30, 1995. In addition, capital rates are reduced by an additional
2.1% by the Balanced Budget Act of 1997.
The Medicare program reimburses each hospital on a reasonable cost
basis for the Medicare program's pro rata share of the hospital's allowable
capital costs related to outpatient services. Outpatient capital reimbursement
was reduced by 15% (i.e., 85% of outpatient capital costs) during FY 1990 and
OBRA 1990 extended the 15% reduction through FY 1991. OBRA-1990 and OBRA-1993
further directed that outpatient capital reimbursement be reduced by only 10%
beginning FY 1992 through FY 1998. The Balanced Budget Act of 1997 continues the
10% reduction for FY 1999 and during FY 2000 before January 1, 2000. The Company
anticipates that payments to hospitals will be reduced as a result of future
legislation but is unable to predict what the amount of the final reduction will
be.
The Balanced Budget Act of 1997 mandates that home health care
reimbursement must transition to a prospective payment system on October 1,
1999, as well as a 15% reduction in the cost limits and per beneficiary limits
effective September 30, 1999. During a transition period of not longer than 4
years, home health care reimbursement rates will be a blend of agency-specific
costs and the regional-specific costs, until a fully prospective payment rate is
achieved. The Company currently has 12 hospitals that provide home health care
services. The impact of the transition to PPS for home health care services
cannot be assessed at this time, since the HCFA has yet to define the
standardized amounts to be used in determining regional costs. The Company
anticipates that payments for home health services may be limited or reduced as
a result of this legislation.
The Balanced Budget Act of 1997 mandated numerous other adjustments
and reductions to the Medicare system that collectively may impact the Company's
operations. With respect to the valuation of capital assets as a result of a
change in hospital ownership, the Balanced Budget Act of 1997 eliminates the
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allowance for return on equity capital, and bases reimbursement on the book
value of the assets, recognizing no gain, loss or recapture of depreciation. In
addition, the Balanced Budget Act of 1997 mandated the following changes: a)
reimbursement for Medicare enrollee deductible and coinsurance bad debts is
reduced 40% for FY 1999 and 45% for FY 2000 and each subsequent year; b) the
bonus payments made to hospitals whose costs are below the target amounts is
reduced 2% of the target amount; and, c) skilled nursing home reimbursement must
transition to a prospective payment system, based upon 1995 allowable costs,
with a three year transition period beginning on or after July 1, 1998. Due to
concern over Medicare's ability to address Year 2000 issues, many implementation
dates have been indefinitely postponed. For example, outpatient PPS rules have
been proposed, but an actual start date has yet to be announced. In addition,
portions of the skilled nursing home PPS program and consolidated billing have
been postponed until January 1, 1999 or later.
Medicaid. The Medicaid program, created by the Social Security Act of
1965, is designed to provide medical assistance to individuals unable to afford
care. Medicaid is a joint federal and state program in which states voluntarily
participate. Payment rates and services covered under the Medicaid program are
set by each participating state. As a result, Medicaid payment rates and covered
services may vary from state to state. Approximately 50% of Medicaid funding
comes from the federal government, with the balance shared by the state and
local governments. The Medicaid program is administered by individual state
governments, subject to compliance with broadly defined federal requirements.
The Balanced Budget Act of 1997 repealed the Boren Amendment to the
Medicaid Act which had been interpreted by the Courts as establishing a federal
minimum standard for Medicaid rates payable to hospitals and nursing homes.
Congress repealed the Boren Amendment in order to give states greater
flexibility in establishing Medicaid payment methods and rates. The Boren
Amendment required states to undertake a finding analysis and then to assure the
federal government that their Medicaid rates were reasonable and adequate to
meet the costs that must be incurred by economically and efficiently operated
hospitals in providing care to Medicaid recipients. In place of this minimum
standard, Congress has mandated that states employ a rate setting process that
requires prior publication and an opportunity for provider comment on the rates.
This replacement requirement became effective for rates of payment on and after
January 1, 1998.
State Medicaid payment methodologies vary from state to state. The
most common methodologies are state Medicaid prospective payment systems or
state programs that negotiate payment rates with individual hospitals.
Generally, Medicaid payments are less than Medicare payments and are
substantially less than a hospital's cost of services. In 1991 Congress passed
legislation limiting the states' use of provider-specific taxes and donated
funds to bolster the state's share and obtain increased federal Medicaid
matching funds. Certain states in which the Company operates have adopted
broad-based provider taxes to fund their Medicaid programs in response to the
1991 legislation. Congress has also established a national limit on
disproportionate share hospital adjustments (which are additional amounts
required to be paid to hospitals defined as providing a disproportionate amount
of Medicaid and low-income inpatient services). This legislation and the
resulting state broad-based provider taxes have adversely affected the Company's
net Medicaid payments, but to date the net impact has not been materially
adverse.
The federal government and many states are currently considering
additional ways to limit the increase in the level of Medicaid funding, which
also could
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adversely affect future levels of Medicaid payments received by the Company's
hospitals. Because the Company cannot predict precisely what action the federal
government or the states will take as a result of existing and future
legislation, the Company is unable to assess the effect of such legislation on
its business. Like Medicare funding, Medicaid funding may also be affected by
health care reform legislation, and it is impossible to predict the effect such
legislation might have on the Company.
CHAMPUS. Some of the Company's hospitals provide services to retired
and certain other military personnel and their families pursuant to the Civilian
Health and Medical Program of Uniformed Services ("CHAMPUS") program. CHAMPUS
pays for inpatient acute hospital care on the basis of a prospectively
determined rate applied on a per discharge basis using DRGs similar to the
Medicare system. At this time, inpatient psychiatric hospital services are
reimbursed on an individual hospital per diem rate calculated based upon the
average charges for these services by all psychiatric hospitals. The Company can
make no assurance that the CHAMPUS program will continue per diem reimbursement
for psychiatric hospital services in the future.
The Medicare, Medicaid and CHAMPUS programs are subject to statutory
and regulatory changes, administrative rulings, interpretations and
determinations, requirements for utilization review and new governmental funding
restrictions, all of which may materially increase or decrease program payments
as well as affect the cost of providing services and the timing of payments to
facilities. The final determination of amounts earned under the programs often
requires many years, because of audits by the program representatives,
providers' rights of appeal and the application of numerous technical
reimbursement provisions. Management believes that adequate provision has been
made for such adjustments. Until final adjustment, however, significant issues
remain unresolved and previously determined allowances could become either
inadequate or more than ultimately required.
Commercial Insurance. The Company's hospitals provide services to
individuals covered by private health care insurance. Private insurance carriers
either reimburse their policy holders or make direct payments to the Company's
hospital based upon the particular hospital's established charges and the
particular coverage program that provides its subscribers with hospital benefits
through independent organizations that vary from state to state. The Company's
hospitals are paid directly by local Blue Cross organizations on the basis
agreed to by each hospital and Blue Cross by a written contract.
Recently, several commercial insurers have undertaken efforts to
limit the costs of hospital services by adopting prospective payment or
DRG-based systems. To the extent such efforts are successful, and to the extent
that the insurers' systems fail to reimburse hospitals for the costs of
providing services to their beneficiaries, such efforts may have a negative
impact on the results of operations of the Company's hospitals.
Healthcare Reform, Regulation and Licensing
General. Healthcare, as one of the largest industries in the United
States, continues to attract much legislative interest and public attention.
Medicare, Medicaid, mandatory and other public and private hospital cost-
containment programs, proposals to limit healthcare spending, proposals to limit
prices and industry competitive factors are highly significant to the healthcare
industry. In addition, the healthcare industry is governed by a framework of
Federal and state laws, rules and regulations that are extremely complex and for
9
<PAGE>
which the industry has the benefit of little or no regulatory or judicial
interpretation. Although the Company believes it is in compliance in all
material respects with such laws, rules and regulations, if a determination is
made that the Company was in material violation of such laws, rules or
regulations, its operations and financial results could be materially adversely
affected.
Licensure, Certification and Accreditation. Health care facility
construction and operation is subject to federal, state and local regulation
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.
All of the Company's health care facilities are properly licensed under
appropriate state laws and are certified under the Medicare program or are
accredited by the Joint Commission on Accreditation of Health Care Organizations
("Joint Commission"), the effect of which is to permit the facilities to
participate in the Medicare/Medicaid programs. Should any Joint Commission
facility lose its accreditation, and then not become certified under the
Medicare program, the facility would be unable to receive reimbursement from the
Medicare/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. Although the Company intends
to continue its qualification, there can be no assurance that its hospitals will
be able to comply in the future.
Utilization Review. In order to ensure efficient utilization of
facilities and services, federal regulations require that admissions to and the
utilization of facilities by Medicare and Medicaid patients be reviewed by a
federally funded Peer Review Organization ("PRO"). Pursuant to Federal law, the
PRO must review the need for hospitalization and the utilization of services,
denying admission of a patient or denying payment for services provided, where
appropriate. Each of the Company's facilities has contracted with a PRO and has
had in effect a quality assurance program that provides for retrospective
patient care evaluation and utilization review.
Certificates of Need. The construction of new facilities, the
acquisition of existing facilities, and the addition of new beds or services may
be reviewable by state regulatory agencies under a program frequently referred
to as certificate of need. Except for Arkansas, all the states in which the
Company's health care facilities are located have certificate of need or
equivalent laws which generally require appropriate state agency determination
of public need and approval prior to beds or services being added, or a related
capital amount being spent. Failure to obtain necessary state approval can
result in the inability to complete the acquisition, the imposition of civil or,
in some cases, criminal sanctions, the inability to receive Medicare or Medicaid
reimbursement and/or the revocation of the facility's license.
State Hospital Rate-Setting Activity. The Company currently operates
one facility in a state that has some form of mandated hospital rate-setting.
The West Virginia Health Care Rate Authority ("HCRA") establishes a maximum
approved charge for each hospital service. Hospitals are limited to this maximum
charge for each service until HCRA approves an increase. Rate increases are
reviewed,
10
<PAGE>
approved and implemented on an annual basis. As a result, in West Virginia, the
Company's ability to increase its rates to compensate for increased costs per
admission is limited and the Company's operating margin on its West Virginia
facility may be adversely affected. There can be no assurance that other states
in which the Company operates hospitals will not enact rate-setting provisions
as well.
Antikickback and Self-Referral Regulations. During 1998, the federal
government announced that reducing healthcare fraud was its second priority
(behind reducing crime in America). As a result, the healthcare industry is
being subjected to unprecedented scrutiny and a panoply of statutes, regulations
and government initiatives intended to prevent those practices deemed fraudulent
or abusive by the government. The healthcare industry is subject to extensive
Federal, state and local regulation relating to licensure, conduct of
operations, ownership of facilities, addition of facilities and services and
prices for services. In particular, Medicare and Medicaid antikickback,
antifraud and abuse amendments codified under Section 1128B(b) of the Social
Security Act (the "Antikickback Amendments") prohibit certain business practices
and relationships that might affect the provision and cost of healthcare
services reimbursable under Medicare and Medicaid, including the payment or
receipt of remuneration for the referral of patients whose care will be paid for
by Medicare or other government programs. Sanctions for violating the
Antikickback Amendments include criminal penalties and civil sanctions,
including fines and possible exclusion from the Medicare and Medicaid programs.
Pursuant to the Medicare and Medicaid Patient and Program Protection Act of
1987, DHHS has issued regulations that describe some of the conduct and business
relationships permissible under the Antikickback Amendments ("Safe Harbors").
The fact that a given business arrangement does not fall within a Safe Harbor
does not render the arrangement per se illegal. Business arrangements of
healthcare service providers that fail to clearly satisfy the applicable Safe
Harbor criteria, however, risk increased scrutiny by enforcement authorities.
Because the Company may be less willing than some of its competitors to enter
into business arrangements that do not clearly satisfy the Safe Harbors, it
could be at a competitive disadvantage in entering into certain transactions and
arrangements with physicians and other healthcare providers.
In addition, Section 1877 of the Social Security Act, which restricts
referrals by physicians of Medicare and other government-program patients to
providers of a broad range of designated health services with which they have
ownership or certain other financial arrangements, was amended effective January
1, 1995, to significantly broaden the scope of prohibited physician referrals
under the Medicare and Medicaid programs to providers with which they have
ownership or certain other financial arrangements (the "Self-Referral
Prohibitions"). Many states have adopted or are considering similar legislative
proposals, some of which extend beyond the Medicaid program to prohibit the
payment or receipt of renumeration for the referral of patients and physician
self-referrals regardless of the source of the payment for the care. The
Company's participation in and development of joint ventures and other financial
relationships with physicians could be adversely affected by these amendments
and similar state enactments. The Company systematically reviews all of its
operations to ensure that it complies with the Social Security Act and similar
state statutes. In addition, the Company has in operation a Corporate compliance
program at all of the Company's hospitals, and that is an ongoing, working
11
<PAGE>
program to monitor and insure continuing compliance with these statutory
prohibitions and requirements.
Both Federal and state government agencies have announced heightened
and coordinated civil and criminal enforcement efforts in accordance with the
requirements of recent federal statutory enactments including the Health
Insurance Portability Act of 1996. The Company is unable to predict the future
course of Federal, state and local regulation or legislation, including Medicare
and Medicaid statutes and regulations. Further changes in the regulatory
framework could have a material adverse effect on the Company's financial
condition.
Environmental Regulations. The Company's healthcare operations
generate medical waste that must be disposed of in compliance with Federal,
state and local environmental laws, rules and regulations. The Company's
operations, as well as the Company's purchases and sales of facilities, are also
subject to compliance with various other environmental laws, rules and
regulations. Such compliance does not, and the Company anticipates that such
compliance will not, materially affect the Company's capital expenditures,
earnings or competitive position.
Employees and Medical Staff
As of September 30, 1998, the Company had approximately 15,000
full-time and part-time employees, approximately 140 of whom were covered by a
collective bargaining agreement. The Company's corporate office staff consisted
of 55 people at that date. The Company believes that its relations with
employees are satisfactory. In general, the staff physicians at the Company's
acute care and psychiatric hospitals are not employees of the Company. The
physicians may also be staff members of other hospitals. The Company provides
physicians with certain services and assistance. The Company does employ
approximately 100 physicians, most of whom are primary care physicians located
at clinics the Company owns and operates. In addition, the Company's hospitals
provide emergency room coverage, radiology, pathology and anesthesiology
services by entering into service contracts with physician groups which are
generally cancelable on 90 days notice.
Liability Insurance
The Company maintains at each hospital it operates professional
liability insurance and general liability insurance in amounts of $1,000,000 per
claim and $4,000,000 per aggregation of claims, of which the Company retains the
first $100,000 of each professional liability claim and up to $4,000,000 in the
aggregate for all such claims each year. The Company maintains a $1,000,000
layer of self-insured retention of professional liability for all hospitals
above the first level of coverage and then purchases $35,000,000 umbrella
coverage for all hospitals. The Company also maintains other typical insurance
coverage. The Company maintains an unfunded reserve for its self-insured risks
described above based upon actuarially determined estimates. Actual hospital
professional liability costs for a particular period are not known for several
years after the period has expired. The delay in determining the actual cost
associated with a particular period is a result of the time between the
occurrence of an incident and when it is reported as well as the time involved
and costs incurred in resolution of such claims. The Company believes that its
insurance is adequate in amount and coverage. There can be no assurance that in
the future such insurance will be available at a reasonable price or that the
Company will not have to increase its levels of self-insurance.
12
<PAGE>
Item 2. Properties
The Company's acute care hospitals offer a broad range of medical and
surgical services, including inpatient care, intensive and cardiac care,
diagnostic services and emergency services that are physician-staffed 24 hours a
day, seven days a week. The Company also provides outpatient services such as
one-day surgery, laboratory, x-ray, respiratory therapy, cardiology and physical
therapy. At certain of the Company's hospitals specialty services such as
oncology, radiation therapy, CT scanning, MRI imaging, lithotripsy and
full-service obstetrics are provided.
The Company's psychiatric care operations consist of four psychiatric
hospitals: one 66-bed hospital with 32 psychiatric adult beds, 18 psychiatric
child/adolescent beds, and 16 adult substance abuse beds, one 80-bed psychiatric
adult hospital, one 88-bed hospital with 28 psychiatric adult beds, 15
psychiatric child/adolescent beds and 45 intensive residential treatment beds,
and one 60-bed intensive residential treatment hospital.
The following table presents certain information with respect to the
Company's facilities as of September 30, 1998. For more information regarding
the utilization of the Company's facilities, see "Item 1. Business -- Selected
Operating Statistics".
13
<PAGE>
<TABLE>
<CAPTION>
Owned Acquisition or
Licensed Leased or Commencement
Hospital Location Type Beds Managed Date
- ------------------------------------ --------------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Paul B. Hall Regional Medical Center Paintsville, Acute Care 72 Owned January 1979
Kentucky (replaced
September 1983)
Williamson Memorial Hospital Williamson, Acute Care 76 Owned June 1979
West Virginia (replaced June
1987)
Highlands Regional Medical Center Sebring, Acute Care 126 Leased August 1985
Florida
Lake Norman Regional Medical Center(1) Mooresville, Acute Care 109 Owned January 1986
North Carolina Psychiatric 12
Palmview Hospital Lakeland, Psychiatric 66 Owned March 1986
Florida
Fishermen's Hospital Marathon, Acute Care 58 Leased August 1986
Florida
Franklin Regional Medical Center Louisburg, Acute Care 70 Owned August 1986
North Carolina Psychiatric 15
Biloxi Regional Medical Center Biloxi, Acute Care 153 Leased September 1986
Mississippi
Medical Center of Southeastern Oklahoma Durant, Acute Care 103 Owned May 1987
Oklahoma
Crawford Memorial Hospital Van Buren, Acute Care 103 Leased May 1987
Arkansas
Hamlet Hospital Hamlet, Acute Care 54 Owned August 1987
North Carolina Psychiatric 10
Upstate Carolina Regional Medical Center Gaffney, Acute Care 125 Owned March 1988
South Carolina
University Behavioral Center Orlando, Psychiatric 88 Owned January 1989
Florida
SandyPines Tequesta, Psychiatric 60 Owned January 1990
Florida
Riverview Regional Medical Center Gadsden, Acute Care 281 Owned July 1991
Alabama
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Owned Acquisition or
Licensed Leased or Commencement
Hospital Location Type Beds Managed Date
- ----------------------------- -------------------- ----------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Parkview Hospital of Topeka Topeka, Psychiatric 80 Owned July 1993
Kansas
Heart of Florida Hospital (2) Haines City, Acute Care 51 Owned August 1993
Florida
Natchez Community Hospital Natchez, Acute Care 101 Owned September 1993
Mississippi
Sebastian Hospital Sebastian, Acute Care 133 Owned September 1993
Florida
Medical Center Hospital Punta Gorda, Acute Care 156 Owned December 1994
Florida Psychiatric 52
Byerly Hospital (3) Hartsville, Acute Care 116 Leased September 1995
South Carolina
Bulloch Memorial Hospital (3) Statesboro, Acute Care 158 Leased October 1995
Georgia
Northwest Mississippi Regional Clarksdale, Acute Care 175 Leased January 1996
Medical Center Mississippi Skilled Nursing 20
Midwest City Regional Hospital Midwest City, Acute Care 197 Leased June 1996
Oklahoma Psychiatric 30
Skilled Nursing 20
Stringfellow Memorial Hospital (4) Anniston, Acute Care 125 Managed January 1997
Alabama
Rankin Medical Center (5) Brandon, Acute Care 120 Leased January 1997
Mississippi Gero-Psych 14
Southwest Regional Medical Center (6) Little Rock, Acute Care 108 Owned November 1997
Arkansas Gero-Psych 17
Riley Memorial Hospital (7) Meridian, Acute Care 168 Owned January 1998
Mississippi Skilled Nursing 12
River Oaks Hospital (8) Jackson, Acute Care 110 Owned January 1998
Mississippi
River Oaks East (8) Jackson, Acute Care 94 Owned January 1998
Mississippi Skilled Nursing 17
Brooksville Regional Hospital (9) Brooksville, Acute Care 91 Leased June 1998
Florida
Springhill Regional Hospital (9) Spring Hill, Acute Care 75 Leased June 1998
Florida
-----
TOTAL LICENSED BEDS OWNED, LEASED OR MANAGED 3,821
=====
</TABLE>
15
<PAGE>
(1) The Company is currently building a replacement hospital
for the Lake Norman Regional Medical Center. The total cost of the
project is approximately $33,500,000, and is scheduled to open during
spring/summer 1999.
(2) The Company opened a replacement facility for the Heart of
Florida Hospital in June 1997. Whereas the previous facility was
operated by the Company under a lease agreement, the Company now owns
the new replacement hospital.
(3) The Company is currently operating Byerly Hospital and
Bulloch Memorial Hospital each under a short-term lease agreement
while building new replacement hospitals. The total cost of the new
hospitals and the scheduled completion date for Byerly Hospital and
Bulloch Memorial Hospital are $34,500,000 and spring/summer 1999, and
$44,800,000 and spring/summer 2000, respectively. The Company will
own the replacement hospitals.
(4) In January 1997, the Company entered into a long-term
management agreement with the Susie P. Stringfellow Trust for the
operation of the Stringfellow Memorial Hospital. The Company paid
approximately $18,900,000 in cash at closing, which included the
purchase of the hospital's working capital. The Company is obligated
to an annual payment of $300,000 to the Trust.
(5) Effective January 1, 1997 the Company entered into a long-
term lease agreement with the Rankin County Board of Supervisors. The
total consideration approximated $41,611,000, including $37,474,000
in cash paid at closing, the assumption of certain debt, and the
purchase of the hospital's working capital.
(6) Effective November 1, 1997 the Company acquired Southwest
Hospital from Safecare Company, Inc. pursuant to an Asset Purchase
Agreement. The Agreement included the purchase of substantially all
property, plant and equipment of the hospital, and working capital.
The total consideration approximated $21.4 million, including $20.7
million in cash and the assumption of $.7 million in debt.
(7) In January 1998 the Company acquired Riley Memorial
Hospital from Riley Development Systems, Inc., pursuant to an Asset
Purchase Agreement. The Agreement included the purchase of
substantially all property, plant and equipment of the hospital, and
working capital. The total consideration approximated $75.7 million
in cash.
(8) In January 1998 the Company acquired a two-hospital system
from River Oaks Hospital, Inc., via an Agreement of Merger and tax-
free stock exchange transaction. The transaction included the
purchase of substantially all property, plant and equipment of the
system, and working capital. The total consideration involved
approximated $114.9 million, including $80.0 million in Company stock
and the assumption of $34.9 million in debt.
(9) In June 1998 the Company acquired a two-hospital system
from Regional Healthcare, Inc. pursuant to a Definitive Agreement and
Lease Agreement. The transaction included a lease of the real
property and the purchase of substantially all equipment and the
working capital of the hospitals. The total consideration
approximated $76.0 million, including $72.0 million in cash, and the
assumption of $4.0 million in debt .
16
<PAGE>
The Company currently leases the facilities of Highlands Regional
Medical Center, Fishermen's Hospital, Biloxi Regional Medical Center, Crawford
Memorial Hospital, Northwest Mississippi Regional Medical Center, Midwest City
Regional Hospital, Rankin Medical Center, Brooksville Regional Hospital and
Spring Hill Regional Hospital pursuant to long-term leases expiring in 2025,
2011, 2024, 2027, 2025, 2026, 2026, 2028 and 2028 respectively, which provide
the Company with the exclusive right to use and control the hospital operations.
The Company's corporate headquarters are located in an office
building in Naples, Florida, in which space is leased. The Company believes that
all of its facilities are suitable and adequate for its needs. Certain of the
Company's hospitals are subject to mortgages securing various borrowings. See
Note 3 of the Notes to the Consolidated Financial Statements (Item 8. hereof).
Item 3. Legal Proceedings
The Company is subject to claims and legal actions by patients and
others in the ordinary course of business. The Company believes that all such
claims and actions are either adequately covered by insurance or are unlikely,
individually or in the aggregate, to have a material adverse effect on the
Company's financial condition.
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 the fiscal year ended September 30, 1998.
Executive Officers of the Registrant
The following is certain information regarding the executive officers
of the Company.
William J. Schoen, age 63, has served as Chairman of the Board, and
Chief Executive Officer of the Company since April 1986. He joined the Company's
Board of Directors in February 1983, in December 1983 became its President and
Chief Operating Officer, and Co-Chief Executive Officer in December 1985. He
relinquished the position of President in April 1997. From 1982 to 1987 Mr.
Schoen was Chairman of Commerce National Bank, Naples, Florida, and from 1973 to
1981 he was President, Chief Operating Officer and Chief Executive Officer of
The F&M Schaefer Corporation, a consumer products company. From 1971 to 1973,
Mr. Schoen was President of the Pierce Glass subsidiary of Indian Head, Inc., a
diversified company. In addition to serving on the Company's Board, Mr. Schoen
also serves on the Board of Directors of Horace Mann Insurance Companies.
Earl P. Holland, age 53, is Vice Chairman. He joined the Company in
1981 as Senior Vice President - Operations. He became Senior Vice President
Marketing and Development in 1984, Executive Vice President - Operations and
Development in 1989, and Vice Chairman in 1997. For more than five years prior
to 1981, he was employed by Humana, Inc., where he served as Assistant Regional
Vice President and as the Executive Director of two hospitals.
Joseph V. Vumbacco, age 53, is President and Chief Operating Officer.
He joined the Company as an Executive Vice President in January 1996 after 14
years with Turner Construction Company, most recently as an Executive Vice
President. He was promoted to President and Chief Operating Officer in 1997.
Prior to joining Turner, he served as the Senior Vice President and General
Counsel for The F&M Schaefer Corporation.
17
<PAGE>
Stephen M. Ray, age 50, is Senior Vice President - Finance of the
Company. A certified public accountant, he joined the Company in 1981 as
Controller, became a Vice President in 1983, and a Senior Vice President in
1991. He also served as Treasurer from 1987 to 1988 and most recently Senior
Vice President - Administrative Services until his appointment to Senior Vice
President - Finance in September 1994. From 1979 until 1981, Mr. Ray was
employed by Hospital Affiliates International, Inc., a hospital management
company, where he was responsible for reporting compliance and corporate
technical accounting.
Timothy R. Parry, age 44, is Vice President and General Counsel of
the Company. He joined the Company in February 1996 as a Divisional
Vice-President and Assistant General Counsel after 12 years in the law firm of
Harter, Secrest & Emery, the last seven years as partner. Prior to joining
Harter, Secrest & Emery he was an Assistant Ohio Attorney General for two years
and before that a law clerk for the United States District Court for the
Southern District of Ohio.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company completed an initial public offering of its Class A
Common Stock on February 5, 1991. The Company's Class A Common Stock is listed
on the New York Stock Exchange under the Symbol HMA. At November 30, 1998 there
were approximately 1,662 record holders of the Company's Class A Common Stock.
The following table sets forth, for the periods indicated, the high and low sale
prices per share of the Company's Class A Common Stock as listed on the New York
Stock Exchange. All prices below reflect the effect of 3-for-2 stock splits in
the form of stock dividends effective in October 1997 and July 1998.
<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
Fiscal Year Ended September 30, 1997
First Quarter............................... $11 $ 8 3/4
Second Quarter.............................. 13 1/4 9 1/2
Third Quarter............................... 14 1/8 10 9/16
Fourth Quarter.............................. 15 5/8 12 7/8
Fiscal Year Ended September 30, 1998
First Quarter............................... $17 5/8 $14 1/8
Second Quarter.............................. 19 3/4 14 15/16
Third Quarter............................... 23 3/16 17 5/8
Fourth Quarter.............................. 24 9/16 17 1/2
</TABLE>
The Company has not paid any cash dividends since its inception, and
does not anticipate the payment of cash dividends in the foreseeable future.
In connection with a stock repurchase program approved by the Board
of Directors the Company sold, pursuant to Section 4(2) of the Securities Act of
1933, 2,459,000 put options to an independent third party for proceeds totalling
$2,090,000. Each put option entitled the holder to sell one share of the
Company's common stock to the Company at a price of $17.50 per share,
exercisable only at maturity and expiring at various dates from November 1998 to
December 1998. The put options expired without being exercised.
18
<PAGE>
Item 6. Selected Financial Data
The following table summarizes certain selected financial data of the
Registrant and should be read in conjunction with the related Consolidated
Financial Statements and accompanying Notes to Consolidated Financial Statements
(Item 8 hereof).
HEALTH MANAGEMENT ASSOCIATES, INC.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net patient service revenue $438,366 $531,094 $714,317 $895,482 $1,138,802
Costs and expenses 356,636 426,845 575,906 717,173 913,523
Income from operations 81,730 104,249 138,411 178,309 225,279
Net income 46,536 63,331 84,086 108,322 136,844
Net income per share-diluted $ .21 $ .26 $ .34 $ .43 $ .54
Weighted average number of
shares outstanding-diluted 236,200 239,487 244,045 249,130 255,575
At Year End
- -----------
Working capital $138,001 $122,747 $106,907 $153,250 $188,161
Total assets 398,813 466,998 591,707 734,041 1,112,105
Short-term debt 7,104 6,571 8,438 8,263 8,544
Long-term debt 75,769 67,721 68,702 49,650 134,217
Stockholders' equity 252,928 317,950 417,739 560,220 756,825
Book value per common share $ 1.10 $ 1.36 $ 2.30 $ 3.01 $ 2.96
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended
September 30, 1997
Net patient service revenue for Fiscal 1998 was $1,138,802,000, as
compared to $895,482,000 for the fiscal year ended September 30, 1997 ("Fiscal
1997"). This represented an increase in net patient service revenue of
$243,320,000, or 27.2%. Hospitals in operation for the entire period of Fiscal
1998 and Fiscal 1997 ("same hospitals") provided $80,044,000 of the increase in
net patient service revenue, which resulted primarily from inpatient and
outpatient volume increases. The remaining increase of $163,276,000 included
$163,950,000 of net patient service revenue from the November 1997 acquisition
of a 125-bed hospital, the January 1998 acquisitions of a 180-bed hospital and a
221-bed two-hospital system, and the June 1998 acquisition of a 166-bed
two-hospital system, offset by a decrease of $674,000 in Corporate and
miscellaneous revenue.
The Company's hospitals generated 615,248 patient days of service in
Fiscal 1998, which produced an overall occupancy rate of 47.1%. During Fiscal
1997 the Company's hospitals generated 494,977 patient days of service for an
overall occupancy rate of 44.8%. Admissions in same hospitals for Fiscal 1998
increased 5.5%, from 95,787 to 101,025.
19
<PAGE>
The Company's salaries and benefits, supplies and other expenses and
provision for doubtful accounts for Fiscal 1998 were $831,397,000, or 73.0% of
net patient service revenue, as compared to $657,456,000, or 73.4% of net
patient service revenue for Fiscal 1997. Of the total $173,941,000 increase,
approximately $51,411,000 related to same hospitals, which was largely
attributable to increased inpatient and outpatient volumes. Another $120,697,000
of increased operating expenses related to the acquisitions mentioned
previously. The remaining increase of $1,833,000 represented an increase in
Corporate and miscellaneous other operating expenses. The Company's Fiscal 1998
rent expense increased by $7,486,000, which resulted both from acquisitions and
the expansion of hospital services.
The Company's depreciation and amortization costs increased by
$13,876,000. Approximately $10,470,000 of the increase resulted from the
acquisitions mentioned above with the remaining increase attributable to ongoing
building improvements and equipment purchases. Interest expense, which was net
of capitalized interest costs of $1,329,000 and $500,000, in Fiscal 1998 and
Fiscal 1997, respectively, increased $1,047,000, which resulted primarily from
acquisition related debt.
The Company's income before income taxes was $225,279,000 for Fiscal
1998 as compared to $178,309,000 for Fiscal 1997, an increase of $46,970,000 or
26.3%. As noted above, the increased profitability resulted from an increase in
inpatient and outpatient business, improved operating performance of same
hospitals and the contribution from the acquisitions previously mentioned. The
Company's provision for income taxes was $88,435,000 for Fiscal 1998, as
compared to $69,987,000 for Fiscal 1997. These provisions reflect an effective
income tax rate of 39.25% for Fiscal 1998 and Fiscal 1997. As a result of the
foregoing, the Company's net income was $136,844,000 for Fiscal 1998 as compared
to $108,322,000 for Fiscal 1997.
Fiscal Year Ended September 30, 1997 Compared to Fiscal Year Ended
September 30, 1996
Net patient service revenue for Fiscal 1997 was $895,482,000, as
compared to $714,317,000 for the fiscal year ended September 30, 1996 ("Fiscal
1996"). This represented an increase in net patient service revenue of
$181,165,000, or 25.4%. Hospitals in operation for the entire period of Fiscal
1996 and Fiscal 1995 ("same hospitals") provided $45,575,000 of the increase in
net patient service revenue, which resulted primarily from inpatient and
outpatient volume increases. The remaining increase of $135,590,000 included
$136,351,000 of net patient service revenue from the January 1996 acquisition of
a 195-bed hospital, the June 1996 acquisition of a 206-bed hospital and the
January 1997 acquisitions of a 112-bed hospital and a 125-bed hospital, offset
by a decrease of $761,000 in Corporate and miscellaneous revenue.
The Company's hospitals generated 494,977 patient days of service in
Fiscal 1997, which produced an overall occupancy rate of 44.8%. During Fiscal
1996 the Company's hospitals generated 419,418 patient days of service for an
overall occupancy rate of 43.2%. Admissions in same hospitals for Fiscal 1997
increased 3.6%, from 75,267 to 78,009.
The Company's salaries and benefits, supplies and other expenses and
provision for doubtful accounts for Fiscal 1997 were $657,456,000, or 73.4% of
net patient service revenue, as compared to $529,131,000, or 74.1% of net
patient service revenue for Fiscal 1996. Of the total $128,325,000 increase,
approximately $25,198,000 related to same hospitals, which was largely
20
<PAGE>
attributable to increased inpatient and outpatient business. Another
$100,634,000 of increased operating expenses related to the acquisitions
mentioned previously. The remaining increase of $2,493,000 represented an
increase in Corporate and miscellaneous other operating expenses. The Company's
Fiscal 1997 rent expense increased by $3,357,000, which resulted both from
acquisitions and the expansion of hospital services.
The Company's depreciation and amortization costs increased by
$9,388,000. Approximately $6,026,000 of the increase resulted from the
acquisitions mentioned above with the remaining increase attributable to ongoing
building improvements and equipment purchases. Net interest expense increased
$197,000, due primarily to decreased investment income earned in Fiscal 1997.
The Company's income before income taxes was $178,309,000 for Fiscal
1997 as compared to $138,411,000 for Fiscal 1996, an increase of $39,898,000 or
28.8%. As noted above, the increased profitability resulted from an increase in
inpatient and outpatient business, improved operating performance of same
hospitals and the contribution from the acquisitions previously mentioned. The
Company's provision for income taxes was $69,987,000 for Fiscal 1997, as
compared to $54,325,000 for Fiscal 1996. These provisions reflect an effective
income tax rate of 39.25% for Fiscal 1997 and Fiscal 1996. As a result of the
foregoing, the Company's net income was $108,322,000 for Fiscal 1997 as compared
to $84,086,000 for Fiscal 1996.
Liquidity and Capital Resources
Working capital increased to $188,161,000 at September 30, 1998 from
$153,250,000 at September 30, 1997, resulting primarily from increased business
volumes and good management of the Company's working capital. The Company's cash
flows from operating activities decreased by $14,385,000 from $132,336,000 in
Fiscal 1997 to $117,951,000 in Fiscal 1998. Offsetting the Company's improved
profitability was a large increase in accounts receivable, both at same
hospitals and newly-acquired hospitals. This increase was due to higher volumes
at same hospitals and acquisition hospitals, as well as temporary delays in
billing of Medicare and Medicaid accounts receivable while waiting for
assignment of applicable third-party provider numbers at those newly-acquired
hospitals. The use of the Company's cash in investing activities increased from
$110,428,000 in Fiscal 1997 to $233,368,000 in Fiscal 1998, reflecting an
increased number of acquisitions during Fiscal 1998. The Company's cash flows
from financing activities increased $46,420,000 from $14,301,000 provided in
Fiscal 1997 to $60,721,000 provided in Fiscal 1998, due primarily to borrowings
related to acquisitions(see also financial statement footnote No. 2).
Working capital increased to $153,250,000 at September 30, 1997 from
$106,907,000 at September 30, 1996, resulting primarily from the increase of
cash from operations during Fiscal 1997. The Company's cash flows from operating
activities increased by $37,767,000 from $94,569,000 in Fiscal 1996 to
$132,336,000 in Fiscal 1997. This resulted primarily from improved profitability
and management of the Company's working capital. The use of the Company's cash
in investing activities decreased from $140,851,000 in Fiscal 1996 to
$110,428,000 in Fiscal 1997, reflecting a smaller amount of funds used for
acquisitions in Fiscal 1997. The Company's cash flows from financing activities
increased $12,173,000 from $2,128,000 provided in Fiscal 1996 to $14,301,000
provided in Fiscal 1997 due primarily from proceeds received on the exercise of
employee stock options and issuance of common stock related thereto.
21
<PAGE>
The Company currently has a $300,000,000 Amended and Restated Credit
Agreement with a syndicate of banks. Interest accrues at the option of the
Company at either the prime rate of interest, a fixed certificate of deposit
rate of the agent bank or a LIBOR rate. Under all methods, interest payments are
required quarterly. The interest rate is subject to adjustments based upon
certain debt-related financial statement ratios provided under the Amended and
Restated Credit Agreement. As of September 30, 1998, there was a $50 million
outstanding balance. The $300,000,000 Amended and Restated Credit Agreement
permits the Company to borrow under a revolving credit loan at any time through
November 30, 1999, at which time any outstanding balance becomes due and
payable.
The Company also has a revolving credit facility with a bank which
provides a $10,000,000 unsecured line of credit commitment through January 31,
1999. All outstanding loans under this revolving credit facility are due on
January 31, 1999. Interest on the outstanding loans is payable at the bank's
Index Rate (prime) less 1/2%. As of September 30, 1998, there were no amounts
outstanding under this line.
The Company is obligated to pay certain commitment fees based upon
amounts borrowed and available for borrowing during the terms of both such
credit facilities ("Credit Facilities").
The credit agreements for the Credit Facilities contain certain
covenants which, without prior consent of the banks, limit certain activities of
the Company and its subsidiaries, including those relating to merger,
consolidation and the Company's ability to secure indebtedness, make guarantees
and grant security interests. The Company must also maintain minimum levels of
consolidated tangible net worth, debt service coverage, liabilities to net
worth, current assets to current liabilities and working capital.
Effective October 28, 1998 the Company filed a Form S-3 to
register $300 million of senior unsecured debt securities. The Company may issue
all or part of the issue at a future date for general corporate purposes,
including acquisitions, capital expenditures, refinancing of indebtedness,
working capital, and repurchase and redemption of securities.
Legislative and regulatory action has resulted in continuing change
in the Medicare and Medicaid reimbursement programs which will continue to limit
payment increases under these programs. However, the Company believes that these
continued changes will not have a material adverse effect on the Company's
future revenue or liquidity. Within the statutory framework of the Medicare and
Medicaid programs, there are substantial areas subject to administrative
rulings, interpretations and discretion which may further affect payments made
under those programs, and the federal and state governments might, in the
future, reduce the funds available under those programs or require more
stringent utilization and quality reviews of hospital facilities, either of
which could have a material adverse effect on the Company's future revenue and
liquidity. Additionally, any future restructuring of the financing and delivery
of health care in the United States and the continued rise in managed care
programs could have an effect on the Company's future revenue and liquidity. See
Item 1. "Sources of Revenue" and "Regulation and Other Factors."
Effective November 1, 1997 the Company purchased the 125-bed
Southwest Hospital located in Little Rock, Arkansas. The total consideration was
$21.4 million including $20.7 million in cash and the assumption of $.7 million
in debt. Working capital was included in the purchase price. Operating results
of the hospital have been included in the Company's Statements of Income from
the
22
<PAGE>
date of acquisition.
During January 1998 the Company purchased the 180-bed Riley Memorial
Hospital located in Meridian, Mississippi. Total consideration approximated
$75.7 million in cash, and included working capital. Operating results of the
hospital have been included in the Company's Statements of Income from the date
of acquisition.
During January 1998 the Company acquired the 221-bed two-hospital
River Oaks Health System located in Jackson, Mississippi. The total
consideration approximated $114.9 million, including $80.0 million in Company
stock and the assumption of $34.9 million in debt. Also included was the
hospitals' working capital. Operating results of the hospitals have been
included in the Company's Statements of Income from the date of acquisition.
Effective June 1, 1998 the Company acquired the 166-bed two-hospital
Regional Healthcare, Inc. system located in Hernando County, Florida. The total
consideration approximated $76.0 million, including $72.0 million in cash and
the assumption of $4.0 million in debt. Also included was the hospitals' working
capital. Operating results of the hospitals have been included in the Company's
Statements of Income from the date of acquisition.
The Company had a number of hospital renovation/expansion projects
underway at September 30, 1998. In addition, the Company plans to replace four
of its existing hospitals over the next two years. At September 30, 1998 there
were hospital renovation and expansion commitments of approximately $156.7
million outstanding, of which $40.8 million was paid at September 30, 1998.
The Company anticipates spending approximately $50,000,000 for
ongoing capital equipment and renovations in Fiscal 1999. At the present time,
cash on hand, internally generated funds in the year ending September 30, 1999
("Fiscal 1999"), and funds available under the Credit Facilities are expected to
be sufficient to satisfy the Company's requirements for capital expenditures,
future acquisitions and working capital in Fiscal 1999.
Impact of Inflation
The health care industry is labor intensive. Wages and other expenses
increase especially during periods of inflation and when shortages in the
marketplace occur. In addition, suppliers pass along rising costs to the Company
in the form of higher prices. The Company has, to date, offset increases in
operating costs to the Company by increasing charges for services and expanding
services. The Company has also implemented cost control measures to curb
increases in operating costs and expenses. The Company cannot predict its
ability to cover future cost increases.
Year 2000 Computer Issues
The Year 2000 Computer Issue is the result of most computer programs
using two digits rather than four to identify a year in a data field. These
programs were designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results on or after January 1, 2000.
The Company has implemented a plan to evaluate and correct the effect
of this problem on the Company's computer system and programs. As part of the
plan, the Company is also contacting its principal vendors and suppliers to
identify and correct the potential effects of this problem relating to embedded
systems
23
<PAGE>
of certain computer aided medical and other equipment. In addition, the Company
is contacting the Federal and State governments, other payors and other
companies with which the Company's systems interface or on which they rely to
monitor their timely completion of necessary upgrades.
The Company's financial systems, including general ledger, accounts
payable, cash management and payroll already are substantially Year 2000
compliant. Changes to the Company's patient accounting systems are underway.
Facility testing of systems-wide changes is expected to be completed by the
quarter ending March 31, 1999, with Company-wide implementation to be completed
by the quarter ending June 30, 1999.
The Company is utilizing both internal and external resources to
complete the Year 2000 modifications. The majority of the costs relating to the
Year 2000 Issue will be expensed as incurred. Management of the Company does not
believe such costs will have a material adverse impact to the Company's future
results of operation. However, there can be no guarantee that actual results
could differ materially from those anticipated. Factors that might cause
material differences include, but are not limited to, the availability and cost
of trained personnel and the ability to locate and correct all relevant computer
coding and all medical equipment affected.
As noted above, the Company is contacting its principal suppliers,
other vendors and payors, including Federal and State governments, Medicare
fiscal intermediaries, insurance companies and managed care companies,
concerning the status of their Year 2000 compliance. The Company is not aware at
this time whether those other systems are or will be Year 2000 compliant and is
unable to estimate at this time the impact on the Company if one or more of
those systems is not Year 2000 compliant. For the foregoing reasons, the Company
is not able to determine at this time whether the Year 2000 Computer Issue will
materially affect its future financial results or financial condition.
Forward-Looking Statements
Certain statements contained in this Form 10-K, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both nationally and in the
regions in which the Company operates; industry capacity; demographic changes;
existing governmental regulations and changes in, or the failure to comply with,
governmental regulations; legislative proposals for health care reform; the
ability to enter into managed care provider arrangements on acceptable terms;
changes in Medicare and Medicaid payment levels; liability and other claims
asserted against the Company; competition; the loss of any significant ability
to attract and retain qualified personnel, including physicians; the
availability and terms of capital to fund additional acquisitions or replacement
facilities. Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
results of any revision to any of the forward-looking statements contained
herein to reflect future events or developments.
24
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
----
Health Management Associates, Inc.
Consolidated Financial Statements:
Report of Independent Certified Public Accountants ......... 26
Consolidated Statements of Income -- for the years ended
September 30, 1998, 1997 and 1996 ........................ 27
Consolidated Balance Sheets --September 30, 1998 and 1997 .. 28
Consolidated Statements of Stockholders' Equity -- for the
years ended September 30, 1998, 1997 and 1996 ............ 30
Consolidated Statements of Cash Flows -- for the years
ended September 30, 1998, 1997 and 1996................... 31
Notes to Consolidated Financial Statements ................. 33
25
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Health Management Associates, Inc.
We have audited the accompanying consolidated balance sheets of
Health Management Associates, Inc. and subsidiaries as of September 30, 1998 and
1997 and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended September 30,
1998. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Health
Management Associates, Inc. and subsidiaries at September 30, 1998 and 1997 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Atlanta, Georgia
October 23, 1998
26
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------------------------
1998 1997 1996
--------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C>
Net patient service revenue ............ $1,138,802 $895,482 $714,317
Costs and expenses:
Salaries and benefits ................ 402,133 310,992 247,917
Supplies and other ................... 331,006 269,570 216,451
Provision for doubtful accounts ...... 98,258 76,894 64,763
Depreciation and amortization ........ 50,437 36,561 27,173
Rent expense ......................... 26,930 19,444 16,087
Interest, net ........................ 4,759 3,712 3,515
---------- --------- ---------
Total costs and expenses ......... 913,523 717,173 575,906
---------- --------- ---------
Income before income taxes ............. 225,279 178,309 138,411
Provision for income taxes ............. 88,435 69,987 54,325
---------- --------- ---------
Net income ............................. $ 136,844 $108,322 $ 84,086
========== ========= =========
Net income per share:
Basic .................................. $ .55 $ .44 $ .36
========== ========= =========
Diluted ................................ $ .54 $ .43 $ .34
========== ========= =========
Weighted average number of shares outstanding:
Basic .................................. 249,049 242,767 236,693
========== ========= =========
Diluted ................................ 255,575 249,130 244,045
========== ========= =========
</TABLE>
See accompanying notes.
27
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
------------------------------
1998 1997
-------------- ------------
(in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................... $ 12,685 $ 67,381
Accounts receivable, less allowance for doubtful
accounts of $77,800,000 and $44,055,000 in 1998
and 1997, respectively .......................... 219,162 125,829
Accounts receivable -- other ...................... 24,380 13,547
Supplies, at cost ................................. 24,425 15,597
Prepaid expenses and other assets ................. 8,558 5,992
Funds held by trustee ............................. 1,458 1,225
Deferred income taxes ............................. 18,039 13,039
---------- --------
Total current assets ........................... 308,707 242,610
Property, plant and equipment:
Land and improvements ............................. 33,104 17,993
Buildings and improvements ........................ 495,980 309,717
Leaseholds ........................................ 89,339 83,731
Equipment ......................................... 259,987 188,893
Construction in progress .......................... 47,546 13,418
---------- --------
925,956 613,752
Less accumulated depreciation and amortization .... 188,201 141,033
---------- --------
Net property, plant and equipment ............... 737,755 472,719
Funds held by trustee ............................... 3,932 944
Excess of cost over acquired net assets, net ........ 46,674 9,714
Deferred charges and other assets ................... 15,037 8,054
---------- --------
$1,112,105 $734,041
========== ========
</TABLE>
See accompanying notes.
28
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
------------------------------
1998 1997
------------ ------------
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Accounts payable ................................... $ 44,300 $ 33,943
Accrued interest ................................... 1,648 1,512
Accrued payroll and related taxes .................. 20,968 16,866
Accrued expenses and other liabilities ............. 20,056 19,075
Due to third party payors .......................... 14,844 6,480
Income taxes - currently payable and deferred ...... 10,186 3,221
Current maturities of long-term debt ............... 8,544 8,263
---------- --------
Total current liabilities ........................ 120,546 89,360
Deferred income taxes ................................ 39,603 18,699
Other long-term liabilities .......................... 17,878 16,112
Long-term debt ....................................... 134,217 49,650
Obligation under put option contracts ................ 43,036 -
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized ....................................... - -
Common stock, Class A, $.01 par value, 300,000,000
shares authorized, 251,558,000 and 244,058,000
shares issued and outstanding at
September 30, 1998 and 1997, respectively ........ 2,491 2,441
Additional paid-in-capital ......................... 241,677 181,966
Retained earnings .................................. 512,657 375,813
---------- --------
Total stockholders' equity ................... 756,825 560,220
---------- --------
$1,112,105 $734,041
========== =========
</TABLE>
See accompanying notes.
29
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
-------- ------------ -----------
(in thousands)
<S> <C> <C> <C>
Balance at September 30, 1995 ............ $ 2,334 $ 132,211 $ 183,405
Exercise of stock options ............ 44 9,424 -
Income tax benefit from exercise
of stock options ..................... - 6,235 -
Net income ........................... - - 84,086
-------- --------- ---------
Balance at September 30, 1996 ............ 2,378 147,870 267,491
Exercise of stock options ............ 63 16,097 -
Income tax benefit from exercise
of stock options ................... - 17,999 -
Net income ........................... - - 108,322
-------- --------- ---------
Balance at September 30, 1997 ............ 2,441 181,966 375,813
Exercise of stock options ............ 42 12,064 -
Income tax benefit from exercise
of stock options ................... - 8,601 -
Issuance of common stock for
acquisition ........................ 33 79,967 -
Proceeds from sale of
equity put options ................. - 2,090 -
Reclassification of put
option obligation .................. (25) (43,011) -
Net income ........................... - - 136,844
--------- --------- ---------
Balance at September 30, 1998 ............ $ 2,491 $ 241,677 $ 512,657
========= ========= =========
</TABLE>
See accompanying notes.
30
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------------------
1998 1997 1996
--------- ------------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................... $136,844 $108,322 $ 84,086
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization ... 50,437 36,561 27,173
Loss (gain) on sale of fixed
assets ........................ 14 (92) 211
(Decrease) increase in deferred
income taxes .................. (2,914) (400) 700
Changes in assets and liabilities,
net of effects of acquisitions
and dispositions:
Accounts receivable ......... (63,382) (12,648) (19,898)
Supplies .................... (3,029) (2,372) (1,492)
Prepaid expenses and
other assets .............. (567) (478) 421
Deferred charges and
other assets .............. (3,706) (3,302) (7,034)
Accounts payable ............ 5,182 2,425 3,370
Accrued payroll, interest and
other liabilities ......... (4,658) 4,938 737
Income taxes -- currently
payable ................... 1,965 (1,459) 3,321
Other long-term liabilities . 1,765 841 2,974
------- ------- -------
Net cash provided by
operating activities ................ 117,951 132,336 94,569
------- ------- -------
Cash flows from investing activities:
Acquisition of facilities, net of
cash acquired ..................... (169,484) (51,467) (99,639)
Additions to property, plant
and equipment ..................... (67,931) (59,349) (41,239)
Proceeds from sale of assets ........ 4,047 388 27
------- ------- -------
Net cash used in investing
activities .......................... (233,368) (110,428) (140,851)
-------- -------- --------
</TABLE>
See accompanying notes.
31
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------------
1998 1997 1996
------------ --------------- ----------
(in thousands)
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from long-term borrowings .. $ 80,996 $ 520 $ 708
Principal payments on debt .......... (39,850) (20,621) (7,187)
Proceeds from issuance of common
stock ............................. 20,706 34,159 9,468
Proceeds from sale of equity
put options ..................... 2,090 - -
(Increase) decease in funds
held by trustee ................... (3,221) 243 (861)
-------- ------- --------
Net cash provided by
financing activities ................ 60,721 14,301 2,128
-------- ------- --------
Net (decrease) increase in cash ....... (54,696) 36,209 (44,154)
Cash and cash equivalents at
beginning of year .................. 67,381 31,172 75,326
-------- ------- --------
Cash and cash equivalents at
end of year ........................ $ 12,685 $ 67,381 $ 31,172
======== ======== ========
Supplemental schedule of noncash
investing and financing activities:
Fair value of assets acquired
(including cash) ................ $288,903 $ 57,896 $116,588
Consideration: Cash paid .......... 169,484 51,467 99,639
Stock issued........ 80,000 - -
-------- -------- --------
Liabilities assumed ............... $ 39,419 $ 6,429 $ 16,949
======== ======== ========
</TABLE>
See notes 3, 4 and 5 for additional cash flow information.
See accompanying notes.
32
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and summary of significant accounting policies
Health Management Associates, Inc. ("the Company"), through its
subsidiary companies, substantially all of which are wholly-owned, provides
health care services to patients in owned and leased facilities and provides
management services under contracts to other health care organizations in the
southeast and southwest United States. The Company consistently applies the
following significant accounting policies:
a. Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. The Company has a 30-year management agreement
with a hospital which commenced in January 1997. Since the agreement provides
that the Company exercise complete control over the operations of the hospital,
and bears the risks and rewards of ownership, the financial results of the
hospital have been included in the accompanying consolidated statements of
income since the commencement date of the agreement. All significant
intercompany accounts and transactions have been eliminated.
b. Cash equivalents
The Company considers all highly liquid investments purchased with a
maturity of less than three months to be cash equivalents. The Company's cash
equivalents consist principally of investment grade instruments which are tax
exempt or qualify for dividend exclusion.
c. Property, plant and equipment
Property, plant and equipment are carried at cost and include major
expenditures which increase their values or extend their useful lives.
Depreciation and amortization are computed using the straight line method based
on estimated useful lives. Estimated useful lives for buildings and improvements
are twenty to forty years and for equipment are three to ten years. Leaseholds
are amortized on a straight-line basis over the terms of the respective leases.
d. Excess of cost over acquired net assets, net and deferred charges
and other assets
Goodwill is being amortized on a straight-line basis ranging from
three to thirty years. Deferred charges and other assets consist principally of
deferred financing costs and certain non-productive assets held for sale. The
financing costs are being amortized over the life of the related debt (see Note
3).
e. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
f. Net patient service revenue
Approximately 59%, 66% and 65% of gross patient service revenue for
the years ended September 30, 1998, 1997 and 1996, respectively, relates to
services rendered to patients covered by Medicare and Medicaid programs.
Payments for services rendered to patients covered by these programs are
generally less than billed charges. Provisions for contractual adjustments are
made to reduce the
33
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
charges to these patients to estimated receipts based upon the programs'
principles of payment/reimbursement (either prospectively determined or
retrospectively determined costs). Final settlements under these programs are
subject to administrative review and audit, and provision is currently made for
adjustments which may result.
Net patient service revenue is presented net of provisions for
contractual adjustments and other allowances of $1.391 billion, $1.039 billion
and $803 million in 1998, 1997 and 1996, respectively, in the accompanying
consolidated statements of income. In the ordinary course of business the
Company renders services in its facilities to patients who are financially
unable to pay for the hospital care. The value of these services to patients who
are unable to pay is not material to the Company's consolidated results of
operations.
g. Income taxes
Deferred income taxes at September 30, 1998 and 1997 relate
principally to differences in the recognition of certain income and expense
items for income tax and financial reporting purposes (see Note 5).
h. Net income per share
Net income per share is based on the weighted average number of
common and common equivalent shares (stock options) outstanding during the
periods presented (see Note 7).
i. Reclassifications
Certain amounts have been reclassified in prior years to conform with
the current year presentation.
2. Acquisitions and dispositions
During 1998 the Company acquired certain assets of six hospitals
through various acquisition and long-term lease agreements for consideration
totaling $287.9 million, which included $168.5 million in cash, $80.0 million in
Company stock, and the assumption of $39.4 million in long-term debt. During
1997 the Company acquired certain assets of two hospitals through one long-term
lease agreement and one long-term management agreement for consideration
totaling $57.9 million, including $51.5 million in cash. During 1996 the Company
acquired certain assets of two hospitals through long-term lease agreements for
consideration totaling $116.6 million, including $99.7 million in cash.
The operating results of the foregoing hospitals have been included
in the accompanying consolidated statements of income from the respective dates
of acquisition. The following unaudited pro forma combined summary of operations
of the Company for each of the three years ended September 30, 1998 give effect
to the operation of the hospitals purchased in 1998, 1997 and 1996 as if the
acquisitions had occurred as of October 1, 1996, 1995 and 1994, respectively:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- -------
(In millions, except per share data)
<S> <C> <C> <C>
Net patient service revenue...... $1,215.4 $1,125.4 $ 828.4
Net income ...................... $ 137.9 $ 112.3 $ 86.0
Net income per share - Basic..... $ .55 $ .46 $ .36
Net income per share - Diluted .. $ .54 $ .45 $ .35
</TABLE>
34
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Long-term debt
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
----------------------
1998 1997
---------- --------
(in thousands)
<S> <C> <C>
Revolving Credit Agreements (a) .................... $ 50,000 $ -
Industrial Revenue Bond Issues (b) ................. 6,580 6,860
Mortgage notes, secured by real and
personal property (c) .............................. 69,987 36,102
Various mortgage and installment notes and
debentures, some secured by equipment,
at interest rates ranging from 6% to
prime plus 1%, payable through 2005 ............... 5,800 8,063
Capitalized lease obligations (see Note 4) ......... 10,394 6,888
-------- -------
142,761 57,913
Less current maturities ............................ 8,544 8,263
-------- --------
$134,217 $ 49,650
======== ========
</TABLE>
a. Revolving Credit Agreements
In December 1994 the Company executed a $300 million Amended and
Restated Credit Agreement ("Credit Agreement"). The Company may choose the prime
rate of interest, a fixed certificate of deposit interest rate of the Agent bank
or a LIBOR interest rate. Under any of the interest alternatives, quarterly
interest payments are required.
The Credit Agreement is a revolving and term loan agreement which
permits the Company to borrow under an unsecured revolving credit loan at any
time through November 30, 1999, at which time the agreement terminates and all
outstanding revolving credit loans become due and payable. The Company also has
a $10 million unsecured revolving credit commitment with a bank. The $10 million
credit is a working capital commitment which is tied to the Company's cash
management system, and renews annually on November 1. Currently, interest on any
outstanding balance is payable monthly at a fluctuating rate not to exceed the
bank's prime rate less 1/4%.
In addition, the Company is obligated to pay certain commitment fees
based upon amounts borrowed and available for borrowing during the terms of the
credit agreements described above.
The credit agreements contain covenants which, without prior consent
of the Banks, limit certain activities, including those relating to mergers,
consolidations and the Company's ability to secure indebtedness, make
guarantees, grant security interests and declare dividends. The Company must
also maintain minimum levels of consolidated tangible net worth, debt service
coverage, liabilities to net worth, current assets to current liabilities and
working capital.
35
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Long-term debt (Continued)
b. Industrial Revenue Bond Issues
The Company has one Industrial Revenue Bond issue outstanding at
September 30, 1998 and 1997, which is secured by all real and personal property
of the facility with aggregate net book value of $11.7 million and $12.3
million, respectively, and a pledge of the stock of the subsidiary owning the
facility; payment of principal and interest is unconditionally guaranteed by the
Company. The bonds are serial bonds with maturities and rates ranging from
September 1, 2005 to September 1, 2011 and 8.5% to 8.75%, respectively. The
Company makes monthly sinking-fund payments in amounts sufficient to cover
principal and interest payment requirements.
c. Mortgage Notes
At September 30, 1998 the Company has four mortgage notes which are
secured by all the real and personal property related to five facilities with a
net book value of $113.5 million.
The notes are payable in various installments with maturity dates
ranging from 1999 through 2005 and carry interest rates ranging from prime to
11.5%. The Company has entered into an interest rate swap agreement to reduce
the impact of changes in interest rates on its $30.0 million floating rate
mortgage loan. This agreement effectively fixes the interest rate on the loan at
7.13%.
Maturities of long-term debt for the next five years are as follows
(in thousands):
1999 $ 8,544
2000 66,293
2001 3,931
2002 13,869
2003 1,980
Thereafter 48,144
The Company paid interest of $8.6 million, $6.6 million and $7.0
million for the years ended September 30, 1998, 1997 and 1996, respectively.
Capitalized interest totaled $1.3 million and $.5 million for the years ended
September 30, 1998 and 1997, respectively.
36
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Leases
The Company leases real estate properties, equipment and vehicles
under cancelable and non-cancelable leases. Future minimum operating and capital
lease payments, including amounts relating to leased hospitals, are as follows
at September 30, 1998 (in thousands):
<TABLE>
<CAPTION>
Operating Capital
------------------------- ---------------
Real
Real Property and
September 30, Property Equipment Equipment Total
- ------------- ---------- ----------- -------------- --------
<S> <C> <C> <C> <C>
1999 ........................... $ 4,137 $ 9,620 $ 2,894 $16,651
2000 ........................... 2,686 7,833 1,748 12,267
2001 ........................... 2,516 5,966 811 9,293
2002 ........................... 2,185 3,522 655 6,362
2003 ........................... 1,659 1,896 648 4,203
Thereafter ..................... 21,020 561 13,475 35,056
------- ------- ------ -------
Total minimum payments ......... $34,203 $29,398 20,231 $83,832
======= ======= =======
Less amounts
representing interest ........ 9,837
-------
Present value of
minimum lease
payments ..................... $10,394
=======
</TABLE>
The following summarizes amounts related to equipment leased by the
Company under capital leases (in thousands):
<TABLE>
<CAPTION> September 30,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Equipment ........................ $8,762 $7,999
Accumulated amortization ......... 5,725 3,677
Net book value ................... $3,037 $4,322
</TABLE>
The Company entered into capitalized leases of $.1 million, $.8
million and $4.4 million for the years ended September 30, 1998, 1997 and 1996,
respectively.
37
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Income taxes
The significant components of the provision for income taxes are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------------------------
1998 1997 1996
---------- ------------ ----------
<S> <C> <C> <C>
Federal:
Current ............................. $80,086 $63,957 $51,506
Deferred:
Current ........................... (3,752) 90 (4,797)
Non-current ....................... (324) (229) 940
------- ------- -------
Total Federal ................... 76,010 63,818 47,649
State:
Current and deferred ................ 12,425 6,169 6,676
------- ------- -------
Total ............................ $88,435 $69,987 $54,325
======= ======= =======
</TABLE>
An analysis of the Company's effective income tax rates is as
follows:
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------------------------------------------
1998 1997 1996
-------------------- ---------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Statutory income
tax rate ............... $78,848 35.0% $62,408 35.0% $48,444 35.0%
State income taxes, net
of Federal benefit ..... 8,076 3.6 4,010 2.2 4,339 3.1
Other items (each less
than 5% of computed
tax) ................... 1,511 .7 3,569 2.1 1,542 1.2
------- ------ ------- ----- ------- -----
Total ................ $88,435 39.3% $69,987 39.3% $54,325 39.3%
======= ====== ======= ===== ======= =====
</TABLE>
38
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Income taxes (continued)
The tax effects of temporary differences that give rise to significant portions
of the Federal and state deferred income tax assets and liabilities are
comprised of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Deferred income tax liabilities:
Depreciable assets $48,020 $25,238
Deferred income tax assets:
Self insurance liability risks 4,135 4,209
Allowance for doubtful accounts 17,136 10,361
Cash basis method of accounting 5,185 5,008
-------- -------
26,456 19,578
Valuation allowance for
deferred income tax assets - -
-------- -------
Net deferred income tax assets 26,456 19,578
-------- -------
Net deferred income tax liabilities $21,564 $ 5,660
======== =======
</TABLE>
Income taxes paid (net of refunds) amounted to $77.8 million,$53.8
million, and $47.9 million for the years ended September 30, 1998, 1997 and
1996, respectively.
6. Retirement plan
The Company has a defined contribution retirement plan which covers
all eligible employees at its hospitals and the corporate office. This plan
includes a provision for the Company to match a portion of employee
contributions. Total retirement program expense was $3.2 million, $2.4 million
and $2.1 million for the years ended September 30, 1998, 1997 and 1996,
respectively.
7. Earnings per share
In 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Statement 128
replaced the previously reported 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. All earnings per share
amounts for all periods have been presented, and where necessary restated to
conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
39
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Earnings Per Share (continued)
<TABLE>
<CAPTION>
Year ended
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income $136,844 $108,322 $ 84,086
======== ======== ========
Denominator:
Denominator for basic earnings
per share-weighted average shares 249,049 242,767 236,693
Effect of dilutive securities-
employee stock options 6,526 6,363 7,352
-------- -------- --------
Denominator for diluted
earnings per share 255,575 249,130 244,045
======== ======== ========
Basic earnings per share $ .55 $ .44 $ .36
======== ======== ========
Diluted earnings per share $ .54 $ .43 $ .34
======== ======== ========
</TABLE>
During 1998 the Company paid two three-for-two stock splits, each in
the form of 50% stock dividends to its shareholders. All share and per share
data in the accompanying consolidated financial statements and footnotes have
been restated for all years to reflect the effect of the stock splits.
8. Stockholders' equity
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25, since
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. Pro forma disclosure of alternative fair value accounting is then
required under FASB Statement No. 123, "Accounting for Stock-Based Compensation"
(Statement 123), utilizing an option valuation model.
The Company has a 1991 Stock Option Plan, a 1993 Stock Option Plan
and a 1996 Executive Incentive Compensation Plan for the granting of options to
key employees of the Company. All options granted have 10 year terms and vest
and become fully exercisable at the end of either 3 or 4 years of continued
employment.
40
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' equity (continued)
Pertinent information covering the plans is summarized below:
<TABLE>
<CAPTION>
Price Weighted
Shares Range Average Price
-------- -------------- --------------
(in thousands)
<S> <C> <C> <C>
Balance at September 30, 1995 19,580 $ 1.24 -$ 5.16 $ 3.08
Granted 2,820 8.33 - 10.33 9.84
Exercised (3,947) 1.24 - 5.16 2.18
Terminated (130) 2.07 - 10.33 4.84
------
Balance at September 30, 1996 18,323 1.24 - 5.16 4.30
Granted 7,263 12.72 12.72
Exercised (5,783) 1.24 - 10.33 2.93
Terminated (41) 4.49 - 12.72 9.98
------
Balance at September 30, 1997 19,762 1.24 - 10.33 3.58
Granted 1,690 21.63 21.63
Exercised (2,237) 1.24 - 12.72 4.89
Terminated (838) 5.16 - 21.63 9.84
------
Balance at September 30, 1998 18,377 1.24 - 21.63 8.36
======
Exercisable at
September 30, 1998 11,318
======
</TABLE>
The following table summarizes information concerning currently
outstanding and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------- ----------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.24-$10.50 9,812,000 5.1 $ 4.84 9,019,000 $ 4.42
$12.72-$21.63 8,565,000 9.0 $14.34 2,299,000 $12.72
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1995 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 1998 and 1997: risk-free interest rate of 5.78% and 6.36%; no
dividend yields; volatility factor of the expected market price of the Company's
common stock of .342 and .350; and weighted average expected lives of the
options of 7 and 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully
41
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Stockholders' equity (continued)
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except per share data):
1998 1997
--------- ---------
Pro forma net income $ 132,112 $ 98,627
Pro forma earnings per share:
Basic $ .53 $ .41
Diluted $ .52 $ .40
At September 30, 1998 there were approximately 5,458,000 shares of
common stock reserved for future issuance under the plans. In addition, the
Company has granted options for shares of Class A Common Stock to four
non-employee directors. At September 30, 1998 there were approximately 155,000
options outstanding at $1.24 to $21.63 per share, expiring in 2001 through 2008.
The Company also has a Stock Incentive Plan for corporate officers
and management staff. This plan provides for the awarding of additional
compensation to key personnel in the form of Company stock. The stock will be
issued to the grantee four years after the date of grant, provided the
individual is still an employee of the Company. At September 30, 1998 there were
approximately 565,000 shares reserved under the plan, for which the Company has
recorded approximately $1,200,000 of compensation expense for each of the three
years in the period ended September 30, 1998.
In February 1998 the Board of Directors approved a stock repurchase
program. In connection with the program, put options were sold to an independent
third party in September 1998. Proceeds of $2,090,000 from the issuance of the
put options were accounted for as additional paid-in-capital. Each put option
entitles the holder to sell one share of the Company's common stock to the
Company at a price of $17.50 per share. At September 30, 1998 2,459,000 put
options were outstanding, which are exercisable only at maturity and expire at
various dates from November 1998 to December 1998. The potential repurchase
obligation of $43,036,000 has been reclassified from stockholders' equity to a
liability as of September 30, 1998. Subsequent to year end, the liability was
eliminated in connection with the expiration of the put options.
9. Professional and liability risks
The Company has a layered self-insurance program with a major
insurance carrier for its professional liability risks. An umbrella policy
provides $35 million of coverage in excess of an underlying limit of $4 million
depending upon layer structures and the dollar amounts of claims settled.
42
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Professional and liability risks (continued)
Accruals for self-insured professional liability risks are determined
using asserted and unasserted claims identified by the Company's incident
reporting system and actuarially determined estimates based on Company and
industry historical loss payment patterns. Although the ultimate settlement of
these accruals may vary from these estimates, management believes that the
amounts provided in the Company's consolidated financial statements are
adequate.
10. Commitments
The Company has a number of hospital renovation/expansion projects
underway at September 30, 1998. In addition, the Company plans to replace four
of its existing hospitals over the next two years. At September 30, 1998 there
were hospital renovation and expansion commitments of approximately $156.7
million outstanding, of which approximately $40.8 million was paid at September
30, 1998.
11. Quarterly data (unaudited)
For the two years ended September 30, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter
1st 2nd 3rd 4th Total
1998 -------- -------- --------- -------- ----------
- ----------
<S> <C> <C> <C> <C> <C>
Net patient
service revenue...... $234,570 $302,922 $302,150 $299,160 $1,138,802
Income before income
taxes................ 40,885 66,663 63,628 54,103 225,279
Net income............. 24,837 40,498 38,655 32,854 136,844
Net income per share:
Basic............ $ .10 $ .16 $ .15 $ .13 $ .55
Diluted.......... $ .10 $ .16 $ .15 $ .13 $ .54
Weighted average number of shares:
Basic............ 244,829 249,157 250,871 251,371 249,049
Diluted.......... 251,135 255,453 257,882 258,295 255,575
<CAPTION>
1997
- ----------
<S> <C> <C> <C> <C> <C>
Net patient
service revenue...... $199,162 $237,792 $232,691 $225,837 $ 895,482
Income before income
taxes................ 32,722 52,577 51,030 41,980 178,309
Net income............. 19,877 31,942 31,001 25,502 108,322
Net income per share:
Basic............ $ .08 $ .13 $ .13 $ .10 $ .44
Diluted.......... $ .08 $ .13 $ .12 $ .10 $ .43
Weighted average number of shares:
Basic............ 238,520 240,620 242,823 243,901 242,767
Diluted.......... 245,430 247,262 248,703 250,079 249,130
</TABLE>
43
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is (i) incorporated herein by
reference to the Company's proxy statement to be issued in connection with the
Annual Meeting of Stockholders of the Company to be held on February 16, 1999
under "Election of Directors", which proxy statement will be filed within 120
days after the end of the Company's fiscal year and (ii) set forth under
"Executive Officers of the Registrant" in Part I of this Report.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of the Stockholders of the Company to be held on February 16, 1999 under
"Executive Compensation", which proxy statement will be filed within 120 days
after the end of the Company's fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on February 16, 1999 under
"Security Ownership of Certain Beneficial Owners and Management", which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on February 16, 1999 under
"Certain Transactions", which proxy statement will be filed within 120 days
after the end of the Company's fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
Item 14(a)(1), 14(a)(2) and 14(d):
The following financial statement schedule is filed as part of this Report
at page 46 hereof:
Schedule II - Valuation and Qualifying Accounts
44
<PAGE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
Item 14(a)(3) and 14(c): See Index to Exhibits.
Item 14(b):
During the last quarter of the fiscal year ended September 30, 1998,
the Registrant did not file a Current Report on Form 8-K.
45
<PAGE>
HEALTH MANAGEMENT ASSOCIATES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands of dollars)
<TABLE>
<CAPTION>
Balance at Acquisitions Charged Balance at
Beginning of and Charges to to other End of
Period Dispositions Operations(a) Accounts Deductions(b) Period
------------ ------------ ------------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Year ended September 30, 1996
Allowance for doubtful
accounts.................. $28,334 $19,107 $64,763 $ - $ 58,079 $54,125
======= ======= ======= ======== ======== =======
Year ended September 30, 1997
Allowance for doubtful
accounts.................. $54,125 $ 2,831 $90,301 $ - $103,202 $44,055
======= ======= ======= ======== ======== =======
Year ended September 30, 1998
Allowance for doubtful
accounts.................. $44,055 $16,388 $119,797 $ - $102,440 $77,800
======= ======= ======== ======== ======== =======
</TABLE>
- ----------------------
(a) Charges to operations include amounts related to provisions for
doubtful accounts, before recoveries.
(b) Includes amounts written-off as uncollectible.
46
<PAGE>
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.
HEALTH MANAGEMENT ASSOCIATES, INC.
By /s/ William J. Schoen Chairman of the Board
- ------------------------------- and Chief Executive Officer December 15, 1998
William J. Schoen
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 in the capacities and on the dates indicated:
/s/ William J. Schoen Chairman of the Board
- ------------------------------- and Chief Executive Officer December 15, 1998
William J. Schoen
(Principal Executive
Officer)
/s/ Stephen M. Ray Senior Vice President -
- ------------------------------- Finance
Stephen M. Ray (Principal Financial December 15, 1998
Officer and Principal
Accounting Officer)
/s/ Kent P. Dauten
- -------------------------------
Kent P. Dauten Director December 15, 1998
/s/ Robert A. Knox
- -------------------------------
Robert A. Knox Director December 15, 1998
/s/ Charles R. Lees
- -------------------------------
Charles R. Lees Director December 15, 1998
- -------------------------------
Kenneth D. Lewis Director December 15, 1998
/s/ William E. Mayberry, M.D.
- -------------------------------
William E. Mayberry, M.D. Director December 15, 1998
47
<PAGE>
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
Not applicable.
(3) (i) Articles of incorporation
3.1(i) Fifth Restated Certificate of Incorporation. (Exhibit 3.1)
3.2(r) Certificate of Amendment to Fifth Restated Certificate of
Incorporation. (Exhibit 4.5)
(ii) By-laws
3.3(l) By-laws, as amended. (Exhibit 3.2)
(4) Instruments defining rights of security holders, including indentures
The Exhibits referenced under (3) of this Index to Exhibits are incorporated
herein by reference.
4.1(f) Specimen Stock Certificate. (Exhibit 4.11)
4.2(h) Fourth Amended and Restated Credit and
Reimbursement Agreement among the Company and NationsBank
of Florida National Association and the Banks named
therein, dated December 1, 1994. (Exhibit 4.12)
4.3(o) Credit Agreement dated May 6, 1996 between First Union
National Bank of Florida and the Company pertaining to a
$10 million working capital and cash management line of
credit. (Exhibit 4.3 )
4.4(q) Amendment Agreement No. 1 to Fourth Amended and Restated
Revolving Credit and Reimbursement Agreement made as of
September 30, 1996. (Exhibit 4.1)
(9) Voting Trust Agreement
Not applicable.
(10) Material Contracts
The Exhibits referenced under (4) of this Index to Exhibits are incorporated
herein by reference.
10.1(i) First Amended and Restated Lease Agreement, dated as of January 1,
1995 between The Board of Commissioners of the Highlands County
Hospital District and Sebring Hospital Management Associates, Inc.
(Exhibit 10.1)
10.2(c) Lease dated as of July 1, 1986 between Fishermen's Hospital, Inc. and
Marathon H.M.A., Inc. (Exhibit 28.1)
10.3(e) First Amendment of the July 1, 1986 Lease Agreement by and between
Fishermen's Hospital, Inc. and Marathon H.M.A., Inc. dated December
18, 1991. (Exhibit 28.1)
10.4(a) Lease Agreement dated January 12, 1990 between Biloxi Regional
Medical Center, Inc. and Biloxi H.M.A., Inc. (Exhibit 10.54)
10.5(g) Lease Agreement between Heart of Florida Hospital Association, Inc.,
Haines City HMA, Inc. and the Company, dated April 30, 1993. (Exhibit
10.49)
48
<PAGE>
10.6(f) Amended and Restated Employment Agreement dated December 15, 1992
between Health Management Associates, Inc. and William J. Schoen.
(Exhibit 10.46.
10.7(d) Health Management Associates, Inc. Stock Incentive Plan for Corporate
Officers and Management Staff. (Exhibit 10.56)
10.8(i) Amendment No. 1 to the Health Management Associates, Inc. Stock
Incentive Plan for Corporate Officers and Management Staff. (Exhibit
10.2)
10.9(g) Health Management Associates, Inc. Supplemental Executive Retirement
Plan, dated July 12, 1990. (Exhibit 10.22)
10.10(h) First Amendment to the Health Management Associates, Inc.
Supplemental Executive Retirement Plan, dated January 1, 1994.
(Exhibit 10.51)
10.11(a) Registration Agreement dated September 2, 1988 between HMA
Holding Corp., First Chicago Investment Corporation, Madison
Dearborn Partners IV, Prudential Venture Partners, Prudential
Venture Partners II, William J. Schoen, Kelly E. Curry, Stephen
M. Ray, Robb L. Smith, George A. Taylor and Earl P. Holland.
(Exhibit 10.23)
10.12(b) Health Management Associates, Inc. 1991 Non-Statutory Stock
Option Plan. (Exhibit 10.67)
10.13(f) Amendment No. 1 and Amendment No. 2 to the Health Management
Associates, Inc. 1991 Non-Statutory Stock Option Plan. (Exhibit
10.44)
10.14(f) Health Management Associates, Inc. 1993 Non-Statutory Stock
Option Plan. (Exhibit 10.45)
10.15(i) Health Management Associates, Inc. Stock Option Plan for Outside
Directors. (Exhibit 10.5)
10.16(f) Stock Option Agreement, dated May 14, 1992, between the Company
and Charles R. Lees. (Exhibit 10.42)
10.17(g) Stock Option Agreement, dated May 18, 1993, between the Company
and Charles R. Lees. (Exhibit 10.48)
10.18(h) Stock Option Agreement dated May 20, 1994, between the Company
and Charles R. Lees. (Exhibit 10.52)
10.19(h) Stock Option Agreement dated May 17, 1994, between the Company
and Kenneth D. Lewis. (Exhibit 10.53)
10.20(j) Amendment No. 5 to the Health Management Associates, Inc. 1991
Non-Statutory Stock Option Plan. (Exhibit 10.57)
10.21(j) Amendment No. 3 to the Health Management Associates, Inc. 1993
Non-Statutory Stock Option Plan. (Exhibit 10.58)
10.22(j) Amendment No. 1 to the Health Management Associates, Inc. Stock
Option Plan for Outside Directors. (Exhibit 10.59)
10.23(l) Lease Agreement dated as of December 28, 1995 among Coahoma
County, Mississippi, Clarksdale HMA, Inc. and the Company.
(Exhibit 10.1)
10.24(n) Lease Agreement dated May 21, 1996 among Midwest City Memorial
Hospital Authority, an Oklahoma Public Trust, and Midwest City
HMA, Inc. and Health Management Associates, Inc. (Exhibit 2.1)
49
<PAGE>
10.25(l) Amendment No. 6 to the Health Management Associates, Inc. 1991 Non-
Statutory Stock Option Plan. (Exhibit 10.2)
10.26(l) Amendment No. 7 to the Health Management Associates, Inc. 1991 Non-
Statutory Stock Option Plan. (Exhibit 10.3)
10.27(l) Amendment No. 4 to the Health Management Associates, Inc. 1993 Non-
Statutory Stock Option Plan. (Exhibit 10.4)
10.28(l) Amendment No. 5 to the Health Management Associates, Inc. 1993 Non-
Statutory Stock Option Plan. (Exhibit 10.5)
10.29(k) Health Management Associates, Inc. 1996 Executive Incentive
Compensation Plan. (Exhibit 99.15)
10.30(m) Amendment No. 1 to the Health Management Associates, Inc. 1996
Executive Incentive Compensation Plan. (Exhibit 10.1)
10.31(o) Second Amendment to the Health Management Associates, Inc.
Supplemental Executive Retirement Plan, dated September 17, 1996.
(Exhibit 10.64)
10.32(p) Hospital Management Agreement by and between Anniston HMA, Inc. and
the Trust created under the last will and testament of Susie P.
Stringfellow, entered into on January 24, 1997. (Exhibit 10.1)
10.33(s) Asset Purchase Agreement dated as of October 17, 1997 among Little
Rock HMA, Inc., St. Louis-Little Rock Hospitals, Inc. and Safecare
Company, Inc. (Exhibit 10.1)
10.34(t) Agreement of Merger and Plan of Reorganization dated as of October
27, 1997, as amended and restated as of December 11, 1997, among
Health Management Associates, Inc., HMA-RO Acquisition Corp. and
River Oaks Hospital, Inc. (Exhibit 10.1)
10.35(t) Asset Purchase Agreement dated as of January 7, 1998 among Riley
Development Systems, Inc., Meridian HMA, Inc. and Meridian HMA
Nursing Home, Inc. (Exhibit 10.2)
10.36(u) Definitive Agreement dated March 12, 1998 and Amendment to Definitive
Agreement between Regional Healthcare, Inc., Hernando Healthcare,
Inc., Spring Hill Regional Hospital, Inc., Hernando County, Florida
and Health Management Associates, Inc. (Exhibit 10.1)
10.37(u) Lease Agreement made as of June 1, 1998 between Hernando County,
Florida and Hernando HMA, Inc. (Exhibit 10.2)
(11) Statement re computation of per share earnings
Not applicable.
(12) Statements re computation of ratios
Not applicable.
(13) Annual report to security holders, Form 10-Q or quarterly report to
security holders
Not applicable.
(16) Letter re change in certifying accountant
Not applicable.
50
<PAGE>
(18) Letter re change in accounting principles
Not applicable.
(21) Subsidiaries of the registrant
21.1 Subsidiaries of the registrant are listed on Exhibit 21.1 included herein
at page 53 of this Report.
(22) Published report regarding matters submitted to vote of security holders
None.
(23) Consents of experts and counsel
23.1 Consents of Ernst & Young LLP are filed as part of this Report as
23.2 Exhibits 23.1, 23.2 and 23.3 at pages 54-56 hereof.
23.3
(24) Power of Attorney
Not applicable.
(27) Financial Data Schedule
27.1 Financial Data Schedule is filed as part of this Report as Exhibit
27.1 at page 57 hereof.
(99) Additional Exhibits
None.
- ------------------------------
(a) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Registration Statement on Form S-1
(Registration No. 33-36406). The exhibit number contained in
parenthesis refers to the exhibit number in such Registra tion
Statement.
(b) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Registration Statement on Form S-1
(Registration No. 33-43193). The exhibit number contained in
parenthesis refers to the exhibit number in such Registra tion
Statement.
(c) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Current Report on Form 8-K dated July 1,
1986. The exhibit number contained in parenthesis refers to the
exhibit number in such Form 8-K.
(d) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-Q.
(e) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1991. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-Q.
(f) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1992. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-K.
(g) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1993. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-K.
51
<PAGE>
(h) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-K.
(i) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-Q.
(j) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-K.
(k) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Registration Statement on Form S-8
(Registration No. 33-80433). The exhibit number contained in
parenthesis refers to the exhibit number in such Registra tion
Statement.
(l) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-Q.
(m) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-Q.
(n) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Current Report on Form 8-K dated June 10,
1996. The exhibit number contained in parenthesis refers to the
exhibit number in such Form 8-K.
(o) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-K.
(p) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-Q.
(q) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-Q.
(r) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1997. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-K.
(s) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1997. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-Q.
(t) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-Q.
(u) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-Q.
52
<PAGE>
EXHIBIT 21.1
Subsidiaries of Registrant
--------------------------
Subsidiary
- ----------
Hospital Management Associates, Inc., a Kentucky Corporation
Health ManagementAssociates, Inc., a Kentucky Corporation
Sebring Hospital Management Associates,Inc., a Florida Corporation
Mooresville Hospital Management Associates, Inc., a North Carolina Corporation
Marathon HMA, Inc., a Florida Corporation
Louisburg HMA, Inc., a North Carolina Corporation
Orlando HMA, Inc., a Florida Corporation
Biloxi HMA, Inc., a Mississippi Corporation
Health Management Investments, Inc.,a Delaware Corporation
Gaffney HMA, Inc., a South Carolina Corporation
Durant HMA, Inc., an Oklahoma Corporation
Van Buren HMA, Inc., an Arkansas Corporation
Hamlet HMA, Inc., a North Carolina Corporation
Health Management Associates of West Virginia, Inc., a West Virginia Corporation
Paintsville Hospital Company, a Kentucky Corporation
Coffee Hospital Management Associates, Inc., a Tennessee Corporation
Riverview Regional Medical Center, Inc., an Alabama Corporation
Topeka HMA, Inc., a Kansas Corporation
Haines City HMA, Inc., a Florida Corporation
Natchez Community Hospital, Inc. a Mississippi Corporation
Sebastian Hospital, Inc., a Florida Corporation
Punta Gorda HMA, Inc., a Florida Corporation
Hartsville HMA, Inc., a South Carolina Corporation
Statesboro HMA, Inc., a Georgia Corporation
Clarksdale HMA, Inc., a Mississippi Corporation
Midwest City HMA, Inc., an Oklahoma Corporation
Brandon HMA, Inc., a Mississippi Corporation
Anniston HMA, Inc., an Alabama Corporation
Little Rock HMA, Inc., an Arkansas Corporation
Meridian HMA, Inc., a Mississippi Corporation
Meridian HMA Nursing Home, Inc., a Mississippi Corporation
River Oaks Hospital, Inc., a Mississippi Corporation
ROH, Inc., a Mississippi Corporation
River Oaks Management Company, a Mississippi Corporation
Hernando HMA, Inc., a Florida Corporation
53
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8 Nos. 33-43290, 33-65380 and 33-65382) of Health
Management Associates, Inc. of our report dated October 23, 1998, with
respect to the consolidated financial statements and schedule of Health
Management Associates, Inc. included in the Annual Report (Form 10-K)
for the year ended September 30, 1998.
ERNST & YOUNG LLP
Atlanta, Georgia
December 18, 1998
54
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amend ment No. 1
to the Registration Statement (Form S-3 No. 333-46707) of Health Management
Associates, Inc. and in the related Prospectus of our report dated October 23,
1998, with respect to the consolidated financial statements and schedule of
Health management Associates, Inc. included in the annual Report (Form 10-K) for
the year ended September 30, 1998.
ERNST & YOUNG LLP
Atlanta, Georgia
December 18, 1998
55
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-4 No. 333-41953) of Health Management Associates, Inc. and in the related
Prospectus of our report dated October 23, 1998, with respect to the
consolidated financial statements and schedule of Health Management Associates,
Inc. included in the Annual Report (Form 10-K) for the year ended September 30,
1998.
ERNST & YOUNG LLP
Atlanta, Georgia
December 18, 1998
56
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